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UA Operating Agreement
is amended and restated 1. Candie's Sweet and UA agree to accelerate
with the following changes: section 12 of the UA Operating Agreement.
The "put" will be paid as follows:
Common Stock:
o Candie's will issue to Sweet on the
date of this Term Sheet 3,000,000
shares of Candie's common stock.
Candie's will commit to file a
registration of these shares within
60 days of the date of this Term
Sheet. Sweet will agree to vote its
block at the direction of Candie's
Board.
o Candie's will fully indemnify Sweet
for any harm resulting from
inaccuracies, misstatements and
omissions on the part of Candie's
related to the registration of the
shares. Candie's will commit to use
its best efforts to maintain an
effective registration until such
time as Sweet has sold all of its
shares.
o Sweet agrees not to sell any shares
for 1 year from the date of this
Term Sheet. In addition, Sweet
agrees to retain at a minimum of 1
million shares until at least the
beginning of the third year of the
Management Agreement.
o Customary representations and
warranties will be provided by both
parties, as applicable, about their
respective financial statements,
capitalization, accuracy of SEC
filings, due authorization of the
deal, enforceability, no-conflicts
with material agreements, no adverse
change in the business since the
last SEC annual or quarterly report,
etc.
o Candie's Board will provide Sweet
with a Section 203 approval in
connection with Sweet's investment
so as not to trigger the
restrictions of Section 203 (the
Delaware Anti-Takeover Section).
Preferred Stock: As soon as practicable
following the date of this Term Sheet,
Candie's will issue to Sweet $11.0 Million in
preferred stock, redeemable in 10 years (the
"Term"). The preferred stock will begin
paying dividends on Feb 1, 2003 that will pay
8% per year over the Term. In addition, the
following provisions shall apply to the
preferred stock:
o The preferred stock will be senior
to all other securities issued by
Candie's ; however, it will be
subordinate only to Candie's
obligations to its primary lender.
o The preferred stock will contain
provisions for the payment of
dividends - with pay commencing Feb.
1, 2003. The dividend payments will
be due quarterly, with the first
payment due on May 1, 2003.
o Candie's shall warrant and represent
that the terms of the preferred
stock are not violative of any
agreements that Candie's has with
lenders and financial institutions.
o The preferred stock will be
mandatorily redeemable by Candie's
at the end of the Term.
o The preferred stock shall contain
other customary provisions.
2. Upon execution of the this Term Sheet,
Candie's will be the sole member of UA
and the license agreement between Candies
and UA will be terminated.
3. Sweet is representing that the audited
financial statements of UA for f/y/e/
January 31, 2002 are true and accurate
and that there are no undisclosed
material liabilities or off-balance sheet
transactions, the disclosure of which
would be required to present a true and
accurate financial presentation of UA.
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Collateral Agreements Supply Agreement: Candie's will cause
UA to renew the Supply Agreement with Azteca for a
3-year period commencing from the closing date.
Azteca will extend 30-day payment terms under the
Supply Agreement. Azteca will supply and source
Candie's Jeans at agreed-upon beneficial terms,
which shall be provided for by amending the Supply
Agreement.
Distribution Agreement: Candie's will cause UA to
renew the Distribution Agreement with Apparel
Distribution Services ("ADS") for a 3-year period
commencing from the closing date. ADS will agree
to amend the Distribution Agreement to provide
services to Candie's also, subject to the same
terms as are provided to UA under the Distribution
Agreement.
Management Agreement: Candie's will enter into a
Management Agreement with Sweet or its designee
that will provide for the operational and business
management of UA. The Management Agreement will
have a 3-year term. Payment of fees under the
Management Agreement will be pursuant to a
distribution of pre-tax profits as follows:
Fiscal 2003: Net income (before calculation
of the Management Fee) to the extent that it
is less than or equal to 10% of net sales
will go to Candie's. Any excess net income
will be divided equally between Candie's and
Sweet pursuant to the Management Agreement.
For remainder of the 3-year Term:
o 1)Net Income (as a percentage of net
sales before calculation of the
Management Fee) is less than 7%): The
Management Fee shall be calculated as
follows: (a)5/7ths to Candie's; (b) 1/7th
to Sweet pursuant to the Management
Agreement; (c) 1/7th allocated to
advertising;
o 2)Net Income (as a percentage of net
sales before calculation of the
Management Fee) is 7% but less than 10%):
As per 1)above to the extent of net
income up to 7% of net sales plus as to
the excess: 1/3 to Candie's, 1/3 to Sweet
pursuant to the Management Agreement and
1/3 allocated to advertising
o 3)Net Income (as a percentage of net
sales before calculation of the
Management Fee) is greater than 10%): As
per 2) above to the extent of net income
up to 10% of net sales with any excess
divided equally between Candie's and
Sweet pursuant to the Management
Agreement.
Unzipped will pay no royalties to Candie's after
the date of this Term Sheet. Any royalties already
paid during fiscal year 2002 shall be deducted
from calculations determining pre-tax profits. In
addition, there will be no corporate expenses or
allocation to UA from Candie's or any other
corporate entity. For purposes of determining the
management fees payable under this agreement, all
corporate expenses shall be deducted from the
calculations that determine pre-tax profits.
UA and management will agree on methodology that
streamlines the manner in which pre-tax profit is
calculated. The methodology will include the
manner in which markdowns on inventories will be
calculated and reserves on accounts receivable are
assessed. The methodology shall be in accordance
with generally accepted accounting principles, but
will be predetermined and set forth in the
management agreement.
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Sweet shall assure that pre-tax profits will be no
less than $1.7million for each year of the 3-year
term of the Management Agreement. Sweet will make
up any shortfall from this total.
A warrant incentive plan will be put in place for
the benefit of Sweet on terms agreeable to both
parties.
The management of UA will report to the Candie's
Board directly and will operate on plans and
budgets pre-approved by the board. Any changes to
the pre-approved plans must be approved by the
board.
Xx. Xxxxxx Xxxx will join the Candie's Board of
Directors. Candie's will provide Xx. Xxxx with
an indemnification agreement in customary
form and reasonable D&O insurance.
On or before February 1, 2003, Candie's will pay
Azteca for all receivables that are more than 30
days due, and will pay the Commercial Loan Note
between UA and Azteca (totaling approx $7-10
million at any given time). Candie's will also
release Xxxxxx Xxxx and any of his, and Azteca's
related parties and affiliates from any
obligation, including obligations as a guarantor,
with respect to the UA line of credit with
Congressional Financial.
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This Term Sheet is intended to be a binding agreement by the parties.
Notwithstanding the foregoing, the parties will use their best efforts to
negotiate and enter into more detailed written agreements documenting the above
terms within 30-60 days.
DATE: 4/23/02
CANDIE'S, INC. XXXXXXX XXXXXX & CO., INC
By: /s/ Xxxx Xxxx By: /s/ Xxxx Xxxx
SWEET SPORTSWEAR, LLC
By: /s/ Xxxxxx Xxxx
