MANAGEMENT AGREEMENT
This Management Agreement is entered into as of February 26, 1998, between
Stage II Apparel Corp. ("Stage II" or the "Company") , with its principal place
of business at 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000, and Xxxxxxx Xxxxxxx
("Executive" or "Xxxxxxx"), with his principal place of business at 0000
Xxxxxxxx, Xxx Xxxx, XX 00000 (the "Management Agreement").
WHEREAS Xxxx Xxxxx, Xxxxxx Xxxxxxx and Xxxxxx X. Xxxxx (the "Stage II
Shareholders") have entered into a Stock Purchase Agreement to sell Xxxxxxx
Xxxxxxx a total of 1,900,000 shares of the issued and outstanding shares common
stock of Stage II ("SA Common"), subject to certain conditions and other
agreements (the "Stock Purchase Agreement");
WHEREAS the Stage II Shareholders have agreed that they will resign from
the Board of Directors of Stage II (the "Board") and request the remaining
members of the Board to resign, with all resignations to take place seriatim in
favor of nominees of Xxxxxxx, with such resignations becoming effective when
certain requirements of the Securities Exchange Act of 1934 have been met; and
WHEREAS the Stock Purchase Agreement contemplates that Xxxxxxx will become
the President and chief executive officer of Stage II upon terms acceptable to
the Board of Stage II;
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties mutually agree:
1. Scope of Engagement Stage II hereby retains Executive during the Term to
serve as the President and Chief Executive Officer of Stage II to report to the
Board and to perform those functions normally assigned to the chief executive
officer of a company similarly situated to Stage II. As such, among other
things, he shall be in charge of all phases of the Company's business, including
payroll, the hiring and termination of employees, the purchase of inventory,
sales, sales strategies, the pricing of merchandise being sold, and credit
arrangements. During the Term, the Xxxxxxx shall report directly to the Board
and shall devote such business time, labor and energy to the business and
affairs of the Company as Xxxxxxx deems reasonably required to perform his
duties and responsibilities to Stage II. Stage II recognizes that a portion of
Xxxxxxx'x time will be expended on the affairs of X. Xxxxxxx & Co. and its
affiliates, provided however, that the time devoted by him to those activities
will not interfere with his carrying out his duties and responsibilities to
Stage II.
2. Term of Engagement The term of this Management Agreement (the "Term") shall
be three years commencing at and subject to the closing of the transaction
contemplated by the Stock Purchase Agreement (the "Closing"). Any termination of
this Management Agreement prior to the scheduled expiration of the Term shall be
subject to the provisions of Section 9.
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3. Other Obligations of the Executive As a condition precedent to the
effectiveness of this Agreement at the Closing, the Executive agrees that he
will arrange for financing of the Company's accounts receivables and for letters
of credit as reasonably necessary to carry on the business of the Company within
such business plans as he proposes for the Company (the "New Credit Facility")
with the New Credit Facility to commence at the Closing.
4. Reconstitution of the Board As a condition precedent to the effectiveness of
this Agreement at the Closing, the current members of the Board will have
resigned as directors effective upon receipt of an opinion of counsel to Stage
II that ss.14f of the Securities Exchange Act of 1934 has been complied with,
and will have appointed in their stead, the people named in Exhibit A hereto.
5. Compensation and Benefits. During the Term, Executive shall be entitled to
the following compensation and benefits.
a. Salary. The Company shall pay to the Executive and Executive agrees to
accept, in consideration of his services, salary at the annual rate of $200,000
per annum ("Base Salary"), payable in accordance with the Company's normal
payroll practices.
b. Expense Reimbursement. During the Term the Company shall (I) reimburse
the Executive, upon production of accounts and vouchers or other evidence of
payment by the Executive, all in accordance with the Company's regular
procedures in effect from time to time and in form suitable to establish the
validity of the expenses for tax purposes, all reasonable, ordinary and
necessary travel, entertainment, telephone and other business related expenses
incurred by him in the performance of his duties hereunder. Reimbursable
expenses hereunder shall include all airfare, hotel, car service, dining and
related expenses incurred by the Executive when traveling on Company business.
c. Additional Benefits. The Executive shall be entitled to participate
during the Term in any medical, life insurance, pension, bonus, profit-sharing
or similar plan or program that may be maintained by the Company and made
available to its executive officers generally.
d. Non-Qualified Stock Options Effective upon the Closing, the Board shall
adopt:
i. a 1998 Non-Qualified Stock Option Plan - A ("Plan A"), in the
form annexed as Annex A hereto, and grant the Executive non-qualified stock
options to purchase 900,000 shares of SA Common in accordance with Plan A
("Option Plan A"); and
ii. a 1998 Non-Qualified Stock Option Plan - B ("Plan B"), in the
form annexed as Annex B hereto, and grant the Executive non-qualified stock
options to purchase 1,500,000 shares of SA Common in accordance with Plan B.
(Options under both Plans A and B are referred to collectively as the "Option
Plans").
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e. Key Man Life Insurance The Company will acquire life insurance upon the
life of the Executive in the sum required by the financing sources for the New
Credit Facility.
6. Resale of Option Shares and Other Securities
a. Registration of Option Shares. Prior to the first anniversary of the
Closing, the Company shall file with the Securities and Exchange Commission a
registration statement on Form S-8 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") covering the resale by the
Executive of shares of SA Common issuable upon exercise of options granted under
the Option Plans (the "Option Shares") in accordance with Rule 415 under the
Securities Act. The Company will:
i. use its best efforts to maintain the effectiveness of the
Registration Statement in accordance with the applicable provisions of the
Securities Act until the Executive is entitled to freely transfer all of his
Option Shares pursuant to paragraph (k) of Rule 144 under the Securities Act
("Rule 144");
ii. file any documents required for state securities or "blue
sky"clearance in jurisdictions specified in writing by the Executive and use its
best efforts to cause the Option Shares so registered to be and remain qualified
thereunder where qualifications are required to permit the public sale thereof;
and
iii. bear all expenses in connection with the procedures described
in this Section 6(a), other than selling commissions and fees and expenses of
counsel or other advisers, if any, to the Executive.
b. Right of First Refusal. The Executive shall give the Company written
notice of his intention to sell any of his Options Shares under Option Plan A (a
"Resale Notice") at least two business days prior to effecting any sale thereof
(the "Resale Notice Period"). Each Resale Notice shall:
i. set forth the number of Option Shares to be offered for sale (the
"Offered Shares");
ii. indicate the proposed manner of sale; and
iii. offer to sell the Offered Shares to the Company at the closing
price of the SA Common on the trading day immediately preceding the date of the
Resale Notice (the "Offered Share Price"). Upon receipt of each Resale Notice,
the Company shall have the right, but not the obligation, to purchase all or any
part of the Offered Shares for cash against delivery at the Offered Share Price
at any time prior to the expiration of the Resale Notice Period.
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7. Indemnification. Executive shall be entitled to indemnification by the
Company to the fullest extent of the law of the Company's state of
incorporation.
8. Legal Fees of Executive The Company agrees to reimburse Xxxxxxx to the extent
of $5,000.00 for such legal fees as he shall have incurred in negotiating with
the Company and in entering in this Agreement, and upon the approval of the
Compensation Committee as to their reasonableness.
9. Termination.
a. By the Company for Cause. The Company may terminate this Agreement and
all of its obligations to the Executive hereunder for "Cause," which shall be
limited to the Executive's willful misfeasance, malfeasance or nonfeasance in
the performance of his duties to the Company.
b. Death or Disability of the Executive. Upon the death of the Executive
during the Term or a disability that renders the Executive unable for a period
of six consecutive months during the Term to conduct his duties in substantially
the same manner conducted prior thereto, this Agreement shall terminate, and the
Company shall thereupon pay to the Executive or his legal representative, in
complete satisfaction of its obligations hereunder, continuation of the Base
Salary for a period of one year.
c. By the Executive without Good Reason. In the event of the Executive's
voluntarily resignation without "Good Reason" (as defined in paragraph (e)
below), the Company's obligations hereunder shall terminate as of the date of
resignation.
d. By the Company without Cause prior to a Fundamental Change. If this
Agreement is terminated by the Company prior to a "Fundamental Change" (as
defined in paragraph (e) below) other than for Cause or upon the death or
disability of the Executive, then the Executive shall be entitled to receive, in
full satisfaction of the Company's obligations hereunder, two year's Base
Salary, payable within 30 days after the date of termination.
e. Following a Fundamental Change. In the event that, following a
Fundamental Change (as defined below), the Executive's employment with the
Company is terminated by the Executive for Good Reason (as defined below) or by
the Company other than for Cause or the death or disability of the Executive,
the Company shall provide the Executive with a termination settlement in an
amount equal to one year's Base Salary, payable within 30 days after the date of
termination. For purposes of this Section 7:
i. "Fundamental Change" means an event or series of events pursuant to
which the Company:
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(1) sells all or substantially all of its assets to or merges with
any corporation (a "Successor") other than a subsidiary wholly
owned by the Company for at least one year prior thereto;
(2) files or acquiesces to a petition for liquidation or
reorganization of the Company under the U.S. Bankruptcy Code;
or
(3) ceases to conduct operations.
ii. "Good Reason" means any:
(1) diminution of the Employee's responsibilities;
(2) reduction of the Executive's compensation;
(3) purported termination of this Agreement by the Company without
Cause; or
(4) failure by the Company to obtain the express written
assumption of its obligations under this Agreement by any
Successor following a Fundamental Change.
f. Notice. Any purported termination of the Executive's employment by the
Company for Cause or disability or by the Executive for Good Reason following a
fundamental Change shall be communicated by written notice to the other party,
indicating the effective date of termination and the specific basis for
termination, setting forth in reasonable detail the facts and circumstances
claimed for termination on those grounds.
10. Closing The Closing shall take place as provided for in section 1.2 of the
Stock Purchase Agreement.
11. Entire Agreement; Amendments; Waivers. This Management Agreement is the
entire agreement between the parties with respect to the subject matter hereof.
This Management Agreement may not be amended, and no provision hereof shall be
waived, except by a writing signed by all the parties to this agreement, which
states that it is intended to amend or waive a provision of this agreement. Any
waiver of any rights or failure to act in a specific instance shall relate only
to that instance and shall not be construed as an agreement to waive any rights
or failure to act in any other instance, whether or not similar.
12. Severability. Should any provision of this Management Agreement be
unenforceable or prohibited by applicable law, this agreement shall be
considered divisible as to any inoperative provision, and the remainder of this
agreement shall be valid and binding as though the inoperable provision were not
included herein.
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13. Headings and Definitions. All headings in this Management Agreement are for
convenience only and will not affect the meaning of any provision hereof. All
words which are initially capitalized herein to indicate a special definition
and which are not defined in this Management Agreement shall be interpreted as
they are defined in the Purchase Agreement.
14. Successors and Assigns. This Management Agreement shall inure to the benefit
of, and be binding upon, the Company and any corporation with which the Company
merges or consolidates or to which the Company sells all or substantially all of
its assets, and upon the Executive and his executors, administrators, heirs and
legal representatives.
15. Governing Law. This Management Agreement shall be construed and enforced in
accordance with the laws of the State of New York, without reference to the
conflicts of laws principles thereof.
16. Counterparts and Faxed Signatures. This Management Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an original. It
shall not be necessary when making proof of this agreement to account for more
than one counterpart.
Faxed signatures are valid.
IN WITNESS WHEREOF, the undersigned have set their hands and seals on the
date first written above.
STAGE II APPAREL CORP.
By: S\ Xxxx Xxxxx
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Xxxx Xxxxx, an authorized officer
By: S\ Xxxxxxx Xxxxxxx
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Xxxxxxx Xxxxxxx, Executive
EXHIBIT A - DESIGNEES AS DIRECTOR
Xxxxxxx Xxxxxxx, Xxx Xxxxxxx, Xxxxxxx Xxxxxxx, Xxxxxx Xxxxxxxxx and
Xxxxx Xxxxxx.
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