EXHIBIT 10.12
THIRD AMENDMENT TO
REVISED AND RESTATED MANAGEMENT AGREEMENT
BY AND BETWEEN THE NEWSTAR GROUP AND CHEROKEE INC.
This Third Amendment to Revised and Restated Management Agreement (the
"Third Amendment") is entered into in Van Nuys, California, on July 21, 1997, by
and between The Newstar Group, a California corporation d/b/a The Wilstar Group
("Wilstar"), and Cherokee Inc., a Delaware corporation ("Company"), with
reference to the following facts:
A. Wilstar and Company entered into that certain Revised and Restated
Management Agreement, dated as of May 4, 1995, as heretofore amended (the
"Agreement").
B. Wilstar and Company desire to amend further the Agreement pursuant
to Section 13.4 thereof.
Now, therefore, the parties agree as follows:
1. Effective as of June 1, 1997, a new Section 3.5 is added to the
Agreement to read as follows:
3.5 Acquisition Bonus. In the event of an "Acquisition of
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Company" (as defined below) pursuant to an "Acquisition Agreement"
(as defined below) the "Execution Date" (as defined below) of which
is during the term of this Agreement and not later than May 31,
2000, Wilstar will receive from Company in cash at the closing of
such Acquisition of Company (the "Closing") an "Acquisition Bonus"
(as defined below) as hereinafter provided in this Section 3.5:
(a) For purposes of this Agreement, "Acquisition of
Company" shall mean the consummation of an acquisition of Company
in a single transaction or a series of related transactions, by an
acquiring party or parties other than Wilstar, Xx. Xxxxxxxx or
their affiliates, whether by (i) acquisition of all or
substantially all of the assets of Company ("Asset Sale"), (ii)
acquisition of more than 80% of the stock of Company by one or more
affiliated entities other than any current beneficial holder of 20%
or more of the common stock of the Company, or (iii) merger,
consolidation or other transaction which results in the
stockholders of Company immediately prior to the consummation of
such transaction owning immediately after the consummation of such
transaction less than 20% of the outstanding stock of Company and,
if Company is not the surviving corporation in such transaction or
becomes a subsidiary of another corporation as a result of such
transaction, less than 20% of the outstanding stock of such other
corporation; "Acquisition Agreement" shall mean a binding written
agreement between Company and such acquiring party or parties
providing for an Acquisition of Company; and "Execution Date" shall
mean the date of execution and delivery of the Acquisition
Agreement by Company and such acquiring party or parties.
(b) The Acquisition Bonus payable to Wilstar in the event of an
Acquisition of Company shall be determined as hereinafter provided
in this Section 3.5 based on the following table (the "Table"),
subject to increases and decreases in the amounts set forth below
under the column headed "Consideration Per Share" as provided in
subparagraph (d)
below, and subject to decreases in the amounts set forth below
under the column headed "Acquisition Bonus" as provided in
subparagraph (f) below:
Consideration Per Share Acquisition Bonus
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less than $12.00 zero
$12.00-12.99 $1,000,000
13.00-13.99 1,500,000
14.00-14.99 2,000,000
15.00 or more 2,500,000
(c) For purposes of this Agreement, "Consideration Per Share"
shall mean the value per share of stock of Company (net of all
liabilities of Company in an Asset Sale, including all liabilities
arising from this Agreement) of the consideration received by the
stockholders of Company as a result of an Acquisition of Company
(including distributions to stockholders from Company following an
Asset Sale), including cash, securities, and/or other property, as
determined in good faith by the Board of Directors of Company.
(d) Each of the amounts in the Table under the column headed
"Consideration Per Share" shall be increased as of the last day of
each fiscal quarter of Company ending prior to the date of the
Closing, commencing with the fiscal quarter ending August 31, 1997,
by the sum of $0.20, and decreased by the amount of cash dividends
per share of stock paid by Company during such fiscal quarter.
(e) In the event of a change in the outstanding common stock
of Company after the date of this Agreement (whether by reason of a
stock split, reverse stock split, stock dividend or other
recapitalization), the amounts in the Table under the column headed
"Consideration Per Share" and the sum of $0.20 in subparagraph (d)
immediately preceding shall be appropriately adjusted, as
determined in good faith by the Board of Directors of Company.
(f) Anything contained in this Agreement to the contrary
notwithstanding, if the Execution Date of the Acquisition Agreement
covering an Acquisition of Company in respect of which an
Acquisition Bonus is payable hereunder is not later than May 31,
1998, the Acquisition Bonus will be the applicable amount under the
column headed "Acquisition Bonus" in the Table based on the
applicable Consideration Per Share (as adjusted pursuant to
subparagraphs (d) and (e) above, if applicable); if such Execution
Date is later than May 31, 1998 but not later than May 31, 1999,
the Acquisition Bonus will be two-thirds of the applicable amount
under such column (as adjusted as aforesaid, if applicable); if
such Execution Date is later than May 31, 1999 but not later than
May 31, 2000, the Acquisition Bonus will be one-third of the
applicable amount under such column (as adjusted as aforesaid, if
applicable); and if the Execution Date is later than May 31, 2000,
there will be no Acquisition Bonus whatsoever.
(g) Anything contained in this Agreement to the contrary
notwithstanding, the Acquisition Bonus will not be paid to Wilstar
hereunder unless and until the Compensation Committee of the Board
of Directors of Company has certified in writing that the foregoing
criteria have been satisfied and the Acquisition Bonus is payable
in accordance with this Section 3.5 as a result of an Acquisition
of Company.
2. Effective as of June 1, 1997, a new Section 3.6 is added to the
Agreement to read as follows:
3.6 Agreement Not to Compete. In the event of an Acquisition
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of Company pursuant to an Acquisition Agreement the Execution Date
of which is during the term of this Agreement and not later than
May 31, 2000, Wilstar and Company will enter into an Agreement Not
to Compete in the form of Exhibit A attached hereto (the
"Noncompetition Agreement"), in consideration for which Wilstar
will receive from Company in cash at the Closing of such
Acquisition of Company a "Noncompetition Payment" (as defined
below) as hereinafter provided in this Section 3.6:
(a) The Noncompetition Payment payable to Wilstar in the
event of a Acquisition of Company shall be the sum of $3,000,000,
subject to decreases in said sum as provided in subparagraph (b)
below.
(b) Anything contained in this Agreement to the contrary
notwithstanding, if the Execution Date of the Acquisition Agreement
covering an Acquisition of Company in respect of which a
Noncompetition Payment is payable hereunder is not later than May
31, 1998, the Noncompetition Payment will be $3,000,000; if such
Execution Date is later than May 31, 1998 but not later than May
31, 1999, the Noncompetition Payment will be $2,000,000; if the
Execution Date is later than May 31, 1999 but not later than May
31, 2000, the Noncompetition Payment will be $1,000,000; and if the
Execution Date is later than May 31, 2000, there will be no
Noncompetition Payment whatsoever.
(c) Anything contained in this Agreement to the contrary
notwithstanding, the Noncompetition Payment will not be paid to
Wilstar hereunder unless and until the Compensation Committee of
the Board of Directors of Company has certified in writing that the
foregoing criteria have been satisfied and the Noncompetition
Payment is payable in accordance with this Section 3.6 as a result
of an Acquisition of Company and the execution of the
Noncompetition Agreement.
3. Effective as of June 1, 1997, a new Section 3.7 is added to the
Agreement to read as follows:
3.7 Payment Reductions. Payments by Company to Wilstar will be
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subject to reduction under certain circumstances as hereinafter
provided in this Section 3.7:
(a) For purposes of this Agreement, "Change in Control"
shall mean a change in the ownership of a corporation within the
meaning of Prop. Treas. Regs. (S)1.280G-1, Q&A-27, a change in the
effective control of a corporation within the meaning of Prop.
Treas. Regs. (S)1.280G-1, Q&A-28, or a change in the ownership of a
substantial portion of a corporation's assets within the meaning of
Prop. Treas. Regs. (S)1.280G-1, Q&A-29; a "Payment" shall mean any
payment or distribution in the nature of compensation to or for
Wilstar's benefit, whether paid or payable pursuant to this
Agreement or otherwise, that is contingent on a Change in Control;
"Agreement Payment" shall mean a Payment paid or payable pursuant
to this Agreement (determined without regard to this subparagraph
(a); "Present Value" shall mean such value determined in accordance
with Section 280G(d)(4) of the Code; and "Reduced Amount" shall
mean the amount expressed as a Present Value of Payments which
maximizes the aggregate Present Value of all Payments without
causing such Payments to be nondeductible by Company because of
Section 280G of the Code.
(b) Anything contained in this Agreement to the contrary
notwithstanding, in the event Company's independent public
accountants (the "Accounting Firm") shall determine that payment of
all of the Payments would result in the nondeductibility of some or
all of the Payments under Section 280G of the Code, the Accounting
Firm also shall determine the amount of Payments that would meet
the definition of a "Reduced
Amount". The Agreement Payments will then be reduced to the extent
necessary to assure that the Payments will not exceed the Reduced
Amount.
(c) If the Accounting Firm determines that aggregate
Agreement Payments or Payments, as the case may be, should be
reduced to the Reduced Amount, Company shall promptly give Wilstar
notice to that effect and a copy of the detailed calculation
thereof, and Wilstar may then elect, in Wilstar's sole discretion,
which and how much of the Payments shall be eliminated or reduced
(as long as after such election the present value of the aggregate
Payments equals the Reduced Amount", and Wilstar shall advise
Company in writing of Wilstar's election within ten days of
Wilstar's receipt of notice. If no such election is made by Wilstar
within such ten-day period, Company may elect which of the
Agreement Payments or Payments, as the case may be, shall be
eliminated or reduced (as long as after such election the present
value of the aggregate Agreement Payments or Payments, as the case
may be, equals the Reduced Amount) and shall notify Wilstar
promptly of such election. All determinations made by the
Accounting Firm under this Section 3.7 shall be binding upon
Company and Wilstar and shall be made within 60 days after a
termination of the Agreement or an Acquisition of Company. As
promptly as practicable following such determination, Company shall
pay to or distribute for Wilstar's benefit such Payments as are
then due to Wilstar under this Agreement and shall promptly pay to
or distribute for Wilstar's benefit in the future such Payments as
become due to Wilstar under this Agreement.
(d) As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that amounts will
have been paid or distributed by Company to or for Wilstar's
benefit pursuant to this Agreement which should not have been so
paid or distributed ("Overpayment") or that additional amounts
which will have not been paid or distributed by Company to or for
Wilstar's benefit pursuant to this Agreement could have been so
paid or distributed ("Underpayment"), in each case, consistent with
the calculation of the Reduced Amount hereunder. In the event that
the Accounting Firm, based either upon the assertion of a
deficiency by the Internal Revenue Service against Company or
Wilstar which the Accounting Firm believes has a high probability
of success or controlling precedent or other substantial authority,
determines that an Overpayment has been made, any such Overpayment
paid or distributed by Company to or for Wilstar's benefit shall be
treated for all purposes as a loan ab initio to Wilstar which
Wilstar shall repay to Company together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the
Code within thirty days following such determination. In the event
that the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by Company
to or for Wilstar's benefit together with interest at the
applicable federal rate provided for under Section 7872(f)(2) of
the Code.
(e) Company will bear the fees and expenses of the
Accounting Firm in making the determinations required by this
Section 3.7.
(f) The Accounting Firm shall furnish Wilstar with its
opinion that the filing by Wilstar of its federal income tax return
in accordance with the Accounting Firm's determination in
accordance with this Section 3.7 will not result in the imposition
of a negligence or similar penalty on Wilstar; provided, however,
that if the opinion of the Accounting Firm cannot be obtained using
reasonable efforts and at a reasonable cost, the Company shall
provide Wilstar such other written advice of the Accounting Firm as
shall be reasonably obtainable.
4. The amendments to the Agreement set forth in this Third Amendment
are contingent upon the approval of the stockholders of Company. Accordingly,
the obligation of the Company to pay any Acquisition Bonus or Noncompetition
Payment pursuant to the terms of this Third Amendment is subject to and
conditioned upon approval of this Third Amendment by the stockholders of
Company. In the event the stockholders of Company fail to approve this Third
Amendment, any Acquisition Bonus and Noncompetition Payment specified herein
shall be null and void and the terms of the Agreement in effect prior to this
Third Amendment shall continue in effect.
5. Except as amended above by this Third Amendment, the Agreement
shall continue full force and effect, without any changes.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be duly
executed and delivered at the place and on the first date hereinabove written.
CHEROKEE INC. THE NEWSTAR GROUP
By: /s/ Xxxxx Xxxxxxx By: /s/ Xxxxxx Xxxxxxxx
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Xxxxx Xxxxxxx Xxxxxx Xxxxxxxx
Chief Financial Officer President
EXHIBIT A
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AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE (this "Agreement") is made and entered into
in Van Nuys, California, on ___________, 199__, by and among The Newstar Group,
a California corporation d/b/a The Wilstar Group ("Wilstar"), Xxxxxx Xxxxxxxx
("Xx. Xxxxxxxx"), and Cherokee Inc., a Delaware corporation ("Company"), with
reference to the following facts:
A. Wilstar and Company entered into that certain Revised and Restated
Management Agreement, dated as of May 4, 1995, as heretofore amended (the
"Management Agreement"), whereby Wilstar provides management services to
Company.
B. Wilstar and Company entered into that certain Third Amendment to
Revised and Restated Management Agreement, dated as of July 21, 1997 (the
"Third Amendment"), which, among other things, added a new Section 3.6 to the
Management Agreement requiring the parties to enter into this Agreement in the
event of an "Acquisition of Company" (as defined in the Third Amendment).
C. The parties hereto are entering into this Agreement as a result of
an Acquisition of Company pursuant to Section 3.6 of the Third Amendment.
Now, therefore, the parties agree as follows:
1. Covenant Not to Compete. For a period of _______ years [the number
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of years which shall be inserted in the foregoing blank will be three if the
Execution Date of the Acquisition Agreement covering an Acquisition of Company
in respect of which this Agreement is executed is on or before May 31, 1998, two
if such Execution Date is after May 31, 1998 and on or before May 31, 1999, or
one if such Execution Date is after May 31, 1999 and on or before May 31, 2000]
following the date of this Agreement, each of Wilstar and Xx. Xxxxxxxx will not,
directly or indirectly (whether through any partnership of which either of them
is a member, through any trust in which either of them is a beneficiary,
trustor, or trustee, or through a corporation or other association in which
either of them has any interest, legal or equitable, or in any other capacity
whatsoever), own (except that Wilstar or Xx. Xxxxxxxx may own securities which
constitute not more than two percent (2%) of a publicly traded company's issued
and outstanding capital stock), manage, operate, control or participate in the
ownership, management, operation or control of any business competitive with the
"Business" (as defined below) of Company in any county or any other political
subdivision of any state of the United States of America or of any other country
in the world where Company conducted the Business at any time during the two-
year period preceding the date of this Agreement. For purposes of this
Agreement, the "Business" of Company shall mean the business of licensing brand
names to manufacturers of apparel, footwear, and accessories, managing the
marketing image of such licensed brand names, and managing marketing programs to
enhance the growth of such brand names.
2. Consideration for Covenant. In consideration for Wilstar and Mr.
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Xxxxxxxx entering into this Agreement, Company has paid to Wilstar upon
execution of this Agreement the sum of $_______________ pursuant to Section 3.6
of the Third Amendment, receipt of which is hereby acknowledged by Wilstar.
3. Interpretation of Scope of Covenant. The parties hereto agree that
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the duration and area for which the covenant not to compete set forth herein is
to be effective are reasonable. The parties intend for the provisions of this
Agreement to be construed, interpreted and enforced to the maximum extent
permitted by law. In the event that any provision of this Agreement shall be
determined by any court of competent jurisdiction to be invalid, illegal, or
unenforceable in any respect for any reason, or that the time period or the
area, or both of them, are unreasonable and that this Agreement is to that
extent unenforceable, the parties hereto agree that this Agreement
shall remain in full force and effect for the greatest time period and the
greatest area that would not render it unenforceable.
4. Remedies for Breach. Wilstar and Xx. Xxxxxxxx acknowledge and agree
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that company shall be entitled, in addition to any other remedies it may have at
law, to the remedies of injunction, specific performance and other equitable
relief for a breach of this Agreement by either of them. This provision shall
not, however, be construed as a waiver of any of the rights which Company may
have for damages or otherwise.
5. Headings. The headings set forth in this Agreement are for
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convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
6. Governing Law. This Agreement and the rights of the parties hereto
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shall be governed, construed and interpreted in accordance with the laws of the
State of California without giving effect to the choice of law principles
thereof.
7. Amendment. This Agreement may not be amended except by an
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instrument in writing signed on behalf of each of the parties hereto.
8. Severability. In the event that any one or more of the provisions
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contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
9. Multiple Counterparts. This Agreement may be executed in two or
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more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
10. Waivers. No waiver of any of the provisions of this Agreement shall
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be deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
11. Entire Agreement. This Agreement constitutes the entire agreement
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and understanding of the parties hereto relating to the matters provided for
herein and supersedes any and all prior agreements, arrangements, negotiations,
discussions and understandings relating to the matters provided for herein.
12. Successors and Assigns. This Agreement shall be binding on and
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inure the benefit of the parties hereto and their respective successors, heirs,
assigns and representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CHEROKEE INC.
By:
________________________
Xxxxx Xxxxxxx
Chief Financial Officer
THE NEWSTAR GROUP
By:
________________________
Xxxxxx Xxxxxxxx
Chief Executive Officer
