LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
UNZIPPED APPAREL LLC
This Limited Liability Company Operating Agreement of Unzipped Apparel LLC
(the "Agreement") is made as of October 7 , 1998, by and among Xxxxxxx Xxxxxx &
Co., Inc., a California corporation ("Xxxxxx"), Sweet Sportswear, LLC, a
California limited liability company ("Sweet"), and Unzipped Apparel LLC (the
"LLC"). Sweet and Xxxxxx are collectively referred to as the "Members" and
severally as a "Member."
WHEREAS, the Members have formed a limited liability company pursuant to
the Delaware Limited Liability Company Act; and
WHEREAS, the parties hereto desire to establish their respective rights and
obligations as Members of such limited liability company.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members and the LLC hereby
agree as follows:
ARTICLE 1.
DEFINED TERMS
Section 1.1 Definitions. Unless the context otherwise requires, the terms
defined in this Article 1, for the purposes of this Agreement, have the meanings
herein specified.
"ADS" means Apparel Distribution Services, LLC, a California limited
liability company.
"Accountant" means the certified public accountant or firm of certified
public accountants for the LLC as selected from time to time by the Management
Committee, initially designated to be Ernst & Young LLP.
"Act" means the Delaware Limited Liability Company Act.
"Agreement" means this Limited Liability Company Operating Agreement, as
amended, modified, supplemented or restated from time to time.
"Apparel" means all apparel categories exploiting the various "Candie's"
and "Bongo" trademarks, with the exception of (i) shoes, (ii) swimwear, (iii)
intimate apparel, (iv) accessories, and (v) "Bongo" apparel under existing
licenses with Xxxxx Xxxx, Inc. and M.Fine and Sons Manufacturing Company.
"Azteca" means Azteca Production International, Inc., a California
corporation.
"Bankruptcy" means the occurrence of any of the events specified below with
respect to a Member: (i) an assignment for the benefit of creditors; (ii) the
application for or consent to the appointment of a receiver, trustee, liquidator
or custodian or the like of its property; (iii) the commencement of a voluntary
case under federal bankruptcy laws, any state insolvency law or similar laws of
any country; (iv) the adjudication as a bankrupt or insolvent; (v) the filing of
an answer admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization or insolvency proceeding, or the taking of any
action for the purpose of effecting any of the foregoing or its insolvency; or
(vi) the petition of bankruptcy filed against it which is not dismissed within
90 days of filing.
"Base Year" means the fiscal year commencing February 1, 2002 and ending
January 31, 2003.
"Call Notice" has the meaning set forth in Section 4.5 hereof.
"Call Period" has the meaning set forth in Section 4.5 hereof.
"Candie's" means Candie's, Inc, a Delaware corporation and the sole
stockholder of Xxxxxx.
"Capital Account" means, with respect to any Member, the account maintained
for such Member in accordance with the provisions of Section 4.6 hereof.
"Capital Call" has the meaning set forth in Section 4.5 hereof.
"Capital Contribution" means, with respect to any Member, the aggregate
amount of money and the fair market value of any property, tangible or
intangible (other than money), contributed to the LLC pursuant to Article 4
hereof with respect to the Interest of such Member.
"Cash Flow" means, for any period, such portion of the cash on hand or in
bank accounts of the LLC, as the Management Committee determines is available
for distribution to the Members, after reasonable provision has been made by
such Management Committee for the current liabilities, obligations, and
operating expenses of the LLC, and reasonable reserves have been established by
the Management Committee for obligations, liabilities, improvements, operating
expenses and contingencies of the LLC.
"Cause" means (i) a Member's conviction for committing a felony under
federal law or the law of the state in which such action occurred; (ii) the
Bankruptcy of a Member; (iii) acts of theft, embezzlement or fraud committed by
a Member in the course of fulfilling the Member's duties hereunder; or (iv)
material breach by a Member of its obligations which is specified in reasonable
detail in a written notice from the LLC to the Member and which the Member has
not either remedied within 30 days after the receipt of such notice or, in the
event the breach is not reasonably remediable within such 30 day period,
commenced to remedy within 30 days after the receipt of such notice and
continued to pursue such remedy diligently in good faith.
"Certificate" means the Certificate of Formation and any and all amendments
thereto and restatements thereof filed on behalf of the LLC with the office of
the Secretary of State of the State of Delaware.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, the Treasury Regulations promulgated thereunder, or any corresponding
provisions of any succeeding federal statute.
"Covered Person" means any Member, Manager, any partners, employees,
representatives or agents of any Member, Manager, and any employee, partner,
representative or agent of the LLC.
"EBITDA" shall have the meaning set forth in Section 12.2 hereof.
"Failing Member" has the meaning set forth in Section 4.5 hereof.
"Interest" means an interest in the LLC representing a Member's percentage
share in the Profits, Losses, and distributions of Cash Flow of the LLC (as the
same may be amended from time to time).
"LLC" means Unzipped Apparel LLC, the limited liability company to be
operated under and pursuant to the Act and this Agreement.
"LLC Property" means property of the LLC, including without limitation, all
real, personal, tangible or intangible property or any interests in such
property.
"Manager" means any one of the five (5) individuals serving on the
Management Committee, initially as designated in Section 7.5 hereof or, as
selected from time to time by the Members.
"Management Committee" means the governing body of the LLC engaged in the
general supervision and operation of the business and affairs of the LLC,
consisting of five (5) Managers, as follows: two Managers as designated by
Xxxxxx, two Managers as designated by Sweet, and a fifth Manager as selected by
the four Managers having been designated by Xxxxxx and Sweet.
"Member" means Sweet or Xxxxxx and includes any Person admitted as a Member
pursuant to the provisions of this Agreement, and "Members" means two (2) or
more of such Persons when acting in their capacities as members of the LLC.
"Member Loan" has the meaning set forth in Section 4.5 hereof.
"Net Sales" means the gross sales of the LLC, minus returns, chargebacks
and allowances as more particularly set forth in the financial statements
prepared by the LLC in accordance with this Agreement.
"Person" means any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization.
"Prime Rate" means the rate of interest then most recently announced by the
Nationsbanc Commercial Corp. (or any successor thereto) as its prime or similar
rate.
"Profits" and "Losses" mean the profits and losses of the LLC as determined
by the certified public accountants then engaged by the LLC, in accordance with
the accounting method followed by the LLC for federal income tax purposes,
including without limitation, each item of LLC income, gain, loss, deduction,
tax preference and credit, all as such terms or words are used in the Code.
"Purchase Price" has the meaning set forth in Section 12.2 hereof.
"Term" shall have the meaning set forth in Section 2.4 hereof.
"Transition Period" shall have the meaning set forth in Section 12.4
hereof.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
ARTICLE 2.
OPERATION; NAME; ADDRESS; QUALIFICATIONS TO DO BUSINESS
Section 2.1 Operation.
2.1.1. The Members and the Management Committee shall operate the LLC as a
limited liability company under the provisions of the Act and the
rights, duties and liabilities of the Members shall be as provided
under the Act, except as otherwise provided herein.
2.1.2. The name and mailing address of each Member shall be listed on
Schedule 2.1 attached hereto. Each Member shall be required to update
Schedule 2.1, as it pertains to such Member, from time to time, as
necessary to reflect accurately the information therein. Any amendment
or revision to Schedule 2.1 made in accordance with this Agreement to
reflect an address change shall not be deemed an amendment to this
Agreement.
2.1.3. Upon the execution of this Agreement, those persons listed in the
first paragraph of this Agreement as Members shall be admitted to the
LLC as Members.
Section 2.2 Name.
The name of the LLC heretofore formed is "Unzipped Apparel LLC".
Section 2.3 Principal Place of Business.
The principal places of business of the LLC shall be at 0000 Xxxxxxxxxxx
Xxxxxx, Xxxxxxxx, Xxx Xxxx 00000 and 0000 Xxxxxxx Xxxxxx, Xxxxxxxx Xxxxxxxxxx
00000, or at such other place as the Management Committee shall from time to
time determine.
Section 2.4 Term.
The term of the LLC commenced as of September 17, 1998 (the date on which
the Certificate was filed with the Secretary of State of the State of Delaware),
and shall continue until December 31, 2020, unless terminated sooner pursuant to
the provisions hereof ("Term").
Section 2.5 Qualification in Other Jurisdictions.
The Members shall cause the LLC to be qualified or registered under assumed
or fictitious name statutes or similar laws in California and New York, and in
any other jurisdiction in which such qualification or registration is necessary
or required to conduct the LLC's business. Any Manager or other authorized
representative of the Management Committee shall execute, deliver and file any
certificates (and any amendments and/or restatements thereof) necessary for the
LLC to qualify to do business in a jurisdiction in which the LLC may wish to
conduct business.
Section 2.6 Partnership Status.
Anything in this Agreement to the contrary notwithstanding, it is expressly
intended that the entity formed hereby be treated as a partnership solely for
Federal, state and local income tax purposes, as determined by the applicable
provisions of the Code, the rules and regulations promulgated thereunder, and
other laws pertaining thereto, and that in every respect all of the terms and
provisions hereof shall at all times be so construed and interpreted as to give
effect to this intent. In the event that the Internal Revenue Service of the
United States (the "IRS") or any governmental authority having jurisdiction
shall in any way or at any time determine that any provision of this Agreement
adversely affects the qualification of this entity to be treated as a
partnership for tax purposes, the Members shall use their best efforts to amend
or supplement the terms and provisions of this Agreement to the extent necessary
to comply with the rules, regulations and requirements of the IRS or any other
governmental authority having jurisdiction, in order that the entity formed
hereby be treated as a partnership for federal, state and local income tax
purposes, be taxable as such, and the Members hereof be taxable as partners of a
partnership; which modification or amendment shall be retroactively applied to
the date of this Agreement. For no other purpose is the LLC to be treated as a
partnership.
Section 2.7 Service of Process.
2.7.1. The Secretary of State of the State of Delaware is hereby designated
as the LLC's agent for service of process.
2.7.2. Corporation Service Company, 0000 Xxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx
00000, or such other entity or person as designated by the Management
Committee, is hereby designated as registered agent for service of
process in Delaware upon whom the Secretary of State of the State of
Delaware may deliver any service of process received by it.
ARTICLE 3.
PURPOSE AND POWERS OF THE LLC
Section 3.1 Purpose.
The purposes for which the LLC was formed are to manufacture, distribute
and market the Apparel and to engage in any other lawful act or activity.
Section 3.2 Powers of the LLC.
The LLC shall have the power and authority to take any and all actions
necessary, appropriate, proper, advisable, incidental or convenient to or for
the furtherance of the purposes set forth in Section 3.1 hereof.
ARTICLE 4.
CAPITAL CONTRIBUTIONS, INTERESTS,
AND CAPITAL ACCOUNTS
Section 4.1 Initial Capital Contributions to the LLC.
4.1.1. Each of Xxxxxx and Sweet shall make a Capital Contribution to the
LLC of $500,000, in cash or immediately available funds, in exchange
for which each shall receive a 50% equity interest in the LLC. The LLC
shall reimburse Caruso, Candie's, Sweet, Aztec and/or ADS for any
disbursements made by them in connection with the formation of the LLC
or this Agreement prior to the commencement of the Term, upon
presentation of appropriate documentation.
4.1.2. Simultaneously with the execution of this Agreement, each of Xxxxxx
and Sweet, as the case may be, shall make, or cause to be made on its
behalf, the following additional contributions to the capital of the
LLC:
(a) Xxxxxx shall grant, and/or cause Candie's to grant, to the LLC
royalty-free licenses, in substantially the forms of Exhibits A and B
attached hereto and made a part hereof (collectively, the "License
Agreements") to use and exploit the various "Candie's" and "Bongo"
trademarks listed therein with respect to the Apparel.
(b) The LLC shall enter into: (A) an exclusive agreement with Azteca, in
substantially the form of Exhibit C attached hereto and made a part
hereof, for the production by Azteca of the Apparel (the "Supply
Agreement") and (B) an exclusive agreement with ADS, in substantially
the form of Exhibit D attached hereto and made a part hereof (the
"Distribution Agreement")
Section 4.2 Use of Proceeds.
The proceeds of the Capital Contributions shall be used for working capital
and otherwise for the operation of the LLC's business.
Section 4.3 Interests.
Except for the interests of Xxxxxx granted pursuant to the License
Agreement, which interests shall be returned to Xxxxxx (without cost or credit)
in the event of a dissolution of the LLC, no Member shall have an interest in
specific LLC Property. Except as set forth in this Agreement, no additional
Interest or other ownership interest of any kind or nature in the LLC (including
any interest convertible into an Interest) may be issued or transferred without
the consent of the Management Committee.
Section 4.4 Status of Capital Contributions.
4.4.1. Except as otherwise provided in this Agreement, a Member's Capital
Contributions may be returned, in whole or in part, at any time, only
with the approval of the Management Committee.
4.4.2. Notwithstanding the foregoing, no return of a Member's Capital
Contribution shall be made hereunder if such distribution would
violate applicable law.
4.4.3. No Member shall receive any interest, salary or drawing with respect
to its Capital Contribution or its Capital Account or for services
rendered to or on behalf of the LLC or otherwise in its capacity as a
Member or otherwise, except as otherwise specifically provided in this
Agreement.
4.4.4. Except as otherwise provided by applicable law and subject to
Section 4.5 hereof, the Members shall be liable only to make those
Capital Contributions as set forth in Section 4.1 hereof. After such
Capital Contributions have been fully made pursuant to Sections 4.1
and 4.5 (only to the extent determined necessary to secure financing)
hereof, no Member shall be required to make any additional capital
contributions at any time to the LLC.
Section 4.5 Financing and Additional Capital.
4.5.1. During the Term, each of Xxxxxx and Sweet shall contribute up to an
additional $500,000 in cash to the LLC (the "Additional
Contribution"), at such time as the Management Committee deems
necessary and advisable, in connection with securing an asset based
line of credit for the LLC with a financial institution mutually
satisfactory to the Members.
4.5.2. In the event that the Management Committee determines that the
Additional Contribution is required for a reason other than as a
result of an event described in Section 4.5.1 hereof, it shall give
notice (the "Call Notice") to each Member stating the aggregate amount
of the additional capital required and each Member's share of the
Additional Contribution based on its respective Interest (the "Capital
Call"). Each Member shall within fifteen (15) days from the date of
the Call Notice (the "Call Period") contribute to the LLC, in cash,
its ratable share of the Capital Call.
4.5.3. If a Member fails to contribute an amount equal to its ratable share
of the Capital Call within the Call Period (the "Failing Member"), and
if any other Member (the "Non-Failing Member") has made its entire
required contribution, then each of the Non-Failing Members may, but
need not, (a) withdraw from the LLC its most recent ratable
contribution made pursuant to this Section 4.5, in which case the LLC
shall promptly repay the amount of such withdrawn contribution to the
Non-Failing Member, and/or (b) make a loan to the LLC (a "Member
Loan") in an amount equal to (A) some or all of the contribution which
the Failing Member failed to make pursuant to this Section 4.5 and/or
(B) the contribution made by the Non-Failing Member, in which case the
contribution theretofore made by the Non-Failing Member shall be
deemed instead to be part of the funds advanced in connection with
making such Member Loan. If made, a Member Loan shall bear interest at
the rate of five (5) percentage points above the Prime Rate compounded
annually with interest payable on the first day of each and every
month following the making of the Member Loan.
4.5.4. Until such time as the Member Loan is repaid in full, the Members
shall not receive any distributions and the Non-Failing Member which
made such member Loan shall have a lien on the Failing Member's
Interest as collateral for such repayment.
Section 4.6 Capital Accounts.
4.6.1. An individual Capital Account shall be established and maintained
for each Member. The original Capital Account established for any
Member who acquires an Interest by virtue of an assignment in
accordance with the terms of this Agreement shall be a pro rata part
of the Capital Account of the assignor represented by such percentage
of the Interest as is assigned to such assignee, and, for purposes of
this Agreement, such Member shall be deemed to have made a
proportionate amount of the Capital Contributions made by the assignor
of such Interest (or made by any of such assignor's predecessors in
interest).
4.6.2. The Capital Account of each Member shall be maintained in accordance
with the following provisions:
(a) to such Member's Capital Account, there shall be credited the amount
of any cash, and the fair market value of any other property
contributed by such Member to the capital of the LLC, such Member's
distributive share of Profits and the amount of any LLC liabilities
that are expressly assumed by such Member or that are secured by any
LLC Property distributed to such Member;
(b) to such Member's Capital Account, there shall be debited, the amount
of cash and the fair market value of any LLC Property distributed to
such Member pursuant to any provision of this Agreement, such Member's
distributive share of Losses and the amount of any liabilities of such
Member that are assumed by the LLC or that are secured by any property
contributed by such Member to the LLC;
(c) from time to time as they deem appropriate, the Management Committee
may make such modifications to the manner in which the Capital
Accounts are computed to comply with Treasury Regulation Section
1.704-1(b) provided that such modification is not likely to have a
material effect on the amounts distributable to any Member pursuant to
this Agreement; and
(d) the foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply
with Treasury Regulation Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations.
Section 4.7 Return of Capital Contributions.
The Managers and Members shall not be personally liable for the return of
the Capital Contributions of any Member, or any portion thereof, it being
expressly understood that any such return shall be made solely from LLC
Property, nor shall the Managers and Members be required to pay to the LLC or
any Member any deficit in any Member's Capital Account upon dissolution or
otherwise; provided, however, that any Member Loans made pursuant to Section 4.5
hereof shall be recourse obligations of the Failing Member upon dissolution of
the LLC or otherwise.
Section 4.8 Guarantees of Member Interests.
4.8.1. In consideration of Xxxxxx'x entering into this Agreement and
Candie's' executing the Candie's Guaranty (as defined in Section 4.8.2
below) and the fulfillment of their respective obligations hereunder
and thereunder, Azteca hereby guarantees unconditionally, absolutely
and irrevocably all of Sweet's obligations hereunder ("Azteca
Guaranty"). The Azteca Guaranty shall be in the form of Exhibit E
attached hereto and made a part hereof.
4.8.2. In consideration of Sweet's entering into this Agreement and
Azteca's executing the Azteca Guaranty, and the fulfillment by such
parties of their respective obligations hereunder and thereunder,
Candie's hereby guarantees unconditionally, absolutely and irrevocably
all of Xxxxxx'x obligations hereunder ("Candie's Guaranty"). The
Candie's Guaranty shall be in the form of Exhibit F attached hereto
and made a part hereof.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Xxxxxx.
Xxxxxx hereby represents and warrants to Sweet and to the LLC the
following:
(a) Corporate Organization and Good Standing. Xxxxxx is a corporation duly
organized, validly existing and in good standing under the laws of the
State of California. Xxxxxx has the corporate power to own its
properties and to conduct its business as now conducted and has all
requisite corporate power and authority to enter into this Agreement
and the License Agreement and to perform its respective obligations
hereunder and thereunder.
(b) Authority. The execution and delivery by Xxxxxx of this Agreement and
the License Agreement and the performance of the transactions
contemplated hereby and thereby have been duly authorized by the Board
of Directors of Xxxxxx, and no further corporate action is necessary
to authorize the execution and delivery of this Agreement and the
License Agreement and the performance of such transactions. This
Agreement and the License Agreement have been duly executed and
delivered by Xxxxxx and they constitute the valid and binding
agreements of Xxxxxx enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
(c) No Conflict. Neither the execution and delivery of this Agreement or
the License Agreement nor the performance by Xxxxxx of the
transactions contemplated hereby or thereby will (i) violate or
conflict with any of the provisions of the Articles of Incorporation
or By-Laws of Xxxxxx, (ii) with or without the giving of notice or the
lapse of time or both, violate or constitute a default under any
mortgage, indenture, deed of trust, lease, contract, agreement,
license or other instrument or any provision of law, order, judgment
or ruling of any governmental authority to which it is a party or by
which its property is bound or (iii) result in the creation of any
mortgage, pledge, lien, charge or encumbrance upon any of its assets
or the loss of any license or other contractual right with respect
thereto.
(d) No Defaults. Xxxxxx is not in violation of or in default under any law
or regulation, or any order of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality or arbitrative tribunal, wherever located, and there
are no judgments or decrees or orders entered in any suit or
proceeding brought by any governmental agency or any other party
enjoining it and there are no claims, actions, suits or proceedings
pending or threatened against or affecting it, at law or in equity or
otherwise or before or by any federal, state, foreign, municipal or
other governmental department, commission, board, bureau, agency,
instrumentality or arbitrative tribunal wherever located.
(e) Approvals. Other than in connection with Xxxxxx'x credit facility, the
consummation of the transactions contemplated by this Agreement and
the License Agreement do not require the consent, approval or
authorization of any governmental or regulatory authority or any other
person under any permit, license, agreement, indenture or other
instrument to which Xxxxxx is a party or which any of its properties
is subject, and no declaration, filing or registration with any
governmental or regulatory authority is required in connection with
such transactions.
(f) Litigation. Except as set forth on Schedule 5.1(f), there is no
action, suit, proceeding or investigation pending or threatened
against Xxxxxx, at law or in equity or otherwise or by or before any
federal, state, foreign, municipal or other governmental department,
commission, board, bureau, agency, instrumentality or arbitrative
tribunal wherever located.
(g) Permits and Licenses. Xxxxxx has not engaged in any activity which
would cause revocation or suspension of any permit or license which
could have a material adverse effect on its business;
(h) Contracts and Agreements. Xxxxxx has complied with all material
commitments and obligations that it has under any contracts and
agreements and is not in default thereunder; and
(i) Intellectual Property. Except as set forth on Schedule 5.1(i), Xxxxxx
owns or has the worldwide right to use all of the intellectual
property which is subject to the License Agreement, free and clear of
any liens or encumbrances.
Section 5.2 Representations and Warranties of Sweet.
Sweet hereby represents and warrants to Xxxxxx and to the LLC the
following:
(a) Corporate Organization and Good Standing. Sweet is a limited liability
company duly organized, validly existing and in good standing under
the laws of the State of California. Sweet has the corporate power to
own its properties and to conduct its business as now conducted and
has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder.
(b) Authority. The execution and delivery by Sweet of this Agreement and
the performance of the transactions contemplated hereby have been duly
authorized by its Board of Directors and no further corporate action
is necessary to authorize the execution and delivery of this Agreement
and the performance of such transactions. This Agreement has been duly
executed and delivered by Sweet and it constitutes the valid and
binding agreement of Sweet enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
(c) No Conflict. Neither the execution and delivery of this Agreement nor
the performance by Sweet of the transactions contemplated hereby will
(i) violate or conflict with any of the provisions of Sweet's Articles
of Organization or Operating Agreement, (ii) with or without the
giving of notice or the lapse of time or both, violate or constitute a
default under any mortgage, indenture, deed of trust, lease, contract,
agreement, license or other instrument or any provision of law, order,
judgment or ruling of any governmental authority to which Sweet is a
party or by which its property is bound or (iii) result in the
creation of any mortgage, pledge, lien, charge or encumbrance upon any
of Sweet's assets or the loss of any license or other contractual
right with respect thereto.
(d) No Defaults. Sweet is not in violation of or in default under any law
or regulation, or any order of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality or arbitrative tribunal, wherever located, and there
are no judgments or decrees or orders entered in any suit or
proceeding brought by any governmental agency or any other party
enjoining Sweet and there are no claims, actions, suits or proceedings
pending or threatened against or affecting Sweet, at law or in equity
or otherwise or before or by any federal, state, foreign, municipal or
other governmental department, commission, board, bureau, agency,
instrumentality or arbitrative tribunal wherever located.
(e) Approvals. The consummation of the transactions contemplated by this
Agreement shall not require the consent, approval or authorization of
any governmental or regulatory authority or any other person under any
permit, license, agreement, indenture or other instrument to which
Sweet is a party or which any of Sweet's properties is subject, and no
declaration, filing or registration with any governmental or
regulatory authority is required in connection with such transactions.
(f) Litigation. There is no action, suit, proceeding or investigation
pending or threatened against Sweet, at law or in equity or otherwise
or by or before any federal, state, foreign, municipal or other
governmental department, commission, board, bureau, agency,
instrumentality or arbitrative tribunal wherever located.
(g) Permits and Licenses. Sweet has not engaged in any activity which
would cause revocation or suspension of any permit or license which
could have a material adverse effect on Sweet's business.
(h) Contracts and Agreements. Sweet has complied with all material
commitments and obligations that Sweet has under any contracts and
agreements and is not in default thereunder.
ARTICLE 6.
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations of Profits, Losses and Cash Flow.
The Profits and Losses shall be allocated for each fiscal year to the
Members in accordance with their Interests as set forth on Schedule 6.1.
Section 6.2 Time of Allocation.
All allocations of Profits and Losses made pursuant to Section 6.1 shall be
made as of the last day of each fiscal year of the LLC; provided, however, that
if during any fiscal year of the LLC or any portion thereof there is for any
reason a change in any Member's Interest in the LLC, the Profits and Losses for
such year shall be allocated among the Members based upon the number of days
during such period that such Member was registered as the owner of such interest
or in such other manner as the Management Committee deems appropriate in
accordance with the requirements of the Code and of Treasury Regulations issued
pursuant thereto.
Section 6.3 Distributions of Cash Flow (if there is then no balance
outstanding on a Member Loan) shall be made in the following order:
6.3.1. First, to the extent of Cash Flow, distributions shall be made to
enable the Members to make timely quarterly payments of estimated tax
and payments of the balance of federal, state and local income taxes,
as the case may be, on or before the original due date of the
individual income tax returns, on the passed-through income of each
fiscal year, based on the aggregate of the highest marginal individual
federal, state and local income tax rates, as the case may be,
applicable to such fiscal year, provided that all such distributions
shall be in accordance with their respective allocations made
theretofore pursuant to Section 6.1 hereof.
6.3.2. Second, to the extent of Cash Flow after distributions are made
pursuant to paragraph 6.3.1 hereof to the Members, in accordance with
their respective allocations made theretofore pursuant to Section 6.1
hereof.
Section 6.4 Limitations on Distributions.
Anything contained herein to the contrary notwithstanding, the LLC shall
not make a distribution to any Member on account of its Interest if such
distribution would violate the Act or other applicable law or any restrictions
in any of the LLC's loan agreements.
Section 6.5 Amounts Withheld.
All amounts of federal, state and local income taxes, personal property
taxes, unincorporated business taxes or other taxes withheld from, or required
to be paid with respect to, any distribution or amount distributable to a
Member, because of that Member's status or otherwise, shall be treated as
amounts distributed to such Member for all purposes under this Agreement.
Section 6.6 Tax Allocations: Section 704(c) of the Code.
6.6.1. The income, gains, losses, deductions and expenses of the LLC shall
be allocated, for federal, state and local income tax purposes, among
the Members in accordance with the allocation of such income, gains,
losses, deductions and expenses among the Members for computing their
Capital Accounts, except that if any such allocation is not permitted
by the Code or other applicable law, the LLC's subsequent income,
gains, losses, deductions and expenses shall be allocated among the
Members so as to reflect as nearly as possible the allocation set
forth herein in computing their Capital Accounts.
6.6.2. In accordance with Section 704(c) of the Code and the Treasury
Regulations thereunder, income, gain, loss, deduction and expense with
respect to any property contributed to the capital of the LLC shall,
solely for income tax purposes, be allocated among the Members so as
to take account of any variation between the adjusted basis of such
property to the LLC for federal income tax purposes and its fair
market value at the time of contribution.
6.6.3. Any elections or other decisions relating to such allocations shall
be made by the Management Committee in any manner that reasonably
reflects the purpose and intent of this Agreement.
6.6.4. The Management Committee may elect to adjust the basis of LLC
Property for federal income tax purposes in accordance with Section
754 of the Code, in the event of a distribution of LLC Property as
described in Section 734 of the Code or a transfer of an Interest
described in Section 743 of the Code. In the event that any Member
requests to make any such election, the Management Committee may
require the Member so benefitted thereby to pay the additional annual
accounting costs incurred as a result of making such election.
ARTICLE 7.
MANAGEMENT
Section 7.1 Designation of Management Committee.
The management of the LLC shall be vested in the Management Committee.
Except as otherwise expressly set forth in this Agreement, the presence of a
majority of the Managers shall be necessary and sufficient to constitute a
quorum for the transaction of business by the Management Committee, and, except
as otherwise provided by this Agreement, if a quorum shall exist, the act of a
majority of the Managers present shall constitute the authorized action of the
Management Committee. Each Manager shall hold office until his resignation or
removal as set forth in Section 7.6 hereof.
Section 7.2 Authority of the Management Committee.
The general supervision and operation of the business and affairs of the
LLC shall be directed by the Management Committee. The Management Committee
shall delegate such responsibilities to Xxxxxx or Sweet with respect to the
operation of the business affairs of the LLC as set forth on Exhibit G attached
hereto and made a part hereof. Subject to the duties and responsibilities set
forth on Exhibit G and subject to the provisions of each of the License
Agreement, the Supply Agreement and the Distribution Agreement, respectively.
The Management Committee may authorize one or more of the Managers and/or
officers to execute documents on behalf of the LLC.
Sweet shall manage the financial recordkeeping and accounting affairs of
the LLC and submit monthly reports to the Management Committee and the other
Member which reports shall be subject to audit and verification.
Anything contained herein to the contrary notwithstanding, consent of all
of the Managers of the Management Committee shall be required to implement or
consummate the following actions:
(i) preparation and adoption of the budget of the LLC, which shall be
evidenced by a three year business plan to be mutually agreed to by
the Members within thirty (30) days of the date of execution of this
Agreement (the "Plan"), which Plan shall be annexed hereto as Exhibit
H and made a part hereof. Such Plan shall be used as a blueprint for
the LLC's business goals, but it shall not be used to measure the
performance by either Member.
(ii) except as otherwise provided for in the Plan, the entering into any
agreement, contract, or commitment involving a commitment on the part
of the LLC in excess of $100,000, or the purchase and/or leasing of
capital equipment by the LLC with a purchase price or discounted value
of lease payments in excess of $100,000;
(iii) any LLC loans in excess of $100,000;
(iv) the grant of bonuses and changes in compensation of individuals
earning $100,000 or more per year;
(v) the hiring and firing of individuals with annual compensation of
$100,000 or more per year (including the negotiation and execution of
employment agreements);
(vi) the funding of any profit-sharing plan contributions and selection of
investment advisors for any such plan;
(vii)the selection, adoption, modification or termination of employee
benefit plans, including medical, dental, disability, life and plan
administrators for any such plan;
(viii) the admission of new Members;
(ix) the guaranty by the LLC of any obligations of a third party;
(x) except as set forth herein, the retention of any professionals;
(xi) the opening of any LLC bank accounts;
(xii) transactions with affiliates of the LLC;
(xiii) the merger and/or other business combinations of the LLC; and
(xiv) the dissolution of the LLC.
The Chairman and Vice-Chairman of the LLC (as designated in Section 7.5
hereof or their successors) shall preside at all meetings of the Members and the
Management Committee. Any Manager may execute, on behalf of the LLC, such
contracts, filings or other instruments which have been appropriately authorized
herein to be executed by such Manager unless the Management Committee
specifically authorizes another Manager, officer or other representative of the
Management Committee to sign. Any checks (other than for payroll) or other
evidences of indebtedness of the LLC (a) in the amount of $10,000 or more or (b)
which are made to affiliates of the LLC, shall require the signature of a
representative of each of the Members. The Management Committee shall have the
power to retain consultants, managing agents, attorneys, accountants or other
persons on behalf of the LLC as it shall deem necessary or desirable, including
Members and persons who may be affiliated or associated with, or otherwise
related to, a Member or the Managers.
Section 7.3 Time Commitment of Managers.
Subject to Section 13.1 hereof, each of the Managers may engage in other
business activities, but shall be obliged to devote such time to the LLC's
business as is appropriate and customary.
Section 7.4 Resignation in Certain Events.
Each Member shall cause its designee(s) to terminate any employment as
Manager or otherwise with the LLC (or subsidiary thereof, if any) in the event
and at the time that such Member transfers title to all the Interest owned by
such Member, except as otherwise agreed to by the Management Committee at the
time of such transfer, without the participation by such transferor Member's
designees in such vote.
Section 7.5 Initial Managers and Officers of the LLC.
Each of the following named individuals shall initially be a Manager and
hold the office set forth opposite his respective name until his resignation or
removal by the Member which designated such Manager:
Name Title Designated by:
---- ----- --------------
Xxxx Xxxx Chairman and Manager Xxxxxx
Xxxxxx Guez Vice-Chairman and Manager Sweet
Xxx Xxxxxx President and Manager Sweet
Xxxxxxxx X'Xxxxxxxxxxx Chief Financial Officer Xxxxxx
and Manager
[To be Named] Manager [4 Managers]
The four (4) Managers named above shall use their best efforts to designate
and elect a fifth (5th) Manager within thirty (30) days from the date of
execution of this Agreement. Each of the officers shall have the duties,
responsibilities, and authority as determined by the Management Committee. Any
vacancy in any of the foregoing positions shall be filled by designation of the
Member which appointed the initial Manager or officer, as the case may be.
ARTICLE 8.
MEMBERS' VOTING REQUIREMENTS AND RIGHTS
Except as otherwise expressly set forth herein or in the Act, when the
Members' consent to an action is required to authorize an action, the consent of
the holders of at least a majority of the Interests shall be required to
constitute the authorized action of the LLC.
ARTICLE 9.
DISPOSITION OR TRANSFER OF INTERESTS
Section 1.1 Except as otherwise provided herein, no Member, either directly
or indirectly, shall sell, assign, mortgage, hypothecate, transfer, pledge,
create a security interest in or lien upon, encumber, give, place in trust, or
otherwise voluntarily or involuntarily dispose of any Interests (or interest
therein) now owned or hereafter acquired by said Member, without the prior
written consent of the other Member, which consent may be withheld for any
reason or for no reason. Any such attempted assignment without such consent
shall be null and void.
Section 1.2 No transferee of an Interest shall be admitted as a substitute
Member without the written consent of the other Member(s).
Section 1.3 No assignee of a Member's Interest shall be admitted as a
substituted Member and no additional person shall be admitted as a Member unless
and until such substituted or additional Member signs this Agreement.
ARTICLE 10.
LEGAL AND ACCOUNTING FEES
Each of the Members shall bear its own legal fees and accounting fees in
connection with the preparation and execution of the License Agreement, the
Supply Agreement and the Distribution Agreement, as the case may be.
ARTICLE 11.
AFTER-ACQUIRED INTERESTS AND
ISSUANCE OF ADDITIONAL INTERESTS
Section 11.1 After-Acquired Interests. All of the provisions of this
Agreement shall apply also to any and all Interests which may be issued or
transferred to or acquired hereafter by a Member and/or to its transferees in
consequence of any additional issuance, purchase or other disposition of
Interests, or any form of recapitalization, or consolidation, or merger, or
otherwise.
Section 11.2 Issuance of Additional Interests. If any Person receives an
additional equity interest in the LLC, the Members shall share, pro rata, in any
dilution resulting from the issuance of such Interest.
ARTICLE 12.
PURCHASE AND SALE OF SWEET INTEREST
Section 12.1 Mandatory Purchase and Sale of Sweet Interest. On January 31,
2003, Candie's Inc. shall become obligated to purchase Sweet's Interest and
Sweet shall become obligated to sell its Interest to Candie's pursuant to the
terms and conditions set forth in Sections 12.2 and 12.3 hereof. Candie's, in
its sole discretion, shall have the right to pay the Purchase Price (as defined
in Section 12.2 hereof) for Sweet's Interest in cash or shares of its common
stock. In the event that Candie's elects to pay the Purchase Price in Candie's
common stock, the following conditions shall apply; (a) the per-share value (the
"Stock Price") shall be the average closing sales price of Candie's common
stock, as reported by the Nasdaq Stock Market (or the principal market on which
its shares are then traded), during the period commencing December 15, 2002, and
ending March 15, 2003 (the "Valuation Period"); (b) the shares shall be
registered and free of any restrictions except as to voting rights; and (c)
Sweet shall have the right to designate one member of the Candie's Board of
Directors for a twenty-four (24) month term following the closing of the
purchase, but for only so long as Sweet owns all of such shares.
Section 12.2 Purchase Price of Sweet Interest. The Purchase Price of
Sweet's Interest will be 50% of 7.5 times EBITDA. "EBITDA" shall mean the
profits (earnings) of the LLC before interest, taxes, depreciation and
amortization (excluding amortization for leasehold improvements, store fixtures
and purchases under paragraph 7.2(ii) hereof) for the Base Year (the "Purchase
Price").
Section 12.3 Closing and Payment. The closing of the purchase and sale of
Sweet's Interest and the payment by Candie's for Sweet's Interest pursuant to
the provisions of this Article 12 shall be as follows:
12.3.1. In the event that Candie's elects to purchase Sweet's Interest for
cash, the closing shall take place no later than February 15, 2003, at
which time Candie's shall deliver to Sweet the Purchase Price in
immediately available funds (the "Cash Closing");
12.3.2. In the event Candie's elects to purchase Sweet's Interest in
exchange for shares of its common stock, the closing shall take place
no later than April 5, 2003, at which time, Candie's shall deliver
that number of shares of its common stock, registered in the name of
Sweet, which is equal to the quotient of the Purchase Price divided by
the Stock Price (the "Stock Closing").
12.3.3. The Cash Closing or the Stock Closing shall take place at 10:00
A.M. local time at the offices of Xxxxxx Xxxxxxxxxx LLP, or at such
other time and place as the parties hereto agree.
Section 12.4 Transition Period. For the six (6) month period immediately
following the closing of Candie's purchase of Sweet's Interest in the LLC (the
"Transition Period"), all of the terms contained in the Supply Agreement and the
Distribution Agreement shall remain in full force and effect.
ARTICLE 13.
CERTAIN COVENANTS
Section 13.1 Confidentiality. Each of the Members, and Azteca and Candie's
acknowledges that it will acquire confidential information with respect to the
LLC and the other parties hereto and any successors or affiliates thereof and
the businesses they each conduct. In connection therewith, each of the parties
hereto covenants that it and its officers, directors and agents shall refrain
from disclosing at any time any such confidential information, other than in
connection with the performance of its duties or pursuant to this Agreement, the
Azteca Guaranty, the Candie's Guaranty, the License Agreement, the Supply
Agreement and the Distribution Agreement. Each of the parties hereto recognizes
that its relationship with the other parties hereto and the LLC and any
successors or affiliates thereof is one of high trust and confidence by reason
of its access to and contact with the trade secrets and other confidential
information of the other parties hereto and the LLC and any successors or
affiliates thereof, including, without limitation, technical, financial and
commercial matters, and also with respect to such secrets and information of the
other parties' or the LLC's and its successors' and affiliates' clients,
suppliers and other parties to whom the other parties hereto or the LLC and any
successors or affiliates thereof may owe an obligation of confidence.
Accordingly, each of the parties hereto and its employees, officers,
directors, representatives and agents shall not, without the prior written
consent of the other parties hereto and the LLC (which consent may be withheld
for any or no reason), divulge or make accessible to any third person, or use
for its or his own benefit or for any purpose, other than the exclusive benefit
of the LLC or any successor or affiliate thereof, any confidential information
concerning its business and affairs obtained by it and its officers, directors
and agents, including, but not limited to, information relating to the other
parties' or the LLC's and its successors' and affiliates' inventions,
improvements, products, trade secrets, services, finances, business or other
operations or activities, and to its relationships with actual or potential
clients and suppliers and the needs and requirements of any such actual or
potential clients and suppliers; it being the intent of this Section 13.1 that
its employees, and its officers, directors, representatives and agents shall not
so divulge or use any such information which is unpublished or not readily
available to the general public. However, nothing contained in this Section 13.1
shall restrict it and its employees', officers', directors', representatives'
and agents' ability to make such disclosures as may be necessary or appropriate
to the effective and efficient discharge of its duties to, or for the benefit
of, the LLC or any successor or affiliate thereof.
For the purpose of this Section 13.1, the provisions of this Agreement (as
the same may be amended or supplemented from time to time) are hereby deemed to
be confidential information concerning the LLC's and its successors' and
affiliates' business and affairs, the disclosure of which by any of the parties
hereto to any person (other than its legal counsel) would do irreparable harm to
the LLC and its successors and affiliates. If the Management Committee
determines that any party hereto has disclosed information concerning this
Agreement in violation of the provisions of this Agreement, the Management
Committee, by notice to such party, may terminate forthwith any right of such
party, as the case may be, to receive any compensation or other amounts
otherwise due hereunder.
Section 13.2 Delivery of Confidential Information. At any time upon request
of the Management Committee, any party shall promptly deliver to the LLC all
tangible evidence of such confidential information, including, without
limitation, all notes, memoranda, records, files and other documents which
relate to the business of the LLC.
Section 13.3 No Hiring.
Whether pursuant to an agreement or otherwise, and for a period of three
(3) years thereafter, no party hereto shall:
(i) directly or indirectly, solicit, entice or induce any employee of the
LLC or of the other parties hereto or any successors or affiliates
thereof or any independent contractor regularly doing business with
the LLC or the other parties hereto or any successors or affiliates
thereof, to be employed by it, or to enter into an independent
contractor relationship with any such person; or
(ii) actually hire any such employee or engage any such independent
contractor; or
(iii)authorize or approve the taking of such actions by other persons on
behalf of any person, or assist any such person, in taking such
action;
(iv) engage in any gossip, defamation, or deviation from professional
standards or government regulations in connection with their
respective work for the LLC or the other parties hereto or any
successors or affiliates thereof.
Section 13.4 Other Remedies.
The services rendered and to be rendered to the LLC or any successor or
affiliate thereof by each party hereto during the Term by the LLC and any
successor or affiliate thereof are of a special, unique and extraordinary
character and are of such nature that it would be very difficult or impossible
to replace such services; irreparable injury would be sustained by the LLC or
any successor or affiliate thereof in the event of a violation by any Member of
any of the provisions of this Article 13; and monetary damages would not be an
adequate remedy for any such violation. Accordingly, each party hereto consents
and agrees that if it violates any of the provisions of this Article 13, in
addition to any other right or remedy available to it, the LLC and any successor
or affiliate thereof shall be entitled to an injunction to be issued by any
court of competent jurisdiction, without bond, restraining such party, as the
case may be, from committing or continuing any violation of this Article 13.
The existence of any claims which any party hereto, may have against the
LLC or any other party hereto or any successors or affiliates thereof, whether
under this Agreement or otherwise, shall not be a defense to the enforcement by
the LLC or such party hereto and any successors or affiliates thereof of any of
its rights under this Article 13.
It is the intent of the parties hereto that the covenants contained in this
Article 13 shall be enforced to the fullest extent permissible under the laws
and public policies of each jurisdiction in which enforcement is sought (each
party hereby acknowledging that such restrictions are reasonably necessary for
the protection of the LLC and any successor or affiliate thereof). Accordingly,
it is hereby agreed that if any of the provisions of this Article 13 shall be
adjudicated to be invalid or unenforceable for any reason whatsoever, such
provision shall be (only with respect to the operation thereof in the particular
jurisdiction in which such adjudication is made) construed by such court by
limiting or reducing such provision so as to be enforceable to the extent
permissible (and any such court is hereby expressly authorized to fix and
determine such limits or reduction), without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
The covenants of any party hereto contained in this Article 13 shall be in
addition to, and not in lieu of, any obligations which any party may have with
respect to the subject matter hereof, whether by contract, as a matter of law or
otherwise, and in the event of any conflict between the provisions of this
Article 13 and any such other obligations, those that provide the parties
hereto, the LLC and its successors and affiliates thereof with the broadest and
most effective protection shall apply.
ARTICLE 14.
SPECIFIC PERFORMANCE
Inasmuch as the Interests are closely held and the market therefor is
limited, irreparable damage would result if this Agreement is not specifically
enforced. Therefore, the rights and obligations to offer for sale and to
purchase any of the Interests shall be enforceable in a court of equity by a
decree of specific performance, and appropriate injunctive relief may be applied
for and granted in connection therewith. Such remedies shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
ARTICLE 15.
BOOKS AND RECORDS; FISCAL YEAR; ACCOUNTING; BANKING; REPORTS
Section 15.1 Books, Records and Financial Statements. At all times during
the continuance of the LLC, the LLC shall maintain, at its offices in Commerce,
California, separate books of account for the LLC that shall show a true and
accurate record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with the
operation of the LLC's business. Such books of account shall be open to
inspection and examination during regular business hours by each Member and its
duly authorized representative for any purpose. Any such inspection and
examination shall be conducted in a manner that does not unreasonably interfere
with the other business activities being conducted at the offices of the LLC.
Section 15.2 Fiscal Year.
The fiscal year of the LLC shall commence February 1 and terminate on
January 31 of the following calendar year.
Section 15.3 Accounting; Accounting Method. For tax reporting purposes and
for purposes of determining Profits and Losses, the books and records of the LLC
shall be kept on the accrual method of accounting in accordance with generally
accepted accounting principles consistently applied. The books of account and
records of the LLC shall be prepared by the LLC and audited by Accountant.
Section 15.4 Management Reports. As soon as practicable, after the end of
each fiscal quarter (except for the fourth quarter), but not later than thirty
(30) days after the end of each such fiscal quarter, the LLC shall cause to be
prepared and shall provide to the Management Committee and each of the Members
quarterly statements, including statements of Profits and Losses, Cash Flow and
balance sheets.
Section 15.5 Financial Statements and Tax Information. As soon as
practicable after the end of each fiscal year, but not later than sixty (60)
days after such end:
(a) The financial statements of the LLC shall be prepared by the LLC and
audited by the Accountant, and such financial statements shall be
accompanied by a report of the Accountant, containing its opinion that
such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied. The
cost of preparation of such statements shall be an expense of the LLC.
A copy of the financial statements and the report of the Accountant
shall be furnished to each Member within ten (10) business days after
their receipt by the Management Committee.
(b) The information necessary for the preparation by each Member of its
federal, state and other income tax returns shall be prepared by the
Accountant and delivered by the Management Committee to each Member.
Section 16.6 Banking. The Management Committee, at any time and from time
to time on behalf of the LLC, may open such bank accounts, make such deposits
therein and acquire for investment such certificates of deposit, United States
Treasury Bills, commercial paper and other short-term debt obligations as they
shall jointly determine. All uninvested funds of the LLC shall be deposited in a
bank account of the LLC. All funds so credited to the LLC in any such account
shall be subject to withdrawal by checks made in the name of the LLC and signed
as provided in this Agreement.
ARTICLE 16.
TAX MATTERS
Sweet is hereby designated as the "Tax Matters Partner" (as such term is
defined in the Code and the Treasury Regulations promulgated thereunder) for
purposes of federal and state income tax matters. In the event of Sweet's
failure to act as Tax Matters Partner, Xxxxxx without any further action, shall
become the Tax Matters Partner. The Tax Matters Partner shall cause the
preparation and timely filing of all tax returns required to be filed by the LLC
pursuant to the Code and all other tax returns deemed by it to be necessary and
required in each jurisdiction in which the LLC does business.
ARTICLE 17.
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 17.6 Liability of Members.
17.6.1. Except as otherwise provided by the Act, the debts, obligations and
liabilities of the LLC, whether arising in contract, tort or
otherwise, shall be the debts, obligations and liabilities solely of
the LLC, and no Covered Person shall be obligated personally for any
such debt, obligation, or liability of the LLC solely by reason of
being a Covered Person.
17.6.2. Except as otherwise expressly required by law, a Member, in its
capacity as such, shall have no liability in excess of (a) the amount
of its Capital Contribution, (b) its share of any assets and
undistributed Profits of the LLC, (c) its obligation to make other
payments expressly provided for in this Agreement, if any, and (d) the
amount of any distributions wrongfully made to it.
Section 17.7 Liability of Managers. The Managers shall not be liable, in
damages or otherwise, to the LLC or any Member for any act or failure to act by
the Managers which act was within the scope of the authority conferred on the
Managers by this Agreement, unless such act or omission constituted fraud or
willful misconduct. The Managers shall be indemnified by the LLC against
liability for any claim, demand, tax penalty, loss, damage, liability or expense
(including, without limitation, amounts paid in settlement, reasonable costs of
investigation and reasonable legal fees and expenses) resulting from any
threatened, pending or completed action, suit or proceeding naming as a
defendant any Manager by reason of acts or omissions by him within the scope of
his authority as set forth in this Agreement, provided his actions did not
constitute fraud or willful misconduct.
Section 17.8 Exculpation.
17.8.1. No Covered Person shall be liable to the LLC or any other Covered
Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Covered Person on behalf of the
LLC and in a manner reasonably within the scope of authority conferred
on such Covered Person by this Agreement or otherwise, except that a
Covered Person shall be liable for any such loss, damage or claim
incurred by reason of such Covered Person's fraud or willful
misconduct.
17.8.2. A Covered Person shall be fully protected in relying in good faith
upon the records maintained by the LLC and upon such information,
opinions, reports or statements presented to the LLC by any Person as
to matters reasonably within such other Person's professional or
expert competence, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities,
Profits, Losses or distributions or any other facts pertinent to the
existence and amount of assets from which distributions to Members
might properly be paid.
Section 17.9 Fiduciary Duty.
17.9.1. To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto
to the LLC or to any other Covered Person, a Covered Person acting
under this Agreement shall not be liable to the LLC or to any other
Covered Person for its good faith reliance on the provisions of this
Agreement.
17.9.2. Unless otherwise expressly provided herein, whenever a conflict of
interest exists or arises between Covered Persons, the Covered Person
shall resolve such conflict of interest in good faith, considering in
each case (a) the relative interests of each party (including its own
interests) in such conflict, agreement, transaction or situation, (b)
the benefits and burdens relating to such interests, (c) any customary
or accepted industry practices, (d) any applicable generally accepted
accounting practices or principles, and (e) in the case of any
transaction, the terms of similar transactions among unrelated third
parties. In the absence of bad faith by the Covered Person, the
resolution, action or terms so made, taken or provided by the Covered
Person shall not constitute a breach of this Agreement or any other
agreement contemplated herein or of any duty or obligation of the
Covered Person at law or in equity or otherwise.
Section 17.10 Indemnification by the LLC. To the fullest extent permitted
by applicable law, a Covered Person shall be entitled to indemnification from
the LLC for any loss, damage or claim (including reasonable legal fees) incurred
by such Covered Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of the LLC and in a manner
reasonably within the scope of authority conferred on such Covered Person by
this Agreement and otherwise, except that no Covered Person shall be entitled to
be indemnified in respect of any loss, damage or claim incurred by such Covered
Person (a) by reason of gross negligence or willful misconduct with respect to
such acts or omissions or (b) in breach of this Agreement; provided, however,
that any indemnity under this Section 17.5 hereof shall be provided out of and
to the extent of LLC assets only, and no Covered Person shall have any personal
liability on account thereof.
Section 17.11 Indemnification Procedure. Any person asserting a right to
indemnification under Section 17.5 hereof shall so notify the Management
Committee, in writing pursuant to the notice requirements of Section 21.1
hereof. With respect to those claims governed by Section 17.5 hereof, the
Management Committee shall be entitled to control the defense or prosecution of
such claim or demand in the name of the indemnified person. The parties hereto
shall cooperate in the prosecution or defense against any claims and shall
furnish such records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may reasonably be
requested in connection therewith.
Section 17.12 Expenses. To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by a Covered Person in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced
by the LLC prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the LLC of an undertaking by or on behalf of the
Covered Person to repay such amount if it shall be determined that the Covered
Person is not entitled to be indemnified as authorized in Section 17.5 hereof.
ARTICLE 18.
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 18.6 No Dissolution on Admission of Substitute Members. The LLC
shall not be dissolved by the admission of substituted or additional Members in
accordance with the terms of this Agreement.
Section 18.7 Events Causing Dissolution. The LLC shall be dissolved and its
affairs shall be wound up upon the occurrence of any of the following events:
18.7.1. The unanimous consent of the Members;
18.7.2. In the event of the resignation, expulsion, Bankruptcy or
dissolution of the last remaining Manager, unless, within ninety (90)
days after the occurrence of such an event, the remaining Members
holding at least 50% of their Interests agree in writing to continue
the business of the LLC and appoint one or more Managers;
18.7.3. The entry of a decree of judicial dissolution under the Act; or
18.7.4. The expiration of the Term.
Section 18.8 Notice of Dissolution. Upon the dissolution of the LLC, the
Management Committee shall promptly notify the Members of such dissolution.
Section 18.9 Liquidation. Upon dissolution of the LLC, the Management
Committee shall immediately commence to wind up the LLC's affairs; provided,
however, that a reasonable time shall be allowed for the orderly liquidation of
the assets of the LLC and the satisfaction of liabilities to creditors so as to
enable the Members to minimize the normal losses attendant upon a liquidation.
The Members shall continue to share Profits and Losses during liquidation in the
same proportions, as specified in Article 6 hereof. Each Member shall be
furnished with a statement prepared by the Accountant that shall set forth the
assets and liabilities of the LLC as of the date of dissolution. The proceeds of
liquidation shall be distributed, as realized, in the following order and
priority:
(a) To the creditors of the LLC, including Members who are creditors to
the extent permitted by law, in satisfaction of the liabilities of the
LLC (whether by payment or the making of reasonable provision for
payment thereof).
(b) All remaining proceeds in liquidation of the LLC shall be allocated
and distributed to the Members pursuant to the provisions of Article 6
hereof and, if any assets are distributed in kind the difference
between the LLC's cost basis for the distributed LLC Property and the
fair market value of such LLC Property on the date distributed (to the
extent such difference had not previously been reflected in Profits or
Losses) shall be allocated among the Members and shall adjust their
Capital Accounts pursuant to Article 4 hereof immediately before such
distribution.
(c) (_)To the Members the remaining proceeds of liquidation in accordance
with their respective Interests.
Section 18.10 Claims of the Members. The Members and assignees shall look
solely to LLC Property for the return of their Capital Contributions and if the
assets of the LLC remaining after payment of or due provision for all
liabilities of the LLC are insufficient to return such Capital Contributions the
Members and assignees shall have no recourse against the LLC, the Managers or
any other Member.
Section 18.11 Partition. Each Member waives, until termination of the LLC,
any and all rights that he may have to maintain an action for partition of the
LLC Property.
ARTICLE 19.
POWER OF ATTORNEY
Section i.1 Each Member hereby irrevocably makes, constitutes and appoints
each of the Managers as its true and lawful attorney-in-fact, with power and
authority in its name, place and stead, to make, execute, sign, acknowledge and
file on behalf of each of them and on behalf of the LLC: (a) such Certificate as
may be required or permitted pursuant to the provisions of this Agreement or by
the Act or any other applicable law; (b) such amendments to the Certificate as
the Management Committee shall deem necessary or desirable or as may be required
by the Act or any other applicable law and which are not inconsistent with the
terms of this Agreement; (c) all papers which may be deemed necessary or
desirable by the Management Committee to reflect a reduction of Capital
Contributions or to effect the termination of the LLC after its dissolution as
provided in this Agreement; and (d) all such other instruments, documents and
certificates which the Management Committee shall deem necessary or desirable to
effectuate, implement and continue the valid and subsisting existence of the LLC
and its power to carry out its purposes as set forth in this Agreement and which
are not inconsistent with the terms of this Agreement.
Section i.2 The foregoing appointment (a) is irrevocable and shall be
deemed to be a power coupled with an interest; (b) shall survive the death,
incompetency, dissolution, liquidation and winding up, or Bankruptcy of any
Member granting the same and the transfer, by operation of law or otherwise, by
any such granting Member; and (c) may be exercised by the Management Committee
on behalf of each Member by listing all of the Members executing any instrument
with a single signature of any Manager, as attorney-in-fact for all of them.
ARTICLE 20.
GOVERNING LAW; ARBITRATION
Section 20.1 Governing Law. This Agreement is intended to be governed by,
interpreted and enforced in accordance with the laws of Delaware, including the
Act, without giving effect to conflicts of law principles of the State of
Delaware.
Section 20.2 Arbitration. Any controversy or claim arising out or relating
to this Agreement or the validity, interpretation, enforceability or breach
thereof, which is not resolved by agreement between the parties, shall be
resolved by binding arbitration in accordance with the Rules of the American
Arbitration Association at the time in effect, and judgment upon the award
rendered in such arbitration may be entered in any court having jurisdiction
thereof. The arbitration proceedings shall take place in (i) Los Angeles County,
California if the party bringing such arbitration is Xxxxxx or (ii) in New York
County, New York if the party bringing such arbitration is Sweet. All expenses
(including, without limitation, legal fees and expenses) incurred by the
prevailing party in such arbitration in connection with, or in prosecuting or
defending, any such claim or controversy shall be paid by the other party.
ARTICLE 21.
MISCELLANEOUS
Section 21.1 Notices. All notices, requests, demands and other
communications given hereunder shall be in writing and shall be deemed to have
been duly given: (a) on the date of delivery, if delivered personally or by
messenger, (b) on the first business day following the date of timely deposit
with Federal Express or other nationally recognized overnight courier service,
if sent by such courier specifying next day delivery, (c) upon receipt of
confirmation of transmission, if transmitted by facsimile; and (d) on the third
business day after mailing, if mailed by registered or certified mail (postage
prepaid, return receipt requested); provided, however, that a notice of change
of address or facsimile number shall not be deemed to have been given until
actually received by the addressee. All such notices, requests, demands and
other communications shall be addressed as set forth on Schedule 2.1 or to such
other address or facsimile number as either party hereto may designate to the
other party hereto by like notice and a copy of all such notices, requests,
demands, and other communications, shall be sent to Xxxxxx Xxxxxxxxxx, LLP, 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attn: Xxxxxxx X. Xxxxxxx, Esq.
Section 21.2 Failure to Pursue Remedies. The failure of any party to seek
redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 21.3 Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive the right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
Section 21.4 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and assigns.
Section 21.5 Interpretation. As used in this Agreement, unless the context
otherwise requires: words describing the singular number shall include the
plural and vice versa; words denoting any gender shall include all genders;
words denoting natural persons shall include corporations, partnerships and
other entities, and vice versa; and the words "hereof", "herein" and
"hereunder", and words of similar import, shall refer to this Agreement as a
whole, and not to any particular provision of this Agreement.
Section 21.6 Headings. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provisions hereof.
Section 21.7 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section 21.8 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts shall be construed together and shall constitute one
instrument.
Section 21.9 Integration. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
XXXXXXX XXXXXX & CO., INC.
By: /s/ Xxxx Xxxx
---------------------------
President
SWEET SPORTSWEAR, LLC
By: /s/ Xxxxxx Xxxx
---------------------------
President
UNZIPPED APPAREL LLC
By: /s/ Xxxx Xxxx
---------------------------
Manager
For purposes of guaranteeing the obligations of the Members as set forth in
Section 4.8 of this Agreement as well as the provisions contained in Section
13.1 and Article 12 hereof, as applicable, the undersigned hereby consent and
agree as of the date hereof.
AZTECA PRODUCTION INTERNATIONAL, INC., as Guarantor
By: /s/ Xxxxxx Xxxx
---------------------------
President
CANDIE'S INC., as Guarantor
By: /s/ Xxxx Xxxx
---------------------------
Xxxx Xxxx, President
ACKNOWLEDGMENTS
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Xxxx Xxxx who, I am satisfied, is the person who
signed the within instrument as president of Xxxxxxx Xxxxxx & Co., Inc., the
corporation named therein, and this person thereupon acknowledged that the said
instrument made by the corporation, was signed and delivered by this person as
president and is the voluntary act and deed of the corporation.
/s/ X. Xxxxxxx
---------------
Notary Public
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Xxxxxx Xxxx who, I am satisfied, is the person
who signed the within instrument as Manager of Sweet Sportswear, LLC, the
limited liability company named therein, and this person thereupon acknowledged
that the said instrument made by the limited liability company, was signed and
delivered by this person as such Manager and is the voluntary act and deed of
the limited liability company.
/s/ X. Xxxxxxx
---------------
Notary Public
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Xxxx Xxxx who, I am satisfied, is the person who
signed the within instrument as Manager of Unzipped Apparel LLC, the limited
liability company named therein, and this person thereupon acknowledged that the
said instrument made by the limited liability company, was signed and delivered
by this person as such Manager and is the voluntary act and deed of the limited
liability company.
/s/ X. Xxxxxxx
---------------
Notary Public
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Xxxxxx Xxxx who, I am satisfied, is the person
who signed the within instrument as President of Azteca Production
International, Inc., the corporation named therein, and this person thereupon
acknowledged that the said instrument made by the corporation, was signed and
delivered by this person as such President and is the voluntary act and deed of
the corporation.
/s/ X. Xxxxxxx
---------------
Notary Public
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Xxxx Xxxx who, I am satisfied, is the person who
signed the within instrument as president of Candie's, Inc. the corporation
named therein, and this person thereupon acknowledged that the said instrument
made by the corporation, was signed and delivered by this person as president
and is the voluntary act and deed of the corporation.
/s/ X. Xxxxxxx
---------------
Notary Public
TABLE OF CONTENTS
Page
ARTICLE 1.........................................................................................................1
Section 1.1 Definitions..................................................................................1
ARTICLE 2. OPERATION; NAME; ADDRESS; QUALIFICATIONS TO DO BUSINESS................................................5
Section 2.1 Operation....................................................................................5
Section 2.2 Name.........................................................................................6
Section 2.3 Principal Place of Business..................................................................6
Section 2.4 Term.........................................................................................6
Section 2.5 Qualification in Other Jurisdictions.........................................................6
Section 2.6 Partnership Status...........................................................................6
Section 2.7 Service of Process...........................................................................7
ARTICLE 3. PURPOSE AND POWERS OF THE LLC..........................................................................7
Section 3.1 Purpose......................................................................................7
Section 3.2 Powers of the LLC............................................................................7
ARTICLE 4.........................................................................................................8
Section 4.1 Initial Capital Contributions to the LLC.....................................................8
Section 4.2 Use of Proceeds..............................................................................8
Section 4.3 Interests....................................................................................9
Section 4.4 Status of Capital Contributions..............................................................9
Section 4.5 Financing and Additional Capital.............................................................9
Section 4.6 Capital Accounts............................................................................11
Section 4.7 Return of Capital Contributions.............................................................12
Section 4.8 Guarantees of Member Interests..............................................................12
ARTICLE 5........................................................................................................12
Section 5.1 Representations and Warranties of Xxxxxx....................................................12
Section 5.2 Representations and Warranties of Sweet.....................................................15
ARTICLE 6........................................................................................................17
Section 6.1 Allocations of Profits, Losses and Cash Flow................................................17
Section 6.2 Time of Allocation..........................................................................17
Section 6.3 Distributions of Cash Flow..................................................................17
Section 6.4 Limitations on Distributions................................................................18
Section 6.5 Amounts Withheld............................................................................18
Section 6.6 Tax Allocations: Section 704(c) of the Code.................................................18
ARTICLE 7........................................................................................................19
Section 7.1 Designation of Management Committee.........................................................19
Section 7.2 Authority of the Management Committee.......................................................19
Section 7.3 Time Commitment of Managers.................................................................21
Section 7.4 Resignation in Certain Events...............................................................22
Section 7.5 Initial Managers and Officers of the LLC....................................................22
ARTICLE 8........................................................................................................22
ARTICLE 9........................................................................................................22
ARTICLE 10.......................................................................................................23
ARTICLE 11.......................................................................................................23
Section 11.1 After-Acquired Interests..................................................................23
Section 11.2 Issuance of Additional Interests..........................................................24
ARTICLE 12.......................................................................................................24
Section 12.1 Mandatory Purchase and Sale of Sweet Interest..............................................24
Section 12.2 Purchase Price of Sweet Interest...........................................................24
Section 12.3 Closing and Payment........................................................................24
Section 12.4 Transition Period..........................................................................25
ARTICLE 13.......................................................................................................25
Section 13.1 Confidentiality............................................................................25
Section 13.2 Delivery of Confidential Information.......................................................27
Section 13.3 No Hiring..................................................................................27
Section 13.4 Other Remedies.............................................................................27
ARTICLE 14.......................................................................................................28
ARTICLE 15. BOOKS AND RECORDS; FISCAL YEAR; ACCOUNTING; BANKING; REPORTS.........................................29
Section 15.1 Books, Records and Financial Statements....................................................29
Section 15.2 Fiscal Year................................................................................29
Section 15.3 Accounting; Accounting Method..............................................................29
Section 15.4 Management Reports.........................................................................29
Section 15.5 Financial Statements and Tax Information...................................................30
Section 16.6 Banking....................................................................................30
ARTICLE 16. TAX MATTERS..........................................................................................30
ARTICLE 17. LIABILITY, EXCULPATION AND INDEMNIFICATION...........................................................31
Section 17.6 Liability of Members.......................................................................31
Section 17.7 Liability of Managers......................................................................31
Section 17.8 Exculpation................................................................................31
Section 17.9 Fiduciary Duty.............................................................................32
Section 17.10 Indemnification by the LLC................................................................33
Section 17.11 Indemnification Procedure.................................................................33
Section 17.12 Expenses..................................................................................33
ARTICLE 18. DISSOLUTION, LIQUIDATION AND TERMINATION.............................................................34
Section 18.6 No Dissolution on Admission of Substitute Members..........................................34
Section 18.7 Events Causing Dissolution.................................................................34
Section 18.8 Notice of Dissolution......................................................................34
Section 18.9 Liquidation................................................................................34
Section 18.10 Claims of the Members.....................................................................35
Section 18.11 Partition.................................................................................35
ARTICLE 19.......................................................................................................35
ARTICLE 20.......................................................................................................36
Section 20.1 Governing Law..............................................................................36
Section 20.2 Arbitration................................................................................36
ARTICLE 21.......................................................................................................37
Section 21.1 Notices....................................................................................37
Section 21.2 Failure to Pursue Remedies.................................................................37
Section 21.3 Cumulative Remedies........................................................................37
Section 21.4 Binding Effect.............................................................................37
Section 21.5 Interpretation.............................................................................38
Section 21.6 Headings...................................................................................38
Section 21.7 Severability...............................................................................38
Section 21.8 Counterparts...............................................................................38
Section 21.9 Integration................................................................................38
LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
UNZIPPED APPAREL LLC
SCHEDULE 1.2
Member Address
Xxxxxxx Xxxxxx & Co., Inc. 0000 Xxxxxxxxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx 00000
Sweet Sportswear, LLC 0000 Xxxxxxx Xxx. Xxxxxxxx, Xxxxxxxxxx 00000
EXHIBIT A
"Candie's" License Agreement
EXHIBIT B
"Bongo" License Agreement
EXHIBIT C
Supply Agreement
EXHIBIT D
Distribution Agreement
EXHIBIT E
Azteca Guaranty
EXHIBIT F
Candie's Guaranty
EXHIBIT G
Business Plan
[to be completed within 30 days
of the date of this Operating Agreement]
EXHIBIT H
Operating Responsibilities
