RELATED PARTY TRANSACTIONS

3 Months Ended

Feb. 28, 2013

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 5 —RELATED PARTY TRANSACTIONS

As of February 28, 2013 and November 30, 2012, our related party balance consisted of amounts due to certain related parties, as further described below, as follows (in thousands):

	February 28, 2013		November 30, 2012
Due to related parties
Joe Dahan	$	—	$	195
Total due to related parties	$	—	$	195

As of February 28, 2013 and November 30, 2012, we did not have any due from related party balances.

Joe Dahan

Since the acquisition of the Joe’s® Brand as a result of a merger in October 2007 through February 18, 2013, Mr. Dahan was entitled to a certain percentage of our gross profit in any applicable fiscal year until October 2017.  At the time of the acquisition, pursuant to ASC 805 — Business Combinations, we assessed this original contingent consideration arrangement as compensatory and expensed such amounts over the term of the earn out period at the defined percentage amounts.  See “Note 9 — Commitments and Contingencies - Contingent Consideration Payments and Contingent Consideration Buy-out Agreement” for a further discussion on the original contingent consideration payments.  For the three months ended February 28, 2013 and February 29, 2012, expenses of $311,000 and $462,000, respectively, were recorded in the statement of net (loss) income and comprehensive (loss) income related to the contingent consideration expense made to Mr. Dahan under the original agreement.

On February 18, 2013, we entered into an agreement with Mr. Dahan that provided certainty of payments to him by removing the contingencies related to the contingent consideration payments to be made to Mr. Dahan as an earn out under the original merger agreement.  This agreement fixed the overall amount to be paid by us for the remaining months of year six through year 10 in the original merger agreement.  The payments will also be made over an accelerated time period until November 2015 instead of October 2017.  Under the agreement, from February 22, 2013 until November 27, 2015, Mr. Dahan will be entitled to receive the total aggregate fixed amount of $9,168,000 through weekly installment payments.  For the three months ended February 28, 2013, we recorded a charge of $8,732,000 as contingent consideration buy-out expense in connection with this agreement.  This amount represents the net present value of the total fixed amount that Mr. Dahan is entitled to receive.  The entire amount has been expensed during the period as the amount payable is a present obligation of ours that is due to Mr. Dahan.  Mr. Dahan is not required to perform any services or remain employed to receive the fixed amount.  Mr. Dahan also agreed to an additional restrictive covenant relating to non-competition and non-solicitation until November 30, 2016 that added to the original restrictive covenant in the merger agreement.

Ambre Dahan

In January 2013, we entered in to a consulting arrangement with Ambre Dahan, the spouse of Mr. Joe Dahan, for design director services that anticipates paying her $175,000 per annum on a bi-weekly basis.  For the three months ended February 28, 2013, we paid Ms. Dahan $27,000 under this arrangement.  This arrangement may be terminated at any time by the parties.

Albert Dahan

In April 2009, we entered into a commission-based sales agreement with Albert Dahan, brother of Joe Dahan, for the sale of our products into the off-price channels of distribution.  Under the agreement, Mr. Albert Dahan is entitled to a commission for purchase orders entered into by us where he acts as a sales person.  The agreement may be terminated at any time for any reason or no reason with or without notice.  For the three months ended February 28, 2013 and February 29, 2012, payments of $120,000 and $40,000, respectively, were made to Mr. Albert Dahan under this arrangement.

In October 2011, we entered into an agreement with Ever Blue LLC, or Ever Blue, an entity for which Albert Dahan is the sole member, for the sale of children’s products.  Ever Blue has an exclusive right to produce, distribute and sell children’s products bearing the Joe’s® brand on a worldwide basis, subject to certain limitations on the channels of distribution.  In exchange for the license, Ever Blue pays to us a royalty on net sales with certain guaranteed minimum sales for each term.  In connection with this agreement, we provided initial funding to Ever Blue for inventory purchases, which such amount has been repaid in full.  For the three months ended February 28, 2013, we recognized $180,000 in royalty income under the license agreement.  For the three months February 29, 2012, we did not recognize any royalty income under the license agreement.