UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
x
|
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended September 30, 2011
o
|
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the transition period from __________________ to ______________________.
Commission file number 0-16075
PEOPLE’S LIBERATION, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of incorporation or organization)
|
|
86-0449546
(I.R.S. Employer Identification No.)
|
1212 S. Flower Street, 5
th
Floor
Los Angeles, CA 90015
(Address of principal executive offices) (Zip Code)
(213) 745-2123
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
(Do not check if smaller reporting company)
|
Smaller reporting company
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of November 15, 2011, the issuer had 36,002,563 shares of common stock, par value $.001 per share, issued and outstanding.
PEOPLE’S LIBERATION, INC.
INDEX TO FORM 10-Q
|
|
Page
|
PART I
|
FINANCIAL INFORMATION
|
3
|
Item 1.
|
Financial Statements
|
3
|
|
Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010
|
3
|
|
Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2011 and September 30, 2010
|
4
|
|
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and September 30, 2010
|
5
|
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
6
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
25
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
45
|
Item 4.
|
Controls and Procedures
|
45
|
|
|
|
PART II
|
OTHER INFORMATION
|
46
|
Item 1A.
|
Risk Factors
|
46
|
Item 6.
|
Exhibits
|
47
|
PART I
FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
PEOPLE’S LIBERATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
137,620
|
|
|
$
|
1,184,743
|
|
Restricted cash
|
|
|
35,227
|
|
|
|
156,248
|
|
Due from factors
|
|
|
-
|
|
|
|
118,358
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
460,756
|
|
|
|
228,309
|
|
Inventories
|
|
|
1,681,792
|
|
|
|
1,612,217
|
|
Prepaid expenses and other current assets
|
|
|
84,035
|
|
|
|
25,281
|
|
Deferred income tax assets, current
|
|
|
-
|
|
|
|
384,000
|
|
Current assets of discontinued operations
|
|
|
-
|
|
|
|
1,824,959
|
|
Total current assets
|
|
|
2,399,430
|
|
|
|
5,534,115
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation and amortization
|
|
|
984,427
|
|
|
|
1,178,056
|
|
Trademarks, net of accumulated amortization
|
|
|
611,813
|
|
|
|
629,799
|
|
Intangible asset
|
|
|
428,572
|
|
|
|
428,572
|
|
Other assets
|
|
|
96,577
|
|
|
|
69,966
|
|
Net deferred income tax asset, long-term
|
|
|
-
|
|
|
|
524,000
|
|
Long-term assets of discontinued operations
|
|
|
-
|
|
|
|
1,075,128
|
|
Total assets
|
|
$
|
4,520,819
|
|
|
$
|
9,439,636
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
3,573,777
|
|
|
$
|
4,671,929
|
|
Due to factors
|
|
|
575,262
|
|
|
|
-
|
|
Advances from related party
|
|
|
165,447
|
|
|
|
-
|
|
Note payable to related parties
|
|
|
750,000
|
|
|
|
-
|
|
Note payable
|
|
|
1,000,000
|
|
|
|
-
|
|
Income taxes payable
|
|
|
60,722
|
|
|
|
21,317
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
895,732
|
|
Total current liabilities
|
|
|
6,125,208
|
|
|
|
5,588,978
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease obligations
|
|
|
413,366
|
|
|
|
382,814
|
|
Note payable to related parties
|
|
|
-
|
|
|
|
750,000
|
|
Long-term liabilities of discontinued operations
|
|
|
-
|
|
|
|
525,673
|
|
Total long-term liabilities
|
|
|
413,366
|
|
|
|
1,658,487
|
|
Total liabilities
|
|
|
6,538,574
|
|
|
|
7,247,465
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 150,000,000 shares authorized; 36,002,563 shares issued and outstanding at September 30, 2011 and December 31, 2010
|
|
|
36,002
|
|
|
|
36,002
|
|
Additional paid-in capital
|
|
|
8,386,333
|
|
|
|
8,170,313
|
|
Accumulated deficit
|
|
|
(4,393,160
|
)
|
|
|
(5,453,514
|
)
|
Total stockholders’ equity
|
|
|
4,029,175
|
|
|
|
2,752,801
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
(6,046,930
|
)
|
|
|
(2,467,241
|
)
|
Noncontrolling interest in discontinued operations
|
|
|
-
|
|
|
|
1,906,611
|
|
Total (deficit) equity
|
|
|
(2,017,755
|
)
|
|
|
2,192,171
|
|
Total liabilities and stockholders’ equity
|
|
$
|
4,520,819
|
|
|
$
|
9,439,636
|
|
See Notes to Condensed Consolidated Financial Statements.
PEOPLE’S LIBERATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net revenue
|
|
$
|
2,608,711
|
|
|
$
|
3,830,806
|
|
|
$
|
7,000,228
|
|
|
$
|
14,750,831
|
|
Cost of goods sold
|
|
|
1,653,936
|
|
|
|
2,605,668
|
|
|
|
5,111,177
|
|
|
|
7,824,955
|
|
Gross profit
|
|
|
954,775
|
|
|
|
1,225,138
|
|
|
|
1,889,051
|
|
|
|
6,925,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, design and production expenses
|
|
|
984,626
|
|
|
|
988,053
|
|
|
|
3,828,407
|
|
|
|
4,758,092
|
|
General and administrative expenses
|
|
|
1,319,649
|
|
|
|
2,630,546
|
|
|
|
4,906,434
|
|
|
|
5,753,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,304,275
|
|
|
|
3,618,599
|
|
|
|
8,734,841
|
|
|
|
10,511,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,349,500
|
)
|
|
|
(2,393,461
|
)
|
|
|
(6,845,790
|
)
|
|
|
(3,585,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(86,789
|
)
|
|
|
(45,643
|
)
|
|
|
(156,727
|
)
|
|
|
(140,422
|
)
|
Other income
|
|
|
-
|
|
|
|
750,000
|
|
|
|
-
|
|
|
|
750,000
|
|
Litigation settlement, net
|
|
|
-
|
|
|
|
-
|
|
|
|
3,513,538
|
|
|
|
-
|
|
Total other (expense) income
|
|
|
(86,789
|
)
|
|
|
704,357
|
|
|
|
3,356,811
|
|
|
|
609,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,436,289
|
)
|
|
|
(1,689,104
|
)
|
|
|
(3,488,979
|
)
|
|
|
(2,976,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
5,790
|
|
|
|
3,500
|
|
|
|
979,790
|
|
|
|
23,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,442,079
|
)
|
|
|
(1,692,604
|
)
|
|
|
(4,468,769
|
)
|
|
|
(2,999,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
-
|
|
|
|
138,782
|
|
|
|
(125,771
|
)
|
|
|
(71,766
|
)
|
Gain on sale of member interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
2,012,323
|
|
|
|
-
|
|
Income (loss) from discontinued operations
|
|
|
-
|
|
|
|
138,782
|
|
|
|
1,886,552
|
|
|
|
(71,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,442,079
|
)
|
|
|
(1,553,822
|
)
|
|
|
(2,582,217
|
)
|
|
|
(3,071,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in continued operations
|
|
|
815,296
|
|
|
|
747,382
|
|
|
|
3,579,686
|
|
|
|
1,425,129
|
|
Noncontrolling interest in discontinued operations
|
|
|
-
|
|
|
|
(69,391
|
)
|
|
|
62,885
|
|
|
|
35,884
|
|
|
|
|
815,296
|
|
|
|
677,991
|
|
|
|
3,642,571
|
|
|
|
1,461,013
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(626,783
|
)
|
|
$
|
(875,831
|
)
|
|
$
|
1,060,354
|
|
|
$
|
(1,610,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss from continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
Basic and diluted income (loss) from discontinued operations
|
|
$
|
-
|
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
(0.00
|
)
|
Basic and diluted (loss) income attributable to common shareholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
Basic and diluted weighted average common shares outstanding
|
|
|
36,002,563
|
|
|
|
36,002,563
|
|
|
|
36,002,563
|
|
|
|
36,002,563
|
|
See Notes to Condensed Consolidated Financial Statements.
PEOPLE’S LIBERATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,582,217
|
)
|
|
$
|
(3,071,400
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
125,771
|
|
|
|
71,766
|
|
Gain on sale of discontinued operations
|
|
|
(2,012,323
|
)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
335,849
|
|
|
|
294,391
|
|
Allowance for doubtful accounts
|
|
|
(7,000
|
)
|
|
|
518,437
|
|
Stock based compensation
|
|
|
77,020
|
|
|
|
63,089
|
|
Warrant issued in sale of receivable
|
|
|
89,000
|
|
|
|
-
|
|
Warrant issued with note payable
|
|
|
50,000
|
|
|
|
-
|
|
Loss on disposal of fixed assets
|
|
|
1,374
|
|
|
|
-
|
|
Deferred income taxes
|
|
|
908,000
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
468,173
|
|
|
|
(760,489
|
)
|
Inventories
|
|
|
(69,575
|
)
|
|
|
(474,309
|
)
|
Prepaid expenses and other current assets
|
|
|
(58,754
|
)
|
|
|
(88,966
|
)
|
Other assets
|
|
|
(26,611
|
)
|
|
|
-
|
|
Accounts payable and accrued expenses
|
|
|
(1,071,069
|
)
|
|
|
1,566,422
|
|
Deferred lease obligations
|
|
|
30,552
|
|
|
|
204,827
|
|
Income taxes payable
|
|
|
39,405
|
|
|
|
16,840
|
|
Net cash flows used in operating activities from continuing operations
|
|
|
(3,702,405
|
)
|
|
|
(1,659,392
|
)
|
Net cash flows (used in) provided by operating activities from discontinued operations
|
|
|
(119,282
|
)
|
|
|
467,884
|
|
Net cash flows used in operating activities
|
|
|
(3,821,687
|
)
|
|
|
(1,191,508
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of receivable
|
|
|
722,916
|
|
|
|
-
|
|
Decrease in restricted cash
|
|
|
121,021
|
|
|
|
824
|
|
Acquisition of trademarks
|
|
|
(20,014
|
)
|
|
|
(61,723
|
)
|
Acquisition of property and equipment
|
|
|
(105,594
|
)
|
|
|
(408,573
|
)
|
Net cash flows provided by (used in) investing activities from continuing operations
|
|
|
718,329
|
|
|
|
(469,472
|
)
|
Cash proceeds received in sale of discontinued operations
|
|
|
900,000
|
|
|
|
-
|
|
Net cash flows used in investing activities from discontinued operations
|
|
|
(9,213
|
)
|
|
|
(399,186
|
)
|
Net cash flows provided by (used in) investing activities
|
|
|
1,609,116
|
|
|
|
(868,658
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Advances from related party
|
|
|
165,448
|
|
|
|
-
|
|
Proceeds from note payable
|
|
|
1,000,000
|
|
|
|
-
|
|
Proceeds from note payable to related parties
|
|
|
-
|
|
|
|
750,000
|
|
Net cash flows provided by financing activities
|
|
|
1,165,448
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,047,123
|
)
|
|
|
(1,310,166
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,184,743
|
|
|
|
1,207,644
|
|
Cash and cash equivalents, end of period
|
|
$
|
137,620
|
|
|
$
|
( 102,522
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
118,575
|
|
|
$
|
140,694
|
|
Income taxes paid
|
|
|
-
|
|
|
|
8,175
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Accumulated noncontrolling interest upon sale of discontinued operations
|
|
|
(1,843,727
|
)
|
|
|
-
|
|
Receivable received in sale of member interest in subsidiary
|
|
|
750,000
|
|
|
|
-
|
|
See Notes to Condensed Consolidated Financial Statements.
1.
|
Presentation of Interim Information
|
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments that, in the opinion of the management of People’s Liberation, Inc. (the “Company”) and subsidiaries are considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Company’s Form 10-K for the year ended December 31, 2010.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The significant assets and liabilities that require management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements included inventories, accounts receivable and due to factor, intangible assets, deferred taxes, accrued expenses, income taxes, stock based compensation and noncontrolling interest. Management is also required to make significant estimates and assumptions related to its disclosure of litigation and the recording of related contingent assets or liabilities, if any.
2.
|
Organization and Nature of Operations
|
Organization
The Company’s wholly-owned subsidiary Versatile Entertainment, Inc. conducts its People’s Liberation brand business. The Company’s William Rast brand business is conducted through its wholly-owned subsidiary Bella Rose, LLC. William Rast Sourcing, LLC and William Rast Licensing, LLC are consolidated under Bella Rose and (through September 30, 2011) were each owned 50% by Bella Rose and 50% by Tennman WR-T, Inc., an entity owned in part by Justin Timberlake. William Rast Retail, LLC, a California limited liability company, was formed on August 26, 2009 and is a wholly-owned subsidiary of William Rast Sourcing. William Rast Retail was formed to operate the Company’s William Rast retail stores.
Effective as of October 1, 2011, the Company recapitalized the ownership of its William Rast branded apparel business. As a result of the recapitalization, both William Rast Sourcing, LLC and William Rast Licensing are owned 82% by Bella Rose and 18% by Tennman WR-T, Inc. See further discussion in Note 18 to the condensed consolidated financial statements included elsewhere in this report.
Prior to its sale on April 26, 2011, the Company’s J. Lindeberg brand business was conducted through Bella Rose. Beginning July 1, 2008 through April 26, 2011, J. Lindeberg USA, LLC was consolidated under Bella Rose and was owned 50% by Bella Rose and 50% by J. Lindeberg USA Corp. an entity owned by J. Lindeberg AB, a Swedish corporation. J. Lindeberg USA Retail, LLC, a California limited liability company, was formed on August 21, 2009 and is a wholly-owned subsidiary of J. Lindeberg USA. J. Lindeberg Retail was formed to operate the Company’s J. Lindeberg retail stores. The operations of J. Lindeberg are shown as discontinued operations in the accompanying condensed consolidated financial statements.
Nature of Operations
The Company markets and sells high-end casual apparel under the brand names “People’s Liberation,” “William Rast” and, in the United States through April 26, 2011, “J. Lindeberg.” The majority of the merchandise the Company offers consists of premium denim, knits, wovens, leather goods, golf wear and outerwear for men and women. In the United States, William Rast Sourcing distributes and J. Lindeberg USA distributed, through April 26, 2011, their merchandise to boutiques, specialty stores and better department stores, such as Nordstrom, Saks Fifth Avenue and Neiman Marcus, as well as online at various websites including williamrast.com, jlindebergusa.com and Zappos.com. Beginning July 2008, and through the date of the sale on April 26, 2011, the Company also marketed and sold its J. Lindeberg branded collection and golf apparel through its retail stores in New York City, Los Angeles and Miami, and sold J. Lindeberg golf wear to green grass golf stores and boutiques in the United States. William Rast products are also sold in the Company’s four retail stores located in Los Angeles, San Jose and Cabazon, California, and Miami, Florida. Internationally, in select countries, William Rast Sourcing sells its products directly and through distributors to better department stores and boutiques.
The Company commenced its William Rast clothing line in May 2005. The Company’s William Rast clothing line is a collaboration with Justin Timberlake.
The Company began distributing J. Lindeberg branded apparel products in the United States on an exclusive basis beginning July 2008 in collaboration with J. Lindeberg USA Corp., a New York corporation and an entity owned by J. Lindeberg AB, a Swedish corporation (collectively, “Lindeberg Sweden”). In addition to being sold in the United States through J. Lindeberg USA, J. Lindeberg branded high-end men’s fashion and premium golf apparel is marketed and sold by Lindeberg Sweden worldwide. On April 26, 2011, the Company completed the sale of Bella Rose’s 50% member interest in J. Lindeberg USA to J. Lindeberg USA Corp. pursuant to the terms of a Unit Purchase Agreement entered into by the parties on April 7, 2011. See further discussion in Note 12 to the Company’s consolidated financial statements.
The Company commenced its People’s Liberation business in July 2004. On December 16, 2008, the Company entered into an agreement with Charlotte Russe Holding, Inc. and its wholly-owned subsidiary, Charlotte Russe Merchandising, Inc. (collectively, “Charlotte Russe”), pursuant to which the Company’s wholly-owned subsidiary, Versatile, agreed to exclusively sell to Charlotte Russe, in North America and Central America, People’s Liberation
®
branded apparel, apparel accessories, eyewear, jewelry, watches, cosmetics and fragrances, and to provide Charlotte Russe with marketing and branding support for People’s Liberation branded apparel and apparel accessories. Commencing in October 2009, the Company was in litigation with Charlotte Russe in relation to the agreement, which litigation was settled by the parties in February 2011. See the further discussion under Note 11 to the condensed consolidated financial statements. The Company is currently exploring options for the marketing and distribution of People’s Liberation branded apparel and apparel accessories both in North America and internationally.
The Company is headquartered in Los Angeles, California, and maintains showrooms in New York and Los Angeles.
Discontinued Operation
The Company accounted for the sale of its 50% member interest in J. Lindeberg, USA as a discontinued operation in accordance with the guidance provided in FASB ASC 360,
Accounting for Impairment or Disposal of Long-Lived Assets
, which requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the statements of operations. Assets and liabilities are also reclassified into separate line items on the related balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items.
Liquidity
For the nine months ended September 30, 2011, the Company recorded a loss from continuing operations of approximately $4.5 million and utilized cash in continuing operations of $3.7 million. As of September 30, 2011, the Company had a working capital deficit of approximately $3.7 million and a total stockholder’s deficiency of approximately $2.0 million. The Company intends to raise funds in the immediate future to finance operations, through strategic transactions with its partners or from traditional financing sources, until the Company is able to achieve positive cash flows from operations. The Company’s capital requirements for the next twelve months, as they relate to the production of its products, will continue to be significant. If adequate funds are not available to satisfy the Company’s capital requirements or a strategic transaction is not timely negotiated, the Company will likely be unable to pay its debts as they become due.
3.
|
Recently Issued Accounting Standards
|
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-4, which amends the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to help achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. The ASU will affect the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.
In June 2011, the FASB issued ASU No. 2011-5, which amends the Comprehensive Income Topic of the ASC. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. It will have no affect on the Company’s results of operations, financial condition or liquidity.
In September 2011, the FASB issued
ASU
2011-08, “Testing Goodwill for Impairment,” an update to existing guidance on the assessment of goodwill impairment. This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process. It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company is currently evaluating the affects adoption of
ASU
2011-08 may have on its goodwill impairment testing, if any.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
4.
|
Noncontrolling Interest
|
In accordance with the provisions of Statement of Financial Accounting Standard No. 160,
Noncontrolling interest in Consolidated Financial Statements – an amendment of ARB No. 51,
superseded by ASC 810-10-65 adopted by the Company on January 1, 2009, the Company allocates profits and losses to each of the members of William Rast Sourcing and William Rast Licensing in accordance with the amended and restated limited liability company operating agreements for such entities, which became effective as of January 1, 2007 (the “Operating Agreements”). Through September 30, 2011, the Operating Agreements provided that losses are allocated to the members of William Rast Sourcing and William Rast Licensing based on their respective percentage interests in such entities and profits are allocated to the members based on their percentage interest to the extent that the member was previously allocated losses. To the extent each member has positive equity in William Rast Sourcing and William Rast Licensing, profits were allocated consistent with the cash distribution terms as follows:
·
|
first to each member in accordance with each member’s respective percentage interest to enable the members to make timely tax payments which shall be treated as advances of, and be offset against, the distributions described below;
|
·
|
second to Tennman WR-T, Inc., an entity owned in part by Justin Timberlake (“Tennman”), in an amount equal to 6% of applicable sales for each calendar quarter with respect to William Rast Sourcing and 3% of applicable sales for each calendar quarter with respect to William Rast Licensing, which are referred to hereafter as contingent priority cash distributions;
|
·
|
third to Bella Rose until the aggregate amount distributed to Bella Rose equals the contingent priority cash distributions made to Tennman; and
|
·
|
thereafter, in accordance with the members’ respective percentage interests.
|
William Rast Sourcing, and its wholly-owned subsidiaries William Rast Retail and William Rast Europe B.V., and William Rast Licensing have accumulated losses totaling approximately $15.7 million from inception (October 1, 2006) through September 30, 2011. Beginning January 1, 2009 through September 30, 2011, approximately $6.0 million of these losses has been allocated to Tennman, the noncontrolling interest member of William Rast Sourcing and William Rast Licensing. Unpaid accumulated contingent priority cash distributions to Tennman amounted to approximately $3.9 million and $3.2 million as of September 30, 2011 and 2010, respectively. If the contingent priority cash distributions were paid to Tennman, such distributions would have been accounted for as decreases in noncontrolling interest in the consolidated balance sheet of the Company. Profit and loss allocations made to Tennman were recorded as increases or decreases in noncontrolling interest in the consolidated statements of operations of the Company. From inception (October 1, 2006) through December 31, 2008, losses were not allocated to noncontrolling interest in accordance with Accounting Research Bulletin 51 because the noncontrolling interest member did not have basis in the capital of William Rast Sourcing and William Rast Licensing, prior to January 1, 2009. Instead, all losses were recognized by Bella Rose in consolidation.
Effective as of October 1, 2011, the Company recapitalized the ownership of its William Rast branded apparel business. As a result of the recapitalization, both William Rast Sourcing, LLC and William Rast Licensing are owned 82% by Bella Rose and 18% by Tennman WR-T, Inc. Beginning October 1, 2011, all operating losses will be allocated to Bella Rose in accordance with the amended and restated operating agreements of William Rast Sourcing and William Rast Licensing. See further discussion in Note 18 to the condensed consolidated financial statements.
Beginning July 1, 2008 through April 26, 2011, the operations of J. Lindeberg USA are included in the consolidated financial statements of the Company. Profit and loss allocations to Lindeberg Sweden were recorded as increases and decreases in noncontrolling interest in the consolidated financial statements of the Company. On April 26, 2011, the Company and its wholly owned subsidiary, Bella Rose, LLC, completed the sale of Bella Rose’s 50% membership interest in J. Lindeberg USA, LLC to J. Lindeberg USA Corp., as further described in Note 12 to the condensed consolidated financial statements.
Basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. The diluted income (loss) per share calculation gives effect to all potentially dilutive common shares outstanding during the period using the treasury stock method for warrants and options.
Warrants representing 16,690,000 shares of common stock at exercise prices ranging from $0.08 to $0.50 per share and stock options representing 7,340,000 shares of common stock at exercise prices ranging from $0.15 to $1.25 per share were outstanding as of September 30, 2011, but were excluded from the average number of common shares outstanding in the calculation of diluted earnings per share for the three and nine months ended September 30, 2011 because the effect of including these shares would have been antidilutive.
Warrants representing 3,565,000 shares of common stock at exercise prices ranging from $0.40 to $2.00 per share and stock options representing 2,675,000 shares of common stock at exercise prices ranging from $0.20 to $1.25 per share were outstanding as of September 30, 2010, but were excluded from the average number of common shares outstanding in the calculation of diluted earnings per share for the three and nine months ended September 30, 2010 because the effect of including these shares would have been antidilutive.
Due (to) from factor from continuing operations is summarized as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Outstanding receivables
|
|
$
|
431,232
|
|
|
$
|
1,798,175
|
|
Advances
|
|
|
(942,245
|
)
|
|
|
(1,634,017
|
)
|
Open credits
|
|
|
(64,249
|
)
|
|
|
(45,800
|
)
|
|
|
$
|
(575,262
|
)
|
|
$
|
118,358
|
|
Included in accounts receivable, as of September 30, 2011 and December 31, 2010, is approximately $386,000 and $161,000, respectively, of net factored accounts receivable with recourse.
As a result of the sale of the Company’s 50% member interest in J. Lindeberg USA on April 26, 2011, the Company terminated its factoring facility with FTC and the guarantees of its related entities were released, as further described in Note 11.
Inventories from continuing operations are summarized as follows:
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Piece goods and trim
|
|
$
|
142,553
|
|
|
$
|
69,407
|
|
Work in process
|
|
|
-
|
|
|
|
11,094
|
|
Finished goods
|
|
|
1,837,888
|
|
|
|
1,866,716
|
|
|
|
|
1,980,441
|
|
|
|
1,947,217
|
|
Less reserve for obsolescence and slow moving inventory
|
|
|
(298,649
|
)
|
|
|
(335,000
|
)
|
|
|
$
|
1,681,792
|
|
|
$
|
1,612,217
|
|
8.
|
Advances from Related Party
|
Advances from related party represent unsecured, non-interest bearing advances from the Company’s Chief Executive Officer, Colin Dyne. There are no formal terms of repayment.
9.
|
Note Payable to Related Parties and Asset Purchase Agreement
|
On August 13, 2010, the Company’s subsidiary, William Rast Licensing, entered into a promissory note in the amount of $750,000 with Mobility Special Situations I, LLC (“Mobility”), an entity owned in part by Mark Dyne, the brother of the Company’s Chief Executive Officer, Colin Dyne, and New Media Retail Concepts, LLC, an entity owned by Gerard Guez, a significant beneficial owner of the Company’s common stock. The promissory note bears interest at 8%, payable monthly in arrears, and is due February 13, 2012. The promissory note is secured by the assets of William Rast Licensing and is guaranteed by the Company’s other entities under common control, including People’s Liberation, Inc., William Rast Sourcing, LLC, William Rast Retail, LLC, Bella Rose, LLC and Versatile Entertainment, Inc.
In connection with the promissory note discussed above, the Company also entered into an asset purchase agreement with New Media Retail Concepts, LLC and ECA Holdings II, LLC on August 13, 2010. In exchange for $750,000 cash, the Company sold 50% of the net proceeds, after legal fees and expenses, that may be received by the Company as a result of its on-going litigation with Charlotte Russe, as further described in Note 11. The Company was not required to repay the $750,000 cash proceeds received from the asset purchase agreement regardless of a favorable or unfavorable outcome of the Charlotte Russe litigation. The $750,000 cash proceeds received from the asset purchase agreement were recorded as other income in the Company’s consolidated statement of operations for the year ended December 31, 2010. New Media Retail Concepts, LLC and ECA Holdings II, LLC each received from Charlotte Russe, in respect to the interest they acquired in the litigation, $2.9 million of the settlement amount paid by Charlotte Russe pursuant to the settlement agreement entered into by all parties to the litigation on February 3, 2011.
The Company entered into the above mentioned promissory note and asset purchase agreement in order to fund a shortfall in cash flow from operations resulting from its litigation with Charlotte Russe. The Company experienced a significant decreased in net sales and cash flows from operations of its People’s Liberation business, and also incurred significant legal and other expenses related to the litigation. The $750,000 purchase price of the asset purchase agreement was determined to be the fair value of the transactions, which included the $750,000 promissory note, based on management’s evaluation of alternative financing arrangements and current market conditions. At the time the Company entered into these transactions, management in consultation with legal counsel, was unable to determine if the Company would prevail or, if in the event the Company did prevail, what the range of potential settlement could be.
On August 18, 2011, the Company, through its subsidiary, William Rast Licensing, LLC, entered into a promissory note with Monto Holdings (Pty) Ltd. (“Monto”). The promissory note in the amount of $1,000,000 is to be repaid as follows: (i) 40.0% of the then outstanding principal amount on December 31, 2011, (ii) 20% of the then outstanding principal amount on February 29, 2012 and (iii) all of the remaining principal amount then outstanding on the maturity date, May 12, 2012. The promissory note bears interest at a rate of 7% per annum, which is payable on the maturity date of the note unless the note is earlier repaid. Upon the occurrence of certain customary events of default, at Monto’s option, the entire unpaid principal amount of the promissory note plus accrued and unpaid interest thereon shall become immediately due and payable. The promissory note is secured by the assets of William Rast Licensing and is guaranteed by the Company’s other entities under common control, including People’s Liberation, Inc., William Rast Sourcing, LLC, William Rast Retail, LLC, Bella Rose, LLC and Versatile Entertainment, Inc.
In connection with the promissory note, People’s Liberation issued a fully-vested, five-year warrant to Monto to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $0.08 per share. The Warrant was valued at $50,000 using the Black-Scholes option pricing model and was recorded as interest expense in the third quarter of 2011.
11.
|
Charlotte Russe Litigation
|
Beginning October of 2009, the Company had been in litigation with Charlotte Russe and its affiliates in relation to the exclusive distribution agreement between the parties. On February 3, 2011, People’s Liberation, Versatile Entertainment, Colin Dyne, ECA Holdings II, LLC and New Media Retail Concepts entered into a Settlement Agreement and Mutual Release with Charlotte Russe Holding, Inc. and Charlotte Russe Merchandising, Inc., Advent International Corporation, Advent CR Holdings, Inc., David Mussafer, and Jenny Ming. The agreement was entered into to settle all disputes among the parties relating to:
|
·
|
that certain action in the Los Angeles County Superior Court entitled Charlotte Russe Holding, Inc. et al. v. Versatile Entertainment, Inc. et al., Case No. BC 424734; and
|
|
·
|
that certain action entitled Versatile Entertainment, Inc. et al. v. David Mussafer, et al., originally brought in the Los Angeles County Superior Court, Case No. BC 424675.
|
Pursuant to the settlement agreement, on February 3, 2011 the Company received approximately $3.5 million, after the distribution of amounts owed under the terms of an asset purchase agreement (described below), and the payment of legal fees and expenses. The settlement included the dismissal with prejudice of all claims pending between the parties as well as mutual releases, without any admission of liability or wrongdoing by any of the parties to the actions.
The Company also received proceeds of $750,000 in the third quarter of 2010 relating to the Charlotte Russe litigation, for total proceeds relating to the litigation of $4.3 million. As further described in Note 9, the $750,000 was received in connection with an asset purchase agreement entered into by the Company with two related parties pursuant to which the Company sold 50% of the net proceeds, after contingent legal fees and expenses, that may be received by the Company as a result of the litigation.
12.
|
Discontinued Operation - J. Lindeberg USA
|
On April 26, 2011, the Company and its wholly owned subsidiary, Bella Rose, LLC, completed the sale of Bella Rose’s 50% membership interest in J. Lindeberg USA, LLC (“Lindeberg USA”) to J. Lindeberg USA Corp. (“Buyer”) pursuant to the terms of a Unit Purchase Agreement entered into by the parties on April 7, 2011. Prior to the closing of the transaction and since July 1, 2008, Lindeberg USA was owned 50% by Bella Rose and 50% by Buyer.
In consideration for Bella Rose’s 50% membership interest in Lindeberg USA, Buyer agreed to pay to the Company an aggregate of $1,650,000, of which $900,000 was paid upon the closing of the transaction and $750,000 was received in the form of a receivable that was non-interest bearing to be paid on the six month anniversary of the closing of the transaction.
As of the closing, Bella Rose’s interest in that certain factoring agreement, dated August 6, 2008, by and between Lindeberg USA and FTC Commercial Corp., as amended from time to time, and related agreements (collectively, the “Factoring Agreement”) pursuant to which FTC provided certain factoring services to Lindeberg USA, was assigned to Buyer. Also as of the closing, the guarantees of the Company, Bella Rose, and Versatile Entertainment, Inc. (a wholly-owned subsidiary of People’s Liberation) in favor of FTC which guaranteed the obligations of Lindeberg USA to FTC under the Factoring Agreement were terminated, along with the termination of a personal validity guarantee of Colin Dyne, the Company’s Chief Executive Officer and the manager of J. Lindeberg USA, in favor of FTC.
In connection with the sale of Bella Rose’s membership interest in Lindeberg USA to Buyer, certain customer lists, other intangibles, and lease agreements and lease deposits of J. Lindeberg USA were transferred to J. Lindeberg USA Corp. on the closing date.
The divestiture of the Company’s membership interest in Lindeberg USA has been accounted for as a discontinued operation and, accordingly, all prior periods presented in the accompanying consolidated balance sheets, statements of operations and cash flows have been adjusted to conform to this presentation.
The Company recorded a gain in the second quarter of 2011 related to this divestiture as follows:
Carrying value of net assets of J. Lindeberg USA
|
|
$
|
(1,501,404
|
)
|
Noncontrolling interest on date of divestiture
|
|
|
1,863,727
|
|
Carrying value of net assets attributable to J. Lindeberg USA
|
|
|
362,323
|
|
Cash proceeds received at closing
|
|
|
900,000
|
|
Receivable from Buyer
|
|
|
750,000
|
|
Gain on sale of member interest in subsidiary
|
|
$
|
2,012,323
|
|
The following table summarizes certain selected components of the discontinued operations of J. Lindeberg USA for the three and nine months ended September 30, 2011 through the effective date of the divestiture on April 26, 2011, and the three and nine months ended September 30, 2010:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net Revenue
|
|
$
|
-
|
|
|
$
|
2,712,260
|
|
|
$
|
3,374,624
|
|
|
$
|
7,003,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
$
|
-
|
|
|
$
|
138,782
|
|
|
$
|
(125,771
|
)
|
|
$
|
(71,766
|
)
|
Noncontrolling interest
|
|
$
|
-
|
|
|
$
|
(69,391
|
)
|
|
$
|
62,885
|
|
|
$
|
35,884
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
-
|
|
|
$
|
69,391
|
|
|
$
|
(62,886
|
)
|
|
$
|
(35,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis and diluted income (loss) per share from discontinued operations
|
|
$
|
-
|
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
The following table summarizes certain selected components of the discontinued operations of J. Lindeberg USA as of September 30, 2011 and December 31, 2010, the periods covered by this report:
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Current assets
|
|
$
|
-
|
|
|
$
|
1,824,959
|
|
Long-term assets
|
|
$
|
-
|
|
|
$
|
1,075,128
|
|
Current liabilities
|
|
$
|
-
|
|
|
$
|
895,732
|
|
Long-term liabilities
|
|
$
|
-
|
|
|
$
|
525,673
|
|
On June 24, 2011, the Company and its wholly-owned subsidiary, Bella Rose, LLC, entered into an asset purchase agreement with Monto Holding (Pty) Limited (“Monto”). Pursuant to the agreement, the Company sold to Monto without recourse the $750,000 receivable owed to the Company under the terms of the Unit Purchase Agreement discussed above. The receivable balance was paid by the Buyer to Monto in October 2011.
On June 24, 2011, the Company also issued a fully vested, five year warrant to Monto to purchase 3,750,000 shares of its Common Stock at an exercise price of $0.20 per share. In exchange for the rights to the receivable and the warrant, Monto paid to the Company a purchase price of $722,916. The Warrant was valued at $89,000 using the Black-Scholes option pricing model and was recorded in general and administrative expenses in the second quarter of 2011.
13.
|
Stock Based Compensation
|
On January 5, 2006, the Company adopted its 2005 Stock Incentive Plan (the “Plan”), which authorized the granting of stock-based incentive awards. The Plan is administered by the Board of Directors, or a committee appointed by the Board of Directors, which determines the recipients and terms of the awards granted. The Plan reserves a total of 5,500,000 shares of common stock for issuance.
The Company recognizes stock-based compensation costs on a straight-line basis over the vesting period of each award, which is generally between one to four years.
During the nine months ended September 30, 2011, the Company granted 1,530,000 options to employees and officers within the Plan at an exercise price of $0.15 and 5,000,000 options to two employees and an officer outside the Plan, also at an exercise price of $0.15. Plan options to purchase 2,575,886 and 2,507,726 shares were exercisable as of September 30, 2011 and 2010, respectively. Options granted outside the Plan to purchase 3,000,000 shares were exercisable as of September 30, 2011. Total stock based compensation expense for options vesting during the three and nine months ended September 30, 2011 was approximately $1,000 and $77,000, respectively. Total stock based compensation expense for options vesting during the three and nine months ended September 30, 2010 was approximately $8,000 and $63,000, respectively.
The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Stock price volatility is estimated based on a peer group of public companies and expected term is estimated using the “safe harbor” provisions provided in accordance with generally accepted accounting principles. The safe harbor provisions were extended beyond December 31, 2007 for companies that did not have sufficient historical data to calculate the expected term of their related options. The Company does not have sufficient historical data to calculate expected term and the safe harbor provisions were used to calculate expected term for options granted during the periods. The weighted-average assumptions the Company used as inputs to the Black-Scholes pricing model for options granted in the Plan during the nine months ended September 30, 2011 included a dividend yield of zero, a risk-free interest rate of 2.2%, expected term of 6.1 years and an expected volatility of 64%.
For stock-based awards issued to employees, directors and officers, stock-based compensation is attributed to expense using the straight-line single option method. Stock-based compensation expense recognized in the statements of operations for the three and nine months ended September 30, 2011 and 2010 is included in selling, design and production expense and general and administrative expense, and is based on awards ultimately expected to vest. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three and nine months ended September 30, 2011, the Company used historical data to calculate the expected forfeiture rate.
Options awarded to non-employees are charged to expense when the services are performed and benefit is received as provided by FASB ASC Topic 505-50.
For the nine months ended September 30, 2011 and 2010, total stock-based compensation expense included in the consolidated statements of operations was charged to the following expense categories:
|
|
Nine months ended
September 30, 2011
|
|
|
Nine months ended
September 30, 2010
|
|
Selling, design and production
|
|
$
|
2,901
|
|
|
$
|
9,974
|
|
General and administrative
|
|
|
74,119
|
|
|
|
53,115
|
|
Total stock-based compensation
|
|
$
|
77,020
|
|
|
$
|
63,089
|
|
The following table summarizes the activity in the Plan:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
Options outstanding – January 1, 2010
|
|
|
2,895,000
|
|
|
$
|
0.56
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(310,000
|
)
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Options outstanding – December 31, 2010
|
|
|
2,585,000
|
|
|
|
0.57
|
|
Granted
|
|
|
1,530,000
|
|
|
|
0.15
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(775,000
|
)
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
Options outstanding – September 30, 2011
|
|
|
3,340,000
|
|
|
$
|
0.46
|
|
A summary of the changes in the Company’s unvested stock options within the Plan is as follows:
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Unvested stock options – January 1, 2010
|
|
|
667,853
|
|
|
$
|
0.14
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(222,934
|
)
|
|
|
(0.13
|
)
|
Forfeited
|
|
|
(310,000
|
)
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Unvested stock options – December 31, 2010
|
|
|
134,919
|
|
|
|
0.06
|
|
Granted
|
|
|
1,530,000
|
|
|
|
0.01
|
|
Vested
|
|
|
(125,805
|
)
|
|
|
(0.11
|
)
|
Forfeited
|
|
|
(775,000
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Unvested stock options – September 30, 2011
|
|
|
764,114
|
|
|
$
|
0.01
|
|
The following table summarizes the activity outside of the Plan:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
Options outstanding – January 1, 2011
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
5,000,000
|
|
|
$
|
0.15
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,000,000
|
)
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
Options outstanding – September 30, 2011
|
|
|
4,000,000
|
|
|
$
|
0.15
|
|
A summary of the changes in the Company’s unvested stock options outside of the Plan is as follows:
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Unvested stock options – January 1, 2011
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
5,000,000
|
|
|
|
0.02
|
|
Vested
|
|
|
(3,000,000
|
)
|
|
|
(0.02
|
)
|
Forfeited
|
|
|
(1,000,000
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Unvested stock options – September 30, 2011
|
|
|
1,000,000
|
|
|
$
|
0.02
|
|
Additional information relating to all stock options and warrants outstanding and exercisable at September 30, 2011, summarized by exercise price, is as follows:
|
|
Outstanding Weighted Average
|
|
|
Exercisable
Weighted Average
|
|
|
|
|
|
|
Life
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Exercise Price Per Share
|
|
Shares
|
|
|
(years)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
$
0.08
|
|
(warrants)
|
|
|
12,500,000
|
|
|
|
4.9
|
|
|
$
|
0.08
|
|
|
|
12,500,000
|
|
|
$
|
0.08
|
|
$
0.15
|
|
(options)
|
|
|
4,960,000
|
|
|
|
9.4
|
|
|
$
|
0.15
|
|
|
|
3,222,667
|
|
|
$
|
0.15
|
|
$
0.20
|
|
(options)
|
|
|
151,000
|
|
|
|
7.8
|
|
|
$
|
0.20
|
|
|
|
126,938
|
|
|
$
|
0.20
|
|
$
0.20
|
|
(warrants)
|
|
|
3,750,000
|
|
|
|
4.8
|
|
|
$
|
0.20
|
|
|
|
3,750,000
|
|
|
$
|
0.20
|
|
$
0.30
|
|
(options)
|
|
|
60,000
|
|
|
|
6.8
|
|
|
$
|
0.30
|
|
|
|
60,000
|
|
|
$
|
0.30
|
|
$
0.31
|
|
(options)
|
|
|
48,000
|
|
|
|
5.8
|
|
|
$
|
0.31
|
|
|
|
48,000
|
|
|
$
|
0.31
|
|
$
0.38
|
|
(options)
|
|
|
240,000
|
|
|
|
5.9
|
|
|
$
|
0.38
|
|
|
|
240,000
|
|
|
$
|
0.38
|
|
$
0.40
|
|
(options)
|
|
|
450,000
|
|
|
|
6.8
|
|
|
$
|
0.40
|
|
|
|
450,000
|
|
|
$
|
0.40
|
|
$
0.40
|
|
(warrants)
|
|
|
150,000
|
|
|
|
1.1
|
|
|
$
|
0.40
|
|
|
|
150,000
|
|
|
$
|
0.40
|
|
$
0.46
|
|
(options)
|
|
|
385,000
|
|
|
|
5.8
|
|
|
$
|
0.46
|
|
|
|
385,000
|
|
|
$
|
0.46
|
|
$
0.50
|
|
(options)
|
|
|
570,000
|
|
|
|
6.2
|
|
|
$
|
0.50
|
|
|
|
567,281
|
|
|
$
|
0.50
|
|
$
0.50
|
|
(warrants)
|
|
|
290,000
|
|
|
|
1.2
|
|
|
$
|
0.50
|
|
|
|
290,000
|
|
|
$
|
0.50
|
|
$
1.25
|
|
(options)
|
|
|
476,000
|
|
|
|
5.9
|
|
|
$
|
1.25
|
|
|
|
476,000
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,030,000
|
|
|
|
5.8
|
|
|
$
|
0.17
|
|
|
|
22,265,886
|
|
|
$
|
0.17
|
|
As of September 30, 2011, there were 2,575,886 of vested stock options within the Plan and 3,000,000 of vested options outside the Plan. As of September 30, 2011, there was approximately $6,000 of total unrecognized compensation expense related to share-based compensation arrangements granted within the Plan and approximately $5,000 of total unrecognized compensation expense related to share-based compensation arrangements granted outside the Plan. The cost is expected to be recognized on a weighted-average basis over the next three years. The aggregate intrinsic value of stock options outstanding was zero at September 30, 2011 and 2010 as the market value of the options was lower than the exercise value.
The Company has recorded a valuation allowance on a portion of its deferred tax asset related to net operating loss carryforwards. As a result, the stock-based compensation has not been tax effected on the consolidated statement of operations. For the nine months ended September 30, 2011 and 2010, the deferred tax effect related to nonqualified stock options was not material.
On August 18, 2011, the Company issued a warrant to purchase 12,500,000 shares of its common stock to Monto Holdings (Pty) Limited in conjunction with a note payable as further described in Note 10 to the consolidated financial statements. The warrant has an exercise price of $0.08, a term of five years and is exercisable immediately. The warrant was valued at approximately $50,000 using the Black-Scholes pricing model and the weighted-average assumptions discussed above.
On June 24, 2011, the Company issued a warrant to purchase 3,750,000 shares of its common stock to Monto Holdings (Pty) Limited in accordance with an asset purchase agreement as further described in Note 12 to the consolidated financial statements. The warrant has an exercise price of $0.20, a term of five years and is exercisable immediately. The warrant was valued at approximately $89,000 using the Black-Scholes pricing model and the weighted-average assumptions discussed above.
The Company designs, markets and sells high-end casual apparel under the brand names William Rast and People’s Liberation and, in the United States through April 26, 2011, J. Lindeberg. The Wholesale segment sells merchandise directly to better specialty stores, boutiques, select department stores, green grass golf stores, off-price retailers, international customers, distributors and agents, and through the Company’s e-commerce sites. The Retail segment sells the Company’s merchandise and merchandise purchased from its licensees in its retail store locations. The International segment sold William Rast apparel and accessories through the Company’s subsidiary, William Rast Europe, directly to European customers, distributors and agents, who in turn sold merchandise to retailers in specific territories. The Company ceased operations in its William Rast Europe subsidiary, and as a result, all sales to European and other international customers and distributors are currently sold through the Company’s wholesale division.
Shared operating costs, including design, distribution and customer service departments, are allocated between the operating segments. Management evaluates the performance of each operating segment based on net revenue and operating income. The types of products developed and sold by each segment are not sufficiently different to account for these products separately or to justify segmented reporting by product type or brand name.
Summarized financial information concerning our reportable segments from continuing operations for the three and nine months ended September 30, 2011 and 2010, is as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net Revenue
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
2,142,695
|
|
|
$
|
3,258,557
|
|
|
$
|
5,494,388
|
|
|
$
|
13,293,605
|
|
Retail
|
|
|
466,016
|
|
|
|
572,249
|
|
|
|
1,505,840
|
|
|
|
1,448,250
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,976
|
|
|
|
$
|
2,608,711
|
|
|
$
|
3,830,806
|
|
|
$
|
7,000,228
|
|
|
$
|
14,750,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
690,094
|
|
|
$
|
856,378
|
|
|
$
|
1,017,850
|
|
|
$
|
5,885,791
|
|
Retail
|
|
|
264,681
|
|
|
|
368,760
|
|
|
|
871,201
|
|
|
|
1,002,418
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,667
|
|
|
|
$
|
954,775
|
|
|
$
|
1,225,138
|
|
|
$
|
1,889,051
|
|
|
$
|
6,925,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, Design and Production Expense
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
987,359
|
|
|
$
|
932,318
|
|
|
$
|
3,827,940
|
|
|
$
|
4,664,799
|
|
Retail
|
|
|
(2,733
|
)
|
|
|
55,735
|
|
|
|
467
|
|
|
|
83,135
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,158
|
|
|
|
$
|
984,626
|
|
|
$
|
988,053
|
|
|
$
|
3,828,407
|
|
|
$
|
4,758,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expense
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
747,690
|
|
|
$
|
2,018,889
|
|
|
$
|
3,162,481
|
|
|
$
|
4,238,162
|
|
Retail
|
|
|
571,959
|
|
|
|
592,006
|
|
|
|
1,743,699
|
|
|
|
1,497,771
|
|
International
|
|
|
-
|
|
|
|
19,651
|
|
|
|
254
|
|
|
|
17,673
|
|
|
|
$
|
1,319,649
|
|
|
$
|
2,630,546
|
|
|
$
|
4,906,434
|
|
|
$
|
5,753,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss (Income)
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
(1,044,955
|
)
|
|
$
|
(2,094,829
|
)
|
|
$
|
(5,972,571
|
)
|
|
$
|
(3,017,171
|
)
|
Retail
|
|
|
(304,545
|
)
|
|
|
(278,981
|
)
|
|
|
(872,965
|
)
|
|
|
(578,488
|
)
|
International
|
|
|
-
|
|
|
|
(19,651
|
)
|
|
|
(254
|
)
|
|
|
9,837
|
|
|
|
$
|
(1,349,500
|
)
|
|
$
|
(2,393,461
|
)
|
|
$
|
(6,845,790
|
)
|
|
$
|
(3,585,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
-
|
|
|
$
|
420
|
|
|
$
|
104,244
|
|
|
$
|
99,651
|
|
Retail
|
|
|
-
|
|
|
|
287,886
|
|
|
|
1,350
|
|
|
|
308,922
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
288,306
|
|
|
$
|
105,594
|
|
|
$
|
408,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
3,486,633
|
|
|
$
|
7,519,038
|
|
|
$
|
3,486,633
|
|
|
$
|
7,519,038
|
|
Retail
|
|
|
1,056,854
|
|
|
|
1,400,619
|
|
|
|
1,056,854
|
|
|
|
1,400,619
|
|
International
|
|
|
(22,668
|
)
|
|
|
(6,629
|
)
|
|
|
(22,668
|
)
|
|
|
(6,629
|
)
|
|
|
$
|
4,520,819
|
|
|
$
|
8,913,028
|
|
|
$
|
4,520,819
|
|
|
$
|
8,913,028
|
|
(1)
|
Segment information is presented after the reclassification of revenue and expenses reported under discontinued operations as further described in Note 12 to the financial statements.
|
As of September 30, 2011 and 2010, $4.5 million and $8.9 million, respectively, of our assets were located in the United States. The Wholesale segment generated net revenue of approximately $2.6 million during the nine months ended September 30, 2011 from two customers which exceeded 10% of net revenue during such period. The Wholesale segment generated net revenue of approximately $2.3 million during the nine months ended September 30, 2010 from one customer which exceeded 10% of net revenue during such period.
15.
|
Customer and Supplier Concentrations
|
During the three months ended September 30, 2011, three customers comprised greater than 10% of the Company’s net revenue. Revenue derived from these customers amounted to 15.9%, 13.6% and 10.7% of net revenue for the three months ended September 30, 2011. There were no customers that comprised greater than 10% of the Company’s net revenue during the three months ended September 30, 2010. During the nine months ended September 30, 2011, two customers comprised greater than 10% of the Company’s net revenue. Revenue derived from these customers amounted to 13.5% and 11.9% of net revenue for the nine months ended September 30, 2011. During the nine months ended September 30, 2010, one customer comprised greater than 10% of the Company’s net revenue. Revenue derived from this customer amounted to 10.8% of net revenue for the nine months ended September 30, 2010. At September 30, 2011, the majority of receivables due from these customers are sold to the factor and are included in the due to factor balance.
During the nine months ended September 30, 2011, two suppliers comprised greater than 10% of the Company’s purchases. Purchases from these suppliers amounted to 37.0% and 28.8% for the nine months ended September 30, 2011. During the nine months ended September 30, 2010, two suppliers comprised greater than 10% of the Company’s purchases. Purchases from these suppliers amounted to 36.8% and 28.5% for the nine months ended September 30, 2010. At September 30, 2011 and 2010, accounts payable and accrued expenses, and the current portion of due to member included an aggregate of approximately $13,000 and $1.7 million, respectively, due to these vendors.
During the nine months ended September 30, 2011 (through April 26, 2011) and 2010, the Company purchased all of its J. Lindeberg brand products from J. Lindeberg AB in Sweden, the beneficial owner of 50% of the Company’s former subsidiary, J. Lindeberg USA. Total purchases from J. Lindeberg AB for the nine months ended September 30, 2011 and 2010 amounted to approximately $1.8 million and $3.2 million, respectively. As of September 30, 2010, approximately $376,000 was due to J. Lindeberg AB for product purchases. There were no amounts owed to J. Lindeberg AB for product purchases as of September 30, 2011.
16.
|
Off Balance Sheet Risk and Contingencies
|
Financial instruments that potentially subject the Company to off-balance sheet risk consist of factored accounts receivable. The Company sells the majority of its trade accounts receivable to its factors and is contingently liable to the factors for merchandise disputes and other customer claims. At September 30, 2011, total factor receivables approximated $932,000, $432,000 of which are without recourse and included in due to factor and $386,000 are with recourse and included in net accounts receivable. From time to time, the Company’s factors also issue letters of credit and vendor guarantees on the Company’s behalf. There were no outstanding letters of credit or vendor guarantees as of September 30, 2011. Ledger debt (payables to suppliers that use the same factor as the Company) amounted to approximately $1.1 million and at September 30, 2010. There was no ledger debt as of September 30, 2011.
The Company is subject to certain legal proceedings and claims arising in connection with its business. In the opinion of management, there are currently no claims that could have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
In accordance with the bylaws of the Company, officers and directors are indemnified for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the lifetime of the officer or director. The maximum potential amount of future payments the Company could be required to make under the indemnification provisions of its bylaws is unlimited. At this time, the Company believes the estimated fair value of the indemnification provisions of its bylaws is minimal and therefore, the Company has not recorded any related liabilities.
In addition to the indemnification required by the Company’s Amended and Restated Certificate of Incorporation and bylaws, the Company has entered into indemnity agreements with each of its current officers, former officers Darryn Barber and Thomas Nields, directors and key employees. These agreements provide for the indemnification of the Company’s directors, officers, former officers and key employees for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were the Company’s agents. The Company believes these indemnification provisions and agreements are necessary to attract and retain qualified directors, officers and employees.
The Company enters into indemnification provisions under its agreements in the normal course of business, typically with suppliers, customers, distributors and landlords. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has not recorded any related liabilities.
Deferred income taxes arise principally from temporary differences in the method of depreciating property and equipment for income tax reporting purposes and the recognition of expense related to the allowance for doubtful accounts, factor open credits and inventory reserves for income tax reporting purposes, and net operating loss carryforwards. The Company has Federal net operating losses available to carryforward to future periods of approximately $8.6 million as of December 31, 2010 which expire beginning 2027. As of December 31, 2010, the Company provided a valuation allowance for a portion of the deferred income tax asset related to its Federal net operating loss carryforwards. As of December 31, 2010, the Company determined that it was more likely than not that it would realize the future income tax benefits related to a portion of its Federal net operating losses. During the three months ended June 30, 2011, the Company increased the valuation allowance related to its net operating loss carryforwards to reserve the entire asset balance, as the Company was unable to determine if it was more likely than not that it would realize the future income tax benefits related to its net operating losses. This resulted in a deferred provision for income taxes from continuing operations of approximately $908,000 recorded during the second quarter ended June 30, 2011.
The Company has net operating losses available to carryforward to future periods from California of approximately $8.1 million as of December 31, 2010 which expire beginning 2017. For the years ending December 31, 2010 and 2011, the use of California state operating losses has been suspended for companies with taxable annual income greater than $300,000. As the Company is unable to determine whether it will be able to utilize its California net operating losses against future income, the Company has provided a valuation allowance for all of its deferred income tax asset related to its California net operating loss carryforwards as of September 30, 2011 and December 31, 2010.
The components of the Company’s consolidated deferred income tax balances from continuing operations as of September 30, 2011 and December 31, 2010 are as follows:
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Deferred income tax assets - current:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
-
|
|
|
$
|
1,060,000
|
|
Factored accounts receivable and bad debt reserves
|
|
|
28,000
|
|
|
|
28,000
|
|
Other reserves
|
|
|
134,000
|
|
|
|
134,000
|
|
|
|
|
162,000
|
|
|
|
1,222,000
|
|
Less: Valuation allowance
|
|
|
(162,000
|
)
|
|
|
(838,000
|
)
|
Deferred income tax assets - current
|
|
$
|
-
|
|
|
|
384,000
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax asset – long-term:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
3,455,000
|
|
|
|
2,395,000
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability – long-term:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(314,000
|
)
|
|
|
(314,000
|
)
|
|
|
|
3,141,000
|
|
|
|
2,081,000
|
|
Less: Valuation allowance
|
|
|
(3,141,000
|
)
|
|
|
(1,557,000
|
)
|
Net deferred income tax asset – long-term
|
|
$
|
-
|
|
|
$
|
524,000
|
|
18.
|
William Rast Ownership Recapitalization (Subsequent Event)
|
Effective as of October 1, 2011, the Company recapitalized the ownership of its William Rast branded apparel business, which is a collaboration with Justin Timberlake. The William Rast business is conducted through the Company’s wholly-owned subsidiary, Bella Rose, LLC. William Rast Sourcing, LLC (“WRS”) and William Rast Licensing, LLC (“WRL”) are controlled by and are consolidated under Bella Rose and, prior to the recapitalization, were each owned 50% by Bella Rose and 50% by Tennman WR-T, Inc., an entity owned in part by Justin Timberlake (“TWR”). As further described below, the recapitalization increased the ownership of Bella Rose in each of WRS and WRL in exchange for certain royalties to be paid to TWR as well as other consideration. The recapitalization was implemented through the entry into the following agreements on October 3, 2011:
|
·
|
Second Amended and Restated Limited Liability Company Operating Agreement of William Rast Sourcing, LLC by and among Bella Rose and TWR (the “Sourcing Operating Agreement”);
|
|
·
|
Second Amended and Restated Limited Liability Company Operating Agreement of William Rast Licensing, LLC by and among Bella Rose and TWR (the “Licensing Operating Agreement” and together with the Sourcing Operating Agreement, the “New Operating Agreements”);
|
|
·
|
Royalty Agreement by and among WRS, WRL and TWR (the “Royalty Agreement”);
|
|
·
|
Preemptive Rights and Board Nominee Agreement by and between the Company and TWR (the “Rights Agreement”);
|
|
·
|
Services Agreement by and between WRL and Tennman Brands, LLC f/s/o Justin Timberlake (“TBL”) (the “Services Agreement”); and
|
|
·
|
Voting Agreement by and among Colin Dyne, Justin Timberlake and Al Gossett (the “Voting Agreement”).
|
The New Operating Agreements amend and restate that certain Amended and Restated Operating Agreement of William Rast Sourcing, LLC effective January 1, 2007, as amended October 2, 2007, and that certain Amended and Restated Operating Agreement of William Rast Licensing, LLC effective January 1, 2007, as amended October 2, 2007. The New Operating Agreements reclassify the membership interests previously issued to the members of each of WRS and WRL, such that Bella Rose now holds 82% of the membership interests of each of WRS and WRL (in the form of Class A membership interests), with the remaining 18% of the membership interests of each of WRS and WRL held by TWR (in the form of Class B membership interests).
The New Operating Agreements provide that the holders of the Class A membership interests of each of WRS and WRL shall be entitled to all of the distributable cash from operations and all of the distributable cash from a Sale Transaction (as defined in the New Operating Agreements) that is not paid to the holders of the Class B membership interests of each of WRS and WRL. In connection with a Sale Transaction of WRS or WRL, in exchange for the repurchase by WRS or WRL, as applicable, of all of its Class B membership interests, WRS or WRL, as applicable, shall pay to the holders of such Class B membership interests a liquidating payment equal to 18% of the aggregate sale proceeds for such Sale Transaction (the “Liquidating Payment”).
In connection with the ownership recapitalization, TWR, WRS and WRL entered into the Royalty Agreement. Pursuant to the Royalty Agreement, WRS is obligated to pay TWR a royalty in the amount of 5.0% of its wholesale net sales, plus 2.5% of its retail net sales and 25.0% of its sublicensee gross consideration during the period commencing July 1, 2011 and continuing until the earlier of (i) the date that WRS pays the Liquidating Payment or (ii) the date that TWR or any of its affiliates no longer owns Class B membership interests in WRS. During each year of the agreement, WRS is obligated to pay TWR a guaranteed minimum royalty of $200,000 for the calendar year ended December 31, 2011 and $400,000 for each calendar year thereafter. The Royalty Agreement also provides that WRL shall pay to TWR an amount equal to 50.0% of all gross receipts of WRL in respect of royalties or other compensation earned with respect to the license by WRL of rights to the William Rast® mark, subject to certain offsets, during the period commencing July 1, 2011 and continuing until the earlier of (i) the date that WRL pays the Liquidating Payment or (ii) the date that TWR or any of its affiliates no longer owns Class B membership interests in WRL.
Also in connection with the above-described ownership recapitalization, TWR and the Company entered into the Rights Agreement. Pursuant to the Rights Agreement, the Company granted to TWR, for a period of up to five years, the right to purchase up to 25% of new securities that the Company may sell from time to time on the same terms offered to other investors and the right to designate Al Gossett as a nominee for election to the Board of Directors of the Company.
As part of the above-described transaction, Colin Dyne, Justin Timberlake and Al Gossett entered into the Voting Agreement. Pursuant to the Voting Agreement, such stockholders agree to vote their shares of People’s Liberation’s common stock at any meeting of the Company’s stockholders at which a vote could be taken with respect to the election of Mr. Gosset and Mr. Dyne to People’s Liberation’s Board of Directors or in connection with any written consent of the Company’s stockholders with respect to the election of Mr. Gossett and Mr. Dyne to the Company’s Board of Directors.
The ownership recapitalization also included the entry into the Services Agreement by WRL and TBL. Pursuant to the Services Agreement, TBL agrees to provide certain non-exclusive promotional services of Justin Timberlake to WRL and its licensees in connection with the commercial exploitation of William Rast branded apparel and other consumer products.
During the quarter ended September 30, 2011, the Company recorded $100,000 in royalty expense related to minimum royalties due under the Royalty Agreement related to the accounting period July 1, 2011 through September 30, 2011.
The Company will account for this transaction in accordance with the provisions of ASC 810 which states that a change in a parent’s ownership interest in a subsidiary while the parent retains its controlling financial interest is to be accounted for as an equity transaction. Therefore, no gain or loss will be recognized in the Company’s consolidated statement of operations as a result of this transaction. On the effective date of this transaction, the Company reflected on its balance sheet a debit balance in noncontrolling interest related to its William Rast subsidiaries of approximately $6 million, representing the 50% interest owned by TWR. On the effective date of this transaction, the Company will adjust the $6 million debit balance in noncontrolling interest with a corresponding reduction in additional paid-in capital, as the noncontrolling interest related to its William Rast subsidiaries has been eliminated for financial statement purposes as a result of this transaction. TRW will retain an 18% equity interest in the William Rast subsidiaries as a result of this transaction, will not participate in the management of the operations of these entities, and will not participate in the allocation of profits and losses or rights to any future income or losses, with the exception of the Liquidating Payment discussed above.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2010 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-Q.
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of People’s Liberation, Inc. for the three and nine months ended September 30, 2011 and the three and nine months ended September 30, 2010. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control. Actual results could differ materially from those projected in the forward-looking statements as a result of, among other things, those factors set forth in “Risk Factors” contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 and this Quarterly Report on Form 10-Q.
Overview
We design, market and sell high-end casual apparel under the brand names “People’s Liberation,” “William Rast” and, in the United States through April 26, 2011, “J. Lindeberg.” The majority of the merchandise we offer consists of premium denim, knits, wovens, leather goods, golf wear and outerwear for men and women. In the United States, we distribute our William Rast branded merchandise and, through April 26, 2011, our J. Lindeberg branded merchandise to better specialty stores, boutiques and department stores, such as Nordstrom, Saks Fifth Avenue and Neiman Marcus, as well as online at various websites including williamrast.com, jlindebergusa.com and Zappos.com. Beginning July 2008 through April 26, 2011, we also marketed and sold our J. Lindeberg branded collection and golf apparel through our retail stores in New York City, Los Angeles and Miami, and J. Lindeberg golf wear to green grass golf stores and boutiques in the United States. William Rast products are also sold in our four retail stores located in Los Angeles, San Jose and Cabazon, California, and Miami, Florida. Internationally, in select countries, we sell our William Rast branded apparel products directly and through distributors to better department stores and boutiques. We are currently exploring options for the marketing and distribution of People’s Liberation branded apparel and apparel accessories both in North America and internationally.
We began distributing J. Lindeberg branded apparel products in the United States on an exclusive basis beginning July 2008 through our former subsidiary, J. Lindeberg USA, LLC, in collaboration with J. Lindeberg AB of Sweden. After the sale of our 50% member interest in J. Lindeberg USA on April 26, 2011, which is described elsewhere in this report, we no longer sell J. Lindeberg branded products.
We commenced our William Rast clothing line in May 2005 and our People’s Liberation business in July 2004. Our William Rast clothing line is a collaboration with Justin Timberlake.
We are headquartered in Los Angeles, California, and maintain showrooms in New York and Los Angeles.
Organization and Structure of Operations
People’s Liberation, Inc. is the parent holding company of Versatile Entertainment, Inc. (“Versatile”) and Bella Rose, LLC (“Bella Rose”), both of which were consolidated under and became wholly-owned subsidiaries of People’s Liberation on November 22, 2005.
Versatile conducts our People’s Liberation brand business. Our William Rast brand business is conducted through Bella Rose, LLC. William Rast Sourcing, LLC and William Rast Licensing, LLC are consolidated under Bella Rose, and through September 30, 2011 were each owned 50% by Bella Rose and 50% by Tennman WR-T, Inc., an entity owned in part by Justin Timberlake. William Rast Retail, LLC, a California limited liability company, was formed on August 26, 2009 and is a wholly-owned subsidiary of William Rast Sourcing. William Rast Retail was formed to operate our William Rast retail stores.
Effective as of October 1, 2011, we recapitalized the ownership of our William Rast branded apparel business. As a result of the recapitalization, both William Rast Sourcing, LLC and William Rast Licensing are owned 82% by Bella Rose and 18% by Tennman WR-T, Inc. See further discussion in Note 18 to the condensed consolidated financial statements included elsewhere in this report.
Prior to its sale on April 26, 2011, our J. Lindeberg brand business was conducted through Bella Rose. Beginning July 1, 2008 through April 26, 2011, J. Lindeberg USA, LLC was consolidated under Bella Rose and was owned 50% by Bella Rose and 50% by J. Lindeberg USA Corp. an entity owned by J. Lindeberg AB, a Swedish corporation. J. Lindeberg USA Retail, LLC, a California limited liability company, was formed on August 21, 2009 and is a wholly-owned subsidiary of J. Lindeberg USA. J. Lindeberg Retail was formed to operate our J. Lindeberg retail stores.
Recent Developments
William Rast Ownership Recapitalization
Effective as of October 1, 2011, we recapitalized the ownership of our William Rast branded apparel business. See further discussion in Note 18 to the condensed consolidated financial statements included elsewhere in this report.
Note Payable
On August 18, 2011, our subsidiary, William Rast Licensing, entered into a note payable in the amount of $1,000,000 with Monto Holdings (Pty) Ltd. (“Monto”). The note bears interest at 7% and is payable on the maturity date of the note unless the note is earlier repaid. The promissory note is to be repaid as follows: (i) 40.0% of the then outstanding principal amount on December 31, 2011, (ii) 20% of the then outstanding principal amount on February 29, 2012 and (iii) all of the remaining principal amount then outstanding on the maturity date, May 12, 2012. The promissory note is secured by the assets of William Rast Licensing and is guaranteed by our other entities under common control, including People’s Liberation, Inc., William Rast Sourcing, LLC, William Rast Retail, LLC, Bella Rose, LLC and Versatile Entertainment, Inc.
In connection with the promissory note, we issued an immediately exercisable, five-year warrant to Monto to purchase 12,500,000 shares of our common stock at an exercise price of $0.08 per share.
J. Lindeberg USA Divestiture
On April 26, 2011, our wholly-owned subsidiary, Bella Rose, completed the sale of its 50% member interest in J. Lindeberg USA to J. Lindeberg USA Corp., the company’s other 50% member, pursuant to the terms of a Unit Purchase Agreement entered into by the parties on April 7, 2011. In consideration for Bella Rose’s 50% membership interest in Lindeberg USA, J. Lindeberg USA Corp. agreed to pay us an aggregate of $1,650,000, of which $900,000 was paid upon the closing of the transaction and $750,000 was payable on the six month anniversary of the closing of the transaction.
In connection with the sale of Bella Rose’s membership interest in J. Lindeberg USA to J. Lindeberg USA Corp., certain customer lists, other intangibles, and lease agreements and lease deposits of J. Lindeberg USA were also transferred to J. Lindeberg USA Corp. on the closing date. We recorded a gain of approximately $2.0 million in the second quarter of 2011 related to this transaction.
The divestiture of our membership interest in Lindeberg USA has been accounted for as a discontinued operation and, accordingly, all prior periods presented in the accompanying consolidated balance sheets, statements of operations and cash flows have been adjusted to conform to this presentation.
On June 24, 2011, Bella Rose entered into an asset purchase agreement with Monto Holding (Pty) Limited (“Monto”). Pursuant to the agreement, Bella Rose sold to Monto without recourse the $750,000 receivable owed to us under the terms of that Unit Purchase Agreement discussed above. On June 24, 2011, we also issued a fully vested, five year warrant to Monto to purchase 3,750,000 shares of our Common Stock at an exercise price of $0.20 per share. In exchange for the rights to the receivable and the warrant, Monto paid a purchase price of $722,916 to us.
Charlotte Russe Litigation
As discussed under Note 11 to the Condensed Consolidated Financial Statements, we were in litigation with Charlotte Russe and its affiliates in relation to an exclusive distribution agreement between Charlotte Russe and the Company. As a result of the litigation, there have been no significant sales of People’s Liberation branded apparel to Charlotte Russe subsequent to October 2009.
On February 3, 2011, People’s Liberation, Versatile Entertainment, Colin Dyne, ECA Holdings II, LLC and New Media Retail Concepts entered into a Settlement Agreement and Mutual Release with Charlotte Russe Holding, Inc. and Charlotte Russe Merchandising, Inc., Advent International Corporation, Advent CR Holdings, Inc., David Mussafer, and Jenny Ming. The agreement was entered into to settle all disputes among the parties relating to:
·
|
that certain action in the Los Angeles County Superior Court entitled Charlotte Russe Holding, Inc. et al. v. Versatile Entertainment, Inc. et al., Case No. BC 424734; and
|
·
|
that certain action entitled Versatile Entertainment, Inc. et al. v. David Mussafer, et al., originally brought in the Los Angeles County Superior Court, Case No. BC 424675.
|
Pursuant to the settlement agreement, on February 3, 2011 we received $3.5 million, after the distribution of amounts owed under the terms of an asset purchase agreement (described below), and the payment of legal fees and expenses. The settlement included the dismissal with prejudice of all claims pending between the parties as well as mutual releases, without any admission of liability or wrongdoing by any of the parties to the actions.
We also received proceeds of $750,000 in the third quarter of 2010 relating to the Charlotte Russe litigation, for total proceeds relating to the litigation of $4.3 million. The $750,000 was received in connection with an asset purchase agreement entered into by us with two related parties pursuant to which we sold 50% of the net proceeds, after contingent legal fees and expenses, that may be received by us as a result of the litigation.
Retail Sales
Our William Rast branded apparel and accessories are sold through our three full-price William Rast brand retail stores and also through our William Rast brand outlet store. Through April 26, 2011, our J. Lindeberg branded apparel and accessories were sold through our three full-price J. Lindeberg brand retail stores. As further discussed above, we completed the sale of our 50% interest in J. Lindeberg USA, which included our three retail stores, to J. Lindeberg USA Corp. on April 26, 2011.
As of November 15, 2011 we had the following retail store locations:
Brand
|
|
Location
|
|
Opening Date
|
William Rast
|
|
Miami, Florida
|
|
August 2010
|
William Rast
|
|
Century City, California
|
|
November 2009
|
William Rast
|
|
San Jose, California
|
|
November 2009
|
William Rast Outlet
|
|
Cabazon, California
|
|
November 2009
|
|
|
|
|
|
As previously reported, the above stores were opened as part of our retail expansion plan which included the roll-out of retail stores in major metropolitan locations. We currently do not plan to open any additional stores in the near future. We will continue to review our retail strategy as retail market conditions change in response to economic conditions.
Critical Accounting Policies, Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventories and our allowance for uncollectible house accounts receivable, recourse factored accounts receivable and chargebacks, and contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Inventories
. Inventories are evaluated on a continual basis and reserve adjustments, if any, are made based on management’s estimate of future sales value of specific inventory items. Reserve adjustments are made for the difference between the cost of the inventory and the estimated market value, if lower, and charged to operations in the period in which the facts that give rise to the adjustments become known. Inventories, consisting of piece goods and trim, work-in-process and finished goods, are stated at the lower of cost (first-in, first-out method) or market.
Accounts Receivable.
Factored accounts receivable balances with recourse, chargeback and other receivables are evaluated on a continual basis and allowances are provided for potentially uncollectible accounts based on management’s estimate of the collectability of customer accounts. Factored accounts receivable without recourse are also evaluated on a continual basis and allowances are provided for anticipated returns, discounts and chargebacks based on management’s estimate of the collectability of customer accounts and historical return, discount and other chargeback rates. If the financial condition of a customer were to deteriorate, resulting in an impairment of its ability to make payments, an additional allowance may be required. Allowance adjustments are charged to operations in the period in which the facts that give rise to the adjustments become known.
Intangible Assets.
Intangible assets are evaluated on a continual basis and impairment adjustments are made based on management’s reassessment of the useful lives related to intangible assets with definite useful lives. Intangible assets with indefinite lives are evaluated on a continual basis and impairment adjustments are made based on management’s comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Impairment adjustments are made for the difference between the carrying value of the intangible asset and the estimated valuation and charged to operations in the period in which the facts that give rise to the adjustments become known.
Revenue Recognition.
Wholesale revenue is recognized when merchandise is shipped to a customer, at which point title transfers to the customer, and when collection is reasonably assured. Customers are not given extended terms or dating or return rights without proper prior authorization. Revenue is recorded net of estimated returns, charge backs and markdowns based upon management’s estimates and historical experience. Website revenue is recognized when merchandise is shipped to a customer and when collection is reasonably assured. Retail revenue is recognized on the date of purchase from our retail stores. Advertising revenue received under sponsorship agreements is recorded in the period in which the event to which the advertising rights were granted occurred. Design revenue received under design and license agreements is recorded in the period in which the design services are provided to the licensee.
Deferred Tax Assets
. We may record a valuation allowance to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that we may not realize all or part of our deferred tax assets in the future, we will make an adjustment to the carrying value of the deferred tax asset, which would be reflected as an income tax expense. Conversely, if we determine that we will realize a deferred tax asset, which currently has a valuation allowance, we would be required to reverse the valuation allowance, which would be reflected as an income tax benefit. Valuation allowance adjustments are made in the period in which the facts that give rise to the adjustments become known.
Stock Based Compensation.
Stock-based compensation expense is recognized based on awards ultimately expected to vest on a straight-line prorated basis. The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Stock price volatility was estimated based on a peer group of public companies and the expected term was estimated using the “safe harbor” provisions provided by generally accepted accounting principles.
Noncontrolling Interest.
Profit and loss allocations to noncontrolling interest members of our subsidiaries are recorded as increases and decreases in noncontrolling interest in our consolidated financial statements. Cash distributions, if any, made to a noncontrolling interest member of any of our subsidiaries are accounted for as decreases in noncontrolling interest in the consolidated balance sheet of the Company. To the extent the priority distributions are made, it would reduce the income allocable to the controlling interest.
Litigation Contingencies.
We are subject to on-going litigation which requires management to make certain assumptions and estimates regarding gain or loss contingencies, if any, related to the outcome of pending litigation. In consultation with legal counsel, we consider the facts and circumstances surrounding the pending litigation and the probability of the outcome of pending litigation, whether favorable or unfavorable, in our estimates of gain or loss contingencies.
Recent Accounting Pronouncements
Recent accounting pronouncements did not or are not believed to have a material impact on the Company’s present or future consolidated financial statements.
Results of Operations
Summarized financial information concerning our reportable segments from continuing operations for the three and nine months ended September 30, 2011 and 2010, is as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net Revenue
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
2,142,695
|
|
|
$
|
3,258,557
|
|
|
$
|
5,494,388
|
|
|
$
|
13,293,605
|
|
Retail
|
|
|
466,016
|
|
|
|
572,249
|
|
|
|
1,505,840
|
|
|
|
1,448,250
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,976
|
|
|
|
$
|
2,608,711
|
|
|
$
|
3,830,806
|
|
|
$
|
7,000,228
|
|
|
$
|
14,750,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
690,094
|
|
|
$
|
856,378
|
|
|
$
|
1,017,850
|
|
|
$
|
5,885,791
|
|
Retail
|
|
|
264,681
|
|
|
|
368,760
|
|
|
|
871,201
|
|
|
|
1,002,418
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,667
|
|
|
|
$
|
954,775
|
|
|
$
|
1,225,138
|
|
|
$
|
1,889,051
|
|
|
$
|
6,925,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, Design and Production Expense
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
987,359
|
|
|
$
|
932,318
|
|
|
$
|
3,827,940
|
|
|
$
|
4,664,799
|
|
Retail
|
|
|
(2,733
|
)
|
|
|
55,735
|
|
|
|
467
|
|
|
|
83,135
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,158
|
|
|
|
$
|
984,626
|
|
|
$
|
988,053
|
|
|
$
|
3,828,407
|
|
|
$
|
4,758,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expense
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
747,690
|
|
|
$
|
2,018,889
|
|
|
$
|
3,162,481
|
|
|
$
|
4,238,162
|
|
Retail
|
|
|
571,959
|
|
|
|
592,006
|
|
|
|
1,743,699
|
|
|
|
1,497,771
|
|
International
|
|
|
-
|
|
|
|
19,651
|
|
|
|
254
|
|
|
|
17,673
|
|
|
|
$
|
1,319,649
|
|
|
$
|
2,630,546
|
|
|
$
|
4,906,434
|
|
|
$
|
5,753,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss (Income)
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
(1,044,955
|
)
|
|
$
|
(2,094,829
|
)
|
|
$
|
(5,972,571
|
)
|
|
$
|
(3,017,171
|
)
|
Retail
|
|
|
(304,545
|
)
|
|
|
(278,981
|
)
|
|
|
(872,965
|
)
|
|
|
(578,488
|
)
|
International
|
|
|
-
|
|
|
|
(19,651
|
)
|
|
|
(254
|
)
|
|
|
9,837
|
|
|
|
$
|
(1,349,500
|
)
|
|
$
|
(2,393,461
|
)
|
|
$
|
(6,845,790
|
)
|
|
$
|
(3,585,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
-
|
|
|
$
|
420
|
|
|
$
|
104,244
|
|
|
$
|
99,651
|
|
Retail
|
|
|
-
|
|
|
|
287,886
|
|
|
|
1,350
|
|
|
|
308,922
|
|
International
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
288,306
|
|
|
$
|
105,594
|
|
|
$
|
408,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
3,486,633
|
|
|
$
|
7,519,038
|
|
|
$
|
3,486,633
|
|
|
$
|
7,519,038
|
|
Retail
|
|
|
1,056,854
|
|
|
|
1,400,619
|
|
|
|
1,056,854
|
|
|
|
1,400,619
|
|
International
|
|
|
(22,668
|
)
|
|
|
(6,629
|
)
|
|
|
(22,668
|
)
|
|
|
(6,629
|
)
|
|
|
$
|
4,520,819
|
|
|
$
|
8,913,028
|
|
|
$
|
4,520,819
|
|
|
$
|
8,913,028
|
|
(1)
|
Segment information is presented after the reclassification of revenue and expenses reported under discontinued operations as further described in Note 12 to the financial statements.
|
Results of Continuing Operations
The following table presents consolidated statement of operations data from continuing operations for each of the periods indicated as a percentage of net revenue.
|
|
Three Months
Ended September 30,
|
|
|
Nine Months
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
63.4
|
|
|
|
68.0
|
|
|
|
73.0
|
|
|
|
53.0
|
|
Gross profit
|
|
|
36.6
|
|
|
|
32.0
|
|
|
|
27.0
|
|
|
|
47.0
|
|
Selling, design and production expenses
|
|
|
37.7
|
|
|
|
25.8
|
|
|
|
54.7
|
|
|
|
32.3
|
|
General and administrative expenses
|
|
|
50.6
|
|
|
|
68.7
|
|
|
|
70.1
|
|
|
|
39.0
|
|
Operating loss from continuing operations
|
|
|
(51.7
|
)%
|
|
|
(62.5
|
)%
|
|
|
(97.8
|
)%
|
|
|
(24.3
|
)%
|
Comparison of the three months ended September 30, 2011 and the three months ended September 30, 2010 for continuing operations
Net Revenue
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net Revenue
|
|
$
|
2,608,711
|
|
|
$
|
3,830,806
|
|
|
|
(31.9
|
)%
|
The decrease in net revenue from continuing operations for the three months ended September 30, 2011 was due primarily to decreased wholesale sales of our William Rast apparel line in the United States. As a result of economic conditions and slow consumer response to our newly designed American-made William Rast denim and expanded sportswear collection, we experienced a further decline in net revenue from our William Rast apparel line. We continued to liquidate our People’s Liberation brand inventory produced exclusively for Charlotte Russe during the third quarter of 2010. There were no sales of our People’s Liberation brand inventory during the third quarter of 2011, which resulted in a further decrease in wholesale net revenue compared to the third quarter of 2010. The decrease in net revenue for the three months ended September 30, 2011 was also due to a decrease in retail sales of our William Rast apparel line as we eliminated sportswear from our product offering in our retail stores in an effort to focus on our American-made denim products. The decrease in net revenue for the three months ended September 30, 2011 was partially offset by licensing revenue received under the terms of our William Rast eyewear licensing agreement in the third quarter of 2011.
Gross Profit
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Gross Profit
|
|
$
|
954,775
|
|
|
$
|
1,255,138
|
|
|
|
(23.9
|
)%
|
Gross profit consists of net revenue less cost of goods sold. Cost of goods sold includes expenses primarily related to inventory purchases and contract labor, duty, freight and overhead expenses. Overhead expenses primarily consist of warehouse and shipping salaries and expenses. As a percentage of net revenue, our gross margin from continuing operations increased to 36.6% for the three months ended September 30, 2011 from 32.0% for the three months ended September 30, 2010. The increase in wholesale gross profit as a percentage of net revenue for the third quarter of 2011 was primarily due to discounts provided to one of our major customers and off-price sales of our remaining People’s Liberation brand inventory during the third quarter of 2010 which did not occur in the third quarter of 2011. The increase in wholesale gross profit as a percentage of net revenue for the third quarter of 2011 was offset by a decrease in retail gross profit as a percentage of net revenue during the third quarter of 2011. In order to boost overall sales in our retail stores during the quarter, we increased the number of select sale items during the period. We also eliminated sportswear from our product offering in our retail stores in an effort to focus on our American-made denim products. Margins on our sportswear products are typically higher than our denim products.
Selling, Design and Production Expenses
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Selling, design and production expenses
|
|
$
|
984,626
|
|
|
$
|
988,053
|
|
|
|
(0.3
|
)%
|
Selling, design and production expense for the three months ended September 30, 2011 and 2010 primarily related to salaries and commissions, royalties, advertising, marketing and promotion, samples, travel, tradeshow, fashion show and showroom expenses. The slight decrease in selling, design and production expenses from continuing operations for the quarter ended September 30, 2011 is primarily attributable to decreased design and production salaries incurred in the third quarter of 2011 as a result of cost cutting measures implemented to decrease expenditures. The decrease in selling, design and production expenses from continuing operations for the quarter ended September 30, 2011 was offset by increased promotion and marketing of our William Rast brand during the third quarter of 2011, including our Indy car sponsorship. As a percentage of net revenue, selling, design and production expense increased to 37.7% for the three months ended September 30, 2011 compared to 25.8% for the three months ended September 30, 2010. The increase in selling, design and production expenses as a percentage of net revenue for the quarter ended September 30, 2011 was due to net revenue decreasing at a higher rate than selling, design and production expenses.
General and Administrative Expenses
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
General and administrative expenses
|
|
$
|
1,319,649
|
|
|
$
|
2,630,546
|
|
|
|
(49.8
|
)%
|
General and administrative expenses for the three months ended September 30, 2011 and 2010 primarily related to salaries, professional fees, facility costs, travel and entertainment, depreciation and amortization expense, retail store operating costs, and other general corporate expenses. Retail store operating costs primarily include salaries, rent and other operating costs. As a percentage of net revenue, general and administrative expenses from continuing operations decreased to 50.6% for the three months ended September 30, 2011 from 68.7% for three months ended September 30, 2010. The decrease in general and administrative expenses during the three months ended September 30, 2011 was primarily due to a reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of trade accounts receivable due from Charlotte Russe and decreased legal expenses. We incurred a significant amount of legal fees in the third quarter of 2010 related to the negotiation of new financing arrangements and our litigation with Charlotte Russe which was settled in February 2011. The decrease in general and administrative expenses from continuing operations for the three months ended September 30, 2011 was also due to decreased administrative salaries and other general and administrative expenses incurred in the third quarter of 2011 as a result of cost cutting measures implemented to decrease expenditures.
Interest Expense, net
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Interest Expense, net
|
|
$
|
86,789
|
|
|
$
|
45,643
|
|
|
|
90.1
|
%
|
The increase in interest expense is due primarily to interest payable at a rate of 8% under the terms of a $750,000 promissory note entered into in August 2010, and warrant charges and interest at a rate of 7% under the terms of a $1,000,000 promissory note also entered into in August 2011. The increase in interest expense during the third quarter of 2011 was offset by an average decrease in borrowings under our factoring arrangements during the three months ended September 30, 2011.
Provision for Income Tax
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Provision for Income Tax
|
|
$
|
5,790
|
|
|
$
|
3,500
|
|
|
|
65.4
|
%
|
The provision for income taxes for the three months ended September 30, 2011 and 2010 represents the minimum tax payments due for state and local purposes,
including gross receipts tax on sales generated by our limited liability companies. A provision for Federal income taxes was not recorded for the three months ended September 30, 2011 and 2010, as we had a net loss during the quarters.
As of September 30, 2011 and 2010, a valuation allowance has been provided for the entire amount of our deferred income tax asset related to net operating loss carryforwards,
factored accounts receivable and bad debt reserves and other reserves. At this time, we cannot determine that it is more likely than not that we will realize the entire balance of the future income tax benefits related to our net operating losses. As of December 31, 2010, total net operating losses available to carry forward to future periods amounted to approximately $8.6 million. The increase in the provision for income taxes recorded for the three months ended September 30, 2011, compared to the three months ended September 30, 2010 resulted from an increase in the accrual of gross receipts tax on sales generated by our limited liability companies recorded during the three months ended September 30, 2011.
Loss from Continuing Operations
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Loss from continuing operations
|
|
$
|
(1,442,079
|
)
|
|
$
|
(1,692,604
|
)
|
|
|
(14.8
|
)%
|
The decrease in net loss from continuing operations incurred for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 is due primarily to decreased operating expenses incurred during the quarter and an increase in gross profit as a percentage of net revenue, offset by decreased net revenue recorded during the third quarter of 2011 and other income recorded in the third quarter of 2010, as discussed above.
Noncontrolling Interest in Continuing Operations
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Noncontrolling interest in continuing operations
|
|
$
|
815,296
|
|
|
$
|
747,382
|
|
|
|
9.1
|
%
|
Noncontrolling interest in continuing operations recorded for the three months ended September 30, 2011 and 2010 represents net loss allocations to Tennman WR-T, Inc., a member of William Rast Sourcing and William Rast Licensing. Beginning January 1, 2009 through September 30, 2011, losses were allocated to the members of William Rast Sourcing and William Rast Licensing based on their respective percentage interests in such entities and profits were allocated to the members based on their percentage interest to the extent that the member was previously allocated losses. The increase in noncontrolling interest recorded for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 was due primarily to increased loss allocations to Tennman during the three months ended September 30, 2011, compared to the three months ended September 30, 2010.
Effective as of October 1, 2011, we recapitalized the ownership of our William Rast branded apparel business. As a result of the recapitalization, both William Rast Sourcing, LLC and William Rast Licensing are owned 82% by Bella Rose and 18% by Tennman WR-T, Inc. Beginning October 1, 2011, all operating losses will be allocated to Bella Rose in accordance with the amended and restated operating agreements of William Rast Sourcing and William Rast Licensing. See further discussion in Note 18 to the condensed consolidated financial statements included elsewhere in this report.
Discontinued Operations
Discontinued Operations
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net income from discontinued operations
|
|
$
|
-
|
|
|
$
|
138,782
|
|
|
|
*
|
|
Gain on sale of member interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
138,782
|
|
|
|
*
|
|
Noncontrolling interest in discontinued operations
|
|
|
-
|
|
|
|
(69,391
|
)
|
|
|
*
|
|
|
|
$
|
-
|
|
|
$
|
69,391
|
|
|
|
*
|
|
* Not meaningful
We completed the sale of our 50% member interest in J. Lindeberg, USA on April 26, 2011. Net loss from discontinued operations for the three months ended September 30, 2010 represents the results of operations of our J. Lindeberg subsidiary from the beginning of the quarter through September 30, 2010.
Net Loss Attributable to Common Stockholders
|
|
Three Months
Ended
September 30, 2011
|
|
|
Three Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net loss attributable to common stockholders
|
|
$
|
(626,783
|
)
|
|
$
|
(875,831
|
)
|
|
|
(28.4
|
)%
|
The decrease in net loss attributable to common stockholders during the three months ended September 30, 2011 compared to the three months ended September 30, 2010 is due primarily to decreased operating expenses incurred during the quarter and an increase in gross profit as a percentage of net revenue, offset by decreased net revenue recorded during the third quarter of 2011 and other income recorded in the third quarter of 2010, as discussed above.
Comparison of nine months ended September 30, 2011 and nine months ended September 30, 2010 for continuing operations
Net Revenue
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net Revenue
|
|
$
|
7,000,228
|
|
|
$
|
14,750,831
|
|
|
|
(52.5
|
)%
|
The decrease in net revenue from continuing operations for the nine months ended September 30, 2011 was due primarily to decreased wholesale sales of our William Rast apparel line in the United States. As a result of economic conditions and slow consumer response to our newly designed American-made William Rast denim and expanded sportswear collection, we experienced a further decline in net revenue from our William Rast apparel line. We continued to liquidate our People’s Liberation brand inventory produced exclusively for Charlotte Russe during the nine months ended September 2010. During the nine months ended September 30, 2011, sales of our People’s Liberation brand inventory were not significant, which resulted in a further decrease in wholesale net revenue compared to the nine months ended September 2010. The decrease in wholesale revenue for the nine months ended September 2011 was also due to revenue received from Sony Electronics in the first quarter of 2010 in accordance with our sponsorship agreement related to our William Rast fashion show held in February 2010. We did not hold a fashion show in the first quarter of 2011, and as a result, did not receive sponsorship revenue or incur the related costs. The decrease in wholesale revenue for the nine months ended September 2011 was also due to nonrecurring revenue received from the Target Corporation in the second quarter of 2010 in accordance with the design and license agreement we entered into in May 2010 related to exclusive collection of William Rast products that were sold for a limited time in Target stores throughout the United States at the end of 2010. The decrease in wholesale net revenue for the nine months ended September 30, 2011 was offset by an increase in retail sales of our William Rast apparel line for the nine months ended September 30, 2011 and by licensing revenue received under the terms of our William Rast eyewear licensing agreement for the nine months ended September 30, 2011.
Gross Profit
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Gross Profit
|
|
$
|
1,889,051
|
|
|
$
|
6,925,876
|
|
|
|
(72.7
|
)%
|
As a percentage of net revenue, our gross margin from continuing operations decreased to 27.0% for the nine months ended September 30, 2011 from 47.0% for the nine months ended September 30, 2010. The decrease in wholesale gross profit as a percentage of net revenue was primarily due to lower margins achieved in off-price sales of our William Rast products in an effort to reduce our remaining William Rast inventory in anticipation of our newly designed American-made William Rast denim line and expanded sportswear collection. The decrease in wholesale gross profit as a percentage of net revenue was also due to revenue received from the Target Corporation in the second quarter of 2010 in accordance with the design and license agreement we entered into in May 2010 related to exclusive collection of William Rast products that were sold for a limited time in Target stores throughout the United States at the end of 2010, and advertising revenue received in accordance with our sponsorship agreement with Sony Electronics in the first quarter of 2010. There was no cost of revenue associated with the Target design and licensing revenue and the Sony advertising revenue, which resulted in an increase in wholesale gross profit as a percentage of net revenue during the nine months ended September 30, 2010. The decrease in gross profit as a percentage of net revenue for the nine months ended September 2011 was also due to a decrease in retail gross profit during the period. In order to boost overall sales in our retail stores during the quarter, we increased the number of select sale items during the period. We also eliminated sportswear from our product offering in our retail stores in an effort to focus on our American-made denim products. Margins on our sportswear products are typically higher than our denim products.
Selling, Design and Production Expenses
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Selling, design and
production expenses
|
|
$
|
3,828,407
|
|
|
$
|
4,758,092
|
|
|
|
(19.5
|
)%
|
The decrease in selling, design and production expenses from continuing operations for the nine months ended September 30, 2011 is primarily attributable to our William Rast fashion show held in February 2010. We did not hold a fashion show in the first quarter of 2011, and as a result, did not incur the related costs. The decrease in selling, design and production expenses from continuing operations for the nine months ended September 30, 2011 was also due to decreased design and production salaries incurred in the second half of 2011 as a result of cost cutting measures implemented to decrease expenditures. The decrease in selling, design and production expenses from continuing operations was offset by increased promotion and marketing of our William Rast brand during the nine months ended September 2011, including our Indy car sponsorship. As a percentage of net revenue, selling, design and production expense increased to 54.7% for the nine months ended September 30, 2011 compared to 32.3% for the nine months ended September 30, 2010. The increase in selling, design and production expenses as a percentage of net revenue for the six months ended September 30, 2011 was due to net revenue decreasing at a higher rate than selling, design and production expenses.
General and Administrative Expenses
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
General and administrative expenses
|
|
$
|
4,906,434
|
|
|
$
|
5,753,606
|
|
|
|
(14.7
|
)%
|
The decrease in general and administrative expenses during the nine months ended September 30, 2011 was primarily due to a reserve for bad debts of approximately $588,000 recorded in the third quarter of 2010 related to the impairment of trade accounts receivable due from Charlotte Russe and decreased legal expenses. We incurred a significant amount of legal fees during the nine months ended September 2010 related our litigation with Charlotte Russe which was settled in February 2011. The decrease in general and administrative expenses from continuing operations for the nine months ended September 30, 2011 was also due to decreased administrative salaries and other general and administrative expenses incurred in during the nine months ended September 2011 as a result of cost cutting measures implemented to decrease expenditures. The decrease in general and administrative expenses during the nine months ended September 30, 2011 was offset by a bonus paid to our Chief Executive Officer, Colin Dyne, in February 2011. As a percentage of net revenue, general and administrative expenses from continuing operations increased to 70.1% for the nine months ended September 30, 2011 from 39.0% for nine months ended September 30, 2010. The increase as a percentage of net revenue was due to net revenue decreasing at a higher rate than general and administrative expenses.
Interest Expense
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Interest Expense
|
|
$
|
156,727
|
|
|
$
|
140,422
|
|
|
|
11.6
|
%
|
The increase in interest expense is due primarily to interest payable at a rate of 8% under the terms of a $750,000 promissory note entered into in August 2010, and warrant charges and interest at a rate of 7% under the terms of a $1,000,000 promissory note also entered into in August 2011. The increase in interest expense during the first nine months of 2011 was offset by an average decrease in borrowings under our factoring arrangements during the nine months ended September 30, 2011.
Provision for Income Tax
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Provision for Income Tax
|
|
$
|
979,790
|
|
|
$
|
23,390
|
|
|
|
*
|
|
* Not meaningful
The provision for income taxes for the nine months ended September 30, 2011 represents the minimum tax payments due for state and local purposes,
including gross receipts tax on sales generated by our limited liability companies, estimated Federal and state taxes due at statutory effected tax rates and an increase in the valuation allowance provided for our deferred tax asset related to net operating loss carryforwards. The provision for income taxes for the nine months ended September 30, 2010 represents the minimum tax payments due for state and local purposes,
including gross receipts tax on sales generated by our limited liability companies. A provision for Federal income taxes was not recorded for the nine months ended September 30, 2010, as we had a net loss during the period.
As of September 30, 2011, a valuation allowance has been provided for the entire amount of our deferred income tax asset related to net operating loss carryforwards,
factored accounts receivable and bad debt reserves and other reserves. At this time, we cannot determine that it is more likely than not that we will realize the entire balance of the future income tax benefits related to our net operating losses. As of December 31, 2010, total net operating losses available to carry forward to future periods amounted to approximately $8.6 million. As of September 30, 2010, a valuation allowance was provided for all of our deferred income tax assets related to net operating loss carryforwards, factored accounts receivable and bad debt reserves and other reserves. The increase in the provision for income taxes recorded for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010 resulted from an increase in the valuation allowance provided for our deferred tax asset related to net operating loss carryforwards recorded during the second quarter of 2011.
Net Loss from Continuing Operations
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net loss from continuing operations
|
|
$
|
(4,468,769
|
)
|
|
$
|
(2,999,634
|
)
|
|
|
49.0
|
%
|
The increase in net loss from continuing operations incurred for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 is due primarily to decreased net revenue and gross margin and an increase in the provision for income taxes recorded during the second quarter of 2011, offset by a net decrease in operating expenses, as discussed above. The increase in net loss from continuing operations incurred for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 was also offset by the settlement of our litigation with Charlotte Russe, as further described elsewhere in this report, during the first quarter of 2011.
Noncontrolling Interest from Continuing Operations
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Noncontrolling Interest from continuing operations
|
|
$
|
3,579,686
|
|
|
$
|
1,425,129
|
|
|
|
151.2
|
%
|
Noncontrolling interest in continuing operations recorded for the nine months ended September 30, 2011 and 2010 represents net loss allocations to Tennman WR-T, Inc., a member of William Rast Sourcing and William Rast Licensing. Beginning January 1, 2009 through September 30, 2011, losses were allocated to the members of William Rast Sourcing and William Rast Licensing based on their respective percentage interests in such entities and profits were allocated to the members based on their percentage interest to the extent that the member was previously allocated losses. The increase in noncontrolling interest recorded for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 was due primarily to increased loss allocations to Tennman during the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010.
Effective as of October 1, 2011, we recapitalized the ownership of our William Rast branded apparel business. As a result of the recapitalization, both William Rast Sourcing, LLC and William Rast Licensing are owned 82% by Bella Rose and 18% by Tennman WR-T, Inc. Beginning October 1, 2011, all operating losses will be allocated to Bella Rose in accordance with the amended and restated operating agreements of William Rast Sourcing and William Rast Licensing. See further discussion in Note 18 to the condensed consolidated financial statements included elsewhere in this report.
Discontinued Operations
Discontinued Operations
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net income (loss) from discontinued operations
|
|
$
|
(125,771
|
)
|
|
$
|
(71,766
|
)
|
|
|
75.3
|
%
|
Gain on sale of member interest in subsidiary
|
|
|
2,012,323
|
|
|
|
-
|
|
|
|
|
|
|
|
|
1,886,552
|
|
|
|
(71,766
|
)
|
|
|
*
|
|
Noncontrolling interest in discontinued operations
|
|
|
62,885
|
|
|
|
35,884
|
|
|
|
75.2
|
|
|
|
$
|
1,949,437
|
|
|
$
|
(35,882
|
)
|
|
|
*
|
|
* Not meaningful
Net loss from discontinued operations for the period ended September 30, 2011 represents the results of operations of our J. Lindeberg subsidiary from the beginning of the year through the date of the sale of our 50% member interest in J. Lindeberg, USA on April 26, 2011. Net loss from discontinued operations for the nine months ended September 30, 2010 represents the results of operations of our J. Lindeberg subsidiary from the beginning of the year through September 30, 2010. The gain on the sale of member interest in subsidiary is further described in Note 12 to this report.
Net Income (Loss) Attributable to Common Stockholders
|
|
Nine Months
Ended
September 30, 2011
|
|
|
Nine Months
Ended
September 30, 2010
|
|
|
Percent Change
|
|
Net income (loss) attributable to
common stockholders
|
|
$
|
1,060,354
|
|
|
$
|
(1,610,387
|
)
|
|
|
*
|
|
* Not meaningful
The net income attributable to common shareholders for the nine months ended September 30, 2011 compared to the net loss attributable to common shareholders incurred for the nine months ended September 30, 2011 is due primarily to the settlement of our litigation with Charlotte Russe during the first quarter of 2011, the gain on the sale of our 50% member interest in J. Lindeberg, USA during the second quarter of 2011, both discussed elsewhere in this report, and a decrease in operating expenses incurred during the nine months ended September 2011. The increase in net income attributable to common shareholders was offset by a decrease in net revenue and gross margin during the period and an increase in the provision for income taxes recorded during the second quarter of 2011, as discussed above.
Liquidity and Capital Resources
As of September 30, 2011, we had cash and cash equivalents of approximately $138,000, a working capital deficit of approximately $3.7 million, and approximately $273,000 of availability from our factors. As of September 30, 2011, advances from our factors, net of matured funds, totaled approximately $942,000. As of September 30, 2010, we had cash and cash equivalents of approximately $300,000, a working capital deficit of approximately $252,000, and approximately $1.75 million of availability from our factor. As of September 30, 2010, advances from our factor totaled approximately $1.2 million.
Our capital requirements for the next twelve months, as they relate to the production of our products, will continue to be significant and cannot be funded, in their entirety, from operating cash flows. We must raise funds to finance operations, and intend to do so through strategic transactions with our partners or from traditional financing sources, until we are able to achieve positive cash flows from operations.
The extent of our future capital requirements will depend on many factors, including our results of operations. There can be no assurance that additional debt or equity financing will be available on acceptable terms or at all, especially given the economic conditions that currently prevail.
In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we raise debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available to satisfy our capital requirements or a strategic transaction is not timely negotiated, the Company will likely be unable to pay its debts as they become due.
Sources and Uses of Cash
Cash Received from Note Payable
On August 18, 2011, our subsidiary, William Rast Licensing, entered into a note payable in the amount of $1,000,000 with Monto Holdings (Pty) Ltd. (“Monto”). The note bears interest at 7% and is payable on the maturity date of the note unless the note is earlier repaid. The promissory note is to be repaid as follows: (i) 40.0% of the then outstanding principal amount on December 31, 2011, (ii) 20% of the then outstanding principal amount on February 29, 2012 and (iii) all of the remaining principal amount then outstanding on the maturity date, May 12, 2012. The promissory note is secured by the assets of William Rast Licensing and is guaranteed by our other entities under common control, including People’s Liberation, Inc., William Rast Sourcing, LLC, William Rast Retail, LLC, Bella Rose, LLC and Versatile Entertainment, Inc.
In connection with the promissory note, we issued a fully-vested, five-year warrant to Monto to purchase 12,500,000 shares of our common stock at an exercise price of $0.08 per share.
Cash Received from the Sale of our 50% Member Interest in J. Lindeberg USA
On April 26, 2011, we completed the sale of Bella Rose’s 50% member interest in J. Lindeberg USA to J. Lindeberg USA Corp. pursuant to the terms of a Unit Purchase Agreement entered into by the parties on April 7, 2011. In consideration for Bella Rose’s 50% member interest in Lindeberg USA, J. Lindeberg USA Corp. agreed to pay us an aggregate of $1,650,000, of which $900,000 was paid upon the closing of the transaction and $750,000 was payable on the six month anniversary of the closing of the transaction.
As a result of the sale of our 50% interest in J. Lindeberg USA, we anticipate a decrease in future sales of both our wholesale and retail divisions. We also anticipate a reduction in direct operating expenses related to the J. Lindeberg brand in future periods.
Cash Received from the Sale of our Receivable due from J. Lindeberg USA Corp.
On June 24, 2011, we and our wholly-owned subsidiary, Bell Rose, LLC, entered into an asset purchase agreement with Monto. Pursuant to the agreement, Bella Rose sold to Monto without recourse the $750,000 receivable owed to us under the terms of the Unit Purchase Agreement discussed above. On June 24, 2011, we also issued a fully vested, five year warrant to Monto to purchase 3,750,000 shares of our Common Stock at an exercise price of $0.20 per share. In exchange for the rights to the receivable and the warrant, Monto paid a purchase price of $722,916 to us.
Cash Received from our Settlement with Charlotte Russe
On February 3, 2011, we (along with the other parties to the litigation) settled our litigation with Charlotte Russe Holding, Inc. Pursuant to the settlement, we received $3.5 million, after the distribution of amounts owed under the terms of an asset purchase agreement, as described elsewhere in this report, and the payment of legal fees and expenses. We also received proceeds of $750,000 in the third quarter of 2010 relating to the litigation in connection with an asset purchase agreement, for total proceeds related to the litigation of $4.3 million. The settlement included the dismissal with prejudice of all claims pending between the parties as well as mutual releases, without any admission of liability or wrongdoing by any of the parties to the actions.
Factoring Agreements
Pursuant to the terms of our factoring agreements, our factors purchase our eligible accounts receivable and assume the credit risk with respect to those accounts for which the factors have given their prior approval. If the factors do not assume the credit risk for a receivable, the collection risk associated with the receivables remains with us.
On October 7, 2010, William Rast Sourcing entered into a factoring agreement with Rosenthal & Rosenthal, Inc. Our William Rast factor agreement provides that we can borrow an amount up to 75% of the value of approved factored customer invoices. We can also borrow up to 50% of eligible inventory (as defined in the agreement) up to a maximum of $875,000. The factor commission is 0.75% of the customer invoice amount and interest is charged on accounts receivable and inventory advances at prime plus 1.5% and prime plus 2.5%, respectively. The factor facility is secured by substantially all of the assets of William Rast Sourcing, a security interest granted by William Rast Licensing in certain royalties payable to William Rast Licensing, and is guaranteed by certain of our other consolidated entities and is personally guaranteed by Colin Dyne, the Chief Executive Officer of People’s Liberation and Manager of William Rast, up to a maximum of $1 million.
Beginning July 28, 2008 through April 26, 2011, our subsidiary, J. Lindeberg USA, entered into various factoring arrangements with FTC Commercial Corp (“FTC”). The most recent agreement provided that FTC may make factoring advances to J. Lindeberg of up to 75% of the purchase price of all accounts purchased by FTC and interest was charged with respect to advances from the greater of 5.5% per annum or prime plus 1% to the greater of 7.0% per annum or prime plus 1%. Under the terms of the most recent factoring agreement, we could also borrow up to 50% of our eligible inventory (as defined in the agreement). Maximum borrowings, including borrowings related to factored accounts receivable and inventory, related to the facility were not to exceed $1.5 million. The factor commission was 0.8% of the customer invoice amount for terms up to 60 days, plus one quarter of one percent (.25%) for each additional thirty-day term. The factor facility was secured by substantially all of the assets of J. Lindeberg and, through April 26, 2011, was guaranteed by our related entities, People’s Liberation, Inc., Bella Rose, LLC, and Versatile Entertainment, Inc. As a result of the sale of our 50% member interest in J. Lindeberg USA on April 26, 2011, the guarantees of our related entities were released by FTC and our interest in the factoring facility with FTC was terminated.
As of September 30, 2011, total factored accounts receivable amounted to approximately $932,000, $432,000 of which are without recourse and included in due to factor and $386,000 are with recourse and included in net accounts receivable. As of September 30, 2010, total factored accounts receivable amounted to approximately $1.9 million, $1.2 million of which are without recourse and included in due to factor and $700,000 are with recourse and included in net accounts receivable. Outstanding advances, net of matured funds, amounted to approximately $942,000 and $1.2 million as of September 30, 2011 and 2010, respectively, and are included in the due to factor balance.
Future Capital Requirements
For the nine months ended September 30, 2011, we recorded a loss from continuing operations of approximately $4.5 million and utilized cash in continuing operations of $3.7 million. As of September 30, 2011, we had cash and cash equivalents of approximately $138,000, a working capital deficit of approximately $3.7 million, and approximately $273,000 of availability from our factors.
Cash Flows from Continuing Operations
Cash flows from continuing operations for operating, investing and financing activities for the nine months ended September 30, 2011 and 2010 are summarized in the table below.
|
|
Nine Months
Ended September 30,
|
|
Activity:
|
|
2011
|
|
|
2010
|
|
Operating activities
|
|
$
|
(3,702,405
|
)
|
|
$
|
(1,659,392
|
)
|
Investing activities
|
|
|
718,329
|
|
|
|
(469,472
|
)
|
Financing activities
|
|
|
1,165,448
|
|
|
|
750,000
|
)
|
|
|
$
|
(1,818,628
|
)
|
|
$
|
(1,378,864
|
)
|
Operating Activities
Net cash used in operating activities from continued operations was approximately $3.7 million for the nine months ended September 30, 2011 and $1.7 million for the nine months ended September 30, 2010. Net cash used in operating activities from continued operations for the nine months ended September 30, 2011 was primarily a result of our net loss of approximately $2.6 million and decreased accounts payable and accrued expenses, offset by decreased accounts receivable. Net cash used in operating activities from continued operations for the nine months ended September 30, 2010 was primarily a result of a net loss of approximately $3.1 million and increased receivables and inventories, offset by increased accounts payable and accrued expenses.
Investing Activities
Net cash provided by investing activities from continued operations was approximately $718,000 for the nine months ended September 30, 2011 and net cash used in investing activities from continued operations was approximately $469,000 for the nine months ended September 30, 2010. Net cash provided by investing activities from continued operations for the nine months ended September 30, 2011 consisted primarily of proceeds received from the sale of a receivable resulting from the sale of our member interest in J. Lindeberg, USA and a decrease in restricted cash, offset by capital expenditures. On June 24, 2011, we entered into an asset purchase agreement with Monto Holding (Pty) Limited (“Monto”). Pursuant to the agreement, we sold to Monto without recourse the $750,000 receivable owed to us under the terms of the unit purchase agreement we entered into for the sale of our membership interest in J. Lindeberg, USA, as described elsewhere in this report. On June 24, 2011, we also issued a fully vested, five year warrant to Monto to purchase 3,750,000 shares of our Common Stock at an exercise price of $0.20 per share. In exchange for the rights to the receivable and the warrant, Monto paid us a purchase price of $722,916. Net cash used in investing activities from continued operations for the nine months ended September 30, 2010 primarily consisted of an increase in capital expenditures for computer equipment, leasehold improvements and furniture and fixtures for our new retail store locations, and expenditures for our tradeshow booth.
Financing Activities
Net cash provided by financing activities from continued operations was $1.2 million for the nine months ended September 30, 2011 and $750,000 for the nine months ended September 30, 2010. On August 18, 2011, our subsidiary, William Rast Licensing, entered into a note payable in the amount of $1,000,000 with Monto Holdings (Pty) Ltd. (“Monto”). Net cash provided by financing activities was $750,000 for the nine months ended September 30, 2010. On August 13, 2010, our subsidiary, William Rast Licensing, entered into a note payable to related parties in the amount of $750,000. The note bears interest at 8%, payable monthly in arrears, and is due February 13, 2012.
Contractual Obligations and Off-Balance Sheet Arrangements
The following summarizes our contractual obligations at September 30, 2011 and the effects such obligations are expected to have on liquidity and cash flows in future periods:
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
4-5
|
|
|
After
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
Operating leases
|
|
$
|
8,236,493
|
|
|
$
|
1,487,881
|
|
|
$
|
3,192,784
|
|
|
$
|
1,849,004
|
|
|
$
|
1,706,824
|
|
Notes payable
|
|
|
1,750,000
|
|
|
|
1,750,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consulting and endorsement agreements
|
|
|
1,459,500
|
|
|
|
761,500
|
|
|
|
698,000
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
11,445,993
|
|
|
$
|
3,999,381
|
|
|
$
|
3,890,784
|
|
|
$
|
1,849,004
|
|
|
$
|
1,706,824
|
|
The Company is also required to make minimum quarterly royalty payments of $100,000 in accordance with the terms of a royalty agreement entered into by the Company with an effective date of October 1, 2011.
At September 30, 2011, approximately $35,000 of the Company’s cash is held as collateral to secure its credit card facility.
At September 30, 2011 and 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Factored accounts receivable may subject us to off-balance sheet risk. We sell the majority of our trade accounts receivable to a factor and are contingently liable to the factor for merchandise disputes, other customer claims and invoices that are not credit approved by the factor. From time to time, our factor also issues letters of credit and vendor guarantees on our behalf. There were no outstanding letters of credit or vendor guarantees as of September 30, 2011 and 2010. Ledger debt (payables to suppliers that use the same factor as the Company) amounted to approximately $1.1 million and at September 30, 2010. There was no ledger debt as of September 30, 2011.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
Members of the our management, including our Chief Executive Officer and Chief Financial Officer, Colin Dyne, have evaluated the effectiveness of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of September 30, 2011, the end of the period covered by this report. Based upon that evaluation, Mr. Dyne has concluded that our disclosure controls and procedures were effective as of September 30, 2011.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the third quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1A. Risk Factors
Cautionary Statements and Risk Factors
This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth herein and in our Annual Report on Form 10-K for the year ended December 31, 2010. Other than as set forth below, there have been no material changes to such risk factors during the nine months ended September 30, 2011.
If we are unable to raise capital, we will be unable to pay our debts as they become due.
As of September 30, 2011, we had cash and cash equivalents of approximately $138,000, a working capital deficit of approximately $3.7 million, and approximately $273,000 of availability from our factors. Our capital requirements for the next twelve months will continue to be significant and cannot be funded, in their entirety, from operating cash flows. We must raise funds to finance operations. However, there can be no assurance that additional debt or equity financing will be available on acceptable terms or at all, especially given the economic conditions that currently prevail. If we are unable to raise sufficient funds or a strategic transaction is not timely negotiated, we will likely be unable to pay our debts as they become due, including the principal and accrued interest on our outstanding secured promissory notes issued to (i) Monto Holdings (Pty) Ltd. in the aggregate principal amount of $1,000,000 and (ii) Mobility Special Situations I, LLC, in the aggregate principal amount of $750,000, each of which mature in 2012.
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number
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Exhibit Title
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10.1
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Form of Promissory Note entered into on August 18, 2011 by William Rast Licensing, LLC in favor of Monto Holdings (Pty) Ltd.
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10.2
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Borrower Security Agreement entered into on August 18, 2011 by William Rast Licensing, LLC in favor of Monto Holdings (Pty) Ltd.
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10.3
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Guarantor Security Agreement entered into on August 18, 2011 by People’s Liberation, Inc., Versatile Entertainment, Inc., Bella Rose, LLC, William Rast Sourcing, LLC, and William Rast Retail, LLC in favor of Monto Holdings (Pty) Ltd.
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10.4
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Guaranty entered into on August 18, 2011 by People’s Liberation, Inc., Versatile Entertainment, Inc., Bella Rose, LLC, William Rast Sourcing, LLC, and William Rast Retail, LLC in favor of Monto Holdings (Pty) Ltd.
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10.5
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Form of Common Stock Purchase Warrant issued to Monto Holdings (Pty) Ltd. on August 18, 2011 by People’s Liberation, Inc.
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10.6
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Second Amended and Restated Limited Liability Company Operating Agreement of William Rast Sourcing, LLC, effective as of October 1, 2011.
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10.7
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Second Amended and Restated Limited Liability Company Operating Agreement of William Rast Licensing, LLC, effective as of October 1, 2011.
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10.8
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Royalty Agreement by and among William Rast Sourcing, LLC, William Rast Licensing, LLC and Tennman WR-T, Inc. effective as of October 1, 2011.
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10.9
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Preemptive Rights and Board Nominee Agreement by and between People’s Liberation, Inc. and Tennman WR-T, Inc. effective as of October 1, 2011.
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10.10
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Services Agreement by and between William Rast Licensing, LLC and Tennman Brands, LLC f/s/o Justin Timberlake effective as of October 1, 2011.
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31.1
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Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
|
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Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS**
|
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XBRL Instance Document
|
101.SCH**
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XBRL Taxonomy Extension Schema Document
|
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF**
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document
|
**
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XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PEOPLE’S LIBERATION, INC.
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/s/
Colin Dyne
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By: Colin Dyne
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Its: Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
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PROMISSORY NOTE
$1,000,000.00
|
August 18, 2011
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THIS PROMISSORY NOTE is a duly authorized and validly issued promissory note of WILLIAM RAST LICENSING, LLC, a California limited liability company, having its principal place of business at 1212 South Flower Street, Fifth Floor, Los Angeles, California 90015 (the "
Company
").
FOR VALUE RECEIVED, the Company hereby promises to pay to the order of MONTO HOLDINGS (PTY) LTD. ("
Monto
"), or its successors and assigns (together with Monto, the "
Holder
"), the principal sum of ONE MILLION Dollars ($
1,000,000.00
)
or such lesser principal amount as is actually advanced by Monto to Company hereunder
(the "
Principal Amount
"), together with interest thereon and other amounts payable hereunder at the times and on the dates set forth herein and in any event no later than the Maturity Date.
Capitalized terms used herein without definition have the meanings set forth on Exhibit A hereto. This Note is subject to the following additional provisions:
Section 1.
Advance of Funds: Conditions to Advance
.
(a)
Subject to the terms hereof, Company may in its discretion, but shall not be required to, request advances of funds available hereunder (“
Advances
”) from Monto, up to a maximum principal amount of
One Million Dollars
($1,000,000.00), and Monto shall loan such funds to Company on the terms and subject to the conditions hereof. Company shall give Monto irrevocable written notice requesting an Advance at least two (2) business days before the date on which Company desires to receive the Advance (unless a shorter period is consented to by Monto). Notwithstanding any term or provision of this Note that may be construed to the contrary, except for the initial Advance to be made on the Original Issue Date, at no time shall Monto be required to make an Advance hereunder (a) if an Event of Default (as defined below) shall have occurred or (b)
unless and until the Company and Monto shall have received the Rosenthal Consent.
(b) On the Original Issue Date, the parties hereby agree that Holder shall advance to the Company by wire of immediately available funds $350,000.00
less
any amounts that may be deducted therefrom by agreement between the Holder and the Company or otherwise pursuant to the terms of this Note.
(c) Prior to the Holder having the obligation of making the initial Advance of $350,000.00, the following shall have occurred to the satisfaction of the Holder in its sole discretion:
i. this Note shall have been duly executed and delivered by the Company to the Holder;
ii. the Guaranty shall have been duly executed and delivered by the Guarantors to the Holder;
iii. the Security Agreements shall have been duly executed and delivered by the Loan Parties to the Holder;
iv. the Holder shall have received a release agreement dated as of the date of this Note executed by the Loan Parties, in form and substance satisfactory to the Holder;
v. the Holder shall have received the Warrant duly executed and delivered by People’s Liberation, Inc.;
vi. the Holder shall have received proper financing statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Holder may deem necessary or desirable in order to perfect the Liens created under the Security Agreements, covering the collateral described in the Security Agreements;
vii. the Holder shall have received evidence of the completion of all other actions, recordings and filings of or with respect to the Security Agreements that the Holder may deem necessary or desirable in order to perfect the Liens created thereby;
viii. the Holder shall have received such certificates of resolutions or other action, incumbency certificates and/or other certificates of responsible officers of each Loan Party as the Holder may require evidencing the identity, authority and capacity of each responsible officer thereof authorized to act in connection with the Transaction Documents to which such Loan Party is a party;
ix. the Holder shall have received such documents and certifications as the Holder may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification;
x. the Holder shall have received a certificate of a responsible officer of each Loan Party (A) attaching true, correct and complete copies of each licensing agreement to which such Loan Party is a party and certifying that each such licensing agreement is in full force and effect on the Original Issue Date, and (B) either (1) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Transaction Documents to which it is a party, and stating that such consents, licenses and approvals are in full force and effect, or (2) stating that no such consents, licenses or approvals are so required; and
xi. the Holder shall have received such other assurances, certificates, documents, consents or opinions as it may reasonably require.
(d) The delivery of the foregoing documents and the initial Advance of $350,000.00 by Monto to the Company shall occur on the Original Issue Date in accordance with, and subject to, the terms and conditions hereof, at the offices of Stubbs Alderton & Markiles, LLP. Advances after the Original Issue Date shall occur in accordance with, and subject to, the terms and conditions hereof, at the offices of Stubbs Alderton & Markiles, LLP or at such other location as the parties may determine.
Section 2.
Payment of Principal and Interest; Security; Prepayments
.
(a)
Payment of Principal
. Unless earlier repaid upon acceleration of this Note in accordance with the terms hereof, the Principal Amount shall be repaid in full by the Company as follows: (i) 40.0% of the then outstanding Principal Amount shall be repaid on December 31, 2011, (ii) 20% of the then outstanding Principal Amount shall be repaid on February 29, 2012 and (iii) all of the remaining Principal Amount then outstanding shall be repaid on the Maturity Date. Any amount of principal repaid or prepaid hereunder may not be reborrowed.
(b)
Payment of Interest
. From the Original Issue Date until paid in full, interest on the aggregate outstanding Principal Amount shall accrue at the rate of 7.00% per annum. Interest shall be payable by the Company to the Holder on the Maturity Date. Upon and after the occurrence of an Event of Default (as defined below), the Principal Amount, unpaid interest and other unpaid amounts under this Note shall, at the election of the Holder in its sole and absolute discretion or automatically and without further action of the Holder if a Bankruptcy Event has occurred, bear interest at the lesser of 9.00% per annum or the Maximum Rate (as defined below). All accrued interest that is not paid when due (i) shall be due and payable by the Company on demand (or automatically and without further action of the Holder if a Bankruptcy Event has occurred), (ii) shall be capitalized into the Principal Amount on a daily basis and (iii) shall bear interest at the same interest rate per annum as the Principal Amount.
(c)
Interest Calculations
. Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the Principal Amount (together with all accrued and unpaid interest and other amounts which may become due hereunder) has been made.
(d)
Voluntary Prepayment
. The Company may prepay all or any portion of the Principal Amount, without penalty or premium, upon at least ten days' prior written notice to the Holder (the "
Prepayment Amount
"). Any prepayment of the Principal Amount shall be accompanied by all accrued and unpaid interest on the amount prepaid.
(e)
Mandatory Prepayments
.
i. If the Company Disposes of any property or asset (other than any Disposition of inventory, or other assets in the ordinary course of business) which results in the realization by the Company of Net Cash Proceeds, the Company shall prepay the Principal Amount by an amount equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by the Company.
ii. If the Company receives any Extraordinary Receipt, the Company shall prepay the Principal Amount by an amount equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by the Company.
iii. The Company shall prepay the Principal Amount by an amount equal to 100% of the Gross Proceeds received by the Loan Parties, or any one or more of them, under or with respect to any and all licensing agreements (including, without limitation, any license agreement entered into with Viva Optique, Inc.), whether now existing or hereafter arising, immediately upon receipt of such Gross Proceeds by the applicable Loan Party.
(f)
Application of Payments
. Notwithstanding anything to the contrary contained herein or in any other Transaction Document, all payments and prepayments made by the Company shall be applied to principal, interest, fees and other charges due the Holder hereunder in such order of priority as the Holder shall elect.
(g)
Security
. The obligations of the Company under this Note are secured by the collateral identified in the Borrower Security Agreement and guarantied by the Guarantors under the Guaranty (which is secured by the collateral identified in the Guarantor Security Agreement).
(h)
Use of Proceeds
. The proceeds of this Note shall be used by the Loan Parties for working capital and for general corporate purposes of the Company. The proceeds of this Note shall not be used to make or pay any dividend or distribution or to redeem any common stock or securities convertible, exercisable or exchangeable into common stock.
Section 3.
Representations and Warranties
. The Company hereby represents and warrants to the Holder as follows:
(a) The Company has been duly organized and is validly existing under the laws of its jurisdiction of organization, is in good standing or duly qualified as a limited liability company in all jurisdictions where the conduct of its business so requires, and has all requisite power and authority to execute, deliver and perform its obligations under this Note and all other Transaction Documents to which it is a party. The Company does not directly or indirectly own or have any investment in the capital stock of or any proprietary interest in any Person, except as set forth in Schedule 2 to this Note. The Company does not have any subsidiaries except as set forth in Schedule 2 of this Note. Each of this Note and all other Transaction Documents have been duly authorized, executed and delivered by the Company and constitute its legal, valid and binding obligation, enforceable against the Company in accordance with the terms hereof and thereof. The execution, delivery and performance by the Company of this Note and all other Transaction Documents to which it is a party, and the incurrence by the Company of the obligations hereunder and thereunder, do not contravene or conflict with the Company's articles of organization, operating agreement or any law applicable to the Company or other instrument binding on or otherwise affecting the Company or give rise to any lien, security interest or other charge or encumbrance (other than in favor of the Holder) upon any of the Company's properties. No consent or approval of or notice to or filing with any governmental authority or other third party is or will be required as a condition to the validity or enforceability of this Note or the other Transaction Documents, other than such consents which have been obtained and are in full force and effect.
(b) The Company has good and marketable title to the assets disclosed in its most recent Financial Reports (as defined below). The Company is in compliance in all material respects with all laws and regulatory requirements to which it or its properties are subject. Except as set forth in the Financial Reports, there is no litigation pending, or, to the knowledge of the Company, threatened against the Company that could reasonably be expected to have a Material Adverse Effect. The Company's principal place of business and registered office are the addresses set forth at the beginning of this Note. The Company has paid all federal, foreign, state and local taxes required to be paid by it on or prior to the date they were due. All documents, instruments and other written material heretofore or hereafter furnished to the Holder pursuant to the terms of any Transaction Document contain no misstatements of a material fact and do not fail to disclose any material fact and the Company has not failed to disclose to the Holder any material information.
(c) The Company has delivered to the Holder true, correct and complete copies of its audited financial statements for the fiscal year ended December 31, 2010, and its unaudited financial statements for the fiscal quarter ended June 30, 2011 (collectively, the "
Financial Reports
"). None of the Financial Reports, as of their restatement date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Financial Reports comply in all material respects with applicable accounting requirements as in effect at the date of such Financial Reports. Such Financial Reports have been prepared in accordance with GAAP (except as may be otherwise specified therein and except that unaudited financial statements may not contain all footnotes required by GAAP) and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(d) Since December 31, 2010 and except as set forth in the Financial Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP and (C) $10,000 of unsecured indebtedness in the aggregate, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or affiliate. The Financial Reports set forth as of the date hereof all material outstanding secured and unsecured Indebtedness of the Company, or for which the Company has commitments, other than $10,000 of unsecured indebtedness in the aggregate incurred subsequent thereto. The Company is not in default with respect to any Indebtedness.
(e) Except as disclosed in the Financial Reports, the Company is not a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which is required to be filed with the Securities and Exchange Commission (collectively, "
Material Agreements
") pursuant to the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). The Company has, in all material respects, performed all the obligations required to be performed by it to date under the foregoing agreements, has received no notice of default and is not in default under any other Material Agreement now in effect, the result of which could cause a Material Adverse Effect.
(f) Except as disclosed in the Financial Reports, there are no material loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions between (a) the Company or any of its customers or suppliers on the one hand, and (b) on the other hand, any executive officer, 5% or greater stockholder (other than another Loan Party), director or employee of the Company or, to the knowledge of the Company, any member of the immediate family of such persons or any corporation or other entity controlled by such persons or their immediate family members.
(g) The Company is not, and is not an affiliate of, and immediately after the transactions contemplated hereby, will not be an affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended.
(h) The Company has not received notice of a default and is not in default under, or with respect to, any contractual obligation, nor does any condition exist that with notice or lapse of time or both would constitute a default thereunder.
(i) The Company, by reason of its own business and financial experience or that of its professional advisers, has the capacity to protect its own interests in connection with this Note, the Transaction Documents and the transactions contemplated hereunder and thereunder.
Section 4.
Covenants
. As long as any portion of this Note remains outstanding or any obligation under any Transaction Document remains outstanding, the Company agrees as follows:
(a) other than Permitted Liens, the Company shall not enter into, create, incur, assume or suffer to exist any Lien on or with respect to any of its assets now owned or hereafter acquired or any interest therein or any income or profits therefrom. For the avoidance of doubt, the Company shall not enter into, create, incur, assume or suffer to exist any Lien, other than the Liens in favor of Holder, on any license agreement (including, without limitation, any license agreement entered into with Viva Optique, Inc.) or on the proceeds or product of any of the foregoing (including, without limitation, any account receivable arising therefrom or related thereto);
(b) the Company shall not amend its organizational documents, including without limitation, its articles of organization or operating agreement, in any manner that adversely affects any rights of the Holder;
(c) the Company shall comply with its obligations under this Note and the other Transaction Documents;
(d) the Company shall comply with law and duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets;
(e) the Company shall not declare or pay any dividends or make any distributions to any holder(s) of shares, membership interests or other equity security of the Company;
(f) the Company shall not (i) merge or consolidate with any Person or sell all its assets or any substantial portion thereof, (ii) Dispose of any property or assets (other than inventory in the ordinary course of business for fair value), (iii) in any way or manner alter its organizational structure or effect a change of entity, (iv) purchase or otherwise acquire any equity interests in any other Person or all or substantially all of the property of any other Person; or (v) make any investments other than in the form of cash equivalents;
(g) the Company shall promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company except for such failures to pay that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor;
(h) the Company shall maintain in full force and effect its limited liability company existence, rights and franchises and all licenses and other rights to use property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business;
(i) the Company shall conduct its businesses in a manner so that it will not become subject to the Investment Company Act of 1940, as amended;
(j) the Company shall not make any payment on any indebtedness owed to any member, manager, officers, directors or affiliates of the Company, except that the Company may make regularly scheduled payments of principal and interest with respect to such indebtedness (on the existing terms of such indebtedness as of the Original Issue Date without further amendment or acceleration), provided no Event of Default has occurred and is continuing or would result therefrom;
(k) within 30 days of the Original Issue Date, the Company shall cause the landlord under the lease of the premises comprising its principal place of business to execute a collateral access agreement, in form and substance satisfactory to the Holder in its sole and absolute discretion, subordinating such landlord's lien on the personal property assets of the Company located on such premises and granting the Holder reasonable access to the premises;
(l) the Company shall assure that the properties of the Loan Parties are insured with financially sound and reputable insurance companies not affiliates of the Loan Parties, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Loan Parties operate. Promptly, but in any event not later than 30 days after Holder's request for the same, the Company shall deliver to Holder evidence that all insurance required to be maintained pursuant to the Transaction Documents has been obtained and is in effect, together with certificates of insurance, naming Holder as an additional insured or loss payee, as the case may be, under all insurance policies maintained with respect to the assets and properties of the Loan Parties that constitute collateral;
(m) the Company shall pay, no later than September 1, 2011, all out-of-pocket expenses incurred by the Holder (including the fees, charges and disbursements of counsel for the Holder), in connection with the preparation, negotiation, execution, and delivery of this Note and the other Transaction Documents;
(n) promptly but in any event within 5 Business Days after the Original Issue Date, the Company shall cause the delivery to the Holder of the certificates representing the pledged equity interests referred to in the Borrower Security Agreement and the Guarantor Security Agreement accompanied by undated stock powers executed in blank;
(o) the Company shall deliver to the Holder:
i. as soon as available or prepared, all balance sheets and all statements of income or operations, changes in shareholders' equity, and cash flows prepared by the Company or its subsidiaries or management of the Company and its subsidiaries, and all such financial statements shall be certified by the chief executive officer, chief financial officer, treasurer or controller or similar officer of the Company as fairly presenting the financial condition, results of operations, shareholders' equity and cash flows of the Company and its subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes;
ii. promptly upon the Holder's request, a detailed aging of the Company's receivables and payables by invoice and/or a summary aging by account debtor or vendor, as specified by the Holder;
iii. promptly upon the Holder's request, statements from the applicable bank or depository with respect to each deposit, securities, or other brokerage account owned or held by the Company;
iv. promptly upon the Holder's request, copies of all minutes, consents and other materials (including, without limitation, any detailed audit reports, management letters or recommendations) submitted to the board of directors or similar governing body of any Loan Party in connection with any meeting of such board of directors or similar governing body;
v. promptly upon the Holder's request, such other books, records, financial statements, tax returns, investment statements, lists of property and accounts, budgets, forecasts or reports as to the Loan Parties as the Holder may request;
vi. immediately upon the occurrence of the same, notice of the occurrence of any Event of Default;
vii. immediately upon the occurrence of the same or receipt of the same, notice of any event, transaction or receipts that give rise to a mandatory prepayment obligation under this Note; and
viii. immediately upon knowledge of the same, notice of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect.
Section 5.
Events of Default
.
(a) "
Event of Default
" means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or, regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of this Note or (B) interest or other amounts owing to the Holder on this Note, as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise);
ii. any Loan Party shall fail to observe or perform any other covenant or agreement contained in this Note which failure is not cured, if possible to cure, within the earlier to occur of (A) three days after notice of such failure sent by the Holder and (B) five days after the Loan Party has become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under any of the Transaction Documents (other than this Note), or the failure or invalidity of any of the Transaction Documents;
iv. any representation or warranty made in this Note, any other Transaction Document, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;
v. any Loan Party shall be subject to a Bankruptcy Event;
vi. any Loan Party (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $25,000, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity;
vii. any monetary judgment, writ or similar final process shall be entered or filed against any Loan Party or any of its property or other assets for more than $10,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 30 calendar days;
viii. any Material Adverse Effect shall have occurred;
ix. any Change of Control occurs; or
x. any material license agreement (whether now existing or hereafter arising, including, without limitation, any license agreement entered into with Viva Optique, Inc.) is terminated, cancelled or breached by any party thereto.
(b)
Remedies Upon Event of Default
. If any Event of Default occurs, the entire unpaid principal amount of this Note plus accrued and unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder's election in its sole and absolute discretion, immediately due and payable upon written notice to the Company, except that, with respect to a default under Section 5(a)(v) above, no such notice shall be required and such acceleration shall be automatic and immediate. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand or protest of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law and the Transaction Documents. Such acceleration may be rescinded and annulled by the Holder at any time prior to payment hereunder and the Holder shall have all rights as the holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 5(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
Section 6.
Miscellaneous
.
(a)
Notices
. Any and all notices or other communications or deliveries to be provided by the Holder hereunder shall be delivered to the address of the Company's principal place of business set forth above. Notices to the Holder shall be delivered to the address set forth in Section 1(c).
(b)
Absolute Obligation
. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and accrued interest, as applicable, on this Note at the time, place, and rate herein prescribed. This Note is a direct, unconditional and secured debt obligation of the Company. All payments to be made by the Company hereunder and under the other Transaction Documents shall be made, in lawful money of the United States of America, and without condition or deduction for any counterclaim, defense, recoupment or setoff.
(c)
Lost or Mutilated Note
. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed.
(d)
Governing Law
. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflict of laws thereof.
(e)
SUBMISSION TO JURISDICTION
. EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA SITTING IN LOS ANGELES COUNTY AND OF THE UNITED STATES DISTRICT COURT SITTING IN LOS ANGELES COUNTY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CALIFORNIA STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH LOAN PARTY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS NOTE OR IN ANY OTHER TRANSACTION DOCUMENT SHALL AFFECT ANY RIGHT THAT THE HOLDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT AGAINST ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(f)
WAIVER OF VENUE
. EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (E) OF THIS SECTION. EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(g)
SERVICE OF PROCESS
. EACH LOAN PARTY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS BY MAILING OF A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO THE ADDRESS FOR NOTICES SET FORTH IN SECTION 6(A) OF THIS NOTE. NOTHING IN THIS NOTE WILL AFFECT THE RIGHT OF ANY LOAN PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(h)
WAIVER OF JURY TRIAL
. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
(i)
Expenses
. If the Company or the Holder shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys' fees and other reasonable costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
(j)
Judicial Reference
. If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Note or any other Transaction Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a "provisional remedy" as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) without limiting the generality of Sections 6(k) and 6(q) below, the Company shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.
(k)
Costs of Preparation and Collection
. The Company agrees to pay all costs and expenses, including the fees and expenses of any attorneys, accountants and other experts retained by the Holder, which are expended or incurred by the Holder in connection with (a) the preparation, negotiation, execution and delivery of this Note and the other Transaction Documents; (b) the enforcement of this Note or the collection of any sums due hereunder, whether or not suit is commenced; (c) any actions for declaratory relief in any way related to this Note; (d) the protection or preservation of any rights of the Holder under this Note; (e) any actions taken by the Holder in negotiating any amendment, waiver, consent or release of or under this Note; (f) any actions taken in reviewing the Loan Parties' financial affairs if an Event of Default has occurred; (g) the Holder's participation in any refinancing, restructuring, bankruptcy or insolvency proceeding involving any Loan Party; (h) verifying, maintaining, or perfecting any security interest or other lien granted to the Holder in any collateral; (i) any effort by the Holder to protect, assemble, complete, collect, sell, liquidate or otherwise dispose of any collateral, including in connection with any action or proceeding; or (j) any refinancing or restructuring of this Note, including, without limitation, any restructuring in the nature of a "work out" or in any insolvency or bankruptcy proceeding. All sums due to the Holder pursuant to this clause (k) shall be due and payable immediately without demand and shall bear interest at the same rate as then applicable to the Principal Amount.
(l)
Waiver
. Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver by the Holder must be in writing.
(m)
Severability
. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.
(n)
Next Business Day
. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
(o)
Headings
. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
(p)
Usury
. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by the Holder in order to enforce any right or remedy under any Transaction Document; provided that, notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (taking into account any exemptions or exceptions under applicable law) (the "
Maximum Rate
"), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Holder with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Holder's election.
(q)
Indemnification
. The Company will indemnify and hold the Holder harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Note or any other Transaction Document, (b) any credit extended or committed by the Holder to the Company hereunder, and (c) any litigation or proceeding related to or arising out of this Note, any other Transaction Document, or any such credit. This indemnity includes but is not limited to reasonable attorneys' fees. This indemnity extends to the Holder, its affiliates, partners, directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Company's obligations to the Holder. All sums due to the Holder under this clause (q) shall be due and payable immediately without demand and shall bear interest at the same rate as then applicable to the Principal Amount.
(r)
Successors and Assigns; Assignments and Participations
.
i. This Note shall be binding upon and inure to the benefit of the Company and the Holder and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Note or any other Transaction Document without the prior written consent of the Holder.
ii. The Holder may, at any time and from time to time without the consent of the Company, assign or transfer to one or more Persons, or sell participations in, all or any portion of this Note. The term "Holder" as used herein shall initially mean Monto and shall also include any transferee of this Note.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
IN WITNESS WHEREOF, the Company and Monto have caused this Note to be duly executed by its duly authorized officer as of the date first above indicated.
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WILLIAM RAST LICENSING, LLC,
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a California limited liability company
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By:
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Name:
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Title:
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MONTO HOLDINGS (PTY) LTD.
Signature Page to Promissory Note
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EXHIBIT A
(Certain Defined Terms)
"
Bankruptcy Event
" means any of the following events: (a) any Loan Party commences a case or other proceeding under any Debtor Relief Law; (b) there is commenced against any Loan Party any case or proceeding under any Debtor Relief Law that is not dismissed within 30 calendar days after commencement; (c) any Loan Party is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) any Loan Party suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 30 calendar days after such appointment; (e) any Loan Party makes a general assignment for the benefit of creditors; (f) any Loan Party calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) any Loan Party, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate, limited liability company or other action for the purpose of effecting any of the foregoing.
"
Borrower Security Agreement
" means the Borrower Security Agreement of even date herewith made by the Company in favor of the Holder, as amended, , supplemented, extended or otherwise modified from time to time.
"
Business Day
" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, California.
"
Change of Control
" means an event or series of events by which:
(a) Colin Dyne ceases to be (i) the Chief Executive Officer of People's Liberation, Inc., (ii) the sole manager of William Rast Licensing, LLC, or (iii) the sole manager of William Rast Sourcing, LLC;
(b) People's Liberation, Inc., ceases to directly own and control, legally and beneficially, all of the equity interests in Versatile Entertainment, Inc., and all of the equity interests in Bella Rose, LLC;
(c) William Rast Sourcing, LLC ceases to directly own and control, legally and beneficially, all of the equity interests in William Rast Retail, LLC; or
(d) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) other than Colin Dyne or Gerard Guez becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an "option right")), directly or indirectly, of 25% or more of the equity securities of People's Liberation, Inc., entitled to vote for members of the board of directors or equivalent governing body of People's Liberation, Inc., on a fully-diluted basis (and taking into account all such securities that such "person" or "group" has the right to acquire pursuant to any option right).
"
Company
" has the meaning set forth in the first paragraph of this Note.
"
Debtor Relief Laws
" means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
"
Disposition
" or "
Dispose
" means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
"
Extraordinary Receipt
" means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.
"
GAAP
" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
"
Gross Proceeds
" means, with respect to any agreement, transaction, litigation or settlement, the sum of cash and cash equivalents received in connection with such agreement, transaction, litigation or settlement (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise).
"
Guarantor Security Agreement
" means the Guarantor Security Agreement of even date herewith made by the Guarantors in favor of the Holder, as amended, , supplemented, extended or otherwise modified from time to time.
"
Guarantors
" means People's Liberation, Inc., a Delaware corporation, Versatile Entertainment, Inc., a California corporation, Bella Rose, LLC, a California limited liability company, William Rast Sourcing, LLC, a California limited liability company, and William Rast Retail, LLC, a California limited liability company, and their respective successors and assigns.
"
Guaranty
" means the Guaranty of even date herewith made by the Guarantors for the benefit of the Holder, as amended, , supplemented, extended or otherwise modified from time to time.
"
Indebtedness
" means, with respect to any Person at any particular time, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments and all reimbursement or other obligations of such Person in respect of letters of credit, bankers acceptances, current swap agreements, interest rate hedging agreements, interest rate swaps, or other financial products; (c) all capital lease obligations of such Person; (d) all obligations or liabilities secured by a lien or encumbrance on any asset of such Person, irrespective of whether such obligation or liability is assumed by such Person; (e) all obligations of such Person for the deferred purchase price of assets; (f) all synthetic leases of such Person; and (g) any obligation of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse) any of the foregoing obligations of any other Person; provided, however, Indebtedness shall not include (x) usual and customary trade debt incurred in the ordinary course of business and (y) endorsements for collection or deposit in the ordinary course of business.
"
Interest Payment Date
" means the first Business Day of each calendar month.
"
Lien
" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
"
Loan Parties
" means the Company and the Guarantors.
"
Material Adverse Effect
" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of any Loan Party or the Loan Parties taken as a whole; (b) a material impairment of the rights and remedies of the Holder under any Transaction Document, or of the ability of any Loan Party to perform its obligations under any Transaction Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Transaction Document to which it is a party.
"
Maturity Date
" means May 31, 2012.
"
Net Cash Proceeds
" means, with respect to any Disposition by any Loan Party, or any Extraordinary Receipt received or paid to the account of any Loan Party, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Transaction Documents), and (B) the reasonable and customary out-of-pocket expenses incurred by such Loan Party in connection with such transaction.
"
Note
" means this Promissory Note, as amended, , supplemented, extended or otherwise modified from time to time.
"
Original Issue Date
" means August 18, 2011, regardless of any transfers of this Note and regardless of the number of instruments which may be issued to evidence this Note.
"
Permitted Lien
" means, with respect to any Loan Party, the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of such Loan Party's business (such as carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and other similar Liens), and which (x) do not individually or in the aggregate materially detract from the value of such Loan Party's property or assets or materially impair the use thereof in the operation of such Loan Party's business or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens granted to the Holder pursuant to the Security Agreements, and (d) existing Liens set forth on Schedule 1 attached hereto (but not any refinancing or replacement Liens related thereto). For the avoidance of doubt, other than the Liens expressly set forth on Schedule 1 with respect to Indebtedness outstanding on the Original Issue Date, the Lien of any factor or any financier shall not be a "Permitted Lien" unless otherwise consented to in writing by the Holder.
"
Person
" means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, governmental authority or other entity of any kind.
“
Rosenthal Consent
” means the consent of Rosenthal & Rosenthal, Inc., a New York corporation, to the indebtedness incurred and liens created in favor of Holder pursuant to the terms of the Transaction Documents, to the extent the failure to obtain such consent would result in a breach of or an event of default under the Rosenthal Loan Documents.
“
Rosenthal Loan Documents
” means that certain Factoring Agreement, dated August 24, 2010, between Rosenthal & Rosenthal, Inc., a New York corporation, and William Rast Sourcing, LLC, a California limited liability company, and all other agreements entered into in connection therewith.
"
Security Agreements
" means the Borrower Security Agreement and the Guarantor Security Agreement.
"
Transaction Documents
" means this Note, the Warrant, the Guaranty, the Security Agreements, each other agreement, instrument or document executed by the Loan Parties (or any one or more of them) that creates or purports to create or perfects a Lien in favor of the Holder, and each other instrument, document or agreement now or hereafter executed by any Loan Party in favor of the Holder in connection with this Note, in each case as amended, supplemented, extended or otherwise modified from time to time.
"
Warrant
" means that certain warrant to purchase 12,500,000 shares of common stock of People’s Liberation, Inc. issued to Holder on the Original Issue Date.
BORROWER SECURITY AGREEMENT
THIS BORROWER SECURITY AGREEMENT (as amended, restated, supplemented, extended or otherwise modified from time to time, this "
Agreement
") dated as of August 18, 2011, is entered into by WILLIAM RAST LICENSING, LLC, a California limited liability company, as debtor ("
Debtor
"), in favor of Monto Holdings (Pty) Ltd. (together with its successors and assigns, "
Secured Party
").
WHEREAS, the Debtor has requested a term loan from Secured Party, in an original principal amount of $1,000,000 on the terms set forth in that certain Promissory Note of even date herewith issued by Debtor in favor of Secured Party (as amended, restated, supplemented, extended or otherwise modified from time to time, the "
Monto Note
").
WHEREAS, as a condition to the obligation of Secured Party to loan and advance funds pursuant to the Monto Note
, Secured Party has required Debtor to enter into this Agreement and to grant the security interests described herein in the Collateral in favor of Secured Party.
NOW THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good, valuable, and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1.
Definitions.
(a) Capitalized terms used herein and not otherwise defined herein shall have the meanings provided in the Monto Note. This Agreement is the "Borrower Security Agreement" referred to in the Monto Note. This Agreement is one of the "Transaction Documents" referred to in the Monto Note. To the extent that any terms or concepts defined or used herein are defined or used in the UCC (as defined below), such terms or concepts shall be interpreted for purposes hereof in a manner that is consistent with such definition or use in the UCC.
(b) The following terms shall have the meanings set forth below:
"
Account
"
has the meaning given such term in Section 9102(a)(2) of the UCC.
"
Account Debtor
"
has the meaning given such term in Section 9102(a)(3) of the UCC.
"
Certificate of Title
"
has the meaning given such term in Section 9102(a)(10) of the UCC.
"
Certificated Security
"
has the meaning given such term in Section 8102(a)(4) of the UCC.
"
Chattel Paper
"
has the meaning given such term in Section 9102(a)(11) of the UCC.
"
Collateral
"
shall mean all right, title, and interest of Debtor in and to all of the following property of Debtor, whether now owned or hereafter acquired and whether now existing or hereafter coming into existence:
(i) Accounts;
(ii) Chattel Paper and rights to receive monies included thereby;
(iii) Commercial Tort Claims;
(iv) Deposit Accounts;
(v) Documents;
(vi) Equity Collateral;
(vii) General Intangibles;
(viii) Goods, including Inventory and Equipment;
(ix) Instruments and rights to receive monies included thereby;
(x) Intellectual Property;
(xi) Investment Property, including Commodity Accounts and Commodity Contracts;
(xii) Letter-of-Credit Rights;
(xiii) Notes;
(xiv) other tangible and intangible personal property and Fixtures of Debtor;
(xv) to the extent related to any property described in the clauses (i) through (xiv), all books, correspondence, loan files, records, invoices, and other papers, including without limitation all tapes, cards, computer runs, and other papers and documents in the possession or under the control of Debtor or any computer service company from time to time acting for Debtor; and
(xvi) cash and non-cash Proceeds of any and all of the foregoing.
"
Commercial Tort Claim
"
has the meaning given such term in Section 9102(a)(13) of the UCC and shall include, without limitation, those claims described on
Schedule 1
attached hereto.
"
Commodity Account
"
has the meaning given such term in Section 9102(a)(14) of the UCC.
"
Commodity Contract
"
has the meaning given such term in Section 9102(a)(15) of the UCC.
"
Copyright Collateral
"
shall mean all Copyrights, whether now owned or hereafter acquired by Debtor, and shall include, without limitation, those listed on
Schedule 2
attached hereto.
"
Copyrights
"
shall mean all copyrights, copyright registrations, and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present, and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto.
"
Deposit Account
"
has the meaning given such term in Section 9102(a)(29) of the UCC.
"
Documents
"
has the meaning given such term in Section 9102(a)(30) of the UCC.
"
Equipment
"
has the meaning given such term in Section 9102(a)(33) of the UCC.
"
Equity Collateral
"
shall mean Pledged Equity and Pledged Equity Proceeds.
"
Event of Default
"
shall have the meaning specified in
Section 14
of this Agreement.
"
Fixtures
"
has the meaning given such term in Section 9102(a)(41) of the UCC.
"
General Intangibles
"
has the meaning given such term in Section 9102(a)(42) of the UCC.
"
Goods
"
has the meaning given such term in Section 9102(a)(44) of the UCC, and shall include Motor Vehicles.
"
Instruments
"
has the meaning given such term in Section 9102(a)(47) of the UCC.
"
Intellectual Property
"
shall mean, collectively, all Copyright Collateral, all Patent Collateral, and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how, and trade secrets; (b) all licenses or user or other agreements granted to Debtor with respect to any of the foregoing, in each case whether now or hereafter owned or used; (c) all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs, splash screens, films, masters, and artwork; (d) all field repair data, sales data, and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records, or data; and (f) all licenses, consents, permits, variances, certifications, and approvals of governmental agencies now or hereafter held by Debtor.
"
Inventory
"
has the meaning given such term in Section 9102(a)(48) of the UCC.
"
Investment Property
"
has the meaning given such term in 9102(a)(49) of the UCC.
"
Letter-of-Credit Right
"
has the meaning given such term in Section 9102(a)(51) of the UCC.
"
Lien
"
shall mean a pledge, assignment, lien, charge, mortgage, encumbrance, or other security interest obtained under this Agreement or under any other agreement or instrument with respect to any present or future assets, property, contract rights, or revenues in order to secure the payment of indebtedness of the party referred to in the context in which the term is used.
"
Motor Vehicles
"
shall mean motor vehicles, tractors, trailers, and other like property, whether or not the title thereto is governed by a certificate of title or ownership.
"
Notes
"
shall mean all Promissory Notes or other debt instruments (including, without limitation, bonds and debentures of any nature whatsoever) from time to time issued to, or held by, Debtor.
"
Obligations
"
shall mean (i) (x) the principal of and any interest on the Monto Note (including, without limitation, any further advances), and (y) all other obligations and liabilities of Debtor, whether now existing or hereafter incurred, under, arising out of, or in connection with, the Monto Note and the due performance and compliance by Debtor with all of the terms, conditions, and agreements contained in the Monto Note; (ii) any and all sums advanced by Secured Party
in order to preserve the Collateral or preserve its Lien and security interest in the Collateral; (iii) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) and (ii) above, all of the expenses of any exercise by Secured Party
of its rights hereunder, together with attorneys' fees and court costs; and (iv) to the extent not otherwise included in clauses (i), (ii), or (iii) above, all of Debtor's obligations set forth in this Agreement, including, without limitation,
Section 21
.
"
Patent Collateral
"
shall mean all Patents, whether now owned or hereafter acquired by Debtor, and shall include, without limitation, those patents and applications, registrations and recordings described in
Schedule 3
attached hereto.
"
Patents
"
shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof, all income, royalties, damages, and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present, and future infringements thereof, and all rights corresponding thereto throughout the world.
"
Permitted Liens
"
has the meaning set forth in the Monto Note.
"
Pledged Equity
"
shall mean (i) the shares of stock of, or partnership and other ownership interest in, any entity, including, without limitation, the equity interests described on
Schedule 5
, and any and all equity interests now or hereafter issued in substitution, exchange or replacement therefor or with respect thereto, and (ii) all ownership interests of any class or character of a successor entity formed by or resulting from a consolidation or merger in which any such issuer is not the surviving entity; in each case, whether now or hereafter owned by Debtor, together with any certificates evidencing any of the foregoing.
"
Pledged Equity Proceeds
"
shall mean all shares, securities, moneys, or property representing a dividend on any of the Pledged Equity, or representing a distribution or return of capital upon or in respect of the Pledged Equity, or resulting from a split-up, revision, reclassification, or other like change of the Pledged Equity or otherwise received in exchange therefor, and any subscription warrants, rights, or options issued to the holders of, or otherwise in respect of, the Pledged Equity.
"
Proceeds
"
has the meaning given such term in Section 9102(a)(64) of the UCC.
"
Promissory Notes
"
has the meaning given such term in Section 9102(a)(65) of the UCC.
"
Securities
"
has the meaning given such term in Section 8102(a)(15) of the UCC.
"
Securities Account
"
has the meaning given such term in Section 8501(a) of the UCC.
"
Trademark Collateral
"
shall mean all Trademarks, whether now owned or hereafter acquired by Debtor, and shall include, without limitation, those registered and applied for trademarks, terms, designs and applications described in
Schedule 4
attached hereto. Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark that would be rendered invalid, abandoned, void, or unenforceable by reason of its being included as part of the Trademark Collateral.
"
Trademarks
"
shall mean all trade names, trademarks and service marks, logos, domain names, trademark and service mark registrations, and applications for trademark and service mark registrations, including, without limitation, all renewals of trademark and service mark registrations, all rights corresponding thereto throughout the world, the right to recover for all past, present, and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark, and service mark.
"
UCC
"
shall mean the Uniform Commercial Code as in effect in the State of California from time to time.
"
Uncertificated Security
"
has the meaning given such term in Section 8102(a)(18) of the UCC.
2.
Grant of Liens
. As security for the due and punctual payment and performance in full of all Obligations (whether at the stated maturity, by acceleration, or otherwise and whether now owing or incurred in the future), Debtor hereby pledges, assigns, charges, delivers, and grants to Secured Party,
a continuing perfected first-priority (subject to Permitted Liens)
security interest in and a general Lien upon all of Debtor's right, title, and interest in and to the Collateral and all additions thereto and substitutions therefor, whether heretofore, now or hereafter received by or delivered or transferred to Secured Party
hereunder.
3.
Continuing Security Interest
.
(a) This Agreement creates an assignment, pledge, charge, continuing perfected, and, subject to any Permitted Lien, first-priority security interest in, and general Lien upon, the Collateral and shall (i) remain in full force and effect until all Obligations have been paid in full, (ii) be binding upon Debtor and its successors, permitted transferees, and permitted assigns, and (iii) inure, together with the rights and remedies of Secured Party
hereunder, to the benefit of Secured Party
and its successors, transferees, and assigns.
(b) Upon the indefeasible payment in full of all Obligations, the assignments, pledges, charges, Liens, and security interests granted hereunder shall terminate, and all rights to the Collateral shall revert to Debtor. Upon such termination, Secured Party
will, at the sole expense of Debtor, execute and deliver to Debtor such documents as Debtor shall reasonably request to evidence such termination and Secured Party
shall deliver and transfer such Collateral to Debtor.
4.
Debtor Remains Liable
. Anything herein to the contrary notwithstanding, (i) Debtor shall remain liable under any agreements which have been (in whole or in part) pledged or assigned herein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by Secured Party
of any of the rights hereunder shall not release Debtor from any of its duties or obligations under any such agreements; and (iii) Secured Party
shall not have any obligation or liability under any such agreements by reason of this Agreement, nor shall Secured Party
be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
5.
Delivery and Perfection
.
(a) Debtor hereby authorizes Secured Party
to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral, and agrees to take all such other actions and to execute and deliver and file or cause to be filed such other instruments or documents, as Secured Party
may reasonably require in order to establish and maintain a perfected, valid, and continuing security interest and Lien in the Collateral in accordance with this Agreement and the UCC and other applicable law.
(b) Debtor shall, at the written request of Secured Party:
(i) immediately deliver any and all Documents, Instruments, and Chattel Paper (including, without limitation, any Certificates of Title) evidencing or relating to the Collateral to Secured Party at the time and place and manner specified in Secured Party's
request;
(ii) immediately execute (if applicable) and deliver to Secured Party
(or file or record in such offices as Secured Party
may deem necessary or appropriate) any and all financing and continuation statements, other agreements, instruments, or other documents or amendments thereto, and perform any acts which may be necessary (A) to create, perfect, preserve, or otherwise protect the security interest and Liens granted herein or (B) to enable Secured Party
to exercise and enforce its rights hereunder;
(iii) with respect to any Certificated Security not otherwise credited to a Securities Account, Debtor shall immediately effect transfer thereof to Secured Party
(A) by physical delivery of such Certificated Security to Secured Party
endorsed to Secured Party
or its nominee or in blank or (B) in the case of a Certificated Security in registered form, by physical delivery of such Certificated Security to Secured Party
specially endorsed to Secured Party
or its nominee and thereafter reregistered in the name of Secured Party
or their nominee;
(iv) with respect to any Uncertificated Security not otherwise credited to a Securities Account, Debtor shall immediately (A) effect transfer thereof to Secured Party
by registration thereof on the books and records of the issuer in the name of Secured Party
or its nominee or (B) obtain the agreement of the issuer of such Uncertificated Securities that it will comply with instructions originated by Secured Party
without further consent by the registered owner, through a written agreement in form and substance satisfactory to Secured Party; and
(v) immediately mark all Certificates of Title in the manner specified in a written notice of Secured Party
to Debtor requesting such marking, to evidence the fact that such Certificates of Title are subject to the security interest and Lien of Secured Party
granted herein.
(c) Upon the written request of Secured Party, Debtor agrees immediately to deliver to Secured Party, appropriately endorsed to the order of Secured Party, any Notes, trade acceptance, Chattel Paper, or other Instrument in which a security interest must be perfected by delivery or transfer of such Collateral to a secured party, which are acquired by Debtor from time to time.
(d) Notwithstanding Section 9207 of the UCC, Secured Party may hold as additional security any Proceeds, including money and funds, received from the Collateral, all of which shall constitute Collateral hereunder, and Secured Party
shall not be required to apply such money or funds to reduce the Obligations other than as expressly set forth herein.
6.
Proceeds of Sale
. Nothing contained in this Agreement shall limit or restrict in any way Secured Party
's
right to receive Proceeds of the Collateral in any form in accordance with the provisions of this Agreement. All Proceeds that are received by Debtor contrary to the provisions of this Agreement shall be received in trust for the benefit of Secured Party, shall be segregated from other property or funds of Debtor and shall be forthwith paid over to Secured Party
as Collateral in the same form as so received (with any necessary endorsement, document or instrument of transfer).
7.
Records and Information
. Debtor agrees to keep, at its office set forth in
Section 11(d)
, its records concerning the Collateral. Debtor agrees to promptly furnish to Secured Party
such information concerning Debtor, the Collateral, and any Account Debtor as Secured Party
may reasonably request.
8.
Inspection
. Debtor agrees, upon prior notice provided by Secured Party, to permit Secured Party, through its officers and agents, to examine and inspect the Collateral and all records pertaining thereto, and to make extracts from such records as Secured Party
may require.
9.
Use of Collateral
. Except upon the occurrence and during the continuance of any Event of Default, Debtor may in the ordinary course of Debtor's business use, consume, exhibit, demonstrate, sell, lease, or otherwise dispose of its Inventory, in carrying on its businesses substantially in the same manner as now conducted;
provided
,
however
, that a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by Debtor or any transfer or sale to any shareholder or affiliate of Debtor for consideration less than the consideration which would have been paid to Debtor by an unaffiliated third party in an arms' length transaction; and
provided
further
that any such disposition shall not be unlawful or inconsistent with the terms of this Agreement or of any policy of insurance covering such Collateral.
10.
No Disposition
. Debtor covenants and agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as provided for in
Section 9
hereof, nor will it create, incur, or permit to exist any Lien on or with respect to any of the Collateral, any interest therein, or any Proceeds thereof, except for the Permitted Liens.
11.
Representations and Warranties
. Debtor represents, warrants and covenants to Secured Party
throughout the term of this Agreement that:
(a) Debtor is and will be the sole legal and beneficial owner of all of the Collateral now owned or hereafter acquired free and clear of any Lien, security interest, assignment, option, or other charge or encumbrance, except for the Permitted Liens;
(b) This Agreement has been duly and validly authorized by Debtor and executed and delivered by Debtor and constitutes the legal, valid, and binding obligation of Debtor, enforceable against Debtor in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)) and, subject to the performance of the relevant procedures as specified in
Section 5
herein with respect to such Collateral, creates a valid, binding, enforceable, and first priority perfected security interest in and general first Lien upon all of the Collateral (subject to Permitted Liens), and Debtor is duly authorized to make all filings and take all other actions necessary or desirable to perfect and to continue perfected such security interest;
(c) As of the date hereof and on the date of delivery or transfer to Secured Party
of any Collateral under this Agreement, Debtor has good and marketable title to the Collateral, subject to Permitted Liens;
(d) The office where Debtor maintains all records relating to the Collateral is located at:
|
William Rast Licensing, LLC
1212 South Flower Street
Fifth Floor
Los Angeles, California 90015
|
(e) Debtor is a limited liability company duly organized and validly existing under the laws of the State of California;
(f) Debtor's exact legal name as that name appears on Debtor's Articles of Organization and Debtor's organization identification number issued by its State of incorporation is as follows:
|
Legal Name
|
Identification Number
|
|
WILLIAM RAST LICENSING, LLC
|
200624310013
|
(g) All Pledged Equity in which Debtor currently has or shall hereafter acquire an interest is and will be, as applicable, duly authorized, validly existing, fully paid, and non-assessable (in the case of any equity interest in a corporation) and duly issued and outstanding (in the case of any equity interest in any other entity), and none of such Pledged Equity is or will be subject to any contractual restriction, or any restriction under the charter, by-laws, partnership agreement, or other organizational document of the respective issuer, upon the transfer of such Pledged Equity;
(h) As of the date hereof, any and all equity interests owned directly or indirectly by Debtor in any Person are described on
Schedule 5
attached hereto, and Debtor owns the equity interests set forth opposite its name on Schedule 5 free and clear of Liens other than Permitted Liens;
(i) Except pursuant to licenses and other user agreements entered into by the Debtor in the ordinary course of Debtor's business, Debtor owns and possesses the right to use, and has done nothing to authorize or enable any other Person to use, any Copyright, Patent or Trademark owned or used by Debtor on the date hereof, and all registrations therefor are valid and in full force and effect;
(j) To Debtor's knowledge, (i) there is no violation by others of any right of Debtor with respect to any Copyright, Patent or Trademark of Debtor and (ii) Debtor is not infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings have been instituted, are pending or, to Debtor's knowledge, have been threatened against Debtor, and no claim against Debtor has been received by Debtor, alleging any such violation;
(k) As of the date hereof, Debtor has no Commercial Tort Claims other than those described in
Schedule 1
attached hereto and Debtor hereby covenants and agrees that it shall provide Secured Party with prompt written notice of each Commercial Tort Claim, and any judgment, settlement or other disposition thereof and will take such action as the Secured Party may request to grant and perfect a security interest therein in favor of the Secured Party;
(l) As of the date hereof, Debtor has no Copyrights registered, or subject to pending applications, with the United States Copyright Office ("
USCO
"), or any similar office or agency in the United States of America, or elsewhere other than those described on
Schedule 2
attached hereto;
(m) As of the date hereof, Debtor has no Patents registered, or subject to pending applications, in the United States Patent and Trademark Office ("
USPTO
"), or to the best knowledge of Debtor, any similar office or agency in the United States of America other than those described on
Schedule 3
attached hereto;
(n) As of the date hereof, Debtor has no Trademarks registered, or subject to pending applications, in the USPTO, or to the best knowledge of Debtor, any similar office or agency in the United States of America other than those described in
Schedule 4
attached hereto;
(o) As of the date hereof,
Schedule 6
attached hereto sets forth each of the licenses owned or held by or on behalf of Debtor and all other Intellectual Property of Debtor other than the Intellectual Property otherwise set forth in the other Schedules hereto;
(p) To the best of Debtor's knowledge, there are no actions, suits, proceedings or investigations pending or threatened in writing against Debtor before any governmental authority which could reasonably be expected to cause any portion of the Intellectual Property to be adjudged invalid or unenforceable, in whole or in part;
(q) Debtor authorizes Secured Party to modify this Agreement by amending the
Schedules
hereto to include any new Intellectual Property, renewal thereof or any Intellectual Property applied for and obtained hereafter; and Debtor shall, upon request of Secured Party from time to time execute and deliver to Secured Party any and all assignments, agreements, instruments, documents and such other papers as may be requested by Secured Party to evidence the assignment of a security interest in each such Intellectual Property; and
(r) As of the date hereof, Debtor has no deposit, brokerage, securities or other similar accounts other than those set forth opposite its name on
Schedule 7
attached hereto.
12.
Covenants
.
(a) Debtor shall:
(i) Maintain, or cause to be maintained, all items of the Collateral in good condition and repair, ordinary wear and tear excepted in the case of Equipment, and pay, or cause to be paid, the costs of repairs to or maintenance of that Collateral which is of a type that could be repaired or maintained;
(ii) Take all steps to preserve and protect the portion of the Collateral owned by it, including, with respect to the Intellectual Property, the filing of any renewal affidavits and applications;
(iii) Not use any Collateral in violation of law or any applicable policy of insurance;
(iv) Pay or cause to be paid when due all taxes, assessments, and other charges relating to the Collateral or this Agreement and reimburse Secured Party
for all costs of and fees incurred in connection with any filing of the documents and instruments referred to in
Section 5
;
(v) Not change its: (a) name or the name under which it does business; (b) chief executive office; (c) type of organization; (d) jurisdiction of organization; or (e) other legal structure without at least 30 day's prior written notice to Secured Party. Prior to effectuating any change described in the preceding sentence, Debtor shall take or cause to be taken all actions deemed by Secured Party
to be necessary or desirable to prevent any financing or continuation statement from becoming seriously misleading or rendered ineffective, or the security interests granted herein from becoming unperfected or the relative priority thereof otherwise impaired, as a result of such removal or change;
(vi) Perform and observe all the material terms and provisions of any agreement for the sale or lease of goods, or any agreement for the rendering of services, giving rise to an Account to be performed or observed by it, maintain any such agreement in full force and effect, enforce any such agreement in accordance with its terms, and take all such action to such end as may be from time to time reasonably requested by Secured Party;
(vii) Immediately notify Secured Party if it knows or has reason to know of any reason why any applicable registration or recording of any Patent Collateral, Trademark Collateral or Copyright Collateral may become abandoned, canceled, invalidated or unenforceable;
(viii) Render any assistance, as Secured Party may solely determine is necessary, to Secured Party in any proceeding before the USPTO, the USCO, any federal or state court, or any similar office or agency in the United States of America, or any State therein, to maintain any Patent Collateral, Trademark Collateral or Copyright Collateral and to protect Secured Party's security interest therein, including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference, and cancellation proceedings;
(ix) Immediately notify Secured Party if Debtor learns of any use by any Person of any term or design likely to cause confusion with any of the Trademark Collateral, or of any use by any Person of any other process or product which infringes upon any of the Trademark Collateral in a manner which is material to Debtor's business, and if requested by Secured Party, Debtor, at its expense, shall join with Secured Party in such action as Secured Party in Secured Party's discretion may reasonably deem advisable for the protection of Secured Party's interest in and to the Trademark Collateral;
(x) Assume all responsibility and liability arising from the use of the Intellectual Property, and Debtor hereby indemnifies and holds Secured Party harmless from and against any claim, suit, loss, damage or expense (including attorneys' fees) arising out of any alleged defect in any product manufactured, promoted, or sold by Debtor in connection with any Intellectual Property or out of the manufacture, promotion, labeling, sale, or advertisement of any such product by Debtor;
(xi) Immediately notify Secured Party in writing of any adverse determination in any proceeding in the USPTO, USCO, or any other foreign or domestic governmental authority, court or body, Debtor becomes aware of regarding Debtor's claim of ownership in any of the Trademark Collateral, Patent Collateral or Copyright Collateral, and in the event of any infringement of any Trademark, Patent or Copyright owned by Debtor by a third party which is material to Debtor's business, Debtor shall promptly notify Secured Party of such infringement and sue for and diligently pursue damages for such infringement, and if Debtor shall fail to take such action within one (1) month after such notice is given to Secured Party, Secured Party may, but shall not be required to, itself take such action in the name of Debtor, and Debtor hereby appoints Secured Party the true and lawful attorney of Debtor, for it and in its name, place and stead, on behalf of Debtor, solely, without limitation on any other rights of Secured Party under this Agreement, to commence judicial proceedings in any court or before any other tribunal to enjoin and recover damages for such infringement, any such damages due to Debtor, net of costs and attorneys' fees, to be applied to the Obligations;
(xii) (A) Maintain, with responsible insurance companies, insurance covering the Collateral against such insurable losses as is required by the Transaction Documents and as is consistent with sound business practice, (B) cause Secured Party to be designated as loss payee (as customary for secured parties based on the type of insurance) with respect to all insurance (whether or not required by the Transaction Documents), (C) obtain the written agreement of the insurers that such insurance shall not be cancelled, terminated or materially modified to the detriment of Secured Party without at least 30 days' prior written notice to Secured Party, and (D) furnish copies of such insurance policies or certificates to Secured Party immediately upon request therefor and otherwise comply with the terms and provisions of the Transaction Documents with respect to such insurance coverage; and
(xiii) with respect to the Copyright Collateral, at its sole expense, do, make, execute and deliver all such additional and further acts, things, deeds, assurances, and instruments, in each case in form and substance satisfactory to Secured Party, relating to the creation, validity, or perfection of the security interests provided for in this Agreement under 35 U.S.C. Section 261, 15 U.S.C. Section 1051 et seq., 17 U.S.C. Sections 101, 201 et seq., the UCC or other Law of the United States of America, the State of California, other States or any other domestic or foreign jurisdiction as Secured Party may from time to time reasonably request, and shall take all such other action as Secured Party may reasonably require to perfect Secured Party's security interest in any of the Copyright Collateral and to completely vest in and assure to Secured Party its rights hereunder in any of the Copyright Collateral.
13.
Further Assurances and Protections
.
(a) Debtor shall at its expense do, file, record, make, execute, and deliver all such acts, notices, instruments, statements, or other documents as Secured Party may request to perfect, preserve, or otherwise protect the security interest and Liens of Secured Party
in the Collateral or any part thereof or to give effect to the rights, powers, and remedies of Secured Party
under this Agreement;
(b) Debtor will give prompt written notice to Secured Party
of, and defend the Collateral against, any suit, action, or proceeding related to the Collateral or which could adversely affect the security interests and Liens granted hereunder; and
(c) Debtor authorizes Secured Party to have this or any other similar agreement recorded or filed with the USCO, USPTO or other appropriate federal, state or foreign government office.
14.
Events of Default
. The occurrence of any of the following events or conditions shall constitute an event of default (each an "
Event of Default
") under this Agreement:
(a) The occurrence of an Event of Default as defined in the Monto Note; or
(b) The failure or refusal by Debtor to perform, or the breach or violation of, any of the terms, obligations, covenants, or warranties of this Agreement, and that failure or refusal continues unremedied for five (5) business days after such failure or refusal.
15.
Remedies upon an Event of Default
. On and after the occurrence and continuance of an Event of Default, Secured Party
may, in its discretion:
(a) request that Debtor, and upon such request Debtor shall, assemble the Collateral at such place or places convenient to Secured Party
designated in such request;
(b) enforce collection of any of the Collateral by suit or any other lawful means available to Secured Party, or demand, collect, or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral;
(c) surrender, release, or exchange or otherwise modify the terms of all or any part of the Collateral, or compromise or extend or renew for any period any indebtedness thereunder or evidenced thereby;
(d) assert all other rights and remedies of a secured party under the UCC (whether or not in effect in any applicable jurisdiction) and all other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase, or otherwise retain, liquidate, or dispose of all or any portion of the Collateral. The proceeds of any collection, liquidation, or other disposition of the Collateral shall be applied by Secured Party
first to the payment of all expenses (including, without limitation, all fees, taxes, reasonable attorneys' fees and legal expenses) incurred by Secured Party
in connection with retaking, holding, collecting, or liquidating the Collateral. The balance of such proceeds, if any, shall, to the extent permitted by law, be applied to the payment of the Obligations (i) first, to payment of that portion of the Obligations constituting fees, expenses and indemnities owed to Secured Party, (ii) second, to payment of that portion of the Obligations constituting interest owed to Secured Party, (iii) third, to payment of that portion of the Obligations constituting unpaid principal of the Monto Note, (iv) fourth, to pay any other Obligations owed to Secured Party, and (v) finally, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to Debtor or as otherwise required by law. In case of any deficiency, Debtor shall, whether or not then due, remain liable therefor. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to Debtor at its notice address specified on the signature page hereof five (5) business days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. Without precluding any other methods of sale or other disposition, the sale or other disposition of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property; but in any event Secured Party
may sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose such Collateral on such terms and to such purchaser(s) (including Secured Party) as Secured Party
in its absolute discretion may choose, and for cash or for credit or for future delivery, without assuming any credit risk, at public or private sale or other disposition, without demand of performance, and without any obligation to advertise or give notice of any kind other than that necessary under applicable law. Debtor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale or other disposition hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale or other disposition, unless prohibited by applicable law, Secured Party may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Secured Party
shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall it be under any obligation to take any action whatsoever with regard thereto.
Secured Party
shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to this Agreement conducted in a commercially reasonable manner. Debtor hereby waives any claims against Secured Party
arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if Secured Party
accepts the first offer received and does not offer the Collateral to more than one offeree.
Debtor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, Secured Party
may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the relevant Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Debtor acknowledges that any such private sale may be at prices and on terms less favorable to Secured Party
than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party
shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to enable the registration of the Collateral or related transaction so as to permit a public offer to be made with respect thereto;
(e) license or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Intellectual Property included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as Secured Party
shall in its sole discretion determine;
(f) without assuming any obligation or liability thereunder, at any time and from time to time, in its sole discretion, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of Debtor in, to and under any of its Intellectual Property and take or refrain from taking any action under any thereof, and Debtor releases Secured Party
from liability for, and agrees to hold Secured Party
free and harmless from and against any claims and expenses arising out of, any lawful action so taken or omitted to be taken with respect thereto, except for claims and expenses arising from Secured Party
's
gross negligence or willful misconduct;
(g) make a request upon Debtor (which shall not be construed as implying any limitation on the rights or powers of Secured Party), and upon such request Debtor shall, execute and deliver to Secured Party
a power of attorney, in form and substance satisfactory to Secured Party, for the implementation of any sale, lease, license or other disposition of Intellectual Property owned by Debtor or any such action related thereto. In connection with any such disposition, but subject to any confidentiality provisions imposed on Debtor in any license or similar agreement, Debtor will supply to Secured Party
its know-how and expertise relating to the relevant Intellectual Property, and its customer lists and other records relating to such Intellectual Property and to the distribution of said products or services;
(h) to the extent not already so transferred, transfer all or any part of the Collateral into Secured Party
's
name or the name of their nominee or nominees; and
(i) give all consents, waivers, and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (Debtor hereby irrevocably constituting and appointing Secured Party the proxy and attorney-in-fact of Debtor, with full power of substitution to do so), including, without limitation, the exercise of all voting, consensual and other powers of ownership pertaining to the Collateral.
16.
Secured Party
Appointed Attorney-in-Fact
. Without limiting any rights or powers granted to Secured Party
pursuant to this Agreement, applicable law or otherwise, Debtor hereby appoints Secured Party
as its attorney-in-fact, with full power and authority in the place and stead of Debtor and in the name of Debtor or otherwise, from time to time in Secured Party
's
discretion to take any and all action and to execute, file and record any and all instruments, agreements, and documents which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to execute any assignment of Intellectual Property to Secured Party
or other transferee, and to receive, endorse and collect all instruments made or payable to Debtor representing any Proceeds in respect of the Collateral or any part thereof and to give full discharge for the same. The appointment set forth in this
Section 16
is coupled with an interest and is irrevocable.
17.
Secured Party
May Perform
. If Debtor fails to perform any agreement, covenant, or obligation contained herein, Secured Party
may itself perform, or cause performance of such agreement, covenant or obligation and the expenses and costs of Secured Party
incurred in connection therewith shall be payable by Debtor.
18.
Security Interest Absolute
. All rights of Secured Party
and all Liens hereunder, and all obligations of Debtor hereunder, shall be absolute and unconditional irrespective of:
(a) lack of validity or enforceability of this Agreement, the Monto Note or any of the other Transaction Documents;
(b) any change in the time, manner, or place of payment of, or in any other term of any or all of the Obligations or any amendment or waiver of any provision of this Agreement, the Monto Note or any of the other Transaction Documents;
(c) any release or non-perfection of any portion of the Collateral or any exchange, release, or non-perfection of any other collateral, or any release, amendment, or waiver of any guaranty for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a defense available to, or a discharge of Debtor in respect of the Obligations or this Agreement, the Monto Note or any of the other Transaction Documents.
19.
Secured Party
's
Duties
. The powers conferred to Secured Party
hereunder are solely to protect Secured Party
's
interest in the Collateral and shall not impose any duty upon it to exercise any such powers except for the safe custody of any Collateral or any portion thereof in its possession, and Secured Party
shall exercise that standard of care with respect to the Collateral in its possession which it exercises in the administration of its own assets and property;
provided
,
however
, that Secured Party
shall not in any event be liable for any action taken or omitted with respect to the Collateral or this Agreement in good faith and in the absence of gross negligence or willful misconduct. Secured Party
shall have no duty as to the Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Collateral.
20.
Rights Cumulative
. The rights, powers, and remedies of Secured Party
under this Agreement shall be in addition to all rights, powers, and remedies given to Secured Party
by virtue of any statute or rule of law or any agreement, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing Secured Party
's
security interest, Lien, and assignment in the Collateral.
21.
Indemnity and Expenses
.
(a) Secured Party
shall not have any liability to any Person and shall be indemnified and held harmless by Debtor for any liability incurred by reason of taking or refraining from taking any action with respect to the Collateral, except in the case of Secured Party
's
gross negligence or willful misconduct. Debtor agrees to indemnify Secured Party
from and against any and all claims, losses, and liabilities arising out of or connected with this Agreement (including, without limitation, enforcement of this Agreement), except such claims, losses, or liabilities resulting solely from Secured Party
's
gross negligence or willful misconduct. This
Section 21(a)
shall survive any termination of this Agreement.
(b) Debtor agrees to pay all expenses, costs, and disbursements incurred by Secured Party
(including, without limitation, all attorneys' fees and other legal expenses incurred by Secured Party
in connection therewith) in connection with (i) retaking, holding, collecting, preparing for sale, and selling or otherwise realizing upon, liquidating, or disposing of the Collateral, (ii) the enforcement of its rights hereunder upon the occurrence and during the continuance of an Event of Default, (iii) the performance by Secured Party
of any agreement, covenant, or obligation of Debtor contained herein that Debtor has failed or refused to perform, and (v) the participation or other involvement of Secured Party with (x) bankruptcy, insolvency, receivership, foreclosure, winding up, or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise, or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of Secured Party in respect thereof, by litigation or otherwise, including expenses of insurance, (y) judicial or regulatory proceedings, and (z) workout, restructuring, or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated).
22.
Amendment or Waiver
. Neither this Agreement nor any terms hereof may be changed, waived, discharged, or terminated unless such change, waiver, discharge or termination is in writing signed by the parties hereto.
23.
Notices
. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing and mailed or delivered: if to Debtor, at the address specified immediately below Debtor's name on the signature page hereof; and if to Secured Party at its address specified immediately below its name on the signature page hereof; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, be effective three business days after deposit in the mails, and shall, when delivered, be effective upon delivery of such notice.
24.
No Waiver
. No failure or delay on the part of Secured Party
in exercising any right, power or privilege hereunder or under the UCC or any other applicable law shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder or under the UCC or any other applicable law preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. No notice to or demand on Secured Party
in any case shall entitle Debtor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Secured Party
to any other or further action in any circumstances without notice or demand.
25.
Severability of Provisions
. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of that prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of that provision in any other jurisdiction.
26.
Non-Assignment
. Debtor shall not have the right to assign its rights or delegate its obligations hereunder or any part thereof to any other person without Secured Party's prior written consent.
This Agreement shall be binding upon any successors or assigns of Debtor, and shall benefit any successors or assigns of Secured Party.
27.
Integration of Terms
. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto.
28.
Governing Law
.
(a) This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of California without regard to choice of law principles thereof that would cause the laws of any other jurisdiction to apply.
29.
Counterparts
. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above.
DEBTOR:
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WILLIAM RAST LICENSING, LLC,
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a California limited liability company
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By:
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Name:
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Title:
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Address:
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William Rast Licensing, LLC
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1212 South Flower St., Fifth Floor
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Los Angeles, CA 90015
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Attn: _______________
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SECURED PARTY:
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MONTO HOLDINGS (PTY) LTD.
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By:
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Name:
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Title:
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Address:
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GUARANTOR SECURITY AGREEMENT
THIS GUARANTOR SECURITY AGREEMENT (as amended, restated, supplemented, extended or otherwise modified from time to time, this "
Agreement
") dated as of August 18, 2011, is entered into by PEOPLE'S LIBERATION, INC., a Delaware corporation, VERSATILE ENTERTAINMENT, INC., a California corporation, BELLA ROSE, LLC, a California limited liability company, WILLIAM RAST SOURCING, LLC, a California limited liability company, and WILLIAM RAST RETAIL, LLC, a California limited liability company, as guarantors (each, a "
Guarantor
", and collectively, the "
Guarantors
"), in favor of MONTO HOLDINGS (PTY) LTD. (together with its successors and assigns, "
Secured Party
").
WHEREAS, William Rast Licensing, LLC, a California limited liability company ("
Debtor
"), has requested a term loan from Secured Party, in an original principal amount of $1,000,000 on the terms set forth in that certain Promissory Note of even date herewith issued by the Debtor in favor of Secured Party (as amended, restated, supplemented, extended or otherwise modified from time to time, the "
Monto Note
").
WHEREAS, the Guarantors, pursuant to the Guaranty of even date herewith made by the Guarantors in favor of Secured Party (as the same may be amended, extended, renewed, supplemented or otherwise modified from time to time, the "
Guaranty
"), have guaranteed, among the other obligations described therein, the obligations of Debtor under the Monto Note.
WHEREAS, as a condition to the obligation of Secured Party to loan and advance funds pursuant to the Monto Note
, Secured Party has required each of the Guarantors to enter into this Agreement and to grant the security interests described herein in the Collateral in favor of Secured Party.
WHEREAS, each of the Guarantors expects to realize direct and indirect benefits as a result of the availability to Debtor of the credit facilities under the Monto Note.
NOW THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good, valuable, and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1.
Definitions.
(a) Capitalized terms used herein and not otherwise defined herein shall have the meanings provided in the Monto Note. This Agreement is the "Guarantor Security Agreement" referred to in the Monto Note. This Agreement is one of the "Transaction Documents" referred to in the Monto Note. To the extent that any terms or concepts defined or used herein are defined or used in the UCC (as defined below), such terms or concepts shall be interpreted for purposes hereof in a manner that is consistent with such definition or use in the UCC.
(b) The following terms shall have the meanings set forth below:
"
Account
"
has the meaning given such term in Section 9102(a)(2) of the UCC.
"
Account Debtor
"
has the meaning given such term in Section 9102(a)(3) of the UCC.
"
Certificate of Title
"
has the meaning given such term in Section 9102(a)(10) of the UCC.
"
Certificated Security
"
has the meaning given such term in Section 8102(a)(4) of the UCC.
"
Chattel Paper
"
has the meaning given such term in Section 9102(a)(11) of the UCC.
"
Collateral
"
shall mean all right, title, and interest of each of the Guarantors in and to all of the following property of such Guarantor, whether now owned or hereafter acquired and whether now existing or hereafter coming into existence:
(i) Accounts;
(ii) Chattel Paper and rights to receive monies included thereby;
(iii) Commercial Tort Claims;
(iv) Deposit Accounts;
(v) Documents;
(vi) Equity Collateral;
(vii) General Intangibles;
(viii) Goods, including Inventory and Equipment;
(ix) Instruments and rights to receive monies included thereby;
(x) Intellectual Property;
(xi) Investment Property, including Commodity Accounts and Commodity Contracts;
(xii) Letter-of-Credit Rights;
(xiii) Notes;
(xiv) other tangible and intangible personal property and Fixtures of such Guarantor;
(xv) to the extent related to any property described in the clauses (i) through (xiv), all books, correspondence, loan files, records, invoices, and other papers, including without limitation all tapes, cards, computer runs, and other papers and documents in the possession or under the control of any of the Guarantors or any computer service company from time to time acting for any of the Guarantors; and
(xvi) cash and non-cash Proceeds of any and all of the foregoing.
"
Commercial Tort Claim
"
has the meaning given such term in Section 9102(a)(13) of the UCC and shall include, without limitation, those claims described on
Schedule 1
attached hereto.
"
Commodity Account
"
has the meaning given such term in Section 9102(a)(14) of the UCC.
"
Commodity Contract
"
has the meaning given such term in Section 9102(a)(15) of the UCC.
"
Copyright Collateral
"
shall mean all Copyrights, whether now owned or hereafter acquired by any of the Guarantors, and shall include, without limitation, those listed on
Schedule 2
attached hereto.
"
Copyrights
"
shall mean all copyrights, copyright registrations, and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present, and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto.
"
Deposit Account
"
has the meaning given such term in Section 9102(a)(29) of the UCC.
"
Documents
"
has the meaning given such term in Section 9102(a)(30) of the UCC.
"
Equipment
"
has the meaning given such term in Section 9102(a)(33) of the UCC.
"
Equity Collateral
"
shall mean Pledged Equity and Pledged Equity Proceeds.
"
Event of Default
"
shall have the meaning specified in
Section 14
of this Agreement.
"
Fixtures
"
has the meaning given such term in Section 9102(a)(41) of the UCC.
"
General Intangibles
"
has the meaning given such term in Section 9102(a)(42) of the UCC.
"
Goods
"
has the meaning given such term in Section 9102(a)(44) of the UCC, and shall include Motor Vehicles.
"
Instruments
"
has the meaning given such term in Section 9102(a)(47) of the UCC.
"
Intellectual Property
"
shall mean, collectively, all Copyright Collateral, all Patent Collateral, and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how, and trade secrets; (b) all licenses or user or other agreements granted to any of the Guarantors with respect to any of the foregoing, in each case whether now or hereafter owned or used; (c) all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs, splash screens, films, masters, and artwork; (d) all field repair data, sales data, and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records, or data; and (f) all licenses, consents, permits, variances, certifications, and approvals of governmental agencies now or hereafter held by any of the Guarantors.
"
Inventory
"
has the meaning given such term in Section 9102(a)(48) of the UCC.
"
Investment Property
"
has the meaning given such term in 9102(a)(49) of the UCC.
"
Letter-of-Credit Right
"
has the meaning given such term in Section 9102(a)(51) of the UCC.
"
Lien
"
shall mean a pledge, assignment, lien, charge, mortgage, encumbrance, or other security interest obtained under this Agreement or under any other agreement or instrument with respect to any present or future assets, property, contract rights, or revenues in order to secure the payment of indebtedness of the party referred to in the context in which the term is used.
"
Motor Vehicles
"
shall mean motor vehicles, tractors, trailers, and other like property, whether or not the title thereto is governed by a certificate of title or ownership.
"
Notes
"
shall mean all Promissory Notes or other debt instruments (including, without limitation, bonds and debentures of any nature whatsoever) from time to time issued to, or held by, any of the Guarantors.
"
Obligations
"
shall mean (i) all obligations of the Guarantors under the Guaranty and the other Transaction Documents, (ii) (x) the principal of and any interest on the Monto Note (including, without limitation, any further advances), and (y) all other obligations and liabilities of the Debtor, whether now existing or hereafter incurred, under, arising out of, or in connection with, the Monto Note and the due performance and compliance by the Debtor with all of the terms, conditions, and agreements contained in the Monto Note; (iii) any and all sums advanced by Secured Party
in order to preserve the Collateral or preserve its Lien and security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) and (iii) above, all of the expenses of any exercise by Secured Party
of its rights hereunder, together with attorneys' fees and court costs; and (v) to the extent not otherwise included in clauses (i), (ii), (iii) or (iv) above, all of the Guarantors' obligations set forth in this Agreement, including, without limitation,
Section 21
.
"
Patent Collateral
"
shall mean all Patents, whether now owned or hereafter acquired by any Guarantor, and shall include, without limitation, those patents and applications, registrations and recordings described in
Schedule 3
attached hereto.
"
Patents
"
shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof, all income, royalties, damages, and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present, and future infringements thereof, and all rights corresponding thereto throughout the world.
"
Permitted Liens
"
has the meaning set forth in the Monto Note.
"
Pledged Equity
"
shall mean (i) the shares of stock of, or partnership and other ownership interest in, any entity, including, without limitation, the equity interests described on
Schedule 5
, and any and all equity interests now or hereafter issued in substitution, exchange or replacement therefor or with respect thereto, and (ii) all ownership interests of any class or character of a successor entity formed by or resulting from a consolidation or merger in which any such issuer is not the surviving entity; in each case, whether now or hereafter owned by any of the Guarantors, together with any certificates evidencing any of the foregoing.
"
Pledged Equity Proceeds
"
shall mean all shares, securities, moneys, or property representing a dividend on any of the Pledged Equity, or representing a distribution or return of capital upon or in respect of the Pledged Equity, or resulting from a split-up, revision, reclassification, or other like change of the Pledged Equity or otherwise received in exchange therefor, and any subscription warrants, rights, or options issued to the holders of, or otherwise in respect of, the Pledged Equity.
"
Proceeds
"
has the meaning given such term in Section 9102(a)(64) of the UCC.
"
Promissory Notes
"
has the meaning given such term in Section 9102(a)(65) of the UCC.
"
Securities
"
has the meaning given such term in Section 8102(a)(15) of the UCC.
"
Securities Account
"
has the meaning given such term in Section 8501(a) of the UCC.
"
Trademark Collateral
"
shall mean all Trademarks, whether now owned or hereafter acquired by any Guarantor, and shall include, without limitation, those registered and applied for trademarks, terms, designs and applications described in
Schedule 4
attached hereto. Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark that would be rendered invalid, abandoned, void, or unenforceable by reason of its being included as part of the Trademark Collateral.
"
Trademarks
"
shall mean all trade names, trademarks and service marks, logos, domain names, trademark and service mark registrations, and applications for trademark and service mark registrations, including, without limitation, all renewals of trademark and service mark registrations, all rights corresponding thereto throughout the world, the right to recover for all past, present, and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark, and service mark.
"
UCC
"
shall mean the Uniform Commercial Code as in effect in the State of California from time to time.
"
Uncertificated Security
"
has the meaning given such term in Section 8102(a)(18) of the UCC.
2.
Grant of Liens
. As security for the due and punctual payment and performance in full of all Obligations (whether at the stated maturity, by acceleration, or otherwise and whether now owing or incurred in the future), each of the Guarantors hereby pledges, assigns, charges, delivers, and grants to Secured Party,
a continuing perfected first-priority (subject to Permitted Liens)
security interest in and a general Lien upon all of such Guarantor's right, title, and interest in and to the Collateral and all additions thereto and substitutions therefor, whether heretofore, now or hereafter received by or delivered or transferred to Secured Party
hereunder.
3.
Continuing Security Interest
.
(a) This Agreement creates an assignment, pledge, charge, continuing perfected, and, subject to any Permitted Lien, first-priority security interest in, and general Lien upon, the Collateral and shall (i) remain in full force and effect until all Obligations have been paid in full, (ii) be binding upon each of the Guarantors and their respective successors, permitted transferees, and permitted assigns, and (iii) inure, together with the rights and remedies of Secured Party
hereunder, to the benefit of Secured Party
and its successors, transferees, and assigns.
(b) Upon the indefeasible payment in full of all Obligations, the assignments, pledges, charges, Liens, and security interests granted hereunder shall terminate, and all rights to the Collateral shall revert to the Guarantors. Upon such termination, Secured Party
will, at the sole expense of the Guarantors, execute and deliver to the Guarantors such documents as the Guarantors shall reasonably request to evidence such termination and Secured Party
shall deliver and transfer such Collateral to the Guarantors.
4.
Guarantor Remains Liable
. Anything herein to the contrary notwithstanding, (i) each of the Guarantors shall remain liable under any agreements which have been (in whole or in part) pledged or assigned herein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by Secured Party
of any of the rights hereunder shall not release any of the Guarantors from any of its respective duties or obligations under any such agreements; and (iii) Secured Party
shall not have any obligation or liability under any such agreements by reason of this Agreement, nor shall Secured Party
be obligated to perform any of the obligations or duties of any of the Guarantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
5.
Delivery and Perfection
.
(a) Each of the Guarantors hereby authorizes Secured Party
to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral, and agrees to take all such other actions and to execute and deliver and file or cause to be filed such other instruments or documents, as Secured Party
may reasonably require in order to establish and maintain a perfected, valid, and continuing security interest and Lien in the Collateral in accordance with this Agreement and the UCC and other applicable law.
(b) Each of the Guarantors shall, at the written request of Secured Party:
(i) immediately deliver any and all Documents, Instruments, and Chattel Paper (including, without limitation, any Certificates of Title) evidencing or relating to the Collateral to Secured Party at the time and place and manner specified in Secured Party's
request;
(ii) immediately execute (if applicable) and deliver to Secured Party
(or file or record in such offices as Secured Party
may deem necessary or appropriate) any and all financing and continuation statements, other agreements, instruments, or other documents or amendments thereto, and perform any acts which may be necessary (A) to create, perfect, preserve, or otherwise protect the security interest and Liens granted herein or (B) to enable Secured Party
to exercise and enforce its rights hereunder;
(iii) with respect to any Certificated Security not otherwise credited to a Securities Account, such Guarantor shall immediately effect transfer thereof to Secured Party
(A) by physical delivery of such Certificated Security to Secured Party
endorsed to Secured Party
or its nominee or in blank or (B) in the case of a Certificated Security in registered form, by physical delivery of such Certificated Security to Secured Party
specially endorsed to Secured Party
or its nominee and thereafter reregistered in the name of Secured Party
or their nominee;
(iv) with respect to any Uncertificated Security not otherwise credited to a Securities Account, such Guarantor shall immediately (A) effect transfer thereof to Secured Party
by registration thereof on the books and records of the issuer in the name of Secured Party
or its nominee or (B) obtain the agreement of the issuer of such Uncertificated Securities that it will comply with instructions originated by Secured Party
without further consent by the registered owner, through a written agreement in form and substance satisfactory to Secured Party; and
(v) immediately mark all Certificates of Title in the manner specified in a written notice of Secured Party
to such Guarantor requesting such marking, to evidence the fact that such Certificates of Title are subject to the security interest and Lien of Secured Party
granted herein.
(c) Upon the written request of Secured Party, each of the Guarantors agrees immediately to deliver to Secured Party, appropriately endorsed to the order of Secured Party, any Notes, trade acceptance, Chattel Paper, or other Instrument in which a security interest must be perfected by delivery or transfer of such Collateral to a secured party, which are acquired by such Guarantor from time to time.
(d) Notwithstanding Section 9207 of the UCC, Secured Party may hold as additional security any Proceeds, including money and funds, received from the Collateral, all of which shall constitute Collateral hereunder, and Secured Party
shall not be required to apply such money or funds to reduce the Obligations other than as expressly set forth herein.
6.
Proceeds of Sale
. Nothing contained in this Agreement shall limit or restrict in any way Secured Party
's
right to receive Proceeds of the Collateral in any form in accordance with the provisions of this Agreement. All Proceeds that are received by any of the Guarantors contrary to the provisions of this Agreement shall be received in trust for the benefit of Secured Party, shall be segregated from other property or funds of such Guarantor and shall be forthwith paid over to Secured Party
as Collateral in the same form as so received (with any necessary endorsement, document or instrument of transfer).
7.
Records and Information
. Each of the Guarantors agrees to keep, at its office set forth in
Section 11(d)
, its records concerning the Collateral. Each of the Guarantors agrees to promptly furnish to Secured Party
such information concerning such Guarantor, Debtor, the Collateral and any Account Debtor as Secured Party
may reasonably request.
8.
Inspection
. Each of the Guarantors agrees, upon prior notice provided by Secured Party, to permit Secured Party, through its officers and agents, to examine and inspect the Collateral and all records pertaining thereto, and to make extracts from such records as Secured Party
may require.
9.
Use of Collateral
. Except upon the occurrence and during the continuance of any Event of Default, each of the Guarantors may in the ordinary course of such Guarantor's business use, consume, exhibit, demonstrate, sell, lease, or otherwise dispose of its Inventory, in carrying on its businesses substantially in the same manner as now conducted;
provided
,
however
, that a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by such Guarantor or any transfer or sale to any shareholder or affiliate of such Guarantor for consideration less than the consideration which would have been paid to such Guarantor by an unaffiliated third party in an arms' length transaction; and
provided
further
that any such disposition shall not be unlawful or inconsistent with the terms of this Agreement or of any policy of insurance covering such Collateral.
10.
No Disposition
. Each of the Guarantors covenants and agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as provided for in
Section 9
hereof, nor will it create, incur, or permit to exist any Lien on or with respect to any of the Collateral, any interest therein, or any Proceeds thereof, except for the Permitted Liens.
11.
Representations and Warranties
. Each of the Guarantors represents, warrants and covenants to Secured Party
throughout the term of this Agreement that:
(a) The Guarantors are and will be the sole legal and beneficial owners of all of the Collateral now owned or hereafter acquired free and clear of any Lien, security interest, assignment, option, or other charge or encumbrance, except for the Permitted Liens;
(b) This Agreement has been duly and validly authorized by such Guarantor and executed and delivered by such Guarantor and constitutes the legal, valid, and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)) and, subject to the performance of the relevant procedures as specified in
Section 5
herein with respect to such Collateral, creates a valid, binding, enforceable, and first priority perfected security interest in and general first Lien upon all of the Collateral (subject to Permitted Liens), and such Guarantor is duly authorized to make all filings and take all other actions necessary or desirable to perfect and to continue perfected such security interest;
(c) As of the date hereof and on the date of delivery or transfer to Secured Party
of any Collateral under this Agreement, such Guarantor has good and marketable title to the Collateral, subject to Permitted Liens;
(d) The office where such Guarantor maintains all records relating to the Collateral is located at:
|
1212 South Flower Street
Fifth Floor
Los Angeles, California 90015
|
(e) Such Guarantor is a duly organized and validly existing entity under the laws of its State of incorporation.
(f) As applicable, such Guarantor's exact legal name, as that name appears on such Guarantor's formation document; entity type; State of formation; and such Guarantor's organization identification number issued by its State of formation are as follows:
Legal Name
|
Entity Type
|
State of Formation
|
Identification Number
|
|
|
|
|
PEOPLE'S LIBERATION, INC.
|
Corporation
|
Delaware
|
0951343
|
|
|
|
|
VERSATILE ENTERTAINMENT, INC.
|
Corporation
|
California
|
C2340499
|
|
|
|
|
BELLA ROSE, LLC
|
Limited Liability Company
|
California
|
200513810052
|
|
|
|
|
WILLIAM RAST SOURCING, LLC
|
Limited Liability Company
|
California
|
200624310012
|
|
|
|
|
WILLIAM RAST RETAIL, LLC
|
Limited Liability Company
|
California
|
200923810230
|
(g) All Pledged Equity in which the Guarantors currently have or shall hereafter acquire an interest is and will be, as applicable, duly authorized, validly existing, fully paid, and non-assessable (in the case of any equity interest in a corporation) and duly issued and outstanding (in the case of any equity interest in any other entity), and none of such Pledged Equity is or will be subject to any contractual restriction, or any restriction under the charter, by-laws, partnership agreement, or other organizational document of the respective issuer, upon the transfer of such Pledged Equity;
(h) As of the date hereof, any and all equity interests owned directly or indirectly by each of the Guarantors in any Person are described on
Schedule 5
attached hereto, and such Guarantor owns the equity interests set forth opposite its name on
Schedule 5
free and clear of Liens except for Permitted Liens;
(i) Except pursuant to licenses and other user agreements entered into by the any of the Guarantors in the ordinary course of such Guarantor's business, each of the Guarantors owns and possesses the right to use, and has done nothing to authorize or enable any other Person to use, any Copyright, Patent or Trademark owned or used by such Guarantor on the date hereof, and all registrations therefor are valid and in full force and effect;
(j) To each of the Guarantors' knowledge, (i) there is no violation by others of any right of the Guarantors with respect to any Copyright, Patent or Trademark of the Guarantors and (ii) no Guarantor is infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings have been instituted, are pending or, to each of the Guarantors' knowledge, have been threatened against any of the Guarantors, and no claim against any of the Guarantors has been received by any of the Guarantors, alleging any such violation;
(k) As of the date hereof, such Guarantor has no Commercial Tort Claims other than those described in
Schedule 1
attached hereto and such Guarantor hereby covenants and agrees that it shall provide Secured Party with prompt written notice of each Commercial Tort Claim, and any judgment, settlement or other disposition thereof and will take such action as the Secured Party may request to grant and perfect a security interest therein in favor of the Secured Party;
(l) As of the date hereof, such Guarantor has no Copyrights registered, or subject to pending applications, with the United States Copyright Office ("
USCO
"), or any similar office or agency in the United States of America, or elsewhere other than those described on
Schedule 2
attached hereto;
(m) As of the date hereof, such Guarantor has no Patents registered, or subject to pending applications, in the United States Patent and Trademark Office ("
USPTO
"), or to the best knowledge of the Guarantors, any similar office or agency in the United States of America other than those described on
Schedule 3
attached hereto;
(n) As of the date hereof, such Guarantor has no Trademarks registered, or subject to pending applications, in the USPTO, or to the best knowledge of the Guarantors, any similar office or agency in the United States of America other than those described in
Schedule 4
attached hereto;
(o) As of the date hereof,
Schedule 6
attached hereto sets forth each of the licenses owned or held by or on behalf of such Guarantor and all other Intellectual Property of each Guarantor other than the Intellectual Property otherwise set forth in the other Schedules hereto;
(p) To the best of Guarantors' knowledge, there are no actions, suits, proceedings or investigations pending or threatened in writing against any Guarantor before any governmental authority which could reasonably be expected to cause any portion of the Intellectual Property to be adjudged invalid or unenforceable, in whole or in part;
(q) Each of the Guarantors authorizes Secured Party to modify this Agreement by amending the
Schedules
hereto to include any new Intellectual Property, renewal thereof or any Intellectual Property applied for and obtained hereafter; and each Guarantor shall, upon request of Secured Party from time to time execute and deliver to Secured Party any and all assignments, agreements, instruments, documents and such other papers as may be requested by Secured Party to evidence the assignment of a security interest in each such Intellectual Property; and
(r) As of the date hereof, such Guarantor has no deposit, brokerage, securities or other similar accounts other than those set forth opposite its name on
Schedule 7
attached hereto.
12.
Covenants
.
(a) Each of the Guarantors shall:
(i) Maintain, or cause to be maintained, all items of the Collateral in good condition and repair, ordinary wear and tear excepted in the case of Equipment, and pay, or cause to be paid, the costs of repairs to or maintenance of that Collateral which is of a type that could be repaired or maintained;
(ii) Take all steps to preserve and protect the portion of the Collateral owned by it, including, with respect to the Intellectual Property, the filing of any renewal affidavits and applications;
(iii) Not use any Collateral in violation of law or any applicable policy of insurance;
(iv) Pay or cause to be paid when due all taxes, assessments, and other charges relating to the Collateral or this Agreement and reimburse Secured Party
for all costs of and fees incurred in connection with any filing of the documents and instruments referred to in
Section 5
;
(v) Not change its: (a) name or the name under which it does business; (b) chief executive office; (c) type of organization; (d) jurisdiction of organization; or (e) other legal structure without at least 30 day's prior written notice to Secured Party. Prior to effectuating any change described in the preceding sentence, such Guarantor shall take or cause to be taken all actions deemed by Secured Party
to be necessary or desirable to prevent any financing or continuation statement from becoming seriously misleading or rendered ineffective, or the security interests granted herein from becoming unperfected or the relative priority thereof otherwise impaired, as a result of such removal or change;
(vi) Perform and observe all the material terms and provisions of any agreement for the sale or lease of goods, or any agreement for the rendering of services, giving rise to an Account to be performed or observed by it, maintain any such agreement in full force and effect, enforce any such agreement in accordance with its terms, and take all such action to such end as may be from time to time reasonably requested by Secured Party;
(vii) Immediately notify Secured Party if it knows or has reason to know of any reason why any applicable registration or recording of any Patent Collateral, Trademark Collateral or Copyright Collateral may become abandoned, canceled, invalidated or unenforceable;
(viii) Render any assistance, as Secured Party may solely determine is necessary, to Secured Party in any proceeding before the USPTO, the USCO, any federal or state court, or any similar office or agency in the United States of America, or any State therein, to maintain any Patent Collateral, Trademark Collateral or Copyright Collateral and to protect Secured Party's security interest therein, including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference, and cancellation proceedings;
(ix) Immediately notify Secured Party if such Guarantor learns of any use by any Person of any term or design likely to cause confusion with any of the Trademark Collateral, or of any use by any Person of any other process or product which infringes upon any of the Trademark Collateral in a manner which is material to such Guarantor's business, and if requested by Secured Party, each of the Guarantors, at its expense, shall join with Secured Party in such action as Secured Party in Secured Party's discretion may reasonably deem advisable for the protection of Secured Party's interest in and to the Trademark Collateral;
(x) Assume all responsibility and liability arising from the use of the Intellectual Property, and such Guarantor hereby indemnifies and holds Secured Party harmless from and against any claim, suit, loss, damage or expense (including attorneys' fees) arising out of any alleged defect in any product manufactured, promoted, or sold by any Guarantor in connection with any Intellectual Property or out of the manufacture, promotion, labeling, sale, or advertisement of any such product by any Guarantor;
(xi) Immediately notify Secured Party in writing of any adverse determination in any proceeding in the USPTO, USCO, or any other foreign or domestic governmental authority, court or body, such Guarantor becomes aware of regarding any Guarantor's claim of ownership in any of the Trademark Collateral, Patent Collateral or Copyright Collateral, and in the event of any infringement of any Trademark, Patent or Copyright owned by any Guarantor by a third party which is material to any Guarantor's business, such Guarantor shall promptly notify Secured Party of such infringement and sue for and diligently pursue damages for such infringement, and if such Guarantor shall fail to take such action within one (1) month after such notice is given to Secured Party, Secured Party may, but shall not be required to, itself take such action in the name of such Guarantor, and such Guarantor hereby appoints Secured Party the true and lawful attorney of such Guarantor, for it and in its name, place and stead, on behalf of such Guarantor, solely, without limitation on any other rights of Secured Party under this Agreement, to commence judicial proceedings in any court or before any other tribunal to enjoin and recover damages for such infringement, any such damages due to such Guarantor, net of costs and attorneys' fees, to be applied to the Obligations;
(xii) (A) Maintain, with responsible insurance companies, insurance covering the Collateral against such insurable losses as is required by the Transaction Documents and as is consistent with sound business practice, (B) cause Secured Party to be designated as loss payee (as customary for secured parties based on the type of insurance) with respect to all insurance (whether or not required by the Transaction Documents), (C) obtain the written agreement of the insurers that such insurance shall not be cancelled, terminated or materially modified to the detriment of Secured Party without at least 30 days' prior written notice to Secured Party, and (D) furnish copies of such insurance policies or certificates to Secured Party immediately upon request therefor and otherwise comply with the terms and provisions of the Transaction Documents with respect to such insurance coverage; and
(xiii) with respect to the Copyright Collateral, at its sole expense, do, make, execute and deliver all such additional and further acts, things, deeds, assurances, and instruments, in each case in form and substance satisfactory to Secured Party, relating to the creation, validity, or perfection of the security interests provided for in this Agreement under 35 U.S.C. Section 261, 15 U.S.C. Section 1051 et seq., 17 U.S.C. Sections 101, 201 et seq., the UCC or other Law of the United States of America, the State of California, other States or any other domestic or foreign jurisdiction as Secured Party may from time to time reasonably request, and shall take all such other action as Secured Party may reasonably require to perfect Secured Party's security interest in any of the Copyright Collateral and to completely vest in and assure to Secured Party its rights hereunder in any of the Copyright Collateral.
13.
Further Assurances and Protections
.
(a) Each of the Guarantors shall at its expense do, file, record, make, execute, and deliver all such acts, notices, instruments, statements, or other documents as Secured Party may request to perfect, preserve, or otherwise protect the security interest and Liens of Secured Party
in the Collateral or any part thereof or to give effect to the rights, powers, and remedies of Secured Party
under this Agreement;
(b) Each of the Guarantors will give prompt written notice to Secured Party
of, and defend the Collateral against, any suit, action, or proceeding related to the Collateral or which could adversely affect the security interests and Liens granted hereunder; and
(c) Each Guarantor authorizes Secured Party to have this or any other similar agreement recorded or filed with the USCO, USPTO or other appropriate federal, state or foreign government office.
14.
Events of Default
. The occurrence of any of the following events or conditions shall constitute an event of default (each an "
Event of Default
") under this Agreement:
(a) The occurrence of an Event of Default as defined in the Monto Note;
(b) The failure or refusal by any of the Guarantors to perform, or the breach or violation of, any of the terms, obligations, covenants, or warranties of this Agreement or the Guaranty, and that failure or refusal continues unremedied for five (5) business days after such failure or refusal.
15.
Remedies upon an Event of Default
. On and after the occurrence and continuance of an Event of Default, Secured Party
may, in its discretion:
(a) request that any of the Guarantors, and upon such request such Guarantor shall, assemble the Collateral at such place or places convenient to Secured Party
designated in such request;
(b) enforce collection of any of the Collateral by suit or any other lawful means available to Secured Party, or demand, collect, or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral;
(c) surrender, release, or exchange or otherwise modify the terms of all or any part of the Collateral, or compromise or extend or renew for any period any indebtedness thereunder or evidenced thereby;
(d) assert all other rights and remedies of a secured party under the UCC (whether or not in effect in any applicable jurisdiction) and all other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase, or otherwise retain, liquidate, or dispose of all or any portion of the Collateral. The proceeds of any collection, liquidation, or other disposition of the Collateral shall be applied by Secured Party
first to the payment of all expenses (including, without limitation, all fees, taxes, reasonable attorneys' fees and legal expenses) incurred by Secured Party
in connection with retaking, holding, collecting, or liquidating the Collateral. The balance of such proceeds, if any, shall, to the extent permitted by law, be applied to the payment of the Obligations (i) first, to payment of that portion of the Obligations constituting fees, expenses and indemnities owed to Secured Party, (ii) second, to payment of that portion of the Obligations constituting interest owed to Secured Party, (iii) third, to payment of that portion of the Obligations constituting unpaid principal of the Monto Note, (iv) fourth, to pay any other Obligations owed to Secured Party, and (v) finally, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Guarantors or as otherwise required by law. In case of any deficiency, the Guarantors shall, whether or not then due, remain jointly and severally liable therefor. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to each of the Guarantors at its notice address specified on the signature page hereof five (5) business days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. Without precluding any other methods of sale or other disposition, the sale or other disposition of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property; but in any event Secured Party
may sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose such Collateral on such terms and to such purchaser(s) (including Secured Party) as Secured Party
in its absolute discretion may choose, and for cash or for credit or for future delivery, without assuming any credit risk, at public or private sale or other disposition, without demand of performance, and without any obligation to advertise or give notice of any kind other than that necessary under applicable law. Each of the Guarantors hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale or other disposition hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale or other disposition, unless prohibited by applicable law, Secured Party may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Secured Party
shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall it be under any obligation to take any action whatsoever with regard thereto.
Secured Party
shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to this Agreement conducted in a commercially reasonable manner. Each of the Guarantors hereby waives any claims against Secured Party
arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if Secured Party
accepts the first offer received and does not offer the Collateral to more than one offeree.
Each of the Guarantors recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, Secured Party
may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the relevant Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each of the Guarantors acknowledges that any such private sale may be at prices and on terms less favorable to Secured Party
than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party
shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to enable the registration of the Collateral or related transaction so as to permit a public offer to be made with respect thereto;
(e) license or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Intellectual Property included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as Secured Party
shall in its sole discretion determine;
(f) without assuming any obligation or liability thereunder, at any time and from time to time, in its sole discretion, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of any of the Guarantors in, to and under any of its Intellectual Property and take or refrain from taking any action under any thereof, and each of the Guarantors releases Secured Party
from liability for, and agrees to hold Secured Party
free and harmless from and against any claims and expenses arising out of, any lawful action so taken or omitted to be taken with respect thereto, except for claims and expenses arising from Secured Party
's
gross negligence or willful misconduct;
(g) make a request upon any of the Guarantors (which shall not be construed as implying any limitation on the rights or powers of Secured Party), and upon such request such Guarantor shall, execute and deliver to Secured Party
a power of attorney, in form and substance satisfactory to Secured Party, for the implementation of any sale, lease, license or other disposition of Intellectual Property owned by such Guarantor or any such action related thereto. In connection with any such disposition, but subject to any confidentiality provisions imposed on such Guarantor in any license or similar agreement, such Guarantor will supply to Secured Party
its know-how and expertise relating to the relevant Intellectual Property, and its customer lists and other records relating to such Intellectual Property and to the distribution of said products or services;
(h) to the extent not already so transferred, transfer all or any part of the Collateral into Secured Party
's
name or the name of their nominee or nominees; and
(i) give all consents, waivers, and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each of the Guarantors hereby irrevocably constituting and appointing Secured Party the proxy and attorney-in-fact of such Guarantor, with full power of substitution to do so), including, without limitation, the exercise of all voting, consensual and other powers of ownership pertaining to the Collateral.
16.
Secured Party
Appointed Attorney-in-Fact
. Without limiting any rights or powers granted to Secured Party
pursuant to this Agreement, applicable law or otherwise, each of the Guarantors hereby appoints Secured Party
as its attorney-in-fact, with full power and authority in the place and stead of such Guarantor and in the name of such Guarantor or otherwise, from time to time in Secured Party
's
discretion to take any and all action and to execute, file and record any and all instruments, agreements, and documents which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to execute any assignment of Intellectual Property to Secured Party
or other transferee, and to receive, endorse and collect all instruments made or payable to such Guarantor representing any Proceeds in respect of the Collateral or any part thereof and to give full discharge for the same. The appointment set forth in this
Section 16
is coupled with an interest and is irrevocable.
17.
Secured Party
May Perform
. If any of the Guarantors fails to perform any agreement, covenant, or obligation contained herein, Secured Party
may itself perform, or cause performance of such agreement, covenant or obligation and the expenses and costs of Secured Party
incurred in connection therewith shall be jointly and severally payable by the Guarantors.
18.
Security Interest Absolute
. All rights of Secured Party
and all Liens hereunder, and all obligations of each of the Guarantors hereunder, shall be absolute and unconditional irrespective of:
(a) lack of validity or enforceability of this Agreement, the Guaranty, the Monto Note or any of the other Transaction Documents;
(b) any change in the time, manner, or place of payment of, or in any other term of any or all of the Obligations or any amendment or waiver of any provision of this Agreement, the Guaranty, the Monto Note or any of the other Transaction Documents;
(c) any release or non-perfection of any portion of the Collateral or any exchange, release, or non-perfection of any other collateral, or any release, amendment, or waiver of any guaranty or any other personal liability for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a defense available to, or a discharge of any Guarantor in respect of the Obligations or this Agreement, the Guaranty, the Monto Note or any of the other Transaction Documents.
19.
Secured Party
's
Duties
. The powers conferred to Secured Party
hereunder are solely to protect Secured Party
's
interest in the Collateral and shall not impose any duty upon it to exercise any such powers except for the safe custody of any Collateral or any portion thereof in its possession, and Secured Party
shall exercise that standard of care with respect to the Collateral in its possession which it exercises in the administration of its own assets and property;
provided
,
however
, that Secured Party
shall not in any event be liable for any action taken or omitted with respect to the Collateral or this Agreement in good faith and in the absence of gross negligence or willful misconduct. Secured Party
shall have no duty as to the Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Collateral.
20.
Rights Cumulative
. The rights, powers, and remedies of Secured Party
under this Agreement shall be in addition to all rights, powers, and remedies given to Secured Party
by virtue of any statute or rule of law or any agreement, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing Secured Party
's
security interest, Lien, and assignment in the Collateral.
21.
Indemnity and Expenses
.
(a) Secured Party
shall not have any liability to any Person and shall be indemnified and held harmless by each of the Guarantors for any liability incurred by reason of taking or refraining from taking any action with respect to the Collateral, except in the case of Secured Party
's
gross negligence or willful misconduct. Each of the Guarantors agrees to indemnify Secured Party
from and against any and all claims, losses, and liabilities arising out of or connected with this Agreement (including, without limitation, enforcement of this Agreement), except such claims, losses, or liabilities resulting solely from Secured Party
's
gross negligence or willful misconduct. This
Section 21(a)
shall survive any termination of this Agreement.
(b) Each of the Guarantors agrees to jointly and severally pay all expenses, costs, and disbursements incurred by Secured Party
(including, without limitation, all attorneys' fees and other legal expenses incurred by Secured Party
in connection therewith) in connection with (i) retaking, holding, collecting, preparing for sale, and selling or otherwise realizing upon, liquidating, or disposing of the Collateral, (ii) the enforcement of its rights hereunder upon the occurrence and during the continuance of an Event of Default, (iii) the performance by Secured Party
of any agreement, covenant, or obligation of any of the Guarantors contained herein that any of the Guarantors has failed or refused to perform, and (v) the participation or other involvement of Secured Party with (x) bankruptcy, insolvency, receivership, foreclosure, winding up, or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise, or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of Secured Party in respect thereof, by litigation or otherwise, including expenses of insurance, (y) judicial or regulatory proceedings, and (z) workout, restructuring, or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated).
22.
Amendment or Waiver
. Neither this Agreement nor any terms hereof may be changed, waived, discharged, or terminated unless such change, waiver, discharge or termination is in writing signed by the parties hereto.
23.
Notices
. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing and mailed or delivered: if to the Guarantors, at the addresses specified immediately below each of the Guarantors' names on the signature page hereof; and if to Secured Party at its address specified immediately below its name on the signature page hereof; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, be effective three business days after deposit in the mails, and shall, when delivered, be effective upon delivery of such notice.
24.
No Waiver
. No failure or delay on the part of Secured Party
in exercising any right, power or privilege hereunder or under the UCC or any other applicable law shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder or under the UCC or any other applicable law preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. No notice to or demand on Secured Party
in any case shall entitle any of the Guarantors to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Secured Party
to any other or further action in any circumstances without notice or demand.
25.
Severability of Provisions
. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of that prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of that provision in any other jurisdiction.
26.
Non-Assignment
. None of the Guarantors shall have the right to assign its rights or delegate its obligations hereunder or any part thereof to any other person without Secured Party's prior written consent.
This Agreement shall be binding upon any successors or assigns of any of the Guarantors, and shall benefit any successors or assigns of Secured Party.
27.
Integration of Terms
. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto.
28.
Governing Law
.
(a) This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of California without regard to choice of law principles thereof that would cause the laws of any other jurisdiction to apply.
29.
Counterparts
. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.
30.
Joint and Several Liability; Waivers.
(a) Each Guarantor agrees that it is jointly and severally liable to the Secured Party for the payment of all Obligations arising under this Agreement, the Guaranty and the other Transaction Documents, and that such liability is independent of the obligations of the other Guarantors, the Debtor and any other Person. Each obligation, promise, covenant, representation and warranty in this Agreement shall be deemed to have been made by, and be binding upon, each Guarantor. The Secured Party may bring an action against any Guarantor, whether an action is brought against the other Guarantors, the Debtor or any other Person.
(b) Each Guarantor agrees that any release which may be given by the Secured Party to the other Guarantors, the Debtor or any other Person will not release such Guarantor from its obligations under this Agreement.
(c) Each Guarantor waives any right to assert against the Secured Party any defense, setoff, counterclaim, or claims which such Guarantor may have against the other Guarantors, the other Loan Parties or any other Person liable to the Secured Party for the Obligations.
(d) Each Guarantor waives any defense by reason of Debtor's, any other Guarantor's or any other Person's defense, disability, or release from liability. The Secured Party can exercise its rights against each Guarantor even if Debtor, any other Guarantor or any other Person no longer is liable because of a statute of limitations or for other reasons.
(e) Each Guarantor agrees that it is solely responsible for keeping itself informed as to the financial condition of Debtor, the other Guarantors and any other Person liable for the Obligations and of all circumstances which bear upon the risk of nonpayment. Each Guarantor waives any right it may have to require the Secured Party to disclose to such Guarantor any information which the Secured Party may now or hereafter acquire concerning the financial condition of Debtor, the other Guarantors or other Persons.
(f) Each Guarantor waives all rights to notices of default or nonperformance by Debtor or any other Guarantor under this Agreement or any other Transaction Document. Each Guarantor further waives all rights to notices of the existence or the creation of new or additional indebtedness by Debtor or any other Guarantor and all rights to any other notices to any party liable on any of the credit extended under any Transaction Document.
(g) Until all Obligations have been paid in full, each Guarantor (a) waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, which such Guarantor may now or hereafter have against Debtor, any other Guarantor or any other Person with respect to the Obligations or any indebtedness incurred under any Transaction Document; and (b) waives any right to enforce any remedy which the Secured Party now has or may hereafter have against Debtor, any other Guarantor or any Person, and waives any benefit of, and any right to participate in, any security now or hereafter held by the Secured Party.
(h) Each Guarantor waives any rights and defenses that are or may become available to such Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code.
(i) Each Guarantor waives any right to require the Secured Party to proceed against Debtor, any other Guarantor or any other Person; proceed against or exhaust any security; or pursue any other remedy. Further, each Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Guarantors under the Transaction Documents or which, but for this provision, might operate as a discharge of the Guarantors.
31.
Acknowledgement and Agreement of Issuers
. By executing this Agreement (whether as a Guarantor or an issuer of Pledged Equity), each Person that is an issuer of Pledged Equity: (a) acknowledges and consents to Guarantors' agreements set forth in the foregoing provisions of this Agreement; (b) agrees that it will comply with any and all orders originated by Secured Party with respect to the Equity Collateral, including, without limitation, orders from the Secured Party to make the Secured Party (or any purchaser or transferee) the registered holder or registered owner of the Equity Collateral, in each case without further consent by any Guarantor or any other Person and (c) waives any right or requirement at any time hereafter to receive a copy of this Agreement in connection with the registration of any Equity Collateral in the name of Secured Party or its nominees or the exercise of voting rights by the Secured Party or its nominees.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above.
GUARANTORS:
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PEOPLE'S LIBERATION, INC.,
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a Delaware corporation
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By:
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Name:
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Colin Dyne
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Title:
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Chief Executive Officer
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Address:
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People's Liberation, Inc.
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1212 South Flower St., Fifth Floor
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Los Angeles, CA 90015
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Attn: _______________
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VERSATILE ENTERTAINMENT, INC.,
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a California corporation
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By:
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Name:
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Colin Dyne
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Title:
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Chief Executive Officer
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Address:
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Versatile Entertainment, Inc.
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1212 South Flower St., Fifth Floor
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Los Angeles, CA 90015
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Attn: _______________
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BELLA ROSE, LLC,
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a California limited liability company
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By:
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People's Liberation, Inc., a Delaware corporation,
as sole Member
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By:
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Name:
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Colin Dyne
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Title:
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Chief Executive Officer
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Address:
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Bella Rose, LLC
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1212 South Flower St., Fifth Floor
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Los Angeles, CA 90015
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Attn: _______________
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WILLIAM RAST SOURCING, LLC,
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a California limited liability company
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By:
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Name:
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Colin Dyne
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Title:
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Manager
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Address:
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William Rast Sourcing, LLC
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1212 South Flower St., Fifth Floor
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Los Angeles, CA 90015
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Attn: _______________
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WILLIAM RAST RETAIL, LLC,
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a California limited liability company
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By:
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William Rast Sourcing, LLC, a California limited liability company,
as Manager
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By:
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Name:
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Title:
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Address:
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William Rast Retail, LLC
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1212 South Flower St., Fifth Floor
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Los Angeles, CA 90015
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Attn: _______________
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ACKNOWLEDGED AND AGREED TO
AS OF THE DATE FIRST ABOVE WRITTEN
AS AN ISSUER OF PLEDGED EQUITY:
WILLIAM RAST LICENSING, LLC,
a California limited liability company
By:
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Name:
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Colin Dyne
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Title:
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Manager
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SECURED PARTY:
MONTO HOLDINGS (PTY) LTD.
By:
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Name:
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Title:
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Address:
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GUARANTY
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in consideration of credit and/or financial accommodation heretofore or hereafter from time to time made or granted to WILLIAM RAST LICENSING, LLC, a California limited liability company ("
Borrower
") by MONTO HOLDINGS (PTY) LTD. ("
Monto
" and together with any subsidiaries or affiliates of Monto and its successors and assigns, the "
Lender
"), the undersigned Guarantor (whether one or more, the "
Guarantor
", and, if more than one, jointly and severally) hereby furnishes its guaranty of the Guaranteed Obligations (as hereinafter defined) as follows:
1.
Guaranty.
The Guarantor hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all existing and future indebtedness and liabilities of every kind, nature and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary and whether for principal, interest, premiums, fees indemnities, damages, costs, expenses or otherwise, of Borrower to the Lender
, whether associated with any credit or other financial accommodation made to or for the benefit Borrower by the Lender or otherwise and whenever created, arising, evidenced or acquired
, including, without limitation, indebtedness and liabilities arising under that certain Promissory Note of even date herewith made by Borrower for the benefit of the Lender (the "
Note
") and any instruments, agreements or other documents of any kind or nature now or hereafter executed in connection with the Note
(including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, attorneys’ fees and expenses incurred by the Lender in connection with the collection or enforcement thereof), and whether recovery upon such indebtedness and liabilities may be or hereafter become unenforceable or shall be an allowed or disallowed claim under any proceeding or case commenced by or against the Guarantor or Borrower under the Bankruptcy Code (Title 11, United States Code), any successor statute or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally (collectively, "
Debtor Relief Laws
"), and including interest that accrues after the commencement by or against Borrower of any proceeding under any Debtor Relief Laws (collectively, the "
Guaranteed Obligations
"). The Lender’s books and records showing the amount of the Guaranteed Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon the Guarantor and conclusive for the purpose of establishing the amount of the Guaranteed Obligations. This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing.
Anything contained herein to the contrary notwithstanding, the obligations of the Guarantor hereunder at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code (Title 11, United States Code) or any comparable provisions of any similar federal or state law.
2.
No Setoff or Deductions; Taxes; Payments.
The Guarantor represents and warrants that it is organized and resident in the United States of America. The Guarantor shall make all payments hereunder without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding. If any such obligation (other than one arising with respect to taxes based on or measured by the income or profits of the Lender) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. The Guarantor will deliver promptly to the Lender certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Guarantor hereunder.
The obligations of the Guarantor under this paragraph shall survive
the payment in full of the Guaranteed Obligations and
termination of this Guaranty.
3.
Rights of Lender.
The
Guarantor consents and agrees that the Lender may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) amend, extend, renew,
compromise
, discharge, accelerate or otherwise change the time for payment or the terms of the Guaranteed Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Guaranteed Obligations; (c) apply such security and direct the order or manner of sale thereof as the Lender in its sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Guaranteed Obligations. Without limiting the generality of the foregoing, the Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of the Guarantor.
4.
Certain Waivers.
The Guarantor waives (a) any defense arising by reason of any disability or other defense of Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of the Lender) of the liability of Borrower; (b) any defense based on any claim that the Guarantor’s obligations exceed or are more burdensome than those of Borrower; (c) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder; (d) any right to require the Lender to proceed against Borrower, proceed against or exhaust any security for the Guaranteed Obligations, or pursue any other remedy in the Lender’s power whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by the Lender; and
(f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties, including, but not limited to, any rights and defenses that are or may become available to the Guarantor by reason of Section 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code.
The Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the
Guaranteed Obligations
, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional
Guaranteed Obligations
.
5.
Obligations Independent
. The obligations of the Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Guaranteed Obligations
and
the obligations of any other guarantor, and a separate action may be brought against the Guarantor to enforce this Guaranty whether or not Borrower or any other person or entity is joined as a party
.
6.
Subrogation.
The Guarantor shall not exercise any right of subrogation, contribution
, indemnity, reimbursement
or similar rights with respect to any payments it makes under this
Guaranty until all of the Guaranteed Obligations and any amounts payable under this Guaranty have been indefeasibly paid and performed in full and any commitments of the Lender or facilities provided by the Lender with respect to the Guaranteed Obligations are terminated. If any amounts are paid to the Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Lender and shall forthwith be paid to the Lender to reduce the amount of the Guaranteed Obligations, whether matured or unmatured.
7.
Termination; Reinstatement.
This Guaranty is a continuing and irrevocable guaranty of all Guaranteed Obligations now or hereafter existing and shall remain in full force and effect until all Guaranteed Obligations and any other amounts payable under this Guaranty are indefeasibly paid in full in cash and any commitments of the Lender or facilities provided by the Lender with respect to the Guaranteed Obligations are terminated. Notwithstanding the foregoing, this Guaranty shall continue
in full force and effect or
be
revived
, as the case may be,
if any payment by or on behalf of Borrower or the Guarantor is made, or the Lender exercises its right of
setoff
, in respect of the Guaranteed Obligations
and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise
, all as if such payment had not been made
or such setoff had not occurred
and whether or not the Lender is in possession of or has released this Guaranty and regardless of any prior revocation, rescission, termination or reduction.
The obligations of the Guarantor under this paragraph shall survive termination of this Guaranty.
8.
Subordination.
The Guarantor hereby subordinates the payment of all obligations and indebtedness of Borrower owing to the Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of Borrower to the Guarantor as subrogee of the Lender or resulting from the Guarantor’s performance under this Guaranty, to the indefeasible payment in full in cash of all Guaranteed Obligations. If the Lender so requests, any such
obligation or indebtedness of Borrower to the Guarantor shall be enforced and performance received by the Guarantor as trustee for the Lender and the proceeds thereof shall be paid over to the Lender on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of the Guarantor under this Guaranty.
9.
Stay of Acceleration.
In the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed, in connection with any case commenced by or against the Guarantor or Borrower under any Debtor Relief Laws, or otherwise, all such amounts shall nonetheless be payable by the Guarantor immediately upon demand by the Lender.
10.
Expenses
. The Guarantor shall pay on demand all out-of-pocket expenses (including attorneys’ fees and expenses and the allocated cost and disbursements of internal legal counsel) in any way relating to the enforcement or protection of the Lender’s rights under this Guaranty or in respect of the Guaranteed Obligations, including any incurred
during any "workout" or restructuring in respect of the Guaranteed Obligations and any incurred
in the preservation, protection or enforcement of any rights of the Lender in any
proceeding any Debtor Relief Laws
. The obligations of the Guarantor under this paragraph shall survive
the payment in full of the Guaranteed Obligations and
termination of this Guaranty.
11.
Miscellaneous.
No provision of this Guaranty
may
be waived, amended, supplemented or modified, except by a written instrument executed by the Lender and the Guarantor. No failure by the Lender to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right
, power or remedy
. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or in equity. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein.
Unless otherwise agreed by the Lender and the Guarantor in writing, this Guaranty is not intended to supersede or otherwise affect any other guaranty now or hereafter given by the Guarantor for the benefit of the Lender or any term or provision thereof.
12.
Condition of Borrower.
The Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from Borrower
and any other guarantor
such information concerning the financial condition, business and operations of Borrower
and any such other guarantor
as the Guarantor requires, and that the Lender has no duty, and the Guarantor is not relying on the Lender at any time, to disclose to the Guarantor any information relating to the business, operations or financial condition of Borrower
or any other guarantor (the Guarantor waiving any duty on the part of the Lender to disclose such information and any defense relating to the failure to provide the same)
.
13.
Setoff.
If and to the extent any payment is not made
when due hereunder, the Lender may setoff and charge from time to time any amount so due against any or all of the Guarantor’s accounts or deposits with the Lender.
14.
Representations and Warranties.
The Guarantor represents and warrants to the Lender that (a) it is duly organized and in good standing under the laws of the jurisdiction of its
organization and has full capacity and right to make and perform this Guaranty, and all necessary authority has been obtained; (b) this Guaranty constitutes its legal, valid and binding obligation enforceable in accordance with its terms; (c) the making and performance of this Guaranty does not and will not violate the provisions of any applicable law, regulation or order, and does not and will not result in the breach of, or constitute a default or require any consent under, any material agreement, instrument, or document to which it is a party or by which it or any of its property may be bound or affected; (d) all consents, approvals, licenses and authorizations of, and filings and registrations with, any governmental authority required under applicable law and regulations for the making and performance of this Guaranty have been obtained or made and are in full force and effect
; and (e) the Guarantor, by reason of its own business and financial experience or that of its professional advisers, has the capacity to protect its own interests in connection with this Guaranty, the Guaranteed Obligations (and any agreements, documents or instruments evidencing such Guaranteed Obligations) and the transactions contemplated hereunder and thereunder.
15.
Covenants.
The Guarantor covenants and agrees that it shall not (i) declare or pay any dividends or make any distributions to any holder(s) of shares, membership interests or other equity security of the Guarantor; (ii) purchase or otherwise acquire for value, directly or indirectly, any shares, membership interests or other equity security of the Guarantor; (iii) merge or consolidate with any Person; (iv) purchase or otherwise acquire any equity interests in any other Person or all or substantially all of the property of any other Person; or (v) make any investments other than in the form of cash equivalents. As used herein, "Person" means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, governmental authority or other entity of any kind.
16.
Indemnification and Survival.
Without limitation on any other obligations of the Guarantor or remedies of the Lender under this Guaranty, the Guarantor shall, to the fullest extent permitted by law, indemnify, defend and save and hold harmless the Lender from and against, and shall pay on demand, any and all damages, losses, liabilities and expenses (including attorneys’ fees and expenses and the allocated cost and disbursements of internal legal counsel) that may be suffered or incurred by the Lender in connection with or as a result of any failure of any Guaranteed Obligations to be the legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.
17.
GOVERNING LAW;
Assignment
; Jurisdiction; Notices
. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
This Guaranty shall (a) bind the Guarantor and its successors and assigns, provided that the Guarantor may not assign its rights or obligations under this Guaranty without the prior written consent of the Lender (and any attempted assignment without such consent shall be void), and (b) inure to the benefit of the Lender and its successors and assigns and the Lender may, without notice to the Guarantor and without affecting the Guarantor’s obligations hereunder, assign, sell or grant participations in the Guaranteed Obligations and this Guaranty, in whole or in part. The Guarantor hereby irrevocably (i) submits to the non-exclusive jurisdiction of any United States Federal or State court
sitting in the County of Los Angeles, State of California,
in any action or proceeding arising out of or relating to this Guaranty, and (ii) waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith. Service of process by the Lender in connection with such action or proceeding shall be binding on the Guarantor if sent to the Guarantor by registered or certified mail at its address specified below or such other address as from time to time notified by the Guarantor. The Guarantor agrees that the Lender may disclose to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations of all or part of the Guaranteed Obligations any and all information in the Lender’s possession concerning the Guarantor, this Guaranty and any security for this Guaranty
. All notices and other communications to the Guarantor under this Guaranty shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier to the Guarantor at its address set forth below or at such other address in the United States as may be specified by the Guarantor in a written notice delivered to the Lender at such office as the Lender may designate for such purpose from time to time in a written notice to the Guarantor.
18.
WAIVER OF JURY TRIAL; FINAL AGREEMENT.
TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE GUARANTOR AND THE LENDER EACH
IRREVOCABLY WAIVES
TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON
,
ARISING OUT OF
OR RELATING TO
THIS GUARANTY
OR THE GUARANTEED OBLIGATIONS
. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
19.
Judicial Reference.
If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Guaranty, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a "provisional remedy" as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) the Guarantor shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.
20.
Joint and Several Liability
. Each of the undersigned shall be jointly and severally liable for all of the obligations of the Guarantor under this Guaranty.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed by its duly authorized officer as of this 18th day of August, 2011.
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PEOPLE'S LIBERATION, INC.,
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a Delaware corporation
|
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By:
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Name: Colin Dyne
|
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Title: Chief Executive Officer
|
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Address:
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VERSATILE ENTERTAINMENT, INC.,
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a California corporation
|
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By:
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Name: Colin Dyne
|
|
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Title: Chief Executive Officer
|
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|
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Address:
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BELLA ROSE, LLC,
|
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a California limited liability company
|
|
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|
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By:
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People's Liberation, Inc., a Delaware corporation, as sole Member
|
|
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|
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|
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By:
|
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|
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Name: Colin Dyne
|
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Title: Chief Executive Officer
|
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|
|
|
|
Address:
|
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|
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WILLIAM RAST SOURCING, LLC,
|
|
|
a California limited liability company
|
|
|
|
|
|
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By:
|
|
|
|
Name: Colin Dyne
|
|
|
Title: Manager
|
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|
|
Address:
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Signature Page to Guaranty
|
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WILLIAM RAST RETAIL, LLC,
|
|
|
a California limited liability company
|
|
|
|
|
|
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By:
|
William Rast Sourcing, LLC, a California limited liability company, as Manager
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name: Colin Dyne
|
|
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Title: Manager
|
|
|
|
|
|
Address:
|
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Signature Page to Guaranty
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS (I) PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR (II) IN COMPLIANCE WITH AN EXEMPTION THEREFROM AND ACCOMPANIED, IF REQUESTED BY THE ISSUER, WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH AN EXEMPTION THEREFROM.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON
ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN ARTICLE II OF THIS WARRANT
Warrant No. ___
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Number of Shares:12,500,000
|
|
(subject to adjustment)
|
Date of Issuance: August 18, 2011
|
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PEOPLE’S LIBERATION, INC.
Common Stock Purchase Warrant
THIS IS TO CERTIFY THAT, for value received, Monto Holdings (Pty) Ltd., (the “
Registered Holder
”), or its permitted assigns, is entitled to purchase from People’s Liberation, Inc., a Delaware corporation (the “
Company
”), at the place where the Warrant Office designated pursuant to
Section 2.1
is located, at a purchase price per share of $0.08 (as adjusted pursuant to the terms of this Warrant, the “
Exercise Price
”), 12,500,000
shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, $0.001 par value per share, of the Company, and is entitled also to exercise the other appurtenant rights, powers and privileges hereinafter set forth. The number of shares of the Common Stock purchasable hereunder and the Exercise Price are subject to adjustment in accordance with
Article III
hereof. This Warrant shall expire at 5:00 p.m., Los Angeles time, on the fifth anniversary of the date hereof.
Certain Terms used in this Warrant are defined in
Article IV
.
ARTICLE I
Exercise of Warrant
1.1
Method of Exercise
. This Warrant may be exercised by the Registered Holder as a whole or in part from time to time subsequent to the date hereof and until August 18, 2016, at which time this Warrant shall expire and be of no further force or effect;
provided
,
however
, that the minimum number of Warrant Shares that may be purchased on a single exercise shall be 500,000 or the entire number of shares remaining available for exercise hereunder, whichever is less. To exercise this Warrant, the Registered Holder or permitted assignees of all rights of the Registered Holder shall deliver to the Company, at the Warrant Office designated in
Section 2.1(a)
, a written notice in the form of the Purchase Form attached as
Exhibit A
hereto, stating therein the election of the Registered Holder or such permitted assignees of the Registered Holder to exercise this Warrant in the manner provided in the Purchase Form, (b) payment in full of the Exercise Price (in the manner described below) for all Warrant Shares purchased hereunder, and (c) this Warrant. Subject to compliance with
Section 3.1(a)(vi)
, this Warrant shall be deemed to be exercised on the date of receipt by the Company of the Purchase Form, accompanied by payment for the Warrant Shares to be purchased and surrender of this Warrant, as aforesaid, and such date is referred to herein as the “
Exercise Date
.” Upon such exercise (subject as aforesaid), the Company shall issue and deliver to the Registered Holder a certificate for the full number of the Warrant Shares purchasable by the Registered Holder hereunder, against the receipt by the Company of the total Exercise Price payable hereunder for all such Warrant Shares, (a) in cash or by certified or cashier’s check or (b) if the Common Stock is registered under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), by surrendering Warrant Shares having a Current Market Price equal to the Exercise Price for all the Warrant Shares so purchased. The Person in whose name the certificate(s) for Common Stock is to be issued shall be deemed to have become a holder of record of such Common Stock on the Exercise Date.
1.2
Net Exercise
. Notwithstanding any provisions herein to the contrary, if, at any time on or after the first anniversary of the original date of issuance of this Warrant, the Common Stock is not registered for resale by the Registered Holder under the Securities Act, and the Current Market Price of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Registered Holder may elect to receive Warrant Shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the Warrant Office together with the properly endorsed Purchase Form in which event the Company shall issue the Registered Holder a number of shares of Common Stock computed as follows:
X =
Y(A-B)
A
Where:
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X +
|
the number of shares of Common Stock to be issued to the
Registered Holder.
|
|
Y =
|
the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)
|
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A =
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the Current Market Price of one share of Common Stock (at the date of such calculation)
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B =
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Exercise Price (as adjusted to the date of such calculation)
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1.3
Fractional Shares
. No fractional shares of Common Stock shall be issued upon exercise of this Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable upon exercise of this Warrant, the Company shall pay a cash adjustment in respect of such fractional interest equal to the fair market value of such fractional interest as determined in good faith by the Board of Directors.
1.4
Termination
. Notwithstanding any other provision of this Warrant, the right to exercise this Warrant shall terminate upon the first to occur of (a) at the close of business on the fifth anniversary of the date hereof or (b) the closing date of an Asset Transfer or Acquisition.
ARTICLE II
Warrant Office; Transfer
2.1
Warrant Office
. The Company shall maintain an office for certain purposes specified herein (the “
Warrant Office
”), which office shall initially be the Company’s office at 1212 S. Flower Street, 5
th
Floor, Los Angeles, CA 90015, and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States of which written notice has previously been given to the Registered Holder. The Company shall maintain, at the Warrant Office, a register for the Warrant in which the Company shall record the name and address of the Registered Holder, as well as the name and address of each permitted assignee of the rights of the Registered Holder.
2.2
Ownership of Warrant
. The Company may deem and treat the Registered Holder as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this
Article II
.
2.3
Transfer of Warrants
. The Company agrees to maintain at the Warrant Office books for the registration and transfer of this Warrant. This Warrant may be transferred in whole or in part only in compliance with the applicable law. The Company, from time to time, shall register the transfer of this Warrant in such books upon surrender of this Warrant at the Warrant Office, properly endorsed, together with a written assignment of this Warrant, substantially in the form of the Assignment attached as
Exhibit B
hereto. Upon any such transfer, a new Warrant shall be issued to the transferee, and the Company shall cancel the surrendered Warrant. The Registered Holder shall pay all taxes and all other expenses and charges payable in connection with the transfer of Warrants pursuant to this Section 2.3.
2.4
No Rights as Shareholder Until Exercise
.
This Warrant does not entitle the Registered Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to the Registered Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment
.
2.5
Expenses of Delivery of Warrants
. Except as provided in
Section 2.3
above, the Company shall pay all reasonable expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of Warrants and related Warrant Shares hereunder.
2.6
Compliance with Securities Laws
.
The Registered Holder (and its transferees and assigns), by acceptance of this Warrant, covenants and agrees that such Registered Holder is acquiring the Warrants evidenced hereby, and, upon exercise hereof, the Warrant Shares, for its own account as an investment and not with a view to distribution thereof. Neither this Warrant nor the Warrant Shares issuable hereunder have been registered under the Securities Act or any state securities laws and no transfer of this Warrant or any Warrant Shares shall be permitted unless the Company has received notice of such transfer in the form of the assignment attached hereto as
Exhibit B
, accompanied, if requested by the Company, by an opinion of counsel reasonably satisfactory to the Company that an exemption from registration of such Warrant or Warrant Shares under the Securities Act is available for such transfer, except that no such opinion shall be required after a registration for resale of the Warrant Shares has become effective. Upon any exercise of the Warrants prior to effective registration for resale or except as in accordance with Rule 144 under the Securities Act, certificates representing the Warrant Shares shall bear a restrictive legend substantially identical to that set forth as follows:
“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state (collectively, the “Acts”). Neither the shares nor any interest therein may be offered, sold, transferred, pledged, or otherwise disposed of in the absence of an effective registration statement with respect to the shares under all of the applicable Acts, or an opinion of counsel satisfactory to the Company to the effect that such registrations are not required.”
(c)
Any purported transfer of the Warrant or Warrant Shares not in compliance with the provisions of this section shall be null and void.
Stop transfer instructions have been or will be imposed with respect to the Warrant Shares so as to restrict resale or other transfer thereof, subject to this
Section 2.6
.
ARTICLE III
Anti-Dilution Provisions
3.1
Adjustment of Exercise Price and Number of Warrant Shares
. The Exercise Price shall be subject to adjustment from time to time as hereinafter provided in this
Article III
. Upon each adjustment of the Exercise Price, except pursuant to
Sections 3.1(a)(iii)
,
(iv)
, and
(v)
, the Registered Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of the Common Stock obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of the Common Stock purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.
(a)
Exercise Price Adjustments
. The Exercise Price shall be subject to adjustment from time to time as follows:
(i)
Adjustment for Stock Splits and Combinations
. If the Company shall, at any time or from time to time after the date hereof (the “
Original Issue Date
”) while this Warrant remains outstanding, effect a subdivision or split of the outstanding Common Stock, the Exercise Price in effect immediately before such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately before such combination shall be proportionately increased. Any adjustment under this
Section 3.1(a)(i)
shall become effective at the close of business on the date the subdivision or combination becomes effective.
(ii)
Adjustment for Common Stock Dividends and Distributions
. If the Company, at any time or from time to time after the Original Issue Date while this Warrant remains outstanding makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Exercise Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Exercise Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution;
provided
,
however
, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Exercise Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Exercise Price shall be adjusted pursuant to this Section
3.1(a)(ii)
to reflect the actual payment of such dividend or distribution.
(iii)
Adjustment for Reclassification, Exchange and Substitution
. If at any time or from time to time after the Original Issue Date while this Warrant remains outstanding, the Common Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition, Asset Transfer, subdivision or combination of shares, stock dividend, reorganization, merger, consolidation, or sale of assets provided for elsewhere in this
Section 3.1(a)
), in any such event the Registered Holder shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Common Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.
(iv)
Reorganizations, Mergers, Consolidations or Sales of Assets
. If at any time or from time to time after the Original Issue Date while this Warrant remains outstanding, there is a capital reorganization of the Common Stock (other than an Acquisition, Asset Transfer, recapitalization, or subdivision, combination, reclassification, exchange, or substitution of shares provided for elsewhere in this
Section 3.1(a)
), as a part of such capital reorganization, provision shall be made so that the Registered Holder shall thereafter be entitled to receive upon exercise hereof the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon exercise immediately prior to such event would have been entitled as a result of such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this
Section 3.1(a)
with respect to the rights of the Registered Holder after the capital reorganization to the end that the provisions of this
Section 3.1(a)
(including adjustment of the Exercise Price then in effect and the number of shares issuable upon exercise) shall be applicable after that event and be as nearly equivalent as practicable.
(v)
Rounding of Calculations; Minimum Adjustment
. All calculations under this
Section 3.1(a)
and under
Section 3.1(b)
shall be made to the nearest cent. Any provision of this
Section 3.1
to the contrary notwithstanding, no adjustment in the Exercise Price shall be made if the amount of such adjustment would be less than one percent, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one percent or more.
(vi)
Timing of Issuance of Additional Common Stock Upon Certain Adjustments
. In any case in which the provisions of this
Section 3.1(a)
shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event issuing to the Registered Holder after such record date and before the occurrence of such event the additional shares of Common Stock or other property issuable or deliverable upon exercise by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exercise before giving effect to such adjustment;
provided
,
however
, that the Company upon request shall deliver to such Registered Holder a due bill or other appropriate instrument evidencing such Registered Holder’s right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment.
(vii)
Voluntary Adjustment by the Company
. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors, in its sole discretion, of the Company.
(b)
Statement Regarding Adjustments
. Whenever the Exercise Price shall be adjusted as provided in
Section 3.1(a)
, and upon each change in the number of shares of the Common Stock issuable upon exercise of this Warrant, the Company shall forthwith file, at the office of any transfer agent for this Warrant and at the principal office of the Company, a statement showing in detail the facts requiring such adjustment and the Exercise Price and new number of shares issuable that shall be in effect after such adjustment, and the Company shall also cause a copy of such statement to be given to the Registered Holder. Each such statement shall be signed by the Company’s chief financial or accounting officer. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of
Section 3.1(c)
.
(c)
Notice to Holders
. In the event the Company shall propose to take any action of the type described in clause (iii) or (iv) of
Section 3.1(a)
, the Company shall give notice to the Registered Holder, in the manner set forth in
Section 6.6
, which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.
3.2
Costs
. The Registered Holder shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of the Warrant Shares upon exercise of this Warrant. Additionally, the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such Warrant Shares. The Registered Holder shall reimburse the Company for any such taxes assessed against the Company.
3.3
Reservations of Shares
. The Company shall reserve at all times so long as this Warrant remains outstanding, free from preemptive rights, out of its treasury Common Stock or its authorized but unissued shares of Common Stock, or both, solely for the purpose of effecting the exercise of this Warrant, sufficient shares of Common Stock to provide for the exercise hereof.
3.4
Valid Issuance
. All shares of Common Stock which may be issued upon exercise of this Warrant will upon issuance by the Company be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof attributable to any act or omission by the Company, and the Company shall take no action which will cause a contrary result (including without limitation, any action which would cause the Exercise Price to be less than the par value, if any, of the Common Stock).
ARTICLE IV
Terms Defined
As used in this Warrant, unless the context otherwise requires, the following terms have the respective meanings set forth below or in the Section indicated:
“
Acquisition
” means (a) any consolidation or merger of the Company with or into any other corporation or other entity or Person, or any other corporate reorganization,
in which the individuals and entities who were beneficial owners of the Common Stock immediately prior to such transaction beneficially own, directly or indirectly, less than 50% of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving, or acquiring corporation in such transaction or (b) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the outstanding securities entitled to vote generally in the election of director of the Company are transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company.
“
Asset Transfer
” means a sale, lease, or other disposition of all or substantially all of the assets of the Company to another Person.
“
Board of Directors
” means the Board of Directors of the Company.
“
Common Stock
” means the Company’s authorized Common Stock, $0.001 par value per share.
“
Company
” means People’s Liberation, Inc., a Delaware corporation, and any other corporation assuming or required to assume the obligations undertaken in connection with this Warrant.
“
Current Market Price
” means, as of any date, 5% of the sum of the average, for each of the 20 consecutive Trading Days immediately prior to such date, of either: (i) the high and low sales prices of the Common Stock on such Trading Day as reported on the composite tape for the principal national securities exchange on which the Common Stock may then be listed, or (ii) if the Common Stock shall not be so listed on any such Trading Day, the high and low sales prices of Common Stock in the over-the-counter market as reported by the Nasdaq Stock Market for National Market Securities, or (iii) if the Common Shares shall not be included in the Nasdaq Stock Market as a National Market Security on any such Trading Day, the representative bid and asked prices at the end of such Trading Day in such market as reported by the Nasdaq Stock Market or (iv) if there be no such representative prices reported by the Nasdaq Stock Market, the lowest bid and highest asked prices at the end of such Trading Day in the over-the-counter market as reported by the OTC Electronic Bulletin Board or National Quotation Bureau, Inc., or any successor organization. “
Trading Day
” means a day on which an amount greater than zero can be calculated with respect to the Common Stock under any one or more of the foregoing categories (i), (ii), (iii) and (iv), and the “end” thereof, for the purposes of categories (iii) and (iv), shall mean the exact time at which trading shall end on the New York Stock Exchange. If the Current Market Price cannot be determined under any of the foregoing methods, Current Market Price shall mean the fair value per share of Common Stock on such date as determined by the Board of Directors in good faith, irrespective of any accounting treatment.
“
Exchange Act
” is defined in
Section 1.1
.
“
Exercise Date
” is defined in
Section 1.1
.
“
Exercise Price
” is defined in the Preamble.
“
Original Issue Date
” is defined in
Section 3.1(a)(i)
.
“
Outstanding
” means when used with reference to Common Stock at any date, all issued shares of Common Stock (including, but without duplication, shares deemed issued pursuant to
Article III
) at such date, except shares then held in the treasury of the Company.
“
Person
” means any individual, corporation, partnership, trust, organization, association or other entity.
“
Registered Holder
” is defined in the Preamble.
“
Securities Act
” means the Securities Act of 1933 and the rules and regulations promulgated thereunder, all as the same shall be in effect at the time.
“
Warrant
” means this Warrant and any successor or replacement Warrant delivered in accordance with
Section 2.3
or
6.8
.
“
Warrant Office
” is defined in
Section 2.1
.
“
Warrant Shares
” means the shares of Common Stock purchased or purchasable by the Registered Holder, or the permitted assignees of such Registered Holder, upon exercise of this Warrant pursuant to
Article I
hereof.
ARTICLE V
Covenant of the Company
The Company covenants and agrees that this Warrant shall be binding upon any corporation succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company’s assets.
ARTICLE VI
Miscellaneous
6.1
Entire Agreement
. This Warrant contains the entire agreement between the Registered Holder and the Company with respect to the Warrant Shares that it can purchase upon exercise hereof and the related transactions and supersedes all prior arrangements or understanding with respect thereto.
6.2
Governing Law
. This Warrant shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to its conflict of law provisions.
6.3
Waiver and Amendment
. Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof, and any term or provision of this Warrant may be amended or supplemented at any time by the written consent of the parties
(it being agreed that an amendment to or waiver under any of the provisions of
Article III
of this Warrant shall not be considered an amendment of the number of Warrant Shares or the Exercise Price)
.
No waiver by any party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising because of any prior or subsequent such occurrence.
6.4
Illegality
. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.
6.5
Copy of Warrant
. A copy of this Warrant shall be filed among the records of the Company.
6.6
Notice
. Any notice or other document required or permitted to be given or delivered to the Registered Holder shall be delivered at, or sent by certified or registered mail to such Registered Holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of this Warrant or at any more recent address of which the Registered Holder shall have notified the Company in writing. Any notice or other document required or permitted to be given or delivered to the Company, other than such notice or documents required to be delivered to the Warrant Office, shall be delivered at, or sent by certified or registered mail to, the office of the Company at 1212 S. Flower Street, 5
th
Floor, Los Angeles, CA 90015, or any other address within the continental United States of America as shall have been designated in writing by the Company delivered to the Registered Holder.
6.7
Limitation of Liability; Not Stockholders
. Subject to the provisions of
Article III
, until the exercise of this Warrant, the Registered Holder
shall not have or exercise any rights by virtue hereof as a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive notice of, or attend meetings of stockholders or any other proceedings of the Company
. Until the exercise of this Warrant, no provision hereof, and no mere enumeration herein of the rights or privileges of the Registered Holder, shall give rise to any liability of such Registered Holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
6.8
Exchange, Loss, Destruction, etc. of Warrant
. Upon receipt of evidence satisfactory to the Company (an affidavit of the Registered Holder shall be satisfactory evidence) of the loss, theft, mutilation or destruction of this Warrant, and, in the case of any such loss, theft or destruction, upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or, in the event of such mutilation upon surrender and cancellation of this Warrant, the Company will make and deliver a new Warrant of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant;
provided
,
however
, that the original Registered Holder of this Warrant shall not be required to provide any such bond of indemnity and may in lieu thereof provide his agreement of indemnity. Any Warrant issued under the provisions of this
Section 6.8
in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Registered Holder of this Warrant shall pay all taxes (including securities transfer taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of replacement Warrant(s) pursuant to this
Section 6.8
.
6.9
Headings
. The Article and Section and other headings herein are for convenience only and are not a part of this Warrant and shall not affect the interpretation thereof.
6.10
Successors and Assigns
. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Registered Holder. The provisions of this Warrant are intended to be for the benefit of all Registered Holders from time to time of this Warrant and shall be enforceable by any such Registered Holder or holder of Warrant Shares.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name.
Dated: August 18, 2011
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PEOPLE’S LIBERATION, INC.
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By
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Name:
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Title:
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Exhibit A
PURCHASE FORM
To:
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Dated:__________, 201_
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The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ____), hereby irrevocably elects to purchase ________ shares of the Common Stock covered by such Warrant.
The undersigned herewith makes payment of the full exercise price for such shares at the price per share provided for in such Warrant, which is $_____ per share in lawful money of the United States.
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[______________________________]
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_______________________________
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Name:__________________________
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Title:___________________________
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Exhibit B
ASSIGNMENT
For value received, _____________________________, hereby sells, assigns and transfers unto _______________________________ the within Warrant, together with all right, title and interest therein and does hereby irrevocably constitute and appoint ______________________, attorney, to transfer said Warrant on the books of the Company, with full power of substitution.
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________________________________
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Dated: ___________________, 201_
EXECUTION COPY
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT OF
WILLIAM RAST SOURCING, LLC
Effective As of October 1, 2011
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS OF TERMS
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1
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ARTICLE II - INTRODUCTORY MATTERS
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4
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2.1
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Business of LLC
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4
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2.2
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Laws Governing the Agreement
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4
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2.3
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Term
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4
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2.4
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Principal Place of Business
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4
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2.5
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Agent for Service of Process
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5
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2.6
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Required Maintenance of Records in California
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5
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2.7
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Records Subject to Inspection
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5
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2.8
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Foreign Qualification
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5
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2.9
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Commencement of Operations
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6
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ARTICLE III - MEMBERS, CAPITAL CONTRIBUTIONS, ALLOCATIONS
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6
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3.1
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Membership Interests, Capital Accounts and Percentage Interests
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6
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3.2
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Interests
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6
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3.3
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Status of Capital Contributions
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6
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3.4
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Capital Accounts
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6
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3.5
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Return of Capital Contributions
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7
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3.6
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No Management
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7
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ARTICLE IV – ADDITIONAL CAPTIAL CONTRIBUTIONS; NEW MEMBERS
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7
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4.1
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Additional Capital Contributions
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7
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4.2
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Admission of Additional Members
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7
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ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
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8
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5.1
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Allocations of Profits and Losses
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8
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5.2
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Time of Allocation
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8
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5.3
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Distributions of Cash
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8
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5.4
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Limitations on Distributions
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8
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5.5
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Amounts Withheld
|
9
|
5.6
|
|
Tax Allocations; Section 704(c) of the Code; Special Allocations
|
9
|
5.7
|
|
Allocation of Net Income and Net Loss for Financial Reporting Purposes
|
9
|
|
|
|
|
ARTICLE VI - MANAGEMENT OF THE LLC, CONTROL OF THE BUSINESS, OFFICERS
|
10
|
|
|
|
|
6.1
|
|
Governance of the LLC and Election of the Manager
|
10
|
6.2
|
|
Powers of the Manager
|
10
|
6.3
|
|
Contractual Authority
|
10
|
6.4
|
|
Officers
|
11
|
6.5
|
|
Limitations on Liability of the Managers and Officers
|
11
|
6.6
|
|
Other Activities of the Members and Manager Permitted
|
11
|
6.7
|
|
Devotion of Time
|
11
|
6.8
|
|
Class B Member Consent Rights
|
11
|
|
|
|
|
ARTICLE VII – MEETINGS OF MEMBERS & INFORMATION RIGHTS
|
12
|
|
|
|
|
7.1
|
|
Meeting of Members
|
12
|
7.2
|
|
Reports
|
12
|
|
|
|
|
ARTICLE VIII - TRANSFER AND ASSIGNMENT OF MEMBERSHIP INTERESTS, ECONOMIC INTERESTS AND RIGHTS
|
12
|
|
|
|
|
8.1
|
|
Transfers
|
12
|
8.2
|
|
Substitution of Members
|
12
|
8.3
|
|
Permitted Transfers
|
13
|
8.4
|
|
Additional Transfer Restrictions
|
13
|
8.5
|
|
Enforcement of Transfer Restrictions
|
13
|
8.6
|
|
Mandatory Co-Sale
|
13
|
8.7
|
|
Redemption of Class B Membership Interests; Liquidating Payment
|
14
|
|
|
|
|
ARTICLE IX - DISSOLUTION AND WINDING UP
|
16
|
|
|
|
|
9.1
|
|
Conditions of Dissolution
|
16
|
9.2
|
|
Order of Payment of Liabilities Upon Dissolution
|
16
|
9.3
|
|
Limitations on Payments Made on Dissolution
|
16
|
9.4
|
|
Liquidation
|
16
|
9.5
|
|
Termination of Covenants
|
17
|
|
|
|
|
ARTICLE X - BOOKS AND RECORDS, FISCAL YEAR
|
17
|
|
|
|
|
ARTICLE XI - TAX MATTERS
|
17
|
|
|
|
|
ARTICLE XII - INDEMNIFICATION
|
17
|
|
|
|
|
12.1
|
|
Liability of Members
|
17
|
12.2
|
|
Liability of Manager and Officers
|
17
|
12.3
|
|
Exculpation
|
17
|
12.4
|
|
Fiduciary Duty; Waiver
|
18
|
12.5
|
|
Indemnification by the LLC
|
18
|
12.6
|
|
Indemnification Procedure
|
18
|
12.7
|
|
Expenses
|
19
|
|
|
|
|
ARTICLE XIII - REQUIRED ARBITRATION OF DISPUTES
|
19
|
|
|
|
|
13.1
|
|
Reference; Rules and Procedures
|
19
|
13.2
|
|
Confidentiality
|
19
|
ARTICLE XIV - MISCELLANEOUS
|
20
|
|
|
|
|
14.1
|
|
Law Governing
|
20
|
14.2
|
|
Complete Agreement
|
20
|
14.3
|
|
Binding Effect
|
20
|
14.4
|
|
No Third Party Beneficiary
|
20
|
14.5
|
|
Gender and Number in Nouns and Pronouns
|
20
|
14.6
|
|
Headings
|
21
|
14.7
|
|
References in This Agreement
|
21
|
14.8
|
|
Exhibits
|
21
|
14.9
|
|
Severability
|
21
|
14.10
|
|
Additional Documents and Acts
|
21
|
14.11
|
|
Notices
|
21
|
14.12
|
|
Amendments
|
21
|
14.13
|
|
Multiple Counterparts
|
22
|
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF
WILLIAM RAST SOURCING, LLC
This Second Amended and Restated Operating Agreement, made and entered into effective as of October 1, 2011 (the “
Effective Date
”), governs the relationship between the undersigned Members of William Rast Sourcing, LLC, a California limited liability company (the “
LLC
”), and between the LLC and the undersigned Members, pursuant to the Beverly-Killea Limited Liability Act as amended from time to time (the “
Act
”), and the Articles of Organization for the LLC. In consideration of their mutual promises, covenants, and agreements, the parties hereto do hereby promise, covenant, and agree as set forth herein.
RECITALS
A. The Members of the LLC were previously party to that certain Amended and Restated Operating Agreement effective January 1, 2007, as amended effective October 2, 2007 (the “
Prior Agreement
”).
B. The LLC’s Members desire to amend and restate the Prior Agreement to (i) to recapitalize and reclassify the membership interests previously issued to the Members, such that Bella Rose, LLC, a Delaware limited liability company (“
BR
”) shall become the holder of “Class A Membership Interests” and Tennman WR-T, Inc., a Delaware corporation (“
TWR
”)
shall become the holder of “Class B Membership Interests” (in each case in the amounts and as noted on
Exhibit A
), (ii) recognize the redemption of certain membership interests previously issued to TWR, (iii) to establish the characteristics of the Class A Membership Interests and Class B Membership Interests and (iv) in connection with the LLC’s recapitalization, to memorialize the agreement among the Members as to the restated ownership of the LLC.
C. In connection with the above described recapitalization, TWR, the LLC and the other persons and entities party thereto are also entering into that certain Royalty Agreement of even date herewith which provides for the payment of certain consideration in relation to the recapitalization (the “
Royalty Agreement
”).
D. This Agreement has been approved by the requisite Members as provided by the Prior Agreement.
E. The Members of the LLC desire to enter into this Agreement such that this Agreement shall hereafter govern the rights, preferences, privileges and restrictions of the Members of the LLC.
ARTICLE I - DEFINITIONS OF TERMS
When used in this Agreement, the following terms shall have the meanings set forth below:
1.1 “
Affiliate
” means, with respect to any Member, any Person, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Member. The term “control,” as used in the immediately preceding sentence, means, with respect to a corporation the right to exercise directly or indirectly, 50% or more of the voting rights attributable to the controlled corporation, and, with respect to any partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.
1.2 “
Agreement
” means this Operating Agreement among the Members regulating the affairs of the LLC and the conduct of its business, as originally executed and as amended from time to time, and shall refer to this Agreement as a whole, unless the context otherwise requires.
1.3 “
Aggregate Sales Proceeds
” shall have the meaning set forth in
Section 8.7.4
hereof.
1.4 “
Articles
” means the Articles of Organization for the LLC which were filed with the Secretary of State of California on August 30, 2006, as File No. 200624310012, together with all amendments thereto or restatements thereof and shall mean the Articles as a whole unless the context otherwise requires.
1.5 “
BR
” means Bella Rose, LLC, a California limited liability company.
1.6 “
Capital Account
” means, with respect to any Member, the account maintained for such Member in accordance with the provisions of
Section 3.4
hereof.
1.7 “
Capital Contribution
” means, with respect to any Member, the aggregate amount of money and the fair market value (as determined in good faith by the Manager) of any property, tangible or intangible (other than money) contributed to the LLC pursuant to
Article III
hereof with respect to the Membership Interest of such Member.
1.8 “
Class A Member
”
refers to the Members holding Class A Membership Interests as set forth on
Exhibit A
or to any other person or entity who succeeds them in that capacity as permitted by this Agreement. The Class A Members in the aggregate shall be entitled to all of the Distributable Cash from Operations and all Distributable Cash from a Sale Transaction that is not paid or required to be paid to the Class B Members in accordance with
Section 8.7
of this Agreement.
1.9 “
Class B Member
” refers to the Members holding Class B Membership Interests as set forth on
Exhibit A
or to any other person or entity who succeeds them in that capacity as permitted by this Agreement. The Class B Members in the aggregate shall not be entitled to any of the Distributable Cash from Operations and shall only be entitled to receive that portion of the Distributable Cash from a Sale Transaction and such other amounts or property specifically described in
Section 8.7
of this Agreement.
1.10 “
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.
1.11 “
Covered Person
” means any Member, any Manager, any partners, employees, representatives or agents of any Member or Manager, and any officer, employee, partner, representative or agent of the LLC.
1.12 “
Distributable Cash
” the gross amount of cash from LLC operations (including, but not limited to, licensing revenues, royalties, sales, dispositions and refinancings of LLC property, and all principal and interest payments with respect to any note or other obligation received by the LLC in connection with sales or other dispositions of LLC property), less the portion thereof used to pay or establish reserves for all LLC expenses, debt payments, research and development (to the extent approved by the Manager), capital improvements, replacements and contingencies, all as determined by the Manager in good faith. “Distributable Cash” shall not be reduced by depreciation, amortization, cost recovery deductions or similar allowances (except to the extent cash is set aside to pay or establish a reserve for such items), but shall be increased by any reductions of reserves previously established under this
Section 1.12
.
1.13 “
Economic Interest
” means a Person’s right to share in the Profits, Losses, and similar items of, and to receive distributions from, the LLC, but does not include any other rights of a Member including, without limitation, the right to vote or to participate in the management of the LLC, or, except as specifically provided in this Agreement or required under the Act, any right to information concerning the business and affairs of the LLC.
1.14 “
Existing PPLB Debt
” means any and all obligations of the LLC and/or any of its controlled subsidiaries to PPLB, Versatile Entertainment, Inc. and/or BR to repay all amounts advanced, loaned or allocated to the LLC or its controlled subsidiaries, and any other indebtedness of the LLC or its controlled subsidiaries owing to PPLB, Versatile Entertainment, Inc. and/or BR, in each case existing as of the date hereof, and all rights of PPLB and/or BR with respect thereto. As of June 30, 2011, the Members acknowledge and agree that the outstanding amount of the Existing PPLB Debt equals $13,643,527.
1.15 “
LLC
” means William Rast Sourcing, LLC.
1.16 “
LLC Property
” means property of the LLC, including, without limitation, all real, personal, tangible or intangible property or any interests in such property.
1.17 “
Manager
” means Colin Dyne, or such other Person elected Manager of the LLC elected pursuant to
Article VI
.
1.18 “
Member
” means each Person who has been admitted to the LLC as a Member in accordance with the Articles and this Agreement (other than any Person who has transferred its entire Membership Interest in accordance with this Agreement).
1.19 “
Membership Interest
” means the entire ownership interest of a Member in the LLC at any particular time, including, collectively, his Economic Interest, any and all rights to vote and otherwise participate in the LLC’s affairs, and the rights to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement. A Membership Interest constitutes personal property. Membership Interests may be divided into such classes and such number of series as the Manager may determine from time to time in accordance with the terms hereof. As of the date of this Agreement, the LLC has authorized two classes of Membership Interests, designated respectively as “
Class A Membership Interests
” and “
Class B Membership Interests
.” Each class of Membership Interests has such rights, preferences, privileges and restrictions as set forth in this Agreement. The Class B Membership Interests shall be non-voting and shall have no rights to vote or participate in the management of the LLC except as may be required under the Act or otherwise expressly set forth herein. The term “Membership Interests” shall refer to the Class A Membership Interests and Class B Membership Interests, collectively.
1.20 “
Operations
” means the business of the LLC other than a Sale Transaction.
1.21 “
Percentage Interest
” means, with respect to a Member, the percentage amount set forth beside such Member’s name in the right-hand column of the table set forth in
Exhibit A
hereto.
1.22 “
Person
” means an individual, general partnership, limited partnership, other limited liability company, corporation, trust, estate, real estate investment trust and any other entity.
1.23
“PPLB”
means Peoples Liberation, Inc., a Delaware corporation.
1.24 “
PPLB Indebtedness
” means (i) the Existing PPLB Debt, and (ii) any indebtedness of the LLC or any of its controlled Affiliates incurred or issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace or discharge, the Existing PPLB Debt.
1.25 “
Profits and Losses
” means the profits and losses of the LLC, determined 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.
1.26 “
Sale Transaction
” shall have the meaning set forth in
Section 8.7.3
hereof.
1.27 “
Transfer
” shall mean, with respect to any interest in the LLC, (i) a sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest, hypothecation or other transfer or disposition by any other means, whether for value or no value, direct or indirect, and whether voluntary or involuntary (including, without limitation, by operation of law), or an agreement to do any of the foregoing, or (ii) any sale or other voluntary transfer, including by means of a merger or consolidation, or a series of related sales or voluntary transfers, aggregating more than 50% of the voting or equity interests of a Member.
1.28 “
TWR
” means Tennman WR-T, Inc., a Delaware corporation.
1.29 “
WRS License Agreement
” means that certain Trademark License Agreement, effective as of October 1, 2006, by and between the LLC and William Rast Licensing, LLC, as amended to date and as the same may be further amended or supplemented from time to time.
ARTICLE II - INTRODUCTORY MATTERS
2.1
Business of LLC.
The LLC shall be authorized to engage in any lawful act or activity for which a limited liability company may be organized under the Act. Initially, the purpose of the LLC shall be to design, source, market, distribute and sell apparel under the William Rast
®
brand pursuant to a license from the owner of such trademark.
2.2
Laws Governing the Agreement.
This Agreement is subject to, and governed by, the mandatory provisions of the Act and the Articles. In the event of a direct conflict between the provisions of this Agreement and the mandatory provisions of the Act or the provisions of the Articles, such provisions of the Act or the Articles, as the case may be, shall be controlling.
2.3
Term.
The term of the LLC began upon the due filing of the Articles and shall continue until such date as the LLC is terminated as provided herein.
2.4
Principal Place of Business.
The principal place of business of the LLC shall be at 1212 S. Flower St., 5th Floor, Los Angeles, CA 90015, or at such other place as the Manager shall from time to time determine.
2.5
Agent for Service of Process.
The agent for service of process for the LLC in California shall be National Registered Agents, Inc., or such other service firm or person as the Manager shall from time to time determine.
2.6
Required Maintenance of Records in California.
The LLC shall continuously maintain an office in the State of California which may, but need not be, its principal executive office, and at which it shall keep:
(a) A current list in alphabetical order of the full name and last known business address of each Member, and each holder of an Economic Interest, together with their respective Capital Contribution and Percentage Interest;
(b) A copy of the filed Articles, together with any powers of attorney pursuant to which the Articles or any amendments thereto were executed;
(c) Copies of the LLC’s federal, state and local income tax returns or information returns and reports, if any, for the six most recent taxable years or such short period as the LLC has been in existence;
(d) A copy of this Agreement, together with any powers of attorney pursuant to which this Agreement or any amendments thereto were executed;
(e) Copies of financial statements of the LLC for the six most recent taxable years or such short period as the LLC has been in existence; and
(f) The books and records of the LLC as they relate to its internal affairs as more particularly described in
Section 10.1
herein for at least the current and past four taxable years or such short period as the LLC has been in existence.
2.7
Records Subject to Inspection.
Records kept pursuant to
Section 2.6
are subject to inspection at the reasonable request of any Member (but not any assignee thereof who does not become a substitute Member, except such an assignee that has been approved by the Members) and its duly authorized representative during normal business hours. Copies of the records referenced in
Section 2.6
shall also be provided at the reasonable request and expense of any Member (but not any assignee thereof who does not become a substitute Member, except such an assignee that has been approved by the Members).
2.8
Foreign Qualification.
The officers shall cause the LLC to be qualified or registered under assumed or fictitious name statutes or similar laws in any other jurisdiction in which such qualification or registration is necessary or required to conduct the LLC’s business, except where the failure to do so would not have a material adverse effect on the LLC. The officers or other authorized representative 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, except where the failure to do so would not have a material adverse effect on the LLC.
2.9
Commencement of Operations
.
The operations of the LLC commenced as of October 1, 2006.
ARTICLE III - MEMBERS, CAPITAL CONTRIBUTIONS, ALLOCATIONS
3.1
Membership Interests, Capital Accounts and Percentage Interests.
Immediately following the execution and delivery of this Agreement and recapitalization of the Membership Interests as described in the recitals to this Agreement, the Membership Interests, Capital Accounts (Determined as of December 31, 2010) and Percentage Interests of each Member are as set forth on
Exhibit A
.
3.2
Interests.
In the event of dissolution of the LLC, no Member shall have an interest in specific LLC Property.
3.3
Status of Capital Contributions.
3.3.1 Except as otherwise provided in this Agreement, a Member’s Capital Contributions may be returned, in whole or in part, at any time upon the request of such Member, only with the approval of the Manager. In no way limiting any other provision of this Agreement, this
Section 3.3.1
shall not prohibit distributions otherwise authorized by this Agreement notwithstanding that such distributions may result in returns of Capital Contributions.
3.3.2 Notwithstanding the foregoing, no return of a Member’s Capital Contribution shall be made hereunder if such distribution would violate applicable law.
3.3.3 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.
3.3.4 Following the execution and delivery of this Agreement, no Member shall be required to make any additional capital contributions at any time to the LLC.
3.4
Capital Accounts.
3.4.1 An individual Capital Account shall be established and maintained for each Member. The original Capital Account established for any Member who acquires a Membership Interest by virtue of an assignment or transfer 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 Membership 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 Membership Interest (or made by any of such assignor’s predecessors in interest).
3.4.2 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 (as determined in good faith by the Manager) of any other property contributed by such Member to the capital of the LLC, such Member’s allocated 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 (as determined in good faith by the Manager) of any LLC Property distributed to such Member pursuant to any provision of this Agreement, such Member’s allocated 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 Manager may make such modification 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 Regulation.
3.5
Return of Capital Contributions.
The Manager 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 Manager or Members be required to pay to the LLC or any Member any deficit in any Member’s Capital Account upon dissolution or otherwise.
3.6
No Management
.
A Member shall not be an agent of the LLC, nor can a Member bind, nor execute any instrument on behalf of, the LLC. A Member shall not participate in the management of the business or affairs of the LLC and, except as provided in this Agreement, shall not have any voting, consent or approval rights.
ARTICLE IV – ADDITIONAL CAPTIAL CONTRIBUTIONS;
NEW MEMBERS
4.1
Additional Capital Contributions
.
No Member shall be required to make additional Capital Contributions to the LLC. The Members may make additional Capital Contributions to the LLC only with the approval of the Manager.
4.2
Admission of Additional Members
.
Additional Members may be admitted to the LLC from time to time only with the approval of the Manager, such additional Members to be issued Membership Interests in one or more classes or series, and upon such terms and conditions, and for such consideration, as shall be determined by the Manager. Except as otherwise provided hereunder, upon any such admission of any additional Members to the LLC, the Manager shall have the authority to adopt such amendments to this Agreement, and to execute and deliver such additional instruments and documents, as shall be necessary or appropriate in order to evidence or reflect the issuance of the same.
ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
5.1
Allocations of Profits and Losses.
The Profits and Losses of the LLC shall be allocated for each fiscal year (or any proportion thereof) as follows:
5.1.1 Profits from Operations (and all items thereof) for each Fiscal Year shall be allocated to the Class A Members.
5.1.2 Losses (and all items thereof) for each Fiscal Year (including Losses from a Sale Transaction) shall be allocated (i) first, among the Members having a positive Capital Account balance in accordance with their relative Percentage Interests until each Member’s Capital Account balance is reduced to zero, (ii) to the Members who bear the economic risk of loss for the expenses or deductions giving rise to the Losses or items thereof and (iii) any remaining Losses or items thereof among the Members in accordance with their relative Percentage Interests.
5.1.3 Profits (or items thereof) from a Sale Transaction shall be allocated among the Members pro rata in accordance with their respective Membership Interests as set forth on
Exhibit A
.
5.2
Time of Allocation.
All allocations of Profits and Losses made pursuant to
Section 5.1
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 Percentage Interest attributable to their Membership Interests 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 the owner of such interest or in such other manner as the Manager deems appropriate in accordance with the requirements of the Code and of Treasury Regulations issued pursuant thereto.
5.3
Distributions of Cash.
5.3.1 From time to time, at the sole discretion of the Manager, the LLC shall distribute all Distributable Cash from Operations, or any portion thereof, solely to the Class A Members pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other. Class B Members shall not be entitled to receive any distributions of Distributable Cash from Operations.
5.3.2 The LLC shall distribute to the Class B Members that portion of the Distributable Cash from a Sale Transaction specifically described in
Section 8.7
of this Agreement to be distributed to the Class B Members, pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other, and the LLC shall distribute to the Class A Members that portion of the Distributable Cash from a Sale Transaction not distributed or required to be distributed to the Class B Members pursuant to
Section 8.7
of this Agreement, pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other.
5.4
Limitations on Distributions.
Anything contained herein to the contrary notwithstanding, the LLC shall not make a distribution to any Member on account of its Membership Interest if such distribution would violate the Act or other applicable law or any restrictions in any of the LLC’s loan agreements. In addition, notwithstanding anything contained herein to the contrary, the LLC shall not consummate a Sale Transaction unless the Class B Members will receive a Liquidating Payment in accordance with
Section 8.7
hereof.
5.5
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.
5.6
Tax Allocations; Section 704(c) of the Code; Special Allocations.
5.6.1 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.
5.6.2 The Members acknowledge that the Code may require allocations of Profits, Losses, or items thereof in a manner which varies from the general provisions of
Section 5.1
, including allocations in respect of such matters known as “minimum gain chargeback,” “qualified income offset,” “gross income allocation,” “nonrecourse deductions,” “Section 754 adjustments,” “Section 704(c)” provisions relating to any property which may be contributed to the LLC, and items relating to the issuance of Membership Interests. The Manager is authorized and directed to make such allocations as may be required by the Code (which are incorporated by this reference as if fully set forth herein), and also to make any offsetting allocations otherwise permissible under the Code so that the foregoing required allocations do not adversely affect the intended pattern of distributions under
Section 5.3
, in each case upon advice or consultation with the LLC’s regularly retained accountant.
5.6.3 Any elections or other decisions relating to such allocations shall be made by the Manager in any manner that reasonably reflects the purpose and intent of this Agreement.
5.6.4 The Manager 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 a Membership Interest described in Section 743 of the Code. In the event that any Member requests to make any such election, the Manager may require the Member so benefited thereby to pay the additional annual accounting costs incurred as a result of making such election.
5.7
Allocation of Net Income and Net Loss for Financial Reporting Purposes.
The Members acknowledge and agree that, for purposes of the preparation of the financial statements of PPLB under generally accepted accounting principles (“
GAAP
”), it is their intention that PPLB will be entitled to consolidate the Company’s financial results with the financial results of PPLB and its other consolidated subsidiaries, and that BR and, through consolidation, PPLB shall be entitled to report 100% of the Company’s net income or net loss (as determined under GAAP) from Operations for all periods on PPLB’s financial statements without including thereon any allocation of net income or net loss to the Class B Members in respect of their Class B Membership Interests, on the basis that BR, as the sole Class A Member, is entitled to 100% of Profits from Operations and 100% of Distributable Cash from Operations, and that TWR, as the sole Class B Member, is only entitled to a portion of Profits from a Sale Transaction and a portion of Distributable Cash from a Sale Transaction.
ARTICLE VI - MANAGEMENT OF THE LLC,
CONTROL OF THE BUSINESS, OFFICERS
6.1
Governance of the LLC and Election of the Manager.
6.1.1
Governance of the LLC by the Manager
. All powers of the LLC shall be exercised under the authority of, and the business and affairs of the LLC shall be under the direction of, the Manager, unless otherwise provided in the Act, the Articles, or this Agreement. A Member shall not participate in the day-to-day operation of the business affairs of the LLC. A Manager need not be a Member.
6.1.2
Election of the Managers by the Members; Term
. The Manager of the LLC shall be Colin Dyne. The Manager shall serve until the earliest of (i) the appointment of a different Manager by BR, or (ii) the date upon which such Manager resigns, dies or becomes disabled and unable to serve, whereupon BR shall be entitled to elect a successor. A Manager may resign at any time upon written notice to the LLC.
6.1.3
Acknowledgement
. TWR acknowledges and agrees that, notwithstanding the parties’ relative Percentage Interests in the LLC, and subject to the explicit terms of this Agreement, including
Section 6.2
hereof, BR shall have the exclusive right to appoint the Manager of the LLC and thus, indirectly through the appointment of such Manager, to manage and control the LLC and its operations. Any amendment to this
ARTICLE VI
shall, in addition to the other approvals set forth herein, require the approval BR.
6.2
Powers of the Manager
.
The Manager shall have all necessary powers of direction and control to carry out, through the officers, the purposes, business, and objectives of the LLC, including, but not limited to, the right to direct the officers of the LLC to enter into and carry out contracts of all kinds; to employ employees, agents, consultants and advisors on behalf of the LLC; to lend or borrow money and to issue evidences of indebtedness; to bring and defend actions in law or at equity; and to buy, own, manage, sell, lease, mortgage, pledge or otherwise acquire or dispose of the LLC property. The Manager may, on behalf of the LLC, enter into contracts with Affiliates; provided, however, such contracts are on the same terms and conditions that would be available from an independent responsible third party that is willing to perform the requested service.
6.3
Contractual Authority
.
Only the Manager or those officers of the LLC and/or any other individuals associated with the LLC who have been given authority by the Manager to do so may execute on behalf of the LLC any note, mortgage, evidence of indebtedness, contract, certificate, statement, conveyance, or other instrument in writing, or any assignment or endorsement thereof. Any person dealing with the LLC or the Manager may rely upon a certificate signed by the Manager as to (a) the identity of the Manager or any other Member of the LLC, (b) the persons who are authorized to execute and deliver any instrument or document for or on behalf of the LLC or (c) any act or failure to act by the LLC or as to any other matter whatsoever involving the LLC or any Member.
6.4
Officers.
The Manager may appoint a chief executive officer, a president, a secretary, a chief financial officer, and such other officers of the LLC as appropriate, each of whom shall hold office for such period, have such authority and perform such duties as the Manager determines.
6.5
Limitations on Liability of the Managers and Officers.
The Manager and officers shall not be liable to the LLC or Members for any loss or damage resulting from any mistake of fact or judgment or any act or failure to act unless the mistake, act or failure to act results directly from fraud, willful misconduct or gross negligence. The Manager and officers shall be indemnified pursuant to
Article XII
hereof.
6.6
Other Activities of the Members and Manager Permitted.
The Members and the Manager and their respective Affiliates may engage or invest, independently or with others, in any business activity of any type or description, including without limitation those that might be the same as or similar to the LLC’s business and that might be in direct or indirect competition with the LLC. Neither the Members nor the Manager shall be obligated to present any investment opportunity or prospective economic advantage to the LLC, even if the opportunity is of a character that, if presented to the LLC, could be taken by the LLC. The Members and the Manager shall have the right to hold any investment opportunity or prospective economic advantage for their own account or to recommend such opportunity to Persons other than the LLC. Neither the LLC nor any other Member or Manager, as the case may be, shall have any right in or to such other venture or activities or opportunities or to the income or proceeds derived therefrom. Each Member and Manager acknowledges that the other Members and Manger and their respective Affiliates own and/or manage other businesses, including businesses that may compete with the LLC and for the Members’ and/or the Manager’s time. Each Member and each Manager hereby waives any and all rights and claims which he may otherwise have against the other Members and/or Manager, as the case may be, and their respective Affiliates as a result of any of such activities.
6.7
Devotion of Time.
The Manager is not obligated to devote all of his time or business efforts to the affairs of the LLC. The Manager shall devote whatever time, effort, and skill as he deems appropriate for the operation of the LLC.
6.8
Class B Member Consent Rights.
Until such time as the Class B Members have received all of the Aggregate Sales Proceeds to which they are entitled in accordance with Section 8.7 of this Agreement, the Company shall not, without obtaining the prior written approval of the holders of a majority-in-interest of the Percentage Interests held by the Class B Members:
6.8.1 engage in any business or activity other than that for which the LLC was formed and has historically conducted;
6.8.2 take any action to amend, alter, or repeal Section 6.8 or Section 8.7 of this Agreement;
6.8.3 admit any additional Class B Members;
6.8.4 create any new Membership Interests or modify the terms of any existing Membership Interests in a manner that reasonably could be expected to adversely affect the rights of the Class B Members; or
6.8.5 enter into any transaction for the sale of assets of the LLC not in the ordinary course of its business which does not constitute a Sale Transaction.
ARTICLE VII – MEETINGS OF MEMBERS & INFORMATION RIGHTS
7.1
Meeting of Members
.
The Members are not required to hold meetings. Decisions may be reached by a written consent signed by the requisite Members. In the event that the Members desire to hold a meeting, formal notice of the meeting shall not be required. The Members may participate in the meeting through the use of a conference telephone or similar communications equipment, provided that all Members participating in the meeting can hear one another. The Members shall keep or cause to be kept with the books and records of the LLC full and accurate minutes of all meetings, notices of meetings, when given, and all written consent in lieu of meetings.
7.2
Reports
.
The Manager will prepare and provide the Class B Members with (i) within forty-five (45) days after the end of each fiscal quarter, unaudited financial statements of the LLC, including a balance sheet, income statement, a statement of cash flow, and a statement of profit or loss for the fiscal quarter then ended; and (ii) within ninety (90) days after the end of each fiscal year, unaudited financial statements of the LLC, including a balance sheet, statement of operations, and a statement of cash flow for the fiscal year then-ended.
ARTICLE VIII - TRANSFER AND ASSIGNMENT OF MEMBERSHIP INTERESTS,
ECONOMIC INTERESTS AND RIGHTS
8.1
Transfers
.
Except for Permitted Transfers (as defined below), no Member may Transfer (directly or indirectly) all or any portion of such Member’s Membership Interests (or any beneficial interests therein) to any other Person except with the approval of the Manager, which approval may be given or withheld as the Manager may determine in his sole discretion. Any purported Transfer which is not in accordance with this Agreement shall be null and void and of no effect. After the consummation of any Transfer of any part of a Member’s Membership Interests, the Membership Interests so Transferred shall continue to be subject to the terms and conditions of this Agreement and any further Transfers shall be required to comply with all of the terms and provisions of this Agreement.
8.2
Substitution of Members
.
A transferee of any Membership Interests properly Transferred hereunder shall have the right to become a substitute Member only if such transferee executes an instrument satisfactory to the Manager accepting and adopting the terms and provisions of this Agreement, and such transferee pays any reasonable expenses in connection with his, her or its admission as a substitute Member (as requested by the Manager). The admission of a substitute Member shall not result in the release of the Member who assigned the membership interest in the LLC from any liability that such Member may have to the LLC unless the substitute Member expressly agrees in writing to assume such liability.
8.3
Permitted Transfers
.
For purposes of this Agreement, the term “
Permitted Transfer
” shall mean a transfer by a Member of all or any portion of such Member’s Membership Interests in the LLC (i) (A) to a trust for the benefit of the transferor and/or his or her family members, provided that such trust is, during the transferor’s lifetime, controlled by the transferor, or (B) as an estate planning transfer to an entity over which the transferor retains voting control, (ii) to an Affiliate of such Member, or (iii) in the case of any transfer by a permitted transferee described in (i) or (ii), above, back to the original transferor Member thereof,. Notwithstanding the foregoing, in no event shall a putative Transfer constitute a “Permitted Transfer” unless and to the extent that (i) the other Members are notified of the material terms concerning such transfer prior thereto (including, but not limited to, the would-be transferee and the consideration to be received therefor) and (ii) the would-be transferee agrees in writing to be bound by the provisions of all agreements applicable to the Membership Interests to be transferred (including, without limitation, a joinder to this Agreement).
8.4
Additional Transfer Restrictions
.
Notwithstanding anything herein to the contrary, no Member may, without the prior written consent of the Manager, Transfer all or any portion of its Membership Interests to the extent such Transfer (a) would violate any applicable securities laws, or (b) would cause a termination of the LLC for federal income tax purposes.
8.5
Enforcement of Transfer Restrictions
.
The restrictions on Transfer contained in this Agreement are an essential element in the ownership of Membership Interests. Upon application to any court of competent jurisdiction, the LLC and/or a Member, as the case may be, shall be entitled to a decree against any Person violating or about to violate such restrictions, requiring their specific performance, including those prohibiting a Transfer of all or a portion of such Membership Interests.
8.6
Mandatory Co-Sale.
8.6.1
Right of Mandatory Co-Sale
. One or more Members holding Membership Interests representing a majority of the Percentage Interests in the LLC who propose to sell all of their respective Membership Interests to any Person which is not an Affiliate of the LLC or BR in a bona fide, arms-length transaction (the “
Selling Members
”), upon delivery of a written notice of the proposed sale (the “
Drag Along Notice
”) to the other Members, shall have the right (the “
Mandatory Co-Sale Right
”) to require all, but not less than all, of the other Members to sell, or to cause to be sold, all, but not less than all, of the Membership Interests owned by such other Members upon the Offered Terms and Conditions (as defined below). The Drag Along Notice shall contain a description of the proposed transaction and the terms thereof, the name of the proposed transferee, the price at which the Membership Interests are to be sold and the terms of payment and the other terms and conditions to the proposed sale (the “
Offered Terms and Conditions
”), which such Offered Terms and Conditions shall provide for the aggregate payment to the Class B Members at the closing of an amount at least equal to the amount of the Liquidating Payment that would have been required to be paid pursuant to
Sections 8.7.2 and 8.7.4(c)
in the event the sale pursuant to this
Section 8.6.1
constituted a “Sale Transaction” as defined by clause (iii) of
Section 8.7.3
.
8.6.2
Participation in Mandatory Co-Sale
. At the closing of the transfer, the other Members who have received notice of the exercise of the Mandatory Co-Sale Right must provide for sale to the transferee, free and clear of all liens and rights of third parties, the Interests which the other Member has been notified are subject to the Mandatory Co-Sale Right. The other Members agree to make such representations and warranties regarding the LLC and its subsidiaries and their respective ownership of Membership Interests as the Selling Members may be required to make to the transferee,
provided
, such representations and warranties shall be reasonably acceptable to the other Members and
provided
,
further
, that each of the other Members’ respective liabilities for breach of such representations and warranties shall be limited to such other Members’ proceeds of the sale of their respective Membership Interests pursuant to the Mandatory Co-Sale Right, and
provided
,
further
, that if any such other Member is not involved in the business of the LLC and its Percentage Interest is less than 20%, the Selling Members shall use commercially reasonable efforts to ensure that any representations or warranties that such other Member is required to make to the transferee shall be limited to such Member’s title to the its Membership Interest and its authority to enter into the relevant sales agreement and perform its obligations thereunder. Notwithstanding the foregoing, in the event that the LLC is in breach of any of its representations and warranties regarding itself and its subsidiaries that it may be required to make in connection with such transfer, each of the Members’ respective liability for breach of such representations and warranties shall be shared on a pro-rata basis based on their respective Percentage Interests or shall be satisfied by a reduction in the price at which the Membership Interests are sold to the transferee.
8.7
Redemption of Class B Membership Interests; Liquidating Payment.
8.7.1
Redemption
. Upon a Sale Transaction, the LLC shall redeem and purchase from the Class B Members, and the Class B Members hereby agree to sell to the LLC, 100% of the Membership Interest of the LLC owned by the Class B Members (the “
Redeemed Securities
”), for the consideration provided herein. Without any further action by the LLC or the Members, effective as of the date of any Sale Transaction, the LLC shall cancel the Redeemed Securities which shall cease to be outstanding. The Class B Members and the LLC shall execute and deliver any documents and other papers and perform any further acts as may be reasonably required or desirable to carry out the provisions of this
Section 8.7
and the transactions contemplated hereby, including, without limitation, the execution and delivery of such endorsements, assignments and other good and sufficient instruments of conveyance, transfer and assignment as shall be necessary to vest in the LLC good title in and to the Redeemed Securities.
8.7.2
Amount of Payment
. In connection with a Sale Transaction, the LLC shall redeem the Membership Interest of the LLC owned by the Class B Members and shall pay or otherwise cause to be paid to the Class B Members an amount (the “
Liquidating Payment
”) equal to, in the aggregate, eighteen percent (18%) (which percentage shall not be subject to dilution or reduction without the consent of the Class B Members) of the Aggregate Sales Proceeds (defined below) for such Sale Transaction.
8.7.3
Sale Transaction
. For purposes hereof, a “
Sale Transaction
” shall mean the earliest to occur of (i) the voluntary or involuntary liquidation, dissolution or winding up of the LLC followed by the LLC’s distribution to holders of its Membership Interests of amounts to which such holders are entitled in respect of such interests as a result of the liquidation, dissolution or winding up of the LLC; (ii) the sale of all or substantially all of the assets of the LLC in one transaction or a series of related transactions to any Person which is not an Affiliate of the LLC or BR in a bona fide, arms-length transaction; and (iii) the acquisition of the LLC by any person or entity which is not an Affiliate of the LLC or BR in a bona fide, arms-length transaction by means of merger, consolidation, share exchange, reorganization, equity purchase or otherwise pursuant to which equity interests of the LLC are converted into or exchanged for cash, securities or other property of the acquiring entity or any of its affiliates and which results in the holders of the voting securities (excluding shares of the surviving entity held by holders of equity interests of the LLC acquired by means other than the exchange or conversion of the capital stock of the LLC for shares of the surviving entity) of the LLC immediately prior to such merger, consolidation, share exchange, reorganization or other transaction beneficially owning, directly or indirectly, less than a majority of the combined voting power of the surviving entity resulting from such merger, consolidation, share exchange, reorganization or other transaction.
8.7.4
Aggregate Sales Proceeds
. For purposes hereof, “
Aggregate Sales Proceeds
” shall be determined as follows:
(a)
Dissolution
. In connection with a Sale Transaction described in clause (i) of the definition thereof, the “Aggregate Sales Proceeds” shall be an amount equal to the total amount of cash and other property to be distributed by the LLC, as applicable, to holders of Membership Interests as a result of the liquidation, dissolution or winding up of the LLC. It is understood and agreed that for purposes of calculating Aggregate Sales Proceeds hereunder, in the event of a Sale Transaction described in clause (i) of the definition thereof, no PPLB Indebtedness shall be considered in such calculation. For clarity, and without limiting the foregoing, it is the intent of the parties that the amount of the Liquidating Payment in a Sale Transaction described in clause (i) of the definition thereof be made to the Class B Members shall be determined as if the PPLB Indebtedness does not exist at the time of such sale to reduce the Aggregate Sales Proceeds thereof.
(b)
Asset Sale
. In connection with a Sale Transaction described in clause (ii) of the definition thereof, the “Aggregate Sales Proceeds” shall be an amount equal to the sum of (A) the total amount of cash and other property actually received by the LLC in consideration of the assets sold in such Sale Transaction and (B) the amount of PPLB Indebtedness assumed by the buyer in such transaction.
(c)
LLC Acquisition
. In connection with a Sale Transaction described in clause (iii) of the definition thereof, the “Aggregate Sales Proceeds” shall be an amount equal to the sum of (A) the total amount of cash and other property actually received by holders of equity interests of the LLC in consideration for their equity interests in the LLC and (B) the amount of PPLB Indebtedness that remains outstanding and payable by the LLC or is otherwise assumed by the buyer in such transaction.
8.7.5
Intentionally Omitted
.
8.7.6
Timing and Form of Payment
. In the event of a Sale Transaction, the LLC shall pay or cause to be paid to the Class B Members a Liquidating Payment no later than five (5) business days following the date the Aggregate Sales Proceeds are paid to the LLC or distributed by the LLC to its equity holders other than the Class B Members. The Liquidating Payment shall be paid to the Class B Members in the same form of consideration (e.g., cash, securities and/or other property) received by the LLC in such Sale Transaction.
8.7.7
Conforming Agreements from the Class B Members
. The Class B Members shall cooperate with the LLC, the Members and buyer in any Sale Transaction in all reasonable respects, and shall execute and deliver any documents and other papers and perform any further acts as may be reasonably required or desirable to (i) evidence the redemption of the Redeemed Securities upon the payment of a Liquidating Payment by each of the LLC or an agreement by each of the LLC to make a Liquidating Payment, and (ii) facilitate the payment to the Class B Members of a Liquidating Payment, including, without limitation, making such investment representations and warranties of the Class B Members as may be necessary for buyer’s delivery of securities to the Class B Members in a transaction which is exempt from registration under Section 5 of the Securities Act of 1933, as amended. Notwithstanding the foregoing, the Class B Members shall not be required to make or provide any representations, warranties, covenants or indemnities about or with respect to the business of the LLC, as applicable, with respect to any competitive restrictions, provide any licenses to any intellectual property or provide any covenants with respect to any performance obligations. The Class B Members shall be subject to post-closing purchase price adjustments, escrow terms, offset rights and holdback terms applicable to equity holders of the LLC as applicable.
ARTICLE IX - DISSOLUTION AND WINDING UP
9.1
Conditions of Dissolution.
Subject to the rights of the Class B Members to receive the Liquidating Payment under Section 8.7 of this Agreement, the LLC shall be dissolved, its assets shall be disposed of, and its affairs wound up on the first to occur of the following:
(a) a determination by Members having an aggregate Percentage Interest greater than fifty-percent (50%) that the LLC shall be dissolved and wound up;
(b) the sale of all or substantially all of the assets of the LLC;
(c) the entry of a decree of judicial dissolution by a court of competent jurisdiction providing for the dissolution of the LLC; or
(d) the occurrence of any other event which causes the dissolution of the LLC by operation of law.
9.2
Order of Payment of Liabilities Upon Dissolution.
Upon dissolution, the LLC’s liabilities shall be settled in the following order, as required by the Act:
(a) to creditors other than Members, in the order of priority as provided by law;
(b) to the Class B Members, any Liquidating Payment as provided by
Section 8.7
, pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other;
(c) to creditors who are Members; and
(d) solely to the Class A Members pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other.
9.3
Limitations on Payments Made on Dissolution.
Except as otherwise specifically provided in this Agreement, each Member shall be entitled to look solely at the assets of the LLC for the return of his positive adjusted Capital Account balance.
9.4
Liquidation.
Upon the dissolution of the LLC, the assets of the LLC shall be liquidated as promptly as shall be practicable. Upon any such liquidation, the LLC shall comply with the terms of
Section 8.7
of this Agreement to the extent applicable.
9.5
Termination of Covenants
.
Upon dissolution and winding up of the LLC, this Agreement, including, without limitation, all covenants of the parties hereto contained herein, shall terminate.
ARTICLE X - BOOKS AND RECORDS, FISCAL YEAR
There shall be maintained and kept at all times during the continuation of the LLC, proper and usual books of account in accordance with generally accepted principles of accounting consistently applied and which shall accurately reflect the condition of the LLC and shall account for all matters concerning the management thereof; which books shall be maintained and kept at the principal office of the LLC or at such other place or places as the Manager may from time to time determine. The LLC’s books and records shall be maintained on the basis selected by the Manager. The fiscal year of the LLC shall commence January 1 and terminate on December 31 of the same calendar year.
ARTICLE XI - TAX MATTERS
BR 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. 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 XII - INDEMNIFICATION
12.1
Liability of Members.
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.
12.2
Liability of Manager and Officers.
The Manager and the officers shall not be liable, in damages or otherwise, to the LLC or any Member for any act or failure to act by the Managers or the officers which act was within the scope of the authority conferred on the Manager or the officers by this Agreement, as applicable, unless such act or omission constituted fraud, willful misconduct or gross negligence. The Manager and the officers 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 the Manager or any officer 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, willful misconduct or gross negligence.
12.3
Exculpation.
12.3.1 No Covered Person shall be liable to the LLC 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, in good faith 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, willful misconduct, breach of this Agreement or gross negligence.
12.3.2 A Covered Person shall be fully protected in reasonably 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.
12.4
Fiduciary Duty; Waiver.
12.4.1 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.
12.4.2 In accordance with Section 17005(d) of the Act, the Members hereby waive any and all fiduciary duties of the Manager to the LLC and to the Members of the LLC as may otherwise be provided by Section 17153 of the Act.
12.4.3 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 or a breach of this Agreement by the Covered Person, the resolution, action or terms so made, taken or provided by the Covered Person shall not constitute a breach of any duty or obligation of the Covered Person at law or in equity or otherwise.
12.5
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, 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 fraud, willful misconduct or gross negligence with respect to such acts or omissions or (b) in breach of the Agreement;
provided
,
however
, that any indemnity under this
Section 12.5
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.
12.6
Indemnification Procedure.
Any person asserting a right to indemnification under
Section 12.5
hereof shall so notify the Manager, in writing pursuant to the notice requirements of
Section 14.11
hereof. With respect to those claims governed by
Section 12.5
hereof, the Manager 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.
12.7
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 12.5
hereof.
ARTICLE XIII - REQUIRED ARBITRATION OF DISPUTES
Any dispute, claim, controversy or action (collectively “
Dispute
”) arising directly or indirectly out of or in any way relating to this Agreement shall be administered and fully and finally resolved before JAMS in Los Angeles, California, pursuant to its Comprehensive Arbitration Rules and Procedures in accordance with the provisions set forth below:
13.1
Reference; Rules and Procedures.
Such dispute shall be resolved by a single arbitrator appointed in accordance with said Rules and Procedures. The Members consent that any process or notice of motion or other application to any court, and any paper in connection with arbitration, may be served by certified mail, return receipt requested or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed. Pending the arbitration award, the Members shall have all rights to provisional remedies which they would have at law or equity, notwithstanding the existence of this agreement to arbitrate. The arbitrators shall have no power to alter or modify any express provision of this Agreement (all of which provisions are hereby incorporated by reference into this arbitration provision) or to render an award which has the effect of altering or modifying any express provision hereof, provided, however, that any application for reformation of the contract shall be made to the arbitrators and not to any court and the arbitrators shall be empowered to determine whether valid grounds for reformation exist.
13.2
Confidentiality.
The Members shall maintain the confidential nature of the arbitration proceeding and any award, including the hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a court application for a preliminary remedy, a judicial challenge to an award or its enforcement, or unless otherwise required by law or judicial decision. To the extent that any Member seeks injunctive or other preliminary relief, a stay or provisional remedy, confirmation of an award or any other judicial intervention, that Member shall use its best effort to have any such submission filed under seal, and to ensure that any related documents shall be designated and treated as a “Sealed Document.” To the extent the court permits such sealing, all papers and documents filed under seal shall be filed in sealed envelopes and shall remain under seal until such time as the court, or any court of competent jurisdiction, orders otherwise. Such Sealed Documents shall be identified with the caption of this action and a general description of the sealed contents, and shall bear the following statement which should also appear on the sealed envelope:
“CONFIDENTIAL - SUBJECT TO PROTECTIVE ORDER
Contents are confidential and are subject to a court ordered protective
order governing the use and dissemination of such contents.”
The clerk of the court shall maintain such Sealed Documents separate from the public records, intact and unopened except as otherwise directed by the court. Such Sealed Documents shall be released by the clerk of the court only upon further order of the court.
ARTICLE XIV - MISCELLANEOUS
14.1
Law Governing.
This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely therein.
14.2
Complete Agreement.
This Agreement and the Articles constitute the complete and exclusive statement of agreement among Members relating to the LLC. This Agreement and the Articles supersede all prior written and oral statements and agreements by and among Members and no representation, statement, or condition or warranty not contained in this Agreement or the Articles will be binding on the Members or have any force or effect whatsoever.
14.3
Binding Effect.
Subject to the provisions of this Agreement and the Act relating to transferability, this Agreement shall be binding and inure to the benefit of Members, and their respective executors, administrators, heirs, successors and permitted assigns.
14.4
No Third Party Beneficiary.
This Agreement is made solely and specifically among and for the benefit for the LLC and the parties hereto, and their respective successors and permitted assigns subject to the express provisions hereof relating to successors and permitted assigns, and no other Person will have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. This Agreement is not intended for the benefit of a creditor who is not a Member and does not grant any rights to or confer any benefits on any Person who is not a Member, Manager, officer, or agent of the LLC.
14.5
Gender and Number in Nouns and Pronouns.
Common nouns and pronouns will be deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the person or persons, firm or corporation may in the context require. The singular shall include the plural and the masculine gender shall include the feminine and neuter, and vice versa, as the context requires. Any reference to the Code, the Act, or statutes or laws will include all amendments, modifications, or replacements of the specific sections and provisions concerned.
14.6
Headings.
All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement.
14.7
References in This Agreement.
Numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly stated.
14.8
Exhibits.
All Exhibits attached to this Agreement are incorporated and shall be treated as if set forth herein.
14.9
Severability.
If any provision of this Agreement is held to be illegal, invalid, or unenforceable under the present or future laws effective during the term of this Agreement, such provision will be fully severable. This Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.
14.10
Additional Documents and Acts.
Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby.
14.11
Notices.
In order to be effective all notices, consents, approvals, disapprovals and other communications (“
Notices
”) required or permitted by this Agreement must be in writing and either (a) sent by telegram or telecopy (or similar facsimile), or (b) placed in the United States mail, certified with return receipt requested, properly addressed and with the full postage prepaid, or (c) personally delivered, and in all cases other than telegram or telecopy (or similar facsimile), signed. Notice shall be deemed received and effective on the earliest of (x) the date actually received, or (y) two business days after being mailed as aforesaid, or (z) 24 hours after being sent by telegram or telecopy (or similar facsimile). Each Member’s address, telephone number and facsimile number for the purpose of receiving Notice is set forth on
Exhibit A
hereto. Any Member may change its address, telephone number or facsimile number for Notice purposes by giving Notice in the manner described in this
Section 14.11
, provided that such change of address shall not be effective until 10 days after notice of the change.
14.12
Amendments.
14.12.1 In addition to amendments specifically authorized herein, but subject to Section 6.8 hereof, any and all amendments to this Agreement may be made from time to time only by agreement of the Class A Members having an aggregate Percentage Interest greater than fifty percent (50%) of the aggregate Percentage Interests held by the Class A Members.
14.12.2 In addition to other amendments authorized herein, amendments may be made to this Agreement from time to time by the Manager, without the consent of any Member: (a) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement that are not inconsistent with the provisions of this Agreement; (b) to delete or add any provision of this Agreement required to be so deleted or added by any federal or state official, which addition or deletion is deemed by such official to be for the benefit or protection of all of the Members; and (c) to take such actions as may be necessary (if any) to insure that the LLC will be treated as a partnership for federal income tax purposes.
14.12.3 In making any amendments, there shall be prepared and filed by, or for, all of the Members or the Managers, as the case may be, such documents and certificates as may be required under the Act and under the laws of any other jurisdiction applicable to the LLC.
14.13
Multiple Counterparts.
This Agreement may be executed in several counterparts, each of which will be deemed an original but all of which will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Second Amended and Restated Operating Agreement to be effective as of October 1, 2011.
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BELLA ROSE, LLC
, a
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|
California limited liability company
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|
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By:
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PEOPLE’S LIBERATION, INC.
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Its:
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Sole Member
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By:
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/s/ Colin Dyne
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Colin Dyne,
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Its:
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Chief Executive Officer
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TENNMAN WR-T, INC.
, a
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Delaware corporation
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By:
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/s/ Justin Timberlake
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Name:
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Its:
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EXHIBIT A
WILLIAM RAST SOURCING, LLC
Members’ Names, Addresses and Interests
Member’s Name
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Member’s Address
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Member’s
Capital
Account*
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Class of
Membership
Interest
|
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Member’s
Percentage
Interest
|
|
|
|
|
|
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Bella Rose, LLC
|
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c/o People’s Liberation, Inc.
150 West Jefferson Blvd.
Los Angeles, CA 90007
Attn: Colin Dyne
|
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$
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(7,567,186
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)
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Class A
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82
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%
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Tennman WR-T, Inc.
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c/o Al Gossett
1900 Covington Pike
Memphis, TN 38128
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$
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0
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Class B
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18
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%
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|
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TOTAL
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$
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(7,567,186
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)
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100.0
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%
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* Determined as of December 31, 2010.
EXECUTION COPY
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT OF
WILLIAM RAST LICENSING, LLC
Effective As of October 1, 2011
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS OF TERMS
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1
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ARTICLE II - INTRODUCTORY MATTERS
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4
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2.1
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Business of LLC
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4
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2.2
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Laws Governing the Agreement
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4
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2.3
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Term
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4
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2.4
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Principal Place of Business
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4
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2.5
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Agent for Service of Process
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5
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2.6
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Required Maintenance of Records in California
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5
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2.7
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Records Subject to Inspection
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5
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2.8
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Foreign Qualification
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5
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2.9
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Commencement of Operations
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6
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ARTICLE III - MEMBERS, CAPITAL CONTRIBUTIONS, ALLOCATIONS
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6
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3.1
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Membership Interests, Capital Accounts and Percentage Interests
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6
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3.2
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Interests
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6
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3.3
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Status of Capital Contributions
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6
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3.4
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Capital Accounts
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6
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3.5
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Return of Capital Contributions
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7
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3.6
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No Management
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7
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ARTICLE IV – ADDITIONAL CAPTIAL CONTRIBUTIONS; NEW MEMBERS
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7
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4.1
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Additional Capital Contributions
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7
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4.2
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Admission of Additional Members
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7
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ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
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8
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5.1
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Allocations of Profits and Losses
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8
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5.2
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Time of Allocation
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8
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5.3
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Distributions of Cash
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8
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5.4
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Limitations on Distributions
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8
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5.5
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Amounts Withheld
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9
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5.6
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Tax Allocations; Section 704(c) of the Code; Special Allocations
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9
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5.7
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Allocation of Net Income and Net Loss for Financial Reporting Purposes
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9
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ARTICLE VI - MANAGEMENT OF THE LLC, CONTROL OF THE BUSINESS, OFFICERS
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10
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6.1
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Governance of the LLC and Election of the Manager
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10
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6.2
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Powers of the Manager
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10
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6.3
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Contractual Authority
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10
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6.4
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Officers
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11
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6.5
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Limitations on Liability of the Managers and Officers
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11
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6.6
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Other Activities of the Members and Manager Permitted
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11
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6.7
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Devotion of Time
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11
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6.8
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Class B Member Consent Rights
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11
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ARTICLE VII – MEETINGS OF MEMBERS & INFORMATION RIGHTS
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12
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7.1
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Meeting of Members
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12
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7.2
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Reports
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12
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ARTICLE VIII - TRANSFER AND ASSIGNMENT OF MEMBERSHIP INTERESTS, ECONOMIC INTERESTS AND RIGHTS
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12
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8.1
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Transfers
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12
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8.2
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Substitution of Members
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12
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8.3
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Permitted Transfers
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13
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8.4
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Additional Transfer Restrictions
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13
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8.5
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Enforcement of Transfer Restrictions
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13
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8.6
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Mandatory Co-Sale
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13
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8.7
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Redemption of Class B Membership Interests; Liquidating Payment
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14
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ARTICLE IX - DISSOLUTION AND WINDING UP
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16
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9.1
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Conditions of Dissolution
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16
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9.2
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Order of Payment of Liabilities Upon Dissolution
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16
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9.3
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Limitations on Payments Made on Dissolution
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16
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9.4
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Liquidation
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16
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9.5
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Termination of Covenants
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17
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ARTICLE X - BOOKS AND RECORDS, FISCAL YEAR
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17
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ARTICLE XI - TAX MATTERS
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17
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ARTICLE XII - INDEMNIFICATION
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17
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12.1
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Liability of Members
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17
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12.2
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Liability of Manager and Officers
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17
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12.3
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Exculpation
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17
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12.4
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Fiduciary Duty; Waiver
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18
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12.5
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Indemnification by the LLC
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18
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12.6
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Indemnification Procedure
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18
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12.7
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Expenses
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19
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ARTICLE XIII - REQUIRED ARBITRATION OF DISPUTES
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19
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13.1
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Reference; Rules and Procedures
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19
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13.2
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Confidentiality
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19
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ARTICLE XIV - MISCELLANEOUS
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20
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14.1
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Law Governing
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20
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14.2
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Complete Agreement
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20
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14.3
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Binding Effect
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20
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14.4
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No Third Party Beneficiary
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20
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14.5
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Gender and Number in Nouns and Pronouns
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20
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14.6
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Headings
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21
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14.7
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References in This Agreement
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21
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14.8
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Exhibits
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21
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14.9
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Severability
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21
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14.10
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Additional Documents and Acts
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21
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14.11
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Notices
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21
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14.12
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Amendments
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21
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14.13
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Multiple Counterparts
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22
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SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF
WILLIAM RAST LICENSING, LLC
This Second Amended and Restated Operating Agreement, made and entered into effective as of October 1, 2011 (the “
Effective Date
”), governs the relationship between the undersigned Members of William Rast Licensing, LLC, a California limited liability company (the “
LLC
”), and between the LLC and the undersigned Members, pursuant to the Beverly-Killea Limited Liability Act as amended from time to time (the “
Act
”), and the Articles of Organization for the LLC. In consideration of their mutual promises, covenants, and agreements, the parties hereto do hereby promise, covenant, and agree as set forth herein.
RECITALS
A. The Members of the LLC were previously party to that certain Amended and Restated Operating Agreement effective January 1, 2007, as amended effective October 2, 2007 (the “
Prior Agreement
”).
B. The LLC’s Members desire to amend and restate the Prior Agreement to (i) to recapitalize and reclassify the membership interests previously issued to the Members, such that Bella Rose, LLC, a Delaware limited liability company (“
BR
”) shall become the holder of “Class A Membership Interests” and Tennman WR-T, Inc., a Delaware corporation (“
TWR
”)
shall become the holder of “Class B Membership Interests” (in each case in the amounts and as noted on
Exhibit A
), (ii) recognize the redemption of certain membership interests previously issued to TWR, (iii) to establish the characteristics of the Class A Membership Interests and Class B Membership Interests and (iv) in connection with the LLC’s recapitalization, to memorialize the agreement among the Members as to the restated ownership of the LLC.
C. In connection with the above described recapitalization, TWR, the LLC and the other persons and entities party thereto are also entering into that certain Royalty Agreement of even date herewith which provides for the payment of certain consideration in relation to the recapitalization (the “
Royalty Agreement
”).
D. This Agreement has been approved by the requisite Members as provided by the Prior Agreement.
E. The Members of the LLC desire to enter into this Agreement such that this Agreement shall hereafter govern the rights, preferences, privileges and restrictions of the Members of the LLC.
ARTICLE I - DEFINITIONS OF TERMS
When used in this Agreement, the following terms shall have the meanings set forth below:
1.1 “
Affiliate
” means, with respect to any Member, any Person, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Member. The term “control,” as used in the immediately preceding sentence, means, with respect to a corporation the right to exercise directly or indirectly, 50% or more of the voting rights attributable to the controlled corporation, and, with respect to any partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.
1.2 “
Agreement
” means this Operating Agreement among the Members regulating the affairs of the LLC and the conduct of its business, as originally executed and as amended from time to time, and shall refer to this Agreement as a whole, unless the context otherwise requires.
1.3 “
Aggregate Sales Proceeds
” shall have the meaning set forth in
Section 8.7.4
hereof.
1.4 “
Articles
” means the Articles of Organization for the LLC which were filed with the Secretary of State of California on August 30, 2006, as File No. 200624310013, together with all amendments thereto or restatements thereof and shall mean the Articles as a whole unless the context otherwise requires.
1.5 “
BR
” means Bella Rose, LLC, a California limited liability company.
1.6 “
Capital Account
” means, with respect to any Member, the account maintained for such Member in accordance with the provisions of
Section 3.4
hereof.
1.7 “
Capital Contribution
” means, with respect to any Member, the aggregate amount of money and the fair market value (as determined in good faith by the Manager) of any property, tangible or intangible (other than money) contributed to the LLC pursuant to
Article III
hereof with respect to the Membership Interest of such Member.
1.8 “
Class A Member
”
refers to the Members holding Class A Membership Interests as set forth on
Exhibit A
or to any other person or entity who succeeds them in that capacity as permitted by this Agreement. The Class A Members in the aggregate shall be entitled to all of the Distributable Cash from Operations and all Distributable Cash from a Sale Transaction that is not paid or required to be paid to the Class B Members in accordance with
Section 8.7
of this Agreement.
1.9 “
Class B Member
” refers to the Members holding Class B Membership Interests as set forth on
Exhibit A
or to any other person or entity who succeeds them in that capacity as permitted by this Agreement. The Class B Members in the aggregate shall not be entitled to any of the Distributable Cash from Operations and shall only be entitled to receive that portion of the Distributable Cash from a Sale Transaction and such other amounts or property specifically described in
Section 8.7
of this Agreement.
1.10 “
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.
1.11 “
Covered Person
” means any Member, any Manager, any partners, employees, representatives or agents of any Member or Manager, and any officer, employee, partner, representative or agent of the LLC.
1.12 “
Distributable Cash
” the gross amount of cash from LLC operations (including, but not limited to, licensing revenues, royalties, sales, dispositions and refinancings of LLC property, and all principal and interest payments with respect to any note or other obligation received by the LLC in connection with sales or other dispositions of LLC property), less the portion thereof used to pay or establish reserves for all LLC expenses, debt payments, research and development (to the extent approved by the Manager), capital improvements, replacements and contingencies, all as determined by the Manager in good faith. “Distributable Cash” shall not be reduced by depreciation, amortization, cost recovery deductions or similar allowances (except to the extent cash is set aside to pay or establish a reserve for such items), but shall be increased by any reductions of reserves previously established under this
Section 1.12
.
1.13 “
Economic Interest
” means a Person’s right to share in the Profits, Losses, and similar items of, and to receive distributions from, the LLC, but does not include any other rights of a Member including, without limitation, the right to vote or to participate in the management of the LLC, or, except as specifically provided in this Agreement or required under the Act, any right to information concerning the business and affairs of the LLC.
1.14 “
Existing PPLB Debt
” means any and all obligations of the LLC and/or any of its controlled subsidiaries to PPLB, Versatile Entertainment, Inc. and/or BR to repay all amounts advanced, loaned or allocated to the LLC or its controlled subsidiaries, and any other indebtedness of the LLC or its controlled subsidiaries owing to PPLB, Versatile Entertainment, Inc. and/or BR, in each case existing as of the date hereof, and all rights of PPLB and/or BR with respect thereto. As of August 31, 2011, the Members acknowledge and agree that the outstanding amount of the Existing PPLB Debt equals $0.
1.15 “
LLC
” means William Rast Licensing, LLC.
1.16 “
LLC Property
” means property of the LLC, including, without limitation, all real, personal, tangible or intangible property or any interests in such property.
1.17 “
Manager
” means Colin Dyne, or such other Person elected Manager of the LLC elected pursuant to
Article VI
.
1.18 “
Member
” means each Person who has been admitted to the LLC as a Member in accordance with the Articles and this Agreement (other than any Person who has transferred its entire Membership Interest in accordance with this Agreement).
1.19 “
Membership Interest
” means the entire ownership interest of a Member in the LLC at any particular time, including, collectively, his Economic Interest, any and all rights to vote and otherwise participate in the LLC’s affairs, and the rights to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement. A Membership Interest constitutes personal property. Membership Interests may be divided into such classes and such number of series as the Manager may determine from time to time in accordance with the terms hereof. As of the date of this Agreement, the LLC has authorized two classes of Membership Interests, designated respectively as “
Class A Membership Interests
” and “
Class B Membership Interests
.” Each class of Membership Interests has such rights, preferences, privileges and restrictions as set forth in this Agreement. The Class B Membership Interests shall be non-voting and shall have no rights to vote or participate in the management of the LLC except as may be required under the Act or otherwise expressly set forth herein. The term “Membership Interests” shall refer to the Class A Membership Interests and Class B Membership Interests, collectively.
1.20 “
Operations
” means the business of the LLC other than a Sale Transaction.
1.21 “
Percentage Interest
” means, with respect to a Member, the percentage amount set forth beside such Member’s name in the right-hand column of the table set forth in
Exhibit A
hereto.
1.22 “
Person
” means an individual, general partnership, limited partnership, other limited liability company, corporation, trust, estate, real estate investment trust and any other entity.
1.23
“PPLB”
means Peoples Liberation, Inc., a Delaware corporation.
1.24 “
PPLB Indebtedness
” means (i) the Existing PPLB Debt, and (ii) any indebtedness of the LLC or any of its controlled Affiliates incurred or issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace or discharge, the Existing PPLB Debt.
1.25 “
Profits and Losses
” means the profits and losses of the LLC, determined 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.
1.26 “
Sale Transaction
” shall have the meaning set forth in
Section 8.7.3
hereof.
1.27 “
Transfer
” shall mean, with respect to any interest in the LLC, (i) a sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest, hypothecation or other transfer or disposition by any other means, whether for value or no value, direct or indirect, and whether voluntary or involuntary (including, without limitation, by operation of law), or an agreement to do any of the foregoing, or (ii) any sale or other voluntary transfer, including by means of a merger or consolidation, or a series of related sales or voluntary transfers, aggregating more than 50% of the voting or equity interests of a Member.
1.28 “
TWR
” means Tennman WR-T, Inc., a Delaware corporation.
1.29 “
WRS License Agreement
” means that certain Trademark License Agreement, effective as of October 1, 2006, by and between the LLC and William Rast Sourcing, LLC, as amended to date and as the same may be further amended or supplemented from time to time.
ARTICLE II - INTRODUCTORY MATTERS
2.1
Business of LLC.
The LLC shall be authorized to engage in any lawful act or activity for which a limited liability company may be organized under the Act. Initially, the purpose of the LLC shall be to own, and license, others (including a Member or any of its Affiliates) right to, the trademark “William Rast” in all classifications.
2.2
Laws Governing the Agreement.
This Agreement is subject to, and governed by, the mandatory provisions of the Act and the Articles. In the event of a direct conflict between the provisions of this Agreement and the mandatory provisions of the Act or the provisions of the Articles, such provisions of the Act or the Articles, as the case may be, shall be controlling.
2.3
Term.
The term of the LLC began upon the due filing of the Articles and shall continue until such date as the LLC is terminated as provided herein.
2.4
Principal Place of Business.
The principal place of business of the LLC shall be at 1212 S. Flower St., 5th Floor, Los Angeles, CA 90015, or at such other place as the Manager shall from time to time determine.
2.5
Agent for Service of Process.
The agent for service of process for the LLC in California shall be National Registered Agents, Inc., or such other service firm or person as the Manager shall from time to time determine.
2.6
Required Maintenance of Records in California.
The LLC shall continuously maintain an office in the State of California which may, but need not be, its principal executive office, and at which it shall keep:
(a) A current list in alphabetical order of the full name and last known business address of each Member, and each holder of an Economic Interest, together with their respective Capital Contribution and Percentage Interest;
(b) A copy of the filed Articles, together with any powers of attorney pursuant to which the Articles or any amendments thereto were executed;
(c) Copies of the LLC’s federal, state and local income tax returns or information returns and reports, if any, for the six most recent taxable years or such short period as the LLC has been in existence;
(d) A copy of this Agreement, together with any powers of attorney pursuant to which this Agreement or any amendments thereto were executed;
(e) Copies of financial statements of the LLC for the six most recent taxable years or such short period as the LLC has been in existence; and
(f) The books and records of the LLC as they relate to its internal affairs as more particularly described in
Section 10.1
herein for at least the current and past four taxable years or such short period as the LLC has been in existence.
2.7
Records Subject to Inspection.
Records kept pursuant to
Section 2.6
are subject to inspection at the reasonable request of any Member (but not any assignee thereof who does not become a substitute Member, except such an assignee that has been approved by the Members) and its duly authorized representative during normal business hours. Copies of the records referenced in
Section 2.6
shall also be provided at the reasonable request and expense of any Member (but not any assignee thereof who does not become a substitute Member, except such an assignee that has been approved by the Members).
2.8
Foreign Qualification.
The officers shall cause the LLC to be qualified or registered under assumed or fictitious name statutes or similar laws in any other jurisdiction in which such qualification or registration is necessary or required to conduct the LLC’s business, except where the failure to do so would not have a material adverse effect on the LLC. The officers or other authorized representative 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, except where the failure to do so would not have a material adverse effect on the LLC.
2.9
Commencement of Operations
.
The operations of the LLC commenced as of October 1, 2006.
ARTICLE III - MEMBERS, CAPITAL CONTRIBUTIONS, ALLOCATIONS
3.1
Membership Interests, Capital Accounts and Percentage Interests.
Immediately following the execution and delivery of this Agreement and recapitalization of the Membership Interests as described in the recitals to this Agreement, the Membership Interests, Capital Accounts (determined as of December 31, 2010) and Percentage Interests of each Member are as set forth on
Exhibit A
.
3.2
Interests.
In the event of dissolution of the LLC, no Member shall have an interest in specific LLC Property.
3.3
Status of Capital Contributions.
3.3.1 Except as otherwise provided in this Agreement, a Member’s Capital Contributions may be returned, in whole or in part, at any time upon the request of such Member, only with the approval of the Manager. In no way limiting any other provision of this Agreement, this
Section 3.3.1
shall not prohibit distributions otherwise authorized by this Agreement notwithstanding that such distributions may result in returns of Capital Contributions.
3.3.2 Notwithstanding the foregoing, no return of a Member’s Capital Contribution shall be made hereunder if such distribution would violate applicable law.
3.3.3 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.
3.3.4 Following the execution and delivery of this Agreement, no Member shall be required to make any additional capital contributions at any time to the LLC.
3.4
Capital Accounts.
3.4.1 An individual Capital Account shall be established and maintained for each Member. The original Capital Account established for any Member who acquires a Membership Interest by virtue of an assignment or transfer 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 Membership 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 Membership Interest (or made by any of such assignor’s predecessors in interest).
3.4.2 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 (as determined in good faith by the Manager) of any other property contributed by such Member to the capital of the LLC, such Member’s allocated 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 (as determined in good faith by the Manager) of any LLC Property distributed to such Member pursuant to any provision of this Agreement, such Member’s allocated 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 Manager may make such modification 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 Regulation.
3.5
Return of Capital Contributions.
The Manager 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 Manager or Members be required to pay to the LLC or any Member any deficit in any Member’s Capital Account upon dissolution or otherwise.
3.6
No Management
.
A Member shall not be an agent of the LLC, nor can a Member bind, nor execute any instrument on behalf of, the LLC. A Member shall not participate in the management of the business or affairs of the LLC and, except as provided in this Agreement, shall not have any voting, consent or approval rights.
ARTICLE IV – ADDITIONAL CAPTIAL CONTRIBUTIONS;
NEW MEMBERS
4.1
Additional Capital Contributions
.
No Member shall be required to make additional Capital Contributions to the LLC. The Members may make additional Capital Contributions to the LLC only with the approval of the Manager.
4.2
Admission of Additional Members
.
Additional Members may be admitted to the LLC from time to time only with the approval of the Manager, such additional Members to be issued Membership Interests in one or more classes or series, and upon such terms and conditions, and for such consideration, as shall be determined by the Manager. Except as otherwise provided hereunder, upon any such admission of any additional Members to the LLC, the Manager shall have the authority to adopt such amendments to this Agreement, and to execute and deliver such additional instruments and documents, as shall be necessary or appropriate in order to evidence or reflect the issuance of the same.
ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
5.1
Allocations of Profits and Losses.
The Profits and Losses of the LLC shall be allocated for each fiscal year (or any proportion thereof) as follows:
5.1.1 Profits from Operations (and all items thereof) for each Fiscal Year shall be allocated to the Class A Members.
5.1.2 Losses (and all items thereof) for each Fiscal Year (including Losses from a Sale Transaction) shall be allocated (i) first, among the Members having a positive Capital Account balance in accordance with their relative Percentage Interests until each Member’s Capital Account balance is reduced to zero, (ii) to the Members who bear the economic risk of loss for the expenses or deductions giving rise to the Losses or items thereof and (iii) any remaining Losses or items thereof among the Members in accordance with their relative Percentage Interests.
5.1.3 Profits (or items thereof) from a Sale Transaction shall be allocated among the Members pro rata in accordance with their respective Membership Interests as set forth on
Exhibit A
.
5.2
Time of Allocation.
All allocations of Profits and Losses made pursuant to
Section 5.1
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 Percentage Interest attributable to their Membership Interests 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 the owner of such interest or in such other manner as the Manager deems appropriate in accordance with the requirements of the Code and of Treasury Regulations issued pursuant thereto.
5.3
Distributions of Cash.
5.3.1 From time to time, at the sole discretion of the Manager, the LLC shall distribute all Distributable Cash from Operations, or any portion thereof, solely to the Class A Members pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other. Class B Members shall not be entitled to receive any distributions of Distributable Cash from Operations.
5.3.2 The LLC shall distribute to the Class B Members that portion of the Distributable Cash from a Sale Transaction specifically described in
Section 8.7
of this Agreement to be distributed to the Class B Members, pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other, and the LLC shall distribute to the Class A Members that portion of the Distributable Cash from a Sale Transaction not distributed or required to be distributed to the Class B Members pursuant to
Section 8.7
of this Agreement, pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other.
5.4
Limitations on Distributions.
Anything contained herein to the contrary notwithstanding, the LLC shall not make a distribution to any Member on account of its Membership Interest if such distribution would violate the Act or other applicable law or any restrictions in any of the LLC’s loan agreements. In addition, notwithstanding anything contained herein to the contrary, the LLC shall not consummate a Sale Transaction unless the Class B Members will receive a Liquidating Payment in accordance with
Section 8.7
hereof.
5.5
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.
5.6
Tax Allocations; Section 704(c) of the Code; Special Allocations.
5.6.1 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.
5.6.2 The Members acknowledge that the Code may require allocations of Profits, Losses, or items thereof in a manner which varies from the general provisions of
Section 5.1
, including allocations in respect of such matters known as “minimum gain chargeback,” “qualified income offset,” “gross income allocation,” “nonrecourse deductions,” “Section 754 adjustments,” “Section 704(c)” provisions relating to any property which may be contributed to the LLC, and items relating to the issuance of Membership Interests. The Manager is authorized and directed to make such allocations as may be required by the Code (which are incorporated by this reference as if fully set forth herein), and also to make any offsetting allocations otherwise permissible under the Code so that the foregoing required allocations do not adversely affect the intended pattern of distributions under
Section 5.3
, in each case upon advice or consultation with the LLC’s regularly retained accountant.
5.6.3 Any elections or other decisions relating to such allocations shall be made by the Manager in any manner that reasonably reflects the purpose and intent of this Agreement.
5.6.4 The Manager 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 a Membership Interest described in Section 743 of the Code. In the event that any Member requests to make any such election, the Manager may require the Member so benefited thereby to pay the additional annual accounting costs incurred as a result of making such election.
5.7
Allocation of Net Income and Net Loss for Financial Reporting Purposes.
The Members acknowledge and agree that, for purposes of the preparation of the financial statements of PPLB under generally accepted accounting principles (“
GAAP
”), it is their intention that PPLB will be entitled to consolidate the Company’s financial results with the financial results of PPLB and its other consolidated subsidiaries, and that BR and, through consolidation, PPLB shall be entitled to report 100% of the Company’s net income or net loss (as determined under GAAP) from Operations for all periods on PPLB’s financial statements without including thereon any allocation of net income or net loss to the Class B Members in respect of their Class B Membership Interests, on the basis that BR, as the sole Class A Member, is entitled to 100% of Profits from Operations and 100% of Distributable Cash from Operations, and that TWR, as the sole Class B Member, is only entitled to a portion of Profits from a Sale Transaction and a portion of Distributable Cash from a Sale Transaction.
ARTICLE VI - MANAGEMENT OF THE LLC,
CONTROL OF THE BUSINESS, OFFICERS
6.1
Governance of the LLC and Election of the Manager.
6.1.1
Governance of the LLC by the Manager
. All powers of the LLC shall be exercised under the authority of, and the business and affairs of the LLC shall be under the direction of, the Manager, unless otherwise provided in the Act, the Articles, or this Agreement. A Member shall not participate in the day-to-day operation of the business affairs of the LLC. A Manager need not be a Member.
6.1.2
Election of the Managers by the Members; Term
. The Manager of the LLC shall be Colin Dyne. The Manager shall serve until the earliest of (i) the appointment of a different Manager by BR, or (ii) the date upon which such Manager resigns, dies or becomes disabled and unable to serve, whereupon BR shall be entitled to elect a successor. A Manager may resign at any time upon written notice to the LLC.
6.1.3
Acknowledgement
. TWR acknowledges and agrees that, notwithstanding the parties’ relative Percentage Interests in the LLC, and subject to the explicit terms of this Agreement, including
Section 6.2
hereof, BR shall have the exclusive right to appoint the Manager of the LLC and thus, indirectly through the appointment of such Manager, to manage and control the LLC and its operations. Any amendment to this
ARTICLE VI
shall, in addition to the other approvals set forth herein, require the approval BR.
6.2
Powers of the Manager
.
The Manager shall have all necessary powers of direction and control to carry out, through the officers, the purposes, business, and objectives of the LLC, including, but not limited to, the right to direct the officers of the LLC to enter into and carry out contracts of all kinds; to employ employees, agents, consultants and advisors on behalf of the LLC; to lend or borrow money and to issue evidences of indebtedness; to bring and defend actions in law or at equity; and to buy, own, manage, sell, lease, mortgage, pledge or otherwise acquire or dispose of the LLC property. The Manager may, on behalf of the LLC, enter into contracts with Affiliates; provided, however, such contracts are on the same terms and conditions that would be available from an independent responsible third party that is willing to perform the requested service.
6.3
Contractual Authority
.
Only the Manager or those officers of the LLC and/or any other individuals associated with the LLC who have been given authority by the Manager to do so may execute on behalf of the LLC any note, mortgage, evidence of indebtedness, contract, certificate, statement, conveyance, or other instrument in writing, or any assignment or endorsement thereof. Any person dealing with the LLC or the Manager may rely upon a certificate signed by the Manager as to (a) the identity of the Manager or any other Member of the LLC, (b) the persons who are authorized to execute and deliver any instrument or document for or on behalf of the LLC or (c) any act or failure to act by the LLC or as to any other matter whatsoever involving the LLC or any Member.
6.4
Officers.
The Manager may appoint a chief executive officer, a president, a secretary, a chief financial officer, and such other officers of the LLC as appropriate, each of whom shall hold office for such period, have such authority and perform such duties as the Manager determines.
6.5
Limitations on Liability of the Managers and Officers.
The Manager and officers shall not be liable to the LLC or Members for any loss or damage resulting from any mistake of fact or judgment or any act or failure to act unless the mistake, act or failure to act results directly from fraud, willful misconduct or gross negligence. The Manager and officers shall be indemnified pursuant to
Article XII
hereof.
6.6
Other Activities of the Members and Manager Permitted.
The Members and the Manager and their respective Affiliates may engage or invest, independently or with others, in any business activity of any type or description, including without limitation those that might be the same as or similar to the LLC’s business and that might be in direct or indirect competition with the LLC. Neither the Members nor the Manager shall be obligated to present any investment opportunity or prospective economic advantage to the LLC, even if the opportunity is of a character that, if presented to the LLC, could be taken by the LLC. The Members and the Manager shall have the right to hold any investment opportunity or prospective economic advantage for their own account or to recommend such opportunity to Persons other than the LLC. Neither the LLC nor any other Member or Manager, as the case may be, shall have any right in or to such other venture or activities or opportunities or to the income or proceeds derived therefrom. Each Member and Manager acknowledges that the other Members and Manger and their respective Affiliates own and/or manage other businesses, including businesses that may compete with the LLC and for the Members’ and/or the Manager’s time. Each Member and each Manager hereby waives any and all rights and claims which he may otherwise have against the other Members and/or Manager, as the case may be, and their respective Affiliates as a result of any of such activities.
6.7
Devotion of Time.
The Manager is not obligated to devote all of his time or business efforts to the affairs of the LLC. The Manager shall devote whatever time, effort, and skill as he deems appropriate for the operation of the LLC.
6.8
Class B Member Consent Rights.
Until such time as the Class B Members have received all of the Aggregate Sales Proceeds to which they are entitled in accordance with Section 8.7 of this Agreement, the Company shall not, without obtaining the prior written approval of the holders of a majority-in-interest of the Percentage Interests held by the Class B Members:
6.8.1 engage in any business or activity other than that for which the LLC was formed and has historically conducted;
6.8.2 take any action to amend, alter, or repeal Section 6.8 or Section 8.7 of this Agreement;
6.8.3 admit any additional Class B Members;
6.8.4 create any new Membership Interests or modify the terms of any existing Membership Interests in a manner that reasonably could be expected to adversely affect the rights of the Class B Members; or
6.8.5 enter into any transaction for the sale of assets of the LLC not in the ordinary course of its business which does not constitute a Sale Transaction.
ARTICLE VII – MEETINGS OF MEMBERS & INFORMATION RIGHTS
7.1
Meeting of Members
.
The Members are not required to hold meetings. Decisions may be reached by a written consent signed by the requisite Members. In the event that the Members desire to hold a meeting, formal notice of the meeting shall not be required. The Members may participate in the meeting through the use of a conference telephone or similar communications equipment, provided that all Members participating in the meeting can hear one another. The Members shall keep or cause to be kept with the books and records of the LLC full and accurate minutes of all meetings, notices of meetings, when given, and all written consent in lieu of meetings.
7.2
Reports
.
The Manager will prepare and provide the Class B Members with (i) within forty-five (45) days after the end of each fiscal quarter, unaudited financial statements of the LLC, including a balance sheet, income statement, a statement of cash flow, and a statement of profit or loss for the fiscal quarter then ended; and (ii) within ninety (90) days after the end of each fiscal year, unaudited financial statements of the LLC, including a balance sheet, statement of operations, and a statement of cash flow for the fiscal year then-ended.
ARTICLE VIII - TRANSFER AND ASSIGNMENT OF MEMBERSHIP INTERESTS,
ECONOMIC INTERESTS AND RIGHTS
8.1
Transfers
.
Except for Permitted Transfers (as defined below), no Member may Transfer (directly or indirectly) all or any portion of such Member’s Membership Interests (or any beneficial interests therein) to any other Person except with the approval of the Manager, which approval may be given or withheld as the Manager may determine in his sole discretion. Any purported Transfer which is not in accordance with this Agreement shall be null and void and of no effect. After the consummation of any Transfer of any part of a Member’s Membership Interests, the Membership Interests so Transferred shall continue to be subject to the terms and conditions of this Agreement and any further Transfers shall be required to comply with all of the terms and provisions of this Agreement.
8.2
Substitution of Members
.
A transferee of any Membership Interests properly Transferred hereunder shall have the right to become a substitute Member only if such transferee executes an instrument satisfactory to the Manager accepting and adopting the terms and provisions of this Agreement, and such transferee pays any reasonable expenses in connection with his, her or its admission as a substitute Member (as requested by the Manager). The admission of a substitute Member shall not result in the release of the Member who assigned the membership interest in the LLC from any liability that such Member may have to the LLC unless the substitute Member expressly agrees in writing to assume such liability.
8.3
Permitted Transfers
.
For purposes of this Agreement, the term “
Permitted Transfer
” shall mean a transfer by a Member of all or any portion of such Member’s Membership Interests in the LLC (i) (A) to a trust for the benefit of the transferor and/or his or her family members, provided that such trust is, during the transferor’s lifetime, controlled by the transferor, or (B) as an estate planning transfer to an entity over which the transferor retains voting control, (ii) to an Affiliate of such Member, or (iii) in the case of any transfer by a permitted transferee described in (i) or (ii), above, back to the original transferor Member thereof,. Notwithstanding the foregoing, in no event shall a putative Transfer constitute a “Permitted Transfer” unless and to the extent that (i) the other Members are notified of the material terms concerning such transfer prior thereto (including, but not limited to, the would-be transferee and the consideration to be received therefor) and (ii) the would-be transferee agrees in writing to be bound by the provisions of all agreements applicable to the Membership Interests to be transferred (including, without limitation, a joinder to this Agreement).
8.4
Additional Transfer Restrictions
.
Notwithstanding anything herein to the contrary, no Member may, without the prior written consent of the Manager, Transfer all or any portion of its Membership Interests to the extent such Transfer (a) would violate any applicable securities laws, or (b) would cause a termination of the LLC for federal income tax purposes.
8.5
Enforcement of Transfer Restrictions
.
The restrictions on Transfer contained in this Agreement are an essential element in the ownership of Membership Interests. Upon application to any court of competent jurisdiction, the LLC and/or a Member, as the case may be, shall be entitled to a decree against any Person violating or about to violate such restrictions, requiring their specific performance, including those prohibiting a Transfer of all or a portion of such Membership Interests.
8.6
Mandatory Co-Sale.
8.6.1
Right of Mandatory Co-Sale
. One or more Members holding Membership Interests representing a majority of the Percentage Interests in the LLC who propose to sell all of their respective Membership Interests to any Person which is not an Affiliate of the LLC or BR in a bona fide, arms-length transaction (the “
Selling Members
”), upon delivery of a written notice of the proposed sale (the “
Drag Along Notice
”) to the other Members, shall have the right (the “
Mandatory Co-Sale Right
”) to require all, but not less than all, of the other Members to sell, or to cause to be sold, all, but not less than all, of the Membership Interests owned by such other Members upon the Offered Terms and Conditions (as defined below). The Drag Along Notice shall contain a description of the proposed transaction and the terms thereof, the name of the proposed transferee, the price at which the Membership Interests are to be sold and the terms of payment and the other terms and conditions to the proposed sale (the “
Offered Terms and Conditions
”), which such Offered Terms and Conditions shall provide for the aggregate payment to the Class B Members at the closing of an amount at least equal to the amount of the Liquidating Payment that would have been required to be paid pursuant to
Sections 8.7.2 and 8.7.4(c)
in the event the sale pursuant to this
Section 8.6.1
constituted a “Sale Transaction” as defined by clause (iii) of
Section 8.7.3
.
8.6.2
Participation in Mandatory Co-Sale
. At the closing of the transfer, the other Members who have received notice of the exercise of the Mandatory Co-Sale Right must provide for sale to the transferee, free and clear of all liens and rights of third parties, the Interests which the other Member has been notified are subject to the Mandatory Co-Sale Right. The other Members agree to make such representations and warranties regarding the LLC and its subsidiaries and their respective ownership of Membership Interests as the Selling Members may be required to make to the transferee,
provided
, such representations and warranties shall be reasonably acceptable to the other Members and
provided
,
further
, that each of the other Members’ respective liabilities for breach of such representations and warranties shall be limited to such other Members’ proceeds of the sale of their respective Membership Interests pursuant to the Mandatory Co-Sale Right, and
provided
,
further
, that if any such other Member is not involved in the business of the LLC and its Percentage Interest is less than 20%, the Selling Members shall use commercially reasonable efforts to ensure that any representations or warranties that such other Member is required to make to the transferee shall be limited to such Member’s title to the its Membership Interest and its authority to enter into the relevant sales agreement and perform its obligations thereunder. Notwithstanding the foregoing, in the event that the LLC is in breach of any of its representations and warranties regarding itself and its subsidiaries that it may be required to make in connection with such transfer, each of the Members’ respective liability for breach of such representations and warranties shall be shared on a pro-rata basis based on their respective Percentage Interests or shall be satisfied by a reduction in the price at which the Membership Interests are sold to the transferee.
8.7
Redemption of Class B Membership Interests; Liquidating Payment.
8.7.1
Redemption
. Upon a Sale Transaction, the LLC shall redeem and purchase from the Class B Members, and the Class B Members hereby agree to sell to the LLC, 100% of the Membership Interest of the LLC owned by the Class B Members (the “
Redeemed Securities
”), for the consideration provided herein. Without any further action by the LLC or the Members, effective as of the date of any Sale Transaction, the LLC shall cancel the Redeemed Securities which shall cease to be outstanding. The Class B Members and the LLC shall execute and deliver any documents and other papers and perform any further acts as may be reasonably required or desirable to carry out the provisions of this
Section 8.7
and the transactions contemplated hereby, including, without limitation, the execution and delivery of such endorsements, assignments and other good and sufficient instruments of conveyance, transfer and assignment as shall be necessary to vest in the LLC good title in and to the Redeemed Securities.
8.7.2
Amount of Payment
. In connection with a Sale Transaction, the LLC shall redeem the Membership Interest of the LLC owned by the Class B Members and shall pay or otherwise cause to be paid to the Class B Members an amount (the “
Liquidating Payment
”) equal to, in the aggregate, eighteen percent (18%) (which percentage shall not be subject to dilution or reduction without the consent of the Class B Members) of the Aggregate Sales Proceeds (defined below) for such Sale Transaction.
8.7.3
Sale Transaction
. For purposes hereof, a “
Sale Transaction
” shall mean the earliest to occur of (i) the voluntary or involuntary liquidation, dissolution or winding up of the LLC followed by the LLC’s distribution to holders of its Membership Interests of amounts to which such holders are entitled in respect of such interests as a result of the liquidation, dissolution or winding up of the LLC; (ii) the sale of all or substantially all of the assets of the LLC in one transaction or a series of related transactions to any Person which is not an Affiliate of the LLC or BR in a bona fide, arms-length transaction; and (iii) the acquisition of the LLC by any person or entity which is not an Affiliate of the LLC or BR in a bona fide, arms-length transaction by means of merger, consolidation, share exchange, reorganization, equity purchase or otherwise pursuant to which equity interests of the LLC are converted into or exchanged for cash, securities or other property of the acquiring entity or any of its affiliates and which results in the holders of the voting securities (excluding shares of the surviving entity held by holders of equity interests of the LLC acquired by means other than the exchange or conversion of the capital stock of the LLC for shares of the surviving entity) of the LLC immediately prior to such merger, consolidation, share exchange, reorganization or other transaction beneficially owning, directly or indirectly, less than a majority of the combined voting power of the surviving entity resulting from such merger, consolidation, share exchange, reorganization or other transaction.
8.7.4
Aggregate Sales Proceeds
. For purposes hereof, “
Aggregate Sales Proceeds
” shall be determined as follows:
(a)
Dissolution
. In connection with a Sale Transaction described in clause (i) of the definition thereof, the “Aggregate Sales Proceeds” shall be an amount equal to the total amount of cash and other property to be distributed by the LLC, as applicable, to holders of Membership Interests as a result of the liquidation, dissolution or winding up of the LLC. It is understood and agreed that for purposes of calculating Aggregate Sales Proceeds hereunder, in the event of a Sale Transaction described in clause (i) of the definition thereof, no PPLB Indebtedness shall be considered in such calculation. For clarity, and without limiting the foregoing, it is the intent of the parties that the amount of the Liquidating Payment in a Sale Transaction described in clause (i) of the definition thereof be made to the Class B Members shall be determined as if the PPLB Indebtedness does not exist at the time of such sale to reduce the Aggregate Sales Proceeds thereof.
(b)
Asset Sale
. In connection with a Sale Transaction described in clause (ii) of the definition thereof, the “Aggregate Sales Proceeds” shall be an amount equal to the sum of (A) the total amount of cash and other property actually received by the LLC in consideration of the assets sold in such Sale Transaction and (B) the amount of PPLB Indebtedness assumed by the buyer in such transaction.
(c)
LLC Acquisition
. In connection with a Sale Transaction described in clause (iii) of the definition thereof, the “Aggregate Sales Proceeds” shall be an amount equal to the sum of (A) the total amount of cash and other property actually received by holders of equity interests of the LLC in consideration for their equity interests in the LLC and (B) the amount of PPLB Indebtedness that remains outstanding and payable by the LLC or is otherwise assumed by the buyer in such transaction.
8.7.5
Intentionally Omitted
.
8.7.6
Timing and Form of Payment
. In the event of a Sale Transaction, the LLC shall pay or cause to be paid to the Class B Members a Liquidating Payment no later than five (5) business days following the date the Aggregate Sales Proceeds are paid to the LLC or distributed by the LLC to its equity holders other than the Class B Members. The Liquidating Payment shall be paid to the Class B Members in the same form of consideration (e.g., cash, securities and/or other property) received by the LLC in such Sale Transaction.
8.7.7
Conforming Agreements from the Class B Members
. The Class B Members shall cooperate with the LLC, the Members and buyer in any Sale Transaction in all reasonable respects, and shall execute and deliver any documents and other papers and perform any further acts as may be reasonably required or desirable to (i) evidence the redemption of the Redeemed Securities upon the payment of a Liquidating Payment by each of the LLC or an agreement by each of the LLC to make a Liquidating Payment, and (ii) facilitate the payment to the Class B Members of a Liquidating Payment, including, without limitation, making such investment representations and warranties of the Class B Members as may be necessary for buyer’s delivery of securities to the Class B Members in a transaction which is exempt from registration under Section 5 of the Securities Act of 1933, as amended. Notwithstanding the foregoing, the Class B Members shall not be required to make or provide any representations, warranties, covenants or indemnities about or with respect to the business of the LLC, as applicable, with respect to any competitive restrictions, provide any licenses to any intellectual property or provide any covenants with respect to any performance obligations. The Class B Members shall be subject to post-closing purchase price adjustments, escrow terms, offset rights and holdback terms applicable to equity holders of the LLC as applicable.
ARTICLE IX - DISSOLUTION AND WINDING UP
9.1
Conditions of Dissolution.
Subject to the rights of the Class B Members to receive the Liquidating Payment under Section 8.7 of this Agreement, the LLC shall be dissolved, its assets shall be disposed of, and its affairs wound up on the first to occur of the following:
(a) a determination by Members having an aggregate Percentage Interest greater than fifty-percent (50%) that the LLC shall be dissolved and wound up;
(b) the sale of all or substantially all of the assets of the LLC;
(c) the entry of a decree of judicial dissolution by a court of competent jurisdiction providing for the dissolution of the LLC; or
(d) the occurrence of any other event which causes the dissolution of the LLC by operation of law.
9.2
Order of Payment of Liabilities Upon Dissolution.
Upon dissolution, the LLC’s liabilities shall be settled in the following order, as required by the Act:
(a) to creditors other than Members, in the order of priority as provided by law;
(b) to the Class B Members, any Liquidating Payment as provided by
Section 8.7
, pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other;
(c) to creditors who are Members; and
(d) solely to the Class A Members pro rata in accordance with their Percentage Interests in the LLC vis-à-vis each other.
9.3
Limitations on Payments Made on Dissolution.
Except as otherwise specifically provided in this Agreement, each Member shall be entitled to look solely at the assets of the LLC for the return of his positive adjusted Capital Account balance.
9.4
Liquidation.
Upon the dissolution of the LLC, the assets of the LLC shall be liquidated as promptly as shall be practicable. Upon any such liquidation, the LLC shall comply with the terms of
Section 8.7
of this Agreement to the extent applicable.
9.5
Termination of Covenants
.
Upon dissolution and winding up of the LLC, this Agreement, including, without limitation, all covenants of the parties hereto contained herein, shall terminate.
ARTICLE X - BOOKS AND RECORDS, FISCAL YEAR
There shall be maintained and kept at all times during the continuation of the LLC, proper and usual books of account in accordance with generally accepted principles of accounting consistently applied and which shall accurately reflect the condition of the LLC and shall account for all matters concerning the management thereof; which books shall be maintained and kept at the principal office of the LLC or at such other place or places as the Manager may from time to time determine. The LLC’s books and records shall be maintained on the basis selected by the Manager. The fiscal year of the LLC shall commence January 1 and terminate on December 31 of the same calendar year.
ARTICLE XI - TAX MATTERS
BR 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. 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 XII - INDEMNIFICATION
12.1
Liability of Members.
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.
12.2
Liability of Manager and Officers.
The Manager and the officers shall not be liable, in damages or otherwise, to the LLC or any Member for any act or failure to act by the Managers or the officers which act was within the scope of the authority conferred on the Manager or the officers by this Agreement, as applicable, unless such act or omission constituted fraud, willful misconduct or gross negligence. The Manager and the officers 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 the Manager or any officer 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, willful misconduct or gross negligence.
12.3
Exculpation.
12.3.1 No Covered Person shall be liable to the LLC 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, in good faith 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, willful misconduct, breach of this Agreement or gross negligence.
12.3.2 A Covered Person shall be fully protected in reasonably 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.
12.4
Fiduciary Duty; Waiver.
12.4.1 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.
12.4.2 In accordance with Section 17005(d) of the Act, the Members hereby waive any and all fiduciary duties of the Manager to the LLC and to the Members of the LLC as may otherwise be provided by Section 17153 of the Act.
12.4.3 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 or a breach of this Agreement by the Covered Person, the resolution, action or terms so made, taken or provided by the Covered Person shall not constitute a breach of any duty or obligation of the Covered Person at law or in equity or otherwise.
12.5
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, 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 fraud, willful misconduct or gross negligence with respect to such acts or omissions or (b) in breach of the Agreement;
provided
,
however
, that any indemnity under this
Section 12.5
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.
12.6
Indemnification Procedure.
Any person asserting a right to indemnification under
Section 12.5
hereof shall so notify the Manager, in writing pursuant to the notice requirements of
Section 14.11
hereof. With respect to those claims governed by
Section 12.5
hereof, the Manager 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.
12.7
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 12.5
hereof.
ARTICLE XIII - REQUIRED ARBITRATION OF DISPUTES
Any dispute, claim, controversy or action (collectively “
Dispute
”) arising directly or indirectly out of or in any way relating to this Agreement shall be administered and fully and finally resolved before JAMS in Los Angeles, California, pursuant to its Comprehensive Arbitration Rules and Procedures in accordance with the provisions set forth below:
13.1
Reference; Rules and Procedures.
Such dispute shall be resolved by a single arbitrator appointed in accordance with said Rules and Procedures. The Members consent that any process or notice of motion or other application to any court, and any paper in connection with arbitration, may be served by certified mail, return receipt requested or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed. Pending the arbitration award, the Members shall have all rights to provisional remedies which they would have at law or equity, notwithstanding the existence of this agreement to arbitrate. The arbitrators shall have no power to alter or modify any express provision of this Agreement (all of which provisions are hereby incorporated by reference into this arbitration provision) or to render an award which has the effect of altering or modifying any express provision hereof, provided, however, that any application for reformation of the contract shall be made to the arbitrators and not to any court and the arbitrators shall be empowered to determine whether valid grounds for reformation exist.
13.2
Confidentiality.
The Members shall maintain the confidential nature of the arbitration proceeding and any award, including the hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a court application for a preliminary remedy, a judicial challenge to an award or its enforcement, or unless otherwise required by law or judicial decision. To the extent that any Member seeks injunctive or other preliminary relief, a stay or provisional remedy, confirmation of an award or any other judicial intervention, that Member shall use its best effort to have any such submission filed under seal, and to ensure that any related documents shall be designated and treated as a “Sealed Document.” To the extent the court permits such sealing, all papers and documents filed under seal shall be filed in sealed envelopes and shall remain under seal until such time as the court, or any court of competent jurisdiction, orders otherwise. Such Sealed Documents shall be identified with the caption of this action and a general description of the sealed contents, and shall bear the following statement which should also appear on the sealed envelope:
“CONFIDENTIAL - SUBJECT TO PROTECTIVE ORDER
Contents are confidential and are subject to a court ordered protective
order governing the use and dissemination of such contents.”
The clerk of the court shall maintain such Sealed Documents separate from the public records, intact and unopened except as otherwise directed by the court. Such Sealed Documents shall be released by the clerk of the court only upon further order of the court.
ARTICLE XIV - MISCELLANEOUS
14.1
Law Governing.
This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely therein.
14.2
Complete Agreement.
This Agreement and the Articles constitute the complete and exclusive statement of agreement among Members relating to the LLC. This Agreement and the Articles supersede all prior written and oral statements and agreements by and among Members and no representation, statement, or condition or warranty not contained in this Agreement or the Articles will be binding on the Members or have any force or effect whatsoever.
14.3
Binding Effect.
Subject to the provisions of this Agreement and the Act relating to transferability, this Agreement shall be binding and inure to the benefit of Members, and their respective executors, administrators, heirs, successors and permitted assigns.
14.4
No Third Party Beneficiary.
This Agreement is made solely and specifically among and for the benefit for the LLC and the parties hereto, and their respective successors and permitted assigns subject to the express provisions hereof relating to successors and permitted assigns, and no other Person will have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. This Agreement is not intended for the benefit of a creditor who is not a Member and does not grant any rights to or confer any benefits on any Person who is not a Member, Manager, officer, or agent of the LLC.
14.5
Gender and Number in Nouns and Pronouns.
Common nouns and pronouns will be deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the person or persons, firm or corporation may in the context require. The singular shall include the plural and the masculine gender shall include the feminine and neuter, and vice versa, as the context requires. Any reference to the Code, the Act, or statutes or laws will include all amendments, modifications, or replacements of the specific sections and provisions concerned.
14.6
Headings.
All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement.
14.7
References in This Agreement.
Numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly stated.
14.8
Exhibits.
All Exhibits attached to this Agreement are incorporated and shall be treated as if set forth herein.
14.9
Severability.
If any provision of this Agreement is held to be illegal, invalid, or unenforceable under the present or future laws effective during the term of this Agreement, such provision will be fully severable. This Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.
14.10
Additional Documents and Acts.
Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby.
14.11
Notices.
In order to be effective all notices, consents, approvals, disapprovals and other communications (“
Notices
”) required or permitted by this Agreement must be in writing and either (a) sent by telegram or telecopy (or similar facsimile), or (b) placed in the United States mail, certified with return receipt requested, properly addressed and with the full postage prepaid, or (c) personally delivered, and in all cases other than telegram or telecopy (or similar facsimile), signed. Notice shall be deemed received and effective on the earliest of (x) the date actually received, or (y) two business days after being mailed as aforesaid, or (z) 24 hours after being sent by telegram or telecopy (or similar facsimile). Each Member’s address, telephone number and facsimile number for the purpose of receiving Notice is set forth on
Exhibit A
hereto. Any Member may change its address, telephone number or facsimile number for Notice purposes by giving Notice in the manner described in this
Section 14.11
, provided that such change of address shall not be effective until 10 days after notice of the change.
14.12
Amendments.
14.12.1 In addition to amendments specifically authorized herein, but subject to Section 6.8 hereof, any and all amendments to this Agreement may be made from time to time only by agreement of the Class A Members having an aggregate Percentage Interest greater than fifty percent (50%) of the aggregate Percentage Interests held by the Class A Members.
14.12.2 In addition to other amendments authorized herein, amendments may be made to this Agreement from time to time by the Manager, without the consent of any Member: (a) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement that are not inconsistent with the provisions of this Agreement; (b) to delete or add any provision of this Agreement required to be so deleted or added by any federal or state official, which addition or deletion is deemed by such official to be for the benefit or protection of all of the Members; and (c) to take such actions as may be necessary (if any) to insure that the LLC will be treated as a partnership for federal income tax purposes.
14.12.3 In making any amendments, there shall be prepared and filed by, or for, all of the Members or the Managers, as the case may be, such documents and certificates as may be required under the Act and under the laws of any other jurisdiction applicable to the LLC.
14.13
Multiple Counterparts.
This Agreement may be executed in several counterparts, each of which will be deemed an original but all of which will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Second Amended and Restated Operating Agreement to be effective as of October 1, 2011.
|
BELLA ROSE, LLC
, a
|
|
California limited liability company
|
|
|
|
By:
|
PEOPLE’S LIBERATION, INC.
|
|
Its:
|
Sole Member
|
|
By:
|
/s/ Colin Dyne
|
|
|
Colin Dyne,
|
|
Its:
|
Chief Executive Officer
|
|
TENNMAN WR-T, INC.
, a
|
|
Delaware corporation
|
|
|
|
By:
|
/s/ Justin Timberlake
|
|
|
Name:
|
|
Its:
|
|
EXHIBIT A
WILLIAM RAST LICENSING, LLC
Members’ Names, Addresses and Interests
Member’s Name
|
|
Member’s Address
|
|
Member’s
Capital
Account*
|
|
Class of
Membership
Interest
|
|
Member’s
Percentage
Interest
|
|
|
|
|
|
|
|
|
|
|
|
Bella Rose, LLC
|
|
c/o People’s Liberation, Inc.
150 West Jefferson Blvd.
Los Angeles, CA 90007
Attn: Colin Dyne
|
|
$
|
(156,645
|
)
|
Class A
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennman WR-T, Inc.
|
|
c/o Al Gossett
1900 Covington Pike
Memphis, TN 38128
|
|
$
|
0
|
|
Class B
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
$
|
(156,645
|
)
|
|
|
|
100.0
|
%
|
* Determined as of December 31, 2010.
EXECUTION COPY
ROYALTY AGREEMENT
THIS ROYALTY AGREEMENT (this “
Agreement
”) is made and entered into as of October 1, 2011, by and among TENNMAN WR-T, INC., a Delaware corporation (“
TWR
”), WILLIAM RAST SOURCING, LLC, a California limited liability company (“
WRS
”) and WILLIAM RAST LICENSING, LLC, a California limited liability company (“
WRL
”)(TWR, WRS and WRL are herein collectively referred to as the “
Parties
”).
RECITALS
A. TWR and Bella Rose, LLC, a California limited liability company (“
BR
”), are parties to that certain Second Amended and Restated Limited Liability Company Operating Agreement of WRS, dated of even date herewith, pursuant to which the parties recapitalized and recharacterized BR’s and TWR’s membership interest in WRS on the terms set forth therein and, in part, for the consideration to be provided by WRS as set forth in this Agreement.
B. TWR and BR are parties to that certain Second Amended and Restated Limited Liability Company Operating Agreement of WRL, dated of even date herewith, pursuant to which the parties recapitalized and recharacterized BR’s and TWR’s membership interest in WRL on the terms set forth therein and, in part, for the consideration to be provided by WRL as set forth in this Agreement.
C. In connection with the foregoing agreements, the Parties desire to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and on the terms and subject to the conditions hereinafter set forth, the parties hereto agree as follows:
1.
Definitions.
When used in this Agreement, the following terms shall have the meanings set forth below:
“
Affiliate
” means, with respect to any Person, any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. The term “control,” as used in the immediately preceding sentence, means, with respect to a corporation the right to exercise directly or indirectly, 50% or more of the voting rights attributable to the controlled corporation, and, with respect to any partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.
“
Excluded Royalties
” shall have the meaning given such term in
Section 2.2(c)
below.
“
Mobility Indebtedness
” means the indebtedness evidenced by that certain promissory note, dated August 13, 2010, made by WRL in favor of Mobility Special Situations I, LLC, in the original principal amount of $750,000 (the “
Mobility Note
”), provided, however, Mobility Indebtedness shall be include only the original principal amount of the Mobility Note and accrued interest thereon and shall exclude any and all other obligation or liability of WRL or its Affiliates arising thereunder or in connection therewith, and provided, further, Mobility Indebtedness will not include any additional principal amount of indebtedness borrowed after the date hereof
“
New License Agreements
” means all agreements providing for the license by WRL of rights to the
William Rast®
mark, including the Viva Optique Agreement, but excluding that certain Trademark License Agreement, effective as of October 1, 2006, by and between WRL and WRS, as amended to date and as the same may be further amended or supplemented from time to time (the “
WRS License Agreement
”).
“
New License Net Cash
” means for any period, all gross receipts of WRL in respect of royalties or other compensation of any kind for such period, earned and/or accrued during such period, from all New License Agreements other than Excluded Royalties, minus (A) all reasonable legal and other costs paid to third parties in connection with (i) negotiation of licensing agreements, including broker commissions payable to non-Affiliated third parties, and (ii) enforcement of the New License Agreements (including collection of the receipts, including costs of litigation and audit incurred to enforce the rights of WRL under any New License Agreement) and (B) up to an additional $250,000 per year incurred by WRL for its actual, out of pocket costs in connection with its direct operations (excluding any allocations of overhead from other entities or the like) including, without limitation, for WRL’s employees, WRL’s facilities and other of WRL’s administrative functions and overhead.
“
Person
” means an individual, general partnership, limited partnership, other limited liability company, corporation, trust, estate, real estate investment trust and any other entity.
“
PPLB
” means Peoples Liberation, Inc., a Delaware corporation.
“
Restricted Party
” means (i) any Person other than BR or PPLB, with whom Justin Timberlake has an active bona fide legal or business dispute determined in TWR’s reasonable discretion, (ii) any Person that has been convicted of a crime involving moral turpitude, or (iii) any Affiliate of any of the foregoing.
“
Restricted Purpose
” means the license of the
William Rast®
mark for any of the following categories of products: firearms; drug paraphernalia; and any products primarily associated with the adult entertainment industry (other than lingerie).
“
Retail Net Sales
” means the gross sales price for all WR Products sold by or on behalf of WRS or any of its Affiliates direct to end-users at
William Rast®
branded retail stores or Internet websites owned and operated by WRS or its Affiliates, less actual deductions taken and incurred, including, but not limited to, (i) actual returns and (ii) actual discounts and allowances, including, but not limited to, season ending allowances, vendor retagging and/or mark-downs. In computing Retail Net Sales, no costs incurred in manufacturing, selling, advertising or distributing the WR Products and no indirect expenses shall be deducted.
“
Royalty Term
” means the period commencing on July 1, 2011 and continuing (i) with respect to WRS until the earlier, if either, of (a) the date that WRS pays the Liquidating Payment (as defined in the Second Amended and Restated Operating Agreement of WRS) or (b) the date that TWR and any Affiliate thereof no longer owns any Class B Membership Interests in WRS, and (ii) with respect to WRL until the earlier, if either, of (a) the date that WRL pays the Liquidating Payment (as defined in the Second Amended and Restated Operating Agreement of WRL) or (b) the date that TWR and any Affiliate thereof no longer owns any Class B Membership Interests in WRL.
“
Sublicense Gross Consideration
” means for any period, all gross receipts of WRS or any Affiliate of WRS in respect of royalties or other compensation of any kind for such period, earned and/or accrued during such period, from all sublicenses by WRS of any of its rights granted to it under the WRS License Agreement, less any applicable broker commissions payable to non-Affiliated third parties.
“
Viva Optique Agreement
” means that certain Binding Term Sheet, effective as of December 9, 2009, by and between the WRL and Viva Optique, Inc., as the same may be amended or supplemented from time to time.
“
Wholesale
Net Sales
” means the gross sales price for all WR Products sold by or on behalf of WRS to purchasers for resale (including sales made to third-party operators of Internet websites), less actual deductions taken and incurred, including, but not limited to, (i) actual returns and (ii) actual discounts and allowances, including, but not limited to, season ending allowances, vendor retagging and/or mark-downs, and freight separately charged. In computing Net Sales, no costs incurred in manufacturing, selling, advertising or distributing the WR Products and no indirect expenses shall be deducted. If WR Products are sold by or on behalf of WRS to any Affiliate of WRS at an invoice price that is less than the price at which such WR Products are sold to non-Affiliates, then the invoice price to the Affiliate of WRS, for purposes of calculating Net Sales, shall be deemed to be the current invoice price charged to non-Affiliates of WRS. Notwithstanding the foregoing, “Wholesale Net Sales” shall not include sales of WR Products by or on behalf of WRS to any Affiliate of WRS purchasing or otherwise acquiring such WR Products for resale to end-users in
William Rast®
branded retail stores, provided that the sale of such WR Products are included in the calculation of Retail Net Sales pursuant to this Agreement.
“
William Rast® mark
” means the
William Rast
® mark, in all its current and future forms and variations, all derivatives thereto, and all related logos, graphics and artwork containing the word “William Rast”, any related marks and/or any extensions or derivatives of any of them.
“
WR Products
” means all apparel, apparel accessories and other merchandise which display, embody or make use of the
William Rast
® mark.
“
WRL Royalty
” means an amount equal to 50.0% of New License Net Cash.
“
WRS Royalty
” means an amount equal (i) to 5.0% of Wholesale Net Sales,
plus
(ii) 2.50% of Retail Net Sales, and (iii) 25.0% of Sublicense Gross Consideration.
“
WRL Royalty Statement
” shall have the meaning set forth in
Section 2.4
hereof.
“
WRS Royalty Statement
” shall have the meaning set forth in
Section 2.3
hereof.
2.
Royalty Payments
.
2.1
WRS Royalty
. WRS shall pay to TWR the WRS Royalty on all Wholesale Net Sales, Retail Net Sales and Sublicense Gross Consideration made, accrued and/or earned during the Royalty Term; provided that the WRS Royalty shall be due only on amounts actually collected by WRS. Taxes such as value added taxes or its equivalent shall be deducted and separately listed from gross sales. WRS shall use good faith, commercially reasonable efforts to collect all amounts due to it arising from sales of WR Products and/or any other activity otherwise giving rise to WRS Royalties.
2.2
WRL Royalty
. WRL shall pay to TWR the WRL Royalty with respect to New License Agreements entered into prior to or during the Royalty Term, subject to the following:
(a) WRL shall pay to TWR the WRL Royalty on all New License Net Cash accrued and/or earned during the Royalty Term; provided that the WRL Royalty shall be due only on amounts actually collected by WRL;
(b) with respect to New License Net Cash generated from the Viva Optique Agreement, the WRL Royalty shall be payable as follows: (i) WRL shall have no obligation to pay TWR a WRL Royalty on New License Net Cash generated from the Viva Optique Agreement until New License Net Cash generated from the Viva Optique Agreement is equal to the Mobility Indebtedness; (ii) after New License Net Cash generated from the Viva Optique Agreement is equal to the Mobility Indebtedness, WRL shall be obligated to pay to TWR a WRL Royalty equal to twenty five percent (25%) of New License Net Cash generated from the Viva Optique Agreement until the amount of such New License Net Cash actually received by WRL, after New License Net Cash generated from the Viva Optique Agreement is equal to the Mobility Indebtedness, equals $750,000 (i.e., until the WRL Royalty in respect thereof equals $187,500); and (iii) thereafter, WRL shall pay to TWR a WRL Royalty equal to fifty percent (50%) of New License Net Cash generated from the Viva Optique Agreement; and
(c) there shall be excluded from New License Net Cash, and WRL shall have no obligation to pay the WRL Royalty with respect to, any gross receipts of WRL in respect of royalties or other compensation of any kind (collectively, the “
Excluded Royalties
”) for any product in a product category (e.g., eyewear, watches, fragrances) that is the subject of a New License Agreement if, at any time after WRL enters into such New License Agreement (but not before), Justin Timberlake begins to sponsor, promote, endorse and/or derive any economic benefit from a non-
William Rast
® branded product in the same product category, whether such product is owned by a third-party or owned in whole or in part by Justin Timberlake or any of his Affiliates. For clarity, if WRL enters into a New License Agreement for a product in a product category that, at the time such agreement is signed, Justin Timberlake already sponsors, promotes, endorses and/or derives economic benefit from, then WRL shall pay the WRL Royalty on New License Net Cash generated from such New License Agreement.
WRL shall use good faith, commercially reasonable efforts to collect all amounts due to it arising from New License Agreements and/or any other activity otherwise giving rise to WRL Royalties.
2.3
WRS Payment
. WRS shall, within twenty-five (25) days of the end of each calendar quarter, commencing with the calendar quarter ending September 30, 2011 and continuing until all payments required to be made by WRS hereunder are made, furnish TWR a royalty statement setting forth a calculation of the aggregate amount of Wholesale Net Sales, Retail Net Sales and Sublicense Gross Consideration for such calendar quarter (which calculation shall include the amount of gross receipts and all permitted deductions) and the amount of WRS Royalty due TWR for such calendar quarter, and any other information reasonably requested by TWR (each a “
WRS Royalty Statement
”). On the date that each WRS Royalty Statement is delivered to TWR, WRS shall pay to TWR, by wire transfer of immediately available funds to an account designated by TWR in writing, an amount equal to the WRS Royalty for such calendar quarter.
2.4
WRL Payment
. WRL shall, within twenty-five (25) days of the end of each calendar quarter, commencing with the calendar quarter ending September 30, 2011 and continuing until all payments required to be made by WRL hereunder are made, furnish TWR a royalty statement describing the aggregate amount of New License Net Cash for such calendar quarter and the amount of WRL Royalty due TWR for such calendar quarter, and any other information reasonably requested by TWR (each a “
WRL Royalty Statement
”). On the date that each WRL Royalty Statement is delivered to TWR, WRL shall pay to TWR, by wire transfer of immediately available funds to an account designated by TWR in writing, an amount equal to the WRL Royalty for such calendar quarter.
2.5
Guaranteed WRS Royalty
.
(a) During each calendar year of the Royalty Term, WRS shall be obligated to pay to TWR a guaranteed minimum WRS Royalty of (i) Two Hundred Thousand Dollars ($200,000) for the calendar year ending December 31, 2011, and (ii) Four Hundred Thousand Dollars ($400,000) for each calendar year thereafter (the “
Guaranteed WRS Royalty
”).
(b) For calendar year 2011, payment of the Guaranteed WRS Royalty for such calendar year shall be made quarterly as follows (all payments of the Guaranteed WRS Royalty for a calendar quarter shall be made with the payment of the WRS Royalty due TWR for the applicable calendar quarter):
(i) if the amount of the WRS Royalty for the calendar quarter ending September 30 is less than $100,000, WRS shall pay TWR a portion of the Guaranteed WRS Royalty so that the amount of such payment plus the amount of the WRS Royalty for such calendar quarter is $100,000;
(ii) if the amount of the WRS Royalty for the calendar quarter ending December 31, plus the amount of the WRS Royalty and the Guaranteed WRS Royalty previously paid by WRS for the calendar quarter ending September 30 of such calendar year is less than $200,000, then WRS shall pay TWR a portion of the Guaranteed WRS Royalty so that the amount of such payment plus the amount of the WRS Royalty and the Guaranteed WRS Royalty for the calendar quarters ending September 30 and December 31 of such calendar year is $200,000;
(c) For calendar year 2012 and beyond, payment of the Guaranteed WRS Royalty for such calendar year shall be made quarterly as follows (all payments of the Guaranteed WRS Royalty for a calendar quarter shall be made with the payment of the WRS Royalty due TWR for the applicable calendar quarter):
(i) if the amount of the WRS Royalty for the calendar quarter ending March 31 is less than $100,000, WRS shall pay TWR a portion of the Guaranteed WRS Royalty so that the amount of such payment plus the amount of the WRS Royalty for such calendar quarter is $100,000;
(ii) if the amount of the WRS Royalty for the calendar quarter ending June 30, plus the amount of the WRS Royalty and the Guaranteed WRS Royalty previously paid by WRS for the calendar quarter ending March 31 of such calendar year is less than $200,000, then WRS shall pay TWR a portion of the Guaranteed WRS Royalty so that the amount of such payment plus the amount of the WRS Royalty and the Guaranteed WRS Royalty for the calendar quarters ending June 30 and March 31 of such calendar year is $200,000;
(iii) if the amount of the WRS Royalty for the calendar quarter ending September 30, plus the amount of the WRS Royalty and the Guaranteed WRS Royalty previously paid by WRS for the calendar quarters ending March 31 and June 30 of such calendar year is less than $300,000, then WRS shall pay TWR a portion of the Guaranteed WRS Royalty so that the amount of such payment plus the amount of the WRS Royalty and the Guaranteed WRS Royalty for the calendar quarters ending September 30, June 30 and March 31 of such calendar year is $300,000; and
(iv) if the amount of the WRS Royalty for the calendar quarter ending December 31, plus the amount of the WRS Royalty and the Guaranteed WRS Royalty previously paid by WRS for the calendar quarters ending March 31, June 30 and September 30 of such calendar year is less than $400,000, then WRS shall pay TWR a portion of the Guaranteed WRS Royalty so that the amount of such payment plus the amount of the WRS Royalty and the Guaranteed WRS Royalty for the calendar quarters ending December 31, September 30, June 30 and March 31 of such calendar year is $400,000.
2.6
Records and Audit
: WRS and WRL shall each maintain and keep (at their respective principal places of business and at their sole expense), during the Royalty Term applicable to such party and for at least two (2) years after expiration of the Royalty Term applicable to such party, accurate books of account and records covering all matters and transactions relating to the calculation of the WRS Royalty and the WRL Royalty, as applicable. TWR and its duly authorized representative(s) shall have the right, upon reasonable notice and during normal business hours, on no more than one occasion during any twelve (12) month period with respect to each of WRS and WRL, to examine and otherwise audit said books of account, records and all other documents and materials in the possession or under the control of WRS and WRL, as applicable, which are relevant to the calculation of the WRS Royalty and WRL Royalty. If any audit discloses deficiencies, said amount shall be immediately paid to TWR by WRS or WRL, as applicable, and if any audit performed at TWR’s expense discloses deficiencies of five percent (5%) or more of the total amount of WRS Royalty or WRL Royalty due TWR, WRS or WRL, as applicable, shall reimburse TWR for the reasonable costs of such audit.
3.
Representations and Warranties of TWR
. TWR hereby represents and warrants to each of WRS and WRL as follows:
3.1
Organization
. TWR is corporation duly organized and validly existing under the laws of the State of Delaware, with all requisite corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted.
3.2
Authorization; Binding Effect
. TWR has the full legal right, authorization, and capacity to execute and deliver, and to perform its obligations under, this Agreement. TWR has taken all action necessary to execute, deliver and perform its obligations under this Agreement. This Agreement constitutes the valid obligation of TWR and is legally binding on and enforceable against TWR in accordance with its respective terms except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws affecting creditors’ rights, and (ii) general principles of equity relating to the availability of equitable remedies (regardless of whether any applicable agreements are sought to be enforced in a proceeding at law or in equity).
3.3
No Conflict
. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, (i) conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under any provision of any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to TWR or its properties or assets, or (ii) violate any provision of law, or any order, judgment or decree of any court or other governmental authority applicable to the TWR. No consent, waiver, approval or authorization of any third party is required to be obtained on the part of the TWR in connection with the transactions contemplated by this Agreement other than those that have been or will be obtained.
3.4
Disclaimer of Other Representations and Warranties
. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 3, TWR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF ANY OF TWR’s ASSETS, LIABILITIES OR OPERATIONS, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
4.
Representations and Warranties of WRS and WRL
. Each of WRS and WRL, severally, and not jointly, hereby represent and warrant to TWR as follows:
4.1
Organization
. Such company is a limited liability company duly organized and validly existing under the laws of the State of California, with all requisite power and authority to own, lease and operate its properties and to conduct its business as presently conducted.
4.2
Authorization; Binding Effect
. Such company has the full legal right, authorization, and capacity to execute and deliver, and to perform its obligations under, this Agreement. Such company has taken all action necessary to execute, deliver and perform its obligations under this Agreement. This Agreement constitutes the valid obligation of such company and is legally binding on and enforceable against such company in accordance with its respective terms except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws affecting creditors’ rights, and (ii) general principles of equity relating to the availability of equitable remedies (regardless of whether any applicable agreements are sought to be enforced in a proceeding at law or in equity).
4.3
No Conflict
. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, (i) conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under any provision of any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to such company or its properties or assets, or (ii) violate any provision of law, or any order, judgment or decree of any court or other governmental authority applicable to such company. No consent, waiver, approval or authorization of any third party is required to be obtained on the part of such company in connection with the transactions contemplated by this Agreement other than those that have been or will be obtained.
4.4
Disclaimer of Other Representations and Warranties
. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 4, EACH OF WRS AND WRL MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF ANY OF WRS’ OR WRL’s ASSETS, LIABILITIES OR OPERATIONS, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
5.
Additional Covenants of the Parties
.
5.1
Business of WRL and WRS
. Each of WRS and WRL shall not have the authority to, and shall not, take or fail to take any of the following actions or transactions by or involving WR and/or WRSL, including entering into of any contract or agreement to do any of the following actions, or causing any material modification, amendment, enforcement, waiver, extension or renewal thereof, without first obtaining the approval of TWR, which approval shall not be unreasonably withheld:
(a) enter into any license, sublicense or similar grant of rights with respect to the
William Rast
® mark with any party identified to WRL or WRS in writing by TWR as a Restricted Party, or for any Restricted Purpose;
(b) with respect to WRL only, engage in any business other than owning, and licensing others (including any Affiliate of WRL) rights to, the
William Rast
® mark in all classifications;
(c) enter into any license agreement, sublicense or other arrangement granting any rights to the
William Rast
® mark to any party who is not an Affiliate of WRS or WRL which is substantially more favorable to such third party than the form, terms and conditions of what would be expected in an arms length transaction with a third party for fair market value; or
(d) with respect to WRL, grant WRS any rights to use the
William Rast
® mark in addition to those existing as of the date hereof. A true and correct copy of the WRS License Agreement in effect as of the date hereof is attached hereto as
Exhibit A
.
In order to obtain the prior approval of TWR with respect to any of the above actions, WRL and/or WRS, as the case may be, shall provide TWR with all relevant information reasonably necessary for TWR to conduct its due diligence and make its determination, including but not limited to the identity of the relevant parties and the principals thereof, the form, terms and conditions of any proposed agreements and/or copies of such proposed agreements if in final form, and any other information reasonably requested by TWR.
In addition, WRL and/or WRS, as the case may be, shall provide TWR with all of the above referenced information with respect to all licenses, sublicenses or similar grant of rights it enters into or grants which do not otherwise require the approval of TWR hereunder.
5.2
Timberlake Support
. TWR will ensure that Justin Timberlake (i) uses his commercially reasonable efforts to support, endorse and promote the
William Rast
® brand, including by, among other things, associating himself as an owner of the
William Rast
® brand and one of its original creators, and otherwise taking actions that are intended by him to reflect favorably on the
William Rast
® brand, and (ii) performs his obligations under the Services Agreement (as defined in the Settlement Agreement). The covenants of TWR in this
Section 5.2
are a material inducement to WRS and WRL to enter into this Agreement and perform each of their obligations hereunder.
6.
Term and Termination
. This Agreement shall commence the date hereof and shall continue until expiration of the Royalty Term (as it applies to both WRS and WRL), unless terminated earlier as follows:
6.1
Termination by TWR
. TWR shall have the right to terminate this Agreement upon thirty (30) days prior written notice to WRS and WRL.
6.2
Termination by WRS
. WRS shall have the right to terminate this Agreement (including with respect to WRL’s obligations hereunder), as its sole and exclusive remedy under this Agreement, if Justin Timberlake begins to sponsor, promote, endorse and/or derive any economic benefit from a non-
William Rast
® branded product in any product category that is covered by the WRS License Agreement and such activities by Justin Timberlake continue for a period of thirty (30) days after written notice of termination is provided by WRS to TWR.
On the termination date, (i) the obligations of each of WRS and WRL under
Section 2
(other than with respect to
Section 2.6
,
Records and Audit
) and
Section 5.1
shall immediately terminate and (ii) the obligations of TWR under
Section 5.2
shall immediately terminate. Each representation and warranty of a party to this Agreement shall survive consummation of the transactions hereunder.
7.
Miscellaneous
.
7.1
Notices
. All notices, requests and other communications to any party hereunder shall be in writing, by reliable overnight delivery service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), or by facsimile, and shall be given:
(a) if to WRS or WRL, to:
People’s Liberation, Inc.
1212 S. Flower St., 5th Floor
Los Angeles, CA 90015
Attention: Chief Executive Officer
Facsimile: (213) 745-2032
with copies to:
John J. McIlvery, Esq.
Stubbs Alderton & Markiles, LLP
15260 Ventura Boulevard, 20
th
Floor
Sherman Oaks, CA 91403
Facsimile: (818) 444-6302
(b) if to TWR:
c/o Al Gossett
1900 Covington Pike
Memphis, TN 38128
Facsimile: (901) 373-2047
with copies to:
Brad D. Rose, Esq.
Pryor Cashman LLP
7 Times Square
New York, NY 10036-6569
Facsimile: (212) 798-6369
or such other address or facsimile number as such party may hereafter specify by notice to the other Parties hereto. Each such notice, request or other communication shall be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number specified above and electronic confirmation of transmission is received or (b) if given by any other means, when delivered at the address specified in this
Section 7.1
.
7.2
Entire Agreement
. This Agreement contains the sole and entire agreement and understanding of the parties with respect to the entire subject matter of this Agreement, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, related to the subject matter of this Agreement are hereby merged herein.
7.3
Assignment
. No party may assign this Agreement, and any attempted or purported assignment or any delegation of any party’s duties or obligations arising under this Agreement to any third party or entity shall be deemed to be null and void, and shall constitute a material breach by such party of its duties and obligations under this Agreement. Notwithstanding the foregoing or anything to the contrary herein, TWR may assign this Agreement to an Affiliate of TWR.
7.4
Waiver and Amendment
. No provision of this Agreement may be waived unless in writing signed by all the parties to this Agreement, and waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all of the parties to this Agreement.
7.5
Governing Law
; Dispute Resolution
. This Agreement is governed by and will be interpreted according to California law, except for any choice of law rules. Any controversy arising out of or relating to this Agreement, or any modification or extension thereof, shall be administered and fully and finally resolved before JAMS in Los Angeles, California, pursuant to its Comprehensive Arbitration Rules and Procedures. Such dispute shall be resolved by a single arbitrator appointed in accordance with said Rules and Procedures. The Parties consent that any process or notice of motion or other application to any court, and any paper in connection with arbitration, may be served by certified mail, return receipt requested or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed. Pending the arbitration award, the Parties shall have all rights to provisional remedies which they would have at law or equity, notwithstanding the existence of this agreement to arbitrate. The arbitrators shall have no power to alter or modify any express provision of this Agreement (all of which provisions are hereby incorporated by reference into this arbitration provision) or to render an award which has the effect of altering or modifying any express provision hereof,
provided
,
however
, that any application for reformation of the contract shall be made to the arbitrators and not to any court and the arbitrators shall be empowered to determine whether valid grounds for reformation exist. The Parties shall maintain the confidential nature of the arbitration proceeding and any award, including the hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a court application for a preliminary remedy, a judicial challenge to an award or its enforcement, or unless otherwise required by law or judicial decision. To the extent that any Party seeks injunctive or other preliminary relief, a stay or provisional remedy, confirmation of an award or any other judicial intervention, that Party shall use its best effort to have any such submission filed under seal, and to ensure that any related documents shall be designated and treated as a “Sealed Document.” To the extent the court permits such sealing, all papers and documents filed under seal shall be filed in sealed envelopes and shall remain under seal until such time as the court, or any court of competent jurisdiction, orders otherwise. Such Sealed Documents shall be identified with the caption of this action and a general description of the sealed contents, and shall bear the following statement which should also appear on the sealed envelope:
“CONFIDENTIAL - SUBJECT TO PROTECTIVE ORDER
Contents are confidential and are subject to a court ordered protective
order governing the use and dissemination of such contents.”
The clerk of the court shall maintain such Sealed Documents separate from the public records, intact and unopened except as otherwise directed by the court. Such Sealed Documents shall be released by the clerk of the court only upon further order of the court.
7.6
Severability
. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.
7.7
Captions
. The various captions of this Agreement are for reference only and shall not be considered or referred to in resolving questions of interpretation of this Agreement.
7.8
Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
7.9
Costs and Attorneys’ Fees
. If any action, suit, arbitration or other proceeding is instituted to remedy, prevent or obtain relief from a default in the performance by any party to this Agreement of its obligations under this Agreement, the prevailing party shall recover all of such party’s attorneys’ fees incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom. As used in this Section, attorneys’ fees shall be deemed to mean the full and actual costs of any legal services actually performed in connection with the matters involved calculated on the basis of the usual fee charged by the attorney performing such services and shall not be limited to “reasonable attorneys’ fees” as defined in any statute or rule of court.
7.10
Judicial Interpretation
. Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any person by reason of the rule of construction that a document is to be construed more strictly against the person who itself or through its agent prepared the same, it being agreed that all parties have participated in the preparation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
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WILLIAM RAST SOURCING, LLC,
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a California limited liability company
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By:
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Colin Dyne
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Its:
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Manager
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WILLIAM RAST LICENSING, LLC,
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a California limited liability company
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By:
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Colin Dyne
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Its:
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Manager
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TENNMAN WR-T, INC.,
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a Delaware limited liability company
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By:
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/s/ Justin Timberlake
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Name:
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Its:
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EXECUTION COPY
PREEMPTIVE RIGHTS AND
BOARD NOMINEE AGREEMENT
This
Preemptive Rights and Board Nominee Agreement (this “
Agreement
”) is made and entered into as of October 1, 2011, by and among PEOPLE’S LIBERATION, INC., a Delaware corporation (the “
Company
”), TENNMAN WR-T, INC., a Delaware corporation (“
TWR
”) (PPLB and TWR are herein collectively referred to as the “
Parties
”) and, with respect to
Section 2
only, Al Gossett, an individual (“
Gossett
”).
RECITALS
A. TWR and Bella Rose, LLC, a California limited liability company (“
BR
”), are parties to that certain Second Amended and Restated Limited Liability Company Operating Agreement of William Rast Sourcing, LLC, a California limited liability company (“
WRS
”), dated of even date herewith, pursuant to which the parties recapitalized and recharacterized BR’s and TWR’s membership interest in WRS on the terms set forth therein and, in part, for the consideration to be provided by WRS as set forth in this Agreement.
B. TWR and BR are parties to that certain Second Amended and Restated Limited Liability Company Operating Agreement of William Rast Licensing, LLC, a California limited liability company (“
WRL
”), dated of even date herewith, pursuant to which the parties recapitalized and recharacterized BR’s and TWR’s membership interest in WRL on the terms set forth therein and, in part, for the consideration to be provided by WRL as set forth in this Agreement.
C. TWR, WRS and WRL are parties to that certain Royalty Agreement, dated of even date herewith (the “
Royalty Agreement
”), which agreement provides for, among other things, the payment of consideration to TWR in respect of the recapitalization and recharacterization of the membership interests in each of WRL and WRS pursuant to the Second Amended and Restated Limited Liability Company Operating Agreements.
D. In connection with the foregoing agreements, the Company desires to grant to TWR, and TWR desires to obtain from the Company, certain rights to subscribe for capital stock of the Company and to designate a nominee for election to the Board of Directors of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and on the terms and subject to the conditions hereinafter set forth, the parties hereto agree as follows:
1.
Preemptive Rights
.
1.1
Right to Purchase New Securities
. The Company hereby grants to TWR the right to purchase up to twenty five percent (25%) of New Securities (as defined below) which the Company may, from time to time, propose to sell and issue after the date of this Agreement. The preemptive right hereby granted to TWR is personal to TWR and may not be assigned or apportioned by TWR to any other Person other than Gossett.
1.2
New Securities
. For purposes hereof, “
New Securities
” shall mean any capital stock of the Company, including common stock, par value $0.001 per share, of the Company (the “
Common Stock
”), whether now authorized or not, and rights, convertible securities, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, exercisable or convertible into capital stock;
provided
that the term “
New Securities
” does not include capital stock issued or issuable:
1.2.1 to officers, directors or employees of, or consultants or other service providers to, the Company in connection with grants and agreements pursuant to the Company’s existing or future equity compensation plans or agreements, provided such plans have been approved by the Board of Directors of the Company;
1.2.2 to prospective officers of the Company, in connection with and as an inducement to such officers becoming employed by the Company;
1.2.3 upon exercise of options or warrants outstanding as of the date of this Agreement;
1.2.4 to strategic partners, lenders or lessors in connection with commercial credit arrangements, equipment financings, vendor financing arrangements, product production arrangements, commercial property lease transactions or similar transactions that do not primarily involve the sale of equity securities for capital raising purposes; and
1.2.5 in connection with bona fide acquisitions, mergers or similar transactions.
1.3
Investor Status
. The preemptive right shall not be applicable if (a) at the time of such offering, TWR is not an “accredited investor” as that term is defined in Section 501(a) of the Securities Act of 1933, as amended, and (b) such offering of New Securities is otherwise being offered only to accredited investors.
1.4
Election Period
. In the event the Company proposes to undertake an issuance of New Securities, it shall give TWR written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. TWR shall have five (5) business days after any such notice is mailed or delivered (the “
Election
Period
”) to agree to purchase TWR’s share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company.
1.5
Failure to Exercise Right
. If TWR fails to exercise fully its preemptive right within the Election Period, the Company shall have one hundred twenty (120) days thereafter to sell or enter into an agreement (pursuant to which the initial sale of New Securities covered thereby shall be closed, if at all, within one hundred twenty (120) days from the date of such agreement) to sell that portion of the New Securities with respect to which TWR’s preemptive right was not exercised, at a price and upon terms not more favorable to the purchasers thereof than specified in the Company’s notice to TWR delivered pursuant to
Section 1.4
. In the event the Company has not sold the New Securities or entered into an agreement to sell the New Securities within such one hundred twenty (120) day period following the Election Period, or if the Company has not made an initial sale of New Securities within the one hundred twenty (120) day period following the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to TWR in the manner provided in this Agreement.
1.6
Termination of Preemptive Right
. The preemptive right granted under this Agreement shall terminate and expire upon, and shall not be applicable following the first to occur of (a) the fifth (5
th
) anniversary of the date of this Agreement, and (b) immediately upon the consummation of a Sale Transaction; provided such transaction is immediately followed by payment to TWR of the Liquidating Payment (as defined in the Second Amended and Restated Limited Liability Operating Agreement of WRS). In addition, TWR shall not have the right to exercise its preemptive right at any time following and during the continuance of any material breach or material default by TWR or Justin Timberlake of any of their respective obligations under that certain Settlement and Release Agreement, of even date herewith, by and among the Company, TWR, BR, WRS, WRL, and Justin Timberlake (the “
Settlement Agreement
”), or any agreement entered into pursuant to the Settlement Agreement, and any New Securities sold by or agreed to be sold by the Company during the continuance of any such material breach or material default shall be sold by the Company without any obligations to TWR under this Agreement. For purposes hereof, a “
Sale Transaction
” shall mean the earliest to occur of (i) the voluntary or involuntary liquidation, dissolution or winding up of the Company followed by the Company’s distribution to holders of its membership interests of amounts to which such holders are entitled in respect of such interests as a result of the liquidation, dissolution or winding up of the Company; (ii) the sale of all or substantially all of the assets of the Company in one transaction or a series of related transactions; and (iii) the acquisition of the Company by another entity by means of merger, consolidation, share exchange, reorganization or otherwise pursuant to which equity interests of the Company are converted into or exchanged for cash, securities or other property of the acquiring entity or any of its affiliates and which results in the holders of voting securities (excluding shares of the surviving entity held by holders of equity interests of the Company acquired by means other than the exchange or conversion of the capital stock of the Company for shares of the surviving entity) of the Company immediately prior to such merger, consolidation, share exchange, reorganization or other transaction beneficially owning, directly or indirectly, less than a majority of the combined voting power of the surviving entity resulting from such merger, consolidation, share exchange, reorganization or other transaction.
2.
Board Nominee Agreement
.
2.1
Board Nominee
. Subject to the terms and conditions of this
Section 2
, in connection with any director nominees to be submitted to the Company’s stockholders for election (whether at a stockholders’ meeting or by written consent), TWR shall have the right to designate Gossett as one of the Board’s nominees for director to be submitted to the Company’s stockholders for election, and if TWR so designates Gossett, then the Company shall include Gossett as one of the Board’s nominees. The parties acknowledge that the Company currently has a staggered Board of Directors and that it is expected that the Gossett shall become a Class IIII Director as set forth in the Company’s Certificate of Incorporation. Accordingly, the Company shall have no obligation to nominate Gossett for election at a particular stockholders’ meeting if Gossett is then serving on the Company’s Board of Directors for a term that extends beyond the date of the applicable stockholders’ meeting.
2.2
Qualification for Service on the Board
. TWR’s right to designate Gossett as a Board nominee pursuant to
Section 2.1
above, the Company’s obligations with respect thereto, is conditional upon the following:
2.2.1 Gossett consenting in writing to serve as director if elected;
2.2.2 Gossett providing the Company with all information reasonably required in for a board appointment as requested by the Company from time to time concerning Gossett and his nomination, including his completion of the Company’s non-employee director questionnaire and providing the Company with all other information that the Company is required to include in its proxy statement with respect persons nominated by the Company’s Board of Directors;
2.2.3 Gossett complying at all times while serving on the Company’s Board of Directors, with all applicable laws including, without limitation, federal securities laws and state fiduciary duty laws; and
2.2.4 Gossett complying at all times while serving on the Company’s Board of Directors, with the Company’s policies applicable to all non-employee directors of the Company, including, without limitation, insider trading policies, confidentiality agreements, and codes of ethics.
If at any time Gossett fails to comply with his obligations under
Section 2.2.1
through
2.2.4
, the Company, upon approval of a majority of the Board of Directors then serving (other than Gossett, if then a director), may provide Gossett written notice of his failure to so comply, which notice shall specify in reasonable detail Gossett’s failure to so comply. If Gossett does not cure such failure within fifteen (15) days following the date written notice is provided to Gossett, then the Company’s obligations under this
Section 2
shall terminate and be of no further force or effect, and Gossett shall immediately tender to the Board his resignation as a director of the Company, which resignation shall be effective upon receipt.
2.3
Initial Appointment
. As soon as practicable following the date hereof, the Board of Directors of the Company shall, by resolution of the Board, (a) increase the number of Class III Directors of the Board of Directors from one (1) to two (2), and (b) appoint Gossett to serve as a Class III Director to fill the vacancy created by such Board expansion. For so long as Gossett is serving on the Board, the Company shall maintain its current director & officer insurance policy or a policy that is substantially equivalent to such current policy.
2.4
Termination of Nominee Rights
. The Board nominee rights granted under this Agreement shall terminate and expire upon, and shall not be applicable following the first to occur of (I) the latest of (a) the termination of the royalty term with respect to WRL under the Royalty Agreement, (b) the termination of the royalty term with respect to WRS under the Royalty Agreement, (c) immediately prior to consummation of a Sale Transaction, or (d) the termination of the two-year post-termination exploitation period set forth in Section 10 of the Services Agreement; (II) the death or disability of Gossett; or (III) termination of the Board nominee rights in accordance with
Section 2.2
. In addition, TWR shall not have the right to exercise its Board nominee rights at any time following and during the continuance of any material breach or material default by TWR or Justin Timberlake of any of their respective obligations under the Settlement Agreement or any agreement entered into pursuant to the Settlement Agreement.
3.
Miscellaneous
.
3.1
Notices
. All notices, requests and other communications to any party hereunder shall be in writing, by reliable overnight delivery service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), or by facsimile, and shall be given:
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(a)
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if to the Company, to:
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People’s Liberation, Inc.
1212 S. Flower St., 5th Floor
Los Angeles, CA 90015
Attention: Chief Executive Officer
Facsimile: (213) 745-2032
with copies to:
John J. McIlvery, Esq.
Stubbs Alderton & Markiles, LLP
15260 Ventura Boulevard, 20
th
Floor
Sherman Oaks, CA 91403
Facsimile: (818) 444-6302
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(b)
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if to TWR or Gossett:
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c/o Al Gossett
1900 Covington Pike
Memphis, TN 38128
Facsimile: (901) 373-2047
with copies to:
Brad D. Rose, Esq.
Pryor Cashman LLP
7 Times Square
New York, NY 10036-6569
Facsimile: (212) 798-6369
or such other address or facsimile number as such party may hereafter specify by notice to the other Parties hereto. Each such notice, request or other communication shall be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number specified above and electronic confirmation of transmission is received or (b) if given by any other means, when delivered at the address specified in this
Section 3.1
.
3.2
Entire Agreement
. This Agreement contains the sole and entire agreement and understanding of the parties with respect to the entire subject matter of this Agreement, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, related to the subject matter of this Agreement are hereby merged herein.
3.3
Assignment
. Except as expressly provided herein, no party may assign this Agreement, and any attempted or purported assignment or any delegation of any party’s duties or obligations arising under this Agreement to any third party or entity shall be deemed to be null and void, and shall constitute a material breach by such party of its duties and obligations under this Agreement.
3.4
Waiver and Amendment
. No provision of this Agreement may be waived unless in writing signed by all the parties to this Agreement, and waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all of the parties to this Agreement.
3.5
Governing Law
; Dispute Resolution
. This Agreement is governed by and will be interpreted according to California law, except for any choice of law rules. Any controversy arising out of or relating to this Agreement, or any modification or extension thereof, shall be administered and fully and finally resolved before JAMS in Los Angeles, California, pursuant to its Comprehensive Arbitration Rules and Procedures. Such dispute shall be resolved by a single arbitrator appointed in accordance with said Rules and Procedures. The Parties consent that any process or notice of motion or other application to any court, and any paper in connection with arbitration, may be served by certified mail, return receipt requested or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed. Pending the arbitration award, the Parties shall have all rights to provisional remedies which they would have at law or equity, notwithstanding the existence of this agreement to arbitrate. The arbitrators shall have no power to alter or modify any express provision of this Agreement (all of which provisions are hereby incorporated by reference into this arbitration provision) or to render an award which has the effect of altering or modifying any express provision hereof,
provided
,
however
, that any application for reformation of the contract shall be made to the arbitrators and not to any court and the arbitrators shall be empowered to determine whether valid grounds for reformation exist. The Parties shall maintain the confidential nature of the arbitration proceeding and any award, including the hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a court application for a preliminary remedy, a judicial challenge to an award or its enforcement, or unless otherwise required by law or judicial decision. To the extent that any Party seeks injunctive or other preliminary relief, a stay or provisional remedy, confirmation of an award or any other judicial intervention, that Party shall use its best effort to have any such submission filed under seal, and to ensure that any related documents shall be designated and treated as a “Sealed Document.” To the extent the court permits such sealing, all papers and documents filed under seal shall be filed in sealed envelopes and shall remain under seal until such time as the court, or any court of competent jurisdiction, orders otherwise. Such Sealed Documents shall be identified with the caption of this action and a general description of the sealed contents, and shall bear the following statement which should also appear on the sealed envelope:
“CONFIDENTIAL - SUBJECT TO PROTECTIVE ORDER
Contents are confidential and are subject to a court ordered protective
order governing the use and dissemination of such contents.”
The clerk of the court shall maintain such Sealed Documents separate from the public records, intact and unopened except as otherwise directed by the court. Such Sealed Documents shall be released by the clerk of the court only upon further order of the court.
3.6
Severability
. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.
3.7
Captions
. The various captions of this Agreement are for reference only and shall not be considered or referred to in resolving questions of interpretation of this Agreement.
3.8
Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
3.9
Costs and Attorneys’ Fees
. If any action, suit, arbitration or other proceeding is instituted to remedy, prevent or obtain relief from a default in the performance by any party to this Agreement of its obligations under this Agreement, the prevailing party shall recover all of such party’s attorneys’ fees incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom. As used in this Section, attorneys’ fees shall be deemed to mean the full and actual costs of any legal services actually performed in connection with the matters involved calculated on the basis of the usual fee charged by the attorney performing such services and shall not be limited to “reasonable attorneys’ fees” as defined in any statute or rule of court.
3.10
Judicial Interpretation
. Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any person by reason of the rule of construction that a document is to be construed more strictly against the person who itself or through its agent prepared the same, it being agreed that all parties have participated in the preparation of this Agreement.
(
Signatures on Following Page
)
IN WITNESS WHEREOF, this Agreement has been made and entered into as of the date and year first above written.
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PEOPLE’S LIBERATION, INC.,
|
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a Delaware corporation
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By:
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Colin Dyne
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Its:
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Chief Executive Officer
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TENNMAN WR-T, INC.,
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a Delaware limited liability company
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By:
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/s/ Justin Timberlake
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Name:
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Its:
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The undersigned, Al Gossett, by his signature below, consents to serve as a member of the Board of Directors of the Company and agrees to comply with the provisions of Section 2 above with respect to such service, including, without limitation, to comply with the conditions to such service and to tender his resignation in accordance with the terms of Section 2.
EXECUTION COPY
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this “
Agreement
”) is made and entered into effective October 1, 2011 (the “
Effective Date
”), by and between WILLIAM RAST LICENSING, LLC, a California limited liability company, located at 1212 S. Flower St., 5th Floor, Los Angeles, CA 90015 (the “
Company
”), TENNMAN BRANDS, LLC, a Delaware limited liability company (“
TBL
”) f/s/o JUSTIN TIMBERLAKE, an individual (the “
Artist
”), and, for purposes of Section 11 only, TENNMAN WR-T, Inc., a Delaware corporation (“
WR-T
”). The Company and TBL are sometimes referred to herein as a “
Party
” and collectively, as the “
Parties
.”
RECITALS
A. The Company owns the trademark “William Rast” and is in the business of licensing to third parties, including affiliates of the Company, rights to use the William Rast® brand in connection with the manufacture, distribution and sale of consumer products.
B. Company and Artist were parties to that certain Services Agreement, dated as of October 1, 2006 (including any and all modifications, amendments and/or extensions, the “
Services Agreement
”), which Service Agreement has been terminated and is no longer in effect.
C. On even date herewith, Company, Artist and the other parties thereto are entering into a certain Settlement and Release Agreement (the “
Settlement Agreement
”) to resolve and settle certain disagreements, claims and disputes (without concession of liability by one party to the other), and to release each other from certain liabilities under various agreements, including the Services Agreement. The Settlement Agreement also provides for, among other things, the execution and delivery by the Parties of this Agreement as a condition to the effectiveness of the Settlement Agreement.
D. In connection with the Settlement Agreement, TBL desires to enter into this Agreement to provide certain services of Artist to the Company and its licensees on and after the Effective Date in connection with the commercial exploitation of William Rast branded apparel and other consumer products as more fully described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
1.
Definitions
.
As used in this Agreement, the following terms have the following meanings:
1.1 “
Authorized Representative
” of a Party means the person identified by such Party in writing from time to time as its Authorized Representative. The Company’s initial Authorized Representative is Colin Dyne, and TBL’s initial Authorized Representative is Al Gossett. All decisions and approvals of a Party’s Authorized Representative shall be deemed to be the decision and approval of the applicable Party.
1.2 “
Contract Year
” shall mean the period commencing on the Effective Date and ending on the first anniversary of the Effective Date, and the eleven (11) month period thereafter.
1.3 “
PR Materials
” means such public relations materials in the form approved by TBL’s Authorized Representative for use by the Company solely in connection with the endorsement and promotion of the Products by the Artist in connection with this Agreement and including by way of example mutually approved press releases, photographs and quotes.
1.4 “
Products
” means (i) William Rast® branded apparel and apparel accessories, and (ii) such other William Rast® branded consumer products that are sold from time to time by the Company or a third party licensed by the Company.
1.5 “
Sourcing
” means William Rast Sourcing, LLC, a California limited liability company and an affiliate of the Company.
1.6 “
Territory
” is worldwide.
2.
Provision of Services and Grant of Rights
.
2.1 Subject to the provisions of this Agreement, the Company shall not have any rights to use the Artist’s name, likeness or other identifying characteristics or variations thereof (e.g., initials or otherwise) (“
Artist Property
”) in naming or in association with the Products, advertising, marketing or promotion of Products or in any of the Company’s activities without TBL’s prior written consent, which consent may be withheld in TBL’s sole discretion. Company acknowledges and understands that TBL’s and Artist’s association is intended to be an indirect endorsement of Products and it is the intention of Company and TBL that the Products shall be associated with Artist and TBL only as is agreed by TBL from time to time, and no such association may take place without TBL’s prior written approval.
2.2 Subject to
Sections 2.3
through
2.8
below, TBL agrees to cause Artist to provide the following non-exclusive services (the “
Promotional Work
”) to the Company during the Term:
2.2.1 TBL shall cause Artist to participate in press interviews regarding the William Rast® brand with apparel industry trade publications and press (e.g., WWD), fashion “dignitaries” and retailers, in each case as identified by the Company from time to time.
2.2.2 TBL shall cause Artist to attend two (2) retail events per calendar year during the Term and perform services in connection with such events, all as reasonably requested by the Company, which services shall be reasonably acceptable to TBL.
2.2.3 TBL shall cause Artist to provide input to the Company (but shall not be required to appear) on the Company’s advertising, marketing and promotional campaigns (collectively the “
Marketing Campaigns
”) and, if requested by the Company, on no more than two (2) occasions per calendar year during the Term Artist shall meet in person or by telephone or video conference with the director of a Marketing Campaign to provide input with respect to video productions utilized in any Marketing Campaigns.
2.2.4 TBL shall cause Artist to appear in marketing materials (which marketing materials shall
not
include, and Company shall have no right to use Artist Property in connection with any billboards, print ads, commercials or the like, or any other advertising to consumers or to the trade), whereby approved images of the Artist appear in, among other things, look books, one sheets about the brand or brand event that the Artist attends, press books, brand presentations, event and culture sections on Company’s website, “in store materials” and hangtags (which shall not include the Artist’s image, but rather make reference to the Artist’s name and association with the brand and its founding — e.g., “Founded by Justin Timberlake”). Any such approved images shall only be those approved by TBL and Artist’s public relations agency that are requested and obtained from such agency by Company.
2.2.5 TBL shall cause Artist to personally meet with existing and prospective key strategic retail and distribution partners of the Company as reasonably requested by the Company from time to time to generally discuss the William Rast® brand.
2.2.6 In performing the services contemplated by
Sections 2.2.1
through
2.2.5
, TBL shall not be required to make Artist available for more than eight (8) days of Promotional Work each Contract Year during the Term, each day limited to four (4) hours in duration (exclusive of travel time if services are provided locally where Artist resides), except that, during the remainder of calendar year 2011, TBL shall not be required to make Artist available for more than two (2) such days of Promotional Work, in each case subject to Sections 2.3 through 2.8 below. Once TBL has caused Artist to fulfill his Promotional Work days during any calendar year during the Term, TBL shall have no further Promotional Work obligations to Company or otherwise during the balance of that calendar year in which Promotional Work days/obligations have been fulfilled.
2.3 TBL’s ability to cause Artist to perform any particular Promotional Work in connection with this Agreement shall be subject at all times to the Artist’s prior professional and personal commitments and schedule. In no event shall Artist be required to personally perform any singing, recording, musical, theatrical or other entertainment activities in providing any Promotional Work services hereunder.
2.4 TBL shall have the right to approve in advance all aspects of the Artist’s participation with or at Promotional Work in connection with this Agreement.
2.5 In connection with any photographic shoots, media interviews and other Promotional Work, security for the Artist shall be the Company’s sole responsibility, the standard and manner of which shall be pursuant to TBL’s reasonable direction.
2.6 The Company shall pay and be solely responsible for all of Artist’s customary expenses in connection with any Promotional Work and to attend any promotional events and/or activities required in connection with this Agreement, including but not limited to providing round trip private jet air transportation, first-class private ground transportation to and from each location, meals and five (5) star or better hotel accommodations for Artist and at least five (5) other individuals (separate rooms for each, with a suite for Artist), and shall provide all deliverables required by Artist’s rider, attached hereto as
Exhibit A
in connection with any such appearances, unless the Artist is already in the locations in question pursuant to the Artist’s own schedule, in which case the Company shall only pay those reasonable expenses relating directly to the Artist’s attendance at each such promotional event or activity.
2.7 In connection with any request by the Company for TBL to cause Artist to provide any such Promotional Work, the Parties hereto shall cooperate with each other to arrange such personal appearances at times and places reasonably acceptable to TBL and Artist, provided Artist is in good health and provided further that Company shall provide TBL with at least ninety (90) days prior written notice to request that Artist make an appearance in accordance herewith. In the event the Company proposes only those dates and/or locations where TBL cannot provide Artist’s services based on Artist’s prior commitments, TBL shall not be deemed in breach of this Agreement. When making any such request, Company shall only be entitled to contact Mr. Al Gossett, either telephonically, via email, or via the Notice provisions set forth below in Section 12, and only Mr. Gossett’s approval on behalf of TBL shall be valid and binding. Mr. Gossett shall be entitled to be present during any Promotional Work day. TBL shall respond to any request for Artist to make a personal appearance within ten (10) business days of such request, and if Artist is unable to make the personal appearance at the requested time, TBL shall propose an alternative time that is acceptable to TBL for such personal appearance.
2.8 The Company shall be responsible for all production costs to be incurred in connection with TBL’s or Artist’s promotional obligations organized specifically pursuant to this Agreement, and shall comply with the instructions of TBL and Artist as to the production requirements (technical or otherwise) of such intended appearances by the Artist.
3.
Results and Proceeds; Ownership and Use
.
3.1 Subject to the provisions of this Agreement, the results and proceeds of the Promotion Work and other services provided by the Artist under this Agreement, including without limitation any creative materials contributed to or created by the Artist for use in the Products and all PR Materials created during the Term, but excluding in all events the Artist Property, will be and remain the sole and exclusive property of the Company. Notwithstanding the foregoing, the Company shall have the right to use materials which refer to the Artist during the Term and thereafter within the Territory only as specifically provided in this Agreement, and may only use (but shall not obtain any ownership of) Artist Property that is cleared or obtained from Artist’s PR agency, notwithstanding the ownership thereof by the Company of any of the results and proceeds referred to above.
3.2 Notwithstanding anything to the contrary contained herein, any and all artwork, photographs or similar materials furnished by the Artist to the Company for the purposes of this Agreement (as opposed to materials created by the Company pursuant to this Agreement), and all Artist Property, shall remain exclusively owned by the Artist.
4.
Approvals
.
4.1 The PR Materials, Artist’s name and any photographs or other likenesses of the Artist and any other Artist Property may be used only in the form and in the manner and media approved in advance in writing by TBL in each instance (including without limitation, the form, content and placement of all material in which the PR Materials, photographs or other likenesses and any other Artist Property are to appear) and only in connection with the Products, as limited and specified in this Agreement. Notwithstanding the foregoing, TBL acknowledges and agrees that the use by the Company of PR Materials, Artist’s name and any photographs or other likenesses of the Artist in connection with the Products in the same form and in the same manner and media previously approved by TBL (including without limitation, the general form, content and placement of all material in which the PR Materials, photographs or other likenesses and any other Artist Property are to appear) shall not require any additional approval of TBL’s Authorized Representative.
4.2 The Company will provide TBL with any relevant samples that are necessary for TBL to approve or disapprove of the form and use of any PR Materials, photographs or other likenesses of the Artist and any other Artist Property to be used in connection with the endorsement, marketing, promotion, sale and distribution of the Products.
4.3 Except as provided in
Section 4.1
, no item shall be deemed approved by TBL unless specific written approval is given and the Company shall not proceed beyond any stage where approval is required without first securing such written approval.
4.4 When requesting any approvals under this Agreement, Company shall send any and all requests only to Mr. Al Gossett via the Notice provisions in Section 12 below, and only Mr. Gossett’s approval on behalf of TBL shall be valid and binding. TBL shall endeavor to advise the Company in writing of its approval or disapproval of the PR Materials, photographs or other likenesses and any other Artist Property within ten (10) business days after receipt of any relevant samples. The Company and TBL shall use reasonable efforts to make any disapproved items acceptable to the other. In the event TBL does not notify the Company of its written approval or disapproval within such ten (10) business day period, the relevant samples initially shall be deemed disapproved by TBL, following which the Company may send TBL a written reminder notice again requesting TBL’s approval of the relevant samples. If TBL does not notify the Company of its written approval or disapproval within ten (10) business days after delivery of the written reminder notice with respect to the samples, then the relevant samples shall be deemed approved by TBL.
5.
Assignment
.
5.1 This Agreement may not be assigned by either Party to any third party without the express written approval of the other Party.
5.2 Notwithstanding
Section 5.1
to the contrary, TBL acknowledges that the Company’s business is to license to third parties rights to manufacture, distribute and sell William Rast® branded consumer products, and that the services TBL causes to be provided by the Artist under this Agreement are intended, in part, to create awareness of the William Rast® brand for the benefit of the Company and its licensees. Accordingly, the Company may grant to one or more licensees of the William Rast® brand, rights to the PR Materials, photographs and other likeness of the Artist solely as both included in approved Artist Property and otherwise specifically approved in accordance with this Agreement, solely in connection with the promotion of the Products in accordance with the terms of this Agreement; provided, that Company notifies any such licensees in writing of the restrictions on Company’s rights hereunder, and Company shall remain primarily liable to Artist for any breaches by Company and/or any licensee of this Agreement in connection therewith, as if such licensee was a party to this Agreement and subject to the restrictions and obligations herein; and further provided, that Company provide TBL with notice of any such grant to any such licensee by Company in each and every instance. The delegation by the Company of such rights under this Agreement to a third party licensee shall not relieve the Company of its obligations to the Artist hereunder. Subject to the foregoing provisions of this Section 5.2, TBL consents to the delegation by the Company of such rights under this Agreement to Sourcing with respect to all Products that Sourcing has licensed rights from the Company as of the date of this Agreement.
6.
Intellectual Property
.
Nothing in this Agreement shall grant or be deemed to grant either Party any right, title or interest in any intellectual property rights owned by the other Party and, except as set forth herein, nothing in this Agreement shall entitle either Party to use the other Party’s logos or trademarks or any other intellectual property rights in any way whatsoever without the prior written consent of the other Party.
7.
Representations, Warranties and Undertakings
.
7.1 The Company represents, warrants, and undertakes as follows:
7.1.1 it is free to enter into and fully perform this Agreement;
7.1.2 it will not, whether during the Term or thereafter, intentionally do anything which disparages or materially and adversely affects the image of the Artist.
7.2 TBL represents, warrants, and undertakes as follows:
7.2.1 it is free to enter into and fully perform this Agreement and to cause Artist to perform and provide the services as set forth herein without violating the rights of any third party whatsoever or the terms of any other agreement between the Artist and a third party;
7.2.2 any statement made by the Artist about the Company and the Products will be of a positive nature; provided that the foregoing restriction shall not apply in the context of a litigation or similar action. Additionally, during the Term and thereafter, TBL agrees that the Artist shall not intentionally disparage his present or past association with the Company that materially and adversely affects the Company; provided that the foregoing restriction shall not apply in the context of a litigation or similar action.
8.
Indemnity
.
8.1 The Company hereby indemnifies TBL, Artist, their respective affiliates and each of their respective owners, officers, directors, managers, employees, representatives, agents heirs, successors and assigns, and holds each of them harmless from and against, any and all third party claims, demands, costs, damages, liabilities, expenses, penalties (including without limitation reasonable attorneys’ fees) arising out of, or in connection with (i) a breach by the Company (or Sourcing) of any provision of this Agreement, or (ii) the manufacture, distribution, marketing, promotion, use or consumption of the Products.
8.2 TBL hereby indemnifies the Company, its agents and employees and holds Company, its agents and employees harmless from all third party claims, demands, costs, damages, liabilities, expenses, penalties (including without limitation reasonable attorneys’ fees) arising out of, or in connection with a breach by TBL of any provision of this Agreement.
9.
Term and Termination
.
9.1 This Agreement shall commence on the Effective Date and shall continue until September 1, 2013 unless terminated earlier as provided herein (the “
Term
”).
9.2 Upon the occurrence of any of the following events, TBL shall have the right to terminate this Agreement:
9.2.1 the Company or Sourcing breaches any material representation, warranty, or undertaking made by it under this Agreement and does not cure such breach within thirty (30) days after receipt of a written notice specifying the breach;
9.2.2 any one or more of the Company, Sourcing, “PPLB” or “BR” breaches in any material respect any material representation, warranty, or undertaking made by it under any one or more of the Settlement Agreement or the “Ancillary Agreements”) (with each such quoted term as defined in the Settlement Agreement), and does not cure such breach, if curable, in accordance with the provisions of the Settlement Agreement and/or such Ancillary Agreements;
9.2.3 Company becomes insolvent or seeks protection under any bankruptcy, receivership, trust, deed, creditor’s arrangement, or comparable proceeding, or if any such proceeding is instituted against the Company and not dismissed within ninety (90) days; or
9.2.4 Company ceases or notifies TBL of Company’s intention to cease to carry on the William Rast licensing business.
9.3 Upon the occurrence of any of the following events, the Company shall have the right to terminate this Agreement:
9.3.1 in the event the Artist intentionally disparages his association with the Company or the Artist intentionally publicly disavows use of and/or intentionally disparages the Company or the Products which causes a material and adverse affect on the Company or the Products;
9.3.2 TBL breaches any material representation, warranty, or undertaking made by it under the Ancillary Agreements and does not cure such breach, if curable, in accordance with the provisions of such Ancillary Agreements; or
9.3.3 upon the death of the Artist or his disability which lasts for more than ninety (90) days in any twelve (12) month period.
10.
Effect of Expiration or Termination
.
Upon expiration of the Term or earlier termination of this Agreement, all rights granted to the Company by TBL shall forthwith revert to the TBL and all warranties and indemnification obligations of the Parties and all provisions which expressly or by implication are intended to apply after expiration of the Term shall survive the expiration or termination of this Agreement;
provided
,
however
, that notwithstanding the foregoing, following expiration of the Term or earlier termination of this Agreement, the Company and its licensees shall, solely for two (2) years thereafter, continue to have the right to use all PR Materials and any photographs or other likeness of the Artist existing as of the date of expiration of the Term or earlier termination of this Agreement in the same manner and in the same form as such PR Materials and photographs or other likeness of the Artist were previously approved by TBL and used by the Company and its licensees prior to the date of expiration of the Term or earlier termination of this Agreement without any further approval of TBL’s Authorized Representative, provided, that in the event this Agreement is terminated by TBL pursuant to Section 9.2 above, the Company and its licensee shall immediately cease all use of and shall thereafter have no right to use any of such PR Materials and any photographs or other likeness of the Artist or any other Artist Property.
11.
Guaranty by WR-T
.
WR-T hereby fully, unconditionally and irrevocably guarantees to the Company the full and prompt performance by TBL of all of its obligations in respect of the Agreement (the “
Guaranteed Obligations
”). In the event of any default by TBL in the performance of any of the Guaranteed Obligations, WR-T shall, on demand by notice, forthwith perform such Guaranteed Obligations, including, without limitation, by causing Artist to perform his obligations under this Agreement. This guaranty shall remain in full force and effect until performance in full of the Guaranteed Obligations.
WR-T agrees that the Guaranteed Obligations shall be absolute irrespective of any inaccuracy or breach of any representation or warranty made by TBL or by WRT hereunder. WR-T hereby waives any protest, diligence, demand or notice with respect to any breach by TBL of its obligations under the Agreement, except for demand by notice for performance of this guaranty as provided in this
Section 11
, and WR-T hereby waives the filing of any proof of claim or any diligence with respect to any proceeding of bankruptcy, insolvency, winding up, receivership, reorganization or analogous proceeding of TBL. WR-T agrees that the Guaranteed Obligations shall be absolute irrespective of (i) any amendment or modification of this Agreement, or any waiver or consent of the Company with respect to this Agreement, whether or not WR-T has received notice thereof or has given consent thereto, including any postponement or indulgence granted by the Company with respect to the performance by TBL of any term of this Agreement and (ii) any amendment or modification of this Agreement, or any waiver, release or termination of any rights of the Company pursuant to the Agreement. Notwithstanding the foregoing, however, any such amendment, modification, consent, waiver, release or termination of any rights shall be deemed to modify the Guaranteed Obligations to the extent that TBL’s underlying obligations are so modified.
WR-T hereby represents and warrants that, as of the date hereof: (i) WR-T is duly organized, validly existing and in good standing under the laws of the place of its incorporation or organization; (ii) this Agreement and WR-T’s guaranty hereunder has been duly and validly authorized and executed by persons with authority to bind WR-T and constitutes the legal, valid and binding obligation of WR-T, enforceable against WR-T in accordance with its terms (subject to the effect, if any, of applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law governing specific performance, injunctive relief and other equitable remedies); (iii) no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by WR-T of this Agreement and its guaranty hereunder, except for such notices and filings which, if not filed, would not have a material adverse effect on WR-T, taken as a whole; (iv) the execution, delivery and performance by WR-T of this Agreement and its guaranty hereunder do not and will not conflict with, contravene, violate or result in a breach of or default under any laws applicable to WR-T or any order, decree or judgment of any court or governmental authority binding on WR-T or any agreement or instrument to which WR-T is a party or by which it or any of its assets are bound, except for such conflicts, contraventions, violations, breaches or defaults as would not have a material adverse effect on WR-T and its subsidiaries, taken as a whole, and will not result in or require the creation or imposition of any lien, charge or encumbrance upon any assets of WR-T; and (v) WR-T is solvent and able to pay its debts as they become due.
No failure on the part of the Company to exercise, and no delay in exercising, any right under this guaranty shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this guaranty preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not alternative or exclusive, and such rights and remedies shall exist in addition to all other rights and remedies of the Company in relation to this guaranty and the Agreement in accordance with the provisions thereof and applicable law. Failure by the Company at any time or times hereafter to require strict performance by TBL or WR-T of any of the terms and conditions of this guaranty or of the Agreement shall not waive, release or diminish any right of the Company at any other time to demand strict performance thereof, and such right shall not be deemed to have been waived or released by any act, course of conduct or knowledge of the Company, its agents, officers or employees, unless such waiver or release is contained in an instrument in writing signed by the Company. No waiver by the Company of any default of TBL or WR-T shall operate as a waiver of any other default or the same default on a future occasion.
12.
Notices
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All notices and demands and requests for approvals required by this Agreement will be in writing and delivered by personal service or mail to the receiving Party’s address as follows:
To the Artist or WR-T:
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c/o Al Gossett
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1900 Covington Pike
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Memphis, TN, 38128
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Facsimile: 901-373-2047
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with copies to (other than requests for approvals):
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Brad D. Rose, Esq.
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Pryor Cashman LLP
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7 Times Square
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New York, NY 10036-6569
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Facsimile: (212) 798-6369
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To the Company:
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1212 S. Flower St., 5th Floor
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Los Angeles, CA 90015
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Telephone: (213) 745-2123
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Fax: (213) 745-2032
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Attention: Colin Dyne
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All notices and demands sent by mail will be by certified or registered mail, return receipt requested, or by an internationally recognized private express courier, and deemed completed upon receipt.
13.
General
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13.1 This Agreement and the rights and obligations of the Parties under it shall be binding upon and shall inure for the benefit of the Parties and their legal representatives, successors in title and permitted assigns.
13.2 The Parties agree that the provisions of this Agreement are not intended to confer any rights of enforcement on a third party.
13.3 A waiver by either Party of any terms or conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach of it. All remedies, rights, undertakings, obligations and agreement contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party.
13.4 (a) This Agreement is governed by and will be interpreted according to California law, except for any choice of law rules.
(b) Any controversy arising out of or relating to this Agreement, or any modification or extension thereof, shall be administered and fully and finally resolved before JAMS in Los Angeles, California, pursuant to its Comprehensive Arbitration Rules and Procedures.
(c) Such dispute shall be resolved by a single arbitrator appointed in accordance with said Rules and Procedures.
(d) The Parties consent that any process or notice of motion or other application to any court, and any paper in connection with arbitration, may be served by certified mail, return receipt requested or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed.
(e) Pending the arbitration award, the Parties shall have all rights to provisional remedies which they would have at law or equity, notwithstanding the existence of this agreement to arbitrate.
(f) The arbitrators shall have no power to alter or modify any express provision of this Agreement (all of which provisions are hereby incorporated by reference into this arbitration provision) or to render an award which has the effect of altering or modifying any express provision hereof, provided, however, that any application for reformation of the contract shall be made to the arbitrators and not to any court and the arbitrators shall be empowered to determine whether valid grounds for reformation exist.
(g) The Parties shall maintain the confidential nature of the arbitration proceeding and any award, including the hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a court application for a preliminary remedy, a judicial challenge to an award or its enforcement, or unless otherwise required by law or judicial decision.
(h) To the extent that any Party seeks injunctive or other preliminary relief, a stay or provisional remedy, confirmation of an award or any other judicial intervention, that Party shall use its best effort to have any such submission filed under seal, and to ensure that any related documents shall be designated and treated as a “Sealed Document.” To the extent the Court permits such sealing, all papers and documents filed under seal shall be filed in sealed envelopes and shall remain under seal until such time as this Court, or any court of competent jurisdiction, orders otherwise. Such Sealed Documents shall be identified with the caption of this action and a general description of the sealed contents, and shall bear the following statement which should also appear on the sealed envelope:
“CONFIDENTIAL - SUBJECT TO PROTECTIVE ORDER
Contents are confidential and are subject to a court ordered
protective order governing the use and dissemination of such contents.”
The Clerk of the Court shall maintain such Sealed Documents separate from the public records, intact and unopened except as otherwise directed by the Court. Such Sealed Documents shall be released by the Clerk of the Court only upon further Order of the Court.
13.5 Neither Party will be responsible for any delay or failure to perform due to events beyond that Party’s reasonable control, including but not limited to acts of God, strikes, walkouts, riots, war, terrorism, epidemics, governmental regulations, power failure(s), earthquakes or other extraordinary causes.
13.6 This Agreement, including the exhibits attached hereto and any addendums executed by both Parties, constitutes the entire Agreement and understanding between the Parties, and integrates all prior discussions between the Parties related to its subject matter.
13.7 Titles and headings in this Agreement are for convenience only and will not be used to explain, modify, interpret or place any construction on any provision.
13.8 Any modification, amendment or supplement to this Agreement must be in writing and signed by each Party to be binding.
13.9 Each Party will keep confidential and will not disclose to any third party any information concerning the business or affairs of the other Party or Artist disclosed pursuant to this Agreement during or after the existence of this Agreement, except where required by law, the rules of any stock exchange or securities quotation service on which any securities of any affiliate of the Company are traded or listed, or where the information is already in the public domain. TBL acknowledges that People’s Liberation, Inc., a Delaware corporation, controls the Company and will file this Agreement with the Securities and Exchange Commission, whereupon it will be disclosed to the public.
13.10 The Parties agree to execute such other writings, documents and instruments and to perform such other acts as may be necessary or desirable to implement the purposes of this Agreement.
13.11 Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.
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WILLIAM RAST LICENSING, LLC,
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a California limited liability company
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By:
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Colin Dyne
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Its:
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Manager
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TENNMAN BRANDS, LLC
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By:
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Justin Timberlake
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Its:
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Manager
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Acknowledged and Agreed with
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Respect to
Section 11
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TENNMAN WR-T, INC.
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By:
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Justin Timberlake
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Its:
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Manager
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EXHIBIT 31.1
Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Colin Dyne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of People’s Liberation, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Colin Dyne
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Colin Dyne
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Chief Executive Officer
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EXHIBIT 31.2
Certification of CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Colin Dyne, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of People’s Liberation, Inc.;
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2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Colin Dyne
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Colin Dyne
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Chief Financial Officer
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2011 (the "Report") by People’s Liberation, Inc. ("Registrant"), each of the undersigned hereby certifies that:
1.
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
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/s/ Colin Dyne
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Colin Dyne
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Chief Executive Officer and Chief Financial Officer
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A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO PEOPLES LIBERATION, INC. AND WILL BE RETAINED BY PEOPLES LIBERATION, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.