Joint Venture Agreement DTD. 7/17/97

EXHIBIT 10.2


JOINT VENTURE AGREEMENT


BETWEEN


ST. JOHN KNITS, INC.


AND


COMMERCIAL DEVELOPMENT CO., LTD.


JULY 17, 1997


INDEX
-----


SECTION 1. DEFINITIONS....................... 1


SECTION 2. REPORTS TO THE JAPANESE GOVERNMENT 3


SECTION 3. FORMATION OF NEWCO................ 4


SECTION 4. CORPORATE PURPOSES OF NEWCO....... 6


SECTION 5. ASSOCIATED AGREEMENTS............. 6


SECTION 6. SHAREHOLDERS...................... 7


SECTION 7. MANAGEMENT OF NEWCO............... 8


SECTION 8. FINANCING......................... 12


SECTION 9. TRANSFERS OF SHARES............... 14


SECTION 10. PERFORMANCE OF THIS AGREEMENT AND
ASSOCIATED AGREEMENTS............. 14


SECTION 11. DIVIDENDS......................... 15


SECTION 12. TAXES............................. 15


SECTION 13. CONFIDENTIALITY OF INFORMATION.... 15


SECTION 14. TERM AND TERMINATION.............. 17


SECTION 15. JURISDICTION; ATTORNEY'S FEES..... 19


SECTION 16. INTERPRETATION.................... 20


SECTION 17. MISCELLANEOUS..................... 21


Exhibit I Articles of Incorporation of NEWCO Exhibit II License and Distribution Agreement Exhibit III Transition Services Agreement Exhibit IV CDC License Agreement Exhibit V CDC Distribution Agreement Exhibit VI Trademark Transfer Agreement


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JOINT VENTURE AGREEMENT
-----------------------


THIS AGREEMENT entered into this 17th day of July, 1997 by and between ST. JOHN KNITS, INC., a corporation organized and existing under the laws of the State of California, United States of America, with its head office at 17422 Derian Avenue, Irvine, California, 92614, United States of America (hereinafter referred to as "ST. JOHN"), and COMMERCIAL DEVELOPMENT CO., LTD., a company organized and existing under the laws of Japan, with its head office at Imperial Tower 9F, 1-1-1 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter referred to as "CDC").


W I T N E S S E T H:
- - - - - - - - - -


WHEREAS ST. JOHN and its Affiliates (as defined below) manufacture, distribute and sell fashion apparel, accessories, footwear and fragrances;


WHEREAS CDC, through its business division known as Best International, is engaged in the distribution and sale of fashion apparel and accessories, including the distribution and sale of certain ST. JOHN products in Japan;


WHEREAS ST. JOHN and CDC wish to establish a Japanese limited liability stock company, to be called St. John Kabushiki Kaisha, and in English translation St. John Co., Ltd. (hereinafter referred to as "NEWCO"), to engage in the importing, marketing, selling and distributing of certain ST. JOHN products in Japan in the manner set forth and as limited hereinbelow;


WHEREAS CDC and ST. JOHN have agreed upon a budget and business plan for NEWCO for the initial period of its operation; and


WHEREAS the parties hereto wish to participate in the ownership and operation of NEWCO in accordance with the terms and conditions of this Agreement.


NOW THEREFORE, CDC and ST. JOHN hereby set forth their agreement as follows:


SECTION 1. DEFINITIONS


For the purposes of this Agreement, the following words and expressions shall, unless the context requires otherwise, have the meanings set out below:


1.1 "Affiliate"
---------


Any Person which, directly or indirectly, owns, is owned by, or is under the common ownership with any other Person to the extent of greater than fifty percent


(50%) of the stock or other equity interest or securities entitled to vote (regardless of whether or not conversion or any other act is necessary) or otherwise directs the affairs of such Person. For the purpose of this definition, ownership shall refer to either legal or beneficial ownership.


1.2 "Affiliate Group Member"
----------------------


Any Person who, during the term hereof, (i) wholly owns or is wholly owned by, directly or indirectly, ST. JOHN or CDC, or (ii) succeeds, by merger or other transaction, to all or substantially all of the assets of ST. JOHN or CDC.


1.3 "Associated Agreements"
---------------------


Those agreements related to this Agreement which are to be entered into between any two or more of NEWCO, CDC or ST. JOHN, as more fully described in Section 5 hereof.


1.4 "Board of Directors"
------------------


The board of directors of NEWCO.


1.5 "Change of Control"
-----------------


The acquisition of a majority of the voting securities or assets of a Party by a Person (other than the Parties) or group of such Persons joined together for the purpose of such acquisition.


1.6 "Effective Date"
--------------


The date upon which this Agreement is executed.


1.7 "License and Distribution Agreement"
----------------------------------


That license and distribution agreement between NEWCO and ST. JOHN as more specifically defined in Section 5.1(a) hereof.


1.8 "NEWCO"
-----


The limited liability stock company (kabushiki kaisha) to be incorporated
---------------- under the laws of Japan by the Parties in the manner provided in Section 3 hereof and to be named "St. John Kabushiki Kaisha," and in English translation "St. John Co., Ltd.," upon formation.


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1.9 "NEWCO Products"
--------------


NEWCO Products shall be those products defined in Section 1.3 of the License and Distribution Agreement.


1.10 "Ownership Percentage"
--------------------


For each Party, the percentage of all Shares which are owned by that Party as of a particular date.


1.11 "Party"
-----


As used singly or plurally shall mean either or both of the parties to this Agreement, as the context may require, including any successors and assigns.


1.12 "Person"
------


Any corporation, other juridical entity, partnership or other business enterprise, including, without limitation, CDC, ST. JOHN and their Affiliates.


1.13 "Shares"
------


Those shares of Common Stock which are to be issued by NEWCO to the Parties in exchange for their respective contributions which are to be made pursuant to Section 3 hereof, as well as any additional shares of the capital stock of NEWCO which may be issued from time to time.


SECTION 2. REPORTS TO THE JAPANESE GOVERNMENT


2.1 Report on the Acquisition of Shares by ST. JOHN
-----------------------------------------------


Within fifteen (15) days after its acquisition of Shares, ST. JOHN shall, if so required, file with the appropriate authorities of the government of Japan a report under the Foreign Exchange and Foreign Trade Control Law (Law No. 228 of 1949, as amended) on the acquisition by ST. JOHN of Shares, or take such other actions as may be required under such law.


2.2 "AML" Report
------------


CDC shall, if so required, file a report pertaining to this Agreement with the Fair Trade Commission of Japan under the Law Concerning the Prohibition of Private Monopoly and the Preservation of Fair Trade (Law No. 54 of 1947, as amended).


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SECTION 3. FORMATION OF NEWCO


3.1 Organization and Registration
-----------------------------


CDC and ST. JOHN shall cause NEWCO to be organized and registered under the laws of Japan, and the date upon which NEWCO shall actually be registered and become legally incorporated shall hereinafter be referred to as the "Incorporation Date." The registered head office of NEWCO shall be located in Tokyo, Japan. The Parties shall closely cooperate and consult with each other with respect to the procedures and particulars of the organization and registration of NEWCO, with CDC actually carrying out the necessary procedures.


3.2 Initial Articles of Incorporation of NEWCO
------------------------------------------


The Parties shall cause NEWCO to adopt Articles of Incorporation (hereinafter referred to as the "Articles of Incorporation") under the applicable laws of Japan substantially in the form annexed hereto and marked Exhibit I.


3.3 Certain Actions in Connection with the Formation of NEWCO
---------------------------------------------------------


ST. JOHN shall designate the date upon which NEWCO will commence business (the "Commencement Date"), which date shall be as soon as practicable following the Incorporation Date. ST. JOHN and CDC agree to consummate the following transactions in order to facilitate the formation of NEWCO:


(a) CDC shall use its best efforts to assist St. John to effect the
registration in Japan of the Marie Gray trademark listed in Schedule A
to the License and Distribution Agreement prior to, or as soon as
practicable following, the Commencement Date, for the benefit of and
in the name of ST. JOHN, and ST. JOHN and CDC shall bear equally any
costs and expenses related thereto.


(b) On the Commencement Date, CDC shall transfer to NEWCO all unsold
inventory in CDC's possession consisting of ST. JOHN products on
consignment to department store concession boutiques. The Parties
agree that (i) Arthur Andersen & Co. shall perform an audit of such
inventory, or (ii) such other method of verification of such inventory
as is acceptable to ST. JOHN shall be conducted, in either case as
soon as practicable following the Commencement Date. Upon completion
of such audit or other method of verification, NEWCO shall pay to CDC
as the purchase price for such inventory fifty percent (50%) of CDC's
original purchase price thereof, as determined by said audit or other
method of verification. The Parties acknowledge that this Section
3.3(b) does not apply to any ST. JOHN products held in or for CDC's
retail stores in the Imperial Hotel


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and the Hotel New Otani in Tokyo (the "CDC Stores"), and that CDC
shall be free to sell such products for its own account following the
Commencement Date. The Parties agree that the cost of such audit or
other method of verification shall be borne be NEWCO.


(c) On the Commencement Date, the Parties agree to cause NEWCO to purchase
from ST. JOHN its initial inventory under the terms of the License and
Distribution Agreement.


(d) CDC shall transfer to NEWCO certain incidental office equipment as
shall be mutually agreed to by the Parties.


3.4 Initial Total Paid-In Capital of NEWCO
--------------------------------------


At the time of the organization and registration of NEWCO pursuant to Section 3.1 hereof, NEWCO shall have an initial paid-in capital of one hundred fifteen million Japanese Yen ((Yen)115,000,000) represented by two thousand three hundred (2,300) common voting shares with a par value of fifty thousand Japanese Yen ((Yen)50,000) each ("Common Stock").


3.5 Capital Contributions by CDC and ST. JOHN
-----------------------------------------


(a) Of the initial paid-in capital of NEWCO, CDC shall contribute in cash
the sum of fifty-six million three hundred fifty thousand Japanese Yen
((Yen)56,350,000) in exchange for the issuance by NEWCO of one
thousand one hundred twenty-seven (1,127) Shares of Common Stock of
NEWCO.


(b) Of the initial paid-in capital of NEWCO, ST. JOHN shall contribute in
cash the sum of fifty-eight million six hundred fifty thousand
Japanese Yen ((Yen)58,650,000) in exchange for the issuance by NEWCO
of one thousand one hundred seventy-three (1,173) Shares of Common
Stock of NEWCO.


(c) The Ownership Percentage of each Party as of the Incorporation Date
shall be as follows:


CDC: 49.0%
ST. JOHN: 51.0%


(d) The Shares shall bear the following legend:


"The transfer of these shares shall be subject to the approval of the
Board of Directors of the Company."


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3.6 Formation Costs and Business Preparation Expenses
-------------------------------------------------


All costs and expenses of the formation of NEWCO shall, to the extent the same are not incurred or assumed by NEWCO, be borne by ST. JOHN and CDC in proportion to each Party's respective Ownership Percentage, provided, however, that all attorney's fees incurred by either Party with respect to their respective counsel pursuant to such formation shall be borne by such Party.


3.7 No Other Assets/Liabilities
---------------------------


(a) Except as specifically provided herein, NEWCO shall not acquire,
assume or succeed to any assets (including accounts receivable),
liabilities, obligations or commitments of CDC arising in connection
with the distribution by CDC of ST. JOHN products in the Territory
prior to the Commencement Date;


(b) ST. JOHN shall have no rights with respect to the accounts receivable
described in (a) above; and


(c) CDC shall indemnify and hold NEWCO and ST. JOHN harmless from and
against any and all liabilities, obligations and commitments described
in (a) above.


SECTION 4. CORPORATE PURPOSES OF NEWCO


The corporate purposes of NEWCO shall be substantially (i) to import, market, sell and distribute the NEWCO Products, subject to the License and Distribution Agreement, and (ii) to carry out such other business listed in Article 2 (Corporate Purposes) of the Articles of Incorporation.


SECTION 5. ASSOCIATED AGREEMENTS


5.1 Associated Agreements
---------------------


On the Commencement Date, the Parties shall execute, and shall cause NEWCO to execute, the following agreements:


(a) a license and distribution agreement between ST. JOHN and NEWCO (the
"License and Distribution Agreement"), substantially in the form of
Exhibit II hereto.


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(b) a transition services agreement among NEWCO, ST. JOHN and CDC (the
"Transition Services Agreement"), substantially in the form of Exhibit
III hereto.


(c) a license agreement among NEWCO, ST. JOHN and CDC, substantially in
the form of Exhibit IV hereto.


(d) a distribution agreement between NEWCO and CDC (the "CDC Distribution
Agreement"), substantially in the form of Exhibit V hereto.


(e) a trademark transfer agreement between ST. JOHN and CDC substantially
in the form of Exhibit VI hereto.


SECTION 6. SHAREHOLDERS


6.1 Meetings of the Shareholders
----------------------------


General meetings of shareholders of NEWCO shall be convened in accordance with the Articles of Incorporation.


6.2 Voting
------


Each shareholder shall be entitled to one vote for each share in NEWCO held by such shareholder. Unless otherwise provided for by law or the Articles of Incorporation, all decisions of the shareholders shall require the majority vote of the shares cast at a duly called meeting at which a quorum is present.


6.3 Minutes of Shareholders Meetings
--------------------------------


The minutes of the shareholders meetings shall be recorded and administered as provided in the Articles of Incorporation.


6.4 Actions to be Determined by ST. JOHN
------------------------------------


CDC agrees to vote its Shares in concurrence with the vote of ST. JOHN concerning any matter for which a resolution of the shareholders of NEWCO is required and for which applicable law requires that such resolution be adopted by more than a simple majority vote; provided, however, that


(i) in the event of the dissolution of, or the sale of all or substantially
all of the business of NEWCO, ST. JOHN shall enter into appropriate
distribution and licensing arrangements with CDC to permit CDC to continue
to purchase ST. JOHN products for sale under the "Marie Gray" name at the
CDC Stores at the Distributor Price (as defined in Section 1.3 of the CDC
Distribution Agreement)


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and otherwise on substantially the same terms and conditions as may be in
effect on the date of such dissolution or sale, for a period of two years
from the date of such dissolution or sale;


(ii) in the event of the dissolution of NEWCO, notwithstanding anything to
the contrary contained herein or in the Associated Agreements, the assets
of NEWCO at the time of dissolution shall reflect the fair market value of
NEWCO's rights under the Associated Agreements for the remainder of the
terms thereof, assuming no renewals; and


(iii) ST. JOHN shall obtain CDC's consent, which consent shall not be
unreasonably withheld, with respect to any vote to approve (x) the
indemnification by NEWCO of any of its directors or officers; (y) the
issuance by NEWCO of any equity securities at less than fair market value;
and (z) any decrease of the capital (shihonkin) of NEWCO.


6.5 Affiliate Transactions
----------------------


ST. JOHN and CDC shall discuss in good faith the contemplated execution or amendment of any contract, agreement or arrangement between NEWCO and either Party, any Affiliate of a Party, or any director, officer or employee thereof. Such execution or amendment shall be with the consent of both Parties, such consent not to be unreasonably withheld.


SECTION 7. MANAGEMENT OF NEWCO


7.1 The Board of Directors of NEWCO
-------------------------------


Except as otherwise required by mandatory provisions of law or as provided for in the Articles of Incorporation, responsibility for the management, direction and control of NEWCO shall be vested in the Board of Directors. The Articles of Incorporation shall provide initially for the election of seven (7) directors of NEWCO.


7.2 Election of Directors
---------------------


(a) The following individuals shall be elected as the initial Directors of
NEWCO: Katsuyuki Masuda, Shin-ichi Masuda, Kiyoshi Yamashita, Robert
E. Gray, Roger G. Ruppert, David Frankel and Christopher Scharff.


(b) The initial Board of Directors of NEWCO shall consist of seven (7)
members. So long as each Party's respective Ownership Percentage
remains the same as that stipulated in Section 3.5 hereof, ST. JOHN
shall nominate four (4) directors and CDC shall nominate three (3)
directors from time to time pursuant to the Articles of Incorporation,
and the Parties


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covenant and agree to vote their shares of NEWCO to effectuate such
purpose; provided, however, that should the Ownership Percentage of
one or both Parties change from that listed in Section 3.5 hereto,
including the case of a sale pursuant to Section 14.2, the number of
members of the Board of Directors to be nominated by each Party, to
the extent practicable, shall be decided in proportion to each Party's
then existing Ownership Percentage, observing normal rules of rounding
for any fraction thereof.


(c) In the case of the death, resignation, or other removal of a director
prior to the end of his term, then, as soon as is practicable, an
extraordinary general meeting of shareholders shall be held for the
purpose of filling such vacancy. The Party who appointed such
director as was removed by reason of death, resignation, or otherwise,
shall have the right to nominate the successor of such removed
director, and the Parties covenant and agree to vote their respective
Shares for and cause to be elected any director so nominated.


7.3 Representative Directors
------------------------


NEWCO shall have two (2) representative directors, one of whom shall be a director nominated by CDC and the other whom shall be a director nominated by ST. JOHN. At least one (1) representative director shall be a resident of Japan. The initial representative directors shall be Katsuyuki Masuda and David Frankel. The Parties agree to, and agree to cause NEWCO to, require that the representative directors of NEWCO act jointly in authorizing any contract, agreement, obligation, commitment or any other matter by which NEWCO would be bound either directly or indirectly, and the Parties shall ensure that notice of such restriction is included in the Commercial Registry for NEWCO.


7.4 Statutory Auditors
------------------


NEWCO shall have two (2) statutory auditors (kansayaku), one each of whom
--------- shall be nominated by CDC and ST. JOHN respectively. The initial statutory auditors shall be Chikara Yoshida and Randy Thompson.


7.5 Meetings of the Board of Directors of NEWCO
-------------------------------------------


Meetings of the Board of Directors shall be convened and conducted in the manner provided in the Articles of Incorporation; provided, however, that each of the Parties agrees to cause the President of NEWCO or such other director as may be designated by the Board of Directors as aforesaid to convene a Board of Directors meeting at any time that ST. JOHN or CDC indicates that, in its opinion, there is an important reason for holding such a meeting.


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7.6 Resolutions of Meeting of Board of Directors
--------------------------------------------


Resolutions of the Board of Directors shall be adopted in accordance with the provisions of the Articles of Incorporation, and NEWCO shall undertake no business or undertaking other than in the ordinary course of business without a resolution of the Board of Directors authorizing such action. Notwithstanding the foregoing, in addition to those actions for which approval of the Board of Directors is required by law, the Parties agree that the following actions shall be subject to approval of the Board, and that such action shall be so specified in the Regulations of the Board of Directors:


(a) termination, amendment or failure to renew any insurance coverage;


(b) any action to sell, transfer, mortgage, encumber or otherwise dispose
of any assets or any liabilities of NEWCO, except (i) for dispositions
of property (other than inventory) not greater than ten thousand U.S.
Dollars ($10,000) in the aggregate, (ii) in the ordinary course of
business, or (iii) in connection with a Change of Control of NEWCO;


(c) termination or failure to renew or preserve any government permits;


(d) the formulation from time to time of the budget and/or business plan
for NEWCO, or any material deviation from or amendment or modification
to such budget and/or business plan;


(e) incurrence or agreement to incur any bank debt or other obligation or
liability (absolute or contingent), other than letters of credit
opened in favor of ST. JOHN, that individually calls for payment by
NEWCO of more than ten thousand U.S. Dollars ($10,000) in any specific
case or twenty thousand U.S. Dollars ($20,000) in the aggregate;


(f) any hiring of, or any change in the compensation of any employee;


(g) any capital investment that individually calls for payment by NEWCO of
more than ten thousand U.S. Dollars ($10,000) in any specific case or
twenty thousand U.S. Dollars ($20,000) in the aggregate;


(h) any loan, guaranty or other extension of credit, or any commitment to
make any loan, guaranty or other extension of credit, other than
accounts receivable in the ordinary course of business;


(i) special or extraordinary payments to any Person outside of the
ordinary course of business;


(j) the filing of any lawsuit or taking of any other action in connection
with any legal proceeding; or


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(k) any tax election or any change in any method or period of accounting or in any accounting policy, practice or significant procedure.


7.7 Remuneration to Directors and Auditors of NEWCO
-----------------------------------------------


Remuneration to directors and statutory auditors of NEWCO shall be determined by resolution of the general meeting of its shareholders. Unless otherwise determined by the Board of Directors, NEWCO shall maintain directors' and officers' liability insurance with a major Japanese insurance company to the extent permitted by applicable law.


7.8 President
---------


The President shall serve as the chief executive of NEWCO and, subject to the authority of the Board of Directors, shall carry out the daily business of NEWCO and shall preside at meetings of the Board of Directors. The Parties agree to cause Katsuyuki Masuda to be appointed as the initial President of NEWCO.


7.9 Expenses
--------


All expenses incurred by the directors and auditors in attending meetings of the Board of Directors shall be borne by NEWCO.


7.10 Accounting Period
-----------------


The accounting period of NE ...