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As filed with the Securities and Exchange Commission on March 30, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________to___________
Commission File Number: 0-26430
TARRANT APPAREL GROUP
(Exact name of registrant as specified in its charter)
California 95-4181026
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3151 East Washington Boulevard
Los Angeles, California 90023
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code): (323) 780-8250
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 2000, the aggregate market value of the Common Stock held by non-
affiliates of the registrant was approximately $118,511,003 based upon the
closing price of the Common Stock on that date.
Number of shares of Common Stock of the registrant outstanding as of March 1,
2000: 15,801,467.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed with
Securities and Exchange Commission pursuant to Regulation 14A in connection with
the 2000 Annual Meeting are incorporated by reference into Part III of this
Report. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the registrant's fiscal year ended
December 31, 1999.
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TABLE OF CONTENTS
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Page
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Item 1. BUSINESS................................................................................................ 3
General................................................................................................. 3
Business Strategy....................................................................................... 5
Acquisitions............................................................................................ 6
Vertical Integration.................................................................................... 8
Products................................................................................................ 9
Customers............................................................................................... 9
Design, Merchandising and Sales......................................................................... 10
Sourcing................................................................................................ 11
Backlog................................................................................................. 13
Import Restrictions..................................................................................... 13
Competition............................................................................................. 14
Employees............................................................................................... 15
Item 2. PROPERTIES.............................................................................................. 15
Item 3. LEGAL PROCEEDINGS....................................................................................... 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................... 16
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS................................................................................................. 17
NASDAQ Listing.......................................................................................... 17
Dividend Policy......................................................................................... 17
Stock Split............................................................................................. 17
Item 6. SELECTED FINANCIAL DATA................................................................................. 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................................................... 19
General................................................................................................. 19
Factors That May Affect Future Results.................................................................. 20
Results of Operations................................................................................... 22
Quarterly Results of Operations......................................................................... 24
Liquidity and Capital Resources......................................................................... 24
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................. 26
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................. 26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................................................ 26
Item 10. DIRECTORS AND EXECUTIVE OFFICERS........................................................................ 27
Item 11. EXECUTIVE COMPENSATION.................................................................................. 27
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................................................. 27
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................... 27
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................... 28
SIGNATURES........................................................................................................ S-1
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PART I
Item 1. BUSINESS
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General
This 1999 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent, belief or
current expectations of the Company and its management. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements.
Such risks and uncertainties include, among other things, competitive and
economic factors in the textile and apparel markets, raw materials and other
costs, weather-related delays, general economic conditions and other risks and
uncertainties that may be detailed herein.
Tarrant Apparel Group (the "Company"), a leading provider of private label
casual apparel, serves specialty retail, mass merchandise and discount
department store chains by designing, merchandising, contracting for the
manufacture of, manufacturing directly and selling casual, moderately-priced
apparel for women, men and children, under private label. In 1999, management
responsibilities were divided between two operating divisions, one responsible
for the production of "fashion" garments and the other for "basic" garments.
Since 1988, when the Company began designing and supplying private label denim
jeans to a single specialty retail store chain, it has successfully expanded its
product lines and built a private label business which during 1999 served over
20 customers. The Company's current products are manufactured in a variety of
woven and knit fabrications and include jeanswear, casual pants, t-shirts,
shorts, blouses, shirts and other tops, dresses, leggings and jackets. See
"Business--Products" and "--Customers."
Over the past five years, the Company has achieved a compound annual growth
rate in net sales of approximately 19% from $205 million in 1995 to $395 million
in 1999. Pre-tax income has risen approximately 25% on a compound annual basis,
from $8.3 million in 1995 to $20.3 million in 1999.
The Company continues to geographically diversify its worldwide sourcing
operations. Commencing in the second quarter of 1997, the Company substantially
expanded its use of independent cutting, sewing and finishing contractors in
Mexico, primarily for its increasing sales of basic garments. The gross sales
of products sourced in Mexico was $271 million in 1999. The Company expects
that the costs and inefficiencies that initially will occur as a result of this
strategy will, over time, be offset by the benefits of lower cost production
and better quality control over its products.
On August 1, 1999, the Company acquired all of the outstanding stock of
Industrial Exportadora Famian. S.A. de C.V., and Coordinados Elite, S.A. de
C.V., both Mexican corporations ("Grupo Famian"). Grupo Famian operates seven
apparel production facilities in and near Tehucan, Mexico which have the
capacity to provide "full package production" (i.e., cut, sew, launder, finish
and pack) of 110,000 units per week. The purchase price consisted of (i)
$1,000,000 cash paid at closing, (ii) a $3,000,000 non interest bearing
promissory note paid in three installments of $1,000,000 each on August 31,
September 30 and October 29, 1999 and (iii) $8,000,000 payable in installments
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of $833,000, $3,000,000, $1,667,000, $1,667,000 and $833,000 on each of March
31, 2000, August 31, 2000, March 31, 2001, March 31, 2002, and September 30,
2002 provided, except with respect to the payment due August 31, 2000, the Grupo
Famian subsidiary meets specified pretax income requirements. See "--Vertical
Integration" and "Acquisitions".
On April 18, 1999, the Company finalized an agreement to acquire certain assets
of a denim mill located in Puebla, Mexico with an annual capacity of 18 million
meters ("Jamil"). The purchase price consisted of $22.0 million paid in cash on
May 7, 1999 and 1,724,000 shares (the "Shares") of the Company's Common Stock
issued on May 24, 1999 valued at $45.3 million. See "--Vertical Integration" and
"Acquisitions".
On March 23, 1999, the Company purchased certain assets of CMG, Inc., a
California corporation ("CMG"). CMG designs, produces and sells private label
and "CHAZZZ" branded woven (denim and twill) and knit apparel for women,
children and men for national chain stores, including J.C. Penny, Sears and
Mervyns. The purchase price consisted of (i) $4,275,000 plus inventory at cost
payable at closing, (ii) a $2,500,000 non-interest bearing promissory note
payable in three equal installments on the first three anniversary dates of the
closing convertible into 62,550 shares of common stock of the Company, (iii)
$500,000 payable in two equal installments of $250,000 on the second and third
anniversary dates of the closing, and (iv) $1,500,000 payable in three equal
installments of $500,000 on the first three anniversary dates of the closing
provided the CMG division meets specified net sales and pretax income
requirements. See "--Acquisitions".
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On December 2, 1998, the Company contracted to acquire a turn-key facility
being constructed near Puebla, Mexico by an affiliate of the seller of the denim
mill described above. This facility is ultimately expected to have an annual
capacity of approximately 18 million meters of twill and will also house
ancillary facilities to cut, launder and finish garment production. Construction
of this facility commenced in the third quarter of 1998. During the fourth
quarter of 1999, the Company began using this facility for washing, finishing
and packing. It is anticipated that the Company will take full possession of
this facility and begin spinning, weaving, dying and cutting during the year
2000. The Company anticipates that the cost of this facility will be
approximately $90 million. See "--Vertical Integration".
The Company has no previous history of owning and operating fabric production
facilities and has purchased textile raw materials from third party sources in
the past.
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Business Strategy
Management believes that the following trends currently are shaping apparel
retailing and manufacturing:
. The increasing acceptance of casual apparel in the workplace and
emphasis on a casual, active lifestyle has increased the demand for
casual, moderately-priced, private label products.
. Consolidation among apparel retailers has increased their ability to
demand value-added services from apparel manufacturers, including
fashion expertise, rapid sourcing, just-in-time delivery and favorable
pricing.
. A decline in brand loyalty and increased competition among retailers
due to consolidation have resulted in an increased demand for private
label apparel which generally offers retailers higher margins and
permits them to differentiate their products.
. The North American Free Trade Agreement ("NAFTA") has reduced many
trade barriers that previously limited apparel production in Mexico.
Because of competitive labor costs and shorter transportation
distances, Mexico represents a cost efficient and timely alternative
for certain types of apparel production.
. The current fashion cycle has increased the demand for apparel
manufacturers who have demonstrated their ability to rapidly identify
changes in fashion trends.
The Company's strategy to take advantage of these trends to become a
principal value-added supplier of casual, moderately-priced, private label
apparel includes the following key elements:
. The Company believes that it has established a reputation with its
customers as a fashion resource--a manufacturer that is capable of
designing and producing a broad range of quality merchandise and
reacting rapidly to changing fashion trends.
. The Company has developed a diversified network of international
contract manufacturers and fabric suppliers which enables the Company
to accept orders of varying size and delivery schedules and to produce
a broad range of garments at varying prices depending upon lead time
and other requirements of the customer.
. The Company seeks to develop an in-depth understanding of the fashion
and pricing strategies of its customers and to support those
strategies with its design expertise, sample-making capability and
ability to assist customers in market-testing designs by the rapid
production of small, "test order" quantities of products.
. The Company has commenced the vertical integration of its business
through the development and acquisition of fabric and production
capacity in Mexico. The Company believes that this strategy will
increase its production capacity, increase its control over the
production process, lower costs and shorten lead times.
. The Company's size, access to public capital and ability to use its
stock as currency in acquisitions provides the Company flexibility not
afforded to other, smaller private label manufacturers.
The Company believes that by employing these strategies it can attract new
customers and increase sales to existing customers.
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Acquisitions
Grupo Famian
Effective August 1, 1999, the Company purchased all of the outstanding
stock of Industrial Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A.
de C.V., both Mexican corporations ("Grupo Famian"). Grupo Famian operates seven
apparel production facilities in and near Tehuacan, Mexico which have the
capacity to provide "full package production" (i.e., cut, sew, launder, finish
and pack) of 110,000 units per week. The purchase price consisted of (i)
$1,000,000 paid on closing, (ii) a $3,000,000 non-interest bearing promissory
note payable in three installments of $1,000,000 on each of August 31, September
30 and October 29, 1999 and (iii) $8,000,000 payable in installments of
$833,000, $3,000,000, $1,667,000, $1,667,000 and $883,000 on each of March 31,
2000, August 31, 2000, March 31, 2001, March 31, 2002 and September 30, 2002
provided, except with respect to the payment due August 31, 2000, that the Grupo
Famian subsidiary meets specified pretax income requirements. The purchase price
paid on closing was financed by the Company under its existing bank credit
facilities. The former shareholders of Grupo Famian were granted a security
interest in the shares of Grupo Famian which was released following the October
29, 1999 payment. This transaction has been accounted for as a purchase, and the
purchase price was allocated based on the fair value of assets acquired and
liabilities assumed. The excess of cost over fair value of net assets acquired
will be amortized over 15 years. The operations of Grupo Famian are included
with those of the Company commencing on August 1, 1999.
Jamil Denim Plant
On April 18, 1999, the Company finalized an agreement to acquire certain
assets of a denim mill located in Puebla, Mexico with an annual capacity of 18
million meters ("Jamil"). The purchase price consisted of $22.0 million in cash
paid on May 7, 1999 and 1,724,000 shares (the "Shares") of the Company's Common
Stock issued on May 24, 1999 valued at $45.3 million. The Shares will be
distributed to the sellers in three equal installments on April 1, 2000, 2001
and 2002; provided, however, that any distribution (i) shall be offset by any
claims of the Company against the sellers under the asset purchase agreement and
(ii) will be proportionally reduced in the event the assets fail to produce at
least 15 million yards of marketable denim in the fiscal year immediately
preceding the dates of such distributions of Shares. In addition, the Company
has granted the holders of the Shares certain registration rights and the right
to vote the Shares. The Company has also assumed the obligations of the
sellers under an existing collective bargaining agreement; provided, however,
that the sellers shall reimburse the Company for any costs (including, but not
limited to, salaries and benefits) arising before the closing date or as a
result of this acquisition.
The Company has entered into a three-year employment agreement with Mr.
Nacif, the principal shareholder of the sellers, pursuant to which Mr. Nacif
shall be entitled to receive (i) an annual base salary of $1 million, subject to
such periodic increases, if any, as the Company may deem to be appropriate, (ii)
reimbursement of all reasonable and documented business expenses, (iii)
participation in all plans sponsored by the Company for employees in general and
(iv) the right (the "Option") for ten years to purchase up to 500,000 shares of
the Company's Common Stock at an exercise price of $25 per share. The Option
will vest in three equal installments on April 1, 2000, 2001 and 2002 and will
terminate upon the termination of Mr. Nacif's employment by the Company;
provided, however, that (i) the vesting of any installment shall be deferred to
the date ten business days before the stated expiration date in the event the
operating income of the Company's Mexican operations does not reach certain
levels, and (ii) if such termination of employment results from Mr. Nacif's
death or permanent disability, any vested portion shall terminate on the earlier
of the stated expiration date or the first anniversary of such termination of
employment. In the event the Company terminates Mr. Nacif's employment without
cause (as defined) the Company shall remain obligated to pay Mr. Nacif an amount
equal to his base salary for the remainder of the stated term. In the event Mr.
Nacif's employment is terminated for any other reason (including death,
disability, resignation or termination with cause), neither party shall have any
further obligation to the other, except that the Company shall pay to Mr. Nacif,
or his estate, all reimbursable expenses and such compensation as is due
prorated through the date of termination.
C M G (Chazzz)
On March 23, 1999, the Company purchased certain assets of CMG, Inc., a
California corporation ("CMG"). CMG designs,produces and sells private label and
"CHAZZZ"(R) branded woven (denim and twill) and knit apparel for women, children
and men for national chain stores, including J.C. Penney, Sears and Mervyns. The
purchase price consisted of (i) $4,275,000 and an amount equal to seller's cost
of the inventory purchased, payable in cash on closing, (ii) a $2,500,000
non-interest bearing promissory note payable in three equal annual installments
on the first three anniversary dates of the closing convertible into 62,550
shares of common stock of the Company, (iii) $500,000 payable in two equal
installments of $250,000 on the second and third anniversary dates of closing,
and (iv) $1,500,000 payable in three equal installments of $500,000 on the first
three anniversary dates of closing provided the CMG Division meets specified net
sales and pretax income requirements. The purchase price paid on closing was
financed by the Company from its cash flow from operations. The Company was
granted a security interest in the 62,550 shares to secure the performance of
obligations under the purchase agreement, including, without
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limitation, the indemnification obligations. This transaction has been accounted
for as a purchase, and the purchase price has been allocated based on the fair
value of assets acquired and liabilities assumed. The excess of cost over fair
value of net assets acquired is being amortized over 15 years. The operations of
CMG have been included with those of the Company commencing on March 23, 1999.
The Company has entered into an employment agreement with Charles Ghailian,
the sole shareholder of CMG, under which he is employed as President - Chazzz
Division of the Company for a term commencing on March 23, 1999 and ending on
March 31, 2002, and will be paid an annual base salary of $480,000. In the event
the Company terminates his employment without cause, Mr. Ghailian shall be
entitled to receive a lump sum payment of $480,000. In addition, Mr. Ghailian
has agreed not to compete with the Company during the two years following the
termination of his employment for any reason.
Rocky
On July 2, 1998, the Company purchased the partnership interests of Rocky
Apparel, L.P., a Delaware limited partnership ("Rocky"). Rocky operates
manufacturing facilities in Mississippi and also sources garments in Mexico. The
purchase price consisted of $7.4 million in cash and 81,000 shares of the Common
Stock of the Company, valued at $1.4 million, paid on closing. In addition, the
Company was required to repay $3.4 million of debt to one of the sellers on
closing and to guarantee the bank indebtedness of Rocky in the amount of $5.0
million. The Company was granted a security interest in the 81,000 shares to
secure the performance of obligations under the purchase agreement, including,
without limitation, the indemnification obligations. This transaction has been
accounted for as a purchase, and the purchase price has been allocated based on
the fair value of assets acquired and liabilities assumed. The excess of cost
over fair value of net assets acquired is being amortized over 15 years. The
operations of Rocky have been included with those of the Company commencing on
July 1, 1998.
Rocky designs, develops and contracts for the manufacture of men's, women's
and children's denim apparel, for Abercrombie & Fitch, Limited Stores, Express
and Structure.
In connection with this acquisition, Rocky extended the term of an existing
employment agreement with Gabriel Zeitouni, the President and a former principal
owner of Rocky. Under this employment agreement, Mr. Zeitouni will continue to
be employed as the President of Rocky for a term ending on December 31, 2002,
unless extended by the mutual agreement of the Company and Mr. Zeitouni, will be
paid a base salary which increases from $350,000 for 1998 to $450,000 for 2002
and will receive cash bonuses based upon certain performance criteria. Also, Mr.
Zeitouni was awarded a stock option for 75,000 shares of the Company's Common
Stock which vests periodically through December 31, 2002 subject to certain
performance criteria. In the event the Company terminates his employment without
cause, Mr. Zeitouni shall be entitled to receive (i) a lump sum payment equal to
his base salary for the shorter of the balance of the term or two years and (ii)
accrued bonus, if any, through the date of termination. In the event the Company
terminates Mr. Zeitouni's employment with cause, the Company is obligated to pay
the compensation required by the agreement only through the date of termination.
In addition, Mr. Zeitouni has agreed not to compete with the Company during the
two years following the termination of his employment for cause.
During 1999, as part of the Company's consolidation effort to improve
efficiencies, the Company discontinued operations at two Rocky facilities and
moved this production to its Mexico based plants.
MGI
On February 23, 1998, the Company purchased certain assets of MGI
International Limited, a Turks and Caicos corporation. The assets purchased
consisted primarily of inventory. The purchase price consisted of (i) $4.6
million, together with an amount equal to the seller's cost of the inventory
purchased, paid in cash on closing and (ii) $500,000 paid on July 21, 1998,
together with interest at 7% per annum.
On February 23, 1998, the Company also purchased certain assets of Marshall
Gobuty International U.S.A., Inc., a California corporation ("MGI USA"). The
assets purchased consisted primarily of inventory. The purchase price consisted
of (i) $500,000, together with an amount equal to the seller's cost of the
inventory purchased, paid in cash on closing and (ii) $500,000 paid on July 21,
1998, together with interest at 7% per annum.
MGI International Limited and MGI USA (collectively, "MGI") each designs,
develops and contracts for the manufacture of men's apparel, including knit and
woven tops, shirts and outerwear (including jackets), for national chain
department stores, including J.C. Penney and Goody's. The purchase price was
financed by the Company from its cash flow from operations. This transaction has
been accounted for as a purchase and the purchase price has been allocated based
on the fair value of the assets acquired and liabilities assumed. The excess of
cost over fair value of net assets acquired is being amortized over five years.
The operations of MGI have been included with those of the Company commencing on
February 23, 1998. During 1999 management of operations for the MGI division was
consolidated with Chazzz.
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Vertical Integration
In 1997, the Company commenced the vertical integration of its business.
Key elements of this strategy include (i) establishing cutting, sewing, washing,
finishing, packing, shipping and distribution activities in company-owned
facilities or through the acquisition of established contractors and (ii)
establishing fabric production capability through the acquisition of established
mills or the construction of new mills. The Company has no history of operating
textile mills or cutting, sewing, washing, finishing, packing or shipping
operations upon which an evaluation of the prospects of the Company's vertical
integration strategy can be based. In addition, such operations are subject to
the customary risks associated with owning a manufacturing business, including,
but not limited to, the maintenance and management of manufacturing facilities,
equipment, employees and inventories.
Acquisition of Denim Mill
On April 18, 1999, the Company finalized an agreement to purchase certain
assets of a denim mill located in Puebla, Mexico with an annual capacity of 18
million meters. The purchase price consisted of $22 million in cash paid on May
6, 1999 and 1,724,000 shares (the "Shares") of the Company's Common Stock. The
Shares will be distributed to the sellers in three equal installments on April
1, 2000, 2001, 2002; provided, however, that any distribution (i) shall be
offset by any claims of the Company against the sellers under the asset purchase
agreement and (ii) will be proportionally reduced in the event the assets fail
to produce at least 15 million yards of marketable denim in the fiscal year
immediately preceding the dates of such distributions of Shares. In addition,
the Company has granted the holders of the Shares certain registration rights
and the right to vote the Shares.
The Company has also assumed the obligations of the sellers under an
existing collective bargaining agreement; provided, however, that the sellers
shall reimburse the Company for any costs (including, but not limited to,
salaries and benefits) arising before the closing date or as a result of this
acquisition.
The Company has entered into a three-year employment agreement with Mr.
Nacif, the principal shareholder of the sellers, pursuant to which Mr. Nacif
shall be entitled to receive (i) an annual base salary of $1 million, subject to
such periodic increases, if any, as the Company may deem to be appropriate, (ii)
reimbursement of all reasonable and documented business expenses, (iii)
participation in all plans sponsored by the Company for employees in general and
(iv) the right (the "Option") for ten years to purchase up to 500,000 shares of
the Company's Common Stock at an exercise price equal to the average closing
price for the ten trading days prior to the closing date. The Option will vest
in three equal installments on the first three anniversary dates of the closing
date and will terminate upon the termination of Mr. Nacif's employment by the
Company; provided, however, that (i) the vesting of any installment shall be
deferred to the date ten business days before the stated expiration date in the
event the operating income of the Company's Mexican operations does not reach
certain levels, and (ii) if such termination of employment results from Mr.
Nacif's death or permanent disability, any vested portion shall terminate on the
earlier of the stated expiration date or the first anniversary of such
termination of employment. In the event the Company terminates Mr. Nacif's
employment without cause (as defined) the Company shall remain obligated to pay
Mr. Nacif an amount equal to his base salary for the remainder of the stated
term. In the event Mr. Nacif's employment is terminated for any other reason
(including death, disability, resignation or termination with cause), neither
party shall have any further obligation to the other, except that the Company
shall pay to Mr. Nacif, or his estate, all reimbursable expenses and such
compensation as is due prorated through the date of termination.
Acquisition of Twill Mill and Production Facility
On December 2, 1998, the Company contracted with an affiliate of Mr. Nacif,
the seller of the denim mill described above, for the construction of a turn-key
facility near Puebla, Mexico for the production of twill fabric. The facility
will also house ancillary facilities. The purchase price of the facility shall
be the sum of (i) the cost of construction and equipment installed, which cost
will not include operating expenses, estimated to be approximately $60 million,
and (ii) a promissory note of the Company (the "Note") in the principal amount
of $28 million.
The principal balance of the Note will be payable on the third anniversary
date of the closing date, and interest on the unpaid principal balance from time
to time outstanding will be payable semi-annually in arrears on each June 30 and
December 31 at the rate of 7% per annum. Payment under the Note will be subject
to the right of the Company to set off any amount payable by (i) the developer
to the Company under the facility development agreement, including, but not
limited to, any amount payable under the indemnification provisions of the
facility development agreement upon the breach by the developer of any
representations, warranties or agreements contained in the facility development
agreement, or (ii) the sellers of the denim mill assets under the asset purchase
agreement, including, but not limited to, any amount payable under the
indemnification provisions of such agreement. During the fourth quarter of 1999
the Company began using a portion of this facility to wash, finish and pack. The
building should be completed and fully operational by the end of fiscal year
2000.
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Products
In 1988, the Company received its first orders for private label women's
denim jeans from Express, a division of The Limited. While women's jeans have
historically been, and continue to be, the Company's principal product, in
recent years the Company has expanded its sales of moderately-priced, women's
apparel to include casual, denim and non-denim woven tops and bottoms and has
commenced the sale of men's apparel, including knit and woven tops, shirts and
outerwear (including jackets), as a result of the acquisition of MGI on February
23, 1998. The Company's women's apparel products currently include jeanswear,
casual pants, t-shirts, shorts, blouses, shirts and other tops, dresses,
leggings and jackets. These products are manufactured in petite, standard and
large sizes and are sold at a variety of wholesale prices generally ranging from
less than $3.00 to over $25.00 per garment.
Over the past three years, approximately fifty percent of net sales were
derived from the sale of pants and jeans, approximately fifteen percent from the
sale of shorts and approximately ten percent from the sale of shirts. The
balance of net sales consisted of sales of dresses, jackets, leggings and other
products.
The Company, in the ordinary course of its business, regularly evaluates
new markets and potential acquisitions and believes that numerous opportunities
exist due, in part, to the adverse effect on the earnings of many apparel
companies of the recent decline in retail sales, and consolidation among
retailers. Such opportunities could include transactions involving acquisitions
or brand affiliations. Although the Company currently is evaluating several
acquisitions, there are no existing commitments with respect to any acquisition
or affiliation, except as described under "Business--Acquisitions" and "Vertical
Integration."
Customers
For the year ended December 31, 1999, affiliated stores owned by The
Limited, including Express, Lerner New York, Limited Stores, Structure and Lane
Bryant, accounted for approximately 42.5% of the Company's net sales. In
addition in 1999 sales to Target Stores (a division of Dayton Hudson) and
Walmart accounted for approximately 12.4% and 11.4% of net sales respectively.
No other customer accounted for more than 10% of the Company's net sales. In the
same period, virtually all of the Company's sales were of private label apparel.
The Company currently serves over 20 customers which also include, K-Mart,
Mervyns, Sears, Abercrombie & Fitch and J.C. Penney. Additionally, the Company
manufactures "branded" merchandise for several major designers. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--General."
The Company generally targets only high-volume retailers that it believes
could grow into major accounts. By limiting its customer base to a select group
of larger accounts, the Company seeks to build stronger long-term relationships
and leverage its operating costs against large bulk orders. Although the Company
continues to diversify its customer base, the majority of any growth in sales is
expected to come from existing customers, as they consolidate their buying power
over fewer key vendors.
On October 22, 1998, Limited Direct Associates LP, an entity 100% owned by
The Limited ("LDA"), acquired one million shares of the Company's Common Stock
(or approximately 6.3% of the Common Stock outstanding as of March 1, 2000)
through the exercise of an option granted by Mr. Guez and Mr. Kay, the Chairman
and President, respectively, of the Company, to LDA at the time of the Company's
initial public offering. The option granted LDA the right to purchase 10% of the
total shares of Common Stock outstanding at the time of the initial public
offering, or 1,299,998 shares, at a price of $3.60 per share (as adjusted for a
two-for-one stock split effective May 8, 1998). The transaction was done on a
cashless basis, whereby Mr. Guez and Mr. Kay transferred ownership of one
million shares to LDA and, in lieu of receiving cash, Mr. Guez and Mr. Kay
retained ownership of the remaining 299,998 shares. The one million shares were
subject to a lockup provision, which expired October 9, 1999.
The Company does not have long-term contracts with any of its customers
and, therefore, there can be no assurance that any customer will continue to
place orders with the Company of the same magnitude as it has in the past, or at
all. In addition, the apparel industry historically has been subject to
substantial cyclical variation, with consumer spending for purchases of apparel
and related goods tending to decline during recessionary periods. To the extent
that these financial difficulties occur, there can be no assurance that the
Company's financial condition and results of operations would not be adversely
affected.
9
<PAGE>
Design, Merchandising and Sales
While many private label producers only arrange for the bulk production of
styles specified by their customers, the Company not only designs garments, but
also assists some of its customers in market testing new designs. The Company
believes that its design, sample-production and test-run capabilities give it a
competitive advantage in obtaining bulk orders from its customers. The Company
also often receives bulk orders for garments it has not designed because many of
its customers allocate bulk orders among more than one producer.
The Company has developed integrated teams of design, merchandising and
support personnel, some of whom serve on more than one team, that focus on
designing and producing merchandise that reflects the style and image of their
customers. Teams generally are divided between import and domestic sourcing
operations.
Each team is responsible for all aspects of its customer's needs, including
designing products, developing product samples and test items, obtaining orders,
coordinating fabric choices and procurement, monitoring production and
delivering finished products. In particular, the team seeks to identify
prevailing fashion trends that meet its customer's retail strategies and design
garments incorporating those trends. The team also works with the buyers of its
customer to revise designs as necessary to better reflect the style and image
that the customer wishes to project to consumers. During the production process,
the team is responsible for informing the customer about the progress of the
order, including any difficulties that might affect the timetable for delivery.
In this way, the Company and its customer can make appropriate arrangements
regarding any delay or other change in the order. The Company believes that this
team approach enables its employees to develop an understanding of the
customer's distinctive styles and production requirements in order to respond
effectively to the customer's needs. During 1999, the Company opened an office
in Columbus, Ohio to support this approach and better service the needs of The
Limited.
As part of the Company's merchandising strategy, the Company produces, at
its own expense, one or more samples of garments embodying new designs. The
Company produces samples at its facilities in Guangdong Province, China, Hong
Kong and Mexico. The Chinese facility, which has 121 employees, currently
furnishes a significant portion of the Company's sample requirements. As the
Company continues to develop its Mexico based operation a significant amount of
sample production has shifted to Mexico during 1999.
From time to time and at scheduled seasonal meetings, the Company presents
its samples to the customer's buyers, who determine which, if any, of those
samples will be produced on a test run or a bulk scale. Samples are often
presented in coordinated groupings or as part of a product line. Some customers,
particularly specialty retail stores such as divisions of The Limited, may
require that a product be "tested" before placing a bulk order. Testing involves
the production of as few as several hundred copies of a given sample in
different size, fabric and color combinations. The customer pays for these test
items, which are placed in selected stores to gauge consumer response. The
production of test items enables the Company's customers to identify garments
that may appeal to consumers and also provides the Company with important
information regarding the cost and feasibility of the bulk production of the
tested garment. If the test is determined to be successful, the Company
generally receives a significant percentage of the customer's total bulk order
of the tested item. In addition, as is typical in the private label business,
the Company receives bulk production orders to produce merchandise designed by
its competitors or other designers, since most customers allocate bulk orders
among a number of suppliers.
10
<PAGE>
Sourcing
General
When bidding for or filling an order, the Company's international sourcing
network enables it to choose from among a number of suppliers and manufacturers
based on the customer's price requirements, product specifications and delivery
schedules. Historically, the Company has manufactured its products through
independent cutting, sewing and finishing contractors located primarily in Hong
Kong and China and has purchased its fabric from independent fabric
manufacturers with weaving mills located primarily in Hong Kong and China. In
recent years, the Company has expanded its network to include suppliers and
manufacturers located in a number of additional countries, including Thailand,
Korea and Mexico. Key elements of the Company's sourcing strategy include (i)
continuing to expand its production of basic denim and twill products in Mexico
through both independent contractors and the acquisition or construction of
cutting, sewing and finishing facilities and (ii) acquiring or constructing
denim and twill weaving mills in Mexico. The following table sets forth the
percent of the Company's merchandise, on the basis of the free on board cost at
the supplier's plant ("FOB Basis"), by country for the periods indicated:
<TABLE>
<CAPTION>
1996 1997 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
International Sourcing
Hong Kong and China.......................................................... 78.3% 60.5% 50.4% 36.3%
Other(1)..................................................................... 7.7 13.7 10.0 12.3
Domestic Sourcing
United States................................................................ 13.8 14.9 5.7 2.6
Mexico and Central America................................................... 0.2 10.9 33.9 48.8
</TABLE>
__________________
(1) In 1999, such countries consisted of Thailand, Philippines, UAE/Oman, and
Indonesia and Korea.
Dependence on Contract Manufacturers
The Company has reduced its reliance on outside third party contractors
through its Mexico vertical integration strategy. However, all international and
a portion of its Mexico sourcing is manufactured by independent cutting, sewing
and finishing contractors. The use of contract manufacturers and the resulting
lack of direct control over the production of its products could result in the
Company's failure to receive timely delivery of products of acceptable quality.
Although the Company believes that alternative sources of cutting, sewing and
finishing services are readily available, the loss of one or more contract
manufacturers could have a materially adverse effect on the Company's results of
operations until an alternative source is located and has commenced producing
the Company's products.
Although the Company monitors the compliance of its independent contractors
with applicable labor laws, the Company does not control its contractors or
their labor practices. The violation of federal, state or foreign labor laws by
one of the Company's contractors can result in the Company being subject to
fines and the Company's goods which are manufactured in violation of such laws
being seized or their sale in interstate commerce being prohibited. From time to
time, the Company has been notified by federal, state or foreign authorities
that certain of its contractors are the subject of investigations or have been
found to have violated applicable labor laws. To date, the Company has not been
subject to any sanctions that, individually or in the aggregate, could have a
material adverse effect upon the Company, and the Company is not aware of any
facts on which any such sanctions could be based. There can be no assurance,
however, that in the future the Company will not be subject to sanctions as a
result of violations of applicable labor laws by its contractors, or that such
sanctions will not have a material adverse effect on the Company. In addition,
the Company's customers require strict compliance by their apparel
manufacturers, including the Company, with applicable labor laws. There can be
no assurance that the violation of applicable labor laws by one of the Company's
contractors will not have a material adverse effect on the Company's
relationship with its customers.
In addition, as is customary in the industry, the Company does not have any
long-term contracts with independent fabric suppliers. The loss of any of its
major fabric suppliers could have a material adverse effect on the Company's
financial condition and results of operations until alternative arrangements are
secured. The impact of such a loss will may be offset in part by the
acquisition of or development of fabric mills and production facilities in
Mexico. See "____ Vertical Integration"
11
<PAGE>
Diversified Production Network
The Company believes that it has the ability, through its production
network, to operate on production schedules with lead times as short as 30 days.
Typically, the Company's specialty retail customers attempt to respond quickly
to changing fashion trends and are increasingly less willing to assume the risk
that goods ordered on long lead times will be out of fashion when delivered.
These retailers, including divisions of The Limited, frequently require
production schedules with lead times ranging from 30 to 120 days. Although mass
merchandisers, such as Target Stores, are beginning to operate on shorter lead
times, they are occasionally able to estimate their needs as much as six months
to one year in advance for "program" business--basic products that do not change
in style significantly from season to season. The Company's ability to operate
on production schedules with a wide range of lead times helps it to meet its
customers' varying needs.
By allocating an order among different manufacturers, the Company seeks to
fill the high-volume orders of its customers, while meeting their delivery
requirements. Upon receiving an order, the Company determines which of its
suppliers and manufacturers, (both owned and third party contractors) can best
fill the order and meet the customer's price, quality and delivery requirements.
The Company considers, among other things, the price charged by each
manufacturer and the manufacturer's available production capacity to complete
the order, as well as the availability of quota for the product from various
countries and the manufacturer's ability to produce goods on a timely basis
subject to the customer's quality specifications. The Company's personnel also
consider the transportation lead times required to deliver an order from a given
manufacturer to the customer. In addition, some customers prefer not to carry
excess inventory and therefore require that the Company stagger the delivery of
products over several weeks.
International Sourcing
The Company conducts and monitors its international sourcing operations
from its international offices. At December 31, 1999, the Company had offices in
Hong Kong, China, Thailand, Korea and Mexico. The staff at these locations have
extensive knowledge about and experience with sourcing and production in their
respective regions, including purchasing, manufacturing and quality control.
Several times each year, members of the Company's senior management, including
local staff, visit and inspect the facilities and operations of the Company's
international suppliers and manufacturers.
Foreign manufacturing is subject to a number of risk factors, including,
among other things, transportation delays and interruptions, political
instability, expropriation, currency fluctuations and the imposition of tariffs,
import and export controls and other non-tariff barriers (including changes in
the allocation of quotas). In addition to these risk factors, the Company faces
additional risks arising from the uncertainty regarding the future status of
Hong Kong since resumption of Chinese sovereignty on July 1, 1997, the
continuation of favorable trade relations between the U.S. and China (in
particular the continuation of China's Normal Trade Relations ("NTR") status for
tariff purposes), and the continuation of economic reform programs in China
which encourage private economic activity. Each of these factors could have a
material adverse effect on the Company.
While the Company is in the process of establishing business relationships
with manufacturers and suppliers located in countries other than Hong Kong or
China, the Company still primarily contracts with manufacturers and suppliers
located primarily in Hong Kong and China for its international sourcing needs
(not including Mexico), and currently expects that it will continue to do so for
the foreseeable future. Any significant disruption in the Company's operations
or its relationships with its manufacturers and suppliers located in Hong Kong
or China could have a material adverse effect on the Company.
The Company commenced manufacturing basic denim and twill products through
independent contractors in Mexico in the second quarter of 1997, and is
continuing to expand its use of manufacturing facilities in this region. During
1999 the Company continued to expand its Mexico production capabilities, and
acquired several Mexico manufacturing operations. The Company believes that the
further diversification of its international sourcing network by increasing the
use of manufacturing facilities in Mexico along with its Vertical Integration
Strategy will (i) reduce its cost of goods, (ii) enhance the proximity of the
Company's sourcing operations to the Company's customers and the Company's
executive offices, thereby improving delivery times and increasing management's
control, and (iii) lessen certain risks of doing business in Asia. See "--
Vertical Integration," and "Acquisitions".
12
<PAGE>
The Sourcing Process
As is customary in the industry, the Company does not have any long-term
contracts with its manufacturers. The Company typically contracts (on the basis
of a written purchase order) with one to three manufacturers to produce a bulk
order. During the manufacturing process, the Company's quality control personnel
visit each factory to inspect garments when the fabric is cut, as it is being
sewn and as the garment is being finished. Daily information on the status of
each order is transmitted from the various manufacturing facilities to the
Company's offices in Hong Kong, Mexico and Los Angeles. The Company, in turn,
keeps its customers apprised, often through daily telephone calls and frequent
written reports. These calls and reports include candid assessments of the
progress of a customer's order, including a discussion of the difficulties, if
any, that have been encountered and the Company's plans to rectify them.
The Company often arranges on behalf of manufacturers for the purchase of
fabric from a single supplier. The Company has the fabric shipped directly to
the cutting factory and invoices the factory for the fabric. Generally, the
factories pay the Company for the fabric with offsets against the price of the
finished goods. For its longstanding program business, the Company may purchase,
or produce fabric in advance of receiving the order, but in accordance with the
customer's specifications. By procuring fabric for an entire order from one
source, the Company believes that production costs per garment are reduced and
customer specifications as to fabric quality and color can be better controlled.
Backlog
At February 23, 2000, the Company had unfilled customer orders of
approximately $142 million as compared to approximately $137 million at February
23, 1999. The Company believes that all of its backlog of orders as of February
23, 2000 will be filled within the current fiscal year. Backlog is based on the
Company's estimates derived from internal management reports. The amount of
unfilled orders at a particular time is affected by a number of factors,
including the scheduling of manufacturing and shipping of the product which, in
some instances, depends on the customer's requirements. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments. The Company's
experience has been that the cancellations, rejections or returns of orders have
not materially reduced the amount of sales realized from its backlog.
Import Restrictions
Quotas
The Company imported approximately 96% of its products (on an FOB Basis) in
1999, including approximately 55% imported from Mexico. In the case of Mexico,
imports are subject to special rules under the North American Free Trade
Agreement ("NAFTA"), which limits certain types of apparel imports into the
United States from Mexico, but not nearly to the extent that imports are
restricted from countries subject to bilateral textile agreements. Most of the
remaining products imported were manufactured in a foreign jurisdiction (e.g.,
Hong Kong and China) with which the U.S. has entered into a bilateral textile
agreement that, among other restrictions, imposes specific quantitative
restraints, or "quotas," on the amounts of various categories of textiles and
apparel that can be imported into the U.S. from that foreign jurisdiction during
a particular quota year. These bilateral textile agreements also include
provisions which allow the U.S. to impose quotas on categories of textiles and
apparel not previously under quota or to "charge" (i.e., impose deductions upon)
the quotas for origin-related violations. Accordingly, the Company's operations
are subject to the restrictions imposed by these bilateral agreements.
Until recently, the Arrangement Regarding International Trade in Textiles,
known as the Multifiber Arrangement ("MFA"), provided the international
framework for the global regulation of the textile and apparel trade. Pursuant
to the MFA, the U.S. entered into these bilateral textile agreements for the
purpose of imposing quotas on the imports of textiles and apparel. However,
under "The Final Act Embodying the Results of the Uruguay Round of Multilateral
Trade Negotiations" (the "Uruguay Round Agreement") which was agreed to on a
preliminary basis in December 1993 by 117 member nations of the General
Agreement on Tariffs and Trade ("GATT"), and enacted into U.S. domestic law in
December 1994 under the Uruguay Round Agreements Act (the "URAA"), the MFA has
been replaced by the World Trade Organization Agreement on Textiles and Clothing
(the "ATC"). Under the ATC, quotas implemented under the MFA on the importation
of textiles and apparel from countries that are members of the World Trade
Organization (the "WTO," which is the successor organization to GATT under the
Uruguay Round Agreement) will be phased out over a ten-year period that
commenced on January 1, 1995 (with the U.S. phasing out quotas on most of the
sensitive categories at the end of this period). However, a member country may,
under the Uruguay Round Agreement on Safeguards, re-impose quotas on textiles
and apparel under certain specified conditions.
China is a signatory to the MFA, but was not a member of GATT and,
therefore, was not a party to the Uruguay Round Agreement. China has not been
admitted as a member of the WTO, although it is in the process of trying to
negotiate its accession
13
<PAGE>
to the WTO at this time. Because China is not a member of the WTO, its exports
of textiles and apparel to the U.S. are not covered by the ATC. Accordingly, the
U.S. continues to control imports of textiles and apparel from China under the
existing bilateral agreement between the U.S. and China. On January 17, 1994,
the U.S. and China signed a three-year agreement which set the 1994 textile and
apparel quotas from China at their 1993 levels and increased the quota by 1.0%
for each of 1995 and 1996. A new agreement, to replace the expiring 1994
Agreement, was signed in February 1997, covering the period January 1, 1997 to
December 31, 2000. This agreement continues to permit some growth in most quota
categories.
In the event that China eventually becomes a member of the WTO, it will be
afforded the rights granted other members under the ATC, including the phase-out
of textile and apparel quotas over the ten-year period that commenced on January
1, 1995. However, there can be no assurance that China will become a member of
the WTO, particularly since the U.S. has expressed dissatisfaction with China's
progress in opening its domestic market in a number of areas.
In 1999, products imported using Hong Kong quota accounted for
approximately 30% of the Company's net sales (on an FOB Basis). Under the U.S.
and Hong Kong rules of origin currently in effect, the Company conducts certain,
non-origin conferring manufacturing operations in China for a significant
portion of the products it imports using Hong Kong quota. As part of the URAA,
the U.S. implemented new rules of origin which become effective on July 1, 1996.
These new rules of origin had little actual impact on the country of origin of
the merchandise imported by the Company.
Duties and Tariffs
Merchandise imported by the Company into the U.S. is subject to rates of
duty established by U.S. statute. In general, these rates vary, depending on the
type of product, from 3.0% to 34.6% of the appraised value of the product. In
addition to duties, in the ordinary course of its business, the Company, from
time to time, may become subject to claims by the U.S. Customs Service for
penalties, liquidated damages claims and other charges relating to import
activities. Similarly, from time to time, the Company may be entitled to refunds
from the U.S. Customs Service due to the overpayment of duties.
Products imported from China into the U.S. currently receive the same
preferential tariff treatment accorded goods from countries granted NTR status.
China's NTR status, which is granted on an annual basis, expires in July 2000.
China's NTR status has been a contentious political issue for several years
because of concerns regarding labor and human rights practices, weapons
proliferation, trade policies and failure to protect U.S. intellectual property
rights. Previous legislation attaching conditions to China's NTR status has been
passed by both houses of the Congress, but did not survive presidential vetoes.
There can be no assurance that the U.S. will not revoke China's NTR status
entirely or place greater conditions or restrictions on this status, but absent
a major deterioration in U.S.-China relations, it is anticipated that China will
maintain its NTR status. If China's NTR status were to terminate, and Chinese
origin products had to enter the U.S. without the benefit of NTR status, such
goods would be subject to significantly higher duties than at present. Any such
increased duties would increase the cost or reduce the supply of the Company's
goods imported from China. In 1999, products imported using China quota
accounted for approximately 6% of the Company's net sales (on an FOB Basis). The
Company is taking steps to diversify its sourcing network to reduce its
dependence on Chinese-origin products.
The Company's continued ability to source products from foreign
jurisdictions may be adversely affected by additional bilateral and multilateral
agreements, unilateral trade restrictions, changes in trade policy, significant
decreases in import quotas, embargoes, the disruption of trade from exporting
countries as a result of political instability or the imposition of additional
duties, taxes and other charges or restrictions on imports.
Competition
There is intense competition in the sectors of the apparel industry in
which the Company participates. The Company competes with many other
manufacturers, many of which are larger and have greater resources than the
Company. The Company also faces competition from its own customers and potential
customers, many of which have established, or may establish, their own internal
product development and sourcing capabilities. For example, The Limited's
wholly-owned subsidiary, Mast Industries, Inc., competes with the Company and
other private label apparel suppliers for orders from divisions of The Limited.
The Company believes that it competes favorably on the basis of design and
sample capabilities, quality and value of its products, price, the production
flexibility that it enjoys as a result of its sourcing network and vertical
integration initiatives and the long-term customer relationships it has
developed.
14
<PAGE>
Employees
At December 31, 1999, the Company had approximately 226 full-time employees
in the United States, 4,366 in Mexico (which includes all manufacturing labor to
produce fabric, and cut, sew, trim, wash and pack finished garments), 170 in
Hong Kong, 142 in China, 8 in Thailand and 3 in Korea. The Company considers its
relations with its employees to be good.
Item 2. PROPERTIES
----------
The Company currently conducts its operations from 26 facilities, 24 of
which are leased. The Company's executive offices are located at 3151 East
Washington Boulevard, Los Angeles, California 90023. The Company leases this
facility for an annual rent of $ 540,000 from a California corporation which is
owned by Mr. Guez and Mr. Kay. The base rent is subject to increase on January
1, 2002 based on the Consumer Price Index. The lease for this facility, under
which the Company is responsible for the payment of taxes, utilities and
insurance, terminates in December 2003 subject to a renewal option for five
additional years. The Company also leases 146,000 square feet of warehouse space
in South Gate, California for an annual rent of $160,000 from an unrelated third
party. An additional warehouse for the Chazzz division is being closed during
2000. In Columbus, Ohio the Company opened an adminstrative office during 1999
to handle business related to The Limited. This facility is leased until 2004,
for approximately 6000 square feet at an annual rental of approximately $75,000.
The Company leases approximately 36,000 square feet of warehouse and office
space in Hong Kong for an annual rent of $674,000 from a Hong Kong corporation
that is owned by Mr. Guez and Mr. Kay. The base rent is subject to increase
every two years in accordance with market rates. The lease for this facility,
under which the Company is responsible for the payment of taxes, utilities and
insurance, expires in June 2004. The Company leases approximately 50,000 square
feet which it uses to operate its sample-making facility in Giang Dong Province,
China. The lease for this facility terminates in 2004 and the annual rent is
$60,000. The Company also leases office space in Bangkok, Thailand and Seoul,
Korea to house the small staff it maintains in these nations. The Company also
owns two facilities in Ruleville, Mississippi and leases two facilities in
Greenwood, Mississippi with an aggregate of 161,000 square feet. These
facilities are production, distribution, and administrative offices, the annual
rent is $28,000 and the leases expire during the year 2000 and 2001. The Company
also leases three locations in New York City for showroom and sales operations.
The aggregate square footage of these locations is approximately 15,000 with an
annual base rent of $300,000. These leases expire during the years 2000 and
2002. These spaces are currently being consolidated during 2000. The Company
also leases 1,600 square feet of office space in Tehaucan, Mexico for an annual
rent of $40,000 and this lease expires in September, 2008. Through its
subsidiary, Grupo Famian, the company leases seven sewing and washing plants in
and around Tehucan, Mexico. These leases terminate in 10 years and have a
combined annual rental of $314,000. See "Note 8 to Notes to Consolidated
Financial Statements" for additional information with respect to these
facilities.
On February 22, 1999, the Company agreed to acquire a 250,000 square foot
denim mill in Puebla, Mexico with an annual capacity of approximately 18 million
meters of denim. In addition, on December 2, 1998, the Company contracted to
acquire a 1,500,000 square foot turn-key facility being constructed near Puebla,
Mexico which is ultimately expected to have an annual capacity of approximately
18 million meters of twill, and house ancillary garment production facilities to
cut, launder, finish and ship finished garments. See "Item 1. Business--
Vertical Integration."
The Company believes that all of its existing facilities are well
maintained, in good operating condition and adequate to meet its current and
foreseeable needs.
Item 3. LEGAL PROCEEDINGS
-----------------
On October 2, 1999, summons were issued by the Hong Kong Special
Administrative Region Magistrate's Court to Tarrant Company Limited ("TCL"), a
wholly owned Hong Kong subsidiary of the Company. The summons allege that TCL
exported apparel to the United States which it claimed was of Hong Kong origin,
using Hong Kong export licenses, when the goods were not of Hong Kong origin, in
violation of Hong Kong's Import and Export Ordinance. TCL believes that any
violations of Hong Kong law resulted from actions of its non-related suppliers,
and that the Company had no knowledge or control of these actions. Depending on
the final outcome of this legal proceeding, TCL's exports to the United States
may become subject to significantly increased Customs Service scrutiny, which
could cause delays in the entry of goods into the United States, or in a worst
case scenario, prohibit the entry of such goods into the United States. TCL
believes it has strong defenses to these charges, and will vigorously defend
itself against them. The Company is confident that the policies and procedures
are in place to provide maximum assurances that our suppliers are in strict
compliance with all international trade regulations.
15
<PAGE>
In Sepember 1999, the Company was served with a complaint in an action
brought in the Supreme Court of the State of New York, New York County, by DLLC
and Direct Corp., LLC ("Direct"), as plaintiffs. The complaint alleges that the
Company and DLLC entered into a joint venture for the purpose of producing and
selling apparel products. The complaint further alleges that the Company
breached its obligations under the joint venture. The complaint seeks monetary
damages of $50,000,000, plus interest and further seeks permanent injunctive
relief. The Company has submitted its Answer to the Complaint which generally
denies the principal allegations therin, denies any liability to the plaintiffs
and alleges a number of affirmative defenses to the claims made by plaintiffs.
No discovery has taken place in the action to date. The Company believes that
it has valid defenses to the claims set forth in the plaintiff's complaint and
intends to vigorously defend against said claims. A subsidiary of the Company
has commenced a separate action against the plaintiffs in the Superior Court of
the State of California, Los Angeles County, seeking damages of $623,138.90 for
goods sold and delivered to plaintiffs.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of fiscal 1999.
16
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
NASDAQ Listing
The Company's Common Stock began trading on The Nasdaq Stock Market's
National Market ("NASDAQ") under the symbol "TAGS" on July 24, 1995.
The following table sets forth, for the periods indicated, the range of
high and low sale prices for the Company's Common Stock as reported by NASDAQ.
<TABLE>
<CAPTION>
Low High
------- ------
<S> <C> <C>
1998
First Quarter..................................... $ 7.38 12.31
Second Quarter.................................... 11.50 19.50
Third Quarter..................................... 17.50 25.50
Fourth Quarter.................................... 13.50 41.25
1999
First Quarter..................................... 34.750 45.875
Second 21.000 48.625
Quarter...........................................
Third Quarter..................................... 9.750 26.750
Fourth Quarter.................................... 8.969 14.875
2000
First Quarter (through March 10).................. 6.000 10.250
</TABLE>
On March 1, 2000, the last reported sale price of the Company's Common
Stock as reported on NASDAQ was $7.500. Shareholders are urged to obtain current
market quotations for the Common Stock. As of March 1, 2000, there were 29
shareholders of record of the Company. However, proxy data indicates that there
are over 2150 beneficial owners of shares of the Common Stock.
Dividend Policy
The Company intends to retain future earnings for use in its business and
therefore does not anticipate declaring or paying any cash dividends in the
foreseeable future. The declaration and payment of any cash dividends in the
future will depend upon the Company's earnings, financial condition, capital
needs and other factors deemed relevant by the Board of Directors. In addition,
the new credit agreement entered into on January 21, 2000, prohibits the payment
of dividends during the term of the agreement. See Note 16 to the consolidated
financial statements.
Stock Split
On April 27, 1998, the Company announced a two-for-one stock split
effective on May 8, 1998. Accordingly, all share and per share amounts have been
adjusted to reflect this split.
17
<PAGE>
Item 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data is qualified in its entirety by, and
should be read in conjunction with, the other information and financial
statements, including the notes thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(In thousands, except share and per share data)
Income Statement Data:
Net sales.................................................................. $205,174 $229,861 $260,093 $378,155 $395,341
Cost of sales.............................................................. 172,959 192,288 220,996 307,077 329,131
-------- -------- -------- -------- --------
Gross profit............................................................. 32,215 37,573 39,097 71,078 66,210
Selling and distribution expenses.......................................... 6,761 7,124 8,499 11,274 13,692
General and administrative expenses........................................ 13,493 13,990 13,518 19,896 25,259
Amortization of excess of cost over fair market value of net assets
acquired(1).............................................................. -- -- -- 1,337 2,312
LDA Option(2).............................................................. 1,734 -- -- -- --
-------- -------- -------- -------- --------
Income from operations................................................... 10,227 16,459 17,080 38,571 24,947
Interest expense........................................................... (4,003) (1,865) (1,471) (2,423) (5,771)
Interest income............................................................ 773 337 171 360 396
Other income/(expense)(3).................................................. 1,274 (302) 242 568 748
-------- -------- -------- -------- --------
Income before provision for income taxes .................................. 8,271 14,629 16,022 37,076 20,320
Provision for income taxes(4).............................................. (961) (4,627) (5,235) (12,410) (7,439)
-------- -------- -------- -------- --------
Net income................................................................. $ 7,310 $ 10,002 $ 10,787 $ 24,666 $ 12,881
======== ======== ======== ======== ========
Net income per common share
Basic.................................................................... $ 0.69 $ 0.77 $ 0.82 $ 1.82 $ 0.85
Diluted.................................................................. $ 0.69 $ 0.76 $ 0.80 $ 1.71 $ 0.79
Weighted average shares outstanding
Basic.................................................................... 10,707 13,016 13,175 13,520 15,200
Diluted.................................................................. 10,707 13,096 13,567 14,417 16,314
<CAPTION>
As of December 31,
--------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............................................................ $ 23,003 $ 34,029 $ 45,304 $ 57,082 $ 25,196
Total assets............................................................... 57,840 63,420 71,861 153,891 295,042
Bank borrowings and long-term obligations.................................. 15,940 6,810 4,288 36,694 99,072
Shareholders' equity....................................................... 26,416 36,953 48,335 79,210 139,403
</TABLE>
(1) See "Item 1. Business--Acquisitions."
(2) On the effective date of its initial public offering, the Company incurred
a non-recurring charge to earnings related to a grant by Messrs. Guez and
Kay to Limited Direct Associates, L.P., an affiliate of The Limited, Inc.,
of a four-year option (the "LDA Option") to purchase an aggregate of
1,299,998 shares, or 10% of the Company's Common Stock, at an exercise
price equal to $3.60 per share. See "Item 1. Business--Customers" and "Note
15 to Notes to Consolidated Financial Statements."
(3) Major components of Other income/(expense) (as presented above) include
fees paid by affiliate entities for management and administrative services
provided by the Company, royalty income, and foreign currency gains. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Reflects, 1995 only, income per common share based upon pro forma net
income of $7,408 adjusted by providing an income tax provision which is the
sum of (i) U.S. income taxes computed as if the Company had been taxed as a
C Corporation at an effective tax rate of 40% for federal and state tax
purposes for the period it was an S Corporation and (ii) the historical tax
provision of the Company and its non-U.S. consolidated subsidiaries for all
other periods. 1996, 1997, 1998, and 1999 have no adjustments since the
Company was a C Corporation in such years.
18
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
General
The Company serves specialty retail, mass merchandise and discount store
chains by designing, merchandising, contracting for the manufacture of,
manufacturing directly, and selling casual, moderately-priced apparel for women,
men and children, under private label. The Company's major customers include
specialty retailers, such as Lerner New York, Limited Stores, Lane Bryant,
Structure and Express, all of which are divisions of The Limited, as well as
Target Stores (a division of Dayton Hudson), Abercrombie & Fitch, Mervyns,
Sears, K-Mart, Walmart and J.C. Penney. The Company's products are manufactured
in a variety of woven and knit fabrications and include jeanswear, casual pants,
t-shirts, shorts, blouses, shirts and other tops, dresses, leggings and jackets.
Over the past five years, the Company has achieved a compound annual growth
rate in net sales of approximately 19% from $205 million in 1995 to $395 million
in 1999. Pre-tax income has risen approximately 25 % on a compound annual basis,
from $8.3 million in 1995 to $20.3 million in 1999.
The Company continues to geographically diversify its worldwide sourcing
operations. Commencing in the third quarter of 1997, the Company substantially
expanded its use of independent cutting, sewing and finishing contractors in
Mexico, primarily for its increasing sales of basic garments. The gross sales of
products sourced in Mexico were approximately $104 million and $271 million in
1998 and 1999, respectively. The Company has also commenced the vertical
integration of its business through the development and acquisition of fabric
and production capacity in Mexico. The Company believes that these strategies
will create a more diversified sourcing base, increase the Company's access to
emerging providers of low cost production, enhance the proximity of the
Company's sourcing base to the Company's customers and lessen certain risks
associated with doing business abroad (including transportation delays, economic
or political instability, currency fluctuations, restrictions on the transfer of
funds and the imposition of tariffs, export duties, quotas and other trade
restrictions).
On August 1, 1999 the Company acquired all of the outstanding stock of
Industrial Exportadora Famian. S.A. de C.V., and Coordinados Elite, S.A. de
C.V., both Mexican corporations ("Grupo Famian"). Grupo Famian operates seven
apparel production facilities in and near Tehucan, Mexico which have the
capacity to provide "full package production" (i.e., cut, sew, launder, finish
and pack) of 110,000 units per week. For a description of the terms of
acquisition see "--Vertical Integration" and "Business Acquisitions".
On April 18, 1999 the Company finalized an agreement to acquire certain
assets of a denim mill located in Puebla, Mexico with an annual capacity of 18
million meters ("Jamil"). For a description of the terms of acquisition, see "-
- -Vertical Integration" and "Business Acquisitions".
On March 23, 1999, the Company purchased certain assets of CMG, Inc., a
California corporation ("CMG"). CMG designs, produces and sells private label
and "CHAZZZ" branded woven (denim and twill) and knit apparel for women,
children and men for national chain stores, including J.C. Penny, Sears and
Mervyns. For a description of the terms of acquisition, see "--Acquisitions".
On December 2, 1998, the Company contracted to acquire a turn-key facility
being constructed near Puebla, Mexico by an affiliate of the seller of the denim
mill described above. This facility is ultimately expected to have an annual
capacity of approximately 18 million meters of twill and will also house
ancillary facilities. Construction of this facility commenced in the third
quarter of 1998. During the fourth quarter of 1999 the Company began using this
facility for washing, finishing and packing. It is anticipated that the Company
will take full possession of this facility and begin spinning, weaving, dying
and cutting during the year 2000. The Company anticipates that the cost of this
facility will be approximately $90 million. See "--Vertical Integration".
During 1999, the Company began a consolidation strategy to gain
efficiencies as a result of its acquistions. As a result the Company has
discontinued use of two of the four Mississippi Rocky Apparel plants and shifted
this production to its Mexico facilities.
Management focused much of its attention during 1999 on transforming the
Company from a sourcing company to a fully vertical integrated manufacturer,
providing full package production from raw materials, (mostly cotton) to
finished garments. Its manufacturing operations were developed in Mexico
through acquistion and development of manufacturing plants, while its
traditional sourcing business continues at the same time predominantly out of
the Far East.
19
<PAGE>
The transition has been challenging and the Company has experienced lower gross
margins and higher operating expenses during 1999 as a result. In addition,
gross margins were impacted by inventory variance and markdowns, while the SGA
expenses were impacted by an increase in the reserve against accounts
receivable, and an asset impairment to write off its old computer systems.
During the year 2000 the company is installing new computer systems and
controls. Although, the integration process continues, the Company has made
significant progress at developing this strategy, and expects to begin to see
the benefits of lower productions costs, and greater control over quality and
delivery schedules during 2000.
Subsequent to the year-end 1999, the Company opened a new credit agreement
allowing it to borrow up to $105 million. The line of credit is granted by
three institutions, GMAC, Finova Capital Corporation, and Sanwa Bank of
California.
Factors That May Affect Future Results
This Report on Form 10-K contains forward-looking statements which are
subject to a variety of risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth below.
Vertical Integration. In 1997, the Company commenced the vertical
integration of its business. Key elements of this strategy include (i)
establishing cutting, sewing, washing, finishing, packing, shipping and
distribution activities in company-owned facilities or through the acquisition
of established contractors and (ii) establishing fabric production capability
through the acquisition of established mills or the construction of new mills.
The Company has no history of operating textile mills or cutting, sewing,
washing, finishing, packing or shipping operations upon which an evaluation of
the prospects of the Company's vertical integration strategy can be based. In
addition, such operations are subject to the customary risks associated with
owning a manufacturing business, including, but not limited to, the maintenance
and management of manufacturing facilities, equipment, employees and
inventories. See "Item 1. Business--Vertical Integration" and "--Foreign
Manufacturing."
Variability of Quarterly Results. The Company has experienced, and expects
to continue to experience, a substantial variation in its net sales and
operating results from quarter to quarter. The Company believes that the factors
which influence this variability of quarterly results include the timing of the
Company's introduction of new product lines, the level of consumer acceptance of
each new product line, general economic and industry conditions that affect
consumer spending and retailer purchasing, the availability of manufacturing
capacity, the seasonality of the markets in which the Company participates, the
timing of trade shows, the product mix of customer orders, the timing of the
placement or cancellation of customer orders, the weather, transportation
delays, quotas, the occurrence of chargebacks in excess of reserves and the
timing of expenditures in anticipation of increased sales and actions of
competitors. Accordingly, a comparison of the Company's results of operations
from period to period is not necessarily meaningful, and the Company's results
of operations for any period are not necessarily indicative of future
performance.
Economic Conditions. The apparel industry historically has been subject to
substantial cyclical variation, and a recession in the general economy or
uncertainties regarding future economic prospects that affect consumer spending
habits have in the past had, and may in the future have, a materially adverse
effect on the Company results of operations. In addition, certain retailers,
including some of the Company customers, have experienced in the past, and may
experience in the future, financial difficulties which increase the risk of
extending credit to such retailers. These retailers have attempted to improve
their own operating efficiencies by concentrating their purchasing power among a
narrowing group of vendors. There can be no assurance that the Company will
remain a preferred vendor for its existing customers. A decrease in business
from or loss of a major customer could have a material adverse effect on the
Company's results of operations. There can be no assurance that the Company's
factor will approve the extension of credit to certain retail customers in the
future. If a customer's credit is not approved by the factor, the Company could
either assume the collection risk on sales to the customer itself, require that
the customer provide a letter of credit or choose not to make sales to the
customer.
Reliance on Key Customers. Affiliated stores owned by The Limited
(including Lerner New York, Limited Stores, Structure, Express and Lane Bryant)
accounted for approximately 43% and 66% of the Company's net sales in 1999 and
1998, respectively. The loss of such customer could have a material adverse
effect on the Company's results of operations. From time to time, certain of the
Company's major customers have experienced financial difficulties. The Company
does not have long-term contracts with any of its customers and, accordingly,
there can be no assurance that any customer will continue to place orders with
the Company to the same extent it has in the past, or at all. In addition, the
Company's results of operations will depend to a significant extent upon the
commercial success of its major customers.
Dependence on Contract Manufacturers. The Company has reduced its reliance
on outside third party contractors through its Mexico vertical integretion
strategy. However, all international and a portion of its domestic sourcing is
manufactured by independent cutting, sewing and finishing contractors. The use
of contract manufacturers and the resulting lack of direct control
20
<PAGE>
over the production of its products could result in the Company's failure to
receive timely delivery of products of acceptable quality. Although the Company
believes that alternative sources of cutting, sewing and finishing services are
readily available, the loss of one or more contract manufacturers could have a
materially adverse effect on the Company's results of operations until an
alternative source is located and has commenced producing the Company's
products.
Although the Company monitors the compliance of its independent contractors
with applicable labor laws, the Company does not control its contractors or
their labor practices. The violation of federal, state or foreign labor laws by
one of the Company's contractors can result in the Company being subject to
fines and the Company's goods which are manufactured in violation of such laws
being seized or their sale in interstate commerce being prohibited. From time to
time, the Company has been notified by federal, state or foreign authorities
that certain of its contractors are the subject of investigations or have been
found to have violated applicable labor laws. To date, the Company has not been
subject to any sanctions that, individually or in the aggregate, could have a
material adverse effect upon the Company, and the Company is not aware of any
facts on which any such sanctions could be based. There can be no assurance,
however, that in the future the Company will not be subject to sanctions as a
result of violations of applicable labor laws by its contractors, or that such
sanctions will not have a material adverse effect on the Company. In addition,
certain of the Company's customers, including The Limited, require strict
compliance by their apparel manufacturers, including the Company, with
applicable labor laws. There can be no assurance that the violation of
applicable labor laws by one of the Company's contractors will not have a
material adverse effect on the Company's relationship with its customers.
Price and Availability of Raw Materials. Cotton fabric is the principal raw
material used in the Company's apparel. Although the Company believes that its
suppliers will continue to be able to procure a sufficient supply of cotton
fabric for its production needs, the price and availability of cotton may
fluctuate significantly depending on supply, world demand and currency
fluctuations, each of which may affect the price and availability of cotton
fabric. There can be no assurance that fluctuations in the price and
availability of cotton fabric or other raw materials used by the Company will
not have a material adverse effect on the Company's results of operations.
Management of Growth. Since its inception, the Company has experienced
rapid growth in sales. No assurance can be given that the Company will be
successful in maintaining or increasing its sales in the future. Any future
growth in sales will require additional working capital and may place a
significant strain on the Company's management, management information systems,
inventory management, production capability, distribution facilities and
receivables management. Any disruption in the Company's order processing,
sourcing or distribution systems could cause orders to be shipped late, and
under industry practices, retailers generally can cancel orders or refuse to
accept goods due to late shipment. Such cancellations and returns would result
in a reduction in revenue, increased administrative and shipping costs and a
further burden on the Company's distribution facilities. In addition, the
failure to timely enhance the Company's operating systems, or unexpected
difficulties in implementing such enhancements, could have a material adverse
effect on the Company's results of operations.
Foreign Manufacturing. Approximately 96% of the Company products were
imported (including Mexico) in 1999. As a result, the Company's operations are
subject to the customary risks of doing business abroad, including, among other
things, transportation delays, economic or political instability, currency
fluctuations, restrictions on the transfer of funds and the imposition of
tariffs, export duties, quotas and other trade restrictions.
Year 2000 Issue. In prior years , the Company discussed the nature and
progress of its plans to become Year 2000 ready. In late 1999, the Company
completed its remediation and testing of systems. As a result of those planning
and implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Company expensed approximately $250,000 during 1999 in connection
with remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, internal systems, or
the products and services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its suppliers and
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
21
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of income as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net sales....................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................... 84.9 81.2 83.3
----- ----- -----
Gross profit.................................................................... 15.1 18.8 16.7
Selling and distribution expenses............................................... 3.3 3.0 3.5
General and administration expenses............................................. 5.2 5.2 6.3
Amortization of excess of cost over fair value of net assets acquired(1)........ -- 0.4 0.6
----- ----- -----
Operating income................................................................ 6.6 10.2 6.3
Interest expense................................................................ (0.6) (0.6) (1.4)
Other income.................................................................... 0.2 0.2 0.2
----- ----- -----
Income before income taxes...................................................... 6.2 9.8 5.1
Income taxes.................................................................... ( 2.0) (3.3) (1.9)
----- ----- -----
Net income...................................................................... 4.2% 6.5% 3.2%
----- ----- -----
</TABLE>
(1) Reflects amortization of the excess of cost over fair value of assets
acquired in acquisitions of MGI and Rocky.
Comparison of 1999 to 1998
Net sales increased by $17.2 million or 4.5%, from $378.2 million in
1998 to $395.3 million in 1999. The increase in net sales includes $41.7
million in sales related to the acquired Chazzz division, which was
acquired in 1999, a decrease of approximately $70 million in sales to
divisions of The Limited, and an increase to other customers such as mass
merchants, discounters and branded designs. During 1999, sales to divisions
of The Limited accounted for 42.5% of total sales as compared to 63.3% in
1998.
Gross profit (which consists of net sales less product costs, duties
and direct costs attributable to production) for 1999 was $66.2 million, or
16.7% of net sales, compared to $71.1 million, or 18.8 % of net sales, a
decrease of 2.1%. The decrease was primarily attributable to production
inefficiencies that the Company experienced as it integrated its newly
acquired companies (Jamil, and Grupo Famian) into its operating structure.
In addition, the Company recorded a charge of approximately $2 million as a
result of year-end book to physical adjustments in the fourth quarter of
1999.
Selling and distribution expenses increased from $11.3 million in 1998
to $13.7 million in 1999. As a percentage of sales these expenses increased
from 3.0% in 1998 to 3.5% in 1999. This increase was caused by the
development of the personnel and infrastructure to support the development
of Mexico production facilites and the additional overhead of the Chazzz
division of $750,000 compared to zero in 1998.
General and administrative expenses increased from $19.9 million in
1998 to $25.3 million in 1999, an increase of 27%. Generally, this increase
was the result of the Company building its infrastructure to support the
development of Mexico manufacturing operations plus $2.6 million of
overhead expenses for the Chazzz division acquired during 1999. The Company
incurred approximately $1.0 million in charges to replace its old computer
systems, which are being replaced during 2000. This charge included both
costs to support the system in 1999 and costs related to the acceleration
of depreciation.
Operating income was $38.6 million in 1998, or 10.2% of net sales,
compared to $24.9 million in 1999 or 6.3% of net sales due to the factors
described above. The decrease in operating income as a percentage of net
sales was primarily due to a decrease in gross profit margin, which
amounted to 2.1% of net sales, an increase in general and adminstrative
expenses of 1.1% of net sales, and an increase in amortization of excess
cost over fair value of net assets acquired, which amounted to 0.1% of net
sales.
Other income increased from $928,000 in 1998 to $1,144,000 in 1999. As
a percentage of net sales there was no change. Included in other income in
1999 is a $668,000 foreign currency gain related to debt repayable in a
foreign currency.
22
<PAGE>
Income before taxes was $37.1 million in 1998 and $20.3 in 1999,
representing 9.8% and 5.1% of net sales respectively. The decrease in
income before taxes as a percentage of net sales was due to the decrease in
gross profit margin, an increase in general and administrative expense as
discussed above, and an increase in interest expense which amounted to 0.8%
of net sales associated with increased debt levels pertaining to the
expansion of Mexico operations.
Comparison of 1998 to 1997
Net sales increased by $118.1 million, or 45.4%, from $260.1 million in
1997 to $378.2 million in 1998. The increase in net sales included an aggregate
increase in sales (excluding Rocky) of $36.7 million to divisions of The
Limited, primarily as a result of an increased volume of unit sales, $75.8
million as a result of the MGI and Rocky Acquisitions and $2.7 million to mass
merchandisers. Excluding acquisitions, sales increased by $42.3 million, or
16.3% over last year. Overall, sales to divisions of The Limited in 1998
amounted to 63.3% of total net sales, as compared to 69.7% in 1997.
Gross profit (which consists of net sales less product costs, duties and
direct costs attributable to production) for 1998 was $71.1 million, or 18.8% of
net sales, compared to $39.1 million, or 15.1% of net sales, in 1997, an
increase of 81.8% in gross profit. The 3.7% increase in the gross profit margin
included benefits of 1.5% from a reduction in returns and inventory markdown,
0.4% from domestic production of the Men's Division, 0.3% from a reduction of
direct costs attributable to production as a percentage of net sales and the
elimination of certain nonrecurring costs incurred in 1997 on the Company's
production in the U.S. and Mexico.
Selling and distribution expenses increased from $8.5 million in 1997 to
$11.3 million in 1998. As a percentage of net sales, these expenses decreased
from 3.3% in 1997 to 3.0% in 1998. This percentage decrease is primarily due to
a decrease in freight and commission expenses, each of which amounted to 0.1% of
net sales.
General and administrative expenses increased from $13.5 million in 1997 to
$19.9 million in 1998. As a percentage of net sales, these expenses were 5.2% in
both years. Overall, 1998 expenses included increases in the allowance for bad
debt, bonus accrual and expenses related to the operations of MGI and Rocky. The
allowance for bad debt includes an allowance for returns and discounts as well
as bad debt expense. The allowance for returns and discounts is primarily based
on a percentage of receivables which increases with the age of the receivables,
but is not a reflection on the credit worthiness of the customer. The increase
in the allowance for returns and discounts during 1998 was $541,000, or 0.1% of
net sales, compared to a decrease in such allowance of $282,000 during 1997. The
most significant portions of the decrease in the allowance for returns and
discounts resulted from changes in the amount and aging of accounts receivable.
Bad debt expense was $189,000 in 1997 as compared to a recovery of $7,000 in
1998. Bonus accrual was $910,000 in 1997 as compared to $3.0 million in 1998.
After adjusting for the net increase in the allowance for bad debt of $627,000,
the $2.1 million increase in bonus accrual and expenses generated by the
operations of MGI and Rocky of $2.4 million in 1998 as compared to no such
expenses in 1997, general and administrative expenses increased by $1.3 million
in 1998 as compared to 1997, as summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 Increase/(Decrease)
---- ---- -------------------
<S> <C> <C> <C>
$19,897,000 $13,518,000 $6,379,000
Less: Bad debt expense*................................... (7,000) 189,000 (196,000)
Allowance for returns and discounts*................ 541,000 (282,000) 823,000
----------- ----------- ----------
Allowance for bad debt*............................. 534,000 (93,000) 627,000
Bonus accruals*..................................... 2,964,000 910,000 2,054,000
MGI and Rocky operations............................ 2,352,000 -0- 2,352,000
----------- ----------- ----------
$14,047,000 $12,701,000 $1,346,000
=========== =========== ==========
</TABLE>
_____________
* Excluding MGI and Rocky.
Operating income was $17.1 million in 1997, or 6.6% of net sales, compared
to $38.6 million in 1998, or 10.2% of net sales, due to the factors described
above. This increase in operating income as a percentage of net sales was due to
the increase in the gross profit margin, which amounted to 3.7% of net sales, a
decrease in selling and distribution expenses, which amounted to 0.3% of net
sales, and an increase in amortization of excess of cost over fair value of net
assets acquired, which amounted to 0.4% of net sales.
Other income increased from $413,000, or 0.2% of net sales, in 1997 to
$928,000, or 0.2% of net sales, in 1998. This increase is primarily the result
of interest income of $171,000 in 1997 compared to $361,000 in 1998, the
realization of no gains
23
<PAGE>
on the sale of securities in 1998 as compared to $237,000, or 0.1% of net sales,
of such income in 1997, and management fee income of $441,000, or 0.1% of net
sales, in 1998 compared to no such income in 1997.
Income before income taxes was $16.0 million in 1997 and $37.1 million in
1998, representing 6.2% and 9.8% of net sales, respectively. This increase in
income before taxes as a percentage of net sales was due to the increase in the
gross profit margin, which amounted to 3.7% of net sales, a decrease in selling
and distribution expenses, which amounted to 0.3% of net sales, and the increase
in amortization of excess of cost over fair value of net assets acquired, which
amounted to 0.4% of net sales.
Quarterly Results of Operations
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of income in millions of dollars and as a
percentage of net sales:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
--------- --------- ---------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In millions)
Net sales............. $ 53.6 $ 73.9 $ 69.2 $ 63.4 $ 64.3 $100.1 $114.9 $ 98.9 $ 84.1
Gross profit.......... 8.8 11.1 9.7 9.6 10.9 20.3 19.7 20.2 16.0
Operating income...... 3.4 5.1 4.1 4.5 4.5 11.7 11.4 11.0 7.9
Net Income/(loss) 2.0 3.3 2.7 2.8 2.8 7.2 7.1 7.6 4.6
<CAPTION>
-------------------------------
June 30, Sept. 30, Dec. 31,
1999 1999 1999
--------- ---------- ---------
<S> <C> <C> <C>
Net sales............. $109.8 $110.5 $ 90.9
Gross profit.......... 19.0 19.3 11.9
Operating income...... 9.7 9.0 (1.7)
Net Income/(loss) 5.7 4.9 (2.3)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.......... 16.4 15.0 14.0 15.1 17.0 20.2 17.1 20.4 19.1
Operating Inc/(loss) 6.3 6.9 5.9 7.2 7.1 11.7 9.9 11.1 9.4
Net Income/(loss) 3.8 4.4 3.9 4.4 4.3 7.2 6.2 7.7 5.5
<CAPTION>
-------------------------------
June 30, Sept. 30, Dec. 31,
1999 1999 1999
-------- --------- --------
<S> <C> <C> <C>
Net sales............. 100.0% 100.0% 100.0%
Gross profit.......... 17.3 17.5 13.1
Operating Inc/(loss) 8.8 8.1 (1.9)
Net Income/(loss) 5.2 4.4 (2.5)
</TABLE>
As is typical for the Company, quarterly net sales fluctuated significantly
because the Company's customers typically place bulk orders with the Company,
and a change in the number of orders shipped in any one period may have a
material effect on the net sales for that period.
Liquidity and Capital Resources
The Company's liquidity requirements arise from the funding of its working
capital needs, principally inventory, finished goods shipments-in-transit, work-
in-process and accounts receivable, including receivables from the Company's
contract manufacturers that relate primarily to fabric purchased by the Company
for use by those manufacturers. (The Company generally purchases fabric for
delivery directly to the manufacturer's factory. The Company then invoices the
manufacturer for the fabric, and reduces payments to the manufacturer for
finished goods by the amount of outstanding invoices.) The Company's primary
sources for working capital and capital expenditures are cash flow from
operations, borrowings under the Company's bank credit facilities, issuance of
long-term debt and the proceeds from the exercise of stock options.
During 1999, net cash provided by operating activities was $2.2 million, which
resulted primarily from net income of $12.9 million plus depreciation and
amortization of $8.0 million, as offset by a net increase in working capital
items, including an increase of $4.1 million in accounts receivable and an
increase in inventory of $13.1 million. The increase in inventory primarily
resulted from the company beginning to do its own manufacturing in Mexico as
part of its vertical integration strategy. The Company now carries inventories
on its books of raw materials, work in process, and finished goods as a result
of this operation.
During 1999, cash flow used in investing activities was $84.0 million, which
included $4.2 million for the CMG acquisition, $6.8 million for the Famian
acquisition. The remaining investment was used to acquire fixed assets and
construction costs in Mexico to build production facilities.
In 1999, cash flow provided by financing activities equaled $79.9 million,
including $61.7 million of net additional bank borrowings and long term debt.
The balance was $16.1 million interim financing from a shareholder, and $2.0
million from the exercise of stock options net of the companies stock repurchase
plan expenditures
The Company has credit facilities of $33 million and $13 million with the
Hongkong and Shanghai Banking Corporation Limited ("HKSB") and Standard
Chartered Bank ("SCB"), respectively, for borrowings and the purchase and
exportation of finished goods. Under these facilities, the Company may arrange
for the issuance of letters of credit and acceptances, as well as
24
<PAGE>
cash advances. These facilities are subject to review at any time and the right
of either lender to demand payment at any time. Interest on cash advances under
HKSB's facility accrues at HKSB's prime rate for lending U.S. dollars plus one-
half to three-quarters percent per annum. As of December 31, 1999, HKSB's U.S.
dollar prime rate equaled eight and one-half percent. Interest on cash advances
under SCB's facility accrues at SCB's prime rate for lending Hong Kong dollars.
As of December 31, 1999, SCB's Hong Kong dollar prime rate equaled eight and
one-half percent. These facilities are subject to certain restrictive covenants
including a provision that the aggregate net worth, as adjusted, of the Company
will exceed $30 million, the Company will not incur two consecutive quarterly
losses and the Company will maintain a certain debt to equity ratio. As of
December 31, 1999 there were $21.0 million of outstanding borrowings under these
facilities.
The Company had accounts receivable-secured credit facilities with the CIT
Group/Commercial Services, Inc. ("CIT") and Finova Capital Corporation ("FCC").
Effective January 1, 1998 the Company substantially eliminated its use of a
factor for credit verification and approval purposes on major accounts. The
Company may receive advances from FCC of up to 90% of certain accounts
receivable, and advances from CIT up to 90-100% of the amount of other accounts
receivable. Subsequent to the year-end, these facilities from FCC and CIT have
been replaced by a syndicated facility of $105 million lead managed by GMAC
Commercial Credit and participated by GMAC, Finova, and Sanwa Bank of
California.
The Company had an unsecured $10 million credit facility with SCB which
matured on December 29, 1999 and has been replaced by an uncommitted and
unsecured Money Market Line for the same amount. The Money Market Line is cross
defaulted to the Company's other credit facilities and interest on advances
accrues at the rate of one an one quarter percent over Libor. At December 31,
1999, $4.0 million was outstanding under this facility.
The Company guarantees a $2.5 million credit facility for Rocky Apparel,
LLC, a wholly-owned subsidiary of the Company which acquired the partnership
interests in Rocky Apparel, L.P., a Delaware limited partnership.
The Company assumed certain bank liabilities of Grupo Famian upon its
acquisition during the year. As of December 31, 1999 these amounted to $1
million due to Banco Bilbao and $222,222 due to Banco International.
The Company had two equipment loans for $16.25 million and $5.2 million
from GE Capital Leasing and Bank of America Leasing respectively. The leases are
secured by equipment located in Puebla and Tlaxcala Mexico. The outstanding
amounts as of December 31, 1999 were $15.5 million due to GE Capital and $5.1
million due to Bank of America. Interest accrues at a rate of 2 1/2% over LIBOR.
The loan from GE Capital will mature in the year 2005 and the loan from Bank of
America in the year 2004. These facilities are subject to the same restrictive
covenants as applicable to the HKSB and SCB facilities.
During 1999 the Company financed equipment purchases for the new
manufacturing facility with certain vendors of the related equipment. A total of
$16.9 million was financed with five year promissory notes which bear interest
ranging from 7.0% to 7.5%, are payable in semiannual payments commencing in
February 2000. Of the $16.9 million outstanding as of December 31, 1999, $10.9
million is denominated in Deutsch Marks and $1.1 million is denominated in the
Euro. The remainder is payable in U.S. dollars. The Company bears the risk of
any foreign currency fluctuation with regards to this debt.
The Company has financed its operations from its cash flow from operations,
borrowings under its bank credit facilities, issuance of long-term debt
(including debt to or arranged by vendors of equipment purchased for the Mexican
twill and production facility), and the proceeds from the exercise of stock
options. The Company believes that these sources of cash should be sufficient to
fund its existing operations for the foreseeable future.
The Company has commenced a capital investment program in Mexico under
which it will invest approximately $160 million in the acquisition of a denim
mill and the construction of a new facility which when fully operational will
spin, weave and dye twill fabric, and provide the capability to cut, launder,
finish and ship finished garments. See "Item 1. Business--General and--
Acquisitions." The Company may seek to finance future capital investment
programs through various methods, including, but not limited to, borrowings
under the Company's bank credit facilities, issuance of long-term debt, leases
and long-term financing provided by the sellers of facilities or the suppliers
of certain equipment used in such facilities. To date, capital expenditures
aggregating approximately $116 million have been made with respect to vertical
integration programs initiated by the Company.
The Company does not believe that the moderate levels of inflation in the
United States in the last three years have had a significant effect on net sales
or profitability.
25
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's earnings are affected by fluctuations in the value of the
U.S. dollar as compared to foreign currencies as a result of certain debt
denominated in the Deutsch Mark and the Euro. At December 31, 1999 the Company
had $10.9 million in U.S. dollars repayable in Deutsch Marks and $1.1 million
U.S. dollars repayable in Euros. The Company bears the risk of exchange rate
gains and losses that may result in the future as a result of this financing
structure. During 1999 the Company recorded a $668,000 exchange rate gain as a
result of a fluctuation. At December 31, 1999 the result of a 10% deterioration
of the Deutsch Mark and Euro to the U.S. dollar would result in an exchange rate
loss of $1.3 million. This hypothetical calculation assumes that each exchange
rate would change in the same direction relative to the U.S. dollar and does not
take into account any actions the Company would likely take to mitigate any
exposure.
The Company's interest expense is sensitive to changes in the general level
of U.S. interest rates. In this regard, changes in U.S. interest rates affect
interest paid on the Company's debt. A majority of the Company's credit
facilities are at variable rates.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See "Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K" for the Company's financial statements, and the notes thereto, and the
financial statement schedules filed as part of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
26
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The information concerning the directors and executive officers of the Company
is incorporated herein by reference from the section entitled "Proposal 1--
Election of Directors" contained in the definitive Proxy Statement of the
Company to be filed pursuant to Regulation 14A within 120 days after the end of
the Company's last fiscal year (the "Proxy Statement").
Item 11. EXECUTIVE COMPENSATION
----------------------
The information concerning executive compensation is incorporated herein by
reference from the section entitled "Proposal 1--Election of Directors"
contained in the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information concerning the security ownership of certain beneficial owners
and management is incorporated herein by reference from the sections entitled
"General Information--Security Ownership of Principal Shareholders and
Management" and "Proposal 1--Election of Directors" contained in the Proxy
Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information concerning certain relationships and related transactions is
incorporated herein by reference from the section entitled "Proposal 1--Election
of Directors--Certain Relationships and Related Transactions" contained in the
Proxy Statement.
27
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements and Schedule. Reference is made to the Index to
----------------------------------
Financial Statements and Schedule on page F-1 for a list of financial statements
and the financial statement schedule filed as part of this report. All other
schedules are omitted because they are not applicable or the required
information is shown in the Company's financial statements or the related notes
thereto.
(b) Reports on Form 8-K. None.
--------------------
(c) Exhibits. The following is a list of exhibits filed as a part of this
---------
report.
Exhibit Number
Description
3.1 Restated Articles of Incorporation of the Company/(1)/
3.2 Restated Bylaws of the Company/(1)/
4.1 Specimen of Common Stock Certificate/(2)/
10.1 Note in the principal amount of $2,600,000 dated March 15, 1995
in favor of Imperial Bank/(1)/
10.2 General Security Agreement dated March 15, 1995, by and between
the Company and Imperial Bank/(1)/
10.3 Factoring Agreement effective as of September 28, 1993, as
amended, by and between the Company and NationsBanc Commercial
Corporation/(1)/
10.4 1995 Stock Option Plan dated as of May 1, 1995/(1)/
10.5 Letter Agreement dated February 17, 1995 between Tarrant Company
Limited and The Hongkong and Shanghai Banking Corporation
Limited/(1)/
10.6 Letter dated April 18, 1995 from The Hongkong and Shanghai
Banking Corporation Limited to Tarrant Company Limited regarding
the release of certain security interests/(1)/
10.7 Commercial Lease dated January 1, 1994 and GET and the
Company/(1)/
10.8 Tenancy Agreement dated July 15, 1994 between Lynx International
Limited and Tarrant Company Limited, as amended by that certain
Supplementary Tenancy Agreement dated December 30, 1994 and that
certain Second Supplementary Tenancy Agreement dated December 31,
1994/(1)/
10.9 Lease Agreement dated June 10, 1994, between Yip Sik Kin and
Tarrant Company Limited (translated from Chinese)/(1)/
10.10 Tenancy Contract effective as of December 24, 1994, between
Khalifa al Muhairi and Tarrant Trading Co. Ltd./(1)/
10.11 Agreement dated as of June 1, 1995, by and among Pret-A-Porter,
the Company, French Designers, Inc., Bernard Aidan, Gerard Guez
and Todd Kay/(5)/
28
<PAGE>
10.12 Services Agreement dated as of April 1, 1995, by and between F.I.S.,
Inc. and the Company/(2)/
10.13 Services Agreement dated as of October 1, 1994, by and between the
Company and GET/(1)/
10.14 Services Agreement dated as of October 1, 1994, by and between the
Company and Lynx International Limited/(1)/
10.15 Indemnification Agreement dated as of March 14, 1995, by and among the
Company, Gerard Guez and Todd Kay/(2)/
10.16 Promissory Note in the initial principal amount of $2 million dated
February 8, 1995, by Gerard Guez in favor of the Company/(2)/
10.17 Promissory Note in the initial principal amount of $1 million dated
February 8, 1995, by Todd Kay in favor of the Company/(2)/
10.18 Promissory Note in the principal amount of $1,334,566.71 dated
December 31, 1994, by F.I.S., Inc. in favor of the Company/(2)/
10.19 Release dated as of June 1, 1995, by and between the Company and
certain other parties signatory thereto/(2)/
10.20 Option Agreement dated as of July 28, 1995, by and among Limited
Direct Associates, L.P., Gerard Guez, Todd Kay and the Company/(5)/
10.21 Registration Rights Agreement dated as of July 28, 1995, by and among
the Company and Limited Direct Associates, L.P./(5)/
10.22 Reorganization and Tax Indemnification Agreement dated as of June 13,
1995, by and among the Company and its shareholders/(5)/
10.23 Employment Agreement January 1, 1995, by and between the Company and
Gerard Guez/(2)/
10.23.1 Employment Agreement effective January 1, 1998, by and between the
Company and Gerard Guez
10.24 Agreement dated as of January 1, 1995, by and between the Company and
Todd Kay/(1)/
10.24.1 Employment Agreement effective January 1, 1998, by and between the
Company and Todd Kay
10.25 Employment Agreement dated as of January 1, 1994, by and between the
Company and Jimmy Esebag, as amended, by that certain Amendment No. 1
dated as of June 1, 1995/(2)/
10.26 Employment Agreement dated as of November 18, 1994, by and between the
Company and Mark B. Kristof/(1)/
10.27 Employment Agreement dated as of July 5, 1994, by and between the
Company and Bradley R. Kenson/(1)/
10.28 License Agreement dated January 1, 1994, by and between the Company
and GET/(1)/
10.29 Assignment dated as of June 1, 1995 with respect to the GET!
trademark, executed by GET in favor of the Company/(2)/
10.30 Amendment No. 1 to Commercial Lease dated as of April 1, 1995, by and
between GET and the Company/(2)/
10.31 Lease and Services Agreement dated as of June 1, 1995, by and between
Tarrant Company Limited and French Designers, Inc./(2)/
29
<PAGE>
10.32 Note in the principal amount of $2,600,000 dated May 15, 1995, by the
Company in favor of Imperial Bank/(2)/
10.33 Letter Agreement dated May 17, 1995, by and between Tarrant Company
Limited and The Hongkong and Shanghai Banking Corporation Limited/(2)/
10.34 Buying Agency Agreement executed as of December 19, 1992, between
F.I.S., Inc. and Tarrant Company Ltd./(2)/
10.35 Buying Agency Agreement executed as of April 4, 1995, by Azteca
Production International, Inc. and Tarrant Company Ltd., with the
Company acknowledging as to certain matters/(2)/
10.36 Tripartite Agreement Assignment of Factoring Proceeds (Advances)
executed and delivered June 6, 1995, by the Company, and accepted and
agreed to by The Hongkong and Shanghai Banking Corporation Limited and
NationsBanc Commercial Corporation/(2)/
10.36.1 Amendment to Three Party Special Deposit Account Agreement/(8)/
10.37 Security Agreement (Guaranty of Tarrant Co. Ltd. Debt) entered into as
of June 6, 1995, by and between the Hongkong and Shanghai Banking
Corporation Limited and the Company/(2)/
10.38 Security Agreement (Tarrant Co. Ltd. Draft Acceptance) entered into as
of June 6, 1995, by and between The Hongkong and Shanghai Banking
Corporation Limited and the Company/(2)/
10.39 Agreement dated March 14, 1995, by and among Tarrant Company Limited,
Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong/(3)/
10.40 Agreement dated March 17, 1995, by and among Tarrant Company Limited,
Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong/(3)/
10.41 Underwriting Agreement dated as of July 24, 1995, by and among the
Company, Gerard Guez, Todd Kay and Prudential Securities
Incorporated/(5)/
10.42 Letter agreement dated August 10, 1995, by and among the Company and
NationsBanc Commercial Corporation/(4)/
10.42.1 Amendment dated June 9, 1997 to Factoring Agreement effective as of
September 28, 1993, as amended, by and between the Company and
NationsBanc Commercial Corporation/(8)/
10.43 Letter agreement dated January 30, 1996, by and between Tarrant
Company Limited and The Hongkong Shanghai Banking Corporation
Limited/(5)/
10.43.1 Letter agreement dated May 28, 1996, by and between Tarrant Company
Limited and The Hongkong and Shanghai Banking Corporation Limited/(8)/
10.43.2 Letter agreement dated April 16, 1998, by and between Tarrant Company
Limited and The Hongkong and Shanghai Banking Corporation
Limited/(11)/
10.44 Promissory Note in the principal amount of $3 million dated March 25,
1996, by GET in favor of the Company/(6)/
10.45 Deed of Trust dated March 25, 1996 by and between GET and the
Company/(6)/
10.46 Guaranty, Pledge & Security Agreement entered into as of March 25,
1996, by and between Gerard Guez and the Company/(6)/
10.47 Guaranty, Pledge & Security Agreement entered into as of March 25,
1996, by and between Todd Kay and the Company/(6)/
10.48 Letter agreement dated February 22, 1996, by and between Tarrant
Company Limited and Standard Chartered Bank/(7)/
10.49 Letter agreement dated March 8, 1996, by and between Tarrant Company
Limited and Standard Chartered Bank/(7)/
30
<PAGE>
10.50 Guarantee Agreement entered into as of August 30, 1996, by and between
Standard Chartered Bank and the Company/(7)/
10.51 Letter of Undertaking entered into as of August 30, 1996, by and
between Standard Chartered Bank and the Company/(7)/
10.52 Intercreditor Agreement entered into as of November 1, 1996, between
The Hongkong and Shanghai Banking Corporation Limited, Standard
Chartered Bank and Tarrant Company Limited/(7)/
10.53 Security Agreement entered into as of November 1, 1996, by and between
Standard Chartered Bank and the Company/(7)/
10.54 Amendment to Security Agreement (Guaranty of Tarrant Co. Ltd. Debt)
entered into as of November 1, 1996, between The Hongkong and Shanghai
Banking Corporation Limited and the Company/(7)/
10.55 Agreement dated January 29, 1997 by and among Tarrant Company Limited,
Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong/(7)/
10.56 Form of Indemnification Agreement with directors and certain executive
officers/(8)/
10.57 Special Deposit Account Agreement/(8)/
10.58 Accounts Receivable Financing Agreement dated June 13, 1997, by and
between the Company and The CIT Group/Commercial Services, Inc./(8)/
10.58.1 Letter Agreement dated October 1, 1997 regarding Accounts Receivable
Financing Agreement, by and between the Company and The CIT
Group/Commercial Services, Inc.
10.59*+ Asset Purchase Agreement dated February 18, 1998, by and between
Marble Limited and MGI International Limited/(10)/
10.60*+ Asset Purchase Agreement dated February 18, 1998, by and between the
Company and Marshall Gobuty International U.S.A., Inc./(10)/
10.61 Employment Agreement dated February 23, 1998, by and between the
Company and Marshall Gobuty/(10)/
10.62 Noncompetition Agreement dated February 23, 1998, by and between
Marshall Gobuty International U.S.A., Inc. and Marshall Gobuty, on the
one hand, and the Company, on the other hand/(10)/
10.63 Noncompetition Agreement dated February 23, 1998, by and between MGI
International Limited and Marshall Gobuty, on the one hand, and the
Company, on the other hand/(10)/
10.64 Loan Agreement dated as of July 1, 1998, between the Company and
Standard Chartered Bank/(12)/
10.65 Partnership Interest Purchase Agreement dated as of July 2, 1998,
among Rocky Acquisition, LLC, the Company, Limited Direct Associates,
L.P., Rocky Apparel, Inc., and Gabriel Manufacturing Company
10.66 Escrow Agreement made as of July 2, 1998, by and among the Company,
Gabriel Manufacturing Company and Rocky Apparel, Inc.
10.67 Facility Development Agreement dated as of December 2, 1998, by and
between Tarrant Mexico, S. de R.L. de C.V. nd Tex Transas, S.A. de
C.V.
10.68 + Agreement for Purchase of Assets dated as of February 22, 1999, by and
among Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A. de C.V.,
Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma Benavides
Montes De Oca.
31
<PAGE>
10.68.1 Final Agreement for Purchase of Assets dated as of April 18, 1999, by
and among Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A. de
C.V., Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma
Benavides Montes De Oca
10.69 Agreement for Purchase of Assets effective as of the twenty-third day
of March, 1999, by and among CMG, Inc., Charles Ghailian, CHAZZZ
Acquisition, L.L.C. and the Company
10.70 Employment Agreement effective as of the twenty-third day of March,
1999, by and between Charles Ghailian and the Company
10.71 Non-Negotiable Promissory Note dated March 23, 1999
10.72 Escrow Agreement, by and among the Company, Tarrant Mexico, S. de R.L.
de C.V. and Jamil Textil, S.A. de C.V. dated as of April 1, 1999.
10.72.1 Final Escrow Agreement dated as of May 24, 1999, by and among Tarrant
Apparel Group, Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A.
de C.V., Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma
Benavides Montes De Oca
10.73 Employment Agreement dated as of April 1, 1999 by and between Kamel
Nacif and Tarrant Mexico, S. de R.L. de C.V.
10.74 Agreement for Purchase of Stock dated as of August 1, 1999, by and
among Tag Mex, Inc., NO! Jeans, Inc., Antonio Haddad Haddad, Tarrant
Apparel Group and the shareholders of Industrial Exportadora Famian,
S.A. de C.V. and Coordinados Elite, S.A. de C.V. *
10.75 Noncompetition Agreement dated as of August 1, 1999, by and among ag
Mex, Inc., NO! Jeans, Inc., Antonio Haddad Haddad, Tarrant Apparel
Group and the shareholders of Industrial Exportadora Famian, S.A. de
C.V. and Coordinados Elite, S.A. de C.V.
10.77 Loan Agreement dated September 1, 1999 by and between General Electric
Capital Corporation and Tarrant Apparel Group
10.77.1 Amendment No. 1 to Loan Agreement dated September 12, 1999 by and
between General Electric Capital Corporation and Tarrant Apparel Group
10.78 Promissory Note dated September 1, 1999 to pay to the order of General
Electric Capital Corporation the loan amount referred to in Exhibit
10.77
10.79 Corporate Guaranty dated September 1, 1999 by Tarrant Mexico, S. De
R.L. de C.V. in connection with loan agreement referred to in Exhibit
10.77
10.79.1 Amendment No. 1 to Corporate Guaranty dated September 12, 1999 by
Tarrant Mexico, S. De R.L. de C.V. in connection with loan agreement
referred to in Exhibit 10.77
10.80 Master Security Agreement made as of September 1, 1999 by and between
General Electric Capital Corporation and Tarrant Mexico, S. de R.L. de
C.V. in connection with loan agreement referred to in Exhibit 10.77
10.80.1 Amendment No. 1 to Master Security Agreement made as of September 12,
1999 by and between General Electric Capital Corporation and Tarrant
Mexico, S. de R.L. de C.V. in connection with loan agreement referred
to in Exhibit 10.77
10.81 Loan Agreement dated December 30, 1999 by and between Standard
Chartered Bank and Tarrant Apparel Group.
10.82 Factoring Agreement dated November 24, 1999 by and between MTB Bank
and Rocky Apparel, LLC.
10.83 Machinery and Equipment Agreement dated November 17, 1999 by and
between Tarrant Mexico, S. De R.L. De C.V. and Banc of America Leasing
& Capital, L.L.C.
32
<PAGE>
10.84 Employment Agreement dated as of August 1, 1999 by and between
Industrial Exportadora Famian, S.A. de C.V. and Antonio Haddad Haddad
10.85 Employment Agreement dated as of August 1, 1999 by and between
Industrial Exportadora Famian, S.A. de C.V. and Mario Alberto Haddad
Yunes
10.86 Employment Agreement dated as of August 1, 1999 by and between
Industrial Exportadora Famian, S.A. de C.V. and Marco Antonio Haddad
Yunes
10.87 Employment Agreement dated as of August 1, 1999 by and between
Industrial Exportadora Famian, S.A. de C.V. and Miguel Angel Haddad
Yunes
10.88 Non - Negotiable Promissory Note dated August 1, 1999 to pay to the
order of Antonio Haddad Haddad
10.89 Stock Pledge Agreement dated August 1, 1999 by and between TAG MEX,
INC. and those individuals whose names appear on the signature page
10.90 Revolving Credit, Factoring and Security Agreement dated January 21,
2000 by and between Tarrant Apparel Group, TAG MEX, INC., and GMAC
COMMERCIAL CREDIT LLC
23 Consent of Ernst & Young LLP
27 Financial Data Summary
__________
* Confidential treatment has been requested for portions of this document.
+ All schedules and/or exhibits have been omitted. Any omitted schedule or
exhibit will be furnished supplementally to the Securities and Exchange
Commission upon request.
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on May 4, 1995 (File No.
33-91874).
(2) Filed as an exhibit to Amendment No. 1 to Registration Statement on Form S-
1 filed with the Securities and Exchange Commission on June 15, 1995.
(3) Filed as an exhibit to Amendment No. 2 to Registration Statement on Form S-
1 filed with the Securities and Exchange Commission on July 11, 1995.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 30, 1995.
(6) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(10) Filed as exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
(11) Filed as exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
(12) Filed as exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
27 Financial Data Schedule
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 22, 2000.
TARRANT APPAREL GROUP
By: /s/ Gerard Guez
-----------------------------------
Gerard Guez,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerard Guez Chairman, Chief Executive Officer March 22, 2000
- ------------------------ and Director (Principal
Gerard Guez Executive Officer)
/s/ Todd Kay Vice Chairman and Director March 22, 2000
- ------------------------
Todd Kay
/s/ Barry Aved President and Director March 22, 2000
- ------------------------
Barry Aved
/s/ Scott Briskie Vice President Finance Chief March 22, 2000
- ------------------------ Financial Officer and Director
Scott Briskie (Principal Financial and
Accounting Officer)
/s/ Karen S. Wasserman Executive Vice President, General March 22, 2000
- ------------------------ Merchandising Manager and
Karen S. Wasserman Director
/s/ James R. Miller Director March 22, 2000
- ------------------------
James R. Miller
/s/ Nicolas Berggruen Director March 22, 2000
- ------------------------
Nicolas Berggruen
</TABLE>
S-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements
Report of Independent Auditors--Ernst & Young, LLP............................................................... F-2
Consolidated Balance Sheets--December 31, 1998 and 1999.......................................................... F-3
Consolidated Statements of Income--Three year period ended December 31, 1999..................................... F-4
Consolidated Statements of Shareholders' Equity--Three year period ended December 31, 1999....................... F-5
Consolidated Statements of Cash Flows--Three year period ended December 31, 1999................................. F-6
Notes to Consolidated Financial Statements....................................................................... F-7
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts................................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Tarrant Apparel Group
We have audited the accompanying consolidated balance sheets of Tarrant
Apparel Group and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tarrant Apparel
Group and subsidiaries at December 31, 1997, 1998 and 1999 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule when considered in relation to the basic financial
statements, taken as a whole, presents fairly in all material respects the
information set forth therein.
Los Angeles, California /s/ ERNST & YOUNG LLP
March 17, 2000
F-2
<PAGE>
TARRANT APPAREL GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 4,318,520 $ 2,239,511
Accounts receivable, net.................................................. 65,946,055 70,922,626
Due from affiliates....................................................... 2,143,527 1,031,879
Due from officers......................................................... 4,477,461 1,891,739
Inventory................................................................. 49,230,847 62,362,409
Temporary quota........................................................... 1,192,888 4,521,200
Prepaid expenses and other receivables.................................... 1,527,392 3,413,416
Income taxes.............................................................. 501,334 296,681
------------ ------------
Total current assets................................................... 129,338,024 146,679,461
Property and equipment, net................................................. 5,306,308 111,520,497
Permanent quota, net........................................................ 245,464 584,402
Other assets................................................................ 4,468,517 11,658,832
Excess of cost over fair value of net assets acquired, net.................. 14,532,193 24,599,215
------------ ------------
Total assets........................................................... $153,890,506 $295,042,407
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings........................................................... $ 33,288,267 $ 55,144,818
Accounts payable.......................................................... 24,200,202 27,915,169
Accrued expenses.......................................................... 8,738,522 7,814,114
Income taxes.............................................................. 5,048,288 4,694,483
Due to shareholders/officers.............................................. - 16,143,238
Current portion of long-term obligations.................................. 981,124 9,771,867
------------ ------------
Total current liabilities.............................................. 72,256,403 121,483,689
Long-term obligations....................................................... 2,424,439 34,155,247
------------ ------------
Total liabilities...................................................... 74,680,842 155,638,936
Commitments and contingencies
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized; none issued and
outstanding............................................................. - -
Common stock, no par value, 20,000,000 shares authorized;
13,832,955 shares (1998) and 15,802,315 (1999) issued and
outstanding............................................................. 22,290,539 69,595,141
Contributed capital....................................................... 1,434,259 1,434,259
Retained earnings......................................................... 55,484,866 68,365,373
Accumulated other comprehensive income.................................... - 8,698
------------ ------------
Total shareholders' equity............................................. 79,209,664 139,403,471
------------ ------------
Total liabilities and shareholders' equity............................. $153,890,506 $295,042,407
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net sales.................................................. $260,092,777 $378,155,527 $395,341,275
Cost of sales.............................................. 220,995,754 307,077,111 329,131,063
------------ ------------ ------------
Gross profit............................................... 39,097,023 71,078,416 66,210,212
Selling and distribution expenses.......................... 8,498,976 11,274,384 13,691,796
General and administrative expenses........................ 13,518,441 19,896,522 25,259,733
Amortization of excess of cost over fair value of net
assets acquired........................................... - 1,336,791 2,311,522
------------ ------------ ------------
Income from operations..................................... 17,079,606 38,570,719 24,947,161
Interest expense........................................... (1,470,762) (2,423,482) (5,771,250)
Interest income............................................ 171,385 360,580 395,523
Other income (expense)..................................... 241,235 567,847 748,139
------------ ------------ ------------
Income before provision for income taxes................... 16,021,464 37,075,664 20,319,573
Provision for income taxes................................. 5,235,000 12,410,000 7,439,066
------------ ------------ ------------
Net income................................................. $ 10,786,464 $ 24,665,664 $ 12,880,507
============ ============ ============
Net income per share:
Basic.................................................... $ 0.82 $ 1.82 $ 0.85
============ ============ ============
Diluted.................................................. $ 0.80 $ 1.71 $ 0.79
============ ============ ============
Weighted average shares outstanding:
Basic.................................................... 13,175,256 13,519,517 15,199,893
Diluted.................................................. 13,567,254 14,416,850 16,314,129
</TABLE>
See accompanying notes.
F-4
<PAGE>
TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Contributed Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
----------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ $15,485,734 $1,434,259 $20,032,738 $ - $ 36,952,731
Net income............................. - - 10,786,464 - 10,786,464
Exercise of stock options.............. 495,254 - - - 495,254
Income tax benefit from exercise
of stock options...................... 119,495 - - - 119,495
----------- ---------- ----------- ------------- ------------
Balance at December 31, 1997............ 16,100,483 1,434,259 30,819,202 - 48,353,944
Net income............................. - - 24,665,664 - 24,665,664
Exercise of stock options.............. 3,343,492 - - - 3,343,492
Issuance of shares for acquisition..... 1,350,000 - - - 1,350,000
Income tax benefit from exercise
of stock options...................... 1,496,564 - - - 1,496,564
----------- ---------- ----------- ------------- ------------
Balance at December 31, 1998............ 22,290,539 1,434,259 55,484,866 - 79,209,664
Net income............................. 12,880,507 - 12,880,507
Currency translation................... - - - 8,698 8,698
------------
Comprehensive income................... - - - - 12,889,205
Exercise of stock options.............. 1,569,887 - - - 1,569,887
Issuance of shares for
acquisition-Jamil..................... 45,283,716 - - - 45,283,716
Repurchase of shares................... (806,633) - - - (806,633)
Income tax benefit from exercise
of stock options...................... 1,257,632 - - - 1,257,632
----------- ---------- ----------- ------------- ------------
Balance at December 31, 1999............ $69,595,141 $1,434,259 $68,365,373 $ 8,698 $139,403,471
=========== ========== =========== ============= ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income....................................................... $ 10,786,464 $ 24,665,664 $ 12,880,507
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:..............................
Deferred taxes................................................. 598,273 (606,241) (169,919)
Depreciation and amortization.................................. 867,022 2,356,259 8,001,897
Loss on sale of fixed assets................................... 3,698 21,587 64,562
Unrealized gain on foreign currency............................ - - (667,623)
Provision for returns and discounts............................ (359,344) 593,447 961,311
Changes in operating assets and liabilities:
Accounts receivable......................................... 10,764,877 (28,785,228) (4,056,532)
Due (from) to affiliates and officers....................... (1,508,724) (5,015,848) 3,697,370
Inventory................................................... (12,446,028) (18,215,979) (13,125,935)
Temporary quota............................................. (1,151,297) 1,681,494 (3,328,312)
Prepaid expenses............................................ (849,422) (185,579) (2,527,640)
Prepaid income taxes........................................ 1,300,887 - -
Accounts payable............................................ (1,650,268) 5,906,194 2,789,709
Accrued expenses and income tax payable..................... 629,236 7,100,702 (2,284,419)
------------ ------------ ------------
Net cash (used in) provided by operating activities...... 6,985,374 (10,483,528) 2,234,976
Investing activities
Purchase of fixed assets......................................... (764,087) (1,490,728) (65,316,947)
Acquisition of MGI............................................... - (6,108,685) -
Acquisition of Rocky, net of cash................................ - (10,993,407) -
Acquisition of CMG, Inc.......................................... - - (4,233,069)
Acquisition of Famian, net of cash............................... - - (6,757,133)
Purchase of permanent quota...................................... (129,205) (226,115) (691,124)
Increase in other assets......................................... - (4,245,981) (7,190,315)
------------ ------------ ------------
Net cash used in investing activities....................... (893,292) (23,064,916) (84,188,588)
Financing activities
Bank borrowings, net............................................. (2,522,158) 25,547,109 21,856,551
Proceeds from long term obligations.............................. - 2,635,000 42,232,032
Paydown of long term obligations................................. - (460,330) (2,378,104)
Advance from shareholders/officers............................... - - 16,143,238
Repurchase of shares............................................. - - (806,633)
Exercise of stock options including related tax benefit.......... 614,749 4,840,056 2,827,519
------------ ------------ ------------
Net cash provided by (used in) financing
activities................................................ (1,907,409) 32,561,835 79,874,603
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents................. 4,184,673 (986,609) (2,079,009)
Cash and cash equivalents at beginning of year................... 1,120,456 5,305,129 4,318,520
------------ ------------ ------------
Cash and cash equivalents at end of year......................... $ 5,305,129 $ 4,318,520 $ 2,239,511
============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Summary of Significant Accounting Policies
Organization and Basis of Consolidation
The accompanying financial statements consist of the consolidation of
Tarrant Apparel Group, a California Corporation (formerly Fashion Resource,
Inc.) (the Parent Company or the Company), NO! Jeans, Inc. (NO), Rocky Mexico,
Inc. (RM), Rocky Apparel, L.L.C. (RA) and Tag Mex, Inc., United States
corporations; the following Hong Kong corporations: Tarrant Company Limited
(Tarrant HK) and Marble Limited (Marble); Tarrant Trading Limited, a United Arab
Emirates corporation (Tarrant UAE); and Tag Mex, S.A., a Mexican corporation
which are wholly-owned subsidiaries of Tag Mex, Inc. Tarrant HK owns a 49%
interest in Tarrant UAE. However, since Tarrant HK effectively controls Tarrant
UAE, the results of Tarrant UAE had been consolidated. The third-party interest
in Tarrant UAE is immaterial.
The Company serves both specialty retail and mass merchandise store chains
by designing, merchandising and contracting for the manufacture and selling of
casual, moderately priced apparel, for women, men and children under private
label. Commencing in 1999, the Company began production of fabric (denim) for
use in the manufacturing process.
Revenue Recognition
Revenues are recorded, net of anticipated returns, at the time of shipment
of merchandise.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with an original
maturity of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Quota
The Company purchases quota rights to be used in the importation of its
products from certain foreign countries. The effect of quota transactions is
accounted for as product cost.
Permanent quota entitlements were principally obtained through free
allocations by the Hong Kong Government pursuant to an import restraint between
Hong Kong and the United States and are renewable on an annual basis, based upon
the prior year utilization. Permanent quota entitlements acquired from outside
parties are amortized over three years on a straight-line basis, and amounted to
$245,000, net of amortization of $1.1 million at December 31, 1998 and $584,000,
net of amortization of $1.2 million at December 31, 1999.
Temporary quota represents quota rights acquired from other permanent quota
entitlement holders on a temporary basis. Temporary quota has a maximum life of
twelve months. The cost of temporary quota purchased for the current year
utilization has been assigned to inventory purchases while the cost of temporary
quota acquired for usage in the year following the balance sheet date is
recorded as a current asset.
F-6
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment is recorded at cost. Additions and betterments are
capitalized while repair and maintenance costs are charged to operations as
incurred. Depreciation of property and equipment is provided for by the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized using the straight-line method over the lesser of their estimated
useful life or the term of the lease. Upon retirement or disposal of property
and equipment, the cost and related accumulated depreciation are eliminated from
the accounts and any gain or loss is reflected in the statements of income.
Intangibles
The excess of cost over fair value of net assets acquired is being
amortized over five to fifteen years. Accumulated amortization at December 31,
1998 and 1999 was $1,337,000 and $ 2,312,000, respectively.
The Company periodically evaluates whether events and circumstances have
occurred that indicate the remaining useful lives of goodwill and other long-
lived assets may warrant revision or that the remaining balances may not be
recoverable. When factors indicate that the asset should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted net cash
flows over the remaining life of the asset in measuring whether the asset is
recoverable. Based upon the anticipated future income and cash flow from
operations, in the opinion of Company management, there has been no impairment.
Impairment of Long-Lived Assets
In accordance with the Financial Accounting Standards Board Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. This methodology includes intangible
assets acquired. Goodwill relating to specific intangible assets is included in
the related impairment measurements to the extent it is identified with such
assets.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which prescribes the use of the liability method
to compute the differences between the tax basis of assets and liabilities and
the related financial reporting amounts using currently enacted tax laws and
rates.
The Company's Hong Kong corporate affiliates are taxed at an effective Hong
Kong rate of 16%. No domestic tax provision has been provided for $47.6 million
of unremitted retained earnings of these Hong Kong corporations, as the Company
intends to maintain these amounts in Hong Kong on a permanent basis in support
of its working capital requirements.
Net Income Per Share
Net income per share has been computed in accordance with Financial
Accounting Standard Board (FASB) Statement No. 128, "Earnings Per Share" (see
Note 10). A two-for-one stock split became effective May 8, 1998. All share and
per share amounts have been restated to reflect the split.
F-7
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Product Design, Advertising and Sales Promotion Costs
Product design, advertising and sales promotion costs are expensed as
incurred. Product design, advertising and sales promotion costs included in
operating expenses in the accompanying statements of income (excluding the costs
of manufacturing samples) amounted to approximately $1,528,000, $840,000 and
$1,740,000 in 1997, 1998 and 1999, respectively.
Foreign Currency Translation
Assets and liabilities of the Mexico, Hong Kong and United Arab Emirates
subsidiaries are translated at the rate of exchange in effect on the balance
sheet date; income and expenses are translated at the average rates of exchange
prevailing during the year. The principal foreign currency in which the Company
transacts business is the Hong Kong dollar and the peso in Mexico.
Foreign currency gains and losses resulting from translation of assets and
liabilities are included in other comprehensive income. Historically, such gains
and losses have been immaterial. At December 31, 1999, the Hong Kong
subsidiaries have retained earnings of $ 47.6 million and an intercompany
receivable due from Tarrant Apparel Group of $ 41.8 million.
Financial Instruments
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. Unless
otherwise described, the fair values of financial instruments approximate their
recorded values.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of cash equivalents, trade accounts receivable
and amounts due from factor.
The Company's products are primarily sold to mass merchandisers and
specialty retail stores. These customers can be significantly affected by
changes in economic, competitive or other factors. The Company makes substantial
sales to a relatively few, large customers. In order to minimize the risk of
loss, the Company assigns certain of its domestic accounts receivable to a
factor without recourse or requires letters of credit from its customers prior
to the shipment of goods. For nonfactored receivables, account monitoring
procedures are utilized to minimize the risk of loss. Collateral is generally
not required. The following table presents the percentage of net sales
concentrated with certain customers. Customer A represents a group of customers
under common ownership.
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Customer A..................................... 69.7% 63.3% 42.5%
Customer B..................................... 18.7 8.6 12.4
Customer C..................................... - 8.2 11.4
</TABLE>
F-8
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Products representing over 90% of the Company's net sales, on the basis of
the free on board cost at the supplier's plant, were manufactured by third party
contractors located in foreign countries. There can be no assurance that the
Company will not experience difficulties with third parties responsible for the
manufacture of its products.
The Company maintains demand deposits with several major banks. At times,
cash balances may be in excess of Federal Deposit Insurance Corporation or
equivalent foreign insurance limits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and other forms of
stock-based compensation plans. However, SFAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. The Company has elected to account for its stock
compensation arrangements under the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company adopted the provisions for pro forma
disclosure requirements of SFAS 123 in fiscal 1996.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), is effective for
financial statements ending June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The Company does not expect adoption
of SFAS 133 to have a material impact on consolidated results of operations.
Statement of Financial Accounting Standard No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
SFASB Statement No. 133" ("SFAS 137"), is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. SFAS 137 defers the effective
date of SFAS 133. The Company does not expect adoption of SFAS 137 to have a
material impact on consolidated results of operations.
2. Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
U.S. trade accounts receivable.................... $53,693,368 $54,546,617
Foreign trade accounts receivable................. 8,406,558 10,954,919
Due from factor................................... 4,725,869 2,161,897
Other receivables................................. 1,367,266 6,467,511
Allowance for returns and discounts............... (2,247,006) (3,208,318)
----------- -----------
$65,946,055 $70,922,626
=========== ===========
</TABLE>
The Company had accounts receivable-secured credit facilities with The CIT
Group/Commercial Services, Inc. ("CIT") and Finova Capital Corporation ("FCC").
During the year, the Company could receive advances from FCC of up to 90% of
certain accounts receivable. Such advances approximated $5.3 million at December
31, 1999. CIT advanced up to 100% of the amount of certain accounts receivable
plus an over-advance of up to $10 million, up to a maximum amount of $25
million. Such advances approximated $1.4 million and $13.7 million at December
31, 1998 and 1999, respectively. Interest on advances from both FCC and CIT
accrues at the rate of one and one-quarter percent below the bank's respective
prime rates or, at the option of the Company, one and one-quarter percent over
the respective LIBOR rates. As of December 31, 1999, the prime rates equaled
8.5% and the LIBOR rates averaged 6.0%. Subsequent to year end these facilities
were replaced by a syndication facility (Note 16).
F-10
<PAGE>
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
Raw materials
Fabric and trim accessories........................... $10,424,416 $16,932,830
Raw cotton............................................ 1,043,449 1,555,752
Work-in-process.......................................... 7,620,403 9,949,447
Finished goods shipments-in-transit...................... 10,331,867 7,112,939
Finished goods........................................... 19,810,712 26,811,441
----------- -----------
$49,230,847 $62,362,409
=========== ===========
</TABLE>
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
Land................................................... $ 85,000 $ 1,318,265
Buildings.............................................. 559,240 10,943,725
Equipment, furniture and fixtures...................... 5,621,127 98,168,827
Leasehold improvements................................. 2,402,965 9,961,426
Vehicles............................................... 260,480 1,456,984
----------- ------------
8,928,812 121,849,227
Less accumulated depreciation and amortization......... (3,622,504) (10,328,730)
----------- ------------
$ 5,306,308 $111,520,497
=========== ============
</TABLE>
Included in property and equipment is $36.3 million in equipment purchased for
the turn-key twill facility. Depreciation has not yet commenced on the
equipment.
5. Acquisitions
Grupo Famian
On August 1, 1999, the Company has entered into an agreement to purchase
all of the outstanding stock of Industrial Exportadora Famian, S.A. de C.V. and
Coordinados Elite, S.A. de C.V., both Mexican corporations ("Grupo Famian").
Grupo Famian operates seven apparel production facilities in and near Techuacan,
Mexico. The purchase price consists of (i) $1,000,000 paid on closing, (ii) a
$3,000,000 noninterest-bearing promissory note payable in three monthly
installments of $1,000,000 through October 29, 1999 and (iii) $8,000,000 payable
in installments of $833,000, $3,000,000, $1,667,000, $1,667,000 and $883,000 on
each of March 31, 2000, August 31, 2000, March 31, 2001, March 31, 2002 and
September 30, 2002 provided, except with respect to the payment due August 31,
2000, that the Grupo Famian subsidiary meets specified pretax income
requirements. The purchase price paid on closing was financed by the Company
under its existing bank credit facilities. The transaction has been accounted
for as a purchase and the purchase price has been allocated based on the fair
value of assets acquired and liabilities assumed. The excess of cost over fair
value of net assets acquired of $ 5.8 million is being amortized over 15 years.
The operations of Grupo Famian have been included with those of the Company
commencing on August 1, 1999.
F-11
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Jamil
On April 18, 1999, the Company finalized an agreement to acquire certain
assets of a denim mill located in Puebla, Mexico ("Jamil"). The price paid for
the asset acquisition consisted of $22.0 million in cash paid on May 7, 1999 and
1,724,000 shares (the "Shares") of the Company's Common Stock issued on May 24,
1999 valued at $45.3 million. The shares will be distributed to the sellers in
three equal installments on April 1, 2000, 2001 and 2002; provided, however,
that any distribution (i) shall be offset by any claims of the Company against
the sellers under the asset purchase agreement and (ii) will be proportionally
reduced in the event the assets fail to produce at least 15 million yards of
marketable denim in the fiscal year immediately preceding the dates of such
distributions of Shares. In addition, the Company has granted the holders of the
Shares certain registration rights and the right to vote the shares. The
acquisition of the denim plant has been accounted for as the acquisition of a
discrete operating asset. The Company did assume obligations of the sellers
under an existing collective bargaining agreement; provided, however, that the
sellers shall reimburse the Company for any costs ( including, but not limited
to, salaries and benefits) arising before the closing date or as a result of the
transaction.
CMG
On March 23, 1999, the Company purchased certain assets of CMG, Inc., a
California corporation ("CMG"). CMG designs, produces and sells private label
and "CHAZZZ" branded woven (denim and twill) and knit apparel for women,
children and men for national chain stores, including J.C. Penney, Sears and
Mervyns. The purchase price consisted of (i) $4,275,000 and an amount equal to
the seller's cost of inventory purchased, payable in cash on closing, (ii) a
$2,500,000 noninterest-bearing promissory note payable in three equal annual
installments on the first three anniversary dates of the closing and convertible
into 62,550 shares of Common Stock of the Company, (iii) $500,000 payable in two
equal installments of $250,000 on the second and third anniversary dates of the
closing, and (iv) $1,500,000 payable in three equal installments of $500,000 on
the first three anniversary dates of the closing provided that CMG Division
meets specified net sales and pretax income requirements. The purchase paid was
financed from cash flow form operations. The transaction has been accounted for
as a purchase and the purchase has been allocated based on the fair value of
assets acquired and liabilities assumed. The excess of cost over fair value of
net assets acquired of $6.0 million is being amortized over 15 years. The
operation of CMG have been included with those of the Company commencing on
March 23, 1999.
Twillmill
On December 2, 1998, the Company contracted to acquire a turn-key facility
being constructed in Puebla, Mexico by an affiliate of the seller of the denim
mill described above ("Jamil"). This facility is ultimately expected to have an
annual capacity of approximately 18 million meters of twill and will also house
ancillary facilities. Construction of this facility commenced in the third
quarter of 1998, and it is anticipated that the Company will take possession of
this facility by the year 2000. The Company currently anticipates that the cost
of this facility will be approximately $90 million. Of this amount the Company
has purchased related equipment for installation in the Twillmill in the amount
of $36.3 million as of December 31, 1999. Such amount is included in property
and equipment in the accompanying financial statements. The purchase of this
equipment has been financed by certain equipment financing. In addition, $8.8
million has been advanced related to the construction of the twill facility in
Puebla. Such amount is included in other assets in the accompanying financial
statements.
F-11
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Debt
Bank borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
Import trade bills payable...................... $ 4,466,119 $ 5,315,382
Bank direct acceptances......................... 16,969,565 15,697,171
Other foreign credit facilities................. 47,603 2,536,033
United States credit facilities................. 11,804,980 31,596,232
----------- -----------
$33,288,267 $55,144,818
=========== ===========
Long term debt consists of the following:
Vendor financing................................ $ 2,371,500 $21,427,158
Equipment loans and capital leases ............. 1,034,063 21,115,075
Other debt...................................... - 1,384,881
----------- -----------
3,405,563 43,927,114
Less current portion............................ (981,124) (9,771,867)
----------- -----------
$ 2,424,439 $34,155,247
=========== ===========
</TABLE>
The Company has credit facilities of $33 million and $13 million with the
Hongkong and Shanghai Banking Corporation Limited ("HKSB") and Standard
Chartered Bank ("SCB"), respectively, for borrowings and the purchase and
exportation of finished goods. Under these facilities, the Company may arrange
for the issuance of letters of credit and acceptances, as well as cash advances.
These facilities are subject to review at any time and the right of either
lender to demand payment at any time. Interest on cash advances under HKSB's
facility accrues at HKSB's prime rate for lending U.S. dollars plus one-half to
three-quarters percent per annum. As of December 31, 1999, HKSB's U.S. dollar
prime rate equaled 8.5%. Interest on cash advances under SCB's facility accrues
at SCB's prime rate for lending Hong Kong dollars. As of December 31, 1999,
SCB's Hong Kong dollar prime rate equaled 8.5%. These facilities are subject to
certain restrictive covenants including a provision that the aggregate net
worth, as adjusted, of the Company will exceed $30 million, the Company will not
incur two consecutive quarterly losses and the Company will maintain a certain
debt to equity ratio. As of December 31, 1999, this aggregate net worth, as
adjusted, amounted to approximately $114.8 million. At December 31, 1998 and
1999, there were $21.5 million and $21.0 million of outstandings under the HKSB
and SCB facilities, respectively.
The Company had an unsecured $10 million credit facility with SCB which
matured on December 29, 1999. This facility has been replaced by an unsecured
money market line for $10.0 million. The new facility is cross-defaulted to the
Company's other bank credit facilities and interest on advances accrues at the
rate of one and one-quarter percent over LIBOR. At December 31, 1999, $4.0
million was outstanding under this facility.
The Company has two equipment loans for $16.25 million and $5.2 million
from GE Capital Leasing and Bank of America Leasing respectively secured by
equipment located in Puebla and Tlaxcala Mexico. The outstanding loans as of
December 31, 1999 were $15.5 million due to GE Capital Leasing and $5.1 million
due to Bank of America Leasing. Interest accrues at a rate of 2-1/2% over LIBOR.
The loan from GE Capital Leasing will mature in the year 2005 and the loan from
Bank of America Leasing in the year 2004. These facilities are subject to the
same restrictive covenants as applicable to the HKSB and SCB facilities.
During 1999 certain equipment purchased by the Company was financed by the
vendors. A total of $16.9 million was financed with five year promissory notes
which bear interest ranging from 7.0% to 7.5%, are payable in semi-annual
payments commencing in February 2000.
F-13
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the $16.9 million outstanding at December 31, 1999, $10.9 million is
denominated in Deutsch Marks and $1.1 million in the Euro. The remainder is
payable in U.S. dollars. The Company bears the risk of any foreign currency
fluctuation with regards to the debt. An unrealized gain of $668,000 was
recorded during the year related to this fluctuation and is recorded in other
income in the accompanying financial statements.
F-14
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Annual maturities for the long term debt and capital lease obligations are
$9,772,000 (2000), $8,129,000 (2001), $8,251,000 (2002), $7,337,000 (2003);
$7,228,000 (2004) and $3,210,000 thereafter.
7. Income Taxes
The provision for domestic and foreign income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................. $2,470,848 $ 8,684,999 $5,038,514
State................................... 741,581 2,220,313 1,335,804
Foreign................................. 1,424,298 2,271,961 1,234,667
---------- ----------- ----------
4,636,727 13,177,273 7,608,985
Deferred (credit):
Federal................................. 702,539 (748,629) (8,030)
State................................... (112,257) (11,157) (155,261)
Foreign................................. 7,991 (7,487) (6,628)
---------- ----------- ----------
598,273 (767,273) (169,919)
---------- ----------- ----------
Total................................ $5,235,000 $12,410,000 $7,439,066
========== =========== ==========
</TABLE>
The source of income before the provision for taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal.................................... $ 7,459,582 $23,401,514 $13,527,366
Foreign.................................... 8,561,882 13,674,150 6,792,207
----------- ----------- -----------
Total................................ $16,021,464 $37,075,664 $20,319,573
=========== =========== ===========
</TABLE>
Foreign deferred income taxes result primarily from temporary differences
in the recognition of bad debt and depreciation expenses for tax and financial
reporting purposes. The resulting foreign deferred income tax liability amounted
to approximately $63,000 and $56,000 at December 31, 1998 and 1999,
respectively.
F-15
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the statutory federal income tax provision to the
reported tax provision on income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Income tax based on federal statutory rate......... $ 5,447,297 $12,976,482 $ 7,111,850
State income taxes................................. 415,354 1,443,203 900,030
Effect of foreign income taxes at lower rate....... (1,478,751) (2,521,479) (1,147,044)
Valuation allowance and other...................... 851,100 511,794 574,230
----------- ----------- -----------
$ 5,235,000 $12,410,000 $ 7,439,066
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
Current deferred tax assets:
Provision for doubtful accounts and unissued credits......... $ 763,218 $ 1,171,428
Provision for other reserves................................. 664,495 1,053,343
Deferred compensation and benefits........................... 220,863 156,455
State taxes.................................................. 655,745 304,182
----------- -----------
Total current deferred tax assets......................... 2,304,321 2,685,408
Current deferred tax liabilities:
Unrealized gain.............................................. - (272,030)
Accounts receivable valuation................................ (308,930) (184,718)
Other........................................................ (1,600,620) (1,662,941)
----------- -----------
(1,909,550) (2,119,689)
Valuation allowance for deferred tax assets..................... (371,487) (371,487)
----------- -----------
Net current deferred tax asset.................................. $ 23,284 $ 194,232
=========== ===========
</TABLE>
Income tax asset on the balance sheet includes income taxes receivable of
$478,050 in 1998 and $102,449 in 1999 in addition to the net deferred asset.
8. Commitments and Contingencies
The Company has entered into various noncancelable operating lease
agreements, principally for executive office, warehousing facilities and
production facilities with unexpired terms in excess of one year. The future
minimum lease payments under these noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Related
Party Other
----- -----
<S> <C> <C>
2000............................................................... $1,298,666 $384,556
2001............................................................... 1,298,666 305,103
2002............................................................... 1,329,924 81,836
2003............................................................... 1,329,924 42,821
2004............................................................... 336,774 25,554
Thereafter......................................................... - -
---------- --------
Total future minimum lease payments............................. $5,593,954 $839,870
========== ========
</TABLE>
F-16
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Certain of the operating leases contain provisions for additional rent
based upon increases in the operating costs, as defined, of the premises. Total
rent expense under the operating leases amounted to approximately $1,509,000,
$1,768,000 and $1,730,000 for 1997, 1998 and 1999, respectively.
The Company had open letters of credit of $18,276,000 and $19,208,000 as of
December 31, 1998 and 1999, respectively.
The Company has two employment contracts dated January 1, 1998 with two
executives providing for base compensation and other incentives. Commitments
under these agreements for base compensation amount to $1,000,000 for each of
the two executives annually through December 31, 2002. Each contract also
provides for annual bonuses of up to $2,000,000 for each executive and vesting
of stock options based on attaining specified performance criteria. In addition,
in connection with two acquisitions (see Notes 5 and 16) the Company has or will
enter into employment agreements with two additional executives. Such agreements
extend through 2002 and initially provide for base compensation of $1,350,000,
annually, increasing to $1,450,000 over the term. These agreements also provide
for cash bonuses and vesting of stock options based on attaining specified
performance criteria.
In connection with the Jamil transaction, the Company entered into a three-
year employment agreement with the principal shareholder of the sellers,
pursuant to which the principal shareholder shall be entitled to receive (i) an
annual base salary of $1 million, subject to such periodic increases, if any, as
the Company may deem to be appropriate, (ii) reimbursement of all reasonable and
documented business expenses, (iii) participation in all plans sponsored by the
Company for employees in general and (iv) the right (the "Option") for ten years
to purchase up to 500,000 shares of the Company's Common Stock at an exercise
price of $25 per share. The Option will vest in three equal installments on
April 1, 2000, 2001 and 2002 and will terminate upon the termination of the
principal shareholders' employment by the Company; provided, however, that (i)
the vesting of any installment shall be deferred to the date ten business days
before the stated expiration date in the event the operating income of the
Company's Mexican operations does not reach certain levels, and (ii) if such
termination of employment results from principal shareholder's death or
permanent disability, any vested portion shall terminate on the earlier of the
stated expiration date or the first anniversary of such termination of
employment. In the event the Company terminates principal shareholder's
employment without cause (as defined) the Company shall remain obligated to pay
the principal shareholder an amount equal to his base salary for the remainder
of the stated term. In the event the principal shareholder's employment is
terminated for any other reason (including death, disability, resignation or
termination with cause), neither party shall have any further obligation to the
other, except that the Company shall pay to the principal shareholder, or his
estate, all reimbursable expenses and such compensation as is due prorated
through the date of termination.
The Company has entered into an employment agreement with the sole
shareholder of CMG, under which he is employed as President - Chazzz Division of
the Company for a term commencing on March 23, 1999 and ending on March 31,
2002, and will be paid an annual base salary of $480,000. In the event the
Company terminates his employment without cause, the sole shareholder shall be
entitled to receive a lump sum payment of $480,000. In addition, the sole
shareholder has agreed not to compete with the Company during the two years
following the termination of his employment for any reason.
The Company is involved from time to time in routine legal matters
incidental to its business. In the opinion of the Company's management,
resolution of such matters will not have a material effect on its financial
position or results of operations.
F-17
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Equity
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company's 1995 Stock Option Plan, as amended and restated in January
1997 (the Plan), has authorized the grant of both incentive and non-qualified
stock options to officers, employees, directors and consultants of the Company
for up to 2,600,000 shares (as adjusted for a stock split effective May 1998) of
the Company's common stock. The exercise price of incentive options must be
equal to 100% of fair market value of common stock on the date of grant and the
exercise price of non-qualified options must not be less than the par value of a
share of common stock on the date of grant. The Plan was also amended to expand
the types of awards which may be granted pursuant thereto to include stock
appreciation rights, restricted stock and other performance-based benefits. In
October 1998 the Company granted 1,000,000 non-qualified stock options not under
the Plan. The options were granted to the Chairman and President of the Company
at $13.50 per share, the closing sales price of the Common Stock on the day of
the grant. The options expire in 2008 and vest over four years, subject to
certain performance criteria.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: weighted-average risk-free interest rate of 6% for 1997, 1998 and
1999; dividend yields of 0% for 1997, 1998 and 1999; weighted-average volatility
factors of the expected market price of the Company's common stock of 0.53 for
1997, 0.58 for 1998 and 0.63 for 1999; and a weighted-average expected life of
the option of four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
the management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
F-18
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Pro forma net income............................................ $9,999,000 $21,251,000 $8,676,000
Pro forma earnings per share:
Basic....................................................... $ 0.76 $ 1.57 $ 0.57
Diluted..................................................... $ 0.75 $ 1.56 $ 0.55
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended December 31 (as adjusted for a two-for-one stock split
effective May 8, 1998) follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------- ---------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year...... 1,495,110 $5.38 1,419,734 $ 5.64 2,401,597 $11.06
Granted............................. 78,000 7.62 1,624,000 13.94 779,000 22.47
Exercised........................... (115,376) 4.30 (532,137) 6.28 (245,360) 26.32
Forfeited........................... (38,000) 3.59 (110,000) 6.53 (66,376) 17.36
--------- ----- --------- ------ --------- ------
Outstanding at end of year............ 1,419,734 $5.64 2,401,597 $11.06 2,868,861 $14.43
========= ===== ========= ====== ========= ======
Exercisable at end of year............ 568,566 759,667 740,211
Weighted average per option fair
value of options granted during
the year............................. $1.71 $ 7.22 $10.64
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged from
857,111 options at $3.00 to $11.25, 1,449,750 options at $13.31 to $18.94 and
562,000 options at $25.00 to $45.50. The weighted average remaining contractual
life of those options is 8.4 years. Options vest over a period of three or four
years from respective grant dates.
10. Earnings Per Share
In February 1997, the FASB issued "Earnings Per Share" (Statement No. 128)
establishing standards for computing and presenting earnings per share for
publicly-held common stock or potential common stock. Statement No. 128
supersedes the standards for computing earnings per share previously found in
APB Opinion No. 15, Earnings Per Share and simplifies the standards for
computing earnings per share. In addition, Statement No. 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. The statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997,
with earlier application not permitted. All periods presented reflect the
adoption of Statement No. 128. The impact of amounts previously reported was not
material.
F-19
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the numerator and denominator of basic earnings per
share and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic EPS Computation:
Numerator........................................................ $10,786,464 $24,665,664 $12,880,507
Denominator:.....................................................
Weighted average common shares outstanding...................... 13,175,256 13,519,517 15,199,893
----------- ----------- -----------
Total shares................................................. 13,175,256 13,519,517 15,199,893
----------- ----------- -----------
Basic EPS......................................................... $ 0.82 $ 1.82 $ 0.85
=========== =========== ===========
Diluted EPS Computation:
Numerator........................................................ $10,786,464 $24,665,664 $12,880,507
Denominator:.....................................................
Weighted average common shares outstanding...................... 13,175,256 13,519,517 15,199,893
Incremental shares from assumed exercise of options............. 391,998 897,333 1,114,236
----------- ----------- -----------
Total shares................................................. 13,567,254 14,416,850 16,314,129
----------- ----------- -----------
Diluted EPS....................................................... $ 0.80 $ 1.71 $ 0.79
=========== =========== ===========
</TABLE>
Options to purchase 741,000 shares of common stock exercisable at prices in
excess of the average market value were outstanding during 1999 but were not
included in the computation of diluted earnings per share because the effect
would be antidilutive.
11. Supplemental Schedule of Cash Flow Information
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid for interest.......................................... $ 660,000 $2,079,000 $4,340,000
========== ========== ==========
Cash paid for income taxes...................................... $2,825,000 $7,816,000 $7,024,000
========== ========== ==========
</TABLE>
12. Related-Party Transactions
Related-party transactions, consisting primarily of purchases and sales of
finished goods and raw materials, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Sales to related parties........................................ $3,531,000 $ -- $ 2,623,000
Purchases from related parties.................................. $ 620,000 $ 725,000 $15,163,000
</TABLE>
As of December 31, 1998 and 1999, noncombined affiliates were indebted to
the Company in the amounts of $2.1 million and $1.0 million, respectively. Total
interest paid by noncombined affiliates and the Chairman and President was
$195,000 and $214,000 for the years ended December 31, 1998 and 1999,
respectively.
The Company has, from time to time, advanced funds to officers including
the Chairman and President and to corporations owned by the Chairman and
President. The maximum outstanding amounts of such loans during 1998 and 1999
were $4.0 million $5.7 million, respectively. Loans made to these persons in
1998 and 1999 bore interest at the rate of 7% and 7.75% per annum, respectively.
In addition, in December 1999 advances were received by the Company from the
Chairman and President for working capital purposes. The maximum outstanding was
$16.1 million at December 31, 1999. Total interest paid on such advances
amounted to $257,000 for the year.
In 1998, the Company advanced an aggregate of $2.0 million to a corporation
controlled by parties related to one of the Original Shareholders. Such advances
were repaid within 90 days.
F-20
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under lease agreements entered into between the Company and two entities
owned by the Chairman and President, the Company paid $1,269,000 in 1998 and
$1,269,000 in 1999 for rent for office and warehouse facilities.
In 1998, a California limited liability company owned by the Chairman and
President of the Company purchased 2,300,000 shares of the Common Stock of Tag-
It Pacific, Inc. ("Tag-It") (or approximately 37% of such Common Stock then
outstanding). Tag-It is a provider of brand identity programs to manufacturers
and retailers of apparel and accessories. On December 1, 1998, Tag-It assumed
the responsibility for managing and sourcing all trim and packaging used in
connection with products manufactured by or on behalf of the Company in Mexico.
The Company transferred $3.0 million of trim inventory to Tag-It in December
1998. This arrangement is terminable by either the Company or Tag-It at any
time. The Company believes that the terms of this arrangement, which is subject
to the acceptance of the Company's customers, are no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company
purchased $15.2 million worth of trim from Tag-it in 1999.
13. Operations by Geographic Areas
The Company operates primarily in one industry segment, the design,
manufacturing and importation of private label, moderately-priced, casual
apparel. Information about the Company's operations in the United States and
Asia is presented below. Intercompany revenues and assets have been eliminated
to arrive at the consolidated amounts.
<TABLE>
<CAPTION>
Adjustments
and
United States Asia Mexico Eliminations Total
--------------- ---------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
1997
Sales................................ $252,136,000 $ 7,956,000 $ - $260,092,000
Intercompany sales................... - 148,613,000 (148,613,000) -
------------ ------------ ------------- ------------
Total revenue........................ $252,136,000 $156,569,000 $(148,613,000) $260,092,000
============ ============ ============= ============
Income from operations............... $ 8,581,000 $ 8,499,000 $ - $ 17,080,000
============ ============ ============= ============
Total assets......................... $ 56,352,000 $ 46,656,000 $ (31,147,000) $ 71,861,000
============ ============ ============= ============
1998
Sales................................ $345,685,000 $ 32,471,000 $ - $378,156,000
Intercompany sales................... 11,289,000 151,957,000 (163,246,000) -
------------ ------------ ------------- ------------
Total revenue........................ $356,974,000 $184,428,000 $(163,246,000) $378,156,000
============ ============ ============= ============
Income from operations............... $ 24,751,000 $ 13,820,000 $ - $ 38,571,000
============ ============ ============= ============
Total assets......................... $143,211,000 $ 78,431,000 $ (67,751,000) $153,891,000
============ ============ ============= ============
1999
Sales................................ $376,952,000 $ 13,278,000 $ 5,111,000 $ - $395,341,000
Intercompany sales................... 17,517,000 112,517,000 40,597,000 (170,631,000) -
------------ ------------ ------------ ------------- ------------
Total revenue........................ $394,469,000 $125,795,000 $ 45,708,000 $(170,631,000) $395,341,000
============ ============ ============ ============= ============
Income from operations............... $ 16,859,000 $ 7,092,000 $ 996,000 $ - $ 24,947,000
============ ============ ============ ============= ============
Total assets......................... $182,286,000 $ 81,219,000 $122,827,000 $ (91,290,000) $295,042,000
============ ============ ============ ============= ============
</TABLE>
F-21
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company commenced sourcing operations in Mexico in 1997. Sales of such
operations were approximately $104 million in 1998, and total assets at December
31, 1998 were $1.1 million.
14. Employee Benefit Plans
On August 1, 1992, Tarrant HK established a defined contribution retirement
plan covering all of its Hong Kong employees whose period of service exceeds 12
months. Plan assets are monitored by a third-party investment manager and are
segregated from those of Tarrant HK. Participants may contribute up to 5% of
their salary to the plan. Annual matching contributions are made by the Company.
Costs of the plan charged to operations for 1997, 1998 and 1999 amounted to
approximately $59,000, $84,000 and $101,000, respectively.
On July 1, 1994, the Parent Company established a defined contribution
retirement plan covering all of its U.S. employees whose period of service
exceeds 12 months. Plan assets are monitored by a third-party investment manager
and are segregated from those of the Parent Company. Participants may contribute
from 1% to 15% of their pre-tax compensation up to effective limitations
specified by the Internal Revenue Service. The Company's contributions to the
plan are based on a 50% (100% effective July 1, 1995) matching of participants'
contributions, not to exceed 6% (5% effective July 1, 1995) of the participants'
annual compensation. In addition, the Company may also make a discretionary
annual contribution to the plan. Costs of the plan charged to operations for
1997, 1998 and 1999 amounted to approximately $143,000, $166,000 and $191,000,
respectively.
On December 27, 1995, the Company established a deferred compensation plan
for executive officers. Participants may contribute a specific portion of their
salary to such plan. The Company does not contribute to the Plan.
On December 20, 1996, the Compensation Committee of the Company's Board of
Directors established the Incentive Compensation Plan, which provides for both
discretionary bonuses and bonus amounts upon achieving certain earnings
thresholds for certain members of management. The adoption of this plan received
shareholder approval at the 1997 annual meeting.
15. LDA Option
On October 22, 1998, Limited Direct Associates LP, an entity 100% owned by
The Limited ("LDA"), acquired 1,000,000 shares of the Company's Common Stock (or
approximately 7.2% of the Common Stock outstanding as of March 1, 1999). The
shares were acquired through the exercise of an option granted by Mr. Guez and
Mr. Kay to LDA at the time of the Company's initial public offering. The option
granted LDA the right to purchase 10% of the total shares of Common Stock
outstanding at the time of the initial public offering, or 1,299,998 shares, at
a price of $3.60 per share (as adjusted for a two-for-one stock split effective
May 8, 1998). The transaction was done on a cashless basis, whereby Mr. Guez and
Mr. Kay transferred ownership of 1,000,000 shares to LDA and, in lieu of
receiving cash, Mr. Guez and Mr. Kay retained ownership of the remaining 299,998
shares. The 1,000,000 shares are subject to a lockup provision, which prohibits
LDA from selling the shares until October 9, 1999. Messrs. Guez and Kay will
continue to have the right to vote the shares for one year following the
exercise of the option, and will also have a right of first refusal to purchase
such shares, subject to certain exceptions.
F-22
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Subsequent Events
On January 21, 2000 the Company entered into a revolving credit, factoring
and security agreement ("Debt Facility") with a syndicate of lending
institutions. The Debt Facility provides for a revolving facility of $105.0,
million, including a letter of credit facility not to exceed $20.0 million, and
matures on January 31, 2005. The Debt Facility provides for interest at LIBOR
plus LIBOR rate margin determined by the Total Leverage Ratio, as defined. The
facility is collaterlized by receivables, intangibles, inventory and various
other specified non-equipment assets of the Company. In addition the facility is
subject to various financial covenants including requirements for tangible net
worth, fixed charge coverage ratios, interest coverage ratios among others and
prohibits the payment of dividends.
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year
Quarter Ended Ended
-------------
March June September December December
31 30 30 31 31
------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1997
Net sales............................................ $53,605 $ 73,879 $ 69,218 $63,391 $260,093
Gross profit......................................... 8,782 11,068 9,690 9,557 39,097
Operating income..................................... 3,393 5,091 4,063 4,533 17,080
Net income........................................... $ 2,022 $ 3,265 $ 2,711 $ 2,789 $ 10,787
Net income per common share:
Basic.............................................. $ .15 $ .25 $ .21 $ .21 $ .82
Diluted............................................ $ .15 $ .24 $ .20 $ .21 $ .80
Weighted average shares outstanding:
Basic.............................................. 13,110 13,178 13,202 13,210 13,176
Diluted............................................ 13,544 13,592 13,612 13,520 13,568
1998
Net sales............................................ $64,257 $100,100 $114,948 $98,850 $378,155
Gross profit......................................... 10,947 20,265 19,690 20,176 71,078
Operating income..................................... 4,558 11,674 11,374 10,965 38,571
Net income........................................... $ 2,780 $ 7,223 $ 7,094 $ 7,569 $ 24,666
Net income per common share:
Basic.............................................. $ .21 $ .54 $ .52 $ .55 $ 1.82
Diluted............................................ $ .20 $ .51 $ .49 $ .50 $ 1.71
Weighted average shares outstanding:
Basic.............................................. 13,281 13,432 13,592 13,773 13,520
Diluted............................................ 13,756 14,254 14,454 15,204 14,417
</TABLE>
F-23
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Year
Quarter Ended Ended
-------------
March June September December December
31 30 30 31 31
------- -------- --------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1999
Net sales............................................ $84,063 $109,762 $110,542 $90,974 $395,341
Gross profit......................................... 15,988 19,008 19,269 11,945 66,210
Operating income(loss)(1)............................ 7,936 9,722 9,030 (1,741) 24,947
Net income(loss)(1).................................. $ 4,599 $ 5,652 $ 4,870 $(2,241) $ 12,880
Net income(loss) per common share:
Basic.............................................. $ .33 $ .37 $ .31 $ (0.14) $ .85
Diluted............................................ $ .30 $ .33 $ .30 $ (0.14) $ .79
Weighted average shares outstanding:
Basic.............................................. 13,853 15,361 15,783 15,801 15,200
Diluted............................................ 15,524 17,131 16,438 15,801 16,314
</TABLE>
(1) During the fourth quarter of 1999 the company recorded a change of
approximately $2.0 million as a result of a year end book to physical
inventory adjustment.
F-24
<PAGE>
SCHEDULE II
TARRANT APPAREL GROUP
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
-----
Year Expenses Accounts Deductions End of Year
------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Allowance for returns and discounts.............. $1,915,156 $(359,344) $ - $ - $1,555,812
========== ========= ========== ========== ==========
For the year ended December 31, 1998
Allowance for returns and discounts.............. $1,555,812 $ 691,194 $ - $ - $2,247,006
========== ========= ========== ========== ==========
For the year ended December 31, 1999
Allowance for returns and discounts.............. $2,247,006 $ 961,312 $ $ $3,208,318
========== ========= ========== ========== ==========
</TABLE>
25
<PAGE>
Exhibit 10.81
Standard [LOGO] Chartered
Standard Chartered Bank
7 World Trade Center
New York, NY 10048
Telephone 212-667-0700
December 30, 1999
Tarrant Apparel Group
3151 East Washington Blvd
Los Angeles, CA 90023
Attn: Mr. Patrick Chow, Treasurer
Ladies and Gentlemen:
Standard Chartered Bank (the "Bank") is pleased to make available an uncommitted
line of credit (the "Facility") to Tarrant Apparel Group (the "Borrower") under
the following terms and conditions. This letter agreement shall supersede and
replace all previous letter agreements between the Bank and the Borrower. No
commitment to lend can be assumed or inferred hereby. The purpose of this letter
agreement is to outline the general parameters of the transactions that the Bank
would consider entering into with the Borrower from time to time.
1. AMOUNT:
An aggregate principal amount at any time outstanding of up to
USD10,000,000 (the "Aggregate Exposure") may be made available
for the advances ("Advances") for periods up to but not
exceeding 90 days for general corporate purposes, and in any
event shall be available at the Bank's sole discretion.
2. AVAILABILITY:
The Bank may terminate the Facility at any time in its sole
discretion and with immediate effect by written notice to the
Borrower. The Bank shall at all times reserve the right to
alter the terms of the facility
3. INTEREST AND FEES:
The Borrower agrees to pay the Bank's rate for advances to be
determined on the date of transaction as specified in the
Promissory Note dated hereof.
4. TAXES:
Payments of all amounts of principal and interest shall be
free and clear of and without deduction for any present or
future taxes, levies, imposts or duties imposed by any
governmental authority in any jurisdiction or political
subdivision or taxing authority therein.
Page 1 of 5
<PAGE>
Standard [LOGO] Chartered
5. DEFAULT INTEREST:
The Borrower agrees to pay interest on any amount which is not
repaid or paid when due hereunder or under the Promissory Note
(whether at stated maturity, by acceleration or otherwise),
until paid in full at a rate per annum equal to 5% above the
Prime Rate as quoted by the Bank from time to time.
6. EVIDENCE OF INDEBTEDNESS:
The Borrower agrees that the Bank's internal books and
records, the Promissory Note and any other documents required
by the Bank which are executed and delivered by the Borrower
shall be conclusive evidence (absent manifest error) with
respect to all interest rates, repayments and repayment dates
and of the Borrower's indebtedness to the Bank. In addition,
all terms and conditions of the annexed Promissory Note and
any other documents executed in connection herewith are
incorporated by reference into any credit contemplated
hereunder.
7. Y2K: The Borrower represents and warrants that it has made a full
and complete assessment of the anticipated costs, problems and
uncertainties associated with the inability of certain
computer applications and systems to effectively handle data,
including dates, on and after January 1, 2000 as same may
effect the business, operations and financial condition of the
Borrower, its customers, suppliers and vendors. The Borrower
has a realistic and achievable program for testing and, as
needed, reediting its computer applications and systems on a
timely basis. Based on their assessment and program, the
Borrower does not reasonably anticipate any material adverse
effect on its operations, business or financial condition as a
result of issues related to bringing its applications and
systems into operational compliance on or before January 1,
2000.
8. CONDITIONS PRECEDENT:
As a precondition to the Bank's considering to extend the
credit contemplated by this letter agreement (but with the
Bank retaining full discretion as to whether to extend any
credit from time to time), the Borrower shall have executed
and delivered to the Bank, in form and substance satisfactory
to the Bank, the following documents:
(a) Facility Letter: the duplicate copy of this letter
agreement and the following documents duly signed by officers
empowered to sign on the Borrowers behalf;
(b) Corporate Standing: a certificate of the Secretary or
Assistant Secretary of the Borrower certifying the incumbency
and specimen signatures of the officers of the Borrower
executing this letter agreement and each of the related
documents and that attached hereto are (i) a true and complete
copy of the resolutions of the Borrowers board of directors
which authorize the acceptance of the credit and the related
obligations contemplated by this letter agreement (which
resolutions shall not have been rescinded as of the date of
such certification) and (ii) true and complete copies of the
Borrower's articles or certificate of incorporation and all
amendments thereto as in effect as of the date of such
certification;
(c) Promissory Note in the Bank's form duly executed by
officers empowered to sign on the Borrower's behalf; and
Page 2 of 5
<PAGE>
Standard [LOGO] Chartered
(d) Any and all other documents that the Bank may reasonably
request from time to time.
9. REPRESENTATIONS AND WARRANTIES:
The Borrower represents and warrants to the Bank that the
following statements are true and accurate as of the date
hereof and shall be true and accurate as of the date of the
disbursement of any credit contemplated hereunder, except as
communicated to and approved by the Bank in writing.
(i) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the
state of its incorporation and is fully qualified to do
business wherever such qualification is necessary. The
Borrower has full corporate power and authority to
execute this letter and incur the obligations and
indebtedness contemplated hereunder. The execution,
delivery and performance by the Borrower of its
obligations contemplated herein will not contravene any
law, regulation, by-law or contractual obligations
binding upon the Borrower;
(ii) The Borrower's obligation contemplated hereunder
constitutes the Borrower's valid and legally binding
obligation enforceable against the Borrower in
accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor's rights generally
and by general principles of equity and has been duly
authorized by the Borrower's board of directors; and
(iii) To the best knowledge of the Borrower, there are no
pending or threatened actions or proceedings before any
court or administrative agency which, if determined
adversely, would materially affect the financial
condition or operations of the Borrower.
10. COVENANTS:
The Borrower hereby agrees that, as long as any Facility
remains outstanding and unpaid, the Borrower shall:
(i) provide the Bank audited annual consolidated financial
statements (including consolidating schedules), prepared
in accordance with GAAP, within 90 days of the end of
the Borrower's fiscal year end;
(ii) submit to the Bank management prepared audited
consolidated quarterly financial statements, prepared in
accordance with GAAP, within 45 days of the end of the
Borrowers' fiscal quarter.
11. RIGHT OF SET-OFF:
In addition to the rights granted to it by applicable law, the
Bank has the right to set-off and apply to any of the
Borrower's obligations hereunder any amount received by it
from the Borrower, including any balance in any deposit
account of the Borrower maintained with the Bank or any of its
branches.
Page 3 of 5
<PAGE>
Standard [LOGO] Chartered
12. ASSIGNMENTS:
The Bank may at any time assign or sell participation in all
or a portion of its rights and obligations hereunder to one or
more banks or other financial institutions. The Borrower shall
not assign or delegate any of its rights or obligations
hereunder without the prior written consent of the Bank and
any attempted assignment by the Borrower without such consent
shall be null and void.
13. LEGAL FEES AND EXPENSES:
The Borrower agrees to pay to the Bank on its first demand all
costs and expenses incurred by the Bank in connection with the
preparation, execution and/or amendment of this letter
agreement and the enforcement or collection of any obligations
arising in connection with the transactions contemplated
hereby, including, without limitation, reasonable attorneys'
fees, a reasonable estimate of the allocated cost of Bank's
in-house counsel and other legal expenses.
14. WAIVERS:
The failure of the Bank at any time to require performance by
the Borrower of any provisions hereof shall in no way affect
the Bank's rights to require such performance at any time
thereafter, nor shall the waiver by the Bank of the breach of
any provision hereof be taken or held to be a waiver or
modification of any succeeding breach of such provision. No
modification or waiver of any provisions of this letter
agreement shall be effective unless in writing, signed by the
Bank, and only to the extent specifically set forth therein;
nor shall any such waiver or modification be applicable except
in the specific instance for which given.
15. GOVERNING LAW; WAIVER OF TRAIL BY JURY; CONSENT TO JURISDICTION:
The Borrower agrees that any legal action arising out of or in
any connection with this letter agreement or bankers'
acceptances, overdrafts or letters of credit may be brought by
the Bank, in its discretion, in the State or Federal Courts
located in New York City and the Borrower waives the right to
trail by jury in any action or proceeding related hereto or in
connection with the obligations undertaken hereby and in the
security documents related hereto.
THE BORROWER'S OBLIGATIONS WITH RESPECT TO THIS LETTER
AGREEMENT AND THE OBLIGATIONS CONTEMPLATED HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
Page 4 of 5
<PAGE>
Standard [LOGO] Chartered
If the terms and conditions specified in this letter agreement are acceptable to
you, please indicate your acceptance thereof by signing and returning the
attached copy to us.
Very truly yours,
STANDARD CHARTERED BANK
By: /s/ Andrew Y. Ng By: /s/ Larry Fitzgerald
----------------------------- --------------------------------
Name: Andrew Y. Ng Name: Larry Fitzgerald
Title: Vice President Title: Vice President
Agreed to and accepted by:
TARRANT APPAREL GROUP
By: /s/ Gerard Guez By:
----------------------------- --------------------------------
Name: Gerard Guez Name:
Title: Chief Executive Officer Title:
Date: 1-13-00 Date:
Page 5 of 5
<PAGE>
EXHIBIT 10.82
MTB BANK
FACTORING AGREEMENT
FACTORING AGREEMENT made as of this 24 day of November, 1999 by and
between Rocky Apparel, LLC, a Delaware limited liability company with its
principal address at 1384 Broadway, New York, New York 10018 (fax number (212)
221-7172) (the "Company") and MTB BANK, a commercial bank organized under the
banking laws of the State of New York with its principal office at 90 Broad
Street, New York, New York 10004 (fax number (212) 858-3443) ("MTB").
R E C I T A L S
- - - - - - - -
The Company has requested that MTB act as the sole factor for it, and MTB
is willing to do so subject to the terms and conditions set forth in this
Agreement.
Accordingly, in order to induce MTB to act as sole factor for the Company
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions
-----------
"Collateral" - as defined in Section 5.1 hereof.
"Company Account" - as defined in Section 3.1 hereof.
"Credit Risk" - the risk of loss resulting solely and exclusively from
a Customer's failure to pay at maturity because of its financial inability to
pay.
"Customer Dispute" - any cause for nonpayment of any Receivable, other
than for the financial inability of the Customer to pay, including, without
limitation, any alleged dispute, defense, offset or counterclaim, whether bona
fide or not.
"Customer(s)" - the account debtor(s) obligated on the Receivables.
"Default" - the occurrence of any of the following events: (a)
nonpayment by the Company when due of any amount payable on any of the
Obligations, or failure to perform any agreement or meet any obligation of the
Company contained in this Agreement, or in any other agreement with MTB, or in
any agreement out of which any of the Obligations arose after the expiration of
any grace period provided therein; (b) default by the Company in repayment when
due of any indebtedness now or hereafter owed for monies borrowed from or owed
to anyone other than MTB as a result
<PAGE>
of which the obligee has invoked such default and accelerated such indebtedness;
(c) any material statement, representation or warranty of the Company made
orally or in writing herein or in any other writing or statement at any time
furnished or made by the Company to MTB is untrue or inaccurate in any material
respect as of the date furnished or made; (d) suspension of the operation of the
Company's present business; (e) the Company and any other party primarily or
secondarily, directly or indirectly liable on any of the Obligations (each, an
"Obligor") becomes insolvent or unable to pay debts as they mature, or a
petition under any provision of bankruptcy or similar law is brought by any
Obligor, or against Obligor if not dismissed within sixty (60) days thereafter;
(f) death of any Obligor who is a natural person, or death or withdrawal of any
partner of any Obligor which is a partnership, or dissolution, merger, or
consolidation of any Obligor which is a corporation or a limited liability
company, unless the result of same is that the Obligor is the surviving entity;
(g) sale, transfer or exchange, either directly or indirectly, of a controlling
stock, equity or membership interest of any Obligor if as a consequence the
Company's current sole shareholder (or any of its affiliates or subsidiaries)
beneficially own less than 50% of any Obligor; (h) termination or withdrawal of
any guaranty for the Obligations; (i) appointment of a receiver for any
Collateral pledged for the Obligations or for any property in which the Company
has an interest; or (j) the granting by the Company of a security interest in
any of its assets without the prior written consent of MTB, except for a
security interest granted in connection with the purchase or lease of furniture,
fixtures or equipment by the Company in the ordinary course of its business;
PROVIDED, HOWEVER, that the occurrence of an event described in clauses (a) or
(b) above shall not be deemed a Default if cured within five (5) days of the
date of occurrence.
"General Intangibles" - includes without limitation all trade names,
trademarks, tradestyles, trade secrets, tax refunds, insurance proceeds,
customer lists, and all other licenses, rights, privileges and franchises
relating to or used in connection with the Company's Receivables.
"Net Amount of Receivables" - the gross amount of Receivables, less
maximum discounts offered (whether taken or not), less returns, less credits or
allowances of any nature at any time issued, granted or outstanding, and less
also MTB's commissions as set forth herein.
"Notice" - as defined in Section 10.4 hereof.
"Obligations" - all of the Company's obligations, whether now existing
or hereafter arising, to MTB under this Agreement, including without limitation,
advances of the purchase price of Receivables (although same are not currently
contemplated), commissions, fees and expenses due to MTB hereunder, and all
- 2 -
<PAGE>
obligations of the Company to MTB under any other agreement or under any note,
loan, advance, indebtedness, contract of surety, guaranty or accommodation, or
with respect to letters of credit or acceptances, sums owing to MTB for goods,
and/or services purchased from any other firm factored by MTB, and all other
obligations of the Company to MTB, however and whenever created, arising or
evidenced, whether direct or indirect, absolute, contingent or otherwise, now or
hereafter existing or due or to become due.
"Payment Date" - (a) for each credit-approved Receivable for which MTB
retains the Credit Risk, the date of deposit of the Customer payment by MTB plus
five (5) business days, or, if such Receivable is not paid solely because of the
Customer's financial inability to pay, one hundred twenty (120) days after the
due date of the Receivable, or if such day is not a banking day, the next
banking day; and (b) for each Receivable for which MTB does not bear the Credit
Risk, the date of deposit of the Customer payment with MTB plus five (5)
business days.
"Receivables" - all accounts and accounts receivable, and all
instruments, contract rights, chattel paper, documents, and all other
obligations of the Company's Customers to it arising from the Company's Sales,
and the proceeds thereof, and all security and guaranties therefor, whether now
or existing or hereafter created.
"Sales" - the sale of goods and/or the rendition of services by the
Company in the ordinary course of its business with Customers.
2. Sales and Approval; Purchase Price; Commissions; Fees; Reserves;
Advances; Interest
----------------------------------------------------------------
2.1 The Company hereby assigns and sells to MTB, as absolute owner,
without recourse except as hereinafter set forth, its entire interest in certain
of its present and future Receivables, together with all security therefor and
all right, title and interest of the Company in the merchandise represented by
such Receivables, including all of the Company's rights to stoppage in transit,
replevin and reclamation and as an unpaid vendor.
2.2 All orders for Sales shall be submitted to MTB for credit approval
prior to shipment of the goods or rendition of the services. MTB may, in its
sole discretion, approve in writing all or a portion of the Sales, either by
establishing a credit line limited to a specific amount for a specific Customer
or by approving all or a portion of the Sales submitted. All approvals must be
in writing. All Receivables arising from orders credit-approved by MTB shall be
purchased by MTB without recourse against the Company as to the Credit Risk of
such Receivables. All Receivables arising from orders which are not
credit-approved by MTB shall be purchased by MTB with full recourse against the
Company. On all credit-approved Receivables, MTB assumes the
- 3 -
<PAGE>
Credit Risk up to the amount so approved and will bear the credit loss on the
amount of the uncollected Receivable if a Customer, after delivery/rendition and
acceptance of the goods/services, fails on the due date thereof to pay in full
solely because of its financial inability to pay, but MTB is not responsible in
the event nonpayment results from any Customer Dispute, act of God, war, civil
strife, currency restrictions or foreign political impediments. Credit approvals
(including credit lines and credit approvals of specific Receivables), once
granted, may be withdrawn prior to delivery and receipt of goods or rendition of
services, but any such withdrawal will be communicated promptly by MTB to the
Company in writing. In addition, if in MTB's sole judgment the Credit Risk of
any Customer under any credit-approved Receivable becomes impaired before
delivery of the related merchandise, the Company will, upon request and at its
expense, use its best efforts to stop delivery of the related merchandise.
2.3 The Company will provide MTB with listings of Receivables in form
satisfactory to MTB, together with Customers' invoices, shipping documents, and
such other documents and proof of delivery/rendition as MTB may at any time
require. Billing on invoices by whomever done shall be conclusive evidence of
assignment and sale hereunder of such Receivables whether or not the Company
executes any other instrument with regard thereto. All invoices to Customers
shall contain a conspicuous legend as follows:
This account has been sold and is
payable only to:
MTB BANK
90 Broad Street
5th Floor - A/R Funding
New York, New York 10004-2290
212-858-3470/800-892-2577
Please make checks payable as shown and
indicate name of seller.
Any claim against this invoice must be made promptly in
writing to MTB BANK. No refunds or adjustments will be
recognized without the prior written consent of MTB BANK.
All remittances and proceeds of Receivables obtained by the Company will
be received in trust for MTB, and the Company will turn over to MTB the
identical remittances within one business day from the date such remittances are
received; provided, however, nothing herein authorizes the Company to collect
Receivables. In the event any merchandise represented by a Receivable shall be
returned to or repossessed by the Company, the Company shall immediately notify
MTB and such merchandise shall be held by the
- 4 -
<PAGE>
Company in trust for MTB, separate and apart from the Company's own property,
and subject to MTB's direction and control.
2.4 Except as MTB may otherwise consent in writing, the terms of all
Receivables submitted to MTB for credit approval shall not exceed 60 days. After
a Receivable has been credit-approved by MTB, the Company shall not vary the
terms thereof without MTB's prior written consent. Absent such consent, MTB may
revoke its credit approval at any time in the event the terms of a Receivable
have been varied.
2.5 The purchase price of each Receivable is to be the Net Amount thereof,
which, less any charges and reserves, will be due and payable on the Payment
Date. The Company shall pay MTB a commission in an amount equal to one percent
(1%) of the gross amount of such Receivable where the terms of sale do not
exceed sixty (60) days, plus an additional commission of one-quarter of one
percent (0.25%) for each additional thirty (30) day term or part thereof of
extended terms or additional dating; provided, however, that the minimum
commission for any Receivable shall be $5.00.
2.6 Prior to the Payment Date, MTB shall be under no obligation to make
any advances to the Company and no such advances are currently contemplated;
provided, however, that any amounts advanced by MTB to the Company shall also be
subject to this Agreement.
2.7 MTB may retain from sums otherwise payable to the Company a reasonable
reserve, the amount of which reserve may be revised from time to time in MTB's
sole discretion, in order to provide for (a) Customer Disputes (known or
potential), (b) the Obligations, (c) possible credit losses on unapproved
Receivables, or (d) sums owing to MTB for goods or services purchased by the
Company from any other firm factored or financed by MTB. A discount, credit or
allowance after issuance or granting may not be claimed by the Company, but may
be claimed solely by the Customer; no third party beneficiary rights are created
hereby.
2.8 The principal amount of any advance (none of which are currently
contemplated) made against the purchase price of a Receivable and the amount of
any other charges to the Company Account that remain outstanding shall bear
interest on the entire balance thereof outstanding from time to time at a
fluctuating annual rate from the date of such advance or charge until maturity
or until paid in full, which annual rate shall be two (2) percentage points
above the prime commercial rate of interest established from day to day by MTB
as its prime rate (the "Contract Rate"), which may not be the lowest rate
charged to its borrowers, but in no event in excess of the maximum interest rate
permitted by law; provided, however, that in the event that the aggregate of all
advances and charges to the Company Account are in excess of the
- 5 -
<PAGE>
percentage formula set forth in Section 2.6 above for five (5) or more calendar
days in any month, then the entire balance outstanding from time to time during
such month shall bear interest at a fluctuating annual rate which is two (2)
percentage points above the Contract Rate, but in no event in excess of the
maximum interest rate permitted by law. Each change in the rate charged to the
Company shall be effective without notice to the Company on the first day of the
calendar month following the calendar month in which a change in the prime rate
shall have been made. Such interest shall be charged to the Company Account as
defined in section 3.1. For all purposes of this Agreement, interest shall be
calculated at a daily rate equal to 1/360 of the applicable annual rate for the
actual number of days elapsed. The Company acknowledges that the actual yield to
MTB under this Agreement may exceed the rate of interest set forth in this
Section 2.8. For purposes of interest calculation, commissions earned during
each month shall be deemed charged to the Company's account on the fifteenth
(15th) day of such month.
3. Company Account; Monthly Statements
-----------------------------------
3.1 All transactions between MTB and the Company will be recorded in an
account (herein referred to as the "Company Account"). A monthly statement with
respect to the Company Account shall be furnished to the Company after the end
of each month. Each such monthly statement and other accounting which MTB
renders to the Company shall be deemed an account stated and shall be accepted
by and conclusive and binding upon the Company unless MTB receives a Notice from
the Company of any exception thereto within sixty (60) days of the date of said
monthly statement or accounting, which Notice shall set forth with specificity
the nature of such exception. Such monthly statements and accounting records
shall be admissible in evidence in any action or proceeding, and shall be
binding upon the Company in establishing transactions and entries reflected
therein and shall be accepted as prima facia proof thereof. The Company agrees
that it will pay to MTB on demand any advances, charges or Obligations at any
time outstanding in the Company Account, whether or not then due, and that
recourse to security or any Collateral is not required.
3.2 The Company recognizes that any balance in the Company Account
represents bookkeeping entries and not necessarily cash funds. The total amount
of the Company Account will include, without specifically showing, any amount
held by MTB as a reserve. MTB, however, agrees to advise the Company upon
request of the exact amount of reserves being maintained by MTB as of any
particular date.
4. Conditions Precedent
--------------------
The Company acknowledges that MTB shall be under no obligation to make any
advances under this Agreement unless and until each of
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<PAGE>
the following conditions shall have been satisfied in MTB's sole and absolute
discretion:
(a) The Company shall have executed and delivered to MTB appropriate
Uniform Commercial Code financing statements in order to enable MTB to perfect
and preserve its security interest in all Collateral, as well as such other
agreements and instruments as MTB may reasonably request.
(b) [Omitted].
(c) [Omitted].
(d) MTB shall have received copies of the following:
(i) the Certificate of Formation of the Company and all
amendments thereto, certified by the State of Delaware;
(ii) the Operating Agreement of the Company, certified by its
secretary;
(iii) duly executed resolutions covering all action taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, certified by its secretary;
(iv) a good standing certificate for the Company as of a recent
date from the Secretary of State of Delaware and from each state in which it is
qualified to do business; and
(v) an incumbency certificate (with specimen signatures) with
respect to the Company.
(e) [Omitted].
(f) The Company shall have delivered to MTB such other documentation
as MTB may reasonably request.
5. Security Interest; Further Assurances
-------------------------------------
5.1 As collateral security for the Obligations, the Company hereby grants
to MTB a continuing general security interest in and to, a lien on, and a right
of setoff on or against, all the Company's present and future accounts, accounts
receivable, contract rights, chattel paper, instruments, notes, bills, claims,
documents, and General Intangibles, all unpaid seller's rights (including
rescission, repossession, replevin, reclamation and stoppage in transit), all
returned or repossessed goods, all guaranties and security agreements, and all
products and proceeds of the foregoing, whether now existing or hereafter
acquired and wherever located, together with the reserve established pursuant to
Section 2.7 hereof and all moneys credited to the Company (whether
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<PAGE>
credited to the Company pursuant to this Agreement or in a deposit account
maintained at MTB, or otherwise), any of the Company's property at any time in
MTB's possession, and in all books, records, data and computer software relating
to the foregoing (collectively, the "Collateral"). MTB shall have all of the
rights and remedies provided in this Agreement and in the Uniform Commercial
Code in force at the time of the execution of this Agreement and by any
amendment thereof.
5.2 Notwithstanding any other provisions of this Agreement, MTB shall be
entitled at all times, both before and after termination of this Agreement, to
hold all sums to the credit of Company (including, without limitation, balances
in the Company Account and reserves) as security for any and all of the
Obligations, and any amount which MTB is authorized hereunder to charge to the
Company or for which the Company is obligated to MTB may be withheld or deducted
by MTB at any time in its sole discretion from any remittances, payments or
credits otherwise to be made by MTB hereunder. In the event of a Default, or if
this Agreement shall have been terminated, the Company Account, reserves any
other monies, balances, or credits otherwise due by MTB to the Company may be
retained and applied by MTB from time to time against any Obligations (direct or
contingent), then or thereafter due from the Company, and the amount of reserve
shall upon such breach or termination be increased to an amount equal to the
then aggregate unpaid gross amount of all credit-approved Receivables.
5.3 The Company agrees to execute and deliver to MTB such notices of
assignment, instruments, agreements and other documents and to make such entries
and markings upon its books and records, all as MTB may reasonably request to
better protect the sale and assignment of Receivables hereunder and the security
interest granted hereunder; provided however that the failure by the Company to
do so shall not affect MTB's interest in the Receivables.
6. Representations and Warranties; Customer Disputes and Chargebacks;
Covenants
------------------------------------------------------------------
6.1 The Company hereby represents and warrants to MTB that assignment to
MTB of each Receivable will vest absolute ownership of such Receivable in MTB,
free and clear of any and all liens, claims or encumbrances whatsoever; that
each Receivable shall on the date of assignment be based upon a bona fide sale
and actual shipment of merchandise, services rendered, or labor performed by the
Company during the term of this Agreement, and shall be a valid and enforceable
obligation of the named Customer; and that such merchandise shall be accepted
and retained by the Customer, subject to no Customer Dispute, and that no
Customer is an affiliate or subsidiary of the Company.
6.2 The Company shall immediately notify MTB of any Customer Dispute or
the breach of any other representation and warranty
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<PAGE>
hereunder. The Company, at its own expense, shall settle all Customer Disputes,
subject to MTB's approval, but MTB shall have the right, in its sole discretion,
to settle any Customer Dispute directly with the Customer involved upon such
terms as MTB may deem advisable and at the Company's expense. If MTB should so
elect to settle a Customer Dispute itself, MTB is specifically vested with an
irrevocable power of attorney, coupled with an interest, to act in the Company's
name, place and stead, and MTB is hereby authorized to execute all release,
settlement or compromise agreements, and to receive and receipt for and in
Company's name, all money or other property that MTB may receive in settlement,
release, and/or compromise of Customer Disputes.
6.3 In the event (i) of any Customer Dispute with respect to a Receivable,
(ii) of any breach of any other representation or warranty hereunder as to any
Receivable, or (iii) a Receivable remains unpaid sixty (60) days after the
maturity date of such Receivable for any reason other than the financial
inability of the Customer to pay such Receivable, MTB may in its sole
discretion, chargeback to the Company without recourse to MTB, the Net Amount of
such Receivable, as well as all other Receivables owing by the same Customer,
and charge such amount to the Company Account or at MTB's option the Company
agrees to pay such amount to MTB on demand. If the Company has sufficient funds
in reserves maintained by MTB, MTB is authorized to charge such payment directly
to such reserves. A chargeback shall not be deemed a reassignment of the
Receivable, and title thereto and to the goods represented thereby shall remain
in MTB until it executes a reassignment. All returned, replevied and reclaimed
goods coming into the Company's possession shall be held in trust for MTB. The
Company hereby waives any right to payments received by MTB from or on behalf of
a Customer which neither MTB nor the Company can identify to any Receivable.
6.4 The Company represents and warrants that it has no other place of
business, offices where its books of account and records are kept, or places
where any of its property is used, stored or located, except as set forth on
Schedule 1 annexed hereto, and covenants that Company will promptly notify MTB
of any change in the foregoing representation. Company shall at all times
maintain its records as to the Receivables at its chief executive office at the
address referred to on Schedule 1 and at none other. Company further covenants
that except for property delivered to MTB or an agent for MTB, Company will not
store, use or locate any of its property at any place other than as listed on
Schedule 1 annexed hereto.
6.5 The Company represents and warrants that it currently uses no business
or trade names, except as set forth on Schedule 1 annexed hereto, and covenants
that Company will promptly notify MTB, in sufficient detail, of any changes in,
additions to, or deletions from the business or trade names used by Company.
- 9 -
<PAGE>
Company covenants that it shall not change its legal name without prior Notice
to MTB.
6.6 The Company covenants and agrees to deliver to MTB:
(a) within ninety (90) days after the last day of each fiscal year of
the Company, a balance sheet of the Company (and a consolidated balance sheet of
the Company and its subsidiaries, if Company has subsidiaries at such time) for
the fiscal year then ended and related statements of profit and loss and
retained earnings and a reconciliation of net worth and a statement of cash flow
for the year then ended (and consolidated and consolidating statements of the
Company and its subsidiaries, if the Company has subsidiaries at such time),
each prepared on a review basis in accordance with generally accepted accounting
principles consistently applied in reasonable detail by a certified public
accountant mutually acceptable to MTB and the Company (the "Accountant"); and
(b) within ninety (90) days after the last day of the second fiscal
quarter of each fiscal year of the Company, the foregoing financial statements
for the six months then ended, prepared on a review basis by the Accountant.
6.7 The Company agrees to comply and cause its subsidiaries to comply with
all material rules, regulations, law or ordinances of any administrative,
judicial or legislative body or official applicable to its business activities.
7. Power of Attorney; Right to Inspect, Endorse Instruments, Notify
Customers
----------------------------------------------------------------
7.1 The Company authorizes MTB and does hereby make, constitute and
appoint MTB, and each of MTB's officers or agents, with full power of
substitution, the Company's true and lawful attorney-in-fact, with power, in its
own name or in the name of Company; (a) to endorse any notes, checks, drafts,
money orders, or other instruments of payment relating to Receivables that may
come into MTB's possession; (b) to sign and endorse any invoice, freight or
express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with any
Collateral, and other documents relating to the Collateral; (c) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Receivables or any other Collateral; and (d) generally, to do, at MTB's
option and at Company's expense, at any time, or from time to time, all acts and
things which MTB deems necessary to protect, preserve and realize upon the
Receivables and the other Collateral in order to effect the intent of this
Agreement all as fully and effectually as Company might or could do; and Company
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is deemed to be coupled with an
- 10 -
<PAGE>
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations are outstanding. MTB shall not be liable for
any errors of judgment or mistakes of fact.
7.2 MTB and its accountants and agents shall have the right, at all times
during normal business hours, with reasonable prior written notice to the
Company, to examine and make extracts from all books and records of the Company
and to otherwise conduct field examinations of the Company. After the occurrence
of a Default, the Company authorizes MTB and its agents to receive, open and
dispose of mail addressed to the Company and to endorse the name of the Company
upon checks and other instruments and documents, and in the name of and as agent
for the Company to do all other acts and things necessary to carry out this
Agreement, including, without limitation, (i) to advise Customers of the
assignment and sale of the Receivables, (ii) to contact Customers to obtain
verification of the Receivables; and (iii) to advise Customers to make direct
payment of all checks, drafts, cash or other remittances in payment of the
accounts directly to MTB.
8. Term of Agreement; Expenses; Indemnity
--------------------------------------
8.1 This Agreement shall become effective upon its execution and delivery
by both parties and upon fulfillment, to the satisfaction of MTB, of the
conditions precedent set forth herein, and shall continue in full force and
effect for one year from the effective date hereof, and shall be deemed renewed
from year to year thereafter unless either party gives to the other party at any
time thirty (30) days prior written notice of termination. Notwithstanding the
foregoing, MTB may terminate this Agreement at any time without Notice should
any Default occur. Termination of this Agreement shall not affect rights and
obligations of the parties accruing prior to termination. Upon termination, the
Company will immediately pay all of its Obligations to MTB.
8.2 The Company agrees, on demand, to pay all reasonable costs and
expenses incurred or charged by MTB (including without limitation reasonable
attorneys' fees of outside counsel or the allocated cost of in house counsel,
the costs of public record searches and filings, and accounting and periodic
field examination fees and expenses) in connection with this Agreement,
including without limitation, all costs and expenses in connection with
perfecting, protecting, or realizing upon or administering the Receivables and
the other Collateral, with enforcing or preserving any of its rights under this
Agreement, or in connection with preparing, modifying or amending the Agreement.
Such costs and expenses will be charged to the Company Account.
8.3 All taxes and governmental charges imposed with respect to Sales shall
be charged to and paid by the Company.
- 11 -
<PAGE>
8.4 The Company shall indemnify, defend and hold MTB harmless from and
against all claims, losses, costs and expenses incurred by MTB in connection
with the Receivables for which credit approval has not been given and in
connection with Receivables which are unpaid at maturity for reasons other than
financial inability. The Company shall also indemnify MTB for any liability for
duties, forwarder's fees, storage, shipping charges, sales or excise taxes or
other expenses in connection with the Receivables and for any losses occasioned
by claims of Customers under Receivables. This indemnity shall survive
termination of this Agreement.
9. Remedies
--------
Upon the occurrence of a Default, MTB 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 its other rights and remedies provided for herein or in
any other agreement between the parties, and further MTB may, at any time or
times after the occurrence of any such Default, sell and deliver any and all
other collateral held by or for it at public or private sale, in one or more
sales or parcels, at such prices and upon such terms as it may deem best, and
for cash or on credit or for future delivery, without assumption of any credit
risk, and at public or private sales, as it 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 the
Company's address shown above or the last shown address in MTB's records, at
least five (5) days before the time of the sale or disposition thereof. MTB may
be the purchaser at any sale, if it is public, free from any right of
redemption, which, to the extent permitted by law, the Company also hereby
expressly waives. 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 MTB may elect) of all Obligations. MTB will return any
excess to the Company and the Company shall remain liable to MTB for any
deficiency. MTB's rights and remedies under this Agreement will be cumulative
and not exclusive of any other rights or remedies which it may otherwise have.
The provisions of this Section 9 shall survive any termination of this
Agreement.
10. Miscellaneous
-------------
10.1 This Agreement constitutes a Security Agreement under the provisions
of the Uniform Commercial Code as in effect in New York. This Agreement may only
be changed, modified, supplemented, or amended by a written document signed by
both MTB and the Company. Should any paragraph, section, provision, or clause of
this Agreement be found or held contrary to, or unenforceable at law or in
equity, such finding shall not affect the others, which shall notwithstanding
continue in full force and effect, it being the
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<PAGE>
express intention of the parties hereto that the invalidity of any one or more
paragraphs, sections, provisions, or clauses shall not in any way affect the
others.
10.2 It being the express intention of the parties hereto to conform
strictly with the applicable usury laws, it is agreed that nothing contained
herein shall be so construed as to require the payment of interest at a rate in
excess of the maximum allowable by law, and in no event shall the Company be
obligated to pay interest exceeding such maximum rate of interest permitted by
law, and all such agreements, conditions, or stipulations, if any, which may in
any event or contingency whatsoever operate to bind, obligate, or compel the
Company to pay a rate of interest exceeding the maximum rate of interest
permitted by law shall be without binding force or effect at law or in equity to
the extent only of the excess of interest over such maximum rate of interest
permitted by law. It is the intention of the parties hereto that the
construction and interpretation of this Agreement, the foregoing sentence shall
be given precedence over any other agreement, condition, or stipulation herein
contained which is in conflict with the same.
10.3 This Agreement represents the full agreement between MTB and the
Company with respect to the subject matter hereof, and supersedes any prior
agreements, whether written or oral. In performing its obligations under this
Agreement MTB shall be liable to the Company only for its gross negligence or
willful misconduct.
10.4 All notices, requests and other communications (each a "Notice")
pursuant to this Agreement shall be in writing and sent either (a) by hand, (b)
by certified mail, return receipt requested, (c) by recognized overnight courier
service, or (d) by fax, to the other party at the address or fax number set
forth at the beginning of this Agreement, or to such other address or fax number
as a party may from time to time furnish to the other party by Notice. Any
Notice hereunder shall be deemed to have been given on (i) the day of hand
delivery, (ii) the third business day after the day it is deposited in the U.S.
Mail, if sent by certified mail, return receipt requested, postage prepaid,
(iii) the day after it is delivered to a recognized overnight courier service
with instructions for next day delivery, or (d) the day it is faxed, in each
case to the address or fax number as aforesaid.
10.5 Any failure or delay by MTB in exercising any of its rights hereunder
shall not be deemed to be a waiver by MTB of such or any other right, nor in any
manner impair the subsequent exercise of the same or any other right, and any
waiver by MTB of any default shall not constitute a waiver of any subsequent
default. This Agreement is binding on the Company, its successors and assigns
and inures to the benefit of MTB, its successors and assigns. The Company agrees
that MTB may delegate its duties under this Agreement.
- 13 -
<PAGE>
10.6 The Company agrees and acknowledges that MTB and its authorized
representatives are engaged in the provision of factoring services pursuant to
this Agreement. By entering into this Agreement, the Company expressly
acknowledges that it will not seek advice or counsel from MTB or any of its
representatives with respect to the management and/or operation of the Company's
business and if the Company deems such advice or counsel to have been offered,
directly or indirectly, the Company will evaluate it and act or decline to act
upon it based upon its own careful analysis and/or the advice or counsel of its
own independent expert(s) or consultant(s). The Company agrees that it will not
seek or attempt to establish a fiduciary relationship between MTB and/or its
representatives and the Company, or any other entity affiliated or controlled by
the Company. The Company hereby expressly waives any right to assert, now or in
the future, that there was or is a fiduciary relationship between the Company
and MTB and/or its representatives in any action, proceeding or claim for
damages.
10.7 THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED WHOLLY WITHIN THE STATE
OF NEW YORK. IN ANY SUIT OR PROCEEDING BETWEEN THEM, WHETHER RELATING TO THIS
AGREEMENT OR OTHERWISE, THE PARTIES MUTUALLY WAIVE TRIAL BY JURY AND THE COMPANY
IRREVOCABLY A) WAIVES ALL CLAIMS INSOFAR AS THEY ARE BASED ON SPECIAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, AND B) CONSENTS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date set forth above.
MTB BANK
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: V.P.
--------------------------------
ROCKY APPAREL, LLC
By: /s/ Gabriel Zeitouni
-----------------------------------
Gabriel Zeitouni
President
- 14 -
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of November, 1999, before me, the undersigned, a
notary public in and for said state, personally appeared Gabriel Zeitouni,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.
/s/ Barbara Kotsogiannis
------------------------------
Notary Public
BARBARA KOTSOGIANNIS
NOTARY PUBLIC, State of New York
No. 41-4935259
Qualified in Queens County
Commission Expires August 12, 2001
- 15 -
<PAGE>
SCHEDULE 1
----------
Chief Executive Office:
1384 Broadway
New York, New York 10018
Other Places of Business; Other locations of Collateral:
P.O. Box 457 200 W. Floyce Street
137-1/2 S. Bowden Avenue Ruleville, MS 38771
Ruleville, Mississippi 38771
Rt 49 E/Rt 82 (1803 Hwy 82W) 1519 LaSalle St.
Greenwood, MS 38930 Greenwood, MS
422 Industrial Dr.
Vardman, MS
Location of Books and Records:
137-1/2 S. Bowden Avenue
Ruleville, Mississippi 38771
Business and/or Trade Names:
NONE
Federal Employer I.D. #:
13-3770741
- 16 -
<PAGE>
ASSIGNMENT AGREEMENT
--------------------
KNOW ALL MEN BY THESE PRESENTS:
That Rocky Apparel, LLC, a Delaware limited liability company with offices
at 1384 Broadway, New York, New York 10018 (herein the "Company"), in
consideration of certain financial accommodations extended to the Company by MTB
Bank at 90 Broad Street, New York, New York 10004 (herein the "Bank") and for
other good and valuable consideration, the receipt whereof is hereby
acknowledged, does hereby irrevocably assign and transfer to the ABL Division of
the Bank (the "ABL Division") all of the rights of the Company in and to
proceeds or monies due it under the Factoring Agreement between the Company and
the Factoring Division of MTB Bank (herein the "Factor") dated November 24,
1999, and any amendments, supplements, modifications, extensions and renewals
thereof, (herein the "Factoring Agreement") including without limitation, the
right to receive all proceeds of the Factoring Agreement, and all sums of money
now due or which may hereafter become due to the Company thereunder.
This Assignment and transfer is made to the ABL Division, its
successors, endorsers or assigns, as collateral security for the payment of any
and all liabilities and obligations of the Company to the Bank and any claims of
the Bank against the Company, whether now existing or hereafter incurred whether
originally contracted with the Bank and/or with another and now or hereafter
owing to or acquired by the Bank, whether contracted by the Company alone or
jointly and/or severally with another or others, and whether absolute or
contingent, secured or unsecured, matured or unmatured (all of the foregoing
being herein called "Obligations").
The Factor is hereby authorized to remit proceeds when due and
payable under the Factoring Agreement (subject to the reserve, if any, which the
Factor in its sole discretion may decide to retain, and subject to all of the
Factor's other rights under the Factoring Agreement including Factor's rights to
charge back as set forth in the Factoring Agreement and to apply to the
Company's account any indebtedness owing to the Factor by reason of the
Company's purchases from other entities factored by the Factor) directly to the
ABL Division; to furnish the ABL Division with copies of the accounts current
rendered by the Factor to the undersigned; and to recognize the ABL Division's
claim and rights hereunder without investigating the reason therefor, or the
validity of the amount of any Obligations, or the existence of any default or
the application to be made by the Bank of any of the sums paid hereunder.
<PAGE>
This Assignment is to continue in effect until written notice of
termination is served by any one of the parties hereto on the others, but such
termination shall not affect any assignment or right to receive any balances, as
herein provided, for which an account current has been rendered to the ABL
Division prior to the date of termination.
This Agreement is not in any way intended to limit any obligation
contained in any agreement, note, assignment, security agreement, certificate,
document, or instrument executed in connection with any of the Obligations of
the Company to the Bank, and shall in all respects be cumulative therewith.
The Company agrees, acknowledges and recognizes that the ABL
Division and the Factor are two divisions of the Bank, which is one legal
entity, and nothing in this Assignment Agreement shall in any way diminish the
Bank's rights with respect to the Company or the Company's obligations to the
Bank, whether to its ABL Division, to the Factor, or otherwise, and whether or
not contained in any agreement or other document with the ABL Division, the
Factor or otherwise.
This Agreement shall be governed by the laws of the State of New
York.
Dated: New York, New York
November 24, 1999
ROCKY APPAREL, LLC
By: /s/ [ILLEGIBLE]
-------------------------------
AGREED AND ACKNOWLEDGED:
MTB BANK
(Factoring Division)
By: /s/ [ILLEGIBLE]
-----------------------------
MTB BANK
(Asset Based Lending Division)
By: /s/ [ILLEGIBLE]
-----------------------------
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<PAGE>
MTB BANK
Certified Resolutions to Borrow and Incumbency
I, Gerard Guez, the sole Manager of Rocky Apparel, LLC, a Delaware limited
liability company, having its principal office at 1384 Broadway, New York, New
York 10018 (the "Company"), hereby CERTIFY that the following preamble and
resolutions are now in full force and effect without revocation or change:
"WHEREAS, the Company has requested that MTB Bank, a commercial bank
organized under the New York Banking Laws ("MTB") lend, advance and extend
certain financial accommodations to the Company.
NOW, THEREFORE, it is hereby resolved:
1. That any one or more of the officers of the Company be, and each
hereby is, authorized and directed, in the name and on behalf of the Company:
(a) To borrow money and obtain credit and other financial
accommodations for or on behalf of the Company, and at any time from time to
time, from MTB upon such terms and conditions, including, without limitation,
rates of interest, amortization and maturity, as may be satisfactory to MTB, and
to execute and deliver to MTB one or more factoring agreements, financing
agreements, promissory notes and other evidences of indebtedness (collectively,
the "Financing Agreements"), in form and substance satisfactory to MTB, to
evidence such borrowings, credit and financial accommodations, the execution and
delivery of the Financing Agreements by such officer or officers of the Company
to be deemed conclusive evidence of the approval by the Company of the terms,
provisions and conditions thereof;
(b) To pledge with, or assign to, MTB or to grant to MTB a security
interest in, such assets and property of the Company, both real and personal, as
may now or hereafter be required by MTB as security for all indebtedness and
obligations of the Company to MTB, now existing or hereafter arising and to
execute and deliver in connection therewith one or more mortgages, assignments
or security agreements (collectively, the "Security Agreements"), in form and
substance satisfactory to MTB, the execution and delivery of the Security
Agreements by such officer or officers of the Company to be deemed conclusive
evidence of the approval by the Company of the terms, provisions and conditions
thereof; and
(c) To make, execute and deliver to MTB any and all financing
statements, consents, certificates, documents, instruments, amendments, papers
or writings as may be required by
<PAGE>
MTB in connection with or in furtherance of the Financing Agreements, the
Security Agreements and any other transactions above described, the same to be
in form and substance satisfactory to MTB, and to do any and all other acts
necessary or desirable to effectuate the foregoing Resolutions, the execution,
delivery and performance thereof by such officer or officers of the Company to
be deemed conclusive evidence of the approval by the Company of the terms,
provisions and conditions thereof.
2. That any bank, banker or trust company be, and hereby is, authorized
and requested to receive for deposit to the credit of MTB, without further
inquiry, all checks, drafts and other instruments of payment of money payable to
the Company or its order, and that said bank, banker or trust company shall be
under no liability to the Company for the disposition which MTB may or shall
make of said instruments or the proceeds thereof, and that any officer or agent
of MTB is hereby authorized and empowered to endorse the name of the Company to
any and all checks, drafts and other instruments payable to the Company or its
order.
3. That any officer of the Company be, and hereby is, authorized to
certify and deliver to MTB, copies of these Resolutions."
AND, I further certify that annexed hereto as Exhibits A & B are
true and correct copies of the Certificate of Formation and Operating Agreement
of the Company as in effect on the date hereof. Also attached as Exhibit C
hereto is a certificate of Good Standing for the corporation from the Secretary
of State of Delaware.
AND, I further CERTIFY that, of my own knowledge, the following named
persons are the duly authorized officers of the Company, presently serving as
such, and that following each name is the true signature of each officer.
Name Title Signature
---- ----- ---------
Gabriel Zeitouni President /s/ Gabriel Zeitouni
----------------------
George Martin, Jr. CFO /s/ George Martin, Jr.
----------------------
- 2 -
<PAGE>
AND, I further CERTIFY that my own knowledge, the following named entity
is the sole member of the Company:
Name of Stockholder Percentage of Membership Interest Owned
------------------- ---------------------------------------
Tarrant Apparel Group, Inc. 100%
IN WITNESS WHEREOF, the undersigned does hereby certify that the
foregoing certificate is, in all respects, true and accurate.
/s/ Gerard Guez
---------------------------
Gerard Guez, Sole Manager
STATE OF California )
) ss.:
COUNTY OF Los Angeles )
Sworn to and subscribed to
before me this 23rd day of
November, 1999.
/s/ Fatima A. Palacios
- -------------------------------
Notary Public
- ------------------------------------
FATIMA A. PALACIOS
Commission # 1131492
[SEAL] Notary Public - California
Los Angeles County
My Comm. Expires Mar 26,2001
- ------------------------------------
- 3 -
<PAGE>
EXHIBIT 10.83
MACHINERY AND EQUIPMENT PLEDGE AGREEMENT
by and among
TARRANT MEXICO, S.DE R.L. DE C.V.,
as Pledgor,
TRANSIT HOLDING, INC.,
A SUBSIDIARY OF BANC OF AMERICA LEASING & CAPITAL, L.L.C.,
as Pledgee
and
MRS. NAFISEH SEDAGHAT,
as Depositary
________________________________
November 17, 1999
<PAGE>
Machinery and Equipment Pledge Agreement dated as of November 17, 1999
by and among
Tarrant Mexico, S. de R.L. de C.V., as Pledgor,
Transit Holding, Inc.,
a subsidiary of Banc of America Leasing & Capital, L.L.C., as Pledgee
and
Mrs. Nafiseh Sedaghat, as Depositary
(the "Agreement")
---------
INDEX
=====
Item or Document Tab No.
- ---------------- -------
Machinery and Equipment Pledge Agreement with Exhibits 1
Exhibit A: List of Existing Equipment
Exhibit B: Copy of the Facility (Lease Intended as Security)
Exhibit C: Depository Takeover Letter
Lease Intended as Security between Transit Holding, Inc. ("Lessor") 2
and TAG MEX, Inc. ("Lessee") dated as of November 3, 1999 (the "Lease
Agreement")
Appendix No. 1 to Lease Intended as Security
Exhibit A: Acceptance Certificate No. 1 with Annex A to
Acceptance Certificate No. 1
Exhibit B: Schedule No. 1
Corporate Resolution to Lease or Sell and Leaseback 3
Guaranty 4
Resolution Authorizing Execution of Guaranty 5
Opinion of Lessee's Counsel with Schedule 1 consisting of Acceptance 6
Certificate No. 1, Annex A to Acceptance Certificate No. 1, Exhibit A
and Schedule No. 1 to Acceptance Certificate No. 1
<PAGE>
TO BE
RATIFIED
BEFORE A
NOTARY PUBLIC
MACHINERY AND EQUIPMENT PLEDGE AGREEMENT (THE "AGREEMENT") ENTERED INTO ON
---------
NOVEMBER 17, 1999, BY AND AMONG TARRANT MEXICO, S. DE R.L. DE C.V. (THE
"PLEDGOR"), TRANSIT HOLDING, INC., A SUBSIDIARY OF BANC OF AMERICA LEASING &
-------
CAPITAL, L.L.C. (THE "PLEDGEE"), AND MRS. NAFISEH SEDAGHAT (THE "DEPOSITARY").
------- ----------
RECITALS
--------
I. Pledgor acting through its legal representative hereby declares
as follows:
A. Pledgor is a company duly organized and existing under the laws
of the United Mexican States ("Mexico"), and has all the necessary
------
authorizations, corporate, governmental or otherwise for the execution, delivery
and performance of this Agreement in its capacity as pledgor hereunder.
B. Neither the execution and delivery by Pledgor of this Agreement
nor the performance of its obligations hereunder, will contravene or conflict
with, or result in a breach or violation of applicable law or its organization
documents.
C. Pledgor's obligations hereunder constitute its valid an binding
obligations enforceable against it in accordance with its terms.
D. The representative of Pledgor has all necessary powers and
authority to execute this Agreement, which powers and authority have not been
revoked or otherwise modified.
E. In the ordinary course of business, Pledgor has acquired and
currently is the owner of machinery and equipment which it utilizes for its
business and which is more fully described in Exhibit "A" hereof and
-----------
incorporated
<PAGE>
Machinery and Equipment Pledge Agreement
herein by this reference (all such machinery and equipment the "Existing
--------
Equipment"), which Existing Equipment is free of all encumbrances and
- ---------
limitations of ownership whatsoever and Pledgor has the authority to encumber it
as provided for herein.
F. In the future it may acquire other machinery and equipment (the
"Future Equipment"). The Existing Equipment and the Future Equipment are herein
----------------
collectively referred to as the "Equipment".
---------
II. Pledgee, acting through its legal representative hereby
declares as follows:
A. Pledgee is a limited liability company duly organized and
existing under the laws of Delaware, and has all the necessary authorizations,
corporate, governmental or otherwise, to enter into this Agreement.
B. Pledgee has the necessary authority for the execution and
delivery hereof and performance hereunder in accordance with its corporate
documents.
C. Neither the execution and delivery by Pledgee of this Agreement
nor the performance of its obligations hereunder, will contravene or conflict
with, or result in a breach or violation of applicable law or its corporate
documents.
D. The representative of Pledgee has all necessary powers and
authority to execute this Agreement, which powers and authority have not been
revoked or otherwise modified.
III. The Depositary declares that she is legally able to enter into
this Agreement and to be bound by the terms hereof.
IV. Pledgee and Pledgor, acting through their respective legal
representatives, declare that Pledgee, acting as lessor, entered into a Lease
Intended as Security Agreement (the "Facility"), dated as of November 3, 1999,
--------
with Tag Mex, Inc., an affiliated company of Pledgor, acting as lessee
("Lessee"), whereunder Pledgee agreed to finance certain equipment to Lessee in
------
an amount not to exceed $5,200,000 (FIVE MILLION TWO HUNDRED THOUSAND
2
<PAGE>
Machinery and Equipment Pledge Agreement
DOLLARS) and Lessee agreed to pay Pledgee rent and make other payments in the
amounts and at the times specified in the Appendix and the Schedule to the
Facility (each a "Payment" and collectively the "Payments"). The documents
------- --------
executed or to be executed to document the Facility, the documents issued
thereunder and the security agreements relating to the Facility will be
hereinafter collectively referred to as the "Documents".
---------
V. Pledgee and Pledgor acting through their respective legal
representatives declare that under the Facility, Pledgor shall make the payments
specified therein, in the terms and conditions described in the Facility, a copy
of which is attached hereto as Exhibit "B".
-----------
VI. That in compliance with the terms of the Facility and in order
to secure payment of the Payments as well as the fulfillment of each and all
other obligations of Pledgor (the "Secured Obligations") under the Documents,
-------------------
Pledgor wishes hereby to create in favor of Pledgee a first priority security
interest on the Equipment.
NOW, THEREFORE, in consideration of the foregoing, the parties
hereto hereby agree as follows:
CLAUSES
-------
FIRST. Creation of the Pledge.
----------------------
(a) In order to secure the full and punctual payment and performance
of the Secured Obligations, including by way of illustration and not by way of
limitation all Payments when due (whether at stated maturity, by acceleration or
otherwise) of the principal amount, ordinary and penalty interest under the
Documents, and such expenses as Pledgee may incur in order to enforce is rights
under the Documents, Pledgor hereby pledges to Pledgee and grants to Pledgee a
first priority lien on and security interest in the Equipment, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto.
(b) The pledge hereby created is granted as security only and shall
not subject Pledgee to, or transfer or in any way affect or modify, any
obligation or liability of Pledgor with respect to any of the Equipment, or
except as
3
<PAGE>
Machinery and Equipment Pledge Agreement
otherwise provided in this Agreement, any transaction in connection therewith.
(c) Pledgee may at any time request that Pledgor ratify this
Agreement before a Notary Public, if deemed advisable by Pledgee, and Pledgor
shall promptly comply with any such request.
(d) The parties hereby irrevocably agree, accept and acknowledge
that solely by the fact that Future Equipment owned by Pledgor enters the
Premises (as defined below), a deposit of such Future Equipment with the
Depositary shall have taken place pursuant to Article 334 of the Commerce Code
of Mexico (Codigo de Comercio) and for the purposes of Article 334 Section IV of
the General Law of Credit Instruments and Transactions of Mexico (Ley General de
Titulos y Operaciones de Credito).
(e) On the date hereof, Pledgor and the Depositary deliver to
Pledgee an itemized list of the Existing Equipment as described in Exhibit "A"
-----------
hereto. Pledgor and the Depositary are obligated to deliver to Pledgee during
the months of January and July of each year, substantially in the form of
Exhibit "C" hereto, a written report of Future Equipment acquired by Pledgor
- -----------
during the preceeding calendar month and of compliance with Clause Second
hereof. Pledgee is not obligated to review or verify the accuracy of such
report.
SECOND. Deposit of the Equipment; Depositary.
------------------------------------
(a) The pledge subject matter hereof is created pursuant to Article
334 Section IV of the General Law of Credit Instruments and Transactions of
Mexico. To that effect, Pledgor hereby delivers the Equipment to the Depositary
and the Depositary hereby takes delivery of the Equipment, all of which is in
good condition and suitable for operation, both in terms and for all purposes
provided for by Article 334 of the Commerce Code of Mexico and the Depositary is
hereby appointed by Pledgee and Pledgor as depositary of such Equipment. The
Depositary, in turn, hereby irrevocably accepts his/her appointment as
depositary of the Equipment and accepts that she will receive no consideration
for the performance of his/her duties hereunder.
(b) Pledgor shall deliver to Pledgee as soon as available and in any
event within 75 (seventy five) days after the end of each month of January and
July of each year the financial statements for the two previous quarters
4
<PAGE>
Machinery and Equipment Pledge Agreement
together with a certificate of a high ranking financial officer of Pledgor
identifying the information relating to the Equipment therein.
(c) Pledgor expressly authorizes the Depositary to enter and exit
the Premises at any time in order to fulfill the Depositary's obligations
hereunder, and shall facilitate compliance by the Depositary with such
obligations.
(d) As required by Article 334 Section IV of the General Law of
Credit Instruments and Transactions of Mexico, Pledgor expressly authorizes.
Pledgee and its designees to enter and exit the Premises at any time exclusively
for purposes of this Agreement. During the life of this Agreement, Pledgor and
the Depositary shall refrain from limiting or obstructing, directly or
indirectly, Pledgee's access to the Equipment.
(e) Pledgor will allow Pledgee and the accounting and legal firms
selected by Pledgee to review, during normal business hours, the accounting
books, records and files of Pledgor related to the Equipment at any time with
prior written notice given by Pledgee to Pledgor at least 2 (two) business days
in advance.
(f) The Depositary shall keep the legal possession of the Equipment
and agrees that such Equipment shall be physically kept at Lote 1, A.B.C., S/N,
Corredor Industrial Ixtacuixcla, Fraccionamiento San Diego Xocoyucan, Tlaxcala,
Tlaxcala (the "Premises"). The Equipment shall not be removed from the Premises
--------
without Pledgee's prior written consent; provided, however, that any item of
-------- -------
Equipment may, under the strict responsibility of the Depositary, be removed
from the Premises without Pledgee's prior written consent for the sole and
exclusive purpose of conducting repairs to same and the Depositary maintains at
all times, and it shall be deemed that the Depositary has maintained at all
times, legal possession thereof. Upon completion of any such repairs any such
item of Equipment shall immediately be returned to the Premises. Provided no
breach in terms of the Facility or otherwise violation of any provision or
obligation under the Facility exists and is continuing, and that Pledgor has not
become insolvent or be in a suspension of payments scenario, the Depositary
shall allow Pledgor or a third party to make reasonable use of the Equipment at
the Premises, in accordance with its nature and purpose, and in compliance with
all applicable laws, rules, regulations and concessions or agreements affecting
the Equipment.
5
<PAGE>
Machinery and Equipment Pledge Agreement
(g) The Depositary shall be responsible to Pledgee, personally and
up to an amount equal to the market price of the Equipment granted in pledge
hereunder, for any and all deterioration, loss, consequential, incidental and/or
expectation damages caused by Pledgor's willful misconduct, negligence or abuse
of the Equipment, except normal tear and wear, which results in the reduction of
the value of the Equipment and the resulting reduction in value or insufficiency
of the pledge granted herein.
(h) The Depositary shall also be responsible to Pledgee, personally
and up to an amount equal to the market price of the Equipment granted in pledge
hereunder, for all consequential, incidental and/or expectation damages caused
by or arising from the Depositary's loss of possession of the Equipment and/or
from any situation that results in damage to or loss of the Equipment in any way
affecting Pledgee's rights over said Equipment, except normal tear and wear.
(i) Upon the occurrence of a breach under the Facility and upon
written notice by Pledgee to the Depositary of the occurrence of such breach,
with an explanation of such breach, the Depositary shall immediately (y) return
the Equipment to the address specified by Pledgee in the United States of
America or within Mexico, and (z) deliver possession of the Equipment to
Pledgee.
(j) If the Depositary passes away or fails to comply with his/her
obligations hereunder Pledgee and Pledgor shall appoint a new depositary of the
Equipment within 5 days following the date on which the Depositary passed away
or, as the case may be, the date on which either Pledgee or Pledgor notified the
other of the Depositary's failure to comply with his/her obligations. If a new
depositary is not appointed and accepts his/her position within such period of
time, without the need for notice or judicial or extrajudicial resolution of any
kind, no late than the 5th (fifth) following business day, possession of the
Equipment shalt be delivered to Pledgee or its designated agent for all purposes
of Article 334 Section I of the General Law of Credit Instruments and
Transactions of Mexico, at the place indicated by Pledgee.
THIRD. Further Acts. Pledgor agrees to do such further acts and
------------
things, and to execute and deliver such additional agreements and instruments,
as Pledgee may at any time reasonably request in connection with the
administration and enforcement of this Agreement or with respect to the
Equipment
6
<PAGE>
Machinery and Equipment Pledge Agreement
or any part thereof as the case may be or in order better to assure and confirm
unto Pledgee its rights and remedies hereunder.
FOURTH. Release of the Pledge. Upon full compliance of all of the
---------------------
Secured Obligations, Pledgee shall release the pledge hereby created. The
release of Equipment upon the termination of this Agreement shall be without
warranty by Pledgee and shall be made by Pledgee at the expense of Pledgor.
FIFTH. Duration. The security interest hereby created and the
--------
obligations of the Depositary hereunder shall remain in full force and effect
until the date on which the Payments are paid in full pursuant to the terms
provided for in the Documents. Pledgor hereby waives any present or future right
it may have to demand the total or partial release of the security interest
hereby created as a result of any reduction of the Secured Obligations.
SIXTH. Representation and Warranties of Pledgor. Pledgor represents
----------------------------------------
and warrants to Pledgee that:
(a) It is the record legal owner of the Equipment and that it has
complied with all laws, regulations and legal rules and obtained all
authorizations, licenses, permits and consents of any kind as necessary to be
able to comply with its obligations, contractual or otherwise, arising hereunder
or affecting the Equipment, and to enforce its rights, contractual or otherwise,
arising hereunder or affecting the Equipment;
(b) By the execution of this Agreement and delivery to the
Depositary of the Equipment, Pledgee has acquired a valid and perfected security
interest in the Equipment subject to no prior lien. The security interest in the
Equipment created hereby constitutes a first, prior, and indefeasible security
interest with respect to such Equipment;
(c) It has the legal right, power and capacity to pledge and grant a
security interest in the Equipment in its capacity in the manner provided
herein; and
(d) All of its representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement, until the Secured Obligations have been satisfied in full.
7
<PAGE>
Machinery and Equipment Pledge Agreement
SEVENTH. Assignability. This Agreement shall be binding upon and
-------------
inure to the benefit of each of Pledgor and Pledgee and their respective
successors. Pledgor may not assign any of its rights or obligations hereunder.
Pledgee shall have the right at any time, upon notice to Pledgor, to sell,
assign, transfer, negotiate or grant participation in all or any of its rights
hereunder. Due to the ancillary nature of this Agreement, the parties hereto
expressly agree that the pledge interest granted herein shall be automatically
transferred, without prior notice to Pledgor, upon the sale or endorsement,
assignment, transfer, negotiation or granting of participation of the Facility
it secures.
EIGHT. Rights Absolute. All rights of Pledgee hereunder, the grant
---------------
of a security interest in the Equipment and all obligations of Pledgor hereunder
shall be absolute and unconditional irrespective of any perfection, exchange,
release or non-perfection of any other collateral, or any release or amendment
or waiver of or consent to or departure from any guaranty, for all or any of the
Secured Obligations. No failure or delay of Pledgee and, to the extent
applicable, Pledgor in exercising any right, power or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
NINTH. Modification. No amendment, modification, termination, or
------------
waiver of any provision of this Agreement shall be effective unless the same is
in writing and signed by the party against which the enforcement of the
amendment, modification, termination or waiver shall be sought and delivered to
the Pledgee.
TENTH. Notices. All notices, requests, demands, directions, consents
-------
and other communications given or sent under this Agreement shall be in writing
and mailed (return receipt requested) or telegraphed, telefaxed or delivered to
the applicable party at its address or telefax indicated below, or with respect
to any party, at such other address as such party may designate by written
notice to the other parties. Notices shall be deemed to have been received, if
given by telefax, on possession of a correct transmission slip; if delivered by
hand, at the time of such delivery; and if delivered by mail on possession of
evidence of delivery to the respective addressee.
8
<PAGE>
Machinery and Equipment Pledge Agreement
Pledgor: Pledgee:
Tarrant Mexico, S. de R.L. de C.V. Transit Holding, Inc.
Lote 1, A.B.C., S/N, 555 California Street, 4th Floor
Corredor Industrial Ixtacuixcla, San Francisco, CA 94104
Fraccionamiento San Diego Xocoyucan,
Tlaxcala, Tiaxcala Att'n.: Contract Administrator
Telephone: (248) 471-25 Telephone: (415) 765-7300
Facsimile: (248) 422-18 Facsimile: (415) 765-7373
Depositary:
Mrs. Nafiseh Sedaghat
Lote 1, A.B.C., S/N,
Corredor Industrial Ixtacuixcla,
Fraccionamiento San Diego Xocoyucan,
Tlaxcala, Tlaxcala
Telephone: (248) 471-25
Facsimile: (248) 422-18
ELEVENTH. Language. This Agreement is executed in the English and
--------
Spanish languages. The parties agree that, in case of dispute, the Spanish
version shall prevail, except in actions instituted in any country where English
is the official language, in which case the English version shall prevail.
TWELFTH. Novation. Neither the execution hereof nor the pledge on
--------
the Equipment hereunder constitutes a novation, amendment, payment, satisfaction
or extinction of Pledgor's obligations under the Documents or any other
documents, security arrangements or agreements related to the Documents.
THIRTEENTH. Governing Law; Jurisdiction. This Agreement shall be
---------------------------
governed by the laws of Mexico.
9
<PAGE>
Machinery and Equipment Pledge Agreement
FOURTEEN. Expenses. All expenses, fees, taxes and duties arising
--------
from or relating to the execution of this Agreement, including duties, taxes and
charges arising either from the return of the Equipment to the United States of
America or the definitive import of the Equipment into Mexico and, as the case
may be, notarization, registration and recordation of this Agreement, shall be
paid exclusively by Pledgor.
FIFTEEN. Counterparts. This Agreement may be executed and
------------
acknowledged in any number of counterparts and each such counterpart shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same document.
(Signature page follows)
10
<PAGE>
Machinery and Equipment Pledge Agreement
IN WITNESS WHEREOF, the parties hereto have themselves executed or
caused this Machinery and Equipment Pledge Agreement to be executed by their
duly authorized representatives as of the date first above written.
- ---------------------------------------
FATIMA A. PALACIOS
Commission # 1131492
[SEAL] Notary Public-- California
Los Angeles County
My Comm. Expires Mar 26, 2001
- ---------------------------------------
[Illegible]
NOTARY PUBLIC
"Pledgor"
TARRANT MEXICO, S. DE R.L. DE C.V.
By: /s/ Corazon Reyes
------------------------------
Name: Mrs. Corazon Reyes
Title: Attorney-in-fact
"Pledgee"
TRANSIT HOLDING, INC.
By: /s/ GAIL D. SMEDAL
------------------------------
Name: GAIL D. SMEDAL
Title: VICE PRESIDENT
"Depositary"
MRS. NAFISEH SEDAGHAT
/s/ NAFISEH SEDAGHAT
----------------------------------
11
<PAGE>
Exhibit A to the Machinery
and Equipment Pledge Agreement
LIST OF EXISTING EQUIPMENT
- --------------------------
DESCRIPTION
- -----------
<PAGE>
- --------------------------------------------------------------------------------
COMPANY NAME DESCRIPTION INVOICE AMOUNT
- --------------------------------------------------------------------------------
Taylor-Dunn Rover $14,996.27
- --------------------------------------------------------------------------------
Rover $4,998.76
- --------------------------------------------------------------------------------
Loadmaster $5,013.80
- --------------------------------------------------------------------------------
Total Taylor-Dunn $25,008.83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Gertier Technology AccuPlot 320 Plotter $130,925.00
- --------------------------------------------------------------------------------
Automatic Cutter $276,293.00
- --------------------------------------------------------------------------------
Automatic Cutter $262,391.00
- --------------------------------------------------------------------------------
Total Gerber Technology $669,609.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
West Point Foundry Warping Machines $1,691,108.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pacific Stream Equipment Air Compressor $100,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bruckner Textile Equipment $1,000,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ludell Manufacturing Co. Water Heater $117,000.00
- --------------------------------------------------------------------------------
Water Heater $63,000.00
- --------------------------------------------------------------------------------
Total Ludell $180,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Jarke Corporation Racks $20,116.50
- --------------------------------------------------------------------------------
Racks $23,385.80
- --------------------------------------------------------------------------------
Racks $20,116.50
- --------------------------------------------------------------------------------
Racks $23,385.80
- --------------------------------------------------------------------------------
Racks $9,859.60
- --------------------------------------------------------------------------------
Racks $23,385.80
- --------------------------------------------------------------------------------
Total Jarke $120,250.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Termoelectronica Dyeing Equipment $700,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hoffman/New Yorker, Inc. Legger Press $109,106.66
- --------------------------------------------------------------------------------
Legger Press $97,560.00
- --------------------------------------------------------------------------------
Legger Press $103,333.34
- --------------------------------------------------------------------------------
Total Hoffman $310,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Applied membranes, Inc. Water Treatment System $489,201.17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GRAND TOTAL $5,285,177.00
- --------------------------------------------------------------------------------
<PAGE>
Exhibit B to the Machinery
and Equipment Pledge Agreement
COPY OF THE FACILITY
- --------------------
<PAGE>
Lease No. 16501
LEASE INTENDED AS SECURITY ("Lease") dated as of November 3, 1999,
between TRANSIT HOLDING, INC., a Delaware corporation, a subsidiary of
Banc of America Leasing & Capital LLC with an office at 555 California
Street, 4th Floor, San Francisco, California, 94104 ("Lessor") and TAG
MEX, INC., a California corporation, with its principal office at 3151
Washington Blvd., Los Angeles, CA 90023 ("Lessee").
Lessor agrees to acquire and lease to Lessee and Lessee agrees to lease
from Lessor certain personal property (the "Units" and individually a "Unit")
described in the appendix to the Lease attached hereto and made a part hereof,
or any other appendix hereto that Lessor and Lessee may enter into from time to
time (each an "Appendix") hereof, on the terms and conditions set forth herein
and in the relevant Appendix.
Section 1 Procurement, Delivery and Acceptance.
- --------- ------------------------------------
1.1 Lessee has ordered or shall order the Units pursuant to one or more
purchase orders or other contracts of sale ("Purchase Agreements") from one or
more vendors ("Vendors"). Lessee shall, on the date of each Appendix, assign to
Lessor all of Lessee's right, title and interest in and to the Purchase
Agreements for the Units described in the Appendix by executing and delivering
to Lessor a Purchase Agreement Assignment in the form of Exhibit A (a "Purchase
---------
Agreement Assignment"). Lessor agrees to (a) accept the assignment and (b)
subject to Section 1.2, assume the obligations of Lessee under the Purchase
Agreements to purchase and pay for the Units, but no other duties and
obligations thereunder. Nevertheless, Lessee shall remain liable to Vendor with
respect to its duties and obligations in accordance with the Purchase
Agreements.
1.2 The obligation of Lessor to pay for each Unit is subject to
satisfaction of the conditions precedent set forth in Paragraph B.2 of the
relevant Appendix. If any of those conditions is not met with respect to any
Unit, Lessor shall assign to Lessee all of Lessor's right, title and interest in
and to the Unit and any bill of sale or Purchase Agreement previously assigned
to Lessor as it relates to the Unit.
1.3 Lessee shall forward to Lessor original invoices relating to each Unit
to be accepted under the terms of this Lease and the relevant Appendix. If
Lessee has received title and possession of the Unit before executing a Purchase
Agreement Assignment relating thereto, Lessee will execute a bill of sale
conveying title thereto to Lessor. Lessor shall prepare an Acceptance
Certificate in the form of Exhibit B (an "Acceptance Certificate") together with
---------
a Schedule to the Acceptance Certificate in the form of Exhibit C (a "Schedule")
---------
based upon the criteria in the relevant Appendix. Lessee shall execute and
return the Acceptance Certificate and Schedule within five (5) business days
after the preparation of such Schedule confirming the date Lessee has received
such Unit, or, the date when any required installation and testing is completed
(the "Delivery Date"), and confirming that the Lessee has accepted the Unit
under Lease as of its Delivery Date. Upon receipt of the executed Acceptance
Certificate and Schedule, Lessor shall pay the Purchase Price (as defined in the
relevant Appendix) with respect to the Units described therein.
Section 2 Term, Rent and Payment.
- --------- ----------------------
2.1 The term of this Lease for each Unit (its "Lease Term") shall begin on
the date of the Appendix describing the Unit and continue as specified in its
Appendix and Schedule.
2.2 Lessee shall pay Lessor rent for each Unit in the amounts and at the
times specified in its Appendix and Schedule.
2.3 Rent and all other sums due Lessor hereunder shall be paid at the
office of Lessor set forth below, unless otherwise specified by Lessor.
2.4 THIS LEASE IS A NET LEASE AND LESSEE SHALL NOT BE ENTITLED TO ABATEMENT
OR REDUCTION OF RENT OR ANY SETOFF AGAINST RENT, WHETHER ARISING BY REASON OF
ANY PAST, PRESENT OR FUTURE CLAIM OF ANY NATURE BY LESSEE AGAINST LESSOR OR
OTHERWISE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LEASE SHALL NOT
TERMINATE, NOR SHALL THE OBLIGATIONS OF LESSOR OR LESSEE BE OTHERWISE AFFECTED
BY ANY CIRCUMSTANCE, including, without limitation, (a) any defect in, damage
to, loss of possession or use or destruction of any Unit, however caused, (b)
the attachment of any lien, encumbrance, security interest or other right or
claim of any third party to any Unit, (c) any prohibition or restriction of or
interference with Lessee's use of any Unit by any person or entity, (d) the
insolvency of or the commencement by or against Lessee of any bankruptcy,
reorganization or similar proceeding, or (e) any other cause, whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. IT IS THE INTENTION OF THE PARTIES THAT ALL RENT AND OTHER
AMOUNTS PAYABLE BY LESSEE HEREUNDER SHALL BE PAYABLE IN ALL EVENTS IN THE MANNER
AND AT THE TIMES HEREIN PROVIDED UNLESS LESSEE'S OBLIGATIONS IN RESPECT THEREOF
HAVE BEEN TERMINATED PURSUANT TO EXPRESS PROVISIONS HEREOF.
LESSOR'S COPY
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2.5 Payments shall be applied in the following order: (a) Lessor's
expenses, including without limitation those set forth in Sections 8.4 and 19;
(b) interest on late payments; and (c) rent and all other sums due hereunder.
Payments shall be conclusively evidenced by entries in records maintained by
Lessor.
Section 3 Representations and Warranties.
- --------- ------------------------------
Lessee hereby represents and warrants to Lessor as follows:
3.1 Lessee is a corporation duly organized and existing under the laws of
the state of its incorporation, is qualified to do business in every state in
which the quantity or nature of its business or property make such qualification
necessary, is in good standing in each such state and has full and adequate
corporate powers to carry on and conduct its business as now conducted.
3.2 The Lease has been duly authorized, executed and delivered by Lessee
and is a legal, valid and binding agreement of Lessee.
3.3 Lessee has the power and authority to execute and deliver the Lease and
perform its obligations under this Lease; and the execution and delivery of the
Lease by Lessee does not, and performance by Lessee thereof will not, materially
contravene any charter or by-law provision of Lessee or of any indenture,
covenant, instrument or agreement of to which Lessee is a party or by which
Lessee or any of its properties is bound or affected.
3.4 No approval, consent, exemption, authorization or other action by, or
notice to or filing with, any government authority is necessary in connection
with the execution, delivery, performance by Lessee or enforcement by Lessor of
the Lease, or if necessary the same has been obtained.
3.5 There is no law, rule or regulation that would be contravened by the
execution, delivery, performance by Lessee or enforcement by Lessor of the
Lease, nor to Lessee's knowledge are there, as of the date hereof, any actions,
suits, or proceedings (whether or not purportedly on behalf of Lessee) pending,
or to Lessee's knowledge, threatened against or affecting Lessee, at law or in
equity or before any Federal, state, municipal or other governmental department,
commission, board, bureau, agency, court or instrumentality, which involve the
possibility of any judgment, or liability, which items are not fully covered by
insurance, or which may result in any material adverse effect in the business,
operations, properties or assets or in the condition, financial or otherwise, of
Lessee, or the ability of Lessee to carry on its business and the performance of
its obligations hereunder, and Lessee has no knowledge of any default on
Lessee's part with respect to any order, writ, injunction or decree of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that may result in such material
adverse effect.
3.6 The Lease is enforceable against Lessee in accordance with its terms,
except as such enforcement may be subject to applicable bankruptcy,
rehabilitation, liquidation, conservation, dissolution, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and is subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity.
LESSEE ACKNOWLEDGES AND AGREES THAT (a) EACH UNIT IS OF A SIZE, DESIGN, CAPACITY
AND MANUFACTURE SELECTED BY LESSEE, (b) LESSEE IS SATISFIED THAT THE SAME IS
SUITABLE FOR ITS PURPOSES, (c) LESSOR IS NOT A MANUFACTURER THEREOF NOR A DEALER
IN PROPERTY OF SUCH KIND AND (d) LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE,
ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE TITLE,
MERCHANTABILITY, CONDITION, QUALITY, DESCRIPTION, DURABILITY, FITNESS FOR
PURPOSE OR SUITABILITY OF ANY UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR
THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to the extent
assignable, any warranties, covenants and representations of Vendor with respect
to any Unit, but any action taken by Lessee by reason thereof shall be at
Lessee's expense and shall be consistent with Lessee's obligations under Section
2.
Section 4 Possession, Use and Maintenance.
- --------- -------------------------------
4.1 Lessee shall not (a) use, operate, maintain or store any Unit
improperly, carelessly or in violation of any applicable law or regulation of
any government authority, (b) abandon any Unit, (c) sublease any Unit or permit
its use by anyone other than Lessee without the prior written consent of Lessor,
(d) permit any Unit to be removed from the location or principal base, as the
case may be, specified in the relevant Appendix or permit any Unit that is a
motor vehicle to be registered in any state other than as specified in the
relevant Appendix without the prior written consent of Lessor within 15 days
therefrom, (e) affix or place any Unit to or on any other personal property or
any real property without first obtaining and delivering to Lessor such waivers
as Lessor may reasonably require to assure Lessor's legal title and security
interest and right to remove the Unit free from any lien, encumbrance, right or
claim asserted by any third party or (f) sell, assign or transfer, or directly
or indirectly create, incur or suffer to exist any lien, encumbrance, right or
claim of any kind on any of its rights hereunder or in any Unit.
2
<PAGE>
4.2 Lessee shall at its expense maintain each Unit during its Lease Term in
good operating order, repair, condition and appearance and in accordance with
the manufacturer's recommended procedures.
4.3 Lessee shall not alter any Unit or install any accessory, equipment or
device on any Unit if that would impair any applicable warranty, the originally
intended function or the value of the Unit. All repairs, parts, accessories,
equipment and devices furnished, affixed to or installed on any Unit, excluding
temporary replacements, shall thereupon become subject to the security interest
of Lessor.
4.4 If Lessor supplies Lessee with a label, plate or other marking stating
that each Unit is leased from Lessor, Lessee shall affix and keep it on a
prominent place on each Unit to the extent attachable and so as not to damage
the Unit or expose the Unit to partial damage during its Lease Term.
4.5 Upon 2 business days prior notice to Lessee, Lessor and its designees
shall have the right at all reasonable times to inspect any Unit, observe its
use and inspect records related thereto.
Section 5 General Tax Indemnity.
- --------- ---------------------
5.1 Lessee shall pay or reimburse Lessor for, and indemnify and hold Lessor
harmless from, all government fees (including, but not limited to, license.
documentation, recording or registration fees) and all sales, use, gross
receipts, property, occupational, value-added or other taxes, levies, imposts,
duties, assessments, charges or withholdings of any nature whatsoever, together
with any penalties, fines or additions to tax, or interest thereon (each of the
foregoing being hereafter referred to as an "Imposition"), arising at any time
before or during the Lease Term, or upon any termination of this Lease or return
of the Units to Lessor, and levied or imposed on Lessor, directly or otherwise,
by any federal, state or local government or taxing authority in the United
States or by any foreign country or foreign or international taxing authority on
or with respect to (a) any Unit, (b) the exportation, importation, registration,
purchase, ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, transportation, return, sale, transfer of title or other
disposition thereof, (c) the rents, receipts, or earnings arising from any Unit
or (d) this Lease or any payment made hereunder, excluding, however, taxes
measured by Lessor's net income imposed or levied by the United States or any
state thereof or any other jurisdiction unless such taxes are in lieu of or in
substitution for any Impositions Lessee would otherwise have been obligated to
pay, reimburse or indemnify hereunder.
5.2 Lessee shall pay on or before the time or times presented by law each
Imposition for which Lessee is primarily responsible under applicable law and
any other Imposition (except any Imposition excluded by Section 5.1), but Lessee
shall have no obligation to pay an Imposition that Lessee is contesting in good
faith and by appropriate legal proceedings and the nonpayment thereof does not,
in the reasonable opinion of Lessor, adversely affect the title, property, use,
disposition or other rights of Lessor with respect to the Units. If any
Imposition (except an Imposition excluded by Section 5.1) is charged or levied
against Lessor directly and paid by Lessor, Lessee shall reimburse Lessor on
presentation of an invoice therefor.
5.3 If Lessor is not entitled to a corresponding and equal deduction with
respect to any Imposition Lessee is required to pay or reimburse under Section
5.1 or 5.2 and the payment or reimbursement constitutes income to Lessor, then
Lessee shall also pay to Lessor the amount of any Imposition Lessor is obligated
to pay in respect of (a) such payment or reimbursement by Lessee and (b) any
payment by Lessee made pursuant to this Section 5.3.
5.4 Lessee shall prepare and file, in a manner satisfactory to Lessor, any
reports or returns required with respect to the Units. Lessee shall furnish on
Lessor's request reports or returns so filed.
Section 6 Risk of Loss: Waiver and Indemnity.
- --------- ----------------------------------
6.1 If any Unit is worn out, lost, stolen, destroyed or irreparably
damaged, from any cause whatsoever, or taken or requisitioned by condemnation or
otherwise (any such occurrence being hereinafter called a "Casualty Occurrence")
before or during its Lease Term, Lessee shall give Lessor prompt notice thereof.
On the first rent payment date after the Casualty Occurrence or, if there is no
such rent payment date, 30 days after the Casualty Occurrence, Lessee shall pay
to Lessor, in addition to any amounts then due and owing, an amount equal to the
then "Balance Due" (as hereinafter defined) for the Unit and any "Other Charges"
required under the relevant Appendix. The Balance Due for each Unit is the sum
of
(a) any and all amounts with respect to such Unit which under the terms
of this Lease may be then due (other than any Other Charges) or which may have
accrued to such payment date (computing the rent for any number of days less
than a full rent period by multiplying the rent for such rental period by a
fraction of which the numerator is such number of days and the denominator is
the total number of days in such full rent period); plus
3
<PAGE>
(b) before the Base Date for such Unit, as set forth in the relevant
Appendix, the amount Lessor is obligated to pay for such Unit, and thereafter,
the sum of (i) the present value, as of such payment date, of the entire unpaid
balance of all rent for such Unit that would otherwise have accrued hereunder
from such payment date to the end of its Lease Term and (ii) the present value,
as of such payment date, of the Purchase Amount therefor as defined in the
relevant Appendix.
Present values are to be computed in each case by discounting at the
applicable Implicit Interest Rate set forth in the relevant Appendix.
Upon the making of such payment by Lessee in respect of any Unit, the rent
for the Unit shall cease to accrue, its Lease Term shall terminate and Lessee
shall be entitled to possession of such Unit. If Lessor receives the Balance Due
and Other Charges for a Unit, Lessee shall be entitled to the proceeds of any
recovery in respect of the Unit, from insurance or otherwise, and Lessor,
subject to the rights of any insurer insuring the Units as provided herein,
shall execute and deliver, to Lessee, or to its assignee or nominee, a bill of
sale (without representations or warranties except that the Unit is free and
clear of all claims, liens, security interests and other encumbrances by or in
favor of any person claiming by, through or under Lessor) for the Unit, and such
other documents as may be required to release the Unit from this Lease and to
transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense, except as
provided in this Section 6.1, Lessee shall not be released from its obligations
hereunder in the event of, and shall bear the risk of any Casualty Occurrence to
any Unit before or during its Lease Term.
6.2 Lessee waives and releases any claim now or hereafter existing against
Lessor, any company controlled by, controlling, or under common control with
Lessor and all of their directors, officers, employees, agents, attorneys,
successors and assigns (each, an "Indemnified Person") on account of, and shall
indemnify, reimburse and hold each Indemnified Person harmless from, any and all
claims (including, but not limited to, claims based on or relating to copyright,
trademark or patent infringement, environmental liability, negligence, strict
liability in tort, statutory liability or violation of laws), losses, damages,
obligations, penalties, liabilities, demands, suits, judgments or causes of
action (collectively, "Claims"), and all legal proceedings, and any reasonable
costs or expenses in connection therewith, including reasonable attorneys' fees,
including reasonable allocated time charges of internal counsel, in each case
imposed on, incurred by or asserted against the Indemnified Person in any way
relating to or arising in any manner out of (a) the registration, purchase,
taking or foreclosure of a security interest in, or the ownership, delivery,
condition, lease, assignment, storage, transportation, possession, use,
operation, return, repossession, sale or other disposition of, any Unit, before
or during its Lease Term, (b) any alleged or actual defect in any Unit (whether
arising from the material or any article used therein, the design, testing, use,
maintenance, service, repair or overhaul thereof or otherwise) regardless of
when such defect is discovered or alleged, whether or not the Unit is in
Lessee's possession and no matter where it is located or (c) this Lease or any
other related document, the enforcement hereof or thereof or the consummation of
the transactions contemplated hereby or thereby, other than any Claim resulting
solely from the gross negligence or willful misconduct of Lessor (other than any
gross negligence or willful misconduct of another party imputed to Lessor),
unless covered by the insurance Lessee is required to maintain hereunder.
Section 7 Insurance.
- --------- ---------
Lessee, at its own cost and expense, shall keep each Unit insured against
all risks, in no event for less than the amount set forth in Section 6.1(b) with
respect to such Unit, and shall maintain public liability insurance against such
risks and for such amounts as Lessor may require. All such insurance shall be in
such form and with such companies as Lessor shall approve, shall specify Lessor
and Lessee as insureds and shall provide that such insurance may not be canceled
as to Lessor or altered in any way that would affect the interest of Lessor
without at least 30 days prior written notice to Lessor (10 days in the case of
nonpayment of premium). All insurance shall be primary, without right of
contribution from any other insurance carried by Lessor, shall contain a "breach
of warranty" provision satisfactory to Lessor, and shall provide that all
amounts payable by reason of loss or damage to the Units shall be payable solely
to Lessor, unless Lessor otherwise agrees. Lessee shall provide Lessor with
evidence satisfactory to Lessor of the required insurance of the time specified
in Paragraph B.2 of the relevant Appendix.
Section 8 Defaults; Remedies.
- --------- ------------------
8.1 The following shall constitute events of default ("Events of Default")
hereunder:
(a) Lessee fails to make any payments to Lessor when due hereunder;
(b) any representation or warranty of Lessee contained herein or in any
document furnished to Lessor in connection herewith is incorrect or misleading
in any material respect when made;
(c) Lessee fails to observe or perform any other covenant, agreement or
warranty made by Lessee hereunder or under any document delivered pursuant
hereto and such failure continues for 10 days after written notice thereof to
Lessee;
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<PAGE>
(d) any default occurs under any other agreement for borrowing money or
receiving credit under which Lessee or any guarantor or general partner of
Lessee may be obligated as borrower, lessee or guarantor, if such default (i)
consists of the failure to pay any indebtedness when due or perform any other
obligation thereunder and (ii) gives the holder of the indebtedness the right to
accelerate the indebtedness;
(e) Lessee, any guarantor of this Lease or any general partner of
Lessee makes an assignment for the benefit of creditors or files any petition or
action under any bankruptcy, reorganization, insolvency or moratorium law, or
any other law or laws for the relief of, or relating to, debtors;
(f) any guarantor of this Lease breaches or fails to perform any
covenant in its guaranty, required by this Lease expires or terminates without
Lessor's consent;
(g) an involuntary petition is filed under any bankruptcy statute
against Lessee, any guarantor of this Lease or any general partner of Lessee, or
any receiver, trustee, custodian or similar official is appointed to take
possession of the properties of Lessee, any guarantor of this Lease or any
general partner of Lessee, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within 60 days from the date of the filing
or appointment; or
(h) Lessee, any guarantor of this Lease liquidates, dissolves, or
sells, leases or disposes of a substantial portion of its business or assets.
8.2 If any Event of Default occurs, Lessor, at its option, may:
(a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for the breach thereof; or
(b) by notice in writing to Lessee terminate this Lease, whereupon all
rights of Lessee to retain possession of and use the Units shall terminate, but
Lessee shall remain liable as hereinafter provided, and Lessor may, at its
option, do any one or more of the following: (i) declare the aggregate Balance
Due with respect to the Units and all Other Charges immediately due and payable
and recover any damages and expenses in addition thereto Lessor sustains by
reason of the breach of any covenant, representation or warranty contained in
this Lease other than for the payment of rent; (ii) enforce the security
interest given hereunder pursuant to the Uniform Commercial Code or any other
law; (iii) enter upon the premises where any of the Units may be and take
possession of all or any of such Units; and (iv) require Lessee to return the
Units as provided in Section 9.
8.3 Lessor shall have any and all rights given to a secured party by law,
and may, but is not required to, sell the Units in one or more sales. Lessor may
purchase the Units at such sale. Lessee acknowledges that sales for cash or on
credit to a wholesaler, retailer or user of the Units, or at public or private
auction, are all commercially reasonable. The proceeds of such sale shall be
applied in the following order. First, to the reasonable expenses of retaking,
-----
holding, preparing for sale and selling, including the allocated time charges,
costs and expenses of internal counsel for Lessor and any other attorneys' fees
and expenses incurred by Lessor; Second, to the amounts, except those specified
------
below, which under the terms of this Lease are due or have accrued; Third, to
-----
late charges; and Fourth, to the aggregate Balance Due. Any surplus shall be
------
paid to the person or persons entitled thereto. If there is a deficiency, Lessee
will promptly pay the same to Lessor.
8.4 Lessee agrees to pay all reasonable allocated time charges, costs and
expenses of internal counsel for Lessor and any other attorneys' fees, expenses
or out-of-pocket costs incurred by Lessor in enforcing this Lease.
8.5 The remedies herein provided in favor of Lessor shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other
remedies in its favor existing at law or in equity.
8.6 If Lessee fails to perform any of its agreements contained herein,
Lessor may perform such agreement, and Lessee shall pay the expenses incurred by
Lessor in connection with such performance upon demand.
Section 9 Return of Units.
- --------- ---------------
If Lessor rightfully demands possession of any Unit pursuant to this Lease
or otherwise, Lessee, at its expense, shall forthwith deliver possession of the
Unit to Lessor, together with its manuals and maintenance records, in the
condition required by Section 4 and any additional return requirements specified
in the relevant Appendix, by preparing and appropriately protecting the Unit for
shipment and, at the option of Lessor, (a) surrendering it to Lessor at a
location within the Republic of Mexico as specified by Lessor or (b) loading the
Unit on board such carrier as Lessor shall specify and shipping the same,
freight collect, to Lessor as the place designated by Lessor in the state where
the Unit was located or based pursuant to the relevant Appendix.
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<PAGE>
Section 10 Assignment.
- ---------- ----------
Lessor may at any time assign or transfer all or any of the right, title or
interest of Lessor in and to this Lease, and the rights, benefits and advantages
of Lessor hereunder, including the rights to receive payment of rent or any
other payment hereunder, Lessor's title to the Units and any and all obligations
of Lessor in connection herewith. Lessor may disclose to any potential or actual
assignee or transferee any information in the possession of Lessor or any of its
affiliates relating to Lessee or this Lease. Lessor may not disclose any
information in the possession of Lessor that as subject to a confidentiality
agreement without the prior written consent of Lessee, which shall not be
unreasonably withheld. Any such assignment or transfer shall be subject and
subordinate to this Lease and the rights and interests of Lessee hereunder. NO
ASSIGNMENT OF THIS LEASE OR ANY RIGHT OR OBLIGATION HEREUNDER MAY BE MADE BY
LESSEE OR ANY ASSIGNEE OF LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
WHICH SHALL NOT BE UNREASONABLY WITHHELD.
Section 11 Ownership and Security Interest: Further Assurances.
- ---------- ---------------------------------------------------
Unless assigned by Lessor, or applicable law otherwise provides, title to
and ownership of the Units shall remain in Lessor as security for the
obligations of Lessee hereunder until Lessee has fulfilled all of its
obligations hereunder. Lessee hereby grants to Lessor a continuing security
interest in the Units to secure the payment of all sums due hereunder.
Lessee confirms there is no pending litigation, tax claim, proceeding or
dispute that may materially and adversely affect its financial condition or
impair its ability to perform its obligations hereunder. Lessee will, at its
expense, maintain its legal existence in good standing and do any further act
and execute, acknowledge, deliver, file, register and record any further
documents Lessor may reasonably request in order to protect Lessor's title to
and security interest in the Units and Lessor's rights and benefits under this
Lease.
Section 12 Late Payments.
- ---------- -------------
Lessee shall pay to Lessor, on demand, interest at the rate set forth in the
relevant Appendix on the amount of any payment not made when due hereunder from
the dame due until payment is made.
Section 13 Effect of Waiver.
- ---------- ----------------
No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breech or default under this Lease must
be in writing specifically set forth.
Section 14 Survival of Covenants.
- ---------- ---------------------
All obligations of Lessee under Sections 1, 2, 4, 5, 6, 7, 2, 9, 11 and 12
hereof and under each Appendix shall survive the expiration or termination of
this Lease to the extent required for their full observance and performance.
Section 15 Applicable Law; Severability.
- ---------- ----------------------------
This Lease shall be governed by and construed under the laws of California,
to the jurisdiction of which and of federal courts in California, the parties
hereto submit. If any provision hereof is held invalid, the remaining provisions
shall remain in full force and effect.
Section 16 Financial Information.
- ---------- ---------------------
Lessee shall, and shall cause any guarantor to, keep its books and records
in accordance with generally accepted accounting principles and practices
consistently applied and shall, and shall cause any guarantor to, deliver to
Lessor (i) annual CPA-audited financial statements within 120 days of its fiscal
year end, (ii) quarterly company-prepared financial statements upon Lessor's
request, and (iii) such financial statement and information as may be set forth
in the relevant Appendix or as Lessor may reasonably request. Credit information
relating to Lessee, any guarantor or any general partner of Lessee may be
disseminated among Lessor and any of its affiliates and any of their respective
successors and assigns.
Section 17 Notices.
- ---------- -------
All demands, notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered or when
deposited in the mail, first class postage prepaid, or delivered to an express
carrier, charges prepaid, or sent by facsimile
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<PAGE>
transmission (with electronic confirmation of receipt) addressed to each party
at the address set forth below the signature of such party on the signature
page, or at such other address as may hereafter be furnished in writing by such
party to the other.
Section 18 Counterparts.
- ---------- ------------
Two counterparts of this Lease have been executed by the parties hereto. One
counterpart has been prominently marked "Lessor's Copy". One counterpart has
been prominently marked "Lessee's Copy". Only the counterpart marked "Lessor's
Copy" shall evidence a monetary obligation of Lessee.
Section 19 Transaction Costs.
- ---------- -----------------
Lessee will reimburse Lessor for any reasonable out-of-pocket costs or
expenses incurred in connection with the preparation and negotiation of the
lease documents, including but not limited to UCC searches, UCC filings,
appraisals, title searches and title insurance. If Lessor uses counsel in
connection with negotiating, drafting or altering this Lease or any related
documents, Lessee shall reimburse Lessor for any legal expenses of Lessor
(including allocated time charges of internal counsel for Lessor).
Section 20 Noninterference.
- ---------- ---------------
So long as no Event of Default or event that, upon giving of notice or lapse
of time, could become an Event of Default exists, Lessor will not interfere with
the rights of enjoyment and use of the Units by Lessee.
Section 21 Effect and Modification of Lease.
- ---------- --------------------------------
This Lease exclusively and completely states the rights of Lessor and Lessee
with respect to the leasing of the Units and supersedes all prior agreements,
oral or written, with respect thereto. No variation or modification of this
Lease shall be valid unless in writing.
The parties hereto have executed this Lease as of the day and year
first written above.
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------- --------------------------
Title: Vice President Title: Chief Operating Officer
------------------------ -----------------------
By: By:
--------------------------- --------------------------
Title: Title:
------------------------ -----------------------
Address: 555 California Street, Address: 3151 Washington Blvd.
4th Floor Los Angeles, CA 90023
San Francisco, CA 94104 Attn: Patrick Chow
Attn: Contract Administration Facsimile No.: (323) 415-0403
Facsimile No.: (415) 765-7373
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<PAGE>
APPENDIX NO. 1 (this "Appendix") dated November 3, 1999 to LEASE
INTENDED AS SECURITY number 16501 (the "Lease Agreement" and, together
with this Appendix, the "Lease") dated as of November 3, 1999 between
TRANSIT HOLDING, INC. ("Lessor") and TAG MEX, INC. ("Lessee"), defined
terms therein not defined herein being used herein as so defined.
A. Units.
-----
The Unit(s) to be leased under the Lease Agreement by this Appendix
consists of the new and used apparel manufacturing and production equipment, and
all accessories, modifications, replacements and substitutions, subject to
Lessor's right to disapprove any particular equipment for leasing hereunder.
B. Purchase Price; Conditional Precedent.
-------------------------------------
1. Purchase Price.
--------------
(a) "Purchase Price" with respect to each Unit means the amount
Lessor pays for the Unit. Without the prior written consent of Lessor: (i) the
purchase price of all Units shall not exceed $5,200,000 (the "Maximum Purchase
Price"); (ii) the Purchase Price of each Unit shall not exceed, in the case of
Units delivered to Lessee not more than 90 days before the date hereof, the
amount invoiced by Vendor therefor and, in the case of Units delivered to Lessee
more than 90 days before the date hereof; the fair market value for similar used
equipment; (iii) the aggregate amount of installation, transportation, any
applicable sales, use or similar front-end tax, any software costs or licensing
fees and any similar costs with respect to the aggregate of all Units shall not
exceed 20% of the total Purchase Price therefor; and (iv) Lessor shall not be
obligated to make payments of the Purchase Price of Units leased under this
Appendix more frequently than once in each calendar month and in aggregate
amounts on each such occasion of less than $100,000.
(b) Lessor shall pay the Purchase Price directly to the relevant
Vendor, unless (i) Lessee pays any portion or the Purchase Price to the relevant
Vendor (cancelled checks to be provided to Lessor) or (ii) Lessee has already
acquired title to the Units, in either of which cases Lessor shall pay the
relevant amount to Lessee.
2. Conditions Precedent to Funding. The obligation of Lessor to purchase
-------------------------------
and pay for each Unit is subject to satisfaction of the following conditions
precedent:
(a) Lessee shall have executed and delivered to Lessor the
Certificate and any Purchase Agreement Assignment or bill of sale
and invoice therefor as required under Sections 1.1 and 1.3 of
the Lease Agreement;
(b) the Delivery Date of the Unit shall be during the Utilization
Period set forth below;
(c) there shall exist no Event of Default (nor any event which, with
notice or lapse of time or both, would become an Event of
Default);
(d) no material adverse change in Lessee's or any guarantor's or
general partner of Lessee's financial condition shall have
occurred since the date hereof;
(e) satisfactory resolution of any environmental issues; and
(f) delivery to Lessor, no later than the first assignment by Lessee
of a Purchase Agreement under this Appendix (or, in the case of a
sale and leaseback, the first Delivery Date), at Lessee's sole
expense, of the following documents, in form and substance
satisfactory to Lessor;
(i) evidence of Lessee's and any guarantor's authority to enter
into and perform its obligations under the Lease, and of
the incumbency of corporate or partnership officers or
identity of individuals authorized to execute and deliver
the Lease and any other agreement or document required
thereunder, including specimen signatures of such persons;
(ii) an opinion of counsel of Lessee and any guarantor;
(iii) insurance certificates or other evidence acceptable to
Lessor that Lessee has complied with Section 7 of the Lease
Agreement;
1
<PAGE>
(iv) UCC financing statements executed by Lessee together with,
at Lessor's option, certificates of filing officers as to
the nonexistence of any prior UCC filings and, in the case
of a sale and leaseback, evidence satisfactory to Lessor
that each Unit is free and clear of all claims, liens,
security interests and encumbrances;
(v) a guaranty of Tarrant Apparel Group;
(vi) an appraisal of the Units, other than new equipment,
satisfactory to Lessor, by an independent appraiser
acceptable to Lessor;
(vii) resolution, satisfactory to Lessor, of issues relating to
the arrangement of the transaction between Lessee and its
affiliate or subsidiary. Any documentation between Lessee
and its affiliate or subsidiary shall be reviewed by
Lessor and found reasonably acceptable to Lessor;
(viii) a binding commitment from a U.S. financial institution or
a group of lenders for a working capital line of credit of
at least $100,000,000. Evidence of credit line commitment
shall be in form acceptable to Lessor; and
(ix) any other documents specified in this Appendix and such
other documents as Lessor may reasonably request.
C. Interim Term and Base Term.
--------------------------
Rent for each Unit will accrue under the Lease during its Interim Term and
its Base Term. The "Scheduling Date" for each Unit is the date Lessor prepares
the Acceptance Certificate and Schedule. The "Interim Term" for each Unit will
begin on, and include, the date Lessor finds the Acceptance Certificate and
Schedule and continue until, and include, the day before its "Base Date". The
"Base Term" for each Unit will begin on, and include, its Base Date and continue
for 60 months. The "Base Date" for each Unit will be the first or fifteenth day
of the month during or immediately following the month in which the Scheduling
Date occurs, as specified by Lessor in the relevant Schedule.
If Lessee does not execute and deliver to Lessor the Acceptance
Certificate and the Schedule for the Unit pursuant so Section 1.3 of the Lease
Agreement, Lessor may either terminate the Lease as to such Unit (and will do so
if any Unit requires installation or testing and the same is not completed to
Lessee's satisfaction) or reschedule the Base Date to the next succeeding month,
in which event the provisions of this sentence shall continue to apply.
D. Utilization Period.
------------------
All Delivery Dates for Units leased hereunder must occur between the date
of this Appendix and December 31, 1999, inclusive, which date may be extended by
Lessor by written notice to Lessee and any guarantor (the "Utilization Period").
E. Rent.
----
1. Interim Rent. Lessee shall pay rent for each Unit ("Interim Rent") for
------------
each day of its Interim Term. Interim Rent shall be computed on the full amount
of the Purchase Price of the Unit at a daily rate equal to the daily equivalent
of the Unit's Base Rent.
Interim rent is determined, in part, on the basis of a 360-day year and
actual days elapsed which results in a higher rent than if a 365-day year is
used. Interim Rent is due and payable when billed by Lessor.
2. Base Rent. Lessee shall pay Lessor "Fixed Base Rent" "and Variable
---------
Base Rent" (collectively, "Base Rent") for each Unit during the ease Term in
arrears in 60 consecutive monthly installments, with the first such installment
due one month following the Base Date.
The Fixed Base Rent installments will be applied to reduce the unamortized
balance of the Purchase Price and shall be in amounts sufficient to amortize the
Purchase Price of the Unit down to its Purchase Amount at the Initial Implicit
Interest Rate over its Base Term.
Each Variable Base Rent installment shall be equal to interest during each
Rent Period on the unamortized balance of the Purchase Price of the Unit at the
Implicit Interest Rate for the Unit for such Rent Period.
2
<PAGE>
A "Rent Period" is the period beginning on, and including, a Base Rent
payment date (or, in the case of the first Rent Period, the Base Date) and
ending on, and excluding, the next succeeding Base Rent payment date.
The Initial Implicit Interest Rate as to each Unit shall be established as
of 11:00 a.m. London time two business days before the Base Date and shall be
adjusted as of each Base Rent payment date during the Base Term (each an
"Adjustment Date"). The Base Rent installments shall be subject to further
adjustment at any time to reflect any reserve requirements or other charges that
may be imposed on Bank of America National Trust and Savings Association by the
Board of Governors of the Federal Reserve System or the Federal Deposit
Insurance Corporation, or any other regulatory agency. The amount of the initial
Base Rent installment shall be set forth in the Schedule to the relevant
Acceptance Certificate, and adjustments thereto shall be set forth in written
notices from Lessor to Lessee.
F. Implicit Interest Rate. The "Implicit Interest Rate" for each Unit is a
----------------------
nominal rate per annum equal to 2.50 percentage points (the "Spread") in excess
of the Index Rate, compounded monthly and computed on the basis of a year of 360
days and 12 30-day months, which may result in more rent than if a 365-day year
were used. "Index Rate" with respect to each Unit means the average interbank
offered rate per annum ("LIBOR") for 3-month U.S. dollar deposits in the London
market at 11:00 a.m. (London time) at five major banks in London, New York and
San Francisco, two business days before the first day of each Rent Period in an
amount approximately equal to the unamortized balance of the Purchase Price at
the beginning of such Rent Period, as reported in Telerate System Page 3750 (or
any successor page).
If for any reason LIBOR is not so quoted on any relevant date of
determination, the Index Rate during the relevant Rent Period will be an
equivalent rate per annum determined by Lessor.
G. Location.
--------
The Units shall be located in Puebla, Mexico unless otherwise specified in
the Acceptance Certificate. Lessee shall give Lessor written notice of any
change in such location within 10 days of the date thereof.
H. Other Charges.
-------------
I. Late Payment Charges. The interest rate on late payments shall be 14%
--------------------
per annum, computed daily on the basis of a 360-day year and actual days elapsed
which results in more interest than if a 365-day year is used.
2. Early Termination Charges.
-------------------------
(a) Initial Direct Costs. Lessee acknowledges that Lessor will incur
--------------------
certain costs in establishing this transaction ("Initial Direct Costs") and that
Lessor will amortize the Initial Direct Costs over the scheduled full term of
the Lease. Lessor estimates those costs as, and establishes on its books a
reserve therefor, in an amount equal to 1% of the aggregate Base Rent for the
Units. If the Lease is terminated for any reason before the scheduled expiration
of the Base Term, whether upon the exercise of any early termination option, a
casualty occurrence or a default, in addition to all other amounts to be paid by
Lessee, Lessee shall pay Lessor an amount equal to the unamortized portion of
the Initial Direct Costs.
1. Early Termination.
-----------------
If no Event of Default exists, Lessee may, by notice to Lessor, terminate
the Lease with respect to all but not less than all the Units for which the
Lease expires on the same date. Such notice shall specify a date (the
"Termination Date") with respect to each Unit, not more than 120 and not less
than 30 days after such notice is given, which shall be a Base Rent payment date
on or after the later of the 24th month of the Base Term for the Unit or
one-half of the Base Term of the Unit. On the Termination Date of each Unit,
Lessee shall pay to Lessor the Balance Due for the Unit computed as of such date
and any Other Charges required hereunder. Upon such payment, the obligation of
Lessee to pay rent hereunder with respect to the Unit after the Termination Date
shall cease, the term for the Unit shall end on the Termination Date, and Lessor
shall execute and deliver to Lessee or its assignee or nominee a bill of sale
(without representations or warranties except that the Unit is free and clear of
all claims, liens, security interests and other encumbrances by or in favor of
any person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the terms of the Lease and
to transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense.
J. Purchase Provision.
------------------
At the end of the Base Term for a Unit, if the Lease has not been earlier
terminated with respect to the Unit, Lessee shall purchase the Unit for $1.00
(the "Purchase Amount").
3
<PAGE>
Upon Lessee's payment of the Purchase Amount, Lessor shall execute and
deliver, to Lessee, or its assignee or nominee, a bill of sale (without
representations or warranties except that the Unit is free and clear of all
claims, liens, security interests and other encumbrances by or in favor of any
person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the Lease and to transfer
title thereto to Lessee or such assignee or nominee, in such form as may
reasonably be requested by Lessee, all at Lessee's expense.
K. Sale-Leaseback.
--------------
Section 1.1 shall not be applicable with respect to the Units identified
in Annex A to the bill of sale in a form acceptable to Lessor. The following
provisions shall govern the procurement, delivery and acceptance of such Units:
1. On a date or dates to be agreed upon by Lessor and Lessee (individually
a "Delivery Date"). Lessor will purchase from and lease back to Lessee for an
amount equal to the agreed upon value of the Units identified in Annex A to the
bill of sale, and Lessee will sell to and lease back from Lessor each Unit, but
all Delivery Dates for such Units must be during the Utilization Period set
forth in this Appendix.
2. The obligation of Lessor to pay for each Unit is subject to the
following additional conditions:
(a) On or before its Delivery Date, Lessee shall execute and deliver to
Lessor a bill of sale with respect to the Unit, dated as of the Delivery Date;
and
(b) Lessor shall receive evidence, satisfactory to Lessor, that each
Unit is free and clear of all claims, liens, security interests and
encumbrances.
If any of the foregoing conditions is not met with respect to any such
Unit, Lessor shall have no obligation to either Lessee or any third party to pay
the purchase price for such Unit.
Any attempted or purported sale of a Unit by Lessee to Lessor after its
Delivery Date shall not be effective whether or not accepted by Lessor and
Lessor shall not incur any obligations with respect to the Unit, including the
obligation to pay for the Unit.
3. Lessee represents, warrants and covenants with respect to each Unit
that (a) Lessee has the right to sell the Unit as set forth herein, (b) both the
Unit and Lessees right, title and interest in the Unit are, or will be as of its
Delivery Date, free from all claims, liens, security interests and encumbrances,
(c) Lessee will defend the sale against claims and demands of all persons and
(d) the purchase price of the Unit is equal to its fair market value at the time
of the sale.
L. Deposit
-------
Lessee has paid to Lessor a Deposit of $10,000, representing .1923% of the
Maximum Purchase Price act forth in this Appendix (the "Commitment Percentage").
This fee will be applied to the first Base Rent installment, up to the full
amount of such installment, as such installments become due, until the deposit
is fully applied thereto. No part of this fee will be refunded or applied to any
other rent.
M. Financial Benchmarks.
--------------------
Lessee shall at all times observe the following benchmarks (all
computations and definitions being determined in accordance with generally
accepted accounting principles). If a breach of any of the following benchmarks
occurs, Lessor, at its option, may cause the remaining unamortized balance of
the Purchase Price to be amortized over six (6) consecutive monthly
installments, with the first such installment to be due on the next succeeding
Base Rent payment date.
(1) maintain "Interest Coverage" (net income before taxes plus interest
expense divided by interest expense) of not less than 3.0: 1.00; and
(2) total liabilities less debt subordinated to exceed 2.0 times
tangible net worth (shareholder's equity less intangible assets)
plus debt subordinated. Debt subordinated shall be calculated in a
manner acceptable to Lessor.
N. Maintenance Contract.
--------------------
In addition to the maintenance required by Section 4 of the Lease
Agreement, Lessee shall execute, at its own expense, a transferable and
assignable maintenance contract with the Vendor of the Units or other third
party which normally services such equipment in the ordinary course of business
and is acceptable to Lessor, and shall keep the contract in force until the
Units are surrendered to Lessor.
4
<PAGE>
O. Year 2000 Representation.
------------------------
On the basis of a comprehensive review and assessment of Lessee's systems
and equipment and inquiry made of Lessee's material suppliers, vendors and
customers, Lessee's management is of the view that the "Year 2000 problem" (that
is, the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a material adverse change in the operations, business,
properties, condition (financial or otherwise) of Lessee. Lessee has developed
feasible contingency plans adequately to insure uninterrupted and unimpaired
business operation in the event of failure of its own or a third party's systems
or equipment due to the Year 2000 problem, including those of vendors,
customers, and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.
The parties hereto have executed this Appendix as of the day and year
first above written.
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
----------------------------- -----------------------------
Title: Vice President Title: Chief Operating Officer
-------------------------- --------------------------
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Address: 555 California Street, Address: 3151 Washington Blvd.
4th Floor Los Angeles, CA 90023
San Francisco, CA 94104 Attn: Patrick Chow
Attn: Contract Administration Facsimile No.: (323) 415-0403
Facsimile No.: (415) 765-7373
5
<PAGE>
EXHIBIT A
TO
LEASE INTENDED AS SECURITY
--------------------------
ACCEPTANCE CERTIFICATE NO.
------------------------------
Reference is made to the Lease Intended as Security dated as of November
3, 1999 between TRANSIT HOLDING, INC., as Lessor, TAG MEX, INC., as Lessee
(together with Appendix No. __ thereto dated ______________ 19__, the "Lease");
capitalized terms otherwise defined herein having the same meanings as in the
Lease). The Lease is incorporated herein by reference.
1. ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
-------------------------
equipment delivered in Annex A have been delivered to, are in the
-------
possession of and are accepted by Lessee for leasing under, and constitute
"Units" subject to and governed by, the Lease, the Units (i) have been fully
inspected by qualified agents of Lessee and are in good order, operating
condition and repair, (ii) have been properly installed (subject only to any
minor undischarged obligations of suppliers, manufacturers or installers thereof
to promptly update and conform same as provided by their respective agreements
and warranties), (iii) meet all recommended or applicable safety standards, (iv)
are, as of the Delivery Date set forth below, available for use and service
by Lessee and Lessor and (v) have been marked or labeled showing Lessor's
interest in the [ILLEGIBLE] and to the extent required by the Lease, (C) the
dollar amounts set forth in Annex A with respect to such equipment are correct
and (D) Lessee its pay the rent and all other sums provided for in the Lease
with respect to such Units.
2. DELIVERY DATE. The Delivery Date of the Units is _____________, 1999.
-------------
3. PURCHASE PRICE. The Purchase Price of the Units is $________, as set
--------------
forth in Annex A.
4. SCHEDULE. The Base Date, the Base Rent and any Interim Rent for the
--------
Units will be determined pursuant to the [ILLEGIBLE] Appendix and set forth in a
Schedule to this Acceptance Certificate.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.
Lessor Lessee:
TRANSIT HOLDING, INC. TAG MEX, INC.
By: By:
------------------------------ ------------------------------
Title: NOT FOR EXECUTION Title: NOT FOR EXECUTION
--------------------------- ---------------------------
1
<PAGE>
ANNEX A
TO
ACCEPTANCE CERTIFICATE NO.
--------------------------
<TABLE>
<CAPTION>
============================================================================================================
Description (Quantity; Manufacturer, Make, Location (Street Address, City, Delivery Purchase
Model No. Serial No.) County, State) Date Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Total Sales Tax $
Total Transportation $
Total Installation $
Total Purchase Price $
Less Advances $
Remaining Balance $
2
<PAGE>
EXHIBIT B
TO
LEASE INTENDED AS SECURITY
--------------------------
SCHEDULE NO.
------------
SCHEDULE (this "Schedule") dated _________, 19 ______ to Acceptance
Certificate No. ____ dated _____ 19 ____ "Acceptance Certificate") to the Lease
Intended as Security dated as of November 3, 1999 between TRANSIT HOLDING, INC.,
as Lessor, and MEX, INC., as Lessee (together with Appendix No. ____ thereto,
the "Lease"; capitalized terms not otherwise defined herein having the meanings
as in the Lease).
1. SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
--------------------------
described in the Acceptance Certificate is dated _____________, 19___. The Base
Date for the Units is dated ______,19___.
2. INDEX RATE. The Index Rate on the Scheduling Date is _____% per annum.
----------
3. RENT. The Base Rent for the Units is comprised of 60 monthly
----
installments, each in the amount of $______________, with the such installment
due on ____________. Lessor will invoice Lessee for any Interim or Advance Rent
due as described in the terms of the Appendix based upon the date on which
Lessor funds the Acceptance Certificate and this Schedule.
4. CHATTEL PAPER COUNTERPARTS. Two counterparts of this Supplement have
--------------------------
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterpart has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee and, therefore, to the extent this Lease may be considered "chattel
paper" as defined in the Uniform Commercial Code, Lessor's interest in this
Lease may be transferred only by transfer of possession of the counterpart of
this Schedule marked "Lessor's Copy".
IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.
Lessor: Lessee:
TRANSIT HOLDING, INC. TAG MEX, INC.
By: By:
--------------------------- ---------------------------
Title: NOT FOR EXECUTION Title: NOT FOR EXECUTION
------------------------ ------------------------
<PAGE>
Exhibit C to the Machinery
and Equipment Pledge Agreement
[Date]
TRANSIT HOLDING, INC.
Gentlemen:
Pursuant to the Machinery and Equipment Pledge Agreement,
dated November __, 1999, by and among Tarrant Mexico, S. de R.L. de C.V. as
Pledgor, Transit Holding, Inc., as Pledgee, and Mrs. Nafiseh Sedaghat as
Depositary, please be advised as follows:
Between [date of prior report submitted to Pledgee or, in the
case of the first report, date of the Pledge Agreement] and ________,
[1999/200_] the following new items of machinery and/or equipment owned by
Pledgor have entered the Premises and have therefore been received in deposit by
the Depositary for the account of Pledgee and are pledged in favor of Pledgee:
[List new machinery and/or equipment].
Furthermore, we each separately confirm to you that Pledgor
and the Depositary have each complied at all times with their respective
obligations under Clause Second of the Machinery and Equipment Pledge Agreement.
Very truly yours,
Tarrant Mexico, S. de R.L. de C.V.
By:
-----------------------------------
Name:
Title:
The Depositary
Mrs. Nafiseh Sedaghat
--------------------------------------
<PAGE>
Lease No. 16501
LEASE INTENDED AS SECURITY ("Lease") dated as of November 3, 1999,
between TRANSIT HOLDING, INC., a Delaware corporation, a subsidiary of
Banc of America Leasing & Capital LLC with an office at 555 California
Street, 4th Floor, San Francisco, California, 94104 ("Lessor") and TAG
MEX, INC., a California corporation, with its principal office at 3151
Washington Blvd., Los Angeles, CA 90023 ("Lessee").
Lessor agrees to acquire and lease to Lessee and Lessee agrees to lease
from Lessor certain personal property (the "Units" and individually a "Unit")
described in the appendix to the Lease attached hereto and made a part hereof,
or any other appendix hereto that Lessor and Lessee may enter into from time to
time (each an "Appendix") hereof, on the terms and conditions set forth herein
and in the relevant Appendix.
Section 1 Procurement, Delivery and Acceptance.
- --------- ------------------------------------
1.1 Lessee has ordered or shall order the Units pursuant to one or more
purchase orders or other contracts of sale ("Purchase Agreements") from one or
more vendors ("Vendors"). Lessee shall, on the date of each Appendix, assign to
Lessor all of Lessee's right, title and interest in and to the Purchase
Agreements for the Units described in the Appendix by executing and delivering
to Lessor a Purchase Agreement Assignment in the form of Exhibit A (a "Purchase
---------
Agreement Assignment"). Lessor agrees to (a) accept the assignment and (b)
subject to Section 1.2, assume the obligations of Lessee under the Purchase
Agreements to purchase and pay for the Units, but no other duties and
obligations thereunder. Nevertheless, Lessee shall remain liable to Vendor with
respect to its duties and obligations in accordance with the Purchase
Agreements.
1.2 The obligation of Lessor to pay for each Unit is subject to
satisfaction of the conditions precedent set forth in Paragraph B.2 of the
relevant Appendix. If any of those conditions is not met with respect to any
Unit, Lessor shall assign to Lessee all of Lessor's right, title and interest in
and to the Unit and any bill of sale or Purchase Agreement previously assigned
to Lessor as it relates to the Unit.
1.3 Lessee shall forward to Lessor original invoices relating to each Unit
to be accepted under the terms of this Lease and the relevant Appendix. If
Lessee has received title and possession of the Unit before executing a Purchase
Agreement Assignment relating thereto, Lessee will execute a bill of sale
conveying title thereto to Lessor. Lessor shall prepare an Acceptance
Certificate in the form of Exhibit B (an "Acceptance Certificate") together with
---------
a Schedule to the Acceptance Certificate in the form of Exhibit C (a "Schedule")
---------
based upon the criteria in the relevant Appendix. Lessee shall execute and
return the Acceptance Certificate and Schedule within five (5) business days
after the preparation of such Schedule confirming the date Lessee has received
such Unit, or, the date when any required installation and testing is completed
(the "Delivery Date"), and confirming that the Lessee has accepted the Unit
under Lease as of its Delivery Date. Upon receipt of the executed Acceptance
Certificate and Schedule, Lessor shall pay the Purchase Price (as defined in the
relevant Appendix) with respect to the Units described therein.
Section 2 Term, Rent and Payment.
- --------- ----------------------
2.1 The term of this Lease for each Unit (its "Lease Term") shall begin on
the date of the Appendix describing the Unit and continue as specified in its
Appendix and Schedule.
2.2 Lessee shall pay Lessor rent for each Unit in the amounts and at the
times specified in its Appendix and Schedule.
2.3 Rent and all other sums due Lessor hereunder shall be paid at the
office of Lessor set forth below, unless otherwise specified by Lessor.
2.4 THIS LEASE IS A NET LEASE AND LESSEE SHALL NOT BE ENTITLED TO ANY
ABATEMENT OR REDUCTION OF RENT OR ANY SETOFF AGAINST RENT, WHETHER ARISING BY
REASON OF ANY PAST, PRESENT OR FUTURE CLAIM OF ANY NATURE BY LESSEE AGAINST
LESSOR OR OTHERWISE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LEASE
SHALL NOT TERMINATE, NOR SHALL THE OBLIGATIONS OF LESSOR OR LESSEE BE OTHERWISE
AFFECTED BY ANY CIRCUMSTANCE, including, without limitation, (a) any defect in,
damage to, loss of possession or use or destruction of any Unit, however caused,
(b) the attachment of any lien, encumbrance, security interest or other right or
claim of any third party to any Unit, (c) any prohibition or restriction of or
interference with Lessee's use of any Unit by any person or entity, (d) the
insolvency of or the commencement by or against Lessee of any bankruptcy,
reorganization or similar proceeding, or (e) any other cause, whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. IT IS THE INTENTION OF THE PARTIES THAT ALL RENT AND OTHER
AMOUNTS PAYABLE BY LESSEE HEREUNDER SHALL BE PAYABLE IN ALL EVENTS IN THE MANNER
AND AT THE TIMES HEREIN PROVIDED UNLESS LESSEE'S OBLIGATIONS IN RESPECT THEREOF
HAVE BEEN TERMINATED PURSUANT TO EXPRESS PROVISIONS HEREOF.
LESSOR'S COPY
1
<PAGE>
2.5 Payments shall be applied in the following order: (a) Lessor's
expenses, including without limitation those set forth in Sections 8.4 and 19;
(b) interest on late payments; and (c) rent and all other sums due hereunder.
Payments shall be conclusively evidenced by entries in records maintained by
Lessor.
Section 3 Representations and Warranties.
- --------- ------------------------------
Lessee hereby represents and warrants to Lessor as follows:
3.1 Lessee is a corporation duly organized and existing under the laws of
the state of its incorporation, is qualified to do business in every state in
which the quantity or nature of its business or property make such qualification
necessary, is in good standing in each such state and has full and adequate
corporate powers to carry on and conduct its business as now conducted.
3.2 The Lease has been duly authorized, executed and delivered by Lessee
and is a legal, valid and binding agreement of Lessee.
3.3 Lessee has the power and authority to execute and deliver the Lease and
perform its obligations under this Lease; and the execution and delivery of the
Lease by Lessee does not, and performance by Lessee thereof will not, materially
contravene any charter or by-law provision of Lessee or of any indenture,
covenant, instrument or agreement of to which Lessee is a party or by which
Lessee or any of its properties is bound or affected.
3.4 No approval, consent, exemption, authorization or other action by, or
notice to or filing with, any government authority is necessary in connection
with the execution, delivery, performance by Lessee or enforcement by Lessor of
the Lease, or if necessary the same has been obtained.
3.5 There is no law, rule or regulation that would be contravened by the
execution, delivery, performance by Lessee or enforcement by Lessor of the
Lease, nor to Lessee's knowledge are there, as of the date hereof, any actions,
suits, or proceedings (whether or not purportedly on behalf of Lessee) pending,
or to Lessee's knowledge, threatened against or affecting Lessee, at law or in
equity or before any Federal, state, municipal or other governmental department,
commission, board, bureau, agency, court or instrumentality, which involve the
possibility of any judgment, or liability, which items are not fully covered by
insurance, or which may result in any material adverse effect in the business,
operations, properties or assets or in the condition, financial or otherwise, of
Lessee, or the ability of Lessee to carry on its business and the performance of
its obligations hereunder, and Lessee has no knowledge of any default on
Lessee's part with respect to any order, writ, injunction or decree of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that may result in such material
adverse effect.
3.6 The Lease is enforceable against Lessee in accordance with its terms,
except as such enforcement may be subject to applicable bankruptcy,
rehabilitation, liquidation, conservation, dissolution, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and is subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity.
LESSEE ACKNOWLEDGES AND AGREES THAT (a) EACH UNIT IS OF A SIZE, DESIGN, CAPACITY
AND MANUFACTURE SELECTED BY LESSEE, (b) LESSEE IS SATISFIED THAT THE SAME IS
SUITABLE FOR ITS PURPOSES, (c) LESSOR IS NOT A MANUFACTURER THEREOF NOR A DEALER
IN PROPERTY OF SUCH KIND AND (d) LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE,
ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE TITLE,
MERCHANTABILITY, CONDITION, QUALITY, DESCRIPTION, DURABILITY, FITNESS FOR
PURPOSE OR SUITABILITY OF ANY UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR
THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to the extent
assignable, any warranties, covenants and representations of vendor with respect
to any Unit, but any action taken by Lessee by reason thereof shall be at
Lessee's expense and shall be consistent with Lessee's obligations under Section
2.
Section 4 Possession, Use and Maintenance.
- --------- -------------------------------
4.1 Lessee shall not (a) use, operate, maintain or store any Unit
improperly, carelessly or in violation of any applicable law or regulation of
any government authority, (b) abandon any Unit, (c) sublease any Unit or permit
its use by anyone other than Lessee without the prior written consent of Lessor,
(d) permit any Unit to be removed from the location or principal base, as the
case may be, specified in the relevant Appendix or permit any Unit that is a
motor vehicle to be registered in any state other than as specified in the
relevant Appendix without the prior written consent of Lessor within 15 days
therefrom, (e) affix or place any Unit to or on any other personal property or
any real property without first obtaining and delivering to Lessor such waivers
as Lessor may reasonably require to assure Lessor's legal title and security
interest and right to remove the Unit free from any lien, encumbrance, right or
claim asserted by any third party or (f) sell, assign or transfer, or directly
or indirectly create, incur or suffer to exist any lien, encumbrance, right or
claim of any kind on any of its rights hereunder or in any Unit.
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4.2 Lessee shall at its expense maintain each Unit during its Lease Term in
good operating order, repair, condition and appearance and in accordance with
the manufacturer's recommended procedures.
4.3 Lessee shall not alter any Unit or install any accessory, equipment or
device on any Unit if that would impair any applicable warranty, the originally
intended function, or the value of the Unit. All repairs, parts, accessories,
equipment and devices furnished, affixed to or installed on any Unit, excluding
temporary replacements, shall thereupon become subject to the security interest
of Lessor.
4.4 If Lessor supplies Lessee with a label, plate or other marking stating
that each Unit is leased from Lessor, Lessee shall affix and keep it on a
prominent place on each Unit to the extent attachable and so as not to damage
the Unit or expose the Unit to partial damage during its Lease Term.
4.5 Upon 2 business days prior notice to Lessee, Lessor and its designees
shall have the right at all reasonable times to inspect any Unit, observe its
use and inspect records related thereto.
Section 5 General Tax Indemnity.
- --------- ---------------------
5.1 Lessee shall pay or reimburse Lessor for, and indemnify and hold Lessor
harmless from, all government fees (including, but not limited to, license,
documentation, recording or registration fees) and all sales, use, gross
receipts, property, occupational, value-added or other taxes, levies, imposts,
duties, assessments, charges or withholdings of any nature whatsoever, together
with any penalties, fines or additions to tax, or interest thereon (each of the
foregoing being hereafter referred to as an "Imposition"), arising at any time
before or during the Lease Term, or upon any termination of this Lease or return
of the Units to Lessor, and levied or imposed on Lessor, directly or otherwise,
by any federal, state or local government or taxing authority in the United
States or by any foreign country or foreign or international taxing authority on
or with respect to (a) any Unit, (b) the exportation, importation, registration,
purchase, ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, transportation, return, sale, transfer of title or other
disposition thereof, (c) the rents, receipts, or earnings arising from any Unit
or (d) this Lease or any payment made hereunder, excluding, however, taxes
measured by Lessor's net income imposed or levied by the United States or any
state thereof or any other jurisdiction unless such taxes are in lieu of or in
substitution for any Impositions Lessee would otherwise have been obligated to
pay, reimburse or indemnify hereunder.
5.2 Lessee shall pay on or before the time or times prescribed by law each
Imposition for which Lessee is primarily responsible under applicable law and
any other Imposition (except any Imposition excluded by Section 5.1), but Lessee
shall have no obligation to pay an Imposition that Lessee is contesting in good
faith and by appropriate legal proceedings and the nonpayment thereof does not,
in the reasonable opinion of Lessor, adversely affect the title, property, use,
disposition or other rights of Lessor with respect to the Units. If any
Imposition (except an Imposition excluded by Section 5.1) is charged or levied
against Lessor directly and paid by Lessor, Lessee shall reimburse Lessor on
presentation of an invoice therefor.
5.3 If Lessor is not entitled to a corresponding and equal deduction with
respect to any Imposition Lessee is required to pay or reimburse under Section
5.1 or 5.2 and the payment or reimbursement constitutes income to Lessor, then
Lessee shall also pay to Lessor the amount of any Imposition Lessor is obligated
to pay in respect of (a) such payment or reimbursement by Lessee and (b) any
payment by Lessee made pursuant to this Section 5.3.
5.4 Lessee shall prepare and file, in a manner satisfactory to Lessor, any
reports or returns required with respect to the Units. Lessee shall furnish on
Lessor's request reports or returns so filed.
Section 6 Risk of Loss; Waiver and Indemnity.
- --------- ----------------------------------
6.1 If any Unit is worn out, lost, stolen, destroyed or irreparably
damaged, from any cause whatsoever, or taken or requisitioned by condemnation or
otherwise (any such occurrence being hereinafter called a "Casualty Occurrence")
before or during its Lease Term, Lessee shall give Lessor prompt notice thereof.
On the first rent payment date after the Casualty Occurrence or, if there is no
such rent payment date, 30 days after the Casualty Occurrence, Lessee shall pay
to Lessor, in addition to any amounts then due and owing, an amount equal to the
then "Balance Due" (as hereinafter defined) for the Unit and any "Other Charges"
required under the relevant Appendix. The Balance Due for each Unit is the sum
of
(a) any and all amounts with respect to such Unit which under the terms
of this Lease may be then due (other than any Other Charges) or which may have
accrued to such payment date (computing the rent for any number of days less
than a full rent period by multiplying the rent for such rental period by a
fraction of which the numerator is such number of days and the denominator is
the total number of days in such full rent period); plus
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<PAGE>
(b) before the Base Date for such Unit, as set forth in the relevant
Appendix, the amount Lessor is obligated to pay for such Unit, and thereafter,
the sum of (i) the present value, as of such payment date, of the entire unpaid
balance of all rent for such Unit that would otherwise have accrued hereunder
from such payment date to the end of its Lease Term and (ii) the present value,
as of such payment date, of the Purchase Amount therefor as defined in the
relevant Appendix.
Present values are to be computed in each case by discounting at the applicable
Implicit Interest Rate set forth in the relevant Appendix.
Upon the making of such payment by Lessee in respect of any Unit, the rent
for the Unit shall cease to accrue, its Lease Term shall terminate and Lessee
shall be entitled to possession of such Unit. If Lessor receives the Balance Due
and Other Charges for a Unit, Lessee shall be entitled to the proceeds of any
recovery in respect of the Unit, from insurance or otherwise, and Lessor,
subject to the rights of any insurer insuring the Units as provided herein,
shall execute and deliver, to Lessee, or to its assignee or nominee, a bill of
sale (without representations or warranties except that the Unit is free and
clear of all claims, liens, security interests and other encumbrances by or in
favor of any person claiming by, through or under Lessor) for the Unit, and such
other documents as may be required to release the Unit from this Lease and to
transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense. Except as
provided in this Section 6.1, Lessee shall not be released from its obligations
hereunder in the event of, and shall bear the risk of, any Casualty Occurrence
to any Unit before or during its Lease Term.
6.2 Lessee waives and releases any claim now or hereafter existing against
Lessor, any company controlled by, controlling, or under common control with
Lessor and all of their directors, officers, employees, agents, attorneys,
successors and assigns (each, an "Indemnified Person") on account of, and shall
indemnify, reimburse and hold each Indemnified Person harmless from, any and all
claims (including, but not limited to, claims based on or relating to copyright,
trademark or patent infringement, environmental liability, negligence, strict
liability in tort, statutory liability or violation of laws), losses, damages,
obligations, penalties, liabilities, demands, suits, judgments or causes of
action (collectively, "Claims"), and all legal proceedings, and any reasonable
costs or expenses in connection therewith, including reasonable attorneys' fees,
including reasonable allocated time charges of internal counsel, in each case
imposed on, incurred by or asserted against the Indemnified Person in any way
relating to or arising in any manner out of (a) the registration, purchase,
taking or foreclosure of a security interest in, or the ownership, delivery,
condition, lease, assignment, storage, transportation, possession, use,
operation, return, repossession, sale or other disposition of, any Unit, before
or during its Lease Term, (b) any alleged or actual defect in any Unit (whether
arising from the material or any article used therein, the design, testing, use,
maintenance, service, repair or overhaul thereof or otherwise) regardless of
when such defect is discovered or alleged, whether or not the Unit is in
Lessee's possession and no matter where it is located or (c) this Lease or any
other related document, the enforcement hereof or thereof or the consummation of
the transactions contemplated hereby or thereby, other than any Claim resulting
solely from the gross negligence or willful misconduct of Lessor (other than any
gross negligence or willful misconduct of another party imputed to Lessor),
unless covered by the insurance Lessee is required to maintain hereunder,
Section 7 Insurance.
- --------- ---------
Lessee, at its own cost and expense, shall keep each Unit insured against
all risks, in no event for less than the amount set forth in Section 6.1(b) with
respect to such Unit, and shall maintain public liability insurance against such
risks and for such amounts as Lessor may require. All such insurance shall be in
such form and with such companies as Lessor shall approve, shall specify Lessor
and Lessee as insureds and shall provide that such insurance may not be canceled
as to Lessor or altered in any way that would affect the interest of Lessor
without at least 30 days prior written notice to Lessor (10 days in the case of
nonpayment of premium). All insurance shall be primary, without right of
contribution from any other insurance carried by Lessor, shall contain a "breach
of warranty" provision satisfactory to Lessor, and shall provide that all
amounts payable by reason of loss or damage to the Units shall be payable solely
to Lessor, unless Lessor otherwise agrees. Lessee shall provide Lessor with
evidence satisfactory to Lessor of the required insurance at the time specified
in Paragraph B.2 of the relevant Appendix.
Section 8 Defaults; Remedies.
- --------- ------------------
8.1 The following shall constitute events of default ("Events of Default")
hereunder:
(a) Lessee fails to make any payments to Lessor when due hereunder;
(b) any representation or warranty of Lessee contained herein or in any
document furnished to Lessor in connection herewith is incorrect or misleading
in any material respect when made;
(c) Lessee fails to observe or perform any other covenant, agreement or
warranty made by Lessee hereunder or under any document delivered pursuant
hereto and such failure continues for 10 days after written notice thereof to
Lessee;
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<PAGE>
(d) any default occurs under any other agreement for borrowing money or
receiving credit under which Lessee or any guarantor or general partner of
Lessee may be obligated as borrower, lessee or guarantor, if such default (i)
consists of the failure to pay any indebtedness when due or perform any other
obligation thereunder and (ii) gives the holder of the indebtedness the right to
accelerate the indebtedness;
(e) Lessee, any guarantor of this Lease or any general partner of
Lessee makes an assignment for the benefit of creditors or files any petition or
action under any bankruptcy, reorganization, insolvency or moratorium law, or
any other law or laws for the relief of, or relating to, debtors;
(f) any guarantor of this Lease breaches or fails to perform any
covenant in its guaranty, required by this Lease expires or terminates without
Lessor's consent;
(g) an involuntary petition is filed under any bankruptcy statute
against Lessee, any guarantor of this Lease or any general partner of Lessee, or
any receiver, trustee, custodian or similar official is appointed to take
possession of the properties of Lessee, any guarantor of this Lease or any
general partner of Lessee, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within 60 days from the date of the filing
or appointment; or
(h) Lessee, any guarantor of this Lease liquidates, dissolves, or
sells, leases or disposes of a substantial portion of its business or assets.
8.2 If any Event of Default occurs, Lessor, at its option, may:
(a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for the breach thereof; or
(b) by notice in writing to Lessee terminate this Lease, whereupon all
rights of Lessee to retain possession of and use the Units shall terminate, but
Lessee shall remain liable as hereinafter provided, and Lessor may, at its
option, do any one or more of the following: (i) declare the aggregate Balance
Due with respect to the Units and all Other Charges immediately due and payable
and recover any damages and expenses in addition thereto Lessor sustains by
reason of the breach of any covenant, representation or warranty contained in
this Lease other than for the payment of rent; (ii) enforce the security
interest given hereunder pursuant to the Uniform Commercial Code or any other
law; (iii) enter upon the premises where any of the Units may be and take
possession of all or any of such Units; and (iv) require Lessee to return the
Units as provided in Section 9.
8.3 Lessor shall have any and all rights given to a secured party by law,
and may, but is not required to, sell the Units in one or more sales. Lessor may
purchase the Units at such sale. Lessee acknowledges that sales for cash or on
credit to a wholesaler, retailer or user of the Units, or at public or private
auction, are all commercially reasonable. The proceeds of such sale shall be
applied in the following order: First, to the reasonable expenses of retaking,
-----
holding, preparing for sale and selling, including the allocated time charges,
costs and expenses of internal counsel for Lessor and any other attorneys' fees
and expenses incurred by Lessor; Second, to the amounts, except those specified
------
below, which under the terms of this Lease are due or have accrued; Third, to
-----
late charges; and Fourth, to the aggregate Balance Due. Any surplus shall be
------
paid to the person or persons entitled thereto. If there is a deficiency, Lessee
will promptly pay the same to Lessor.
8.4 Lessee agrees to pay all reasonable allocated time charges, costs and
expenses of internal counsel for Lessor and any other attorneys' fees, expenses
or out-of-pocket costs incurred by Lessor in enforcing this Lease.
8.5 The remedies herein provided in favor of Lessor shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other
remedies in its favor existing at law or in equity.
8.6 If Lessee fails to perform any of its agreements contained herein,
Lessor may perform such agreement, and Lessee shall pay the expenses incurred by
Lessor in connection with such performance upon demand.
Section 9 Return of Units,
- --------- ---------------
If Lessor rightfully demands possession of any Unit pursuant to this Lease
or otherwise, Lessee, at its expense, shall forthwith deliver possession of the
Unit to Lessor, together with its manuals and maintenance records, in the
condition required by Section 4 and any additional return requirements specified
in the relevant Appendix, by preparing and appropriately protecting the Unit for
shipment and, at the option of Lessor, (a) surrendering it to Lessor at a
location within the Republic of Mexico as specified by Lessor or (b) loading the
Unit on board such carrier as Lessor shall specify and shipping the same,
freight collect, to Lessor at the place designated by Lessor in the state where
the Unit was located or based pursuant to the relevant Appendix.
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<PAGE>
Section 10 Assignment.
- ---------- ----------
Lessor may at any time assign or transfer all or any of the right, title or
interest of Lessor in and to this Lease, and the rights, benefits and advantages
of Lessor hereunder, including the rights to receive payment of rent or any
other payment hereunder, Lessor's title to the Units and any and all obligations
of Lessor in connection herewith. Lessor may disclose to any potential or actual
assignee or transferee any information in the possession of Lessor or any of its
affiliates relating to Lessee or this Lease. Lessor may not disclose any
information in the possession of Lessor that is subject to a confidentiality
agreement without the prior written consent of Lessee, which shall not be
unreasonably withheld. Any such assignment or transfer shall be subject and
subordinate to this Lease and the rights and interests of Lessee hereunder. NO
ASSIGNMENT OF THIS LEASE OR ANY RIGHT OR OBLIGATION HEREUNDER MAY BE MADE BY
LESSEE OR ANY ASSIGNEE OF LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
WHICH SHALL NOT BE UNREASONABLY WITHHELD.
Section 11 Ownership and Security Interest; Further Assurances.
- ---------- ---------------------------------------------------
Unless assigned by Lessor, or applicable law otherwise provides, title to
and ownership of the Units shall remain in Lessor as security for the
obligations of Lessee hereunder until Lessee has fulfilled all of its
obligations hereunder. Lessee hereby grants to Lessor a continuing security
interest in the Units to secure the payment of all sums due hereunder.
Lessee confirms there is no pending litigation, tax claim, proceeding or
dispute that may materially and adversely affect its financial condition or
impair its ability to perform its obligations hereunder. Lessee will, at its
expense, maintain its legal existence in good standing and do any further act
and execute, acknowledge, deliver, file, register and record any further
documents Lessor may reasonably request in order to protect Lessor's title to
and security interest in the Units and Lessor's rights and benefits under this
Lease.
Section 12 Late Payments.
- ---------- -------------
Lessee shall pay to Lessor, on demand, interest at the rate set forth in the
relevant Appendix on the amount of any payment not made when due hereunder from
the date due until payment is made.
Section 13 Effect of Waiver.
- ---------- ----------------
No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breach or default under this Lease must
be in writing specifically set forth.
Section 14 Survival of Covenants.
- ---------- ---------------------
All obligations of Lessee under Sections 1, 2, 4, 5, 6, 7, 8, 9, 11 and 12
hereof and under each Appendix shall survive the expiration or termination of
this Lease to the extent required for their full observance and performance.
Section 15 Applicable Law; Severability.
- ---------- ----------------------------
This Lease shall be governed by and construed under the laws of California,
to the jurisdiction of which, and of federal courts in California, the parties
hereto submit. If any provision hereof is held invalid, the remaining provisions
shall remain in full force and effect.
Section 16 Financial Information.
- ---------- ---------------------
Lessee shall, and shall cause any guarantor to, keep its books and records
in accordance with generally accepted accounting principles and practices
consistently applied and shall, and shall cause any guarantor to, deliver to
Lessor (i) annual CPA-audited financial statements within 120 days of its fiscal
year end, (ii) quarterly company-prepared financial statements upon Lessor's
request, and (iii) such financial statements and information as may be set forth
in the relevant Appendix or as Lessor may reasonably request. Credit information
relating to Lessee, any guarantor or any general partner of Lessee may be
disseminated among Lessor and any of its affiliates and any of their respective
successors and assigns.
Section 17 Notices.
- ---------- -------
All demands, notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered or when
deposited in the mail, first class postage prepaid, or delivered to an express
carrier, charges prepaid, or sent by facsimile
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transmission (with electronic confirmation of receipt) addressed to each party
at the address set forth below the signature of such party on the signature
page, or at such other address as may hereafter be furnished in writing by such
party to the other.
Section 18 Counterparts.
- ---------- ------------
Two counterparts of this Lease have been executed by the parties hereto. One
counterpart has been prominently marked "Lessor's Copy". One counterpart has
been prominently marked "Lessee's Copy". Only the counterpart marked "Lessor's
Copy" shall evidence a monetary obligation of Lessee.
Section 19 Transaction Costs.
- ---------- -----------------
Lessee will reimburse Lessor for any reasonable out-of-pocket costs or
expenses incurred in connection with the preparation and negotiation of the
lease documents, including but not limited to UCC searches, UCC filings,
appraisals, title searches and title insurance. If Lessor uses counsel in
connection with negotiating, drafting or altering this Lease or any related
documents, Lessee shall reimburse Lessor for any legal expenses of Lessor
(including allocated time charges of internal counsel for Lessor).
Section 20 Noninterference.
- ---------- ---------------
So long as no Event of Default or event that, upon giving of notice or lapse
of time, could become an Event of Default exists, Lessor will not interfere with
the rights of enjoyment and use of the Units by Lessee.
Section 21 Effect and Modification of Lease.
- ---------- --------------------------------
This Lease exclusively and completely states the rights of Lessor and Lessee
with respect to the leasing of the Units and supersedes all prior agreements,
oral or written, with respect thereto. No variation or modification of this
Lease shall be valid unless in writing.
The parties hereto have executed this Lease as of the day and year
first written above.
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------ ------------------------
Title: Vice President Title: Chief Operating Officer
------------------------ ------------------------
By: By:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
Address: 555 California Street, Address: 3151 Washington Blvd.
4th Floor Los Angeles, CA 90023
San Francisco, CA 94104 Attn: Patrick Chow
Attn: Contract Administration Facsimile No..: (323) 415-0403
Facsimile No..: (415) 765-7373
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APPENDIX NO. I (this "Appendix") dated November 3, 1999 to LEASE
INTENDED AS SECURITY number 16501 (the "Lease Agreement" and, together
with this Appendix, the "Lease") dated as of November 3, 1999 between
TRANSIT HOLDING, INC. ("Lessor") and TAG MEX, INC. ("Lessee"), defined
terms therein not defined herein being used herein as so defined.
A. Units.
-----
The Unit(s) to be leased under the Lease Agreement by this Appendix
consists of the new and used apparel manufacturing and production equipment, and
all accessories, modifications, replacements and substitutions, subject to
Lessor's right to disapprove any particular equipment for leasing hereunder.
B. Purchase Price; Conditions Precedent.
------------------------------------
1. Purchase Price.
--------------
(a) "Purchase Price' with respect to each Unit means the amount Lessor
pays for the Unit. Without the prior written consent of Lessor: (i) the purchase
price of all Units shall not exceed $5,200,000 (the "Maximum Purchase Price");
(ii) the Purchase Price of each Unit shall not exceed, in the case of Units
delivered to Lessee not more than 90 days before the date hereof, the amount
invoiced by Vendor therefor and, in the case of Units delivered to Lessee more
than 90 days before the date hereof, the fair market value for similar used
equipment; (iii) the aggregate amount of installation, transportation, any
applicable sales, use or similar front-end tax, any software costs or licensing
fees and any similar costs with respect to the aggregate of all Units shall not
exceed 20% of the total Purchase Price therefor; and (iv) Lessor shall not be
obligated to make payments of the Purchase Price of Units leased under this
Appendix more frequently than once in each calendar month and in aggregate
amounts on each such occasion of less than $100,000.
(b) Lessor shall pay the Purchase Price directly to the relevant
Vendor, unless (i) Lessee pays any portion of the Purchase Price to the relevant
Vendor (cancelled checks to be provided to Lessor) or (ii) Lessee has already
acquired title to the Units, in either of which cases Lessor shall pay the
relevant amount to Lessee.
2. Conditions Precedent to Funding. The obligation of Lessor to purchase
-------------------------------
and pay for each Unit is subject to satisfaction of the following conditions
precedent:
(a) Lessee shall have executed and delivered to Lessor the Acceptance
Certificate and any Purchase Agreement Assignment or bill of sale
and invoice therefor as required under Sections 1.1 and 1.3 of
the Lease Agreement;
(b) the Delivery Date of the Unit shall be during the Utilization
Period set forth below;
(c) there shall exist no Event of Default (nor any event which, with
notice or lapse of time or both, would become an Event of
Default);
(d) no material adverse change in Lessee's or any guarantor's or
general partner of Lessee's financial condition shall have
occurred since the date hereof;
(e) satisfactory resolution of any environmental issues; and
(f) delivery to Lessor, no later than the first assignment by Lessee
of a Purchase Agreement under this Appendix (or, in the case of a
sale and leaseback, the first Delivery Date), at Lessee's sole
expense, of the following documents, in form and substance
satisfactory to Lessor:
(i) evidence of Lessee's and any guarantor's authority to enter
into and perform its obligations under the Lease, and of
the incumbency of corporate or partnership officers or
identity of individuals authorized to execute and deliver
the Lease and any other agreement or document required
thereunder, including specimen signatures of such persons;
(ii) an opinion of counsel of Lessee and any guarantor;
(iii) insurance certificates or other evidence acceptable to
Lessor that Lessee has complied with Section 7 of the Lease
Agreement;
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<PAGE>
(iv) UCC financing statements executed by Lessee together with,
at Lessor's option, certificates of filing officers as to
the nonexistence of any prior UCC filings and, in the case
of a sale and leaseback, evidence satisfactory to Lessor
that each Unit is free and clear of all claims, liens,
security interests and encumbrances;
(v) a guaranty of Tarrant Apparel Group;
(vi) an appraisal of the Units, other than new equipment,
satisfactory to Lessor, by an independent appraiser
acceptable to Lessor;
(vii) resolution, satisfactory to Lessor, of issues relating to
the arrangement of the transaction between Lessee and its
affiliate or subsidiary. Any documentation between Lessee
and its affiliate or subsidiary shall be reviewed by
Lessor and found reasonably acceptable to Lessor;
(viii) a binding commitment from a U.S. financial institution or
a group of lenders for a working capital line of credit of
at least $100,000,000. Evidence of credit line commitment
shall be in form acceptable to Lessor; and
(ix) any other documents specified in this Appendix and such
other documents as Lessor may reasonably request.
C. Interim Term and Base Term.
--------------------------
Rent for each Unit will accrue under the Lease during its Interim Term and
its Base Term. The "Scheduling Date" for each Unit is the date Lessor prepares
the Acceptance Certificate and Schedule. The "Interim Term" for each Unit will
begin on, and include, the date Lessor funds the Acceptance Certificate and
Schedule and continue until, and include, the day before its "Base Date". The
"Base Term" for each Unit will begin on, and include, its Base Date and continue
for 60 months. The "Base Date" for each Unit will be the first or fifteenth day
of the month during or immediately following the month in which the Scheduling
Date occurs, as specified by Lessor in the relevant Schedule.
If Lessee does not execute and deliver to Lessor the Acceptance
Certificate and the Schedule for the Unit pursuant to Section 1.3 of the Lease
Agreement, Lessor may either terminate the Lease as to such Unit (and will do so
if any Unit requires installation or testing and the same is not completed to
Lessee's satisfaction) or reschedule the Base Date to the next succeeding month,
in which event the provisions of this sentence shall continue to apply.
D. Utilization Period.
------------------
All Delivery Dates for Units leased hereunder must occur between the date
of this Appendix and December 31, 1999, inclusive, which date may be extended by
Lessor by written notice to Lessee and any guarantor (the "Utilization Period").
E. Rent.
----
1. Interim Rent. Lessee shall pay rent for each Unit ("Interim Rent") for
------------
each day of its Interim Term. Interim Rent shall be computed on the full amount
of the Purchase Price of the Unit at a daily rate equal to the daily equivalent
of the Unit's Base Rent.
Interim rent is determined, in part, on the basis of a 360-day year and
actual days elapsed which results in a higher rent than if a 365-day year is
used. Interim Rent is due and payable when billed by Lessor.
2. Base Rent. Lessee shall pay Lessor "Fixed Base Rent" "and Variable Base
---------
Rent" (collectively, "Base Rent") for each Unit during the Base Term in arrears
in 60 consecutive monthly installments, with the first such installment due one
month following the Base Date.
The Fixed Base Rent installments will be applied to reduce the unamortized
balance of the Purchase Price and shall be in amounts sufficient to amortize the
Purchase Price of the Unit down to its Purchase Amount at the Initial Implicit
Interest Rate over its Base Term.
Each Variable Base Rent installment shall be equal to interest during each
Rent Period on the unamortized balance of the Purchase Price of the Unit at the
Implicit Interest Rate for the Unit for such Rent Period.
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<PAGE>
A "Rent Period" is the period beginning on, and including, a Base Rent
payment date (or, in the case of the first Rent Period, the Base Date) and
ending on, and excluding, the next succeeding Base Rent payment date.
The Initial Implicit Interest Rate as to each Unit shall be established as
of 11:00 a.m. London time two business days before the Base Date and shall be
adjusted as of each Base Rent payment date during the Base Term (each an
"Adjustment Date"). The Base Rent installments shall be subject to further
adjustment at any time to reflect any reserve requirements or other charges that
may be imposed on Bank of America National Trust and Savings Association by the
Board of Governors of the Federal Reserve System or the Federal Deposit
Insurance Corporation, or any other regulatory agency. The amount of the initial
Base Rent installment shall be set forth in the Schedule to the relevant
Acceptance Certificate, and adjustments thereto shall be set forth in written
notices from Lessor to Lessee.
F. Implicit Interest Rate. The "Implicit Interest Rate" for each Unit is a
----------------------
nominal rate per annum equal to 2.50 percentage points (the "Spread") in excess
of the Index Rate, compounded monthly and computed on the basis of a year of 360
days and 12 30-day months, which may result in more rent than if a 365-day year
were used. "Index Rate" with respect to each Unit means the average interbank
offered rate per annum ("LIBOR") for 3 -month U.S. dollar deposits in the London
market at 11:00 a.m. (London time) at five major banks in London, New York and
San Francisco, two business days before the first day of each Rent Period in an
amount approximately equal to the unamortized balance of the Purchase Price at
the beginning of such Rent Period, as reported in Telerate System Page 3750 (or
any successor page).
If for any reason LIBOR is not so quoted on any relevant date of
determination, the Index Rate during the relevant Rent Period will be an
equivalent rate per annum determined by Lessor.
G. Location.
--------
The Units shall be located in Puebla, Mexico unless otherwise specified in
the Acceptance Certificate. Lessee shall give Lessor written notice of any
change in such location within 10 days of the date thereof.
H. Other Charges.
-------------
1. Late Payment Charges. The interest rate on late payments shall be 14%
--------------------
per annum, computed daily on the basis of a 360-day year and actual days elapsed
which results in more interest than if a 365-day year is used.
2. Early Termination Charges.
-------------------------
(a) Initial Direct Costs. Lessee acknowledges that Lessor will incur
--------------------
certain costs in establishing this transaction ("Initial Direct Costs") and that
Lessor will amortize the Initial Direct Costs over the scheduled full term of
the Lease. Lessor estimates those costs as, and establishes on its books a
reserve therefor, in an amount equal to 1% of the aggregate Base Rent for the
Units. If the Lease is terminated for any reason before the scheduled expiration
of the Base Term, whether upon the exercise of any early termination option, a
casualty occurrence or a default, in addition to all other amounts to be paid by
Lessee, Lessee shall pay Lessor an amount equal to the unamortized portion of
the Initial Direct Costs.
I. Early Termination.
-----------------
If no Event of Default exists, Lessee may, by notice to Lessor, terminate
the Lease with respect to all but not less than all the Units for which the
Lease expires on the same date. Such notice shall specify a date (the
"Termination Date") with respect to each Unit, not more than 120 and not less
than 30 days after such notice is given, which shall be a Base Rent payment date
on or after the later of the 24th month of the Base Term for the Unit or
one-half of the Base Term of the Unit. On the Termination Date of each Unit,
Lessee shall pay to Lessor the Balance Due for the Unit computed as of such date
and any Other Charges required hereunder. Upon such payment, the obligation of
Lessee to pay rent hereunder with respect to the Unit after the Termination Date
shall cease, the term for the Unit shall end on the Termination Date, and Lessor
shall execute and deliver to Lessee or its assignee or nominee a bill of sale
(without representations or warranties except that the Unit is free and clear of
all claims, liens, security interests and other encumbrances by or in favor of
any person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the terms of the Lease and
to transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense.
J. Purchase Provision.
------------------
At the end of the Base Term for a Unit, if the Lease has not been earlier
terminated with respect to the Unit, Lessee shall purchase the Unit for $1.00
(the "Purchase Amount").
3
<PAGE>
Upon Lessee's payment of the Purchase Amount, Lessor shall execute and
deliver, to Lessee, or its assignee or nominee, a bill of sale (without
representations or warranties except that the Unit is free and clear of all
claims, liens, security interests and other encumbrances by or in favor of any
person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the Lease and to transfer
title thereto to Lessee or such assignee or nominee, in such form as may
reasonably be requested by Lessee, all at Lessee's expense.
K. Sale-Leaseback.
--------------
Section 1.1 shall not be applicable with respect to the Units identified
in Annex A to the bill of sale in a form acceptable to Lessor. The following
provisions shall govern the procurement, delivery and acceptance of such Units:
1. On a date or dates to be agreed upon by Lessor and Lessee (individually
a "Delivery Date"), Lessor will purchase from and lease back to Lessee for an
amount equal to the agreed upon value of the Units identified in Annex A to the
bill of sale, and Lessee will sell to and lease back from Lessor each Unit, but
all Delivery Dates for such Units must be during the Utilization Period set
forth in this Appendix.
2. The obligation of Lessor to pay for each Unit is subject to the
following additional conditions:
(a) On or before its Delivery Date, Lessee shall execute and deliver to
Lessor a bill of sale with respect to the Unit, dated as of the Delivery Date;
and
(b) Lessor shall receive evidence, satisfactory to Lessor, that each
Unit is free and clear of all claims, liens, security interests and
encumbrances.
If any of the foregoing conditions is not met with respect to any such
Unit, Lessor shall have no obligation to either Lessee or any third party to pay
the purchase price for such Unit.
Any attempted or purported sale of a Unit by Lessee to Lessor after its
Delivery Date shall not be effective whether or not accepted by Lessor and
Lessor shall not incur any obligations with respect to the Unit, including the
obligation to pay for the Unit.
3. Lessee represents, warrants and covenants with respect to each Unit
that (a) Lessee has the right to sell the Unit as set forth herein, (b) both the
Unit and Lessee's right, title and interest in the Unit are, or will be as of
its Delivery Date, free from all claims, liens, security interests and
encumbrances, (c) Lessee will defend the sale against claims and demands of all
persons and (d) the purchase price of the Unit is equal to its fair market value
at the time of the sale.
L. Deposit
-------
Lessee has paid to Lessor a Deposit of $10,000, representing .1923% of the
Maximum Purchase Price set forth in this Appendix (the "Commitment Percentage").
This fee will be applied to the first Base Rent installment, up to the full
amount of such installment, as such installments become due, until the deposit
is fully applied thereto. No part of this fee will be refunded or applied to any
other rent.
M. Financial Benchmarks.
--------------------
Lessee shall at all times observe the following benchmarks (all
computations and definitions being determined in accordance with generally
accepted accounting principles). If a breach of any of the following benchmarks
occurs, Lessor, at its option, may cause the remaining unamortized balance of
the Purchase Price to be amortized over six (6) consecutive monthly
installments, with the first such installment to be due on the next succeeding
Base Rent payment date.
(1) maintain "Interest Coverage" (net income before taxes plus interest
expense divided by interest expense) of not less than 3.0: 1.00; and
(2) total liabilities less debt subordinated to exceed 2.0 times
tangible net worth (shareholder's equity less intangible assets)
plus debt subordinated. Debt subordinated shall be calculated in a
manner acceptable to Lessor.
N. Maintenance Contract.
--------------------
In addition to the maintenance required by Section 4 of the Lease
Agreement, Lessee shall execute, at its own expense, a transferable and
assignable maintenance contract with the Vendor of the Units or other third
party which normally services such equipment in the ordinary course of business
and is acceptable to Lessor, and shall keep the contract in force until the
Units are surrendered to Lessor.
4
<PAGE>
O. Year 2000 Representation.
------------------------
On the basis of a comprehensive review and assessment of Lessee's systems
and equipment and inquiry made of Lessee's material suppliers, vendors and
customers, Lessee's management is of the view that the "Year 2000 problem" (that
is, the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a material adverse change in the operations, business,
properties, condition (financial or otherwise) of Lessee. Lessee has developed
feasible contingency plans adequately to insure uninterrupted and unimpaired
business operation in the event of failure of its own or a third party's systems
or equipment due to the Year 2000 problem, including those of vendors,
customers, and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.
The parties hereto have executed this Appendix as of the day and year
first above written.
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------- ---------------------------
Title: Vice President Title: Chief Operating Officer
------------------------ ------------------------
By: By:
--------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
Address: 555 California Street, Address: 3151 Washington Blvd.
4th Floor Los Angeles, CA 90023
San Francisco, CA 94104 Attn: Patrick Chow
Attn: Contract Administration Facsimile No.: (323) 415-0403
Facsimile No.: (415) 765-7373
5
<PAGE>
Lease No. 16501
FIRST AMENDMENT TO LEASE entered into as of November 23, 1999
by and between TRANSIT HOLDING, INC., with its principal office at
555 California Street, 4th Floor, San Francisco, California 94104
("Lessor") and TAG MEX, INC., a California corporation ("Lessee")
with reference to the following:
Lessor and Lessee have entered into Appendix No. 1 dated November 3, 1999,
to Lease Intended As Security Agreement dated as of November 3, 1999 (together,
the "Lease"; all defined terms therein not otherwise defined herein being used
with their meanings as defined therein); and
Lessor and Lessee now desire to amend the Lease as hereinafter set forth:
NOW, THEREFORE, the parties hereto agree as follows:
1. Paragraph B(2)(f)(viii) of Appendix No. 1 Shall be deleted in its
entirety.
2. The following shall be added to Paragraph B of Appendix No. 1:
"3. Condition Subsequent to Funding. Lessee shall provide to Lessor
-------------------------------
a binding commitment from a U.S. financial institution or a group of
lenders for a working capital line of credit of at least $100,000,000.
Evidence of the working capital credit line commitment be in a form
acceptable to Lessor. Lessee shall provide such evidence of the working
capital credit line commitment to Lessor by March 31, 2000."
Except as is herein specifically amended, all of the terms, covenants, and
provisions of the Lease remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this FIRST AMENDMENT TO
LEASE as of the day and year written above.
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------- ---------------------------
Title: Vice President Title: Chief Operating Officer
------------------------ ------------------------
LESSOR'S COPY
<PAGE>
EXHIBIT A
TO
LEASE INTENDED AS SECURITY
--------------------------
ACCEPTANCE CERTIFICATE NO.
------------------------------
Reference is made to the Lease Intended as Security dated as of November
3, 1999 between TRANSIT HOLDING, INC., as Lessor, TAG MEX, INC., as Lessee
(together with Appendix No. ___ thereto dated __________________, 19 __, the
"Lease"); capitalized terms otherwise defined herein having the same meanings as
in the Lease). The Lease is incorporated herein by reference.
1. ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
-------------------------
equipment delivered in Annex A have been delivered to, are in the possession of
-------
and are accepted by Lessee for leasing under, and constitute "Units" subject to
and governed by, the Lease, the Units (i) have been fully inspected by qualified
agents of Lessee and are in good order, operating condition and repair, (ii)
have been properly installed (subject only to any minor undischarged obligations
of suppliers, manufacturers or installers thereof to promptly update and conform
same as provided by their respective agreements and warranties), (iii) meet all
recommended or applicable safety standards, (iv) are, as of the Delivery Date
set forth below, available for use and service by Lessee and Lessor and (v) have
been marked or labeled showing Lessor's interest in the form and to the extent
required by the Lease, (C) the dollar amounts set forth in Annex A with respect
to such equipment are correct and (D) Lessee [ILLEGIBLE] pay the rent and all
other sums provided for in the Lease with respect to such Units.
2. DELIVERY DATE. The Delivery Date of the Units is _______________, 1999.
-------------
3. PURCHASE PRICE. The Purchase Price of the Units is $____________, as
--------------
set forth in Annex A.
4. SCHEDULE. The Base Date, the Base Rent and any Interim Rent for the
--------
Units will be determined pursuant to the relevant Appendix and set forth in a
Schedule to this Acceptance Certificate.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.
Lessor: Lessee:
TRANSIT HOLDING, INC. TAG MEX, INC.
By: By:
-------------------------- -----------------------------
Title: NOT FOR EXECUTION Title: NOT FOR EXECUTION
-------------------------- -----------------------------
1
<PAGE>
ANNEX A
TO
ACCEPTANCE CERTIFICATE NO.
--------------------------
================================================================================
Description (Quantity; Location (Street
Manufacturer, Make, Address, City, Delivery Purchase
Model No.; Serial No.) County, State) Date Price
- --------------------------------------------------------------------------------
================================================================================
Total Sales Tax $
Total Transportation $
Total Installation $
Total Purchase Price $
Less Advances $
Remaining Balance $
2
<PAGE>
EXHIBIT B
TO
LEASE INTENDED AS SECURITY
--------------------------
SCHEDULE NO.
------------
SCHEDULE (this "Schedule") dated ______________________, 19___ to
Acceptance Certificate No. ____ dated _____ 19__ "Acceptance Certificate") to
the Lease Intended as Security dated as of November 3, 1999 between TRANSIT
HOLDING, INC., as Lessor, and MEX, INC., as Lessee (together with Appendix No.
_____ thereto, the "Lease"; capitalized terms not otherwise defined herein
having the meanings as in the Lease).
1. SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
--------------------------
described in the Acceptance Certificate is dated _____________, 19___. The Base
Date for the Units is dated _______, 19____.
2. INDEX RATE. The Index Rate on the Scheduling Date is _____% per annum.
----------
3. RENT. The Base Rent for the Units is comprised of 60 monthly
----
installments, each in the amount of $__________, with the such installment due
on ____________. Lessor will invoice Lessee for any Interim or Advance Rent due
as described in the terms of the Appendix based upon the date on which Lessor
funds the Acceptance Certificate and this Schedule.
4. CHATTEL PAPER COUNTERPARTS. Two counterparts of this Supplement have
--------------------------
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterpart has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee and, therefore, to the extent this Lease may be considered "chattel
paper" as defined in the Uniform Commercial Code, Lessor's interest in this
Lease may be transferred only by transfer of possession of the counterpart of
this Schedule marked "Lessor's Copy".
IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.
Lessor: Lessee:
TRANSIT HOLDING, INC. TAG MEX, INC.
By: By:
-------------------------- -----------------------------
Title: NOT FOR EXECUTION Title: NOT FOR EXECUTION
-------------------------- -----------------------------
<PAGE>
CORPORATE RESOLUTION TO LEASE OR SELL AND LEASEBACK
RESOLVED; That this corporation, TAG MEX, INC. lease from or sell to and
lease back from, as the case may be, TRANSIT HOLDING, INC., a Delaware
corporation, a subsidiary of Banc of America Leasing & Capital LLC hereinafter
referred to as Lessor, such items of equipment and ancillary property, and upon
such terms and conditions, as any officer or officers hereinafter authorized, in
their discretion, acting jointly or singly, may deem necessary or advisable.
RESOLVED FURTHER; That
Corazon Reyes the Chief Operating Officer
- --------------------------------------------------- ------------------------
(print name here, provide specimen signature below) (title)
or Barry Aved the President
------------------------------------------------- ------------------------
(print name here, provide specimen signature below) (title)
or_________________________________________________ the ________________________
(print name here, provide specimen signature below) (title)
or_________________________________________________ the ________________________
(print name here, provide specimen signature below) (title)
of this corporation (the officer or officers authorized to act pursuant hereto
being hereinafter designated as "authorized officers"), be, and they hereby are
authorized, directed and empowered, acting jointly or singly, in the name of
this corporation, to execute and deliver to Lessor, and Lessor is requested to
accept, such deeds, bills of sale, and other instruments to effect any such
sale, and any lease that may be required by Lessor in connection with such
leasing of personal property.
RESOLVED FURTHER: That the authorized officers be, and they hereby are,
individually authorized, directed and empowered, acting jointly or singly, in
the name of this corporation, to do or cause to be done all such further acts
and things as they, acting jointly or singly, may deem necessary, advisable,
convenient, or proper in connection with the execution and delivery of any such
lease and in connection with or incidental to the carrying of the same into
effect, including without limitation the execution, acknowledgment, and delivery
of any and all instruments and documents which may be required by Lessor under
or in connection with any such lease.
RESOLVED FURTHER: That Lessor is authorized to act upon this resolution
until written notice of its revocation is delivered to Lessor and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.
I, Corazon Reyes, Secretary of TAG MEX, INC., a corporation incorporated
under the laws of the State of California, do hereby certify that the foregoing
is a full, true and correct copy of a resolution of the Board of Directors of
said corporation, duly and regularly passed or adopted by said Board of
Directors as required by law and by the by-laws of said corporation on Nov. 10,
1999, that said resolution is still in full force and effect and has not been
amended or revoked and that set forth below are specimen signatures of the
officers authorized to sign for said corporation by virtue of said resolution.
IN WITNESS WHEREOF, I have signed as such Secretary and affixed the
corporate seal of said corporation on 11-10-99, 19__.
SPECIMEN SIGNATURES:
/s/ Corazon Reyes /s/ Corazon Reyes
- ---------------------------- ----------------------------------
/s/ [ILLEGIBLE] SECRETARY OF TAG MEX, INC.
- ---------------------------- A CALIFORNIA CORPORATION
- ----------------------------
/s/ Barry Aved
- ---------------------------- ----------------------------------
PRESIDENT OR ASSISTANT SECRETARY
OF TARRANT APPAREL
[SEAL]
<PAGE>
GUARANTY
1. The Guaranty. For valuable consideration, the undersigned ("Guarantor")
------------
hereby unconditionally guarantees and promises to pay to TRANSIT HOLDING, INC.,
a subsidiary of Banc of America Leasing & Capital LLC ("Lessor"), or order, on
demand, in lawful money of the United States, any and all payment and
performance obligations, whether now existing or hereafter arising or matured or
contingent (the "Obligations") of TAG MEX, INC. ("Lessee") to Lessor under or in
respect of that certain Lease Intended as Security executed by Lessee and Lessor
dated August 23, 1999 (together with all schedules, appendices and other
attachments thereto, and any renewals, modifications, or extensions thereof, the
"Lease") providing for the lease or financing of equipment or other personal or
real property ("Leased Property") by Lessor to Lessee. The obligations of
Guarantor hereunder are independent of the Obligations and exclusive of and in
addition to liability under any other guaranty executed by Guarantor for the
benefit of Lessor or any company related to Lessor, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Lessee or whether Lessee is joined in any such action or
actions.
2. Authorization of Renewals, Etc. Guarantor authorizes Lessor, without
------------------------------
notice or demand and without affecting its liability hereunder, from time to
time to:
(a) renew, compromise, extend, accelerate, or otherwise change the time
for or amount of any payment, or substitute or exchange Leased Property, or
otherwise change the terms of the Lease or the Obligations or any other
obligations of Lessee to Lessor ("Other Obligations");
(b) receive and hold security for the payment of this Guaranty or the
Obligations or any Other Obligations, and exchange, enforce, waive, release,
fail to perfect, sell, or otherwise dispose of, any such security;
(c) apply such security and direct the order or manner of sale thereof
as Lessor in its discretion may determine; and
(d) release or substitute any one or more of any endorsers or
guarantors of the Obligations.
3. Waiver of Certain Rights. Guarantor waives any right to require Lessor
------------------------
to:
(a) proceed against Lessee;
(b) proceed against or exhaust any security for the Obligations or any
other Obligations, or repossess, dispossess or remarket Leased Property, or
otherwise mitigate damages; or
(c) exercise or pursue any other right or remedy in Lessor's power
whatsoever.
4. Waiver of Certain Defenses. Guarantor waives any defense arising by
--------------------------
reason of any disability or other defense of Lessee, or the cessation from any
cause whatsoever of the liability of Lessee, or any claim that Guarantor's
obligations exceed or are more burdensome than those of Lessee, including any of
the foregoing arising by virtue of any provision of the U.S. Bankruptcy Code
(Title 11, U.S. Code) (the "Bankruptcy Code").
5. Waiver of Subrogation and Other Rights and Defenses.
---------------------------------------------------
(a) Until the Obligations and any Other Obligations are paid in full,
Guarantor waives (i) any right of subrogation, reimbursement, indemnification
and contribution (contractual, statutory, or otherwise), including any claim or
right of subrogation under the Bankruptcy Code, arising from the existence or
performance of this Guaranty, (ii) any right to enforce any remedy Lessor now
has or may hereafter have against Lessee and (iii) any benefit of, and any right
to participate in, any security now or hereafter held by Lessor. After the
Obligations and any Other Obligations are paid in full, to the extent there is
any value in the security or other collateral securing the Obligations or Other
Obligations, Lessor agrees to execute and deliver such further documents as
Guarantor may reasonably request to vest title to such security or other
collateral in Guarantor.
(b) Guarantor understands and acknowledges that if Lessor forecloses,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the Obligations, that foreclosure could impair or destroy any
ability Guarantor may have to seek reimbursement, contribution, or
indemnification from Lessee or others based on any right Guarantor may have of
subrogation, reimbursement, contribution, or indemnification for any amounts
paid by Guarantor under this Guaranty. Guarantor further understands and
acknowledges that in the absence of this paragraph, such potential impairment or
destruction of Guarantor's rights, if any, may entitle Guarantor to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure ("CCP") as interpreted in
1
<PAGE>
Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty,
- ---------------------
Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes
that defense and agrees that Guarantor will be fully liable under this Guaranty
even though Lessor may foreclose, either by judicial foreclosure or by exercise
of power of sale, any deed of trust securing the Obligations; (ii) agrees that
Guarantor will not assert that defense in any action or proceeding Lessor may
commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights
and defenses waived by Guarantor in this Guaranty include any right or defense
Guarantor may have or be entitled to assert based upon or arising out of any one
or more of CCP ss.ss.580a, 580b, 580d, or 726 or Section 2848 of the California
Civil Code ("CC") and (iv) acknowledges and agrees that Lessor is relying on
this waiver in creating the Obligations, and that this waiver is a material part
of the consideration therefor.
(c) Guarantor waives any rights and defenses that are or may become
available to Guarantor under CC ss.ss.2787 to 2855, inclusive.
(d) Guarantor waives the benefit of any statute of limitations
affecting its liability hereunder.
6. Waiver of Presentments, Etc. Guarantor waives all presentments,
---------------------------
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional Obligations or any
Other Obligations.
7. Information Relating to Lessee. Guarantor acknowledges and agrees that
------------------------------
it has sole responsibility for obtaining from Lessee such information concerning
Lessee's financial condition or business operations or the Leased Property as
Guarantor may require, and that Lessor has no duty at any time to disclose to
Guarantor any information relating to the business operations or financial
condition of Lessee or the Leased Property.
8. Financial Information. Guarantor shall keep its books and records in
---------------------
accordance with generally accepted accounting principles and practices
consistently applied and shall deliver to Lessor (i) annual CPA audited
financial statements within 120 days of its fiscal year end, (ii) quarterly
company-prepared financial statements upon Lessor's request, and (iii) such
financial statements as Lessor may reasonably request. Credit information
relating to Guarantor may be disseminated among Lessor and any of its affiliates
and any of their respective successors and assigns.
9. Security. To secure all of Guarantor's obligations hereunder,
--------
Guarantor assigns and grants to Lessor a security interest in all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lessor, all deposit accounts of Guarantor maintained with Lessor or any
affiliate of Lessor (including Bank of America National Trust and Savings
Association), and all proceeds thereof. Upon default or breach of any of
Guarantor's obligations to Lessor hereunder, Lessor may apply any such deposit
account to reduce the Obligations, and may foreclose any collateral as provided
in the Uniform Commercial Code and in any security agreements between Lessor and
Guarantor.
10. Subordination. Any obligations of Lessee to Guarantor, now or
-------------
hereafter existing, including any obligations to Guarantor as subrogee of Lessor
or resulting from Guarantor's performance under this Guaranty, are hereby
subordinated to the Obligations and any Other Obligations. Such obligations of
Lessee to Guarantor if Lessor so requests shall be enforced and performance
received by Guarantor as trustee for Lessor, and the proceeds thereof shall be
paid over to Lessor on account of the Obligations and all Other Obligations, but
without reducing or affecting in any manner the liability of Guarantor under the
other provisions of this Guaranty.
11. Lessee's Authorization. Where Lessee is a corporation, partnership, or
----------------------
limited liability company, it is not necessary for Lessor to inquire into the
powers of Lessee or of the officers, directors, partners, members, managers, or
agents acting or purporting to act on its behalf, and any Obligations made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
12. Assignments. Lessor may, without notice to Guarantor and without
-----------
affecting Guarantor's obligations hereunder, sell, assign, grant participations
in, or otherwise transfer to any other person, firm, or corporation the Lease,
the Leased Property, the Obligations and this Guaranty, in whole or in part.
Guarantor agrees that Lessor may disclose to any such assignee or purchaser, or
any prospective assignee or purchaser, of all or part of the Lease or the
Obligations any information in Lessors possession concerning Guarantor, this
Guaranty and any security for this Guaranty.
13. Reinstatement of Guaranty. If any payment or transfer of any interest
-------------------------
in property by Lessee to Lessor is rescinded or must be returned by Lessor to
Lessee, (a) this Guaranty shall be reinstated with respect to any such payment
or transfer, even if this Guaranty was previously returned or canceled, and (b)
Guarantor shall remain fully liable with respect to any such amount as if such
amount had not been paid by Lessee.
2
<PAGE>
14. Costs and Expenses. Guarantor agrees to pay all reasonable attorneys'
------------------
fees, including allocated costs of Lessor's internal counsel, and all other
costs and expenses Lessor may incur (a) in the enforcement of this Guaranty or
(b) in the preservation, protection, or enforcement of any rights of Lessor in
any case commenced by or against Guarantor under the Bankruptcy Code or any
similar statute.
15. Governing Law. This Guaranty shall be governed by and construed under
-------------
the laws of California, to the jurisdiction of which, and of the Federal courts
in California, Guarantor hereby submits.
16. Interpretation. No provision or waiver in this Guaranty shall be
--------------
construed as limiting the generality of any other waiver in this Guaranty. The
term "including" is not limiting and means "including without limitation".
Section headings are for convenience of reference only and do not affect the
interpretation of this Guaranty. The invalidity of any portion of this Guaranty
shall not affect the remaining provisions. Where more than one Guarantor
executes this Guaranty, all of the provisions hereof shall apply to each of such
persons singly, and the obligations of each such person shall be joint and
several.
Executed as of ___________________________.
Guarantor:
/s/ Gerard Guez
-----------------------
Tarrant Apparel Group
Print Name
Gerard Guez
-----------------------
Address
Address for notices to Lessor: Address for notices to Guarantor:
3151 Washington Blvd.
Los Angeles, CA 90023 3151 E, Washington Blvd.
---------------------------------
Los Angeles, CA 90023
---------------------------------
Guarantor:
/s/ Corazon Reyes
-----------------------
TARRANT APPAREL GROUP
Print Name
Corazon Reyes
-----------------------
Address
Address for notices to Guarantor:
3151 E. Washington Blvd.
---------------------------------
Los Angeles, CA 90023
---------------------------------
---------------------------------
3
<PAGE>
RESOLUTION AUTHORIZING EXECUTION OF GUARANTY
WHEREAS, TRANSIT HOLDING, INC., subsidiary of Banc of America Leasing &
Capital LLC ("Lessor"), is willing to enter into a lease agreement or lease
agreements with TAG MEX, INC. ("Lessee") if the obligations of Lessee arising
thereunder are guaranteed by this corporation; and
WHEREAS, it is of a business benefit to this corporation that such lease
agreement or lease agreements be entered into by Lessor and Lessee;
NOW, THEREFORE, BE IT RESOLVED that this corporation guarantee the
obligations of Lessee to Lessor under any lease or other agreement or agreements
entered into between Lessor and Lessee before actual receipt by Lessor of
written notice of revocation of this resolution as to future agreements.
RESOLVED FURTHER that
Gerard Guez , the Chief Operating Officer
- ------------------------------------------------- -------------------------
(print name here, provide specimen signature below) (title)
or Corazon Reyes , the Chief Executive Officer
---------------------------------------------- -------------------------
(print name here, provide specimen signature below) (title)
or Barry Aved , the President
---------------------------------------------- -------------------------
(print name here, provide specimen signature below) (title)
of this corporation are hereby individually authorized and directed on behalf of
this corporation to execute and deliver to Lessor a guaranty in such form as may
be agreed upon by any of said officers and Lessor, and the signatures of either
of said officers to the guaranty shall evidence their agreement.
RESOLVED FURTHER that Lessor is authorized to act upon this resolution
until written notice of its revocation is delivered to Lessor and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.
I, Corazon Reyes, Secretary of Tarrant Apparel Group, a corporation
incorporated under the laws of the State of Calif. do hereby certify that the
foregoing is a full, true and correct copy of a resolution of the Board of
Directors of said corporation, duly and regularly passed or adopted by said
Board Directors as required by law and by the by-laws of said corporation, on
Nov. 10, 19__, that said resolution is still in full force and effect and has
not been amended or revoked and that set forth below are specimen signatures of
the officers authorized to sign for said corporation by virtue of the said
resolutions.
IN WITNESS WHEREOF, I have signed as such Secretary and affixed the
corporate seal of said corporation on 11-10, 1999
SPECIMEN SIGNATURES:
/s/ Gerard Guez
- -------------------------------
(Signature)
/s/ Corazon Reyes /s/ Corazon Reyes
- ------------------------------- ----------------------------------
(Signature) SECRETARY OF TARRANT APPAREL GROUP
/s/ Barry Aved /s/ Barry Aved
- ------------------------------- ----------------------------------
(Signature) PRESIDENT OR ASSISTANT SECRETARY
OF TARRANT APPAREL GROUP
[SEAL]
<PAGE>
(LETTERHEAD OF MANATT PHELPS PHILLIPS)
November 24,1999
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
555 California Street, 4th Floor
San Francisco, California 94104
Re: Lease Intended as Security, dated as of November 3, 1999, between
Transit Holdings, Inc., a subsidiary of BA Leasing & Capital
Corporation, and Tag Mex, Inc.
Ladies and Gentlemen:
We have acted as counsel to Tag Mex, Inc., a California corporation
("Lessee") and Tarrant Apparel Group, a California corporation ("Guarantor") in
connection with the negotiation, execution, and delivery of that certain Lease
Intended as Security dated as of November 3, 1999 (the "Lease"), between Lessee
and Transit Holdings, Inc., a subsidiary of Banc of America Leasing & Capital,
LLC ("BA Leasing"), and certain related documents. Unless otherwise defined
herein, or the context otherwise requires, all capitalized terms used in this
Opinion Letter shall have the meanings assigned to them in the Lease.
In rendering this Opinion Letter, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the following:
(1) The Lease;
(2) Appendix No. 1 to the Lease;
(3) The Guaranty made in connection with the Lease;
(4) The Machinery and Equipment Pledge Agreement;
The documents referred to in items (1) through (4) above, inclusive, are
hereinafter collectively referred to as the "Lease Documents".
In our capacity as such counsel, we have been furnished with, and have
examined originals or copies, certified or otherwise identified to our
satisfaction as being true copies of, such records, agreements, instruments, and
documents as, in our judgment, are necessary or relevant as the basis for the
opinions expressed below.
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 2
We are admitted to practice law only in the State of California. Our
opinions expressed herein are limited to the law of the State of California and
to the federal law of the United States, and we express no opinion herein as to
the application or effect of the law of any other jurisdiction.
We have obtained and relied upon certificates and assurances from public
officials concerning the due incorporation, valid existence and good standing of
the Lessee and Guarantor in its jurisdiction of organization, a copy of which we
have delivered to you.
We have obtained and relied upon such certificates and assurances from
public officials as we have deemed necessary. We have investigated such
questions of law and fact for the purpose of rendering this opinion as we have
deemed necessary.
For the purpose of rendering the opinions set forth herein, and with your
consent, we have assumed, without investigation that:
(a) All documents submitted to us as originals are complete and authentic;
all copies of documents submitted to us conform in all respects to the originals
thereof, including all amendments or modifications thereto; all signatures to
documents are genuine, other than those of Lessee or Guarantor; all originals or
copies submitted to us have not been amended or modified since the date they
were submitted to us by written or oral agreement of the parties thereto, by the
conduct of the parties thereto, or otherwise; and all representations and
certificates dated prior to or on the date hereof upon which we have relied are
and remain accurate, adequate and complete on and as of the date hereof.
(b) All parties to the Lease Documents except Lessee and Guarantor (a)
have duly authorized the transactions contemplated thereby; and (b) have the
corporate power and corporate authority to enter into the Lease Documents and to
perform their respective obligations thereunder. All parties (except Lessee and
Guarantor) to the Lease Documents have complied with all regulatory requirements
applicable to them in entering into and performing the Lease Documents to carry
out the transactions contemplated thereby.
(c) The Lease Documents will be enforced and performed in good faith and
in a commercially reasonable manner.
(d) The factual representations and warranties made by the parties to the
Lease Documents or any other documents or instruments executed in connection
therewith are accurate, adequate and complete in all respects as of the date
made and as of the date hereof.
(e) BA Leasing is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has full power,
authority and legal right to enter into
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 3
and perform all agreements to which it is a party, and to carry on its business
as it is currently being conducted, each such agreement has been duly
authorized, executed and delivered by BA Leasing and constitutes the legal,
valid and binding obligation of BA Leasing.
(f) Except for the Lease Documents, there are no agreements with BA
Leasing which would (a) expand or otherwise modify the respective rights and
obligations of the Parties or (b) have any effect on any of the opinions set
forth in this letter.
(g) None of the Collateral, nor any portion thereof, consists or will
consist of farm products, crops, timber or minerals (including, but not limited
to, oil and gas), accounts resulting from the sale of any thereof, consumer
goods, beneficial interests in a trust or decedent's estate, letters of credit
or tangible or intangible property which are subject to any law, statute,
ordinance, regulation or treaty of the United States, any state thereof or
foreign country which provides for a registration or a certificate of title for
the perfection of a security interest therein or which specifies a place of
filing other than that specified in the California Uniform Commercial Code
("CUCC") for filing to perfect such security interest or the appropriate county
recorder's office.
(h) Lessee and Guarantor have not changed their chief executive office,
principal place of business or its office where it keeps its records concerning
accounts, within the past four months.
(i) Lessee and Guarantor own good and marketable title to their property
interests in the Collateral, and concurrently with the execution and delivery of
the Lease Documents, value has been given by BA Leasing to Lessee and Guarantor
in connection with the execution and delivery of such documents.
(j) The conduct of all parties pursuant to the Lease Documents will
conform with all applicable notice requirements and statutes, laws, rules,
regulations and ordinances of the appropriate state, including, without
limitation, Section 2954.5 of the California Civil Code, unless such notice
requirements have been validly waived.
(k) Each of Lessee and Guarantor: (a) has not incurred any obligations or
granted any security interest under any of the Lease Documents with an actual
intent to hinder, delay or defraud any of its creditors; (b) is neither
insolvent nor will it become insolvent as a result of incurring such
obligations; (c) does not intend to incur and does not believe that it would
incur debts that would be beyond its ability to pay as such debts mature; and
(d) has received fair and reasonably equivalent consideration or value in
exchange for incurring any obligations or granting any security interest under
any of the Lease Documents.
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital. LLC
November 24, 1999
Page 4
Whenever our opinions herein are stated to be to our knowledge, such
statement is intended to signify that, during the course of our representation
of Lessee and Guarantor in connection with the Lease Documents, no information
has come to the attention of Harold P. Reichwald, Andres Gonzalez, Jonathan A.
Meretsky and David Rodriguez, lawyers within our firm with principal
responsibility for the Lease Documents or this opinion letter, which would give
us actual knowledge of facts contrary to the existence or absence of the facts
indicated. However, except where expressly stated otherwise, we have not
undertaken any special or independent investigation to determine the existence
or absence of such facts, and no inference as to our knowledge of the existence
or absence of such facts should be drawn from our representation of Lessee and
Guarantor in connection with the Lease Documents. With your consent, we have not
undertaken any lien or judgment searches, and we have not searched the court
dockets of any jurisdiction or any of our files relating to Lessee and
Guarantor.
On the basis of the foregoing, and in reliance thereon, and subject to the
qualifications and limitations set forth therein, we are of the opinion that:
1. Lessee and Guarantor are corporations duly incorporated, validly
existing, and in good standing under the laws of the State of California.
2. Lessee and Guarantor are qualified to do business in the states listed
below its name on Schedule 1 attached hereto.
3. Lessee and Guarantor have the corporate power and authority to execute
and deliver each Lease Document to which it is a party and perform its
obligations thereunder, to own and operate its properties and assets, and to
carry on its business as currently conducted and as contemplated to be conducted
pursuant to the terms of the Lease Documents.
4. The execution, delivery, and performance of the Lease Documents by
Lessee and Guarantor, the incurrence and repayment of the indebtedness and other
monetary obligations of Lessee and Guarantor pursuant to the Lease Documents,
and the granting by Lessee and Guarantor of security interests in Collateral
pursuant to the Lease Documents, have been duly authorized by all necessary
corporate action on the part of Lessee and Guarantor. Each Lease Document has
been duly executed and delivered by Lessee and Guarantor.
5. Assuming the Collateral was located in California, the Lease Documents
constitute the legal and valid obligations of Lessee and Guarantor, enforceable,
in each case, to the extent it is a party thereto in accordance with their
respective terms.
6. The execution, delivery, and performance of the Lease Documents by
Lessee and Guarantor, in each case to the extent it is a party thereto, the
compliance with the terms and conditions thereof, and the consummation of the
transactions contemplated thereby, do not and
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 5
will not conflict with, result in a breach of, or constitute a default under,
any of the terms, conditions, or provisions of the articles of incorporation or
bylaws of Lessee and Guarantor.
In addition, notwithstanding anything contained in this letter to the
contrary, with your consent, we expressly disclaim any opinion as to:
A. the effect of the Laws of any municipality, county or other political
subdivision of the State of California and the United Mexican States;
B. the effect of court decisions invoking statutes or principles of equity
which hold that certain covenants and provisions of agreements are unenforceable
where the enforcement of such covenants or provisions under the circumstances
would violate the implied covenant of good faith and fair dealing;
C. the truth, accuracy and completeness of any of the representations or
warranties given by Lessee and Guarantor or required of Lessee and Guarantor
under the Lease Documents or any other documents or instruments executed in
connection therewith as we have undertaken no independent investigation with
respect to the same;
D. the enforceability under certain circumstances of provisions to the
effect that (a) rights or remedies are not exclusive, (b) every right or remedy
is cumulative and may be exercised in addition to or with any other right or
remedy, (c) the election of a particular remedy or remedies does not preclude
recourse to one or more other remedies and (d) the delay or failure to exercise
rights or remedies will not operate as a waiver of such right or remedy;
E. the enforceability under certain circumstances of provisions imposing
penalties, forfeitures, late payment charges or an increase in interest rate
upon delinquency in payment or the occurrence of a default;
F. the enforceability under certain circumstances of contractual
provisions respecting self-help or summary remedies without notice or
opportunity for hearing or correction;
G. the effect of any state or Federal Laws or regulations applicable to
the transactions because of the nature of BA Leasing's business or because of
the methods by which BA Leasing conducts its business;
H. the effect of Section 1670.5 of the California Civil Code, as amended,
which provides that if a court finds a contract or a clause thereof to be
unconscionable at the time it was made, the court may: (a) refuse to enforce the
contract; (b) enforce the contract without the unconscionable clause; or (c)
limit the application of the unconscionable clause to avoid an unconscionable
result;
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 6
I. the effect of any Federal or California laws relating to permanent
rates of interest upon the transactions contemplated by the Lease Documents or
the enforceability of any purported waiver of such laws (this disclaimer applies
only to the extent that BA Leasing is not a class of lender excluded from the
application of the California usury law (Cal. Const. Art XV (S) 1));
J. the effect of: (a) any modification to or amendment of the obligations
of Lessee and Guarantor which materially increases such obligations after the
date hereof; (b) any election of remedies by a lender following the occurrence
of an event of default; or (c) any other action by a lender which prejudices a
borrower if, in any such instance specified in any of the foregoing clauses (a),
(b), and (c), such modification, election or action occurs without notice to
such borrower and without granting to such borrower an opportunity to cure any
default;
K. the effect of noncompliance with the Federal Assignment of Claims Act
or the perfecting of a security interest in: (a) items of personal property to
the extent that a security interest in such personal property may be perfected
without filing under Division 9 of the CUCC; (b) any interest in or claim in or
under any policy of insurance or deposit accounts; (c) goods as against the
rights of any party which may now or hereafter have a perfected "purchase money
security interest" (within the meaning of Division 9 of the CUCC) therein; (d)
goods as against a consignor which has delivered or may hereafter deliver such
goods under a true consignment (as distinguished from a consignment intended as
a security); (e) goods as against another security interest therein perfected
under the laws of any jurisdiction other than the State of California; (e) goods
as against a security interest therein created by a person other than Lessee and
Guarantor prior to the acquisition by Lessee and Guarantor; (g) goods as against
a "buyer in the ordinary course of business" (as such term is defined in
Division 1 of the CUCC) of such goods; (h) goods covered by a document of title
or certificate of title; (i) goods as against a lien thereon given by statute or
rule of law for materials or services; (i) goods which are installed in or
affixed to, or become a part of a product with, goods which are not part of any
of the trust estates; (k) the Collateral as against any claim or lien in favor
of the United States or any agency or instrumentality thereof (including,
without limitation, federal tax liens under the Title IV of ERISA); (l) goods
which have not been continuously within the State of California for a period in
excess of four months; and (m) without limiting the foregoing, the priority of
any security interest;
L. matters excluded from Division 9 of the CUCC by virtue of Section 9104
thereof;
M. the enforceability, under certain circumstances, of provisions in the
Lease Documents regarding the procedure and effect of a private sale of personal
property collateral and whether, under the factual circumstances existing at the
time of the sale of such collateral, the sale would be commercially reasonable;
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 7
N. the enforceability of any "integration" clause contained in the Lease
Documents, to the extent that a court determines that the presentation of
extrinsic evidence is required in order to interpret any provision of a Lease
Document or to ascertain the intent of the parties thereto; and
O. the existence or quality of any right, title or interest to any
property covered by any Financing Statement.
P. the enforceability of remedies against any Collateral located outside
the jurisdiction of the United States.
The opinions expressed herein are further qualified to the extent they may
be limited or affected by:
1. limitations as to the availability of remedies for nonmaterial
violations or breaches;
2. the unenforceability under certain circumstances of provisions
releasing or indemnifying a party against liability for its wrongful or
negligent acts or where such indemnification is contrary to public policy;
3. limitations as to a party's ability to obtain payment or reimbursement
of costs and expenses or indemnification for claims, losses, or liabilities in
excess of amounts set by law or a reasonable amount determined by a court of
competent jurisdiction or a tribunal;
4. the effect of applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance and other laws affecting the rights of
creditors generally, as well as standards of commercial reasonableness;
5. limitations on the availability of specific performance and injunctive
and other forms of equitable remedies (regardless of whether considered in a
proceeding in equity or at law):
6. in the case of collateral (as such term is defined in Division 9 of the
CUCC) in which a debtor (as such term is defined in Division 9 of the CUCC) has
no present rights, a security interest will be created therein only when the
debtor acquires the rights to such collateral;
7. in the case of collateral which becomes subject to a security agreement
(as such term is defined in Division 9 of the CUCC) after the execution thereof,
Section 552 of the Bankruptcy Reform Act of 1978, as amended (the "Federal
Bankruptcy Code"), may limit the extent to which such collateral acquired after
the commencement of a case under the Federal
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 8
Bankruptcy Code may be subject to a security interest arising from a security
agreement entered into before the commencement of such case;
8. in the case of property which is acquired by Lessee and Guarantor and
becomes subject to the Lease Documents after the date hereof ("After Acquired
Property"), Section 547 of the Federal Bankruptcy Code provides that a transfer
is not made until the debtor has rights in the property transferred, so a
security interest in After Acquired Property, which is security for other than a
contemporaneous advance, may be treated as a voidable preference under the
conditions, and subject to the exceptions provided by Section 547 of the Federal
Bankruptcy Code;
9. Section 364 of the Federal Bankruptcy Code, which provides that the
extension of secured credit after the commencement of a case under the Federal
Bankruptcy Code would require court approval;
10. the right of a lender to apply amounts collected under fire or other
casualty insurance policies or to apply awards of damages in condemnation
proceedings against the outstanding indebtedness may be subject to the
requirement that such application is reasonably necessary to protect against the
impairment of a lender's security;
11. in the case of an exercise by BA Leasing of any remedy in connection
with the security interests created by the provisions of any of the Lease
Documents, including, but not limited to, the exercise of any voting or
consensual rights or any powers of ownership such as the power to sell, lease,
assign or otherwise dispose of any real or personal property, BA Leasing may
have to obtain, in accordance with applicable law, prior to such exercise,
licenses, authorizations, consents or approvals;
12. the requirements of California law relating to the exercise of
remedies by a secured party (e.g., CUCC Section 9501 et seq., regarding a
secured party's rights with respect to personal property collateral upon the
occurrence of a default in the obligation secured thereby);
13. the limitations set forth in Section 9306 of the CUCC with respect to
the continuation of perfection of any security interest in proceeds (other than
identifiable cash proceeds); and
14. with respect to any collateral in which a security interest is
perfected by possession, the continuation of such possession.
The opinions expressed herein are solely for the benefit of BA Leasing in
connection with the above transactions and may not be relied on in any manner or
for any purpose by any other person. In rendering this opinion, we have no
obligation to revise or supplement it should
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 9
the current laws which form the basis of this opinion be changed by legislative
action, judicial decision or otherwise or if we become aware of any facts that
change the opinion expressed herein after the date hereof.
Very truly yours,
/s/ MANATT, PHELPS & PHILLIPS, LLP
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 10
SCHEDULE 1
Lessee California
Guarantor California
<PAGE>
ACCEPTANCE CERTIFICATE NO. 001
------------------------------
Reference is made to the Lease Intended as Security dated as of November
3, 1999 between TRANSIT HOLDING, INC., as Lessor, TAG MEX, INC., as Lessee
(together with Appendix No. 1 thereto dated November 3, 1999, the "Lease");
capitalized terms not otherwise defined herein having the same meanings as in
the Lease). The Lease is incorporated herein by reference.
1. ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
-------------------------
equipment delivered in Annex A have been delivered to, are in the possession of
and are accepted by Lessee for leasing under, and constitute "Units" subject to
and governed by, the Lease, the Units (i) have been fully inspected by qualified
agents of Lessee and are in good order, operating condition and repair, (ii)
have been properly installed (subject only to any minor undischarged obligations
of suppliers, manufacturers or installers thereof to promptly update and conform
same as provided by their respective agreements and warranties), (iii) meet all
recommended or applicable safety standards, (iv) are, as of the Delivery Date
set forth below, available for use and service by Lessee and Lessor and (v) have
been marked or labeled showing Lessor's interest in the [ILLEGIBLE] and to the
extent required by the Lease, (C) the dollar amounts set forth in Annex A with
respect to such equipment are correct and (D) Lessee may pay the rent and all
other sums provided for in the Lease with respect to such Units.
2. DELIVERY DATE. The Delivery Date of the Units is November 29, 1999.
-------------
3. PURCHASE PRICE. The Purchase Price of the Units is $5,200,000, as set
--------------
fort in Annex A.
4. SCHEDULE. The Base Date, the Base Rent and any Interim Rent for the
--------
Units will be determined pursuant to the relevant Appendix and set forth in a
Schedule to this Acceptance Certificate.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.
Lessor Lessee:
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ Corazon Reyes
------------------------ -------------------------------
Title: VICE PRESIDENT Title: Chief Operating Officer
------------------------ -------------------------------
LESSOR'S COPY
<PAGE>
ANNEX A
TO
ACCEPTANCE CERTIFICATE NO. 001
------------------------------
<TABLE>
<CAPTION>
================================================================================================
Description (Quantity;
Manufacturer, Make, Location (Street Address, City, Delivery Purchase
Model No.; Serial No.) County, State) Date Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miscellaneous Apparel Lote 1, A.B.C. S/N, Corredor November 29, 1999 $5,200,000.00
Manufacturing Equipment Industrial Ixtacuixcla,
See Exhibit A attached Fraccionamiento San Diego
hereto. See Invoices for Xocoyucan, Tlaxcala, Tlaxcala
Specific Equipment
Description.
================================================================================================
</TABLE>
Total Purchase Price $ 5,200,000.00
--------------
LESSOR'S COPY
2
<PAGE>
Exhibit A
- --------------------------------------------------------------------------------
COMPANY NAME INVOICE AMOUNT
- --------------------------------------------------------------------------------
Taylor-Dunn $ 14,996.27
- --------------------------------------------------------------------------------
$ 4,998.76
- --------------------------------------------------------------------------------
$ 5,013.80
- --------------------------------------------------------------------------------
Total Taylor-Dunn $ 25,008.83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Gerber Technology $ 130,925.00
- --------------------------------------------------------------------------------
$ 276,293.00
- --------------------------------------------------------------------------------
$ 262,391.00
- --------------------------------------------------------------------------------
Total Gerber Technology $ 669,609.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
West Point Foundry & Machinery Co. $1,691,108.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pacific Steam Equipment, Inc. $ 100,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bruckner $1,000,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ludell Manufacturing Co., Inc. $ 117,000.00
- --------------------------------------------------------------------------------
$ 63,000.00
- --------------------------------------------------------------------------------
Total Ludell $ l80,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Jarke Corporation $ 20,116.50
- --------------------------------------------------------------------------------
$ 23,385.80
- --------------------------------------------------------------------------------
$ 20,116.50
- --------------------------------------------------------------------------------
$ 23,385.80
- --------------------------------------------------------------------------------
$ 9,859.60
- --------------------------------------------------------------------------------
$ 23,385.80
- --------------------------------------------------------------------------------
Total Jarke $ 120,250.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Termoelettronica $ 700,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hoffman/New Yorker, Inc. $ 109,106.66
- --------------------------------------------------------------------------------
$ 97,560.00
- --------------------------------------------------------------------------------
$ 103,333.34
- --------------------------------------------------------------------------------
Total Hoffman/New Yorker $ 310,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Applied Membranes, Inc. $ 489,201.17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GRAND TOTAL $5,285,177.00
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE NO. 001
----------------
SCHEDULE (this "Schedule") dated November 29, 1999 to Acceptance
Certificate No. 001 dated November 29, 1999 (the "Acceptance Certificate") to
the Lease Intended as Security dated as of November 3, 1999 between TRANSIT
HOLDING, INC., as Lessor, and TAG MEX, INC., as Lessee (together with Appendix
No. 1 thereto, the "Lease"; capitalized terms not otherwise defined herein
having the same meanings as in the Lease).
1. SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
--------------------------
described in the Acceptance Certificate is dated November 26, 1999. The Base
Date for the Units is dated December 1, 1999.
2. INDEX RATE. The Index Rate on the Scheduling Date is 6.4763% per annum.
----------
3. RENT. The Base Rent for the Units is comprised of 60 monthly
----
installments, with the first monthly installment of $107,883.54 due on January
1, 2000. Lessor will invoice Lessee for any Interim or Advance Rent due as
described in the terms of the Appendix and based upon the date on which Lessor
funds the Acceptance Certificate and this Schedule.
4. CHATTEL PAPER COUNTERPARTS. Two counterparts of this Supplement have
--------------------------
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterpart has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee and, therefore, to the extent this Lease may be considered "chattel
paper" as defined in the Uniform Commercial Code. Lessor's interest in this
Lease may be transferred only by transfer of possession of the counterpart of
this Schedule marked "Lessor's Copy".
IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.
Lessor: Lessee:
TRANSIT HOLDING, INC. TAG MEX, INC.
By: /s/ [ILLEGIBLE] By: /s/ Corazon Reyes
------------------------ -------------------------------
Title: VICE PRESIDENT Title:
------------------------ -------------------------------
LESSOR'S COPY
<PAGE>
EXHIBIT 10.84
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and effective as of the 1st day of
August, 1999, by and between INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V., a
corporation formed under the laws of the United Mexican States (the "Company"),
and Antonio Haddad Haddad (the "Employee"), with respect to the following facts:
A. On the date hereof, the Company has purchased all the
issued and outstanding shares (the "Shares") of the capital stock of Industrial
Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A. de C.V. (the
"Manufacturers").
B. As a material condition to the Company's purchase of the
Shares, each of the Employees has agreed to be employed by the Company, on the
terms and conditions set forth in this Agreement.
C. ACCORDINGLY, on the basis of the representations,
warranties and covenants contained herein, the parties hereto agree as follows:
1. EMPLOYMENT
----------
1.1 Employment. The Company hereby employs the Employee as
----------
General Director of each of the Manufacturers, and the Employee hereby accepts
such employment, on the terms and conditions set forth below, to perform during
the term of this Agreement such services as are required hereunder.
1.2 Duties. The Employee shall render such services to each
------
of the Manufacturers, and shall perform such duties and acts, at such times and
places, as reasonably may be required by the Board of Directors of the
Manufacturers in connection with any aspect of the Manufacturers' businesses.
1.3 Performance of Duties. The Employee shall devote his
---------------------
entire productive time, ability and attention to his duties hereunder and shall
diligently and conscientiously use his best efforts to further the
Manufacturers' business.
1.4 Trade Secrets. The Employee shall not, without the prior
-------------
written consent of the Company's Board of Directors in each instance, disclose
or use in any way, either during his employment by the Company or thereafter,
except as required in the course of such employment, any confidential business
or technical information or trade secret of the Company acquired in the course
of such employment, whether or not patentable, copyrightable or otherwise
protected by law, and whether or not conceived of or prepared by him
(collectively, the "Trade Secrets"), including, without limitation, any
confidential information concerning customer lists, products, procedures,
operations, investments, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, salaries, pricing, profits and plans for future
development, the identity, requirements, preferences, practices and methods of
doing business of specific parties with whom the Company transacts business, and
all other information which is related to any product, service or business of
the Company, other than information which is generally known in the industry in
which the Company transacts business or is acquired from public sources or was
known to the Employee prior to the date hereof; all of which Trade Secrets are
the exclusive and valuable property of the Company.
1.5 Tangible Items. All files, accounts, records, documents,
--------------
books, forms, notes, reports, memoranda, studies, compilations of information,
correspondence and all copies, abstracts and summaries of the foregoing, and all
other physical items related to the Company, other than a merely personal item,
whether of a public nature or not, and whether prepared by the Employee or not,
are and shall remain the exclusive property of the Company and shall not be
removed from the premises of the Company, except as required in the course of
employment by the Company, without the prior written
1
<PAGE>
consent of the Company's Board of Directors in each instance, and the same shall
be promptly returned to the Company by the Employee on the expiration or
termination of his employment by the Company or at any time prior thereto upon
the request of the Company.
1.6 Solicitation of Employees. During his employment by the
-------------------------
Company and for one (1) year thereafter (such period not to include any period
of violation hereof by the Employee or period which is required for litigation
to enforce this paragraph and during which the Employee is in violation hereof),
the Employee shall not, directly or indirectly, either for his own benefit
purposes or the benefit of purposes of any other person employ or offer to
employ, call on, solicit, interfere with or attempt to divert or entice away any
employee or independent contractor of the Company (or any person whose
employment or status as an independent contractor has terminated within the
twelve (12) months preceding the date of such solicitation) in any capacity if
that person possesses or has knowledge of any Trade Secrets of the Company.
1.7 Injunctive Relief. The Employee hereby acknowledges and
-----------------
agrees that it would be difficult to fully compensate the Company for damages
resulting from the breach or threatened breach of Sections 1.4, 1.5 or 1.6 and,
accordingly, that the Company shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages and without the necessity of posting any bond or other
undertaking in connection therewith. This provision with respect to injunctive
relief shall not, however, diminish the Company's right to claim and recover
damages.
1.8 Liquidated Damages. The Employee acknowledges and
------------------
agrees that the breach or threatened breach of Sections 1.4, 1.5 or 1.6 would
result in substantial damage to the businesses of the Company and that it is and
will be impracticable to determine the actual monetary amount of such damages.
Accordingly, the Employee and the Company hereby agree that such damages shall
be presumed to be in the amount of U.S. $1,958,030.65 and, in the event of the
breach or the threatened breach of Sections 1.4, 1.5 or 1.6, the Employee shall
pay to the Company in cash an amount equal to U.S. $1,958,030.65 and, to the
extent that the Company then owes to the Employee any amount under this
Agreement, that certain Agreement for Purchase of Stock dated as of August 1,
1999, the Company may set off against such amount a sum equal to U.S.
$1,958,030.65. This provision with respect to the liquidated damages reflects
the parties' best estimate of the actual damages that would be sustained by the
Company in the event of the breach or threatened breach of Sections 1.4, 1.5 or
1.6 and not a penalty or forfeiture. The Employee's obligations under this
Section 1.8 shall be in addition to any liability he may have to the Company as
a result of the breach or threatened breach of Sections 1.4, 1.5 or 1.6.
1.9 "Company". For the purposes of Sections 1.4, 1.5, 1.6,
---------
1.7 and 1.8, the term "Company" shall mean Tag Mex, Inc. and each of its parent,
subsidiary and affiliated companies, including, but not limited to, the
Manufacturers.
2. COMPENSATION
------------
2.1 Compensation. As the total consideration for the
------------
services which the Employee renders hereunder, the Employee shall be entitled to
the following:
(i) an annual base salary of U.S. $120,000.00, less any
applicable deduction therefrom for income tax or other applicable
withholdings, payable semi-monthly;
(ii) participation in all plans or programs sponsored by the
Manufacturers for employees in general, including, but not limited to,
participation in any group health plan, medical reimbursement plan, life
insurance plan, pension and profit sharing plan, or stock option plan.
2
<PAGE>
3. TERM AND TERMINATION
--------------------
3.1 Term. Unless sooner terminated pursuant to Section 3.2
----
hereof, the term of the Employee's relationship with the Company under Section
1.1 shall be for the period (the "Term") commencing on the date hereof and
ending on December 31, 2002.
3.2 At Will Relationship. The Employee and the Company each
--------------------
hereby acknowledges and agrees that, except as expressly set forth in Section
3.3, (i) the Employee's relationship with the Company under this Agreement is AT
WILL and can be terminated at the option of either the Employee or the Company
in his or its sole and absolute discretion, for any or no reason whatsoever,
with or without cause, (ii) no representations, warranties or assurances have
been made concerning the length of such relationship or the aggregate amount of
compensation to be received by the Employee and (iii) after the termination of
his employment by the Company, the Employee shall have no right, title or
interest in or claim to any revenues received by the Company from any person for
any goods sold or services rendered by the Company to such person, whether or
not the Employee was the cause, in whole or in part, for such person to purchase
such goods from the Company or to retain the Company to perform such services.
3.3 Duties Upon Termination. In the event that the Employee's
-----------------------
employment by the Company under this Agreement is terminated, neither the
Company nor the Employee shall have any remaining duties or obligations
hereunder, except that (i) the Company shall promptly pay to the Employee, or
his estate, all reimbursable expenses incurred by the Employee hereunder as of
such date and such compensation as is due pursuant to Section 2.1, prorated
through the date of termination, and (ii) the Employee shall continue to be
bound by Sections 1.4, 1.5, 1.6 and 1.7.
4. MISCELLANEOUS
-------------
4.1 Severable Provisions. The provisions of this Agreement
--------------------
are severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions, and
any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
4.2 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns. Notwithstanding the foregoing, neither this Agreement nor any
rights hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by the Employee without the prior written consent of the Company in
each instance.
4.3 Governing Law. The validity, construction and
-------------
interpretation of this Agreement shall be governed in all respects by the laws
of the State of California applicable to contracts made and to be performed
wholly within that State.
4.4 Consent to Jurisdiction. Each party hereto, to the
-----------------------
fullest extent it may effectively do so under applicable law, irrevocably (i)
submits to the exclusive jurisdiction of any court of the State of California or
the United States of America sitting in the City of Los Angeles over any suit,
action or proceeding arising out of or relating to this Agreement, (ii) waives
and agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the establishment of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum, (iii) agrees that a final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon
such party and may be enforced in the courts of the United States of America,
the State of California or the United Mexican States (or any other courts to the
jurisdiction of which such party is or may be subject) by a suit upon such
judgment and (iv) consents to process being served in any such suit, action or
proceeding by mailing a copy thereof by registered or certified air mail,
postage prepaid, return receipt requested, to
3
<PAGE>
CT Corporation at 818 West Seventh Street, Los Angeles, California 90017 (and
each party hereby irrevocably appoints CT Corporation as its lawful agent to
accept such service of process on behalf of such party). Each party agrees that
such service (i) shall be deemed in every respect effective service of process
upon such party in any such suit, action or proceeding and (ii) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to such party.
4.5 Headings. Section and subsection headings are not to be
--------
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
4.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, relating to the subject matter of this
Agreement. No supplement, modification, waiver or termination of this Agreement
shall be valid unless executed by the party to be bound thereby. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
Nothing in this Agreement shall impede the parties' exercise of their respective
rights under that certain Agreement for Purchase of Assets of even date
herewith, between the parties hereto, among others, or the other agreements
referred to therein.
4.7 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, (ii) if mailed, one (1) week
after having been placed in the United States mail, registered or certified,
postage prepaid, addressed to the party to whom it is directed at the address
set forth below or (iii) if given by telex or telecopier, when such notice or
other communication is transmitted to the telex or telecopier number specified
below and the appropriate answerback or telephonic confirmation is received.
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
4.8 Attorneys' Fees. In the event any party takes legal
---------------
action to enforce any of the terms of this Agreement, the unsuccessful party to
such action shall pay the successful party's expenses, including attorneys'
fees, incurred in such action.
4.9 Third Parties. Nothing in this Agreement, expressed or
-------------
implied, is intended to confer upon any person other than the Company or the
Employee any rights or remedies under or by reason of this Agreement.
4.10 Construction. This Agreement was reviewed by legal
------------
counsel for each party hereto and is the product of informed negotiations
between the parties hereto. If any part of this Agreement is deemed to be
unclear or ambiguous, it shall be construed as if it were drafted jointly by the
parties. Each party hereto acknowledges that no party was in a superior
bargaining position regarding the substantive terms of this Agreement.
4.11 Arbitration. Any controversy arising out of or relating
-----------
to this Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. Neither party shall institute a
proceeding hereunder until that party has furnished to the other party, by
registered mail, at least thirty (30) days prior written notice of its intent to
do so.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first set forth above.
Company: INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V.
By /s/ Gerard Guez
-----------------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Attention: President
Telecopier: (323) 881-0368
Employee: /s/ Antonio Haddad Haddad
-------------------------------------------------
Antonio Haddad Haddad
Calle Guillermo Prieo No. 2(K)
Fraccionamiento Reforma,C.P. 75770
Tehuacan, Puebla
5
<PAGE>
Exhibit 10.85
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and effective as of the 1st day of
August, 1999, by and between INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V., a
corporation formed under the laws of the United Mexican States (the "Company").
and Mario Alberto Haddad Yunes (the "Employee"), with respect to the following
facts:
A. On the date hereof, the Company has purchased all the
issued and outstanding shares (the "Shares") of the capital stock of Industrial
Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A. de C.V. (the
"Manufacturers").
B. As a material condition to the Company's purchase of the
Shares, each of the Employees has agreed to be employed by the Company, on the
terms and conditions set forth in this Agreement.
C. ACCORDINGLY, on the basis of the representations,
warranties and covenants contained herein, the parties hereto agree as follows:
5. EMPLOYMENT
----------
5.1 Employment. The Company hereby employs the Employee as
----------
Finished Product Director of each of the Manufacturers, and the Employee hereby
accepts such employment, on the terms and conditions set forth below, to perform
during the term of this Agreement such services as are required hereunder.
1.2 Duties. The Employee shall render such services to each
------
of the Manufacturers, and shall perform such duties and acts, at such times and
places, as reasonably may be required by the Board of Directors of the
Manufacturers in connection with any aspect of the Manufacturers' businesses.
1.3 Performance of Duties. The Employee shall devote his
---------------------
entire productive time, ability and attention to his duties hereunder and shall
diligently and conscientiously use his best efforts to further the
Manufacturers' business.
1.4 Trade Secrets. The Employee shall not, without the prior
-------------
written consent of the Company's Board of Directors in each instance, disclose
or use in any way, either during his employment by the Company or thereafter,
except as required in the course of such employment, any confidential business
or technical information or trade secret of the Company acquired in the course
of such employment, whether or not patentable, copyrightable or otherwise
protected by law, and whether or not conceived of or prepared by him
(collectively, the "Trade Secrets"), including, without limitation, any
confidential information concerning customer lists, products, procedures,
operations, investments, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, salaries, pricing, profits and plans for future
development, the identity, requirements, preferences, practices and methods of
doing business of specific parties with whom the Company transacts business, and
all other information which is related to any product, service or business of
the Company, other than information which is generally known in the industry in
which the Company transacts business or is acquired from public sources or was
known to the Employee prior to the date hereof; all of which Trade Secrets are
the exclusive and valuable property of the Company.
1.5 Tangible Items. All files, accounts, records, documents,
--------------
books, forms, notes, reports, memoranda, studies, compilations of information,
correspondence and all copies, abstracts and summaries of the foregoing, and all
other physical items related to the Company, other than a merely personal item,
whether of a public nature or not, and whether prepared by the Employee or not,
are and shall remain the exclusive property of the Company and shall not be
removed from the premises of the
1
<PAGE>
Company, except as required in the course of employment by the Company. without
the prior written consent of the Company's Board of Directors in each instance,
and the same shall be promptly returned to the Company by the Employee on the
expiration or termination of his employment by the Company or at any time prior
thereto upon the request of the Company.
1.6 Solicitation of Employees. During his employment by the
-------------------------
Company and for one (1) year thereafter (such period not to include any period
of violation hereof by the Employee or period which is required for litigation
to enforce this paragraph and during which the Employee is in violation hereof),
the Employee shall not, directly or indirectly, either for his own benefit
purposes or the benefit of purposes of any other person employ or offer to
employ, call on, solicit, interfere with or attempt to divert or entice away any
employee or independent contractor of the Company (or any person whose
employment or status as an independent contractor has terminated within the
twelve (12) months preceding the date of such solicitation) in any capacity if
that person possesses or has knowledge of any Trade Secrets of the Company.
1.7 Injunctive Relief. The Employee hereby acknowledges and
-----------------
agrees that it would be difficult to fully compensate the Company for damages
resulting from the breach or threatened breach of Sections 1.4, 1.5 or 1.6 and,
accordingly, that the Company shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages and without the necessity of posting any bond or other
undertaking in connection therewith. This provision with respect to injunctive
relief shall not, however, diminish the Company's right to claim and recover
damages.
1.8 Liquidated Damages. The Employee acknowledges and agrees
------------------
that the breach or threatened breach of Sections 1.4, 1.5 or 1.6 would result in
substantial damage to the businesses of the Company and that it is and will be
impracticable to determine the actual monetary amount of such damages.
Accordingly, the Employee and the Company hereby agree that such damages shall
be presumed to be in the amount of U.S. $996,675.20 and, in the event of the
breach or the threatened breach of Sections 1.4, 1.5 or 1.6, the Employee shall
pay to the Company in cash an amount equal to U.S. $996,675.20 and, to the
extent that the Company then owes to the Employee any amount under this
Agreement, that certain Agreement for Purchase of Stock dated as of August 1,
1999, the Company may set off against such amount a sum equal to U.S.
$996,675.20. This provision with respect to the liquidated damages reflects the
parties' best estimate of the actual damages that would be sustained by the
Company in the event of the breach or threatened breach of Sections 1.4, 1.5 or
1.6 and not a penalty or forfeiture. The Employee's obligations under this
Section 1.8 shall be in addition to any liability he may have to the Company as
a result of the breach or threatened breach of Sections 1.4, 1.5 or 1.6.
1.9 "Company". For the purposes of Sections 1.4, 1.5, 1.6.
---------
1.7 and 1.8, the term "Company" shall mean Tag Mex, Inc. and each of its parent,
subsidiary and affiliated companies, including, but not limited to, the
Manufacturers.
2.0 COMPENSATION
------------
2.1 Compensation. As the total consideration for the services
------------
which the Employee renders hereunder, the Employee shall be entitled to the
following:
(i) an annual base salary of U.S. $120,000.00, less any
applicable deduction therefrom for income tax or other applicable
withholdings, payable semi-monthly;
(ii) participation in all plans or programs sponsored by the
Manufacturers for employees in general, including, but not limited to,
participation in any group health plan, medical reimbursement plan, life
insurance plan, pension and profit sharing plan, or stock option plan.
2
<PAGE>
3. TERM AND TERMINATION
--------------------
3.1 Term. Unless sooner terminated pursuant to Section 3.2
----
hereof, the term of the Employee's relationship with the Company under Section
1.1 shall be for the period (the "Term") commencing on the date hereof and
ending on December 31, 2002.
3.2 At Will Relationship. The Employee and the Company each
--------------------
hereby acknowledges and agrees that, except as expressly set forth in Section
3.3, (i) the Employee's relationship with the Company under this Agreement is AT
WILL and can be terminated at the option of either the Employee or the Company
in his or its sole and absolute discretion, for any or no reason whatsoever,
with or without cause, (ii) no representations, warranties or assurances have
been made concerning the length of such relationship or the aggregate amount of
compensation to be received by the Employee and (iii) after the termination of
his employment by the Company, the Employee shall have no right, title or
interest in or claim to any revenues received by the Company from any person for
any goods sold or services rendered by the Company to such person, whether or
not the Employee was the cause, in whole or in part, for such person to purchase
such goods from the Company or to retain the Company to perform such services.
3.3 Duties Upon Termination. In the event that the Employee's
-----------------------
employment by the Company under this Agreement is terminated, neither the
Company nor the Employee shall have any remaining duties or obligations
hereunder, except that (i) the Company shall promptly pay to the Employee, or
his estate, all reimbursable expenses incurred by the Employee hereunder as of
such date and such compensation as is due pursuant to Section 2.1, prorated
through the date of termination, and (ii) the Employee shall continue to be
bound by Sections 1.4, 1.5, 1.6 and 1.7.
4. MISCELLANEOUS
-------------
4.1 Severable Provisions. The provisions of this Agreement
--------------------
are severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions, and
any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
4.2 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns. Notwithstanding the foregoing, neither this Agreement nor any
rights hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by the Employee without the prior written consent of the Company in
each instance.
4.3 Governing Law. The validity, construction and
-------------
interpretation of this Agreement shall be governed in all respects by the laws
of the State of California applicable to contracts made and to be performed
wholly within that State.
4.4 Consent to Jurisdiction. Each party hereto, to the
-----------------------
fullest extent it may effectively do so under applicable law, irrevocably (i)
submits to the exclusive jurisdiction of any court of the State of California or
the United States of America sitting in the City of Los Angeles over any suit,
action or proceeding arising out of or relating to this Agreement, (ii) waives
and agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the establishment of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum, (iii) agrees that a final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon
such party and may be enforced in the courts of the United States of America,
the State of California or the United Mexican States (or any other courts to the
jurisdiction of which such party is or may be subject) by a suit upon such
judgment and (iv) consents to process being served in any such suit, action or
proceeding by mailing a copy thereof by registered or certified air mail,
postage prepaid, return receipt requested, to
3
<PAGE>
CT Corporation at 818 West Seventh Street, Los Angeles, California 90017 (and
each party hereby irrevocably appoints CT Corporation as its lawful agent to
accept such service of process on behalf of such party). Each party agrees that
such service (i) shall be deemed in every respect effective service of process
upon such party in any such suit, action or proceeding and (ii) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to such party.
4.5 Headings. Section and subsection headings are not to be
--------
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
4.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, relating to the subject matter of this
Agreement. No supplement, modification, waiver or termination of this Agreement
shall be valid unless executed by the party to be bound thereby. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
Nothing in this Agreement shall impede the parties' exercise of their respective
rights under that certain Agreement for Purchase of Assets of even date
herewith, between the parties hereto, among others, or the other agreements
referred to therein.
4.7 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, (ii) if mailed, one (1) week
after having been placed in the United States mail, registered or certified,
postage prepaid, addressed to the party to whom it is directed at the address
set forth below or (iii) if given by telex or telecopier, when such notice or
other communication is transmitted to the telex or telecopier number specified
below and the appropriate answerback or telephonic confirmation is received.
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
4.8 Attorneys' Fees. In the event any party takes legal
---------------
action to enforce any of the terms of this Agreement, the unsuccessful party to
such action shall pay the successful party's expenses, including attorneys'
fees, incurred in such action.
4.9 Third Parties. Nothing in this Agreement, expressed or
-------------
implied, is intended to confer upon any person other than the Company or the
Employee any rights or remedies under or by reason of this Agreement.
4.10 Construction. This Agreement was reviewed by legal
------------
counsel for each party hereto and is the product of informed negotiations
between the parties hereto. If any part of this Agreement is deemed to be
unclear or ambiguous, it shall be construed as if it were drafted jointly by the
parties. Each party hereto acknowledges that no party was in a superior
bargaining position regarding the substantive terms of this Agreement.
4.11 Arbitration. Any controversy arising out of or relating
-----------
to this Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. Neither party shall institute a
proceeding hereunder until that party has furnished to the other party, by
registered mail, at least thirty (30) days prior written notice of its intent to
do so.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first set forth above.
Company: INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V.
By /s/ Gerard Guez
-----------------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Attention: President
Telecopier:(323) 881-0368
Employee: /s/ Mario Alberto Haddad Yunes
-------------------------------------------------
Mario Alberto Haddad Yunes
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
5
<PAGE>
Exhibit 10.86
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and effective as of the 1st day of
August, 1999, by and between INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V., a
corporation formed under the laws of the United Mexican States (the "Company"),
and Marco Antonio Haddad Yunes (the "Employee"), with respect to the following
facts:
A. On the date hereof, the Company has purchased all the
issued and outstanding shares (the "Shares") of the capital stock of Industrial
Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A. de C.V. (the
"Manufacturers").
B. As a material condition to the Company's purchase of the
Shares, each of the Employees has agreed to be employed by the Company, on the
terms and conditions set forth in this Agreement.
C. ACCORDINGLY, on the basis of the representations,
warranties and covenants contained herein, the parties hereto agree as follows:
1. EMPLOYMENT
----------
1.1 Employment. The Company hereby employs the Employee as
----------
Manufacturing Director of each of the Manufacturers, and the Employee hereby
accepts such employment, on the terms and conditions set forth below, to perform
during the term of this Agreement such services as are required hereunder.
1.2 Duties. The Employee shall render such services to each
------
of the Manufacturers, and shall perform such duties and acts, at such times and
places, as reasonably may be required by the Board of Directors of the
Manufacturers in connection with any aspect of the Manufacturers' businesses.
1.3 Performance of Duties. The Employee shall devote his
---------------------
entire productive time, ability and attention to his duties hereunder and shall
diligently and conscientiously use his best efforts to further the
Manufacturers' business.
1.4 Trade Secrets. The Employee shall not, without the prior
-------------
written consent of the Company's Board of Directors in each instance, disclose
or use in any way, either during his employment by the Company or thereafter,
except as required in the course of such employment, any confidential business
or technical information or trade secret of the Company acquired in the course
of such employment, whether or not patentable, copyrightable or otherwise
protected by law, and whether or not conceived of or prepared by him
(collectively, the "Trade Secrets"), including, without limitation, any
confidential information concerning customer lists, products, procedures,
operations, investments, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, salaries, pricing, profits and plans for future
development, the identity, requirements, preferences, practices and methods of
doing business of specific parties with whom the Company transacts business, and
all other information which is related to any product, service or business of
the Company, other than information which is generally known in the industry in
which the Company transacts business or is acquired from public sources or was
known to the Employee prior to the date hereof; all of which Trade Secrets are
the exclusive and valuable property of the Company.
1.5 Tangible Items. All files, accounts, records, documents,
--------------
books, forms, notes, reports, memoranda, studies, compilations of information,
correspondence and all copies, abstracts and summaries of the foregoing, and all
other physical items related to the Company, other than a merely personal item,
whether of a public nature or not, and whether prepared by the Employee or not,
are and shall remain the exclusive property of the Company and shall not be
removed from the premises of the
1
<PAGE>
Company, except as required in the course of employment by the Company, without
the prior written consent of the Company's Board of Directors in each instance,
and the same shall be promptly returned to the Company by the Employee on the
expiration or termination of his employment by the Company or at any time prior
thereto upon the request of the Company.
1.6 Solicitation of Employees. During his employment by the
-------------------------
Company and for one (1) year thereafter (such period not to include any period
of violation hereof by the Employee or period which is required for litigation
to enforce this paragraph and during which the Employee is in violation hereof),
the Employee shall not, directly or indirectly, either for his own benefit
purposes or the benefit of purposes of any other person employ or offer to
employ, call on, solicit, interfere with or attempt to divert or entice away any
employee or independent contractor of the Company (or any person whose
employment or status as an independent contractor has terminated within the
twelve (12) months preceding the date of such solicitation) in any capacity if
that person possesses or has knowledge of any Trade Secrets of the Company.
1.7 Injunctive Relief. The Employee hereby acknowledges and
-----------------
agrees that it would be difficult to fully compensate the Company for damages
resulting from the breach or threatened breach of Sections 1.4, 1.5 or 1.6 and,
accordingly, that the Company shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages and without the necessity of posting any bond or other
undertaking in connection therewith. This provision with respect to injunctive
relief shall not, however, diminish the Company's right to claim and recover
damages.
1.8 Liquidated Damages. The Employee acknowledges and agrees
------------------
that the breach or threatened breach of Sections 1.4, 1.5 or 1.6 would result in
substantial damage to the businesses of the Company and that it is and will be
impracticable to determine the actual monetary amount of such damages.
Accordingly, the Employee and the Company hereby agree that such damages shall
be presumed to be in the amount of U.S. $1,035,633.36 to the Company in cash an
amount equal to U.S. $1,035,633.36 and, to the extent that the Company then owes
to the Employee any amount under this Agreement, that certain Agreement for
Purchase of Stock dated as of August 1, 1999, the Company may set off against
such amount a sum equal to U.S. $1,035,633.36. This provision with respect to
the liquidated damages reflects the parties' best estimate of the actual damages
that would be sustained by the Company in the event of the breach or threatened
breach of Sections 1.4, 1.5 or 1.6 and not a penalty or forfeiture. The
Employee's obligations under this Section 1.8 shall be in addition to any
liability he may have to the Company as a result of the breach or threatened
breach of Sections 1.4, 1.5 or 1.6.
1.9 "Company". For the purposes of Sections 1.4, 1.5, 1.6,
---------
1.7 and 1.8, the term "Company" shall mean Tag Mex, Inc. and each of its parent,
subsidiary and affiliated companies, including, but not limited to, the
Manufacturers.
2. COMPENSATION
------------
2.1 Compensation. As the total consideration for the services
------------
which the Employee renders hereunder, the Employee shall be entitled to the
following:
(i) an annual base salary of U.S. $120,000.00, less any
applicable deduction therefrom for income tax or other applicable
withholdings, payable semi-monthly;
(ii) participation in all plans or programs sponsored by the
Manufacturers for employees in general, including, but not limited to,
participation in any group health plan, medical reimbursement plan, life
insurance plan, pension and profit sharing plan, or stock option plan.
2
<PAGE>
3. TERM AND TERMINATION
--------------------
3.1 Term. Unless sooner terminated pursuant to Section 3.2
----
hereof, the term of the Employee's relationship with the Company under Section
1.1 shall be for the period (the "Term") commencing on the date hereof and
ending on December 31, 2001
3.2 At Will Relationship. The Employee and the Company each
--------------------
hereby acknowledges and agrees that, except as expressly set forth in Section
3.3, (i) the Employee's relationship with the Company under this Agreement is AT
WILL and can be terminated at the option of either the Employee or the Company
in his or its sole and absolute discretion, for any or no reason whatsoever,
with or without cause, (ii) no representations, warranties or assurances have
been made concerning the length of such relationship or the aggregate amount of
compensation to be received by the Employee and (iii) after the termination of
his employment by the Company, the Employee shall have no right, title or
interest in or claim to any revenues received by the Company from any person for
any goods sold or services rendered by the Company to such person, whether or
not the Employee was the cause, in whole or in part, for such person to purchase
such goods from the Company or to retain the Company to perform such services.
3.3 Duties Upon Termination. In the event that the Employee's
-----------------------
employment by the Company under this Agreement is terminated, neither the
Company nor the Employee shall have any remaining duties or obligations
hereunder, except that (i) the Company shall promptly pay to the Employee, or
his estate, all reimbursable expenses incurred by the Employee hereunder as of
such date and such compensation as is due pursuant to Section 2.1, prorated
through the date of termination, and (ii) the Employee shall continue to be
bound by Sections 1.4, 1.5, 1.6 and 1.7.
4. MISCELLANEOUS
-------------
4.1 Severable Provisions. The provisions of this Agreement
--------------------
are severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions, and
any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
4.2 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns. Notwithstanding the foregoing, neither this Agreement nor any
rights hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by the Employee without the prior written consent of the Company in
each instance.
4.3 Governing Law. The validity, construction and
-------------
interpretation of this Agreement shall be governed in all respects by the laws
of the State of California applicable to contracts made and to be performed
wholly within that State.
4.4 Consent to Jurisdiction. Each party hereto, to the
-----------------------
fullest extent it may effectively do so under applicable law, irrevocably (i)
submits to the exclusive jurisdiction of any court of the State of California or
the United States of America sitting in the City of Los Angeles over any suit,
action or proceeding arising out of or relating to this Agreement, (ii) waives
and agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the establishment of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum, (iii) agrees that a final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon
such party and may be enforced in the courts of the United States of America,
the State of California or the United Mexican States (or any other courts to the
jurisdiction of which such party is or may be subject) by a suit upon such
judgment and (iv) consents to process being served in any such suit, action or
proceeding by mailing a copy thereof by registered or certified air mail,
postage prepaid. return receipt requested, to
3
<PAGE>
CT Corporation at 818 West Seventh Street, Los Angeles, California 90017 (and
each party hereby irrevocably appoints CT Corporation as its lawful agent to
accept such service of process on behalf of such party). Each party agrees that
such service (i) shall be deemed in every respect effective service of process
upon such party in any such suit, action or proceeding and ii shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to such party.
4.5 Headings. Section and subsection headings are not to be
--------
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
4.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, relating to the subject matter of this
Agreement. No supplement, modification, waiver or termination of this Agreement
shall be valid unless executed by the party to be bound thereby. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
Nothing in this Agreement shall impede the parties' exercise of their respective
rights under that certain Agreement for Purchase of Assets of even date
herewith, between the parties hereto, among others, or the other agreements
referred to therein.
4.7 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, (ii) if mailed, one (1) week
after having been placed in the United States mail, registered or certified,
postage prepaid, addressed to the party to whom it is directed at the address
set forth below or (iii) if given by telex or telecopier, when such notice or
other communication is transmitted to the telex or telecopier number specified
below and the appropriate answerback or telephonic confirmation is received.
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
4.8 Attorneys' Fees. In the event any party takes legal
---------------
action to enforce any of the terms of this Agreement, the unsuccessful party to
such action shall pay the successful party's expenses, including attorneys'
fees, incurred in such action.
4.9 Third Parties. Nothing in this Agreement. expressed or
-------------
implied, is intended to confer upon any person other than the Company or the
Employee any rights or remedies under or by reason of this Agreement.
4.10 Construction. This Agreement was reviewed by legal
------------
counsel for each party hereto and is the product of informed negotiations
between the parties hereto. If any part of this Agreement is deemed to be
unclear or ambiguous, it shall be construed as if it were drafted jointly by the
parties. Each party hereto acknowledges that no party was in a superior
bargaining position regarding the substantive terms of this Agreement.
4.11 Arbitration. Any controversy arising out of or relating
-----------
to this Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. Neither party shall institute a
proceeding hereunder until that party has furnished to the other party, by
registered mail, at least thirty (30) days prior written notice of its intent to
do so.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first set forth above.
Company: INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V.
By /s/ Gerard Guez
---------------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Attention: President
Telecopier: (323) 881-0368
Employee: /s/ Marco Antonio Haddad Yunes
-----------------------------------------------
Marco Antonio Haddad Yunes
Calle Miguel de Cervantes Saavedra No. 170
Fraccionamiento El Mollino, C.P. 75699
Tehuacan, Puebla
5
<PAGE>
Exhibit 10.87
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and effective as of the 1st day of
August, 1999, by and between INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V., a
corporation formed under the laws of the United Mexican States (the "Company"),
and Miguel Angel Haddad Yunes (the "Employee"), with respect to the following
facts:
A. On the date hereof, the Company has purchased all the
issued and outstanding shares (the "Shares") of the capital stock of Industrial
Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A. de C.V. (the
"Manufacturers").
B. As a material condition to the Company's purchase of the
Shares, each of the Employees has agreed to be employed by the Company, on the
terms and conditions set forth in this Agreement.
C. ACCORDINGLY, on the basis of the representations,
warranties and covenants contained herein, the parties hereto agree as follows:
1. EMPLOYMENT
----------
1.1 Employment. The Company hereby employs the Employee as
----------
Administrative Director of each of the Manufacturers, and the Employee hereby
accepts such employment, on the terms and conditions set forth below, to perform
during the term of this Agreement such services as are required hereunder.
1.2 Duties. The Employee shall render such services to each
------
of the Manufacturers, and shall perform such duties and acts, at such times and
places, as reasonably may be required by the Board of Directors of the
Manufacturers in connection with any aspect of the Manufacturers' businesses.
1.3 Performance of Duties. The Employee shall devote his
---------------------
entire productive time, ability and attention to his duties hereunder and shall
diligently and conscientiously use his best efforts to further the
Manufacturers' business.
1.4 Trade Secrets. The Employee shall not, without the prior
-------------
written consent of the Company's Board of Directors in each instance, disclose
or use in any way, either during his employment by the Company or thereafter,
except as required in the course of such employment, any confidential business
or technical information or trade secret of the Company acquired in the course
of such employment, whether or not patentable, copyrightable or otherwise
protected by law, and whether or not conceived of or prepared by him
(collectively, the "Trade Secrets"), including, without limitation, any
confidential information concerning customer lists, products, procedures,
operations, investments, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, salaries, pricing, profits and plans for future
development, the identity, requirements, preferences, practices and methods of
doing business of specific parties with whom the Company transacts business, and
all other information which is related to any product, service or business of
the Company, other than information which is generally known in the industry in
which the Company transacts business or is acquired from public sources or was
known to the Employee prior to the date hereof; all of which Trade Secrets are
the exclusive and valuable property of the Company.
1.5 Tangible Items. All files, accounts, records, documents,
--------------
books, forms, notes, reports, memoranda, studies, compilations of information,
correspondence and all copies, abstracts and summaries of the foregoing, and all
other physical items related to the Company, other than a merely personal item,
whether of a public nature or not, and whether prepared by the Employee or not,
are and shall remain the exclusive property of the Company and shall not be
removed from the premises of the
1
<PAGE>
Company, except as required in the course of employment by the Company, without
the prior written consent of the Company's Board of Directors in each instance,
and the same shall be promptly returned to the Company by the Employee on the
expiration or termination of his employment by the Company or at any time prior
thereto upon the request of the Company.
1.6 Solicitation of Employees. During his employment by the
-------------------------
Company and for one (1) year thereafter (such period not to include any period
of violation hereof by the Employee or period which is required for litigation
to enforce this paragraph and during which the Employee is in violation hereof),
the Employee shall not, directly or indirectly, either for his own benefit
purposes or the benefit of purposes of any other person employ or offer to
employ, call on, solicit, interfere with or attempt to divert or entice away any
employee or independent contractor of the Company (or any person whose
employment or status as an independent contractor has terminated within the
twelve (12) months preceding the date of such solicitation) in any capacity if
that person possesses or has knowledge of any Trade Secrets of the Company.
1.7 Injunctive Relief. The Employee hereby acknowledges and
-----------------
agrees that it would be difficult to fully compensate the Company for damages
resulting from the breach or threatened breach of Sections 1.4, 1.5 or 1.6 and,
accordingly, that the Company shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages and without the necessity of posting any bond or other
undertaking in connection therewith. This provision with respect to injunctive
relief shall not, however, diminish the Company's right to claim and recover
damages.
1.8 Liquidated Damages. The Employee acknowledges and agrees
------------------
that the breach or threatened breach of Sections 1.4, 1.5 or 1.6 would result in
substantial damage to the businesses of the Company and that it is and will be
impracticable to determine the actual monetary amount of such damages.
Accordingly, the Employee and the Company hereby agree that such damages shall
be presumed to be in the amount of U.S. $1,009,660.79 and, in the event of the
breach or the threatened breach of Sections 1.4, 1.5 or 1.6, the Employee shall
pay to the Company in cash an amount equal to U.S. $1,009,660.79 and, to the
extent that the Company then owes to the Employee any amount under this
Agreement, that certain Agreement for Purchase of Stock dated as of August 1,
1999, the Company may set off against such amount a sum equal to U.S.
$1,009,660.79. This provision with respect to the liquidated damages reflects
the parties' best estimate of the actual damages that would be sustained by the
Company in the event of the breach or threatened breach of Sections 1.4, 1.5 or
1.6 and not a penalty or forfeiture. The Employee's obligations under this
Section 1.8 shall be in addition to any liability he may have to the Company as
a result of the breach or threatened breach of Sections 1.4, 1.5 or 1.6.
1.9 "Company". For the purposes of Sections 1.4, 1.5, 1.6,
---------
1.7 and 1.8. the term "Company" shall mean Tag Mex, Inc. and each of its parent,
subsidiary and affiliated companies, including, but not limited to, the
Manufacturers.
2. COMPENSATION
------------
2.1 Compensation. As the total consideration for the services
------------
which the Employee renders hereunder, the Employee shall be entitled to the
following:
(i) an annual base salary of U.S. $120,000.00, less any
applicable deduction therefrom for income tax or other applicable
withholdings, payable semi-monthly;
(ii) participation in all plans or programs sponsored by the
Manufacturers for employees in general, including, but not limited to,
participation in any group health plan, medical reimbursement plan, life
insurance plan, pension and profit sharing plan, or stock option plan.
2
<PAGE>
3. TERM AND TERMINATION
--------------------
3.1 Term. Unless sooner terminated pursuant to Section 3.2
----
hereof, the term of the Employee's relationship with the Company under Section
1.1 shall be for the period the ("Term") commencing on the date hereof and
ending on December 31, 2002.
3.2 At Will Relationship. The Employee and the Company each
--------------------
hereby acknowledges and agrees that, except as expressly set forth in Section
3.3. (i) the Employee's relationship with the Company under this Agreement is AT
WILL and can be terminated at the option of either the Employee or the Company
in his or its sole and absolute discretion, for any or no reason whatsoever,
with or without cause, (ii) no representations, warranties or assurances have
been made concerning the length of such relationship or the aggregate amount of
compensation to be received by the Employee and (iii) after the termination of
his employment by the Company, the Employee shall have no right, title or
interest in or claim to any revenues received by the Company from any person for
any goods sold or services rendered by the Company to such person, whether or
not the Employee was the cause, in whole or in part, for such person to purchase
such goods from the Company or to retain the Company to perform such services.
3.3 Duties Upon Termination. In the event that the Employee's
-----------------------
employment by the Company under this Agreement is terminated, neither the
Company nor the Employee shall have any remaining duties or obligations
hereunder, except that (i) the Company shall promptly pay to the Employee, or
his estate, all reimbursable expenses incurred by the Employee hereunder as of
such date and such compensation as is due pursuant to Section 2.1, prorated
through the date of termination, and (ii) the Employee shall continue to be
bound by Sections 1.4, 1.5, 1.6 and 1.7.
4. MISCELLANEOUS
-------------
4.1 Severable Provisions. The provisions of this Agreement
--------------------
are severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions, and
any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
4.2 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns. Notwithstanding the foregoing, neither this Agreement nor any
rights hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by the Employee without the prior written consent of the Company in
each instance.
4.3 Governing Law. The validity, construction and
-------------
interpretation of this Agreement shall be governed in all respects by the laws
of the State of California applicable to contracts made and to be performed
wholly within that State.
4.4 Consent to Jurisdiction. Each party hereto, to the
-----------------------
fullest extent it may effectively do so under applicable law, irrevocably (i)
submits to the exclusive jurisdiction of any court of the State of California or
the United States of America sitting in the City of Los Angeles over any suit,
action or proceeding arising out of or relating to this Agreement, (ii) waives
and agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the establishment of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum, (iii) agrees that a final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon
such party and may be enforced in the courts of the United States of America,
the State of California or the United Mexican States (or any other courts to the
jurisdiction of which such party is or may be subject) by a suit upon such
judgment and (iv) consents to process being served in any such suit, action or
proceeding by mailing a copy thereof by registered or certified air mail,
postage prepaid. return receipt requested, to
3
<PAGE>
CT Corporation at 818 West Seventh Street, Los Angeles, California 90017 (and
each party hereby irrevocably appoints CT Corporation as its lawful agent to
accept such service of process on behalf of such party). Each party agrees that
such service (i) shall be deemed in every respect effective service of process
upon such party in any such suit, action or proceeding and (ii) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to such party.
4.5 Headings. Section and subsection headings are not to be
--------
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
4.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, relating to the subject matter of this
Agreement. No supplement, modification, waiver or termination of this Agreement
shall be valid unless executed by the party to be bound thereby. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
Nothing in this Agreement shall impede the parties' exercise of their respective
rights under that certain Agreement for Purchase of Assets of even date
herewith, between the parties hereto, among others, or the other agreements
referred to therein.
4.7 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, (ii) if mailed, one (1) week
after having been placed in the United States mail, registered or certified,
postage prepaid, addressed to the party to whom it is directed at the address
set forth below or (iii) if given by telex or telecopier, when such notice or
other communication is transmitted to the telex or telecopier number specified
below and the appropriate answerback or telephonic confirmation is received.
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
4.8 Attorneys' Fees. In the event any party takes legal
---------------
action to enforce any of the terms of this Agreement, the unsuccessful party to
such action shall pay the successful party's expenses, including attorneys'
fees, incurred in such action .
4.9 Third Parties. Nothing in this Agreement. expressed or
-------------
implied, is intended to confer upon any person other than the Company or the
Employee any rights or remedies under or by reason of this Agreement.
4.10 Construction. This Agreement was reviewed by legal
------------
counsel for each party hereto and is the product of informed negotiations
between the parties hereto. If any part of this Agreement is deemed to be
unclear or ambiguous, it shall be construed as if it were drafted jointly by the
parties. Each party hereto acknowledges that no party was in a superior
bargaining position regarding the substantive terms of this Agreement.
4.11 Arbitration. Any controversy arising out of or relating
-----------
to this Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. Neither party shall institute a
proceeding hereunder until that party has furnished to the other party, by
registered mail, at least thirty (30) days prior written notice of its intent to
do so.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first set forth above.
Company: INDUSTRIAL EXPORTADORA FAMIAN, S.A. de C.V.
By /s/ Gerard Guez
---------------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Attention: President
Telecopier:(323) 881-0368
Employee: /s/ Miguel Angel Haddad Yunes
------------------------------------------------
Miguel Angel Haddad Yunes
Calle Reforma Norte No. 131
Colonia Centro, C.P. 75770
Tehuacan, Puebla
5
<PAGE>
Exhibit 10.88
NON-NEGOTIABLE PROMISSORY NOTE
U.S. $3,000,000.00 August 1, 1999
FOR VALUE RECEIVED, the undersigned hereby promises to pay to
Antonio Haddad Haddad (the "Payee") Three Million United States Dollars (U.S.
$3,000,000.00). without interest, in three equal installments of
U.S.$1,000,000.00 on each of August 31, September 30 and October 29 and November
30, 1999, at the principal executive offices of the undersigned, 3151 East
Washington Boulevard, Los Angeles, California, or at such other place in the
City of Los Angeles as may be designated by the undersigned to the Seller in
writing from time to time.
Notwithstanding anything to the contrary contained herein or in the
Purchase Agreement (as defined below), the undersigned shall have the right to
set-off against any amount otherwise due hereunder any obligation of any of the
Shareholders (as defined below) to the undersigned under the Purchase Agreement,
including, but not limited to, a claim for indemnification or contribution under
Section 7.2 of the Purchase Agreement (a "claim"); provided, however, that the
--------
undersigned first shall have delivered to the Shareholders in writing a summary
description of the factual and legal bases for such claim or obligation and an
estimate of the amount thereof. In the event that a claim is based upon the
demand of a person other than the undersigned, which demand is finally
determined by a decision from which no appeal may be taken, the amount of such
claim shall be deemed to have been finally determined thereby and not to be
subject to further arbitration.
This Note is the promissory note referred to in Section 1.2(a)(ii)
of that certain Agreement for Purchase of Assets dated as of August 1, 1999 (the
"Purchase Agreement"), by and among the undersigned, the Payee, the Parent (as
defined therein), and the Shareholders (as defined therein) , and which contains
provisions for the offset of certain claims or obligations of the undersigned
against any of the Shareholders upon the happening of certain stated events.
Neither this Note nor any rights hereunder shall be assigned,
pledged, hypothecated or otherwise transferred by the Payee without the prior
written consent of the undersigned in each instance and then subject to the
right of off-set set forth above.
The validity, construction and interpretation of this Note shall be
governed in all respects by the laws of the State of California applicable to
contracts made and to be performed wholly within that State.
The Payee and the undersigned each, to the fullest extent it may
effectively do so under applicable law, irrevocably (i) submits to the exclusive
jurisdiction of any court of the State of California or the United States of
America sitting in the City of Los Angeles over any suit, action or proceeding
arising out of or relating to this Agreement, (ii) waives and agrees not to
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the jurisdiction of any such court, any objection that it may now or
hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum,
(iii) agrees that a final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon such party and
may be enforced in the courts of the United States of America, the State of
California or the Republic of Mexico (or any other courts to the jurisdiction of
which such party is or may be subject) by a suit upon such judgment and (iv)
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof by registered or certified air mail, postage prepaid,
return receipt requested, to CT Corporation at 818 West Seventh Street, Los
Angeles, California 90017 (and each such person hereby irrevocably appoints CT
Corporation as its lawful agent to accept such service of process on behalf of
such person). The Payee and the undersigned each agrees that such service (i)
shall be deemed in every respect effective service of process upon such party in
any such suit, action or proceeding and (ii) shall,
-1-
<PAGE>
to the fullest extent permitted by law, be taken and held to be valid personal
service upon and personal delivery to such party.
Subject to the preceding paragraph, any controversy arising out of
or relating to this Note shall be referred to arbitration before the American
Arbitration Association strictly in accordance with the terms of this Note and
the substantive law of the State of California. The board of arbitrators shall
convene at a place mutually acceptable to the parties in the State of California
and, if the place of arbitration cannot be agreed upon, arbitration shall be
conducted in Los Angeles. The Payee and the undersigned agree to accept the
decision of the board of arbitrators, and judgment upon any award rendered
hereunder may be entered in any court having jurisdiction thereof. Neither party
shall institute a proceeding hereunder until that party has furnished to the
other party, by registered mail, at least thirty (30) days prior written notice
of its intent to do so.
Nothing in this Note, expressed or implied, is intended to confer
upon any person other than the Payee or the undersigned any rights or remedies
under or by reason of this Note.
This Note has been reviewed by legal counsel for the Payee and the
undersigned and is the product of informed negotiations between such parties. If
any part of this Note is deemed to be unclear or ambiguous, it shall be
construed as if it were drafted jointly by such parties. Each such party
acknowledges that no party was in a superior bargaining position regarding the
substantive terms of this Note.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed as of the day and year first set forth above.
TAG MEX, INC.
By /s/ Gerard Guez
------------------------------------
Authorized Representative
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<PAGE>
Exhibit 10.89
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Agreement"), dated as of August 1, 1999,
is made by TAG MEX, INC., a California corporation ("Pledgor"), in favor of
those individuals whose names appear on the signature pages hereof under the
caption "Pledgees" ("Pledgees"), with reference to the following facts:
A. Pledgor and Pledgees have entered into an Agreement for Purchase of
Stock dated as of August 1, 1999 (the "Purchase Agreement"), under the terms of
which Pledgor purchased all of the issued and outstanding shares (the "Shares")
of the capital stock of Industrial Exportadora Famian, S.A. de C.V. and
Coordinados Elite, S.A. de C.V., corporations formed under the laws of the
Republic of Mexico (the "Companies").
B. As payment for the Shares, Pledgor delivered to Pledgees a non-
negotiable promissory note of even date herewith in the original principal
amount of U.S.$3,000,000.00 (the "Promissory Note").
C. As a condition to such purchase, Pledgor has agreed to pledge the
Shares to secure the payments due under the Promissory Note.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties agree as follows:
1. Definitions. The following terms shall have the meanings
-----------
respectively set forth after each:
"Certificates" means all certificates, instruments or other documents
--------------
now or hereafter representing or evidencing any Pledged Collateral.
"Event of Default" means a default under the Promissory Note or this
------------------
Agreement, which default is not cured within the cure period, if any,
provided by the applicable document.
"Obligations" means the obligations of Pledgor to Pledgees, whether
-------------
for principal, interest, fees, expenses or otherwise, now or hereafter
existing under the Promissory Note or this Agreement.
"Pledged Collateral" means the Shares purchased by Pledgor from
--------------------
Pledgees pursuant to the Purchase Agreement, together with all products,
proceeds, redemption payments, liquidation payments, stock or in kind
dividends, instruments and other property, and any and all rights, titles,
interests, privileges, benefits and preferences appertaining or incidental
to the Pledged Collateral.
2. Creation of Security Interest. Pledgor hereby pledges to Pledgees
-----------------------------
and grants to Pledgees a security interest in and to all Pledged Collateral. The
security interest and pledge created by this Section 2.1 shall continue in
effect until the payment or performance in full of the Obligations.
3. Security for Obligations. This Agreement and the pledge and
------------------------
security interests granted herein secure the prompt payment and performance of
the Obligations.
4. Further Assurances. Pledgor agrees that at any time, and from
------------------
time to time, at Pledgor's sole expense, Pledgor will promptly execute, deliver
and file or record all further financing statements, instruments and documents,
and will take reasonable further actions that may be necessary or desirable, or
that Pledgees may reasonably request, in order to enable Pledgees to exercise
and enforce their rights and remedies hereunder with respect to any Pledged
Collateral and to preserve, protect and maintain the Pledged Collateral and the
value thereof, including, without limitation, payment of all taxes, assessments
and other charges imposed on or relating to the Pledged Collateral.
<PAGE>
5. Voting Rights; Dividends; etc. So long as no Event of Default has
-----------------------------
occurred and is continuing:
5.1 Voting Rights. Pledgor shall be entitled to exercise any
-------------
and all voting and other consensual rights pertaining to the Pledged Collateral,
or any part thereof, for any purpose not inconsistent with the terms of this
Agreement.
5.2 Interest, Dividend and Distribution Rights. Pledgor shall
------------------------------------------
be entitled to receive and to retain and use any and all interest, premiums,
dividends or distributions paid in respect of the Pledged Collateral; provided,
however, that any and all such dividends or distributions received in the form
of capital stock shall be Pledged Collateral.
6. Rights During Event of Default. Upon the occurrence of an Event
------------------------------
of Default:
6.1 Voting and Distribution Rights. At the option of Pledgees,
------------------------------
all rights of Pledgor to exercise the voting and other consensual rights which
Pledgor would otherwise be entitled to exercise pursuant to Section 5.1 above,
and to receive the interest, premiums, dividends and distributions which Pledgor
would otherwise be authorized to receive and retain pursuant to Section 5.2
above, shall cease, and all such rights shall thereupon become vested in
Pledgees who shall thereupon have the sole right to exercise such voting and
other consensual rights and to receive and to hold as Pledged Collateral such
dividends and distributions.
6.2 Distributions Held in Trust. All dividends and other
---------------------------
distributions which are received by Pledgor contrary to the provisions of this
Agreement shall be received in trust for the benefit of Pledgees.
7. Remedies. Upon the occurrence and during the continuance of an
--------
Event of Default, Pledgees shall have in any jurisdiction where enforcement is
sought, in addition to all other rights and remedies that Pledgees may have
under this Agreement and under applicable law or in equity, all of the rights
and remedies as a secured party under the Uniform Commercial Code as enacted in
any such jurisdiction.
8. Miscellaneous.
-------------
8.1 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing in the English language and shall be
deemed to have been given (i) if personally delivered, when so delivered, (ii)
if mailed, one (1) week after being placed in the United States mail, registered
or certified, postage prepaid, addressed to the party to whom it is directed at
the address set forth on the signature page hereof or (iii) if given by
telecopier, when such notice or communication is transmitted to the telecopier
number set forth on the signature page hereof and written confirmation of
receipt is received. Each of the parties shall be entitled to specify a
different address by giving the other parties notice as aforesaid.
8.2 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver, unless otherwise expressly provided.
8.3 Headings. Section and subsection headings are not to be
--------
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
8.4 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns.
<PAGE>
8.5 Governing Law. The validity, construction and interpretation
-------------
of this Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
8.6 Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, each one of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
8.7 Third Parties. Nothing in this Agreement, expressed or
-------------
implied, is intended to confer upon any person other than the parties hereto and
their respective heirs, representatives, successors and assigns any rights or
remedies under or by reason of this Agreement.
8.8 Arbitration. Any controversy arising out of or relating to
-----------
this Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. Neither party shall institute a
proceeding hereunder until that party has furnished to the other party, by
registered mail, at least thirty (30) days prior written notice of its intent to
do so.
8.9 Construction. This Agreement was reviewed by legal counsel
------------
for each party hereto and is the product of informed negotiations between the
parties hereto. If any part of this Agreement is deemed to be unclear or
ambiguous, it shall be construed as if it were drafted jointly by the parties.
Each party hereto acknowledges that no party was in a superior bargaining
position regarding the substantive terms of this Agreement.
8.10 Consent to Jurisdiction. Subject to Section 8.8, each
-----------------------
party hereto, to the fullest extent it may effectively do so under applicable
law, irrevocably (i) submits to the exclusive jurisdiction of any court of the
State of California or the United States of America sitting in the City of Los
Angeles over any suit, action or proceeding arising out of or relating to this
Agreement, (ii) waives and agrees not to assert, by way of motion, as a defense
or otherwise, any claim that it is not subject to the jurisdiction of any such
court, any objection that it may now or hereafter have to the establishment of
the venue of any such suit, action or proceeding brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum, (iii) agrees that a final judgment in any
such suit, action or proceeding brought in any such court shall be conclusive
and binding upon such party and may be enforced in the courts of the United
States of America, the State of California or the Republic of Mexico (or any
other courts to the jurisdiction of which such party is or may be subject) by a
suit upon such judgment and (iv) consents to process being served in any such
suit, action or proceeding by mailing a copy thereof by United States mail,
registered or certified, postage prepaid, return receipt requested, to CT
Corporation at 818 West Seventh Street, Los Angeles, California 90017 (and each
party hereby irrevocably appoints CT Corporation as its lawful agent to accept
such service of process on behalf of such party). Each party agrees that such
service (i) shall be deemed in every respect effective service of process upon
such party in any such suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon and
personal delivery to such party.
8.11 Expenses. Each party shall bear the expenses incurred by
--------
it in connection with the negotiation, execution and delivery of this Agreement
and the other agreements and instruments contemplated hereby and the
consummation of the transactions contemplated hereby and thereby.
8.12 Severable Provisions. The provisions of this Agreement
--------------------
are severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions, and
any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
Pledgor: TAG MEX, INC.
By /s/ Gerard Guez
------------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Telecopier: (323) 881-0368
Pledgees:
/s/ Antonio Haddad Haddad
------------------------------------------
ANTONIO HADDAD HADDAD
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
/s/ Miguel Angel Haddad Yunes
------------------------------------------
MIGUEL ANGEL HADDAD YUNES
Calle Reforma Norte No. 131
Colonia Centro, C.P. 75770
Tehuacan, Puebla
/s/ Mario Alberto Haddad Yunes
------------------------------------------
MARIO ALBERTO HADDAD YUNES
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
/s/ Marco Antonio Haddad Yunes
------------------------------------------
MARCO ANTONIO HADDAD YUNES
Calle Miguel de Cervantes Saavedra
No. 170
Fraccionamiento El Mollino, C.P. 75699
Tehuacan, Puebla
/s/ Rosa Maria Yunes Haddad
------------------------------------------
ROSA MARIA YUNES HADDAD
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
/s/ Maria Andrea Haddad Yunes
------------------------------------------
MARIA ANDREA HADDAD YUNES
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
<PAGE>
EXHIBIT 10.90
REVOLVING CREDIT, FACTORING
AND
SECURITY AGREEMENT
between
TARRANT APPAREL GROUP,
TAG MEX, INC.,
certain Lenders parties hereto,
and GMAC COMMERCIAL CREDIT LLC,
as Agent for Lenders
January 21, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS............................................................1
1.1 Accounting Terms................................................1
1.2 General Terms...................................................1
1.3 Uniform Commercial Code Terms..................................14
II. ADVANCES, PAYMENT, INTEREST AND FEES.....................................15
2.1 (a) Advances..................................................15
(b) Revolving Line of Credit..................................15
2.2 Repayment of Excess Advances...................................15
2.3 Procedure for Revolving Advances Borrowing.....................15
2.4 Disbursement of Advance Proceeds...............................16
2.5 Repayment of Advances..........................................17
2.6 Statement of Account...........................................17
2.7 Letters of Credit..............................................18
2.8 Issuance of Letters of Credit..................................18
2.9 Requirements For Issuance of Letters of Credit.................18
2.10 Other Lender's Participation...................................19
2.11 Additional Payments............................................19
2.12 Absolute Obligation to Repay...................................19
2.13 Relationship to Letter of Credit Applications..................20
2.14 Relationship to Letter of Credit Supplement....................21
III. Factoring of Receivables..............................................21
3.1 Covered Sales..................................................21
3.2 Customer Credit Approval.......................................21
3.3 Purchase Price of Factored Receivables.........................21
3.4 Matured Funds..................................................21
3.5 Monthly Statement..............................................22
3.6 Chargebacks....................................................22
IV. INTEREST AND FEES........................................................22
4.1 Interest.......................................................22
4.2 Letters of Credit..............................................22
4.3 Unused Line Fee................................................24
4.4 Factor's Commission............................................24
4.5 Agent's Fee....................................................24
4.6 Reimbursement Costs............................................24
4.7 Computation of Interest and Fees...............................24
4.8 Maximum Charges................................................24
4.9 Increased Costs................................................24
4.10 Capital Adequacy...............................................25
4.11 Survival.......................................................26
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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V. COLLATERAL: GENERAL TERMS................................................26
5.1 Security Interest in the Collateral............................26
5.2 Perfection of Security Interest................................26
5.3 Disposition of Collateral......................................26
5.4 Preservation of Collateral.....................................26
5.5 Ownership of Collateral........................................27
5.6 Defense of Agent's Interests...................................27
5.7 Books and Records..............................................28
5.8 Compliance with Laws...........................................28
5.9 [Intentionally Omitted]........................................28
5.10 Inspection of Premises.........................................28
5.11 Insurance......................................................28
5.12 Failure to Pay Insurance.......................................29
5.13 Payment of Taxes...............................................29
5.14 Payment of Leasehold Obligations...............................30
5.15 Receivables....................................................30
(a) Nature of Receivables.....................................30
(b) Solvency of Customers.....................................30
(c) Location of Borrower......................................30
(d) Collection of Receivables.................................30
(e) Notification of Assignment of Receivables.................31
(f) Power of Agent to Act on Borrower's Behalf................31
(g) No Liability..............................................31
(h) Establishment of Depository Accounts......................32
5.16 Inventory......................................................32
5.17 Maintenance of Equipment.......................................32
5.18 Exculpation of Liability.......................................32
5.19 Environmental Matters..........................................32
VI. REPRESENTATIONS AND WARRANTIES...........................................32
6.1 Authority......................................................33
6.2 Formation and Qualification....................................33
6.3 Survival of Representations and Warranties.....................33
6.4 Tax Returns....................................................33
6.5 Financial Statements...........................................33
6.6 Corporate Name.................................................34
6.7 Compliance.....................................................34
6.8 Solvency; No Litigation, Violation,............................34
6.9. Patents, Trademarks, Copyrights and Licenses...................35
6.10 Licenses and Permits...........................................35
6.11 Default of Indebtedness........................................35
6.12 No Default.....................................................35
6.13 No Burdensome Restrictions.....................................35
6.14 No Labor Disputes..............................................36
6.15 Margin Regulations.............................................36
6.16 Investment Company Act.........................................36
6.17 Disclosure.....................................................36
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<TABLE>
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6.18 Swaps..........................................................36
6.19 Year 2000 Issue................................................36
VII. AFFIRMATIVE COVENANTS...................................................37
7.1 Payment of Fees................................................37
7.2 Conduct of Business and Maintenance of Existence and Assets....37
7.3 Violations.....................................................37
7.4 Government Receivables.........................................37
7.5 Financial Covenants............................................38
7.6 Paydown Period.................................................38
7.7 Execution of Supplemental Instruments..........................38
7.8 Payment of Indebtedness........................................38
7.9 Standards of Financial Statements..............................38
7.10 Year 2000 Issue Compliance.....................................38
VIII. NEGATIVE COVENANTS......................................................39
8.1 Merger, Consolidation, Acquisition and Sale of Assets..........39
8.2 Creation of Liens..............................................39
8.3 Guarantees.....................................................39
8.4 Investments....................................................39
8.5 Loans..........................................................40
8.6 [INTENTIONALLY OMITTED]........................................40
8.7 Dividends......................................................40
8.8 Indebtedness...................................................40
8.9 Nature of Business.............................................40
8.10 Transactions with Affiliates...................................40
8.11 Leases.........................................................40
8.12 Limitation on Losses...........................................41
8.13 Pledge of Credit...............................................41
IX. CONDITIONS PRECEDENT.....................................................41
9.1 Conditions to Initial Advance..................................41
(a) Note......................................................41
(b) Filings Registrations and Recordings......................41
(c) Corporate Proceedings of Borrower.........................41
(d) Incumbency Certificates of Borrower.......................41
(e) Legal Opinion.............................................41
(f) No Litigation.............................................42
(g) Financial Condition Opinions..............................42
(h) Collateral Examination....................................42
(i) Fees......................................................42
(j) Pro Forma Financial Statements............................43
(k) Mortgage..................................................43
(l) Intercreditor Agreement...................................43
(o) Other.....................................................43
9.2 Conditions to Each Advance.......................................43
(a) Representations and Warranties............................43
(b) No Default................................................43
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<PAGE>
<TABLE>
<S> <C>
(c) Maximum Advances..........................................43
(d) Borrowing Base Certificate................................43
X. INFORMATION AS TO BORROWER................................................44
10.1 Disclosure of Material Matters.................................44
10.2 Schedules......................................................44
10.3 Environmental Reports..........................................44
10.4 Litigation.....................................................45
10.5 Occurrence of Defaults, etc....................................45
10.6 Government Receivables.........................................45
10.7 Annual Financial Statements....................................45
10.8 Quarterly Financial Statements.................................46
10.9 Monthly Financial Statements...................................46
10.10 Other Reports..................................................46
10.11 Additional Information.........................................46
10.12 Projected Operating Budget.....................................46
10.13 INTENTIONALLY OMITTED..........................................47
10.14 Additional Documents...........................................47
XI. EVENTS OF DEFAULT........................................................47
XII. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT..............................48
12.1 Rights and Remedies............................................48
12.2 Majority Lenders Discretion...................................50
12.3 Setoff.........................................................50
12.4 Rights and Remedies not Exclusive..............................50
XIII. THE AGENT..............................................................50
13.1 Appointment and Authorization..................................50
13.2 Agent and Affiliates...........................................51
13.3 Action by Agent................................................51
13.4 Consultation with Experts......................................51
13.5 Liability of Agent.............................................51
13.6 Indemnification................................................51
13.7 Failure to Act.................................................52
13.8 Credit Decision................................................52
13.9 Additional Lenders.............................................52
13.10 Information to Lenders.........................................52
13.11 Payments.......................................................52
XIV. WAIVERS AND JUDICIAL PROCEEDINGS.........................................53
14.1 Waiver of Notice...............................................53
14.2 Delay..........................................................53
14.3 Jury Waiver....................................................53
XV. EFFECTIVE DATE AND TERMINATION...........................................54
15.1 Term...........................................................54
15.2 Termination....................................................54
</TABLE>
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<S> <C>
XVI. MISCELLANEOUS...........................................................54
16.1 Governing Law..................................................54
16.2 Entire Understanding...........................................55
16.3 Amendments and Waivers.........................................55
16.4 Successors and Assigns; Participants; New Lenders..............56
16.5 Application of Payments........................................56
16.6 Indemnity......................................................56
16.7 Notice.........................................................56
16.8 Survivability..................................................57
16.9 Expenses.......................................................57
16.10 Injunctive Relief..............................................57
16.11 Joint and Several Obligations..................................57
16.12 Captions.......................................................58
16.13 Counterparts...................................................58
</TABLE>
EXHIBITS
A Revolving Percentages
B Form or Revolving Note
C Form of Request for Advance
D Form of Borrowing Base Certificate
E Form of Compliance Certificate
F Form of Lender Assignment Agreement
G Form of Trademark Security Agreement
SCHEDULES
1.2 Outstanding Liens
5.5 Equipment and Inventory Locations
6.2 Qualifications to do Business
6.6(a) Corporate Name
6.6(b) Acquisitions
6.8 Pending Litigation
6.9(a) Trademarks
6.9(b) Trademark Disputes
6.10 Licenses/Permits
6.14 Labor Disputes
8.3 Outstanding Guarantees
8.8 Outstanding Indebtedness
9.1(f) Litigation
<PAGE>
REVOLVING CREDIT, FACTORING
AND
SECURITY AGREEMENT
------------------
Revolving Credit, Factoring and Security Agreement dated as of
January 21, 2000 between Tarrant Apparel Group (doing business as Fashion
Resource), a corporation organized under the laws of the State of California
("TAG"), Tag Mex, Inc., a corporation organized under the laws of the State of
California ("TMI") (TAG and TMI are individually and collectively referred to as
"Borrower"), the financial institutions that are, or may hereafter become,
parties to this Agreement (individually a "Lender" and collectively "Lenders"),
and GMAC Commercial Credit LLC, a limited liability company organized under the
laws of the State of New York, hereinafter individually referred to as "GMAC"
and a Lender, and in its capacity as agent for Lenders, the "Agent".
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrower and Lenders hereby agree as follows:
I. DEFINITIONS.
1.1 Accounting Terms. As used in this Agreement or any
----------------
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 hereof or elsewhere in
this Agreement and accounting terms partly defined in Section 1.2 hereof to the
extent not defined, shall have the respective meanings given to them under GAAP
(as defined below).
1.2 General Terms. For purposes of this Agreement the
-------------
following terms shall have the following meanings:
"Advances" shall mean and include the Revolving Advances and
--------
Letters of Credit, as provided under Article II hereof.
"Affiliate" of any Person shall mean (a) any Person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with such Person, or (b) any Person who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote fifty percent (50%)
or more of the securities having ordinary voting power for the election of
directors of such Person, or (y) to
1
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direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agent" means GMAC in its capacity as agent for the ratable
-----
benefit of itself and the other Lenders as may from time to time become parties
hereto and any successors to GMAC in the capacity as agent.
"Alternate Base Rate" shall mean, for any date and with
-------------------
respect to all Base Rate Advances, a fluctuating rate per annum equal to the
higher of (i) the Prime Rate in effect on such day or (ii) the Federal Funds
Rate in effect on such day plus one-half percent (1/2 of 1%).
"Applicable LIBOR Rate Margin" means, with respect to any
----------------------------
LIBOR Rate Advance, the applicable per annum percentage set forth below opposite
the Total Leverage Ratio, as determined in accordance with the Compliance
Certificate most recently delivered pursuant to Section 10.8 hereof:
Applicable LIBOR Rate
Margin for LIBOR Rate
Total Leverage Ratio Advances
-------------------- ---------------------
greater than 1.0:1.0 1.50%
between .75:1.0- 1:0:1.0 1.25%
less than .75:1.0 1.00%
Any reduction or increase in the Applicable LIBOR Rate Margin shall be effective
beginning on the date that is three (3) days following the date on which Agent
receives Borrower's Compliance Certificate pursuant to Section 10.8 hereof. At
such time as TAG receives a senior debt rating from a recognized rating agency
acceptable to Agent of BBB or better, the Applicable LIBOR Rate Margin shall be
adjusted to the then current market rates as determined by Lenders in their
credit judgment. In the event Borrower does not timely deliver a Compliance
Certificate pursuant to Section 10.8 below, in addition to any rights and
remedies Lenders may have against Borrower as a result of its failure to provide
such Compliance Certificate, the "Applicable LIBOR Rate Margin" shall be deemed
to be 1.50% from the date such Compliance Certificate was due until the third
day following the receipt thereof by the Agent, at which date the "Applicable
LIBOR Rate Margin" shall be established pursuant to the grid set forth above.
"Base Rate Advance" shall mean each Revolving Advance bearing
-----------------
interest at the Alternate Base Rate.
"BNY" shall mean The Bank of New York.
---
"Borrower" is defined in the preamble.
--------
"Borrowing Base" means the sum of:
--------------
2
<PAGE>
(a) ninety percent (90%) of the Factor Payments Due minus
amounts payable to The Hong Kong and Shanghai Banking Corporation; plus
----
(b) ninety percent (90%) of the balance due on Eligible
Receivables; plus
----
(c) the lesser of (i) fifty percent (50%) of the value of
Eligible Inventory located in the United States of America or (ii) $25,000,000;
plus
- ----
(d) fifty percent (50%) of the value of Eligible Inventory
which is in transit and is covered by a commercial letter of credit issued by
the Issuer; plus
----
(e) the Overadvance Limit.
"Borrowing Base Certificate" shall have the meaning set forth
--------------------------
in Section 9.2(d)hereof.
"Business Day" shall mean any day other than a day on which
------------
commercial banks in New York, New York or Los Angeles, California are authorized
or required by law to close.
"Cash Interest Expense" shall mean total cash interest expense
---------------------
paid or payable by Borrower for monies borrowed from any Person.
"CERCLA" shall mean the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.
"Charges" shall mean all taxes, charges, fees, imposts, levies
-------
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, Liens, Claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral,
Borrower or any of its Affiliates.
"Claims" shall mean all security interests, Liens, claims or
------
encumbrances held or asserted by any Person against any or all of the
Collateral, other than (A) Charges and (B) Permitted Encumbrances.
"Closing Date" shall mean January ___, 2000 or such other date
------------
as may be agreed to by the parties hereto.
"Collateral" shall mean:
----------
(a) all Receivables;
3
<PAGE>
(b) all General Intangibles;
(c) all Inventory;
(d) all of Borrower's right, title and interest in and
to (i) its goods and other property including, but not limited to all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (ii) all of Borrower's rights as a consignor, a consignee, an
unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (iii) all
additional amounts due to Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims relating to any
goods securing this Agreement; (v) if and when obtained by Borrower, all real
and personal property of third parties in which Borrower has been granted a lien
or security interest as security for the payment or enforcement of Receivables;
and (vi) any other goods, personal property or real property now owned or
hereafter acquired in which Borrower has expressly granted a security interest
or may in the future grant a security interest to Agent for the benefit of
Secured Parties hereunder, or in any amendment or supplement hereto, or under
any other agreement between Agent, Lenders and Borrower relating hereto;
(e) all of Borrower's ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software (owned by Borrower or in which it has an interest or is
capable of granting a security interest), computer programs, tapes, disks and
documents relating to clauses (a), (b), (c) or (d) of this Paragraph; and
(f) all proceeds and products of clauses (a), (b), (c),
(d) and (e), in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments (including amounts due from Factor)and other instruments for the
payment of money, chattel paper, security agreements or documents, if any, as
applicable.
"Commercial Letter of Credit" shall mean a Letter of Credit,
---------------------------
other than a Standby Letter of Credit, used in connection with the purchase of
Inventory and/or equipment by Borrower, under which drafts could be payable at
sight or up to one hundred eighty (180) days sight.
"Compliance Certificate" shall have the meaning set forth in
----------------------
Section 10.8 hereof.
"Credit Risk" shall mean, with respect to each Factored
-----------
Receivable, the risk of loss resulting solely and exclusively from the financial
inability of Customer to pay at maturity a Receivable purchased by Factor
hereunder.
"Customer" shall mean the account debtor with respect to any
--------
of the Receivables, or the prospective purchaser of goods, services or both with
respect to any contract or other arrangement with Borrower, pursuant to which
Borrower is to deliver any personal property or perform any services.
"Default Rate" shall have the meaning set forth in Section 4.1
------------
hereof.
4
<PAGE>
"Delinquent Bank" shall have the meaning set forth in Section
---------------
13.11 (c).
"Depository Accounts" shall have the meaning set forth in
-------------------
Section 5.15(h) hereof.
"Dilution of Receivables" shall mean the average deficiency
-----------------------
from the net amount invoiced to account debtors of Borrower on Receivables to
the amount collected on such Receivables. The Dilution of Receivables shall be
calculated, on an averaged basis, for the most recent three- (3) month period of
time then concluded, and shall be computed monthly, commencing with the month
ending January 31, 2000.
"Dispute" shall mean any cause for non-payment of Receivables,
-------
including, without limitation, any alleged defense, counterclaim, offset,
dispute or other claim whether arising from or relating to the sale of goods or
rendition of services or arising from or relating to any other transaction or
occurrence, including, without limitation any Customer Year 2000 Issue, except
for the Customer's financial inability to pay a Receivable at maturity.
"Documents" shall have the meaning set forth in Section 9.1(c)
---------
hereof.
"Dollar" and the sign "$" shall mean lawful money of the
------
United States of America.
"EBITDA" means the sum of Borrower's net income before taxes
------
plus interest expense, depreciation, depletion, amortization and other non-cash
charges.
"Eligible Inventory" shall mean Inventory, excluding work in
------------------
process, located in the United States of America or in transit thereto or
therefrom, valued at the lower of cost or market value, determined on a
first-in-first-out basis, which is, (i) not obsolete, slow moving or
unmerchantable, (ii) subject to a perfected, first priority security interest in
favor of Agent for the benefit of Secured Parties, (iii) in conformity to all
standards imposed by any governmental agency, division or department thereof
which has regulatory authority over such goods or the use or sale thereof, and
(iv) not imported from Tarrant Company, Ltd. Inventory shall be deemed to be
slow moving and, therefore, shall not qualify as Eligible Inventory in the event
it does not turn within ninety (90) days of the date of delivery to Borrower (or
within one hundred eighty (180) days, if covered by a purchase order acceptable
to Agent). Eligible Inventory shall include all Inventory in-transit for which
title has passed to Borrower (except for Inventory that does not otherwise
qualify as Eligible Inventory), which is insured to the full value thereof and
for which Agent shall have in its possession (a) all negotiable bills of lading
properly endorsed (including, without limitation, those in the possession of
Issuer), (b) all non-negotiable bills of lading issued in Agent's name and (c) a
letter of credit covering such Inventory, issued by a financial institution and
in an amount acceptable to Agent, naming Agent as beneficiary of such letter of
credit.
"Eligible Receivables" shall mean each Receivable (other than
--------------------
Factored Receivables, as well as Factored Receivables which have at any time
been charged back by Factor under Section 3.6 hereof) arising in the ordinary
course of Borrower's business, except that no Receivable shall be an Eligible
Receivable if:
5
<PAGE>
(a) it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than sixty (60) days after
the original due date or more than ninety (90) days from its invoice date;
(c) fifty percent (50%) or more of the Receivables from
the account debtor are not otherwise deemed Eligible Receivables hereunder;
(d) any covenant, representation or warranty contained
in this Agreement with respect to such Receivable has been breached;
(e) the account debtor is also Borrower's creditor or
supplier (but only to the extent of the amount due and owing by Borrower to such
account debtor), or the account debtor has disputed or made any claim with
respect to such Receivable due from such account debtor to Borrower, or the
Receivable otherwise is or may become subject to any right of setoff by the
account debtor (but only to the extent of the amount of such disputed liability
or claim);
(f) the account debtor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or
made an assignment for the benefit of creditors, or if a decree or order for
relief has been entered by a court having jurisdiction in the premises in
respect of the account debtor in an involuntary case under any state or federal
bankruptcy laws, as now constituted or hereafter amended, or if any other
petition or other application for relief under any state or federal bankruptcy
law has been filed against the account debtor, or if the account debtor has
failed, suspended business, ceased to be solvent, called a meeting of its
creditors, or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion of its
assets or affairs;
(g) the sale is to an account debtor outside the
continental United States, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Agent in its reasonable credit
judgment;
(h) the sale to the account debtor is on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment
or any other repurchase, return or contingent basis or is evidenced by chattel
paper;
(i) Except as to account debtors with a senior debt
rating of BBB or its equivalent, or better from a recognized rating agency
acceptable to Agent and provided no downgrade of rating below BBB or its
equivalent is threatened or pending, Agent believes, in its credit judgment,
that collection of such Receivable is insecure, or that such Receivable may not
be paid by reason of the account debtor's financial inability to pay; provided,
however, no Receivable previously included as an Eligible Receivable shall be
declared ineligible by this clause (i);
(j) the account debtor is the United States of America,
any state, or any department, agency or instrumentality of any of them, unless
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940,
6
<PAGE>
as amended (31 U.S.C. Section 3727, et seq. and 41 U.S.C. Section 15, et seq.),
------ ------
or has otherwise complied with other applicable statutes or ordinances;
(k) the goods giving rise to such Receivable have not
been shipped and delivered to and accepted by the account debtor or the services
giving rise to such Receivable have not been performed by Borrower and accepted
by the account debtor or the Receivable otherwise does not represent a final
sale;
(l) Except as to account debtors with a senior debt
rating of BBB, or its equivalent, or better from a recognized rating agency
acceptable to Agent, and provided no downgrade of rating below BBB or its
equivalent is threatened or pending, the Receivables of the account debtor
exceed a credit limit determined by Agent, in its sole credit judgment, to the
extent such Receivable exceeds such limit;
(m) the Receivable is subject to any material offset,
deduction, defense, dispute, or counterclaim;
(n) Borrower has made any agreement with any account
debtor for any deduction therefrom, except for discounts or allowances made in
the ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(o) any return, rejection or repossession of the
merchandise has occurred;
(p) such Receivable is not payable to Borrower;
(q) such Receivable is not subject to a first priority
perfected security interest in favor of Agent for the benefit of Secured Parties
and no other Lien other than Permitted Encumbrances; or
(r) such Receivable is not evidenced by an invoice or
other documentary evidence reasonably satisfactory to Agent.
"Environmental Laws" shall mean all environmental, land use,
------------------
zoning, and chemical use, statutes, ordinances and codes of the United States of
America, any state of the United States of America, and any locality thereof,
relating to the protection of the environment and/or governing the use, storage,
treatment, generation, transportation, processing, handling, production or
disposal of Hazardous Substances and the rules, regulations, policies,
guidelines, interpretations, decisions, orders and directives of federal, state
and local governmental agencies and authorities with respect thereto.
"Event of Default" shall mean the occurrence of any of the
----------------
events set forth in Article XI hereof.
"Factor" means GMAC.
------
7
<PAGE>
"Factor Payments Due" shall mean at any date all amounts
-------------------
payable by Factor to Borrower pursuant to Section 3.3 of this Agreement as of
such date.
"Factored Receivables" means Receivables purchased by Factor
--------------------
from Borrower, which Receivables have been credit approved by Factor pursuant to
Section 3.2 hereof:
(a) with respect to which no Claim or Dispute exists between
Borrower and account debtor relating to returns, rejections or losses of
merchandise;
(b) that is not the obligation of an account debtor located in
a foreign country;
(c) that is otherwise acceptable to Factor.
"Factored Receivables Payment Date" shall mean, for any
---------------------------------
Receivable purchased by Factor, two (2) Business Days after the date on which
the applicable Receivable is actually collected by Factor.
"Federal Funds Rate" shall mean, for any day, the weighted
------------------
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent.
"Fixed Charge Coverage Ratio" shall mean the ratio of (i)
---------------------------
EBITDA to (ii) the sum of Cash Interest Expense, plus scheduled principal
payments on Indebtedness plus cash expenses for capital expenditures and taxes.
This ratio will be calculated at the end of each fiscal quarter, using results
of that quarter and each of the three (3) immediately preceding quarters.
"Funded Debt" means, on any date of determination, the sum of
-----------
the aggregate outstanding amount of Indebtedness for borrowed money, including
current and long-term Indebtedness, but not to include accounts payable of
Borrower.
"GAAP" shall mean generally accepted accounting principles in
----
the United States of America in effect from time to time.
"General Intangibles" shall mean all of Borrower's general
-------------------
intangibles, whether now owned or hereafter acquired including, without
limitation, all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trade names, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
(but only those in which a security interest may be taken), all claims under
guaranties, security interests or other security held by or granted to Borrower
to secure payment of any of the Receivables by an account
8
<PAGE>
debtor, all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables) and all rights of Borrower to the
payment of monies from Factor hereunder.
"Hazardous Substance" shall mean, without limitation, any
-------------------
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous wastes, hazardous or toxic substances or related materials as
defined in CERCLA, the Hazardous Materials Transportation Act, as amended (49
U.S.C. Section 1801, et seq.), or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.
"Hazardous Wastes" includes all waste materials subject to
----------------
regulation under CERCLA, or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Indebtedness" of a Person at a particular date shall mean all
------------
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Indemnity Letters" shall mean those certain indemnity letters
-----------------
of even date herewith between Agent and The CIT Group/Commercial Services and
Finova Capital Corporation.
"Interest Coverage Ratio" shall mean the ratio of (i) EBITDA
-----------------------
to (ii) Cash Interest Expense. This ratio will be calculated at the end of each
fiscal quarter, using results of that quarter and each of the three (3)
immediately preceding quarters.
"Inventory" shall mean all of Borrower's now owned or
---------
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Issuer" means BNY in its capacity as issuer of the Letters of
------
Credit, or any replacement therefor agreed upon by Borrower and Majority
Lenders. Provided, however, that Borrower may, at its election, designate Sanwa
to issue Letters of Credit and if Sanwa agrees
9
<PAGE>
to do so, and agrees to issue the Letters of Credit pursuant to the terms and
condition of this Agreement, then Sanwa shall be Issuer.
"Lender Assignment Agreement" shall mean any Lender Assignment
---------------------------
Agreement, substantially in the form of Exhibit F hereto, delivered pursuant to
Section 13.9 hereof.
"Lenders" is defined in the preamble.
-------
"Letter of Credit" shall mean any letter of credit (whether a
----------------
Commercial Letter of Credit, or a Usance Letter of Credit, or a Standby Letter
of Credit) issued by Issuer pursuant to Section 2.7 hereof.
"Letter of Credit Application" shall have the meaning given
----------------------------
such term in Section 2.8(a) below.
"Letter of Credit Commitment" means with respect to Issuer,
---------------------------
Issuer's obligation to issue Letters of Credit pursuant to Section 2.1 hereof
and, with respect to each Lender, the obligations of such Lender to participate
in such Letters of Credit pursuant to Section 2.10 hereof.
"Letter of Credit Fees" shall have the meaning set forth in
---------------------
Section 4.2.
"Letter of Credit Supplement" means that certain letter
---------------------------
agreement of even date herewith between Borrower and GMAC relating to the
issuance of Letters of Credit.
"LIBOR Rate" means the rate of interest equal to the rate per
----------
annum published in The Wall Street Journal (West Coast Edition), for London
Interbank Offered Rates (LIBOR) for a term of one (1) month, averaged and
calculated monthly. The Wall Street Journal LIBOR Rate is announced or published
in the Money Rates Section of The Wall Street Journal from time to time. The
LIBOR Rate shall change whenever The Wall Street Journal LIBOR Rate for a term
of one (1) month changes. If The Wall Street Journal LIBOR Rate becomes
unavailable during the term of this Agreement, Agent may designate a reasonable
substitute index after written notice to Borrower.
"LIBOR Rate Advance" means any Revolving Advance bearing
------------------
interest at the LIBOR Rate plus any Applicable LIBOR Rate Margin.
"Lien" shall mean any mortgage, deed of trust, pledge,
----
hypothecation, assignment, security interest, lien, charge, Claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement in respect of any asset of Borrower of any kind or nature whatsoever
including, without limitation, any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction.
10
<PAGE>
"Line Year" means the period from the date of this Agreement
---------
through December 31, 2000, and each subsequent calendar year thereafter.
"Majority Lenders" shall mean, at any time, Lenders (other
----------------
than Delinquent Banks) whose proportionate interests in the Advances constitute
at least sixty-six and two thirds percent(66 2/3%).
"Matured Funds Rate" shall mean the rate of interest,
------------------
announced by Factor from time to time, as the rate applicable to matured funds,
such rate to be adjusted automatically on the effective date of any change in
such rate as announced by Factor.
"Maturity Date" shall mean January 31, 2005.
-------------
"Maximum Credit Amount" shall mean $105,000,000.
---------------------
"Mortgage" shall mean that certain mortgage duly executed by
--------
Mortgagor, in favor of Agent, as Mortgagee, in form and substance reasonably
acceptable to Agent, granting to Agent, for the benefit of Secured Parties, a
security interest in certain real property described as Lots 5, 6, 7, Y15 Calle
C, Manzana 6, Parque Industrial Puebla 2000, C.P. 72220, Mexico.
"Mortgagor" shall mean Tarrant Mexico, S. De R.L. De C.V.
---------
("TMX").
"Notes" shall mean, individually and collectively, the
-----
Revolving Notes.
"Obligations" shall mean any and all of Borrower's
-----------
Indebtedness or liabilities to Secured Parties hereunder and under the Notes and
Other Documents, of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several, absolute or contingent,
due or to become due, now existing or hereafter arising, contractual or
tortious, liquidated or unliquidated, regardless of how such indebtedness or
liabilities arise.
"Other Documents" shall mean the Questionnaire and any and all
---------------
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrower and/or delivered to Agent or
any Secured Party in respect of the transactions contemplated by this Agreement.
"Overadvance Limit" means the amount of Twenty Five Million
-----------------
Dollars ($25,000,000).
"Parent" of any Person shall mean a corporation or other
------
entity owning, directly or indirectly, more than fifty percent (50%) of the
shares of stock or other ownership interests having ordinary voting power to
elect a majority of the directors of the Person, or other Persons performing
similar functions for any such Person.
11
<PAGE>
"Payment Office" shall mean initially, the office of Agent
--------------
located at 1290 Avenue of the Americas, New York, New York 10104; thereafter,
such other office of Agent, if any, which it may designate by notice to Borrower
to be the Payment Office.
"Permitted Encumbrances" shall mean (a) Liens in favor of
----------------------
Agent for the benefit of Secured Parties; (b) Liens for taxes, assessments or
other governmental charges not delinquent, or, being contested in good faith and
by appropriate proceedings and with respect to which proper reserves have been
taken by Borrower; (c) Liens disclosed in the financial statements referred to
in Section 6.5, the existence of which Agent has consented to in writing but
which Liens shall, to the extent affecting the Collateral, be junior and
subordinate to the Lien in favor of Agent for the benefit of Secured Parties
hereunder; (d) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws, or under unemployment insurance;
(e) deposits or pledges to secure bids, tenders, contracts (other than contracts
for the payment of money), leases, statutory obligations, surety and appeal
bonds and other obligations of like nature arising in the ordinary course of
Borrower's business; (f) judgment Liens that have been stayed or bonded and
mechanics', workers', materialmen's or other like Liens arising in the ordinary
course of Borrower's business with respect to obligations which are not due or
which are being contested in good faith by Borrower; (g) Liens placed upon fixed
assets hereafter acquired to secure a portion of the purchase price thereof,
provided that any such Lien shall not encumber any other property of Borrower;
(h) other Liens incidental to the conduct of Borrower's business or the
ownership of its property and assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credit, and which do not
in the aggregate materially detract from Agent's rights in and to the Collateral
or the value of Borrower's property or assets or which do not materially impair
the use thereof in the operation of Borrower's business; and (i) Liens disclosed
on Schedule 1.2.
"Person" shall mean an individual, a partnership, a
------
corporation, a limited liability company, a business trust, a joint stock
company, a trust, an unincorporated association, a joint venture, a governmental
authority or any other entity of whatever nature.
"Prime Rate" for the purpose of this Agreement means the rate
----------
of interest publicly announced from time to time by BNY at its principal office
in New York as its prime rate or prime lending rate. This rate of interest is
determined from time to time by BNY as a means of pricing some loans to its
customers and is neither tied to any external rate of interest or index nor does
it necessarily reflect the lowest rate of interest actually charged by BNY to
any particular class or category of customers of BNY.
"Principal Owners" means any or all of Gerard Guez, members of
----------------
his immediate family and any trust created by Gerard Guez for estate planning
purposes.
"Prospective Event of Default" shall mean an event which, with
----------------------------
the giving of notice or passage of time or both, would constitute an Event of
Default.
"Questionnaire" shall mean the Questionnaire executed by
-------------
Borrower and delivered to Agent.
12
<PAGE>
"Receivables" shall mean all of Borrower's accounts, contract
-----------
rights, instruments, documents, chattel paper, general intangibles relating to
accounts, drafts and acceptances, and all other forms of obligations owing to
Borrower arising out of or in connection with the sale or lease of Inventory or
the rendition of services, all guarantees and other security therefor, whether
secured or unsecured, now existing or hereafter created.
"Request for Advance" shall mean a Request for Advance
-------------------
substantially in the form of Exhibit C hereto.
"Revolving Advances" shall mean Advances made other than
------------------
Letters of Credit.
"Revolving Note" means a promissory note of Borrower payable
--------------
to each Lender, substantially in the form of Exhibit B hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of Borrower to such Lender
resulting from outstanding Advances, and also means all other promissory notes
acceptable from time to time in substitution therefor or renewal thereof.
"Revolving Percentage" means relative to any Lender, the
--------------------
percentage set forth opposite the name of such Lender in Exhibit A hereto or set
forth in the then most recent Lender Assignment Agreement executed by such
Lender, as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreement(s) executed by such Lender and its assignee Lender(s) and
delivered pursuant to Section 13.9 hereof.
"Sanction/Embargo Programs" shall mean economic and other
-------------------------
sanctions and embargo program restrictions promulgated by the government of the
United States of America or any officer or agency thereof including but not
limited to the President and the Office of Foreign Assets Control of the
Treasury Department, or either of them.
"Sanwa" shall mean Sanwa Bank California, a California banking
-----
corporation.
"Secured Parties" shall mean, collectively and severally,
---------------
Agent acting in its capacity as such hereunder, Factor acting in its capacity as
such hereunder, the Lenders acting in their capacities as such hereunder and
Issuer acting in its capacity as such hereunder.
"Standby Letter of Credit" shall mean a Letter of Credit,
------------------------
other than a Commercial Letter of Credit, given to provide assurances of payment
or performance.
"Subsidiary" of any Person shall mean a corporation or other
----------
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions for
such entity, are owned, directly or indirectly, by such Person.
13
<PAGE>
"Tangible Net Worth" means the gross book value of Borrower's
------------------
assets (excluding goodwill, patents, trademarks, trade names, organization
expense, unamortized debt discount and expense, capitalized or deferred research
and development costs, deferred marketing expenses, deferred receivables, and
other like intangibles, and monies due from Affiliates, officers, directors,
employees, or shareholders, of Borrower) less Total Liabilities, including but
not limited to accrued and deferred income taxes, and any reserves against
assets.
"Total Leverage Ratio" means the ratio of Total Liabilities to
--------------------
Tangible Net Worth. This ratio will be calculated at the end of each fiscal
quarter.
"Total Liabilities" means the sum of current liabilities plus
-----------------
long term liabilities.
"Toxic Substance" shall mean any material present on real
---------------
property or leasehold interests in real property in the United States of America
which have been shown to have significant adverse effect on human health or
which is subject to regulation under the Toxic Substances Control Act (TSCA), 15
U.S.C. Section 2601, et seq., applicable state law, or any other applicable
------
Federal or state laws now in force or hereafter enacted, relating to toxic
substances. "Toxic Substance" includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.
"Trademark Security Agreement" shall mean the Trademark
----------------------------
Security Agreement, in substantially the form of Exhibit G, executed and
delivered by Borrower in favor of Agent.
"Usance Draft" shall mean any draft, other than a draft
------------
payable at sight, drawn under a Commercial Letter of Credit and accepted by the
Issuer.
"Usance Letter of Credit" shall mean a Commercial Letter of
-----------------------
Credit under which the drafts are payable other than at sight.
"Year 2000 Issue" shall mean the inability of computer
---------------
software, hardware and firmware systems and/or equipment containing embedded
computer chips owned or operated by a Person or used or relied upon in the
conduct of a Person's business (including systems and equipment supplied by
others or with which such Person's computer systems interface) to properly
receive, transmit, process, manipulate, store, retrieve, re-transmit, without
errors or delays, or in any other way to accurately recognize or otherwise
utilize data and information in all respects in relation to the year 2000.
1.3 Uniform Commercial Code Terms. All terms used herein and
-----------------------------
defined in the Uniform Commercial Code as adopted in the State of California
shall have the meaning given therein unless otherwise defined herein.
14
<PAGE>
II. ADVANCES, PAYMENT, INTEREST AND FEES.
------------------------------------
2.1 (a) Advances. Subject to the terms and conditions set
--------
forth in this Agreement, each Lender will make Advances to Borrower, to the
extent of its Revolving Percentage, in aggregate amounts outstanding at any time
equal to the lesser of (x) the Maximum Credit Amount or (y)the Borrowing Base.
(b) Revolving Line of Credit. This is a revolving line
------------------------
of credit providing for Revolving Advances and Letters of Credit. Issuer will
issue Letters of Credit pursuant to Section 2.7 hereof and each Lender agrees
that it will participate in such Letters of Credit in accordance with Section
2.10 hereof.
2.2 Repayment of Excess Advances. Borrower agrees not to
----------------------------
permit the outstanding principal balance of Revolving Advances plus the
outstanding amounts of any Letters of Credit, including amounts drawn on Letters
of Credit and not yet reimbursed, plus amounts that are or may become payable
to The CIT Group/Commercial Services and Finova Capital Corporation pursuant to
the Indemnity Letters to exceed the lesser of (x) the Maximum Credit Amount or
(y) the Borrowing Base. If Borrower exceeds this limit, Borrower will
immediately pay the excess to Agent. In the event such excess amount remains
outstanding for five (5) or more Business Days in any month during the term of
this Agreement, the average daily balance of the Obligations in that month shall
bear interest at a rate equal to one-half of one percent (0.50%) per annum in
excess of the interest rate then in effect. The imposition and payment of the
increased charges stated above shall not constitute a waiver of Lenders' rights
with respect to Borrower's failure to immediately pay such excess amount when
due.
2.3 Procedure for Revolving Advances Borrowing.
------------------------------------------
(a) The Revolving Advances made by each Lender shall be
evidenced by a Revolving Note payable to the order of such Lender.
(b) Each Lender shall endorse on the schedules annexed
to its Revolving Note, the date, amount and maturity of each Revolving Advance
made by it and the amount of each payment of principal made by Borrower with
respect thereto. Each Lender is irrevocably authorized by Borrower to endorse
its Revolving Note and each Lender's record shall be rebuttably correct and
binding on Borrower in the absence of a manifest error; provided, however, that
the failure of a Lender to make, or an error in making a notation thereon with
respect to any Revolving Advance shall not limit or otherwise affect the
obligations of Borrower hereunder or under any such Note to such Lender.
(c) Borrower shall give Agent notice in the form of a
Request for Advance prior to 5:00 p.m. (New York Time) on a Business Day of its
request to incur, on the following Business Day, a Revolving Advance hereunder.
Should any amount required to be paid as interest hereunder, or as fees or other
charges under this Agreement, or with respect to any other Obligation, become
due, the same shall be deemed a request for a Revolving Advance as of the date
such payment is due, in the amount required to pay in full such interest, fee,
charge or Obligation under this Agreement, and such request shall be
irrevocable.
15
<PAGE>
(d) Upon receipt of the Request for Advance, Agent shall
promptly notify each Lender of the contents thereof and of such Lender's
Revolving Percentage of the Advance specified therein and such Request for
Advance shall not thereafter be revocable by Borrower.
(e) Not later than 1:00 p.m. (New York Time) on the date
of the Advance, each Lender shall make available its Revolving Percentage of the
Advance, in Federal or other funds immediately available to Agent at its Payment
Office or at such other address as Agent may hereafter designate by notice to
Borrower and Lenders and, unless Agent determines that any applicable condition
specified in Article IX has not been satisfied, Agent will promptly make the
funds so received from Lenders available to Borrower as provided in Section 2.4
hereof.
(f) Subject to Article IX, unless Agent shall have
received notice from a Lender prior to the date of any Advance that such Lender
will not make available to Agent such Lender's Revolving Percentage of such
Advance, Agent may assume that such Lender has made such Revolving Percentage
available to Agent on the date of such Advance in accordance with subsection (e)
of this Section and Agent may, in reliance upon such assumption, make available
to Borrower on such date a corresponding amount. If and to the extent such
Lender shall not have so made such Revolving Percentage available to Agent, such
Lender and (without waiving any claim of Borrower against such Lender) Borrower
severally agree to repay Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to Borrower until the date such amount is repaid to Agent at (i) in
the case of Borrower, a rate per annum to the interest rate then in effect for
such Advance, and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to Agent the corresponding amount, such amount so repaid
shall constitute such Lender's Revolving Percentage of the requested Advance for
purposes of this Agreement. The failure of any Lender to make available such
Lender's Revolving Percentage of any Advance shall not relieve any other Lender
of any obligation to make available on such date such other Lender's Revolving
Percentage of any Advance. Notwithstanding the foregoing, if Agent shall have
received written notice from Borrower or any Lender, or otherwise has actual
knowledge, that one or more of the applicable conditions precedent set forth in
Article IX will not be satisfied at the time of such Advance and compliance
therewith is not waived by Lenders, no Lender will have any obligation to make
such requested Advance.
2.4 Disbursement of Advance Proceeds. All Advances shall be
--------------------------------
disbursed from whichever office or other place Agent may designate from time to
time and, together with any and all other Obligations of Borrower to Secured
Parties, shall be charged to Borrower's account on each Secured Party's books.
Until the Maturity Date, unless sooner terminated as herein provided, Borrower
may use the Revolving Advances by borrowing, prepaying and reborrowing, all in
accordance with the terms and conditions hereof. The proceeds of each Revolving
Advance requested by Borrower or deemed to have been requested by Borrower under
Section 2.3(c) hereof shall, with respect to requested Revolving Advances to the
extent each Lender makes such Revolving Advances, be made available to Borrower
on the day so requested by way of credit to Borrower's operating account at
Agent as Borrower may designate following
16
<PAGE>
notification to Agent, in immediately available Federal or other immediately
available funds or, with respect to Revolving Advances deemed to have been
requested, be disbursed to Agent on behalf of Secured Parties in payment of
outstanding Obligations.
2.5 Repayment of Advances.
---------------------
(a) The Obligations shall be due and payable in full on
the earlier of (i) the Maturity Date, (ii) prepayment in full, as herein
provided, or (iii) termination by acceleration or as otherwise provided herein.
(b) All payments of principal, interest and other
amounts payable hereunder, or under any of the related agreements shall be made
to Agent at the Payment Office not later than 11:00 a.m. (New York Time) on the
due date therefor in lawful money of the United States of America in Federal or
other funds immediately available to Agent, it being expressly agreed and
understood that if a payment is received after 11:00 a.m. (New York time) by
Agent, such payment will be considered to have been made by Borrower on the next
succeeding Business Day and interest thereon shall be payable by Borrower at the
rate otherwise applicable thereto during such extension. Agent shall have the
right to effectuate payment on any and all Obligations due and owing hereunder
by charging Borrower's account or by making Advances as provided in Sections 2.3
and 2.4 hereof.
(c) Borrower shall pay principal, interest, and all
other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
(d) At its option, Borrower may prepay the Advances in
whole at any time or in part from time to time, provided, however, that for a
LIBOR Rate Advance Borrower shall provide Agent one (1) Business Days' prior
written notice, without premium or penalty but with interest on the principal
being prepaid to the date of such repayment provided that each partial
prepayment shall be in the minimum amount of $ 100,000 or in integral multiples
thereof.
2.6 Statement of Account. Agent and each Secured Party shall
--------------------
maintain, in accordance with their customary procedures, a loan account in the
name of Borrower in which shall be recorded the date and amount of each Advance
made by each Secured Party and the date and amount of each payment in respect
thereof; provided, however, the failure by any Secured Party to record the date
-------- -------
and amount of any Advance shall not adversely affect such Secured Party. For
each month, Agent shall send to Borrower a statement showing the accounting for
the Advances made, payments made or credited in respect thereof, and other
transactions between Secured Parties and Borrower during such month. The monthly
statements shall be deemed correct and binding upon Borrower in the absence of
manifest error and shall constitute an account stated between Secured Parties
and Borrower unless Agent receives a written statement of Borrower's specific
exceptions thereto within thirty (30) days after such statement is received by
Borrower. The records of Agent with respect to the loan account shall be prima
-----
facie evidence of the amounts of Advances and other changes thereto and of
- -----
payments applicable thereto.
17
<PAGE>
2.7 Letters of Credit. Subject to the terms and conditions
-----------------
hereof, Agent shall cause Issuer to issue Letters of Credit ("Letters of
Credit"); provided, however, that Issuer will not issue or cause to be issued
-------- -------
any Letters of Credit to the extent that the face amount of such Letters of
Credit would then cause the sum of the outstanding Revolving Advances plus
outstanding Letters of Credit plus amounts that are or may become payable to The
CIT Group/Commercial Services and Finova Capital Corporation pursuant to the
Indemnity Letters to exceed the lesser of (x) the Maximum Credit Amount or (y)
the Borrowing Base; provided, further, that the maximum amount of outstanding
-------- -------
Letters of Credit shall not exceed $20,000,000 in the aggregate at any time. All
disbursements or payments related to Letters of Credit shall be deemed to be
Revolving Advances and shall bear interest at the Alternate Base Rate from time
to time in effect; Letters of Credit that have not been drawn upon shall not
bear interest.
2.8 Issuance of Letters of Credit.
-----------------------------
(a) Pursuant to the terms of this Agreement and the
Letter of Credit Supplement, Borrower may request Agent to cause the issuance by
Issuer of a Commercial Letter of Credit or a Standby Letter of Credit by
delivering to Agent at the Payment Office, Issuer's standard forms of Letter of
Credit and Security Agreement together with Issuer's standard form of Letter of
Credit Application (collectively, the "Letter of Credit Application"), completed
to the satisfaction of Issuer; and, such other certificates, documents and other
papers and information as Issuer and Agent may reasonably request. In the event
Issuer is BNY, GMAC, not in its capacity as Agent, but in its individual
capacity, shall cause such Letters of Credit issued by BNY to be consistent with
the terms of this Agreement in all material respects.
(b) Each Letter of Credit shall, among other things, (i)
provide for the payment of sight drafts or, with respect to a Usuance Letter of
Credit, Usuance Drafts, when presented for honor thereunder in accordance with
the terms thereof and when accompanied by the documents described therein and
(ii) have an expiry date not later than one hundred eighty (180) days after such
Letter of Credit's date of issuance and in no event later than the Maturity
Date. Each Letter of Credit Application and each Letter of Credit shall be
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revisions thereof (or, in the event Issuer has elected to follow
the International Standby Practices 1998 ("ISP"), then by the ISP and any
amendments or revisions thereto), and, to the extent not inconsistent therewith,
the laws of the State of New York (provided, however, in the event Issuer is
Sanwa and Sanwa designates that the laws of the State of California shall govern
the Letter of Credit Application and Letter of Credit, Borrower hereby agrees to
such designation).
2.9 Requirements For Issuance of Letters of Credit.
----------------------------------------------
(a) Subject to the terms and conditions of the Letter of
Credit Supplement, Borrower authorizes and directs Issuer of any Letter of
Credit to name Borrower as the "Account Party" therein and to deliver to Issuer
all instruments, documents, and other writings and property received by Issuer
pursuant to the Letter of Credit or in connection with any acceptance and to
accept and rely upon Issuer's instructions and agreements with respect to
18
<PAGE>
all matters arising in connection with the Letter of Credit, the application
therefor or any acceptance therefor.
(b) In connection with all Letters of Credit issued or
created by Issuer under this Agreement, Borrower hereby appoints Issuer, or its
designee, as its attorney, with full power and authority at any time following
the occurrence of an Event of Default (i) to sign and/or endorse Borrower's name
upon any warehouse or other receipts, letter of credit applications and
acceptances; (ii) to sign Borrower's name on bills of lading; (iii) to clear
Inventory through Customs in the name of Borrower or Issuer or Issuer's
designee, and to sign and deliver to Customs Officials powers of attorney in the
name of Borrower for such purpose; and (iv) to complete in Borrower's or
Issuer's name, or in the name of Issuer's designee, any order, sale or
transaction, obtain the necessary documents in connection therewith, and collect
the proceeds thereof. Neither Issuer nor its attorneys will be liable for any
acts or omissions nor for any error of judgment or mistakes of fact or law,
except for Issuer's or its attorney's willful misconduct or gross negligence.
This power, being coupled with an interest, is irrevocable as long as any
Letters of Credit remain outstanding.
2.10 Other Lender's Participation. Upon the issuance of each
----------------------------
Letter of Credit issued by Issuer pursuant hereto, and without further action,
each Lender shall be deemed to have irrevocably purchased to the extent of its
Revolving Percentage, a participation interest in such Letter of Credit
(including any reimbursement obligation with respect thereto). Lenders hereby
absolutely and unconditionally (including, without limitation, following the
occurrence of an Event of Default) agree to purchase and sell among themselves
the dollar amount of any drawing under any Letter of Credit which is not paid on
the date when due by Borrower so that each unrepaid drawing shall be held and
participated in by Lenders in accordance with their respective Revolving
Percentage and to reimburse Agent, in accordance with their respective Revolving
Percentages, for any payment made by Agent or GMAC to Issuer for any drawing
under a Letter of Credit not paid by Borrower.
2.11 Additional Payments. Any sums expended by GMAC,
-------------------
individually or as Agent and by Secured Parties due to Borrower's failure to
perform or comply with its Obligations under this Agreement and any of the Other
Documents, including without limitation, the Letter of Credit Supplement and the
Indemnity Letters, may be charged to Borrower's account as a Revolving Advance
and added to the Obligations.
2.12 Absolute Obligation to Repay. Borrower's obligation to
----------------------------
repay drawings under any Letter of Credit (including its reimbursement
obligations to GMAC pursuant to the Letter of Credit Supplement) and to
reimburse Agent for payments made by Agent under the Indemnity Letters shall be
absolute, irrevocable and unconditional under any and all circumstances
whatsoever and irrespective of any setoff, counterclaim or defense to payment
which Borrower may have or have had, against Issuer, any Lender or any other
Person, including, without limitation, any setoff, counterclaim or defense based
upon or arising out of:
(i) Any lack of validity or enforceability of this
Agreement, the Letter of Credit Supplement, the Indemnity Letters or any
of the Other Documents;
19
<PAGE>
(ii) Any amendment or waiver of or any consent to
departure from the terms of any Letter of Credit or any letters of credit
or other documents identified in the Indemnity Letters;
(iii) the existence of any claim, setoff, defense or
other right which Borrower or any other Person may have at any time
against any beneficiary or any transferee of any Letter of Credit or any
letters of credit or other documents identified in the Indemnity Letters
(or any Person for whom any such beneficiary or any such transferee may be
acting);
(iv) Any allegation that any demand, statement or any
other document presented under any Letter of Credit or any letters of
credit or other documents identified in the Indemnity Letters is forged,
fraudulent, invalid or insufficient in any respect, or that any statement
there is untrue or inaccurate in any respect whatsoever or that variations
in punctuation, capitalization, spelling or format were contained in the
drafts or any statements presented in connection with any drawing under a
Letter of Credit or any letters of credit or other documents identified in
the Indemnity Letters;
(v) Any payment by Issuer under any Letter of Credit
or any letters of credit or other documents identified in the Indemnity
Letters against presentation of a draft or certificate that does not
strictly comply with the terms of such Letter of Credit, or any payment
made by Issuer under any Letter of Credit or any letters of credit or
other documents identified in the Indemnity Letters to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
for the benefit of creditors, liquidator, receiver or other representative
of or successor to any beneficiary or any transferee of any Letter of
Credit or any letters of credit or other documents identified in the
Indemnity Letters, including any arising in connection with any insolvency
proceeding;
(vi) Any exchange, release or non-perfection of any
Collateral; or
(vii) Any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or a
discharge of Borrower.
Nothing contained herein shall constitute a waiver of any rights of Borrower to
proceed against Issuer following payment by Borrower of amounts required
hereunder on account of claims arising out of the gross negligence or willful
misconduct of Issuer in connection with the issuance, administration or payment
under any Letter of Credit issued hereunder.
2.13 Letter of Credit Applications. The Letter of Credit
-----------------------------
Applications shall be in form satisfactory to each Lender and Borrower.
20
<PAGE>
2.14 Relationship to Letter of Credit Supplement. In the event
-------------------------------------------
of any inconsistency between the terms and provisions of this Agreement and the
terms and provisions of the Letter of Credit Supplement, the terms and
provisions of the Letter of Credit Supplement shall supersede and govern as it
relates to the parties thereto.
III. Factoring of Receivables.
------------------------
3.1 Covered Sales. Subject to Section 3.2 hereof, Borrower
-------------
hereby assigns and sells to Factor, as absolute owner, and Factor hereby
purchases from Borrower all Factored Receivables created on or after the Closing
Date. Factor's purchase of and acquisition of title to each Factored Receivable
will be effective as of the date of its creation and will be entered on Factor's
books when Borrower furnishes Factor with a copy of the respective invoice.
Factor is hereby authorized to notify each Customer of a Factored Receivable to
make payments directly to Factor. All proceeds of Factored Receivables shall be
deposited into an account in the name of and maintained with Factor. All funds
deposited in such account shall immediately become the property of Factor.
3.2 Customer Credit Approval. Borrower shall submit to Factor
------------------------
the principal terms of each Customer's orders for Factor's written credit
approval. Factor, may in its credit judgment, approve in writing all or a
portion of such Customer's orders, either by establishing a credit line limited
to a specific amount for a specific Customer, or by approving all or a portion
of a proposed purchase order submitted by Borrower. No credit approval shall be
effective (i) unless in writing, (ii) unless the goods are shipped or the
services rendered within the time specified in Factor's written credit approval
or within forty-five (45) days after the approval is given, if no time is
specified, and (iii) unless the assignment of the invoice evidencing the
applicable Receivable is received by Factor within five (5) Business Days from
the date of such invoice. After Customer has accepted delivery of the goods or
performance of the services, Factor shall then have the Credit Risk (but not the
risk of non-payment for any other reason), to the extent of the dollar amount
specified in the credit approval, on all Factored Receivables evidenced by
invoices which arise from orders approved by Factor in writing except for those
Receivables evidenced by invoices less than $150.00 and invoices evidencing
charges for samples supplied to Customers. Factor shall have neither the Credit
Risk nor the risk of non-payment for any other reason on Factored Receivables
arising from orders not approved by Factor in writing. Factor may, upon written
notice to Borrower, withdraw its credit approval or withdraw or adjust a credit
line at any time before Borrower delivers the goods or renders the services.
3.3 Purchase Price of Factored Receivables. The purchase price
--------------------------------------
of Factored Receivables is the net face amount thereof less Factor's commission.
The term "net face amount" means the gross face amount of the invoice, less
returns, discounts (which shall be determined by Factor where optional terms are
given), anticipated reductions or any other unilateral deductions taken by
Customers, and credits, and allowances to Customers of any nature. The purchase
price will be payable on the Factored Receivable Payment Date.
3.4 Matured Funds. On the last day of each month, Factor shall
-------------
credit Borrower's account with interest at the Matured Funds Rate in effect
during such month on the
21
<PAGE>
average daily balance during such month of any amounts payable by Factor to
Borrower hereunder (as confirmed by Factor by appropriate credit to Borrower's
account with Factor) which are not drawn by Borrower on the Factored Receivable
Payment Date, while held by Factor after the Factored Receivable Payment Date.
3.5 Monthly Statement. Factor will provide Borrower with a
-----------------
monthly accounting statement which will be fully binding, unless, within sixty
(60) days after such statement is mailed to Borrower or within sixty (60) days
after the mailing of any adjustment thereof that Factor may make, Borrower gives
Factor specific written notice of exceptions.
3.6 Chargebacks. Factor's Credit Risk, if any, on a Factored
-----------
Receivable shall immediately terminate without any action on Factor's part in
the event that (i) a Customer asserts a Dispute as a ground for non-payment of
Factored Receivable or returns or attempts to return the goods represented
thereby, or (ii) any warranty by Borrower to Factor as to a Factored Receivable
is asserted by Customer to Borrower or Factor, in writing, to have been
breached, or of which Factor has received notice from Customer of such
assertion, then Factor may charge to Borrower's account at any time the net face
amount of any Factored Receivable purchased hereunder (or portion thereof) on
which Factor does not then have the Credit Risk, together with interest thereon
from the due date of such Factored Receivable to the date of chargeback; such
action on the part of Factor shall not be deemed a reassignment of such
Receivable and will not impair Factor's rights thereto or security interest
therein, which will continue to be effective until all Obligations hereunder are
fully satisfied.
IV. INTEREST AND FEES.
-----------------
4.1 Interest. Interest on Revolving Advances shall be payable
--------
in arrears on the last day of each month and shall be calculated on the actual
average of such daily Revolving Advances outstanding during the month. Pursuant
to an appropriately delivered Request for Advance in the form of Exhibit C,
Borrower may elect that Revolving Advances accrue interest at a rate per annum:
(a) with respect to a Base Rate Advance, equal to the
sum of the Alternate Base Rate from time to time in effect; or
(b) with respect to a LIBOR Rate Advance, equal to the
sum of the LIBOR Rate plus the Applicable LIBOR Rate Margin then in effect.
Upon and after the occurrence of an Event of Default,
and during the continuation thereof, the Obligations hereunder shall bear
interest at the Alternate Base Rate plus any increased charges (if applicable)
assessed pursuant to Section 2.2 hereof, plus two percent (2%) per annum (the
"Default Rate").
4.2 Letters of Credit.
-----------------
(a) Borrower shall pay (A) to Agent, for the pro rata
benefit of Lenders (based upon their Revolving Percentage), a fee equal to one
fifth of one percent (.20%)
22
<PAGE>
per annum times the average daily aggregate undrawn amount of Borrower's
Commercial Letters of Credit outstanding from time to time during the term of
this Agreement for each corresponding period, which fee shall be due and payable
in arrears on the last day of each month and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason, and (B) to
Issuer an issuance fee of one eighth of one percent (.125%) and a negotiation
fee of one eighth of one percent (.125%) of the face amount of each such
Commercial Letter of Credit, together with other normal and customary charges
associated with such Letter of Credit, which such charges shall be due and
payable in accordance with Issuer's standard procedures and shall not be subject
to rebate or proration upon the termination of this Agreement for any reason.
(b) Borrower shall pay to Agent a Usance Draft fee equal
to one and one half percent (1.5% ) per annum of the amount of accepted Usance
Drafts, which fee shall be calculated on a monthly basis and due and payable in
advance at the time a Usance Draft is accepted by Issuer and monthly thereafter
and shall not be subject to rebate or proration upon the termination of this
Agreement for any reason. Issuer shall be paid one quarter of one percent (.25%)
of the Usance Draft fee. The remaining one and one quarter percent (1.25%) of
the Usance Draft fee shall be shared by Lenders based upon their Revolving
Percentage.
(c) Borrower shall pay (A) to Agent a fee for issuing or
causing to be issued a Standby Letter of Credit equal to one and one half
percent (1.5%) per annum on the outstanding amount thereof, which fee shall be
due and payable monthly in advance, commencing on the date of issuance and
monthly thereafter and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason; the Issuer shall be paid one
quarter of one percent (.25%) of this fee and the remaining one and one quarter
percent (1.25%) of this fee shall be shared by the Lenders based upon their
Revolving Percentage; and (B) to Issuer all normal and customary charges
associated with the issuance, negotiation, and administration of each such
Standby Letters of Credit (such charges, as of the Closing Date, being as set
forth in a separate letter between Issuer and Borrower), which such charges
shall be due and payable in accordance with Issuer's standard procedures and
shall not be subject to rebate or proration upon the termination of this
Agreement for any reason.
(d) Upon the occurrence of any Event of Default, and
upon termination of this Agreement for any reason while Letters of Credit are
outstanding, Borrower will, upon demand by Agent, cause cash to be deposited and
maintained in an account with Issuer, as cash collateral to secure all
Obligations, in an amount equal to outstanding Letters of Credit and Borrower
hereby irrevocably authorizes Issuer, in its discretion, on Borrower's behalf
and in Borrower's name, to open such an account and to make and maintain
deposits therein, or in an account opened by Borrower, in the amounts required
to be made by Borrower, out of the proceeds of Receivables or other Collateral
or out of any other funds of Borrower coming into Issuer's possession at any
time. Issuer will invest such cash collateral (less applicable reserves) in such
short-term money market items as to which Issuer and Borrower mutually agree and
the net return on such investments shall be credited to such account and
constitute additional cash collateral. Borrower may not withdraw amounts
credited to any such account except upon payment and performance in full of all
Obligations and termination of this Agreement.
23
<PAGE>
4.3 Unused Line Fee. Borrower agrees to pay to Agent, for the
---------------
pro rata benefit of Lenders (based upon their Revolving Percentages) a fee (i)
of one quarter of one percent (.25%) per annum on the average unused line amount
up to and including $75,000,000 and (ii) one half of one percent (.50%) per
annum on the average unused line amount over $75,000,000, determined by the
weighted average credit outstanding during the specified period. The calculation
of credit outstanding shall include undrawn amounts of Letters of Credit. The
fee shall be payable quarterly in arrears, commencing March 31, 2000.
4.4 Factor's Commission. Borrower agrees to pay Factor a
-------------------
monthly commission as described in the letter agreement between Borrower and
Factor dated as of the date hereof.
4.5 Agent's Fee. Borrower agrees to pay Agent a fee as
-----------
described in the letter agreement between Borrower and Agent dated as of the
date hereof.
4.6 Reimbursement Costs.
-------------------
(a) Borrower agrees to reimburse Secured Parties for any
expenses they incur in the preparation of this Agreement and any agreement or
instrument required by this Agreement (expenses include, but are not limited to
reasonable attorneys' fees).
(b) Borrower agrees to reimburse Agent for the cost of
periodic audits and appraisals of the real and personal property collateral
securing this Agreement, at such intervals as Agent may reasonably require. The
audits and appraisals may be performed by employees of Agent or by independent
appraisers.
4.7 Computation of Interest and Fees. Interest and fees
--------------------------------
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days and for the actual number of days elapsed. If any payment to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the interest rate currently in effect during such
extension.
4.8 Maximum Charges. In no event whatsoever shall interest and
---------------
other charges hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that any Lender has received
interest and other charges hereunder in excess of the highest rate applicable
hereto, such excess interest shall be first applied to any unpaid principal
balance owed by Borrower, and if the then remaining excess interest is greater
than the previously unpaid principal balance, such Lender shall promptly refund
such excess amount to Borrower and the provisions hereof shall be deemed amended
to provide for such permissible rate.
4.9 Increased Costs. In the event that any applicable law,
---------------
treaty or governmental regulation, or any change therein or in the
interpretation or application thereof, or compliance by any Lender (for purposes
of this Section 4.9, the term "Lender" shall include Lender or any corporation
or bank controlling Lender) with any request or directive (whether or
24
<PAGE>
not having the force of law) from any central bank or other financial, monetary
or other authority, shall:
(a) subject any Lender to any tax of any kind whatsoever
with respect to this Agreement or any Advance or change the basis of taxation of
payments to such Lender of principal, fees, interest or any other amount payable
hereunder or under any Other Documents (except for changes in the rate of tax on
the overall net income of such Lender by the jurisdiction or taxing authority in
which it maintains its principal office);
(b) impose, modify or hold applicable any reserve,
special deposit, assessment or similar requirement against assets held by, or
deposits in or for the account of, advances or loans by, or other credit
extended by, any office of such Lender, including, without limitation, pursuant
to Regulation D of the Board of Governors of the Federal Reserve System; or
(c) impose on any Lender any other condition with
respect to this Agreement, any Other Documents or any other Advances;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing or maintaining its Advances hereunder by an amount that Lender
deems to be material or to reduce the amount of any payment, whether of
principal, interest or otherwise, in respect of any of the Advances by an amount
that Lender deems to be material, then, Borrower shall promptly pay such Lender,
upon its demand, such additional amount as will compensate such Lender for such
additional cost or such reduction, as the case may be. Lender shall certify the
amount of such additional cost or reduction to Borrower, and such certification
shall be conclusive absent manifest error.
4.10 Capital Adequacy.
----------------
(a) In the event that any Lender shall have determined
that any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender (for purposes of this Section 4.10, the term "Lender" shall
include Lender or any corporation or bank controlling Lender) and the office or
branch where Lender (as so defined) makes or maintains any Advances with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder to a level below that which Lender
could have achieved but for such adoption, change or compliance (taking into
consideration Lender's policies with respect to capital adequacy) by an amount
deemed by Lender to be material, then, from time to time, Borrower shall pay
upon demand to Lender such additional amount or amounts as will compensate
Lender for such reduction. In determining such amount or amounts, such Lender
may use any reasonable averaging attribution methods. The protection of this
Section 4.10 shall be available to Lenders regardless of any possible contention
of invalidity or inapplicability of the law, regulation or condition which shall
have been imposed.
25
<PAGE>
(b) A certificate of any Lender setting forth such
amount or amounts as shall be necessary to compensate such Lender as specified
in this Section 4.10 shall be delivered to Borrower and shall be conclusive
absent manifest error.
4.11 Survival. The obligations of Borrower under Sections 4.9
--------
and 4.10 hereof shall survive termination of this Agreement and the Other
Documents and payment in full of the Obligations.
V. COLLATERAL: GENERAL TERMS
-------------------------
5.1 Security Interest in the Collateral. To secure the prompt
-----------------------------------
payment and performance to Secured Parties of the Obligations, Borrower hereby
assigns, pledges and grants to Agent, on behalf of Secured Parties, a continuing
security interest in and to all of the Collateral, whether now owned or existing
or hereafter acquired or arising and wheresoever located. Borrower shall mark
its books and records as may be necessary and appropriate to evidence, protect
and perfect Agent's and Secured Parties' security interest and shall cause its
financial statements to reflect such security interest.
5.2 Perfection of Security Interest. Borrower shall take all
-------------------------------
action that may be necessary or desirable, or that Agent may request, so as at
all time to maintain the validity, perfection, enforceability and priority of
the security interest of Agent and Secured Parties in the Collateral or to
enable Agent to protect, exercise or enforce its rights hereunder and in the
Collateral, including, but not limited to, (i) immediately discharging all Liens
other than Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien
waivers from Principal Owners and any other owner of real property in the United
States of America, in which Collateral upon which Advances have been or will be
made is located, (iii) delivering to Agent, endorsed or accompanied by such
instruments of assignment as Agent may specify, and stamping or marking, in such
manner as Agent may specify, any and all chattel paper, instruments, letters of
credits and advices thereof and documents evidencing or forming a part of the
Collateral, and (iv) executing and delivering financing statements, instruments
of pledge, mortgages, notices and assignments, in each case in form and
substance reasonably satisfactory to Agent, relating to the creation, validity,
perfection, maintenance or continuation of Agent's security interest under the
Uniform Commercial Code or other applicable law. All charges, expenses and fees
Agent may incur in doing any of the foregoing, and any local taxes relating
thereto, shall be charged to Borrower's account and added to the Obligations, or
at Agent's option, shall be paid to Agent immediately upon demand.
5.3 Disposition of Collateral. Borrower will safeguard and
-------------------------
protect all Collateral for Agent's general account and make no disposition
thereof whether by sale, lease or otherwise except the sale of Inventory in the
ordinary course of business.
5.4 Preservation of Collateral. Following the occurrence of an
--------------------------
Event of Default in addition to the rights and remedies set forth in Section
12.1 hereof, Agent: (a) may at any time take such steps as Agent, on behalf of
Secured Parties, deems necessary to protect Agent's interest in and to preserve
the Collateral, including the hiring of such security guards or
26
<PAGE>
the taking of such other security protection measures as Agent may reasonably
deem appropriate under the circumstances; (b) may employ and maintain at any of
Borrower's premises a custodian who shall have full authority to do all acts
reasonably necessary to protect Agent's interests in the Collateral; (c) may
lease warehouse facilities to which Agent may move all or part of the
Collateral; (d) may use any of Borrower's owned or leased lifts, hoists, trucks
and other facilities or equipment for handling or removing the Collateral; and
(e) shall have, and is hereby granted, a right of ingress and egress to the
places where the Collateral is located, and may proceed over and through any of
Borrower's owned or leased property. Borrower shall cooperate fully with all of
Agent's efforts to preserve the Collateral and will take such actions to
preserve the Collateral as Agent may direct. All of Agent's reasonable expenses
of preserving the Collateral, including any expenses relating to the bonding of
a custodian, shall be charged to Borrower's account and added to the
Obligations.
5.5 Ownership of Collateral. With respect to the Collateral,
-----------------------
at the time the Collateral becomes subject to Agent's security interest: (a)
Borrower shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each and every item
of the Collateral to Agent on behalf of the Secured Parties; and, except for
Permitted Encumbrances the Collateral shall be free and clear of all Liens,
Claims, Charges and encumbrances whatsoever; (b) each document and Agreement
executed by Borrower or delivered to Agent in connection with this Agreement
shall be true and correct in all respects; (c) all signatures and endorsements
of Borrower that appear on such documents and agreements shall be genuine and
Borrower shall have full capacity to execute same; and (d) Borrower's Inventory
is located as set forth on Schedule 5.5 and shall not be removed from such
location(s) without the prior written consent of Agent, except with respect to
the sale of Inventory in the ordinary course of business.
5.6 Defense of Agent's Interests. Until (a) payment and
----------------------------
performance in full of all of Obligations and (b) termination of this Agreement,
Agent's interests in the Collateral hereby granted to Agent on behalf of Secured
Parties shall continue in full force and effect. During such period Borrower
shall not, without Agent's prior written consent, pledge, sell (except Inventory
in the ordinary course of business), assign, transfer, create or suffer to exist
a security interest in, Lien, Claim or Charge upon or encumber or allow or
suffer to be encumbered in any way except for Permitted Encumbrances, any part
of the Collateral. Borrower shall defend Agent's interests in the Collateral
against any and all Persons whatsoever. At any time following demand by Agent
for payment of all Obligations, Agent shall have the right to take possession of
the Collateral and the Collateral in whatever physical form contained, including
without limitation: labels, stationery, documents, instruments and advertising
materials. If Agent exercises this right to take possession of the Collateral,
Borrower shall, upon demand, assemble it in the appropriate manner and make it
available to Agent at a place reasonably convenient to Agent. In addition, with
respect to all Collateral, Agent shall be entitled to all of the rights and
remedies set forth herein and further provided by the Uniform Commercial Code or
other applicable law. Borrower shall, and Agent may, at its option, instruct all
suppliers, carriers, forwarders, warehouses or others receiving or holding cash,
checks, Inventory, documents or instruments in which Agent holds a security
interest to deliver same to Agent or subject to Agent's order and if they shall
come into Borrower's possession, they, and each of
27
<PAGE>
them, shall be held by Borrower in trust as Agent's trustee, and Borrower will
promptly deliver them to Agent in their original form together with any
necessary endorsement.
5.7 Books and Records. Borrower (a) shall keep proper books of
-----------------
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of such independent
certified public accountant as shall then be regularly engaged by Borrower.
5.8 Compliance with Laws. Borrower shall comply in all
--------------------
materials respects with all acts, rules, regulations, directions and orders of
any legislative, administrative or judicial body or official applicable to the
Collateral or any part thereof or to the operation of Borrower's business, the
non-compliance with which would have a material adverse effect on the
Collateral, or the operations, business or condition (financial or otherwise) of
Borrower except where the failure to comply will not have a material and adverse
effect. Borrower may, however, contest or dispute any acts, rules, regulations,
orders and directions of those bodies or officials in any reasonable manner,
provided that any related Lien is inchoate or stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect Agent's Lien on
or security interest in the Collateral.
5.9 [Intentionally Omitted]
5.10 Inspection of Premises. At all reasonable times Agent
----------------------
shall have full access to and the right to audit, check, inspect and make
abstracts and copies from Borrower's books, records, audits, correspondence and
all other papers relating to the Collateral and the operation of Borrower's
business. Agent and its agents may enter upon any of Borrower's premises at any
time during business hours and at any other reasonable time, and from time to
time (provided, however, if there is then existing no Event of Default or
Prospective Event of Default, Agent shall provide not less than two (2) Business
Days' prior notice) for the purpose of inspecting the Collateral and any and all
records pertaining thereto and the operation of Borrower's business.
5.11 Insurance. Borrower shall bear the full risk of loss from
---------
any loss of any nature whatsoever with respect to the Collateral, except in the
event and to the extent the Collateral is in possession of Agent and while in
Agent's possession, Agent is grossly negligent or engages in willful misconduct
and such loss is the result of the foregoing. At Borrower's own cost and expense
in amounts and with carriers acceptable to Agent, Borrower shall (a) keep all
its insurable properties and properties in which Borrower has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in
28
<PAGE>
businesses similar to Borrower's including, without limitation, business
interruption insurance; (b) maintain a bond in such amounts as is customary in
the case of companies engaged in business similar to Borrower's insuring against
larceny, embezzlement or other criminal misappropriation of insured's officers
and employees who may either singly or jointly with others at any time have
access to the assets or funds of Borrower either directly or through authority
to draw upon such funds or to direct generally the disposition of such assets;
(c) maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (d) maintain all such
workers' compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which Borrower is engaged in business; (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of such
policies by the renewal thereof at least thirty (30) days before any expiration
date, and (ii) appropriate loss payable endorsements in form and substance
satisfactory to Agent, naming Agent as loss payee as its interests may appear
with respect to all insurance coverage referred to in clauses (a)and(b) above,
and providing (A) that all proceeds thereunder shall be payable to Agent, (B) no
such insurance shall be affected by any act or neglect of the insured or owner
of the property described in such policy, and (C) that such policy and loss
payable clauses may not be canceled, amended or terminated unless at least
thirty (30) days' prior written notice is given to Agent. In the event of any
loss thereunder, the carriers named therein hereby are directed by Agent and
Borrower to make payment for such loss to Agent and not to Borrower and Agent
jointly. If any insurance losses are paid by check, draft or other instrument
payable to Borrower and Agent jointly, Agent may endorse Borrower's name thereon
and do such other things as Agent may deem advisable to reduce the same to cash.
Agent is hereby authorized to adjust and compromise claims under insurance
coverage referred to in clauses (a)and(b) above. All loss recoveries received by
Agent upon any such insurance may be applied to the Obligations, in such order
as Agent in its reasonable discretion shall determine. Any surplus shall be paid
by Agent to Borrower or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by Borrower to Agent on demand.
5.12 Failure to Pay Insurance. If Borrower fails to obtain
------------------------
insurance as hereinabove provided, or to keep the same in force, Agent, if Agent
so elects and upon notice to Borrower, may obtain such insurance and pay the
premium therefor for Borrower's account, and charge Borrower's account therefor
and such expenses so paid shall be part of the Obligations.
5.13 Payment of Taxes. Borrower will pay, when due, all taxes,
----------------
assessments and other Charges or Claims lawfully levied or assessed upon
Borrower or any of the Collateral including, without limitation, real and
personal property taxes, assessments and charges and all franchise, income,
employment, old age benefits, withholding, and sales taxes. If any tax by any
governmental authority is or may be imposed on or as a result of any transaction
between Borrower and Agent which Agent may be required to withhold or pay or if
any taxes, assessments, or other Charges remain unpaid after the date fixed for
their payment, or if any Claim shall be made which, in Agent's opinion, will
create a valid Lien, Charge or Claim on the Collateral, Agent may without notice
to Borrower pay the taxes, assessments, Liens, Charges or Claims and Borrower
hereby indemnifies and holds Agent harmless in respect thereof, except in the
event the foregoing is the result of the gross negligence or willful misconduct
of Agent. Agent will not pay any taxes, assessments, Liens, Charges or Claims to
the extent that Borrower has contested or disputed those Liens, Charges and
Claims in good faith, by expeditious protest,
29
<PAGE>
administrative or judicial appeal or similar proceeding provided that any
related tax lien is stayed and sufficient reserves are established to the
reasonable satisfaction of Agent to protect Secured Parties' security interest
in or Lien on the Collateral. The amount of any payment by Agent under this
Section 5.13 shall be charged to Borrower's account as a Revolving Advance and
added to the Obligations and, until Borrower shall furnish Agent with an
indemnity therefor (or supply Agent with evidence satisfactory to Agent that due
provision for the payment thereof has been made).
5.14 Payment of Leasehold Obligations. Borrower shall at all
--------------------------------
times pay, when and as due, its rental obligations under all material leases
under which it is a tenant, and shall otherwise comply, in all material
respects, with all other terms of such leases and keep them in full force and
effect and, at Agent's written request, will provide reasonable evidence of
having done so.
5.15 Receivables.
-----------
(a) Nature of Receivables. Each of the Receivables shall
---------------------
be a bona fide and valid account representing a bona fide indebtedness incurred
by Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of Borrower, or work, labor or services theretofore
rendered by Borrower and as of the date each Receivable is created, same shall
be due and owing in accordance with Borrower's standard terms of sale without
dispute, setoff or counterclaim except as may be stated on the Receivable
schedules delivered by Borrower to Agent.
(b) Solvency of Customers. Each Customer, to Borrower's
---------------------
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which Customer is obligated in full when due,
and, with respect to such Customers of Borrower who are not solvent, Borrower
has set up on its books and in its financial records bad debt reserves adequate
to cover such Receivables.
(c) Location of Borrower. The chief executive office for
--------------------
each Borrower is located at the address appearing on the signature page of this
Agreement. Until written notice is given to Agent by Borrower of any other
office at which it keeps its records pertaining to Receivables, all such records
shall be kept at such executive office.
(d) Collection of Receivables. Until Borrower's
-------------------------
authority to do so is terminated by Agent and Majority Lenders (which notice
Agent may give at any time following the occurrence of an Event of Default),
Borrower will, at Borrower's sole cost and expense, but on behalf of and for the
account of Secured Parties, collect as Secured Parties' property and in trust
for Agent on behalf of the Secured Parties all amounts received on Receivables
(other than Factored Receivables) and shall not commingle such collections with
Borrower's funds or use the same except to pay Obligations. Borrower shall, upon
request, deliver to Agent in original form and on the date of receipt thereof,
all checks, drafts, notes,
30
<PAGE>
money orders, acceptances, cash and other evidences of Indebtedness of
Customers. Factored Receivables shall be collected pursuant to Article III.
(e) Notification of Assignment of Receivables. At any
-----------------------------------------
time Agent shall have the right to send notice of the assignment of, and Agent's
security interest in, the Receivables (other than Factored Receivables) to any
and all Customers or any third party holding or otherwise concerned with any of
the Collateral. Thereafter, Agent shall have the right to collect the
Receivables (other than Factored Receivables), take possession of the
Collateral, or both. Agent's actual collection expenses, including but not
limited to, stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection may be charged to Borrower's account and added to the Obligations.
Factored Receivables shall be collected pursuant to Article III.
(f) Power of Agent to Act on Borrower's Behalf. Agent
------------------------------------------
shall have the right to receive, endorse, assign and/or deliver in the name of
Agent or Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and Borrower hereby waives notice
of presentment, protest and nonpayment of any instrument so endorsed. Upon the
occurrence of and during the continuance of an Event of Default, Borrower hereby
constitutes Agent or Agent's designee as Borrower's attorney with power (i) to
endorse Borrower's name upon any notes, acceptances, checks, drafts, money
orders or other evidences of payment or the Collateral; (ii) to sign Borrower's
name on any invoice or bill of lading relating to any of the Receivables; (iii)
to send verifications of Receivables, drafts against Customers, assignments and
verifications of Receivables; (iv) to send verifications of Receivables to any
Customer; (v) to sign Borrower's name on all financing statements or any other
documents or instruments deemed necessary or appropriate by Lenders to preserve,
protect, or perfect Secured Parties' interest in the Collateral and to file
same; (vi) to demand payment of the Receivables; (vii) to enforce payment of the
Receivables by legal proceedings or otherwise; (viii) to exercise all of
Borrower's rights and remedies with respect to the collection of the Receivables
and any other Collateral; (ix) to settle, adjust, compromise, extend or renew
the Receivables; (x) to settle, adjust or compromise any legal proceedings
brought to collect Receivables; (xi) to prepare, file and sign Borrower's name
on a proof of claim in bankruptcy or similar document against any account
debtor; (xii) to prepare, file and sign Borrower's name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables; and (xiii) to do all other acts and things necessary to carry out
this Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
omission or commission nor for any error of judgment or mistake of fact or of
law, unless done wilfully, maliciously or with gross negligence. This power,
being coupled with an interest, is irrevocable while any of the Obligations
remain unpaid. Agent shall have the right at any time during the occurrence of
an Event of Default, to change the address for delivery of mail addressed to
Borrower to such address as Agent may designate.
(g) No Liability. Agent shall not, under any
------------
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom except in the event any of the foregoing are the
result of its gross negligence or wilful misconduct. Agent may, without notice
or consent
31
<PAGE>
from Borrower, sue upon or otherwise collect, extend the time of payment of,
compromise or settle for cash, credit or upon any terms any of the Receivables
or any other securities, instruments or insurance applicable thereto and/or
release any obligor thereof. Agent is authorized and empowered to accept the
return of the goods represented by any of the Receivables, without notice to or
consent by Borrower, all without discharging or in any way affecting Borrower's
liability hereunder.
(h) Establishment of Depository Accounts. Borrower shall
------------------------------------
establish depository accounts ("Depository Accounts") in the name of Borrower at
a bank or banks reasonably acceptable to Agent for the deposit of all proceeds
of Receivables (other than Factored Receivables), and Borrower shall deposit all
proceeds of such Receivables or cause same to be deposited, in kind, in such
Depository Accounts. Borrower hereby assigns all of its right, title and
interest in and to all Depository Accounts, including the proceeds thereof, to
secure all Obligations of Borrower under this Agreement. Borrower shall advise
Agent of the location and account numbers of all Depository Accounts. Agent is
hereby authorized to give notices to any financial institution of its security
interest in any Depository Accounts maintained at such financial institution.
Borrower shall execute such documents as Agent deems necessary or appropriate to
obtain, maintain and perfect a security interest in the Depository Accounts.
Factored Receivables shall be collected pursuant to Article III.
5.16 Inventory. All Inventory has been, and will be produced
---------
by Borrower in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations and orders thereunder, except for that
Inventory produced outside of the United States of America.
5.17 Maintenance of Equipment. The equipment used by Borrower
------------------------
in the operation of its business shall be maintained in reasonably good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made.
5.18 Exculpation of Liability. Nothing herein contained shall
------------------------
be construed to constitute Agent as Borrower's agent for any purpose whatsoever,
nor shall Agent be responsible or liable for any shortage, discrepancy, damage,
loss or destruction of any part of the Collateral wherever the same may be
located and regardless of the cause thereof. Agent does not, whether by anything
herein or in any assignment or otherwise, assume any of Borrower's obligations
under any contract or agreement assigned to Agent, and Agent shall not be
responsible in any way for the performance by Borrower of any of the terms and
conditions thereof.
5.19 Environmental Matters. Borrower will establish and
---------------------
maintain a system to assure and monitor continued compliance with all applicable
Environmental Laws which system shall include periodic review of such
compliance.
VI. REPRESENTATIONS AND WARRANTIES.
------------------------------
Borrower represents and warrants as follows:
32
<PAGE>
6.1 Authority. Borrower has full power, authority and legal
---------
right to enter into this Agreement and the Other Documents and perform all
obligations hereunder. The execution, delivery and performance hereof and of the
Other Documents are within Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Borrower's by-laws,
certificate of incorporation or other applicable documents relating to
Borrower's formation or to the conduct of Borrower's business or of any material
agreement or undertaking to which Borrower is a party or by which Borrower is
bound, and will not conflict with nor result in any material breach in any of
the provisions of or constitute a default under or result in the creation of any
Lien, except Permitted Encumbrances, upon any asset of Borrower under the
provisions of any agreement, charter, instrument, by-law or other instrument to
which Borrower is a party or by which it may be bound.
6.2 Formation and Qualification. Borrower is duly incorporated
---------------------------
and in good standing under the laws of the State of California and is qualified
to do business and is in good standing in the states listed on Schedule 6.2,
------------
which constitute all states in which qualification and good standing are
necessary for Borrower to conduct its business and own its property and where
the failure to so qualify would have a material adverse effect on Borrower or
its business. Borrower has delivered to Agent true and complete copies of its
certificate of incorporation and by-laws and will promptly notify Agent of any
amendment or changes thereto.
6.3 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties of Borrower contained in this Agreement and the
Other Documents shall be true at the time of Borrower's execution of this
Agreement and the Other Documents, and shall survive the execution, delivery and
acceptance thereof by Lenders and the parties thereto. Borrower and Lenders
expressly agree that any misrepresentation or breach of any representation or
warranty whatsoever contained in this Agreement or the Other Documents shall be
deemed material.
6.4 Tax Returns. TAG's federal tax identification number is
-----------
95-4181026. TMI's federal tax identification number is 95-4717595. Borrower has
filed all federal, state and local tax returns and other reports it is required
by law to file and has paid all material taxes, assessments, fees and other
governmental charges that are due and payable. The provision for taxes on the
books of Borrower are adequate for all years not closed by applicable statutes,
and for its current fiscal year, and Borrower has no knowledge of any deficiency
or additional assessment in connection therewith not provided for on its books.
6.5 Financial Statements. The consolidated balance sheets of
--------------------
TAG and its Subsidiaries and such other Persons described therein (including the
accounts of all Subsidiaries for the respective periods during which a
subsidiary relationship existed) as of September 30,1999, and the related
statements of income, changes in stockholder's equity, and changes in financial
position statements for the period ended on such date, all accompanied by
reports thereon containing opinions without qualification by independent
certified public accountants, copies of which have been delivered to Agent, have
been prepared in accordance with GAAP, practices and procedures, consistently
applied (except for changes in application in which such accountants concur and
present fairly the financial position of Borrower and its Subsidiaries at such
date and the results of their operations for such period). Since September 30,
1999, there has been no change in the condition, financial or otherwise, of
Borrower or its
33
<PAGE>
Subsidiaries as shown on the consolidated balance sheet as of such date, except
changes in the ordinary course of business, none of which individually or in the
aggregate is materially adverse.
6.6 Corporate Name. Borrower has not been known by any other
--------------
corporate name in the past five (5) years and does not sell Inventory under any
other name except as set forth on Schedule 6.6 (a) hereto, nor has Borrower been
----------------
the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5)
years except as set forth on Schedule 6.6 (b) hereto.
6.7 Compliance.
----------
(a) Borrower has duly complied with, and its facilities,
business assets, property, leaseholds and equipment are in compliance in all
material respects with, the provisions, of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, and all other Environmental Laws,
the Sanction/Embargo Programs, and all other laws, and all rules and regulations
promulgated thereunder; and there are not and there have been no material
outstanding citations, notices or orders of non-compliance issued to Borrower or
relating to its business, assets, property, leaseholds or equipment under any
laws, rules or regulations.
(b) Borrower has been issued all required federal, state
and local licenses, certificates or permits relating to, and Borrower and its
facilities, businesses, assets, property, leaseholds and equipment are in
compliance in all material respects with all applicable Environmental Laws and
all other laws, rules and regulations.
6.8 Solvency; No Litigation, Violation, Indebtedness or
---------------------------------------------------
Default.
- -------
(a) Borrower is solvent, able to pay its debts as they
mature, has capital sufficient to carry on its business and all businesses in
which it is about to engage, and (i) as of the Closing Date, the fair present
saleable value of its assets, calculated on a going concern basis, is in excess
of the amount of its liabilities and (ii) subsequent to the Closing Date, the
fair saleable value of its assets (calculated on a going concern basis) will be
in excess of the amount of its liabilities.
(b) Except as disclosed in Schedule 6.8, and in the
------------
financial statement delivered pursuant hereto, Borrower has (i) no pending or
threatened litigation, actions or proceedings which involve the probability of
materially and adversely affecting its business, assets, operations, condition
or prospects, financial or otherwise, or the Collateral, or the ability of
Borrower to perform this Agreement, and (ii) no liabilities nor indebtedness
other than the Obligations.
(c) Borrower is not in violation of any applicable
statute, rule, regulation or ordinance in any respect materially and adversely
affecting the Collateral or its business, assets, operations or condition or
prospects, financial or otherwise, nor is Borrower in violation of any order of
any court, governmental authority or arbitration board or tribunal that would
have a material adverse effect on the financial condition of Borrower.
34
<PAGE>
(d) Borrower has received no notice that it is not in
full compliance with any of the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the regulations and published
interpretations thereunder, and (i) it has not engaged in any Prohibited
Transactions as defined in Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder, (ii) it has met all applicable minimum funding requirements under
Section 302 of ERISA in respect of their plans and no funding requirements have
been postponed or delayed, (iii) it has no knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any of the employee benefit
plans, (iv) there exists no event described in Section 4043 of ERISA, excluding
subsections 4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day
notice period contained in 12 Code of Federal Regulations Section 2615.3 has not
been waived, (v) it does not have any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons other than its
employees or former employees, and (vi) it has not withdrawn, completely or
partially, from any multi-employer pension plans so as to incur liability under
the Multi-Employer Pension Plan Amendments of 1980.
6.9. Patents, Trademarks, Copyrights and Licenses. All
--------------------------------------------
patents, patent applications, trademarks, trademark applications, copyrights,
copyright applications, trade names, trade secrets and licenses owned or
utilized by Borrower are set forth on Schedule 6.9 (a), have been duly
----------------
registered or filed with all appropriate governmental authorities; and there is
no objection or pending challenge to the validity of any such material patent,
trademark, copyright, trade name, trade secret or license and Borrower is not
aware of any grounds for any challenge, except as set forth in Schedule 6.9 (b)
----------------
hereto.
6.10 Licenses and Permits. Except as set forth in Schedule
-------------------- --------
6.10, Borrower (a) is in compliance with and (b) has procured and is now in
- ----
possession of, all material licenses or permits required by any applicable
Federal, state or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits would have a material
adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective of Borrower.
6.11 Default of Indebtedness. Borrower is not in default in
-----------------------
the payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued, and no event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute an event of default thereunder.
6.12 No Default. Borrower is not in default in the payment or
----------
performance of any of its contractual obligations, and no Prospective Event of
Default has occurred.
6.13 No Burdensome Restrictions. Borrower is not party to any
--------------------------
contract or agreement the performance of which would materially adversely affect
the business, assets, operations, condition (financial or otherwise) or
prospects of Borrower. Borrower has not agreed
35
<PAGE>
or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted Encumbrance.
6.14 No Labor Disputes. Borrower is not involved in any labor
-----------------
dispute; there are no strikes or walkouts or union organization of any of
Borrower's employees threatened or in existence and no labor contract is
scheduled to expire during the term of this Agreement other than as set forth on
Schedule 6.14 hereto.
6.15 Margin Regulations. Borrower is not engaged, nor will it
------------------
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Revolving
Advance will be used for "purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
6.16 Investment Company Act. Borrower is not an "investment
----------------------
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, nor is it controlled by such a company.
6.17 Disclosure. No representation or warranty made by
----------
Borrower in this Agreement or in any financial statement, report, certificate or
any other document furnished in connection herewith contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading. There is no fact known to
Borrower or which reasonably should be known to Borrower which Borrower has not
disclosed to Lenders in writing with respect to the transactions contemplated by
this Agreement which materially and adversely affects the condition (financial
or otherwise), results of operations, business, or assets of Borrower and its
Subsidiaries.
6.18 Swaps. Borrower is not a party to, nor will it be a party
-----
to, any swap agreement whereby Borrower has agreed or will agree to swap
interest rates or currencies unless same provides that damages upon termination
following an event of default thereunder are payable on an unlimited "two-way
basis" without regard to fault on the part of either party.
6.19 Year 2000 Issue. Borrower and its Subsidiaries have
---------------
reviewed the effect that the Year 2000 Issue would have on their respective
businesses. The costs to Borrower and its Subsidiaries of any reprogramming
required to avoid the Year 2000 Issue to permit the proper functioning of
Borrower's and its Subsidiaries' computer software, hardware and firmware
systems and equipment containing embedded microchips and the proper processing
of data, and the testing of such reprogramming, and of the reasonably
foreseeable consequences of the Year 2000 Issue to Borrower and its Subsidiaries
(including reprogramming errors and the failure of systems or equipment supplied
by others or with which Borrower's and its Subsidiaries' computer systems
interface) are not reasonably expected to result in an Event of Default or to
have a material and adverse effect on Borrower's or its Subsidiaries'
businesses, assets, operations, prospects or condition (financial or otherwise).
Borrower has evaluated and
36
<PAGE>
assessed the potential impact of the Year 2000 Issue upon Borrower's and it
Subsidiaries' customers, key suppliers and vendors and their efforts to manage
the risks arising out of the Year 2000 Issue, and Borrower has determined that
Borrower's and its Subsidiaries' businesses, assets, operations, prospects and
condition (financial and otherwise) shall not be materially adversely affected
by any such impact or risks.
VII. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that it shall, until payment in full
of the Obligations and termination of this Agreement:
7.1 Payment of Fees. Pay to Agent on demand all usual and
---------------
customary fees and expenses which Secured Parties incur in connection with (a)
the forwarding of Advance proceeds and (b) the establishment and maintenance of
any Depository Accounts as provided for in Section 5.15(h). Agent may, without
making demand, charge the account of Borrower for all such fees and expenses.
7.2 Conduct of Business and Maintenance of Existence and
----------------------------------------------------
Assets. (a) Conduct continuously and operate actively its business according to
- ------
good business practices and maintain all of its properties useful or necessary
in its business in good working order and condition (reasonable wear and tear
excepted and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
trade names, trade secrets and trademarks; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business including but not limited to those
relating to the Federal Occupational Safety and Health Act, Environmental Laws
and Sanction/Embargo Programs where the failure to do so would have a material
adverse effect on Borrower or its business; and (c) make all such material
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States of
America or any political subdivision thereof, or in any other jurisdiction,
where the failure to do so would have a material adverse effect on Borrower or
its business.
7.3 Violations. Promptly notify Agent in writing of any
----------
violation of any law, statute, regulation or ordinance of any governmental
entity, or of any agency thereof, applicable to Borrower which will, either in
the present or future, materially and adversely affect the Collateral or
Borrower's business, assets, operations, condition or prospects (financial or
otherwise).
7.4 Government Receivables. Take all steps necessary to
----------------------
protect Agent's interest in the Collateral under the Federal Assignment of
Claims Act or other applicable Federal, state or local statutes or ordinances
and deliver to Agent appropriately endorsed, any instrument or chattel paper
connected with any Receivable arising out of contracts between Borrower and the
United States of America, any state or any department, agency or instrumentality
of any of them.
37
<PAGE>
7.5 Financial Covenants. Borrower shall maintain on a
-------------------
consolidated basis at all times:
(a) Tangible Net Worth in an amount not less than
$116,500,000;
(b) A Fixed Charge Coverage Ratio of at least 1.5:1.0;
(c) An Interest Coverage Ratio of at least 5.0:1.0; and
(d) A Total Leverage Ratio of not more than 1.8:1.0 for
the fiscal quarters ending December 31, 1999, March 31, 2000, June 30, 2000,
September 30, 2000, and December 31, 2000, and not more than 1.5:1.0 for the
fiscal quarter ending March 31, 2001 and each fiscal quarter thereafter.
7.6 Paydown Period. Reduce the amount of Advances outstanding
--------------
under the Overadvance Limit to zero for a period of at least thirty (30)
consecutive days in each LineYear.
7.7 Execution of Supplemental Instruments. Execute and deliver
-------------------------------------
to Agent from time to time, upon demand, such supplemental agreements,
statements, assignments and transfers, or instructions or documents relating to
the Collateral, and such other instruments as Agent may reasonably request, in
order that the full intent of this Agreement may be carried into effect.
7.8 Payment of Indebtedness. Pay, discharge or otherwise
-----------------------
satisfy at or before maturity (subject, where applicable, to specified grace
periods and, in the case of the trade payables, to normal payment practices) all
its obligations and liabilities of whatsoever nature, except when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and Borrower shall have provided for such reserves as Agent may
reasonably deem proper and necessary.
7.9 Standards of Financial Statements. Cause all financial
---------------------------------
statements referred to in Sections 10.7, 10.8 and 10.9 to be complete and
correct in all material respects (subject, in the case of interim statements, to
normal year-end audit adjustments) and to be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).
7.10. Year 2000 Issue Compliance. Borrower shall have taken,
--------------------------
and shall have caused each of its Subsidiaries to take, all necessary action to
complete in all materials respects, no later than December 30, 1999, the
reprogramming of computer software, hardware and firmware systems and equipment
containing embedded microchips owned or operated by or for Borrower and its
Subsidiaries or used or relied upon in the conduct of their businesses
(including systems and equipment supplied by others or with which such systems
of Borrower or any of its Subsidiaries interface) required to avoid the Year
2000 Issue to permit the proper
38
<PAGE>
functioning of such computer systems and other equipment and the proper
processing of data, and the testing of such systems and equipment, as so
reprogrammed. At the request of Agent, Borrower shall provide, and shall cause
each of its Subsidiaries to provide, to Agent reasonable assurance of its
compliance with the preceding sentence. Borrower has developed adequate
contingency plans to assure uninterrupted and unimpaired business operation in
the event of a failure of its own or a third party's systems or equipment due to
the Year 2000 Issue, including those of vendors, customers, and suppliers, as
well as a general failure of or interruption in its communications and delivery
infrastructure.
VIII. NEGATIVE COVENANTS.
------------------
Borrower covenants and agrees that it shall not, until satisfaction
in full of the Obligations and termination of this Agreement:
8.1 Merger, Consolidation, Acquisition and Sale of Assets.
-----------------------------------------------------
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a substantial
portion of the assets or stock of any Person or permit any other Person to
consolidate with or merge with it; provided, however, that: (i) any Subsidiary
may merge or consolidate with or into Borrower or any Subsidiary so long as in
any merger or consolidation involving Borrower, Borrower shall be the surviving
or continuing corporation, and (ii) Borrower may consolidate or merge with or
acquire the assets or stock of any other Person if (x) Borrower shall be the
surviving or continuing corporation, (y) such Person is engaged in a business
similar to the current businesses of Borrower, and (z) after giving effect to
such merger, consolidation or acquisition, no Event of Default or Prospective
Event of Default shall have occurred.
(b) Sell, lease, transfer or otherwise dispose of any of
its properties or assets, except in the ordinary course of its business.
8.2 Creation of Liens. Create or suffer to exist any Lien,
-----------------
Charge, Claim or transfer upon or against any of its property or assets now
owned or hereafter acquired, except Permitted Encumbrances.
8.3 Guarantees. Become liable upon the obligations of any
----------
Person by assumption, endorsement or guaranty thereof or otherwise (other than
to Lenders) except (a) as disclosed on Schedule 8.3, (b) guarantees made in the
------------
ordinary course of business, (c) the endorsement of checks in the ordinary
course of business, and (d) guarantees made by Borrower to third parties of
obligations owing or to become owing by any Subsidiary or Affiliate of Borrower
to such third party which obligations of such Subsidiary or Affiliates are
included in the consolidated financial statements of TAG.
8.4 Investments. Purchase or acquire obligations or stock of,
-----------
or any other interest in, or make a contribution of any kind to, any Person,
except as permitted in Section 8.1 hereof, and (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b) commercial
paper with maturities of not more than one hundred eighty (180) days
39
<PAGE>
and a published rating of not less than A-1 or P-1 (or the equivalent rating),
(c) certificates of time deposit and bankers' acceptances having maturities of
not more than one hundred eighty (180) days and repurchase agreements backed by
United States government securities of a commercial bank if (i) such bank has a
combined capital and surplus of at least $500,000,000, or (ii) its debt
obligations, or those of a holding company of which it is a Subsidiary, are
rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency and (d) U.S. money market funds that invest solely in
obligations issued or guaranteed by the United States of America or an agency
thereof.
8.5 Loans. Make advances, loans or extensions of credit to any
-----
Person, including without limitation, any Parent, Subsidiary or Affiliate except
with respect to (a) the extension of commercial trade credit in connection with
the sale of Inventory in the ordinary course of its business, and (b) loans to
its employees in the ordinary course of business not to exceed the aggregate
amount of $1,000,000 at any time outstanding.
8.6 [INTENTIONALLY OMITTED]
8.7 Dividends. Declare, pay or make any dividend or
---------
distribution on any shares of the common stock or preferred stock of Borrower
(other than dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred stock,
or of any options to purchase or acquire any such shares of common or preferred
stock of Borrower.
8.8 Indebtedness. Create, incur, assume or suffer to exist any
------------
Indebtedness (exclusive of trade debt) of Borrower except (i) in respect of (A)
Indebtedness to Lenders or (B) Indebtedness existing as of the date hereof and
disclosed on Schedule 8.8; (ii) as otherwise permitted pursuant to Section 7.8;
or (iii) Indebtedness incurred in connection with an acquisition permitted
pursuant to Section 8.1(a).
8.9 Nature of Business. Substantially change the nature of the
------------------
business in which it is presently engaged, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the ordinary course of business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted.
8.10 Transactions with Affiliates. Directly or indirectly,
----------------------------
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, any Affiliate, except disclosed
transactions in the ordinary course of business, on terms which would have been
obtainable from a Person other than an Affiliate.
8.11 Leases. Enter as lessee into any lease arrangement for
------
real or personal property if, after giving effect thereto, aggregate annual
rental payments for all leased property would exceed $5,000,000 in any one (1)
fiscal year, as determined on a consolidated basis.
40
<PAGE>
8.12 Limitation on Losses. Incur on a consolidated basis a net
--------------------
loss before taxes and extraordinary items in any two (2) consecutive fiscal
quarter accounting periods.
8.13 Pledge of Credit Now or hereafter pledge Lenders' credit
----------------
on any purchases or for any purpose whatsoever or use any portion of any Advance
in or for any business other than Borrower's business as conducted on the date
of this Agreement.
IX. CONDITIONS PRECEDENT.
--------------------
9.1 Conditions to Initial Advance. The agreement of Lenders to make
-----------------------------
the initial Advance requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Agent and Lenders, immediately prior to or
concurrently with the making of such Advances, of the following conditions
precedent:
(a) Note. Agent, on behalf of each Lender, shall have
----
received the Note payable to each Lender duly executed and delivered by an
authorized officer of Borrower;
(b) Filings Registrations and Recordings. Each document
------------------------------------
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any related agreement or under law or reasonably
requested by Agent to be filed, registered or recorded in order to create, in
favor of Agent on behalf of Secured Parties, a perfected security interest in or
lien upon the Collateral shall have been properly filed, registered or recorded
in each jurisdiction in which the filing, registration or recordation thereof is
so required or requested, and Agent shall have received an acknowledgment copy,
or other evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) Corporate Proceedings of Borrower. Agent shall have
---------------------------------
received a copy of the resolutions in form and substance reasonably satisfactory
to Agent, of the Board of Directors of Borrower authorizing (i) the execution,
delivery and performance of this Agreement, the Notes (collectively the
"Documents") and (ii) the granting by Borrower of the security interests in and
liens upon the Collateral in each case certified by the Secretary or an
Assistant Secretary of Borrower as of the Closing Date; and, such certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificates of Borrower. Agent shall
-----------------------------------
have received a certificate of the Secretary or any Assistant Secretary of
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Legal Opinion. Agent shall have received the
-------------
executed legal opinion of Manatt, Phelps & Phillips, LLP, in form and substance
satisfactory to Agent which shall cover such matters incident to the
transactions contemplated by this Agreement, the Notes, and related agreements
as Agent may reasonably require;
41
<PAGE>
(f) No Litigation. Except as otherwise disclosed in
-------------
Schedule 9.1(f) (i), no litigation, investigation or proceeding before or by any
arbitrator or governmental authority shall be continuing or, to the knowledge of
Borrower, threatened against Borrower or against the officers or directors of
Borrower (A) in connection with the Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of Agent, is deemed
material or (B) which if adversely determined, would, in the reasonable opinion
of Agent, have a material adverse effect on the business, assets, operations or
condition (financial or otherwise) of Borrower; and (ii) no injunction, writ,
restraining order or other order of any nature materially adverse to Borrower or
the conduct of its business shall have been issued by any governmental
authority;
(g) Financial Condition Opinions. Agent shall have
----------------------------
received executed Officer's Certificates of Borrower satisfactory in form and
substance to it, certifying the solvency of Borrower after giving effect to the
Indebtedness contemplated hereby and as to Borrower's financial resources and
its ability to meet its obligations and liabilities as they become due, to the
effect that as of the Closing Date:
(i) the assets of Borrower, at a fair valuation,
exceed the total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of Borrower;
(ii) current projections which are based on
underlying assumptions which provide a reasonable basis for the projections and
which reflect Borrower's judgment based on present circumstances, the most
likely set of conditions and Borrower's most likely course of action for the
period projected, demonstrate that Borrower will have sufficient cash flow to
enable it to pay its debts as they mature; and
(iii) Borrower does not have an unreasonably small
capital base with which to engage in its anticipated business.
For purposes of this subsection (i), the "fair valuation" of the assets of
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, whether through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions;
(h) Collateral Examination. Agent shall have completed
----------------------
Collateral examinations, the results of which shall be satisfactory in form and
substance to Agent, of the Receivables, Inventory and General Intangibles of
Borrower and all books and records in connection therewith;
(i) Fees. Agent shall have received all fees payable and
----
accrued to Agent and Lenders on or prior to the Closing Date pursuant to Article
IV hereof;
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(j) Pro Forma Financial Statements. Agent shall have
------------------------------
received a copy of the Pro Forma Financial Statements which shall be
satisfactory in all respects to Agent;
(k) Mortgage. Mortgagor shall have provided Secured
--------
Parties the Mortgage; provided, however, in the event that the Mortgage is not
completed by the Closing Date, Borrower shall have ninety (90) days therefrom to
cause the Mortgage to be executed by Mortgagor, and the security interest
therein perfected;
(l) Intercreditor Agreement. Intercreditor agreements in
-----------------------
form and substance acceptable to Agent executed by Hong Kong and Shanghai
Banking Corporation Limited and Standard Chartered Bank;
(m) Indemnity Letters. Indemnity Letters duly executed
-----------------
by The CIT Group/Commercial Services and Finova Capital Corporation, and agreed
to by Borrower;
(n) The Letter of Credit Supplement. The Letter of
-------------------------------
Credit Supplement duly executed by Borrower and GMAC;
(o) Other. All corporate and other proceedings, and all
-----
documents, instruments and other legal matters in connection with this Agreement
shall be satisfactory in form and substance to Agent and its counsel.
9.2 Conditions to Each Advance. The agreement of Lenders to
--------------------------
make any Advance requested to be made on any date (including, without
limitation, its initial Advance), is subject to the satisfaction of the
following conditions precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the
------------------------------
representations and warranties made by Borrower in or pursuant to this
Agreement, and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) No Default. No Event of Default or Prospective Event
----------
of Default shall have occurred and be continuing on such date, or would exist
after giving effect to the Advances requested to be made, on such date,
provided, however that Lenders in their sole discretion, may continue to make
- -----------------
Advances notwithstanding the existence of an Event of Default or Prospective
Event of Default;
(c) Maximum Advances. In the case of any Advances
----------------
requested to be made, after giving effect thereto, the aggregate Advances shall
not exceed the maximum Advances permitted under Section 2.2 hereof; and
(d) Borrowing Base Certificate. Agent shall have
--------------------------
received on or before the fifteenth (15) day of each month as and for the prior
month, a certificate,
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substantially in the form of Exhibit D ("Borrowing Base Certificate"), detailing
Borrower's Factored Receivables, Eligible Receivables and Eligible Inventory on
which each requested Advance during such month is to be based, together with (i)
all supporting documentation required by Agent in order to calculate the
Borrowing Base, (ii) copies of invoices or the record of invoices from
Borrower's sales journal for such Receivables and a listing of the names and
addresses of the account debtors thereunder, (iii) copies of delivery receipts,
purchase orders, shipping instructions, bills of lading and other documentation
pertaining to such Receivables, and (iv) copies of the cash receipts journal
pertaining to the Borrowing Base Certificate.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
X. INFORMATION AS TO BORROWER.
--------------------------
Borrower covenants and agrees that it shall, until satisfaction in
full of the Obligations and the termination of this Agreement:
10.1 Disclosure of Material Matters. Promptly upon learning
------------------------------
thereof, report to Agent all matters materially affecting the value,
enforceability or collectibility of any portion of the Collateral including,
without limitation, Borrower's reclamation of, repossession of, or the return to
Borrower of a material amount of goods or claims or disputes asserted by any
Customer or other obligor. Borrower will not, without Agent's consent,
compromise or adjust any Receivables (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon except for those compromises, adjustments, returns,
discounts, credits and allowances as have been heretofore customary in the
business of Borrower.
10.2 Schedules. Deliver to Agent on or before the fifteenth
---------
(15th) day of each month as and for the prior month (a) accounts receivable
aging, (b) accounts payable schedules and (c) Inventory reports. In addition,
Borrower will deliver to Agent at such intervals as Agent may require: (i)
confirmatory assignment schedules, (ii) copies of Customer's invoices, (iii)
evidence of shipment or delivery, and (iv) such further schedules, documents
and/or information regarding the Collateral as Agent may require including,
without limitation, trial balances and test verifications. Agent shall have the
right to confirm and verify all Receivables by any manner and through any medium
it considers advisable and do whatever it may deem reasonably necessary to
protect its interests hereunder. The items to be provided under this Section are
to be in form satisfactory to Agent and executed by Borrower and delivered to
Agent from time to time solely for Agent's convenience in maintaining records of
the Collateral, and Borrower's failure to deliver any of such items to Agent
shall not affect, terminate, modify or otherwise limit Agent's lien on or
security interest in the Collateral.
10.3 Environmental Reports. Furnish Agent, concurrently with
---------------------
the delivery of the financial statements referred to in Sections 10.7 and 10.8
hereof, a certificate of Borrower signed by the President or Chief Financial
Officer of Borrower stating, to the best of his knowledge, that Borrower is in
compliance in all material respects with all Federal, state and
44
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local laws relating to environmental protection and control and occupational
safety and health. To the extent Borrower is not in compliance with the
foregoing laws, the certificate shall set forth with specificity all areas of
non-compliance and the proposed action Borrower will implement in order to
achieve full compliance.
10.4 Litigation. Promptly notify Agent in writing of any
----------
material litigation affecting Borrower as defendant, whether or not the claim is
covered by insurance, and of any suit or administrative proceeding, which may
materially and adversely affect the Collateral or Borrower's business, assets,
operations, condition or prospects (financial or otherwise).
10.5 Occurrence of Defaults, etc. Promptly notify Agent in
---------------------------
writing upon the occurrence of (a) any Event of Default or Prospective Event of
Default of which it has actual knowledge;(b) any event, development or
circumstance whereby the financial statements most recently furnished to Agent
fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition and operating results of Borrower
as of the date of such financial statements; (c) any accumulated retirement plan
funding deficiency which, if such deficiency continued for two (2) plan years
and was not corrected as provided of which it has actual knowledge in Section
4971 of the Code; (d) each and every default by Borrower of which it has actual
knowledge which might result in the acceleration of the maturity of any
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; and (e) any other development in the business or affairs of
Borrower which would reasonably be expected to be materially adverse; in each
case describing the nature thereof and in the case of notification under clause
(a), (b), (c), (d), or (e) the action Borrower proposes to take with respect
thereto.
10.6 Government Receivables. Notify Agent promptly if any of
----------------------
its Receivables arise out of contracts between Borrower and the United States of
America, any state, or any department, agency or instrumentality of any of them.
10.7 Annual Financial Statements. Furnish Agent within ninety
---------------------------
(90) days after the end of each fiscal year of TAG, financial statements of TAG
and its Subsidiaries on a consolidated basis including, but not limited to,
statements of income and stockholders' equity and changes in financial position
from the beginning of the current fiscal year to the end of such fiscal year and
the balance sheet as at the end of such fiscal year, all prepared in accordance
with GAAP applied on a basis consistent with prior practices, and in reasonable
detail and reported upon without qualification by Ernst & Young, LLP or another
independent certified public accounting firm selected by TAG and satisfactory to
Agent (the "Accountants"). The report of such accounting firm shall be
accompanied by a statement of such accounting firm certifying that in making the
examination upon which such report was based either no information came to its
attention which to its knowledge constituted an Event of Default or a
Prospective Event of Default under this Agreement or any related agreement or,
if such information came to its attention, specifying any such default, and such
report shall contain or have appended thereto calculations which set forth
Borrower's compliance with the requirements or restrictions imposed by all
financial covenants.
45
<PAGE>
10.8 Quarterly Financial Statements. Furnish Agent within
------------------------------
fifty (50) days after the end of each fiscal quarter, an unaudited balance sheet
of TAG and its Subsidiaries on a consolidated and consolidating basis and an
unaudited statement of income and stockholders' equity and changes in financial
position of Borrower reflecting results of operations from the beginning of the
fiscal year to the end of such quarter and for such quarter, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The reports shall be
accompanied by a certificate of Borrower substantially in the form of Exhibit E
(the "Compliance Certificate"), signed by the President and/or Chief Financial
Officer of Borrower, which shall state (i) whether an Event of Default or a
Prospective Event of Default has occurred, and, if any such default exists,
specifying the nature thereof and the action Borrower is taking and proposes to
take with respect thereto, and (ii) the information and computations (in
sufficient detail) to establish that Borrower is in compliance with all
financial covenants at the end of such quarter.
10.9 Monthly Financial Statements. Furnish Agent within
----------------------------
forty-five (45) days after the end of each month, an unaudited balance sheet of
TAG and its Subsidiaries on a consolidated and consolidating basis and an
unaudited statement of income and stockholders' equity and changes in financial
position of Borrower reflecting results of operations from the beginning of the
fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments.
10.10 Other Reports. Furnish Agent as soon as available, but
-------------
in any event within thirty (30) days after the issuance thereof, with copies of
such financial statements, reports and returns as TAG shall send to its
stockholders.
10.11 Additional Information. Furnish Agent with additional
----------------------
information as Agent and any Lender shall reasonably request in order to enable
Agent and Lenders to determine whether the terms, covenants, provisions and
conditions of this Agreement and the Notes have been complied with by Borrower
including, without limitation and without the necessity of any request by Agent,
(a) copies of all environmental audits and reviews, (b) at least thirty (30)
days prior thereto, of Borrower's opening of any new office or place of business
or Borrower's closing of any existing office or place of business, and (c)
promptly upon Borrower's learning thereof, of any labor dispute to which
Borrower may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Borrower is a party or by which Borrower is bound.
10.12 Projected Operating Budget. Furnish Agent, no less than
--------------------------
thirty (30) days prior to the beginning of each of Borrower's fiscal years
beginning with the year 2000, a month by month projected operating budget and
cash flow of Borrower for such fiscal year (including an income statement for
each month and a balance sheet as at the end of the last month in each fiscal
quarter), such projections to be accompanied by a certificate signed by
Borrower's President or Chief Financial Officer to the effect that such
projections have been prepared on the basis of sound financial planning practice
consistent with past budgets and financial statements and that such officer has
no reason to question the reasonableness of any material assumptions on which
such projections were prepared.
46
<PAGE>
10.13 INTENTIONALLY OMITTED
10.14 Additional Documents. Execute and deliver to Agent, upon
--------------------
reasonable request, such documents and agreements as Agent may, from time to
time, reasonably request to carry out the purposes, terms or conditions of this
Agreement.
XI. EVENTS OF DEFAULT.
-----------------
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
(a) failure by Borrower to pay any principal or interest
on the Obligations within five (5) days of the date when due, whether at
maturity or by reason of acceleration pursuant to the terms of this Agreement or
by notice of intention to prepay, or by required prepayment or failure to pay
any other liabilities or make any other payment, fee or charge provided for
herein within five (5) days of the date when due;
(b) any representation or warranty made or deemed made
by Borrower in this Agreement or any related agreement or in any certificate,
document, or financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
(c) failure by Borrower to (i) furnish financial
information when due or when requested, or (ii) permit the inspection of its
books or records, after notice as herein provided;
(d) issuance of a notice of Lien, Charge, Claim, levy
assessment, injunction or attachment in excess of $250,000 against a material
portion of Borrower's property which is not stayed or lifted within sixty (60)
days;
(e) failure or neglect of Borrower to perform, keep or
observe any material term, provision, condition, covenant herein contained, or
contained in any other material agreement or arrangement, now or hereafter
entered into between Borrower and any Lender which failure is not remedied
within ten (10) days of written demand from Agent;
(f) any judgment is rendered or judgment liens filed
against Borrower for an amount in excess of $1,000,000 which within sixty (60)
days of such rendering or filing is not either satisfied, stayed or discharged
of record;
(g) Borrower or any Affiliate or any Subsidiary shall
(i) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or Federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, within sixty
(60) days, any
47
<PAGE>
petition filed against it in any involuntary case under such bankruptcy laws, or
(viii) take any action for the purpose of effecting any of the foregoing;
(h) there shall be a material default of the obligations
of Mortgagor under the Mortgage which default is not cured within any applicable
grace period;
(i) if any Lien created hereunder or provided for hereby
or under any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
(j) a material default of the obligations of Borrower
under any other agreement to which it is a party, including, without limitation,
obligations of Borrower to Hong Kong and Shanghai Banking Corporation and
Standard Chartered Bank, shall occur which materially and adversely affects its
condition, affairs or prospects (financial or otherwise) which default is not
cured within any applicable grace period;
(k) (i) The Principal Owner(s) shall fail to own,
directly or indirectly, at least ten percent (10%) of the common stock of TAG;
or (ii) Gerard Guez shall cease, for any reason, to be a member of the Board of
Directors and Chief Executive Officer of TAG;
(l) The Dilution of Receivables, on an averaged basis
for the most recent three (3) months, is greater than fifteen percent (15%), as
calculated by Agent on the basis of the Borrowing Base certificates for such
period or from Collateral audits performed by Agent; or
(m) any material provision of this Agreement shall, for
any reason, cease to be valid and binding on Borrower, or Borrower shall so
claim in writing to Agent of any Lender.
XII. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
------------------------------------------
12.1 Rights and Remedies. Upon a Prospective Event of Default
-------------------
under Article XI (d) or (f), until the Prospective Event of Default is remedied
within the time periods provided for therein, Lenders and Issuers shall not be
required to make any additional Advances or any Letters of Credit, as the case
may be, available to Borrower; upon the occurrence of an Event of Default
pursuant to Article XI(g) hereof all Obligations shall be immediately due and
payable and Lenders and Issuer shall have no obligation to make any additional
Advances or any Letters of Credit, as the case may be, available to Borrower and
this Agreement shall be deemed terminated; and, upon the occurrence of any of
the other Events of Default and at any time thereafter (such default not having
previously been cured), at the option of Majority Lenders all Obligations shall
be immediately due and payable, neither Lenders nor Issuer shall be obligated to
make any additional Advances or any Letters of Credit, as the case may be,
available to Borrower hereunder and Majority Lenders shall have the right to
terminate this Agreement and the principal balance of outstanding Advances and
interest accrued but unpaid thereon and the aggregate contingent liability of
Borrower to reimburse Lenders for future drawings with respect to outstanding
Letters of Credit and all other Obligations shall become immediately due and
48
<PAGE>
payable, without demand upon or presentment to Borrower, which are expressly
waived by Borrower, and Agent and Lenders may immediately exercise all rights,
powers and remedies available to them at law, in equity or otherwise. All
amounts paid by Borrower on account of the aggregate contingent liability of
Borrower under outstanding Letters of Credit shall be held by Agent as
collateral security for the benefit of Issuer and Lenders until there are no
Letters of Credit outstanding and all unrepaid drawings have been paid in full
with interest thereon as provided herein, Borrower hereby being automatically
deemed to have granted to Agent, Issuer and Lenders a first priority, perfected
security interest in all such monies and to have authorized Agent to debit such
monies in satisfaction of the obligation of Borrower to repay drawings;
provided, that, nothing contained herein shall in any manner or to any extent
affect the liability of Borrower with respect to drawings in the event for
whatever reason Agent does not so debit such monies on account thereof. In any
such event, Agent shall have the right to exercise any and all other rights and
remedies provided for herein, under the Uniform Commercial Code and at law or
equity generally, including, without limitation, the right to foreclose the
security interests granted herein and to realize upon any Collateral by any
available judicial procedure or to take possession of and sell any or all of the
Collateral with or without judicial process. Agent may enter any of Borrower's
premises or other premises without legal process and without incurring liability
to Borrower therefor, and Agent may thereupon, or at any time thereafter, in its
discretion without notice or demand, take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrower to make
the Collateral available to Agent at a convenient place. With or without having
the Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Agent shall give Borrower
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrower at least five (5) days prior to such
sale or sales is reasonable notification. At any public sale Agent may bid for
and become the purchaser, and Agent or any other purchaser at any such sale
thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived and released by Borrower. In connection with
the exercise of the foregoing remedies, Agent is granted permission to use all
Borrower's trademarks, trade styles, trade names, patents, patent applications,
licenses, franchises and other proprietary rights which are used in connection
with (a) Inventory for the purpose of disposing of such Inventory and (b)
equipment for the purpose of completing the manufacture of unfinished goods. The
proceeds realized from the sale or other disposition of any Collateral (other
than Factored Receivables, which shall be collected pursuant to Article III)
shall be applied as follows:
(i) First, to the costs, expenses and attorneys' fees
and expenses incurred by Agent in the performance of its duties and
enforcement of the rights of Secured Parties hereunder, including, without
limitation, all costs and expenses of collection, attorneys' fees, court
costs and foreclosure expenses;
(ii) Then, to Lenders, pro rata in accordance with their
respective Revolving Percentages, until all outstanding Advances and
unrepaid drawings under Letter of Credit and interest accrued thereon have
been paid in full, said amounts to
49
<PAGE>
be allocated first to interest and then, but only after all accrued
interest has been paid in full, to principal of Advances and unrepaid
drawings under Letters of Credit;
(iii) Then, except to the extent otherwise provided for
herein, to Lenders (pro rata in accordance with their respective Revolving
Percentages) and Issuer on account of all other outstanding Obligations;
(iv) Then, if but only if there remain outstanding any
Letters of Credit, to Agent to hold as cash collateral for the obligations
of Borrower to reimburse any future drawings under such Letters of Credit
(including the obligations of Borrower to reimburse GMAC under the Letter
of Credit Supplement), as provided above;
(v) Then, except as to Factored Receivables, which are
to be collected as provided in Article III, to Factor on account of any
Obligations owing to the Factor hereunder; and
(vi) Then, to Borrower and such Persons as may be
legally entitled thereto.
in the event of any inconsistency between the allocation methodology set forth
above and any other term or provision of this Agreement or the Other Documents,
the allocation methodology set forth above shall govern and supersede. If any
deficiency shall arise, Borrower shall remain liable therefor.
12.2 Majority Lenders Discretion. Majority Lenders shall have
---------------------------
the right in their sole discretion to determine which rights, Liens, security
interests or remedies Agent may at any time pursue, relinquish, subordinate, or
modify or to take any other action with respect thereto and such determination
will not in any way modify or affect any of Agent's and Secured Parties' rights
hereunder.
12.3 Setoff. In addition to any other rights which Secured
------
Parties may have under applicable law, upon the occurrence of any Event of
Default hereunder, each Secured Party shall have a right to apply any of
Borrower's property held by such Secured Party to reduce the Obligations;
provided however, whether or not an Event of Default has occurred hereunder,
neither Factor nor any Lender (including any Lender acting in its capacity as
factor under separate credit arrangements with Borrower) will exercise any right
of setoff for ledger debts.
12.4 Rights and Remedies not Exclusive. The enumeration of the
---------------------------------
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies, all of which shall be cumulative and not alternative.
XIII. THE AGENT.
---------
13.1 Appointment and Authorization. Each Lender irrevocably
-----------------------------
appoints and authorizes Agent to take such action on its behalf and to exercise
such powers under this Agreement and the Other Documents as are delegated to
Agent by the terms hereof or
50
<PAGE>
thereof, together with all such powers as are reasonably incidental thereto. The
duties of Agent to each Lender shall be mechanical and administrative in nature
and Agent shall not by reason of this Agreement or otherwise be a trustee or a
fiduciary for any of Lenders.
13.2 Agent and Affiliates. Agent shall have the same rights
--------------------
and powers under this Agreement as any other Lender and may exercise or refrain
from exercising the same as though it were not Agent, and Agent and its
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with Borrower or any Subsidiary or Affiliate of Borrower as if
were not Agent hereunder.
13.3 Action by Agent. The obligations of Agent hereunder and
---------------
under the Other Documents are only those expressly set forth herein and therein.
Without limiting the generality of the foregoing, Agent shall not be required to
take any action with respect to any Event of Default, except as expressly
provided in Article 11 hereof.
13.4 Consultation with Experts. Agent may consult with legal
-------------------------
counsel, independent public accountants and other experts selected by it and
shall not be liable to Lenders for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such counsel, accountants or
experts.
13.5 Liability of Agent. Neither Agent nor any of its
------------------
directors, officers, agents, or employees shall be liable for any action taken
or not taken by it in connection herewith or in connection with any Other
Documents (i) with the consent or at the request of the Majority Lenders or (ii)
in the absence of its own gross negligence or willful misconduct. Neither Agent
nor any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into or verify (a) any statement,
warranty or representation made in connection with this Agreement or any Advance
hereunder or in connection with any Other Documents; (b) the performance or
observance of any of the covenants or agreements of Borrower; (c) the
satisfaction of any condition specified in Article IX; or (d) the validity,
effectiveness or genuineness of any of the Other Documents or any other
instrument or writing furnished in connection herewith or therewith. Agent shall
not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties. As to any matters not expressly provided for by this
Agreement, Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or under any Other Document in accordance with
instructions signed by the Majority Lenders and such instructions of the
Majority Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of Lenders.
13.6 Indemnification. Each Lender shall, in the amount of its
---------------
Revolving Percentage indemnify Agent (to the extent not reimbursed by Borrower)
against any cost, expense (including counsel fees and disbursements), claim,
demand, action, loss or liability (except such as result from Agent's gross
negligence or willful misconduct) that Agent may suffer or incur in connection
with this Agreement or any Other Document or any action taken or omitted by
Agent hereunder or thereunder.
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13.7 Failure to Act. Except for action expressly required of
--------------
Agent hereunder or under any Other Document Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall be indemnified
to its satisfaction by Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
13.8 Credit Decision. Each Lender acknowledges that it has,
---------------
independently and without reliance upon Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and each Other Document to
which it is a party. Each Lender also acknowledges that it will, independently
and without reliance upon Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking any action under this Agreement or
under any Other Document.
13.9 Additional Lenders. From time to time additional
------------------
financial institutions may, with the written consent of Agent and Borrower,
become a Lender under this Agreement upon the execution and delivery to Agent of
a Lender Assignment Agreement, substantially in the form of Exhibit F. Upon
receipt of such executed agreement. Agent shall revise Exhibit A to this
Agreement and distribute same to all parties hereto and Borrower shall execute
and deliver a Note to the new Lender evidencing its Revolving Percentage.
13.10 Information to Lenders. Agent agrees to provide Lenders
----------------------
with copies of all documents, statements and accountings provided by Agent to
Borrower, copies of any field audit or examination report prepared by or on
behalf of Agent, and copies of all documents and statements received by Agent
from Borrower.
13.11 Payments.
--------
(a) All amounts received by Agent on account of the
Obligations shall be disbursed by Agent to Lenders pro rata in accordance with
their respective Revolving Percentages by wire transfer on the date of receipt
if received and confirmed by Agent before 11:00 a.m. (New York time) or if
received and confirmed later, by 12:00 noon (New York time) on the next
succeeding Business Day. In the event that Agent fails to distribute such
amounts as provided above, Agent shall pay interest on such amount at a rate per
annum equal to the Federal Funds Effective Rate (calculated for the purposes of
this section only based on overnight Federal funds transactions) from time to
time in effect.
(b) If, in the opinion of Agent the distribution of any
amounts received by it in such capacity hereunder, under the Notes or under any
of the Other Documents might involve it in liability, it may refrain from making
such distribution until its right to make such distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by Agent is
to be repaid, each Person to whom any such distribution shall have been made
shall either repay to Agent its Revolving Percentage of the amount so adjudged
to be repaid or shall pay over the same in such manner and to such Persons as
shall be determined by such court.
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(c) Notwithstanding anything to the contrary contained in this
Agreement or any of the Other Documents, any Lender that fails (i) to make
available to Agent its Revolving Percentage of any Advance when all conditions
precedent have been met under Section 9.2 hereof, or (ii) to comply with any of
its obligations under this Agreement, shall be deemed delinquent (a "Delinquent
Bank") and shall be deemed a Delinquent Bank until such time as such delinquency
is satisfied. A Delinquent Bank shall not have a right of consent or to vote, as
applicable, on any matters for which a vote or consent of Lenders or Majority
Lenders is required, except as to those items identified in Section 16.3 that
require consent of all Lenders, but shall be bound by such vote or consent of
those Majority Lenders who are eligible to vote and consent. A Delinquent Bank
shall be deemed to have assigned any and all payments due to it from Borrower,
whether on account of an outstanding Advance, interest, fees or otherwise, to
the remaining non-delinquent Lenders for application to, and reduction of, their
respective Revolving Percentage of all outstanding Advances in accordance with
the terms of this Agreement. The Delinquent Bank hereby authorizes Agent to
distribute such payments to the non-delinquent Lenders in proportion to their
respective Revolving Percentage of all outstanding Advances in accordance with
the terms of this Agreement. A Delinquent Bank shall be deemed to have satisfied
in full a delinquency when and if, as a result of application of the assigned
payments to all outstanding Advances of the non-delinquent Lenders or as a
result of other payments by the Delinquent Bank to the non-delinquent Lenders,
Lenders' respective Revolving Percentage of all outstanding Advances have
returned to those in effect immediately prior to such delinquency and without
giving effect to the non-payment causing such delinquencies.
XIV. WAIVERS AND JUDICIAL PROCEEDINGS.
--------------------------------
14.1 Waiver of Notice. Borrower hereby waives notice of
----------------
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.
14.2 Delay. No delay or omission on Agent's or any Lender's
-----
part in exercising any right, remedy or option shall operate as a waiver of such
or any other right, remedy or option or of any default.
14.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY
-----------
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT
53
<PAGE>
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
XV. EFFECTIVE DATE AND TERMINATION.
------------------------------
15.1 Term. This Agreement, which shall inure to the benefit of
----
and shall be binding upon the respective successors and permitted assigns of
each of Borrower and Lender, shall become effective on the date hereof and shall
continue in full force and effect until the Maturity Date unless sooner
terminated as herein provided, including, without limitation, as pursuant to
Article XII.
Notwithstanding anything to the contrary contained herein, Borrower
and Agent, on behalf of Secured Parties, shall each have the right, upon not
less than ninety (90) days prior written notice to the other parties to this
Agreement, to terminate this Agreement. Any termination of this Agreement will
be accompanied by prepayment in full of all of the Obligations of Borrower,
including, without limitation, the unpaid principal amount of Advances and the
stated amount of Letters of Credit then outstanding, together with the payment
of any accrued and unpaid interest and fees; provided, however, there shall be
no prepayment fee payable upon termination.
15.2 Termination. The termination of this Agreement shall not
-----------
affect any of Borrower's or Agent's or any Secured Parties' rights, or any of
the Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been full disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent on behalf of Secured Parties hereunder and the
financing statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrower's
account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Borrower have been paid or performed in full after the
termination of this Agreement or Borrower has furnished Secured Parties with an
indemnification satisfactory to Agent with respect thereto. Accordingly,
Borrower waives any rights which it may have under Section 9-404(1) of the
Uniform Commercial Code to demand the filing of a termination statement with
respect to the Collateral, and Agent shall not be required to send such
termination statements to Borrower, or to file them with any filing office,
unless and until this Agreement shall have been terminated in accordance with
its terms and all Obligations paid in full in immediately available funds. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until all Obligations are repaid or performed
in full unless otherwise provided.
XVI. MISCELLANEOUS.
-------------
16.1 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California (without giving
effect to its conflict of laws rules). Any judicial proceeding brought by or
against Borrower with respect to any of the Obligations, this Agreement or any
related agreement may be brought in any court of competent jurisdiction in the
State of California, United States of America, and, by execution and
54
<PAGE>
delivery of this Agreement, Borrower accepts for itself and in connection with
its properties, generally and unconditionally the non-exclusive jurisdiction of
the aforesaid courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. Nothing herein shall affect
the right to serve process in any manner permitted by law or shall limit the
right of Agent and Lenders to bring proceedings against Borrower in the courts
of any other jurisdiction. Borrower waives any objection to jurisdiction and
venue of any action instituted hereunder and shall not assert any defense based
on lack of jurisdiction or venue or based upon forum non conveniens. Any
----- --- ----------
judicial proceedings by Borrower against Agent, Lenders and Factor involving,
directly or indirectly, any matter or claim in any way arising out of, related
to or connected with this Agreement or any related agreement, shall be brought
only in a Federal or state court located in the City of Los Angeles, State of
California.
16.2 Entire Understanding. This Agreement and the documents
--------------------
executed concurrently herewith contain the entire understanding between
Borrower, Agent, Issuer, Factor and Lenders and supersedes all prior agreements
and understandings, if any, relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, signed by Borrower's,
Agent's and Lenders' respective officers. Neither this Agreement nor any portion
or provisions hereof may be changed, modified, amended, waived, supplemented,
discharged, canceled or terminated orally or by any course of dealing, or in any
manner other than by an agreement in writing, signed by the party to be charged.
Borrower acknowledges that it has been advised by counsel in connection with the
execution of this Agreement and Other Documents and is not relying upon oral
representations or statements inconsistent with the terms and provisions of this
Agreement.
16.3 Amendments and Waivers. With the written consent of
----------------------
Majority Lenders, Agent and Borrower may, subject to the provisions of this
subsection, from time to time enter into agreements amendatory or supplemental
hereto; provided, however, that no such amendatory or supplemental agreement or
waiver shall, without the written consent of all Lenders (i) extend the maturity
of any Note, (ii) reduce the interest rate or extend the time of payment of
interest thereon, (iii) reduce or extend the time of payment of the principal
amount thereof, (iv) release any of the Collateral, except as expressly
permitted hereunder (v) increase the Borrowing Base advance rates or Overadvance
Limit, (vi) change any Lender's Revolving Percentage, (vii) change the
definition of Majority Lenders; (viii) modify the allocation methodology set
forth in Section 12.1, (ix) change the definition of Maximum Credit Amount, (x)
modify Section 12.3, or (xi) modify this Section 16.3;
and provided, further, that any amendment or waiver to Sections 2.7, 2.8 and 2.9
requires the approval of Issuer and any amendment or waiver to any provision of
Article III requires the approval of Factor. Any such amendatory or supplemental
agreement or waiver shall apply equally to each Lender and shall be binding upon
Borrower, Lenders, Issuer, Factor and Agent.
55
<PAGE>
16.4 Successors and Assigns; Participants; New Lenders.
-------------------------------------------------
(a) This Agreement shall be binding upon and inure to
the benefit of Borrower, Agent, Lenders, all future holders of the Notes and
their respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Lenders.
(b) Any Lender may sell, assign or transfer all or any
part of its rights under this Agreement and its Note and all related agreements,
instruments and documents provided Borrower is given notice of such sale as soon
as practicable and the transferee agrees to perform the obligations of the
transferor; in addition to the foregoing, Borrower acknowledges that in the
regular course of commercial banking business any Lender may at any time and
from time to time sell participating interests in the Advances to other
financial institutions (each such transferee or purchaser of a participating
interest, a "Transferee"). Each Transferee may exercise all rights of payment
(including without limitation rights of set-off) with respect to the portion of
such Advances held by it or other Obligations payable hereunder as fully as if
such Transferee were the direct holder thereof.
16.5 Application of Payments. Each Lender shall have the
-----------------------
continuing and exclusive right to apply or reverse and reapply any and all
proceeds of Collateral to any portion of the Obligations, but subject to the
provisions of Section 12.1 hereof. To the extent that Borrower makes a payment
or any Lender receives any payment or proceeds of the Collateral for Borrower's
benefit, which are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver, custodian or any other party under any bankruptcy law,
common law or equitable cause, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by such Lender.
16.6 Indemnity. Borrower shall indemnify each Secured Party
---------
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, fees and disbursements
of counsel) which may be imposed on, incurred by, or asserted against such
Secured Party in any litigation, proceeding or investigation instituted or
conducted by any governmental agency or instrumentality or any other Person with
respect to any aspect of, or any transaction contemplated by, or referred to in,
or any matter related to, this Agreement, whether or not such Secured Party is a
party thereto, except to the extent that any of the foregoing arises out of the
willful misconduct or gross negligence of such Lender. The provisions of this
Section 16.6 shall survive termination of this Agreement.
16.7 Notice. Any notice or request hereunder may be given to
------
the parties hereto at their respective addresses set forth opposite its name on
the signature pages hereof or at such other address as may hereafter be
specified in a notice designated as a notice of change of address under this
Agreement. Any notice or request hereunder shall be given by (a) hand delivery,
(b) registered or certified mail, return receipt requested, (c) telex or
telegram, subsequently confirmed by registered or certified mail, or (d) telefax
to the number set out below (or such other number as may hereafter be specified
in a notice designated as a notice of change of address) with telephone
communication to a duly authorized officer of the recipient
56
<PAGE>
confirming its receipt as subsequently confirmed by registered or certified
mail. Notices and requests shall, in the case of those by mail or telegram. be
deemed to have been given when deposited in the mail, or delivered to the
telegraph office addresses as provided in this Section.
16.8 Survivability. If all or any part of this Agreement is
-------------
contrary to, prohibited by, or deemed invalid under applicable laws or
regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited or invalid, but the remainder hereof shall not be
invalidated thereby and shall be given effect so far as possible.
16.9 Expenses. All costs and expenses including, without
--------
limitation reasonable attorneys' fees incurred (a) by each Secured Party in all
efforts made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) incurred in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
the instituting, maintaining, preserving, enforcing and foreclosing of or on
Secured Parties' security interest or Lien in any of the Collateral, whether
through judicial proceedings or otherwise, or (d) in defending or prosecuting
any actions or proceedings arising out of or relating to the transactions with
Borrower, or (e) any advice given any Secured Party with respect to its rights
and obligations under this Agreement and all related agreements, may be charged
to Borrower's account and shall be part of the Obligations.
16.10 Injunctive Relief. Borrower recognizes that, in the
-----------------
event Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Secured Parties; therefore, Secured Parties if Secured Parties so
request, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
16.11 Joint and Several Obligations.
-----------------------------
(a) Each Borrower agrees that they are jointly and severally
liable to each Secured Party for the payment of all obligations of such Borrower
arising under this Agreement, the Notes and Other Documents and that such
liability is independent of the obligations of any other Borrower. Agent or
Secured Parties may bring action against any Borrower regardless of whether an
action is brought against any other Borrower.
(b) Each Borrower agrees that any release which may be given
by Agent or Secured Parties to any other Borrower or any guarantor will not
release such Borrower from its obligations under this Agreement, the Notes and
Other Documents.
(c) Each Borrower waives any right to assert against Agent and
Secured Parties any defense, setoff, counterclaim or claim which such Borrower
may have against any other Borrower or any other party liable to Agent and
Secured Parties for the obligations of Borrowers under this Agreement, the Notes
and Other Documents.
(d) Each Borrower agrees that it is solely responsible for
keeping itself informed as to the financial condition of any other Borrower and
of all circumstances which bear upon the risk of loss or nonpayment. Each
Borrower waives any right it may have to require
57
<PAGE>
Agent or any Secured Party to disclose to such Borrower any information which
Agent or such Secured Party may now or hereafter acquire concerning the
financial condition of any other Borrower.
(e) Each Borrower waives protest, presentment, demand for
payment, all rights to notices of default or nonpayment or nonperformance by or
notice of dishonor to or upon any other Borrower under this Agreement, the Notes
and Other Documents. Each Borrower waives all right to notices of the existence
or the creation of any new indebtedness by any other Borrower.
(f) Each Borrower hereby expressly waives: (i) all rights and
benefits under Section 2809 of the California Civil Code purporting to reduce
Borrower's obligation in proportion to the principal obligation owed by any
other Borrower, and any defense based on or arising out of any defense the
Person primarily liable may have to payment or to performance of any covenants
or obligations; (ii) all rights and benefits under Section 2845 of the
California Civil Code which, among other things, permits a surety to require any
creditor to pursue its debtor, any security which said creditor may hold, or any
other remedy before proceeding against such surety; (iii) any and all other
rights, benefits, protections and other defenses which Borrower may have, now or
at any time hereafter, to full payment or performance of the Obligations,
including, without limitation, under California Civil Code Sections 2809, 2810,
2819, 2820, 2821, 2839, 2845, 2847, 2848, 2849, 2850 and 2855, and California
Code of Civil Procedure Sections 580a, 580b, 580d and 726, and all successor
sections; and (iv) each Borrower hereby specifically waives the provisions of
California Civil Code Section 2815, and any successor section, with respect to
all security for the obligations of Borrower hereunder.
(g) Each Borrower represents and warrants to Agent and Secured
Parties that it will derive benefit, directly and indirectly, from the
collective administration and availability of the credit facilities. Each
Borrower agrees that neither Agent nor any Secured Party will be required to
inquire as to the disposition by any Borrower of funds disbursed in accordance
with the terms of this Agreement or the Other Documents.
(h) Until all Obligations of Borrower to Agent and Secured
Parties under this Agreement, the Notes and Other Documents have been paid in
full, each Borrower waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or otherwise),
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11, United States Code) or any successor statute which
such Borrower may now or hereafter have against any other Borrower with respect
to the indebtedness incurred under this Agreement, the Notes and Other
Documents. Each Borrower waives any right to enforce any remedy which Agent or
any Secured Party now has or may hereafter have against any other Borrower and
waives any benefit of, and any right to participate in, any security now or
hereafter held by Agent and Secured Parties.
16.12 Captions. The captions at various places in this
--------
Agreement are intended for convenience only and do not constitute and shall not
be interpreted as part of this Agreement.
16.13 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which taken together shall constitute one and the
same instrument.
58
<PAGE>
Each of the parties has signed this Agreement as of the 21st day of
January, 2000.
TARRANT APPAREL GROUP dba
Fashion Resource, a California corporation
By: /s/ [ILLEGIBLE]
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
TAG MEX, INC.
By: /s/ [ILLEGIBLE]
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
GMAC COMMERCIAL CREDIT LLC, as
Agent, Lender, Issuer and Facto
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
FINOVA CAPITAL CORPORATION
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
SANWA BANK CALIFORNIA
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
59
<PAGE>
Each of the parties has signed this Agreement as of the 21st day of
January, 2000.
TARRANT APPAREL GROUP dba
Fashion Resource, a California corporation
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
TAG MEX, INC.
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
GMAC COMMERCIAL CREDIT LLC, as
Agent, Lender, Issuer and Facto
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: SVP
----------------------------------------
--------------------------------------------
Address
FINOVA CAPITAL CORPORATION
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
SANWA BANK CALIFORNIA
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
59
<PAGE>
Each of the parties has signed this Agreement as of the 21st day of
January, 2000.
TARRANT APPAREL GROUP dba
Fashion Resource, a California corporation
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
TAG MEX, INC.
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
GMAC COMMERCIAL CREDIT LLC, as
Agent, Lender, Issuer and Facto
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
FINOVA CAPITAL CORPORATION
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
SANWA BANK CALIFORNIA
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: Vice President
----------------------------------------
601 So. Figuera St. 8th Floor
Los Angeles, CA 90017
--------------------------------------------
Address
59
<PAGE>
Each of the parties has signed this Agreement as of the 21st day of
January, 2000.
TARRANT APPAREL GROUP dba
Fashion Resource, a California corporation
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
TAG MEX, INC.
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
GMAC COMMERCIAL CREDIT LLC, as
Agent, Lender, Issuer and Facto
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
FINOVA CAPITAL CORPORATION
By: /s/ John J. Noosey
----------------------------------------
Its: Vice President
----------------------------------------
344 S. GRAND AVE
LA CA 90071
--------------------------------------------
Address
SANWA BANK CALIFORNIA
By:
----------------------------------------
Its:
----------------------------------------
--------------------------------------------
Address
59
<PAGE>
EXHIBIT A
LENDER COMMITMENT REVOLVING
- ------ ---------- ---------
AMOUNT PERCENTAGE
------ ----------
GMAC Commercial Credit $ 50,000,000 47.619%
LLC
Finova Capital $ 40,000,000 38.095%
Corporation
Sanwa Bank California $ 15,000,000 14.286%
------------ -------
TOTAL $105,000,000 100.000%
<PAGE>
EXHIBIT B
REVOLVING NOTE
$ ______________________ ______________________, 2000
FOR VALUE RECEIVED, the undersigned, Tarrant Apparel Group dba Fashion
Resource, a California corporation, and Tag Mex, Inc., a California corporation
(individually and collectively the "Borrower"), jointly and severally
unconditionally promise to pay to the order of _____________________________
__________________ (the "Lender") on January 31, 2005, the principal sum of
_____________________________ ($_____________________________) or, if less, the
aggregate unpaid principal amount of all Revolving Advances outstanding from
Lender pursuant to that certain Revolving Credit, Factoring and Security
Agreement, dated as of January ___, 2000, among Borrower, the various financial
institutions (including Lender) as are, or may become, parties thereto
(collectively, the "Lenders"), and GMAC Commercial Credit, LLC, as agent for
Lenders (in such capacity, the "Agent") as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time
(collectively, the "Credit Agreement").
Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from and including the date hereof until
maturity (whether by acceleration or otherwise) and, after maturity, until paid,
at the rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made without setoff or
counterclaim in lawful money of the United States of America in same day or
immediately available funds to the account designated by Agent pursuant to the
Credit Agreement.
This Note is one of the Revolving Notes referred to in, and evidences
Obligations incurred under, the Credit Agreement, to which reference is made for
a description of the security for this Note and for a statement of the terms and
conditions on which repayments of principal of the Obligations evidenced by this
Revolving Note and on which such Obligations may be declared to be or shall
automatically become immediately due and payable. Unless otherwise defined,
capitalized terms used herein have the meanings provided in the Credit
Agreement.
Borrower hereby authorizes Lender to make (or cause to be made)
appropriate notations on the grid attached to Lender's Note (or on any
continuation of such grid), which notations, if made, shall evidence, inter
alia, the date of, the outstanding principal of, and the interest rate
applicable to, the Revolving Advances evidenced hereby. Such notations shall be
rebuttably correct and binding
-1-
<PAGE>
on Borrower in the absence of manifest error; provided, however, that the
failure of Lender to make any such notations shall not limit or otherwise affect
any Obligations of Borrower.
All parties hereto, whether as makers, endorsers, or otherwise, jointly
and severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS REVOLVING NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES.
TARRANT APPAREL GROUP,
dba Fashion Resource,
a California corporation
By:____________________________________
Name:______________________________
Title:______________________________
TAG MEX, INC., a California corporation
By:____________________________________
Name:______________________________
Title:______________________________
-2-
<PAGE>
REVOLVING ADVANCES AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
====================================================================================================================================
Amount of Revolving Advance Made Amount of Principal Repaid Unpaid Principal Balance
------------------------------------------------------------------------------------------------- Notation
Date Base Rate LIBOR Rate Base Rate LIBOR Rate Base Rate LIBOR Rate Total Made By
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
-3-
<PAGE>
EXHIBIT C
REQUEST FOR ADVANCE
Date:__________
GMAC Commercial Credit LLC,
as Agent for the Lenders
as defined in the Revolving
Credit, Factoring and Security
Agreement referred to below
1290 Avenue of the Americas
New York, NY 10104
Attention: ____________________
Ladies and Gentlemen:
The undersigned refers to the Revolving Credit, Factoring and Security
Agreement dated as of ___________, 2000 (the "Credit Agreement," the terms
defined therein being used herein as therein defined or as defined in the Notes
issued pursuant to the Credit Agreement) by and among Tarrant Apparel Group, dba
Fashion Resource, a California corporation, and Tag Mex, Inc., a California
corporation (individually and collectively, "Borrower"), certain financial
institutions who are or who may later become a party thereto (collectively
"Lenders" and individually "Lender") and GMAC Commercial Credit LLC, as agent
for Lenders (in such capacity "Agent") under the Credit Agreement, and hereby
gives you notice pursuant to Section 2.3(c) of the Credit Agreement, that the
undersigned hereby requests an Advance under the Credit Agreement and the Notes,
and in that connection sets forth below the information relating to such Advance
as required in the Credit Agreement:
1. (a) [If applicable] The Business Day for a requested Base Rate
Advance is ________.
(b) [If applicable] The Business Day for a requested LIBOR Rate
Advance is _________.
2. The aggregate amount of the requested Advance is $ ______________.
3. The requested Advance is to be comprised of:
(__) A Base Rate Advance in the amount of $ ____________.
<PAGE>
(__) A LIBOR Rate Advance in the amount of $____________.
4. (If applicable) Agent is directed to apply the requested Advance to
repay [the specified principal amount of the outstanding Advances set forth
below [, together with accrued interest thereon]] [accrued interest on the
outstanding Advances set forth below], and to remit the remainder (if any) of
the requested Advance to Borrower:
(a) [$ _________/all] of the outstanding principal amount of the
Base Rate Advances;
(b) [$ ______/all] of the outstanding principal amount of the
LIBOR Rate Advance maturing on _________.
5. Borrower certifies that (i) the representations and warranties
contained in the Credit Agreement are true, correct and complete in all material
respects on and as of the date hereof; (ii) no Event of Default or Prospective
Event of Default has occurred and is continuing under the Credit Agreement or
would exist after giving effect to the Advances requested hereunder; (iii)
Borrower has performed in all material respects all agreements and satisfied all
conditions under the Credit Agreement provided to be performed by it on or
before the date hereof; and (iv) after giving effect to the Advances requested
hereunder, the aggregate Advances outstanding under the Credit Agreement shall
not exceed the maximum advances permitted under Section 2.2 of the Credit
Agreement.
Date: ______________________________
BORROWER:
TARRANT APPAREL GROUP,
dba Fashion Resource
a California corporation
By: ____________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
TAG MEX, INC., a California corporation
By: ____________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
EXHIBIT D
FORM OF BORROWING BASE CERTIFICATE
<PAGE>
GMAC
COMMERCIAL CREDIT LLC
<TABLE>
<S> <C> <C> <C>
Report
Number S-
-------------------------------------------------------------
Daily Status of
Obligations as of
- ------------------------------------------------------------------------------------------------------------------------------------
Client Maximum Line of Credit
- ------------------------------------------------------------------------------------------------------------------------------------
Accounts Receivable
We herewith report to you the full amount collected on accounts or -------------------------------------------------------------
other receivables assigned to you up to , 19 for which Inventory
we herewith remit. We have made no other collections nor issued or -------------------------------------------------------------
should have issued any other credits since our last report. Other
-------------------------------------------------------------
Signature Date Total
===================================================================== -------------------------------------------------------------
Loans Other Obligations Total Obligations
--------------------------------------------
1. Today's Request
a. Advance
---------------------------------------------------------------------------------------------------------------
b. Other
---------------------------------------------------------------------------------------------------------------
c.
---------------------------------------------------------------------------------------------------------------
d. Today's Total Request
---------------------------------------------------------------------------------------------------------------
--------------------------------------------=================
2. Less: Today's Reductions
a. Net Cash Collections (Report |_| Collection Report
No. R- ) as per attached
Cash Receipt
|_| Journal |_| Other
---------------------------------------------------------------------------------------------------------------
b. Other
---------------------------------------------------------------------------------------------------------------
c.
---------------------------------------------------------------------------------------------------------------
d. Today's Special Reductions
---------------------------------------------------------------------------------------------------------------=================
3. Net Change in Obligations - Today (Line 1d Less Line 2d)
---------------------------------------------------------------------------------------------------------------=================
4. Total Obligations (Prior Report No. S- )
---------------------------------------------------------------------------------------------------------------=================
5. New Stated Total Obligations - Today (Line 3 Less Line 4)
---------------------------------------------------------------------------------------------------------------=================
6. Less: Amortizing Line of Credit
a. $ Amortizes on
---------------------------------------------------------------------------------------------------------------
b. $ Amortizes on
---------------------------------------------------------------------------------------------------------------
c. $ Amortizes on
---------------------------------------------------------------------------------------------------------------
d. Total Amortizing Line of Credit
---------------------------------------------------------------------------------------------------------------=================
7. Total Non-Amortizing Obligations - Today (Line 5 Less Line 6)
---------------------------------------------------------------------------------------------------------------=================
8. Borrowing Availability
a. Accounts Receivable (Report No. R- )
---------------------------------------------------------------------------------------------------------------=================
b. Inventory (Report No. R- )
---------------------------------------------------------------------------------------------------------------=================
9. [ILLEGIBLE] Borrowing Availability (Line 8a Plus Line 8b)
---------------------------------------------------------------------------------------------------------------=================
10. Net availability (or Overage) (Line 9 Less Line 7)
---------------------------------------------------------------------------------------------------------------=================
</TABLE>
<PAGE>
Daily Submission and Reconciliation
GMAC
COMMERCIAL CREDIT LLC
<TABLE>
<S> <C> <C> <C>
Accounts Receivable transactions for Date
---------------------------------------------------------------------------------------------------------------------------------
Report No.
R. Client
---------------------------------------------------------------------------------------------------------------------------------
Invoices for New
1. Increases submitted today per attached listing Shipments Other Increases Total
---------------------------------------------------------------
A. Invoice Date
--------------------------------------------------------------------------------------------------------------
B.
--------------------------------------------------------------------------------------------------------------
C.
---------------------------------------------------------------------------------------------------------------------------------
D. Total today's increases submitted
---------------------------------------------------------------------------------------------------------------------------------
2. Total increases, month (period) to date per prior report (R )
--------------------------------------------------------------------------------------------------------------
3. Total increases submitted month (period) to date (lines (1) + 2)
--------------------------------------------------------------------------------------------------------------
4. Today's decreases submitted (per attached listing) Cash Collections Other Decreases
--------------------------------------------
A. Date Description
--------------------------------------------------------------------------------------------------------------
B.
--------------------------------------------------------------------------------------------------------------
C. ALL CREDITS
--------------------------------------------------------------------------------------------------------------
D. Less: Returned checks
---------------------------------------------------------------------------------------------------------------------------------
E. Total today's decreases submitted
---------------------------------------------------------------------------------------------------------------------------------
5. Total decreases, month (period) to date, per prior report (R )
--------------------------------------------------------------------------------------------------------------
6. Total decreases, month (period) to date (lines 4E + 5)
---------------------------------------------------------------------------------------------------------------------------------
7. Today's net change in accounts receivables (line 1D - less 4E)
----------------------------------------------------------------------------- -------------------
8. Total accounts receivable per prior report (R )
----------------------------------------------------------------------------- -------------------
9. Today's new stated accounts receivable (line 7 + 8)
---------------------------------------------------------------------------------------------------------------------------------
Today's calculation of accounts receivable and
inventory lines of credit Accounts Receivable Inventory
---------------------------------------------------------------
10. Total collateral (line 9 for receivables)
--------------------------------------------------------------------------------------------------------------------------------
11. Less ineligible collateral prior report
--------------------------------------------------------------------------------------------------------------------------------
Changes in ineligible
A.
--------------------------------------------------------------------------------------------------------------------------------
B.
--------------------------------------------------------------------------------------------------------------------------------
C. New ineligible
--------------------------------------------------------------------------------------------------------------------------------
12. Today's new stated Eligible collateral (lines 10-11 or 11C)
--------------------------------------------------------------------------------------------------------------------------------
13. Less: Formula reserve % %
--------------------------------------------------------------------------------------------------------------------------------
14. Available under formula
--------------------------------------------------------------------------------------------------------------------------------
15. Maximum line of credit
================================================================================================================================
</TABLE>
This report is submitted pursuant to our Accounts Receivable - Financing
Agreement with you currently in effect ("Agreement"). The invoices and accounts
receivable referred to in this report constitute "receivables," (as defined in
the Agreement) assigned to you, and in which you have been granted a security
interest pursuant to the Agreement. We confirm that, expect as noted, none of
the receivables referred to in this report fall within the ineligible or
prohibited categories as noted in said Agreement. We further confirm said
assignment and grant of security interest to you.
By:______________________________________ Date:_____________________
<PAGE>
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
Dated:_______________, _______
TO: GMAC Commercial Credit LLC
as Agent for the Lenders
under the Revolving Credit, Factoring and
Security Agreement referred to below
1290 Avenue of the Americas
New York, New York 10104
Attn: ____________________
Ladies and Gentlemen:
The undersigned hereby certifies to you pursuant to the Revolving Credit,
Factoring and Security Agreement dated as of ________________, 2000,
("Agreement") between Tarrant Apparel Group dba Fashion Resource, a California
corporation ("TAG"), and Tag Mex, Inc., a California corporation (individually
and collectively, "Borrower"), certain financial institutions who are or later
become a party thereto ("Lenders") and GMAC Commercial Credit LLC, as agent for
Lenders ("Agent"), as follows:
As of _________________, no Event of Default or Prospective Event of
Default has occurred [except: (Specify nature and extent of such Event of
Default and/or Prospective Event of Default)_____________________________].
If applicable, the corrective action taken or proposed to be taken to
prevent or cure such Event of Default or Prospective Event of Default is as
follows:_____________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
As of __________________________, TAG maintains on a consolidated basis
the following financial covenants pursuant to Section 7.5 of the Agreement:
a) Tangible Net Worth of $ _________________________
Minimum required $116,500,000
b) Fixed Charge Coverage Ratio of ______: 1.0
Minimum required ratio 1.5:1.0
<PAGE>
c) An Interest Coverage Ratio of ______: 1.0
Minimum required ratio 5.0:1.0
d) A Total Leverage Ratio of _________: 1.0
Maximum permitted ratio 1.8:1.0 during fiscal year 2000 and
1.5:1.0 thereafter.
The financial statements and/or reports submitted as of this date are
true, complete, correct and consistent with GAAP.
Any and all capitalized terms set forth in this certificate without
definition shall have the respective meanings ascribed thereto in the Agreement.
TARRANT APPAREL GROUP,
dba Fashion Resource,
a California corporation
By:_______________________________
Name: ____________________________
Title:____________________________
<PAGE>
EXHIBIT F
LENDER ASSIGNMENT AGREEMENT
This Lender Assignment Agreement ("Agreement") is made as of this ____ day
of ________________, 20___, by and among ______________________________________
(hereinafter referred to as "Assignor"), and ________________________________
(hereinafter referred to as "Assignee").
W I T N E S S E T H:
WHEREAS, Tarrant Apparel Group dba Fashion Resource, a California
corporation, and Tag Mex, Inc., a California corporation (individually and
collectively "Borrower"), certain Lenders, including Assignor, and GMAC
Commercial Credit LLC, as agent for Lenders ("Agent"), are parties to a certain
Revolving Credit, Factoring and Security Agreement dated as of _______________,
2000 ("Credit Agreement").
WHEREAS, pursuant to the Credit Agreement, Agent and Lenders have provided
a line of credit to Borrower in the principal sum of $105,000,000 ("Credit") and
the commitment of Assignor under the Credit is $________________.
WHEREAS, Assignee has advised Agent, Assignor and Borrower of its desire
to become a Lender under the Credit Agreement and to assume a percentage
interest of the Credit in the amount of $________________ on the terms herein
provided.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants hereinafter set forth and intending to be legally bound hereby agree
as follows:
AGREEMENT
1. Definitions. Except as otherwise provided herein, capitalized terms
-----------
defined in the Credit Agreement are used herein with the meanings set forth
therein. As used in this Agreement, the following capitalized terms shall have
the meanings set forth below:
"Assigned Commitment Percentage" means the percentage of the
aggregate Credit of Assignee under the Credit Agreement and the corresponding
dollar amount with respect to the aggregate Credit under the Credit Agreement as
set forth below:
Percentage: ____________%
1-
<PAGE>
Dollar Amount: $____________
"Pro Rata" means a Pro Rata sharing among Lenders, based on the
ratio that a party's interest in the Credit bears to the outstanding principal
amount of the Advances made by such party at the time in question.
"Effective Date" means ____________________________________________.
2. Representations and Warranties of Assignor. Assignor represents and
------------------------------------------
warrants to Assignee as follows:
a. As of the date hereof, Assignor has a ratable share of the Credit
equal to $____________ or ___________%.
b. As of the date hereof, there is [no] [$________] outstanding
principal balance of Advances made under the Credit Agreement.
Assignor makes no representation or warranty nor assumes any
responsibility with respect to the financial condition of Borrower or the
performance of Borrower of the Advances, and Assignor assumes no responsibility
with respect to any statements, warranties or representations made under or in
connection with the Credit Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
other documents under the Credit Agreement, other than as expressly set forth
above.
3. Representations and Warranties of Assignee. Assignee hereby
------------------------------------------
represents and warrants to Agent and Assignor as follows:
a. Assignee has full power and authority, and has taken all action
necessary to execute and deliver this Agreement, and any and all other documents
required or permitted to be executed or delivered by it in connection with this
Agreement and to fulfill its obligations under, and to consummate the
transactions contemplated by, this Agreement, and no governmental authorizations
or other authorizations are required in connection therewith;
b. This Agreement constitutes the legal, valid and binding
obligation of Assignee;
c. Assignee has independently and without reliance upon Agent or
Assignee and based on such information as Assignee has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and become a
Lender under the Credit Agreement. Assignee will, independently and without
reliance upon Agent or any Lender, and based upon such documents and information
as it shall deem appropriate at the time, continue to make its
2-
<PAGE>
own credit decisions in taking or not taking action under the Credit Agreement;
and
d. If Assignee is organized under the laws of a jurisdiction outside
the United States of America, attached hereto are forms certifying Assignee's
exemption from United States withholding taxes with respect to all payments to
be made to Assignee under the Credit Agreement.
4. Assignment. On the terms set forth herein, Assignor, as of the
----------
Effective Date, hereby irrevocably sells, assigns and transfers to Assignee all
of the rights and obligation of Assignor under the Credit Agreement, its Note,
and the Advances owing to Assignor under the Credit Agreement, in each case to
the extent of the Assigned Commitment Percentage, and Assignee irrevocably
accepts such assignment of rights and assumes such obligations from Assignor on
such terms and effective as of the Effective Date. As of the Effective Date,
Assignee shall have the rights and obligations of a "Lender" under the Credit
Agreement and the Note. Assignee hereby appoints and authorizes Agent to
exercise such powers under the Credit Agreement as are delegated to the Agent by
Article XIII of the Credit Agreement.
5. Payment. On the Effective Date, Assignee shall pay to Assignor, in
-------
immediately available funds, an amount equal to the purchase price of the
Assigned Commitment Percentage, as agreed between Assignor and Assignee pursuant
to a letter agreement of even date herewith.
Assignor and Assignee hereby agree that if either receives any
payment of interest, principal, fees or any other amount under the Credit
Agreement, their respective Notes or any other documents under the Credit
Agreement which is for the account of the other, it shall hold the same in trust
for such party to the extent of such party's interest therein and shall promptly
pay the same to such party.
6. Notes. Agent shall make appropriate arrangements with Borrower
-----
concurrently with the execution and delivery hereof so that a new Note is issued
to Assignee and a replacement Note is issued to Assignor, in each case in
principal amounts reflecting their respective Revolving Percentage interests
under the Credit Agreement.
7. Further Assurances. Concurrently with the execution of this
------------------
Agreement, Agent shall register Assignee as a Lender under the Credit Agreement
and revise Exhibit "A" to the Credit Agreement to reflect the Assigned
Commitment Percentage.
8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACTUAL
-------------
OBLIGATION UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. ASSIGNEE HEREBY AGREES TO
THE PROVISIONS OF SECTION 14.3 OF THE CREDIT AGREEMENT.
3-
<PAGE>
9. Notices. All communications among the parties or notices in connection
-------
herewith must be in writing and must be mailed, telegraphed, telecopied,
delivered or sent by telex or cable, addressed to the appropriate party at its
address set forth on the signature pages hereof. All communications and notices
shall, if sent by telegraph, telex or telecopy, be deemed to have been given
when received by the Person to whom addressed; if sent by overnight courier
service, be deemed to have been given one day after the date when set; and if
sent by mail, be given to have been given three days after the date when sent by
registered or certificate mail, postage prepaid.
10. Attorneys' Fees. In the event of any action at law or any suit in
---------------
equity with respect to this Agreement, or any documents executed pursuant
hereto, whether in federal court, state court, administrative proceedings,
arbitration proceeding (if agreed upon by the parties hereto) or insolvency
proceedings, the prevailing party, in addition to all other sums to which it may
be entitled by law, shall be entitled to a reasonable sum for attorneys' fees
and costs incurred.
11. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties and their respective successors and assigns.
12. Interpretation. The headings of the various sections hereof are for
--------------
convenience of reference only and shall not affect the meaning or construction
of any provision hereof.
4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers, as of the date first above
written.
"Assignor"
______________________________________,
BY: ____________________________________
NAME: __________________________________
TITLE: _________________________________
"Assignee"
______________________________________,
BY: ____________________________________
NAME: __________________________________
TITLE: _________________________________
Acknowledged:
GMAC Commercial Credit LLC,
as Agent
By: _______________________________
Name: _____________________________
Title: ____________________________
5-
<PAGE>
EXHIBIT G
RECORDING REQUESTED BY:
GMAC Commercial Credit LLC, as Agent
1290 Avenue of the Americas
New York, New York 10104
======================================================
TRADEMARK SECURITY AGREEMENT
----------------------------
THIS TRADEMARK SECURITY AGREEMENT ("Agreement") dated as of ____________
2000, made by Tarrant Apparel Group dba Fashion Resource, a California
corporation, and Tag Mex, Inc., a California corporation (collectively
"Grantor"), in favor of GMAC Commercial Credit LLC, a New York limited liability
company, in its capacity as agent for certain Lenders (including the Issuer and
the Factor) parties to that certain Loan Agreement defined below ("Agent")
located at 1290 Avenue of the Americas, New York, New York 10104.
R E C I T A L S:
A. Grantor is indebted to the Agent and the Lenders parties to the
Revolving Credit, Factoring and Security Agreement dated January ___, 2000
("Loan Agreement"), which provides for certain credit facilities in the
aggregate principal sum not exceeding $105,000,000.
B. The obligations of Grantor to Agent for and on behalf of the Secured
Parties are secured by all of Grantor's right, title and interest in accounts,
certain general intangibles and certain inventory as provided under the Loan
Agreement.
C. As a condition to Secured Parties extending credit to Grantor, Grantor
has agreed to give to Agent a security interest in and to all trademarks owned
by Grantor, consisting of the trademarks "No!", "No! Jeans", "GET", "No! Femmes"
and "Chazzz."
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Grantor agrees as follows:
1. Defined Terms. Capitalized terms used herein without definition shall
-------------
have the meaning set forth in the Loan Agreement. The following terms have the
following meanings
1
<PAGE>
(such meanings being equally applicable to both the singular and plural forms of
the terms defined):
"Agreement" means this Trademark Security Agreement, as the
---------
same may from time to time be amended, modified or supplemented.
"Intellectual Property Collateral" has the meaning assigned to
--------------------------------
such term in Section 2 of this Agreement.
"Trademarks" means trademarks (including service marks and
----------
trade names, whether registered or at common law), registrations and
applications therefor and any and all (i) renewals thereof, (ii) income,
royalties, damages and payments now and hereafter due or payable or both with
respect thereto including, without limitation, damages and payments for past or
future infringements thereof, (iii) rights to sue for past, present and future
infringements thereof, and (iv) rights corresponding thereto throughout the
world.
The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, including the Exhibits and
Schedules hereto, and not to any particular section, subsection or clause
contained in this Agreement.
2. Grant of Security Interest in Trademarks. In order to secure the
----------------------------------------
complete and due and punctual payment of all of the Obligations of Grantor to
the Agent and the Secured Parties, Grantor hereby grants and conveys to the
Agent, on behalf of the Secured Parties, as collateral security, a continuing
security interest in all of Grantor's entire right, title and interest in and to
intellectual property rights now owned or existing and hereafter acquired or
arising in the following assets (all of which being hereinafter referred to as
the "Intellectual Property Collateral") all Trademarks of Grantor including,
without limitation, the Trademarks listed on Schedule A hereto, and the entire
goodwill of Grantor's business connected with the use of and symbolized by the
Trademarks;
provided, however, that nothing hereunder constitutes or shall be
-------- -------
deemed to constitute the grant of a security interest in favor of the Agent with
respect to any Intellectual Property Collateral to the extent prohibited by
applicable law.
3. Representations and Warranties; New Intellectual Property. (a)
---------------------------------------------------------
Grantor represents and warrants that it has the full right and power to grant
the security interests provided for in this Agreement (subject to the exceptions
contained herein) in the Trademarks made hereby; that it has made no previous
assignment, transfer or agreements in conflict herewith or constituting an
assignment of, a transfer of or an encumbrance on any of the Trademarks. Grantor
further represents and warrants that Schedule A lists all Trademarks owned or
used by
2
<PAGE>
Grantor and which are material to any portion of its business or any of
Grantor's subsidiaries or affiliates and (ii) the Intellectual Property
Collateral does not infringe upon any rights owned or possessed by any entity
not a party to this Agreement.
(b) In the event, prior to the time the Obligations of Grantor to
the Agent and the Secured Parties have been indefeasibly paid in full, Grantor
shall (i) obtain any rights to or interests in any new trademarks, trade names,
service marks, and applications therefor, or licenses, or (ii) become entitled
to the benefit of any trademark application, trademark, trademark registration,
the provisions of this Agreement shall automatically apply thereto and anything
enumerated in clauses (i) or (ii) shall constitute Intellectual Property
Collateral. Grantor shall give to the Agent prompt written notice thereof.
Grantor agrees, promptly following the written request by the Agent, to amend
this Agreement by amending Schedule A, to include any such future trademarks,
trademark registrations, trademark applications, trade names and service marks
which would be Intellectual Property Collateral.
4. Rights and Remedies; Application of Monies.
------------------------------------------
(a) Upon the occurrence and during the continuation of a
default of any or all of Grantor's Obligations to the Agent and the Secured
Parties, and assuming the obligations are accelerated, the Agent may, to the
fullest extent permitted by applicable law and without advertisement, hearing or
process of law of any kind, (i) exercise any and all rights as beneficial and
legal owner of the Intellectual Property Collateral, including, without
limitation, any and all consensual rights and powers with respect to the
Intellectual Property Collateral and (ii) sell or assign or grant a license or
franchise to use, or cause to be sold or assigned or grant a license or
franchise to use any or all of the Intellectual Property Collateral, in each
case, free of all rights and claims of Grantor therein and thereto. Upon the
occurrence and during the continuation of a default of any or all of Grantor's
Obligations to the Agent or any of the Secured Parties, the Agent may, subject
to any limitations under the Uniform Commercial Code or other applicable law,
(i) sell or assign the Intellectual Property Collateral, or any part thereof,
for cash or upon credit as the Agent may deem appropriate or (ii) grant licenses
or franchises or both to use the Intellectual Property Collateral on such terms
and conditions that the Agent shall determine. In connection therewith, the
Agent shall have the right to impose such limitations and restrictions on the
sale or assignment of the Intellectual Property Collateral as the Agent may deem
to be necessary or appropriate to comply with any law, rule or regulation
(federal, state or local) having applicability to any such sale and requirements
for any necessary governmental approvals.
(b) Except as provided in this Section 4, Grantor hereby
expressly waives, to the fullest extent permitted by applicable law, any and all
notices, advertisements, hearings or process of law in connection with the
exercise by the Agent of any of its rights and remedies hereunder. The Agent
shall not be liable to any person for any incorrect or improper
3
<PAGE>
payment made pursuant to this Section 4, in the absence of gross negligence or
willful misconduct.
(c) Notwithstanding any provisions of this Agreement to the
contrary, if, after giving effect to any sale, transfer, assignment or other
disposition of any or all of the Intellectual Property Collateral pursuant
hereto and after the application of the proceeds hereunder to the Obligations of
Grantor to the Agent, any said Obligations remain unpaid or unsatisfied, Grantor
shall remain liable for the unpaid and unsatisfied amount of such remaining
obligations.
(d) This Agreement is made to provide for and secure repayment of
the obligations of Grantor to the Agent and the Secured Parties.
5. Termination of Security Interest. This Agreement and the security
--------------------------------
interests created or granted hereby or thereby, shall terminate when the later
of the following shall have occurred: (a) the date that all of the obligations
of Grantor to the Agent and the Secured Parties shall have been fully and
indefeasibly paid and satisfied and (b) the date as of which the last of the
commitments and related documents and instruments have terminated with respect
to the Loan Agreement. After such termination, the Agent (without recourse upon,
or any warranty whatsoever by, the Agent), shall execute and deliver to Grantor
for filing in each office in which any security agreement, notice or other
filing, or any part thereof, shall have been filed, an instrument releasing the
Agent's security interest in the Intellectual Property Collateral, and such
other documents and instruments to terminate any security interest of the Agent
granted hereby as the Grantor may reasonably request, all without recourse upon,
or warranty whatsoever by, the Agent (except that the same shall be free and
clear of any claims, liens or encumbrances created by or in respect of the
Agent) and all at the cost and expense of Grantor.
6. Use and Protection of Intellectual Property Collateral.
------------------------------------------------------
Notwithstanding anything to the contrary contained herein, unless an Event of
Default has occurred and is continuing, Grantor may continue to exploit,
license, franchise, use, enjoy and protect (whether in the United States of
America or any foreign jurisdiction) the Intellectual Property Collateral in the
ordinary course of business and the Agent shall from time to time execute and
deliver, upon written request of Grantor and at Grantor's sole cost and expense,
any and all instruments, certificates or other documents, in the form so
requested, necessary or appropriate in the judgment of Grantor to enable Grantor
to do so.
7. Duties of Grantor. Grantor shall have the duty to preserve and
-----------------
maintain all rights in the Intellectual Property Collateral in respect of which
a failure to be able to continue to use the same would have a material adverse
effect on the ownership, operation or maintenance of its business and
operations, in a manner substantially consistent with its present practices and
shall take all action reasonably requested by the Agent to register, record
and/or perfect the Agent's right hereunder.
4
<PAGE>
8. The Agent's Right to Sue. Whenever Grantor shall have defaulted
------------------------
in any or all of its Obligations to the Agent and any of the Secured Parties,
the Agent shall have the right, but shall in no way be obligated, to bring suit
in its own name to enforce the Trademarks, and, if the Agent shall commence any
such suit, Grantor shall, at the request of the Agent, do any and all lawful
acts and execute any and all proper documents required by the Agent in aid of
such enforcement.
9. No Waiver; Cumulative Remedies. No failure on the part of the
------------------------------
Agent to exercise, and no delay on the part of the Agent in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy by the Agent
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies that may be available to the Agent whether at
law, in equity or otherwise.
10. Notices, etc. All notices or other communications hereunder
------------
shall be given to the Agent as follows:
GMAC Commercial Credit LLC
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Notices to the Grantor should be addressed to:
Tarrant Apparel Group
3151 E. Washington Boulevard
Los Angeles, California 90023
Attention: Patrick Chow
Tag Mex, Inc.
3151 E. Washington Boulevard
Los Angeles, California 90023
Attention: Patrick Chow
11. Expenses of Collection. Grantor hereby agrees to pay all
----------------------
expenses of the Agent, including reasonable attorneys' fees, incurred with
respect to the collection of any of the Intellectual Property Collateral and the
enforcement of the rights of the Agent hereunder which expenses together with
interest thereon at the rate provided in the Loan Agreement shall constitute
obligations of Grantor to the Agent thereunder and, therefore, secured hereby.
5
<PAGE>
12. Attorney-in-Fact. Grantor hereby irrevocably constitutes and
----------------
appoints the Agent and any officer or agent thereof, with full power of
substitution, as Grantor's true and lawful attorney-in-fact, for the purpose of
taking such action and executing agreements, instruments and other documents, in
the name of Grantor or otherwise, not inconsistent with the express provisions
of this Agreement, as the Agent may deem necessary or advisable to accomplish
the purposes hereof, which appointment is an agency coupled with an interest and
is irrevocable until payment in full of all obligations of Grantor to the Agent.
The Agent agrees that except upon the occurrence and during the
continuation of an Event of Default, it will forbear from exercising the power
of attorney or any rights granted to the Agent pursuant to this Section 12.
13. Agreement Governing Law; Binding Character; Assignment. This
------------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to principles of conflicts of law. This
Agreement shall be binding upon Grantor and the Agent and their respective
successors and assigns and shall inure to the benefit of Grantor and the Agent,
and their respective successors and assigns; provided, however, that Grantor may
not assign its rights or obligations hereunder or in connection herewith or any
interest herein (voluntarily, by operation of law or otherwise) without the
prior written consent of the Agent. No other person (including, without
limitation, any other creditor of Grantor) shall have any interest herein or any
right or benefit with respect hereto and this Agreement shall not be construed
so as to confer any right or benefit upon any person other than the parties to
this Agreement and each of their respective successors and assigns.
14. Further Indemnification. Grantor agrees to pay, and save the
-----------------------
Agent harmless from, any and all liabilities with respect to, or resulting from
any delay in paying (other than a delay caused by the willful misconduct of the
Agent), any and all excise, sales or other similar taxes which may be payable
with respect to the Intellectual Property Collateral or in connection with any
of the transactions contemplated by this Agreement.
15. WAIVER OF JURY TRIAL. GRANTOR WAIVES ALL RIGHT TO TRIAL BY JURY
--------------------
IN ANY ACTION, SUIT PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT OR ANY OF THE OTHER DOCUMENTS
RELATED TO THE LOAN AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS OR
COUNTERCLAIMS GROUNDED IN CONTRACT OR TORT.
16. Severability of Provisions. Any provision of this Agreement
--------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
6
<PAGE>
17. Headings. Paragraph and section headings used in this Agreement
--------
are for convenience of reference only and shall not affect the construction of
this Agreement.
18. Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TARRANT APPAREL GROUP,
dba Fashion Resource
a California corporation
By: ____________________________________
Name: ______________________________
Its: _______________________________
TAG MEX, INC., a California corporation
By: ____________________________________
Name: ______________________________
Its: _______________________________
7
<PAGE>
SCHEDULE A
to the
Trademark Security Agreement
Trademarks
- --------------------------------------------------------------------------------
MARK SERIAL/REGISTRATION OWNER
NUMBER
- --------------------------------------------------------------------------------
No ! 1 461979 TAG
- --------------------------------------------------------------------------------
No ! Jeans 1 462893 TAG
- --------------------------------------------------------------------------------
GET 368528
- --------------------------------------------------------------------------------
No ! Femmes 2222377 TAG
- --------------------------------------------------------------------------------
Chazzz
- --------------------------------------------------------------------------------
8
<PAGE>
SCHEDULE 1.2
OUTSTANDING LIENS
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. File No. of Orig. 1A. Date of Filing of 1B. Date of Orig. 1C. Date of Orig.
Financing Statement Orig. Financing Statement Financing Statement Financing Statement
9927760555 9/29/99 Secretary of State
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (Last Name First) 2A. Social Security No..
Tarrant Apparel Group Federal Tax No.
- ---------------------------------------------------------------------------------------- ----------------------------
2B. Mailing Address 2C. City, State 2D. Zip Code
3151 E. Washington Blvd Los Angeles, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (If Any) (Last Name First) 3A. Social Security No..
Federal Tax No.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. Mailing Address 3C. City, State 3D. Zip Code
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY THE CIT GROUP/ COMMERCIAL SERVICES, INC. 4A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS 300 S. Grand Ave., 2nd Floor Transit and A.B.A. No.
CITY Los Angeles STATE CA ZIP CODE 90071
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (If Any) 5A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS Transit and A.B.A. No.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |_| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |X| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
Collateral is amended to include: J. C. Penney,and Marshalls, Inc.
TJ Maxx
- --------------------------------------------------------------------------------
8. (Date) 11-24 1999
------- ----
Tarrant Apparel Group
___________________________________________________________________
By: /s/ [ILLEGIBLE] VP/CFO
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
THE CIT GROUP/COMMERCIAL SERVICES, INC.
-------------------------------------------------------------------
By: /s/ Thomas Arakaki VP
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME Del Lazo/Eva Lopez
ADDRESS The CIT Group/ Commercial Services, Inc.
CITY AND 300 S. Grand Ave., 2nd Fl
STATE Los Angeles, CA 90021
UNIFORM COMMERCIAL CODE-FORM UCC-2
(2) ACKNOWLEDGEMENT Printed by UCC Control - LibraSoft, Inc.
Approved by the Secretary of State 229 Johnson St., Suite C, Santa Fe, NM 87901
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. File No. of Orig. 1A. Date of Filing of 1B. Date of Orig. 1C. Date of Orig.
Financing Statement Orig. Financing Statement Financing Statement Financing Statement
9927760555 9/29/99 Secretary of State
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (Last Name First) 2A. Social Security No..
Tarrant Apparel Group Federal Tax No.
- ---------------------------------------------------------------------------------------- ----------------------------
2B. Mailing Address 2C. City, State 2D. Zip Code
3151 E. Washington Blvd Los Angeles, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (If Any) (Last Name First) 3A. Social Security No..
Federal Tax No.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. Mailing Address 3C. City, State 3D. Zip Code
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY THE CIT GROUP/ COMMERCIAL SERVICES, INC. 4A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS 300 S. Grand Ave., 2nd Floor Transit and A.B.A. No.
CITY Los Angeles STATE CA ZIP CODE 90071
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (If Any) 5A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS Transit and A.B.A. No.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |_| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |X| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
Collateral is amended to include: Ross Stores, Inc.
- --------------------------------------------------------------------------------
8. (Date) _______ 19__
Tarrant Apparel Group
___________________________________________________________________
By: /s/ [ILLEGIBLE] VP/CFO
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
THE CIT GROUP/COMMERCIAL SERVICES, INC.
-------------------------------------------------------------------
By: /s/ Thomas Arakaki VP
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME Del Lazo/Eva Lopez
ADDRESS The CIT Group/ Commercial Services, Inc.
CITY AND 300 S. Grand Ave., 2nd Fl
STATE Los Angeles, CA 90021
UNIFORM COMMERCIAL CODE-FORM UCC-2
(2) ACKNOWLEDGEMENT Printed by UCC Control - LibraSoft, Inc.
Approved by the Secretary of State 229 Johnson St., Suite C, Santa Fe, NM 87901
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. File No. of Orig. 1A. Date of Filing of 1B. Date of Orig. 1C. Date of Orig.
Financing Statement Orig. Financing Statement Financing Statement Financing Statement
9927760555 9/29/99 Secretary of State
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (Last Name First) 2A. Social Security No..
Tarrant Apparel Group Federal Tax No.
- ---------------------------------------------------------------------------------------- ----------------------------
2B. Mailing Address 2C. City, State 2D. Zip Code
3151 E. Washington Blvd Los Angeles, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (If Any) (Last Name First) 3A. Social Security No..
Federal Tax No.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. Mailing Address 3C. City, State 3D. Zip Code
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY THE CIT GROUP/ COMMERCIAL SERVICES, INC. 4A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS 300 S. Grand Ave., 2nd Floor Transit and A.B.A. No.
CITY Los Angeles STATE CA ZIP CODE 90071
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (If Any) 5A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS Transit and A.B.A. No.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |_| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |X| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
Collateral is amended to include: Ross Stores, Inc.
- --------------------------------------------------------------------------------
8. (Date) _______ 19__
Tarrant Apparel Group
___________________________________________________________________
By: /s/ [ILLEGIBLE] VP/CFO
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
THE CIT GROUP/COMMERCIAL SERVICES, INC.
-------------------------------------------------------------------
By: /s/ Thomas Arakaki VP
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME Del Lazo/Eva Lopez
ADDRESS The CIT Group/ Commercial Services, Inc.
CITY AND 300 S. Grand Ave., 2nd Fl
STATE Los Angeles, CA 90021
UNIFORM COMMERCIAL CODE-FORM UCC-2
(2) ACKNOWLEDGEMENT Printed by UCC Control - LibraSoft, Inc.
Approved by the Secretary of State 229 Johnson St., Suite C, Santa Fe, NM 87901
<PAGE>
[CIT GROUP LETTERHEAD]
December 15, 1999
TARRANT APPAREL GROUP
3151 East Washington Boulevard
Los Angeles, CA 90023
Gentlemen:
Reference is made to the Accounts Receivable Financing Agreement between us,
dated June 13, 1997, as supplemented and amended (herein the "Agreement").
Pursuant to mutual understanding, effective immediately, Paragraph 1.2 and 1.6
of the Agreement shall be amended to include the following customer:
Ross Stores, Inc.
Except as herein specifically provided, the Agreement remains in full force and
effect in accordance with its terms, and no other changes in the terms or
provisions of the Agreement are intended or implied. If you are in agreement
with the foregoing, please indicate by signing and returning the enclosed
duplicate of this letter.
Sincerely,
THE CIT GROUP/
COMMERCIAL SERVICES, INC.
By: /s/ Thomas Arakaki
-----------------------------------
Thomas Arakaki, Vice President
Read and Agreed to:
TARRANT APPAREL GROUP
By: /s/ [ILLEGIBLE]
-----------------------------------
Name:
Title:
<PAGE>
[CIT GROUP LETTERHEAD]
December 15, 1999
TARRANT APPAREL GROUP
3151 East Washington Boulevard
Los Angeles, CA 90023
Gentlemen:
Reference is made to the Accounts Receivable Financing Agreement between us,
dated June 13, 1997, as supplemented and amended (herein the "Agreement").
Pursuant to mutual understanding, effective immediately, Paragraph 1.2 and 1.6
of the Agreement shall be amended to include the following customer:
Ross Stores, Inc.
Except as herein specifically provided, the Agreement remains in full force and
effect in accordance with its terms, and no other changes in the terms or
provisions of the Agreement are intended or implied. If you are in agreement
with the foregoing, please indicate by signing and returning the enclosed
duplicate of this letter.
Sincerely,
THE CIT GROUP/
COMMERCIAL SERVICES, INC.
By: /s/ Thomas Arakaki
-----------------------------------
Thomas Arakaki, Vice President
Read and Agreed to:
TARRANT APPAREL GROUP
By: /s/ [ILLEGIBLE]
-----------------------------------
Name:
Title:
<PAGE>
FINANCING STATEMENT is presented for filing and will remain effective with
certain exceptions for a period of five years from the date of filing pursuant
to section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------- -------------------------------------
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO
TARRANT APPAREL GROUP dba FASHION RESOURCE
- ------------------------------------------------------------------- -------------------- -------------------------------------
1B. MAILING ADDRESS 1C. City, State 1D. Zip Code
- ------------------------------------------------------------------- -------------------- -------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO
- ------------------------------------------------------------------- -------------------- -------------------------------------
2B. MAILING ADDRESS 2C. City, State 2D. Zip Code
- ---------------------------------------------------------------------------------------- -------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
======================================================================================== =====================================
4. SECURED PARTY 4A. Social Security No..
NAME THE CIT GROUP/COMMERCIAL SERVICES, INC. Federal Tax No. or Bank
MAILING ADDRESS 300 S. Grand Ave. 2nd Floor Transit and A.B.A. No.
CITY Los Angeles, CA 90071 13-297581-1
- ---------------------------------------------------------------------------------------- -------------------------------------
5. ASSIGNEE OF SECURED PARTY (If Any) 5A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS Transit and A.B.A. No.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4).
See attached Schedule A
- ---------------- ------------------------------- -------------------------------
7. CHECK |_| 7A. |X| PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT
IF APPLICABLE ARE ALSO COVERED REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(a)
ITEM:
|_|(1) |_|(2) |_|(3) |_|(4)
- ----------------- ------------------------------ -------------------------------
8. CHECK |_| |_| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
IF APPLICABLE ss. 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 6/13/97
By: /s/ [ILLEGIBLE]
SIGNATURE OF DEBTOR Title: V.P.
- --------------------------------------------------------------------------------
TYPE OR PRINT NAME OF DEBTOR Tarrant Apparel Group
- --------------------------------------------------------------------------------
By: /s/ [ILLEGIBLE]
Title: VP
SIGNATURE OF SECURED PARTY
- --------------------------------------------------------------------------------
TYPE OR PRINT NAME(S) OF SECURED PARTY The CIT Group/Commercial Services, Inc.
================================================================================
10. THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, FILE NUMBER
AND FILING OFFICER)
================================================================================
11. Return Copy to;
NAME The CIT Group/Commercial Services, Inc.
ADDRESS 300 S. Grand Ave. 2nd Fl
CITY AND Los Angeles, CA 90071
STATE Attn: Documentation Dept.
ZIP CODE
================================================================================
FORM UCC - 1--
Approved by the Secretary of State
================================================================================
[ILLEGIBLE] (1) FILING OFFICER COPY FILING OFFICE: SECRETARY OF STATE
Prepared with UCC Master Software - [ILLEGIBLE] Software, Inc. 5
Mirage Drive, Los Angeles, CA 90049 - 310-471-3472
<PAGE>
SCHEDULE A TO THAT CERTAIN UCC-1
FINANCING STATEMENT BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR,
AND THE CIT GROUP/COMMERCIAL SERVICES. INC., AS SECURED PARTY
-------------------------------------------------------------
Collateral shall mean and include: (a) all of Debtor's present and future
accounts and accounts receivable created by or arising from its sales of goods
or rendition of services to Lerner New York, a division of The Limited
Corporation and Target Stores, a division of Dayton Hudson Corporation
(including, without limitation, all accounts and accounts receivable under any
of its trade names or styles, or through any of its divisions), and all
instruments, documents, contract rights, chattel paper, general intangibles
arising out of such sale of goods or rendition of services (collectively the
"Accounts"); (b) all of Debtor's present and future deposits, balances, sums and
credits in Secured Party's possession or control relating to the Accounts; (c)
all Debtor's present and future monies, securities and other property now or
hereafter held or received by or in transit to Secured Party from or for
Debtor's account, whether for safekeeping, pledge, custody, transmission,
collection or otherwise relating to the Accounts; (d) all of Debtor's present
and future liens, security interests, rights, remedies, title and interest in,
and in respect of the Accounts, including, without limitation: (i) rights and
remedies under or relating to guaranties, contracts or suretyship, letter of
credit, credit insurance, or other types of credit enhancements, (ii) rights of
stoppage in transit, rescission, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lien or secured party, (iii) goods
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing accounts or other collateral, including,
without limitation, returned, repossessed and reclaimed goods, and (iv) deposits
by and property of customers or other persons securing the obligations of
customers; (e) all of Debtor's books of account of every kind of nature,
purchase and sale agreements, invoices, ledger cards, computer programs, bills
of lading and other shipping evidence, statements correspondence, memoranda,
bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Accounts, together with
the file cabinets or containers in which the foregoing are stored; and (f) all
proceeds and products of the foregoing, in any form, including, without
limitation, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
TARRANT APPAREL GROUP THE CIT GROUP/
(Debtor) COMMERCIAL SERVICES, INC.
(Secured Party)
By: /s/ Mark B. Kristof By: /s/ [ILLEGIBLE]
------------------------ ------------------------
Name: Mark B. Kristof Name:
Title: V.P. Title:
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. File No. of Orig. 1A. Date of Filing of 1B. Date of Orig. 1C. Place of Filing Orig.
Financing Statement Orig. Financing Statement Financing Statement Financing Statement
9719161257 7/9/97 Secretary of State
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (Last Name First) 2A. Social Security No..
Tarrant Apparel Group Federal Tax No.
- ---------------------------------------------------------------------------------------- ----------------------------
2B. Mailing Address 2C. City, State 2D. Zip Code
3151 E. Washington Blvd Los Angeles, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (If Any) (Last Name First) 3A. Social Security No..
Federal Tax No.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. Mailing Address 3C. City, State 3D. Zip Code
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY THE CIT GROUP/COMMERCIAL SERVICES, INC. 4A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS 300 S. Grand Ave., 2nd Floor Transit and A.B.A. No.
CITY LOS ANGELES STATE CA ZIP CODE 90071 13-2975811
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS Transit and A.B.A. No.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |_| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |X| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
7. See attached
Copy
- --------------------------------------------------------------------------------
8. (Date) 2/17 1995
------- --
Tarrant Apparel Group
___________________________________________________________________
By: /s/ Mark B. Kristof
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
THE CIT GROUP/COMMERCIAL SERVICES, INC.
-------------------------------------------------------------------
By: /s/ [ILLEGIBLE]
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
99064C0147
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
FILED
SACRAMENTO, CA
MAR 02, [ILLEGIBLE] AT 8911
BILL JONES
SECRETARY OF STATE
- --------------------------------------------------------------------------------
10. Return Copy to
NAME LEXIS Document Services
ADDRESS 920 11th Street
CITY AND Suite B
STATE Sacramento, CA 95814
UNIFORM COMMERCIAL CODE-FORM UCC-2
(*) ACKNOWLEDGEMENT COPY Printed by UCC Control - [ILLEGIBLE], Inc.
Approved by the Secretary of State 229 Johnson St., Suite C. Santa Fe, NM 87901
<PAGE>
EXTENSION SHEET FOR UNIFORM COMMERCIAL CODE FINANCING STATEMENTS
- --------------------------------------------------------------------------------
STATE OF California TOTAL NUMBER OF SHEETS 2
- --------------------------------------------------------------------------------
Schedule A shall be amended to include the following customers:
Guess? Inc.
Structure, Inc., a subsidiary of The Limited Inc.
Sentence (a) of Schedule A shall be amended to read as follows:
"(a) all of Debtor's present and future accounts and accounts receivable created
by or arising from its sales of goods or rendition of services to Lerner New
------
York, a division of The Limited Corporation, Target Stores, a division of
Dayton Hudson Corporation, Guess? Inc. and Structure, Inc., a subsidiary of The
---------
Limited Inc. (including, without limitation, all accounts and accounts
receivable under any of its trade names or styles, or through any of its
divisions), and all instruments, documents, contract rights, chattel paper,
general intangibles arising out of such sale of goods or rendition of services
collectively the "Accounts");
Tarrant Apparel Group The CIT Group/Commercial Services,
/s/ Mark B. Kristof Inc. /s/ [ILLEGIBLE] 2
- --------------------- ----------------------------------- -----------------
DEBTOR SECURED PARTY SHEET NO.
FORM UCC-E Printed by UCC Control - LibraSoft, Inc.
220 Johnson St., Suite C, Santa Fe, NM 87501
<PAGE>
FINANCING STATEMENT is presented for filing and will remain effective with
certain exceptions for a period of five years from the date of filing pursuant
to section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------- -------------------------------------
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
Tarrant Apparel Group
- ---------------------------------------------------------- ----------------------------- -------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
3151 E. Washington Blvd. Los Angeles, California 90023
- ---------------------------------------------------------------------------------------- -------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO
- ---------------------------------------------------------- ----------------------------- -------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
======================================================================================== =====================================
4. SECURED PARTY 4A. SOCIAL SECURITY OR
NAME THE CIT GROUP/COMMERCIAL SERVICES, INC. FEDERAL TAX NO. OR BANK
MAILING ADDRESS 300 S. Grand Ave. 2nd Floor TRANSIT AND A.B.A. NO.
CITY Los Angeles, CA 90071 13-297581-1
- ---------------------------------------------------------------------------------------- -------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY OR
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4).
See attached Schedule A
- ---------------- ------------------------------- -------------------------------
7. CHECK |_| 7A. |X| PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT
IF APPLICABLE ARE ALSO COVERED REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(a)
ITEM:
|_|(1) |_|(2) |_|(3) |_|(4)
- ----------------- ------------------------------ -------------------------------
8. CHECK |_| |_| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
IF APPLICABLE ss. 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 6/13/97
By: /s/ Mark B. Kristof
SIGNATURE(S) OF DEBTOR Title: V.P.
- --------------------------------------------------------------------------------
TYPE OR PRINT NAMES OF DEBTOR Tarrant Apparel Group
- --------------------------------------------------------------------------------
By: /s/ [ILLEGIBLE]
Title: AVP
SIGNATURES OF SECURED PARTY
- --------------------------------------------------------------------------------
TYPE OR PRINT NAME(S) OF SECURED PARTY The CIT Group/Commercial Services, Inc.
================================================================================
10. THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, FILE NUMBER
AND FILING OFFICER)
9719161257
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
FILED
SACRAMENTO, CA
JUL 09, 1997 AT 1544
BILL JONES
SECRETARY OF STATE
================================================================================
11. Return Copy to
NAME LEXIS Document Services ACKNOWLEDGEMENT
ADDRESS 920 11th Street COPY
CITY AND Suite B
STATE Sacramento, CA 95814
ZIP CODE
================================================================================
FORM UCC - 1--
Approved by the Secretary of State
================================================================================
[ILLEGIBLE] (1) FILING OFFICER COPY FILING OFFICE: SECRETARY OF STATE
Prepared with UCC Master Software - [ILLEGIBLE] Software, Inc. 5
Marage Drive, Los Angeles, CA 90049 - 310-471-3472
<PAGE>
SCHEDULE A TO THAT CERTAIN UCC-1
FINANCING STATEMENT BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR,
AND THE CIT GROUP/COMMERCIAL SERVICES. INC., AS SECURED PARTY
-------------------------------------------------------------
Collateral shall mean and include: (a) all of Debtor's present and future
accounts and accounts receivable created by or arising from its sales of goods
or rendition of services to Lerner New York, a division of The Limited
Corporation and Target Stores, a division of Dayton Hudson Corporation
(including, without limitation, all accounts and accounts receivable under any
of its trade names or styles, or through any of its divisions), and all
instruments, documents, contract rights, chattel paper, general intangibles
arising out of such sale of goods or rendition of services (collectively the
"Accounts"); (b) all of Debtor's present and future deposits, balances, sums and
credits in Secured Party's possession or control relating to the Accounts; (c)
all Debtor's present and future monies, securities and other property now or
hereafter held or received by or in transit to Secured Party from or for
Debtor's account, whether for safekeeping, pledge, custody, transmission,
collection or otherwise relating to the Accounts; (d) all of Debtor's present
and future liens, security interests, rights, remedies, title and interest in,
and in respect of the Accounts, including, without limitation: (i) rights and
remedies under or relating to guaranties, contracts or suretyship, letter of
credit, credit insurance, or other types of credit enhancements, (ii) rights of
stoppage in transit, rescission, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lien or secured party, (iii) goods
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing accounts or other collateral, including,
without limitation, returned, repossessed and reclaimed goods, and (iv) deposits
by and property of customers or other persons securing the obligations of
customers; (e) all of Debtor's books of account of every kind of nature,
purchase and sale agreements, invoices, ledger cards, computer programs, bills
of lading and other shipping evidence, statements correspondence, memoranda,
bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Accounts, together with
the file cabinets or containers in which the foregoing are stored; and (f) all
proceeds and products of the foregoing, in any form, including, without
limitation, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
TARRANT APPAREL GROUP THE CIT GROUP/
(Debtor) COMMERCIAL SERVICES, INC.
(Secured Party)
By: /s/ Mark B. Kristof By: /s/ Sydnee Breuer
------------------------ ------------------------
Name: Mark B. Kristof Name: Sydnee Breuer
Title: V.P. Title: AVP
<PAGE>
This FINANCING STATEMENT is presented for filing and will remain effective with
certain exceptions for a period of five years from the date of filing pursuant
to section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------- -------------------------------------
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
TARRANT APPAREL GROUP dba FASHION RESOURCE 95-4191026
- ---------------------------------------------------------- ----------------------------- -------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
3151 EAST WASHINGTON BOULEVARD LOS ANGELES, CA 90023
- ---------------------------------------------------------------------------------------- -------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO
- ---------------------------------------------------------- ----------------------------- -------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
======================================================================================== =====================================
4. SECURED PARTY THE HONGKONG AND SHANGHAI BANKING CORPORATION 4A. SOCIAL SECURITY NO.
NAME LIMITED TEXTILES AND GARMENT DIVISION FEDERAL TAX NO. OR BANK
MAILING ADDRESS 1 QUEENS ROAD CENTRAL TRANSIT AND A.B.A. NO.
CITY HONGKONG STATE HONGKONG ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
5. ASSIGNEE OF SECURED PARTY (If Any) 5A. SOCIAL SECURITY NO.
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4).
SEE ATTACHED
EXHIBIT A
- ---------------- ------------------------------- -------------------------------
7. CHECK |X| 7A. |_| PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT
IF APPLICABLE ARE ALSO COVERED REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(a)
ITEM:
|_|(1) |_|(2) |_|(3) |_|(4)
- ----------------- ------------------------------ -------------------------------
8. CHECK |X| |_| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
IF APPLICABLE ss. 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE:
SIGNATURE(S) OF DEBTOR(S) SECRETARY, TREASURER
- --------------------------------------------------------------------------------
TARRANT APPAREL GROUP DBA
FASHION RESOURCE
TYPE OR PRINT NAME(S) OF DEBTOR(S)
- --------------------------------------------------------------------------------
[ILLEGIBLE]
SIGNATURE OF SECURED PARTY(IES)
- --------------------------------------------------------------------------------
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)
================================================================================
10. THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, FILE NUMBER
AND FILING OFFICER)
================================================================================
11. Return Copy to,
NAME WILLIE THAM
ADDRESS THE HONGKONG AND SHANGHAI BANKING
CITY AND CORPORATION LIMITED
STATE TEXTILES AND GARMENT DIVISION
ZIP CODE 1 QUEENS ROAD CENTRAL
HONGKONG
================================================================================
FORM UCC - 1--
Approved by the Secretary of State
================================================================================
<PAGE>
"EXHIBIT A"
TO UCC-1 FINANCING STATEMENT
This Financing Statement is pari passu with another financing statement
between Debtor and Secured Party filed on even date herewith which also covers
the following types or items of property. The undersigned, FASHION RESOURCE, A
CALIFORNIA CORPORATION ("Debtor"), hereby grants THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED ("Bank") a security interest in the following:
All funds (monies) now or hereafter payable to Debtor by NationsBanc
Commercial Corporation ("NationsBanc"), that are assigned to Bank by NationsBanc
and Debtor pursuant to the Tripartite Agreement between NationsBanc, Debtor and
Bank dated ________________, 1995.
<PAGE>
FINANCING STATEMENT is presented for filing and will remain effective with
certain exceptions for a period of five years from the date of filing pursuant
to section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------- -------------------------------------
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO
TARRANT APPAREL GROUP dba FASHION RESOURCE 95-4191026
- ---------------------------------------------------------- ----------------------------- -------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
3151 EAST WASHINGTON BOULEVARD LOS ANGELES, CA 90023
- ---------------------------------------------------------------------------------------- -------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO
- ---------------------------------------------------------- ----------------------------- -------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
======================================================================================== =====================================
4. SECURED PARTY THE HONGKONG AND SHANGHAI BANKING CORPORATION 4A. SOCIAL SECURITY NO..
NAME LIMITED TEXTILES AND GARMENT DIVISION FEDERAL TAX NO. OR BANK
MAILING ADDRESS 1 QUEENS ROAD CENTRAL TRANSIT AND A.B.A. NO.
CITY HONGKONG STATE HONGKONG ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO..
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4).
SEE ATTACHED
EXHIBIT A
- ---------------- ------------------------------- -------------------------------
7. CHECK |X| 7A. |_| PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT
IF APPLICABLE ARE ALSO COVERED REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(a)
ITEM:
|_|(1) |_|(2) |_|(3) |_|(4)
- ----------------- ------------------------------ -------------------------------
8. CHECK |X| |_| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
IF APPLICABLE ss. 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE:
SIGNATURE(S) OF DEBTOR(S) SECRETARY/TREASURER
- --------------------------------------------------------------------------------
TARRANT APPAREL GROUP DBA
FASHION RESOURCE
TYPE OR PRINT NAME(S) OF DEBTOR(S)
- --------------------------------------------------------------------------------
[ILLEGIBLE]
SIGNATURE(S) OF SECURED PARTY(IES)
- --------------------------------------------------------------------------------
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)
================================================================================
10. THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, FILE NUMBER
AND FILING OFFICER)
================================================================================
11. Return Copy to,
NAME WILLIE THAM
ADDRESS THE HONGKONG AND SHANGHAI BANKING
CITY AND CORPORATION LIMITED
STATE TEXTILES AND GARMENT DIVISION
ZIP CODE 1 QUEENS ROAD CENTRAL
HONGKONG
================================================================================
FORM UCC - 1--
Approved by the Secretary of State
================================================================================
<PAGE>
"EXHIBIT A"
TO UCC-1 FINANCING STATEMENT
This Financing Statement is pari passu with another financing statement
between Debtor and Secured Party filed on even date herewith which also covers
the following types or items of property. The undersigned, FASHION RESOURCE, A
CALIFORNIA CORPORATION ("Debtor"), hereby grants THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED ("Bank") a security interest in the following:
All inventory now owned or hereafter acquired by the Debtor including, but
not limited to, all raw materials, work in process, finished goods, merchandise,
parts and supplies of every kind and description, including inventory
temporarily out of the Debtor's custody or possession, together with all returns
on accounts, now acquired or to be acquired by Debtor, from Tarrant Co. Ltd., or
its affiliates (the "Inventory").
All now existing or hereafter made, compiled or acquired books and
records, including electronic data, relating to the foregoing Inventory and
information storage devices and media containing such books and records ("Books
and Records").
<PAGE>
THIS FINANCING STATEMENT is presented for filing and will remain effective, with
certain exceptions for a period of five years from the date of filing, pursuant
to section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------- -------------------------------------
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO
TARRANT APPAREL GROUP dba FASHION RESOURCE 95-4191026
- ---------------------------------------------------------- ----------------------------- -------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
3151 EAST WASHINGTON BOULEVARD LOS ANGELES, CA 90023
- ---------------------------------------------------------------------------------------- -------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO
- ---------------------------------------------------------- ----------------------------- -------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
======================================================================================== =====================================
4. SECURED PARTY THE HONGKONG AND SHANGHAI BANKING CORPORATION 4A. SOCIAL SECURITY NO..
NAME LIMITED TEXTILES AND GARMENT DIVISION FEDERAL TAX NO. OR BANK
MAILING ADDRESS 1 QUEENS ROAD CENTRAL TRANSIT AND A.B.A. NO.
CITY HONGKONG STATE HONGKONG ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO..
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4).
SEE ATTACHED
EXHIBIT A
- ---------------- ------------------------------- -------------------------------
7. CHECK |X| 7A. |_| PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT
IF APPLICABLE ARE ALSO COVERED REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(a)
ITEM:
|_|(1) |_|(2) |_|(3) |_|(4)
- ----------------- ------------------------------ -------------------------------
8. CHECK |X| |_| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
IF APPLICABLE ss. 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE:
SIGNATURE(S) OF DEBTOR(S) SECRETARY/TREASURER
- --------------------------------------------------------------------------------
TARRANT APPAREL GROUP DBA
FASHION RESOURCE
TYPE OR PRINT NAME(S) OF DEBTOR(S)
- --------------------------------------------------------------------------------
[ILLEGIBLE]
SIGNATURE(S) OF SECURED PARTY(IES)
- --------------------------------------------------------------------------------
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)
================================================================================
11. Return Copy to,
NAME WILLIE THAM
ADDRESS THE HONGKONG AND SHANGHAI BANKING
CITY AND CORPORATION LIMITED
STATE TEXTILES AND GARMENT DIVISION
ZIP CODE 1 QUEENS ROAD CENTRAL
HONGKONG
================================================================================
FORM UCC - 1--
Approved by the Secretary of State
================================================================================
<PAGE>
"EXHIBIT A"
TO UCC-1 FINANCING STATEMENT
This Financing Statement is pari passu with another financing statement
between Debtor and Secured Party filed on even date herewith which also covers
the following types or items of property. The undersigned, FASHION RESOURCE, A
CALIFORNIA CORPORATION ("Debtor"), hereby grants THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED ("Bank") a security interest in the following:
All inventory now owned or hereafter acquired by the Debtor including, but
not limited to, all raw materials, work in process, finished goods, merchandise,
parts and supplies of every kind and description, including inventory
temporarily out of the Debtor's custody or possession, together with all returns
on accounts, now acquired or to be acquired by Debtor, from Tarrant Co. Ltd., or
its affiliates (the "Inventory").
All now existing or hereafter made, compiled or acquired books and
records, including electronic data, relating to the foregoing Inventory and
information storage devices and media containing such books and records ("Books
and Records").
<PAGE>
UNIFORM COMMERCIAL CODE FINANCING STATEMENT FORM UCC [ILLEGIBLE]
IMPORTANT--Read Instructions on back before completing form
- --------------------------------------------------------------------------------
This FINANCING STATEMENT is presented for filing and will remain effective, with
certain exceptions, for a period of five years from the date of filing, pursuant
to Section 9403 of the California Uniform Commercial Code.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------- -------------------------------------
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO
TARRANT APPAREL GROUP DBA FASHION RESOURCE 95-4181026
- ---------------------------------------------------------- ----------------------------- -------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
3151 EAST WASHINGTON BOULEVARD LOS ANGELES, CA 90023
- ---------------------------------------------------------------------------------------- -------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO
- ---------------------------------------------------------- ----------------------------- -------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
======================================================================================== =====================================
4. SECURED PARTY STANDARD CHARTERED BANK 4A. SOCIAL SECURITY NO..
NAME CORPORATE BANKING GROUP FEDERAL TAX NO. OR BANK
MAILING ADDRESS ROOM 705-6, TOWER 1, CHEUNG SHA WAN PLAZA TRANSIT AND A.B.A. NO.
CITY KOWLOON HONGKONG STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO..
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------- -------------------------------------
</TABLE>
6. This FINANCING STATEMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required by instruction 4).
SEE ATTACHED EXHIBIT A
- ---------------- ------------------------------- -------------------------------
7. CHECK |X| 7A. |_| PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT
IF APPLICABLE ARE ALSO COVERED REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(a)
ITEM:
|_|(1) |_|(2) |_|(3) |_|(4)
- ----------------- ------------------------------ -------------------------------
8. CHECK |X| |_| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
IF APPLICABLE ss. 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 12/19/96
/s/ Corazon Reegs
SIGNATURE(S) OF DEBTOR(S) SECRETARY/TREASURER
- --------------------------------------------------------------------------------
TARRANT APPAREL GROUP DBA FASHION RESOURCE
TYPE OR PRINT NAME(S) OF DEBTOR(S)
- --------------------------------------------------------------------------------
[ILLEGIBLE]
SIGNATURE(S) OF SECURED PARTY(IES)
- --------------------------------------------------------------------------------
STANDARD CHARTER BANK
TYPE OR PRINT NAME(S) OF SECURED PARTY
================================================================================
10. THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, FILE NUMBER
AND FILING OFFICER)
================================================================================
11. Return Copy to
NAME STANDARD CHARTERED BANK
ADDRESS CORPORATE BANKING GROUP
CITY AND ROOM 705-6, TOWER 1, CHEUNG SHA WAN
STATE 833 CHEUNG SHA WAN RD PLAZA
ZIP CODE KOWLOON HONG KONG
================================================================================
FORM UCC - 1--
(1) FILING OFFICER COPY Approved by the Secretary of State
================================================================================
<PAGE>
"EXHIBIT A"
TO UCC-1 FINANCING STATEMENT
All inventory now owned or hereafter acquired by the Debtor from Tarrant
Co. Ltd., or its affiliates (the "Inventory") including, but not limited to, all
raw materials, work in process, finished goods, merchandise, parts and supplies
of every kind and description, including inventory temporarily out of the
Debtor's custody or possession, together with all returns on accounts, now
acquired or to be acquired by Debtor.
All now existing or hereafter made, compiled or acquired books and
records, including electronic data, relating to the foregoing Inventory and
information storage devices and media containing such books and records ("Books
and Records").
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT CHANGE - FORM UCC-2
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING ORIG.
FINANCING STATEMENT ORIG. FINANCING STATEMENT FINANCING STATEMENT FINANCING STATEMENT
[ILLEGIBLE]48385 07/21/94 06/10/94 CA SECRETARY OF STATE
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO.
TARRANT APPAREL GROUP FEDERAL TAX NO.
95-4181026
- ---------------------------------------------------------------------------------------- ----------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
3151 EAST WASHINGTON BOULEVARD LOS ANGELES, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY NO..
FEDERAL TAX NO.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO.
NAME NATIONSBANK OF GEORGIA, N.A. FEDERAL TAX NO. OR BANK
NATIONSBANC COMMERCIAL CORPORATION TRANSIT AND A.B.A. NO.
MAILING ADDRESS P.O. BOX 4095
CITY ATLANTA STATE GA ZIP CODE 30302-4095
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO.
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |X| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |_| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
================================================================================
7. Secured Party hereby releases all the collateral described in the Financing
Statement bearing the file number shown above EXCEPT the following:
All of Debtor's accounts, outstanding as of August 23, 1999 which were
created by or arose from its sales of goods or rendition of services to any of
the entities listed on Exhibit A attached hereto and incorporated herein by this
reference, and all instruments, contract rights, chattel paper, documents,
general intangibles relating to or arising out of such sales of goods or
rendition of services, and all returned, reclaimed or repossessed goods and all
books and records relating to or pertaining to any of the foregoing, and all
proceeds and products of the foregoing, in any form. THIS FINANCING STATEMENT IS
A PARTIAL RELEASE ONLY.
================================================================================
8. (Date) ______________
________________________________________________________________________________
By:
-----------------------------------------------------------------------------
SIGNATURE(S) OF SECURED DEBTOR(S) (TITLE)
See attached page for signature of Secured Party
- --------------------------------------------------------------------------------
By:
-----------------------------------------------------------------------------
SIGNATURE(S) OF PARTY(IES) (TITLE)
================================================================================
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME BANK OF AMERICA, N.A.
ADDRESS 444 South Flower Street, Suite 4000
CITY AND Los Angeles, California 90071-2901
STATE Attn: Ilinca Tataru
(1) FILING OFFICER COPY UNIFORM COMMERCIAL CODE-FORM UCC-2
STANDARD FORM - FILING FEE
Approved by the Secretary of State
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT CHANGE - FORM UCC-2
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING ORIG.
FINANCING STATEMENT ORIG. FINANCING STATEMENT FINANCING STATEMENT FINANCING STATEMENT
[ILLEGIBLE]48385 07/21/94 06/10/94 CA SECRETARY OF STATE
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO.
TARRANT APPAREL GROUP FEDERAL TAX NO.
95-4181026
- ---------------------------------------------------------------------------------------- ----------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
3151 EAST WASHINGTON BOULEVARD LOS ANGELES, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY NO.
FEDERAL TAX NO.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO.
NAME NATIONSBANK OF GEORGIA, N.A. FEDERAL TAX NO. OR BANK
NATIONSBANC COMMERCIAL CORPORATION TRANSIT AND A.B.A. NO.
MAILING ADDRESS P.O. BOX 4095
CITY ATLANTA STATE GA ZIP CODE 30302-4095
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO.
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |X| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |_| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
================================================================================
7. Secured Party hereby releases all the collateral described in the Financing
Statement bearing the file number shown above EXCEPT the following:
All of Debtor's accounts, outstanding as of August 23, 1999 which were
created by or arose from its sales of goods or rendition of services to any of
the entities listed on Exhibit A attached hereto and incorporated herein by this
reference, and all instruments, contract rights, chattel paper, documents,
general intangibles relating to or arising out of such sales of goods or
rendition of services, and all returned, reclaimed or repossessed goods and all
books and records relating to or pertaining to any of the foregoing, and all
proceeds and products of the foregoing, in any form. THIS FINANCING STATEMENT IS
A PARTIAL RELEASE ONLY.
================================================================================
8. (Date) ______________
________________________________________________________________________________
By:
-----------------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
See attached page for signature of Secured Party
- --------------------------------------------------------------------------------
By:
-----------------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
================================================================================
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME BANK OF AMERICA, N.A.
ADDRESS 444 South Flower Street, Suite 4000
CITY AND Los Angeles, California 90071-2901
STATE Attn: Ilinca Tataru
(2) ACKNOWLEDGEMENT COPY UNIFORM COMMERCIAL CODE-FORM UCC-2
STANDARD FORM - FILING FEE
Approved by the Secretary of State
<PAGE>
SIGNATURE PAGE TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANK OF GEORGIA, N.A. AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
Bank of America, N.A., f/k/a Bank of America National Trust and Savings
Association, successor by merger to Bank of America, N.A., f/k/a NationsBank,
N.A., successor by merger to NationsBank of Georgia, N.A. and NationsBanc
Commercial Corporation.
By: /s/ [ILLEGIBLE] 8/31/99
-------------------------
Its: S.V.P.
------------------------
<PAGE>
SIGNATURE PAGE TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANK OF GEORGIA, N.A. AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
Bank of America, N.A., f/k/a Bank of America National Trust and Savings
Association, succesSor by merger to Bank of America, N.A., f/k/a NationsBank,
N.A., successor by merger to NationsBank of Georgia, N.A. and NationsBanc
Commercial Corporation.
By: /s/ [ILLEGIBLE] 8/31/99
-------------------------
Its: S.V.P.
------------------------
<PAGE>
EXHIBIT A TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANK OF GEORGIA, N.A. AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
CATO CORP
NEWTON BUYING CORPORATION
MARSHALLS, INC.
ROSS STORES INC.
ASHLEY STEWART LTD
CONCORD BUYING GROUP
DOTS STORE INC.
FORMAN MILLS INC.
PENNSYLVANIA FASHIONS
PREMIER DYE & FINISHING
SMITH RIVER TRADERS
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE FINANCING STATEMENT CHANGE FORM UCC-2
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING ORIG.
FINANCING STATEMENT ORIG. FINANCING STATEMENT FINANCING STATEMENT FINANCING STATEMENT
9[ILLEGIBLE]1729 10/04/93 9/23/93 CA SECRETARY OF STATE
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO..
TARRANT APPAREL GROUP FEDERAL TAX NO. 95-4181026
- ---------------------------------------------------------------------------------------- ----------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
3151 EAST WASHINGTON BLVD LOS ANGELES, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY NO..
FEDERAL TAX NO.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY NATIONSBANC COMMERCIAL CORPORATION 4A. SOCIAL SECURITY NO..
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS P.O. BOX 4095 TRANSIT AND A.B.A. NO.
CITY ATLANTA STATE GA ZIP CODE 30302-4095
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO..
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |X| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |_| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
7. Secured Party hereby releases all the collateral described in the Financing
Statement bearing the file number shown above EXCEPT the following:
All of Debtor's present and future accounts created by or arising from its
sales of goods or rendition of services to any of the entities listed on Exhibit
A attached hereto and incorporated herein by this reference, and all
instruments, contract rights, chattel paper, documents, general intangibles
relating to or arising out of such sales of goods or rendition of services, and
all returned, reclaimed or repossessed goods and all books and records relating
to or pertaining to any of the foregoing, and all proceeds and products of the
foregoing, in any form. THIS FINANCING STATEMENT IS A PARTIAL RELEASE ONLY.
- --------------------------------------------------------------------------------
8. (Date) 8-23 1999
___________________________________________________________________
By: /s/
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
See attached page for signature of Secured Party
-------------------------------------------------------------------
By: /s/
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME BANK OF AMERICA, N.A.
ADDRESS 444 South Flower Street, Suite 4000
CITY AND Los Angeles, CA 90071-2901
STATE Attn: Ilinca Tataru
(1) FILING OFFICER COPY
STANDARD FORM -- FILING FEE UNIFORM COMMERCIAL CODE-FORM UCC-2
Approved by the Secretary of State
<PAGE>
SIGNATURE PAGE TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
Bank of America, N.A., f/k/a Bank of America National Trust and Savings
Association, successor by merger to Bank of America, N.A., f/k/a NationsBank,
N.A., successor by merger to NationsBanc Commercial Corporation
By: [Illegible Signature]
------------------------------
Its: Senior Vice-President 8/23/99
-----------------------------
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE FINANCING STATEMENT CHANGE FORM UCC-2
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING ORIG.
FINANCING STATEMENT ORIG. FINANCING STATEMENT FINANCING STATEMENT FINANCING STATEMENT
9[ILLEGIBLE]01729 10/04/93 9/23/93 CA SECRETARY OF STATE
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO.
TARRANT APPAREL GROUP FEDERAL TAX NO. 95-4181026
- ---------------------------------------------------------------------------------------- ----------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
3151 E. WASHINGTON BLVD LOS ANGELES, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY NO.
FEDERAL TAX NO.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY NATIONSBANC COMMERCIAL CORPORATION 4A. SOCIAL SECURITY NO.
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS P.O. BOX 4095 TRANSIT AND A.B.A. NO.
CITY ATLANTA STATE GA ZIP CODE 30302-4095
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO.
NAME FEDERAL TAX NO. OR BANK
MAILING ADDRESS TRANSIT AND A.B.A. NO.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |X| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |_| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
7. Secured Party hereby releases all the collateral described in the Financing
Statement bearing the file number shown above EXCEPT the following:
All of Debtor's present and future accounts created by or arising from its
sales of goods or rendition of services to any of the entities listed on Exhibit
A attached hereto and incorporated herein by this reference, and all
instruments, contract rights, chattel paper, documents, general intangibles
relating to or arising out of such sales of goods or rendition of services, and
all returned, reclaimed or repossessed goods and all books and records relating
to or pertaining to any of the foregoing, and all proceeds and products of the
foregoing, in any form. THIS FINANCING STATEMENT IS A PARTIAL RELEASE ONLY.
- --------------------------------------------------------------------------------
8. (Date) 8-23 1999
___________________________________________________________________
By: /s/
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
See attached page for signature of Secured Party
-------------------------------------------------------------------
By: /s/
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME BANK OF AMERICA, N.A.
ADDRESS 444 South Flower Street, Suite 4000
CITY AND Los Angeles, CA 90071-2901
STATE Attn: Ilinca Tataru
(2) ACKNOWLEDGMENT COPY
STANDARD FORM -- FILING FEE UNIFORM COMMERCIAL CODE-FORM UCC-2
Approved by the Secretary of State
<PAGE>
SIGNATURE PAGE TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
Bank of America, N.A., f/k/a Bank of America National Trust and Savings
Association, successor by merger to Bank of America, N.A., f/k/a NationsBank,
N.A., successor by merger to NationsBanc Commercial Corporation
By: [Illegible Signature]
-----------------------------
Its: Senior Vice-President 8/23/99
-----------------------------
<PAGE>
EXHIBIT A TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
CATO CORP
NEWTON BUYING CORPORATION
MARSHALLS, INC.
ROSS STORES INC.
ASHLEY STEWART LTD
CONCORD BUYING GROUP
DOTS STORE INC.
FORMAN MILLS INC.
PENNSYLVANIA FASHIONS
PREMIER DYE & FINISHING
SMITH RIVER TRADERS
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE FINANCING STATEMENT CHANGE FORM UCC FORM UCC-2
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- ---------------------------- ----------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING ORIG.
FINANCING STATEMENT ORIG. FINANCING STATEMENT FINANCING STATEMENT FINANCING STATEMENT
9[ILLEGIBLE]8385 7/21/94 6/10/94 CA SECRETARY OF STATE
- ---------------------------------------------------------------------------------------- ----------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO..
TARRANT APPAREL GROUP FEDERAL TAX NO.
95-4181026
- ---------------------------------------------------------------------------------------- ----------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
3151 EAST WASHINGTON BLVD LOS ANGELES, CA 90023
- ----------------------------------------------------------- ---------------------------- ----------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY NO..
FEDERAL TAX NO.
- ----------------------------------------------------------- ---------------------------- ----------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ----------------------------------------------------------- ---------------------------- ----------------------------
4. SECURED PARTY NATIONSBANC OF GEORGIA, N.A. 4A. SOCIAL SECURITY NO..
NATIONSBANC COMMERCIAL CORPORATION FEDERAL TAX NO. OR BANK
NAME TRANSIT AND A.B.A. NO.
MAILING ADDRESS P.O. BOX 4095
CITY Atlanta STATE GA ZIP CODE 30302-4095
- ---------------------------------------------------------------------------------------- ----------------------------
5. ASSIGNEE OF SECURED PARTY (If Any) 5A. Social Security No..
NAME Federal Tax No. or Bank
MAILING ADDRESS Transit and A.B.A. No.
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A |_| CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber,
check here |_| and insert description of real property on which
growing or to be grown in Item 7 below.
- --------------------------------------------------------------------------------
B |X| RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
- --------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured
Party has assigned to the Assignee above named, all the Secured
Party's rights under the Financing Statement bearing the file
number shown above in the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- --------------------------------------------------------------------------------
E |_| AMENDMENT - The Financing Statement bearing the file number
shown above is amended as set forth in item 7 below. (Signature of
Debtor required on all amendments.)
- --------------------------------------------------------------------------------
F |_| OTHER
- --------------------------------------------------------------------------------
7. Secured Party hereby releases all the collateral described in the Financing
Statement bearing the file number shown above EXCEPT the following:
All of Debtor's present and future accounts created by or arising from its
sales of goods or rendition of services to any of the entities listed on Exhibit
A attached hereto and incorporated herein by this reference, and all
instruments, contract rights, chattel paper, documents, general intangibles
relating to or arising out of such sales of goods or rendition of services, and
all returned, reclaimed or repossessed goods and all books and records relating
to or pertaining to any of the foregoing, and all proceeds and products of the
foregoing, in any form. THIS FINANCING STATEMENT IS A PARTIAL RELEASE ONLY.
- --------------------------------------------------------------------------------
8. (Date) 8-23 1999
___________________________________________________________________
By: /s/
-------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
See attached page for signature of Secured Party
-------------------------------------------------------------------
By: /s/
-------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Filing Office)
- --------------------------------------------------------------------------------
10. Return Copy to
NAME BANK OF AMERICA, N.A.
ADDRESS 444 South Flower Street, Suite 4000
CITY AND Los Angeles, CA 90071-2901
STATE Attn: Ilinca Tataru
(*) FILING OFFICER COPY
STANDARD FORM -- FILING FEE UNIFORM COMMERCIAL CODE-FORM UCC-2
Approved by the Secretary of State
<PAGE>
SIGNATURE PAGE TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANC OF GEORGIA, N.A.
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
BANK OF AMERICA,, N.A., A/K/A/ BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, SUCCESSOR BY MERGER TO BANK OF AMERICA, N.A., F/K/A/ NATIONSBANK,
N.A., SUCCESSOR BY MERGER TO NATIONSBANK OF GEORGIA, N.A. AND NATIONSBANK
COMMERCIAL CORPORATION.
By: [Illegible Signature]
------------------------------
Its: Senior Vice-President 8/23/99
-----------------------------
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT CHANGE - FORM UCC-2
<TABLE>
<CAPTION>
This STATEMENT is presented for filing pursuant to the California Uniform Commercial Code
===================================================================================================================
1 File NO OF ORIG FINANCING 1A DATE OF FILING OF ORIG 1B DATE OF FILING OF ORIG 1C PLACE OF FILING ORIG
STATEMENT FINANCING STATEMENT FINANCING STATEMENT FINANCING STATEMENT
<S> <C> <C> <C>
[ILLEGIBLE] 48385 7/21/94 6/10/94 CA Secretary of State
===================================================================================================================
2 DEBTOR LAST NAME FIRST, 2A SOCIAL SECURITY NO
FEDERAL TAX NO
TARRANT APPAREL GROUP 95-4181026
- -------------------------------------------------------------------------------------------------------------------
2B MAILING ADDRESS 2C CITY STATE 2D ZIP CODE
3151 East Washington Boulevard Los Angeles, CA 90023
- -------------------------------------------------------------------------------------------------------------------
3 ADDITIONAL DEBTOR IF ANY LAST NAME FIRST 3A SOCIAL SECURITY NO
FEDERAL TAX NO
- -------------------------------------------------------------------------------------------------------------------
3B MAILING ADDRESS 3C CITY STATE 3D ZIP CODE
===================================================================================================================
4 SECURED PARTY 4A SOCIAL SECURITY NO
FEDERAL TAX NO OR BANK
TRANSIT AND A.B.A. NO
NAME NATIONSBANK OF GEORGIA, N.A.
NATIONSBANC COMMERCIAL CORPORATION
MAILING ADDRESS P.O. Box 405
CITY Atlanta STATE GA ZIP CODE 30302-4095
===================================================================================================================
5 ASSIGNEE OF SECURED PARTY (IF ANY) 5A SOCIAL SECURITY NO
FEDERAL TAX NO OR BANK
TRANSIT AND A.B.A. NO
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
===================================================================================================================
6 A |_| CONTINUATION - The original Financing Statement between the foregoing Debtor and Secured Party bearing
the file number and date shown above is continued. If collateral is crops or timber, check here |_|
and insert description of real property on which growing or to be grown in item 7 below.
-------------------------------------------------------------------------------------------------------------
B |X| RELEASE - From the collateral described in the Financing Statement bearing the file number shown above,
the Secured Party releases the collateral described in item 7 below.
-------------------------------------------------------------------------------------------------------------
C |_| ASSIGNMENT - The Secured Party certifies that the Secured Party has assigned to the Assignee above
named, all the Secured Party's rights under the Financing Statement bearing the file number shown above
in the collateral described in item 7 below.
-------------------------------------------------------------------------------------------------------------
D |_| TERMINATION - The Secured Party certifies that the Secured Party no longer claims a security interest
under the Financing Statement bearing the file number shown above.
-------------------------------------------------------------------------------------------------------------
|_| AMENDMENT - The Financing Statement bearing the file number shown above is amended as set forth in item
7 below. (Signature of Debtor required on all amendments.)
-------------------------------------------------------------------------------------------------------------
F |_| OTHER
===================================================================================================================
7 Secured Party hereby releases all the collateral described in the Financing Statement bearing the file number
shown above EXCEPT the following:
All of Debtor's present and future accounts created by or arising from its sales of goods or rendition of
services to any of the entities listed on Exhibit A attached hereto and incorporated herein by this reference,
and all instruments, contract rights, chattel paper, documents, general intangibles relating to or arising out
of such sales of goods or rendition of services, and all returned, reclaimed or repossessed goods and all books
and records relating to or pertaining to any of the foregoing, and all proceeds and products of the foregoing, in
any form. THIS FINANCING STATEMENT IS A PARTIAL RELEASE ONLY.
===================================================================================================================
8 (Date) 8-23-99 | 9. This Space for Use of
---------------------------- | Filing Officer
| (Date, Time, Filing
| Officer)
--
- --------------------------------------------------------------------------------
1
By
----------------------------------------------------------------------------- 2
SIGNATURE OF DEBTOR(S) (TITLE)
3
See attached page for signature of Secured Party
- -------------------------------------------------------------------------------- 4
5
By
----------------------------------------------------------------------------- 6
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
================================================================================ 7
Return Copy to
8
------------------------------------
NAME BANK OF AMERICA, N.A. 9
ADDRESS 444 South Flower Street, Suite 4000
CITY AND Los Angeles, California 90071-2901
STATE
Attn: Ilinca Tataru
------------------------------------
</TABLE>
(2) ACKNOWLEDGEMENT COPY
STANDARD FORM - FILING FEE Uniform Commercial Code - Form UCC-2
Approved by Secretary of State
<PAGE>
SIGNATURE PAGE TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANK OF GEORGIA, N.A. AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
Bank of America, NA., f/k/a Bank of America National Trust and Savings
Association, successor by merger to Bank of America, N.A., f/k/a NationsBank,
N.A., successor by merger to NationsBank of Georgia, N.A. and NationsBanc
Commercial Corporation
By: /s/ [ILLEGIBLE]
-----------------------------
Its: SR. VICE PRES. 8/23/99
----------------------------
<PAGE>
EXHIBIT A TO UCC FINANCING STATEMENT PARTIAL RELEASE
BETWEEN
TARRANT APPAREL GROUP, AS DEBTOR
AND
NATIONSBANK OF GEORGIA, N.A. AND
NATIONSBANC COMMERCIAL CORPORATION, AS SECURED PARTY
CATO CORP
NEWTON BUYING CORPORATION
MARSHALLS, INC.
ROSS STORES INC.
ASHLEY STEWART LTD
CONCORD BUYING GROUP
DOTS STORE INC.
FORMAN MILLS INC.
PENNSYLVANIA FASHIONS
PREMIER DYE & FINISHING
SMITH RIVER TRADERS
<PAGE>
This FINANCING STATEMENT is presented for filing and will remain
effective with certain exceptions for a period
of five years from the date of filing pursuant to section 9403 of the
California Uniform Commercial Code.
<TABLE>
<CAPTION>
=============================================================================================================
1 DEBTOR (LAST NAME FIRST IF AN INDIVIDUAL) 1A SOCIAL SECURITY OR
FEDERAL TAX NO
<S> <C> <C>
Tarrant Apparel Group
1B MAILING ADDRESS 1C CITY STATE 1D ZIP CODE
3151 E. Washington Blvd. Los Angeles, CA 90023
=============================================================================================================
2 ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST-IF AN INDIVIDUAL) 2A SOCIAL SECURITY OR
FEDERAL TAX NO
2B MAILING ADDRESS 2C CITY STATE 2D ZIP CODE
=============================================================================================================
3 DEBTOR'S TRADE NAME OR STYLES (IF ANY) 3A FEDERAL TAX NUMBER
=============================================================================================================
4 SECURED PARTY 4A SOCIAL SECURITY NO
FEDERAL TAX NO OR BANK
TRANSIT AND A.B.A. NO
NAME THE CIT GROUP/COMMERCIAL SERVICES, INC.
MAILING ADDRESS 300 S. Grand Ave., 2nd Floor
CITY Los Angeles STATE CA ZIP CODE 90072
=============================================================================================================
5 ASSIGNEE OF SECURED PARTY (IF ANY) 5A SOCIAL SECURITY NO
FEDERAL TAX NO OR BANK
TRANSIT AND A.B.A. NO
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
=============================================================================================================
6 This FINANCING STATEMENT covers the following types or items of property (include description of real
property on which located and owner of record when required by instruction 4).
See attached page 2
=============================================================================================================
7 CHECK |X| 7A PRODUCTS OF COLLATERAL 7B DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH
IF APPLICABLE ARE ALSO COVERED INSTRUCTION 5(a) ITEM:
(1) (2) (3) (4)
=============================================================================================================
8. CHECK |X| DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC ss. 9105 (n)
IF APPLICABLE
=============================================================================================================
9 Date C | 10. THIS SPACE FOR USE
O | OF FILING OFFICER
SIGNATURE(S) OF DEBTOR(S) /s/ [ILLEGIBLE] 9/28/99 D | (DATE, TIME, FILING
- -------------------------------------------------------------------------------- E | NUMBER AND FILING
| OFFICER)
Tarrant Apparel Group 1 |
|
TYPE OR PRINT NAME(S) OF DEBTOR(S) 2 |
- -------------------------------------------------------------------------------- |
3 |
|
SIGNATURE(S) OF SECURED PARTY(IES) 4 |
- -------------------------------------------------------------------------------- |
5 |
|
6 |
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES) |
================================================================================ 7 |
11. Return Copy to: |
8 |
|
NAME Del Lazo/Eva Banuelos 9 |
ADDRESS The CIT Group/Commercial Services, Inc. |
CITY AND 300 S. Grand Ave., 2nd Fl0071-2901 |
STATE Los Angeles, CA 90072 |
================================================================================ |
FORM UCC1. |
Approved by the Secretary of State |
|========================
[ILLEGIBLE] Printed by UCC Control -
Lora S[ILLEGIBLE]
229 [ILLEGIBLE] Suite C
Santa Fe [ILLEGIBLE]
</TABLE>
<PAGE>
================================================================================
1 Name and Address if Debtor 2 SECURED PARTY (Last Name
(Last Name First if a Person) First if a Person)
Tarrant Apparel Group THE CIT GROUP/COMMERCIAL SERVICES, INC.
3151 E. Washington Blvd. 300 S. Grand Ave., 2nd Floor
Los Angeles, CA 90023 Los Angeles, CA 90023
Social Security Tax ID# Social Security Tax ID#
================================================================================
1A Name and Address of Debtor 2 SECURED PARTY (Last Name
(Last Name First of a Person) First if a Person)
Social Security Tax ID# Social Security Tax ID#
================================================================================
5 This Additional Sheet covers the following Additional types (or items) of
Property
Collateral shall mean and include: (a) all of Debtors's present and future
accounts and accounts receivable created by or arising from its sales of goods
or rendition of services to Express, LLC, Lane Bryant, Inc., The Limited, Inc.,
Sears Roebuck and Company and Wal-Mart Stores, Inc., including, without
limitation, all accounts and accounts receivables under any of its trade names
or styles, or through any if its divisions), and all instruments, documents,
contract rights, chattel paper, general intangibles arising out on such sale of
goods or rendition of services (collectively the "Accounts"); (b) all of
Debtor's present and future deposits, balances, sums and credits in Secured
Party's possession or control relating to the Accounts; (c) all Debtors present
and future monies, securities and other property now or hereafter held or
received by or in transit to Secured Party from or for Debtor's account, whether
for safekeeping, pledge, custody, transmission, collection or otherwise relating
to the Accounts; (b) all of Debtors's present and future liens, security
interests, rights, remedies, title and interest in, and in respect of the
Accounts, including, without limitation: (i) rights and remedies under or
relating to guaranties, contracts or suretyship, letter of credit, credit
insurance, or other types of credit enhancements, (ii) rights of stoppage in
transit, rescission, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lien or secured Party, (iii) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing accounts or other collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of customers or other persons securing the obligations of customers;
(e) all of Debtors's books of account of every kind of nature, purchase and sale
agreements, invoices, ledger cards, computer programs, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit files and other
data relating to the Accounts, together with the file cabinets or containers in
which the foregoing are stored; and (f) all proceeds and products of the
foregoing, in any form, including, without limitation, insurance proceeds and
any claims against third parties for loss or damage to or destruction of any or
all of the foregoing.
================================================================================
/s/ [ILLEGIBLE]
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies) or Assignee
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies) or Assignee
Tarrant Apparel Group THE CIT GROUP/COMMERCIAL SERVICES, INC.
Type Name of Individual or Type Name of Individual or Business
Business
================================================================================
Printed by UCC Control - Lora [ILLEGIBLE]
444 Galisteo St. Suite E Santa Fe [ILLEGIBLE]
<PAGE>
This FINANCING STATEMENT is presented for filing and will remain
effective with certain exceptions for a period
of five years from the date of filing pursuant to section 9403 of the
California Uniform Commercial Code.
<TABLE>
<CAPTION>
=============================================================================================================
1 DEBTOR (LAST NAME FIRST IF AN INDIVIDUAL) 1A SOCIAL SECURITY OR
FEDERAL TAX NO
<S> <C> <C>
Tarrant Apparel Group
- -------------------------------------------------------------------------------------------------------------
1B MAILING ADDRESS 1C CITY STATE 1D ZIP CODE
3151 E. Washington Blvd. Los Angeles, CA 90023
=============================================================================================================
2 ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST-IF AN INDIVIDUAL) 2A SOCIAL SECURITY OR
FEDERAL TAX NO
- -------------------------------------------------------------------------------------------------------------
2B MAILING ADDRESS 2C CITY STATE 2D ZIP CODE
=============================================================================================================
3 DEBTOR TRADE NAME OR STYLES (IF ANY) 3A FEDERAL TAX NUMBER
=============================================================================================================
4 SECURED PARTY 4A SOCIAL SECURITY NO
FEDERAL TAX NO OR BANK
TRANSIT AND A.B.A. NO
NAME THE CIT GROUP/COMMERCIAL SERVICES, INC.
MAILING ADDRESS 300 S. Grand Ave., 2nd Floor
CITY Los Angeles STATE CA ZIP CODE 90072
=============================================================================================================
5 ASSIGNEE OF SECURED PARTY (IF ANY) 5A SOCIAL SECURITY NO
FEDERAL TAX NO OR BANK
TRANSIT AND A.B.A. NO
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
=============================================================================================================
6 This FINANCING STATEMENT covers the following types or items of property (include description of real
property on which located and owner of record when required by instruction 4).
See attached page 2
=============================================================================================================
7 CHECK |X| 7A PRODUCTS OF COLLATERAL 7B DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH
IF APPLICABLE ARE ALSO COVERED INSTRUCTION 5(a) ITEM:
|_| |_| (1) |_| (2) |_| (3) |_| (4)
=============================================================================================================
8. CHECK |X| |_| DEBTOR IS A TRANSMITTING UTILITY IN ACCORDANCE WITH UCC ss. 9105 (n)
IF APPLICABLE
=============================================================================================================
9 Date C | 10. THIS SPACE FOR USE
O | OF FILING OFFICER
SIGNATURE(S) OF DEBTOR(S) D | (DATE, TIME, FILING
- -------------------------------------------------------------------------------- E | NUMBER AND FILING
| OFFICER)
Tarrant Apparel Group 1 |
|
TYPE OR PRINT NAME(S) OF DEBTOR(S) 2 |
- -------------------------------------------------------------------------------- |
3 |
|
SIGNATURE(S) OF SECURED PARTY(IES) /S/ [ILLEGIBLE] 4 |
- -------------------------------------------------------------------------------- |
5 |
THE CIT GROUP/COMMERCIAL SERVICES, INC. |
6 |
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES) |
================================================================================ 7 |
11. Return Copy to: |
8 |
|
NAME Del Lazo/Eva Banuelos 9 |
ADDRESS The CIT Group/Commercial Services, Inc. |
CITY AND 300 S. Grand Ave., 2nd Fl0071-2901 |
STATE Los Angeles, CA 90072 |
|
================================================================================ |
FORM UCC1. |
Approved by the Secretary of State |
=============================================================================================================
[ILLEGIBLE] Printed by UCC Control -
Lora S[ILLEGIBLE]
229 [ILLEGIBLE] Suite C
Santa Fe [ILLEGIBLE]
</TABLE>
<PAGE>
================================================================================
1 Name and Address of Debtor 2 SECURED PARTY (Last Name
(Last Name First of a Person) First of a Person)
Tarrant Apparel Group THE CIT GROUP/COMMERCIAL SERVICES, INC.
3151 E. Washington Blvd. 300 S. Grand Ave., 2nd Floor
Los Angeles, CA 90023 Los Angeles, CA 90023
Social Security Tax ID# Social Security Tax ID#
------------ ----------------
================================================================================
1A Name and Address of Debtor 2 SECURED PARTY (Last Name
(Last Name First of a Person) First of a Person)
Social Security Tax ID# Social Security Tax ID#
------------ ----------------
================================================================================
5 This Additional Sheet covers the following Additional types (or items) of
Property
Collateral shall mean and include: (a) all of Debtors's present and future
accounts and accounts receivable created by or arising from its sales of goods
or rendition of services to Express, LLC, Lane Bryant, Inc., The Limited, Inc.,
Sears Roebuck and Company and Wal-Mart Stores, Inc., including, without
limitation, all accounts and accounts receivables under any of its trade names
or styles, or through any if its division), and all instruments, documents,
contract rights, chattel paper, general intangibles arising out on such sale of
goods or rendition or services (collectively the "Accounts"); (b) all of
Debtor's present and future deposits, balances, sums and credits in Secured
Party's possession or control relating to the Accounts; (c) all Debtor's present
and future monies, securities and other property now or hereafter held or
received by or in transit to Secured Party from or for Debtor's account; whether
for safekeeping, pledge, custody, transmission, collection or otherwise relating
to the Accounts; (b) all of Debtors's present and future liens, security
interests, rights, remedies, title and interest in, and in respect of the
Accounts, including, without limitation: (i) rights and remedies under or
relating to guaranties, contracts or suretyship, letter of credit, credit
insurance, or other types of credit enhancements, (ii) rights of stoppage in
transit, rescission, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lien or secured Party, (iii) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing accounts or other collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of customers or other persons securing the obligations of customers;
(e) all of Debtors's books of account of every kind of nature, purchase and sale
agreements, invoices, ledger cards, computer programs, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit files and other
data relating to the Accounts, together with the file cabinets or containers in
which the foregoing are stored; and (f) all proceeds and products of the
foregoing, in any form, including, without limitation, insurance proceeds and
any claims against third parties for loss or damage to or destruction of any or
all of the foregoing.
================================================================================
- ------------------------------- ----------------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies) or Assignee
- ------------------------------- ----------------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies) or Assignee
Tarrant Apparel Group THE CIT GROUP/COMMERCIAL SERVICES, INC.
- ------------------------------- ----------------------------------------------
Type Name of Individual or Type Name of Individual or Business
Business
================================================================================
Printed by UCC Control - Lora [ILLEGIBLE]
444 Galisteo St. Suite E Santa Fe [ILLEGIBLE]
<PAGE>
0090838000627001 Sent for filing on 5/26/99
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective, with certain exceptions, for 5
years from date of filing.
- --------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER B. FILING OFFICE ACCT. #
(optional) (optional)
Kathryn Gambino (310)440-5316
- --------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
Data File Services
P.O. Box 239
Van Nuys, CA 91408
- --------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable) |_| LESSOR/LESSEE
|_| CONSIGNOR/CONSIGNEE
|_| NON-UCC FILING
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1a. ENTITY'S NAME
TAG MEX, INC.
OR --------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
3151 East Washington Boulevard Los Angeles CA 90023
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D.# if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION |_| NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b)
--------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY'S NAME
CHAZZZ
OR --------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
3151 East Washington Boulevard Los Angeles CA 90023
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D.# if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION |_| NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
--------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
FINOVA CAPITAL CORPORATION
OR --------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
P.O. Box 2209, Attn: Law Department Phoenix AZ 85002-2209
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
Debtor hereby grants Secured Party a security interest in all of the following, whether now owned or hereafter acquired, and
wherever located, as collateral for the payment and performance of all present and future indebtedness, liabilities, guarantees
and obligations of Debtor and Secured Party: All present and future accounts and contrast rights and in any case, where an account
or contract right has arisen from sale of goods, the interest of the Debtor in such goods; and all books and records pertaining to
foregoing and all equipment containing said records; and all trade styles, trademarks, patents, security deposits, tax refunds,
customer lists, insurance claims, chooses in action pertaining to the foregoing, and all products and proceeds of any of the
foregoing.
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK BOX (if applicable)
|_| This FINANCING STATEMENT is signed by the Secured Party instead of the Debtor to perfect a security interest
|_| (a) in collateral already subject to a security interest in another jurisdiction when it was brought into this state,
or when the debtor's location was changed to this state, or (b) in accordance with other statutory provisions (additional
data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S)
TAG MEX, INC.
/s/ [ILLEGIBLE] V.P.
- --------------------------------------------------------------------------------
FINOVA CAPITAL CORPORATION
/s/ John J. [ILLEGIBLE] V.P. 5/25/99
- ------------------------------------------------------------------------------------------------------------------------------------
7. If filed in Florida (check one)
|_| Documentary stamp tax paid
|_| Documentary stamp tax not applicable
- ------------------------------------------------------------------------------------------------------------------------------------
8. |_| This FINANCING STATEMENT is to be filed (for record) (or recorded) in the REAL ESTATE RECORDS
Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s).
(ADDITIONAL FEE)
(optional) |_| All Debtors |_| Debtor 1 |_| Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services Inc. P.O.
Box 239
Van Nuys, CA 91408-0275 Tel (819) 909-2200
</TABLE>
<PAGE>
SCHEDULE 5.5
EQUIPMENT AND INVENTORY LOCATIONS
<PAGE>
5.5 Equipment & Inventory
Locations
Equipment Locations:
- -------------------
Tarrant Mexico, S.De R.L. De C.V.
Lote 5,6,7 Y 15 Calle C, Manzana 6
Parque Industrial, Puebla 2000
Mexico, C.P. 72220
Tarrant Mexico, S. De R.L. De C.V.
Lote 1, A.B.C. Fracc. San Diego Xocoyucan
Municipio de Ixtacuix, Tlaxcala
Mexico, C.P. 90700
Famian
Ajal Pan, Vicente Guerrero, 13 Oriente 326
Tehuacan, Puebla
Inventory Locations:
- -------------------
FARO
3275 Alum Creek Drive
Columbus, OH 43207
Retail Fulfillment Services, Inc.
180 Rairtan Center Parkway
Edison, NJ 08837
Fashion Resource, Inc.
3151 E. Washington Blvd.
Los Angeles, CA 90023
Bruni International
8001 San Gabriel at Mines Road
Laredo, TX 78044-2756
<PAGE>
SCHEDULE 6.2
QUALIFICATIONS TO DO BUSINESS
<PAGE>
NOT APPLICABLE
<PAGE>
SCHEDULE 6.6 (a)
CORPORATE NAME
As disclosed in Articles of Incorporation and By-Laws
<PAGE>
SCHEDULE 6.6 (b)
ACQUISITIONS
<PAGE>
Tarrant Apparel Group
Acquisitions
Project Amount
------- ------
Jamel Textile Mill $22,000,000 Cash + 1,724,000 Shares
Rocky Apparel $7,400,000 Cash + 81,000 Shares
Famian $12,000,000
CMG/Chazzz, Inc. $7,275,000 Cash + $1,500,000 if target met
Marshall Gobuty, Inc. $6,000,000
<PAGE>
SCHEDULE 6.8
PENDING LITIGATION
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On October 2, 1999, summons were issued by the Hong Kong Special
Administrative Region Magistrate's Court to Tarrant Company Limited
("TCL"), a wholly owned Hong Kong subsidiary of the Company. The summons
allege that TCL exported apparel to the United States which it claimed was
of Hong Kong origin, using Hong Kong export licenses, when in fact the
goods were not of Hong Kong origin, in violation of Hong Kong's Import and
Export Ordinance. An initial hearing on this matter is scheduled for
December 28, 1999. TCL believes that any violations of Hong Kong law
resulted from actions of its non-related suppliers. Depending on the final
outcome of this legal proceeding, TCL's exports to the United States may
become subject to significantly increased Customs Service scrutiny, which
could cause delays in the entry of goods into the United States, or in a
worst case scenario, prohibit the entry of such goods into the United
States. TCL believes it has strong defenses to these charges, and will
vigorously defend itself against them. The Company is confident that the
policies and procedures are in place to provide maximum assurances that
our suppliers are in strict compliance with all international trade
regulations.
In September 1999, the Company was served with a complaint in an action
brought in the Supreme Court of the State of New York, New York County, by
DLLC and Direct Corp. LLC ("Direct"), as plaintiffs. The complaint alleges
that the Company and DLLC entered into a joint venture for the purpose of
producing and selling apparel products.
The complaint further alleges that the Company breached its obligations
under the joint venture. The complaint seeks monetary damages of
$50,000,000, plus interest, and further seeks permanent injunctive relief.
The Company has submitted its Answer to the Complaint which generally
denies the principal allegations therein, denies any liability to
plaintiffs and alleges a number of affirmative defenses to the claims made
by plaintiffs. No discovery has taken place in the action to date.
The Company believes that it has valid defenses to the claims set forth in
the plaintiff's complaint and intends to vigorously defend against said
claims.
A subsidiary of the Company has commenced a separate action against
plaintiffs in the Superior Court of the State of California, Los Angeles
County, seeking damages of $623,138.90 for goods sold and delivered to
plaintiffs.
Item 2. Change in Securities. None.
--------------------
Item 3. Default Upon Senior Securities. None.
------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. None.
---------------------------------------------------
18
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------
DLLC and DIRECT CORP. LLC, Index No. 99/603439
Date Purchased: 7/19/99
Plaintiffs.
-against- COMPLAINT
---------
TARRANT APPAREL GROUP,
Defendant.
- ---------------------------------
Plaintiffs DLLC ("DLLC") and Direct Corp. LLC a/k/a Direct Sourcing LLC
("Direct"), by their attorneys Coudert Brothers, as and for their complaint
against defendant Tarrant Apparel Group ("TAG"), allege as follows.
Parties
-------
1. Plaintiff DLLC is a limited liability company duly organized and
existing under the laws of the State of New Jersey. DLLC maintains its principal
place of business at 1411 Broadway, Suite 2700, New York, New York.
2. Plaintiff Direct is a limited liability company duly organized and
existing under the laws of the State of Delaware. Direct maintains its principal
place of business at 1411 Broadway, Suite 2700, New York, New York.
3. Upon information and belief, defendant Tarrant Apparel Group is a
corporation organized and existing under the laws of the State of California.
TAG maintains its principal place of business at 3151 East Washington Boulevard,
Los Angeles, California.
<PAGE>
Factual Background
------------------
4. Plaintiff DLLC is engaged, among other things, in the business of
sourcing apparel items for sale to wholesale companies and retail outlets
throughout the United States.
5. Defendant TAG is engaged in the business of fabric production,
manufacturing and/or sourcing of apparel items for sale to wholesale companies
and retail outlets.
The TAG/DLLC Partnership
- ------------------------
6. In or about March 1999, TAG contracted DLLC to induce DLLC to enter
into a joint venture for the purpose of producing and selling women's, men's and
children's clothing. TAG became aware that DLLC had very desirable customer
relationships. TAG wanted to supply DLLC customers with TAG-manufactured and
sourced goods to increase its customer base, volume, and ultimately its stock
price.
7. At the time TAG approached DLLC, DLLC had already been dealing with a
Mexican clothing manufacturer regarding a similar joint venture. Gerard Guez,
the Chief Executive Officer of TAG, learned of DLLC's relationship with the
Mexican company and contacted Charles Dayan, a member of DLLC, while Dayan was
in Mexico for meetings with the Mexican company.
8. Guez called DLLC's offices several times trying to contact Dayan before
DLLC finalized its deal in Mexico. Finally, Guez contacted Dayan and repeatedly
urged him to forego the partnership with the Mexican company and to meet with
TAG in Mexico to discuss the formation of a joint venture between DLLC and TAG.
2
<PAGE>
9. DLLC agreed to and did meet with TAG at Guez's residence in Mexico. TAG
brought DLLC for a tour of TAG's new facility in Mexico to impress DLLC with its
production capabilities. TAG assured DLLC that its status as a public company
and its production facilities would serve as a great benefit to DLLC in the
joint venture. TAG also promised that all of the customers recruited by DLLC
would be for the benefit of the joint venture.
10. TAG said that it would accept the terms of the joint venture that DLLC
had already negotiated with the Mexican company, wherein TAG and DLLC would each
have a one-half interest in the joint venture. Finally, as an incentive to the
deal, TAG promised to sell 5% of TAG's shares to DLLC at a 40% discount.
11. Approximately one month after TAG made its initial contact with DLLC
in Mexico, in or about April 1999, TAG came to New York to meet with DLLC for
the purpose of finalizing the joint venture. TAG informed DLLC that for internal
reasons, the incentive offered would have to be changed.
12. The essential business terms were reduced to writing and signed by
Guez and provided that in addition to the one-half interest in the joint
venture, DLLC would be given 150,000 shares of TAG stock outright based upon
attaining certain minimum sales volumes (together with the right to borrow
against those shares) and an additional option to purchase 100,000 share lots of
TAG stock at 10% below market price.
13. DLLC accepted TAG's offer to participate in the joint venture (the
"Joint
3
<PAGE>
Venture Agreement"). Despite the fact that formal documentation had not yet been
executed, at the time of the meetings in New York, both parties understood that
a partnership had been formed by virtue of the Joint Venture Agreement.
14. Dayan and Guez shook hands and DLLC immediately gave its orders over
to TAG to commence production.
15. Shortly thereafter, Gerard Guez of TAG visited Charles Dayan at
Dayan's home and confirmed again to Dayan that they "had a deal".
16. Guez asked Dayan to visit TAG's offices in Los Angeles to see the
facilities and urged DLLC to proceed with full speed to solicit orders so the
joint venture would not lose out on any business opportunities while the written
joint venture documentation was prepared.
17. Upon information and belief, TAG did not intend to fulfill its
obligations under the Joint Venture Agreement.
DLLC Performs Under the Agreement
- ---------------------------------
18. At this point, TAG gave to DLLC blueprints to TAG's production
facilities for the express purpose of showing them to DLLC customers to begin
obtaining orders for the joint venture.
19. In reliance upon its Joint Venture Agreement with TAG, DLLC formed
Direct, a Delaware LLC, as the joint venture vehicle for their partnership for
the purpose of acquiring and selling men's women's and children's apparel to
wholesale and retail customers.
20. Defendant TAG encouraged and induced DLLC to develop a customer base
for
4
<PAGE>
the joint venture and to send orders to TAG to manufacture goods behalf of
Director.
21. In reliance on the Joint Venture Agreement with defendant and TAG's
assurance of its shared goals with DLLC, DLLC performed work for Direct,
including but not limited to obtaining customer orders and challenges.(1) In
addition, TAG urged DLLC to leverage its respected reputation and relationships
in the marketplace and to introduce many of DLLC's long--time customers to TAG.
Among the retailers that DLLC physically brought to Mexico to survey TAG's
facilities were: Miller's Outpost, ShopKo, and JC Penney.
22. Also at the request of TAG, and in furtherance of the Joint Venture
Agreement, DLLC began contacting many customers and introducing them to the
joint venture, Direct. Such customers as K Mart, Mervyn's California, Kohl's,
Clothestime, The Buckle, Le Chateau, JC Penney, Sears Canada, Montgomery Ward,
Millers's Outpost, Kraft Foods, ShopKo and Charming Shops were visited and asked
to provide orders or challenges to the joint venture. these customers were shown
the blueprints of the TAG Mexican manufacturing facility, impressed with
production and distribution capabilities, and otherwise solicited for the joint
venture by DLLC.
23. As a direct result of DLLC's efforts on behalf of the joint venture,
orders and challenges began being sent to TAG for the production of garments on
behalf of the joint
- ----------
(1) In the fashion industry, a "challenge" is a devise whereby a buyer
provides a manufacturer with confidential product information and invites the
manufacturer to try to meet specific product requirements (e.g. price,
delivery), If these requirements are met by the manufacturer, the buyer
generally places on order with the manufacturer.
5
<PAGE>
venture
TAG Breaches The Joint Venture Agreement and Misappropriate Plaintiff's Business
- --------------------------------------------------------------------------------
24. After these initial efforts, Charles Dayan of DLLC traveled to
California to complete the formalities in connection with the partnership.
25. When Mr. Dayan arrived at TAG's offices in California, TAG appeared
committed to its original agreement with DLLC. However, during the course of the
meetings, TAG suddenly remerged on its commitment to DLLC and tried to changed
the Joint Venture Agreement with DLLC.
26. DLLC refused to allow TAG to change the deal already reached between
the parties in New York. In reliance on the Joint Venture Agreement, DLLC had
acquired large numbers of customer orders for the partnership which had already
been passed on to TAG DLLC had already expended a significant amount of money
and effort in furtherance of the joint venture.
27. In particular, Guez explained that TAG had various internal reasons
for needing to amend the deal already struck and provided to Mr. Dayan three
"modifications" to the deal for DLLC to consider. These options were given to
DLLC in writing.
28. Convinced by Guez, and having expended much time and money to further
the joint venture, DLLC ultimately agreed to modify the original deal to provide
that DLLC would receive an opinion to purchase 150,000 shares in TAG
$4,000,000.00 in cash and a 3% royalty on sales.
6
<PAGE>
29. Upon information and belief, the reasons given by TAG and Guez for
amending the terms of the deal were untrue and given only to induce DLLC to
continue to make customer introductions and to continue to obtain orders and
challenges. TAG had no intention of satisfying its obligations to DLLC and/or
Direct under the Joint Venture Agreement. TAG made these mispresentations to
misappropriate DLLC's and Direct's customer relationships and business.
30. After the agreement to modify the Joint Venture Agreement was reached,
TAG began discouraging DLLC from pursuing business of behalf of Direct by
qouting DLLC inflated prices far in excess of what had been agreed to in
writing, by giving them misinformation and/or withholding information about
production, and being generally uncooperative. TAG began to fail to fulfill
certain orders and did not pay Direct for its services rendered as agreed. TAG
also delivered incorrect samples after long delays and billed Direct at prices
substantially above those quoted by TAG.
31. At around this time, TAG kept suggesting changes to drafts of the
formal documentation for the joint venture, thereby delaying the execution of
the documents.
TAG Agrees Not To Contact DLLC's Customer Directly
- --------------------------------------------------
32. At around the same time, and although TAG contributed nothing to the
endeavor of locating customers for Direct, TAG insisted upon seeing customer
information.
33. Before providing the customer information relating to Kmart to TAG and
to protect its interests in maintaining the primary relationship with Kmart, a
long-time customer of DLLC. DLLC insisted that TAG sign an agreement preventing
TAG from approaching Kmart
7
<PAGE>
directly until the formal joint venture documentation was finalized. TAG agreed
and signed.
34. Despite the Joint Venture Agreement, TAG began marking direct contact
with various customers of the joint venture and began dealing directly with them
rather than through DLLC and/or Direct.
35. TAG's direct dealing with these customers effectively pushed DLLC and
Direct out of the transaction and nullified the purpose of the joint venture. As
a result, DLLC and Direct suffered significant financial damage as well as
DLLC's reputation in the industry. DLLC also lost the benefit of its bargain
with TAG, including its grants and purchase options of TAG shares as agreed.
36. Plaintiffs expended substantial effort and money to create a customer
base for Direct. TAG never contributed to this effort or reimbursed plaintiffs
for their work. Due to plaintiffs' efforts, numerous customer orders and
sourcing programs were obtained for Direct, only to be misappropriated by TAG.
37. TAG's breach of the Joint Venture Agreement, failure to reimburse DLLC
for the work it performed on behalf of Direct, and its misappropriation of
plaintiffs' customers, caused plaintiffs substantial losses.
First Cause of Action
---------------------
(Breach of Contract)
38. Plaintiffs repeat and reallege each and every allegation contained in
paragraph 1 through 37 above with the same force and effect as if fully set
forth herein.
39. DLLC and defendant agreed to form a joint venture for the purpose of
producing
8
<PAGE>
and selling women's, men's and children's clothing.
40. Defendant failed to satisfy its obligations to Direct and DLLC
pursuant to the Joint Venture Agreement with DLLC by excluding plaintiffs from
the business of joint venture, quoting plaintiffs inflated prices, giving
plaintiffs misinformation about production, delivering incorrect samples after
long delays and misappropriating the business opportunities of the joint venture
to itself.
41. Accordingly, defendant has materially breached the terms and
conditions of the Joint Venture Agreement between the parties.
42. In aid of a determination of the legal damages suffered by plaintiffs,
plaintiffs demand that TAG be ordered to account for the business and profits
it misappropriated from the plaintiffs and the joint venture.
43. As a result of defendant's wrongful breach of its duties and
obligations under its agreement with plaintiffs, plaintiffs have been injured in
an amount to be determined at trial, but not less than $50,000,000.00, plus
interest.
Second Cause of Action
----------------------
(Breach of Fiduciary Duty)
44. Plaintiff's repeat and realleges each and every allegation contained
in paragraphs 1 through 43 with the same force and effect as if fully set forth
herein.
45. As a result entering into the Joint Venture Agreement for the purpose
of producing and selling womens's, men's and children's clothing, a confidential
and fiduciary relationship arose between TAG and plaintiffs.
9
<PAGE>
46. By virtue of the confidential and fiduciary relationship between TAG
and plaintiffs, TAG owes plaintiffs obligation of utmost good faith, integrity
and fair dealing in connection with the affairs of the joint venture.
47. By excluding plaintiffs from the business of the joint venture,
quoting plaintiffs inflated prices, giving plaintiffs misinformation about
production, delivering incorrect samples after long delays and misappopriating
the business opportunities of the joint venture to itself, TAG has breached its
fiduciary duty to plaintiffs.
48. As a result of TAG's breach of its fiduciary duty to plaintiffs,
plaintiffs have been damaged in an amount to be determined at trial, but not
less than $50,000,000.00, plus interest.
49. The acts constituting TAG's breach of its fiduciary duty to
plaintiffs, were willful, oppressive and fraudulent. Accordingly, TAG is liable
to plaintiffs for exemplary and punitive damages in an amount not less than
$100,000,000.00.
Third Cause of Action
---------------------
(Tortious Interference with Business Relations)
50. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 49 with the same force and effect as if fully set forth
herein.
51. Plaintiffs enjoyed a profitable economic relationship with their
customers.
52. Defendant interfered with the existing and prospective relations of
plaintiffs and with its customers, including but not limited to, JC Penney,
Kmart, ShopKo and Miller's Outpost,
10
<PAGE>
by excluding plaintiffs from business conducted with plaintiffs' customers.
53. Defendant knew of the existing and prospective relationship between
plaintiffs and their customers, and that plaintiffs were relying on these
relationships in their business. Nonetheless, defendant intentionally interfered
with said business relationships.
54. Defendant's actions were intended to disrupt the relationship between
plaintiffs and its customers and were done with conscious disregard of the
strong probability that its actions would disrupt the existing and prospective
business relationships between plaintiffs and these customers.
55. As a result of the acts alleged herein, the existing and prospective
business relationships between plaintiffs and their customers were and will
continue to be seriously disrupted, causing plaintiffs damage to their business
and business reputation is an amount to be determined at trial, but not less
than $50,000,000.00, plus interest.
56. In addition, TAG, by reason of its willful and egregious behaviour, is
liable to plaintiffs for exemplary and punitive damages in an amount not less
than $100,000,000.00.
Fourth Cause of Action
----------------------
(Fraud)
57. Plaintiffs repeat and reallege each and every allegation contained in
paragraph 1 through 56 above with the same force and effect as if fully set
forth herein.
58. Defendant TAG, through its statements and acts as described above in
this Complaint, made false representations regarding its intention and ability
to perform under the Joint Venture Agreement with DLLC and failed to state
material facts necessary to make the
11
<PAGE>
representations made, in light of the circumstances under which they were made,
not misleading.
59. At the time of these representations and omissions, defendant TAG
knew the representations and acts were false and misleading or made them
recklessly without regard to their truth or falsity.
60. Specifically, TAG never had any intention of performing its
obligations under the Joint Venture Agreement, and only made the
misrepresentations of its intentions to induced plaintiffs to make introductions
and to obtain orders, so that TAG could then refuse to abide by the Joint
Venture Agreement and misappropriate plaintiffs' customer relationships for its
own uses.
61. Defendant TAG made the representations with the intent to deceive and
defraud plaintiffs and to induce plaintiffs to rely thereon, and, among other
things, to cause plaintiffs to make customer introductions and to obtain
customer orders based upon the representations.
62. Plaintiffs were ignorant of the falsity or material omissions of the
representations and acts and believed them to be true, and could not reasonably
have ascertained their falsity.
63. Plaintiffs reasonably relied on defendant's representations to their
damage and detriment.
64. As a result of defendant's fraudulent and culpable conduct, plaintiffs
have been damaged in an amount to be determined at trial, but not less than
$50,000,000.00, plus interest.
65. In addition, TAG, by reason of its willful, fraudulent and culpable
behavior, is liable to plaintiffs for exemplary and punitive damages in an
amount not less than
12
<PAGE>
$100,000,000.00.
Fifth Cause of Action
---------------------
(Preliminary and Permanent Injunction)
66. Plaintiffs repeat and reallege each and every allegation contained in
paragraph 1 through 65 above with the same force and effect as if fully set
forth herein.
67. Defendant's actions and conduct, as set forth above, constitute breach
of contract, tortious interference with business relations and common law fraud.
Furthermore, TAG has no right to continue to use the misappropriated customer
relationships for its own benefit.
68. The continuance of defendant's relationship with plaintiffs'
customers, including but not limited to, JC Penney, Kmart, ShopKo and Miller's
Outpost will cause irrepertable and immeasurable injury to plaintiffs and to
their business.
69. Plaintiffs have no adequate remedy at law.
70. Accordingly, Plaintiffs are entitled to a preliminary and a permanent
injunction (i) restraining defendant TAG during the pendency of this action from
contacting or doing business with plaintiff's customers; and (ii) restraining
defendant from making any future attempts to contact and conduct business with
plaintiff's customers.
13
<PAGE>
CONCLUSION
----------
WHEREFORE, Plaintiffs pray for relief as follows:
(1) On the First Cause of Action, for judgment against defendant TAG in
an amount to be determined at trial, but not less than $50,000,000.00, plus
interest; and
(2) On the Second Cause of Action, for judgment against defendant TAG in
an amount to be determined at trial, but not less than $50,000,000.00, plus
interest; and punitive damages in an amount not less than $100,000,000.00; and
(3) On the Third Cause of Action, for judgment against defendant TAG, in
an amount to be determined at trial, but not less than $50,000,000.00, plus
interest, and punitive damages in an amount not less than $100,000,000.00; and
(4) On the Fourth Cause of Action, for judgment against defendant TAG, in
an amount to be determined at trial, but not less than $50,000,000.00, plus
interest; and punitive damages in an amount not less than $100,000,000.00; and
(5) On the Fifth Cause of Action, for a preliminary and a permanent
injunction (i) restraining defendant during the pendency of this action from
contacting or doing business with plaintiffs' customers; and (ii) restraining
defendant from making any future attempts to contact and conduct business with
plaintiffs' customers; and
(6) For such other and further relief as the Court deems proper.
14
<PAGE>
Dated: September 27, 1999
New York, New York
Yours, etc.,
COUDERT BROTHERS
By: /s/ Richard A. De Palma
---------------------------------
Richard A. De Palma
Kerry E. Ford
1114 Avenue of the Americas
New York, New York 10036
(212) 626-4400
TO: Garrison Ives, Esq. Attorneys for Plaintiffs
Fishbach, Hertan & Ives DLLC and Direct Corp. LLC
767 Third Avenue, 33rd floor
New York, New York 10017
(212) 752-4433
Attorneys for Defendant
Tarrant Apparel Group
15
<PAGE>
PHILLIP A. DAVIS, CAL. BAR NO. 110430
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
A Limited Liability Partnership
Including Professional Corporations
333 South Hope Street, 48th Floor
Los Angeles, California 90071-1448
Telephone (213) 620-1780
Attorneys for Plaintiff
TAG MEX, Inc.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT
TAG MEX, INC., a California corporation ) Case No.
)
Plaintiff, ) COMPLAINT FOR:
)
v. ) 1) BREACH OF CONTRACT
)
DIRECT CORP., a corporation; DLLC, ) 2) GOODS SOLD AND DELIVERED;
)
a corporation; and Does 1-50, inclusive ) 3) OPEN BOOK ACCOUNT.
)
Defendants )
--------------------------------------
Plaintiff Tag Mex, Inc., for its causes of action against defendants
Direct Corp,. DLLC, and Does 1 through 50, alleges as follows:
-1-
- --------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF CONTRACT:
GOODS SOLD AND DELIVERED; AND OPEN
BOOK ACCOUNT.
<PAGE>
FIRST CAUSE OF ACTION
---------------------
(For Breach Of Contract Against All Defendants)
1. Plaintiff Tag Mex, Inc. ("TAG") is, and at all times herein
mentioned was, a distributor and reseller of clothing, authorized to conduct and
conducting business in the County of Los Angeles, State of California.
2. Defendant Direct Corp. is, and at all times herein mentioned was,
on information and belief, the alter ego of defendant DLLC, conducting business
in the County of Los Angeles, State of California.
3. Defendant DLLC is, and at all time herein mentioned was, on
information and belief, authorized to conduct and conducting business in the
County of Los Angeles, State of California.
4. TAG is unaware of the true names and capacities of defendants
sued herein as DOES 1 through 50, inclusive, and therefore sues those defendants
by such fictitious names. TAG will amend this complaint to allege their true
names and capacities when ascertained. TAG is informed and believes, and on that
basis alleges, that each of the fictitiously named defendants is indebted to TAG
as hereinafter alleged, and that TAG's rights against such fictitiously named
defendants arise from such indebtedness.
5. TAG is informed and believes, and on that basis alleges, that at
all times herein concerned the defendants, and each of them, were the agents,
employees, co-partners, joint venturers, and/or alter egos of each of their
co-defendants and that each of them was
-2-
- --------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF CONTRACT:
GOODS SOLD AND DELIVERED; AND OPEN
BOOK ACCOUNT
<PAGE>
acting within the course and scope of such capacities with the knowledge and
consent of their co-defendants.
6. TAG is informed and believes and based upon such information and
belief alleges that defendants Direct Corp. and Does 1 through 10 are each, and
at all times herein mentioned were each, mere shells, instrumentalities, and
conduits through which defendants DLLC and Does 11 through 50 conducted their
businesses, exercising such complete dominance and control over defendants
Direct Corp. and Does 1 through 10 that any individuality or separateness of
defendants Direct Corp. and Does 1 through 10, on the one hand, and defendants
DLLC and Does 11 through 50, on the other hand, does not and at all times herein
mentioned did not exist.
7. Plaintiff is informed and believes and based upon such
information and belief alleges that adherence to the fiction of the separate
existence between defendants Direct Corp. and Does 1 through 10, on the one
hand, and defendants DLLC and Does 11 through 50, on the other hand, and each of
them, would sanction fraud and promote unfairness in that defendants DLLC and
Does 11 through 50 have each personally committed the acts alleged herein to the
detriment and damage of plaintiff TAG while attempting to shield themselves from
personal liability by the use of corporate fictions which on information and
belief hold insufficient assets to compensate TAG for the damages so caused.
8. In or about April, 1999, TAG and defendants entered into an
agreement whereby TAG agreed to sell, and defendants agreed to purchase, certain
finished garments at prices agreed upon between the parties. TAG and defendants
agreed that TAG would furnish such garments to defendants upon their order and
request. The agreement was
-3-
- --------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF CONTRACT:
GOODS SOLD AND DELIVERED; AND OPEN
BOOK ACCOUNT
<PAGE>
confirmed by five subsequent purchase invoices and other written memoranda. The
cumulative invoice price for the goods was $623,138.90. Copies of the purchase
invoices are attached hereto at Exhibit A.
9. TAG has performed all conditions, covenants and promises required
on its part to be performed under the agreement.
10. Defendants have breached the agreement by retaining the goods
and by failing to pay TAG for the delivered goods, despite TAG's demands for
payment.
11. TAG has been damaged as a result of defendants' breach in the
amount of $623,138.90 plus interest, costs and fees.
SECOND CAUSE OF ACTION
----------------------
[Goods Sold And Delivered Against All Defendants]
12. TAG realleges and incorporates herein by reference paragraphs 1
through 11 of this Complaint.
13. Within the last six months, TAG invoiced defendants for various
goods supplied in the amount of $623,138.90, as reflected in Exhibit A. The
goods were sold and delivered to defendants, at defendants' request, and
defendants agreed to pay for the goods.
14. Neither the whole nor any part of the above sum has been paid,
although demand therefor has been made, and there is now due, owing, and unpaid
from defendants to TAG the sum of $623,138.90, together with interest, costs and
fees.
-4-
- --------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF CONTRACT:
GOODS SOLD AND DELIVERED; AND OPEN
BOOK ACCOUNT
<PAGE>
THIRD CAUSE OF ACTION
---------------------
[Open Book Account Against All Defendants]
15. TAG realleges and incorporates herein by reference paragraphs 1
through 14 of this Complaint.
16. Within the last six months, defendants became indebted to TAG
for goods sold and delivered by TAG to defendants, for which defendants agreed
to pay TAG the sum of $623,138.90.
17. Neither the whole nor any part of the above sum has been paid,
although demand therefor has been made, and there is now due, owning, and unpaid
from defendants to TAG the sum of $623,138.90, together with interest, costs and
fees.
-5-
- --------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF CONTRACT:
GOODS SOLD AND DELIVERED; AND OPEN
BOOK ACCOUNT
<PAGE>
PRAYER
------
WHEREFORE, Plaintiff TAG prays for judgment against defendants as
follows:
1. For damages in the amount of $623,138.90;
2. For prejudgment interest thereon as provided by law;
3. For costs of suit incurred;
4. For reasonable attorneys' fees;
5. For such other and further relief as this Court may deem just and
proper.
Dated: November 5, 1999
SHEPPARD, MULLIN, RICHTER & HAMPTION LLP
PHILLIP A. DAVIS
By
-------------------------------------------
PHILLIP A. DAVIS
Attorneys for Plaintiff
TAG MEX, INC.
-6-
- --------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF CONTRACT:
GOODS SOLD AND DELIVERED; AND OPEN
BOOK ACCOUNT
<PAGE>
SCHEDULE 6.9 (a)
TRADEMARKS
<PAGE>
ASSIGNMENT OF TRADEMARKS AND THE
UNITED STATES REGISTRATION THEREOF
This assignment is made by and between Tarrant Company Limited, a
Hong Kong corporation, organized and existing under the laws of Hong Kong,
having a principal place of business at 13/F Lladro Center, 72 Hoi Yuen Road,
Kwun Tong, Kowloon, Hong Kong (hereinafter "Assignor") and Tarrant Apparel
Group, doing business as Fashion Resource, a California corporation, having its
principal place of business at 3151 E. Washington Boulevard, Los Angeles,
California 90023 (hereinafter "Assignee").
WHEREAS, Assignor adopted and uses, and thereby, owns all rights,
title and interest in and to the trademarks and United States Registrations
thereof identified below (hereinafter the "Marks" and "Registrations",
respectively), along with the goodwill of the business appurtenant to said
Marks:
Trademark Registration No. Registration Date Class
- --------- ---------------- ----------------- -----
NO! JEANS 1,462,893 October 27, 1987 25
NO! 1,461,979 October 20, 1987 25
WHEREAS, Assignee desires to obtain all right, title, and interest
in the Marks and the Registrations, including the goodwill associated with the
Marks and any and all claims, demands, and cause of action for infringement, of
the Marks, past, present, and future, and all of the proceeds from the
foregoing.
NOW, THEREFORE, in consideration of good and valuable consideration,
the receipt of which is hereby acknowledged, Assignor hereby assigns to Assignee
all right, title and interest in and to the Marks and the Registrations,
together with the goodwill of the business symbolized by the Marks and any and
all claims, demands, and causes of action for infringement, of the Marks, past,
present, and future, and all of the proceeds from the foregoing.
Signed at Los Angeles, California, this 24th day of June, 1998.
TARRANT COMPANY LIMITED
/s/ Cora Reyes
---------------------------
Cora Reyes
Chief Operating Officer
<PAGE>
State of California }
ss:
County of LOS ANGELES }
On this 24th day of JUNE 1998, before me Fatima A. Palacious, a
Notary Public, personally appeared Cora Reyes,
|_| personally known to me, or
|X| proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument
and acknowledged to me that she executed the same in her authorized capacity and
that by her signature on the instrument the entity upon behalf of which the
person acted, executed the instrument. WITNESS my hand and official seal.
/s/ Famita A. Palacios
----------------------
Notary Public
[SEAL] FATIMA A. PALACIOS
Commission #1131492
Notary Public -- California
Los Angeles County
My Comm. Expires Mar 26, 2001
<PAGE>
[LOGO] STATE OF CALIFORNIA
SECRETARY OF STATE
Trademark Reg. No. 102163 Class No. Int. 25
CERTIFICATE OF REGISTRATION OF TRADEMARK
I, BILL JONES, Secretary of State of the State of California, hereby certify:
That in accordance with the application filed in this office the TRADEMARK
described below has been duly registered in this office on behalf of:
Name of Applicant: Tarrant Company, Ltd.
Business Address: 13F, Lladro Centre, 72 Hoi Yuen Road, Kwun Tong
Kowloon, Hong Kong
Date first used in California: July 17, 1986
Date first used anywhere: July 17, 1986
Description of Trademark: NO! JEANS
Description of Goods on which the Trademark is used: Clothing
A copy, specimen, facsimile, counterpart or a reproduction of the mark is
attached
Date of Registration: January 24, 1997
Term of Registration Extends to and Includes: January 24, 2007
[SEAL] IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal of the
State of California this 30th day of
January, 1997.
/s/ Bill Jones
BILL JONES
Secretary of State
<PAGE>
We the People
[SEAL] No. 1462893
THE UNITED STATES OF AMERICA
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and Trademark Office
show that an application was filed in said Office for registration of the Mark
shown herein, a copy of said Mark and pertinent data from the Application being
annexed hereto and made a part hereof.
And there having been due compliance with the requirements of the law and
with the regulations prescribed by the Commissioner of Patents and Trademarks.
Upon examination, it appeared that the applicant was entitled to have and
Mark registered, under the Trademark Act of 1946, and the said Mark has been
duly registered this day in the Patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein
This registration shall remain in force for Twenty years unless sooner
terminated as provided by law.
[SEAL] In Testimony Whereof I have hereunto set my
hand and caused the seal of the Patent and
Trademark Office to be affixed this twenty-
seventh day of October, 1987.
/s/ Donald J. [ILLEGIBLE]
Commissioner of Patents and Trademarks
<PAGE>
Int. Cl.: 25
Prior U.S. Cl.: 39
Reg. No. 1,462,893
United States Patent and Trademark Office Registered Oct. 27, 1987
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
NO! JEANS
TARRANT COMPANY, LTD. (HONG KONG CORPORATION)
13/F SHIU YING INC. BUILDING 64 TONG MEI ROAD
KOWLOON, HONG KONG
FOR: MEN'S, WOMEN'S, BOYS' AND GIRLS' CLOTHING, NAMELY JEANS, SHORTS,
SWEAT PANTS, JUMPSUITS, SWEATERS, BLOUSES, TOPS, JACKETS, AND SKIRTS, IN CLASS
25 (U.S. CL. 39).
FIRST USE 7-17-1986; IN COMMERCE 7-17-1986.
NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE "JEANS", APART FROM THE
MARK AS SHOWN.
SER. NO. 616,442, FILED 8-25-1986.
STEWART J. BELLUS, EXAMINING ATTORNEY
[TRADEMARK]
<PAGE>
We the People
[SEAL] No. 1461979
THE UNITED STATES OF AMERICA
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and Trademark Office
show that an application was filed in said Office for registration of the mark
shown herein, a copy of said Mark and pertinent data from the Application being
annexed hereto and made a part hereof.
And there having been due compliance with the requirements of the law and
with the regulations prescribed by the Commissioner of Patents and Trademarks.
Upon examination, it appeared that the applicant was entitled to have and
Mark registered under the Trademark Act of 1946, and the said Mark has been
duly registered this day in the Patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein
This registration shall remain in force for Twenty years unless sooner
terminated as provided by law.
[SEAL] In Testimony Whereof I have hereunto set my
hand and caused the seal of the Patent and
Trademark Office to be affixed this
twentieth day of October, 1987.
/s/ Donald J. [ILLEGIBLE]
Commissioner of Patents and Trademarks.
<PAGE>
Int. Cl.: 25
Prior U.S. Cl.: 39
Reg. No. 1,461,979
United States Patent and Trademark Office Registered Oct. 20, 1987
TRADEMARK
PRINCIPAL REGISTER
NO!
TARRANT COMPANY, LTD. (HONG KONG CORPORATION)
13/F SHIU YING IND. BLDG.
64 TONG MEI ROAD
KOWLOON, HONG KONG
FOR: MEN'S WOMEN'S, BOYS' AND GIRLS' CLOTHING, NAMELY JEANS, SHORTS, SWEAT
PANTS, JUMPSUITS, SWEATERS, BLOUSES, TOPS, JACKETS AND SKIRTS, IN CLASS 25
(U.S. CL. 39).
FIRST USE 9-3-1985 IN COMMERCE 9-3-1985.
SER. NO. 616,427, FILED 8-25-1986.
STEWART J. BELLUS, EXAMINING ATTORNEY
[GRAPHIC OMITTED]
<PAGE>
A COPY, SPECIMEN, FACSIMILE, COUNTERPART OR REPRODUCTION OF TRADEMARK REG.
NO.________________
WE ARE SURVIVORS, ADVENTURE SEEKERS
THAT DARE AND CHALLENGE.
THE CHALLENGE IS DARE TO SAY
YOURS "NO!"
NO! JEANS
CONTEMPORARY CLOTHING
Design by Claude Attias
FASHION EXPRESSIONS OF THE 80'S
QUALITY FABRICS STYLISH AND FUN
AND CONSTRUCTION CLOTHING FOR ALL
NO! [ILLEGIBLE]
NO! JEANS
[GRAPHIC OMITTED]
<PAGE>
[LETTERHEAD OF MOFFAT & CO.]
June 11, 1999
Ms. Cora Reyes
Get
P.O. Box 21373
Los Angeles, California 90021
U.S.A.
Dear Cora:
Re: Trade-mark: GET!
Appln. No. 613,895
Applicant: Get
Our File: 575-103
- --------------------------------------------------------------------------------
This is further to our letter date January 3, 1990 in respect of the above
application.
We are pleased to report that this application has issued to registration
and we are pleased to enclose the Certificate of Registration which issued on
May 11, 1990 under Registration No. 368,528. This registration will expire
unless it is renewed by May 11, 2005.
We have reviewed the Certificate of Registration and checked it for
accuracy. It appears to us that there are no errors in the Certificate of
Registration, however, I would ask that you double check to be certain that
there are no errors or omissions.
The Trade-marks Office is required to send a Notice of Renewal to the
registered owner of the trade-mark within four months of the renewal date. At
that time, if you wish to have this trade-mark registration renewed, we would be
pleased to take the necessary steps upon receipt of your instructions.
Yours very truly,
/s/ MOFFAT & CO.
MOFFAT & CO.
Per: /s/ [ILLEGIBLE]
PBK/jmg
Encls.
<PAGE>
State of California
OFFICE OF THE SECRETARY OF STATE
Trademark
Reg. No. 82594
CERTIFICATE OF REGISTRATION OF TRADEMARK
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That in accordance with the application filed in this office the TRADEMARK
described below had been duly registered in this office on behalf of:
Name of Applicant: Tarrant Company, Limited., a Hong Kong corporation
Business Address 13/F Shiu Ying Ind. Bldg.
64 Tong Mei Road, Kowloon
Date First Used in California September 3, 1985
Date First Used Anywhere September 3, 1985
Description of Trademark the word "NO!"
Class No 39
Description of Goods on Which the Trademark is Used
men's, women's, boys' and girls' clothing; namely, jeans, shorts, sweat
pants, jumpsuits, sweaters, blouses, tops, jackets and skirts
A copy, specimen, facsimile, counterpart or a reproduction of the mark is
attached.
Date of Registration September 3, 1986
Term of Registration Extends to and Includes September 3, 1996
[SEAL] IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal of the
State of California this
3rd day of September, 1986
/s/ March Fong Eu
March Fong Eu
Secretary of State
<PAGE>
State of California
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF REGISTRATION OF TRADEMARK
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That in accordance with the application filed in this office the TRADEMARK
described below had been duly registered in this office on behalf of:
Name of Applicant: Tarrant Company, Limited., a Hong Kong corporation
Business Address 13/F Shiu Ying Ind. Bldg.
64 Tong Mei Road, Kowloon
Date First Used in California September 3, 1985
Date First Used Anywhere September 3, 1985
Description of Trademark the word "NO!"
Class No 39
Description of Goods on Which the Trademark is Used
men's, women's, boys' and girls' clothing; namely jeans, shorts, sweat
pants, jumpsuits, sweaters, blouses, tops, jackets and skirts
A copy, specimen, facsimile, counterpart or a reproduction of the mark is
attached.
Date of Registration September 3, 1986
Term of Registration Extends to and Includes September 3, 1996
[SEAL] IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal of the
State of California this
3rd day of September, 1986
/s/ March Fong Eu
March Fong Eu
Secretary of State
<PAGE>
A COPY, SPECIMEN, FACSIMILE, COUNTERPART OR REPRODUCTION OF TRADEMARK REG.
NO.______________________
[GRAPHIC OMITTED]
[LOGO] NO!
<PAGE>
[GRAPHIC OMITTED]
Consumer and Corporate Consommation
Affairs Canada et Corporations Canada
Trade-Marks Marques de commerce
Certificat
Certificate of Registration d'enregistrement
368528
I hereby certify that the trade-mark identified in the attached extract from the
register of trade-marks has been registered as appears therefrom, and that the
said extract is a true copy of the record of its registration.
In accordance with the provisions of the Trade-Marks Act, this trade-mark is
subject to renewal every 15 years from the registration date shown on the
attached extract.
In testimony whereof I have hereunto set my hand and caused the seal of the
Trade-Marks Office to be affixed at the city of Hull, Canada.
Je certifie par les persentes que la marque de commerce identifee dans
l'extrait ci-joint, tire du registre des marques de commerce, a ete enregistree
ainsi qu'il en appert, et que ledit extrait est une copie conforme de
l'inscription de son enregistrement.
Conformement aux dispositions de la Loi sur les marques de commerce, cette
marque de commerce, est renouvelable tous les quinze ans a compter de la date
d'enregistrement indiquee sur l'extrait ci-joint.
En foi de quoi j'ai appose aux presentes mon seing et fait apposer le sceau du
Burearu des marques de commerce, en la cite de Hull, Canada.
[SEAL] May 11 199[ILLEGIBLE]
Date
/s/ [ILLEGIBLE]
Register of Trade-Marks
Le registraire des marques de commerce
/s/ [ILLEGIBLE]
Attesting Officer
[GRAPHIC OMITTED] Certificateur
Canada
<PAGE>
APPL,N/DEM. NO 613 895 REGISTRATION/ENREGISTREMENT NO TMA 368,528
FILING DATE/DATE DE PRODUCTION: 25 AUG/AOUT 1988
REGISTRATION DATE/DATE D'ENREGISTREMENT: 11 MAY/MAI 1990
PRIORITY FILING DATE/ DATE DE PRIORITE DE PRODUCTION: 24 MAR/MARS 1988
REGISTRANT/PROPRIETAIRE ORIGINAL:
GET,
401 EAST 7TH STREET,
LOS ANGELES, CALIFORNIA, 90014,
United States of America
REP FOR SERVICE/REP POUR SIGNIFICATION:
MOFFAT & CO.,
81 METCALFE STREET,
P.O. BOX 2088, STATION D,
OTTAWA,
Ontario K1P 5W3
TRADEMARK/MARQUE DE COMMERCE:
GET!
WARES/MARCHANDISES:
(1) Clothing, namely shirts, tops, t-shirts, vest, jackets, coats, sweaters,
jeans, pants, shorts, swimwear, sleepwear, jumpsuits, skirts, dresses, shoes,
hoisery, belts and hats.
Used in United States of America on wares.
Registered in United States of America on 18 OCT/OCT 1998 under No. 1,509,348 in
respect of wares.
Declaration of use filed 05 FEB/FEV 1990 on wares.
<PAGE>
[SEAL] No. 1509348
THE UNITED STATES OF AMERICA
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and Trademark Office
show that an application was filed in said Office for registration of the Mark
shown herein, a copy of said Mark and pertinent data from the Application being
annexed hereto and made a part hereof.
And there having been due compliance with the requirements of the law and
with the regulations prescribed by the Commissioner of Patents and Trademarks.
Upon examination, it appeared that the applicant was entitled to have and
Mark registered, under the Trademark Act of 1946, and the said Mark was been
duly registered this day in the Patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein.
This registration shall remain in force for Twenty years unless sooner
terminated as provided by law.
[SEAL] In Testimony Whereof I have hereunto set my
hand and caused the seal of the Patent and
Trademark Office to be affixed this
eighteenth day of October, 1988.
/s/ Donald J. [ILLEGIBLE]
Commissioner of Patents and Trademarks
<PAGE>
Int. Cl.: 25
Prior U.S. Cl.: 39
Reg. No. 1,509,348
United States Patent and Trademark Office Registered Oct. 18, 1988
TRADEMARK
PRINCIPAL REGISTER
GET!
GET (CALIFORNIA CORPORATION)
401 EAST 7TH STREET
LOS ANGELES, CA, 90014
FOR: CLOTHING, NAMELY SHIRTS, TOPS, T-SHIRTS, VESTS, JACKETS, COATS,
SWEATERS, JEANS, PANTS, SHORTS, SWIMWEAR, SLEEPWEAR, JUMPSUITS, SKIRTS, DRESSES,
SHOES, HOISERY, BELTS AND HATS, IN CLASS 25 (U.S. CL. 39).
FIRST USE 1-7-1988; IN COMMERCE 3-27-1988.
SER. NO. 718,393, FILED 3-24-1988.
MARIA SOLOMON, EXAMINING ATTORNEY
<PAGE>
SCHEDULE 6.9(B)
TRADEMARK DISPUTES
<PAGE>
NOT APPLICABLE
<PAGE>
SCHEDULE 6.10
LICENSES/PERMITS
<PAGE>
Registrant Number
25225
--------------
Effective Date
June 25, 1999
--------------
Expiration Date
June 24, 2000
--------------
[SEAL]
STATE OF CALIFORNIA DEPARTMENT OF INDUSTRIAL RELATIONS
DIVISION OF LABOR STANDARDS ENFORCEMENT
LICENSING AND REGISTRATION
P.O. BOX 420603, SAN FRANCISCO, CA 94142
CERTIFICATE OF REGISTRATION
CALIFORNIA GARMENT MANUFACTURING INDUSTRY
Pursuant to Section 2675 of the California Labor Code, this Certificate of
Registration in the California Garment Manufacturing Industry is issued to:
(COR) W.C.I.
01/01/2000
This Certificate of Registration is valid only for one year and must be renewed
on or before the expiration date shown above.
TARRANT APPAREL GROUP This certificate shall not be transferred or assigned.
DBA: FASHION RESOURCE It is valid only for the addresses(es) shown.
3151 E. WASHINGTON BLVD.
LOS ANGELES, CA 90023 STATE LABOR COMMISSIONER
STATE LABOR COMMISSIONER
/s/ Mary V. Saunders
In addition to the above address, this Certificate of Registration also is valid
for the following address(es):
1. 110 E 9TH STREET, #81245
LOS ANGELES, CA 90079
2. 1620 S. LOS ANGELES STREET
LOS ANGELES, CA 90079
3. 2419 FIRESTONE BLVD.,
SOUTH GATE, CA 90280
PLEASE POST IN A
CONSPICUOUS PLACES
0017242
<PAGE>
- --------------------------------------------------------------------------------
[SEAL OF STATE BOARD OF EQUALIZATION STATE OF CALIFORNIA]
CALIFORNIA STATE BOARD OF EQUALIZATION
SELLER'S PERMIT
ACCOUNT NUMBER
THIS PERMIT DOES NOT 10/1/1998 SR AA 18727134
AUTHORIZE THE HOLDER TO FASHION RESOURCE INC.
ENGAGE IN ANY BUSINESS 3151 E. WASHINGTON BOULEVARD #2
CONTRARY TO LAWS REGULATING LOS ANGELES, CA 90023
THAT BUSINESS OR TO POSSESS
OR OPERATE ANY ILLEGAL IS HEREBY AUTHORIZED PURSUANT TO SALES AND
DEVICE. USE TAX LAW TO ENGAGE IN THE BUSINESS OF
SELLING TANGIBLE PERSONAL PROPERTY AT THE
ABOVE LOCATION
Not valid at any other address
THIS PERMIT IS VALID UNTIL REVOKED OR
CANCELLED BUT IS NOT TRANSFERABLE. IF YOU
SELL YOUR BUSINESS, OR DROP OUT OF A
PARTNERSHIP, NOTIFY US OR YOU COULD BE
RESPONSIBLE FOR SALES AND USE TAXES OWED BY
THE NEW OPERATOR OF THE BUSINESS.
BT-442-R-LZ REV. 10(6-92)
- --------------------------------------------------------------------------------
DISPLAY CONSPICUOUSLY AT PLACE OF BUSINESS FOR WHICH ISSUED
NOTICE TO TAXPAYERS
INFORMATION FURNISHED TO THE BOARD OF EQUALIZTION
The information Practices Act of 1977 requires this agency to provide the
following notice to individual taxpayers who are asked by the State Board of
Equalization to supply information:
The principal purpose for which the requested information will be used is to
administer the California Sales and Use Tax Laws, Special (Excise) Tax Laws, or
the Timber Yield Tax Law. This includes the determination and collection of the
correct amount of tax.
As an individual taxpayer, you have the right of access to personal information
about you in records maintained by the State Board of Equalization. The official
responsible for maintaining Sales and Use Tax information is the Deputy
Director, Sales and Use Tax Department, 1020 N. Street, Sacramento, CA, 95814;
please contact your local Board office listed in the white pages for assistance,
or telephone (916) 445-6464. The official responsible for maintaining Excise Tax
and Environmental Fee Tax information is the Deputy Director, Special Taxes and
Operations Department, 1020 N. Street, Sacramento, CA 95814; telephone (916)
445-6464. The official responsible for maintaining Timber Tax information is the
Timber Tax Division Chief, Property Taxes Department 1719-24th Street,
Sacramento, CA 95816, telephone (916) 445-6964. If the local Board office is
unable to provide the information sought, you may also contact the information
Security Office in Sacramento, telephone (916) 324-1627.
The California Revenue and Taxation Code, Parts 1, 1.5 and 1.6 (State Sales and
Use Tax), 2 (Motor Vehicle Fuel Tax), 3(Use Fuel Tax), 7 (Tax on Insurers),
13(Cigarette and Tobacco Products Tax), 14(Alcoholic Beverage Tax), 18.5(Timber
Yield Tax), 19(Energy Resources Surcharge), 20(Emergency Telephone Users
Surcharge), 22(Hazardous Substances Tax Law), 23(Solid Waste Disposal Site
Cleanup Maintenance Fee Law), 24(Oil Spill Responses, Prevention and
Administration Fees), 26(Underground Storage Tanks Maintenance Fee Law),
Government Code, Title 7.3, Chapter 6 (Tire Recycling Fee), Public Resources
Code, Div. 30, Part 7, Chapter 4(Oil Recycling Fee), Health and Safety Code,
Div. 1, Part 1, Chapter 2, Article 4.6 (Childhood Lead Poisoning Prevention
Fee), and Chapter 1 of the Public Utilities Code (Hazardous Spill Prevention
Fee) requires persons meeting certain requirements to file applications for
registration, applications for permits or licenses, and tax returns or reports
in such form as prescribed by the State Board of Equalization.
It is mandatory that you furnish all the required information requested by
applications for registration, applications for permit or licenses, tax returns
and other related date, except that the furnishing of social security numbers by
applicants for Consumer Use Tax Accounts, Certificates of Registration -- Use
Tax and Timber Yield Tax Accounts is voluntary. Failure to provide all the
required information requested by an application for a permit or license could
result in your not being issued a permit or license. In addition, the law
provides penalties for failure to file a return, failure to furnish specific
information required, failure to supply information required by law or
regulations, or for furnishing fraudulent information.
Pursuant to California law, the information appearing on the face of any permit
or license issued by the Board is a public record. Information you furnish to
this agency may also be given to federal, state and local government agencies as
authorized by law.
<PAGE>
SCHEDULE 6.14
LABOR DISPUTES
<PAGE>
NOT APPLICABLE
<PAGE>
SCHEDULE 8.3
OUTSTANDING GUARANTEES
<PAGE>
GUARANTY
1. The Guaranty. For valuable consideration, the undersigned ("Guarantor")
------------
hereby unconditionally guarantees and promises to pay to TRANSIT HOLDING, INC.,
a subsidiary of Banc of America Leasing & Capital LLC ("Lessor"), or order, on
demand, in lawful money of the United States, any and all payment and
performance obligations, whether now existing or hereafter arising or matured or
contingent (the "Obligations") of TAG MEX, INC. ("Lessee") to Lessor under or in
respect of that certain Lease intended as Security executed by Lessee and Lessor
dated August 23, 1999 (together with all schedules, appendices and other
attachments thereto, and any renewals, modifications, or extensions thereof, the
"Lease") providing for the lease or financing of equipment or other personal or
real property ("Leased Property") by Lessor to Lessee. The obligations of
Guarantor hereunder are independent of the Obligations and exclusive of and in
addition to liability under any other guaranty executed by Guarantor for the
benefit of Lessor or any company related to Lessor, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Lessee or whether Lessee is joined in any such action or
actions.
2. Authorization of Renewals, Etc. Guarantor authorizes Lessor, without
------------------------------
notice or demand and without affecting its liability hereunder, from time to
time to:
(a) renew, compromise, extend, accelerate, or otherwise change the
time for or amount of any payment, or substitute or exchange Leased Property, or
otherwise change the terms of the Lease or the Obligations or any other
obligations of Lessee to Lessor ("Other Obligations");
(b) receive and hold security for the payment of this Guaranty or
the Obligations or any Other Obligations, and exchange, enforce, waive, release,
fail to perfect, sell, or otherwise dispose of, any such security;
(c) apply such security and direct the order or manner of sale
thereof as Lessor in its discretion may determine; and
(d) release or substitute any one or more of any endorsers or
guarantors of the Obligations.
3. Waiver of Certain Rights. Guarantor waives any right to require Lessor
------------------------
to:
(a) proceed against Lessee;
(b) proceed against or exhaust any security for the Obligations or
any other Obligations, or repossess, dispossess or remarket Leased Property, or
otherwise mitigate damages; or
(c) exercise or pursue any other right or remedy in Lessor's power
whatsoever.
4. Waiver of Certain Defenses. Guarantor waives any defense arising by
--------------------------
reason of any disability or other defense of Lessee, or the cessation from any
cause whatsoever of the liability of Lessee, or any claim that Guarantor's
obligations exceed or are more burdensome than those of Lessee, including any of
the foregoing arising by virtue of any provision of the U.S. Bankruptcy Code
(Title 11, U.S. Code) (the "Bankruptcy Code").
5. Waiver of Subrogation and Other Rights and Defenses.
---------------------------------------------------
(a) Until the Obligations and any Other Obligations are paid in
full, Guarantor waives (i) any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory, or otherwise),
including any claim or right of subrogation under the Bankruptcy Code, arising
from the existence or performance of this Guaranty, (ii) any right to enforce
any remedy Lessor now has or may hereafter have against Lessee and (iii) any
benefit of, and any right to participate in, any security now or hereafter held
by Lessor. After the Obligations and any Other Obligations are paid in full, to
the extent there is any value in the security or other collateral securing the
Obligations or Other Obligations, Lessor agrees to execute and deliver such
further documents as Guarantor may reasonably request to vest title to such
security or other collateral in Guarantor.
(b) Guarantor understands and acknowledges that if Lessor
forecloses, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the Obligations, that foreclosure could impair or destroy
any ability Guarantor may have to seek reimbursement, contribution, or
indemnification from Lessee or others based on any right Guarantor may have of
subrogation, reimbursement, contribution or indemnification for any amounts paid
by Guarantor under this Guaranty. Guarantor further understands and acknowledges
that in the absence of this paragraph, such potential impairment or destruction
of Guarantor's rights, if any, may entitle Guarantor to assert a defense to this
Guaranty based on Section 580d of the California Code of Civil Procedure ("CCP")
as interpreted in
1
<PAGE>
Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty,
- ---------------------
Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes
that defense and agrees that Guarantor will be fully liable under this Guaranty
even though Lessor may foreclose, either by judicial foreclosure or by exercise
of power of sale, any deed of trust securing the Obligations; (ii) agrees that
Guarantor will not assert that defense in any action or proceeding Lessor may
commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights
and defenses waived by Guarantor in this Guaranty include any right or defense
Guarantor may have or be entitled to assert based upon or arising out of any one
or more of CCP ss.ss.580a, 580b, 580d, or 726 of Section 2848 of the California
Civil Code ("CC") and (iv) acknowledges and agrees that Lessor is relying on
this waiver in creating the Obligations, and that this waiver is a material part
of the consideration therefor.
(c) Guarantor waives any rights and defenses that are or may become
available to Guarantor under CC ss.ss.2787 to 2855, inclusive.
(d) Guarantor waives the benefit of any statute of limitations
affecting its liability hereunder.
6. Waiver of Presentments, Etc. Guarantor waives all presentments, demands
---------------------------
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new or additional Obligations or any Other
Obligations.
7. Information Relating to Lessee. Guarantor acknowledges and agrees that
------------------------------
it has sole responsibility for obtaining from Lessee such information concerning
Lessee's financial condition or business operations or the Leased Property as
Guarantor may require, and that Lessor has no duty at any time to disclose to
Guarantor any information relating to the business operations or financial
condition of Lessee or the Leased Property.
8. Financial Information. Guarantor shall keep its books and records in
---------------------
accordance with generally accepted accounting principles and practices
consistently applied and shall deliver to Lessor (i) annual CPA audited
financial statements within 120 days of its fiscal year end, (ii) quarterly
company-prepared financial statements upon Lessor's request, and (iii) such
financial statements as Lessor may reasonably request. Credit information
relating to Guarantor may be disseminated among Lessor and any of its affiliates
and any of their respective successors and assigns.
9. Security. To secure all of Guarantor's obligations hereunder, Guarantor
--------
assigns and grants to Lessor a security interest in all moneys, securities and
other property of Guarantor now or hereafter in the possession of Lessor, all
deposit accounts of Guarantor maintained with Lessor or any affiliate of Lessor
(including Bank of America National Trust and Savings Association), and all
proceeds thereof. Upon default or breach of any of Guarantor's obligations to
Lessor hereunder, Lessor may apply any such deposit account to reduce the
Obligations, and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Lessor and Guarantor.
10. Subordination. Any obligations of Lessee to Guarantor, now or
-------------
hereafter existing, including any obligations to Guarantor as subrogee of Lessor
or resulting from Guarantor's performance under this Guaranty, are hereby
subordinated to the Obligations and any Other Obligations. Such obligations of
Lessee to Guarantor if Lessor so requests shall be enforced and performance
received by Guarantor as trustee for Lessor, and the proceeds thereof shall be
paid over to Lessor on account of the Obligations and all Other Obligations, but
without reducing or affecting in any manner the liability of Guarantor under the
other provisions of this Guaranty.
11. Lessee's Authorization. Where Lessee is a corporation, partnership, or
----------------------
limited liability company, it is not necessary for Lessor to inquire into the
powers of Lessee or of the officers, directors, partners, members, managers, or
agents acting or purporting to act on its behalf, and any Obligations made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
12. Assignments. Lessor may, without notice to Guarantor and without
-----------
affecting Guarantee's obligations hereunder, sell, assign, grant participations
in, or otherwise transfer to any other person, firm, or corporation the Lease,
the Leased Property, the Obligations and this Guaranty, in whole or in part.
Guarantor agrees that Lessor may disclose to any such assignee or purchaser, or
any prospective assignee or purchaser, of all or part of the Lease or the
Obligations any information in Lessor's possession concerning Guarantor, this
Guaranty and any security for this Guaranty.
13. Reinstatement of Guaranty. If any payment or transfer of any interest
-------------------------
in property by Lessee to Lessor is rescinded or must be returned by Lessor to
Lessee, (a) this Guaranty shall be reinstated with respect to any such payment
or transfer, even if this Guaranty was previously returned or canceled, and (b)
Guarantor shall remain fully liable with respect to any such amount as if such
amount had not been paid by Lessee.
2
<PAGE>
14. Costs and Expenses. Guarantor agrees to pay all reasonable attorneys'
------------------
fees, including allocated costs of Lessor's internal counsel, and all other
costs and expenses Lessor may incur (a) in the enforcement of this Guaranty or
(b) in the preservation, protection or enforcement of any rights of Lessor in
any case commenced by or against Guarantor under the Bankruptcy Code or any
similar statute.
15. Governing Law. This Guaranty shall be governed by and construed under
-------------
the laws of California, to the jurisdiction of which, and of the Federal courts
in California, Guarantor hereby submits.
16. Interpretation. No provision or waiver in this Guaranty shall be
--------------
construed as limiting the generality of any other waiver in this Guaranty. The
term "including" is not limiting and means "including without limitation".
Section headings are for convenience of reference only and do not affect the
interpretation of this Guaranty. The invalidity of any portion of this Guaranty
shall not affect the remaining provisions. Where more than one Guarantor
executes this Guaranty, all of the provisions hereof shall apply to each of such
persons singly, and the obligations of each such person shall be joint and
several.
Executed as of ______________________.
Guarantor:
/s/ Gerard Guez
---------------------------
Tarrant Apparel Group
Print Name
Gerard Guez
---------------------------
Address
Address for notices to Lessor: Address for notices to Guarantor
3151 Washington Blvd.
Los Angeles, CA 90023 ----------------------------------------
----------------------------------------
Guarantor:
/s/ Corazon Reyes
---------------------------
TARRANT APPAREL GROUP
Print Name
Corazon Reyes
---------------------------
Address
Address for notices to Guarantor
----------------------------------------
----------------------------------------
----------------------------------------
3
<PAGE>
CONTINUING CORPORATE GUARANTY
In consideration of Standard Chartered Bank (the "Bank") purchasing one or more
trade drafts (collectively, the "Draft") drawn on and accepted by our
subsidiary, Tarrant Mexico, S.de R.L. de C.V. (the "Buyer"), by Louis Dreyfus
Cotton International N.V. (acting in its own name and through its affiliates,
Allenberg Cotton Co. and/or ACC Mexico S.A. de C.V.), the undersigned hereby
guarantees to the Bank, its successors and assigns, the prompt payment at
maturity of the face amount of the Draft plus (i) interest thereon after the
maturity date at the following rate until payment in full; namely, 3.00% per
annum in excess of the Bank's cost of funds. Such interest rate to change with
each change in the Bank's cost of funds; and (ii) the cost of protest and all
reasonable legal expenses of or for collection, or for realization upon any
underlying collateral.
The aggregate face amount of all Drafts being guaranteed hereby shall not exceed
U.S.$7,000,000.00.
The undersigned further agrees that its payment obligation under this Guaranty
shall be in full force and effect regardless of any contractual, commercial or
product dispute between the Buyer and Louis Dreyfus Cotton International N.V.,
Allenberg Cotton Co. and/or ACC Mexico S.A. de C.V. with respect to the quality,
quantity or any other aspect of the goods underlying the Draft purchased by the
Bank. The undersigned specifically waives any objection or defense which it or
the Buyer may have against the Bank relating to the goods underlying the Draft.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the obligations, debts and/or
liabilities hereby guaranteed are payable on demand, the Bank may, in its sole
and arbitrary discretion, determine the reasonableness of the period which may
elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned, the time of payment of all or any of the
obligations, debts and/or liabilities hereby guaranteed, or any other provisions
of said obligations, debts and/or liabilities may be extended, changed or
modified, the parties thereto discharged, any or all collateral thereto released
without obtaining other collateral in substitution therefor, and any composition
or settlement consummated and accepted and that the undersigned will remain
bound upon this Guaranty notwithstanding one or more such extensions, changes,
modifications, discharges, releases,
<PAGE>
-2-
compositions or settlements. The undersigned further consents and agrees that
this Guaranty shall not be impaired or otherwise affected by any failure to call
for, take, hold, protect or perfect, continue the perfection of or enforce any
security interest in or other lien upon, any collateral for the obligations,
debts and/or liabilities hereby guaranteed or by any failure to exercise, delay
in the exercise, waiver of, or forbearance or other indulgence with respect to,
any right or remedy available to the Bank.
The undersigned represents and warrants to the Bank that:
(i) it has all necessary power and authority to enter into, execute and
deliver this Guaranty and to exercise its rights and perform its
obligations hereunder and it has taken all necessary corporate and other
action (including, without limitation, obtaining any consent of
stockholders required by applicable law or its Certificate of
Incorporation or By-laws) to authorize the execution, delivery and
performance of this Guaranty;
(ii) this Guaranty is a legal, valid and binding obligation of the
undersigned, enforceable against the undersigned in accordance with its
terms;
(iii) the execution of this Guaranty, its delivery and compliance with its
terms will not contravene any provision of any statute, law, rule or
regulation to which the undersigned is subject and will not contravene or
result in the breach of any covenant of any other agreement to which the
undersigned is a party;
(iv) no authorization or governmental approval or notice to or filing or
registration with any governmental authority or regulatory body is
required in connection with the execution, delivery and performance by the
undersigned of this Guaranty;
(v) the person(s) executing the Guaranty on behalf of the undersigned here
been duly authorized by action at the undersigned's Board of Directors to
do so.
The Bank may also, at any time, in its discretion, and when the Bank may deem it
advisable, compromise, settle or extend time of payment of any of the demands or
obligations represented by any collateral now or hereafter held by it to secure
payment of the Draft hereby guaranteed, or it may sell, assign, transfer and
deliver the whole of such collateral, or any part thereof, or any substitutes
therefor, or any additions thereto, at public or
<PAGE>
-3-
private sale, at any time or place selected by the Bank, at such prices as it
may deem best and either for cash or for credit or future delivery, at the
option of the Bank without either demand, advertisement or notice of any kind to
the undersigned, which are hereby expressly waived.
The undersigned further agrees that any money or property at any time in the
possession of the Bank belonging to the undersigned including any deposit
balances and all property or the proceeds thereof held by the Bank for any
purpose including safekeeping, custody, transmission, collection, or pledge,
may, at the option of the Bank, be held as collateral security for the payment
of any liability under this Guaranty and of any liabilities of the undersigned
to the Bank whether due or not, with full power and authority to apply any
deposit balances to the extinguishment of any such liabilities and to sell,
enforce collect or otherwise realize on said money or property in accordance
with applicable law.
The undersigned agrees that the Bank is not to be obligated in any manner to
inquire into the powers of the Buyer, or its successors, its or their directors,
officers, or agents, acting or purporting to act on its or their behalf.
The liability of the undersigned on this Guaranty shall be direct, immediate,
absolute, continuing, unconditional and unlimited and not conditional or
contingent upon the pursuit by the Bank of whatever remedies it may have against
the Buyer or the Buyer's successors, executors, administrators or assigns, or
the securities or liens it may possess, and this Guaranty shall be and shall be
construed as being and intended to be, a continuing Guaranty of the payment of
any and all obligations, debts or liabilities either made, endorsed, or
contracted by the Buyer, or any successor of the Buyer, and of all extensions or
renewals thereof in whole or in part.
The undersigned agrees that in the event that any of the obligations, debts
and/or liabilities hereby guaranteed are paid by the Buyer, the liability of the
undersigned as guarantor(s) shall continue and remain in full force and effect
in the event that all or any part of any such payments is recovered from the
Bank as a preference or fraudulent transfer under Title 11 of the United States
Code or any other applicable federal or state law. The undersigned agrees that
if the Bank gives to the undersigned written notice of the institution of any
action or proceeding, legal or otherwise, between the Bank and the Buyer, the
undersigned shall be conclusively bound by the adjudication in any such legal or
other proceeding, or by any judgment or award decree entered therein.
<PAGE>
-4-
So long as any portion of the obligations, debts and/or liabilities hereby
guaranteed remains owing to the Bank by the Buyer, the undersigned shall not
exercise any right to recover the amount of any payment made by it to the Bank
by way of subrogation, reimbursement, contribution, indemnity or otherwise
arising by contract or operation of law and the undersigned shall not exercise
its right to recourse to or make any claim or enforce any security or other
right or claim against the Buyer in respect of any payment to the Bank pursuant
to this Guaranty. The exercise of all such rights are expressly deferred by the
undersigned for the aforesaid period.
The undersigned waives the right to trial by jury in all actions brought by or
against the Bank. The undersigned also waives the right to assert in any action
or proceeding upon this Guaranty any offsets or counterclaims which the
undersigned may have with respect thereto. This Guaranty shall be governed by
and construed and interpreted in accordance with the laws of the State of New
York. This Guaranty cannot be altered or discharged orally. Notice of the
acceptance of this Guaranty is hereby waived.
IN WITNESS WHEREOF, the undersigned has duly executed these presents as of this
6th day of July 1999.
The "undersigned": Tarrant Apparel Group Inc.
By: /s/ Gerard Guez
------------------------------------
Title: Chairman & CEO
Date: 7-6-99
Address:
3151 E WASHINGTON BLVD
----------------------------------------
Los Angeles CA 91801
----------------------------------------
----------------------------------------
<PAGE>
-5-
SECRETARY'S CERTIFICATE
AND
CORPORATE RESOLUTION
I, Corazon Reyes, Secretary of Tarrant Apparel Group Inc., a California
corporation (the "Corporation") hereby certify that the following is a true
extract from the minutes of a meeting of the Corporation's Board of Directors
duly called and held on July 2, 1999 and is in full force and effect on the date
hereof:
"RESOLVED, that in consideration for Standard Chartered Bank (the
"Bank") purchasing one or more trade drafts drawn on and accepted by
Tarrant Mexico, S.de R.L. de C.V., this Corporation, acting through
any one of its officers, is hereby authorized and directed to
execute and deliver to the BANK the Continuing Corporate Guaranty
dated as of July 6, 1999 in the form annexed hereto of all
obligations incurred by Tarrant Mexico, S.de R.L. de C.V. to the
Bank which Guaranty is hereby approved in all respects by this
Corporation."
I also certify that the above-referenced Guaranty has been signed by
Gerard Guez, a duly authorized officer of the Corporation.
IN WITNESS WHEREOF, I have signed my name and affixed the corporate seal
this 6th day of July, 1999.
[SEAL] /s/ Corazon Reyes
----------------------------------------
Secretary
<PAGE>
MTB BANK
- --------------------------------------------------------------------------------
Guarantee
MEANINGS OF CERTAIN TERMS
In this Guarantee:
"Guarantor" means TARRANT APPAREL GROUP, a California corporation. "MTB"
means MTB Bank and its successors arid assigns. "Customer" is the
individual or entity designated as such below. "Obligation(s)" means and
includes loans, overdrafts and any and every other kind of debt or
liability, including any that exist now and those which arise after this
Guarantee is signed, and any interest due on or fees with respect to such
debts and liabilities, including, without limitation, any and all
obligations incurred by Customer under that certain Credit Agreement dated
February 27, 1997, as amended to date, by and between Customer and MTB
(the "Credit Agreement"), together with any and all amendments,
modifications, supplements, refundings and renewals thereto and as such
loans, overdrafts, debts and liabilities may be sold, assigned or
transferred by MTB. It also includes costs, expenses and attorneys' fees
incurred by MTB in connection with any Obligation.
1. JOINT AND SEVERAL LIABILITY-If more than one person signs this Guarantee,
the term "Guarantor" refers to each and all such persons, and all signers
are responsible under this Guarantee jointly and individually.
2. GUARANTOR'S AGREEMENT-To induce MTB to continue to lend money or otherwise
extend credit to the Customer, the Guarantor irrevocably and
unconditionally guarantees payment of every and any of the Customer's
Obligations to MTB when they are due. No invalidity, irregularity or
unenforceability of all or any part of the Obligations or of any security
therefor shall affect, impair or be a defense to this Guarantee. This
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to the validity, regularity or
enforceability of the Credit Agreement, the Note, the Security Agreement
as such terms are defined in the Credit Agreement) or any of the other
Obligations or any collateral security therefor or guarantee thereof,
including, without limitation, this Guarantee, or rights of offset with
respect thereto and without regard to, and the Guarantor hereby waives,
any defense (including, without limitation, any defense based on
suretyship), offset or counterclaim which may at any time be available to
or be asserted by the Customer or the Guarantor against MTB, in bankruptcy
or in any other instance. The Guarantor has not relied on any
representation from MTB in deciding to execute and deliver this Guarantee
and there is nothing unknown to the Guarantor which would alter the
Guarantor's decision to execute and deliver this Guarantee.
3. AMOUNT OF GUARANTOR'S LIABILITY-Guarantor's liability is for the total
amount of all Customer's Obligations to MTB, plus all costs and expenses
(including reasonable attorneys' fees) of enforcement of MTB's rights and
remedies hereunder and of collection.
<PAGE>
4. CUSTOMER-The Customer whose Obligations are guaranteed is:
Name of Customer: ROCKY APPAREL, L.P . a Delaware limited partnership
Address of Customer: 1384 Broadway, New York, New York 10018
5. PERIOD OF GUARANTEE - If, at any time, all or part of any payment of the
Obligations made by Customer or the undersigned is rescinded or otherwise
must be returned by MTB for any reason whatsoever (including, but not
limited to, the insolvency, bankruptcy or reorganization of Customer),
this Guarantee shall remain in full force and effect, or shall be
reinstated, as the case may be, as to the Obligations which were satisfied
by the payment to be rescinded or returned, all as though such payment had
not been made.
6. ENFORCEMENT- This is a guarantee of payment and not of collection. If the
Customer fails to pay any Obligations to MTB when due, MTB may take action
against the Guarantor without first taking action against the Customer or
any other collateral for the Customer's Obligations. MTB shall not lose
any rights it has against the Guarantor and this Guarantee shall remain in
full force and effect even if MTB (a) partially or fully releases the
Customer or another Guarantor, or any other collateral for the Customer's
Obligations, (b) delays or waives enforcement of any of the Obligations or
of this Guarantee, or (c) modifies, amends, changes the manner, terms of,
extends the time of payment of, renews or alters any of the Obligations,
or if any agreement between the Customer and MTB is found to be invalid or
unenforceable. No failure on the part of MTB to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided herein are cumulative and not exclusive of any other
remedies whether provided by agreement or by law.
7. COLLATERAL-The following collateral is pledged and delivered to MTB to
secure the Guarantor's Obligations under this Guarantee: Guarantor hereby
grants to MTB a security interest in any property of Guarantor now or
hereafter coming into the possession of MTB. MTB shall have all rights as
a secured creditor under the Uniform Commercial Code of the State of New
York with respect to such collateral.
8. COLLATERAL-MTB'S RIGHTS AND OBLIGATIONS-If the Customer or the Guarantor
gives MTB a security interest in collateral, Guarantor agrees that: (a)
MTB may, but need not, perfect its security interest in any or all of the
collateral; (b) MTB may release any security interest in any such
collateral; (c) MTB may release and return to the Customer any collateral
given by the Customer, and (d) MTB may take or refrain from taking any
action permitted by law or by agreement with respect to the collateral,
including its sale. In such event, this Guarantee will remain effective
and the Guarantor shall remain responsible under this Guarantee to the
same extent as if any of the above enumerated circumstances did not occur.
9. DELIVERY OF NOTICES - If more than one Guarantor is guaranteeing the
Obligations, the Guarantor signing on the first signature line is hereby
appointed the agent and attorney-in-fact of all Guarantors for the purpose
of receiving notices hereunder. Any and all notices to which the
Guarantors may be entitled by law or under this Guarantee shall be deemed
given by MTB to all Guarantors by mailing one such notice by ordinary mail
to the agent Guarantor at the address listed below. All such notices shall
be deemed to have been delivered to all Guarantors when so mailed by MTB
or otherwise delivered to the agent Guarantor.
-2-
<PAGE>
10. WAIVER OF RIGHT TO NOTICE - The Guarantor waives the right to receive
notice:
. of the failure of the Customer to meet any Obligation of the
Customer to MTB when due;
. of any default by the Customer under any agreement between the
Customer and MTB;
. of the breach by the Customer of any covenant, promise or warranty.
made by the Customer to MTB;
. of the dishonor of any instrument which evidences an Obligation of
the Customer to MTB;
. of protest regarding any dishonor of any instrument payable by the
Customer;
. that MTB has extended the time for the payment of any Obligations of
the Customer to MTB; and
. of new Obligations of the Customer to MTB as and when they arise, or
renewal by MTB of any existing Obligations.
11. PRIOR GUARANTEES - This Guarantee supersedes and replaces any prior
guarantee by the Guarantor(s) of any Obligation of the Customer to MTB.
12. CREDIT REPORTS - The Guarantor agrees that MTB may request and obtain
credit reports on Guarantor from any consumer reporting agency at any time
while this Guarantee is in effect. MTB will advise the Guarantor whether
or not such a report has been obtained and, if so, the name and address of
any agency that furnished any report.
13. AMENDMENTS - This Guarantee constitutes the entire agreement between MTB
and Guarantor, and cannot be amended or limited except in writing signed
by an officer of MTB.
14. WAIVER OF JURY TRIAL - GUARANTOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTEE.
15. GOVERNING LAW - This Guarantee shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law (or any other law the effect of
which would make the laws of any state or jurisdiction other than the
State of New York applicable hereto).
16. CONSENT TO JURISDICTION - GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK
COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTEE.
17. WAIVER OF SUBROGATION - Guarantor hereby irrevocably waives (a) any right
of subrogation Guarantor has or may have as against Customer with respect
to the Obligations, (b) any right to proceed against Customer, now or
hereafter, for contribution, indemnity, reimbursement, and any other
suretyship rights and claims, whether direct or indirect, liquidated or
contingent, whether arising under express or implied contract, or
operation of law, which Guarantor may now have or hereafter have as
against the Customer with respect to the Obligations, (c) any rights to
recourse to or with respect to the Obligations and (d) any rights to
recourse to or with respect to any asset of Customer.
18. CONSENT TO SALE, TRANSFER OR ASSIGNMENT - Guarantor hereby irrevocably
consents to the sale, transfer or assignment of any or all of the
Obligations which MTB may elect to make in the future
-3-
<PAGE>
and agrees to waive any defense which may otherwise be available to
Guarantor based on such sale, transfer or assignment.
19. ASSIGNABILITY; BINDING EFFECT - This Guarantee shall be binding upon
Guarantor and Guarantor's heirs, legal representatives and assigns and
shall inure to the benefit of MTB and its successors and assigns;
provided, however, that Guarantor shall not be entitled to assign or
delegate any rights or obligations under this Guarantee without the prior
written consent of MTB, and any purported assignment in the absence of
such consent shall be void.
TARRANT APPAREL GROUP
By: /s/ Mark B. Kristof Date: August 7, 1998
--------------------------------
Print Name: Mark B. Kristof
Print Title: V.P.
Address of Guarantor: 3151 East Washington Boulevard, Los Angeles, California
90023
STATE OF NEW YORK)
: SS.:
COUNTY OF NEW YORK)
On the 11th day of Aug 1998 before me personally came Mark B. Kristof, to me
known who, being by me duly sworn, did depose and say that he resides at
______________________________; that he is the _________________________ of
TARRANT APPAREL GROUP, the corporation described in and which executed the above
instrument; and that he signed his name thereto by order of all of the Board of
Directors of said corporation.
/s/ Fatima A. Palacios
- -----------------------------------
Notary Public Fatima A. Palacios
[SEAL] Commission # 1131492
Notary Public - California
Los Angeles County
My Comm. Expires Mar 26, 2001
-4-
<PAGE>
To: Standard Chartered Bank
1. In consideration of STANDARD CHARTERED BANK (hereinafter called "the Bank",
which expression shall include and extend to its successors and assigns)
granting or continuing banking facilities or other accommodation for so long as
the Bank may think fit to Tarrant Co. Ltd. ______________________________
(hereinafter called the "Customer")
We Tarrant Apparel Group
------------------------------------------------------------------------------
3151 East Washington Boulevard, Los Angeles, CA90023, USA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
hereby unconditionally guarantee, undertake and agree on written demand by the
Bank:
(a) to pay and discharge the following (hereinafter called the "Liabilities"):
(i) all moneys now or hereafter advanced to or paid for or on account of
the Customer (whether alone or jointly with any other person) by the Bank;
and
(ii) all other liabilities of the Customer to the Bank whatsoever, whether
actual or contingent, present or future and including, without limitation,
liabilities incurred as a guarantor or surety together with all interest
thereon and commission, costs, charges and expenses chargeable by the Bank
to the Customer (including legal fees), from time to time remaining unpaid
and undischarged;
PROVIDED ALWAYS that (subject as mentioned in Clause 12) the amount for
which we shall be liable to the Bank under this sub-clause (and not
including any amounts due under sub-clauses (b) and (c) of this Clause)
shall not exceed United States Dollars Thirteen Million Only.
(USD13,000,000.- ) plus interest, commission, cost, charges and expenses
as aforesaid;
(b) to pay interest, in the currency in which such sums are denominated, in the
Bank's books on all sums due from us to the Bank under this Guarantee
(hereinafter called the "Guaranteed Sums") or the outstanding balance thereof
from time to time during the period from the date of demand by the Bank as
aforesaid or from the date of discontinuance of this Guarantee by us until the
date when the Guaranteed Sums are discharged in full (after as well as before
judgment) at a rate or rates per annum conclusively certified by the Bank to be
one and one half of one per cent, (1-1/2%) above the rate or rates at which the
Customer would have been liable to pay interest on the amounts demanded by the
Bank under the facilities or other accommodation extended by the Bank to the
Customer (and to the extent permitted by law the Bank shall be entitled to
compound such interest monthly);
(c) to pay all costs and expenses (on a full indemnity basis) arising out of or
in connection with the recovery or attempted recovery by the Bank of moneys due
to the Bank under this Guarantee.
2. This Guarantee shall extend to cover:
(a) in the case of the death, bankruptcy or liquidation of the Customer, all
sums which would have been owing to the Bank by the Customer if such death had
occurred or such bankruptcy or liquidation had commenced at the time when the
Bank received actual notice thereof and notwithstanding such death, bankruptcy
or liquidation;
(b) all moneys obtained from or liabilities incurred to the Bank notwithstanding
that the borrowing or the incurring of such liabilities may have been invalid
or in excess of the powers of the Customer or of any director, attorney, agent
or other person purporting to borrow or act on behalf of the Customer and
notwithstanding any other irregularity in the borrowing or the incurring of such
liabilities;
(c) in the event of the discontinuance by any means of this Guarantee, all
cheques, drafts, bills, notes and negotiable instruments drawn by or for the
account of the Customer on the Bank and purporting to be dated on or before the
date when such discontinuance became known to the Bank or (in the case of notice
to discontinue given hereunder) took effect although presented to or paid by the
Bank after that date and all liabilities of the Customer to the Bank at such
date whether actual or contingent and whether payable forthwith or at some
future time and also all credits then established by the Bank for the Customer.
3. We shall be deemed to be liable as the sole or principal debtor(s) for the
Liabilities and this Guarantee shall be binding on us notwithstanding that the
Customer is not so bound either because the Customer is an infant or under a
disability or is an unincorporated body which is under no liability to discharge
obligations undertaken or purported to be undertaken on its behalf or for any
other reason whatsoever.
4. If this Guarantee is given in respect of the Liabilities of a firm it shall
apply to all moneys borrowed and Liabilities incurred until receipt by the Bank
of actual notice of dissolution of the firm but if there shall be any other
change in the constitution of the firm this Guarantee shall continue and, in
addition to securing the debts and Liabilities of the firm as constituted before
the change shall apply to the debts and Liabilities of the firm as constituted
after such change.
5. The Bank may at all times without prejudice to this Guarantee and without
discharging or in any way affecting our liability hereunder.
(a) determine, vary or increase any credit to the Customer;
(b) grant to the Customer or to any other person any time or indulgence;
(c) renew any bills, notes or other negotiable instruments or securities;
(d) deal with, exchange, release, modify or abstain from perfecting or enforcing
any securities or other guarantees or rights which the Bank may now or hereafter
have from or against the Customer or any other person;
(e) compound with the Customer or with any other person or guarantor.
6. This Guarantee shall not be affected by any failure on the Bank's part to
take any security or by the invalidity of any security taken or by any existing
or future agreement by the Bank as to the application of any advances made or to
be made to the Customer. Our liability hereunder shall not be discharged or in
any way affected by any act or omission on the part of the Bank under or in
relation to this Guarantee or by any course of dealing between the Bank and us.
7. This Guarantee shall not be considered as satisfied or discharged by any
intermediate payment or satisfaction of the whole or any part of the Liabilities
or by any other matter or thing whatsoever but shall constitute and be a
continuing guarantee to the Bank and shall extend to cover the [ILLEGIBLE]
balance of the Liabilities and shall be binding upon us until the expiration of
one month after the receipt by the Bank from us of notice in writing to
[ILLEGIBLE]
<PAGE>
charge, lien or otherwise which the Bank may now or at any time [ILLEGIBLE] the
Liabilities and on discharge by payment or otherwise shall remain the property
of the Bank.
9. In the event of this Guarantee being determined or ceasing from any cause to
be binding as a continuing guarantee on us:
(a) it shall be lawful for the Bank to continue to provide facilities (as
hereinbefore mentioned) to the Customer and to continue any account with the
Customer notwithstanding such event and our liability for the amount of the
Liabilities at the date this Guarantee is determined shall continue
notwithstanding any subsequent payment to or drawing upon or advance by the Bank
by or to or for or on behalf of the Customer; and
(b) [ILLEGIBLE] the Bank may forthwith without thereby affecting its rights
under this Guarantee open a new or separate account with the Customer and, if
the Bank does not open a new or separate account, the Bank shall nevertheless be
treated as if it had done so at the time (the "relevant time") that the Bank
received notice or became aware that this Guarantee had determined or ceased to
be binding as a continuing guarantee and as from the relevant time all moneys
paid by or on behalf of the Customer shall be credited or be treated as having
been credited to the new or separate account and shall on settlement of any
claim in respect of this Guarantee not operate to reduce the amount due from the
Customer at the relevant time or the interest thereon unless the person or
persons paying in such moneys shall at the time of payment direct the Bank in
writing to appropriate the sum specially to that purpose.
10. The Bank shall be entitled at all times to place and keep in a separate or
suspense account or accounts to our credit or to the credit of such other person
as the Bank may think fit any moneys received under this Guarantee or as a
result of the exercise of any of its rights against the Customer or any other
surety in respect of the Liabilities for so long and in such manner as the Bank
may determine without any intermediate obligation to apply the same or any part
thereof in or towards the discharge of the Liabilities and the Bank shall be
entitled to prove against us as if any amount standing to the credit of such
account had not been received. We hereby irrevocably waive any right of
appropriation in respect of any sums paid by us.
11. Until all the Liabilities have been fully paid and discharged (and
notwithstanding that we may have discharged the amount of this Guarantee), we
shall not take any step to enforce any right against the Customer or his/their
representatives in respect of this Guarantee or of any moneys paid hereunder or
prove in any bankruptcy, liquidation, administration, winding up or other
proceeding having an effect equivalent thereto of the Customer (each of which
proceedings are hereinafter called a "Liquidation") in respect thereof in
competition with the Bank or claim the benefit of any securities held by the
Bank.
12. We have not taken and, until the Liabilities and Guaranteed Sums have been
discharged and satisfied in full, will not take without the Bank's prior written
consent any security (which for the purposes of this Clause shall include any
promissory note, cheque or bill of exchange) from the Customer in connection
with this Guarantee; and in the event of our having taken or taking any security
in contravention of this provision we will hold the same on trust for the Bank
as further security for the Bank and will forthwith deposit the same and all
documents relating thereto with the Bank and we will account to the Bank for all
moneys at any time received by us in respect thereof and in default of our so
doing the maximum amount for which we are to be liable under this Guarantee (as
set out in Clause 1(a) above) shall be increased by the amount by which any
dividend in the bankruptcy or in the Liquidation of the Customer or otherwise
payable by the Customer to the Bank is thereby diminished.
13. Any settlement or discharge between us and the Bank shall be conditional
upon no security (including without limitation, any guarantee) furnished or
payment made to the Bank by the Customer or any other person being avoided or
reduced by virtue of any relevant statutory provisions or enactments relating to
bankruptcy, winding up or liquidation or other proceeding having an equivalent
effect to any of the foregoing for the time being in force in any jurisdiction
and the Bank shall be entitled to retain any security held in respect of our
liability hereunder (hereinafter called the "Guarantee Security") until the
expiration of the period or periods under such provisions or enactments within
which such payment or security could be avoided or reduced and if within any
such period the payment or security is so avoided or reduced the Bank shall be
entitled to retain the Guarantee Security or any part thereof for and during
such further period as the Bank in its entire discretion shall determine.
14. In any proceedings under or for any other purpose of this Guarantee a
certificate signed by any officer or representative of the Bank certifying the
amount of the Liabilities shall be accepted by us as conclusive evidence
thereof.
(a) We will pay and discharge the Liabilities and any interest payable by
us pursuant to Clause 1(b) hereof, in whatever currency or currencies the
Liabilities are entered in the books of the Bank and if any part of the
Liabilities is entered in a different currency from any other part or parts of
the Liabilities we shall pay and discharge each part of the Liabilities and any
interest payable by us pursuant to Clause 1(b) hereof, in the currency in which
such part or as the case may be such interest is entered in the books of the
Bank and if any such payment or discharge is subject to any withholding or other
tax, duty, levy, impost or charge imposed or levied by or on behalf of any
government or any political subdivision or taxing authority thereof we shall pay
to the Bank such additional amounts as may be necessary to ensure the receipt by
the Bank of the full amount of the Liabilities and any such interest.
(b) For the purposes of ascertaining at any time and in particular on the
date of any demand hereunder the maximum amount (if any) for which we are to be
liable in accordance with Clause 1(a) hereof if some or all of the Liabilities
are entered in the books of the Bank in a currency or currencies other than the
currency in which such maximum amount is denominated (the "Limit Currency")
those parts of the Liabilities denominated in currencies other than the Limit
Currency will be converted, notionally, into the Limit Currency at the rate at
which the Bank would sell to us, in accordance with its usual practices, the
currency in which such other parts of the Liabilities are denominated provided
always and we agree that if some or all of the Liabilities are entered in the
books of the Bank in a currency other than the Limit Currency, and the amount of
the Liabilities exceeds the maximum amount stipulated in Clause 1(a). the Bank
shall be at liberty to elect which parts of the Liabilities shall be and form
part of the Guaranteed Sums.
16. We agree that in addition to any general lien, right to combine or
consolidate accounts, right of set-off or other similar right to which the Bank
may be entitled by law or pursuant to any other agreement, the Bank shall be
entitled at any time and from time to time without notice to us to set-off,
transfer or apply all or any of the moneys from time to time standing to the
credit of any account in our name(s) or of which we are the beneficial owner
with the Bank (regardless of (i) the branch of the Bank at which, or the
currency in which, such account is maintained or (ii) whether such account has
matured or not or is subject to notice or not) in or towards the discharge of
the Liabilities or any other of our obligations under this guarantee and to
purchase therewith for our account any other currency required for such purpose.
17. Any notice or demand hereunder shall be in writing and shall be deemed to
have been sufficiently given if sent by prepaid (and, if posted to a place
outside Hong Kong, air mail) post to the address of the person to whom such
notice or demand is to be given as appearing herein or to such other address as
such person may from time to time have notified to the Bank and any notice or
demand so sent shall be deemed to have been served on the day following the date
of posting if posted in Hong Kong to an address in Hong Kong and on the eighth
day following posting if posted to or from a place outside Hong Kong and in
proving such service it shall be sufficient to prove that the envelope
containing the notice was property addressed, stamped and posted.
18. If any one or more of the provisions of this Guarantee or any part or parts
thereof shall be declared or adjudged to be illegal, invalid or unenforceable
under any applicable law, such illegality, invalidity or unenforceability shall
not vitiate any other provisions of this Guarantee and this Guarantee shall be
construed as if such illegal, invalid or unenforceable provisions were not
contained herein.
19. In this Guarantee wherever the context so requires or admits (i) where the
Customer comprises two or more persons all references to the Customer shall be
construed as references to all or any of such persons, (ii) the singular shall
include me plural and vice versa, (iii) the expression "person" shall mean and
include a company, society, corporation, firm or an individual and in the case
of an individual his or her executors, administrators, committee, receiver or
other person lawfully acting on behalf of every such person, (iv) the expression
this Guarantee shall be construed as including and extending [ILLEGIBLE] any
separate or independent stipulation or agreement herein contained, and (iv) any
reference to any statutory provision or enactment shall be deemed [ILLEGIBLE]
include a reference to any modification or re-enactment thereof for the time
being in force.
20. Where this Guarantee is signed by more than one party our liability
hereunder shall be joint and several and every agreement and undertaking on our
part shall be construed accordingly and all references to us in this Guarantee
shall, where the context requires or admits, be construed as references to all
or any of us and the Bank shall be at liberty to release or discharge any of us
from the liabilities of this Guarantee or to accept any composition from or make
any other arrangements with any of us without releasing or discharging the other
or others of us or otherwise prejudicing or affecting the rights and remedies of
the Bank against the other or others of us and no one of us shall be nor shall
this Guarantee be released or discharged by any take-over reconstruction,
amalgamation, merger, liquidation or change in the constitution of any of us.
[ILLEGIBLE] This Guarantee shall remain valid and binding for all purposes
notwithstanding any change by amalgamation, consolidation or otherwise which
[ILLEGIBLE] and shall be available
<PAGE>
23. This Guarantee shall be governed by and construed in accordance with the
laws of Hong Kong and we hereby submit to the non-exclusive jurisdiction of the
Hong Kong courts.
24. We hereby appoint the person named below (if any) as our agent to accept
service of any legal process in Hong Kong in connection with this Guarantee. We
agree that any writ, summons, order, judgment or other document shall be deemed
duly and sufficiently served on us if addressed to us or to the said agent and
left at, or sent by post to the respective address of us or the said agent last
known to the Bank. The foregoing shall not limit the rights of the Bank to serve
process on us in any manner permitted by law in any jurisdiction.
25. We agree that the Chinese translation shall not apply in construing this
security and that the English version shall govern for all purposes.
Dated 2nd day of September 1999.
Name of Process Agent (if any): Tarrant Company Limited
----------------------------------------
Address of Process Agent: 13/F, Lladro Centre
----------------------------------------
72-80 Hoi Yuen Road, Kwun Tong
----------------------------------------
Kowloon, Hong Kong
----------------------------------------
Corporate Signatory
Signed by:
Gerard Guez, Chairman Gerard Guez
- ----------------------------------- --------------------------------------
a Director for and on behalf of (Signature of Director)
Tarrant Apparel Group
- ----------------------------------
(Name of Company)
in the presence of:
Name of Witness Patrick Chow
----------------------------
I/D Card No
(or equivalent) HKIDO34629(3)
of Witness: ----------------------------
Address of Witness 3151 E. Washington Blvd.
----------------------------
Los Angeles, CA 90023
----------------------------
----------------------------
Occupation of Witness Treasurer /s/ [ILLEGIBLE]
---------------------------- --------------------
Signature of Witness
<PAGE>
================================================================================
UNLIMITED CONTINUING GUARANTY
(CORPORATION, INDIVIDUAL, PROPRIETORSHIP, PARTNERSHIP)
================================================================================
Date _______, 19__
- --------------------------------------------------------------------------------
NAME NO. AND STREET
Tarrant Apparel Group 3151 East Washington Boulevard
- --------------------------------------------------------------------------------
CITY, VILLAGE OR TOWN COUNTY STATE
Los Angeles California 90023
(Guarantor) and
- --------------------------------------------------------------------------------
LENDING OFFICE, DEPARTMENT OR DIVISION
THE HONG KONG AND SHANGHAI
BANKING CORPORATION LIMITED Hong Kong Main Office
- --------------------------------------------------------------------------------
NO. AND STREET CITY STATE
1 Queen's Road Central (Bank)
- --------------------------------------------------------------------------------
agree as follows:
1. Guaranty of Payment.
(a) Guarantor hereby unconditionally guarantees the full and prompt
payment to Bank when due, whether by acceleration or otherwise, of any and all
indebtedness (as hereinafter defined) of Tarrant Company Limited (Debtor) to
Bank.
(b) As used in this Guaranty, "Indebtedness" shall mean any and all
indebtedness and other liabilities of Debtor to Bank of every kind and character
and all extensions, renewals and replacements thereof, including, without
limitation, all unpaid accrued interest thereon and all costs and expenses
payable as hereinafter provided: (i) whether now existing or hereafter incurred;
(ii) whether direct, indirect, primary, absolute, joint, several or joint and
several, secondary, contingent, secured, unsecured, matured or unmatured, by
guarantee or otherwise; (iii) whether such indebtedness is from time to time
reduced and thereafter increased, or entirely extinguished and thereafter
reincurred; (iv) whether such indebtedness was originally contracted with Bank
or with another or others; (v) whether or not such indebtedness is evidenced by
a negotiable or non-negotiable instrument or any other writing; and (vi) whether
such indebtedness is contracted by Debtor alone, jointly, severally or jointly
and severally with another or others.
(c) Guarantor acknowledges that valuable consideration supports this
Guaranty, including, without limitation, any commitment to lend, extension of
credit or other financial accommodation, whether heretofore or hereafter made by
Bank to Debtor; any extension, renewal or replacement of any indebtedness, any
forbearance with respect to any Indebtedness or otherwise, any cancellation, of
an existing guaranty; any purchase of any of Debtor's assets by Bank; or any
other valuable consideration
2. Bank's Costs and Expenses. Guarantor agrees to pay on demand all costs
and expenses of every kind incurred by Bank: (a) in enforcing this Guaranty; (b)
in collecting any Indebtedness from Debtor or Guarantor; (c) in realizing upon
or protecting any collateral for this Guaranty or for payment of any
indebtedness; and (d) for any other purpose related to the Indebtedness or this
Guaranty "Costs and expenses" as used in the preceding sentence shall include,
without limitation, the actual attorneys' fees incurred by Bank in retaining
counsel for advice, suit, appeal, any insolvency or other proceedings under the
Federal Bankruptcy Code or otherwise, or for any purpose specified in the
preceding sentence.
<PAGE>
3. Nature of Guaranty: Continuing, Absolute and Unconditional.
(a) This Guaranty is and is intended to be a continuing guaranty of
payment of the Indebtedness and not of collection of the Indebtedness
(irrespective of the aggregate amount thereof and whether or not the
Indebtedness from time to time exceeds the amount of this Guaranty, if limited),
independent of, in addition and without modification to, and does not impair or
in any way affect, any other guaranty, indorsement, or other agreement in
connection with the indebtedness, or in connection with any other indebtedness
or liability to Bank, or collateral held by Bank therefor or with respect
thereto, whether or not furnished by Guarantor. This Guaranty and Guarantor's
obligations hereunder shall not be modified, terminated, impaired or in any way
affected by the execution, delivery or performance by Guarantor, Debtor or any
other person of any other guaranty, indorsement or other agreement or the
delivery of collateral therefor. Guarantor waives any claim, remedy or other
right which Guarantor might now have or hereafter acquire against Debtor or any
other person that is primarily or contingently liable for the Indebtedness
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, indemnification, or any right to participate in any
claim or remedy of Bank against Debtor or any collateral therefor which Bank now
has or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute, or common law.
(b) This Guaranty is absolute and unconditional and shall not be
changed or affected by any representation, oral agreement, act or thing
whatsoever, except as herein provided. This Guaranty is intended by Guarantor to
be the final, complete and exclusive expression of the agreement between
Guarantor and Bank. Guarantor expressly disclaims any reliance on any course of
dealing or usage of trade or oral representation of Bank including, without
limitation, representations to make loans to Debtor or enter into any other
agreement with Debtor or Guarantor. No modification or amendment of any
provision of this Guaranty and no waiver of any right by Bank shall be effective
unless in writing and signed by a duly authorized officer of Bank.
4. Certain Rights and Obligations.
(a) Guarantor authorizes Bank, without notice, demand or additional
reservation of rights against Guarantor and without affecting Guarantor's
obligations hereunder, from time to time: (i) to renew, refinance, modify,
subordinate, extend, increase, accelerate, or otherwise change the time for
payment of, the terms of or the interest on the Indebtedness or any part
thereof; (ii) to accept from any person or entity and hold collateral for the
payment of the Indebtedness or any part thereof, and to exchange, enforce or
refrain from enforcing, or release such collateral or any part thereof; (iii) to
accept and hold any indorsement or guaranty of payment of the Indebtedness or
any part thereof or any negotiable instrument or other writing intended by any
party to create an accord and satisfaction with respect to the Indebtedness or
any part thereof, and to discharge, terminate, release, substitute, replace or
modify any such obligation of any such indorser or guarantor, or any person or
entity who has given any security interest in any collateral as security for the
payment of the Indebtedness or any part thereof, or any other person or entity
in any way obligated to pay the Indebtedness or any part thereof, and to enforce
or refrain from enforcing, or compromise or modify, the terms of any obligation
of any such indorser, guarantor, person or entity; (iv) to dispose of or
substitute any and all collateral securing the Indebtedness in any manner as
Bank, in its sole discretion, may deem appropriate, and to direct the order or
manner of such disposition or substitution and the enforcement of any and all
indorsements and guaranties relating to the Indebtedness or any part thereof as
Bank, in its sole discretion, may determine; and (v) to determine the manner,
amount and time of application of payments and credits, if any, to be made on
all or any part of any component or components of the Indebtedness (whether
principal, interest, costs and expenses, or otherwise), including, without
limitation, if this Guaranty is limited in amount, to make any such application
to Indebtedness, if any, in excess of the amount of this Guaranty.
(b) If any default shall be made in the payment of any Indebtedness,
Guarantor hereby unconditionally agrees to pay the same in full: (i) without
deduction by reason of any setoff, defense or counterclaim of Debtor; (ii)
without requiring protest, presentment or notice of non-payment or notice of
default to Guarantor, to Debtor or to any other person; (iii) without demand for
payment or proof of such demand; (iv) without requiring Bank to resort first to
Debtor (this being a guaranty of payment and not of collection) or to any other
guaranty or any collateral which the Bank may hold; (v) without requiring notice
of acceptance hereof (or of any liability to which this Guaranty applies or may
apply) or assent hereto by Bank; (vi) without requiring notice that any
indebtedness has been incurred or of the reliance by the Bank upon this
Guaranty; and (vii) without notice of dishonor, notices of acceleration, notice
of intent to accelerate, and all other notices and demands, collection suit and
the taking of any other action by Bank; all of which Guarantor hereby waives.
(c) Guarantor's obligation hereunder shall not be affected by any of
the following, all of which Guarantor hereby waives: (i) any failure to perfect
or continue the perfection of any security interest in or other lien on any
collateral securing payment of any Indebtedness or Guarantor's obligations
hereunder; (ii) the invalidity, unenforceability, propriety of manner of
enforcement of, or loss or change in priority of any such security interest or
other lien; (iii) any taking, holding, continuation, collection, modification,
leasing,
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<PAGE>
impairment, surrender or abandonment of, or any delay or failure to protect,
preserve or insure, any such collateral; (iv) any delay in the exercise or
waiver of, any failure to exercise, or any forbearance in the exercise of, any
right, power or remedy of Bank or any person (including, without limitation,
those remedies described in Section 4(c)(iii) of this Guaranty) against
Guarantor, Debtor, any person or entity or relating to the Indebtedness or any
part thereof or the collateral therefor; (v) failure of Guarantor to receive
notice of any intended disposition of such collateral; (vi) any defense arising
by reason of the cessation from any cause whatsoever of liability of the Debtor
including, without limitation, any failure, delay, waiver, forbearance,
negligence or omission by Bank in enforcing its claims against the Debtor or any
collateral therefor including, without limitation, any failure to make, prove,
or vote any claim relating to the Indebtedness or any collateral therefor in any
case or proceeding pursuant to the Federal Bankruptcy Code or any similar
law, or any satisfaction of the Indebtedness or any part thereof by reason of
the failure of Bank to recover against any collateral therefor or the failure of
Bank to obtain a judgment for any deficiency; (vii) any release, settlement,
composition, adjustment, renewal, extension, modification, increase,
rearrangement, compromise, replacement, cancellation, discharge, assignment,
sale, exchange, conversion, participation or other transfer or disposition of
any obligation of Debtor or of any collateral therefor; (viii) the invalidity or
unenforceability of any of the Indebtedness; (ix) the creation of any security
interest, lien or other encumbrance in favor of any person other than Bank; (x)
any refusal or failure of Bank or any other person prior to the date hereof or
hereafter to grant any additional loan or other credit accommodation to Debtor
or Bank's or any other party's receipt of notice of such refusal or failure;
(xi) any refusal or failure of Bank or any other person to provide to Guarantor
any information relating to Debtor, any other guarantor, indorser, or any person
or entity who has given any collateral as security for the payment of the
Indebtedness or any information relating to Debtor's or such guarantor's,
indorser's, person's, or entity's financial condition, business or assets, or if
such information is provided, to provide such information completely and
accurately; (xii) any change in the ownership or membership of Guarantor or
Debtor; (xiii) the expiration of the period of any statute of limitations with
respect to any lawsuit or other legal proceeding against Debtor or any person in
any way related to the Indebtedness or a part thereof or any collateral
therefor; or (xiv) any other thing or circumstance which might otherwise
constitute a defense to Guarantor's obligations hereunder.
5. Collateral
(a) As further security for payment of the Indebtedness and of any
other indebtedness, now existing or hereafter incurred, of Guarantor to Bank,
Guarantor hereby grants to Bank a security interest in and lien on any and all
money, securities and other property of whatever nature, of Guarantor, and all
proceeds, replacements, increases, renewals, accessions, products, additions,
apportenances and substitutions thereof, which is or hereafter may be in the
actual or constructive possession or control of Bank in any capacity or of any
third party acting on Bank's behalf, including, without limitation, all deposit
and other accounts and all moneys owed or to be owed by Bank to Guarantor, and
with respect to all such money, securities and other property, Bank shall have
all the rights and remedies of a secured party under the Uniform Commercial Code
and under any other applicable law, as the same may from time to time be in
effect in the State of California, in addition to those rights granted herein or
in any other agreement now or hereafter in effect between Guarantor and Bank.
(b) Guarantor agrees to furnish on Bank's demand, collateral
satisfactory to Bank, as security for this Guaranty and to execute such security
agreements, financing statements and other documents with respect thereto as
Bank shall reasonably request.
6. Guaranty of Performance. Guarantor also guarantees the full, prompt and
unconditional performance of all covenants, duties, obligations and agreements
of every kind owed or hereafter to be owed by Debtor to Bank. Every provision
for the benefit of the Bank contained in this Guaranty shall apply to the
guaranty of performance given in this paragraph.
7. Termination. This Guaranty shall remain in full force and effect as to
each Guarantor until the officer in charge of the Lending Office, Department or
Division of Bank indicted above shall actually receive from such Guarantor
written notice of its discontinuance, or notice of the death or judicial
declaration of incompetency of such Guarantor, provided, however, that this
Guaranty shall remain in full force and effect thereafter until: (i) all
Indebtedness outstanding, or contracted or committed for (whether or not
outstanding), before the receipt of such notice by Bank, and any modifications,
extensions, renewals or replacements thereof (whether made before or after
receipt of such notice), together with interest accruing thereon after such
notice, shall be finally and irrevocably paid in full, and (ii) all of Debtor's
covenants and obligations under any document, instrument or writing at any time
evidencing, securing or in any way relating to the Indebtedness are performed
and satisfied in full, as determined in Bank's sole and absolute discretion.
Discontinuance of this Guaranty as to one Guarantor shall not operate as a
discontinuance hereof as to any other Guarantor. Payment of all of the
Indebtedness from time to time shall not operate as a discontinuance of this
Guaranty, unless notice of discontinuance as above provided has theretofore
actually been received by Bank. Guarantor agrees that, to the intent that Debtor
makes a payment or payments to Bank on the Indebtedness, or Bank receives any
proceeds of collateral to be applied to the Indebtedness, which payment or
payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or otherwise are required to be repaid to
Debtor its estate, trustee, receiver or any other party, including, without
limitation, under any bankruptcy law, state or federal law, common law or
equitable cause, then to the intent of such repayment, the obligation or part
thereof which has been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred
-3-
<PAGE>
notwithstanding any contrary action which may have been taken by Bank in
reliance upon such payment or payments. As of the date any payment or proceeds
of collateral are returned, the statute of limitations shall start anew with
respect to any action or proceeding by Bank against Guarantor under this
Guaranty. Guarantor shall defend and indemnify Bank of and from any claim or
loss under this paragraph including actual attorneys' and paralegals' fees and
expenses in the defense of any such action or suit.
8. Other Parties; Joint and Several Liability; Subordination.
(a) Bank shall have the right to discharge or release one or more of
the undersigned from any obligation hereunder, in whole or in part, or any other
guarantor, without in any way releasing, impairing or affecting its right
against the other or others of the undersigned or guarantor. The failure of any
other person to sign this Guaranty shall not release or affect the obligations
or liability of the undersigned.
(b) If more than one party executes this Guaranty, the obligations
of the undersigned hereunder shall be joint and several and the term "Guarantor"
shall include each as well as all of them.
(c) So long as any of the Indebtedness is outstanding, Guarantor
hereby subordinates all indebtedness of Debtor to Guarantor to such
Indebtedness. Guarantor agrees that any payment with respect to such
subordinated indebtedness received by Guarantor shall be received by Guarantor
as trustee for, and shall be promptly remitted to, Bank.
9. Hazardous Substances. Debtor hereby agrees to indemnify, pay and hold
Secured Party, and the officers, directors, employees, attorneys, agents and
affiliates of Secured Party (Indemnitees) harmless from and against any and all
liabilities, claims, damages, fines, penalties, liens, expenditures, costs, fees
(including attorneys' fees), losses and charges including, without limitation,
all costs of investigation, monitoring, legal representation, remedial response,
removal, restoration or permit acquisition, which may now or in the future be
undertaken, suffered, paid, awarded, assessed or otherwise incurred by or
asserted against any of the Indemnitees as a result of or related to, either
directly or indirectly, the improper use of wetlands; noise; solid, liquid or
gaseous waste generation, release, or other management activities; the presence
or suspected presence of, Release (as defined below) of or threatened Release of
any Hazardous Substances (as defined below) on, in, under or near any property
or improvements thereon, owned, leased or operated by Debtor, regardless of
whether or not caused by, or within the control of Debtor and regardless of
whether caused in whole or in part by any Indemnitees' negligence. The
obligations of Debtor under this paragraph 9 shall survive foreclosure (or its
equivalents), repayment of the Indebtedness and termination of this Agreement
and shall not be reduced or impaired by any investigation made by or on behalf
of any of the Indemnitees. For the purposes of this Paragraph 9, (i) "Hazardous
Substances" means, without limitation, any explosives, radon, radioactive
materials, asbestos, urea formaldehyde, foam insulation, polychlorinated
biphenyls, petroleum oil, or fractions thereof, methane, "hazardous materials"
as defined by or listed pursuant to the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq., hazardous wastes, hazardous or toxic substances
or any other material defined as a hazardous substance in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Sections 9601 et seq., or as a hazardous or toxic substance or other
contaminant under applicable state or local law, regulation or ordinance; and
(ii) "Release" has the same meaning as given to that term in Section 10l(22) of
such Act and the regulations promulgated thereunder. Debtor shall bear the
burden of proof by preponderance of the evidence that the indemnification
contained in this Guaranty is inapplicable to any claim or assertion made
hereunder.
10. Miscellaneous.
(a) "Debtor" and "Guarantor" as used in this Guaranty shall include:
(i) any successor individual or individuals, association, partnership or
corporation to which all or a substantial part of the business or assets of
Debtor or Guarantor shall have been transferred including, without limitation, a
debtor in possession under the Federal Bankruptcy Code; (ii) in the case of a
partnership Debtor or Guarantor, any new partnership which shall have been
created by reason of the admission of any new partner or partners therein or by
reason of the dissolution of the existing partnership by voluntary agreement or
the death, resignation or other withdrawal of any partner; and (iii) in the case
of a corporate Debtor or Guarantor, any other corporation into or with which
Guarantor or Debtor (if Debtor is a corporation) shall have been merged,
consolidated, reorganized, or absorbed.
(b) Without limiting any other right of Bank, whenever Bank has the
right to declare any Indebtedness to be immediately due and payable (whether or
not it has so declared), Bank at its sole election may set off against the
Indebtedness any and all moneys then owed to Guarantor by Bank in any capacity,
whether or not the Indebtedness or the obligation to pay such moneys owed by
Bank is then due, and Bank shall be deemed to have exercised such right of
setoff immediately at the time of such election even though any charge therefor
is made or entered on Bank's records subsequent thereto.
-4-
<PAGE>
(c) Guarantor's obligation hereunder is to pay the indebtedness in
full when due according to its terms, and shall not be affected by any extension
of time for payment by Debtor, any bar to the enforceability of the
Indebtedness, or any limitation on the right to attorneys' fees, resulting from
any proceeding under the Federal Bankruptcy code or any similar law. Guarantor's
obligation under this Guaranty shall also include payment of interest accrued on
the Indebtedness before or after a filing of a petition under the bankruptcy
laws and interest on, and principal of, loans made to the debtor in possession
after the filing of such a petition by or against Debtor.
(d) No course of dealing or usage of trade, and no oral or written
representations or agreement, between Debtor or Guarantor and Bank, whether or
not relied on or acted upon, and no act, delay or omission by Bank in exercising
any right or remedy hereunder or with respect to any Indebtedness shall operate
as a waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. The giving of notice or a demand by Bank
at any Bank at any time shall not operate as a waiver in the future of the
Bank's right to exercise any right or remedy without notice or demand. Bank may
remedy any default by Debtor under any agreement with Debtor or with respect to
any Indebtedness in any reasonable manner without waiving the default remedied
and without waiving any other prior or subsequent default by Debtor. After
Debtor's failure to pay the Indebtedness in full, or any part thereof, Bank may
exercise against Guarantor each right and remedy of a creditor against a
principal debtor upon a past due liquidated obligation. All rights and remedies
of Bank hereunder, at law and in equity, are cumulative.
(e) Bank and Guarantor as used herein shall include the respective
heirs, legal representatives, beneficiaries, trustees, executors or
administrators, or successors or assigns, of those parties. The rights and
benefits of Bank hereunder shall, if Bank so directs, inure to any party
acquiring any interest in the Indebtedness or any part thereof. If any right of
Bank hereunder is construed to be a power of attorney, such power of attorney
shall not be affected by the subsequent disability or incompetence of Debtor or
Guarantor.
(f) Bank's rights and remedies under this Guaranty are assignable
and any participation may be panted by Bank herein in connection with the
assignment or granting of a participation by Bank in the Indebtedness or any
part thereof.
(g) Captions of the sections of this Guaranty are solely for the
convenience of Bank and Guarantor, and are not an aid in the interpretation of
this Guaranty.
(h) GUARANTOR IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS GUARANTY OR THE TRANSACTIONS RELATED HERETO SHALL BE LITIGATED
IN COURTS HAVING SUITS WITHIN THE CITY AND STATE IN WHICH SECURED PARTY'S AS
SPECIFIED ABOVE IS LOCATED. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SUCH CITY AND
STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON GUARANTOR AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED
TO GUARANTOR AT THE ADDRESS SPECIFIED ABOVE OR IN ANY OTHER MANNER PERMITTED BY
LAW. GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST GUARANTOR BY BANK IN ACCORDANCE WITH
THIS PARAGRAPH.
(i) If any provision of this Guaranty is unenforceable in whole or
in part for any reason, it shall be deemed modified to the intent necessary to
make it or the applicable provison enforceable, or if for any reason such
provision is not deemed modified, the remaining provisions shall continue to be
effective.
(j) Any payment or other act which results in the extension or
renewal of the statute of limitations in connection with any action or
proceeding against the Debtor relating to the Indebtedness, shall extend or
renew the statute of limitations in connection with any action or other
proceeding against the Guarantor in connection with this Guaranty whether or not
Guarantor had notice of, or consented to, such payment or act.
(k) Any demand for payment against Guarantor made by Bank under this
Guaranty shall be in writing and delivered in person or by first class mail
postage prepaid at the Guarantor's address first written above, and shall be
deemed received: (i) upon delivery, if delivered in person, and (ii) two days
after deposited in the mail or delivered to the post office, if mailed.
(l) This Guaranty and the transactions evidenced hereby shall be
governed by, and construed and enforced accordance with, the laws of the State
of California without regard to principles of conflicts of law.
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<PAGE>
(m) GUARANTOR AND BANK HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY GUARANTOR AND BANK MAY HAVE IN
ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS GUARANTY
OR THE TRANSACTIONS RELATED HERETO. GUARANTOR REPRESENTS AND WARRANTS THAT NO
REPRESENTATIVE OR AGENT OF BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL
WAIVER. GUARANTOR ACKNOWLEDGES THAT BANK HAS BEEN INDUCED TO ENTER INTO THIS
GUARANTY BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.
(n) If this Guaranty or the Indebtedness is secured in whole or in
part by real property, Guarantor hereby waives, to the fullest extent permitted
by law, the benefit of any applicable anti-deficiency law and one form of action
rule.
This Guaranty is unlimited in amount, unless an amount is inserted
in the space at the end of this paragraph. Only if an amount is so inserted,
this Guaranty is limited to that amount (hereinafter referred to as the "Maximum
Amount"), plus the sum of: (a) all unpaid interest which accrues on the Maximum
Amount until payment of the Maximum Amount in full, calculated at the rate
provided for in any instrument, document or agreement evidencing or pertaining
to the Indebtedness; (b) all costs and expenses payable pursuant to Section 2(a)
of this Guaranty; and (c) an amount equal to a fraction of all costs and
expenses payable pursuant to Sections 2(b), 2(c) and 2(d) of this Guaranty, the
numerator of which fraction is the Maximum Amount and the denominator of which
fraction is the sum of all outstanding Indebtedness (less any unpaid accrued
interest thereon), if such Indebtedness is either (i) payable on demand by its
terms and for which the Bank has made demand for payment, or (ii) payable other
than on demand by its terms and is presently due and owing, whether by maturity,
acceleration or otherwise. Minimum Amount Unlimited.
(SEAL) Guarantor(s) Name Tarrant Apparel Group
By: /s/ Gerard Guez
---------------------------------
Print Name: Gerard Guez
Title: Chairman & CEO
<PAGE>
INDIVIDUAL OR PROPRIETORSHIP
STATE OF _______________)
) SS:
COUNTY OF ______________)
On __________, 19__, before me personally came _________________ to me
known to be the person(s) described in and who executed the foregoing Guaranty,
and (severally) acknowledged to me that (s)he executed the same
_________________________
Notary Public
PARTNERSHIP
STATE OF _______________)
) SS:
COUNTY OF ______________)
On ____________, 19__, before me personally came _____________________ to
me known to be the person who executed the foregoing Guaranty, and who, being
duly sworn by me, did depose and say that (s)he is a general partner in the
partnership described in the foregoing Guaranty, that (s)he executed the
foregoing Guaranty in the name of such partnership and that (s)he had authority
to sign the same; and (s)he acknowledged to me that (s)he executed the same as
the act and deed of such partnership.
_________________________
Notary Public
CORPORATION
STATE OF CALIFORNIA )
) SS:
COUNTY OF LOS ANGELES )
On 0[ILLEGIBLE]-04-96, 1996, before me came Gerald Guez to me known, who,
being by me duly sworn, did depose and say that (s)he resides at Los Angeles,
that (s)he is ________________ of __________________, the corporation described
in and which executed the foregoing instrument, and that (s)he signed his (her)
name thereto by order of the Board of Directors of said corporation.
/s/ Fatima S. Palacios
-------------------------
Notary Public
=================================
FATIMA S. PALACIOS
COMM. #987006
[SEAL] Notary Public - California
LOS ANGELES COUNTY
My Comm. Expires MAR 7, 1997
=================================
<PAGE>
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FINOVA [LOGO]
Continuing Guaranty
Borrower: Tag Mex, Inc.
Guarantor(s): Tarrant Apparel Group
Date: April 28, 1999
This Continuing Guaranty is executed by the above-named guarantor(s)
(jointly and severally, the "Guarantor"), as of the above date, in favor of
FINOVA CAPITAL CORPORATION ("FINOVA"), with an address at 355 S. Grand Avenue,
Suite 2310, Los Angeles, California 90071, with respect to the Indebtedness of
the above-named borrower ("Borrower").
1. In consideration of and in order to induce FINOVA, its successors,
endorsees or assigns to grant and continue to grant such advances, loans or
extensions of credit directly or indirectly to the Borrower and to grant to
Borrower such renewals, extensions, forbearances, releases of collateral or
other relinquishment of legal rights as FINOVA may deem advisable, and for other
good and valuable consideration, receipt of which is hereby duly acknowledged,
the Guarantor, for the Guarantor and for their heirs and personal
representatives, or successors, and assigns of the Guarantor, hereby absolutely
and unconditionally guarantees to FINOVA, its successors, endorsees and assigns,
the prompt and unconditional payment when due (whether at maturity, by
acceleration or otherwise and at all times thereafter of the following (the
"Indebtedness"): any and all obligations or liabilities of every kind, nature
and character (including all renewals, extensions and modifications thereof) of
Borrower to FINOVA, its successors, endorsees or assigns howsoever created or
arising, whether or not represented by negotiable instruments or other writings,
whether now existing or hereafter incurred, whether originally contracted with
FINOVA or with another and assigned or transferred to FINOVA or otherwise
acquired by FINOVA, whether contracted by Borrower alone or jointly with others,
and whether absolute or contingent, secured or unsecured, matured or unmatured,
including but not limited to any and all sums, late charges, disbursements,
expenses, legal fees and any deficiency upon enforcement of collateral,
agreements and contracts in connection with all of such obligations.
2. Guarantor consents that without notice to or further assent by
Guarantor, the obligation of Borrower or of any other party for the liability
hereby guaranteed may be renewed, extended, modified, prematured or released by
FINOVA as it may deem advisable in its sole and absolute discretion, and that
any security or securities which FINOVA holds may be exchanged, sold, released,
or surrendered by it, as it may deem advisable in its sole and absolute
discretion, without impairing or affecting the obligation of Guarantor
hereunder.
3. Guarantor waives any and all notice of the acceptance of this guaranty,
or of the creation, renewal or accrual of any obligations or liability of
Borrower to FINOVA, present or future, or of the reliance of FINOVA upon this
guaranty. Any and every obligation or liability of Borrower to FINOVA herein
described shall conclusively be presumed to have been created, contracted or
incurred in reliance upon this guaranty, and all dealings between Borrower and
FINOVA shall likewise be presumed to be in reliance upon this guaranty.
Guarantor waives protest, presentment, demand for payment, notice or default or
non-payment and notice of dishonor to or upon Guarantor. Borrower or any other
party liable for any of Borrower's obligations hereby granted.
4. This guaranty shall be construed as an absolute and unconditional
guaranty of payment without regard to the validity, regularity or enforceability
of any obligation or purported obligation of Borrower. FINOVA shall have all of
its remedies under this guaranty without being obliged to resort first to any
security or to any other remedy or remedies to enforce payment or collection of
the obligations hereby guaranteed and may pursue all or any of its remedies at
one or at different times. FINOVA is hereby given a continuing lien for the
purposes and security of this guaranty as well as for any other obligation or
liability (present or future, absolute or contingent, due or not due) of
Guarantor to FINOVA upon all property and securities now or hereafter given unto
or left in the possession or custody of FINOVA for any purpose (including
property left in safekeeping or custody), by or for the account of any
Guarantor, and also upon any deposits with or any credit or claim of any
Guarantor against FINOVA existing from time to time. FINOVA is hereby authorized
and empowered, upon the occurrence of any of the events set forth in the next
succeeding paragraph, to appropriate and apply to the payment and extinguishment
of the liability of Guarantor any and all such monies, property, securities,
deposits or
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<PAGE>
FINOVA Continuing Guaranty
- --------------------------------------------------------------------------------
credit balances without demand, advertisement or notice, all of which are hereby
expressly waived.
5. Upon the default of Borrower or any Guarantor with respect to any
obligations or liabilities of either of them to FINOVA or in the event Borrower
or any Guarantor shall die or become insolvent or make an assignment for the
benefit of creditors, or if a petition in bankruptcy be filed by or against
Borrower or any Guarantor, or in the event of the appointment of a receiver
(either at law or in equity) of Borrower or of any Guarantor, or in the event
that a judgment is obtained or warrant of attachment issued against Borrower or
any Guarantor, or in the event that the financial or business condition of any
of them shall so change as in the opinion of FINOVA will materially impair its
security or increase its risk, all or any part of the obligations and
liabilities of Borrower and/or of Guarantor to FINOVA, whether direct or
contingent, and of every kind and description, shall, without notice or demand,
become immediately due and payable insofar as this guaranty is concerned, and
shall be taken up forthwith by Guarantor, and in any of such events, and whether
or not the said liabilities and obligations are due and payable. FINOVA may (in
addition to, and subject to its rights and remedies under the terms of any
special contract with Borrower), without demand of performance or advertisement
or notice of intention to sell or of time or place of sale, or to redeem, or
other notice whatsoever to Guarantor or to Borrower (all and each of which
demands, advertisements and notices being hereby expressly waived), sell any and
all collateral which it may hold for said obligations, or under this guaranty,
in one or more parcels, at public or private sale, at FINOVA's office or
elsewhere, at such prices as FINOVA may deem best, either for cash or credit,
with the right of FINOVA at any such sale, public or private, to purchase the
whole or any part of said collateral free from any right or equity of
redemption, which right or equity is hereby expressly waived. FINOVA may, in its
uncontrolled discretion, apply the net proceeds of such sale or sales to payment
on account of the obligations or liabilities of Borrower and Guarantor in such
manner and order of priority as FINOVA may, in its absolute and uncontrolled
discretion, elect. If, in the opinion of FINOVA, any collateral deposited
hereunder cannot be freely sold or disposed of at public or private sale
(because of any relationship between the owner and issuer thereof or otherwise),
FINOVA shall have the unqualified right (in addition to all other rights
hereunder) to sell the same, or any part thereof, to a purchaser or purchasers,
under investment letters, for a negotiated price or prices which, under such
circumstances, shall be deemed to be fair and equitable.
6. Any stocks, bonds or other securities held by FINOVA hereunder may,
whether or not Borrower or Guarantor is in default, be registered and held in
the name of FINOVA or its nominee, and FINOVA or said nominee may exercise all
voting and corporate rights relating thereto as if the absolute owner thereof.
7. The term "Borrower" as used herein shall include the individual or
individuals, association, partnership or corporation named herein as Borrower,
and (a) any successor individual or individuals, association, partnership or
corporation to which all or substantially all of the business or assets of said
Borrower shall have been transferred, (b) in the case of a partnership Borrower,
any new partnership which shall have been created by reason of the admission of
any new partner or partners therein and/or the dissolution of the existing
partnership by the death, resignation, or other withdrawal of any partner, and
(c) in the case of a corporate Borrower, any other corporation into or with
which said Borrower shall have been merged, consolidated, reorganized, purchased
or absorbed. The right of FINOVA to hold, deal with and dispose of the property
deposited by Guarantor hereunder, as herein provided, shall continue unimpaired
notwithstanding any invalidity or unenforceability of this guaranty as against
Guarantor personally.
8. FINOVA's books and records showing the account between FINOVA and
Borrower shall be admissible as evidence in any action or proceeding, shall be
binding upon the Guarantor for the purpose of establishing the items therein set
forth and shall constitute prima facie proof hereof, FINOVA's monthly statements
-----------
rendered to Borrower shall, to the extent to which no written objection is made
within sixty (60) days after the date thereof, constitute an account stated
between FINOVA and Borrower and be binding upon the Guarantor.
9. The Guarantor waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution or any other claim which the Guarantor may
now or hereafter have against Borrower, or any person other than a coguarantor
directly or contingently liable for the obligations guaranteed hereunder, or
against or with respect to the Borrower's property (including without
limitation, property collateralizing the Guarantor's obligations to FINOVA)
arising from the existence or performance of this guaranty.
10. The Guarantor represents and warrants that there is no existing
indemnification agreement, whether qualified or unqualified, between the
undersigned and Borrower. The undersigned waives any right he may otherwise have
to seek a stay from any United States Bankruptcy Court, in which Borrower may
become a debtor, of any claim or cause of action hereinafter asserted against
the Guarantor on his guaranty, whether in an action commenced against the
undersigned as a guarantor prior to or instituted following the filing a Chapter
figure 11 petition by or against Borrower. The Guarantor further acknowledges
that this waiver hereinabove, is specifically provided to FINOVA as an
inducement to it to effect the financial accommodations provided by FINOVA to
Borrower.
-2-
<PAGE>
FINOVA Continuing Guaranty
- --------------------------------------------------------------------------------
11. This guaranty shall, without further reference, pass to, and may be
relied upon and enforced by, any successor or assignee of FINOVA and any
transferee or subsequent holder of any of said liabilities or obligations of
Borrower. This guaranty may be terminated (but only insofar as it may relate to
obligations of Borrower arising subsequent to such termination) upon written
notice to that effect delivered by Guarantor to an officer of FINOVA, such
termination to be effective only upon the execution by such officer of a written
receipt therefor, and in the event of such termination, Guarantor and his or
their respective executors, administrators or successors and assigns shall
nevertheless remain liable with respect to obligations incurred or arising
theretofore, and with respect to such obligations and any renewals, extensions
or other liabilities arising out of same, this guaranty shall continue in full
force and effect, and FINOVA shall have all the rights herein provided for as if
no such termination had occurred.
12. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF FINOVA AND OF THE
GUARANTOR SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA FOR A DETERMINATION
OF ANY DISPUTE CONNECTED WITH THIS GUARANTY AND AUTHORIZES THE SERVICE OF
PROCESS ON THE GUARANTOR BY REGISTERED OR CERTIFIED MAIL SENT TO THE GUARANTOR
AT THE ADDRESS OR ADDRESSES OF THE GUARANTOR. AS THE CASE MAY BE AS HEREIN SET
FORTH OR AS SET FORTH ON ANY RECORD MAINTAINED BY FINOVA. GUARANTOR IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT GUARANTOR MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW; GUARANTOR AGREES NOT TO INSTITUTE ANY LEGAL ACTION
OR PROCEEDING AGAINST FINOVA OR ANY OF FINOVA'S DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR PROPERTY CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS
CONTINUING GUARANTY IN ANY COURT OTHER THAN ONE LOCATED IN LOS ANGELES,
CALIFORNIA. Nothing herein shall affect or impair FINOVA's right to serve legal
process in any manner permitted by law or FINOVA's right to bring any action or
proceeding against Guarantor or its property in the courts of any other
jurisdiction. This guaranty cannot be changed or terminated orally, shall be
binding upon the heirs, executors, administrators, successors and assigns of the
Guarantor and shall inure to the benefit of FINOVA's successors and assigns.
13. (a) Without limiting the generality of any other provision of this
guaranty, Guarantor hereby expressly waives: (i) all rights and benefits under
Section 2809 of the California Civil Code purporting to reduce Guarantor's
obligation in proportion to the principal obligation hereby guaranteed, and any
defense based on or arising out of any defense the person or entity primarily
liable may have to payment or to performance of any covenants or obligations;
(ii) all rights and benefits under Section 2845 of the California Civil Code
which, among other things, permits a guarantor or surety to require any creditor
to pursue its debtor, any security which said creditor may hold, or any other
remedy before proceeding against Guarantor' (iii) any defense, right of set-off,
claim or counterclaim whatsoever (other than payment and performance in full of
all of the Liabilities after any termination of the Loan Agreement in
accordance with the terms of the Loan Documents, and any and all other rights,
benefits, protections and other defenses which Guarantor may have, now or at any
time hereafter, to full payment or performance of the Liabilities pursuant to
the terms of this guaranty, including, without limitation, under California
Civil Code Sections 2809, 2810, 2819, 2820, 2821, 2839, 2845, 2847, 2848, 2849,
2850 and 2855, and California Code of Civil Procedure Sections 580a, 580b and
580d, and all successor sections: and (iv) Guarantor hereby specifically waives
the provisions of California Civil Code Section 2815, and any successor section,
with respect to this guaranty and all security for the obligations of Guarantor
hereunder.
(b) Guarantor consents and agrees that, without notice to or by Guarantor
and without affecting or impairing in any way the obligations or liability of
Guarantor hereunder. FINOVA may, from time to time, before or after revocation
of this guaranty, exercise any right or remedy it may have with respect to any
or all of the Indebtedness or any property securing any or all of the
Indebtedness or any guaranty thereof, including without limitation judicial
foreclosure, nonjudicial foreclosure, exercise of a power of sale, and taking a
deed, assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including without limitation, any destruction of Guarantor's right of
subrogation against Borrower and any destruction of Guarantors right of
contribution or other right against any other guarantor of any or all of the
Indebtedness or against any other person, whether by operation of Sections 580a,
580d or 726 of the California Code of Civil Procedure, or any comparable
provisions of the laws of any other jurisdiction, or any other statutes or rules
of law now or hereafter in effect, or otherwise. Without limiting the generality
of the foregoing, (i) Guarantor waives all rights and defenses arising out of an
election of remedies by FINOVA, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for any of the Indebtedness,
has destroyed the guarantors rights of subrogation and reimbursement against the
principal by the operation of Section 580d of the Code of Civil Procedure or
otherwise, (ii) Guarantor further waives all rights and defenses arising out of
an election or remedies by FINOVA, even though that election of
-3-
<PAGE>
FINOVA Continuing Guaranty
- --------------------------------------------------------------------------------
remedies, such as a nonjudicial foreclosure with respect to security for any of
the Indebtedness, has destroyed the guarantor's rights of subrogation,
reimbursement and contribution against any other guarantor of the guaranteed
obligation, by the operation of Section 580d of the Code of Civil Procedure or
otherwise. (iii) Guarantor understands that if FINOVA forecloses any present or
future trust deed, which secures any or all of the Indebtedness or which secures
any other guaranty of any or all of the Indebtedness, by nonjudicial
foreclosure. Guarantor may, as a result, have a complete defense to liability
under this guaranty, based on legal doctrine of estoppel and Sections 580a, 580d
or 726 of the California Code of Civil Procedure, and Guarantor hereby expressly
waives all such defenses. (iv) Guarantor understands and agrees that, in the
event FINOVA in its sole discretion forecloses any trust deed now or hereafter
securing any or all of the Indebtedness, by nonjudicial foreclosure, Guarantor
will remain liable to FINOVA for any deficiency even though Guarantor will lose
his right of subrogation against the Borrower, and even though Guarantor will be
unable to recover from the Borrower the amount of the deficiency for which
Guarantor is liable, and even though Guarantor may have retained his right of
subrogation against Borrower if FINOVA had foreclosed said trust deed by
judicial foreclosure as opposed to nonjudicial foreclosure, and even though
absent the waivers set forth herein Guarantor may have had a complete defense to
any liability for any deficiency hereunder. (v) Guarantor understands and agrees
that, in the event FINOVA in its sole discretion forecloses any trust deed now
or hereafter securing any other guaranty of any or all of the Indebtedness, by
nonjudicial foreclosure. Guarantor will remain liable to FINOVA for any
deficiency, even though Guarantor will lose his right of subrogation or
contribution against the other guarantor, and even though Guarantor will be
unable to recover from the other guarantor any part of the deficiency for which
Guarantor is liable, and even though Guarantor may have retained his right of
subrogation or contribution against the other guarantor if FINOVA had foreclosed
said trust deed by judicial foreclosure as opposed to nonjudicial foreclosure,
and even though absent the waivers set forth herein Guarantor may have had a
complete defense to any liability for any deficiency hereunder.
14. Guarantor agrees that, whenever an attorney is used to obtain payment
under or otherwise enforce this guaranty or to enforce, declare or adjudicate
any rights or obligations under this guaranty or with respect to collateral,
whether by legal proceeding or by any other means whatsoever, FINOVA's
reasonable attorney's fee plus costs and expenses shall be payable by each
Guarantor against whom this guaranty or any obligation or right hereunder is
sought to be enforced, declared or adjudicated. Guarantor, if more than one,
shall be jointly and severally bound and liable hereunder and if any of the
undersigned is a partnership, also the members thereof individually. In
addition, Guarantor waives the performance of each and every condition precedent
to which Guarantor might otherwise be entitled by law. FINOVA shall have the
right to fill in any blank spaces left in this guaranty (including the name of
"Borrower"), to date this guaranty and to correct patent errors therein.
15. Guarantor is fully aware of the financial condition of Borrower and is
executing and delivering this guaranty at Borrowers request and based solely
upon his own independent investigation of all matters pertinent hereto, and
Guarantor is not relying in any manner upon any representation or statement of
FINOVA with respect thereto. Guarantor represents and warrants that he is in a
position to obtain, and Guarantor hereby assumes full responsibility for
obtaining, any additional information concerning Borrower's financial condition
and any other matter pertinent hereto as Guarantor may desire, and Guarantor is
not relying upon or expecting FINOVA to furnish to him any information now or
hereafter in FINOVA's possession concerning the same or any other matter. By
executing this guaranty, Guarantor knowingly accepts the full range of risks
encompassed within a contract of continuing guaranty. which risks Guarantor
acknowledges include without limitation the possibility that Borrower will incur
additional Indebtedness for which Guarantor will be liable hereunder after
Borrower's financial condition or ability to pay such Indebtedness has
deteriorated and/or after bankruptcy or insolvency proceedings have been
commenced by or against Borrower. Guarantor shall have no right to require
FINOVA to obtain or disclose any information with respect to the Indebtedness,
the financial condition or character of Borrower, the existence of any
collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of FINOVA. Borrower, or any other person, or any other
matter, fact, or occurrence.
16. The Guarantor acknowledges that this guaranty and the Guarantor's
obligations under this guaranty are and shall at all times continue to be
absolute and unconditional in all respects and shall at all times be valid and
enforceable irrespective of any other agreements or circumstances of any kind or
nature whatsoever which might otherwise constitute a defense to this guaranty
and the obligations of the Guarantor under this guaranty or the obligations of
any other person or party (including, without limitation, the Borrower) relating
to this guaranty or the obligations of the Guarantor hereunder or otherwise with
respect to any transactions involving the Borrower and FINOVA. This Guaranty
sets forth the entire agreement and understanding of FINOVA and Guarantor and
Guarantor absolutely. unconditionally and irrevocably waives any and all right
to assert any defense, set-off, counterclaim or cross-claim of any nature
whatsoever (including, but not limited to, fraud in the inducement and
commercial disposition of collateral of the Guarantor or Borrower) with respect
to this guaranty or the obligations of the Guarantor under this guaranty or the
obligations of any other person or party (including without limitation,
Borrower) relating to this guaranty or the obligations of the Guarantor under
this guaranty or otherwise with respect to any transactions involving the
Borrower and FINOVA in any action or proceeding brought by its successors and
assigns, to collect the Debt or any portion thereof, or to enforce, the
obligations of the Guarantor under this guaranty. The Guarantor acknowledges
that no oral or other agreements,
-4-
<PAGE>
FINOVA Continuing Guaranty
- --------------------------------------------------------------------------------
understandings, representations or warranties exists with respect to this
guaranty or with respect to the obligations of the Guarantor under this
guaranty, except as specifically set forth in this guaranty.
17. No executory agreement and no course of dealing between Guarantor and
FINOVA shall be effective to change or modify this guaranty in whole or in part;
nor shall any change, modification or waiver of any rights or powers of FINOVA
be valid or effective unless in writing or signed by an authorized officer of
FINOVA.
18. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA, BY ITS ACCEPTANCE
HEREOF, AND GUARANTOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS
AGREEMENT; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
FINOVA AND GUARANTOR; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR
GUARANTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH FINOVA OR GUARANTOR; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Guarantor:
TARRANT APPAREL GROUP
By: /s/ [ILLEGIBLE]
------------------
Title: V.P.
---------------
-5-
<PAGE>
SCHEDULE 8.8
OUTSTANDING INDEBTEDNESS
<PAGE>
Schedule of Bank Debts
Bank Limit Borrower
- ---- ----- --------
MTB Bank $ 2,500,000 Rocky Apparel
Hongkong Bank $33,000,000 Tarrant Co. Ltd.
SCB, NY $10,000,000 Tarrant Apparel Group
SCB, HK $13,000,000 Tarrant Co. Ltd.
Banco BilBao $ 1,000,000 Famian
Banco International $ 222,222 Famian
BA Leasing $ 5,131,014 Tarrant Apparel Group
GE Capital $15,489,444 Tarrant Apparel Group
Bankers Direct $ 4,876,769 Tarrant Apparel Group
(approved but not drawn yet)
Promissory Notes:
- ----------------
Company Amount Nature
- ------- ------ ------
Picanol $ 5,794,460.55 USD Rocky Apparel
W. Schlafhorst AG & Co. $ 4,743,897.58 DM Vendor Financing on textile
equip. in Tlaxcala, Mexico
Sohler Airtex GmbH $ 544,748.54 DM Vendor Financing on textile
equip. in Tlaxcala, Mexico
Zinser Textilmaschinen $11,767,882.21 DM Vendor Financing on textile
equip. in Tlaxcala, Mexico
Brugman $ 494,780.00 USD Vendor Financing on textile
equip. in Tlaxcala, Mexico
Trutzschler GmbH & Co. $ 7,335,044.50 DM Vendor Financing on textile
equip. in Tlaxcala, Mexico
Termoelettronica S.P.A. $ 345,000.00 USD Vendor Financing on textile
equip. in Tlaxcala, Mexico
Volkmann/Fadis $ 1,278,781.91 EURO Vendor Financing on textile
equip. in Tlaxcala, Mexico
<PAGE>
SCHEDULE 9.1 (f)
LITIGATION
SEE SCHEDULE 6.8
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-3448) pertaining to the 1995 Stock Option Plan of Tarrant Apparel
Group of our report dated March 17, 2000 with respect to the consolidated
financial statements and schedule of the Company included in its Annual Report
(Form 10-K) for the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Los Angeles, California
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,239,511
<SECURITIES> 0
<RECEIVABLES> 74,130,944
<ALLOWANCES> (3,208,318)
<INVENTORY> 62,362,409
<CURRENT-ASSETS> 146,679,461
<PP&E> 111,520,497
<DEPRECIATION> 8,001,897
<TOTAL-ASSETS> 295,042,407
<CURRENT-LIABILITIES> 121,483,689
<BONDS> 0
0
0
<COMMON> 69,595,141
<OTHER-SE> 69,808,330
<TOTAL-LIABILITY-AND-EQUITY> 295,042,407
<SALES> 395,341,275
<TOTAL-REVENUES> 395,341,275
<CGS> 329,131,063
<TOTAL-COSTS> 329,131,063
<OTHER-EXPENSES> 41,263,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,771,250
<INCOME-PRETAX> 20,319,573
<INCOME-TAX> 7,439,066
<INCOME-CONTINUING> 12,880,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,880,507
<EPS-BASIC> .85
<EPS-DILUTED> .79
</TABLE>
