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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] 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 0-21335
GARGOYLES, INC.
(Exact name of registrant as specified in its charter)
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WASHINGTON 91-1247269
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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20121 48TH AVENUE WEST
LYNNWOOD, WASHINGTON 98036
(425) 921-3600
(Address and telephone number of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
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 [ ]
Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 23, 1998, 7,837,191 shares of the registrant's common stock, no
par value, were outstanding. The aggregate market value of the common stock held
by non-affiliates or the registrant on that date was $27,923,916, computed at
the closing price on that date.
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Shareholders of the Company
to be held May 20, 1998.
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INDEX
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PAGE
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PART I
Item 2. Properties.................................................. 2
Item 3. Legal Proceedings........................................... 2
Item 4. Submission of Matters to a Vote of Security Holders......... 3
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder
Matters..................................................... 4
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 5
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 5
Item 11. Executive Compensation...................................... 6
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 6
Item 13. Certain Relationships and Related Transactions.............. 6
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 7
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PART I
FORWARD-LOOKING STATEMENTS
Certain statements within the following description of the business of
Gargoyles, Inc. ("Gargoyles" or the "Company") and elsewhere in this Form 10-K
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Certain of the forward-looking
statements contained in this Report are identified with cross references to this
section and/or to specific risks identified under "Business -- Risk Factors."
Forward-looking statements included in this report or otherwise presented by
management from time to time involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company or industry results, to differ materially from the anticipated
results, performance or achievement expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, factors involving
business cycles and health of the world and national economy and developments
involving consumer products in general and the sunglass industry in particular,
as well as the other risks and uncertainties described under "Business -- Risk
Factors" in Part I of this Annual Report on Form 10-K. Forward-looking
statements reflect management's views, estimates and opinions at the date on
which the statements are made. The Company undertakes no obligation to update
forward-looking statements to reflect changes in circumstances or changes in the
views, estimates or opinions of management that occur after the statements are
made. Because of the inherent uncertainty of forward-looking statements and
because circumstances or management's views, estimates and opinions may change,
investors are cautioned not to place undue reliance on forward-looking
statements.
LITIGATION RISKS
The Company is involved in a number of pending or threatened legal
proceedings. See "Legal Proceedings." While the Company uses its best judgement
based on available information to assess its exposure in pending and threatened
legal proceedings, litigation is inherently uncertain, the Company's assessment
of pending and threatened claims may change as more information is developed
over the course of the proceeding. Further, it is extremely difficult to predict
the outcome of litigation, even when all the evidence is available. Accordingly,
results of any particular claim may differ significantly from those anticipated
by the Company. The Company may also be subjected to additional claims that have
not yet been asserted, particularly claims resulting from employee turnover.
ITEM 1. BUSINESS
To be filed by amendment.
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ITEM 2. PROPERTIES
Executing on a plan to consolidate its operations to one facility, the
Company leases approximately 93,000 square feet of premises in Lynnwood,
Washington for its primary production, warehousing and shipping facilities, and
for use in the future as its corporate headquarters. The Lynnwood lease
terminates December 31, 2007. The Company also leases approximately 26,000
square feet of office, warehouse and production space in Kent, Washington where
its corporate headquarters are currently located. The Kent lease expires
December 31, 2000. The Company also leases approximately 24,000 square feet of
warehouse and office space in a second location in Kent, Washington, formerly
used as the Company's shipping and warehousing facilities. The Kent warehouse
lease expires December 31, 1998. The Company leases approximately 26,000 square
feet of office and warehouse facilities in Farmingdale, New York, the location
of Sungold's operation. The Farmingdale lease expires November 30, 2001. The
Company leases approximately 16,000 square feet of warehouse and office space in
Norwell, Massachusetts, previously occupied by its Private Eyes operations. The
Norwell lease expires July 31, 2001. The Company has received a Notice to Quit
by March 31, 1998 from the landlord of the Norwell facility for non-payment of
rent. The Company is currently seeking to sublease all of its operating
facilities with the exception of its facilities in Lynnwood, Washington and
Farmingdale, New York. The Company also leases showroom facilities in New York
City and Dallas, Texas, and offices in San Ramon, California and London,
England.
The Company is seeking to consolidate most of its operations and its
executive offices to its new facility in Lynnwood, Washington by the end of the
second quarter of 1998. The Company believes that the Lynnwood facility will be
sufficient to meet the Company's operating needs for the foreseeable future. See
"Business -- Forward Looking Statements."
ITEM 3. LEGAL PROCEEDINGS
On November 22, 1996, the Company filed an action in the United States
District Court for the District of Massachusetts, under Case No. 996-12344RCL,
against AEARO Corp., a Delaware corporation, alleging infringement of the
Company's toric curve lens utility patent. Defendant AEARO has denied the
allegation. Both the Company and AEARO have filed summary judgment motions with
the US District Court, each seeking full disposition of the litigation. The
Court has not yet ruled on either motion. The Company and Aearo have agreed not
to move forward with pre-trial discovery until such time as rulings on the
summary judgment motions are made. The Company's protective eyewear was
traditionally sold in the health-care markets, and in 1997 with the development
of the Company's ANSI Z87-1 approved lens, is now offered in the industrial
safety markets. The Company understands that AEARO's protective eyewear products
are currently being sold primarily in the industrial markets and have recently
been introduced in the health-care markets. AEARO's protective eyewear products
are currently sold at prices significantly lower than the prices for the
Company's protective eyewear products. Because of AEARO's lower prices and its
established distribution network, if the company loses its lawsuit against
AEARO, the Company may not be able to compete with AEARO's protective eyewear
products. Net sales attributable to the Company's protective eyewear division
for the year ended December 31, 1997 were $1.2 million, or 2.9% of net sales for
that period.
On July 31, 1997, Michele J. Maulden and David B. Maulden, wife and husband
and their marital community, filed a lawsuit against the Company in the Superior
Court of Washington, for King County under Case No. 97-2-1877-1 KNT. Ms. Maulden
is a former employee of the Company. In the lawsuit, Plaintiffs allege wrongful
termination, intentional and negligent infliction of emotional distress and
discrimination under various Washington laws and seek unspecified amounts of
damages. The Company has retained counsel to investigate the allegations and
intends to defend vigorously the employee's claim. Although this matter is in
its early stages, the Company presently believes the employee's claims are not
supported by the facts and circumstances of the employee's employment or
termination. The Company believes that the ultimate resolution of this matter
will not have a material adverse effect on its results of operations or
financial position. See " Forward Looking Statements" and "Litigation Risks."
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Although no formal legal proceedings to collect the rent have been filed
against the Company, the Company has received a Notice to Quit dated March 16,
1998, from Ronald L. Gordon, Trustee of AEP Realty Trust, the landlord for the
Company's Norwell, Massachusetts facility formerly occupied by Private Eyes, for
non-payment of rent and seeking a vacation of the premises by March 31, 1998.
Amounts outstanding under the Norwell lease as of the date of this Report are
$26,520, and unpaid future installments of rent amount in the aggregate to
$364,260. The Company is currently attempting to negotiate a resolution of this
matter with the landlord.
On March 30, 1998, the Company received a letter from Hobie Designs, Inc.
declaring a material default of the license agreement under which the Company
markets Hobie brand sunglasses because the Company manufactures and sells other
polarized sunglass styles under brand names other than Hobie and referring to
other unspecified problems with the Company's performance under the license
agreement. It is the Company's position that it has not violated the Hobie
License Agreement. There can be no assurance, however, that this issue can be
resolved successfully with Hobie Designs, Inc. or that the Company's position
will ultimately prevail. Failure to resolve this issue successfully could
require the Company to modify the license agreement to the Company's
disadvantage or result in the loss of the right to market the Hobie brand. See
"Forward-Looking Statements," and "Litigation Risks".
The Company also is a party to various other claims, complaints and legal
actions that have arisen in the ordinary course of business from time to time.
The Company believes that the outcome of all such pending legal proceedings, in
the aggregate, will not have a material adverse effect on its results of
operations or financial position. See "Forward-Looking Statements" and
"Litigation Risks."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of its fiscal year ended December 31, 1997.
3
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company effected its initial public offering of Common Stock on
September 27, 1996, at a price to the public of $16.00 per share. Since that
date the Company's Common Stock has traded on the Nasdaq National Market. The
table below sets forth for the fiscal quarters indicated the reported high and
low last sale prices of the Company's Common Stock, as reported on the Nasdaq
National Market.
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1996 HIGH LOW
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Third quarter (from September 27, 1996)..................... $23.50 $19.75
Fourth quarter.............................................. $21.25 $ 8.00
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1997 HIGH LOW
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First quarter............................................... $10.00 $ 6.75
Second quarter.............................................. 9.38 7.19
Third quarter............................................... 8.00 5.88
Fourth quarter.............................................. 6.13 3.13
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As of March 23, 1997, there were 144 record holders of Common Stock,
although the Company believes that the number of beneficial owners of its Common
Stock is approximately 3000. On March 23, 1998, the Company's Common Stock
traded at a high of $3.56 and a low of $3.56.
The Company anticipates that for the foreseeable future, all earnings, if
any, will be retained for the operation and expansion of its business and that
it will not pay cash dividends. The payment of dividends, if any, in the future
will be at the discretion of the Board of Directors and will depend upon, among
other things, future earnings, capital requirements, restrictions in financing
agreements, the general financial condition of the Company and general business
conditions. The Company's credit agreement with its bank pohibits the payment of
dividends.
ITEM 6. SELECTED FINANCIAL DATA
To be filed by amendment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
To be filed by amendment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To be filed by amendment.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, and their ages as of
March 31, 1997, are as follows:
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NAME AGE POSITION
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Leo Rosenberger 47 Chief Executive Officer, Chief Financial Officer
and Treasurer
Bruce E. Meckling 44 Senior Vice President, Production, Product
Development and Sales
Cynthia L. Pope 46 Vice President, General Counsel and Secretary
Douglas W. Lauer 44 President and Chief Executive Officer, Kindling
Sheldon Goldman 35 President, Sungold
Richard Hammel 55 President, Private Eyes
Robert G. Wolfe(1) 41 Chairman of the Board
Timothy C. Potts(1) 49 Director
William D. Ruckelshaus(2) 65 Director
Paul S. Shipman(2) 45 Director
Walter F. Walker(1) 43 Director
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(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
The Company's Board of Directors is comprised of five directors and is
divided into three classes. Each director serves for a three-year term, and one
class will be elected each year by the Company's shareholders. Directors hold
office until their terms expire and their successors are elected and qualified.
Executive officers of the Company are appointed by, and serve at the direction
of, the Board of Directors. There are no family relationships between any of the
directors or executive officers of the Company.
Leo Rosenberger, Chief Executive Officer and Chief Financial Officer,
joined the Company in February 1998. From January 1996 to January 1998, Mr.
Rosenberger was President and Chief Financial Officer of Pacific Linen, Inc.
Pacific Linen, Inc. filed a voluntary petition for Chapter 11 bankruptcy April
1996 and emerged therefrom in December 1997. In May 1995, Mr. Rosenberger was
appointed by the court as the Chapter 7 Trustee in Bankruptcy for Waterbed, Inc.
From August 1994 to February 1995 Mr. Rosenberger served as interim Chief
Financial Officer of Jay Jacobs, Inc., a company which filed a voluntary
petition for Chapter 11 bankruptcy protection in May 1994 and emerged therefrom
in November 1995. Mr. Rosenberger was a general partner in a national accounting
and consulting firm and has over twenty years experience as a turnaround crisis
manager and financial restructuring and management consultant.
Bruce E. Meckling, Senior Vice President, Production, Product Development
and Sales, joined the Company in July 1996. Until February 1998, Mr. Meckling
was Vice President, International of the Company. From 1980 to July 1996, Mr.
Meckling was employed by Bausch & Lomb's Europe, Middle East and Africa
division. Mr. Meckling was employed as General Manager of Distributor Operations
and Bausch & Lomb Germany GmbH from August 1993 to July 1996, as Commercial
Director of Distributor Operations from April 1992 to August 1993 and as
Marketing Director of Distributor Operations from October 1990 to April 1992.
Prior to October 1990, Mr. Meckling was employed in a number of marketing and
financial capacities.
Cynthia L. Pope joined the Company in February 1998. From July 1995 until
joining the Company, Ms. Pope had a private law practice in Bellingham,
Washington and served as corporate counsel to the Company. From June 1992 until
July 1996, Ms. Pope was a partner in the law firm of Brett & Daugert in
Bellingham, Washington. From June 1989 until June 1992 Ms. Pope was an associate
with the law firm of Bogle & Gates in Seattle, Washington. From January 1985
until June 1989, Ms. Pope was an associate with the law firm of Ross & Hardies
in Chicago, Illinois.
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Sheldon Goldman, President of Sungold, joined the Company in April 1997
with the acquisition of Sungold. From 1992 until joining the Company, Mr.
Goldman was President and part owner of Sungold Enterprises, Ltd. From 1985 to
1992 Mr. Goldman was Vice President of Sungold Enterprises, Ltd.
Richard W. Hammel, Sr., President of Private Eyes, joined the Company in
May 1997 with the acquisition of Private Eyes. From 1977 until joining the
Company, Mr. Hammel was President and majority owner of The Private Eyes
Sunglass Corporation.
Douglas W. Lauer, President and Chief Executive Officer of Kindling, joined
the Company in June 1996 in connection with the license agreement with
Timberland. Previously, Mr. Lauer was President of Revo, a subsidiary of Bausch
& Lomb, from July 1989 to May 1996. Prior to joining Revo, Mr. Lauer served in a
number of management capacities for Polo Ralph Lauren Corporation.
Robert G. Wolfe was appointed by the board of directors of the Company in
January 1998 following the resignation of Erik Anderson and to serve in his
capacity as a Director and as Chairman of the Board on an interim basis until
the 1998 annual meeting of the Company's shareholders. Mr. Wolfe has been Chief
Financial Officer of Trillium since 1996. From 1987 to 1995, Mr. Wolfe
was a corporate finance executive at Goldman Sachs.
Timothy C. Potts has been a Director of the Company since March 1995. Mr.
Potts has been Senior Vice President -- Finance of Trillium since July 1994.
From April 1987 to July 1994, Mr. Potts was the Chief Financial Officer of
Trillium.
William D. Ruckelshaus has been a Director of the Company since July 1996.
Since March 1996, Mr. Ruckelshaus has been a principal of the Madrona Investment
Group, L.L.C., a private investment firm. Mr. Ruckelshaus is also Chairman of
the Board of Browning-Ferris Industries, Inc., a waste services company, and
from October 1988 to October 1995 was its Chief Executive Officer. From 1983 to
1985, Mr. Ruckelshaus was Administrator of the Environmental Protection Agency
and from 1979 to 1983, a Senior Vice President of Weyerhaeuser Co. Mr.
Ruckelshaus is also a director of Cummins Engine Company, Monsanto Company,
Solutia, Inc., Nordstrom, Inc., Weyerhaeuser Co. and Coinstar, Inc.
Paul S. Shipman has been a Director of the Company since June 1996. Mr.
Shipman has been President since September 1981, Chairman of the Board since
November 1992 and Chief Executive Officer since June 1993 of Redhook Ale
Brewery, Incorporated ("Redhook"), a brewer of craft beers.
Walter F. Walker has been a Director of the Company since December 1995.
Since September 1994, Mr. Walker has been the President of the Seattle
Supersonics National Basketball Association basketball team, owned by a
subsidiary of Ackerley Communications, Inc. From March to September 1994, he was
President of Walker Capital, Inc., a money management firm. From July 1987 to
March 1994, Mr. Walker was a Vice President of Goldman, Sachs & Co., a
registered broker-dealer. From 1976 to 1985, Mr. Walker was a professional
basketball player in the National Basketball Association. Mr. Walker is also a
director of Redhook and Advanced Digital Information Corp., and is a member of
the Board of Visitors of the University of Virgina.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
from the Company's 1998 Proxy Statement for its 1998 Annual Meeting of
Shareholders scheduled to be held May 20, 1998 (the "1998 Proxy Statement")
under the caption "Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference from the 1998 Proxy Statement under the
caption "Beneficial Ownership of Shares".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference from the 1998 Proxy Statement under the caption
"Certain Transactions".
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
To be filed by amendment.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1997.
(c) EXHIBITS
The following exhibits are filed as a part of, or incorporated by reference
into, this report:
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3.1(1) Form of Amended and Restated Articles of Incorporation of
the registrant currently in effect.
3.2(1) Bylaws of the registrant currently in effect.
10.1(1) Stock Purchase Agreement, dated as of March 14, 1995, among
Gargoyles and certain other parties.
10.2(1) Nondisclosure, Noncompetition and Indemnity Agreement, dated
as of March 22, 1995, among Gargoyles, Inc., Conquest
Sports, Inc., Antone Manufacturing, Inc. and the Founder.
10.3(1) Stock Purchase Agreement, dated as of January 25, 1996,
among Gargoyles, Inc., H.S.C., Inc., Douglas B. Hauff,
H.S.I., a California corporation, dba Hobie Sunglasses and
the Sellers listed therein.
10.4(1) Industrial Real Estate Lease (Single Tenant Facility) dated
December 16, 1993, between Gargoyles, Inc. and DB&D
Partnership.
10.5(1) Lease Amendment dated as of March 17, 1995, between
Gargoyles, Inc. and DB&D Partnership.
10.6*(1) License Agreement dated as of October 1995, as amended as of
October 18, 1995, between Gargoyles, Inc. and Ken Griffey,
Jr.
10.7(1)+ Gargoyles, Inc. Common Stock Purchase Warrant, dated January
1996, between Gargoyles, Inc. and Wally Walker.
10.8(9)+ Employment Agreement dated July 5, 1996, between Gargoyles,
Inc. and Bruce Meckling.
10.9*(1) License Agreement, dated August 14, 1996, between Gargoyles,
Inc. and Dale Earnhardt.
10.10(1)+ Form of Indemnity Agreement between Gargoyles, Inc. and each
of its directors.
10.11(1)+ 1995 Stock Incentive Compensation Plan.
10.12(1) Amended and Restated Agreement Regarding Claim Rights, dated
July 3, 1996, by and between the Founder, Gargoyles, Inc.
and Conquest Sports, Inc.
10.13*(1) Ratification of Settlement Agreement and General Release,
dated April 12, 1995.
10.14*(1) Trademark License Agreement dated as of April 12, 1995.
10.15(5) Lease Agreement dated July 22, 1997, between Northwest Real
Estate Carver, L.L.C., and Gargoyles, Inc.
10.16(6) Amendment Number One to Lease Agreement dated September 25,
1997, between Northwest Real Estate Carver, L.L.C., and
Gargoyles, Inc.
10.17(1) Agreement for Purchase of Common Stock, dated as of May 17,
1996, among Gargoyles, Inc., The Timberland Company, Douglas
W. Lauer and the kindling company (formerly The D.W. Lauer
Company).
10.18(1) Employment Agreement effective as of May 17, 1996, between
Douglas W. Lauer and the kindling company.
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10.19(1) Investor Rights Agreement, dated as of May 17, 1996, among The D.W. Lauer Company, Douglas W. Lauer,
Gargoyles, Inc. and The Timberland Company.
10.20*(1) License Agreement, dated as of May 17, 1996, among The Timberland Company, Gargoyles, Inc. and the
kindling company.
10.21(1)+ Incentive Pool Agreement, effective as of May 17, 1996, between Gargoyles, Inc. and Douglas W. Lauer.
10.22*(1) License Agreement, effective January 1, 1989 between Hobie Designs, Inc. and H.S.I.
10.23*(1) License Agreement dated as of May 31, 1996 among Ixela, Inc., Alexi Lalas and Gargoyles, Inc.
10.24(2) Indemnity Agreement dated September 26, 1996 by Trillium Corporation and Douglas B. Hauff in favor of
Gargoyles.
10.25(3) Agreement, dated January 9, 1997, between Gargoyles and International Speedway Corporation.
10.26*(3) Product Development and Licensing Agreement dated January 1, 1997, between Gargoyles and Golden Bear
Golf, Inc.
10.27(3)+ Registration Rights Agreement dated February 20, 1997, between Gargoyles and Douglas B. Hauff.
10.28(3) Registration Rights Agreement dated February 20, 1997, between Gargoyles and Trillium Investors II.
10.29(4) First Amended and Restated Credit Agreement dated April 7, 1997, between U.S. Bank of Washington,
National Association and Gargoyles, Inc.
10.30(5) Second Amendment to First Amended and Restated Credit Agreement dated July 15, 1997, between U.S. Bank
of Washington, National Association, and Gargoyles, Inc.
10.31(9) Third Amendment to First Amended and Restated Credit Agreement dated January 15, 1998, between U.S.
Bank of Washington, National Association, and Gargoyles, Inc.
10.32(9) Fourth Amendment to First Amended and restated Credit Agreement dated January 30, 1998, between U.S.
Bank of Washington, National Association, and Gargoyles, Inc.
10.33(9) Fifth Amendment to First Amended and Restated Credit Agreement dated March 17, 1998, between U.S. Bank
of Washington, National Association, and Gargoyles, Inc.
10.34(9) Promissory Note dated April 9, 1997 between Douglas B. Hauff in favor of Gargoyles, Inc.
10.35(7) Asset Purchase and Sale Agreement dated as of April 10, 1997 between Sungold Enterprises, Ltd., Sheldon
Goldman, Lionel Goldman and Lionel Goldman, Trustee of The Lionel Goldman Family Trust u/a dated
September 30, 1994 and Gargoyles Acquisition Corporation (n/k/a Sungold Eyewear, Inc.).
10.36(9)+ Employment Agreement dated as of April 10, 1997, between Gargoyles Acquisition Corporation (n/k/a
Sungold Eyewear, Inc.) and Sheldon Goldman.
10.37(9) Royalty Agreement dated April 10, 1997 between Gargoyles Acquisition Corporation (n/k/a Sungold
Eyewear, Inc.) and Sungold Enterprises, Ltd.
10.38(9) Nondisclosure and Noncompetition Agreement dated as of April 10, 1997 between Gargoyles Acquisition
Corporation (n/k/a Sungold Eyewear, Inc.) and Lionel Goldman.
10.39*(9) Amended and Restated License Agreement dated April 10, 1997 between Stussy, Inc. and Sungold
Enterprises, Ltd.
10.40(8) Asset Purchase and Sale Agreement dated as of May 5, 1997 between The Private Eyes Sunglass
Corporation, Richard W. Hammel, Sr., Patricia Lunch, Annette Hammel, Robert Hammel and Ronald Hammel
and Gargoyles Acquisition Corporation II (n/k/a Private Eyes Sunglass Corporation).
</TABLE>
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10.41(9) Contingent Price Agreement dated as of May 14, 1997 between
Gargoyles Acquisition Corporation II (n/k/a Private Eyes
Sunglass Corporation) and The Private Eyes Sunglass
Corporation.
10.42*(9) License Agreement dated May 14, 1997 by and between Ellen
Tracy Inc. and Gargoyles Acquisition Corporation II (n/k/a
Private Eyes Sunglass Corporation).
10.43*(9) Exclusive Distributorship Agreement dated October 25, 1997
between Cebe International S.A. and Private Eyes Sunglass
Corporation.
10.44(9) Lease dated March 1, 1989 between Gary Christopher and W.
Blake Merrill as Trustees of AEP Realty Trust and Private
Eyes Sunglass Corporation.
10.45(9) Lease dated May 15, 1989 between Gary Christopher and W.
Blake Merrill as Trustees of AEP Realty Trust and Private
Eyes Sunglass Corporation (f/k/a Primetta Corporation).
10.46(9) Second Amendment of Lease dated June 8, 1996 between Ronald
L. Gordon as Trustee of AEP Realty Trust and Private Eyes
Sunglass Corporation.
10.47(9) Settlement Agreement dated as of May 30, 1997 between
Gargoyles, Inc. and Peter G. and Sandra L. LaHaye, La Haye
Laboratories, Inc. and Neoptx, Inc.
10.48(9) License Agreement dated as of June 30, 1997 between Neoptx,
Inc. and Gargoyles, Inc.
10.49(9) Settlement Agreement and Mutual Release dated as of July 14,
1997 between Adidas America, Inc., Gargoyles, Inc., Conquest
Sports, Inc., Axcent Sports, Inc., Sports Performance
Products, Inc., Douglas Hauff and Trillium Corporation.
10.50(9)+ Promissory Note dated March 11, 1998 between Douglas B.
Hauff in favor of Gargoyles, Inc.
10.51(9)+ Separation and Release Agreement dated January 30, 1998,
between Steven R. Kingma and Gargoyles, Inc.
10.52(9)+ Separation and Release Agreement dated January 30, 1998
between G. Travis Worth and Gargoyles, Inc.
10.53(9)+ Separation and Release Agreement dated February 2, 1998
between David Jobe and Gargoyles, Inc.
10.54(9)+ Separation and Release Agreement dated March 11, 1998,
between Douglas B. Hauff and Gargoyles, Inc.
10.55(9)+ Employment Agreement dated as of March 2, 1998, between
Gargoyles, Inc. and Richard W. Hammel, Sr.
10.56(9)+ Employment Agreement dated as of March 2, 1998, between
Gargoyles, Inc. and Patricia Lynch.
10.57(9)+ Mutual General Release and Payment Agreement dated as of
March 2, 1998 between HXPE, Inc., f/k/a The Private Eyes
Sunglass Corporation, Richard Hammel, Sr., Patricia Lynch,
Gargoyles, Inc. and Gargoyles Acquisition Corporation II,
a/k/a Private Eyes Sunglass Corporation.
10.58(9)+ Employment Agreement dated as of February 1, 1998 between
Gargoyles, Inc. and Leo Rosenberger.
10.59(9) Lease Agreement dated November 27, 1996, between Leonard
Delalio and Robert P. Delalio and Sungold Enterprises
Limited
10.60(9) $16,470,000 Renewal Term Note dated January 15, 1998, by
Gargoyles, Inc. in favor of U.S. Bank National Association.
10.61(9) $14,000,000 Renewal Revolving Note dated January 15, 1998,
by Gargoyles, Inc. in favor of U.S. Bank National
Association.
10.62(9) $3,650,000 Renewal Equipment Note dated January 15, 1998, by
Gargoyles, Inc. in favor of U.S. Bank National Association.
</TABLE>
9
<PAGE> 12
<TABLE>
<C> <S>
10.63(9) $250,000 Renewal Equipment Note dated January 15, 1998, by Gargoyles, Inc. in favor of U.S. Bank
National Association.
10.64(9) Security Agreement dated January 15, 1998, between Sungold Eyewear, Inc. and U.S. Bank National
Association.
10.65(9) Security Agreement dated January 15, 1998, between Private Eye Sunglass Corporation and U.S. Bank
National Association.
21.1(9) Subsidiaries of the registrant.
23.1(10) Consent of Ernst & Young LLP, Independent Accountants.
27.1(10) Financial Data Schedule.
</TABLE>
- ---------------
* Confidential Treatment Requested
+ Executive Compensation Plans and Arrangements
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-07573).
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1996.
(3) Incorporated by reference to the Company's Form 10-K Report for the Fiscal
year ended December 31, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1997.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended June 30, 1997.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1997.
(7) Incorporated by reference to the Company's Form 8-K filed April 28, 1997.
(8) Incorporated by reference to the Company's Form 8-K filed May 29, 1997.
(9) Filed herewith.
(10) To be filed by amendment.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 31st day of
March, 1998.
GARGOYLES, INC.
/S/ LEO ROSENBERGER
By:
Leo Rosenberger
Chief Executive Officer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LEO ROSENBERGER Chief Executive Officer and March 31, 1998
- --------------------------------------------- Chief Financial Officer
Leo Rosenberger (Principal Executive Officer)
/s/ KIMBERLY L. EIRING Director of Finance March 31, 1998
- --------------------------------------------- (Principal Accounting Officer)
Kimberly L. Eiring
/s/ ROBERT G. WOLFE Chairman of the Board March 31, 1998
- ---------------------------------------------
Robert G. Wolfe
/s/ TIMOTHY C. POTTS Director March 31, 1998
- ---------------------------------------------
Timothy C. Potts
/s/ WILLIAM D. RUCKELSHAUS Director March 31, 1998
- ---------------------------------------------
William D. Ruckelshaus
/s/ PAUL S. SHIPMAN Director March 31, 1998
- ---------------------------------------------
Paul S. Shipman
/s/ WALTER F. WALKER Director March 31, 1998
- ---------------------------------------------
Walter F. Walker
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.1(1) Form of Amended and Restated Articles of Incorporation of
the registrant currently in effect.
3.2(1) Bylaws of the registrant currently in effect.
10.1(1) Stock Purchase Agreement, dated as of March 14, 1995, among
Gargoyles and certain other parties.
10.2(1) Nondisclosure, Noncompetition and Indemnity Agreement, dated
as of March 22, 1995, among Gargoyles, Inc., Conquest
Sports, Inc., Antone Manufacturing, Inc. and the Founder.
10.3(1) Stock Purchase Agreement, dated as of January 25, 1996,
among Gargoyles, Inc., H.S.C., Inc., Douglas B. Hauff,
H.S.I., a California corporation, dba Hobie Sunglasses and
the Sellers listed therein.
10.4(1) Industrial Real Estate Lease (Single Tenant Facility) dated
December 16, 1993, between Gargoyles, Inc. and DB&D
Partnership.
10.5(1) Lease Amendment dated as of March 17, 1995, between
Gargoyles, Inc. and DB&D Partnership.
10.6*(1) License Agreement dated as of October 1995, as amended as of
October 18, 1995, between Gargoyles, Inc. and Ken Griffey,
Jr.
10.7(1)+ Gargoyles, Inc. Common Stock Purchase Warrant, dated January
1996, between Gargoyles, Inc. and Wally Walker.
10.8(9)+ Employment Agreement dated July 5, 1996, between Gargoyles,
Inc. and Bruce Meckling.
10.9*(1) License Agreement, dated August 14, 1996, between Gargoyles,
Inc. and Dale Earnhardt.
10.10(1)+ Form of Indemnity Agreement between Gargoyles, Inc. and each
of its directors.
10.11(1)+ 1995 Stock Incentive Compensation Plan.
10.12(1) Amended and Restated Agreement Regarding Claim Rights, dated
July 3, 1996, by and between the Founder, Gargoyles, Inc.
and Conquest Sports, Inc.
10.13*(1) Ratification of Settlement Agreement and General Release,
dated April 12, 1995.
10.14*(1) Trademark License Agreement dated as of April 12, 1995.
10.15(5) Lease Agreement dated July 22, 1997, between Northwest Real
Estate Carver, L.L.C., and Gargoyles, Inc.
10.16(6) Amendment Number One to Lease Agreement dated September 25,
1997, between Northwest Real Estate Carver, L.L.C., and
Gargoyles, Inc.
10.17(1) Agreement for Purchase of Common Stock, dated as of May 17,
1996, among Gargoyles, Inc., The Timberland Company, Douglas
W. Lauer and the kindling company (formerly The D.W. Lauer
Company).
10.18(1) Employment Agreement effective as of May 17, 1996, between
Douglas W. Lauer and the kindling company.
10.19(1) Investor Rights Agreement, dated as of May 17, 1996, among The D.W.
Lauer Company, Douglas W. Lauer, Gargoyles, Inc. and The Timberland
Company.
10.20*(1) License Agreement, dated as of May 17, 1996, among The Timberland
Company, Gargoyles, Inc. and the kindling company.
10.21(1)+ Incentive Pool Agreement, effective as of May 17, 1996, between
Gargoyles, Inc. and Douglas W. Lauer.
10.22*(1) License Agreement, effective January 1, 1989 between Hobie Designs,
Inc. and H.S.I.
10.23*(1) License Agreement dated as of May 31, 1996 among Ixela, Inc., Alexi
Lalas and Gargoyles, Inc.
10.24(2) Indemnity Agreement dated September 26, 1996 by Trillium Corporation
and Douglas B. Hauff in favor of Gargoyles.
10.25(3) Agreement, dated January 9, 1997, between Gargoyles and
International Speedway Corporation.
10.26*(3) Product Development and Licensing Agreement dated January 1, 1997,
between Gargoyles and Golden Bear Golf, Inc.
10.27(3)+ Registration Rights Agreement dated February 20, 1997, between
Gargoyles and Douglas B. Hauff.
10.28(3) Registration Rights Agreement dated February 20, 1997, between
Gargoyles and Trillium Investors II.
10.29(4) First Amended and Restated Credit Agreement dated April 7, 1997,
between U.S. Bank of Washington, National Association and Gargoyles,
Inc.
10.30(5) Second Amendment to First Amended and Restated Credit Agreement
dated July 15, 1997, between U.S. Bank of Washington, National
Association, and Gargoyles, Inc.
10.31(9) Third Amendment to First Amended and Restated Credit Agreement dated
January 15, 1998, between U.S. Bank of Washington, National
Association, and Gargoyles, Inc.
10.32(9) Fourth Amendment to First Amended and restated Credit Agreement
dated January 30, 1998, between U.S. Bank of Washington, National
Association, and Gargoyles, Inc.
10.33(9) Fifth Amendment to First Amended and Restated Credit Agreement dated
March 17, 1998, between U.S. Bank of Washington, National
Association, and Gargoyles, Inc.
10.34(9) Promissory Note dated April 9, 1997 between Douglas B. Hauff in
favor of Gargoyles, Inc.
10.35(7) Asset Purchase and Sale Agreement dated as of April 10, 1997 between
Sungold Enterprises, Ltd., Sheldon Goldman, Lionel Goldman and
Lionel Goldman, Trustee of The Lionel Goldman Family Trust u/a dated
September 30, 1994 and Gargoyles Acquisition Corporation (n/k/a
Sungold Eyewear, Inc.).
10.36(9)+ Employment Agreement dated as of April 10, 1997, between Gargoyles
Acquisition Corporation (n/k/a Sungold Eyewear, Inc.) and Sheldon
Goldman.
10.37(9) Royalty Agreement dated April 10, 1997 between Gargoyles Acquisition
Corporation (n/k/a Sungold Eyewear, Inc.) and Sungold Enterprises,
Ltd.
10.38(9) Nondisclosure and Noncompetition Agreement dated as of April 10,
1997 between Gargoyles Acquisition Corporation (n/k/a Sungold
Eyewear, Inc.) and Lionel Goldman.
10.39*(9) Amended and Restated License Agreement dated April 10, 1997 between
Stussy, Inc. and Sungold Enterprises, Ltd.
10.40(8) Asset Purchase and Sale Agreement dated as of May 5, 1997 between
The Private Eyes Sunglass Corporation, Richard W. Hammel, Sr.,
Patricia Lunch, Annette Hammel, Robert Hammel and Ronald Hammel and
Gargoyles Acquisition Corporation II (n/k/a Private Eyes Sunglass
Corporation).
10.41(9) Contingent Price Agreement dated as of May 14, 1997 between
Gargoyles Acquisition Corporation II (n/k/a Private Eyes Sunglass
Corporation) and The Private Eyes Sunglass Corporation.
10.42*(9) License Agreement dated May 14, 1997 by and between Ellen
Tracy Inc. and Gargoyles Acquisition Corporation II (n/k/a
Private Eyes Sunglass Corporation).
10.43*(9) Exclusive Distributorship Agreement dated October 25, 1997
between Cebe International S.A. and Private Eyes Sunglass
Corporation.
10.44(9) Lease dated March 1, 1989 between Gary Christopher and W.
Blake Merrill as Trustees of AEP Realty Trust and Private
Eyes Sunglass Corporation.
10.45(9) Lease dated May 15, 1989 between Gary Christopher and W.
Blake Merrill as Trustees of AEP Realty Trust and Private
Eyes Sunglass Corporation (f/k/a Primetta Corporation).
10.46(9) Second Amendment of Lease dated June 8, 1996 between Ronald
L. Gordon as Trustee of AEP Realty Trust and Private Eyes
Sunglass Corporation.
10.47(9) Settlement Agreement dated as of May 30, 1997 between
Gargoyles, Inc. and Peter G. and Sandra L. LaHaye, La Haye
Laboratories, Inc. and Neoptx, Inc.
10.48(9) License Agreement dated as of June 30, 1997 between Neoptx,
Inc. and Gargoyles, Inc.
10.49(9) Settlement Agreement and Mutual Release dated as of July 14,
1997 between Adidas America, Inc., Gargoyles, Inc., Conquest
Sports, Inc., Axcent Sports, Inc., Sports Performance
Products, Inc., Douglas Hauff and Trillium Corporation.
10.50(9)+ Promissory Note dated March 11, 1998 between Douglas B.
Hauff in favor of Gargoyles, Inc.
10.51(9)+ Separation and Release Agreement dated January 30, 1998,
between Steven R. Kingma and Gargoyles, Inc.
10.52(9)+ Separation and Release Agreement dated January 30, 1998
between G. Travis Worth and Gargoyles, Inc.
10.53(9)+ Separation and Release Agreement dated February 2, 1998
between David Jobe and Gargoyles, Inc.
10.54(9)+ Separation and Release Agreement dated March 11, 1998,
between Douglas B. Hauff and Gargoyles, Inc.
10.55(9)+ Employment Agreement dated as of March 2, 1998, between
Gargoyles, Inc. and Richard W. Hammel, Sr.
10.56(9)+ Employment Agreement dated as of March 2, 1998, between
Gargoyles, Inc. and Patricia Lynch.
10.57(9)+ Mutual General Release and Payment Agreement dated as of
March 2, 1998 between HXPE, Inc., f/k/a The Private Eyes
Sunglass Corporation, Richard Hammel, Sr., Patricia Lynch,
Gargoyles, Inc. and Gargoyles Acquisition Corporation II,
a/k/a Private Eyes Sunglass Corporation.
10.58(9)+ Employment Agreement dated as of February 1, 1998 between
Gargoyles, Inc. and Leo Rosenberger.
10.59(9) Lease Agreement dated November 27, 1996, between Leonard
Delalio and Robert P. Delalio and Sungold Enterprises
Limited
10.60(9) $16,470,000 Renewal Term Note dated January 15, 1998, by
Gargoyles, Inc. in favor of U.S. Bank National Association.
10.61(9) $14,000,000 Renewal Revolving Note dated January 15, 1998,
by Gargoyles, Inc. in favor of U.S. Bank National
Association.
10.62(9) $3,650,000 Renewal Equipment Note dated January 15, 1998, by
Gargoyles, Inc. in favor of U.S. Bank National Association.
10.63(9) $250,000 Renewal Equipment Note dated January 15, 1998, by
Gargoyles, Inc. in favor of U.S. Bank National Association.
10.64(9) Security Agreement dated January 15, 1998, between Sungold Eyewear,
Inc. and U.S. Bank National Association.
10.65(9) Security Agreement dated January 15, 1998, between Private Eye
Sunglass Corporation and U.S. Bank National Association.
21.1(9) Subsidiaries of the registrant.
23.1(10) Consent of Ernst & Young LLP, Independent Accountants.
27.1(10) Financial Data Schedule.
</TABLE>
- ---------------
* Confidential Treatment Requested
+ Executive Compensation Plans and Arrangements
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-07573).
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1996.
(3) Incorporated by reference to the Company's Form 10-K Report for the Fiscal
year ended December 31, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1997.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended June 30, 1997.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1997.
(7) Incorporated by reference to the Company's Form 8-K filed April 28, 1997.
(8) Incorporated by reference to the Company's Form 8-K filed May 29, 1997.
(9) Filed herewith.
(10) To be filed by amendment.
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of the 5th day of July,
1996, by and between GARGOYLES, INC., a Washington corporation (the
"Corporation") and BRUCE MECKLING ("Employee"). In consideration of the mutual
covenants and conditions set forth herein, the parties agree as follows:
1. Employment. Subject to the terms and conditions contained in this Agreement,
the Corporation hereby employs Employee and Employee hereby accepts employment
with the Corporation.
2. Duties And Reporting Relationship. During the Term of Employment, as defined
below, Employee shall be employed in the capacity of Vice President,
International of the Corporation, or in such other office or capacity as the
Corporation shall direct, from time to time, during the term hereof. In such
capacity, Employee shall devote his working time and attention to establishing
and maintaining a European main office for the Corporation, as well as any
necessary regional offices, and may be asked to direct the Corporation's
international operations from the Corporation's US corporate headquarters,
subject to the direct supervision and approval of Travis Worth, Chief Operating
Officer, and under the direction of the President and the Board of Directors of
the Corporation. Employee acknowledges and agrees that as Vice President,
International the hours which he is required to work will vary considerably and
will sometimes be more than 40 hours per week. Employee further acknowledges and
agrees that such work in excess of 40 hours per week is a regular and normal
part of the responsibilities for which he is compensated, and does not in any
way constitute overtime for which he is entitled to receive additional
compensation. Employee also shall perform such duties as may be specified for
companies which are controlled by or are under common control with the
Corporation, including without limitation H.S.C., a Washington corporation d/b/a
Hobie Polarized Sunglasses, and the kindling company, a California corporation,
which will develop, manufacture and sell sunglasses under the Timberland
trademark.
3. Term. Unless sooner terminated in accordance with this Agreement, the
Employee's term of employment shall become effective on the earlier of (i) the
first Monday following Employee's termination of employment with Bausch & Lomb
Incorporated or (ii) August 1, 1996 and shall continue until the third
anniversary hereof (the "Term of Employment"). Thereafter, the Term of
Employment shall continue on a quarter-to-quarter basis until either party
hereto gives at least ninety (90) days notice to the other of its decision to
end the term hereof. Any notice under this paragraph shall not be considered a
termination pursuant to the other provisions of this Agreement.
4. Base Salary. For all services rendered by Employee under this Agreement, the
Corporation shall pay Employee a Base Salary at an annual rate of
Page 1
<PAGE> 2
US$175,000, payable in twice monthly installments in accordance with the
Corporation's usual payroll policies and procedures. Base Salary shall be
adjusted on a no loss/no gain to Employee basis for the effects of foreign tax,
housing, and the cost of goods and services. This Base Salary is subject to
annual increases by the Board of Directors of the Corporation, considering all
factors relevant to such a decision, but shall not be decreased.
5. Benefits.
5.1 Expenses. The Corporation shall reimburse Employee for all
reasonable and necessary business expenses incurred and advanced by him in
carrying out his duties under this Agreement promptly following presentation of
receipts and other supporting information.
5.2 Signing Bonus; Stock Option Grant. On January 1, 1997, the
Corporation shall pay Employee a bonus of US$50,000. Upon the commencement of
employment pursuant to Section 3, the Corporation will grant to Employee a
fully-vested option to purchase 1000 shares of the Corporation's Common Stock
(which number is based on 1,002,670 total shares of Common Stock issued and
outstanding) under the Corporation's 1995 Stock Option Plan (the "Plan"), a copy
of which is attached hereto as Exhibit A, under which Employee will have the
opportunity, in accordance with the terms of the Plan, to purchase such stock at
an exercise price equal to US$88 per share.
5.3 Incentive Bonus. Employee shall be entitled to participate in the
Corporation's 1996 management incentive compensation program for the five-month
period of August 1, 1996 to December 31, 1996. In addition, beginning January 1,
1997, for calendar year 1997 and thereafter during the Term of Employment,
Employee shall be entitled to participate in incentive compensation programs
established by the Corporation for management. Specific objectives and bonus
amounts will be established by the Corporation for Employee prior to 1997. Bonus
amounts established will range between twenty-five and fifty percent of
Employee's base salary.
5.4 Company Incentive Stock Option. Upon the commencement of employment
pursuant to Section 3, Employee will be granted an additional incentive stock
option under the Plan to purchase 3,000 shares of the Corporation's Common Stock
(which number is based on 1,002,670 total shares of Common Stock issued and
outstanding), in three 1000 share blocks, at an exercise price of US$88 per
share, vesting monthly at the rate of twenty percent (20%) per year, provided,
however, that vesting of such shares is also subject to the Corporation
achieving the international sales volume goals described as follows:
Block 1 1000 shares
Block 2 1000 shares
Page 2
<PAGE> 3
Block 3 1000 shares
The vested portion of Block 1 shares shall become exercisable once the
Corporation achieves/has achieved $5 million in international sales, or, if this
goal is not met, on August 1, 2001.
The vested portion of Block 2 shares shall become exercisable once the
Corporation achieves/has achieved $10 million in international sales, or, if
this goal is not met, on August 1, 2001.
The vested portion of Block 3 shares shall become exercisable once the
Corporation achieves/has achieved $15 million in international sales, or, if
this goal is not met, on August 1, 2001.
If the Corporation achieves $15 million in international sales in any one
calendar year on or before the third anniversary hereof, and the Corporation
fails to extend Employee's employment past such date, then the 3000 optioned
shares discussed in this subsection 5.4 shall vest and become exercisable in
full on the third anniversary hereof.
Grant of Employee's options as described in subsections 5.2 and 5.4 hereof are
subject to approval by the Corporation's Board of Directors.
5.5 Incremental Bonus. On December 31, 1999, the Corporation shall pay
Employee an additional cash bonus in accordance with the following schedule if
between the effective date of this Agreement and December 31, 1999, the
Corporation has achieved the following international sales goals:
If between the date hereof and December 31, 1999, the Corporation's
international sales for such period total at least $30 million, on December 31,
1999 the Corporation shall pay to Employee a bonus of US$50,000.
If between the date hereof and December 31, 1999, the Corporation's
international sales for such period total at least $38.75 million, on December
31, 1999 the Corporation shall pay to Employee a bonus of US $100,000.
If between the date hereof and December 31, 1999, the Corporation's
international sales for such period total at least $47.5 million, on December
31, 1999 the Corporation shall pay to Employee a bonus of US $200,000.
5.6 Company Benefits. Employee shall be entitled to participate fully
in all the Corporation's employee benefits plans established for full-time
employees of the Corporation, including without limitation all health, medical,
retirement, life and disability insurance plans established by the Corporation
in accordance with the terms of such plans. Employee shall be entitled to
participate in any pension and
Page 3
<PAGE> 4
retirement plans, stock option or ownership plans, and other fringe benefit
plans, perquisites and programs as are or may be made available from time to
time to executives or other salaried employees of the Corporation to the extent
eligible under the terms of such plans.
5.7 Vacation; Sick Leave. Employee will be entitled to vacation and
sick leave in accordance with policies of the Corporation, as amended from time
to time, generally applicable to executive employees of the Corporation.
6. Termination.
6.1 Termination for Cause. Except as set forth below, this Agreement
and Employee's employment by the Corporation may only be terminated for Cause.
For purposes of this Agreement, "Cause" shall mean: (i) Employee shall be found
by the Board of Directors of the Corporation to be guilty of fraud or other acts
of willful misconduct in connection with his employment hereunder which have a
material adverse effect on the Corporation (ii) any failure by Employee to
follow the directives of the Corporation's Chief Operating Officer, President,
or other supervisor, or the Board of Directors (iii) conviction of Employee for
commitment of a felony; (iv) any violation of law by Employee which has a
material adverse effect on the Corporation; (v) habitual use of narcotics or
alcohol which impairs Employee's performance of his duties under this Agreement;
(vi) theft or embezzlement by Employee from the Corporation; (vii) a material
breach of Employee's obligations under paragraph 7 hereof; (viii) unexcused
habitual absence from work for reasons unrelated to illness, family crisis or
disability; or (ix) failure of the Corporation to meet at least 75% of the
international sales projected during any one year in accordance with the
following schedule:
<TABLE>
<CAPTION>
Year International Sales
- ---- -------------------
<S> <C>
1997 $5 million
1998 $10 million
1999 $15 million
</TABLE>
Employee may not be terminated for Cause unless and until he shall have been
given written notice which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination for Cause pursuant to
this paragraph 6 (the "Termination Notice"). Employee shall be deemed terminated
on the 30th day following his receipt of the Termination Notice (the
"Termination Date") if he shall have failed to cure or correct the circumstances
constituting Cause, or if such circumstances cannot reasonably be cured within a
thirty (30) day period, if Employee shall have failed to actively and diligently
pursue cure of such circumstances.
6.2 Death or Disability.
Page 4
<PAGE> 5
(a) This Agreement and the Employee's employment hereunder
shall terminate upon the death of Employee. The date of Employee's death also is
referred to herein as the "Termination Date."
(b) If Employee is Disabled, the Corporation shall have the
right and may elect to terminate the services of the Employee by written notice.
The day after such written notice has been delivered to the Employee is also
referred to herein as the "Termination Date." For purposes of this Agreement,
"Disabled" shall mean that the Employee is unable to perform his duties under
this Agreement as Vice President, International of the Corporation by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a period
of not less than 90 days. Determination of whether Employee is Disabled shall be
made in good faith by the Board of Directors of the Corporation on the basis of
medical evidence provided by Employee's physician and, if the parties disagree,
a physician chosen by the Board of Directors.
6.3 Resignation With Good Reason. Should Employee wish to resign from
his position with the Corporation during the Employment Period with Good Reason,
he shall give thirty (30) days written notice to the Corporation specifying the
date as of which his resignation is to become effective. The date specified in
such written notice is also referred to herein as the "Termination Date".
Failure to provide such notice shall entitle the Corporation to fix the
Termination Date as of the last business day on which Employee reported for work
at the principal offices of the Corporation. "Good Reason" shall mean (i)
material breach by the Corporation of its obligations hereunder or; (ii) a
significant adverse change in the nature and scope of Employee's position of
employment.
6.4 Employee's Voluntary Resignation. Should Employee wish to resign
from his position with the Corporation during the Employment Period without Good
Reason (his "Voluntary Resignation"), he shall give thirty (30) days written
notice to the Corporation and specify the date as of which his resignation is to
become effective. The date specified in such written notice is also referred to
herein as the "Termination Date." Failure to provide such notice shall entitle
the Corporation to fix the Termination Date as of the last business day on which
Employee reported for work at the principal offices of the Corporation.
6.5 Compensation and Benefits Upon Termination.
(a) If the employment of the Employee is terminated for Cause
or by his Voluntary Resignation, the Employee shall not be entitled to any
compensation or other benefits hereunder for any period after the Termination
Date.
Page 5
<PAGE> 6
(b) If the employment of Employee is terminated other than for
Cause or due to Employee's Voluntary Resignation, Employee shall be entitled to
receive (i) an amount equal to the Base Salary payable for the remaining period
of the Term of Employment, less any amounts received by Employee under
disability insurance policies provided by the Corporation or as compensation or
benefits from employment during such time and (ii) all benefits under employee
benefit plans in which Employee was participating immediately prior to the
Termination Date which would have been available to Employee during the Term of
Employment, provided that Employee's continued participation is permitted under
the terms and provisions of such employee benefit plans. If Employee's
participation in any employee benefit plan is not permitted, the Corporation
shall arrange to provide Employee with benefits substantially similar to those
which Employee otherwise would be entitled to receive.
7. Intellectual Property; Nondisclosure of Confidential Information; Covenant
Not To Compete.
7.1 Definitions.
(a) Confidential Information. For purposes of this Agreement,
Confidential Information shall mean all the Corporation's proprietary
information which derives independent economic value from its secrecy from other
persons, companies, or business entities who could obtain economic value from
its disclosure to them or use by them. Confidential Information also includes,
without limitation, research data, trade or business know-how or business plans,
inventions, devices, patterns, compilations, programs, methods, techniques, or
processes which are disclosed or made available by the Corporation to Employee,
or devised by Employee during his employ by the Corporation. Examples of
Confidential Information include, without limitation: all information
specifically identified as proposed installations, products or product lines,
information systems, or other projects, the Corporations' supplier and customer
lists and all customer information and the Corporation's existing and proposed
business and marketing plans and policies, whether written or oral, and whether
designated individually as Confidential Information or not. Confidential
Information does not include information that: (i) is a matter of public
knowledge at the time Employee first learned of the information; (ii) later
becomes a matter of public knowledge after Employee learns of it, other than
becoming public knowledge by reason of a breach by Employee of the obligations
of confidentiality set out in this Agreement, or (iii) Employee acquired during
previous employment prior to the effective date of this Agreement.
(b) Conflicting Services. For purposes of this Agreement,
Conflicting Services shall mean product development or marketing of any eyewear,
or other products which compete with products then in production and marketing,
or reasonably anticipated to be in production and marketing, by the Corporation
or
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<PAGE> 7
by H.S.C., Inc., or the kindling company, or by any of their respective
exclusive licensees, and shall in addition mean all services of any type which
involve, directly or indirectly, the use or disclosure of Confidential
Information. Conflicting Services specifically do not include: (i) general
product development, marketing and promotional services, (ii) product
development, marketing and promotion of sportswear and sporting goods in
general, and (iii) product development, marketing and promotion of eyewear and
sporting goods (except for product development, marketing and promotion by
methods which include, or make use of, Confidential Information) that are not
competitive with products then in production and marketing, or reasonably
anticipated to be in production and marketing by the Corporation or by Pro-Tec,
Inc., or by any of their respective exclusive licensees.
(c) Conflicting Territories. For purposes of this Agreement,
Conflicting Territories shall mean, severally or together, each of the states of
the United States, and all foreign countries in which the Corporation and H.S.C.
and the kindling company products are now sold or are hereafter sold.
(d) Invention. For purposes of this Agreement, Invention shall
mean all new inventions, discoveries, creations and works of authorship, and any
improvements to existing inventions, whether patentable or not, and all software
relating to any inventions, discoveries or improvements, which Employee
conceives, makes, develops, or reduces to practice, whether alone or with any
other person, company or business entity, (i) while Employee is working for the
Corporation in any capacity under this Agreement which relates to any questions
or problems for which the Corporation has requested Employee's services, (ii)
that are based in any way on Confidential Information received by Employee from
the Corporation or developed or made by Employee during his employ at the
Corporation, or (iii) with the aid of any equipment, supplies, facilities or
employees of the Corporation or on the Corporation's time.
7.2 Non Disclosure of Confidential Information. Employee agrees not to
disclose or to use any Confidential Information, either during or after
employment by the Corporation, except as required by the performance of duties
within the scope of Employee's employment. Employee agrees to apply his best
efforts to otherwise prevent unauthorized disclosure or use of any Confidential
Information, and to immediately inform an officer of the Corporation if any
improper disclosure or use does occur.
7.3 Adherence to Confidentiality. Employee acknowledges his
understanding and recollection that his employment with the Corporation has
always been under terms of the strictest confidentiality which were at least the
equivalent of the confidentiality terms of this Agreement, and acknowledges and
states that at no time during his employment with the Corporation has he
departed in any substantial way from adherence to those terms.
Page 7
<PAGE> 8
7.4 Conflicting Services. Although certain provisions of this Agreement
allow Employee to engage in Conflicting Services subject to certain terms and
conditions, Employee's common law and contractual duties to maintain and
preserve the secrecy of the Corporation's Confidential Information continue in
perpetuity unabated and unchanged by those provisions.
7.5 Covenant Not To Compete.
(a) Representation of Employee. Employee represents that, and
the Corporation offers this employment in reliance upon Employee's
representation that, in the event of termination or expiration of Employee's
employment for any cause whatsoever, Employee's experience, education, training
and capabilities are such that he can obtain employment performing activities
which are not Conflicting Services, or which are to be performed outside of
Conflicting Territories, and that the enforcement of this Agreement by way of
injunction will not present Employee from earning a living.
(b) Covenant of Employee; Term. Employee agrees that he will
not directly or indirectly, whether as principal, agent, officer, director,
employee, salesman, or otherwise, alone or in associate with any other person,
firm, corporation or other business corporation, enter into, participate in, or
engage in any Conflicting Services within any Conflicting Territory. Employee
also agrees not to either directly or indirectly solicit for employment or
employ any employee of the Corporation for any party other than the Corporation.
Employee further agrees that he shall not directly or indirectly acquire or own
any shares or other interest in the business of any person, firm, corporation or
other business organization which is engaged in or proposes to become engaged in
any Conflicting Services within any Conflicting Territory (other than for bona
fide non-controlling investment purposes). If Employee's employment with the
Corporation terminates for Cause or because of his Voluntary Resignation, and
provided the Corporation is not in default of its payment and other obligations
to Employee arising under this Agreement, Employee's Covenant Not To Compete
shall be effective for a period of one year from the Termination Date and shall
be effective and enforceable in and throughout all Conflicting Territories. If
Employee is terminated for any reason other than for Cause or because of his
Voluntary Resignation, Employee's Covenant Not To Compete shall be effective for
a period of the remainder of the Term of Employment plus six months from the
Termination Date and shall be effective and enforceable in and throughout all
Conflicting Territories.
(c) Enforcement. Employee agrees that as to the geographic
areas and the time periods set forth above for the purpose of the Covenant Not
To Compete, each Conflicting Territory and each time period are divisible and
separate so that in the event the Covenant Not To Compete is held by a court to
be invalid or unenforceable as to any geographic area or for any time period
described, the Covenant Not To Compete shall remain valid and enforceable in all
remaining
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<PAGE> 9
geographic areas and time periods. Employee agrees that it is his express
intention that, in the event a court reforms this Agreement, the Corporation be
given the broadest protection allowed by law as respects this Agreement and the
Covenant Not To Compete.
7.6 Employee Invention Materials and Invention Disclosure.
(a) Employee shall, at all times of employment and/or
thereafter, immediately and fully disclose to the Corporation all information
regarding each Invention conceived, made, developed, or perfected during
Employee's employment by the Corporation, for the purpose of determining the
Corporation's and Employee's rights to each Invention. Employee's duty of
immediate and complete disclosure under this section continues throughout
Employee's employment with the Corporation. Each Invention which Employee is
required to disclose to the Corporation under this section becomes confidential
information at the moment the Employee's duty to disclose under this section
arises, regardless of whether or not Employee actually discloses the Invention
to the Corporation.
(b) Employee agrees to keep, preserve in good condition and
make available to the Corporation complete and up-to-date records, including
sketches, drawings, notebooks and other documents relating to the Invention,
including documents stored in electronically readable form, and documented
source code where applicable, as well as prototypes, and other evidence of the
reduction to practice of the Invention or the conception and occurrence and
dates of the Invention ("Invention Materials"). Employee acknowledges that all
such Invention Materials are the property of the Corporation.
7.7 Employee Invention Assignment and Continued Employee Assistance.
(a) Employee hereby assigns to the Corporation all of
Employee's rights in each Invention which (i) is developed using the
Corporation's equipment, supplies, facilities, or information supplied by the
Corporation to Employee; or (ii) which relates directly to the business of the
Corporation, or to the Corporation's actual or demonstrably anticipated research
or development; or (iii) which has resulted from any work performed by the
Employee for the Corporation, whether or not on the Corporation's time. See
attached Exhibit B for a description of Employee Inventions which by law are not
subject to the assignment requirement of this section.
(b) Without limiting the generality of the assignment
provisions in the preceding paragraph, all creative works authored by Employee
during Employee's employment with the Corporation, at the request of the
Corporation, are "works for hire" as that term is defined by the federal
Copyright Act, as enacted or hereafter amended. The copyright to such works is
owned exclusively by the Corporation, and Employee has no ownership rights in,
or control over, such works. Employee shall be
Page 9
<PAGE> 10
entitled to request and receive authorship credit in such works, and to have it
displayed as is typical in the industry to which the work applies.
7.8 Employee Cooperation. Employee further agrees that Employee will,
at no charge to the Corporation, and at no expense to Employee, during and after
Employee's employment, cooperate with the Corporation in any or all of the
following: (i) prosecution of US and foreign copyright registration applications
for any works of authorship by Employee which the Corporation chooses to file;
(ii) prosecution of US and foreign patent applications, including all
continuation, divisional, continuation-in-part, reissue, reexamination, patent
term extension applications and the like and related petitions, and including
all foreign, regional or international counterparts of such applications for
each assignable Invention and improvements thereon which the Corporation chooses
to file; and (iii) enforcement of any patents or copyright registrations issuing
from such applications, or trade secret rights therein, including executing,
verifying, acknowledging and delivering to the Corporation all such papers, and
performing all such actions, as the Corporation shall from time to time
reasonably request related to such enforcement or prosecution or recordation
actions by the Corporation, such papers including without limitation patent and
copyright registrations applications and assignment documents therefor,
declarations, petitions, and instruments of transfer.
7.9 Corporation's Right to File. In addition, it is understood that the
Corporation shall have the right to file for patents, copyrights, or any other
state or federal statutory intellectual property rights in assignable
Inventions, in Employee's name, or the Corporation's name, or in the name of the
Corporation's nominee, at the Corporation's sole option.
7.10 Warranty of Originality and Preservation of Third Party
Confidences.
(a) Employee undertakes not to disclose to the Corporation or
its other employees any information which Employee is under an obligation to any
third party to keep confidential. Employee represents and warrants that any
information disclosed by Employee to the Corporation is not confidential and/or
proprietary to Employee and/or to any third party.
(b) Employee warrants that, to the best of Employee's
knowledge, all works of authorship or Inventions created by Employee under this
Agreement are original, created by Employee, and will not infringe any trade
secret, patent, copyright, or other proprietary rights of third parties.
Employee represents and warrants that he is under no obligation or restriction,
and further, that Employee will not assume any such obligation or restriction,
which would in any way interfere or be inconsistent with, or present a conflict
of interest concerning, the services furnished by Employee under this Agreement.
Page 10
<PAGE> 11
8. Dispute Resolution. Any dispute related to the parties' employment
relationship shall be resolved exclusively through binding arbitration in
Seattle, Washington, under the American Arbitration Association's Commercial
Arbitration Rules (the "Arbitration Rules"), except as otherwise provided
herein. The aggrieved party must deliver to the other party a written notice of
his intention to seek arbitration no later than one hundred eighty (180) days
after the event that first gives rise to the dispute. If such notice is not
delivered within such time period, the aggrieved party's rights shall be
irrevocably waived. The dispute shall be decided by one arbitrator selected by
mutual agreement of the parties, or absent agreement, in accordance with the
Arbitration Rules. The arbitrator's fees and other expenses of the arbitrator
shall be shared equally. The parties shall bear their own respective costs and
attorney's fees. Washington State law shall govern all substantive aspects of
the dispute, and all procedural issues not covered by the Arbitration Rules.
Nothing in this Section 8, however, shall deprive a court of competent
jurisdiction of the authority to apply a temporary restraining order or
preliminary injunction prohibiting a violation of this Agreement prior to any
arbitration proceeding.
9. Enforcement. Employee agrees that damages for breach of his obligations under
or related to paragraph 7 of this Agreement may be difficult to determine and
may be inadequate to remedy the harm that may be caused thereby, and therefore
consents that such obligations may be enforced by injunctive relief and other
appropriate remedies without necessity of bond or other security. Such
injunctive relief shall be in addition to and not in place of any other remedies
available at law or equity. Employee acknowledges that the restraints imposed by
this Agreement are necessary for the protection of the business and goodwill of
the Corporation, are not greater than are necessary to protect said business and
goodwill and that he is capable of gainful employment without breaching this
Agreement. However, should any court or tribunal decline to enforce any
provision of this Agreement as written, the parties hereby agree that this
Agreement shall, to the extent applicable to that circumstance before such
court, be deemed to be modified to restrict Employee's competition with the
Corporation to the maximum extent of time, scope and geography which the courts
shall find enforceable, and such provisions shall be so enforced.
10. Entire Agreement. The provisions contained herein constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede any and all prior agreements, understandings and communications
between the parties, oral or written, with respect to such subject matter.
11. Modification. Any waiver, alteration, amendment or modification of any
provisions of this Agreement shall not be valid unless in writing and signed by
all the parties hereto.
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<PAGE> 12
12. Assignment. This Agreement is personal to Employee and Employee may not
assign any of his rights or delegate any of his duties hereunder.
13. Notices. All notices and other communications called for or required by this
Agreement shall be in writing and shall be addressed to the parties at their
respective addresses stated below or to such other address as a party may
subsequently specify in writing and shall be given by (i) hand delivery, (ii) US
certified or first-class registered mail, return receipt requested and postage
prepaid, (iii) overnight receipted courier, or (iv) telephonically confirmed
facsimile transmission. Notices given in accordance with this paragraph shall be
effective upon receipt or when receipt is refused.
To the Corporation: Gargoyles, Inc.
5866 S. 194th Street
Kent, WA 98032
Tel: (206) 872-6100
Fax: (206) 872-3267
To Employee: Bruce Meckling
Tel:
Fax:
14. Governing Law. This Agreement, including all matters of construction,
validity and performance, shall be governed by and construed and enforced in
accordance with the laws of the state of Washington without regard to its
conflict of law provisions which might otherwise require the application of the
law of any other jurisdiction. The Corporation expressly consents to
jurisdiction of the courts of the State of Washington and to venue in King
County, Washington.
15. Headings. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
this Agreement.
16. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and as so executed shall constitute one
agreement.
17. Severability. Unless otherwise provided herein, if any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above mentioned.
GARGOYLES, INC.,
a Washington corporation
/s/ DOUGLAS B. HAUFF /s/ BRUCE MECKLING
By:
--------------------------------------- ---------------------------
Douglas B. Hauff, President and CEO Bruce Meckling
Page 13
<PAGE> 14
EXHIBIT A
1995 STOCK OPTION PLAN
<PAGE> 15
EXHIBIT B
TO MECKLING-GARGOYLES EMPLOYMENT AGREEMENT
NOTIFICATION TO EMPLOYEE
REGARDING EMPLOYEE INVENTIONS
A Washington state statute, Revised Code of Washington (RCW)
49.44.140(3), requires that all employers who include a provision in an
Employment Agreement requiring assignment of any employee's rights in any
invention must provide the following written notification to employees entering
into the Employment Agreement:
INVENTION ASSIGNMENT PROVISIONS IN EMPLOYMENT AGREEMENTS DO NOT APPLY
TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY, OR TRADE
SECRET INFORMATION OF THE EMPLOYER WAS USED AND WAS DEVELOPED ENTIRELY
ON THE EMPLOYEE'S OWN TIME, UNLESS:
a) THE INVENTION RELATES
i) DIRECTLY TO THE BUSINESS OF THE EMPLOYER; OR
ii) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY
ANTICIPATED RESEARCH OR DEVELOPMENT; OR
b) THE INVENTION RESULTS FROM ANY WORK PERFORMED BY THE
EMPLOYEE FOR THE EMPLOYER.
I acknowledge that I have read and fully understand this written notification,
and that I have received a separate copy of this notification:
EMPLOYEE:
BRUCE MECKLING
- ----------------------------------
Date:
-----------------------------
<PAGE> 1
EXHIBIT 10.31
THIRD AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
This third amendment to first amended and restated credit agreement
("Amendment") is made and entered into as of January 15, 1998, by and
between U. S. BANK NATIONAL ASSOCIATION, successor by merger to U. S. Bank
of Washington, National Association ("U. S. Bank"), and GARGOYLES, INC., a
Washington corporation ("Borrower").
R E C I T A L S:
A. On or about April 7, 1997, U. S. Bank and Borrower entered into that
certain first amended and restated credit agreement (together with all
amendments, supplements, exhibits, and modifications thereto, the "Credit
Agreement") whereby U. S. Bank agreed to extend certain credit facilities to
Borrower. U. S. Bank and Borrower have entered into two previous amendments to
the Credit Agreement.
B. Borrower has requested U. S. Bank to waive compliance with each of the
financial covenants set forth in the Credit Agreement and to restructure the
credit facilities provided for in the Credit Agreement. The purpose of this
Amendment is to set forth the terms and conditions upon which U. S. Bank will
grant Borrower's requests.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the parties agree as follows:
ARTICLE I. AMENDMENT; DEFINITIONS
1.1 AMENDMENT
The Credit Agreement and each of the other Loan Documents are hereby
amended as set forth herein. Except as specifically provided for herein, all of
the terms and conditions of the Credit Agreement and each of the other Loan
Documents shall remain in full force and effect throughout the terms of the
Loans, as well as any extensions or renewals thereof.
1.2 MODIFICATION AND ADDITION OF DEFINITIONS
As used herein, capitalized terms shall have the meanings given to them in
the Credit Agreement, except as otherwise
THIRD AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 1
<PAGE> 2
defined herein, or as the context otherwise requires. Section 1.1 of the Credit
Agreement is hereby amended to modify or add (as the case may be) the following
definitions:
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Act" means the Securities Act of 1933, as amended.
"Debt Service" means, for the relevant period, the aggregate amount of
scheduled principal payments on the Term Loan and the Equipment Loans, the
principal portion of leases that have been or should be capitalized in
accordance with generally accepted accounting principles, plus interest expense.
"EBITDA" means Borrower's net income (before taxes) for the relevant
period, subject to the following adjustments: (a) there shall be added to net
income: (i) charges against income consisting of depreciation of real and
personal property, and amortization of goodwill and other intangibles, (ii)
charges against income for non-cash stock compensation, and (iii) interest
expense; and (b) there shall be deducted from net income revenues derived from
sources other than continuing operations, such as net gains from sales of
capital assets, restoration to contingency reserves, collection of proceeds of
life insurance policies, write-up of assets, or gains from the sale,
acquisition, or retirement of securities.
"Equipment Loan I" has the meaning set forth in Section 4.1 of this
Amendment and includes all renewals, replacements and amendments of Equipment
Loan I.
"Equipment Loan II" has the meaning set forth in Section 4.1 of this
Amendment and includes all renewals, replacements and amendments of Equipment
Loan II.
"Holder" means U. S. Bank, U. S. Bancorp and each other Person who
owns or at any time owned all or any portion of the shares evidenced by
the Stock Certificate.
"Reference Borrowing Rate" means (a) for the Revolving Loan, the Reference
Rate plus .25 percent per annum, (b) for the Term Loan, the Reference Rate plus
1 percent per annum, and (c) for the Equipment Loans, the Reference Rate plus
.50 percent per annum.
"Reference Rate" means that rate of interest announced by U. S. Bank
from time to time as its reference rate. The Reference Rate is not the
lowest rate of interest charged by U. S. Bank to any classification of U.
S. Bank customers. For purposes of this Agreement, each time the
Reference Rate changes, a contemporaneous change
-2-
<PAGE> 3
shall occur in the interest rate charged to Borrower on any Loans then bearing
interest at a rate indexed to the Reference Rate, effective upon the
announcement or publication of any such change in rate. U. S. Bank shall not be
obligated to notify Borrower of any change in the Reference Rate; however, the
Reference Rate is available upon inquiry of U. S. Bank.
"Reference Rate Borrowing" means any Funding or portion of the applicable
Loan pursuant to the terms of this Agreement that bears interest at the
Reference Borrowing Rate.
"Renewal Equipment Notes" has the meaning set forth in Section 4.3 of this
Amendment and includes all renewals, replacements and amendments of the Renewal
Equipment Notes.
"Renewal Revolving Note" has the meaning set forth in Section 2.3 of this
Amendment and includes all renewals, replacements and amendments of the Renewal
Revolving Note.
"Renewal Term Note" has the meaning set forth in Section 3.3 of this
Amendment and includes all renewals, replacements and amendments of the Renewal
Term Note.
"Revolving Loan Commitment" has the meaning set forth in Section 2.1
of this Amendment.
"Shares" has the meaning set forth in Section 7.1 of this Amendment.
"Stock Certificate" has the meaning set forth in Section 7.1 of this
Amendment.
"Term Loan Commitment" has the meaning set forth in Section 3.1 of
this Amendment.
"Violation" has the meaning set forth in Section 7.4(a) of this
Amendment.
1.3 INTEREST RATE DEFINITIONS
All references in the Credit Agreement and the other Loan Documents to
"Prime Borrowing Rate," "Prime Rate" and "Prime Rate Borrowing" are hereby
amended to constitute references to "Reference Borrowing Rate," "Reference Rate"
and "Reference Rate Borrowing," respectively.
-3-
<PAGE> 4
ARTICLE II. MODIFICATION OF REVOLVING LOAN
2.1 MODIFICATION OF REVOLVING LOAN COMMITMENT
Section 2.1 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
Subject to and upon the terms and conditions set forth herein and in
reliance upon the representations, warranties, and covenants of Borrower
contained herein or made pursuant hereto, U. S. Bank will make Fundings
(the "Revolving Loan") to Borrower from time to time during the period
ending April 30, 1999 ("Commitment Period"), but such Fundings (together
with any outstanding Letters of Credit) shall not exceed, in the aggregate
principal amount at any one time outstanding, the following amounts for
the time periods set forth below ("Revolving Loan Commitment"). Borrower
may borrow, repay, and reborrow hereunder either the full amount of the
Revolving Loan or any lesser sum.
<TABLE>
<CAPTION>
REVOLVING LOAN
TIME PERIOD COMMITMENT
----------------- --------------
<S> <C>
1/15/98 - 1/31/98 $11,000,000
2/1/98 - 2/28/98 $12,000,000
3/1/98 - 3/31/98 $13,000,000
4/1/98 - 4/30/99 $14,000,000
</TABLE>
2.2 USE OF PROCEEDS
Section 2.2 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
The proceeds of the Revolving Loan shall be used by Borrower for
operating cash for Borrower and the Subsidiaries.
2.3 RENEWAL REVOLVING NOTE
Concurrently with the execution of this Amendment, Borrower shall execute
and deliver to U. S. Bank a renewal promissory note in the form attached hereto
as
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<PAGE> 5
Exhibit A (the "Renewal Revolving Note"), which shall be in substitution for,
but not in payment of the Revolving Note and any previous renewals thereof. The
Revolving Note and any previous renewals thereof shall be marked "renewed" and
retained by U. S. Bank until the Revolving Loan has been repaid in full.
2.4 REVOLVING LOAN INTEREST RATE
Section 2.4 of the Credit Agreement is hereby amended to reflect that
commencing as of the date of this Amendment, the Revolving Loan shall bear
interest at the Reference Borrowing Rate and that Borrower shall no longer be
entitled to LIBOR Rate Borrowings under the Revolving Loan.
2.5 REPAYMENT OF REVOLVING LOAN
There shall be added to Section 2.5 of the Credit Agreement the following:
(c) Borrower shall make principal reduction payments on the
Revolving Loan to U. S. Bank at the times and in such amounts as is
necessary to reduce the outstanding principal balance of the Revolving
Loan (together with any outstanding Letters of Credit) to the
then-applicable amount of the Revolving Loan Commitment.
2.6 BORROWING BASE REPORTS
Section 2.8(b) of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
(b) Borrower shall execute and submit to U. S. Bank a Borrowing Base
report in a form acceptable to U. S. Bank calculating the Borrowing Base
(i) on Tuesday of each week, dated as of Friday of the previous week, (ii)
concurrently with each request for a Funding under the Revolving Loan or
request for the issuance of a Letter of Credit, and (iii) promptly upon
U. S. Bank's request.
ARTICLE III. MODIFICATION OF TERM LOAN
3.1 INCREASE IN TERM LOAN COMMITMENT
U. S. Bank and Borrower hereby acknowledge that the outstanding principal
balance of the Term Loan as of the date of this Amendment is $10,970,000.
Subject to and upon the terms and conditions set forth herein and in reliance
upon the representations, warranties, and covenants of Borrower contained herein
or made
-5-
<PAGE> 6
pursuant hereto, the amount of the Term Loan shall be increased to $16,470,000.
The maximum outstanding principal balance under the Term Loan shall at no time
exceed the following amounts for the time periods set forth below ("Term Loan
Commitment").
<TABLE>
<CAPTION>
TIME PERIOD TERM LOAN COMMITMENT
----------------- --------------------
<S> <C>
1/15/98 - 9/29/98 $16,470,000
9/30/98 - 12/30/98 $10,970,000
12/31/98 - 4/30/99 $ 8,220,000
</TABLE>
3.2 USE OF ADDITIONAL PROCEEDS
The additional $5,500,000 in Term Loan proceeds shall be used to
reduce the outstanding principal balance of the Revolving Loan through an
internal transfer of funds by U. S. Bank.
3.3 RENEWAL TERM NOTE
Concurrently with the execution of this Amendment, Borrower shall execute
and deliver to U. S. Bank a renewal promissory note in the form attached hereto
as Exhibit B (the "Renewal Term Note"), which shall be in substitution for, but
not in payment of the Term Note and any previous renewals thereof. The Term Note
and any previous renewals thereof shall be marked "renewed" and retained by U.
S. Bank until the Term Loan has been repaid in full.
3.4 TERM LOAN INTEREST RATE
Section 3.4 of the Credit Agreement is hereby amended to reflect that
commencing as of the date of this Amendment, the Term Loan shall bear interest
at the Reference Borrowing Rate and that Borrower shall no longer be entitled to
LIBOR Rate Borrowings under the Term Loan.
3.5 REPAYMENT OF TERM LOAN
Sections 3.5(b) and (c) of the Credit Agreement are deleted in their
entirety and replaced with the following:
-6-
<PAGE> 7
(b) Borrower shall make principal reduction payments on the Term
Loan to U. S. Bank at the times and in such amounts as is necessary to
reduce the outstanding principal balance of the Term Loan to the
then-applicable amount of the Term Loan Commitment.
(c) Borrower shall pay U. S. Bank all outstanding principal, accrued
interest, and other charges with respect to the Term Loan on April 30,
1999.
ARTICLE IV. MODIFICATION OF EQUIPMENT LOANS
4.1 TERMINATION OF COMMITMENT
U. S. Bank's commitment to make additional Equipment Loans under the
Equipment Line is hereby terminated. U. S. Bank and Borrower hereby acknowledge
that there are currently outstanding the following two Equipment Loans: (a) an
Equipment Loan in the original principal amount of $3,650,000, evidenced by an
Equipment Note dated on or about May 9, 1997, with an outstanding principal
balance of $3,467,500.01 as of the date of this Amendment ("Equipment Loan I"),
and (b) an Equipment Loan in the original principal amount of $250,000,
evidenced by an Equipment Note dated on or about October 20, 1997, with an
outstanding principal balance of $244,038.24 as of the date of this Amendment
("Equipment Loan II").
4.2 RENEWAL EQUIPMENT NOTES
Concurrently with the execution of this Amendment, Borrower shall
execute and deliver to U. S. Bank renewal promissory notes in the form
attached hereto as Exhibits C-1 and C-2 (the "Renewal Equipment Notes"),
which shall be in substitution for, but not in payment of the Equipment
Notes previously executed and delivered to U. S. Bank and any previous
renewals thereof. Such Equipment Notes and any previous renewals thereof
shall be marked "renewed" and retained by U. S. Bank until the Equipment
Loans have been repaid in full.
4.3 REPAYMENT OF EQUIPMENT LOAN
Sections 4.5(b) and (c) of the Credit Agreement are deleted in their
entirety and replaced with the following:
(b) Commencing on June 30, 1998, on March 31, June 30, September 30,
and December 31 of each year during the term of the Equipment Loans,
Borrower shall pay to U. S. Bank principal reduction payments on the
Equipment Loans. The amount of each such principal reduction payment shall
be (i) $182,500 for Equipment Loan I, and (ii) $12,500 for Equipment Loan
II.
-7-
<PAGE> 8
(c) Borrower shall pay U. S. Bank all outstanding principal, accrued
interest, and other charges with respect to each Equipment Loan on April
30, 1999.
4.4 EQUIPMENT LINE UNUSED PORTION FEE
Section 4.6 of the Credit Agreement providing for an Equipment Line unused
portion fee is hereby deleted in its entirety.
ARTICLE V. FINANCIAL COVENANTS
5.1 EXISTING FINANCIAL COVENANTS
Subject to and upon the terms and conditions set forth herein and in
reliance upon the representations, warranties, and covenants of Borrower
contained herein or made pursuant hereto, U. S. Bank hereby waives all
previous violations of the Tangible Net Worth covenant, Working Capital
covenant, Debt Service Coverage Ratio, and Senior Debt Ratio covenant set
forth in Sections 8.15 through 8.18 of the Credit Agreement through and
including January 30, 1998. U. S. Bank and Borrower agree to enter into
an amendment to the Credit Agreement on or before January 30, 1998,
resetting such financial covenants to a level that is acceptable to U. S.
Bank. In the event that such an amendment is prepared and delivered to
Borrower, but is not executed by Borrower, approved by Borrower's board of
directors, and delivered to U. S. Bank on or before January 30, 1998,
there shall exist an Event of Default.
5.2 ADDITIONAL FINANCIAL COVENANTS
Borrower covenants and agrees that until all the Loans, together
with interest thereon, and all other obligations incurred under the Credit
Agreement and the other Loan Documents are paid or satisfied in full,
Borrower shall not, without the prior written consent of U. S. Bank:
8.19 MINIMUM MONTHLY SALES
Permit Borrower's net sales (determined in accordance with generally
accepted accounting principles) for any month to be less than the following
amounts:
-8-
<PAGE> 9
<TABLE>
<CAPTION>
MINIMUM MONTHLY
MONTH ENDING SALES
------------------- ---------------
<S> <C>
January 31, 1998 $3,150,000
February 28, 1998 $4,365,000
March 31, 1998 $4,905,000
April 30, 1998 $5,940,000
May 31, 1998 $6,660,000
June 30, 1998 $6,480,000
July 31, 1998 $6,300,000
August 31, 1998 $5,940,000
September 30, 1998 $5,580,000
October 31, 1998 $3,870,000
November 30, 1998 $4,230,000
December 31, 1998 $3,780,000
January 31, 1999 $3,150,000
February 28, 1999 $4,365,000
March 31, 1999 $4,905,000
</TABLE>
8.20 MINIMUM MONTHLY EBITDA
Permit EBITDA for any month to be less than the following amounts:
-9-
<PAGE> 10
<TABLE>
<CAPTION>
MONTH ENDING MINIMUM EBITDA
------------------ --------------
<S> <C>
January 31, 1998 $ (385,000)
February 28, 1998 $ 339,000
March 31, 1998 $ 603,000
April 30, 1998 $ 838,000
May 31, 1998 $ 971,000
June 30, 1998 $1,052,000
July 31, 1998 $1,269,000
August 31, 1998 $1,217,000
September 30, 1998 $1,114,000
October 31, 1998 $ 229,000
November 30, 1998 $ 346,000
December 31, 1998 $ 276,000
January 31, 1999 $ (385,000)
February 28, 1999 $ 339,000
March 31, 1999 $ 603,000
</TABLE>
8.21 MAXIMUM QUARTERLY CAPITAL EXPENDITURES
Permit Borrower's capital expenditures (determined in accordance with
generally accepted accounting principles, but excluding capital expenditures
financed through capital leases and operating leases) for any fiscal quarter of
Borrower to exceed the following amounts:
-10-
<PAGE> 11
<TABLE>
<CAPTION>
MAXIMUM CAPITAL
QUARTER ENDING EXPENDITURES
--------------------------------- ---------------
<S> <C>
Quarter ending March 31, 1998 $125,000
Quarter ending June 30, 1998 $125,000
Quarter ending September 30, 1998 $125,000
Quarter ending December 31, 1998 $125,000
Quarter ending March 31, 1999 $125,000
</TABLE>
5.6 MODIFICATION OF FINANCIAL COVENANTS FOR SHARE ISSUANCE
Notwithstanding any provisions of the Credit Agreement or this Amendment
to the contrary, each of the financial covenants provided for in the Credit
Agreement and this Amendment shall be calculated without regard to adjustments
that would otherwise be required under generally accepted accounting principles
resulting from the issuance of the Shares by Borrower to U. S. Bank in
accordance with Article VII of this Amendment.
ARTICLE VI. MODIFICATION OF MISCELLANEOUS COVENANTS
6.1 FINANCIAL REPORTING
Section 7.1 of the Credit Agreement is hereby amended to add the following
provisions:
(j) As soon as practicable and in any event within 25 days after the
close of each fiscal quarter of Borrower, drafts of the following
unaudited financial statements of Borrower for each such fiscal quarter,
all in reasonable detail, in comparative form to historical and budgeted
financial statements, and certified by Borrower to be true and correct to
the best of Borrower's knowledge: balance sheet, statement of income, and
statement of cash flows. There shall be included in such financial
statements a calculation of the financial covenants provided for in
Section 8 of the Credit Agreement, as amended by the Third Amendment to
Amended and Restated Credit Agreement dated as of January 15, 1998.
Borrower hereby acknowledges and agrees that in the event that the draft
quarterly financial statements reflect a violation of any one or more of
such financial covenants, there shall exist
-11-
<PAGE> 12
an immediate Event of Default just as if such violation was reflected in
the final version of such quarterly financial statements.
(k) As soon as practicable and in any event within 45 days after the
close of each fiscal quarter of Borrower, final versions of the following
unaudited financial statements of Borrower for each such fiscal quarter,
all in reasonable detail, in comparative form to historical and budgeted
financial statements, and certified by Borrower to be true and correct:
balance sheet, statement of income, and statement of cash flows. There
shall be included in such financial statements a calculation of the
financial covenants provided for in Section 8 of the Credit Agreement, as
amended by the Third Amendment to Amended and Restated Credit Agreement
dated as of January 15, 1998.
6.2 ADDITIONAL EVENT OF DEFAULT
Section 10.1 of the Credit Agreement is hereby amended to add the
following provision as an additional Event of Default:
(n) If any license, franchise, or distributorship agreement to which
Borrower or any Subsidiary is a party (other than the license agreement
between Private Eyes Sunglass Corporation and Cebe International, S.A.
with respect to use of the name "Emmanuelle Khanh") is terminated or
canceled without the prior written consent of U. S. Bank.
6.3 INFUSION OF CAPITAL
In the event that after the date of this Amendment Borrower receives cash
or cash equivalents from the issuance of stock or other equity interests in
Borrower or receives any other infusion of equity (with the exception of
proceeds received by Borrower from the exercise of options by participants in
the Gargoyles, Inc. 1995 Stock Incentive Compensation Plan), Borrower shall
immediately upon receipt thereof pay to U. S. Bank all such cash and cash
equivalents (net of reasonable expenses of issuance) to apply against accrued
interest and then the outstanding principal balance of the Loans in the inverse
order of maturity, and in the following priority: first to the Term Loan, next
to the Equipment Loans, next to the Revolving Loan (with any such Revolving Loan
principal reduction payments also constituting a permanent reduction in the
Revolving Loan Commitment), and finally to any other obligations of Borrower to
U. S. Bank under the Credit Agreement and under any other agreements between
U. S. Bank and Borrower.
-12-
<PAGE> 13
ARTICLE VII. ISSUANCE OF SHARES
7.1 ISSUANCE
In consideration for U. S. Bank's agreement to restructure the
credit facilities as provided for in this Amendment, concurrently with the
execution of this Amendment, Borrower shall issue to U. S. Bancorp 400,000
shares of the common stock of Borrower (the "Shares"). The Shares shall
be duly authorized, validly issued, fully paid and nonassessable upon
execution and delivery of this Amendment by Borrower to U. S. Bank.
Concurrently with the execution of this Amendment, Borrower shall execute
and send to Borrower's stock transfer agent an irrevocable letter of
instruction in a from acceptable to U. S. Bank directing the transfer
agent to issue to U. S. Bancorp a certificate in the name of U. S. Bancorp
evidencing the Shares (the "Stock Certificate"). Borrower shall use
diligent efforts to cause the Stock Certificate to be issued and delivered
to U. S. Bancorp. Notwithstanding any provision of the Credit Agreement
or this Amendment to the contrary, Borrower shall not be entitled to any
Fundings (including the issuance of any Letters of Credit) in excess of
$11,000,000 under the Revolving Loan until the Stock Certificate is
delivered to U. S. Bank.
7.2 REGISTRATION
(a) Borrower shall take all steps necessary to complete and file a
registration statement for the registration of the Shares on or before April 30,
1998, and shall use its best efforts to cause the registration to be effective
as soon after the filing of the registration statement as possible. As used
herein, "registration" means a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document by the United States Securities and Exchange Commission ("SEC"), the
effect of which would be to make all or any portion of the Shares immediately
salable by the holder thereof without restriction under the registration
provisions of Applicable Laws. Borrower shall further take all steps necessary
to keep effective the registration statement pursuant to which the Shares shall
be registered until all of the Shares are freely transferable pursuant to SEC
Rule 144(k) of the Act by U S Bancorp or any assignee thereof under Section 7.6
below.
(b) Borrower shall prepare and file with the SEC all such amendments and
supplements to the registration statement pursuant to which the Shares shall be
registered and the prospectus used in connection with such registration
statement as
-13-
<PAGE> 14
may be necessary to comply with the provisions of the Act with respect to the
disposition of the Shares.
(c) Borrower shall furnish U. S. Bancorp with such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as either U. S. Bank or U. S.
Bancorp may reasonably request in order to facilitate the disposition of all of
the Shares covered by such registration statement.
(d) Borrower shall use its best efforts to register and qualify, on or
before April 30, 1998, the Shares covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
requested by either U. S. Bank or U. S. Bancorp, provided that Borrower shall
not be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering, Borrower shall enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering.
(f) Borrower shall notify U. S. Bank and U. S. Bancorp, at any time when a
prospectus relating to the Shares covered by such registration statement is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) In the event that the Shares are registered pursuant to an
underwritten public offering, at the request of U. S. Bank or U. S. Bancorp,
furnish on the date that any Shares are delivered to the underwriters for sale
in connection with a registration pursuant to this Agreement (i) an opinion,
dated such date, of the counsel representing Borrower for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and (ii) a letter
dated such date, from the independent certified public accountants of Borrower,
in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters.
-14-
<PAGE> 15
7.3 EXPENSES OF REGISTRATION
Borrower shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of the shares evidenced by the Stock
Certificate, including, without limitation, all registration, filing and
qualification fees, printing and accounting fees, and the fees and disbursements
of counsel for Borrower. Notwithstanding the foregoing, U. S. Bank shall
reimburse Borrower for such reasonable expenses in excess of $30,000, provided
that U. S. Bank's shall not be required to reimburse Borrower for more than
$20,000 of such expenses.
7.4 INDEMNIFICATION
(a) To the maximum extent permitted by law, Borrower will indemnify and
hold harmless each Holder, the partners, officers, agents, employees and
directors of each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any expenses, losses, claims,
damages or liabilities (joint or several) to which they may become subject under
the Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement, including
any preliminary prospectus or final prospectus contained therein, in light of
the circumstances under which they were made, or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or (iii)
any violation or alleged violation by Borrower of the Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Act, the
1934 Act or any state securities law; and Borrower will reimburse each such
Holder, partner, officer, agent, employee or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 7.4 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
consultation with Borrower, nor shall Borrower be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by, or on behalf of, any such Holder.
-15-
<PAGE> 16
(b) To the extent permitted by law, U. S. Bank will indemnify and hold
harmless Borrower, each of its officers, directors, agents or employees, each
person, if any, who controls Borrower within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its partners, officers, directors, agents or employees or
any person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which Borrower or any such officer, director,
agent, employee, controlling person, or underwriter, or other such Holder or its
partner, officer, director, agent, employee or controlling person may become
subject, under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in as a result of written
information furnished by U. S. Bank or U. S. Bancorp expressly for use in
connection with such registration; and U. S. Bank will reimburse any legal or
other expenses reasonably incurred by Borrower or any such partner, officer,
director, agent, employee, controlling person, underwriter or other such Holder,
partner, officer, director, agent, employee or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 7.4(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of U. S. Bank, which consent shall not be unreasonably withheld.
7.5 REPORTS UNDER THE ACT
With a view to making available to U. S. Bancorp the benefits of SEC
Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit U. S. Bancorp to sell the Shares to the
public without registration or pursuant to a registration on Form S-3,
Borrower agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) take such action as is necessary to enable U. S. Bancorp to utilize
Form S-3 for the sale of the Shares;
(c) file with the SEC in a timely manner all reports and other documents
required of Borrower under the Act and the 1934 Act; and
(d) furnish to U. S. Bancorp, so long as U. S. Bancorp owns any Shares,
forthwith upon request (i) a written statement by Borrower that it has complied
with the reporting requirements of SEC Rule 144, the Act and the 1934 Act, or
that it
-16-
<PAGE> 17
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time it so qualifies), (ii) a copy of the most recent annual or
quarterly report of Borrower and such other reports and documents so filed by
Borrower, and (iii) such other information as may be reasonably requested in
availing U. S. Bancorp of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
7.6 ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the U. S. Bank and U. S. Bancorp pursuant to this
Article VII may be assigned by U. S. Bank and U. S. Bancorp, respectively,
to a transferee or assignee of the Shares; provided that Borrower is,
within a reasonable period of time after such transfer, furnished with
written notice of the name and address of such transferee or assignee.
7.7 THIRD PARTY BENEFICIARY
U. S. Bancorp is an intended third party beneficiary of this
Amendment.
ARTICLE VIII. CONDITIONS PRECEDENT
The modifications set forth in this Amendment shall not be effective
unless and until the following conditions have been fulfilled to U. S.
Bank's satisfaction:
(a) U. S. Bank shall have received this Amendment, the Renewal
Revolving Note, the Renewal Term Note, and the Renewal Equipment Note,
each duly executed and delivered by Borrower.
(b) U. S. Bank shall have received updated schedules of registrations of
and applications for patents, trademarks and other intellectual property to the
Security Agreements previously executed by Borrower, H.S.C., Inc., Sungold
Eyewear, Inc., and Private Eyes Sunglass Corporation, together with such other
agreements, instruments and documents as U. S. Bank deems necessary to perfect
its interest in the assets described in such schedules.
(c) Borrower shall have issued the Shares to U. S. Bancorp.
(d) U. S. Bank shall have received a copy of the letter of instructions to
Borrower's transfer agent as provided for in Section 7.1 of this Amendment.
(e) After having given effect to any waivers set forth in this Amendment,
there shall not exist any Default or Event of Default.
-17-
<PAGE> 18
(f) After having given effect to any waivers set forth in this Amendment,
all representations and warranties of Borrower contained in the Credit Agreement
or otherwise made in writing in connection therewith or herewith shall be true
and correct and in all material respects have the same effect as though such
representations and warranties had been made on and as of the date of this
Amendment.
(g) U. S. Bank shall have received a certified resolution of the board of
directors of Borrower and each of the Subsidiaries in a form acceptable to U. S.
Bank.
ARTICLE IX. GENERAL PROVISIONS
9.1 REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to U. S. Bank that as of the date
of this Amendment and after having given effect to any waivers set forth in this
Amendment, there exists no Default or Event of Default. All representations and
warranties of Borrower contained in the Credit Agreement and the Loan Documents,
or otherwise made in writing in connection therewith, are true and correct as of
the date of this Amendment. Borrower acknowledges and agrees that all of
Borrower's Indebtedness to U. S. Bank is payable without offset, defense, or
counterclaim.
9.2 SECURITY
All Loan Documents evidencing U. S. Bank's security interest in the
Collateral shall remain in full force and effect, and shall continue to
secure, without change in priority, the payment and performance of the
Loans, as amended herein, and any other Indebtedness owing from Borrower
to U. S. Bank.
9.3 GUARANTIES
The parties hereto agree that the Guaranties shall remain in full
force and effect and continue to guarantee the repayment of the Loans to
U. S. Bank as set forth in such Guaranties.
9.4 PAYMENT OF EXPENSES
Borrower shall pay on demand all costs and expenses of U. S. Bank
incurred in connection with the preparation, negotiation, execution, and
delivery of this Amendment and the exhibits hereto, including, without
limitation, attorneys' fees incurred by U. S. Bank.
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<PAGE> 19
9.5 SURVIVAL OF CREDIT AGREEMENT
The terms and conditions of the Credit Agreement and each of the other
Loan Documents shall survive until all of Borrower's obligations under the
Credit Agreement have been satisfied in full.
9.6 NOTICES
Section 11.1(b) of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
(b) If to U. S. Bank:
U. S. Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: David C. Larsen
Facsimile No.: (612) 973-2148
9.7 RELEASE OF CLAIMS
IN CONSIDERATION FOR U. S. BANK'S AGREEMENT TO RESTRUCTURE THE CREDIT
FACILITIES AS PROVIDED FOR IN THIS AMENDMENT, BORROWER, H.S.C., INC., SUNGOLD
EYEWEAR, INC., AND PRIVATE EYES SUNGLASS CORPORATION EACH HEREBY RELEASES AND
FOREVER DISCHARGES U. S. BANK, ITS PREDECESSORS AND SUCCESSORS-IN-INTEREST, AND
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES AND AGENTS FROM
ANY AND ALL CLAIMS, DEMANDS, DAMAGES, LIABILITIES, CHARGES, ACTIONS, LOSSES,
CAUSES OF ACTION, COSTS, EXPENSES, COMPENSATION, AND SUITS OF ANY KIND, PAST,
PRESENT OR FUTURE, ARISING FROM OR ALLEGED TO ARISE FROM THEIR BUSINESS
RELATIONSHIP, INCLUDING THE RELATIONSHIP PROVIDED FOR IN THE CREDIT AGREEMENT
THROUGH THE DATE OF THIS AMENDMENT, WHETHER KNOWN OR UNKNOWN. THIS RELEASE IS
INTENDED TO BE COMPLETE AND COMPREHENSIVE WITH RESPECT TO ALL SUCH CLAIMS. THIS
RELEASE OF CLAIMS HAS BEEN COMPLETELY READ AND FULLY UNDERSTOOD AND VOLUNTARILY
ACCEPTED FOR THE PURPOSE OF MAKING A FULL AND FINAL COMPROMISE AND SETTLEMENT
WITH RESPECT TO ALL CLAIMS, DISPUTED OR OTHERWISE.
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<PAGE> 20
9.8 COUNTERPARTS
This Amendment may be executed in one or more counterparts, each of which
shall constitute an original agreement, but all of which together shall
constitute one and the same agreement.
9.9 STATUTORY NOTICE
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
IN WITNESS WHEREOF, U. S. Bank and Borrower have caused this
Amendment to be duly executed by their respective duly authorized
signatories as of the date first above written.
GARGOYLES, INC., a Washington corporation
By /s/ DOUGLAS B. HAUFF
--------------------------------------
Title President & CEO
--------------------------------------
U. S. BANK NATIONAL ASSOCIATION
By /s/ DAVID C. LARSEN
--------------------------------------
David C. Larsen, Vice President
Each of the undersigned Guarantors hereby (i) reaffirms its Guaranty and its
Security Agreement, (ii) agrees that its Guaranty guarantees the repayment of
the Loans, as amended herein, (iii) agrees that its respective Security
Agreement and related collateral documents secures the payment and performance
of the Secured Obligations described in such Security Agreement, (iv)
acknowledges that its obligations pursuant to its Guaranty and Security
Agreement are enforceable without defense, offset, or
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<PAGE> 21
counterclaim, and (v) agrees to the release of claims set forth in Section 9.7
of this Amendment.
H.S.C., Inc., a Washington corporation
By /s/ DOUGLAS B. HAUFF
--------------------------------------
Title President & CEO
--------------------------------------
SUNGOLD EYEWEAR, INC., a Washington
corporation
By /s/ DOUGLAS B. HAUFF
--------------------------------------
Title CEO
--------------------------------------
PRIVATE EYES SUNGLASS CORPORATION, a
Washington corporation
By /s/ DOUGLAS B. HAUFF
--------------------------------------
Title CEO
--------------------------------------
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<PAGE> 1
EXHIBIT 10.32
FOURTH AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
This fourth amendment to first amended and restated credit agreement
("Amendment") is made and entered into as of January 30, 1998, by and between U.
S. BANK NATIONAL ASSOCIATION, successor by merger to U. S. Bank of Washington,
National Association ("U. S. Bank"), and GARGOYLES, INC., a Washington
corporation ("Borrower").
R E C I T A L S:
A. On or about April 7, 1997, U. S. Bank and Borrower entered into that
certain first amended and restated credit agreement (together with all
amendments, supplements, exhibits, and modifications thereto, the "Credit
Agreement") whereby U. S. Bank agreed to extend certain credit facilities to
Borrower. U. S. Bank and Borrower have entered into three previous amendments to
the Credit Agreement.
B. Borrower has requested U. S. Bank to reset certain financial covenants
set forth in the Credit Agreement. The purpose of this Amendment is to set forth
the terms and conditions upon which U. S. Bank will grant Borrower's request.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the parties agree as follows:
ARTICLE I. AMENDMENT; DEFINITIONS
1.1 AMENDMENT
The Credit Agreement and each of the other Loan Documents are hereby
amended as set forth herein. Except as specifically provided for herein, all of
the terms and conditions of the Credit Agreement and each of the other Loan
Documents shall remain in full force and effect throughout the terms of the
Loans, as well as any extensions or renewals thereof.
1.2 MODIFICATION AND ADDITION OF DEFINITIONS
As used herein, capitalized terms shall have the meanings given to
them in the Credit Agreement, except as otherwise defined herein, or as
the context otherwise requires.
THIRD AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 1
<PAGE> 2
ARTICLE II. FINANCIAL COVENANTS
2.1 TANGIBLE NET WORTH
Section 8.15 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
Permit Tangible Net Worth to be less than the following amounts at
any time during the time periods set forth below:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
MINIMUM TANGIBLE
TIME PERIODS NET WORTH
- ------------------ ----------------
<S> <C>
1/31/98 - 2/27/98 ($8,000,000)
2/28/98 - 3/30/98 ($8,000,000)
3/31/98 - 4/29/98 ($7,600,000)
4/30/98 - 5/30/98 ($7,300,000)
5/31/98 - 6/29/98 ($6,500,000)
6/30/98 - 7/30/98 ($5,700,000)
7/31/98 - 8/30/98 ($4,500,000)
8/31/98 - 9/29/98 ($3,700,000)
9/30/98 - 10/30/98 ($2,800,000)
10/31/98 - 11/29/98 ($2,800,000)
11/30/98 - 12/30/98 ($2,800,000)
12/31/98 - 1/30/99 ($2,800,000)
1/31/99 - 2/27/99 ($3,500,000)
2/28/99 - 3/30/99 ($3,000,000)
3/31/99 and thereafter ($2,500,000)
</TABLE>
2.2 WORKING CAPITAL
Section 8.16 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
Permit Working Capital to be less than the following amounts at any
time during the time periods set forth below:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
MINIMUM WORKING
TIME PERIODS CAPITAL
- ------------------------- ---------------
<S> <C>
1/31/98 - 2/27/98 $6,100,000
2/28/98 - 3/30/98 $6,200,000
3/31/98 - 4/29/98 $6,400,000
4/30/98 - 5/30/98 $4,100,000
5/31/98 - 6/29/98 $4,800,000
6/30/98 - 7/30/98 $5,600,000
7/31/98 - 8/30/98 $6,500,000
8/31/98 - 9/29/98 $7,500,000
9/30/98 - 10/30/98 $3,400,000
10/31/98 - 11/29/98 $3,400,000
11/30/98 - 12/30/98 $3,600,000
12/31/98 - 1/30/99 $1,100,000
1/31/99 - 2/27/99 $6,100,000
2/28/99 - 3/30/99 $6,200,000
3/31/99 and thereafter $6,400,000
</TABLE>
2.3 DEBT SERVICE COVERAGE RATIO
Section 8.17 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
-4-
<PAGE> 5
Permit the Debt Service Coverage Ratio to be less than the following
amounts as of the last day of each month set forth below for such month.
<TABLE>
<CAPTION>
MINIMUM DEBT SERVICE
MONTH ENDING COVERAGE RATIO
---------------- --------------------
<S> <C>
1/31/98 (1.8):1.0
2/28/98 1.1:1.0
3/31/98 2.1:1.0
4/30/98 2.9:1.0
5/31/98 3.4:1.0
6/30/98 2.1:1.0
7/31/98 4.5:1.0
8/31/98 4.7:1.0
9/30/98 0.1:1.0
10/31/98 0.9:1.0
11/30/98 1.5:1.0
12/31/98 0.0:1.0
1/31/99 (1.8):1.0
2/28/99 1.1:1.0
3/31/99 and thereafter 2.1:1.0
</TABLE>
2.4 SENIOR DEBT RATIO
Section 8.18 of the Credit Agreement (Senior Debt Ratio) is hereby deleted
in its entirety.
ARTICLE III. CONDITIONS PRECEDENT
The modifications set forth in this Amendment shall not be effective
unless and until the following conditions have been fulfilled to U. S.
Bank's satisfaction:
-5-
<PAGE> 6
(a) U. S. Bank shall have received this Amendment, duly executed and
delivered by Borrower, H.S.C., Inc., Sungold Eyewear, Inc. and Private Eyes
Sunglass Corporation.
(b) After having given effect to any waivers set forth in this
Amendment, there shall not exist any Default or Event of Default.
(c) All representations and warranties of Borrower contained in the
Credit Agreement or otherwise made in writing in connection therewith or
herewith shall be true and correct and in all material respects have the same
effect as though such representations and warranties had been made on and as of
the date of this Amendment.
(d) U. S. Bank shall have received a certified resolution of the board of
directors of Borrower in a form acceptable to U. S. Bank.
ARTICLE IV. GENERAL PROVISIONS
4.1 REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to U. S. Bank that as of the date
of this Amendment and after having given effect to any waivers set forth in this
Amendment, there exists no Default or Event of Default. All representations and
warranties of Borrower contained in the Credit Agreement and the Loan Documents,
or otherwise made in writing in connection therewith, are true and correct as of
the date of this Amendment. Borrower acknowledges and agrees that all of
Borrower's Indebtedness to U. S. Bank is payable without offset, defense, or
counterclaim.
4.2 SECURITY
All Loan Documents evidencing U. S. Bank's security interest in the
Collateral shall remain in full force and effect, and shall continue to secure,
without change in priority, the payment and performance of the Loans, as amended
herein, and any other Indebtedness owing from Borrower to U. S. Bank.
4.3 GUARANTIES
The parties hereto agree that the Guaranties shall remain in full force
and effect and continue to guarantee the repayment of the Loans to U. S. Bank as
set forth in such Guaranties.
-6-
<PAGE> 7
4.4 PAYMENT OF EXPENSES
Borrower shall pay on demand all costs and expenses of U. S. Bank incurred
in connection with the preparation, negotiation, execution, and delivery of this
Amendment and the exhibits hereto, including, without limitation, attorneys'
fees incurred by U. S. Bank.
4.5 SURVIVAL OF CREDIT AGREEMENT
The terms and conditions of the Credit Agreement and each of the other
Loan Documents shall survive until all of Borrower's obligations under the
Credit Agreement have been satisfied in full.
4.6 LANDLORD'S CONSENT
Borrower agrees to use its best efforts to obtain the signature of the
landlord of Borrower's Lynnwood, Washington location on a landlord's consent in
a form to be provided by U. S. Bank to Borrower or such other form that is
subsequently negotiated among Borrower, U. S. Bank and such landlord.
4.7 RELEASE OF CLAIMS
IN CONSIDERATION FOR U. S. BANK'S AGREEMENT TO ENTER INTO THIS AMENDMENT,
BORROWER, H.S.C., INC., SUNGOLD EYEWEAR, INC., AND PRIVATE EYES SUNGLASS
CORPORATION EACH HEREBY RELEASES AND FOREVER DISCHARGES U. S. BANK, ITS
PREDECESSORS AND SUCCESSORS-IN-INTEREST, AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, REPRESENTATIVES AND AGENTS FROM ANY AND ALL CLAIMS,
DEMANDS, DAMAGES, LIABILITIES, CHARGES, ACTIONS, LOSSES, CAUSES OF ACTION,
COSTS, EXPENSES, COMPENSATION, AND SUITS OF ANY KIND, PAST, PRESENT OR FUTURE,
ARISING FROM OR ALLEGED TO ARISE FROM THEIR BUSINESS RELATIONSHIP, INCLUDING THE
RELATIONSHIP PROVIDED FOR IN THE CREDIT AGREEMENT THROUGH THE DATE OF THIS
AMENDMENT, WHETHER KNOWN OR UNKNOWN. THIS RELEASE IS INTENDED TO BE COMPLETE AND
COMPREHENSIVE WITH RESPECT TO ALL SUCH CLAIMS. THIS RELEASE OF CLAIMS HAS BEEN
COMPLETELY READ AND FULLY UNDERSTOOD AND VOLUNTARILY ACCEPTED FOR THE PURPOSE OF
MAKING A FULL AND FINAL COMPROMISE AND SETTLEMENT WITH RESPECT TO ALL CLAIMS,
DISPUTED OR OTHERWISE.
-7-
<PAGE> 8
4.8 COUNTERPARTS
This Amendment may be executed in one or more counterparts, each of which
shall constitute an original agreement, but all of which together shall
constitute one and the same agreement.
4.9 STATUTORY NOTICE
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
IN WITNESS WHEREOF, U. S. Bank and Borrower have caused this Amendment to
be duly executed by their respective duly authorized signatories as of the date
first above written.
GARGOYLES, INC., a Washington
corporation
By /s/ STEVEN R. KINGMA
--------------------------------------
Title VP & CFO
------------------------------------
U. S. BANK NATIONAL ASSOCIATION
By /s/ DAVID C. LARSON
--------------------------------------
David C. Larsen, Vice President
-8-
<PAGE> 9
Each of the undersigned Guarantors hereby (i) reaffirms its Guaranty and its
Security Agreement, (ii) agrees that its Guaranty guarantees the repayment of
the Loans, as amended herein, (iii) agrees that its respective Security
Agreement and related collateral documents secures the payment and performance
of the Secured Obligations described in such Security Agreement, (iv)
acknowledges that its obligations pursuant to its Guaranty and Security
Agreement are enforceable without defense, offset, or counterclaim, and (v)
agrees to the release of claims set forth in Section 4.7 of this Amendment.
H.S.C., Inc., a Washington corporation
By /s/ DOUGLAS B. HAUFF
------------------------------------------
Title President & CEO
---------------------------------------
SUNGOLD EYEWEAR, INC., a Washington
corporation
By /s/ DOUGLAS B. HAUFF
------------------------------------------
Title CEO
---------------------------------------
PRIVATE EYES SUNGLASS CORPORATION, a
Washington corporation
By /s/ DOUGLAS B. HAUFF
------------------------------------------
Title CEO
---------------------------------------
-9-
<PAGE> 1
EXHIBIT 10.33
FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
This fifth amendment to first amended and restated credit agreement
("Amendment") is made and entered into as of March 17, 1998, by and between U.
S. BANK NATIONAL ASSOCIATION, successor by merger to U. S. Bank of Washington,
National Association ("U. S. Bank"), and GARGOYLES, INC., a Washington
corporation ("Borrower").
R E C I T A L S:
A. On or about April 7, 1997, U. S. Bank and Borrower entered into that
certain first amended and restated credit agreement (together with all
amendments, supplements, exhibits, and modifications thereto, the "Credit
Agreement") whereby U. S. Bank agreed to extend certain credit facilities to
Borrower. U. S. Bank and Borrower have entered into four previous amendments to
the Credit Agreement.
B. Borrower is in violation of the Tangible Net Worth and Working Capital
covenants set forth in the Credit Agreement. The purpose of this Amendment is to
set forth the terms and conditions upon which U. S. Bank will grant Borrower's
request to waive compliance with such financial covenants through February 27,
1998.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the parties agree as follows:
ARTICLE I. AMENDMENT; DEFINITIONS
1.1 AMENDMENT
The Credit Agreement and each of the other Loan Documents are hereby
amended as set forth herein. Except as specifically provided for herein, all of
the terms and conditions of the Credit Agreement and each of the other Loan
Documents shall remain in full force and effect throughout the terms of the
Loans, as well as any extensions or renewals thereof.
1.2 MODIFICATION AND ADDITION OF DEFINITIONS
As used herein, capitalized terms shall have the meanings given to them in
the Credit Agreement, except as otherwise defined herein, or as the context
otherwise requires.
FIFTH AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 1
<PAGE> 2
ARTICLE II. FINANCIAL COVENANTS
2.1 TANGIBLE NET WORTH
U. S. Bank hereby agrees to waive all violations of the Tangible Net Worth
covenant set forth in Section 8.15 of the Credit Agreement through February 27,
1998. Borrower shall be in compliance with the Tangible Net Worth covenant as of
February 28, 1998 and at all times thereafter.
2.2 WORKING CAPITAL
U. S. Bank hereby agrees to waive all violations of the Working Capital
covenant set forth in Section 8.16 of the Credit Agreement through February 27,
1998. Borrower shall be in compliance with the Working Capital covenant as of
February 28, 1998 and at all times thereafter.
ARTICLE III. CONDITIONS PRECEDENT
The modifications set forth in this Amendment shall not be effective
unless and until the following conditions have been fulfilled to U. S.
Bank's satisfaction:
(a) U. S. Bank shall have received this Amendment, duly executed and
delivered by Borrower, H.S.C., Inc., Sungold Eyewear, Inc. and Private Eyes
Sunglass Corporation.
(b) After having given effect to any waivers and modifications of
definitions set forth in this Amendment, there shall not exist any Default or
Event of Default.
(c) All representations and warranties of Borrower contained in the Credit
Agreement or otherwise made in writing in connection therewith or herewith shall
be true and correct and in all material respects have the same effect as though
such representations and warranties had been made on and as of the date of this
Amendment.
(d) U. S. Bank shall have received a certified resolution of the
board of directors of Borrower and each of the undersigned guarantors in a
form acceptable to U. S. Bank.
FIFTH AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 2
<PAGE> 3
ARTICLE IV. GENERAL PROVISIONS
4.1 REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to U. S. Bank that as of the date
of this Amendment and after having given effect to any waivers and modifications
to definitions set forth in this Amendment, there exists no Default or Event of
Default. All representations and warranties of Borrower contained in the Credit
Agreement and the Loan Documents, or otherwise made in writing in connection
therewith, are true and correct as of the date of this Amendment. Borrower
acknowledges and agrees that all of Borrower's Indebtedness to U. S. Bank is
payable without offset, defense, or counterclaim.
4.2 SECURITY
All Loan Documents evidencing U. S. Bank's security interest in the
Collateral shall remain in full force and effect, and shall continue to secure,
without change in priority, the payment and performance of the Loans, as amended
herein, and any other Indebtedness owing from Borrower to U. S. Bank.
4.3 GUARANTIES
The parties hereto agree that the Guaranties shall remain in full force
and effect and continue to guarantee the repayment of the Loans to U. S. Bank as
set forth in such Guaranties.
4.4 PAYMENT OF EXPENSES
Borrower shall pay on demand all costs and expenses of U. S. Bank incurred
in connection with the preparation, negotiation, execution, and delivery of this
Amendment and the exhibits hereto, including, without limitation, attorneys'
fees incurred by U. S. Bank.
4.5 SURVIVAL OF CREDIT AGREEMENT
The terms and conditions of the Credit Agreement and each of the other
Loan Documents shall survive until all of Borrower's obligations under the
Credit Agreement have been satisfied in full.
FIFTH AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 3
<PAGE> 4
4.6 RELEASE OF CLAIMS
IN CONSIDERATION FOR U. S. BANK'S AGREEMENT TO ENTER INTO THIS AMENDMENT,
BORROWER, H.S.C., INC., SUNGOLD EYEWEAR, INC., AND PRIVATE EYES SUNGLASS
CORPORATION EACH HEREBY RELEASES AND FOREVER DISCHARGES U. S. BANK, ITS
PREDECESSORS AND SUCCESSORS-IN-INTEREST, AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, REPRESENTATIVES AND AGENTS FROM ANY AND ALL CLAIMS,
DEMANDS, DAMAGES, LIABILITIES, CHARGES, ACTIONS, LOSSES, CAUSES OF ACTION,
COSTS, EXPENSES, COMPENSATION, AND SUITS OF ANY KIND, PAST, PRESENT OR FUTURE,
ARISING FROM OR ALLEGED TO ARISE FROM THEIR BUSINESS RELATIONSHIP, INCLUDING THE
RELATIONSHIP PROVIDED FOR IN THE CREDIT AGREEMENT THROUGH THE DATE OF THIS
AMENDMENT, WHETHER KNOWN OR UNKNOWN. THIS RELEASE IS INTENDED TO BE COMPLETE AND
COMPREHENSIVE WITH RESPECT TO ALL SUCH CLAIMS. THIS RELEASE OF CLAIMS HAS BEEN
COMPLETELY READ AND FULLY UNDERSTOOD AND VOLUNTARILY ACCEPTED FOR THE PURPOSE OF
MAKING A FULL AND FINAL COMPROMISE AND SETTLEMENT WITH RESPECT TO ALL CLAIMS,
DISPUTED OR OTHERWISE.
4.7 COUNTERPARTS
This Amendment may be executed in one or more counterparts, each of which
shall constitute an original agreement, but all of which together shall
constitute one and the same agreement.
4.8 STATUTORY NOTICE
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
FIFTH AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 4
<PAGE> 5
IN WITNESS WHEREOF, U. S. Bank and Borrower have caused this Amendment to
be duly executed by their respective duly authorized signatories as of the date
first above written.
GARGOYLES, INC., a Washington
corporation
By: /s/ LEO ROSENBERGER
------------------------------------
CEO & CFO
U. S. BANK NATIONAL ASSOCIATION
By: /s/ DAVID C. LARSEN
------------------------------------
David C. Larsen, Vice President
FIFTH AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 5
<PAGE> 6
Each of the undersigned Guarantors hereby (i) reaffirms its Guaranty and its
Security Agreement, (ii) agrees that its Guaranty guarantees the repayment of
the Loans, as amended herein, (iii) agrees that its respective Security
Agreement and related collateral documents secures the payment and performance
of the Secured Obligations described in such Security Agreement, (iv)
acknowledges that its obligations pursuant to its Guaranty and Security
Agreement are enforceable without defense, offset, or counterclaim, and (v)
agrees to the release of claims set forth in Section 4.6 of this Amendment.
H.S.C., Inc., a Washington corporation
By: /s/ LEO ROSENBERGER
------------------------------------
Leo Rosenberger, President and CEO
------------------------------------
SUNGOLD EYEWEAR, INC., a Washington
corporation
By: /s/ LEO ROSENBERGER
------------------------------------
Leo Rosenberger, CEO and CFO
------------------------------------
PRIVATE EYES SUNGLASS CORPORATION, a
Washington corporation
By: /s/ LEO ROSENBERGER
-------------------------------------
Leo Rosenberger, CEO and CFO
-------------------------------------
FIFTH AMENDMENT TO FIRST AMENDED
AND RESTATED CREDIT AGREEMENT PAGE 6
<PAGE> 1
EXHIBIT 10.34
PROMISSORY NOTE
$531,299.00 April 9, 1997
FOR VALUE RECEIVED, the undersigned Douglas B. Hauff ("Borrower") does
hereby promise to pay to the order of Gargoyles, Inc. ("Gargoyles"), in lawful
money of the United States of America, the principal sum of Five Hundred
Thirty-One Thousand Two Hundred Ninety Nine Dollars ($531,299) together with
interest thereon from the date hereof until paid in full as stated herein.
1. Interest Rate. The outstanding principal balance of this Note shall
bear interest at a rate equal to 5.75% per annum.
2. Maturity. The entire principal balance of this Note, plus all
accrued and unpaid interest, and all other amounts owing hereunder, shall be due
and payable in full on February 15, 1999.
3. Application of Bonuses and Other Payments; Prepayment. So long as
this Note remains unpaid, any bonus compensation awarded by Gargoyles to
Borrower shall be applied first to repayment of this Note. Each payment
hereunder shall be applied first to any charges or unpaid amounts due hereunder,
second to the payment of interest then accrued on the unpaid balance under this
Note, and the remainder, if any, shall be applied to the reduction of principal.
This Note may be prepaid in whole or in part at any time or times with no
prepayment penalty or additional cost of any kind. Upon payment in full of the
principal and accrued interest thereon, this Note shall be canceled, and shall
be of no further force or effect, and shall be returned to Borrower.
4. Default; Default Interest Rate. This Note shall be in default if
Borrower fails to pay this Note when due or fails to pay or perform any of his
obligations hereunder. If a default occurs, the holder of this Note shall be
entitled to declare the entire unpaid principal balance and all accrued and
unpaid interest thereon immediately due and payable and may proceed to protect
and enforce its rights either by suit in equity and/or law or any other
appropriate proceedings, whether for the specific performance of any covenant or
agreement contained in this Note. After such default the principal balance shall
bear interest at a rate per annum of eighteen percent (18%) until the default is
cured.
5. Attorneys' Fees and Costs. If a default occurs hereunder and this
Note is placed in the hands of an attorney for collection of any amount called
for herein, Borrower shall be liable for all costs of collection, including
without limitation reasonable attorneys fees and costs.
6. Rights Cumulative. The rights and remedies of the holder of this
Note and any instrument
Page 1
<PAGE> 2
securing payment hereof, or any other funds, property or security held by the
holder for the payment hereof or otherwise at the sole discretion of the holder.
The failure to exercise any such right or remedy shall in no event be construed
as a waiver of release of said rights to remedies or of the rights to exercise
them at any later time.
7. Applicable Law. This Note shall be construed according to the law of
the state of Washington.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date first written above.
/s/ DOUGLAS B. HAUFF
- ---------------------------
Douglas B. Hauff
Page 2
<PAGE> 1
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 10th day of
April, 1997, by and between GARGOYLES ACQUISITION CORPORATION, a Washington
corporation t/b/k/a Sungold Eyewear, Inc. (the "Corporation") and wholly-owned
subsidiary of Gargoyles, Inc., a Washington corporation ("Gargoyles"), and
SHELDON GOLDMAN ("Employee"). In consideration of the mutual covenants and
conditions set forth herein, the parties agree as follows:
1. Employment. Subject to the terms and conditions contained in this Agreement,
the Corporation hereby employs Employee and Employee hereby accepts employment
with the Corporation.
2. Duties And Reporting Relationship. During the Term of Employment, as defined
below, Employee shall be employed in the capacity of President of the
Corporation, or in such other executive office or capacity as the Corporation
shall direct, from time to time, during the term hereof. In such capacity,
Employee shall devote his working time and attention to manage and direct all
policy-making aspects of the business and affairs of the Corporation, under the
direction of the Chief Executive Officer of the Corporation and the Board of
Directors of the Corporation. Employee acknowledges and agrees that as President
the hours which he is required to work will vary considerably and will sometimes
be more than 40 hours per week. Employee further acknowledges and agrees that
such work in excess of 40 hours per week is a regular and normal part of the
responsibilities for which he is compensated, and does not in any way constitute
overtime for which he is entitled to receive additional compensation. Employee's
travel for the Corporation will not, however, materially exceed the amount of
time Employee traveled for his previous employer, Sungold Enterprises, Inc.
Employee also shall perform such executive duties as may be specified for
companies which are controlled by or are under common control with the
Corporation, including without limitation, Gargoyles, H.S.C., Inc., a Washington
corporation d/b/a Hobie Polarized Sunglasses, and the kindling company, a
California corporation d/b/a Timberland Eyewear.
3. Term. Unless sooner terminated in accordance with this Agreement, the
Employee's term of employment shall become effective as of the first date
written above and shall continue until the third (3rd) anniversary hereof (the
"Term of Employment"). The Corporation shall have the option to renew the Term
of Employment for additional one-year terms.
4. Base Salary. For all services rendered by Employee under this Agreement, the
Corporation shall pay Employee a Base Salary at an annual rate of Two Hundred
Thousand Dollars ($200,000), payable in twice monthly installments in accordance
with the Corporation's usual payroll policies and procedures. This Base Salary
is
-1-
<PAGE> 2
subject to annual increases by the Board of Directors of the Corporation,
considering all factors relevant to such a decision, but shall not be decreased.
5. Benefits.
5.1 Expenses. The Corporation shall reimburse Employee for all reasonable
and necessary business expenses incurred and advanced by him in carrying out his
duties under this Agreement promptly following presentation of receipts and
other supporting information.
5.2 Options. Effective as of the date of this Agreement, Employee shall be
granted an incentive stock option under the Gargoyles, Inc. 1995 Stock Incentive
Compensation Plan (the "Plan"), a copy of which is attached hereto as Exhibit A,
under which Employee will have the opportunity, in accordance with the terms of
the Plan to purchase 20,000 shares of Gargoyles Common Stock at an exercise
price equal to the Fair Market Value (as such term is defined in the Plan) of
such stock as of the date of grant, such option to be for a term of ten years
and to vest according to the following schedule:
<TABLE>
<CAPTION>
Date On and After Which Portion of Total Option
Option is Exercisable Which is Exercisable
----------------------- -----------------------
<S> <C>
December 31, 1997 1/10
Each year of continuous An additional 1/10
service thereafter
</TABLE>
provided, however, that the exercisability of such vested shares may be
accelerated in accordance with the following percentages, if the Corporation
achieves the following net operating income goals:
- 25% of the shares shall become exercisable on April 1, 1998, if the
Corporation achieves its net operating income goal for 1997;
- 25% of the shares shall become exercisable on April 1, 1999, if the
Corporation achieves its net operating income goal for 1998;
- 25% of the shares shall become exercisable on April 1, 2000, if this
Corporation achieves its net operating income goal for 1999;
- 25% of the shares shall become exercisable on April 1, 2001, if this
Corporation achieves its net operating income goal for 2000;
For purposes of the accelerated vesting, the Corporation and Employee will
establish net operating income goals for each year on or before December 1st of
the previous year. The net operating income goal for 1997 for the Corporation is
-2-
<PAGE> 3
$___________Million. If the Corporation and Employee are unable to establish net
operating income goals for any particular year, such goals shall be ______%
higher than the net operating income goal for the previous year.
5.3 Company Benefits. Employee shall be entitled to participate fully in
all the Corporation's employee benefits plans established for full-time
employees of the Corporation, including without limitation all health, medical,
retirement, life and disability insurance plans established by the Corporation
in accordance with the terms of such plans. Employee shall be entitled to
participate in any pension and retirement plans, stock option or ownership
plans, and other fringe benefit plans, perquisites and programs as are or may be
made available from time to time to executives or other salaried employees of
the Corporation to the extent Employee is eligible under the terms of such
plans.
5.4 Flexible Time Off. Employee will be entitled to four (4) weeks of
flexible time off, exclusive of holidays established by the Corporation, to be
administered in accordance with policies of the Corporation, as amended from
time to time, generally applicable to employees of the Corporation.
6. Termination.
6.1 Termination for Cause. Except as set forth below, this Agreement and
Employee's employment by the Corporation may only be terminated for Cause. For
purposes of this Agreement, "Cause" shall mean: (i) Employee shall be found by
the Board of Directors of the Corporation to be guilty of fraud or other acts of
willful misconduct in connection with his employment hereunder which have a
material adverse effect on the Corporation, (ii) conviction of Employee for
commitment of a felony; (iii) any violation of law by Employee which has a
material adverse effect on the Corporation; (iv) habitual use of narcotics or
alcohol which impairs Employee's performance of his duties under this Agreement;
(v) theft or embezzlement by Employee from the Corporation; (vii) a material
breach of Employee's obligations under paragraph 7 hereof which have a material
adverse effect on the Corporation; or (vii) unexcused habitual absence from work
for reasons unrelated to illness, family crisis or disability.
Employee may not be terminated for Cause unless and until he shall have been
given written notice which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination for Cause pursuant to
this paragraph 6 (the "Termination Notice"). Employee shall be deemed terminated
on the 30th day following his receipt of the Termination Notice (the
"Termination Date") if he shall have failed to cure or correct the circumstances
constituting Cause, or if such circumstances cannot reasonably be cured within a
thirty (30) day period, if Employee shall have failed to actively and diligently
pursue cure of such circumstances.
6.2 Death or Disability.
-3-
<PAGE> 4
(a) This Agreement and the Employee's employment hereunder shall
terminate upon the death of Employee. The date of Employee's death also is
referred to herein as the "Termination Date."
(b) If Employee is Disabled, the Corporation shall have the right
and may elect to terminate the services of the Employee by written notice. The
day after such written notice has been delivered to the Employee is also
referred to herein as the "Termination Date." For purposes of this Agreement,
"Disabled" shall mean that the Employee is unable to perform his duties under
this Agreement by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a period of not less than 120 days. Determination of
whether Employee is Disabled shall be made in good faith by a physician
reasonably acceptable to the Board of Directors of the Corporation.
6.3 Resignation With Good Reason. Should Employee wish to resign from his
position with the Corporation during the Employment Period with Good Reason, he
shall give thirty (30) days written notice to the Corporation specifying the
date as of which his resignation is to become effective. The date specified in
such written notice is also referred to herein as the "Termination Date".
Failure to provide such notice shall entitle the Corporation to fix the
Termination Date as of the last business day on which Employee reported for work
at the principal offices of the Corporation. "Good Reason" shall mean (i)
material breach by the Corporation of its obligations hereunder; (ii) a
significant adverse change in the nature and scope of Employee's position of
employment, (iii) relocation of Employee to a facility or a location more than
25 miles from the Corporation's Farmingdale, New York facility, without the
Employee's express written consent.
6.4 Employee's Voluntary Resignation. Should Employee wish to resign from
his position with the Corporation during the Employment Period without Good
Reason (his "Voluntary Resignation"), he shall give thirty (30) days written
notice to the Corporation and specify the date as of which his resignation is to
become effective. The date specified in such written notice is also referred to
herein as the "Termination Date." Failure to provide such notice shall entitle
the Corporation to fix the Termination Date as of the last business day on which
Employee reported for work at the principal offices of the Corporation.
6.5 Compensation and Benefits Upon Termination.
(a) If the employment of the Employee is terminated for Cause or by
his Voluntary Resignation, the Employee shall not be entitled to any
compensation or other benefits hereunder for any period after the Termination
Date.
(b) If the employment of Employee is terminated other than for Cause
or due to Employee's Voluntary Resignation, Employee shall be entitled to
receive (i) an amount equal to the Base Salary payable for the remaining period
of the Term
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<PAGE> 5
of Employment, less any amounts received by Employee under disability insurance
policies provided by the Corporation or as compensation or benefits from
employment during such time and (ii) all benefits under employee benefit plans
in which Employee was participating immediately prior to the Termination Date
which would have been available to Employee during the Term of Employment,
provided that Employee's continued participation is permitted under the terms
and provisions of such employee benefit plans. If Employee's participation in
any employee benefit plan is not permitted, the Corporation shall arrange to
provide Employee with benefits substantially similar to those which Employee
otherwise would be entitled to receive.
7. Intellectual Property; Nondisclosure of Confidential Information; Covenant
Not To Compete.
7.1 Definitions.
(a) Confidential Information. For purposes of this Agreement,
Confidential Information shall mean all the Corporation's proprietary
information which derives independent economic value from its secrecy from other
persons, companies, or business entities who could obtain economic value from
its disclosure to them or use by them. Confidential Information also includes,
without limitation, research data, trade or business know-how or business plans,
inventions, devices, patterns, compilations, programs, methods, techniques, or
processes which are disclosed or made available by the Corporation to Employee,
or devised by Employee during his employ by the Corporation. Examples of
Confidential Information include, without limitation: all information
specifically identified as proposed installations, products or product lines,
information systems, or other projects, the Corporations' supplier and customer
lists and all customer information and the Corporation's existing and proposed
business and marketing plans and policies, whether written or oral, and whether
designated individually as Confidential Information or not. Confidential
Information does not include information that: (i) is a matter of public
knowledge at the time Employee first learned of the information; (ii) later
becomes a matter of public knowledge after Employee learns of it, other than
becoming public knowledge by reason of a breach by Employee of the obligations
of confidentiality set out in this Agreement, or (iii) Employee acquired during
previous employment prior to the effective date of this Agreement.
(b) Conflicting Services. For purposes of this Agreement,
Conflicting Services shall mean product development or marketing of any eyewear,
or other products which compete with products then in production and marketing,
or reasonably anticipated to be in production and marketing, by the Corporation,
any of its affiliates, or by any of their respective exclusive licensees, and
shall in addition mean all services of any type which involve, directly or
indirectly, the use or disclosure of Confidential Information. Conflicting
Services specifically do not include: (i) general product development, marketing
and promotional services, (ii)
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<PAGE> 6
product development, marketing and promotion of sportswear and sporting goods in
general, and (iii) product development, marketing and promotion of eyewear and
sporting goods (except for product development, marketing and promotion by
methods which include, or make use of, Confidential Information) that are not
competitive with products then in production and marketing, or reasonably
anticipated to be in production and marketing by the Corporation or by any of
its affiliates, or by any of their respective exclusive licensees.
(c) Conflicting Territories. For purposes of this Agreement,
Conflicting Territories shall mean, severally or together, each of the states of
the United States, and all foreign countries in which the products of
Corporation and its affiliates are now sold or are hereafter sold.
(d) Invention. For purposes of this Agreement, Invention shall mean
all new inventions, discoveries, creations and works of authorship, and any
improvements to existing inventions, whether patentable or not, and all software
relating to any inventions, discoveries or improvements, which Employee
conceives, makes, develops, or reduces to practice, whether alone or with any
other person, company or business entity, (i) while Employee is working for the
Corporation in any capacity under this Agreement which relates to any questions
or problems for which the Corporation has requested Employee's services, (ii)
that are based in any way on Confidential Information received by Employee from
the Corporation or developed or made by Employee during his employ at the
Corporation, or (iii) with the aid of any equipment, supplies, facilities or
employees of the Corporation or on the Corporation's time.
7.2 Non Disclosure of Confidential Information. Employee agrees not to
disclose or to use any Confidential Information, either during or after
employment by the Corporation, except as required by the performance of duties
within the scope of Employee's employment. Employee agrees to apply his best
efforts to otherwise prevent unauthorized disclosure or use of any Confidential
Information, and to immediately inform an officer of the Corporation if any
improper disclosure or use does occur.
7.3 Adherence to Confidentiality. Employee acknowledges his understanding
and recollection that his employment with the Corporation has always been under
terms of the strictest confidentiality which were at least the equivalent of the
confidentiality terms of this Agreement, and acknowledges and states that at no
time during his employment with the Corporation has he departed in any
substantial way from adherence to those terms.
7.4 Conflicting Services. Although certain provisions of this Agreement
allow Employee to engage in Conflicting Services subject to certain terms and
conditions, Employee's common law and contractual duties to maintain and
preserve the secrecy of the Corporation's Confidential Information continue in
perpetuity unabated and unchanged by those provisions.
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<PAGE> 7
7.5 Covenant Not To Compete.
(a) Representation of Employee. Employee represents that, and the
Corporation offers this employment in reliance upon Employee's representation
that, in the event of termination or expiration of Employee's employment for any
cause whatsoever, Employee's experience, education, training and capabilities
are such that he can obtain employment performing activities which are not
Conflicting Services, or which are to be performed outside of Conflicting
Territories, and that the enforcement of this Agreement by way of injunction
will not present Employee from earning a living.
(b) Covenant of Employee; Term. Employee agrees that he will not
directly or indirectly, whether as principal, agent, officer, director,
employee, salesman, or otherwise, alone or in associate with any other person,
firm, corporation or other business corporation, enter into, participate in, or
engage in any Conflicting Services within any Conflicting Territory. Employee
also agrees not to either directly or indirectly solicit for employment or
employ any employee of the Corporation for any party other than the Corporation.
Employee further agrees that he shall not directly or indirectly acquire or own
any shares or other interest in the business of any person, firm, corporation or
other business organization which is engaged in or proposes to become engaged in
any Conflicting Services within any Conflicting Territory (other than for bona
fide non-controlling investment purposes). If Employee's employment with the
Corporation terminates for Cause or because of his Voluntary Resignation, and
provided the Corporation is not in default of its payment and other obligations
to Employee arising under this Agreement, Employee's Covenant Not To Compete
shall be effective for the period of the remainder of the term of the Agreement
and shall be effective and enforceable in and throughout all Conflicting
Territories. Upon the expiration of this Agreement, or if Employee is terminated
for any reason and upon payment by the Corporation of the sum of One Hundred
Thousand Dollars ($100,000) Employee's Covenant Not To Compete shall be
effective for a period of one (1) year from the Termination Date and shall be
effective and enforceable in and throughout all Conflicting Territories.
(c) Enforcement. Employee agrees that as to the geographic areas and
the time periods set forth above for the purpose of the Covenant Not To Compete,
each Conflicting Territory and each time period are divisible and separate so
that in the event the Covenant Not To Compete is held by a court to be invalid
or unenforceable as to any geographic area or for any time period described, the
Covenant Not To Compete shall remain valid and enforceable in all remaining
geographic areas and time periods. Employee agrees that it is his express
intention that, in the event a court reforms this Agreement, the Corporation be
given the broadest protection allowed by law as respects this Agreement and the
Covenant Not To Compete.
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7.6 Employee Invention Materials and Invention Disclosure.
(a) Employee shall, at all times of employment and/or thereafter,
immediately and fully disclose to the Corporation all information regarding each
Invention conceived, made, developed, or perfected during Employee's employment
by the Corporation, for the purpose of determining the Corporation's and
Employee's rights to each Invention. Employee's duty of immediate and complete
disclosure under this section continues throughout Employee's employment with
the Corporation. Each Invention which Employee is required to disclose to the
Corporation under this section becomes confidential information at the moment
the Employee's duty to disclose under this section arises, regardless of whether
or not Employee actually discloses the Invention to the Corporation.
(b) Employee agrees to keep, preserve in good condition and make
available to the Corporation complete and up-to-date records, including
sketches, drawings, notebooks and other documents relating to the Invention,
including documents stored in electronically readable form, and documented
source code where applicable, as well as prototypes, and other evidence of the
reduction to practice of the Invention or the conception and occurrence and
dates of the Invention ("Invention Materials"). Employee acknowledges that all
such Invention Materials are the property of the Corporation.
7.7 Employee Invention Assignment and Continued Employee Assistance.
(a) Employee hereby assigns to the Corporation all of Employee's
rights in each Invention which (i) is developed using the Corporation's
equipment, supplies, facilities, or information supplied by the Corporation to
Employee; or (ii) which relates directly to the business of the Corporation, or
to the Corporation's actual or demonstrably anticipated research or development;
or (iii) which has resulted from any work performed by the Employee for the
Corporation, whether or not on the Corporation's time. See attached Exhibit B
for a description of Employee Inventions which by law are not subject to the
assignment requirement of this section.
(b) Without limiting the generality of the assignment provisions in
the preceding paragraph, all creative works authored by Employee during
Employee's employment with the Corporation, at the request of the Corporation,
are "works for hire" as that term is defined by the federal Copyright Act, as
enacted or hereafter amended. The copyright to such works is owned exclusively
by the Corporation, and Employee has no ownership rights in, or control over,
such works. Employee shall be entitled to request and receive authorship credit
in such works, and to have it displayed as is typical in the industry to which
the work applies.
7.8 Employee Cooperation. Employee further agrees that Employee will, at
no charge to the Corporation, and at no expense to Employee, during and after
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<PAGE> 9
Employee's employment, cooperate with the Corporation in any or all of the
following: (i) prosecution of US and foreign copyright registration applications
for any works of authorship by Employee which the Corporation chooses to file;
(ii) prosecution of US and foreign patent applications, including all
continuation, divisional, continuation-in-part, reissue, reexamination, patent
term extension applications and the like and related petitions, and including
all foreign, regional or international counterparts of such applications for
each assignable Invention and improvements thereon which the Corporation chooses
to file; and (iii) enforcement of any patents or copyright registrations issuing
from such applications, or trade secret rights therein, including executing,
verifying, acknowledging and delivering to the Corporation all such papers, and
performing all such actions, as the Corporation shall from time to time
reasonably request related to such enforcement or prosecution or recordation
actions by the Corporation, such papers including without limitation patent and
copyright registrations applications and assignment documents therefor,
declarations, petitions, and instruments of transfer.
7.9 Corporation's Right to File. In addition, it is understood that the
Corporation shall have the right to file for patents, copyrights, or any other
state or federal statutory intellectual property rights in assignable
Inventions, in Employee's name, or the Corporation's name, or in the name of the
Corporation's nominee, at the Corporation's sole option.
7.10 Warranty of Originality and Preservation of Third Party Confidences.
(a) Employee undertakes not to disclose to the Corporation or its
other employees any information which Employee is under an obligation to any
third party to keep confidential. Employee represents and warrants that any
information disclosed by Employee to the Corporation is not confidential and/or
proprietary to Employee and/or to any third party.
(b) Employee warrants that, to the best of Employee's knowledge, all
works of authorship or Inventions created by Employee under this Agreement are
original, created by Employee, and will not infringe any trade secret, patent,
copyright, or other proprietary rights of third parties. Employee represents and
warrants that he is under no obligation or restriction, and further, that
Employee will not assume any such obligation or restriction, which would in any
way interfere or be inconsistent with, or present a conflict of interest
concerning, the services furnished by Employee under this Agreement.
8. Dispute Resolution. Any dispute related to the parties' employment
relationship shall be resolved exclusively through binding arbitration in
Seattle, Washington, under the American Arbitration Association's Commercial
Arbitration Rules (the "Arbitration Rules"), except as otherwise provided
herein. The aggrieved party must deliver to the other party a written notice of
his intention to seek arbitration no later than one hundred eighty (180) days
after the event that first gives rise to the dispute. If such notice is not
delivered within such time period,
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<PAGE> 10
the aggrieved party's rights shall be irrevocably waived. The dispute shall be
decided by one arbitrator selected by mutual agreement of the parties, or absent
agreement, in accordance with the Arbitration Rules. The arbitrator's fees and
other expenses of the arbitrator shall be shared equally. The parties shall bear
their own respective costs and attorney's fees. Washington State law shall
govern all substantive aspects of the dispute, and all procedural issues not
covered by the Arbitration Rules. Nothing in this Section 8, however, shall
deprive a court of competent jurisdiction of the authority to apply a temporary
restraining order or preliminary injunction prohibiting a violation of this
Agreement prior to any arbitration proceeding.
9. Enforcement. Employee agrees that damages for breach of his obligations under
or related to paragraph 7 of this Agreement may be difficult to determine and
may be inadequate to remedy the harm that may be caused thereby, and therefore
consents that such obligations may be enforced by injunctive relief and other
appropriate remedies without necessity of bond or other security. Such
injunctive relief shall be in addition to and not in place of any other remedies
available at law or equity. Employee acknowledges that the restraints imposed by
this Agreement are necessary for the protection of the business and goodwill of
the Corporation, are not greater than are necessary to protect said business and
goodwill and that he is capable of gainful employment without breaching this
Agreement. However, should any court or tribunal decline to enforce any
provision of this Agreement as written, the parties hereby agree that this
Agreement shall, to the extent applicable to that circumstance before such
court, be deemed to be modified to restrict Employee's competition with the
Corporation to the maximum extent of time, scope and geography which the courts
shall find enforceable, and such provisions shall be so enforced.
10. Entire Agreement. The provisions contained herein constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede any and all prior agreements, understandings and communications
between the parties, oral or written, with respect to such subject matter.
11. Modification. Any waiver, alteration, amendment or modification of any
provisions of this Agreement shall not be valid unless in writing and signed by
all the parties hereto.
12. Assignment. This Agreement is personal to Employee and Employee may not
assign any of his rights or delegate any of his duties hereunder.
13. Notices. All notices and other communications called for or required by this
Agreement shall be in writing and shall be addressed to the parties at their
respective addresses stated below or to such other address as a party may
subsequently specify in writing and shall be given by (i) hand delivery, (ii) US
certified or first-class registered mail, return receipt requested and postage
prepaid, (iii) overnight receipted courier, or (iv) telephonically confirmed
facsimile
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transmission. Notices given in accordance with this paragraph shall be effective
upon receipt or when receipt is refused.
To the Corporation: Sungold Enterprises, Inc.
5866 South 194th Street
Kent, Washington 98032
Douglas B. Hauff, CEO
Tel: 206-872-6100, Ext. 3400
Fax: 206-872-3317
To Employee: Sheldon Goldman
c/o Richard Kraslow
425 Broad Hollow Road
Melville, New York 11747
Tel: (516) 756-8300
Fax: (516) 756-3684
14. Governing Law. This Agreement, including all matters of construction,
validity and performance, shall be governed by and construed and enforced in
accordance with the laws of the state of Washington without regard to its
conflict of law provisions which might otherwise require the application of the
law of any other jurisdiction. The Corporation expressly consents to
jurisdiction of the courts of the State of Washington and to venue in King
County, Washington.
15. Headings. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
this Agreement.
16. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and as so executed shall constitute one
agreement.
17. Severability. Unless otherwise provided herein, if any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above mentioned.
GARGOYLES ACQUISITION CORPORATION,
a Washington corporation
By: s/s STEVEN R. KINGMA
------------------------------------
Steven R. Kingma, VP and CFO
s/s SHELDON GOLDMAN
------------------------------------
SHELDON GOLDMAN
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<PAGE> 1
EXHIBIT 10.37
ROYALTY AGREEMENT
THIS ROYALTY AGREEMENT (this "Agreement") is made as of this 10th day of
April 1997, by and between GARGOYLES ACQUISITION CORPORATION, a Washington
corporation and wholly-owned subsidiary of Gargoyles, Inc. ("Purchaser"), and
SUNGOLD ENTERPRISES, LTD., a New York corporation ("Seller").
RECITALS
A. Seller owns and operates a business that designs, distributes and
sells sunglasses and related products (the "Business") from its company
headquarters located in Farmingdale, New York.
B. Seller and Purchaser are parties to that certain Asset Purchase and
Sale Agreement of even date herewith (the "P&S Agreement") under which Seller
has agreed to sell all the assets used in the operation of its Business to
Purchaser.
C. This Royalty Agreement is delivered in connection with the P&S
Agreement. Capitalized terms used by not otherwise defined herein shall have the
meanings ascribed to them in the P&S Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
of the parties set forth herein, the parties hereto hereby agree as follows:
1. Definitions. The following capitalized terms used herein shall have
the meanings ascribed to them below:
"Gross Margin" means a fraction, the numerator of which is Net Sales
less cost of sales, including direct costs of the Products, cases, direct labor,
if any, and an allocation of spoilage and reserve consistent with the treatment
by Gargoyles, Inc. and its subsidiaries, and the denominator of which is Net
Sales. The allocation of spoilage used in the calculation of Seller's Gross
Margin for Products sold in 1996 shall be the allocation for spoilage used in
the calculation of Seller's Gross Margin for calendar years January 1 to
December 31, 1997, 1998 and 1999.
"Net Sales" means the actual invoice price for Products less trade
and cash discounts, sales or similar transaction taxes, if any, freight charges
if not separately invoiced, and returns and allowances.
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<PAGE> 2
"Products" means (i) sunglasses, eyewear, accessories and related
products sold by Purchaser following closing of the P&S Agreement and (ii)
products sold by Purchaser, or its parent, Gargoyles, Inc., or any of Gargoyles'
affiliates, under a license agreement with a third party, approved by the
licensee's board of directors, where the opportunity for such licensing
arrangement resulted from the efforts of Sheldon Goldman.
2. Royalty. Purchaser shall pay to Seller an amount equal to a percent
of the Net Sales in excess of $7 Million for all Products sold in each of the
calendar years January 1 to December 31, 1997, 1998 and 1999 (the "Royalty
Payments") so long as Gross Margins for such Products are maintained as
described below:
(a) If Gross Margin, for Products sold in any calendar year for
which Royalty Payments are due, is no more than 199 basis points less than
Seller's Gross Margin at December 31, 1996, then Purchaser shall pay Seller a
Royalty Payment equal to 7.5% of Net Sales in excess of $7 Million in such
calendar year.
(b) If Gross Margin, for Products sold in any calendar year for
which Royalty Payments are due, is between 200 and 299 basis points less than
Seller's Gross Margin at December 31, 1996, then Purchaser shall pay Seller a
Royalty Payment equal to 5% of Net Sales in excess of $7 Million in such
calendar year.
(c) If Gross Margin, for Products sold in any calendar year for
which Royalty Payments are due, is 300 basis points or more, less than Seller's
Gross Margin at December 31, 1996, then Purchaser shall pay Seller a Royalty
Payment equal to 2.5% of Net Sales in excess of $7 Million in such calendar
year.
3. Time and Manner of Payment. Royalty Payments shall be made on the
first day of April following the end of each calendar year for which Royalty
Payments are to be made. The first Five Hundred Thousand Dollars ($500,000) of
Royalty Payments made by Purchaser shall be deposited with the Escrow and shall
be held in escrow and disbursed in accordance with the Escrow Agreement.
Additional Royalty Payments shall be made by wire transfer to an account as
specified by Seller. If Purchaser fails to make Royalty Payments when due,
delinquent amounts shall bear interest at the statutory default rate of interest
per annum from the date of default until such default is cured.
4. Dispute Resolution. In the event of any controversy, claim or
dispute arising out of or relating to this Agreement, or the alleged breach
hereof, Seller and Purchaser shall first use their best efforts to resolve the
dispute amicably. If Seller and Purchaser fail to resolve any such dispute, then
such dispute shall be resolved by binding arbitration by one arbitrator subject
to the sole jurisdiction of the American Arbitration Association of Suffolk
County, New York (A.A.A.). If Seller and Purchaser fail to agree on selection of
an arbitrator, either may petition the presiding judge of the Superior Court of
Suffolk County, New York to appoint a
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<PAGE> 3
member of A.A.A. as an arbitrator. Thereafter, the arbitrator shall permit a
period of open and free discovery, including the taking of depositions, and will
promptly conduct an arbitration hearing. It is the intent of the parties hereto
that an arbitration hearing be concluded within 90 days of the appointment of
the arbitrator. The arbitrator shall have broad authority to fashion any legal
or equitable remedy including the authority to award specific performance. The
arbitrator will render a final and binding decision within ten days of the
conclusion of the arbitration hearing.
After the arbitration award is rendered, it may be entered in any court of
competent jurisdiction and shall constitute a final adjudication of all matters
submitted to arbitration. If either Purchaser or Seller at any time subsequent
to execution of this Agreement refuses to comply with these arbitration
provisions, the other may make specific application to the Superior Court of
Suffolk County, New York to compel the other party to submit to arbitration in
accordance with the terms of this section.
Nothing in this section, however, shall deprive a court of competent
jurisdiction of the authority to apply a temporary restraining order or
preliminary injunction prohibiting a violation of this Agreement prior to any
arbitration proceeding.
5. Amendment and Modification. This Agreement may be amended, modified
and supplemented or any provision waived only by written agreement, executed by
Seller and Purchaser.
6. Attorneys' and Arbitration Fees. If it shall be necessary for either
Seller or Purchaser to employ an attorney or to request arbitration to enforce
its rights pursuant to this Agreement because of the default of the other party,
the defaulting party shall reimburse the non-defaulting party for all costs of
arbitration and for reasonable attorneys' fees and expenses.
7. Governing Law. This Agreement shall be governed by the internal laws
of the state of New York as to all matters, including but not limited to matters
of validity, construction, effect and performance.
8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Royalty
Agreement as of the date first written above.
GARGOYLES ACQUISITION CORPORATION,
a Washington corporation
By /s/ STEVEN R. KINGMA
--------------------------------------
Steven R. Kingma, VP and CFO
SUNGOLD ENTERPRISES, LTD.,
a New York corporation
By /s/ SHELDON GOLDMAN
--------------------------------------
Sheldon Goldman, President
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<PAGE> 1
EXHIBIT 10.38
NONDISCLOSURE AND NONCOMPETITION AGREEMENT
THIS N0NDISCLOSURE AND NONCOMPETITION AGREEMENT (this "Agreement") is dated as
of the 10th day of April 1997, by and between GARGOYLES ACQUISITION CORPORATION,
a Washington corporation and wholly-owned subsidiary of Gargoyles, Inc., a
Washington corporation ("Gargoyles") and LIONEL GOLDMAN ("Goldman").
RECITALS
A. Gargoyles and Goldman, among others, are parties to that certain Asset
Purchase Agreement dated April 10, 1997 (the "Asset Purchase Agreement") under
which Sungold Enterprises, Ltd., a New York corporation ("Sungold"), has agreed
to sell substantially all of its assets to Gargoyles.
B. Goldman is an employee and shareholder of Sungold, but will retire upon
the closing of the transactions contemplated by the Asset Purchase Agreement.
C. Subject to the terms and conditions of this Agreement, Gargoyles desires
Goldman to keep certain information regarding Sungold and Gargoyles confidential
and to enter into an agreement not to compete with the business of Gargoyles,
and Goldman is willing to enter into such an agreement.
D. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Asset Purchase Agreement. For purposes of this
Agreement, Gargoyles and Sungold shall together be referred to herein as the
"Companies".
AGREEMENT
1. Confidentiality.
1.1 Definitions. For purposes of this Section 1:
"Confidential Information" wherever used shall mean all of the
Companies' proprietary information which derives independent economic value from
its secrecy from other persons, companies, or business entities who could obtain
economic value from its disclosure to them or use by them. Confidential
Information also includes, without limitation, research data, trade or business
know-how or business plans, inventions, devices, patterns, compilations,
programs, methods, techniques, or processes which are disclosed or made
available by the Companies to Goldman, or devised by Goldman during his employ
by Sungold. Examples of Confidential Information include, without limitation:
all information specifically identified as Confidential Information by the
Companies and all information regarding the Companies' existing or proposed
installations, products or product lines, information systems, or other
projects, the Companies' supplier and customer lists
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and all customer information, and the Companies' existing and proposed business
and marketing plans and policies, whether written or oral, and whether
designated individually as Confidential Information or not. Confidential
Information does not include information that:
(a) is a matter of public knowledge at the time Goldman first learns of
the information; or
(b) later becomes a matter of public knowledge after Goldman learns of
the information, other than becoming public knowledge by reason of a
breach by Goldman of the obligation of confidentiality set out in
this Agreement.
1.2 Confidentiality Agreement. Goldman agrees not to disclose to any
third party and to keep confidential all Confidential Information of the
Companies.
2. Covenant Not To Compete.
2.1 Covenant of Goldman. Goldman covenants and agrees with Gargoyles
that Goldman, or any company or entity affiliated with Goldman, will not
directly or indirectly, in any of the states of the United States, and any
foreign countries in which the Gargoyles products are now sold or are hereafter
sold (the "Territory"), during the period commencing on the Closing Date and
expiring on the third (3rd) anniversary thereof (the "Restricted Period") (i)
form, acquire, own (other than the ownership of stock in a publicly traded
company), finance, assist, support, or become associated in any capacity or to
any extent, directly or indirectly with, an enterprise which manufactures,
sells, distributes or represents, sunglasses, protective eyewear, protective
eyewear used in the medical/dental field or otherwise, goggles, sports glasses,
or other products in the optical industry (the "Competing Business"), (ii)
interfere with or attempt to interfere with any officers, employees,
representatives or agents of Gargoyles or its affiliates, or induce or attempt
to induce any of them to leave the employ of Gargoyles or its affiliates, or
violate the terms of the employees' contracts with Gargoyles, or (iii) for the
purpose of engaging in a Competing Business, call upon, solicit, advise, or
otherwise do, or attempt to do, business with any clients, suppliers, customers
or accounts of Gargoyles or any of its affiliates.
2.2 Injunctive Relief. In the event of a breach or a threatened breach
by Goldman or one of his affiliates of any of the restrictive covenants set
forth in this Section 2, Gargoyles shall be entitled to an injunction
restraining such breach, but nothing herein shall be construed to prohibit
Gargoyles from pursuing any remedy available to it for such breach or such
threatened breach.
2.3 Enforcement. Goldman agrees that as to the Territory and Restricted
Period set forth above for the purpose of the covenant not to compete, each
state, province, country or other jurisdiction within the Territory and periods
within the
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<PAGE> 3
Restricted Period are divisible and separate so that if the covenant not to
compete made by Goldman hereunder is held by a court to be invalid or
unenforceable as to any geographic area or for any time period described, his
covenant not to compete shall remain valid and enforceable in all remaining
geographic areas and time periods. Goldman agrees that it is his express
intention that, if a court reforms this Agreement, Gargoyles be given the
broadest protection allowed by law as respects this Agreement and the covenant
not to compete.
3. Consideration. As consideration for Goldman's nondisclosure and
noncompetition agreements set forth herein, Gargoyles shall provide Goldman with
comprehensive medical insurance coverage as described on the attached Exhibit A
during the term of this Agreement.
4. Miscellaneous.
4.1 Invalid Provisions. This Agreement is intended to be severable.
Should any part or provision of this Agreement be found to be unenforceable or
invalid for any reason, the remaining parts and provisions will remain in
effect.
4.2 Non Waiver. No waiver by any party hereto of any breach or default
by another party shall constitute a waiver with respect to any future breach or
default.
4.3 Attorneys Fees. If it shall be necessary for any party to this
Agreement to employ an attorney to enforce their rights pursuant to this
Agreement because of the default of another party(s), the defaulting party(s)
shall reimburse the non-defaulting party(s) for reasonable attorneys' fees and
expenses.
4.4 Governing Law. This Agreement is made in, and shall be enforced in
accordance with, the laws of the state of Washington. Goldman and Gargoyles
agree that either the King County Superior Court, or the United States District
Court for the Western District of Washington, shall be the proper venue for, and
shall have jurisdiction over, any litigation arising from or related to this
Agreement.
4.5 Counterparts. This Agreement may be signed in one or more
counterparts, each of which may be termed an original, but all of which together
shall constitute one Agreement.
Page 3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above mentioned.
GARGOYLES, INC.,
a Washington corporation
/s/ LIONEL GOLDMAN By: /s/ STEVEN R. KINGMA
- ----------------------------- -----------------------------
Lionel Goldman Steven R. Kingma, VP and
CFO
Page 4
<PAGE> 1
EXHIBIT 10.39
AMENDED AND RESTATED LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT ("Agreement") is made and
entered as of the 10th day of April, 1997, by and between Stussy, Inc., a
California Corporation having its office and principal place of business at 1852
Langley, Irvine, California 92714 (hereinafter referred to as "STUSSY" or
"Licensor"), and Sungold Enterprises, Ltd., a New York corporation, having its
office and principal place of business at 2095 New Highway. Farmingdale, New
York 11735 (hereinafter referred to as 'Licensee").
RECITALS
A. Stussy owns the trademark "STUSSY' and the designs associated with
that mark, (collectively referred to herein as the ("Licensed Mark") and has
registered them in the United States of America and elsewhere. Licensee
recognizes the great value of the goodwill associated with the Licensed Mark;
that the Licensed Mark has acquired a secondary meaning to the public, and that
all rights to the Licensed Mark and its associated goodwill belong exclusively
to Stussy, the Licensor.
B. Licensee is principally and presently engaged in the business of
importing, manufacturing, promoting and selling sunglasses (the 'Products') for
purposes of distribution at wholesale prices throughout the United States, and
in Canada. Licensee desires to use the Licensed Mark on, and in connection with,
the manufacture, promotion, sale and distribution of the Products.
C. Stussy previous granted a license the exclusive right and license to
use the Licensed Mark on and in connection with the Products, pursuant to the
terms and conditions of the License Agreement dated October 2, 1992, to Sungold
Enterprises Limited ("Sungold"). Sungold has assigned all its rights and
obligations under the License Agreement to the current Licensee. Stussy and
Licensee intend that this Amended and Restated Agreement will completely
supersede the License Agreement.
AGREEMENT
1. Definitions. Whenever used in this Agreement, the term "Net sales"
shall mean gross sales of the Products by Licensee, less returns actually
received, normal trade discounts and allowances usually granted; provided,
however, that the amount of normal trade discounts and allowances actually
granted by Licensee shall not exceed an amount equal to twenty-five percent
(25%) of gross sales in any year of this-Agreement.
<PAGE> 2
2. Grant.
2.1 Territory. Upon the terms and conditions of this Agreement,
Stussy hereby grants to Licensee the exclusive right to use the Licensed Mark
throughout the world (the "Territory") on and in connection with the Products
manufactured from designs provided by Licensee.
2.2 Use of Stussy Distributors. In the United States and Canada,
Licensee may distribute the Products as otherwise provided in this Agreement. In
any territory where Stussy has distributors for "STUSSY" products, the Licensee
shall distribute the Product only to such distributors. In all other
territories, Licensee shall distribute the Products only after Stussy has
approved a marketing plan and the specific retailers or wholesalers to whom
Licensee proposes to distribute the Products. In all territories where Stussy
has no distributors, Licensee shall only sell the Products in accordance with
the approved marketing plan and to the specific retailers or wholesalers
approved by Stussy. All sales to Stussy distributors in foreign territories
shall be made in accordance with Licensee's standard terms, including discounts
and distribution policies established by Licensee for sales of Product
throughout all foreign territories. Sales in foreign countries shall be
accounted for separately by each territory. The provisions of this Agreement,
and specifically Paragraphs 2.2 and 2.3 are not deemed for the benefit of any
Stussy distributor,
2.3 Distribution of Products Only Within the Distributor's
Territory. This provision shall not apply in any territory where its enforcement
would be a violation of law. Licensee shall never offer, sell or ship the
Products to persons (i) other than them permitted by Section 2.2 or (ii) who
Licensee has reason to suspect will divert, attempt to divert, or assist in
diversion of the Products outside their territories as provided in distribution
agreements or in Stussy-approved marketing plans (hereinafter "Non-Diversion
Obligation"). Licensee will maintain complete and detailed documentation of
Licensee's disposition of the each of the Licensed Product so that it can show
compliance with the Non-Diversion Obligation. If upon Stussy's request, Licensee
does not within ten (10) calendar days of such request product documentation for
any of the Goods, Licensee will be presumed to have violated the Non-Diversion
Obligation.
2.4 Use of Licensed Mark. All Products manufactured from designs
approved by Stussy shall bear the Licensed Mark. During the term of this
Agreement, Licensee shall use its best effort to market the Products designs
approved by Stussy throughout the Territory. Licensee shall not attempt to
register the mark "STUSSY" in its own name for its own benefit in any country of
the world. Licensee agrees that it will not, directly or indirectly, infringe
upon the Licensed Mark in countries outside the Territory, and will not
contribute to or induce such infringement by selling Products to persons or
entities whom Licensee suspects, or should reasonably suspect, of intentions to
infringe upon the Licensed Mark.
2.5 Requirement to Use. Nothing herein contained shall be
construed to require the Licensee to use the Licensed Mark on all of the goods
which it manufactures or imports, even if some of those goods may fall within
the definition of
<PAGE> 3
Products. However, Licensee shall not manufacture, market or distribute any
competing brands that conflict with Stussy's image and marketing. Stussy's
consent shall not be unreasonably withheld. In the event of a disagreement about
what constitutes a conflicting brand, the parties shall meet in an attempt to
resolve the disagreement. Stussy agrees that none of Licensee's current brands
constitute a conflict.
3. Initial Term. The Initial Term of this Agreement shall commence as of
May 1, 1992, and expire on April 30, 1997, unless sooner terminated as provided
herein.
4. Terms.
4.1 First Renewal Term. Stussy agrees that Licensee has met all
of the conditions set forth in Sections 4.1 through 4.1.4 below, and this
License will be renewed for an additional five (5) years commencing May 1, 1997
and expiring on April 30, 2002.
4.1.1 During the Initial Term of this Agreement Licensee
has made not less than $500,000 of annual Net Sales of Products or has paid to
Stussy the minimum annual royalties on such amount as set forth in Section 6 of
this Agreement.
4.1.2 Licensee is in compliance with all of the terms and
conditions of this Agreement, both at the time the option is exercised and on
the last day of the Initial Term of this Agreement.
4.1.3 Written notice of the election to exercise such
option is delivered to Stussy in accordance with Section 25, "NOTICES", not less
than sixty (60) days prior to the expiration of the Initial Term.
4.1.4 Stussy consents to such renewal, which consent shall
not be unreasonably withheld.
4.2 Second Renewal Term. If Licensee meets all of the conditions
set forth in Sections 4.2.1 through 4.2.4 below, then Licensee may, at its
option, renew this Agreement for an additional term of five (5) years commencing
May 1, 2002, and expiring April 30, 2007.
4.2.1 During the First Renewal Term of this Agreement.
Licenses has made not less than the annual Net Sales of the Products required by
Section 5 of ft Agreement or Licensee has paid the minimum annual royalty due on
such amounts to Stussy.
4.2.2 Licensee is in compliance with all of the terms and
conditions of this Agreement both at the time the Option is exercised and on the
last day of the First Renewal Term of this Agreement.
<PAGE> 4
4.2.3 Written notice of the election to exercise the said
option is delivered to Stussy at its address as set forth in Section 25 of this
Agreement, not less than sixty (60) days prior to the expiration of the First
Renewal Term.
4.2.4 Stussy consents to such renewal, which consent shall
not be unreasonably withheld.
4.3 Third Renewal Term. If Licensee meets all of the conditions
set forth in Sections 4.3.1 through 4.3.4 below, then Licensee may, at its
option, renew this Agreement for an additional term of five (5) years commencing
May 1, 2007, and expiring April 30, 2012.
4.3.1 During the Second Renewal Term of this Agreement,
Licenses has made not less than the annual Net Sales of the Products required by
Section 5 of this Agreement or Licensee has paid the minimum annual royalty due
on such amounts to Stussy.
4.3.2 Licensee is in compliance with all of the terms and
conditions of this Agreement both at the time the option is exercised and on the
last day of the First Renewal Term of this Agreement.
4.3.3 Written notice of the election to exercise the said
option is delivered to Stussy at its address as set forth in Section 25 of this
Agreement, not less than sixty (60) days prior to the expiration of the First
Renewal Term.
4.3.4 Stussy consents to such renewal, which consent shall
not be unreasonably withheld.
5. Royalties.
5.1 Amount of Royalty. Licensee shall pay Stussy a royalty of [*]
Percent [* %] of Licensee's Net Sales of Products bearing the Licensed mark.
Such royalties shall be distinct from and in addition to any commissions earned
by Stussy, as a Sales Representative of Licensee.
5.2 Minimum Royalty. Licensee shall pay and account for minimum
royalties at the rate provided in Section 5.1 of this Agreement on Net Sales of
Products of at least $[*] per year, for the year commencing May 1, 1997 and
expiring April 30, 1998. Minimum royalties shall be credited against Royalty
payments due under Section 5.1 hereof. The minimum amount of Net Sales of
Products shall increase Four Percent (4%) per year. In each subsequent year, the
minimum amount of Net Sales of Products shall be increased by Four Percent (4%)
from the minimum amount of Net Sales of Products in the previous year. Licensee
may fall short of the required minimum amount of Net Sales of Products in any
one year by Twenty Percent (20%), but not more than once in any Renewal Term,
and the minimum amount of Net Sales of Products shall be made up in other years
within the Renewal Term.
<PAGE> 5
5.3 Statements. Within thirty (30) days after the end of each
month during the term of this Agreement, or renewal thereof, Licensee shall
furnish to Stussy a full and accurate statement showing the number, description,
and invoice price of each Product sold, the gross sales, returns actually
received, normal trade discounts and allowances actually granted and sales
taxes, if any, deducted relative to the Products, and the Net Sales of all
Products sold under this Agreement during the preceding month. Such statements
shall be accompanied by a check for royalties due thereon. Receipt or acceptance
by Stussy of any of the statements furnished, or of any sums paid pursuant to
this Agreement, shall not preclude Stussy from questioning their correctness at
any time thereafter, but within the applicable period of limitation provided by
law.
5.4 Payment Cure. At the end of each year during any year in
which this Agreement is in effect, if the statements and royalties paid
(referred to in Section 5.2 above) reflect Net Sales and resultant royalty
amounts which are less than those necessary to the annual requirement for
renewal of this License Agreement pursuant to Sections 4.1 and 4.2 of this
Agreement, then such deficit shall be cured at the time the statement for the
third month following the end of the year is filed, and such cure shall
constitute a cure of any breach under Section 5.2 of this Agreement.
5.5 Books and Records. Licensee shall maintain appropriate books
of account in which accurate entries shall be made concerning all transactions
within the scope of this Agreement, and Stussy shall have the right, through any
accountant or other authorized representative of its choice, on reasonable
advance notice to Licensee, to examine and copy all or part of these books of
account and all other records, documents and material in the possession or under
the control of Licensee with respect to the subject matter of this Agreement.
All books of accounts and records shall be kept available by Licensee for at
least three (3) years after the year to which they relate.
Licensee shall also provide, at Stussy's request, a copy of
any computerized tape or disk if its sales records are kept on such computerized
tapes or disks.
6. Exclusivity of Rights. Stussy will not grant any other license during
the term of this Agreement for the use of the Licensed Mark on or in connection
with the Products. Stussy may use or grant others the right to use the Licensed
Mark on or in connection with goods of all types and descriptions except the
Products. Licensee will not, during the term of this Agreement or thereafter,
use any business name utilizing the trade name "STUSSY", attack Stussy's title
in and to the Licensed Mark, attack the validity of the Licensed Mark, attack
the registrations in any country by Stussy of the Licensed Mark, or attack the
validity of this Licensed mark. However, in any other license agreement entered
into by Stussy for the use of the Licensed Mark in connection with the sale and
distribution of the Products outside the Territory, Stussy shall affirmatively
require in such agreement that said Products, may not be sold and/or distributed
in the Territory by that licensee.
<PAGE> 6
7. Quality of Products.
7.1 Stussy's Control Over Image. Stussy shall control the image
of the Licensed Mark. This includes image management, marketing, retail outlets,
marketing and suggested retail prices. Every effort shall be made to maintain a
consistent image that preserves the value of the Licensed Mark.
7.2 Approval of Retail Outlets.. Stussy reserves the right to
review and, in its absolute discretion, approve or disapprove those retail
stores to which Licensee sells its Products. In addition Stussy reserves, in its
sole and absolute discretion, the right to approve or disapprove any distributor
or sales representative used by Licensor to market or sell the Products. If
Stussy notifies Licensee that it does not approve a distributor representatives
or retail store(s), then Licensee shall promptly terminate distributor or
representative, as the case may be, and discontinue sales of that Product to
such retail store(s).
7.3 Product Quality. The quality of all Products produced and
sold by Licensee under this Agreement and bearing the Licensed Mark shall be of
a quality equal to or better than Products sold by Licensees in 1991, shall be
intended for sale at retail prices as prestige, better-priced merchandise, and
shall be marketed accordingly. All of the Products will be manufactured,
labeled, sold, distributed and advertised in accordance with all applicable
national, state and local laws and regulations.
7.4 Sample Approval. Before producing Products bearing the
Licensed Mark, Licensee shall submit to Stussy for its approval, finished art
work sufficiently in advance of production to permit Stussy to correct to the
extent necessary, the legends, markings and notices and the form and manner in
which the Licensed Mark is displayed. Before selling or distributing any
Products bearing the Licensed Mark, Licensee shall submit to Stussy for its
approval, a sample of its Products, containers, packaging, labels, and like
items.
7.5 Maintenance of Samples. During the term of this Agreement,
Licensee shall periodically, but at least once each six (6) months, submit then
current production samples of its Products, patterns, designs, material
selections, containers, labels, and like items, and of all advertising and
promotional material used in connection with them, or legends, markings and
notices as may be required by law or regulation in the Territory, of each
Product marketed under this Agreement so that Stussy may assure itself of the
maintenance of the quality standards.
8. Stussy Quality. In order to maintain an image of high quality
Products bearing the Licensed Mark, Stussy agrees that it will maintain such an
image with other Products bearing the Licensed Mark that it sells, and that it
will require and enforce high design and quality standards from all other
licensees of the Licensed Mark outside the Territory.
<PAGE> 7
9. Required Markings. Licensee shall display the Licensed Mark only in
such form and manner as specifically approved, in writing, by Stussy. Licensee
also shall cause to appear on the Products, or on its containers, labels and
like items, and on all advertising and promotional material used in connection
with them, such legends, markings and notices as may be required by law or
regulation in the Territory and as Stussy reasonably may request. All Products
shall contain Licensee's identifying mark so that the origin of the Products can
be determined.
10. Approvals . The approval of Stussy shall not be withhold
unreasonably and any Product or art work submitted to Stussy which has not been
disapproved orally or in writing within ten (10) business days after receipt by
Stussy shall be deemed to have been approved. After any Product or art work has
been approved, Licenses shall not make any change without Stussy's prior
approval. If any Product or art work is disapproved by Stussy, Licensee shall
not release that Product or art work for public distribution without Stussy's
specific written authorization. Stussy's approval of any Product or art work
shall not be construed to mean that Stussy has determined that the Product or
art work conforms to the laws or regulations of any jurisdiction in the
Territory.
11. Advertising and Promotion. Prior to public release, Licenses shall
submit its program for national advertising, and any and all advertisements,
trade releases or any other form of promotional material, to Stussy for prior
approval, including Licensee's announcements introducing the Products bearing
the Licensed Mark. Such prior approval of Stussy is extended to mean the
selection of appropriate Magazines, publications, or other media intended for
use of such advertising or promotional material. During each year of the
Agreement and each year of any renewal term, Licensee shall expend a reasonable
sum on advertising promoting the Products bearing the Licensed Mark within the
Territory in television, radio, newspaper, and/or periodical publications or
department store and trade catalogues. Advertising "expenses shall include fees
charged by the advertising agency, if such fees are not included with media
charges. No advertising or promotional material shall contain reference to
Licensee's name except that Licensee's tags and labels which have been approved
by Stussy may utilize the following statements: "Stussy, by Sungold Eyewear (a
Licensee of Stussy, Inc.)" only on approved Products.
12. Use of Other Trademarks. Licensee may not use or associate the
Licensed Mark with any other trademark, except when used in combination with
prestige store labels and except as permitted in Section II hereof.
13. Licensee's Indemnity. Licensee will indemnify and hold Stussy
harmless from any claim, suit, loss, damage or expense (including reasonable
attorneys' fees) arising out of any alleged defect in any Product produced by
Licensee under this Agreement, or relating to the manufacture, labeling, sale,
distribution or advertisement of any Product of Licensee. Stussy shall give to
Licensee notice of any such claim or suit.
<PAGE> 8
14. Licensor's Indemnity
14.1 Indemnification. Licensor will indemnify and hold the
Licensee harmless from any claim, suit, loss, damage or expense (including
reasonable attorney fees) arising out of any litigation in connection with the
use of the Licensed Mark by the Licensee in accordance with the terms of this
Agreement.
14.2 Notice. Licensee shall give to Licensor written notice of
any infringement or potential infringement of Licensor's name or mark by third
parties which may come to its notice. Licensor and Licenses shall thereupon
confer together as to what steps are to be taken to stop or prevent such
infringement. Licensor agrees to use its best efforts to stop any such
infringement, but shall not be obligated to commence proceedings against the
infringer. If Licensor decides to commence proceedings, however, Licensor shall
be responsible for any legal costs incurred, and will be entitled to retain any
damages recovered. Should Licensor decide not to commence proceedings, Licensor
shall be entitled to do so in its own name against the infringer, in which event
Licensee shall be responsible for all legal costs incurred, without recourse to
Licensor, but will be entitled to retain any damages recovered.
15. Insurance-Policy. At all times during which Products bearing the
Licensed Mark are being sold, Licensee shall, at its own expense, maintain in
full force and effect with a responsible insurance carrier acceptable to Stussy,
at least One Million Dollars ($1,000,000) of product liability insurance with
respect to the Products. This insurance shall name Stussy as an additional
insured, be for the benefit of Stussy, and be endorsed for the insurance carrier
to provide Stussy at least ten (10) days prior written notice of the
cancellation of, or any substantial modification in, such insurance policy. A
copy of such policy or certificate of insurance together with any applicable
riders and/or endorsements shall be provided to Stussy by the carrier. This
insurance may be obtained for Stussy by Licensee in conjunction with a policy
which covers products other than the Products bearing the Licensed Mark.
16. Trademarks.
16.1 Trademark Ownership. Licensee acknowledges Stussy's
ownership of the Licensed Mark, and agrees not to challenge its validity and
ownership by Stussy. All use of the Licensed Mark by Licensee shall inure to the
benefit of Stussy. Licensee shall not do or commit any act which would affect
the validity of the Licensed Mark, or Stussy's ownership thereof. Licensee shall
at any time, whether during or after the term of this Agreement, execute any
documents reasonably requested by Stussy to confirm its ownership rights. All
rights in the Licensed Mark other than those specifically granted in this
Agreement are reserved by Stussy for its own use and benefit. This Section shall
also include all future trademarks of Stussy using the name "STUSSY" or its
logos.
16.2 Trademark Ownership. Licensee shall not register any
trademark, trade name, copyright or other right relating to this Agreement in
its own name. In the event Licensee determines that registrations are necessary
or appropriate, Licensee
<PAGE> 9
shall contact Stussy. Licensee shall reimburse Stussy
for all expenses incurred during the, term hereof relating to the registration
of the Licensed Mark in International Class 9 (or the national equivalent). Any
applications or registrations for any of the Stussy,s names or trademarks shall
be immediately assigned to Stussy.
16.3 Enforcement. Licensee shall police the STUSSY trademark on
and in connection with the Products. Subject to Stussy's approval, Licensee may
enforce the STUSSY trademark at licensee's own expense. Licensee shall keep
Stussy fully informed about such enforcement efforts. Stussy shall have the
absolute right to give instructions and about such enforcement efforts, and to
select the investigators or attorneys should they be retained.
17. Design Ownership. All rights (including copyright rights) to
designs for the Products, and to any package design, label, advertising or
promotional material or the like bearing the Licensed Mark (hereinafter the
"Design Rights") shall be the property of Stussy (regardless of whether such
designs were created by Stussy, Licensee, or Licensee's employees,
officers, directors, stockholders or independent contractors). Licensee shall
make or procure all assignments necessary for this purpose. Licensee shall place
appropriate notices on the Products, packages, labels, and advertising and
promotional materials in order to protect the Design Rights (including
copyrights) therein. During the term of this Agreement, Licensee may use the
Design Rights in the Territory in connection with its exercise of the Licensed
Mark as set forth in Section 2. All Products manufactured from designs submitted
by Licenses and approved by Stussy shall bear the Licensed Mark. Licensor shall
provide prompt notice and information about any designs that are capable of
being protected by a design patent so that Stussy can timely file patent
applications if Stussy deems it appropriate, in Stussy's sole discretion.
18. Registration. Licensee shall cooperate with Stussy in the execution,
filing and prosecution of any trademark or copyright applications that Stussy
may desire to file, and for that purpose, Licensee shall supply to Stussy from
time to time such Products, containers, labels and similar material as may be
reasonably required. The rights of Licensee, pursuant to Section 2, hereof,
shall include, to the extent necessary, the right to use any registered
trademarks or copyrights secured by Stussy hereunder.
19. Termination.
19.1 Breach. If Licensee breaches any of its obligations under
this Agreement, including, without limitations, its obligations pursuant to
Sections 2 and 9 of this Agreement, Stussy shall have the right, without
prejudice to any other rights which Stussy may have, to terminate this
Agreement, by giving fifteen (15) days' notice to Licenses, and this notice will
automatically become effective unless Licensee completely cures such breach
within the fifteen (15) day period.
19.2 Insolvency. If Licensee is adjudicated a bankrupt, or if a
petition in bankruptcy is filed against the Licensee, or if Licensee makes any
assignment for the benefit of its creditors, or if Licensee commits any act of
bankruptcy or takes the benefit
<PAGE> 10
of any insolvency law, or if Licensee, defaults
on any obligation which is secured by a security interest, in whole or in part
in the Products bearing the Licensed Mark, or if a receiver is appointed for
Licensee or a substantial part of its business interests, this Agreement shall
automatically terminate as of the earliest date on which any of the above events
occur, without prejudice to any other rights which Stussy may have. Invalidity
or unenforceability of this Section 19.2 shall not affect or render any other
clause of this Agreement invalid.
19.3 Change of Business. If Licensee sells or otherwise disposes
of substantially all of its business or assets to a third party, or control of
Licensee is transferred and the management thereby changed, Stussy will have the
right, without prejudice to any other right it may have, to terminate this
Agreement by giving notice to Licensee, effective immediately.
20. Effect of Termination. Upon expiration or termination of this
Agreement for any reason whatsoever, all rights in the Licensed Mark shall
automatically revert to Stussy. Licensee shall cease all uses of the Licensed
Mark which have been embodied in Products bearing the Licensed Mark, except
that, if the Agreement is terminated other than pursuant to Section 19.2
of this Agreement, Licensee, shall then have six (6) months from the date of
termination to sell out its then existing inventory of Products bearing the
Licensed Mark. Licensee shall account for, and pay royalties on, all these sales
not later than thirty (30) days after the close of the six (6) month period.
Upon the date of termination, Licensee will promptly compute and inform Stussy
of the amount of its then existing inventory of Products bearing the Licensed
Mark. If, at any time during the three (3) month period, Licensee is willing to
sell all or substantially all of its then remaining inventory to a single
purchaser or group of related purchasers, Licensee will advise Stussy of the
identity of the proposed buyer and terms of sale. Following notice to Stussy of
such proposed sale, Stussy will thereupon have thirty (30) days in which to
exercise a right of first refusal to buy the remaining inventory upon the same
terms.
21. Infringements. If Licensee learns of any use by any person of a
trademark or design similar to the Licensed Mark or a licensed design, it shall
promptly notify Stussy and, if requested by Stussy, shall join with Stussy, at
Stussy's expense, in such action as Stussy, in its reasonable discretion, may
deem advisable for the protection of its rights. Licensee shall have no right to
take any action with respect to the Licensed Mark or designs without Stussy's
prior written approval.
22. Representation and Warranty. The parties respectively represent and
warrant that they are under no legal impediment which would prevent their
signing this Agreement or consummating the same.
23. Relation of Parties. Nothing contained in this Agreement shall be
construed to place the parties in the relationship of legal representatives,
partners, joint venturers, or agents, and Licensee shall have no power to
obligate or bind Stussy in any manner except as provided herein.
<PAGE> 11
24. Assignability. Licensee may not assign or sublicense any or all of
its rights or delegate any of its duties under this Agreement without the
written consent of Stussy. Any attempted assignment or sublicense in violation
of this provision shall be void.
25. Any notice or other communications under this Agreement shall be in
writing and shall be considered given when delivered personally or by registered
mail, return receipt requested, to the parties at the following addresses (or at
such address as each party may specify by notice to the other):
TO STUSSY: Stussy, Inc.
Mr. Frank Sinatra, President
1852 Langley Ave.
Irvine, CA 92714
(714) 474-9255
Fax: (714) 474-8229
WITH COPY TO: John R. Sommer, Esq.
Baker & Hostetler LLP
600 Wilshire Blvd., #1200
Los Angeles, California 90017
(213) 624-2400
Fax: (213) 975-1740.
TO LICENSEE: Sungold Enterprises, Ltd.
2095 New Highway
Farmingdale, New York 11735
(516) 752-8900
Fax: (516) 752-8928
WITH A COPY TO: Richard Krodow
425 Broad Hollow Road
Melville, New York 11747
(516) 756-8300
Fax: (516) 756-3684
26. Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver, nor
deprive or limit that party of the right thereafter to insist upon strict
adherence to that term in the particular instance of that term or any other term
of this Agreement in any instance. Any waiver must be in writing.
27. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States (including but not limited to the
laws relating to Trademarks and Copyrights) and, to the extent not governed by
the foregoing, by the laws of the State of California.
<PAGE> 12
28. Headings. The headings are solely for convenience of reference and
shall not affect the interpretation of this Agreement.
29. Arbitrations.
29.1 Any controversy arising out of or relating to this Agreement
shall be resolved by arbitration in the County of Orange in the State of
California pursuant to the rules then in force of the American Arbitration
Association. The panel of arbitration appointed to settle any controversy or
claim shall consist of three (3) arbitrators.
29.2 Modification. The arbitrators sitting in any such
controversy shall have no power or jurisdiction to alter or modify any express
provision of this Agreement or to make any award which by its terms affects any
such provision. Nor shall they have any power or jurisdiction over Stussy's
trademarks or copyrights, all matters relating thereto are expressly excluded
from this Section 29.
29.3 Consent to Jurisdiction. The parties consent to the
jurisdiction of the federal or state courts located in the State of California
and in the county in which Stussy has its principal place of business. The
parties further consent that any demand for arbitration or any process or notice
of motion or other application to the Court of a Judge thereof in connection
with the same may be served in or out of the State of California by registered
mail or by personal service, provided a reasonable time for appearance is
allowed. The parties waive jurisdiction, venue and all related or equivalent
rights as to such State and county.
29.4 No Waiver. The provision for arbitration herein shall not be
deemed a waiver of any rights of either party to any provisional remedy provided
under California law. It is agreed that in the event of any violation hereof,
the other party hereto shall have the right to obtain a preliminary injunction
enjoining any further violation of this Agreement pending the arbitration
hearing.
30. Service Charge. Licensee shall pay Stussy a service charge on
all overdue amounts payable under this Agreement at the prime rate, plus one
percent (1%) per annum, in effect at Bank of America, NT&SA covering the period
from the due date to the date of payment. However, such payment shall in no way
affect the rights of Stussy under this Agreement, including but not limited to
those specified in Section 19 hereof. However, nothing in this Section requires
the payment of interest in excess of the maximum rate allowed by law.
31. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties shall not have signed the same counterpart.
32. Severability of Provisions. Each provision of this Agreement
shall be considered severable and if for any reasons any provision which is not
essential to the
<PAGE> 13
effectuation of the basic purposes of this Agreement is
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those provisions of this
Agreement which are valid.
33. Warranties and Limitation of Liability. Stussy makes no
representation or warranties other than those expressly set forth above.
Stussy's liability related to this Agreement or to Licensee and persons
connected with it shall in no event exceed the royalties paid by Licensee in the
preceding year.
34. Complete Agreement. This Agreement contains a complete
statement of all the arrangements among the parties with respect to its subject
matter, supersedes all prior agreements, understandings and commitments of the
parties with respect to the subject matter hereof, and cannot be changed or
terminated orally. This Agreement is deemed equally drafted by both parties and
shall not be construed for or against any party, except that it shall be
construed in a manner to give maximum protection to Stussy's trademark and
copyright rights.
STUSSY, INC.
By: /S/ FRANK SINATRA
-------------------------------
Frank Sinatra, President
SUNGOLD ENTERPRISES, LTD.
By: /S/ SHELDON GOLDMAN
-------------------------------
Sheldon Goldman, President
<PAGE> 1
EXHIBIT 10.41
CONTINGENT PRICE AGREEMENT
THIS CONTINGENT PRICE AGREEMENT (this "Agreement") is made as of this 14th
day of May 1997, by and between GARGOYLES ACQUISITION CORPORATION II, a
Washington corporation ( "Purchaser") and wholly-owned subsidiary of Gargoyles,
Inc. ("Guarantor"), on the one hand, and THE PRIVATE EYES SUNGLASS CORPORATION,
a Massachusetts corporation ("Seller"), on the other hand.
RECITALS
A. Seller owns and operates a business that designs, distributes and
sells sunglasses and related products (the "Business") from its company
headquarters located in Norwell, Massachusetts.
B. Seller and Purchaser are parties to that certain Asset Purchase and
Sale Agreement of even date herewith (the "P&S Agreement") under which Seller
has agreed to sell substantially all the assets used in the operation of its
Business to Purchaser.
C. This Agreement is delivered in connection with the P&S Agreement.
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the P&S Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
of the parties set forth herein, the parties hereto hereby agree as follows:
1. Definitions. The following capitalized terms used herein shall have
the meanings ascribed to them below:
"Equitably Adjusted" means an adjustment to Gross Margin, Net Sales
and/or the Contingent Price which may be agreed between Seller and Purchaser as
required under the circumstances.
"Force Majeure" means any failure to perform an obligation due to
causes beyond the obligor's control, including but not limited to, work
stoppages, fire, civil disobedience, embargo, war, riots, rebellions,
earthquakes, strikes, floods, water and the elements, acts of God or similar
occurrences.
"Gross Margin" means a fraction, the numerator of which is Net Sales
less cost of sales, including direct costs of the Products, cases, direct labor,
if any, and an allocation of spoilage and reserve consistent with the treatment
by
Page 1
<PAGE> 2
Gargoyles, Inc. and its subsidiaries, which shall be no greater than such
spoilage and reserve maintained by Seller during its 1996 fiscal year, and the
denominator of which is Net Sales.
"Net Sales" means the actual invoice price for Products less trade
and cash discounts, sales or similar transaction taxes, if any, freight charges
if not separately invoiced, and returns and allowances.
"Products" means sunglasses, eyewear, accessories and related
products sold in connection with the operation of the Business. If as a result
of a corporate reorganization by Guarantor the product lines currently sold from
the Business, including but not limited to, the Ellen Tracy, Emmanuelle Khahn
and Private Eyes product lines, are transferred to Guarantor or to another one
of its subsidiaries, the products in such product lines shall be deemed to be
products sold in connection with the operation of the Business for purposes of
this Agreement.
2. Contingent Payments.
2.1 Net Sales Before September 30, 1997. If the combined Net Sales
of Product by Seller or Purchaser in the Business from October 1, 1996 through
September 30, 1997 are at least 8.8 Million Dollars and the Gross Margin for the
Product is not less than the Gross Margin for Seller's Product in Seller's
fiscal year ended September 30, 1996, then Purchaser shall pay to Seller the sum
of Five Hundred Thousand Dollars ($500,000).
2.2 Net Sales in Annual Year 1997. If the combined Net Sales of
Product by Seller and Purchaser from the Business from January 1 to December 31,
1997 are at least 9.5 Million Dollars and the Gross Margin for the Product is
not less than the Gross Margin for Seller's Product in Seller's fiscal year
ended September 30, 1996, then Purchaser shall pay to Seller the sum of Five
Hundred Thousand Dollars ($500,000).
2.3 Net Sales in Annual Year 1998. If the Net Sales of Product by
Seller and Purchaser from the Business from January 1 to December 31, 1998 are
at least 11.9 Million Dollars and the Gross Margin for the Product is not less
than the Gross Margin for Seller's product in Seller's fiscal year ended
September 30, 1996, then Purchaser shall pay to Seller the sum of Five Hundred
Thousand Dollars ($500,000).
2.4 Net Sales in Annual Year 1999. If the Net Sales of Product by
Seller and Purchaser from the Business from January 1 to December 31, 1999 are
at least 14.9 Million Dollars and the Gross Margin for the Product is not less
than the Gross Margin for Seller's product in Seller's fiscal year ended
September 30, 1996, then Purchaser shall pay to Seller the sum of Five Hundred
Thousand Dollars ($500,000).
Page 2
<PAGE> 3
All payments to be made by Purchaser under this Section 2 shall be referred to
herein as the "Contingent Payments", and the Net Income and Gross Margin targets
described in this Section 2 shall be referred to herein as the "Goals".
3. Time and Manner of Payment. Contingent Payments shall be calculated
within forty-five (45) days after the end of any period for which Contingent
Payments may be payable. Contingent Payments shall be made by Purchaser to
Seller within 10 days of calculation of the Net Sales and Gross Margin for any
applicable period and shall be sent by wire transfer to an account to be
specified by Seller. If Purchaser fails to make Contingent Payments when due,
delinquent amounts shall bear interest at the Massachusetts statutory default
rate of interest per annum from the date of default until such default is cured.
Breach of Purchaser's obligation to make any Contingent Payments when due shall
be deemed a material breach hereunder, and Seller may submit the matter to
arbitration pursuant to the terms of Section ___ of the P&S Agreement.
4. Acceleration of Payments. Any Contingent Payments due but not yet
paid or not yet due and payable under the terms of this Agreement shall be fully
accelerated and shall be due and payable in full upon the occurrence of any of
the following events:
(a) If substantially all the assets of Purchaser are sold;
(b) If the Business of Purchaser existing as of the closing of the
P&S Agreement, including sales of Products, whether sold by Purchaser or by
Guarantor or one of its subsidiaries, is terminated; or
(c) The employment of Patricia Lynch and/or Richard W. Hammel, Sr.
is terminated without cause prior to December 31, 1999.
5. Equitable Adjustment. There shall be an Equitable Adjustment upon
the occurrence of any of the following events:
(a) If the Emmanuelle Khanh License Agreement is terminated
without the fault of Richard W. Hammel, Sr. and/or Patricia Lynch; or
(b) If Purchaser, Guarantor, or Ellen Tracy, Inc., is unable to
perform an obligation under this Agreement due to an event of Force Majeure
existing for a period in excess of thirty (30) days or periods that
cummulatively exceed thirty (30) days.
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<PAGE> 4
6. Covenants of Purchaser.
6.1 Support. Purchaser will maintain operating funds at levels
that permit the operation of the Business in the normal course, and Purchaser
will provide budgetary support reasonably required to meet the Goals, including
without limitation adequate personnel, facilities and equipment.
6.2 Comply with Licenses. Purchaser will comply with the terms of
the Ellen Tracy License Agreement and the Emmanuelle Khanh License Agreement and
such other material agreements reasonably required to achieve the Goals.
7. Guaranty. Guarantor hereby unconditionally guarantees as a primary
obligation the full satisfaction of all obligations of Purchaser hereunder,
including, without limitation, the prompt and timely payment of any and all
amounts and any and all losses, costs, damages, claims and expenses which, by
virtue of this Agreement may become recoverable by Seller.
8. Amendment and Modification. This Agreement may be amended, modified
and supplemented or any provision waived only by written agreement, executed by
Seller and Purchaser.
9. Governing Law. This Agreement shall be governed by the internal laws
of the Commonwealth of Massachusetts as to all matters, including but not
limited to matters of validity, construction, effect and performance.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Contingent Price
Agreement as of the date first written above.
GARGOYLES ACQUISITION CORPORATION II,
a Washington corporation
/s/ STEVEN R. KINGMA
By______________________________________
Steven R. Kingma, VP and CFO
GARGOYLES, INC.,
a Washington corporation
/s/ STEVEN R. KINGMA
By______________________________________
Steven R. Kingma, VP and CFO
Page 4
<PAGE> 5
THE PRIVATE EYES SUNGLASS CORPORATION,
a Massachusetts corporation
/s/ RICHARD W. HAMMEL, SR.
By______________________________________
Richard W. Hammel, Sr., President
Page 5
<PAGE> 1
EXHIBIT 10.42
LICENSE AGREEMENT
-----------------
AGREEMENT dated as of May 14, 1997 by and between ELLEN TRACY INC.
("Ellen Tracy"), a New Jersey corporation, with its principal offices located at
575 Seventh Avenue, New York, New York 10018, and GARGOYLES ACQUISITION
CORPORATION II (""Licensee"), a Washington corporation and a wholly-owned
subsidiary of Gargoyles, Inc., with its principal offices located at 5866 South
194th Street, Kent, Washington 98032, through its Private Eyes Sunglass
Division.
W I T N E S S E T H:
--------------------
WHEREAS, Ellen Tracy is the owner of the Licensed Properties (as defined
in Section 1(c) hereof) and the goodwill associated therewith; and
WHEREAS, Ellen Tracy is a party to a License Agreement (the "Private Eyes
License Agreement") dated as of January 1, 1995 with The Private Eyes Sunglass
Corporation ("Private Eyes") pursuant to which Ellen Tracy granted to Private
Eyes an exclusive license to use or reproduce certain of the Licensed
Properties on certain of the Licensed Articles (as hereinafter defined) in
connection with the manufacture, sale and distribution of such Licensed
Articles; and
WHEREAS, Licensee intends to purchase the business of Private Eyes; and
WHEREAS, Ellen Tracy and Private Eyes have agreed to terminate the
Private Eyes License Agreement on the Effective Date (as hereinafter defined);
and
<PAGE> 2
WHEREAS, Ellen Tracy desires to grant to Licensee a license, effective on
the Effective Date, to use the Licensed Properties on the Licensed Articles and
Licensee desires to be granted such a license.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements hereinafter set forth, and of other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
1. Definitions. As used in this Agreement:
(a) "Advertising Materials" means all advertising and promotional
materials and all packaging, wrapping and labeling materials and display
fixtures for the Licensed Articles (including without limitation, catalogues,
trade advertisements, flyers, sales sheets, labels, package inserts, hangtags
and displays) which are produced by or for the License and which make use of
any of the Licensed Properties.
(b) "Effective Date" shall have the meaning set forth in Section
2(c) hereof.
(c) "Licensed Properties" means the names, logos, trademarks and
other intellectual properties set forth on Schedule A, attached hereto.
(d) "Licensed Articles" means the goods or products set forth on
Schedule B, attached hereto, whether produced by License or any contract
manufacturer pursuant to Section 15 hereof for Licensee, and which bear the
Licensed Properties.
(e) "Licensed Territory" means the world except Japan, Singapore,
Taiwan, China, Hong Kong and Thailand.
(f) "Net Sales Price" means the amount invoiced by Licensee to
its retail customers or distributors for Licensed Articles less authorized
returns actually received (up to 10%) and customary trade and/or industry
discounts. In computing Net Sales Price, no costs incurred in manufacturing,
selling, advertising or distributing the Licensed Articles shall be deducted,
nor shall
-2-
<PAGE> 3
any deduction be made for uncollectible accounts. If a sale, transfer or other
disposition is made otherwise than at arm's length, including, without
limitation, a sale by Licensee to an affiliate of Licensee, the Net Sales Price
of such Licensed Articles shall be deemed to be the Net Sales Price of like
quantities of like products sold at arm's length.
(g) "Retail" means better department stores, optical specialty
shops, and retailers of eyewear and/or sunglasses within the Licensed Territory
and within Licensee's industry including, without limitation, those listed on
Schedule C, attached hereto. Such list may be amended from time to time with
the mutual written approval of Ellen Tracy and Licensee.
(h) "Term" shall have the meaning set forth in Section 3(b)
hereof.
(i) "Premiums" means any article used for the purpose of
increasing the sale, promoting or publicizing any other product, or any
service, including, without limitation, incentives for sales forces and for
fund raising, give-aways and entries in sweepstakes.
2. Grant of License.
(a) Grant. Subject to the terms, conditions and limitations set
forth in this Agreement, Ellen Tracy hereby grants to Licensee, effective as of
the Effective Date, the right, license and privilege, during the Term hereof,
to use or reproduce the Licensed Properties solely on the Licensed Articles or
in connection with the manufacture, sale and distribution of the Licensed
Articles through Retail channels of distribution throughout the Licensed
Territory (the "License"). The License shall include the right to use the
Licensed Properties to advertise, market and promote the Licensed Articles.
Licensee hereby covenants and agrees to use its best efforts to manufacture,
distribute, sell, advertise and promote, in accordance with Section 5 hereof,
the Licensed Articles in the Territory during the Term.
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<PAGE> 4
(b) Exclusivity. The License granted herein shall be exclusive in
the Licensed Territory.
(c) Effective Date. This Agreement, including the License granted
in Section 2(a) above, shall become effective on the date that the purchase by
Licensee of the business of Private Eyes is consummated (the "Effective Date").
(d) Limitations. Licensee shall not sell the Licensed Articles
outside the Licensed Territory, or sell to those third parties Licensee knows
or has reason to know will sell the Licensed Articles outside the Licensed
Territory. The License does not include the right to export any Licensed
Articles from the Licensed Territory. The Licensed Articles shall not be used
as Premiums, in combination sales, as give-aways, as charitable contributions
or disposed of under similar methods of merchandising or other transfer without
the prior written consent of Ellen Tracy.
3. Term.
(a) Contract Term. The term (the "Contract Term") of this
Agreement shall commence on the Effective Date and shall expire on December 31,
2002, unless sooner terminated in accordance with the terms hereof. Each
12-month period commencing on January 1 during the Term (as hereinafter
defined) shall be referred to as an "Annual Period" except that the first
Annual Period hereunder shall commence on the Effective Date and shall end on
December 31, 1997.
(b) Renewal. Upon the expiration of the Contract Term, this
Agreement shall automatically renew for an additional five (5) years the (the
"First Renewal Period"), provided that (i) Licensee is not in breach of any of
the terms hereof upon the expiration of the Contract Term, (ii) Licensee has
achieved the Projected Annual Sales (as hereinafter defined) and expended the
Annual Advertising Amount (as hereinafter defined) for the Annual Period
commencing January 1, 2002 and (iii) Ellen Tracy and Licensee shall have agreed
to the Projected Annual Sales, Guaranteed Minimum
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<PAGE> 5
Royalties (as hereinafter defined), the rate of Actual Royalties (as
hereinafter defined), and the Annual Advertising Amount for each Annual Period
during the First Renewal Period. Upon the expiration of the First Renewal
Period, this Agreement shall automatically renew for an additional five (5)
years (the "Second Renewal Period"), provided that (i) Licensee is not in
breach of any of the terms hereof upon the expiration of the First Renewal
Period, (ii) Licensee has achieved the Projected Annual Sales (as hereinafter
defined) and expended the Annual Advertising Amount (as hereinafter defined)
for the Annual Period commencing January 1, 2007 and (iii) Ellen Tracy and
Licensee shall have agreed to the Projected Annual Sales, Guaranteed Minimum
Royalties (as hereinafter defined), the rate of Actual Royalties (as
hereinafter defined), and the Annual Advertising Amount for each Annual Period
during the Second Renewal Period. The Contract Term, the First Renewal Period
and the Second Renewal Period are collectively referred to herein as the "Term."
4. Royalties. In consideration for the License granted to Licensee
hereunder, Licensee agrees to pay the following during the Contract Term:
(a) Guaranteed Minimum Royalties. Licensee shall pay to Ellen Tracy
the following amounts (the "Guaranteed Minimum Royalties") for each Annual
Period hereunder which are based on the projected annual sales of Licensed
Articles (excluding Close-Outs (as hereinafter defined)) ("Projected Annual
Sales") for the respective Annual Periods:
<TABLE>
<CAPTION>
PROJECTED
FOR ANNUAL PERIOD COMMENCING AMOUNT ANNUAL SALES
- ---------------------------- ------ ------------
<S> <C> <C>
Effective Date $* $[***]**
January 1, 1998 $[***] $[***]
January 1, 1999 $[***] $[***]
January 1, 2000 $[***] $[***]
January 1, 2001 $[***] $[***]
January 1, 2002 $[***] $[***]
</TABLE>
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<PAGE> 6
*The Guaranteed Minimum Royalties for the Annual Period commencing on the
Effective Date shall equal $[***] minus the amount paid by Private Eyes as
Guaranteed Minimum Royalties under Section 4(a) of the Private Eyes License
Agreement during the period between January 1, 1997 and the Effective Date.
**The Projected Annual Sales for the Annual Period commencing on the Effective
Date includes the sales made by Private Eyes under the Private Eyes License
Agreement during the period between January 1, 1997 and the Effective Date.
The Guaranteed Minimum Royalties for each Annual Period shall be paid in equal
quarterly installments in accordance with the provisions of Section 4(c)
hereof. The Guaranteed Minimum Royalties shall be considered to be advances
against and not in addition to the royalties otherwise payable under Section
4(b) hereof during the same Annual Period but in no event shall the Guaranteed
Minimum Royalties be repayable or refundable to Licensee or carried forward to
the succeeding Annual Period.
(b) Actual Royalties. Licensee shall pay to Ellen Tracy, at the times
and in the manner set forth in Section 4(c) hereof, a royalty equal to [***]
percent ([*]%) of the aggregate Net Sales Price of the Licensed Articles sold
during the Term during the period between the Effective Date and December 31,
1997 and seven percent ([*]%) for the remainder of the Contract Term ("Actual
Royalties"). All Actual Royalties due to Ellen Tracy shall accrue upon the sale
of the Licensed Articles, regardless of the time of collection by the Licensee.
For purposes of this Agreement, a Licensed Article shall be considered "sold"
as of the date on which such Licensed Article is billed, invoiced, shipped or
paid for, whichever event occurs first.
(c) Statements and Payments. Within thirty (30) days after the close of
the calendar quarter in which the initial shipment of any Licensed Articles is
made, and thereafter within thirty (30) days after the close of each successive
calendar quarter during the Term hereof, Licensee shall furnish to Ellen Tracy
complete and accurate statements (the "Quarterly Statements") certified
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<PAGE> 7
by the President or Chief Financial Officer of Licensee showing in a format
provided by or acceptable to Ellen Tracy the number, style description and Net
Sales Price of each Licensed Article sold by Licensee during the preceding
calendar quarter, together with the list of customer accounts to which such
Licensed Articles were sold, the quantity and invoice value of any returns and
allowances made during the preceding quarter and the calculation of the Actual
Royalties thereon due to Ellen Tracy. The Quarterly Statements also shall
include the amount expended, and the manner in which such amount was expended,
on advertising during the preceding quarter as required by Section 5(a) hereof.
The Quarterly Statements shall be furnished to Ellen Tracy whether or not any
Licensed Articles have been sold and whether or not Actual Royalties are due
and payable for the preceding calendar quarter. Payment of the greater of (i)
the quarterly installment of the Guaranteed Minimum Royalties or (ii) the
amount shown on the Quarterly Statements due as Actual Royalties shall
accompany the Quarterly Statements; provided, however, that if, in a given
quarter, the Actual Royalties exceed the Guaranteed Minimum Royalties and such
Actual Royalties are paid for such quarter (the amount of such excess
hereinafter the "Overage") then, in those succeeding quarters in which the
Guaranteed Minimum Royalties exceed the Actual Royalties, the Overage
theretofore paid shall be credited against the Guaranteed Minimum Royalties due
for such quarters in an amount equal to the amount by which the Guaranteed
Minimum Royalties exceed the Actual Royalties until the Overage is fully
credited. All payments shall be made in U.S. dollars. Licensee hereby waives
all claims to the refund of any Guaranteed Minimum Royalty or Actual Royalty
payments once made, other than claims for refunds of payments for returns of
Licensed Articles in subsequent reporting periods for which an adjustment shall
be made in the subsequent reporting periods.
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<PAGE> 8
(d) No Waiver. The receipt or acceptance by Ellen Tracy of any of
the Quarterly Statements or of any Actual Royalties or Guaranteed Minimum
Royalties paid hereunder (or the cashing of any checks evidencing such
payments) shall not preclude Ellen Tracy from questioning the correctness
thereof at any time, and in the event any inconsistencies, mistakes or errors
are discovered in the Quarterly Statements or payments, such mistakes shall be
immediately rectified and the appropriate payment made by Licensee.
(e) Time of Essence; Interest. Time is of the essence with respect
to the furnishing of all statements and the making of all payments due
hereunder. All amounts payable by Licensee to Ellen Tracy paid more than 30
days after the due date thereof shall bear interest equal to the lower of (i)
the maximum rate allowed by law or (ii) 1-1/2% per month, computed from the
original due date until paid.
5. Amounts Expended for Advertising and Promotion.
(a) Annual Advertising Amount. Licensee shall expend during each
Annual Period during the Term the amounts set forth below for the purposes of
advertising the Licensed Articles in various advertising media and for
promoting and publicizing the Licensed Articles (hereinafter, the "Annual
Advertising Amount"):
<TABLE>
<CAPTION>
FOR ANNUAL PERIOD COMMENCING AMOUNT
- ---------------------------- ------
<S> <C>
Effective Date $ *
January 1, 1998 $[***]
January 1, 1999 $[***]
January 1, 2000 $[***]
January 1, 2001 $[***]
January 1, 2002 $[***]
</TABLE>
-8-
<PAGE> 9
*The Annual Advertising Amount for the Annual Period commencing on the
Effective Date shall equal [$******] minus the amount expended by Private Eyes
under Section 5(a) of the Private Eyes License Agreement for the period between
January 1, 1997 and the Effective Date.
At least 50% of the Annual Advertising Amount shall be spent by Licensee on
national advertising. Advertisements in national catalogues (other than
advertisements included in Sunglass Hut catalogues) shall not be deemed to be
national advertising and any amounts expended for advertising in such
catalogues shall not be included in the National Advertising Amount. Licensee
shall utilize Ellen Tracy's advertising agency, Ziccardi & Partners (the
"Advertising Agency"), for all national advertising. All such national
advertising shall be approved in advanced by Ellen Tracy. If Licensee fails to
spend at least 50% of the Annual Advertising Amount on national advertising,
within 30 days following the end of the Annual Period Licensee shall pay
directly to Ellen Tracy such unspent portion and Ellen Tracy shall expend such
amount on national advertising.
(b) Budgets. Not later than 30 days prior to the end of each
calendar six-month period during the Term hereof, Licensee shall send Ellen
Tracy the advertising budget and plan for the succeeding six-month period;
provided, however, that Licensee shall submit to Ellen Tracy the advertising
budget and plan for the first six-month period of the first Annual Period as
soon as practicable following execution hereof. Such advertising budget must be
approved in writing by Ellen Tracy within 20 days prior to the commencement of
the succeeding six-month period.
(c) Cooperative Advertising. The portion of any cooperative
advertising paid by stores or expenses for packaging shall not be deemed to be
amounts expended on advertising by Licensee for purposes of this Agreement.
(d) Use of Licensed Properties. The Licensed Properties alone shall
be used in advertising and promotion. No other trademark or trade name,
including Licensee's own trademark
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<PAGE> 10
or trade name, may be associated with the Licensed Properties; provided,
however, that Licensee may use its name in trade advertising with the prior
written approval of Ellen Tracy, which shall not be unreasonably withheld.
(e) Failure to Expend Annual Advertising Amount. If Licensee shall
for any two consecutive Annual Periods during the Term hereof fail to spend the
Annual Advertising Amount for such two Annual Periods, then Licensee shall
remit to Ellen Tracy, within 60 days after the end of such second Annual
Period, the difference between the actual dollars spent for advertising during
such two Annual Periods and the aggregate Annual Advertising Amounts for such
two Annual Periods. Ellen Tracy shall expend such amounts on advertising of the
Licensed Articles.
(f) Documentation. During the Term hereof, Licensee shall provide
Ellen Tracy with any documentation and records satisfactory to Ellen Tracy,
including paid invoices, receipts of payment and tear sheets or photocopies,
which demonstrate that Licensee has expended the sums set forth in this Section
5 on advertising as and in the manner required by this Section 5. Such
documentation shall be provided to Ellen Tracy quarterly together with the
Quarterly Statements.
(g) Quality of Advertising. Licensee shall use its best efforts to
ensure that all advertising produced by Licensee or Licensee's designees
hereunder shall be of the highest caliber.
(h) Audit. Licensee's expenditures for advertising and promotion
shall be subject to audit by Ellen Tracy in accordance with Section 7 hereof.
6. Showroom: Sales Offices; Monitoring.
(a) Showroom. Licensee shall maintain a showroom in New York City in
which Licensee shall display and market the Licensed Articles in a separate,
segregated area. In such separate, segregated area, only Licensed Articles
shall be displayed. Licensee shall ensure that the showroom is adequately
staffed.
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<PAGE> 11
(b) Sales Offices. Licensee shall ensure that any sales
offices through which Licensed Articles are distributed and sold are adequately
staffed.
(c) Monitoring. From time to time senior personnel of
Licensee shall, as reasonably required, visit Retail locations where the
Licensed Articles are sold to ensure that the Licensed Articles are being
displayed and merchandised in accordance with the highest standards.
7. Books and Records: Audit. Licensee shall keep accurate books of
account and records at its principal place of business covering all
transactions relating to the License granted hereunder. Ellen Tracy and Ellen
Tracy's duly authorized representatives shall have the right during regular
business hours upon five business days' notice to examine said books of account
and records and all other documents and material in the possession or under
control of Licensee with respect to the subject matter and terms of this
Agreement, and shall have free and full access thereto to make copies and
extracts thereof. In order to facilitate inspection by Ellen Tracy or Ellen
Tracy's representatives, Licensee shall maintain books and records concerning
the Licensed Articles separately from the books and records of goods which are
not licensed hereunder. Within 30 days of a demand by Ellen Tracy, Licensee, at
Ellen Tracy's expense (except as provided below), shall furnish to Ellen Tracy
a detailed statement by an independent certified accountant showing pricing
information and the number and description of the Licensed Articles shipped
and/or sold by Licensee up to the date of Ellen Tracy's demand. If any audit
discloses that Licensee owes Actual Royalties to Ellen Tracy in excess of 2% of
those previously paid, Licensee shall pay, in addition to such deficiency, the
cost of such examination and collection. If any audit discloses that Licensee
owes Actual Royalties to Ellen Tracy in an amount in excess of 5% of the Actual
Royalties previously paid, then, in addition to any and all other remedies that
Ellen Tracy may have hereunder, Ellen Tracy shall have the right to terminate
this Agreement upon written notice to Licensee. All books
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of account and records shall be kept available for at least three years after
the expiration of the Term or earlier termination of this Agreement. At least
90 days prior to the destruction of any such books of account or records,
Licensee shall provide Ellen Tracy with a "Notice of Intent to Destroy" and
upon the request of Ellen Tracy, all such books or records shall be delivered
to Ellen Tracy. All information obtained by Ellen Tracy and its representatives
pursuant to this Section 7 shall be kept confidential except as may be
necessary to enforce Ellen Tracy's rights pursuant to this Agreement.
8. Quality Control/Approval Process.
(a) Number of Lines. Ellen Tracy and Licensee agree that one line of
sunglasses shall be developed, manufactured and sold per Annual Period. Such
line shall be available for line release in July or August of each Annual
Period, it being acknowledged that Licensee may add certain items to the line
through November of each such Annual Period. Two optical lines shall be
developed, manufactured and sold during each Annual Period. Such lines shall be
available for line release from March to April and from September to November,
respectively, during each Annual Period.
(b) General. Licensee shall comply with all reasonable procedures
consistent herewith which Ellen Tracy may from time to time adopt and give to
Licensee in writing regarding Ellen Tracy's approval of Licensed Articles and
Advertising Materials which Licensee proposes to manufacture, sell, or use under
this Agreement.
(c) Research and Development. Licensee covenants and agrees that it
will research and develop new designs (shapes) and materials representative of
the eyewear industry and suitable for the marketing direction of the Licensed
Articles and that it will research new sources
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for production of the Licensed Articles so as to assure that during the Term
hereof the Licensed Articles shall maintain a standard of high fashion.
(d) Preliminary Activities. Licensee shall designate at least one
individual employed by Licensee (the "Designer") who shall have principal
responsibility for the design of each line of the Licensed Articles for each
season. The Designer shall devote a substantial portion of his or her working
hours to the design of the Licensed Articles. Ellen Tracy shall have the right,
once each Annual Period for the sunglass line, and twice each Annual Period for
the optical line, to call a meeting (each, a "Design Meeting") with Licensee to
commence the design of each line. At such meeting, the Designer shall consult
with Ellen Tracy as to proposed concepts, styles, colors, and attitude of such
line, discuss future trends in the eyewear industry, the competitive market
direction of the eyewear industry, and other issues deemed relevant by Ellen
Tracy. At such meeting, the Designer shall advise Ellen Tracy of all of the
latest developments in design and materials in the eyewear industry and shall
submit prototypes of proposed designs (shapes) and discuss color direction. In
order to present a representative seasonal collection, Licensee shall submit to
Ellen Tracy a sufficient number of designs for each category of Licensed
Articles set forth on Schedule B and Licensee shall manufacture sufficient
quantities of Licensed Articles from each such category so that each seasonal
collection is well-balanced.
(e) Approval of Licensed Articles. At each Design Meeting, Ellen
Tracy will, from the prototypes presented, indicate its selection and approval
for each of the designs (shapes) that Licensee will produce for the next
season. Licensee will note priorities for any designs (shapes) -- i.e., selected
designs, requested revisions to designs, and rejected designs. Following such
meeting, Licensee will reconfirm or alter for production purposes any
prototypes to comply with
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Ellen Tracy's approval requests. If any designs cannot be altered or produced
according to Ellen Tracy's specifications, Licensee shall inform Ellen Tracy.
Immediately thereafter, Licensee will authorize the start of
tooling, secure production space, and order raw materials needed to manufacture
each prototype into samples and production. Once the tooling process and raw
material ordering has begun, Ellen Tracy acknowledges that it cannot request
any changes to the designs it has selected. Licensee will then make all other
arrangements to attempt to insure that the production of each of the Licensed
Articles proceeds in a timely manner. Within 30 days following such meeting,
Licensee shall submit to Ellen Tracy photographs and/or sketches of prototypes
which shall be updated after the Licensed Articles have received final
approval. The parties acknowledge that thereafter further meetings between them
may be necessary from time to time to resolve any manufacturing complications
or other design related problems that may arise. At least five business days
prior to the line release date, Licensee shall submit to Ellen Tracy for final
review and approval one sample of each Licensed Article showing the exact form,
finish, quality and color of such Licensed Article.
Licensee shall comply with all of the foregoing approval steps for
each Licensed Article, unless by prior written notice from Ellen Tracy it is
exempted from any such step with respect to a specific Licensed Article.
(f) Approval of Advertising Materials. With respect to each
different item of Advertising Material which Licensee (or any party acting on
its behalf) proposes to produce and use under this Agreement, Licensee shall
submit to Ellen Tracy and/or the Advertising Agency for review and approval the
following materials, in the order stated:
(i) proposed written copy for the item of Advertising
Material, with attached rough art showing how the Licensed Properties will be
used in connection with the copy;
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(ii) final copy for the item, with finished "lift" art,
showing the use of the Licensed Properties;
(iii) finished "mechanicals" for the item; and
(iv) a final printed sample of the item, where feasible
(as, for example, in the case of labels, hangtags, printed brochures,
catalogues, and the like).
Licensee shall be required to comply with all of the foregoing
approval steps for each item of Advertising Material, obtaining written
approval within 10 business days after receipt from Ellen Tracy and/or the
Advertising Agency at each step of the procedure, unless by prior written
notice from Ellen Tracy and/or the Advertising Agency it is exempted from any
such step with respect to a specific item of Advertising Material. With respect
to those kinds of Advertising Materials (such as print media advertisements,
catalogues, promotional flyers, and the like) which Licensee proposes to use for
the purpose of advertising and promoting the Licensed Articles to the general
public, Licensee, when submitting such Advertising Materials to Ellen Tracy
and/or the Advertising Agency for approval, shall describe the proposed uses of
the Advertising Agency (including the media to be used in exploiting the same)
and the duration of such proposed uses. In such cases, approval of the
Advertising Materials by Ellen Tracy and/or the Advertising Agency shall extend
only to those proposed uses, durations of use, etc., described in Licensee's
submissions. Licensee will submit further uses and durations of use as in the
above provided manner.
(g) Approval Standards. Ellen Tracy shall have the right to
disapprove any materials under Sections 8(d), 8(e) and 8(f) and request changes
thereto if it determines, in its sole discretion, that the materials in
question would impair the value and goodwill associated with the Licensed
Properties and/or Ellen Tracy's licensing program.
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(h) Time for Approval. Ellen Tracy agrees to use reasonable
efforts to notify Licensee in writing of approval or disapproval by Ellen Tracy
of any materials submitted to Ellen Tracy under Sections 8(d), 8(e) and 8(f)
within 10 business days after Ellen Tracy's receipt of such materials.
9. Warranty of Quality; Maintenance of Quality of Licensed Articles
(a) Warranty of Quality. License warrants that the Licensed
Articles will be of good quality in design, material and workmanship and will be
suitable or their intended purpose; that no injurious, deleterious or toxic
substances will be used in or on the Licensed Articles; that the Licensed
Articles will not cause harm when used as instructed and with ordinary care for
their intended purpose; and that the Licensed Articles will be manufactured,
sold and distributed in strict compliance with all applicable laws and
regulations.
(b) Maintenance of Quality. Licensee agrees to maintain the
quality of Licensed Articles manufactured under this Agreement up to the
specifications, quality and finish of the production sample of such Licensed
Article approved by Ellen Tracy under Sections 8(c), 8(d) and 8(e), and agrees
not to change the Licensed Article in any respect or to make any change in the
artwork for the Licensed Article without first submitting to Ellen Tracy samples
showing such proposed changes and obtaining written approval of such samples
from Ellen Tracy. From time to time after it has commenced manufacturing the
Licensed Articles, Licensee, upon request from Ellen Tracy, shall furnish free
of charge to Ellen Tracy a reasonable number of random production samples of any
Licensed Article specified by Ellen Tracy in its request.
10. Prohibition Against Manufacture Sale or Use of Unapproved Licensed
Articles or Advertising Materials. Licensee shall not have the right to
manufacture, offer for sale, distribute, sell or use any Licensed Article or
item of Advertising Material unless it has complied with all of the
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approval procedures and requirements set forth in Section 8 with respect to
such Licensed Article or item of Advertising Material, and has obtained prior
written approval of such Licensed Article or item of Advertising Material by
Ellen Tracy.
11. Close-outs.
(a) Definitions.
(i) "Samples" are Licensed Articles which are trial
productions which are never part of the line.
(ii) "Close-Outs" are Licensed Articles sold which are part
of a collection or line which Licensee is unable to market through Retail
channels of distribution and which are sold at reduced prices.
(b) GENERAL. Licensee may sell Close-Outs of Licensed Articles
pursuant to the terms set forth in this Section 11(b). Upon the execution
hereof, Licensee shall submit to Ellen Tracy a list of stores through which
Licensee is selling Close-Outs, and Licensee shall update such list every six
months. Ellen Tracy shall have the right to approve such stores, which approval
shall not be unreasonably withheld. Records as to sales of Close-Outs shall be
provided by Licensee to Ellen Tracy in accordance with Section 7 hereof.
Licensee hereby covenants and agrees to use its best efforts to comply with all
federal, state and local laws, rules and regulations relating to sales made on a
consignment basis.
(c) Royalties; Records. During each Annual Period hereunder, for
sales (including consignment) of Close-Outs up to fifteen percent (15%) of the
aggregate net sales of Licensed Articles during such Annual Period, Licensee
shall pay to Ellen Tracy Actual Royalties on such Close-Outs at the rate of
fifty percent (50%) of the otherwise applicable royalty rate. For all sales of
Close-Outs in excess of fifteen percent (15%) of the aggregate net sales of
Licensed Articles
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during such Annual Period, Licensee shall pay to Ellen Tracy Actual Royalties
at the rate set forth in Section 4(b) hereof. Royalties due on Close-Outs shall
be paid at the same time and in the same manner as set forth in Section 4(c)
hereof.
12. Licensed Properties Rights and Obligations.
(a) General. All uses of the Licensed Properties hereunder shall
inure to Ellen Tracy's benefit. Licensee acknowledges that Ellen Tracy is the
exclusive owner of all the Licensed Properties and of any trademark
incorporating all or any part of any Licensed Property and the trademark rights
created by such uses. All ideas, designs and suggestions submitted or approved
by Ellen Tracy and incorporated in a collection of Licensed Articles shall be
deemed to be and shall remain the sole and exclusive property of Ellen Tracy,
except to the extent, if any, that the same are in the public domain, and
Licensee hereby agrees not to use or incorporate for use any such ideas and
designs in products manufactured or sold by Licensee, directly or indirectly,
other than the Licensed Articles, nor to sell to any third party or disclose
the same except through the promotion and sale of Licensed Articles hereunder;
provided, however, that Licensee shall be free to manufacture or have
manufactured, and to market and distribute, products similar to the Licensed
Articles in accordance with Section 21 hereof. Without limiting the foregoing,
Licensee hereby assigns to Ellen Tracy any trademark incorporating all or any
part of any Licensed Property and the trademark rights created by such uses
together with the goodwill attaching to that part of the business in connection
with which such Licensed Properties or trademarks are used. Licensee agrees to
execute and deliver to Ellen Tracy such documents as are required to register
Licensee as a registered user or permitted user of the Licensed Properties or
such trademarks and to follow Ellen Tracy's instructions for proper use thereof
in order that protection and/or registrations for the Licensed Properties and
such trademarks may be obtained or maintained.
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(b) Prohibitions. Licensee agrees not to use any Licensed Properties
or any trademark incorporating all or any part of any Licensed Properties on
any business sign, business cards, stationery or forms (except as licensed
herein) or to use any Licensed Properties, as the name of Licensee's business
or any division thereof, unless otherwise agreed by Ellen Tracy in writing.
13. Registrations. Except with the written consent of Ellen Tracy,
neither Licensee, its parent or any subsidiary of Licensee shall register or
attempt in any country to register copyrights in, or to register as a
trademark, service mark, design patent or industrial design or business
designation, any of the Licensed Properties or derivations or adaptations
thereof, or any word, symbol or design which is so similar thereto as to
suggest association with or sponsorship by Ellen Tracy or any subsidiary of
Ellen Tracy. In the event of breach of the foregoing, Licensee agrees, at
Licensee's expense and Ellen Tracy's request, immediately to terminate the
unauthorized registration activity and promptly to execute and deliver, or
cause to be delivered, to Ellen Tracy such assignments and other documents as
Ellen Tracy may require to transfer to Ellen Tracy all rights to the
registrations, patents or applications involved.
14. Unauthorized Use of Licensed Materials.
(a) No Unauthorized Use. Licensee shall not use the Licensed
Properties or any other material the copyright to which is owned by Ellen Tracy
in any way other than as herein authorized (or as is authorized in such other
written contract signed by Ellen Tracy and Licensee as may be in effect between
such parties). In addition to any other remedy Ellen Tracy may have, Licensee
agrees that the profits from any use thereof on products other than the
Licensed Articles (unless authorized by Ellen Tracy in writing), and all
profits from the use of any other copyrighted material of Ellen Tracy without
written authorization, shall be payable to Ellen Tracy.
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(b) Notice of Unauthorized Use. Licensee shall give to Ellen Tracy prompt
written notice of any unauthorized use by third parties of Licensed Properties
and Licensee shall not, without written consent, bring or cause to be brought
any criminal prosecution, lawsuit or administrative action for infringement,
interference with or violation of any rights to Licensed Properties. Licensee
agrees to cooperate with Ellen Tracy at no expense to Licensee, and, if
necessary, to be named by Ellen Tracy as a sole complainant or co-complainant in
any action against an infringer of the Licensed Properties and Licensee agrees
to pay to Ellen Tracy all or any part of damages or other monetary relief
recovered in such action other than for reasonable expenses incurred at Ellen
Tracy's request.
15. Manufacturing Code of Conduct; Sublicensing; Third Party
Manufacturers.
(a) Manufacturing Code of Conduct. Licensee hereby agrees to
comply with the Ellen Tracy Manufacturing Code of Conduct attached hereto as
Exhibit A and made a part hereof.
(b) Sublicensing. Licensee shall not have the right to sublicense
any of the rights granted to it under this Agreement except with Ellen Tracy's
prior written consent.
(c) Agreements with Third-Party Manufacturers. If Licensee at any
time desires to have Licensed Articles or components thereof manufactured by a
third party, Licensee shall, as a condition to the continuation of this
Agreement, notify Ellen Tracy of the name and address of such manufacturer and
Licensee shall ensure that any such third-party manufacturer complies with the
Ellen tracy Manufacturing Code of Conduct attached hereto as Exhibit A.
(d) Unauthorized Use by Third-Party Manufacturers. If any
third-party manufacturer utilizes Licensed Properties for any unauthorized
purpose, Licensee shall cooperate fully in bringing such utilization to an
immediate halt.
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16. Indemnification.
(a) By Licensee. License shall indemnify Ellen Tracy during and
after the Term against all claims, liabilities (including settlements entered
into in good faith with Licensee's consent, not to be unreasonably withheld)
and expenses (including reasonable attorneys' fees) arising out of Licensee's
activities hereunder or out of any defect (whether obvious or hidden and
whether or not present in any sample approved by Ellen Tracy) in any Licensed
Article or arising from personal injury or any infringement of any rights of
any other person by the manufacture, production, sale, distribution, possession
or use of Licensed Articles or their failure to comply with applicable laws,
regulations and standards. The parties indemnified hereunder shall include
Ellen Tracy, any parent company, subsidiary or affiliate of Ellen Tracy, and
their officers, directors, employees and agents. The indemnity shall not apply
to any claim or liability relating to any infringement of the copyright of a
third party caused by Licensee's utilization of the Licensed Properties in
accordance with provisions hereof.
(b) Prior Rights. No warranty or indemnity is given with respect to
any liability or expense arising from any claim that use of the Licensed
Properties or the trademarks on or in connection with the Licensed Articles
hereunder or any packaging, advertising or promotional material infringes on any
trademark right of any third party or otherwise constitutes unfair competition
by reason of any prior rights acquired by such third party other than rights
acquired from Ellen Tracy. It is expressly agreed that it is Licensee's
responsibility or carry out such investigations as Licensee may deem appropriate
to establish that the Licensed Articles, packaging, promotional and advertising
material which are manufactured or created hereunder, including any use made of
the Licensed Properties therewith, do not infringe such right of any third
party, and Ellen Tracy shall not be liable to Licensee if such infringement
occurs.
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17. Insurance. Licensee shall maintain in full force and effect at
all times while this Agreement is in effect and for three years thereafter
comprehensive general and commercial liability insurance, including broad form
contractual and products liability coverage waiving subrogation, with combined
single limits of no less than $3,000,000.00, with a deductible of no more than
$25,000 and naming as additional insured those indemnified in Section 16(a)
hereof. Licensee shall deliver to Ellen Tracy a certificate or certificates of
insurance evidencing satisfactory coverage and indicating that Ellen Tracy
shall receive written notice of cancellation, non-renewal or of any material
change in coverage at least thirty (30) days prior to the effective date
hereof. Licensee's insurance shall be carried by an insurer with a BEST rating
of B + V. Compliance herewith in no way limits Licensee's indemnity
obligations, except to the extent that Licensee's insurance company actually
pays Ellen Tracy amounts which Licensee would otherwise pay Ellen Tracy.
Licensee shall take all necessary steps to ensure that the insurer has no right
of subrogation against the Ellen Tracy.
18. Withdrawal of Licensed Material. Licensee agrees that Ellen
Tracy may, without obligation to Licensee other than to give Licensee written
notice thereof, withdraw from the scope of this Agreement any Licensed
Properties which within six months from the commencement of the Term of this
Agreement, is not being used on or in connection with Licensed Articles. Ellen
Tracy may also withdraw any Licensed Properties or Licensed Articles the use or
sale of which under this Agreement would infringe or reasonably be claimed to
infringe the rights, other than rights granted by Ellen Tracy, of a third
party, in which case Ellen Tracy's obligations to Licensee shall be limited to
the purchase at cost of Licensed Articles and other materials utilizing such
withdrawn Licensed Properties which cannot be sold or used.
19. Termination. Without prejudice to any other right or remedy
available to Ellen Tracy:
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(a) Default; Breach. If Licensee fails to manufacture, sell and
distribute the Licensed Articles or to furnish statements and pay Actual
Royalties and Guaranteed Minimum Royalties as herein provided, or if Licensee
breaches the terms of this Agreement, including, without limitation, the terms
of Section 5 and Section 11 hereof, and if any such failure is not corrected
within 30 days after Ellen Tracy sends Licensee written notice setting forth
the nature of the failure and/or breach, Ellen Tracy shall have the right at
any time to terminate this Agreement by giving Licensee a written notice of
termination.
(b) Immediate Termination. Ellen Tracy shall have the right at any
time to terminate this Agreement forthwith by giving Licensee written notice
thereof if:
(i) Licensee delivers to any customer without Ellen Tracy's
written authorization merchandise containing representations of Licensed
Properties or other material the copyright or other proprietary rights to which
are owned by Ellen Tracy other than Licensed Articles listed herein and
approved in accordance with Sections 8(b), 8(c) and 8(d);
(ii) Licensee delivers Licensed Articles outside the Territory
or knowingly sells Licensed Articles to a third party for delivery outside the
Territory unless pursuant to a written distribution permission or separate
written license agreements with Ellen Tracy or any subsidiary of Ellen Tracy.
(iii) a breach occurs which is of the same nature, and which
violates the same provision of this Agreement, as a breach of which Ellen Tracy
has previously given Licensee two (2) written notices;
(iv) Licensee breaches any material term of any other license
agreement between Ellen Tracy and Licensee, and Ellen Tracy terminates such
agreement for cause;
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(v) Licensee shall make assignment for the benefit of
creditors, or files a petition in bankruptcy, or is adjudged bankrupt, or
becomes insolvent, or is placed in the hands of a receiver, or if the
equivalent of any such proceedings or acts occurs, though known by some other
name or term; or
(vi) Licensee is not permitted or is unable to operate its
business in the usual manner, or is not permitted, or is unable to provide
Ellen Tracy with assurance satisfactory to Ellen Tracy that Licensee will so
operate its business, as debtor in possession or its equivalent, or is not
permitted, or is unable to otherwise meet its obligations under this Agreement
or to provide Ellen Tracy with assurance satisfactory to Ellen Tracy that
Licensee will meet such obligations.
(c) Termination by Licensee. If Ellen Tracy makes an assignment for
the benefit of creditors or files a petition in bankruptcy or is adjudged
bankrupt or becomes insolvent or is placed in the hands of a receiver, or if
the equivalent of any such proceedings or acts occurs, though known by some
other name or term, Licensee shall have the right to terminate this Agreement
on notice to Ellen Tracy.
20. Rights and Obligations Upon Expiration or Termination.
(a) Sell-Off Period. Upon the expiration or termination of this
Agreement, all rights herein granted to Licensee shall revert to Ellen Tracy,
and Ellen Tracy shall be entitled to retain all Actual Royalties and Guaranteed
Minimum Royalties and other things of value paid or delivered to Ellen Tracy.
Licensee agrees that from the expiration or termination of this Agreement
Licensee shall neither manufacture nor have manufactured for Licensee any
Licensed Articles, that Licensee will deliver to Ellen Tracy any and all
artwork which may have been used or created by Licensee in connection with this
Agreement, that Licensee will at Ellen Tracy's option either sell to Ellen
Tracy at cost or destroy or efface any molds, plates and other items used to
reproduce
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Licensed Properties and that, subject as hereinafter provided, Licensee will
cease selling Licensed Articles. If Licensee has any unsold Licensed Articles in
inventory on the expiration or termination date, Licensee shall provide Ellen
Tracy with a full statement of the kinds and numbers of such unsold Licensed
Articles and shall thereupon, but only if such statement has been provided to
Ellen Tracy and if Licensee has fully complied with the terms of this Agreement
including the payment of all Actual Royalties and Guaranteed Minimum Royalties
due, have the right for a limited period of 120 days from such expiration or
earlier termination date to sell off and deliver such Licensed Articles or, at
the option of Ellen Tracy resell such Licensed Articles to Ellen Tracy at cost.
Licensee shall furnish Ellen Tracy with statements covering such sales and pay
Ellen Tracy Actual Royalties in respect of such sales. Except as otherwise
agreed by the parties in writing, any inventory of Licensed Articles in
Licensee's possession or control after the expiration or termination hereof and
of any sell-off period granted hereunder shall be destroyed or all Licensed
Properties removed or obliterated therefrom.
(b) Final Quarter. During the three-month period immediately
preceding the expiration of the Contract Term (if the Agreement is not
renewed) or the Renewal Period (hereinafter, the "Final Quarter"), Licensee
shall not have on hand (i) an inventory of Licensed Articles in excess of the
inventory of such Licensed Articles in its possession during the three-month
period immediately preceding the Final Quarter, or (ii) an inventory of uncut
piece goods or unfinished Licensed Articles greater than Licensee shall be able
to manufacture into finished Licensed Articles and sell in accordance with the
terms of this Agreement during the Final Quarter. The intent of this provision
is to facilitate the orderly disposition of Licensee's inventory of Licensed
Articles upon expiration of this Agreement.
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21. Other Fashion Designer; Competing Products. During the Term, Licensee
shall not enter into a license agreement with any other competing fashion
designers in the bridge market for the manufacture, sale or distribution of
articles similar to the Licensed Articles without the prior written consent of
Ellen Tracy. Licensee covenants and agrees that during the Term it shall not
enter into any licensing contract or renewal or undertaking for the manufacture
and distribution in the Territory of products that are identical to or not
noticeably distinguishable from the Licensed Articles or marketed in such
manner as to be confused with the Licensed Articles.
22. Representations, Warranties and Covenants.
(a) By Ellen Tracy. Ellen Tracy hereby represents and warrants that
it has full right, power and authority to enter into this Agreement and to
perform all of its obligations hereunder and that it is the beneficial owner of
the Licensed Properties and the trademark registrations therefor.
(b) By Licensee. Licensee hereby represents and warrants that it has
full right, power and authority to enter into this Agreement and to perform all
of its obligations hereunder. Licensee covenants and agrees to comply with all
laws, rules, regulations, ordinances and treaties relating to the manufacture,
distribution and sale of the Licensed Articles throughout the Licensed
Territory as contemplated hereby.
23. Waivers. A waiver by either party at any time of a breach of any
provision of this Agreement shall not apply to any breach of any other
provision of this Agreement or imply that a breach of the same provision at any
other time has been or will be waived or that this Agreement has been in any
way amended, nor shall any failure by either party to object to conduct of the
other be deemed to waive such party's right to claim that a repetition of such
conduct is a breach hereof.
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24. Purchase of Licensed Articles by Ellen Tracy. If Ellen Tracy wishes
to purchase Licensed Articles, Licensee agrees to sell such Licensed Articles to
Ellen Tracy or any subsidiary of Ellen Tracy at as low a price as Licensee
charges for similar quantities sold to regular customers and to pay Ellen Tracy
Actual Royalties on any such sales.
25. Non-Assignability. Licensee shall not voluntarily or by operation
of law assign, sub-license, encumber or otherwise dispose of all or any part of
its interest in this Agreement without Ellen Tracy's prior written consent which
shall not be unreasonably withheld. Any attempted assignment, sub-license,
encumbrance or other disposal without such consent shall be void and shall
constitute a material default and breach of this Agreement.
26. Relationship. This Agreement does not provide for a joint venture,
partnership, agency or employment relationship between the Ellen Tracy and
Licensee.
27. Headings. Headings of paragraphs herein are for convenience of
reference only and are without substantive significance.
28. Modifications or Extensions of this Agreement. Except as otherwise
provided herein, this Agreement can only be extended or modified by a writing
signed by both parties.
29. Notices. All notices and statements required hereunder shall be in
writing and shall be sent by hand delivery, prepaid telex, cable or telecopy,
or by registered or certified mail (postage prepaid and return receipt
requested) or by reputable overnight courier or express mail to the addresses
set forth below unless notification of a change of address is given in writing.
Notice shall be deemed effective when so personally delivered, telexed, cabled
or telecopied, or if mailed, two business days following the date the notice is
mailed (one business day in the case of express mail or overnight courier
services).
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All Quarterly Statements and Payments to:
Ellen Tracy Inc.
165 Polito Avenue
Lyndhurst, New Jersey 07071
Attention: Mr. Yoram Arieven
All other notices to Ellen Tracy to:
Ellen Tracy Inc.
575 Seventh Avenue
New York, New York 10018
Attention: Mr. Howard Rosenberger
If to Licensee, to:
Gargoyles, Inc.
5866 South 194th Street
Kent, Washington 98032
Attention: Mr. Douglas B. Hauff
30. Entire Agreement. This Agreement contains the entire agreement
between the parties concerning the subject matter hereof and supersedes any
pre-existing agreement and any oral or written communications between the
parties.
31. Choice of Law and Forum. This Agreement shall be deemed to be entered
into in New York and shall be governed and interpreted according to the laws of
the State of New York. Any legal actions pertaining to this Agreement shall be
commenced within the State of New York. The prevailing party shall be entitled
to recover reasonable attorney's fees and costs incurred therein.
32. Force Majeure. Neither party shall be responsible for failure to
perform hereunder or for any loss or damage (including indirect of
consequential damage) due to causes beyond its reasonable control, including,
without limitation, governmental requirements, inability to obtain required
export licenses, work stoppages, fire, civil disobedience, embargo, war,
riots, rebellions,
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earthquakes, strikes, floods, water and the elements, inability to secure
equipment, raw materials or transport, acts of God or similar occurrences.
IN WITNESS WHEREOF, the parties hereunto have signed this Agreement as of
the date first written above.
ELLEN TRACY INC.
By: /s/ HOWARD ROSENBERGER
----------------------------
Title: Vice President
GARGOYLES, INC.
By: /s/ DOUGLAS B. HAUFF
----------------------------
Title: President/CEO
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<PAGE> 30
SCHEDULE A
Licensed Properties
Trademark
- ---------
"Ellen Tracy"
"Linda Allard"
"Linda Allard for Ellen Tracy"
"Company Ellen Tracy"
<PAGE> 31
SCHEDULE B
Licensed Articles
- - Eyeglasses
- - Sunglasses
- - Readers
- - Optical Frames
- - Eyewear Cases, including without limitation, soft cases and hard cases
- - Eyewear Accessories, including without limitation, eyewear cords and chains
<PAGE> 32
SCHEDULE C
List of Retail Stores
Retail Stores
- -------------
Saks
Nieman Marcus
Nordstrom
Dillards
Lord & Taylor
Bloomingdales
Macy's-East
Macy's-West
Dayton Hudson/Marshall Field
Robinson/May
Parisian
Richs
Filenes
Jacobsons, MI
Famous Barr
Kaufmans
Foleys
<PAGE> 33
Exhibit A
ELLEN TRACY
MANUFACTURING CODE OF CONDUCT - LICENSEES
1. No merchandise manufactured by licensees of Ellen Tracy
("Merchandise") or third party manufacturers or sublicensees of such licensees
shall be produced through the use of forced or child labor. Forced labor is any
work not performed voluntarily but rather under threat of criminal punishment,
such as prison labor. Child labor is any work performed by a child under the age
permitted by the laws, rules, regulations or other requirements of the county
where Merchandise is produced. All of Ellen Tracy's licensees and such
licensees' sublicensees, third party manufacturers, suppliers and contractors
must comply with all laws applicable to the country in which Merchandise is
manufactured.
2. Facilities used to manufacture Merchandise must be in compliance with
all laws, rules, regulations or other requirements regarding worker safety.
3. Ellen Tracy reserves the right to investigate any potential violation
of law and, at its discretion, to suspend, discontinue or terminate its
relationship with any licensee for its failure (or the failure of its
sublicensees, manufacturers, suppliers and contractors) to comply with any laws
applicable to Merchandise produced in such country, whether the United States or
any other country. Ellen Tracy also reserves the right to demand that a licensee
institute monitoring programs necessary to ensure compliance with applicable
laws as a condition to the continuance or resumption, as the case may be of
business dealings with that licensee.
<PAGE> 1
EXHIBIT 10.43
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
BETWEEN:
CEBE INTERNATIONAL S.A., a corporation duly registered under the laws of France,
with its head office at 12, avenue Charles de Gaulle, 39400 Morez (France), duly
represented for the purposes hereof by its Chairman and CEO, Mr. Armel Cahierre,
Hereinafter referred to as "Manufacturer" AND:
PRIVATE EYES SUNGLASS CORPORATION, A corporation duly registered under the laws
of the state of Washington (USA), with its head office at 77 Accord Park Drive,
Building B3, Norwell, Massachusetts, 02061 USA, duly represented for the
purposes hereof by its President, Mr. Richard W. Hammel Sr.,
Hereinafter referred to as "Distributor"
<PAGE> 2
RECITALS
A. Manufacturer is engaged in the business of designing and manufacturing
certain products as of sunglasses and optical frames and other eyewear
related products;
B. Manufacturer has been granted all rights and title to use freely the
trademark "Emmanuelle Khanh" pursuant to a contract executed with the
Emmanuelle Khanh company on December 2, 1996 (hereinafter referred to as
the "License Contract"), which will terminate on November 30, 2001.
Manufacturer entered into the License Contract with Emmanuelle Khanh, a
company duly registered under the laws of France, (hereinafter
"Emmanuelle Khanh SA").
It is expressly agreed between the parties that this agreement may be
terminated, without indemnity and after a maximum notice corresponding
to that of the License Contract, in case of termination of the License
Contract for any reason whatsoever.
Such cause of termination is a condition precedent of this agreement
without which Manufacturer would not have been willing to enter into
this agreement.
C. Manufacturer now desires to promote the sale of said products in the USA
and Canada;
D. Distributor is engaged in the business of the sale and distribution of
eyewear related products in the USA and Canada;
E. Distributor desires to distribute in the Territory (as hereinafter
defined) Manufacturer's products through optical stores, department
stores and other specialty sunglasses stores;
F. The parties desire to enter into an initial commercial distribution
arrangement for the distribution in the Territory (as hereinafter
defined) as described in, and as evidenced by, this agreement.
G. Manufacturer represents that it has entered into this agreement in
consideration of the presence of Mr. Richard W. Hammel Sr. as the
President of Distributor. It is therefore of the essence of the
agreement that, for a certain period of time, the obligations and duties
of Distributor under this agreement be performed under the supervision
and responsibility of Mr. Hammel Sr.
If during the first two and a half (2 1/2) years of this agreement, Mr.
Hammel Sr.'s employment with Distributor ceases for any reason,
including death or disability, then Manufacturer shall have the right to
terminate for cause this agreement if, in Manufacturer's judgment,
Distributor has not found a suitable replacement for Mr. Hammel Sr.
<PAGE> 3
AGREEMENT
NOW, THEREFORE, the parties hereto, in consideration of the covenants and
undertakings contained herein, mutually agree as follows:
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the indicated meanings
1.1 Products shall mean exclusively Manufacturer's products sold under the
trademark "Emmanuelle Khanh".
Such Products are of an exclusive nature and are not and shall not be
sold through customers other than the Customers; in particular they
shall not be offered for sale to other distributors in the Territory.
1.2 Territory shall mean the United States of America and Canada.
1.3 Customers shall mean exclusively optical stores, department stores and
other specialty sunglasses stores located in the Territory.
1.4 Distributor shall mean Distributor and/or any person or party related to
or affiliated with Distributor.
1.5 Manufacturer shall mean Manufacturer and/or any person or party related
to or affiliated with Manufacturer.
1.6 Trademark shall mean the "Emmanuelle Khanh" trademark exclusively.
SECTION 2. EXCLUSIVE ENGAGEMENT
2.1 Manufacturer hereby engages, for the term of this agreement,
Distributor, to act as Manufacturer's distributor and service
representative in the Territory in order to distribute the Products on
an exclusive basis to the Customers.
Distributor shall purchase its requirement of the Products exclusively
from Manufacturer.
As far as is compatible with the laws and regulations in force,
Manufacturer shall not appoint, allow, permit or authorize, subject to
the provisions hereof, any other person to distribute, directly or
indirectly, the Products to the Customers.
Manufacturer shall promptly direct to Distributor any Customer inquiry
or order for Products.
<PAGE> 4
2.2 Distributor shall not solicit customers for Products outside the
Territory, nor shall it establish any branch or maintain any warehouse
outside the Territory for the sale of the Products.
Distributor shall not sale to Customers having any branch, subsidiary,
affiliated company or any outlet whatsoever outside the Territory,
Products for sale outside the Territory.
Distributor shall not sell the Products to persons having their place of
business, or to purchasing agencies, located outside the Territory nor
shall it sell, transfer or otherwise make the Products available to any
person whom Distributor knows, or should reasonably know, intends to
ship and/or sell the Products outside the Territory.
SECTION 3. MINIMUM PURCHASES AND ORDERS
3.1 Minimum purchases. Distributor shall purchase the Products from
Manufacturer in amounts that equal or exceed the amounts indicated
below. For purposes of this section 3.1, a purchase of Products shall
only be taken into account when Manufacturer is paid for such Products.
<TABLE>
<CAPTION>
YEAR MINIMUM PURCHASES
---- -----------------
<S> <C>
1997 [*]Dollars
1998 [*]Dollars
1999 [*]Dollars
2000 [*]Dollars
2001 [*]Dollars
</TABLE>
It is understood and agreed that the Distributor's undertaking to
fulfill such minimum purchase quantities as above mentioned is a
material obligation of Distributor without which Manufacturer would not
have been prepared to enter into this agreement. In the event that such
minimum quantities are not achieved, Manufacturer reserves the right to
terminate this agreement in accordance with Section 11 hereof.
3.2 Designs and Orders. Distributor shall be informed regularly by
Manufacturer of the Product designs of the following calendar year.
Distributor shall, working together with Manufacturer, determine from
time to time those models and styles in Manufacturer's collection of
Products which will be distributed by Distributor in the Territory (the
<<Distributor's Collection>>). Distributor shall include the full
Distributor's Collection in its sales programs.
<PAGE> 5
According to its business requirements, Distributor shall place firm
orders to Manufacturer monthly in writing or by fax in the English
language. An orders and/or modifications placed by Distributor under
this agreement shall be subject to acceptance by Manufacturer and no
such order and/or modifications shall be binding until accepted by
Manufacturer. Acceptance shall be deemed to have been given if
Manufacturer does not, within ten days of actual receipt of an order,
notify Distributor of its rejection thereof.
Distributor may not cancel an accepted order without Manufacturer's
prior written consent.
The terms of this agreement shall in all events supersede any terms and
conditions of any order forms used by Distributor.
3.3 Delivery. Manufacturer undertakes to deliver the Products in the
quantities and on the dates set forth in the orders mentioned in Section
3.2. Such delivery schedules are given as an indication only and shall
not be binding upon Manufacturer. However, Manufacturer shall use its
best efforts to meet such delivery schedules.
Delivery shall take place ex-works [ Manufacturer's address in Morez I
(EXW INTERCOM 1990).
SECTION 4. PRICES / ROYALTIES
4.1 Prices. Manufacturer shall sell to Distributor, and Distributor shall
purchase exclusively from Manufacturer its requirements of the Products.
The prices and payment terms for the period ending June 30th, 1997 are
set on Exhibit A attached hereto. In May of each year during the term of
this agreement, the parties shall meet and agree upon prices for the
subsequent calendar year as well as a suggested retail price for the
Products which Distributor shall at all times suggest to the Customers.
4.2 Payment Terms. Manufacturer shall invoice Distributor on the date of
shipment for the Products and the royalty as hereunder detailed.
AR payments are due and payable on or before the expiration of sixty
(60) days from the date of invoice. AR payments shall be made by wire
transfer funds. The invoices shall be made in US Dollars.
4.3 Penalties in case of payment delays. Late payment by Distributor of
Manufacturer's invoices shall automatically be subject to an interest at
the then applicable French prime bank rate plus two points (2%) from the
expected date of payment to the actual date of receipt of the funds by
Manufacturer's bank.
4.4 In accordance with section 4.1 above, the price structure for the
Products shall be as detailed in Exhibit A attached hereto.
<PAGE> 6
4.5. In consideration of the exclusive rights on the Trademark granted under
the term and conditions of this agreement, Distributor shall pay a
royalty equivalent to [*] percent [*]% of any and all amount paid to
Manufacturer for the Products.
Such royalty shall be calculated and payable together with its
corresponding invoice for the Products.
SECTION 5. RELATIONSHIP OF THE PARTIES
The parties expressly intend and agree that Distributor is acting as an
independent contractor and not as an employee, partner or agent of
Manufacturer. Distributor shall retain sole and absolute discretion,
control and judgment in the manner and means of carrying out
Distributor's selling, marketing and service activities except as to the
policies and procedures set forth herein. Manufacturer/Distributor shall
not and has no power expressed or implied to make any promise, warranty
or representation on behalf of Distributor/Manufacturer or to bind
Distributor/Manufacturer to third parties in any manner, unless approved
by Distributor/Manufacturer.
In particular, in all relevant correspondence and other dealings
relating directly or indirectly to the sale or other disposition of the
Products, Distributor shall clearly indicate that it is acting as
principal and it shall in no circumstances expressly or impliedly do any
act or thing which may cause it to be considered by third parties as
acting as an agent of Manufacturer.
SECTION 6. TRADEMARK LICENSE AND PROTECTION OF THE TRADEMARK
6.1 Distributor shall be freely authorized to use in the Territory the
Trademark when necessary for the sale and distribution of the Products
in the Territory under the terms and conditions provided for in this
agreement.
6.2 Distributor specifically acknowledges that its use of the Trademark
shall not create, whether in the Territory or abroad, for Distributor
title or interest in the Trademark and that every use of the Trademark
by Distributor shall enure to the benefit of Manufacturer.
6.3 Distributor shall not use, whether in the Territory or abroad, the
Trademark in any way whatsoever with respect to products, goods, things
or services other than the Products.
Distributor shall at all times use the Trademark when displaying,
selling or using in any way whatsoever the Products.
<PAGE> 7
6.4 Distributor shall not register or try to register or cause to be
registered, in any country, including the Territory, in any class, the
Trademark or any trademark related to or similar to the Trademark or
trademarks associated with the Trademark.
6.5 Distributor shall forthwith discontinue any use of the Trademark for any
reason whatsoever upon Termination of this agreement.
6.6. Distributor shall forthwith discontinue any use of the Trademark upon
termination, for any reason whatsoever, upon termination of the License
Contract.
As an amplification of the provisions of section 11.4 hereunder
Distributor shall not be entitled to claim any damage to Manufacturer in
case of such termination.
6.7 In the event that Distributor knows of a third party having made any use
and/or infringement whatsoever of the Trademark in the Territory,
Distributor shall forthwith inform in writing Manufacturer thereof, and
take all necessary steps, including but not limited to, the institution
of legal procedures, to safeguard the rights of the Manufacturer on the
Trademark and generally assist Manufacturer in defending such rights.
The reasonable expenses of Distributor in such respect will be paid by
Manufacturer.
6.7 In the event that any third party claims in the Territory that the use
of the Trademark is an infringement of its rights, Distributor shall
forthwith inform in writing Manufacturer thereof, and Manufacturer may
decide to take the conduct of the defense in any proceedings that may be
instituted on such grounds.
SECTION 7. DUTIES OF THE DISTRIBUTOR
7.1 Promotion
7.1.1 Best efforts. Distributor shall use its commercially reasonable
best efforts to promote, maintain and increase the demand for and sale
of the Products to all Customers. In accordance with article 3.2 hereof,
Distributor shall at all times include the full collection of Products
in its sales program.
In particular, Distributor shall at all times take all necessary steps
to preserve and maintain the brand image of the Products and the
Trademark and make sure that the Products are never offered to the end
consumers in downgrading conditions.
Distributor shall maintain adequate facilities and employ and maintain
at its expense sufficient personnel for such purpose.
Distributor shall take all necessary steps to insure that those sales
and service personnel who are assigned by Distributor the task of
marketing the Products are fully familiar with the Products and trained
accordingly.
<PAGE> 8
7.1.2 Advertising. Each year, Distributor shall spend, for the
advertising and promotion of the Products, various amounts that equal or
exceed the amounts indicated below (hereinafter the <<Minimum
Advertising Expenses>>):
- fifty per cent (50%) of the royalties paid to Manufacturer in
accordance with article 4.5 hereof, plus
- an amount calculated as a fixed percentage of the Minimum Purchases
mentioned in article 3.1 hereof
<TABLE>
<CAPTION>
MINIMUM NON
YEAR MINIMUM PURCHASES ROYALTY-RELATED
(US Dollars) ADVERTISING EXPENSES
(US Dollars)
<S> <C> <C>
1997 [*] [*]
1998 [*] [*]
1999 [*] [*]
2000 [*] [*]
2001 [*] [*]
</TABLE>
For the computation of the Minimum Advertising Expenses, one shall only
take into account the purchase of advertising space, therefore excluding
monies spent in exhibitions or trade-shows but including monies spent on
the Sunglass Hut catalog,
and such expenses shall be itemized and reported to Manufacturer by
Distributor in accordance with Section 7.5.
7.2 Service/Technical Assistance. Distributor shall:
(i) instruct Customers in the correct operation and safe use of the
Products and give prompt and satisfactory service of the
maintenance and repair of Products, if needed;
(ii) maintain a fully equipped repair department with adequate tools
and equipment for the efficient maintenance of the Products;
(iii) employ such number of technically qualified and trained
personnel as may be necessary to ensure the prompt and efficient
provision of both after-sales and guarantee service for the
Products;
(iv) maintain a sufficient stock of spare and replacement parts for
the Products to meet anticipated demand for both after-sales and
guarantee work in the Territory.
<PAGE> 9
For safety reasons, Distributor shall buy the spare parts only
from Manufacturer or from suppliers priorly approved in writing
by Manufacturer, which approval shall not be unreasonably
withheld;
(v) make available after-sales services and service to all users of
the Products situated in the Territory in accordance with the
marketing needs and good standing image of the Products and in
order to ensure such image in the long run;
(vi) permit the Manufacturer or its authorised representatives at all
reasonable times to inspect the repair shop of the Distributor,
its stock of spare parts for the Products, and its tools and
equipment for performing both the after-sales service and
guarantee work and to watch and supervise the carrying out of
both after-sales service and guarantee work of the Products.
7.3 Inventory.
7.3.1 Products inventory. Distributor shall constantly maintain in stock
an inventory of Products equivalent to at least four (4) weeks of its
sales targets.
7.3.2 Spare Parts inventory. Manufacturer shall deliver and Distributor
shall purchase and maintain sufficient inventories of spare parts for
each Product, if needed, in such quantities as is necessary or
appropriate to enable Distributor to service the Customers without
unreasonable delay or complaint.
7.4 Packaging. Distributor shall:
(i) sell the Products only in the packaging supplied for that
purpose by Manufacturer and in particular shall not affix to the
Products or their packaging any additional labels or signs.
(ii) not deface or alter the Products or their packaging in any
manner whatsoever for any reason whatsoever and in particular
shall not alter remove or in any way temper with the Trademark
or numbers on the Products.
7.5 Regular Reports.
Distributor shall
(i) keep Manufacturer regularly informed of the progress and
development of the market for the Products in the Territory and
of all regulations affecting the import, distribution and sale
of the Products therein.
<PAGE> 10
In particular, every calendar quarter, Distributor shall provide Manufacturer
with the following information in writing:
1. number of sales outlets of Distributor selling the Products in the
Territory (per State in the USA and per Province in Canada);
2. net sales made with the Products by Distributor (per State in the USA
and per Province in Canada);
3. list of Products and number of Products sold in the Territory;
4. forecasts of the sales of the Products by Distributor for the next
calendar quarter;
5. inventory level for each of the Products;
6. amounts spent by Distributor for the promotion and advertising of the
Products (Distributor shall provide a fully-detailed description of the
nature and cost of each advertising and promotion).
(ii) send to Manufacturer upon reasonable request such details of
future sales and stocks and other statistical forecasts as
Manufacturer may reasonably require for budgetary purposes and
for programming future production.
(iii) generally, deliver to Manufacturer, upon request, reports
setting forth matters of common interest to the parties as may
be reasonably requested by Manufacturer. The said obligation to
keep Manufacturer informed shall not extend to the disclosure of
the identity of Customers, during the term of this agreement.
7.6 Customs Duties. All costs and expenses for inbound customs duties
incurred in connection with the Products shall be paid by Distributor.
7.7 Government Studies. Unless required by government laws or regulations,
Distributor shall not commit the Products to any governmental safety or
efficiency study for whatever purpose without Manufacturer's prior
written approval.
7.8 Governmental Approvals. Manufacturer shall obtain and maintain at
Manufacturer's cost and expense, any and all Government or Agency
Approvals necessary for the Products.
At all times during the continuance of this agreement, Distributor shall comply
with all laws, rules and regulations applicable within the Territory, governing
the sales, distribution, shipment or import of any and all Products.
<PAGE> 11
At all times during the continuance of this agreement, Distributor shall have '
in effect all licenses, permits and authorizations from all governmental
agencies within or without the Territory to the extent that the same are
necessary for the performance by Distributor of any and all obligations herein
undertaken by it.
SECTION 8. DUTIES OF THE MANUFACTURER
8.1 Products available.
8.1.1 Change of products. Manufacturer reserves the right from time to
time, without thereby incurring any liability to Distributor or
Customers to terminate, limit or change its production (including
without limitation changes in specifications of the Products) of any
Product upon 180 days notice to the Distributor.
8.1.2 Spare Parts. Manufacturer shall use its commercially reasonable
best efforts to have available for sale to and for use by Distributor in
providing service and repair services for Products acquired by
Distributor, spare parts for a period of two years after the last sale
of Products by Manufacturer to Distributor hereunder.
8.2 Manufacturer shall, at the cost and expense of Distributor, receive at
its premises such numbers of employees of Distributor as both parties
shall together consider appropriate for training in the technical
characteristics of the Products and the servicing thereof. The content
and duration of such training program shall be determined by
Manufacturer after consultation with Distributor.
Manufacturer may at its cost and expense periodically send one or more
executives to assist Distributor's staff assigned to the sale of the
Products.
SECTION 9. WARRANTIES
9.1 Insurance. Both parties shall maintain customary and adequate general
liability and products liability insurance coverage covering claims for
injury to persons or property caused by the Products or by their own
officers, directors, employees or agents.
9.2 Transfer of title and risk of loss. Unless otherwise agreed to in
writing by the parties hereto, the ownership of the legal title and
beneficial rights to, the risk of loss and the right to possession and
control over, all the Products to be sold by Manufacturer to
Distributor, shall pass to Distributor at the time and place that the
Products are delivered EXW in accordance with Section 3.3 hereof (or any
other Incoterm which the Parties may mutually agree upon in the future).
Manufacturer shall have no responsibility for any damage or loss
attributable to the carriers.
<PAGE> 12
Distributor shall be responsible for and shall adequately insure the
Products from and after delivery on board the vessel. Until full payment
of the purchase price for the Products in question, Manufacturer shall
be automatically and fully subrogated in Distributor's rights to receive
all such insurance payments.
9.3 Distributor Warranty to Customer. In connection with its Products,
Distributor shall not give to Customers any warranty or warranties
greater than those granted by Manufacturer herein. In the event that,
notwithstanding the foregoing sentence, Distributor makes any warranties
to Customers greater than or in addition to those made by Manufacturer
hereunder, Distributor shall disclose, for compliance with any such
warranty or warranties, that Customers shall have no rights whatsoever
in connection therewith against Manufacturer. Distributor shall
indemnify, defend and hold harmless Manufacturer from any and all such
warranties.
9.4 Manufacturer's Warranty. Without in any way limiting or expanding, and
without being liable for, any additional warranty Distributor may
provide, Manufacturer warrants each Product to be free from defects in
design, material and workmanship under normal use and service
(hereinafter the "Warranty").
In case (i) any Product fails to conform to the Warranty and (ii)
Distributor notifies such failure to Manufacturer pursuant to the
procedure set forth hereunder, Manufacturer shall correct such defect
by, in Manufacturer's discretion, repairing or replacing such defective
Product at its expenses.
In order to ensure a continuous standard of high quality for the
Products and to benefit from such correction, Distributor shall
compulsorily notify Manufacturer in writing, within sixty (60) days as
from the date of reception of such Product(s), of any defective Product
by indicating the serial number, if available, of the defective Product
and by describing in detail the nature of the defect.
After such sixty (60) day period, Manufacturer shall have no obligation
in this respect.
The warranties set forth in this Section 9.4 shall be of no force and
effect with respect to any Product that (i) has been repaired by anyone
other than Distributor or an authorized retailer, or (ii) has been
altered or subjected to abuse, misuse, negligence or accident, or (iii)
has been used in any manner other than in accordance with the
instructions provided by Manufacturer.
THE WARRANTIES SET FORTH IN THIS SECTION 9.4 AND THE REMEDIES THEREFOR
ARE EXCLUSIVE AND IN LIEU OF ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR PARTICULAR PURPOSE OR OTHER WARRANTY OF QUALM WHETHER
EXPRESS OR IMPLIED.
<PAGE> 13
IN NO EVENT SHALL MANUFACTURER BE LIABLE TO DISTRIBUTOR OR TO ANY THIRD
PARTY PURCHASING THROUGH DISTRIBUTOR FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES OR LOSSES, FOR INJURY TO PERSON OR PROPERTY OR FOR COMMERCIAL
LOSSES.
9.5 Litigation. Distributor shall be liable upon request of Manufacturer and
to a reasonable extent to give its supports of all kind if Manufacturer
within the Territory is a party concerned in matters of product
liability, trademarks, patents, licenses or other matters connected to
Products or to Manufacturer's various rights to Products. Nothing
contained in this Section 9.5 shall require Distributor to incur any
out-of pocket expense.
SECTION 10. PROPRIETARY INTEREST AND CONFIDENTIALITY
10.1 Proprietary Interest.
All patents, trademarks, trade names, copyrights and designs now and in
the future held by Manufacturer in relation to the Products and any
literature supplied by Manufacturer in connection therewith shall be and
remain at all times the full property of Manufacturer or Emmanuelle
Khanh SA.
Distributor recognizes the proprietary interest of Manufacturer and
Emmanuelle Khanh SA in the techniques, designs, specifications,
drawings, tests, procedures and other technical data relating to the
Products and other marketing and confidential business information
provided by the other party from time to time.
Distributor acknowledges and agrees that such techniques, designs,
specifications, drawings, tests, procedures and other technical data
relating to the Products and other marketing and confidential business
information constitute trade secrets of Manufacturer or Emmanuelle Khanh
SA and that all such information shall be and is the exclusive property
of Manufacturer or Emmanuelle Khanh SA.
Together with all patents, trademarks, trade names, copyrights and
designs now and in the future held by of Manufacturer or Emmanuelle
Khanh SA in relation to the Products and any literature supplied by
Manufacturer in connection therewith, the techniques, designs,
specifications, drawings, tests, procedures and other technical data
relating to the Products as well as other marketing and confidential
business information shall herein be referred to as "Proprietary
Information".
10.2 Confidentiality. Each party acknowledges and agrees that the other is
entitled to prevent its competitors from obtaining and utilizing its
secrets. Thus, each party shall hold the other's trade secrets in
strictest confidence and agrees not to disclose them or allow them to be
disclosed directly or indirectly to any other person or entity, other
than to persons engaged by such party for the purpose of performance
hereunder without the other's prior written consent.
<PAGE> 14
Each party shall treat any such confidential information of the other in
a manner no less protective of such information than such party uses for
its own confidential information. Neither party shall, either during the
term of this agreement or at any time after expiration or sooner
termination of this agreement or during any extension hereof, disclose
to anyone other than persons engaged by it for the purpose of
performance hereunder any confidential or proprietary information or
trade secrets of the other obtained during the term hereof. Each party
shall place any persons to whom said information is disclosed for the
purpose of performance under this agreement under the legal obligation
to treat such information as strictly confidential.
Upon Termination of this agreement each party hereto shall return to the
other all of the Proprietary Information that was provided by such other
party during the term of this agreement as well as any copy or tangible
records whatsoever thereof.
SECTION 11. TERM AND TERMINATION
11.1 Term. This agreement shall be in force from its date of execution by
both parties and shall continue to be in full force and effect until
November 30, 2001 at the latest.
11.2 Termination for cause. Either party shall also have the right to
terminate this agreement in its entirety upon the occurrence of any of
the following, and the expiration of any applicable period of cure: (a)
failure of the other party to make any payment when due and the
expiration of thirty (30) days thereafter without cure ; (b) the failure
of the other party to comply with any term or condition of this
agreement and/or its recitals, and the expiration of thirty (30) days
from written notice thereof, specifying the nature of such default,
without cure ; (c) the dissolution or liquidation of the other party ;
(d) the insolvency or bankruptcy of the other party ; (e) the
institution of any proceeding by or against the other party under the
provisions of any insolvency or bankruptcy law ; (f) the appointment of
a receiver of any of the assets or property of the other party ; and (g)
the issuance of an order for an execution on the property of the other
party pursuant to a judgment.
11.3 Termination.
Upon Termination, Manufacturer shall repurchase from Distributor (at
Distributor's option) all Products held by Distributor in inventory for
less than twelve (12) months as of such date, which Distributor wishes
to sell back to Manufacturer. Such repurchase shall be:
at the initial purchase cost discounted by 30 % (invoiced purchase price
therefore excluding transportation and insurance) ; and
Distributor shall bear all freight insurance, brokerage and customs fees
for such repurchased Products.
<PAGE> 15
11.4 Rights upon Termination. Should this agreement not be renewed at any
time and/or be terminated for any reason whatsoever, neither party
hereto shall be entitled to claim any compensation or damage from the
other save in the case of termination arising out of a breach by either
party hereto of any term or provision of this agreement and save for the
case set for in the next paragraphs.
It is expressly agreed that Manufacturer shall not be liable to pay any
compensation to Distributor for loss of profits or loss of goodwill or
for any other loss or damage howsoever arising as a result of
Termination of this agreement for any cause whatsoever.
In addition, the parties shall make their best efforts so that the sale
of the Products in the Territory shall not be discontinued. For such
purposes, they shall negotiate in good faith in order (i) to determine
which elements are necessary for the continuation of the on-going
business and (ii) to valuate fairly such elements and (iii) to transfer
those elements to the Manufacturer or any third party the Manufacturer
may elect to subrogate.
SECTION 12. INDEMNIFICATION
12.1 Distributor shall without any further responsibility or liability of or
recourse to Manufacturer or its affiliates, indemnify, defend and hold
harmless Manufacturer and its affiliates, officers, directors and
employees from and against any loss, damage, injury, liability, claims,
causes of action or other expenses, including reasonable attorneys fees,
that Manufacturer and/or its affiliates, officers, directors or
employees may suffer arising out of or resulting from acts or omissions
of the Distributor in connection with the distribution, service,
assembling, repackaging or repair of Products distributed by the
Distributor.
The provisions of this Section 12.1 shall not apply in the event of any
loss, damage, injury, liability, claims, causes of action or other
expenses, including reasonable attorney's fees, arising out of or
resulting from acts or omissions of Manufacturer.
12.2 Manufacturer shall without any further responsibility or liability of or
recourse to Distributor or its affiliates, indemnify, defend and hold
harmless Distributor and its affiliates, officers, directors and
employees from and against any loss, damage, injury, liability, claims,
causes of action or other expenses including reasonable attorney's fees,
that Distributor and/or its affiliates, officers, directors or employees
may suffer arising out of or resulting from acts or omissions of the
Manufacturer relating to Manufacturer's design, manufacture, service
assembling, packaging or repair of any product or claims of patent
infringement brought relating to Products distributed by Distributor.
The provisions of this Section 12.2 shall not apply in the event of any
loss, damage, injury, liability, claim, causes of action or other
expenses including reasonable attorneys' fees arising out of the
resulting from acts or omissions of Distributor.
<PAGE> 16
12.3 The indemnity obligations of Sections 12.1 and 12.2 shall survive the
Termination of this agreement.
SECTION 13. GENERAL PROVISIONS
13.1 Assignment. The rights and obligations binding upon Distributor under
this agreement are personal and may not be transferred or assigned
without the prior written consent of Manufacturer which consent shall
not be unreasonably withheld, and any assignment or transfer in
violation of this agreement shall be null and void without formality.
A merger or sale of stock leading to a change of control of Distributor
shall be deemed an assignment for purposes of this agreement.
Notwithstanding the above paragraphs, Distributor may appoint assistant
or subsidiary dealers in the Territory for the purpose of selling and
distributing the Products. Distributor agrees to advise Manufacturer of
the names and addresses of any proposed assistant or subsidiary dealers
and the appointment thereof shall be subject to the prior written
approval of Manufacturer
Upon signature of any agreement with such assistant or subsidiary
dealers, true copies thereof shall be immediately sent to Manufacturer.
Distributor agrees to be responsible to ensure that the conduct of any
such assistant or subsidiary dealers does not conflict with any of the
terms and conditions of this agreement and Distributor further agrees
that, unless Manufacturer otherwise agrees, all orders to Manufacturer
for Products shall be placed through Distributor and Distributor shall
be responsible for payment therefor.
Distributor shall not create or imply any obligation whatsoever of
Manufacturer to any such assistant or subsidiary dealers.
13.2 Causes Beyond Control. Manufacturer and Distributor shall not be
responsible for any loss or breach due to delay in delivery or
performance hereunder caused by other parties, governmental regulations,
controls or directions, outbreak of a state of emergency, acts of God or
hostilities, civil commotion, riots, epidemics, perils of the sea or
other natural casualties, fires, strikes, walkouts or other similar
cause or causes beyond the control of the parties.
13.3 Administrative Intervention. If at any time during the term of this
agreement, any government, governmental authority or agency having
jurisdiction over this Agreement, should raise, formally or informally,
any complaint, objection, demand, request or recommendation of any
nature affecting, in any manner howsoever, the implementation or
performance hereof or should require directly or indirectly, alteration
or modification of any term or condition hereof in a manner which has a
material effect on either party hereto, then such party may, in its sole
discretion, give written notice to the other party hereto setting forth
its objection thereto and requesting mutual consultation in relation
thereto.
<PAGE> 17
Not later than thirty (30) days after the despatch of such notice, the
parties hereto shall discuss in good faith the possibilities of a
mutually satisfactory solution to such objection ; provided, however,
that in the event that the parties shall fail to reach agreement in
writing on any such mutually satisfactory solution within ninety (90)
days after the date of despatch of such notice the party hereto which
has given said notice shall have the rights at its sole discretion, to
terminate this agreement by a ninety (90) days written notice to the
other party hereto.
13.4 Entire agreement. This agreement and the documents referenced herein
constitute the entire agreement between the parties in connection with
the subject matter hereof and shall supersede all prior agreements,
whether oral or in writing, whether explicit or implicit, which have
been entered into prior to the execution hereof.
13.5 No Waiver. Failure by either party hereto to enforce at any time any
term or condition under this agreement shall never be considered to be a
waiver of the right to act on the failure of such term or condition and
shall not impair or waive that party's right thereafter to enforce each
and every term and condition of this agreement.
13.6 Notices. Any communication under this agreement shall be given as
follows
13.6.1 International. General correspondence may be given by facsimile
transmission, and the confirmation of transmission shall be conclusive
evidence of delivery and receipt at the following 'facsimile" number or
such other 'facsimile' number as either party may at any time notify to
the other party by facsimile transmission.
Facsimile Number
Manufacturer: (33.3) 84 33 25 80
Distributor: (1.617) 878 73 84
13.6.2 Notices. Notices may be given by prepaid certified or registered
airmail at the addresses set forth below, or such other addresses as
either party may at any time notify to the other party in writing in
accordance with this Section. Notices shall be deemed to have been
received upon the expiration of seven (7) business days from delivery to
the postal service.
<PAGE> 18
MANUFACTURER:
CEBE INTERNATIONAL S.A.
Attn: Mr. Armel Cahierre, President
12, avenue Charles de Gaulle
39400 Morez
France
DISTRIBUTOR:
PRIVATE EYES SUNGLASS Corporation
Attn: Mr. Richard W. Hammel Sr., President
77 Accord Park Drive,
Building B3,
Norwell,
Massachusetts 02061
United States of America
13.7 Modification. No modification in the terms of this agreement shall be
binding on either party unless in writing and executed by the then duly
authorized representatives of each party.
13.8 Paragraph Headings. The headings of the several paragraphs of this
agreement are inserted solely for convergence of reference and are not a
part of and are not intended to govern, limit or aid in the construction
of any term or provision hereof.
13.9 Language/ Number and Gender. This agreement is executed in the English
language which shall be prevailing at all times.
All words used herein in the singular/plural number shall include the
plural/singular and the present/future tense shall include the
future/present and the neuter gender shall include the masculine and
feminine.
13.10 Attorney's fees. In the event of any legal proceeding to enforce the
provisions of this agreement, the prevailing party in such legal
proceeding shall be entitled to reasonable attorney's fees as fixed by
the Court.
13.11 Jurisdiction. All disputes arising in connection with this agreement,
which could not be settled amicably, shall be exclusively submitted to
the Paris Commercial Court.
This agreement is expressly submitted to the laws of France to construe
and govern the terms and performance of this agreement.
<PAGE> 19
Notwithstanding the provisions of the above paragraph, the parties shall
be entitled to have recourse to relevant courts and jurisdictions in order
to request any provisional measure that might be needed in order to
preserve their rights resulting from this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
by their duly authorized representatives as of the date hereunder written.
MANUFACTURER: DISTRIBUTOR:
By: /S/ ARMEL CAHIERRE By: /S/ RICHARD HAMMEL
Title: President and Director Title: President
Date: October 25, 1997
Place: France
Four original copies, two for each party
EXHIBIT
Exhibit A Price Structure
<PAGE> 1
EXHIBIT 10.44
LEASE
This Lease made as of the 1st day of March, 1989 by and between Gary
Christopher and W. Blake Merrill as Trustees of AEP Realty Trust under
Declaration of Trust dated June 1, 1983 and recorded with the Plymouth County
Registry of Deeds in Book 5366, Page 88 (hereinafter referred to as the
"Landlord") which expression shall include their successors and assigns
wherever the context permits and Private Eyes Sunglass Corporation, a
Massachusetts corporation having a usual place of business at 77 Accord Park
Drive, Norwell, Massachusetts (hereinafter referred to as the "Tenant")) which
expression shall include its successors and assigns wherever the context
permits.
1. Subject to the terms, provisions, covenants and conditions as set
forth in this Lease, landlord hereby leases to Tenant and Tenant hereby hires
from Landlord certain premises designated as Space B-1, B-2 and B-3 (the
"Premises"), in Building B (the "Building") located at 77 Accord Park Drive,
Norwell, Plymouth County, Massachusetts, which Premises contain approximately
Seven Thousand (7,000) square feet of rentable floor area. Tenant shall have
the right to use, in common with others entitled thereto and for access to the
Premises, the walkways and driveways constructed on the parcel of land (the
"Land") on which the Building and the other three office/warehouse buildings
are constructed. Tenant shall also have the right to use, in common with others
entitled thereto and in connection with its use of the Premises, the parking
spaces in front of the Premises. Said four office/warehouse buildings are
hereinafter collectively referred to as the "Buildings". Said Land with the
improvements and Buildings thereon are hereinafter collectively referred to as
the "Property". Landlord specifically excepts and reserves to itself all rights
to the Land, Buildings and improvements located thereon and therein and further
specifically excepts and reserves to itself the use of the roof, the exterior
portions of the Premises and such other areas within the Premises required for
installation, maintenance and repair of utility lines and other installations
required to service the Building, or other tenants and occupants of the
Building or the Property, from time to time during the term of this Lease.
2. The term of this Lease shall be for a period of Thirty Six (36)
months commencing on August 1, 1989 and terminating on July 31, 1992, unless
sooner terminated as herein provided.
3. During the term of this Lease, the Tenant agrees to pay to Landlord,
without offset or deduction, at such place as Landlord may designate in writing
from time to time, the rent and other charges as hereinafter set forth. The
rental obligations under this Lease shall start and the first monthly rental
payment shall be due and payable on August 1, 1989 (the "rent commencement
date"). Unless otherwise specifically provided, all rent and other charges
payable under this Lease shall be due and payable in advance commencing on the
rent commencement date and on the first day of each and every month of the term
thereafter. If any rent or other charges are not paid when due, Tenant shall be
charged a late payment charge of three (3%) percent of any delinquent amount
payable under the terms of this Lease and shall pay attorneys' fees and costs
incurred by Landlord in conjunction with any such late payment, all of which
are to be paid by Tenant within five (5) days of receipt of Landlord's invoice
therefor.
<PAGE> 2
(a) For and with respect to each month from the rent commencement date
through the twelfth (12th) full calendar month thereafter (from
August 1, 1989 through July 31, 1990), the Tenant shall pay rent of
$5,104.17 per month, payable in advance on the first day of each such
month; and thereafter
(b) For and with respect to each month for the next twelve (12) months
(from August 1, 1990 through July 31, 1991), the Tenant shall pay
rent of $5,104.17 per month, payable in advance on the first day of
each such month; and thereafter
(c) For and with respect to each month for the balance of the term of the
Lease (from August 1, 1991 to July 31, 1992), the Tenant shall pay
rent of $5,250.00 per month, payable in advance on the first day of
each such month.
4. All rent and other payments shall be made to Landlord or to such
agent of Landlord and at such place (or places) as Landlord, shall, from time
to time, in writing designate. Until further notice, rental payments and other
notices shall be sent to Landlord at the following address. Post Office Box 87,
Accord, Massachusetts 02018.
5. The Landlord shall have the exclusive right to regulate and control
the Buildings and the Property, including without limitation, the common areas,
walkways, driveways and parking areas. The Tenant agrees to comply with and to
conform to such rules and regulations as the Landlord may, from time to time,
establish, including without limitation those Rules and Regulations attached
hereto and made a part hereof.
6. Tenant shall be responsible for and pay all of the costs and expenses
of removal of rubbish and trash for the Premises and the Property.
7. During the term of this Lease and proportionately for any part of a
fiscal tax year, Tenant will pay to Landlord as additional rent and within
fourteen (14) days of written notice thereof seven (7%) percent of the increase
in the amount of the real estate taxes assessed and levied on the Land and
Buildings of which the Premises are a part over the amount of the real estate
taxes thereon for the fiscal year 1984 (the "Base Year"). If the Landlord
obtains an abatement of any such excess real estate tax, a proportionate share
of such abatement, less the reasonable fees and costs incurred in obtaining the
same, if any, shall be refunded to the Tenant.
8. During the term of this Lease and proportionately for any part of a
calendar year, the Tenant shall pay to landlord as additional rent and within
fourteen (14) days of written notice thereof seven (7%) percent of any increase
in the expenses of operating and maintaining the Property (the "Operating
Expenses") over those incurred during the calendar year 1984.
-2-
<PAGE> 3
Operating Expenses are defined for the purposes of this Agreement as all
costs and expenses which have been incurred because of or in connection with the
ownership and operation of the Property, the Buildings and the Land upon which
the same are situated and Landlord's personal property used in connection
therewith, determined in accordance with generally accepted accounting
principles.
Operating Expenses shall mean and include the following:
a. Costs, fees and expenses of service, repair and maintenance
agreements, all wages, fees and salaries of contractors and/or
employees related thereto and related taxes, insurance, benefits and
reimbursible expenses;
b. Costs, fees and expenses of operation, upkeep, maintenance, repair,
servicing and replacement of the common areas, driveways, sidewalks,
parking areas, landscaping, utilities, pipes and wires, septic and
sanitary systems, the Buildings, the fixtures and equipment therein,
the Land upon which the Buildings are situated and all supplies,
equipment, tools and materials used in connection therewith;
c. The fees, the costs and expenses of electricity, light, water, power,
fuel and other utilities for the common areas; and
d. Premiums and other charges with respect to insurance.
Operating Expenses shall not include the cost of capital improvements,
depreciation, interest and principal payments on mortgages and other debt costs,
if any.
9. The Tenant shall pay, or cause to be paid, as they become due, all
charges for electricity, air conditioning, gas, light, power, telephone and
other utilities and services that are furnished to the Premises, and/or used,
rendered or supplied to Tenant.
10. Tenant shall not make or allow to be made any alterations, additions
or improvements on or to the Premises without the prior written consent of the
Landlord, which consent Landlord agrees not to withhold unreasonably. Any and
all allowed altercations, additions and/or improvements shall be at Tenant's
sole cost and expense and shall be in quality at least equal to the present
construction. All work shall be performed only by duly licensed plumbers,
electricians and other trades-persons. Tenant shall not permit any mechanics
liens, or similar liens, to remain upon the Premises for labor and materials
furnished to Tenant or claimed to have been furnished to Tenant in connection
with work of any character performed or claimed to have been performed at the
direction of Tenant and Tenant shall cause any such lien to be released of
record forthwith without cost to Landlord. Any alterations or improvements made
by Tenant shall become the property of the Landlord and remain on or in the
Premises at the termination of this Lease or the termination of Tenant's
occupancy as provided herein.
11. The Tenant shall use the Premises only for the purpose of its offices
and storage warehouse, including the storage and shipping of merchandise. In no
event shall the Premises be used for the retail sale and/or display of any goods
or merchandise. The Tenant acknowledges that no trade or occupation shall be
conducted in the Premises or use made thereof which will be unlawful, improper,
noisy or offensive, or contrary to any law or any municipal by-law or ordinance
in force in the Town of Norwell.
-3-
<PAGE> 4
12. The Tenant shall not permit any use of the Premises which will make
voidable any insurance on the Property of which the Premises are a part, or on
the contents of said Property, or which shall be contrary to any law or
ordinance or contrary to any regulation from time to time established by the
New England Fire Insurance Rating Association, or any similar body succeeding
to its powers. The Tenant shall on demand reimburse the Landlord all extra
insurance premiums caused by the Tenant's use of the Premises.
13. The Tenant agrees to maintain the Premises in good order and
tenantable condition, damage by fire and other casualty only excepted, and
whenever necessary to replace plate glass and other glass therein,
acknowledging that the Premises are now in good order and the glass whole. The
Tenant shall not permit the Premises to be overloaded, damaged, stripped, or
defaced, nor suffer any waste. Tenant shall obtain the prior written consent of
Landlord before erecting any sign(s) on the Premises or the Building of which
it is a part. No paper signs or placards shall be allowed. No signs shall be
placed on windows or doors. The location, size and type of sign(s) must be
approved by Landlord in writing prior to installation thereof.
14. The Landlord agrees to maintain the structure of the Building of
which the Premises are a part in the same condition as it is at the
commencement of the term of this Lease or as it may be put in during the term
of this Lease, reasonable wear and tear and damage by fire and other casualty
excepted, unless such maintenance is required because of the Tenant or those
for whose conduct the Tenant is responsible.
15. The Tenant shall not assign or sublet the whole or any part of the
Premises without Landlord's prior written consent. Notwithstanding such
consent, Tenant shall remain liable to Landlord for the payment of all rent and
for the full performance of the covenants and conditions of this Lease to be
performed and observed by Tenant.
16. This Lease shall be subject and subordinate to any and all mortgages,
deeds of trust and other instruments in the nature of a mortgage, now or at any
time hereafter a lien or liens on the Property of which the Premises are a part
and the Tenant shall, when requested, promptly execute and deliver such written
instruments as shall be necessary to show the subordination of this Lease to
said mortgages, deeds of trust or other such instruments in the nature of a
mortgage.
17. The Landlord or agents of the Landlord may, at reasonable times,
enter to view the Premises, and may remove placards and signs not approved as
herein provided and/or affixed contrary to Landlord's rules and regulations,
and Landlord may make repairs and alterations as Landlord should elect to do,
and may show the Premises to others, and at any time within three (3) months
before the expiration of the term, may affix to any suitable part of the
Premises a notice for letting or selling the Premises or the Building or the
Property of which the Premises are a part and keep the same so affixed without
hindrance or molestation.
18. The Tenant shall save the Landlord harmless form all loss and damage
occasioned by the use or escape of water or by the bursting of pipes, unless
-4-
<PAGE> 5
caused by Landlord's negligence, as well as from any claim or damage resulting
from neglect in not removing snow and ice from the roof of the Building or by
any nuisance made or suffered on the Premises, unless such loss is caused by
the neglect of the Landlord. The removal of snow and ice from the sidewalks
bordering upon the Premises shall be Landlord's responsibility.
19. The Tenant shall maintain with respect to the Premises and the
Property of which the Premises are a part comprehensive general public
liability insurance in responsible companies qualified to do business in
Massachusetts and in good standing therein, insuring the Landlord as well as
Tenant against claims for bodily injury, death or property damage occurring on,
in or about the Premises, such insurance to afford the minimum protection of
not less than $1,000,000.00 per person and $1,000,000.00 per accident in respect
of bodily injury or death and property damage in the amount of $1,000,000.00.
The Tenant shall deposit with the Landlord certificates for such insurance at or
prior to the commencement of the term, and thereafter within thirty (30) days
prior to the expiration of any such policies. All such insurance shall provide
that such policies shall not be cancelled without at least ten (10) days prior
written notice to each assured named therein.
20. Should a substantial portion of the Premises, or should a portion of
the Property of which the Premises are a part, be damaged by fire or other
casualty, or be taken by eminent domain, the Landlord may elect to terminate
this Lease. When such fire, casualty, or taking renders the Premises
substantially unsuitable for their intended use, a just and proportionate
abatement of rent shall be made, and the Tenant may elect to terminate this
Lease if:
a. The Landlord fails to give written notice within thirty (30) days of
said fire, casualty or taking of its intention to restore the
Premises, or
b. The Landlord fails to restore the Premises to a condition
substantially suitable for their intended use within ninety (90) days
of said fire, casualty or taking.
The Landlord reserves, and the Tenant grants to the Landlord, all rights
which the Tenant may have for damages or injury to the Premises for any taking
by eminent domain, except for a separate award to Tenant for damage to its
property and/or a separate award to Tenant for its relocation expenses and/or a
separate award for interruption of Tenant's business.
21. In the event that:
a. The Tenant shall default in the payment of any installment of rent or
other sum herein specified and such default shall continue for ten
(10) days after written notice thereof; or
b. The Tenant shall default in the observance or performance of any
other of the Tenant's covenants, agreements or obligations hereunder
and such default shall not be corrected within thirty (30) days
after written notice thereof; or
c. The Tenant shall be declared bankrupt or insolvent according to law,
or, if any assignment shall be made of Tenant's property for the
benefit of creditors,
-5-
<PAGE> 6
then, the Landlord shall have the right thereafter, while such default
continues, to re-enter and take complete possession of the Premises, to declare
the term of this Lease ended, and remove the Tenant's effects, without prejudice
to any remedies which might be otherwise used for arrears of rent or other
default. The Tenant shall indemnify the Landlord against all loss of rent and
other payments which the Landlord may incur by reason of such termination during
the residue of the term. If the Tenant shall default, after reasonable notice
thereof, in the observance or performance of any condition or covenant on
Tenant's part to observed or performed under or by virtue of any of the
provisions in any article of this Lease, the Landlord, without being under any
obligation to do so and without thereby waiving such default, may remedy such
default for the account and at the expense of the Tenant. If the Landlord makes
any expenditures or incurs any obligations for the payment of money in
connection therewith, including but not limited to, reasonable attorneys' fees
in instituting, prosecuting or defending any action or proceedings, such sums
paid or obligations incurred, shall be paid to the Landlord by the Tenant as
additional rent with interest thereon at the rate of 1 1/2% per month until
paid in full.
22. Any notice from the Landlord to the Tenant relating to the Premises
or to the occupancy thereof, shall be deemed duly served, if left at the
Premises addressed to the Tenant, or if mailed to the Premises, registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Tenant. Any notice from the Tenant to the Landlord relating to the Premises or
to the occupancy thereof, shall be deemed duly served, if mailed to the
Landlord by registered or certified mail, return receipt requested, postage
prepaid, addressed to the Landlord at such address as the Landlord may from
time to time advise in writing.
23. The Tenant shall at the expiration or other termination of this Lease
remove all Tenant's goods and effects from the Premises (including without
hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by the Tenant, either inside or outside the Premises).
Tenant shall deliver to the Landlord the Premises and all keys and locks
thereto, and other fixtures connected therewith and all alterations and
additions made to or upon the Premises, in good condition, damage by fire or
other casualty only excepted. In the event of the Tenant's failure to remove
any of the Tenant's property from the Premises, Landlord is hereby authorized,
without liability to Tenant for loss or damage thereto, and at the sole risk of
Tenant, to remove and store any of the property at Tenant's expense, or to
retain the same under Landlord's control, or after giving Tenant fifteen (15)
days notice thereof to sell at public or private sale any or all of the property
not so removed and to apply the net proceeds of such sale to the payment of any
sum or sums due hereunder, or after giving Tenant thirty (30) days notice to
destroy such property.
24. All obligations of Landlord shall be binding upon Landlord only
during the period of its ownership of the Premises and not thereafter. The
term "Landlord" shall mean only the owner, for the time being, of the Premises,
and in the event of the transfer by such owner of its interest in the Premises
and the assignment of the Advance Rent, the owner shall thereupon be released
and discharged from all covenants and obligations of the Landlord thereafter
accruing, but such covenants and obligations shall be binding during the term
of this Lease upon each new owner of the Premises for the duration of such
owner's ownership of the Premises.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the said Gay Christopher and W. Blake Merrill, as
Trustees of AEP Realty Trust, have caused these presents to be signed, executed
and delivered and Private Eyes Sunglass Corporation has caused these presents
to be signed, executed and delivered by its officer thereunto duly authorized,
on the day and year first above written.
TENANT LANDLORD
------ --------
PRIVATE EYES SUNGLASS CORPORATION /s/ GARY CHRISTOPHER (Trustee)
---------------------------------------
Gary Christopher as Trustee of
AEP Realty Trust
By: /s/ RICHARD HAMMEL, SR.
--------------------------------- ---------------------------------------
Richard Hammel, Sr. W. Blake Merrill as Trustee of
President AEP Realty Trust
Duly Authorized
-7-
<PAGE> 8
RULES AND REGULATIONS
The Landlord has imposed the following rules and regulations which it deems
necessary for the orderly and efficient management and operation of the
buildings:
1. No trucks (except forklift trucks and other similar equipment used in
connection with a tenant's business on the Property), machinery (except
such as are used in the conduct of a tenant's business in its Premises),
motor vehicles (except automobiles) or construction equipment shall be
brought upon or stored in or on any portion of the Property.
2. Delivery trucks may remain on the Property for such time as is reasonably
necessary for loading and unloading and shall not be used for storage and
shall be removed from the Property forthwith.
3. No trailers, trucks, tractors or other commercial vehicles shall be parked
overnight.
4. Only vehicles bearing HP license plates are authorized and permitted to
use those spaces specifically reserved for handicapped parking as so
designated by the appropriate handicapped parking identifying symbol.
5. Double parking is prohibited at all times and under all circumstances.
6. Fire lanes must remain clear of all vehicles and must otherwise be
completely unobstructed at all times and under all circumstances.
7. The use of cargo bays by more than one (1) vehicle at a time is prohibited
at all times and under all circumstances.
8. All fees, costs and expenses of any maintenance, replacements, repairs
and/or repainting necessitated because of any damage or injury caused by a
tenant (or by persons for whom a tenant is liable, including, without
limitation, tenant's agents, servants, employees, contractors, invitees,
<PAGE> 9
visitors and guests) shall be charged to the tenant reasonable for such
damage or injury and shall be due and payable immediately upon demand
therefor.
9. Each tenant shall at its sole cost and expenses keep and maintain in good
order, repair and in a clean and healthful condition the dumpsters and/or
rubbish containers (collectively the "Containers") used by such tenant. No
Containers shall be allowed to leak or spill any rubbish, debris,
materials or waste onto the common areas of the Landlord's Property.
Containers shall be covered at all times. Containers shall not be used for
the disposal of hazardous materials, debris or waste of any kind. No
hazardous materials, debris or waste of any kind shall be disposed of on
the common areas or on the Landlord's Property.
10. All fees, costs and expenses of policing and/or removing any rubbish,
debris or materials from the Property of Landlord shall be charged to the
tenant responsible therefor and shall be due and payable immediately upon
demand. All fees, costs and expenses of any maintenance, repairs and/or
replacements required by any damage or injury to the property, the
buildings, including without limitation the walls, doors, railings, roofs
and windows, the common areas, the driveways and the parking areas or by a
tenant's failure to perform or observe these rules shall be charged to the
tenant responsible for such damage, injury or violation and such fees,
costs and expenses shall be due and payable immediately upon demand
therefor. If a tenant fails to observe these rules and regulations or if a
tenant's use of a Container is in violation of these rules and regulations
or of any federal, state or municipal law, regulation, ordinance or by
law, Landlord may have the Container(s) removed without incurring any
liability to any tenant for loss or damage thereto and at the sole cost,
expense and risk of such tenant.
11. As pallets are to be stored within each tenant's respective premises
within the buildings. No pallet shall be stored or allowed to remain
outside of any building, on any part of the parking area or driveways or
-2-
<PAGE> 10
on any portion of the common areas overnight. In the event of a tenant's
failure to comply herewith, Landlord (or its agents) may remove any pallet
found to be in violation hereof, without incurring any liability to any
tenant for loss or damage thereto and at the sole cost, expense and risk
of such tenant.
12. In order to maintain the proper image of the buildings, no signs shall be
placed on any doors or windows and no temporary or paper signs or placards
will be allowed at any time.
13. All tenants and occupants are required to obtain the written approval of
the Landlord before any sign may be installed, erected or placed in or on
any part of the premises, the buildings or elsewhere on the property.
Please be advised that the Landlord intends to strictly enforce this
requirement and will remove any sign not so approved or otherwise in
violation of Landlord's rules and regulations. All costs and expenses for
the removal of such signs and for the repair and repainting of any damage
caused by the installation, erection or removal of such sign shall be
charged to tenant responsible therefore and shall be due and payable upon
demand.
14. The walkways, sidewalks, driveways, parking areas, entrances, passages,
courtyards, corridors, vestibules, halls, elevators and stairways in and
about the Building and the Property shall not be obstructed.
15. No objects shall be placed against glass partitions, doors or windows
which would be unsightly from the Building corridors or from the exterior
of the Building.
16. Tenants shall not waste any services furnished by Lessor and shall
cooperate fully with Lessor to assure the most effective operation of the
Building heating and air-conditioning systems.
17. No additional or different locks or bolts shall be affixed on doors. All
keys shall be returned to Lessor upon termination of tenant's lease or
occupancy.
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<PAGE> 11
18. Tenants shall not use any part of the Building of their premises for
manufacture, for the sale of merchandise of any kind, for any auction
sales or for the storage of merchandise preliminary to such sales.
19. Tenants shall not engage or pay any employees of the Building without
approval of the Lessor.
20. All removals from the Building, or the carrying in or out of the Building
or tenants' premises of any freight, furniture or bulky matter of any
description, must take place at such times and in such manner as Lessor my
determine, from time to time. Lessor reserves the right to inspect all
freight to be brought into the Building and exclude from the Building all
freight which violates any of Rules and Regulations or any provision of a
tenants' lease.
21. Lessor may prohibit any advertising by tenants which refers to the
Building and which in Lessor's opinion tends to impair the reputation of
the Building.
22. Tenants shall cooperate with Lessor in minimizing loss and risk thereof
from fire and associated perils.
23. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were designed and
constructed, and no sweeping, rubbish, rags, acids or like substances shall
be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the responsible tenant.
Lessor reserves the right at any time to rescind, alter or waive any rule
or regulation at any time prescribed for the Building and to impose
additional rules and regulations when in its judgment, it deems it
necessary, desirable or proper for its best interest and for the best
interests of the tenants, and no alteration or waiver of any rule or
regulation in favor of one tenant shall operate as an alteration or waiver
in favor of any other tenant. Lessor shall not be responsible to any tenant
for the non observance or violation by any other tenant however resulting
of any of the rules or regulations at any time prescribed for the Building.
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<PAGE> 12
CERTIFICATE OF VOTE
PRIVATE EYES SUNGLASS CORPORATION
The undersigned certifies that he is the Clerk of PRIVATE EYES SUNGLASS
CORPORATION, a Massachusetts corporation, and that as such, he is duly
authorized to execute this Certificate, and he further certifies that the
following is a true and correct copy of the resolution duly adopted by the
Board of Directors of this Corporation at a meeting duly called and held on the
1st day of March, 1989 and that, as of this date, such resolution remains in
full force and effect:
RESOLVED, that Richard Hammel, Sr. is hereby authorized in the name of and
on behalf of this Corporation to execute and deliver, with such changes as
he may approve, such approval to be conclusively evidenced by such
execution, a Lease between this Corporation, as Tenant, and Gary
Christopher and W. Blake Merrill as Trustees of AEP Realty Trust, as
Landlord, for Spaces B-1, B-2 and B-3 located in Building B at 77 Accord
Park Drive, Norwell, Plymouth County, Massachusetts and he is further
authorized to do and cause to be done any and all acts and things and to
execute and deliver any and all documents, instruments and papers as he
shall deem necessary or advisable in connection therewith.
The undersigned further certifies that Richard Hammel, Sr. is the duly elected
President of this Corporation and that Richard Hammel, Sr. is the Clerk of this
Corporation.
IN WITNESS WHEREOF, I have hereunto signed my name this 24th day of March, 1989.
/s/ RICHARD HAMMEL, SR.
----------------------------------------
Richard Hammel, Sr. Clerk
<PAGE> 1
EXHIBIT 10.45
LEASE
This Lease made as of the 15th day of May, 1989 by and between Gary
Christopher and W. Blake Merrill as Trustees of AEP Realty Trust under
Declaration of Trust dated June 1, 1983 and recorded with the Plymouth County
Registry of Deeds in Book 5366, Page 88 (hereinafter referred to as the
"Landlord") which expression shall include their successors and assigns
wherever the context permits and Primetta Corporation, a Massachusetts
corporation having a usual place of business at 77 Accord Park Drive, Norwell,
Massachusetts (hereinafter referred to as the "Tenant") which expression shall
include its successors and assigns wherever the context permits.
1. Subject to the terms, provisions, covenants and conditions as set
forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord certain premises designated as Spaces B-4, B-5 and B-6 (the
"Premises") in Building B (the "Building") located at 77 Accord Park Drive,
Norwell, Plymouth County, Massachusetts, which Premises contain approximately
Nine Thousand (9,000) square feet of rentable floor area. Tenant shall have the
right to use, in common with others entitled thereto and for access to the
Premises, the walkways and driveways constructed on the parcel of land (the
"Land") on which the Building and the other three office/warehouse buildings
are constructed. Tenant shall also have the right to use, in common with others
entitled thereto and in connection with its use of the Premises, the parking
spaces in front of the Premises. Said four office/warehouse buildings are
hereinafter collectively referred to as the "Buildings". Said Land with the
improvements and Buildings thereon are hereinafter collectively referred to as
the "Property". Landlord specifically excepts and reserves to itself all rights
to the Land, Buildings and improvements located thereon and therein and further
specifically excepts and reserves to itself the use of the roof, the exterior
portions of the Premises and such other areas within the Premises required for
installation, maintenance and repair of utility lines and other installations
required to service the Building, or other tenants and occupants of the
Building or the Property, from time to time during the term of this Lease.
2. The term of this Lease shall be for a period of Thirty Six (36)
months commencing on August 1, 1989 and terminating on July 31, 1992, unless
sooner terminated as herein provided.
3. During the term of this Lease, the Tenant agrees to pay to Landlord,
without offset or deduction, at such place as Landlord may designate in writing
from to time, the rent and other charges as hereinafter set forth. The rental
obligations under this Lease shall start and the first monthly rental payment
shall be due and payable on August 1, 1989 (the "rent commencement date").
Unless otherwise specifically provided, all rent and other charges payable
under this Lease shall be due and payable in advance
<PAGE> 2
commencing on the rent commencement date and on the first day of each and every
month of the term thereafter. For and with respect to each month from the rent
commencement date through the balance of the term of the Lease, the Tenant
shall pay rent of $5,125.00 per month, payable in advance on the first day of
each such month. If any rent or other charges are not paid when due, Tenant
shall be charged a late payment charge of three (3%) percent of any delinquent
amount payable under the terms of this Lease and shall pay attorneys fees and
costs incurred by Landlord in conjunction with any such late payment, all of
which are to be paid by Tenant within five (5) days of receipt of Landlord's
invoice therefor.
4. All rent and other payments shall be made to Landlord or to such
agent of Landlord and at such place (or places) as Landlord, shall, from time
to time, in writing designate. Until further notice, rental payments and other
notices shall be sent to Landlord at the following address: Post Office Box 87,
Accord, Massachusetts 02018.
5. The Landlord shall have the exclusive right to regulate and control
the Buildings and the Property, including without limitation, the common areas,
walkways, driveways and parking areas. The Tenant agrees to comply with and to
conform to such rules and regulations as the Landlord may, from time to time,
establish, including without limitation those Rules and Regulations attached
hereto and made a part hereof.
6. Tenant shall be responsible for and pay all of the costs and expenses
of removal of rubbish and trash for the Premises and the Property.
7. During the term of this Lease and proportionately for any part of a
fiscal tax year, Tenant will pay to Landlord as additional rent and within
fourteen (14) days of written notice thereof nine (9%) percent of the increase
in the amount of the real estate taxes assessed and levied on the Land and
Buildings of which the Premises are a part over the amount of the real estate
taxes thereon for the fiscal year 1984 (the "Base Year"). If the Landlord
obtains an abatement of any such excess real estate tax, a proportionate share
of such abatement, less the reasonable fees and costs incurred in obtaining the
same, if any, shall be refunded to the Tenant.
8. During the term of this Lease and proportionately for any part of a
calendar year, the Tenant shall pay to Landlord as additional rent and within
fourteen (14) days of written notice thereof nine (9%) percent of any increase
in the expenses of operating and maintaining the Property (the "Operating
Expenses") over those incurred during the calendar year 1984. Landlord shall
provide Tenant with a statement in reasonable detail showing the Operating
Expenses for that calendar year.
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<PAGE> 3
Operating Expenses are defined for the purposes of this Agreement as all
costs and expenses which have been incurred because of or in connection with
the ownership and operation of the Property, the buildings and the Land upon
which the same are situated and Landlord's personal property used in connection
therewith, determined in accordance with generally accepted accounting
principles.
Operating Expenses shall mean and include the following:
a. Costs, fees and expenses of service, repair and maintenance
agreements, all wages, fees and salaries of contractors and/or
employees related thereto and related taxes, insurance, benefits and
reimbursible expenses;
b. Costs, fees and expenses of operation, upkeep, maintenance, repair,
servicing and replacement of the common areas, driveways, sidewalks,
parking areas, landscaping, utilities, pipes and wires, septic and
sanitary systems, the Buildings, the fixtures and equipment therein,
the Land upon which the buildings are situated and all supplies,
equipment, tools and materials used in connection therewith;
c. The fees, the costs and expenses of electricity, light, water,
power, fuel and other utilities for the common areas; and
d. Premiums and other charges with respect to insurance.
Operating Expenses shall not include the cost of capital improvements,
depreciation, interest and principal payments on mortgages and other debt
costs, if any.
9. The Tenant shall pay, or cause to be paid, as they become due, all
charges for electricity, heat, air conditioning, gas, light, power, telephone
and other utilities and services that are furnished to the Premises, and/or
used, rendered or supplied to Tenant.
10. Tenant shall not make or allow to be made any alterations,
additions or improvements on or to the Premises without the prior written
consent of the Landlord, which consent Landlord agrees not to withhold
unreasonably. Any and all allowed alterations, additions and/or improvements
shall be at Tenant's sole cost and expense and shall be in quality at least
equal to the present construction. All work shall be performed only by duly
licensed plumbers, electricians and other trades-persons. Tenant shall not
permit any mechanics liens, or similar liens, to remain upon the Premises for
labor and materials furnished to Tenant or claimed to have been furnished to
Tenant in connection with work of any character performed or claimed to have
been performed at the direction of Tenant and Tenant shall cause any such lien
to be released of record forthwith without cost to Landlord. Any alterations or
improvements made by Tenant shall become the property of the Landlord and
remain on or in the Premises at the termination of this Lease or the
termination of Tenant's occupancy as provided herein.
11. The Tenant shall use the Premises only for the purpose of its
offices and storage warehouse, including the storage and shipping of
merchandise. In no event shall the Premises be used for the retail sale and/or
display of any goods or merchandise. The Tenant acknowledges that no trade or
occupation shall be conducted in the Premises or use made thereof which will be
unlawful, improper, noisy or offensive, or contrary to any law or any municipal
by-law or ordinance in force in the Town of Norwell.
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<PAGE> 4
12. The Tenant shall not permit any use of the Premises which will make
voidable any insurance on the Property of which the Premises are a part, or on
the contents of said Property, or which shall be contrary to any law or
ordinance or contrary to any regulation from time to time established by the
New England Fire Insurance Rating Association, or any similar body succeeding
to its powers. The Tenant shall on demand reimburse the Landlord all extra
insurance premiums caused by the Tenant's use of the Premises.
13. The Tenant agrees to maintain the Premises in good order and
tenantable condition, damage by fire and other casualty only excepted, and
whenever necessary to replace plate glass and other glass therein, acknowledging
that the Premises are now in good order and the glass whole. The Tenant shall
not permit the Premises to be overloaded, damaged, stripped, or defaced, nor
suffer any waste. Tenant shall obtain the prior written consent of Landlord
before erecting any sign(s) on the Premises or the Building of which it is a
part. No paper signs or placards shall be allowed. No signs shall be placed on
windows or doors. The location, size and type of sign(s) must be approved by
Landlord in writing prior to installation thereof.
14. The Landlord agrees to maintain the structure of the Building of
which the Premises are a part in the same condition as it is at the
commencement of the term of this Lease or as it may be put in during the term
of this Lease, reasonable wear and tear and damage by fire and other casualty
excepted, unless such maintenance is required because of the Tenant or those
for whose conduct the Tenant is responsible.
15. The Tenant shall not assign or sublet the whole or any part of the
Premises without Landlord's prior written consent. Notwithstanding such
consent, Tenant shall remain liable to Landlord for the payment of all rent and
for the full performance of the covenants and conditions of this Lease to be
performed and observed by Tenant.
16. This Lease shall be subject and subordinate to any and all
mortgages, deeds of trust and other instruments in the nature of a mortgage,
now or at any time hereafter a lien or liens on the Property of which the
Premises are a part and the Tenant shall, when requested, promptly execute and
deliver such written instruments as shall be necessary to show the
subordination of this Lease to said mortgages, deeds of trust or other such
instruments in the nature of a mortgage.
17. The Landlord or agents of the Landlord may, at reasonable times,
enter to view the Premises, and may remove placards and signs not approved as
herein provided and/or affixed contrary to Landlord's rules and regulations,
and Landlord may make repairs and alterations as Landlord should elect to do,
and may show the Premises to others, and at any time within three (3) months
before the expiration of the term, may affix to any part of the Premises a
notice for letting or selling the Premises or the Building or the Property of
which the Premises are a part and keep the same so affixed without hindrance or
molestation.
18. The Tenant shall save the Landlord harmless from all loss and
damage occasioned by the use or escape of water or by the bursting of pipes,
unless
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<PAGE> 5
caused by Landlord's negligence, as well as from any claim or damage resulting
from neglect in not removing snow and ice from the roof of the Building or by
any nuisance made or suffered on the Premises, unless such loss is caused by
the neglect of the Landlord. The removal of snow and ice from the sidewalks
bordering upon the Premises shall be Landlord's responsibility.
19. The Tenant shall maintain with respect to the Premises and the
Property of which the Premises are a part comprehensive general public
liability insurance in responsible companies qualified to do business in
Massachusetts and in good standing therein, insuring the Landlord as well as
Tenant against claims for bodily injury, death or property damage occurring on,
in or about the Premises, such insurance to afford minimum protection of not
less than $1,000,000.00 per person and $1,000,000.00 per accident in respect of
bodily injury or death and property damage in the amount of $1,000,000.00. The
Tenant shall deposit with the Landlord certificates for such insurance at or
prior to the commencement of the term, and thereafter within thirty (30) days
prior to the expiration of any such policies. All such insurance shall provide
that such policies shall not be cancelled without at least ten (10) days prior
written notice to each assured named therein.
20. Should a substantial portion of the Premises, or should a portion of
the Property of which the Premises are a part, be damaged by fire or other
casualty, or be taken by eminent domain, the Landlord may elect to terminate
this Lease. When such fire, casualty, or taking renders the Premises
substantially unsuitable for their intended use, a just and proportionate
abatement of rent shall be made, and the Tenant may elect to terminate this
Lease if:
a. The Landlord fails to give written notice within thirty (30) days of
said fire, casualty or taking of its intention to restore the
Premises, or
b. The Landlord fails to restore the Premises to a condition
substantially suitable for their intended use within ninety (90) days
of said fire, casualty or taking.
The Landlord reserves, and the Tenant grants to the Landlord, all rights
which the Tenant may have for damages or injury to the Premises for any taking
by eminent domain, except for a separate award to Tenant for damage to its
property and/or a separate award to Tenant for its relocation expenses and/or a
separate award for interruption of Tenant's business.
21. In the event that:
a. The Tenant shall default in the payment of any installment of rent or
other sum herein specified and such default shall continue for ten
(10) days after written notice thereof; or
b. The Tenant shall default in the observance or performance of any
other of the Tenant's covenants, agreements or obligations hereunder
and such default shall not be corrected within thirty (30) days after
written notice thereof; or
c. The Tenant shall be declared bankrupt or insolvent according to law,
or, if any assignment shall be made of Tenant's property for the
benefit of creditors,
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<PAGE> 6
then, the Landlord shall have the right thereafter, while such default
continues, to re-enter and take complete possession of the Premises, to declare
the term of this Lease ended, and remove the Tenant's effects, without
prejudice to any remedies which might be otherwise used for arrears of rent or
other default. The Tenant shall indemnify the Landlord against all loss of rent
and other payments which the Landlord may incur by reason of such termination
during the residue of the term. If the Tenant shall default, after reasonable
notice thereof, in the observance or performance of any condition or covenant
on Tenant's part to be observed or performed under or by virtue of any of the
provisions in any article of this Lease, the Landlord, without being under any
obligation to do so and without thereby waiving such default, may remedy such
default for the account and at the expense of the Tenant. If the Landlord makes
any expenditures or incurs any obligations for the payment of money in
connection therewith, including but not limited to, reasonable attorneys' fees
in instituting, prosecuting or defending any action or proceedings, such sums
paid or obligations incurred, shall be paid to the Landlord by the Tenant as
additional rent with interest thereon at the rate of 1-1/2% per month until
paid in full.
22. Any notice from the Landlord to the Tenant relating to the Premises
or to the occupancy thereof, shall be deemed duly served, if left at the
Premises addressed to the Tenant, or if mailed to the Premises, registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Tenant. Any notice from the Tenant to the Landlord relating to the Premises or
to the occupancy thereof, shall be deemed fully served, if mailed to the
Landlord by registered or certified mail, return receipt requested, postage
prepaid, addressed to the Landlord at such address as the Landlord may from
time to time advise in writing.
23. The Tenant shall at the expiration or other termination of this Lease
remove all Tenant's goods and effects from the Premises (including without
hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by the Tenant, either inside or outside the Premises).
Tenant shall deliver to the Landlord the Premises and all keys and locks
thereto, and other fixtures connected therewith and all alterations and
additions made to or upon the Premises, in good condition, damage by fire or
other casualty only excepted. In the event of the Tenant's failure to remove
any of the Tenant's property from the Premises, Landlord is hereby authorized,
without liability to Tenant for loss or damage thereto, and at the sole risk of
Tenant, to remove and store any of the property at Tenant's expense, or to
retain the same under Landlord's control, or after giving Tenant fifteen (15)
days notice thereof to sell at public or private sale any or all of the
property not so removed and to apply the net proceeds of such sale to the
payment of any sum or sums due hereunder, or after giving Tenant thirty (30)
days notice to destroy such property.
24. All obligations of Landlord shall be binding upon Landlord only during
the period of its ownership of the Premises and not thereafter. The term
"Landlord" shall mean only the owner, for the time being, of the Premises, and
in the event of the transfer by such owner of its interest in the Premises, and
the assignment of the Advance Rent, the owner shall thereupon be released and
discharged from all covenants and obligations of the Landlord thereafter
accruing, but such covenants and obligations shall be binding during the term of
this Lease upon each new owner of the Premises for the duration of such owner's
ownership of the Premises.
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<PAGE> 7
IN WITNESS WHEREOF, the said Gary Christopher and W. Blake Merrill, as
Trustees of AEP Realty Trust, have caused these presents to be signed, executed
and delivered and Primetta Corporation has caused these presents to be signed,
executed and delivered by its officer thereunto duly authorized, on the day and
year first above written.
TENANT LANDLORD
------ --------
PRIMETTA CORPORATION /s/ GARY CHRISTOPHER (TRUSTEE)
------------------------------
Gary Christopher as Trustee of
AEP Realty Trust
By:
--------------------------- ------------------------------
W. Blake Merrill as Trustee of
AEP Realty Trust
By: /s/ RICHARD HAMMEL
---------------------------
Richard Hammel
President
Duly Authorized
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<PAGE> 8
RULES AND REGULATIONS
The Landlord has imposed the following rules and regulations which it deems
necessary for the orderly and efficient management and operation of the
buildings:
1. No trucks (except forklift trucks and other similar equipment used in
connection with a tenant's business on the Property), machinery (except
such as are used in the conduct of a tenant's business in its Premises),
motor vehicles (except automobiles) or construction equipment shall be
brought upon or stored in or on any portion of the Property.
2. Delivery trucks may remain on the Property for such time as is reasonably
necessary for loading and unloading and shall not be used for storage and
shall be removed from the Property forthwith.
3. No trailers, trucks, tractors or other vehicles shall be parked overnight.
4. Only vehicles bearing HP license plates are authorized and permitted to
use those spaces specifically reserved for handicapped parking as so
designated by the appropriate handicapped parking identifying symbol.
5. Double parking is prohibited at all times and under all circumstances.
6. Fire lanes must remain clear of all vehicles and must otherwise be
completely unobstructed at all times and under all circumstances.
7. The use of cargo bays by more than one (1) vehicle at a time is prohibited
at all times and under all circumstances.
8. All fees, costs and expenses of any maintenance, replacements, repairs
and/or repainting necessitated because of any damage or injury caused by a
tenant (or by persons for whom a tenant is liable, including, without
limitation, tenant's agents, servants, employees, contractors, invitees,
<PAGE> 9
visitors and guests) shall be charged to the tenant reasonable for such
damage or injury and shall be due and payable immediately upon demand
therefor.
9. Each tenant shall at its sole cost and expenses keep and maintain in good
order, repair and in a clean and healthful condition the dumpsters and/or
rubbish containers (collectively the "Containers") used by such tenant. No
Containers shall be allowed to leak or spill any rubbish, debris, materials
or waste onto the common areas of the Landlord's Property. Containers shall
be covered at all times. Containers shall not be used for the disposal of
hazardous materials, debris or waste of any kind. No hazardous materials,
debris or waste of any kind shall be disposed of on the common areas or on
the Landlord's Property.
10. All fees, costs and expenses of policing and/or removing any rubbish,
debris or materials from the Property of Landlord shall be charged to the
tenant responsible therefor and shall be due and payable immediately upon
demand. All fees, costs and expenses of any maintenance, repairs and/or
replacements required by any damage or injury to the property, the
buildings, including without limitation the walls, doors, railings, roofs
and windows, the common areas, the driveways and the parking areas or by a
tenant's failure to perform or observe these rules shall be charged to the
tenant responsible for such damage, injury or violation and such fees,
costs and expenses shall be due and payable immediately upon demand
therefor. If a tenant fails to observe these rules and regulations or if a
tenant's use of a Container is in violation of these rules and regulations
or of any federal, state or municipal law, regulation, ordinance or by
law, Landlord may have the Container(s) removed without incurring any
liability to any tenant for loss or damage thereto and at the sole cost,
expense and risk of such tenant.
11. As pallets are to be stored within each tenant's respective premises
within the buildings. No pallet shall be stored or allowed to remain
outside of any building, on any part of the parking area or driveways or
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<PAGE> 10
on any portion of the common areas overnight. In the event of a tenant's
failure to comply herewith, Landlord (or its agents) may remove any pallet
found to be in violation hereof, without incurring any liability to any
tenant for loss or damage thereto and at the sole cost, expense and risk
of such tenant.
12. In order to maintain the proper image of the buildings, no signs shall be
placed on any doors or windows and no temporary or paper signs or placards
will be allowed at any time.
13. All tenants and occupants are required to obtain the written approval of
the Landlord before any sign may be installed, erected or placed in or on
any part of the premises, the buildings or elsewhere on the property.
Please be advised that the Landlord intends to strictly enforce this
requirement and will remove any sign not so approved or otherwise in
violation of Landlord's rules and regulations. All costs and expenses for
the removal of such signs and for the repair and repainting of any damage
caused by the installation, erection or removal of such sign shall be
charged to tenant responsible therefore and shall be due and payable upon
demand.
14. The walkways, sidewalks, driveways, parking areas, entrances, passages,
courtyards, corridors, vestibules, halls, elevators and stairways in and
about the building and the Property shall not be obstructed.
15. No objects shall be placed against glass partitions, doors or windows
which would be unsightly from the building corridors or from the exterior
of the Building.
16. Tenants shall not waste any services furnished by Lessor and shall
cooperate fully with Lessor to assure the most effective operation of the
building heating and air-conditioning systems.
17. No additional or different locks or bolts shall be affixed on doors. All
keys shall be returned to Lessor upon termination of tenant's lease or
occupancy.
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<PAGE> 11
18. Tenants shall not use any part of the Building of their premises for
manufacture, for the sale of merchandise of any kind, for any auction
sales or for the storage of merchandise preliminary to such sales.
19. Tenants shall not engage or pay any employees of the Building without
approval of the Lessor.
20. All removals from the Building, or the carrying in or out of the Building
or tenants' premises of any freight, furniture or bulky matter of any
description, must take place at such times and in such manner as Lessor my
determine, from time to time. Lessor reserves the right to inspect all
freight to be brought into the Building and exclude from the Building all
freight which violates any of Rules and Regulations or any provision of a
tenants' lease.
21. Lessor may prohibit any advertising by tenants which refers to the
Building and which in Lessor's opinion tends to impair the reputation of
the Building.
22. Tenants shall cooperate with Lessor in minimizing loss and risk thereof
from fire and associated perils.
23. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were designed and
constructed, and no sweeping, rubbish, rags, acids or like substances shall
be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the responsible tenant.
Lessor reserves the right at any time to rescind, alter or waive any rule
or regulation at any time prescribed for the Building and to impose
additional rules and regulations when in its judgment, it deems it
necessary, desirable or proper for its best interest and for the best
interests of the tenants, and no alteration or waiver of any rule or
regulation in favor of one tenant shall operate as an alteration or waiver
in favor of any other tenant. Lessor shall not be responsible to any tenant
for the non observance or violation by any other tenant however resulting
of any of the rules or regulations at any time prescribed for the Building.
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<PAGE> 1
EXHIBIT 10.46
SECOND AMENDMENT OF LEASE
This Amendment of Lease made as of the 8th day of June, 1996 by and
between RONALD L. GORDON AS TRUSTEE OF AEP REALTY TRUST under Declaration of
Trust dated June 1, 1983 and recorded with the Plymouth County Registry of
Deeds in Book 5366, Page 88 (hereinafter referred to as the "Landlord") which
expression shall include his successors and assigns wherever the context
permits and PRIVATE EYES SUNGLASS CORPORATION, a Massachusetts corporation
having a usual place of business at 77 Accord Park Drive, Norwell,
Massachusetts 02061 (hereinafter referred to as the "Tenant") which expression
shall include its successors and assigns wherever the context permits.
WHEREAS, Landlord and Tenant have executed a lease dated March 1, 1989
(the "Lease") for certain premises designated as Space B-1, B-2, B-3, B-4, B-5
and B-6 (the "Premises") in Building B located at 77 Accord Park Drive,
Norwell, Plymouth County, Massachusetts; and
WHEREAS, Landlord and Tenant have executed an Amendment of Lease (Addendum
I) dated March 1, 1989; and
WHEREAS, Landlord and Tenant desire to extend the term of the Lease and to
amend the rental and other terms of said Lease:
NOW THEREFORE, in consideration of One Dollar ($1.00) paid by each of the
parties to the other, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
agree that the Lease is hereby amended as follows:
1. The Lease is hereby extended to July 31, 2001, subject to the same
terms, provisions, covenants and conditions as set forth in the Lease and
Addendum I, except as herein modified.
2. During the extended term, the Tenant shall pay to Landlord rent as
follows:
(a) for and with respect to the period August 1, 1996 to July 31, 1997, Tenant
shall pay rent of ONE HUNDRED FOUR THOUSAND AND NO/100 ($104,000.00) DOLLARS,
payable in advance in equal monthly installments of EIGHT THOUSAND SIX HUNDRED
SIXTY-SIX AND 67/100 ($8,666.67) DOLLARS on the first day of each month;
(b) for and with respect to the period August 1, 1997 to July 31, 1998,
Tenant shall pay rent of ONE HUNDRED FOUR THOUSAND AND NO/100 ($104,000.00)
DOLLARS, payable in advance in equal monthly installments of EIGHT THOUSAND SIX
HUNDRED SIXTY-SIX AND 67/100 ($8,666.67) DOLLARS on the first day of each
month;
<PAGE> 2
(c) for and with respect to the period August 1, 1998 to July 31, 1999, Tenant
shall pay rent of ONE HUNDRED FOUR THOUSAND AND NO/100 ($104,000.00) DOLLARS,
payable in advance in equal monthly installments of EIGHT THOUSAND SIX HUNDRED
SIXTY-SIX AND 67/100 ($8,666.67) DOLLARS on the first day of each month;
(d) for and with respect to the period August 1, 1999 to July 31, 2000, Tenant
shall pay rent of ONE HUNDRED FOUR THOUSAND AND NO/100 ($104,000.00) DOLLARS,
payable in advance in equal monthly installments of EIGHT THOUSAND SIX HUNDRED
SIXTY-SIX AND 67/100 ($8,666.67) DOLLARS on the first day of each month; and
(e) for and with respect to the period August 1, 2000 to July 31, 2001, Tenant
shall pay rent of ONE HUNDRED FOUR THOUSAND AND NO/100 ($104,000.00) DOLLARS,
payable in advance in equal monthly installments of EIGHT THOUSAND SIX HUNDRED
SIXTY-SIX AND 67/100 ($8,666.67) DOLLARS on the first day of each month.
All rent payable under this Lease shall be due and payable in advance and
shall be due and payable on the first day of each and every month of the term.
If any rent, additional rent or other charges are not received by Landlord
within five (5) days after the same is due, Tenant shall pay to Landlord on
demand a late charge of one and one half (1.5%) percent of any such delinquent
amounts for each month or fraction thereof during which the same has not been
paid in full. Said amount(s) are to be paid by Tenant within five (5) days of
Landlord's demand therefor and such late charges shall be considered as
additional rent hereunder.
2
<PAGE> 3
3. The Landlord shall have the exclusive right to regulate and control
the Buildings and Property, including without limitation, the common areas,
walkways,
3
<PAGE> 4
driveways and parking areas. The Tenant agrees to comply with and to conform to
such rules and regulations as the Landlord may, from time to time establish
including without limitation those Rules and Regulations attached hereto and
made a part hereof.
4. Except as herein amended, all the terms, conditions, provisions and
covenants of the Lease and Addendum I are hereby ratified and confirmed and
shall remain in full force and effect.
IN WITNESS WHEREOF, the said Ronald L. Gordon as Trustee of AEP Realty
Trust have caused these presents to be signed, executed and delivered and
PRIVATE EYES SUNGLASS CORPORATION has caused these presents to be signed,
executed and delivered by its office thereunto duly authorized on the day and
year first above written.
TENANT LANDLORD
PRIVATE EYES SUNGLASS CORPORATION
By: /s/ RICHARD HAMMEL, SR. By: /s/ RONALD L. GORDON, TRUSTEE
------------------------------ -------------------------------
Richard Hammel, Sr., President Ronald L. Gordon, as Trustee of
July 8, 1996 AEP Realty Trust
4
<PAGE> 1
EXHIBIT 10.47
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is made and entered into effective this 30th
day of May, 1997 by and among GARGOYLES, INC., a Washington corporation
(hereinafter referred to as "Gargoyles"), and PETER G. and SANDRA L. LAHAYE,
husband and wife, LAHAYE LABORATORIES, INC., a Washington corporation, and
NEOPTX, INC., a Washington corporation (all of whom are sometimes hereinafter
collectively referred to as "LaHaye") as follows:
WHEREAS, LaHaye manufactures and sells a product known as "Optx 20/20,"
which consists of adherent corrective lenses designed to be affixed to other
eyewear, such as sunglasses; and
WHEREAS, Gargoyles is the holder of (1) Unites State Patent No.
5,478,824, (2) a patent application filed with the PTO on June 7, 1995, Serial
No. 08/484,265, (3) related patent applications pending in foreign
jurisdictions, including International patent application PCT/US95/02123,
European patent application EP 95911057.8, Canadian Patent Application
2,182,975, and Japanese patent application 521975/95, the subject of which is an
adherent corrective lens; and
WHEREAS, Gargoyles filed suit in the U.S. District Court for the Western
District of Washington against LaHaye in February of 1996 alleging infringement
of its patent, misappropriation of trade secrets and breach of a confidential
relationship; and
WHEREAS, the parties desire to resolve their differences on the terms
set forth in this Settlement Agreement and to arrange for the dismissal of the
lawsuit between them;
<PAGE> 2
NOW, THEREFORE, for and in consideration of the mutual promises contained in
this Settlement Agreement, the parties agree as follows:
1. Assignment of Patent. Gargoyles hereby sells and assigns to LaHaye
its entire right, title and interest in and to (1) Unites State Patent No.
5,478,824, (2) a patent application filed with the PTO on June 7, 1995, Serial
No. 08/484,265, (3) related patent applications pending in foreign
jurisdictions, including International patent application PCT/US95/02123,
European patent application EP 95911057.8, Canadian Patent Application
2,182,975, and Japanese patent application 521975/95, (collectively the
"Transferred Patents") and to any invention(s) disclosed or claimed in the
Transferred Patents; to any patents or patent applications that are
continuations, continuations-in-part, divisionals, reissues or extensions of the
Transferred Patents; said invention(s) and all applications and patents on said
invention(s) to be held and enjoyed by LaHaye as entirely as the same would have
been held and enjoyed by Gargoyles had this sale and assignment not been made.
Gargoyles shall execute all instruments and render such assistance as LaHaye may
reasonably request to further the prosecution, maintenance and transfer of legal
title to the Transferred Patents and shall execute such instruments and provide
such assistance as LaHaye may reasonably require to prosecute any patent
applications on said invention(s), to enforce and defend the Transferred
Patents, and to confirm in LaHaye legal title to said invention(s) and all
applications and patents on said invention(s), all without charge to LaHaye but
at no expense to Gargoyles or to the inventor of any such invention(s).
2. Grant of License. LaHaye and Gargoyles shall execute a License
Agreement in the form of the attached Exhibit A. The License Agreement shall
take effect immediately upon transfer of any rights pursuant to this Agreement.
In the event such License Agreement is later found to be invalid for any reason
the court declaring such invalidity shall be requested by the
<PAGE> 3
parties to reform the License Agreement to achieve the intent of the parties
that Gargoyles have a non-exclusive royalty-free license to make, use, market,
and sell any technology disclosed in the Transferred Patents.
3. Settlement Payment. No later than June 30, 1997, LaHaye shall pay to
GARGOYLES the sum of Three Hundred Thousand ($300,000.00) Dollars by wire
transfer to Rohan, Goldfarb & Shapiro in trust for Gargoyles.
4. Mutual Releases. Gargoyles and LaHaye release each other from any
claims, demands, or causes of action which relate in any way to the conception,
manufacturer, or sale of an adherent corrective lens (or of the Optx 20/20
product) and which are based on events occurring prior to the execution of this
Settlement Agreement.
5. Dismissal of Lawsuit. The parties shall execute and file with the
Court a Stipulation and Order of Dismissal with prejudice and without costs to
any party of the lawsuit currently pending between them under Cause No. C96-302R
in the United States District Court for the Western District of Washington at
Seattle.
6. Governing Law. This Settlement Agreement shall be governed by the
laws of the State of Washington, and venue for any action to enforce or
interpret this agreement shall lie exclusively in King County Superior Court.
7. Interpretation. This Settlement Agreement is not to be construed more
favorably to one party than to another.
8. Modification. No change, modification, or amendment to this
Settlement Agreement shall be valid or binding unless such change or
modification is in writing, signed by the party against whom it is sought to be
enforced.
<PAGE> 4
9. Entire Agreement. This Settlement Agreement contains the entire
agreement between the parties regarding the settlement of Gargoyles' claims
against LaHaye, and neither Gargoyles not LaHaye have entered into this
Settlement Agreement based upon any representation or consideration not stated
in this Settlement Agreement.
10. Authority. By their signatures below, the parties hereby agree to be
bound by the terms of this Settlement Agreement. This Settlement Agreement may
be executed in counterparts, including facsimile counterparts.
11. Indemnification. LaHaye agrees to indemnify Gargoyles, or any
current or former employee, officer, director, consultant or contractor thereof,
against any claims for injury or damage to person or property made against
Gargoyles arising out of the allegedly injured party's purchase or use of an
adherent lens product manufactured by LaHaye. Gargoyles agrees to indemnify
LaHaye against any claims for injury or damage to person or property made
against LaHaye arising out of the allegedly injured party's purchase or use of a
product manufactured by Gargoyles under the license from LaHaye.
12. Attorneys' Fees. In any action to enforce this agreement, the
prevailing party shall be entitled to its reasonable attorneys' fees and costs
of litigation.
/S/ PETER G. LAHAYE
- -------------------------------
Peter G. LaHaye
/S/ SANDRA L. LAHAYE
- -------------------------------
Sandra L. LaHaye
<PAGE> 5
LAHAYE LABORATORIES, INC.,
a Washington corporation
By: /S/ PETER G. LAHAYE
-------------------------------
Its: President and CEO
NEOPTX, INC.
By: /S/ PETER G. LAHAYE
-------------------------------
Its: President and CEO
GARGOYLES, INC.
a Washington corporation
/S/ STEVEN R. KINGMA
- -------------------------------
Steven R. Kingma, Vice-President and CFO
<PAGE> 1
EXHIBIT 10.48
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement') is made as of this 30th day of June,
1997, by and between NEOPTX, INC., a Washington corporation (referred to herein
as "Licensor'), on the one hand, and GARGOYLES, INC., a Washington Corporation
("Gargoyles") on the other hand.
RECITALS
A. Gargoyles has been issued a patent for and Adherent Corrective Lens
from the United States Patent and Trademark Office (the "PTO") under Patent
Number 5,478,824 (the "824 Patent"). Gargoyles has also filed a continuation in
part application in the PTO and has filed International patent applications in
Canada, Japan, and the European Patent Office, all of which are related to the
'824 Patent.
B. Peter LaHaye, owner of Neoptx, has filed a U.S. patent application,
Serial No. 08/163,678 on an adherent lens.
C. Gargoyles, Neoptx, Mr. LaHaye, and LaHaye Laboratories are parties to
certain litigation pending in the United States District Court for the Western
District of Washington in Seattle under Cause No. C96-302R (the "Litigation").
In the Litigation, Gargoyles has alleged patent infringement, misappropriation
of trade secrets, and breach of a confidential relationship against Neoptx, Mr.
LaHaye and LaHaye Laboratories.
D. As part of a settlement of the Litigation and subject to the terms of
a Settlement Agreement executed by the parties of even date herewith, and to an
assignment document of even date herewith, and to the terms of this Agreement,
Gargoyles has agreed to assign the '824 Patent, and any related U.S. or
international patent applications to Licensor, and Licensor has agreed to
license all such assigned technology back to Gargoyles.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1 . Definitions. When used in this Agreement, the following capitalized
terms shall have the meanings set forth below:
1.1 "Licensed Technology" shall mean any inventions disclosed or
claimed in (i) the '824 Patent, (ii) that certain patent application filed with
the
<PAGE> 2
PTO on June 7, 1995, Serial No. 08/484,265, (iii) any related patent
applications pending in foreign jurisdictions, including International patent
application PCT/US95/02123, European patent application EP 95911057.8, Canadian
Patent Application 2,182,975, and Japanese patent application 521975/95, (iv)
that certain patent application pending in the PTO filed by Peter LaHaye on
December 7, 1993, Serial No. 89/163,678 and (v) any and all continuations,
continuations-in-part, divisionals, reissues or extensions of the foregoing
patents and applications.
1.2 "Subsidiary" with respect to Gargoyles, shall mean any
corporation, limited liability company, or other legal entity, now or hereafter
existing, which is more than fifty percent (50%) owned by Gargoyles.
1.3 "Territory" shall mean the world.
2. Grant of License; Product Identification. Subject to the terms and
conditions of this Agreement, Licensor hereby grants to Gargoyles a nonexclusive
license to make, use, import, offer to sell, and/or sell products embodying the
Licensed Technology in the Territory ("the License"). Any product sold by
Gargoyles using the Licensed Technology shall display, somewhere on such product
packaging, a notice of the patent or patents under which the product is made by
license. Gargoyles may not grant any sublicense of this license.
3. Term. The License shall commence on the date of the execution of this
Agreement and shall continue during the life of any patents in the Licensed
Technology.
4. Royalty. Gargoyles shall be deemed to be fully paid up for this Grant
of License and shall owe no further royalty to Licensor whatsoever.
5. Infringements. The parties shall inform each other immediately upon
learning of any goods or activities which they believe to infringe Licensed
Technology. Upon learning or being informed of such infringement, Licensor shall
have the right, but not the obligation, at its sole discretion and expense, to
take such action as Licensor considers necessary or appropriate to enforce
Licensors rights in the Licensed Technology, including, without limitation,
legal action to suppress or eliminate such infringement or to settle any such
dispute or action. If however within 60 days of learning of or any such
potential infringement or of delivery of notice by Gargoyles to Licensor of any
such potential infringement, Licensor does not advise Gargoyles that it has
initiated appropriate action, or notifies Gargoyles that it will take no action,
to enforce its rights against those goods or activities, then Gargoyles shall be
permitted, at its own expense, to enforce such rights of Licensor, and Gargoyles
shall retain
<PAGE> 3
100% of any damage award, and/or settlement amount with respect to
such enforcement action instigated by Gargoyles.
6. Independence of the Parties. Neither Licensor nor Gargoyles shall be
construed to be the agent of the other in any respect, and nothing herein shall
be construed to place the parties in the relationship of partners, joint
venturers, agency or legal representation. Neither Licensor nor Gargoyles shall
have the authority to obligate or bind the other in any manner as to any third
party.
7. Assignability. The rights and obligations of Gargoyles under this
Agreement shall inure to the benefit of Gargoyles, its successors in interest
due to a transfer of substantially all of the stock or assets of Gargoyles, and
its Subsidiaries, and any reference to Gargoyles in this Agreement shall also
include such successors and Subsidiaries. Gargoyles shall not assign or transfer
any of its rights under this Agreement, and any attempted assignment or transfer
shall be null and void and of no effect.
8. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed in accordance with the internal substantive laws of the state of
Washington applicable to agreements made and to be performed therein. The
parties hereby consent to the exclusive jurisdiction of the courts of the state
of Washington for resolution of all claims, differences, and disputes which the
parties may have regarding this Agreement.
9. Notice. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be given by: (a)
hand delivery, (b) first-class registered or certified mail with postage
prepaid, (c) overnight receipted courier service, or (d) telephonically
confirmed facsimile transmission; which notice is addressed to the party at the
address set forth below, or such other address as may hereafter be designated in
writing by the party. Notices given in accordance with this Section shall be
effective upon receipt or when receipt is refused. Notice given to the party
listed below for Licensor shall be deemed effective notice to each party
comprising Licensor as if made individually to each such party.
If to Licensor, to: Mr. Peter LaHaye, President
Neoptx, Inc.
2205 152nd Avenue NE
Redmond, WA 98052
If to Gargoyles, to: Mr. Douglas B. Hauff, President and CEO
Gargoyles, Inc.
5866 South 194th Street
Kent, Washington 98032
Tel: 206-872-6100
<PAGE> 4
Fax: 206-872-3317
10. Amendments. This Agreement shall be amended only by a writing
executed by the parties hereto.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this License Agreement as
of the date first above written.
NEOPTX, INC.,
a Washington corporation
by: /S/ PETER G. LAHAYE
-------------------------------
its: President and CEO
GARGOYLES, INC.,
a Washington Corporation
by: /S/ DOUGLAS B. HAUFF
Douglas B. Hauff, President and CEO
<PAGE> 1
EXHIBIT 10.49
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
PARTIES:
<TABLE>
<CAPTION>
<S> <C>
ADIDAS AMERICA, INC. ("ADIDAS")
GARGOYLES, INC. ("GARGOYLES")
CONQUEST SPORTS, INC. ("CONQUEST")
AXCENT SPORTS, INC. ("AXCENT")
SPORTS PERFORMANCE PRODUCTS, INC. ("SPPI")
DOUGLAS HAUFF ("HAUFF")
TRILLIUM CORPORATION ("TRILLIUM")
</TABLE>
RECITALS
A. AXCENT currently owes GARGOYLES and CONQUEST over $200,001, which
constitute accounts receivables for GARGOYLES and CONQUEST, respectively. These
debts are reflected in the "Other Payables" section of AXCENT's balance sheet.
B. On or about February 12, 1997, ADIDAS filed a complaint with the
United States District Court for the District of Oregon, Case No. 97-239-JE
(the "Action"), against GARGOYLES, CONQUEST, AXCENT, and SPPI (GARGOYLES,
CONQUEST, AXCENT, and SPPI are hereinafter referred to collectively as
"DEFENDANTS".) In the Action, ADIDAS asserted breach of contract claims against
each of the DEFENDANTS. Based on GARGOYLES' alleged relationship with AXCENT,
ADIDAS also asserted claims against GARGOYLES under the theories of piercing
the corporate veil and promoter liability. Among other things, ADIDAS demands
damages of $603,904.56 against each DEFENDANT.
C. HAUFF and TRILLIUM have executed Indemnity Agreements with GARGOYLES
and CONQUEST. GARGOYLES and CONQUEST have tendered to HAUFF and TRILLIUM the
claims asserted against them by ADIDAS.
D. To avoid the expense and uncertainty of litigation, ADIDAS and
DEFENDANTS desire to settle and compromise their differences under the terms
and conditions set forth in this Settlement Agreement and Mutual Release
("Agreement"). Likewise, HAUFF and TRILLIUM have agreed to accept GARGOYLES and
CONQUEST's tenders under the following terms.
1
<PAGE> 2
NOW, THEREFORE, IT IS AGREED:
1. PAYMENTS BY HAUFF AND TRILLIUM AND ASSIGNMENT BY AXCENT, HAUFF and
TRILLIUM agree that they are jointly and severally liable to make payments on
the following schedule to ADIDAS: $50,000 on July 15, 1997; $50,000 on August
1, 1997; $50,000 on November 1, 1997; and $50,000 on February 1, 1998. In
consideration and exchange for HAUFF's and TRILLIUM's agreement to make the
above payments, GARGOYLES and CONQUEST assign to HAUFF and TRILLIUM all rights
that they have in the over $200,001 of accounts receivable remaining due and
outstanding from AXCENT. Likewise, in consideration and exchange for HAUFF's
and TRILLIUM's agreements to make the above payments, ADIDAS assigns to HAUFF
and TRILLIUM all rights and claims it has against AXCENT.
2. INTEREST. Any payments not made on or before the dates indicated in
paragraph 1 herein shall bear interest at the rate of 1% per month, or at the
highest rate allowed by law, whichever is less, from the scheduled payment date
until paid in full.
3. DISMISSAL. ADIDAS agrees to dismiss with prejudice, and without
award of costs or fees, the Action within ten business days of the date this
Agreement is signed by the DEFENDANTS, HAUFF and TRILLIUM.
4. RELEASES. In consideration for the provisions of this Agreement,
and except for the obligations of this Agreement and the assigned rights and
claims by ADIDAS to HAUFF and TRILLIUM (as more fully described in paragraph 1
above), ADIDAS, on the one hand, and the DEFENDANTS, HAUFF and TRILLIUM, on the
other hand, for themselves and each of their respective agents, officers,
directors, employees, representatives, executors, heirs and assigns, hereby
release each other, together with each of their respective agents, officers,
directors, employees, representatives, executors, heirs and assigns, from any
and all claims and disputes that may exist between them as of the date of this
Agreement, whether known or unknown, arising out of the facts that gave rise
to the Action.
5. NO ADMISSION OF LIABILITY. The parties understand, agree and
acknowledge that this Agreement is in compromise of disputed claims, and that
the agreements hereunder are not to be construed as admissions of liability.
The parties acknowledge that this agreement is a fair and equitable settlement
of each Parties' claims.
6. AUTHORITY. The parties to this Agreement represent that they have
the power and authority to execute and deliver this Agreement, and to perform
all terms and conditions hereof to be performed by them.
7. BINDING ON SUCCESSORS AND ASSIGNS. All for the covenants,
agreements, conditions and terms contained in this Agreement shall be binding
upon, apply and inure to the benefit of the successors and assigns of the
respective parties.
-2-
<PAGE> 3
8. INTEGRATION. This Agreement constitutes a final and complete
statement of the agreement between the parties.
9. COUNSEL. Each of the parties hereto acknowledges that each party has
been represented by counsel in connection with the preparation and execution of
this Agreement and that each party has thoroughly reviewed this Agreement with
that party's counsel. For all purposes, including the construction and
interpretation hereof, this Agreement shall be deemed to have been prepared or
drafted jointly by all parties hereto.
10. ATTORNEY FEES. If a lawsuit, action or other legal proceeding is
brought to interpret or enforce this Agreement, any judgment therein shall
award the prevailing party all costs thereof, including but not limited to
reasonable attorney and legal assistance fees (including, without limitation,
such fees incurred on any appeal, arbitration or voluntary or involuntary
bankruptcy case).
11. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto affix their respective signatures.
<TABLE>
<S> <C>
ADIDAS AMERICA, INC. SPORTS PERFORMANCE PRODUCTS, INC.
By: [SIG] By: /s/ DOUGLAS B. HAUFF
---------------------------------- ------------------------------
Title: Secretary and General Counsel Title: President
------------------------------- ---------------------------
Date: 7/14/97 Date: July 14, 1997
-------------------------------- ----------------------------
GARGOYLES, INC. TRILLIUM CORPORATION
By: /s/ DOUGLAS B. HAUFF By: /s/ PAUL PIEN
---------------------------------- ------------------------------
Title: President & CEO Title: Vice President, General Counsel
------------------------------- ---------------------------
Date: July 14, 1997 Date: July 14, 1997
-------------------------------- ----------------------------
CONQUEST SPORTS, INC.
By: /s/ DOUGLAS B. HAUFF By: /s/ DOUGLAS HAUFF
---------------------------------- ------------------------------
Title: President Douglas Hauff
-------------------------------
Date: July 14, 1997 Date: July 14, 1997
-------------------------------- ----------------------------
AXCENT SPORTS, INC.
By: /s/ DOUGLAS HAUFF
----------------------------------
Title: President
-------------------------------
Date: July 14, 1997
--------------------------------
</TABLE>
3
<PAGE> 1
EXHIBIT 10.50
PROMISSORY NOTE
$56,307.15 March 11, 1998
FOR VALUE RECEIVED, the undersigned Douglas B. Hauff ("Borrower") does
hereby promise to pay to the order of Gargoyles, Inc. ("Gargoyles"), in lawful
money of the United States of America, the principal sum of Fifty-Six Thousand
Three Hundred Seven and 15/100 Dollars ($56,307.15) together with interest
thereon accruing from December 31, 1997, until paid in full as stated herein.
1. Interest Rate. The outstanding principal balance of this Note shall
bear interest at a rate equal to 5.75% per annum.
2. Maturity. The entire principal balance of this Note, plus all
accrued and unpaid interest, and all other amounts owing hereunder, shall be due
and payable in full on February 15, 1999.
3. Application of Payments; Prepayment. Each payment hereunder shall be
applied first to the payment of interest then accrued on the unpaid balance
under this Note, and the remainder, if any, shall be applied to the reduction of
principal. This Note may be prepaid in whole or in part at any time or times
with no prepayment penalty or additional cost of any kind. Upon payment in full
of the principal and accrued interest thereon, this Note shall be canceled,
shall be of no further force or effect, and shall be returned to Borrower, and
any instruments securing repayment hereof shall be fully reconveyed and
released.
4. Default; Default Interest Rate. This Note shall be in default if
Borrower fails to pay this Note when due or fails to pay or perform any of its
obligations under the Pledge Agreement. If a default occurs, the holder of this
Note shall be entitled to declare the entire unpaid principal balance and all
accrued and unpaid interest thereon immediately due and payable and may proceed
to protect and enforce its rights either by suit in equity and/or law or any
other appropriate proceedings, whether for the specific performance of any
covenant or agreement contained in this Note or in any document or agreement
securing payment hereof, including the Pledge Agreement. After such default the
principal balance shall bear interest at a rate per annum of twelve percent
(12%) until the default is cured.
5. Attorneys' Fees and Costs. If a default occurs hereunder and this
Note is placed in the hands of an attorney for collection of any amount called
for herein, Borrower shall be liable for all costs of collection, including
without limitation reasonable attorneys fees and costs.
6. Applicable Law. This Note shall be construed according to the law of
the state of Washington.
Page 1
<PAGE> 2
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date first written above.
/s/ DOUGLAS B. HAUFF
- ---------------------------
Douglas B. Hauff
Page 2
<PAGE> 1
EXHIBIT 10.51
SEPARATION AND RELEASE AGREEMENT
I, Steven R. Kingma, and Gargoyles, Inc. (the "Company") agree to sever
my employment relationship with the Company under the terms below in this
Separation and Release Agreement (this "Agreement"). I understand that by
signing this Agreement, I will receive certain benefits from the Company in
addition to those I am otherwise entitled under the terms of my Employment
Agreement, as such term is defined below.
RECITALS
A. On March 22, 1995, the Company and I entered into an Employment
Agreement, pursuant to which I continued as the Vice President/Chief Financial
Officer of the Company (the "Employment Agreement").
B. Subject to the terms and conditions of this Agreement, the Company
and I now agree to sever my employment relationship with the Company and to
resolve the terms of such severance and all differences between us.
AGREEMENT
1. Severance of Employment. By signing this Agreement, I am severing my
employment with the Company effective January 31, 1998 (the "Termination Date").
I am also resigning all of my positions as an officer of the Company and as an
officer of any subsidiary of the Company. By signing this Agreement, the Company
is accepting my resignations.
2. Severance Benefits.
(a) Severance Pay. I understand that I will receive an amount
equal to $6,666.66 per month for six (6) months (the "Severance Payment"), from
which normal and authorized withholdings and deductions will be made. I
understand that the Severance Payment will be paid to me in equal installments
of $3,333.33 in accordance with the Company's twice-monthly payroll schedule. I
further understand that if I accept full-time employment during this six-month
period, then my Severance Payments shall cease.
(b) Expense Reimbursement; Product Account. I will be reimbursed
for any reasonable expenses incurred by me prior to the Termination Date on
behalf of the Company, subject to the receipt by the Company of all supporting
documentation. I understand that after the Termination Date I am no longer
authorized to incur expenses or to make commitments on behalf of the Company. I
understand that I will be permitted to continue to purchase product from the
Company at the Company's employee discount price until December 31, 1998. All
purchases must be for cash or by bank card. Any amounts remaining unpaid on my
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account with the Company as of the Termination Date for the purchase of product
shall be deducted from my next paycheck.
(c) FTO. I understand that I will accrue no further Flexible Time
Off from and after the Termination Date. I will be paid for any earned but
unused Flexible Time Off benefits, less all required and authorized deductions,
with my next paycheck.
(d) Cobra; Life and Disability Insurance Policies. For a period
of five (5) months after the Termination Date, the Company will pay to me
amounts for COBRA benefits for me and my family and the premium for my
disability and life insurance coverage, provided, however, that if I become
employed and my new employer provides medical benefits to me, the Company's
obligation to continue to pay COBRA benefits to me and my family under this
Section 2(d) shall cease. After that period, I may elect to pay for COBRA
medical and dental plan continuation coverage for the remaining period allowed
by law, until I am entitled to Medicare, or until I am covered under other plans
with no pre-existing exclusion. The insurance provider, Washington Employers
Trust, will provide further information about my COBRA rights after the
Termination Date. The Company will also provide me with information on the
potential for continuation of the disability and life insurance coverage
currently provided to me through the Company if I pay the premiums for such
coverages.
(e) Eligibility for Unemployment. I understand that while the
Company has no authority to determine unemployment benefits, the Company will
not attempt to interfere or deny such benefits if and when they should become
available to me.
(f) Voice Mail. To assist in my search for new employment, the
Company will provide me with a voice mail box at the Company until June 30,
1998.
3. Stock Options. As of the Termination Date, I am vested in 27,488
options to purchase the Company's common stock, at an exercise price of $3.48
per share, and 3,750 options to purchase the Company's common stock at an
exercise price of $8.00 per share. I understand that the Plan Administrator will
rescind my option grant with respect to all of my options with an exercise price
of $8.00 per share. I further understand that the Plan Administrator will
accelerate the vesting of an additional 2,689 options to purchase the Company's
common stock at an exercise price of $3.48 per share. I further understand that
I will not continue to vest in any more options, that any of my rights to
unvested options shall immediately terminate, and that the vested options will
continue to be governed by the Gargoyles, Inc. 1995 Stock Incentive Compensation
Plan, as Amended and Restated on July 22, 1996. except that the Plan
Administrator will extend the period for me to exercise my vested options to
December 31, 1998.
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4. Complete Release of Claims. By signing this Agreement, I agree not to
start any lawsuits, charges, or other legal action against the Company relating
to my employment with the Company or the benefits that I received or should have
received from the Company. In addition, I, for myself and for my heirs,
representatives, executors, and successors, waive any rights or claims I may
have against the Company, any employee benefit plans sponsored by the Company in
which I participate, and all of the Company's affiliated and related entities,
owners, shareholders, officers, directors, trustees, agents, employees,
employees' spouses, insurers, either past or present, and all of their
successors, agents or assigns (collectively "Releasees"). I hereby release the
Releasees from any and all claims, actions, causes of action, obligations,
costs, expenses, damages, losses, debts, and demands, including attorneys' fees
and costs actually incurred (collectively "Claims") of whatever kind, in law or
in equity, known or unknown, suspected or unsuspected, which arose prior to the
Termination Date.
This release includes, but is not limited to: (i) any Claims under any
local, state or federal laws regulating employment, including without
limitation, the Civil Rights Acts, the Age Discrimination and Employment Act,
the Americans with Disabilities Act, the Workers' Adjustment and Retraining
Notification Act, and the Washington State Law Against Discrimination; (ii)
Claims under the Employee Retirement Income Security Act; (iii) Claims under any
local, state or federal wage and hour laws; or (iv) Claims alleging any legal
restriction on the Company's right to terminate their employees, or personal
injury claims, including without limitation wrongful termination,
discrimination, harassment, breach of contract, defamation, tortuous
interference with business expectancy, black listing, or infliction of emotional
distress, whether arising under statute or common law.
Nothing set forth in this Section 6, however, shall prevent me from
participating in any distributions made to members of any class of shareholders
of the Company for any Claims brought by such class related to events occurring
after December 15, 1997, provided, however, I agree not to initiate, direct, or
be a named plaintiff in any such shareholder litigation against the Company.
5. Cooperation with Company.
(a) Generally. During the next twelve months, I will fully
cooperate with, and from time to time make myself available at the Company's
reasonable request to consult with, the Company on matters in which I was
involved on behalf of the Company. Nothing in this section 5, however, shall
prevent me from taking on other employment, nor shall my obligations under this
section 5 unreasonably interfere with such other employment.
(b) Maulden Litigation. I agree to cooperate fully with the
Company as the Company may reasonably request in connection with the Company's
defense
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of the lawsuit filed by Michele J. and David B. Maulden in the Superior Court
for King County under Cause No. 97-2-18776-1 KNT or any other litigation by
Maulden relating to her employment with the Company (the "Maulden Litigation").
If the Company enters into a settlement and release agreement with the Mauldens
in the Maulden Litigation, in addition to a release of the Company, the Company
shall use its best efforts to obtain a release of all former employees of the
Company. The Company agrees to defend and hold harmless Kingma from and against
all legal fees and expenses incurred by Kingma, if Kingma is added as a
defendant in the Maulden Litigation.
6. Effect of Prior Agreements. I understand that as of the Termination
Date the Employment Agreement is terminated and is superseded by this Agreement,
and that I shall have no further rights or obligations under the Employment
Agreement except for the terms set forth in Sections 7 through 9 of the
Employment Agreement relating to "Intellectual Property; Nondisclosure of
Confidential Information; Covenant Not to Compete, Dispute Resolution, and
Enforcement", which shall remain in effect following the Termination Date in
accordance with their terms, except that the non-competition period set forth in
7.5(b) of the Employment Agreement shall terminate on January 31, 1999.
7. Nondisparagement; No Solicitation. The Company and I each hereby
pledge not to make statements in disparagement of the other which are intended
to damage the other's reputation. Prohibited actions would include, but not be
limited to, private or public comments, statements, or writings critical of the
other party or any of the Releases or complaints filed against the other party
or any of the Releasees with any regulatory agency. In addition, I agree not to
interfere with the working relationship between the Company and any of its
employees, and for a period of two (2) years after the Termination Date, I
specifically agree not to seek to hire or to hire any employee of the Company to
work for me or for my future employer(s) without the express written consent of
the Company.
8. Consultation with Legal Counsel. I have carefully read all of the
provisions of this Agreement. I further acknowledge that the Company has
encouraged me to review and discuss all aspects of this Agreement with legal
counsel and that I have taken advantage of that opportunity to the full extent
that I deem appropriate.
9. Consideration Period; Revocation Period. I acknowledge that I have
been given 21 days to consider this Agreement, and that I was given the option
to sign the Agreement in fewer than twenty-one (21) days if I desired. I
understand that this Agreement will not be effective for seven (7) days after it
is signed by the Company and me, and that I can revoke this Agreement at any
time during that seven-day period. I understand that no payments will be made
until after the expiration of this seven-day period.
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10. Voluntary Agreement. I understand and acknowledge the significance
and consequences of this Agreement, that it is voluntary, that it has not been
given as a result of any coercion, and expressly confirm that it is to be given
full force and effect according to all of its terms, including those relating to
unknown Claims.
11. Successors This Agreement shall be binding upon the parties hereto
and their heirs, representatives, executors, administrators, successors and
assigns, and shall inure to the benefit of each and all of the Releasees, and to
their heirs, representatives, executors, administrators, successors and assigns.
12. General Provisions
(a) Governing Law. This Agreement is made and entered into in the
state of Washington and shall in all respects be interpreted, enforced and
governed under the laws of the state of Washington. The language of all parts of
this Agreement shall in all cases by construed as a whole, according to its fair
meaning, and not strictly for or against either party.
(b) Invalidity. If any of the provisions of this Agreement are
held to be illegal or invalid, the remaining provisions shall not be affected
thereby, and the illegal or invalid provision shall be deemed not to be a part
of this Agreement.
(c) Entire Agreement. Except for the provisions of the Employment
Agreement which survive the Termination Date, this Agreement represents and
contains the entire understanding between the Company and me in connection with
my separation from the Company. I acknowledge that I have not signed this
Agreement in reliance on any promise, representation, or statement not contained
herein.
13. Non-Admission of Liability. This Agreement shall not be construed in
any way as an admission by the Company of any liability or wrongdoing
whatsoever. Likewise, this Agreement shall not be construed in any way as an
admission by me of any misconduct or impropriety.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of January 30, 1998.
GARGOYLES, INC.,
a Washington corporation
By /s/ ROBERT G. WOLFE
--------------------------------
Robert G. Wolfe, Chairman
/s/ STEVEN R. KINGMA
--------------------------------
Steven R. Kingma
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EXHIBIT 10.52
SEPARATION AND RELEASE AGREEMENT
I, G. Travis Worth, elect to sever my employment relationship with
Gargoyles, Inc. (the "Company") under the terms below. I understand that by
signing this Separation and Release Agreement (this "Agreement"), I will receive
compensation and benefits from the Company in addition to what is ordinarily
offered to employees whose jobs have been eliminated or restructured.
RECITALS
A. On November 1, 1995, the Company and I entered into an Employment
Agreement, pursuant to which I became the Senior Vice President of the Company
(the "Employment Agreement").
B. I now desire to sever my employment relationship with the Company
and to resolve the terms of such severance and all differences between us.
AGREEMENT
1. Resignation of Employment. By signing this Agreement, I am resigning
my employment with the Company effective January 31, 1998 (the "Termination
Date"). I am also resigning all of my positions as an officer of the Company and
as an officer of any subsidiary of the Company. By signing this Agreement, the
Company is accepting my resignations.
2. Severance Benefits.
(a) Severance Pay. I understand that I will receive an amount
equal to three month's of my base pay (the "Severance Payment"), from which
normal and authorized withholdings and deductions will be made. I understand
that the Severance Payment will be paid to me in eight equal installments in
accordance with the Company's twice-monthly payroll schedule, less any amounts I
receive as compensation for employment from an employer other than the Company
during such period.
(b) Expense Reimbursement; Payment of Product Account; Return of
Cellular Phone. I will be reimbursed for any reasonable expenses incurred by me
prior to the Termination Date on behalf of the Company, subject to the receipt
by the Company of all supporting documentation. I understand that after the
Termination Date I am no longer authorized to incur expenses or to make
commitments on behalf of the Company. Any amounts remaining unpaid as of the
Termination Date on my account with the Company for the purchase of product
shall be deducted from my next paycheck. I will return to the Company, the
Company's cellular phone in my possession. If the phone is not returned, I
understand that its cost will be deduced from my next paycheck.
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(c) FTO. I understand that I will accrue no further Flexible Time
Off from and after the Termination Date. I will be paid for any earned but
unused Flexible Time Off benefits, less all required and authorized deductions,
with my next paycheck.
(d) Cobra; Life and Disability Insurance Policies. For a period of
three (3) months after the Termination Date, the Company will pay COBRA benefits
for me and my family. After that time I may elect to pay for COBRA medical and
dental plan continuation coverage for another fifteen months, until I am
entitled to Medicare, or until I am covered under other plans with no
pre-existing exclusion. The insurance provider, Washington Employers Trust, will
provide further information about my COBRA rights after the Termination Date.
The Company will also provide me with information on the potential for
continuation of the disability and life insurance coverage currently provided to
me through the Company if I pay the premiums for such coverages.
(e) Eligibility for Unemployment. I understand that while the
Company has no authority to determine unemployment benefits, the Company will
not attempt to interfere or deny such benefits if and when they should become
available to me.
3. Stock Options. As of the Termination Date, I am vested in 14,939
options to purchase the Company's common stock, at an exercise price of $3.48
per share. I further understand that the Plan Administrator will accelerate the
vesting of an additional 14,939 options to purchase the Company's common stock
at an exercise price of $3.48 per share. I understand that I will not continue
to vest in any more options, that any of my rights to unvested options shall
immediately terminate, and that the vested options will continue to be governed
by the Gargoyles, Inc. 1995 Stock Incentive Compensation Plan, as Amended and
Restated on July 22, 1996, except that the Plan Administrator will extend the
period for me to exercise my vested options to December 31, 1998.
4. Complete Release of Claims. By signing this Agreement, I agree not
to start any lawsuits, charges, or other legal action against the Company
relating to my employment with the Company or the benefits that I received or
should have received from the Company. In addition, I, for myself and for my
heirs, representatives, executors, and successors, waive any rights or claims I
may have against the Company, any employee benefit plans sponsored by the
Company in which I participate, and all of the Company's affiliated and related
entities, owners, shareholders, officers, directors, trustees, agents,
employees, employees' spouses, insurers, either past or present, and all of
their successors, agents or assigns (collectively "Releasees"). I hereby release
the Releasees from any and all claims, actions, causes of action, obligations,
costs, expenses, damages, losses, debts, and demands, including attorneys' fees
and costs actually incurred (collectively
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"Claims") of whatever kind, in law or in equity, known or unknown, suspected or
unsuspected, which arose prior to the Termination Date.
This release includes, but is not limited to: (i) any Claims under any
local, state or federal laws regulating employment, including without
limitation, the Civil Rights Acts, the Age Discrimination and Employment Act,
the Americans with Disabilities Act, the Workers' Adjustment and Retraining
Notification Act, and the Washington State Law Against Discrimination; (ii)
Claims under the Employee Retirement Income Security Act; (iii) Claims under any
local, state or federal wage and hour laws; or (iv) Claims alleging any legal
restriction on the Company's right to terminate their employees, or personal
injury claims, including without limitation wrongful termination,
discrimination, harassment, breach of contract, defamation, tortuous
interference with business expectancy, black listing, or infliction of emotional
distress, whether arising under statute or common law.
5. Cooperation with Company. During the next twelve months, I will
fully cooperate with, and from time to time make myself available at the
Company's request to consult with, the Company on matters in which I was
involved on behalf of the Company. Nothing in this section 5, however, shall
prevent me from taking on other employment.
6. Effect of Prior Agreements. I understand that as of the Termination
Date the Employment Agreement is terminated and is superseded by this Agreement,
and that I shall have no further rights or obligations under the Employment
Agreement except for the terms set forth in Sections 7 through 9 of the
Employment Agreement relating to "Intellectual Property; Nondisclosure of
Confidential Information; Covenant Not to Compete, Dispute Resolution, and
Enforcement", which shall remain in effect following the Termination Date in
accordance with their terms. The Company acknowledges and agrees that pursuant
to Section 7.5(b) of the Employment Agreement the term of my non-competition
period shall expire on July 31, 1998.
7. Nondisparagement; No Solicitation. The Company and I each hereby
pledge not to make statements in disparagement of the other which are intended
to damage the other's reputation. Prohibited actions would include, but not be
limited to, private or public comments, statements, or writings critical of the
other party or any of the Releases or complaints filed against the other party
or any of the Releasees with any regulatory agency. In addition, I agree not to
interfere with the working relationship between the Company and any of its
employees, and for a period of two (2) years after the Termination Date, I
specifically agree not to seek to hire or to hire any employee of the Company to
work for me or for my future employer(s) without the express written consent of
the Company.
8. Consultation with Legal Counsel. I have carefully read all of the
provisions of this Agreement. I further acknowledge that the Company has
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encouraged me to review and discuss all aspects of this Agreement with legal
counsel and that I have taken advantage of that opportunity to the full extent
that I deem appropriate.
9. Consideration Period; Revocation Period. I acknowledge that I have
been given 21 days to consider this Agreement, and that I was given the option
to sign the Agreement in fewer than twenty-one (21) days if I desired. I
understand that this Agreement will not be effective for seven (7) days after it
is signed by the Company and me, and that I can revoke this Agreement at any
time during that seven-day period. I understand that no payments will be made
until after the expiration of this seven-day period.
10. Voluntary Agreement. I understand and acknowledge the significance
and consequences of this Agreement, that it is voluntary, that it has not been
given as a result of any coercion, and expressly confirm that it is to be given
full force and effect according to all of its terms, including those relating to
unknown Claims.
11. Successors This Agreement shall be binding upon the parties hereto
and their heirs, representatives, executors, administrators, successors and
assigns, and shall inure to the benefit of each and all of the Releasees, and to
their heirs, representatives, executors, administrators, successors and assigns.
12. General Provisions
(a) Governing Law. This Agreement is made and entered into in the
state of Washington and shall in all respects be interpreted, enforced and
governed under the laws of the state of Washington. The language of all parts of
this Agreement shall in all cases by construed as a whole, according to its fair
meaning, and not strictly for or against either party.
(b) Invalidity. If any of the provisions of this Agreement are
held to be illegal or invalid, the remaining provisions shall not be affected
thereby, and the illegal or invalid provision shall be deemed not to be a part
of this Agreement. I understand, however, that if the "Complete Release of
Claims" section is held to be illegal or unenforceable in whole or in part, the
Company may elect to rescind this Agreement and demand reimbursement of all
consideration paid to me pursuant to the Agreement.
(c) Entire Agreement. Except for the provisions of the Employment
Agreement which survive the Termination Date, this Agreement represents and
contains the entire understanding between the Company and me in connection with
my separation from the Company. I acknowledge that I have not signed this
Agreement in reliance on any promise, representation, or statement not contained
herein.
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13. Non-Admission of Liability. This Agreement shall not be construed in
any way as an admission by the Company of any liability or wrongdoing
whatsoever. Likewise, this Agreement shall not be construed in any way as an
admission by me of any misconduct or impropriety.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
January 30, 1998.
GARGOYLES, INC.,
a Washington corporation
By /s/ ROBERT G. WOLFE
-----------------------------------
Robert G. Wolfe, Chairman
/s/ G. TRAVIS WORTH
- -------------------------------------
G. Travis Worth
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EXHIBIT 10.53
SEPARATION AND RELEASE AGREEMENT
I, David Jobe, elect to sever my employment relationship with Gargoyles,
Inc. (the "Company") under the terms below. I understand that by signing this
Separation and Release Agreement (this "Agreement"), I will receive compensation
and benefits from the Company in addition to what is ordinarily offered to
employees who voluntarily resign and greater than provided under terms of my
employment agreement with the Company.
RECITALS
A. On March 22, 1995, the Company and I entered into an Employment
Agreement, pursuant to which I became the Vice President Sales (the "Employment
Agreement").
B. I now desire to sever my employment relationship with the Company
and to resolve the terms of such severance and all differences between us.
AGREEMENT
1. Resignation of Employment. By signing this Agreement, I am resigning
my employment with the Company effective February 2, 1998. I am also resigning
all of my positions as an officer of the Company and as an officer of any
subsidiary of the Company. By signing this Agreement, the Company is accepting
my resignations.
2. Severance Benefits.
(a) Base Pay; No Draw. I understand that I will receive my base
pay through February 2, 1998 (the "Termination Date"), from which normal and
authorized withholdings and deductions will be made. I understand that my base
pay will be paid to me in accordance with the Company's twice-monthly payroll
schedule. I understand that I will not be receiving any amount attributable to a
draw against sales commissions for the period from January 1, 1998 through the
Termination Date.
(b) Draw for Prior Periods Waived. I understand that by signing
this Agreement, the Company is agreeing that I will not be required to reimburse
the Company for any sums that I have received as draws against unearned sales
commissions, which unearned commissions total approximately $25,998.00 as of the
Termination Date, and that the Company is waiving all rights to reimbursement of
any such unearned commissions for all periods prior to the Termination Date.
(c) Expense Reimbursement; Payment of Product Account. I will be
reimbursed for any reasonable expenses incurred by me on behalf of the Company,
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subject to the receipt by the Company of all supporting documentation, with my
last paycheck. Any amounts remaining unpaid as of the Termination Date on my
account with the Company for the purchase of product shall be deducted from my
final paycheck.
(d) FTO. I will be paid for any earned by unused Flexible Time Off
benefits, less all required and authorized deductions, with my last paycheck.
(e) Cobra; Life and Disability Insurance Policies. After the
Termination Date, I may elect to pay for COBRA medical and dental plan
continuation coverage for eighteen months, until I am entitled to Medicare, or
until I am covered under other plans with no pre-existing exclusion. The Company
will provide further information about my COBRA rights after the Termination
Date. The Company will also provide me with information on the potential for
continuation of the disability and life insurance coverage currently provided to
me through the Company if I pay the premiums for such coverages.
3. Stock Options; Extension of Time to Exercise. As of the Termination
Date, I am vested in 40,630 options to purchase the Company's common stock, at
an exercise price of $3.48 per share. I understand that I will not continue to
vest in any more options, that any of my rights to unvested options shall
immediately terminate, and that the vested options will continue to be governed
by the Gargoyles, Inc. 1995 Stock Incentive Compensation Plan, as Amended and
Restated on July 22, 1996, except that the Plan Administrator has extended the
time for me to exercise my options until December 31, 1998.
4. Execution of Promissory Note. I acknowledge that as an accommodation
to me the Company has made payments on my behalf to U.S. Bank totaling
$14,215.03 to U.S. Bank under the terms of a promissory note made by me in favor
of U.S. Bank in connection with the purchase by me of common stock of the
Company in March 1995. Upon the execution of this Agreement, I will execute a
promissory note in favor of the Company in the form of the attached Exhibit A
(the "Note"), evidencing my obligation to repay the Company all sums owing the
Company in accordance with the terms of the Note.
5. Complete Release of Claims. By signing this Agreement, I agree not
to start any lawsuits, charges, or other legal action against the Company
relating to my employment with the Company or the benefits that I received or
should have received from the Company. In addition, I, for my self and my heirs,
representatives, executors, and successors, waive any rights or claims I may
have against the Company, any employee benefit plans sponsored by the Company in
which I participate, and all of the Company's affiliated and related entities,
owners, shareholders, officer, directors, trustees, agents, employees,
employees' spouses, insurers, either past or present, and all of their
successors, agents or assigns (collectively "Releasees"). I hereby release the
Releasees from any and all claims,
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actions, causes of action, obligations, costs, expenses, damages, losses, debts,
and demands, including attorneys' fees and costs actually incurred (collectively
"Claims") of whatever kind, in law or in equity, known or unknown, suspected or
unsuspected, which arose prior to the Termination Date.
This release includes, but is not limited to: (i) any Claims under any
local, state or federal laws regulating employment, including without
limitation, the Civil Rights Acts, the Americans with Disabilities Act, the
Workers' Adjustment and Retraining Notification Act, and the Washington State
Law Against Discrimination; (ii) Claims under the Employee Retirement Income
Security Act; (iii) Claims under any local, state or federal wage and hour laws;
or (iv) Claims alleging any legal restriction on the Company's right to
terminate their employees, or personal injury claims, including without
limitation wrongful termination, discrimination, harassment, breach of contract,
defamation, tortuous interference with business expectancy, black listing, or
infliction of emotional distress, whether arising under statute or common law.
6. Effect of Prior Agreements. I understand that as of the Termination
Date the Employment Agreement is terminated and is superseded by this Agreement,
and that I shall have no further rights or obligations under the Employment
Agreement except for the terms set forth in Sections 7 through 9 of the
Employment Agreement relating to "Intellectual Property; Nondisclosure of
Confidential Information; Covenant Not to Compete, Dispute Resolution, and
Enforcement:, which shall remain in effect following the Termination Date in
accordance with their terms.
7. Nondisparagement; No Solicitation. I pledge that I will make no
statement in disparagement of the Company or any of the Releasees which is
intended to damage the reputation of the Company or any of the Releasees;
including, but not limited to, private or public comments, statements, or
writings critical of the Company or any of the Releases or complaints filed
against the Company or any of the Releasees with any regulatory agency. In
addition, I agree not to interfere with the working relationship of the Company
and any of its employees, and for a period of two (2) years after the
Termination Date, I specifically agree not to seek to hire or to hire any sales
employee of the Company to work for me or for my future employer(s) without the
express written consent of the Company.
8. Consultation with Legal Counsel. I have carefully read all of the
provisions of this Agreement. I further acknowledge that the Company has
encouraged me to review and discuss all aspects of this Agreement with legal
counsel and that I have taken advantage of that opportunity to the full extent
that I deem appropriate.
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9. Voluntary Agreement. I understand and acknowledge significance and
consequences of this Agreement, that it is voluntary, that it has not been given
as a result of any coercion, and expressly confirm that it is to be given full
force and effect according to all of its terms, including those relating to
unknown Claims.
10. Successors This Agreement shall be binding upon the parties hereto
and their heirs, representatives, executors, administrators, successors and
assigns, and shall inure to the benefit of each and all of the Releasees, and to
their heirs, representatives, executors, administrators, successors and assigns.
11. General Provisions
(a) Governing Law. This Agreement is made and entered into in the
state of Washington and shall in all respects be interpreted, enforced and
governed under the laws of the state of Washington. The language of all parts of
this Agreement shall in all cases by construed as a whole, according to its fair
meaning, and not strictly for or against either party.
(b) Invalidity. If any of the provisions of this Agreement are
held to be illegal or invalid, the remaining provisions shall not be affected
thereby, and the illegal or invalid provision shall be deemed not to be a part
of this Agreement. I understand, however, that if the "Complete Release of
Claims" section is held to be illegal or unenforceable in whole or in part, the
Company may elect to rescind this Agreement and demand reimbursement of all
consideration paid to me pursuant to the Agreement.
(c) Entire Agreement. Except for the provisions of the Employment
Agreement which survive the Termination Date, this Agreement represents and
contains the entire understanding between the Company and me in connection with
my separation from the Company. I acknowledge that I have not signed this
Agreement in reliance on any promise, representation, or statement not contained
herein.
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12. Non-Admission of Liability. This Agreement shall not be construed in
any way as an admission by the Company of any liability or wrongdoing
whatsoever. Likewise, this Agreement shall not be construed in any way as an
admission by me of any misconduct or impropriety.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
February 2, 1998.
GARGOYLES, INC.,
a Washington corporation
S/S DOUGLAS B. HAUFF
By_____________________________
Douglas B. Hauff, President
S/S DAVID JOBE
- --------------------------------
David Jobe
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EXHIBIT A
PROMISSORY NOTE
$14,215.03 February 2, 1998
FOR VALUE RECEIVED, the undersigned David Jobe ("Borrower") does hereby
promise to pay to the order of Gargoyles, Inc. ("Gargoyles"), in lawful money of
the United States of America, the principal sum of Fourteen Thousand Two Hundred
Fifteen and 03/100 Dollars ($14,215.03) together with interest thereon from the
date hereof until paid in full as stated herein.
1. Interest Rate. The outstanding principal balance of this Note shall
bear interest at a rate equal to 5.75% per annum.
2. Maturity. The entire principal balance of this Note, plus all
accrued and unpaid interest, and all other amounts owing hereunder, shall be due
and payable in full on February 2, 1999.
3. Application of Proceeds from Sale of Gargoyles Stock; Prepayment. So
long as this Note remains unpaid, if at any time Borrower receives payment on
the promissory note dated March 7, 1997, in original principal amount of
$18,756.24 made by Douglas B. Hauff in favor of Borrower in connection with the
exercise of the Hauff Options (the "Hauff Note"), all net proceeds received by
Borrower under the Hauff Note, shall be applied to the repayment of this Note.
Each payment hereunder shall be applied first to the payment of interest then
accrued on the unpaid balance under this Note, and the remainder, if any, shall
be applied to the reduction of principal. This Note may be prepaid in whole or
in part at any time or times with no prepayment penalty or additional cost of
any kind. Upon payment in full of the principal and accrued interest thereon,
this Note shall be canceled, and shall be of no further force or effect, and
shall be returned to Borrower.
4. Default; Default Interest Rate. This Note shall be in default if
Borrower fails to pay this Note when due or fails to pay or perform any of his
obligations hereunder. If a default occurs, the holder of this Note shall be
entitled to declare the entire unpaid principal balance and all accrued and
unpaid interest thereon immediately due and payable and may proceed to protect
and enforce its rights either by suit in equity and/or law or any other
appropriate proceedings, whether for the specific performance of any covenant or
agreement contained in this Note. After such default the principal balance shall
bear interest at a rate per annum of eighteen percent (18%) until the default is
cured.
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5. Attorneys' Fees and Costs. If a default occurs hereunder and this
Note is placed in the hands of an attorney for collection of any amount called
for herein, Borrower shall be liable for all costs of collection, including
without limitation reasonable attorneys fees and costs.
6. Rights Cumulative. The rights and remedies of the holder of this
Note and any instrument securing payment hereof, shall be cumulative and
concurrent, and may be pursued individually, successively, or together against
the property described in any instrument securing payment hereof, or any other
funds, property or security held by the holder for the payment hereof or
otherwise at the sole discretion of the holder. The failure to exercise any such
right or remedy shall in no event be construed as a waiver of release of said
rights to remedies or of the rights to exercise them at any later time.
7. Applicable Law. This Note shall be construed according to the law of
the state of Washington.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date first written above.
- ---------------------------
David Jobe
Page 7
<PAGE> 1
EXHIBIT 10.54
SEPARATION AND RELEASE AGREEMENT
I, Douglas B. Hauff, elect to sever my employment relationship with
Gargoyles, Inc. (the "Company") under the terms below. I understand that by
signing this Separation and Release Agreement (this "Agreement"), I will receive
compensation and benefits from the Company in addition to what is ordinarily
offered to employees whose jobs have been eliminated or restructured.
RECITALS
A. On March 22, 1995, the Company and I entered into an Employment
Agreement, pursuant to which I became the President of the Company (the
"Employment Agreement").
B. I now desire to sever my employment relationship with the Company
and to resolve the terms of such severance and all differences between us.
AGREEMENT
1. Resignation of Employment. By signing this Agreement, I am resigning
my employment with the Company effective April 2, 1998 (the "Resignation
Date"). I am also resigning all of my positions as an officer of the Company and
as an officer of any subsidiary of the Company. By signing this Agreement, the
Company is accepting my resignations, and the resignations will not be
effective unless the Company signs this Agreement. I delegate to the CEO, from
the date this Agreement is executed by both parties until the Resignation Date,
the duties I would otherwise have performed as President.
2. Resignation of Board Positions. By signing and delivering this
Agreement to the Company, I am also resigning my position as a member of the
board of directors of the Company and as a director of any subsidiary of the
Company, such resignations to be effective as of the date of this Agreement.
These resignations will also not be effective unless the Company signs this
Agreement.
3. Company's Letter. The Company withdraws its February 23, 1998
letter to Mr. Hauff and agrees that it is not terminating Mr. Hauff's employment
for cause.
4. Severance Benefits.
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<PAGE> 2
(a) Expense Reimbursement; Payment of Product Account. I will be
reimbursed for any reasonable expenses incurred by me prior to February 28,
1998 on behalf of the Company, subject to the receipt by the Company of all
supporting documentation. I understand that after the Resignation Date I am no
longer authorized to incur expenses or to make commitments on behalf of the
Company.
(b) FTO. I understand that I will accrue no further Flexible Time
Off from and after the Resignation Date. I will be paid for any earned but
unused Flexible Time Off benefits, less all required and authorized deductions,
with my next paycheck. My flexible time off as of the date of this Agreement is
160 hours.
(c) Cobra; Life and Disability Insurance Policies. I understand
that for a period of three (3) months after the Termination Date, the Company
will pay COBRA benefits for me and my family and the premium for my disability
and life insurance coverages. After that period, I may elect to pay for COBRA
medical and dental plan continuation coverage for another eighteen months, until
I am entitled to Medicare, or until I am covered under other plans with no
pre-existing exclusion. The insurance provider, Washington Employers Trust, will
provide further information about my COBRA rights after the Resignation Date.
The Company will also provide me with information on the potential for
continuation of the disability and life insurance coverage currently provided to
me through the Company if I pay the premiums for such coverages.
(d) Eligibility for Unemployment. I understand that while the
Company has no authority to determine unemployment benefits, the Company will
not attempt to interfere or deny such benefits if and when they should become
available to me. The Company acknowledges that I am resigning at the Company's
request and that my resignation does not disqualify me from unemployment
benefits.
(e) Other Advances from the Company. I understand that the Company
has advanced to me $6,505.89 in personal travel and other expenses. I understand
that such amounts will be deducted from my next paycheck(s) until the advance is
paid to the Company in full.
(f) Accommodation Payments to US Bank; Promissory Note. I
acknowledge that I borrowed $175,000 from US Bank to purchase common stock of
the Company in March 1995 (the "US Bank Loan"). As an accommodation to me, from
time to time the Company has made payments of amounts due under the US Bank
Loan, and from time to time I have reimbursed the Company for such payments made
on my behalf. As of the date of this Agreement, I owe the Company $56,356.15 for
payments made by the Company on the US Bank Loan on my behalf and for certain
insurance. Upon the execution of this Agreement, I agree to execute and deliver
to the Company a promissory note in the form of the attached Exhibit B
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<PAGE> 3
evidencing my obligation to repay the Company the $56,356.15 plus interest
accrued thereon in accordance with the terms of the attached note. I further
understand that from and after the date of this Agreement, the Company will make
no further payments on the US Bank Loan, and the entire responsibility for the
US Bank Loan is mine.
(g) Voice Mail. I understand that the Company will keep my voice
mail box in place until March 31, 1998.
5. Axcent Note. I acknowledge that on July 25, 1997, I executed a
Promissory Note in favor of the Company in original principal amount of
$118,000 (the "Note"). To secure repayment of the Note, I also executed a Stock
Pledge Agreement in favor of the Company under which I pledged 15,000 shares of
the Company's common stock (the "Stock") to the Company. I agree to execute and
deliver to the Company an assignment separate from certificate in the form of
the attached Exhibit A thereby transferring all of the Stock to the Company.
Further, I hereby assign to the Company my interest in any receivables related
to Axcent. Upon execution of this Agreement and upon condition that I deliver
the fully executed assignment separate from certificate to the Company, the
Company shall accept the Stock and my interest in the Axcent receivables as
equivalent value to and in full satisfaction of the Note and the indebtedness
thereunder. The Company warrants that it has paid all obligations that are the
basis for the amount that was owed under the Note.
6. Complete Release of Claims. By signing this Agreement, I agree not
to start any lawsuits, charges, or other legal action against the Company
relating to my employment with the Company or the benefits that I received or
should have received from the Company. In addition, I, for myself and for my
heirs, representatives, executors, and successors, waive any rights or claims I
may have relating to my employment with the Company or the rights or claims I
may have relating to my employment with the Company or the benefits I received
or should have received from the Company,against the Company, any employee
benefit plans sponsored by the Company in which I participate (except for
pension plans), and all of the Company's affiliated and related entities,
owners, shareholders, officers, directors, trustees, agents, employees,
employees' spouses, insurers, either past or present, and all of their
successors, agents or assigns (collectively "Releasees"); provided that this
release shall not be effective to the extent that it would violate or preclude
coverage under director/officer insurance policies or to the extent that the
Company for any reason does not satisfy fully its obligations under the
Company's indemnification policy. I hereby release the Releasees from any and
all claims, actions, causes of action, obligations, costs, expenses, damages,
losses, debts, and demands, including attorneys' fees and costs actually
incurred (collectively "Claims") of whatever kind, relating to my employment
with the Company or the benefits I received or should have received from the
Company in law or in equity, known or unknown, suspected or unsuspected, which
arose prior to the Resignation Date.
This release includes, but is not limited to: (i) any Claims under any
local, state or federal laws regulating employment, including without
limitation, the Civil Rights Acts, the Age Discrimination and Employment Act,
the Americans with Disabilities Act, the Workers' Adjustment and Retraining
Notification Act, and the Washington State Law Against Discrimination; (ii)
Claims under the Employee Retirement Income Security Act; (iii) Claims under any
local, state or federal wage and hour laws; or (iv) Claims alleging any legal
restriction on the Company's right to terminate their employees, or personal
injury claims, including without limitation wrongful termination,
discrimination, harassment, breach of contract, defamation, tortuous
interference with business expectancy, black listing, or infliction of emotional
distress, whether arising under statute or common law, insofar as those
personal injury claims relate to my employment and arose prior to the
Resignation Date. This Agreement does not prejudice my rights, if any, to
receive pension plan benefits, unemployment compensation benefits or workers'
compensation benefits. This Agreement also does not prejudice my rights, if
any, under agreements, bylaw provisions, insurance or otherwise, to be
indemnified, defended or held harmless in connection with claims that may be
asserted against me by third parties.
7. Confirmation of Amounts Owed. The Company warrants that other than
as recited in this Agreement or in the form of promissory notes signed by Mr.
Hauff, Mr. Hauff is not indebted to the Company for any other outstanding
monetary obligation.
8. Cooperation with Company. During the next twelve months, I will
fully cooperate with, and from time to time make myself available at the
Company's request to consult with, the Company on matters in which I was
involved on behalf of the Company. Nothing in this section 8, however, shall
prevent me from taking on other employment.
9. Effect of Prior Agreements. I understand that as of the Resignation
Date the Employment Agreement is terminated and is superseded by this Agreement,
and that I shall have no further rights or obligations under the
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Employment Agreement except for the terms set forth in Sections 7 through 9 of
the Employment Agreement relating to "Intellectual Property; Nondisclosure of
Confidential Information; Covenant Not to Compete, Dispute Resolution, and
Enforcement", which shall remain in effect following the Resignation Date in
accordance with their terms, except that the term of the non-competition period
set forth in Section 7.5(b) of the Employment Agreement shall terminate on the
first anniversary of the Resignation Date.
10. Nondisparagement. The Company and I each hereby pledge not to make
statements in disparagement of the other which are intended to damage the
other's reputation. Prohibited actions would include, but not be limited to,
private or public comments, statements, or writings critical of the other party.
Nothing in this section 10, however, shall prevent the Company from making
whatever statements it may deem advisable, in its reasonable discretion, to
comply with any laws, including any federal or state securities laws and the
regulations promulgated thereunder, and I hereby acknowledge and agree that such
statements shall not be deemed a statement made by the Company in disparagement
of me. The Company agrees that all inquiries from potential employers
regarding my status or departure from the Company shall be directed to Robert
Wolfe, and the Company agrees to inform Mr. Hauff within a reasonable time of
all such inquiries.
11. Consultation with Legal Counsel. I have carefully read all of the
provisions of this Agreement. I further acknowledge that the Company has
encouraged me to review and discuss all aspects of this Agreement with legal
counsel and that I have taken advantage of that opportunity to the full extent
that I deem appropriate. The Company warrants that it has reviewed and
discussed all aspects of this agreement with legal counsel.
12. Consideration Period; Revocation Period. I acknowledge that I have
been given 21 days to consider this Agreement, and that I was given the option
to sign the Agreement in fewer than twenty-one (21) days if I desired. I
understand that this Agreement will not be effective for seven (7) days after it
is signed by the Company and me, and that I can revoke this Agreement at any
time during that seven-day period. I understand that no payments will be made
until after the expiration of this seven-day period.
13. Voluntary Agreement. I understand and acknowledge the significance
and consequences of this Agreement, that it is voluntary, that it has not been
given as a result of any coercion, and expressly confirm that it is to be given
full force and effect according to all of its terms, including those relating to
unknown Claims.
14. Successors This Agreement shall be binding upon the parties hereto
and their heirs, representatives, executors, administrators, successors and
assigns, and shall inure to the benefit of each and all of the Releasees, and to
their heirs, representatives, executors, administrators, successors and assigns.
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15. General Provisions
(a) Governing Law. This Agreement is made and entered into in the
state of Washington and shall in all respects be interpreted, enforced and
governed under the laws of the state of Washington. The language of all parts of
this Agreement shall in all cases by construed as a whole, according to its fair
meaning, and not strictly for or against either party.
(b) Invalidity. If any of the provisions of this Agreement are
held to be illegal or invalid, the remaining provisions shall not be affected
thereby, and the illegal or invalid provision shall be deemed not to be a part
of this Agreement. I understand, however, that if the "Complete Release of
Claims" section is held to be illegal or unenforceable in whole or in part, the
Company may elect to rescind this Agreement and demand reimbursement of all
consideration paid to me pursuant to the Agreement.
(c) Entire Agreement. Except for the provisions of the Employment
Agreement which survive the Termination Date, this Agreement represents and
contains the entire understanding between the Company and me in connection with
my separation from the Company. I acknowledge that I have not signed this
Agreement in reliance on any promise, representation, or statement not contained
herein.
16. Non-Admission of Liability. This Agreement shall not be construed in
any way as an admission by the Company of any liability or wrongdoing
whatsoever. Likewise, this Agreement shall not be construed in any way as an
admission by me of any misconduct or impropriety.
17. VESTING. The Company acknowledge that I am fully vested with
respect to the Company's 401(k) plan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
March 11, 1998.
GARGOYLES, INC.,
a Washington corporation
s/s ROBERT G. WOLFE
By__________________________________
Robert G. Wolfe, Chairman of the Board
s/s DOUGLAS B. HAUFF
- -------------------------------------
Douglas B. Hauff
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EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned, Douglas B. Hauff does hereby transfer to
Gargoyles, Inc., a Washington corporation (the "Corporation"), fifteen thousand
(15,000) shares of the common capital stock of the Corporation standing in his
name on the books of the Corporation represented by Certificates Numbered 18 and
48 herewith and does hereby irrevocably constitute and appoint the Transfer
Agent of the Corporation to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
DATED this _____ day of March, 1998.
TRANSFEROR:
--------------------------
Douglas B. Hauff
AGREED AND CONSENTED:
- ------------------------------
Tracy Hauff
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EXHIBIT B
PROMISSORY NOTE
$56,307.15 February 23, 1998
FOR VALUE RECEIVED, the undersigned Douglas B. Hauff ("Borrower") does
hereby promise to pay to the order of Gargoyles, Inc. ("Gargoyles"), in lawful
money of the United States of America, the principal sum of Fifty-Six Thousand
Three Hundred Seven and 15/100 Dollars ($56,307.15) together with interest
thereon accruing from March 31, 1997, until paid in full as stated herein.
1. Interest Rate. The outstanding principal balance of this Note shall
bear interest at a rate equal to 5.75% per annum.
2. Maturity. The entire principal balance of this Note, plus all
accrued and unpaid interest, and all other amounts owing hereunder, shall be due
and payable in full on February 15, 1999.
3. Application of Payments; Prepayment. Each payment hereunder shall be
applied first to the payment of interest then accrued on the unpaid balance
under this Note, and the remainder, if any, shall be applied to the reduction of
principal. This Note may be prepaid in whole or in part at any time or times
with no prepayment penalty or additional cost of any kind. Upon payment in full
of the principal and accrued interest thereon, this Note shall be canceled,
shall be of no further force or effect, and shall be returned to Borrower, and
any instruments securing repayment hereof shall be fully reconveyed and
released.
4. Default. This Note shall be in default if Borrower fails to pay this
Note when due. If a default occurs, the holder of this Note shall be entitled to
enforce its rights either by suit in equity and/or law or any other appropriate
proceedings.
5. Attorneys' Fees and Costs. If a default occurs hereunder and this
Note is placed in the hands of an attorney for collection of any amount called
for herein, Borrower shall be liable for all costs of collection, including
without limitation reasonable attorneys fees and costs.
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6. Applicable Law. This Note shall be construed according to the law of
the state of Washington.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date first written above.
- ---------------------------
Douglas B. Hauff
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EXHIBIT 10.55
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") as of March 2, 1998 between
GARGOYLES, INC., a Washington corporation with offices at 5866 South 194th
Street, Kent, Washington 98032 ("Gargoyles") and RICHARD W. HAMMEL, SR., an
individual with a principal residence at 44 Fox Lane, Milton, Massachusetts
02186 ("Richard")
WHEREAS, Richard and Gargoyles Acquisition Corporation 11, a/k/a Private
Eye Sunglass Corporation ("GAC"), a wholly-owned subsidiary of Gargoyles have
terminated their prior Employment Agreement dated as of May 14, 1997 ("PEA"),
and have settled all disputes arising therefrom, but wish to enter into this
Agreement which, for convenience, may incorporate by reference certain
provisions of the PEA (substituting Gargoyles for GAC); in consideration of the
mutual covenants and conditions set forth herein, the parties agree as follows:
1. Employment Duties. Subject to the terms and conditions hereof,
Gargoyles hereby employs Richard to perform the following duties: Richard will
continue to render executive level services at GAC under the direct supervision
of Mr. Leo Rosenberger, Chief Executive Officer of Gargoyles, and shall not be
obligated to report to any other person.
2. Term, Termination. This Agreement commences as of March 2, 1998 and
will terminate on May 1, 1998, unless sooner terminated by either party by
written notice, which may be given at any time. The effective date of
termination by written notice shall be fifteen (15) days from the date of such
notice; except that, if Gargoyles fails to pay the salary due to Richard on
April 1, 1998, termination by written notice shall be effective on such date.
Termination by written notice may be for any reason and shall be without
liability of either party to the other (except for Richard's refund obligations
as stated below).
3. Salary. Upon execution hereof, Gargoyles shall pay Richard in gross
wages, subject to withholdings, the first monthly salary of $14,584. If no
notice of termination has been given, Gargoyles shall pay Richard on April 1,
1998 in gross wages, subject to withholdings, the second monthly salary of
$14,584. If notice of termination is given by Richard at any time after he has
received a salary payment, Richard will refund on a per diem basis any amounts
applicable to the period after the effective date of termination. If Gargoyles
gives notice that is effective within the period of April 1 through April 15,
1998, the second month salary payment shall be pro rated on a per diem basis for
the period from April 1, 1998 through the effective date of termination.
Notwithstanding anything herein to the contrary, in the event that Richard dies
or is disabled such that he is unable to perform his duties hereunder for the
balance of the term, neither he nor his legal representative shall be obligated
to make any refunds of salary, and any unearned amounts shall be deemed
nonrefundable severance benefits.
4. Benefits, Etc.. The following Sections of the PEA are hereby
incorporated herein by reference: 5.1 ("Expenses"), 5.4 ("Company Benefits") and
5.5 ("Vacation; Sick Leave").
<PAGE> 2
5. Noncompetition Restrictions. Notwithstanding anything that may be
construed herein to the contrary (or be deemed in any way to have survived the
termination of the PEA), Gargoyles hereby acknowledges and agrees that Richard
is subject to no restrictions on his rights to be employed or engaged by, or an
investor or participant of any kind in, or a provider of services of any kind
to, any person, entity or agency that offers or provides services or products
that compete in any way with any products or services of Gargoyles or any of its
subsidiaries, affiliates or licensees, after the effective date of termination
hereof.
6. Non-Disclosure Obligations. Subject to Section 5 hereof, Richard
acknowledges that his obligations under the PEA concerning confidential
information and inventions survive the termination of the PEA and remain in full
force and effect.
7. Support. Gargoyles agrees that Mr. Robert Hammel and Ms. Annette
Hammel will work under Richard's supervision during the term of this Agreement
(as well as under the supervision of Ms. Patricia Lynch) and neither Gargoyles
nor any of its subsidiaries or affiliates will terminate their employment during
the term hereof. Mr. Robert Hammel and Ms. Annette Hammel are deemed intended
third party beneficiaries of this obligation.
8. Miscellaneous. The following sections of the PEA are incorporated
herein by reference: Sections 10 through 18.
EXECUTED as an instrument under seal as of the date first written above.
GARGOYLES, INC.
/S/ RICHARD W. HAMMEL, SR. By: /S/ LEO ROSENBERGER
- -------------------------- ---------------------------
Richard W. Hammel, Sr. Leo Rosenberger,
its Chief Executive Officer
<PAGE> 1
EXHIBIT 10.56
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") as of March 2, 1998 between
GARGOYLES, INC., a Washington corporation with offices at 5866 South 194th
Street, Kent, Washington 98032 ("Gargoyles") and PATRICIA LYNCH, an individual
with a principal residence at 108 38th Street, Apt. 16A, New York, New York
10016 ("Patricia").
WHEREAS, Patricia and Gargoyles Acquisition Corporation II, a/k/a
Private Eye Sunglass Corporation ("GAC"), a wholly-owned subsidiary of Gargoyles
have terminated their prior Employment Agreement dated as of May 14, 1997
("PEA"), and have settled all disputes arising therefrom; but wish to enter into
this Agreement which, for convenience, may incorporate by reference certain
provisions of the PEA (substituting Gargoyles for GAC); in consideration of the
mutual covenants and conditions set forth herein, the parties agree as follows:
1. Employment Duties. Subject to the terms and conditions hereof,
Gargoyles hereby employs Patricia to perform the following duties: Patricia will
work full-time on product development for the preparation, with current
factories, of the Ellen Tracy Sun and Reader Lines and the Emmanuelle Khanh Sun
Line for introduction at the 1998 August Market Week (for shipment to stores
August through October, 1998). Patricia will also assist in training a design
replacement in current product development systems for the foregoing. In the
performance of her duties, Patricia shall be subject to the direct supervision
of Mr. Richard W. Hammel, Sr. ("Richard") and shall not be obligated to report
to any other person.
2. Term; Termination. This Agreement commences as of March 2, 1998 and
will terminate on May 1, 1998, unless sooner terminated by either party by
written notice, which may be given at any time. The effective date of
termination by written notice shall be fifteen (15) days from the date of such
notice; except that, if Gargoyles fails to pay the salary due to Patricia on
April 1, 1998, termination by written notice shall be effective on such date.
Termination by written notice may be for any reason and shall be without
liability of either party to the other (except for Patricia's refund obligations
as stated below).
3. Salary. Upon execution hereof, Gargoyles shall pay Patricia in gross
wages, subject to withholdings, the first monthly salary of $14,584. If no
notice of termination has been given, Gargoyles shall pay Patricia on April 1,
1998 in gross wages, subject to withholdings, the second monthly salary of
$14,584. If notice of termination is given by Patricia at any time after she has
received a salary payment, Patricia will refund on a per diem basis any amounts
applicable to the period after the effective date of termination. If Gargoyles
gives notice that is effective within the period of April 1 through April 15,
1998, the second month salary payment shall be pro rated on a per diem basis for
the period from April 1, 1998 through the effective date of termination.
Notwithstanding anything herein to the contrary, in the event that Patricia dies
or is disabled such that she is unable to perform her duties hereunder for the
balance of the term, neither she nor her legal representative shall be obligated
to make any refunds of salary, and any unearned amounts shall be deemed
nonrefundable severance benefits.
<PAGE> 2
4. Benefits, Etc.. The following Sections of the PEA are hereby
incorporated herein by reference: 5.1 ("Expenses"), 5.5 ("Company Benefits") and
5.6 ("Vacation; Sick Leave").
5. Noncompetition Restrictions. Notwithstanding anything that may be
construed herein to the contrary (or be deemed in any way to have survived the
termination of the PEA), Gargoyles hereby acknowledges and agrees that Patricia
is subject to no restrictions on her rights to be employed or engaged by, or an
investor or participant of any kind in, or a provider of services of any kind
to, any person, entity or agency that offers or provides services or products
that compete in any way with any products or services of Gargoyles or any of its
subsidiaries, affiliates or licensees, after the effective date of termination
hereof.
6. Non-Disclosure Obligations. Subject to Section 5 hereof, Patricia
acknowledges that her obligations under the PEA concerning confidential
information and inventions survive the termination of the PEA and remain in full
force and effect.
7. Support. Gargoyles agrees that Mr. Robert Hammel and Ms. Annette
Hammel will work under Patricia's supervision during the term of this Agreement
(as well as under Richard's supervision) and neither Gargoyles nor any of its
subsidiaries or affiliates will terminate their employment during the term
hereof. Mr. Robert Hammel and Ms. Annette Hammel are deemed intended third party
beneficiaries of this obligation.
8. Miscellaneous. The following sections of the PEA are incorporated
herein by reference: Sections 10 through 18.
EXECUTED as an instrument under seal as of the date first written above.
GARGOYLES, INC.
/S/ PATRICIA LYNCH By: /S/ LEO ROSENBERGER
- ------------------ ---------------------------
Patricia Lynch Leo Rosenberger,
its Chief Executive Officer
<PAGE> 1
EXHIBIT 10.57
MUTUAL GENERAL RELEASE AND PAYMENT AGREEMENT
AGREEMENT dated as of March 2, 1998 between HXPE, Inc., f/k/a The
Private Eyes Sunglass Corporation ("HXPE"), Richard Hammel, Sr. ("Richard"),
Patricia Lynch ("Patricia"), Gargoyles, Inc. ("Gargoyles"), and Gargoyles
Acquisition Corporation II, a/k/a Private Eye Sunglass Corporation ("GAC").
WHEREAS, HXPE, Richard and Patricia have entered into certain agreements
dated (as of) May 14, 1997 with Gargoyles and/or GAC, including without
limitation an Asset Purchase Agreement, a Contingent Price Agreement, an
Employment Agreement between GAC and Richard, and an Employment Agreement
between GAC and Patricia (collectively, "Agreements"); and
WHEREAS, HXPE, Patricia and Richard have by letters dated January 27,
1998 made certain claims for amounts in excess of $2,800,000 ("January 27
Claims") against Gargoyles and GAC alleging breaches of their obligations under
the Contingent Price Agreement and the Employment Agreements, which January 27
Claims have been denied by Gargoyles and GAC; and
WHEREAS, the parties wish to avoid unnecessary cost and expenses of
arbitration or litigation of the January 27 Claims and wish to settle all of
them on the terms and conditions hereof, without any admission of liability by
any party;
NOW, THEREFORE, in consideration of the foregoing premises and mutual
promises contained herein, and for other good and valuable consideration,
including without limitation the unconditional obligation hereby undertaken by
Gargoyles to pay Patricia $35,000 in two installments of $17,500, the first of
which shall be paid upon execution hereof and the second installment payment of
which shall be paid on April 1, 1998, without right of set-off, recoupment or
reduction of any kind ("the Gargoyles' Payment"); the sufficiency and receipt of
which consideration are hereby acknowledged, the parties hereby agree as
follows:
1. HXPE, Richard and Patricia, jointly and severally, hereby release,
remise and forever discharge (collectively "Release") each of Gargoyles and GAC,
and their respective directors, officers, employees, stockholders and agents,
from and against any and all claims, demands, causes of action, damages, costs,
liabilities, disputes and controversies of any kind whatsoever, known or
unknown, suspected or unsuspected, at law or in equity, including without
limitation the January 27 Claims (collectively, "Claims") which HXPE, Richard or
Patricia, may now have or may have had at any time on or prior to the date
hereof, except for any Claims arising hereunder with respect to the Gargoyles'
Payment. Nothing herein is intended to Release Gargoyles from any Claims arising
under the employment agreements of even date with Richard and with Patricia.
2. Gargoyles and GAC, jointly and severally, hereby Release Richard,
Patricia, HXPE and its officers, directors, employees, former stockholders, and
agents, from and against
<PAGE> 2
any and all Claims which Gargoyles or GAC may now have or may have had at any
time on or prior to the date hereof, including without limitation Claims arising
under the Agreements. Gargoyles and GAC, jointly and severally, acknowledge and
agree that this Release also applies with equal force to any Claims under the
Agreements that may arise after the date hereof, including without limitation
for breaches of representations and warranties and for indemnification against
claims brought by third parties. Nothing herein is intended to Release Richard
or Patricia from any Claims arising under their respective employment agreements
of even date with Gargoyles.
3. Gargoyles and GAC, jointly and severally, hereby affirm their
obligations to make the Gargoyles' Payment and agree that if they fail to make
the second installment of the Gargoyles' Payment when due, among other remedies
to which Patricia may be entitled, Patricia shall have the right to bring suit
against Gargoyles in the City of New York, and shall be entitled to all of her
costs of collection, including without limitation reasonable attorney's fees,
plus interest on the unpaid amount at the rate of eighteen percent (18%) per
annum, or the highest rate allowed by law, if lower, until paid in full.
4. This Release is binding upon and inures to the benefit of the parties
hereto and their respective successors and assigns, estates, heirs and legal
representatives.
5. Each party represents that it has determined that the terms of this
Agreement are fair and reasonable under all circumstances, and that it has based
this determination upon its independent judgment after consultation with
counsel, and in making such determination it has had an ample opportunity to
assess the merits of all its Claims or potential Claims.
6. Each party agrees that no fact, event, evidence, circumstance or
transactions relating directly or indirectly to its Claims shall effect in any
manner the final or unconditional nature of the settlement and Release set forth
herein.
7. Notwithstanding anything that may be construed to the contrary
herein, in the event that a voluntary or involuntary petition in bankruptcy is
filed by or against Gargoyles or GAC, or both of them, or if Gargoyles or GAC or
both of them is (or are) enters (or enter) into any general arrangement of any
kind with its creditors, and the trustee that is appointed or the creditors of
such general arrangement makes (or make) Claims against HXPE or Richard or
Patricia or any other stockholder or former stockholder of HXPE under the
Agreements or otherwise, or seeks (or seek) to recover any funds paid to HXPE,
or Richard or Patricia or any of such stockholders, for any reason, then HXPE,
Richard and Patricia, jointly or severally shall be entitled to revive any of
their January 27 Claims and the provisions of this Release with respect to such
January 27 Claims shall be void.
8. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts (without regard for its principles of conflicts of laws), may be
executed in counterparts, and is intended to take effect as an instrument under
seal executed as of the date first written above, by the duly authorized
representatives of the parties (or the parties themselves).
<PAGE> 3
HXPE, INC. GARGOYLES, INC.
By:/S/ RICHARD W. HAMMEL By:/S/ LEO ROSENBERGER
------------------------------------- ------------------------------------
Richard W. Hammel, Sr., its President Leo Rosenberger, its Chief Executive
Officer
/S/ RICHARD W. HAMMEL GARGOYLES ACQUISITION
- ---------------------------------------- CORPORATION II
Richard W. Hammel, Sr., Individually
/S/ PATRICIA LYNCH By: /S/ LEO ROSENBERGER, its
- ---------------------------------------- ------------------------
Patricia Lynch, Individually President or other officer duly
authorized hereunto
<PAGE> 1
EXHIBIT 10.58
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 1st day of
February, 1998, by and between GARGOYLES, INC., a Washington corporation (the
"Company"), and LEO ROSENBERGER ("Employee"). In consideration of the mutual
covenants and conditions set forth herein, the parties agree as follows:
1. Employment. Subject to the terms and conditions contained in this
Agreement, the Company hereby employs Employee, and Employee hereby accepts
employment with the Company.
2. Duties and Reporting Relationship. During the Term of Employment, as
defined below, Employee shall be employed in the capacity of Chief Executive
Officer and Chief Financial Officer, or in such equivalent executive capacity as
the Company shall direct, from time to time, during the term hereof. In such
capacity, Employee shall devote his working time and attention to the overall
management and operation of the Company, under the direction of the Executive
Committee of the Board of Directors of the Company. Employee acknowledges and
agrees that as Chief Executive Officer and Chief Financial Officer the hours
which he is required to work will vary considerably and may sometimes be more
than 40 hours per week. Employee further acknowledges and agrees that such work
in excess of 40 hours per week is a regular and normal part of the
responsibilities for which he is compensated, and does not in any way constitute
overtime for which he is entitled to receive additional compensation.
3. Term. Unless sooner terminated in accordance with this Agreement,
the Employee's term of employment shall become effective as of the first date
written above and shall continue until February 1, 1999 (the "Term of
Employment").
4. Base Salary. For all services rendered by Employee under this
Agreement, the Company shall pay Employee a Base Salary at an annual rate of
$225,000, payable in twice monthly installments in accordance with the Company's
usual payroll policies and procedures.
5. Benefits.
5.1 Expenses. The Company shall reimburse Employee for all
reasonable and necessary business expenses incurred and advanced by him in
carrying out his duties under this Agreement promptly following presentation of
receipts and other supporting information.
5.2 Options. Effective as of the date of this Agreement, Employee
shall be granted an incentive stock option under the Gargoyles, Inc. 1995 Stock
Incentive Compensation Plan (the "Plan"), a copy of which is attached hereto as
Exhibit B, under which Employee will have the opportunity, in accordance with
the terms of the Plan to purchase 150,000 shares of Gargoyles Common Stock at an
exercise price equal to the
<PAGE> 2
Fair Market Value (as such term is defined in the Plan) of such stock as of the
effective date of the grant, such option to be for a term of ten years and to
vest according to the following schedule:
Date On and After Which Portion of Total Option Which
Option is Exercisable is Exercisable
May 1, 1998 25%
Quarterly thereafter An additional 25%
5.3 Bonus. If Employee is employed by the Company on January 31,
1999, then on such date the Company shall pay to Employee a bonus of $150,000.
5.4 Company Benefits. Employee shall be entitled to participate
fully in all the Company's employee benefits plans established for full-time
employees of the Company, including without limitation all health, medical,
dental, retirement, life and disability insurance plans established by the
Company in accordance with the terms of such plans. Employee shall be entitled
to participate in any pension and retirement plans, stock option or ownership
plans, and other fringe benefit plans, perquisites and programs as are or may be
made available from time to time to executives or other salaried employees of
the Company to the extent Employee is eligible under the terms of such plans.
5.5 Vacation; Sick Leave. Employee will be entitled to vacation
and sick leave in accordance with policies of the Company, as amended from time
to time, generally applicable to executive employees of the Company.
6. Termination.
6.1 Termination for Cause. This Agreement and Employee's
employment by the Company may be terminated for Cause. For purposes of this
Agreement, "Cause" shall mean: (i) Employee shall be found by the Board of
Directors of the Company to be guilty of fraud or other acts of willful
misconduct in connection with his employment hereunder which have a material
adverse effect on the Company, (ii) conviction of Employee for commitment of a
felony; (iii) any violation of law by Employee which has a material adverse
effect on the Company; (iv) habitual use of narcotics or alcohol which impairs
Employee's performance of his duties under this Agreement; (v) theft or
embezzlement by Employee from the Company; (vi) a material breach of Employee's
obligations under section 7 hereof; or (vii) unexcused habitual absence from
work for reasons unrelated to illness, family crisis or disability.
6.2 Termination Upon Death or Disability. This Agreement and
Employee's employment hereunder shall terminate upon the death or disability of
Employee. The
<PAGE> 3
date of Employee's death or disability also is referred to herein as the
"Termination Date". For purposes of this Agreement, "Disabled" shall mean that
the Employee is unable to perform his duties under this Agreement as Chief
Executive Officer and Chief Financial Officer of the Company by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a period of
not less than 30 days. Determination of whether Employee is Disabled shall be
made in good faith by a physician reasonably acceptable to Employee and the
Board of Directors of the Company.
6.3 Employee's Voluntary Resignation. Should Employee wish to
resign from his position with the Company during the Employment Period (his
"Voluntary Resignation"), he shall give thirty (30) days written notice to the
Company and specify the date as of which his resignation is to become effective.
The date specified in such written notice is also referred to herein as the
"Termination Date." Failure to provide such notice shall entitle the Company to
fix the Termination Date as of the last business day on which Employee reported
for work at the principal offices of the Company.
6.4 Compensation and Benefits Upon Termination.
(a) If the employment of the Employee is terminated for
Cause, Death, Disability or by his Voluntary Resignation, the Employee shall not
be entitled to any compensation or other benefits hereunder for any period after
the Termination Date.
(b) The Company shall have the right to terminate this
Agreement for any reason at any time prior to January 31, 1999, by delivery of
written notice to Employee of such termination (also a "Termination Date"). If
prior to January 31, 1999, the employment of Employee is terminated by the
Company for any reason other than for Cause, or due to Employee's Death,
Disability or Voluntary Resignation, then the Company shall pay to Employee a
termination fee of $150,000.
7. Intellectual Property; Nondisclosure of Confidential Information.
7.1 Definitions.
(a) Confidential Information. For purposes of this
Agreement, Confidential Information shall mean all the Company's proprietary
information which derives independent economic value from its secrecy from other
persons, companies, or business entities who could obtain economic value from
its disclosure to them or use by them. Confidential Information also includes,
without limitation, research data, trade or business know-how or business plans,
inventions, devices, patterns, compilations, programs, methods, techniques, or
processes which are disclosed or made available by the Company to Employee, or
devised by Employee during his employ by the Company. Examples of Confidential
Information include, without limitation: all information specifically identified
as proposed installations, products or product lines, information systems, or
other projects, the Company's supplier and customer lists and all customer
information and the Company's existing and proposed business and
<PAGE> 4
marketing plans and policies, whether written or oral, and whether designated
individually as Confidential Information or not. Confidential Information does
not include information that: (i) is a matter of public knowledge at the time
Employee first learned of the information; (ii) later becomes a matter of public
knowledge after Employee learns of it, other than becoming public knowledge by
reason of a breach by Employee of the obligations of confidentiality set out in
this Agreement, (iii) Employee acquired during previous employment prior to the
effective date of this Agreement, or (iv) which Employee is required to disclose
pursuant to legal or administrative process.
(b) Invention. For purposes of this Agreement, Invention
shall mean all new inventions, discoveries, creations and works of authorship,
and any improvements to existing inventions, whether patentable or not, and all
software relating to any inventions, discoveries or improvements, which Employee
conceives, makes, develops, or reduces to practice, whether alone or with any
other person, company or business entity, (i) while Employee is working for the
Company in any capacity under this Agreement which relates to any questions or
problems for which the Company has requested Employee's services, (ii) that are
based in any way on Confidential Information received by Employee from the
Company or developed or made by Employee during his employ at the Company, or
(iii) with the aid of any equipment, supplies, facilities or employees of the
Company or on the Company's time.
7.2 Non Disclosure of Confidential Information. Employee agrees
not to disclose or to use any Confidential Information, either during or after
employment by the Company, except as required by the performance of duties
within the scope of Employee's employment. Employee agrees to apply his best
efforts to otherwise prevent unauthorized disclosure or use of any Confidential
Information, and to immediately inform an officer of the Company if any improper
disclosure or use does occur.
7.3 Employee Invention Materials and Invention Disclosure.
(a) Employee shall, at all times of employment and/or
thereafter, immediately and fully disclose to the Company all information
regarding each Invention conceived, made, developed, or perfected during
Employee's employment by the Company, for the purpose of determining the
Company's and Employee's rights to each Invention. Employee's duty of immediate
and complete disclosure under this section continues throughout Employee's
employment with the Company. Each Invention which Employee is required to
disclose to the Company under this section becomes confidential information at
the moment the Employee's duty to disclose under this section arises, regardless
of whether or not Employee actually discloses the Invention to the Company.
(b) Employee agrees to keep, preserve in good condition and
make available to the Company complete and up-to-date records, including
sketches, drawings, notebooks and other documents relating to the Invention,
including documents stored in electronically readable form, and documented
source code where
<PAGE> 5
applicable, as well as prototypes, and other evidence of the reduction to
practice of the Invention or the conception and occurrence and dates of the
Invention ("Invention Materials"). Employee acknowledges that all such Invention
Materials are the property of the Company.
7.4 Employee Invention Assignment and Continued Employee
Assistance.
(a) Employee hereby assigns to the Company all of Employee's
rights in each Invention which (i) is developed using the Company's equipment,
supplies, facilities, or information supplied by the Company to Employee; or
(ii) which relates directly to the business of the Company, or to the Company's
actual or demonstrably anticipated research or development; or (iii) which has
resulted from any work performed by the Employee for the Company, whether or not
on the Company's time. See attached Exhibit A for a description of Employee
Inventions which by law are not subject to the assignment requirement of this
section.
(b) Without limiting the generality of the assignment
provisions in the preceding paragraph, all creative works authored by Employee
during Employee's employment with the Company, at the request of the Company,
are "works for hire" as that term is defined by the federal Copyright Act, as
enacted or hereafter amended. The copyright to such works is owned exclusively
by the Company, and Employee has no ownership rights in, or control over, such
works. Employee shall be entitled to request and receive authorship credit in
such works, and to have it displayed as is typical in the industry to which the
work applies.
7.5 Employee Cooperation. Employee further agrees that Employee
will, at no charge to the Company, and at no expense to Employee, during and
after Employee's employment, cooperate with the Company in any or all of the
following: (i) prosecution of US and foreign copyright registration applications
for any works of authorship by Employee which the Company chooses to file; (ii)
prosecution of US and foreign patent applications, including all continuation,
divisional, continuation-in-part, reissue, reexamination, patent term extension
applications and the like and related petitions, and including all foreign,
regional or international counterparts of such applications for each assignable
Invention and improvements thereon which the Company chooses to file; and (iii)
enforcement of any patents or copyright registrations issuing from such
applications, or trade secret rights therein, including executing, verifying,
acknowledging and delivering to the Company all such papers, and performing all
such actions, as the Company shall from time to time reasonably request related
to such enforcement or prosecution or recordation actions by the Company, such
papers including without limitation patent and copyright registrations
applications and assignment documents therefor, declarations, petitions, and
instruments of transfer.
7.6 Company's Right to File. In addition, it is understood that
the Company shall have the right to file for patents, copyrights, or any other
state or federal statutory intellectual property rights in assignable
Inventions, in Employee's name, or the
<PAGE> 6
Company's name, or in the name of the Company's nominee, at the Company's sole
option.
7.7 Warranty of Originality and Preservation of Third Party
Confidences.
(a) Employee undertakes not to disclose to the Company or
its other employees any information which Employee is under an obligation to any
third party to keep confidential. Employee represents and warrants that any
information disclosed by Employee to the Company is not confidential and/or
proprietary to Employee and/or to any third party.
(b) Employee warrants that, to the best of Employee's
knowledge, all works of authorship or Inventions created by Employee under this
Agreement are original, created by Employee, and will not infringe any trade
secret, patent, copyright, or other proprietary rights of third parties.
Employee represents and warrants that he is under no obligation or restriction,
and further, that Employee will not assume any such obligation or restriction,
which would in any way interfere or be inconsistent with, or present a conflict
of interest concerning, the services furnished by Employee under this Agreement.
8. Enforcement. Employee agrees that damages for breach of his
obligations under or related to section 7 of this Agreement may be difficult to
determine and may be inadequate to remedy the harm that may be caused thereby,
and therefore consents that such obligations may be enforced by injunctive
relief and other appropriate remedies without necessity of bond or other
security. Such injunctive relief shall be in addition to and not in place of any
other remedies available at law or equity. Employee acknowledges that the
restraints imposed by this Agreement are necessary for the protection of the
business and goodwill of the Company, are not greater than are necessary to
protect said business and goodwill and that he is capable of gainful employment
without breaching this Agreement. However, should any court or tribunal decline
to enforce any provision of this Agreement as written, the parties hereby agree
that this Agreement shall, to the extent applicable to that circumstance before
such court, be deemed to be modified to restrict Employee's competition with the
Company to the maximum extent of time, scope and geography which the courts
shall find enforceable, and such provisions shall be so enforced.
9. Entire Agreement. The provisions contained herein constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede any and all prior agreements, understandings and communications
between the parties, oral or written, with respect to such subject matter.
10. Modification. Any waiver, alteration, amendment or modification of
any provisions of this Agreement shall not be valid unless in writing and signed
by all the parties hereto.
<PAGE> 7
11. Assignment. This Agreement is personal to Employee and Employee may
not assign any of his rights or delegate any of his duties hereunder.
12. Notices. All notices and other communications called for or required
by this Agreement shall be in writing and shall be addressed to the parties at
their respective addresses stated below or to such other address as a party may
subsequently specify in writing and shall be given by (i) hand delivery, (ii) US
certified or first-class registered mail, return receipt requested and postage
prepaid, (iii) overnight receipted courier, or (iv) telephonically confirmed
facsimile transmission. Notices given in accordance with this paragraph shall be
effective upon receipt or when receipt is refused.
To the Company: Gargoyles, Inc.
5866 South 194th Street
Kent, Washington 98032
Attn: Chairman of the Board
Tel: 253-872-6100, Ext. 3400
Fax: 253-872-3317
To Employee: Leo Rosenberger
822 226th SW
Mount Lake Terrace, WA 98043
Tel: 425-774-6432
Fax: 425-778-7581
13. Governing Law. This Agreement, including all matters of
construction, validity and performance, shall be governed by and construed and
enforced in accordance with the laws of the state of Washington without regard
to its conflict of law provisions which might otherwise require the application
of the law of any other jurisdiction. Employee expressly consents to
jurisdiction of the courts of the state of Washington and to venue in King
County, Washington.
14. Headings. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of this Agreement.
15. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and as so executed
shall constitute one agreement.
16. Severability. Unless otherwise provided herein, if any provision of
this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
<PAGE> 8
17. Succession. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their perspective successors, assigns, heirs,
devisee, estates and legal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the date first above mentioned.
GARGOYLES, INC.,
a Washington corporation
/s/ ROBERT G. WOLFE
- -----------------------------------------
By: Robert G. Wolfe, Chairman of the
Board of Directors of Gargoyles, Inc.
/s/ LEO ROSENBERGER
- -----------------------------------------
LEO ROSENBERGER
<PAGE> 1
EXHIBIT 10.59
This Agreement between LEONARD DELALIO and ROBERT P. DELALIO, 652 Deer
Park Avenue, Dix Hills, New York 11746 as Landlord and SUNGOLD ENTERPRISES
LIMITED, 2095 New Highway, Farmingdale, New York 11735 as Tenant.
Witnesseth: The Landlord hereby leases to the Tenant the following
premises: 2095 New Highway, Farmingdale, New York 11735 (one part of a duplex
industrial building of approximately 14,080 square feet, as presently occupied)
and 2099 New Highway Farmingdale, New York 11735 (the other part of a duplex
industrial building of approximately 12,080 square feet) for the term of FIVE
(5) YEARS to commence from the 1st day of December 1996 and to end on the 30th
day of November 2001 to used and occupied only for office, interior storage,
assembly, light manufacturing and the sale of sunglasses both wholesale and
retail upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent of One-Hundred Eighty
Three Thousand One Hundred Twenty ($183,120,000) Dollars for the first year;
One Hundred Eighty Eight Thousand Six Hundred Thirteen ($188,613.00) Dollars
for the second year; One Hundred Ninety Four Thousand and Two Hundred Seventy
Two ($194,272.00) Dollars for the third year; One Hundred Ninety Nine Thousand
Nine Hundred Thirty ($199,930.00) Dollars for the fourth year and Two Hundred
Five Thousand Eight Hundred Fifty Eight ($205,858.00) Dollars for the fifth
year said rent to be paid in equal monthly payments in advance on the 1st day
of each and every month during the term aforesaid, as follows: December 1,
1996, to and including November 1, 1997, Fifteen Thousand Two Hundred Sixty
($15,260.00) Dollars; December 1, 1997 to and including November 1, 1998,
Fifteen Thousand Seven Hundred Seventeen and 75/100 ($15,717.75) Dollars;
December 1, 1998 up to and including November 1, 1999, Sixteen Thousand One
Hundred Eighty Nine and 33/100 ($16,189.33) Dollars; December 1, 1999 to and
including November 1, 2000, Sixteen Thousand Six Hundred Eight and 33/100
($16,608.33) Dollars; and December 1, 2000 to and including November 1, 2001,
Seventeen Thousand One Hundred Fifty Four and 83/100 ($17,154.83) Dollars
2nd. That the Tenant shall take good care of the premises and shall, at
the Tenant's own cost and expense make all repairs EXCEPT AS MODIFIED BY
PARAGRAPH 43rd HEREOF and at the end or other expiration of the term, shall
deliver up the demised premises in good order or condition, damages by the
elements excepted.
3rd. That the Tenant shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and Local Governments and of any and all their Departments and
Bureaus applicable to said premises during said term; and shall also promptly
comply with and execute all rules, orders and regulations of the New York Board
of Fire Underwriters, or any other similar body, at the Tenant's own cost and
expense.
4th. That the Tenant, successors, heirs, executors or administrators
shall not assign this agreement, or underlet or underlease the premises, or any
part thereof, or make any alterations on the premises, without the Landlord's
consent in writing; or occupy, or permit or suffer the same to be occupied by
any business or purpose deemed disreputable or extra-hazardous on account of
fire, under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term. *WHICH CONSENT
SHALL NOT BE UNREASONABLY WITHHELD.
5th. Tenant must give Landlord prompt notice of file, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises can not be used, Tenant must pay
rent for the usable part. Landlord shall have the right to decide which part of
the Premises is usable. Landlord need only repair the damaged structural parts
of the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is cancelled Landlord is not
required to repair the Premises or Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This is intended
to replace the terms of New York Real Property Law Section 227. EXCEPT AS
MODIFIED BY PARAGRAPH 46th HEREOF.
<PAGE> 2
6TH. The said Tenant agrees that the said Landlord and the Landlord's agents
and other representatives shall have the right to enter into and upon said
premises, or any part thereof, at all reasonable hours for the purpose of
examining the same of making such repairs or alterations therein as may be
necessary for the safety and preservation thereof.
7TH. The tenant also agrees to permit the Landlord or the Landlord's agent to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any
part thereof, offering the premises "To Let" or "For Sale", and the Tenant
hereby agrees to permit the same to remain thereon without hindrance or
molestation.
8TH. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any
of the covenants herein contained, the Landlord or representatives may re-enter
the said premises by force, summary proceedings or otherwise, and remove all
persons therefrom, without being liable to prosecution therefor, and the tenant
hereby expresses, waves the service of any notice in writing of intention to
re-enter, and the Tenant shall pay at the same time as the rent becomes payable
under the terms hereof a sum equivalent to the rent reserved herein, and the
Landlord may rent the premises on behalf of the Tenant, reserving the right to
rent the premises for a longer period of time than fixed in the original lease
without releasing the original Tenant from any liability, applying any moneys
collected, first to the expense of resuming by obtaining possession, second to
restoring the premises to a rentable condition, and then to the payment of the
rent and are other charges due and to grow due to the Landlord, any surplus to
be paid to the Tenant, who shall remain liable for and deficiency.
9TH. Landlord may replace, at the expense of Tenant, any and all broken glass
in and about the demised premises. Landlord may insure, and keep insured, all
plate glass in the demised premises for and in the name of Landlord, Bills, for
the premium therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereof shall be deemed to be, and be paid as, additional
rental. Damage and injury in said premises, caused by the carelessness,
negligence or improper conduct on the part of the said Tenant or the Tenant
agents or employees shall be repaired as speedily as possible by the Tenant at
the Tenant's own cost and expense.
10TH. That the Tenant shall neither encumber nor obstruct the sidewalk in front
of, entrance to, or halls and stairs of said premises, nor allow the same to be
obstructed or encumbered in any manner.
11TH. The Tenant shall neither place, or cause or allow to be placed, any sign
or signs of any kind whatsoever at, in or about the entrance to said premises
or any other part of same, except in or at such place or places as may be
indicated by the Landlord and consented to by the Landlord in writing. And in
case the Landlord's representatives shall deem it necessary to remove any such
sign or signs in order to paint the said premises or the building wherein same
is situated or make any other repairs, alterations or improvements in or upon
said premises or building or any part thereof, the Landlord shall have the
right to do so, providing the same be removed and replaced at the Landlord's
expense, whenever the said repairs, alterations or improvements shall be
completed.
12TH. That the Landlord is exempt from any and all liability for any damage or
injury to person or properly caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of
said building or from any damage or injury resulting or arising from any other
cause or happening whatsoever unless said damage or injury be caused by or be
due to the negligence of the Landlord.
13TH. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the services of any notice in writing of intention to re-enter.
14TH. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that here after may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of the lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the
Landlord's assigns and legal representatives to the option of cancelling this
lease without incurring any expense or damage and the term hereby granted is
expressly limited accordingly.
15TH. The Tenant has this day deposited with the Landlord the sum of $15,260.00
as security for the full and faithful performance by the Tenant of all the
terms, covenants and conditions of this lease upon the Tenant's part to be
performed which said sum shall be returned to the Tenant after the time fixed
as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for
the benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant
agrees to look to the new Landlord solely for the return of the said security,
and it is agreed that this shall apply to every transfer or assignment made of
the security to a new Landlord. *WHICH SECURITY SHALL BE DEPOSITED IN AN
INTEREST BEARING ACCOUNT FOR THE BENEFIT OF THE TENANT.
16TH. That the security deposited under this lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
17TH. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default
be made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate the lease and
the term hereof, on giving to the Tenant five days' notice in writing of the
Landlord's intention so to do, and then lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said date were
the date originally fixed in this lease for the expiration hereof. Such notice
may be given by mail to the Tenant addressed to the demised premises.
18TH. Tenant shall pay to Landlord the rent or charge, which may, during the
demised term, be assessed or imposed for the water used or consumed in or on
the said premises, whether determined by meter or otherwise, as soon as and
when the same may be assessed or imposed, and will also pay the expenses for
the setting of a water meter in the said premises should the latter be
required. Tenant shall pay Tenant's proportionate part of the sewer rent or
charge imposed upon the building. And such rents or charges or expenses shall
be paid as additional rent and shall be added to the next month's rent
thereafter to become due.
19TH. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein,
which will in any way increase the rate of fire insurance on said demised
premises, nor use the demised premises or any part thereof, nor suffer or
permit their use for any business or purpose which would cause an increase in
the rate of fire insurance on said building, and the Tenant agrees to pay on
demand any such increase.
20TH. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a
waiver of any subsequent breach or default in the terms, conditions and
covenants herein contained. This instrument may not be changed, modified,
discharged or terminated orally.
21ST. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any
award shall belong to the Tenant.
<PAGE> 3
22ND. If after default in payment of rent or violation of any other provision
of this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23RD. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24TH. The Tenant waives all rights to redeem under any law of the State of New
York.
25TH. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26TH. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies for
labor for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the term
it being understood that rent shall, in any event, commence to run at such date
so above fixed. EXCEPT AS MODIFIED BY PARAGRAPHS 5th and 46th HEREOF.
27TH. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
ADD RIDER ONE
ADD RIDER TWO
And the said Landlord doth covenant that the said Tenant on paying the said
yearly rent, and performing the covenants aforesaid, shall and may peacefully
and quietly have, hold and enjoy the said demised premises for the term
aforesaid, provided however, that this covenant shall be conditioned upon the
retention of title to the premises by the Landlord.
AND IT IS MUTUALLY UNDERSTOOD AND AGREED that the covenants and
agreements contained in the within lease shall be binding upon the parties
hereto and upon their repective successors, heirs, executors and
administrators.
IN WIITNESS WHEREOF, the parties have interchangeably set their hands and seals
(or cause these presents to be signed by their proper corporate officers and
caused their proper corporate seal to be hereto affixed) this 27th day of
November, 1996.
<TABLE>
<CAPTION>
<S> <C>
Signed, sealed and delivered
in the presence of SUNGOLD ENTERPRISES LIMITED
/s/ ELEANOR GOLDMAN By /s/ LIONEL GOLDMAN L.S.
- ------------------------------------- ----------------------------
Secretary TITLE TENANT
/s/ ROBERT P. DE LALIO L.S.
----------------------------
ROBERT P. DELALIO, LANDLORD
/s/ LEONARD DE LALIO L.S.
----------------------------
LEONARD DELALIO, LANDLORD
</TABLE>
<PAGE> 4
RIDER TO LEASE BETWEEN LEONARD DELALIO and ROBERT P. DELALIO, as LANDLORD, and
SUNGOLD ENTERPRISES LIMITED, as Tenant, Dated November 27, 1996.
28th. The tenant covenants that during the entire term of this lease it will
provide, furnish, pay for and keep in force, at its own cost and expense, for
the benefit of the landlord, the following insurance covering the demised
premises, in form and in companies as approved by the landlord, and also
deliver certificates thereof to the landlord:
a) General accident, public liability and property damage insurance in
the amount of $1,000,000.00 for injury or death of one person and in the amount
of $2,000,000.00 for injury or death arising out of one accident or disaster,
and $50,000.00 as to property damage, and such insurance to fully protect the
landlord and tenant against any and all liability occasioned by accident or
disaster and such insurance to cover the entire demised premises, in addition,
the sidewalks and streets in front of and abutting the demised premises.
b) Plate glass insurance in an amount satisfactory to the owner and
landlord, covering the owner's and landlord's interest as it may appear or
tenant has the option to replace windows at own cost and expense within 10 days
after any damage or the landlord shall replace and charge tenant as additional
rent.
c) In the event the tenant does not so furnish and pay for any of the
said insurance or permits same to lapse, the premiums thereof shall be
forthwith and immediately paid by the tenant upon submission by the landlord to
the tenant of the said premium bills. In the event of the failure of the tenant
to pay same within ten (10) days after the submission of copies of paid,
receipted bills, the said insurance premiums shall forthwith and immediately be
deemed additional rent due and owing under this lease, together with the
monthly installment of rent next coming due after said submission, and all of
the owner's and landlord's rights in the event of tenant's default under and
pursuant to the terms of this lease and by operation of law accruing to the
owner and landlord and given to him under this lease shall forthwith and
immediately become operative.
29TH. A) The landlord shall furnish its own fire and extended coverage
and related insurance in companies of his own choice, on the property of which
the demised premises forms a part, but not upon any property, possessions,
contents or otherwise belonging to or affecting the tenant. The tenant shall
not do, nor permit to be done, any act upon said premises which will invalidate
or be in conflict with fire insurance and other policies covering the buildings
of which the demised premises form a part, nor do or permit anything to be done
in or upon the premises which shall cause an increase in the fire insurance
rate, extended coverage or other insurance rates applicable to the premises at
the time the tenant enters into possession thereof. If by reason of tenant's
failure to comply with the provisions of this paragraph or the provision of
paragraph 4th, of this lease, the said insurance rates should be higher than
they otherwise would be insofar as the demised premises are concerned and/or
the rest of the building of which the demised premises form a part, then the
tenant shall reimburse the landlord for such additional cost for that part of
all said insurance premiums thereafter shown paid on copies of paid, receipted
bills submitted by the landlord which shall have been charged because of such
failure or use by the tenant and such amounts shall forthwith and immediately
be deemed additional rent due and owing under this lease together with the
monthly installment of rent next coming due after said submission, and all of
the owner's and landlord's rights, in the event of tenant's default, under and
pursuant to the terms of this lease and by operation of law accruing to the
owner and landlord and given to him under this lease, shall forthwith and
immediately become operative.
b) The tenant shall reimburse landlord for the entire cost
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<PAGE> 5
of the fire and extended coverage insurance on the building paid for by the
landlord within ten (10) days after the landlord bills the tenant. Landlord
shall furnish tenant with copies of paid, receipted bills.
In the event that tenant does not provide, furnish, pay for and keep in
force plate glass insurance, then Tenant will at its expense repair and/or
replace any plate glass on the demised premises.
30th. The tenant shall not record or cause or permit this lease to be
recorded in the office of the county clerk or elsewhere.
31st The tenant agrees at its own cost and expense to pay for all
electricity, water, telephone, gas and fuel consumed and used by it, including
water and standby water charges for sprinkler systems installed, if any; it
being the understanding and intent of the parties hereto that the landlord
rents and the tenant hires the demised premises without any service of any kind
whatsoever.
32nd. Any signs or signs that the tenant may wish to affix to the exterior of
the building shall be in conformity with the building and zoning ordinances of
the governing municipality, and the tenant further shall secure the written
permission of the owner and landlord to affix said signs.
33rd. It is understood and agreed that the premises, fixtures and
appurtenances are leased in their "AS IS" condition.
34th. a) Any notice required to be given by either party to the other shall
be deemed to be duly given and completed by sending notices by certified return
receipt mail, in the case of the landlord, to 652 Deer Park Avenue, Dix Hills,
New York 11746, or such other address as the landlord may hereafter designate
in writing, and to the tenant by mailing such notice to the tenant directed to
the tenant's present address as hereinabove stated, at the demised premises.
b) The rent shall be payable to the landlord, LEONARD DeLALIO and
ROBERT P. DeLALIO at 652 Deer Park Avenue, Dix Hills, New York 11746, or such
other place as the landlord may designate in writing.
35th. If any mechanic's lien or liens shall be filed against the premises for
work done or material furnished to the tenant, the tenant shall, within thirty
days thereafter, and at its own cost and expense, cause such lien or liens to
be discharged by filing the bond or bonds required for that purpose by law.
36th. Tenant agrees not to allow garbage or refuse to accumulate outside of
the building upon the demised premises, unless in a container and subject to
approval of town and all other authorities.
37th. Any improvements or additions made by the tenant to the building,
including but not limited to plumbing and electrical fixtures, partitions, gas
service units, etc., shall immediately become the property of the landlord.
Any electrical work shall be performed in compliance with U.L. requirements and
all building codes.
38th. In the event of a default by the tenant for non-payment of rent, and
such default continuing for a period of ten (10) days subsequent to the due
date, there shall be added to the monthly rental then due and payable a sum
designated as a late charge, which shall be equal to five cent ($0.05) for each
dollar of the monthly payment past due. Such additional sum shall be construed
as additional rent and, if not paid with the then rent in arrears, shall become
immediately due and payable with the next succeeding monthly payment of rent. In
the event of a default by the tenant in the non-payment of rent, in addition to
the imposition of the late charge as hereinbefore set forth, the tenant shall
be liable
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<PAGE> 6
in the event the landlord shall institute summary proceedings by the service of
a precept and petition for reasonable attorney's fees incurred by the landlord
in the amount of $200.00. This provision shall apply each and every time the
tenant be in default for the non-payment of rent and summary proceedings be
initiated.
39th. Tenant shall pay or cause to be paid promptly, when due, any charge
which may be incurred incident to the premises being connected or "hooked-up"
to an existing or proposed sewer system, and thereafter tenant shall be
responsible for the payment for any and all sewer rents levied against or
attributable to the demised premises. The obligation of the tenant hereunder
shall be construed as additional rent. Landlord shall pay for connection to
sewer if required.
40th. Any damage which shall be done to the building as a result of the
installation or removal of tenant's equipment shall be repaired by tenant at
tenant's sole cost and expense, and the premises shall be restored to their
original condition.
41st. If the sprinkler system installed in the building upon the demised
premises shall be damaged or injured or not in proper working order by reason
of any act or omission of the tenant, tenant shall forthwith restore the same
to good working condition at its own expense; and if the N.Y. Board of Fire
Underwriters or the N.Y. Fire Insurance Exchange or any bureau, department, or
official of the State or City Government require or recommend that any changes,
modification, alterations, or additional sprinkler heads or other equipment to
be made or supplied by reason of tenant's business or the locations of
partitions, trade fixtures, and other contents of the demised premises, or if
any such changes, modifications, alterations, additional sprinkler heads or
other equipment becomes necessary, to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate as fixed by said Exchange, or any fire insurance company, tenant shall, at
tenant's expense, promptly make and supply such changes, modifications,
alterations, additional sprinkler heads or other equipment, and upon failure to
do so, landlord may elect to cancel this lease or do said work at the expense
of the tenant, the cost of same to be deemed additional rent and to be due with
the next monthly installment of rent thereafter.
42nd. This agreement constitutes the entire agreement between the parties and
contains all agreements, conditions, representations and warranties made between
the parties hereto. No representation other than those herein expressly
contained have been made by either party to the other. This lease may not be
modified, altered, amended, changed or added to except in writing and signed by
all parties.
43rd. The landlord agrees during the term of this leasing agreement to make
necessary structural, roof, and outside repairs not occasioned as a result of
tenant's misuse or neglect. The tenant agrees to clean and maintain the present
cesspools and storm drains upon the premises. In the event landlord shall, in
the future, install additional cesspool or cesspools to service the subject
premises, then, in that case, the tenant shall be solely responsible for the
maintenance and replacement thereof. The entire cost to be paid by the tenant.
44th. The tenant shall pay to the landlord during the entire term herein
demised, commencing with December 1996, as and for additional rent hereunder
the amount of any increase in the aggregate of all real estate taxes of every
nature and description, including assessments, if any, levied against the
demised premises and herein referred to as the basic tax. The basic tax, as
aforementioned, shall be the aggregate of all real estate taxes of each and
every nature, including assessments levied against the
45th. The tentant shall maintain the lawn, shrubs and lawn sprinkler system
if any, and security system.
46th. Anything to the contrary notwithstanding, if the landlord is required
to or has the option to make repairs under paragraphs 5th and 26th hereof,
whether the repairs are of a substantial nature or otherwise, the landlord shall
complete or substantially complete said repairs within 120 days from the date
of casualty loss or the date of notification of a governmental authority of the
required change. In the event that the landlord should contest any
governmental order to make changes in the building, the 120 day period shall
commence from the date of adjudication of the landlord's requirement to make
said repairs.
47th. The landlord agrees to furnish and provide ten (10) parking spaces for
the tenant.
48th. The tenant is presently in possession of part of the premises.
49th. Tenant shall be reponsible for any and all lighting and fans in the
warehouse area.
50th. The tenant represents that the tenant shall not at any time dispose of
noxious or toxic substances or waste, if any of this type of material be on the
premises at any time, through the sanitary disposal system of the premisses, be
it cesspool, septic tank or sewer, or through any public or private sewer or
disposal system on or adjoining the premises. In the event that any noxious or
toxic substances are used, stored, created or otherwise obtained and/or
maintained by the tenant, including heating oil, same shall be at all times
handled in a safe and proper manner and in accordance with all municipal and
governmental standards. At such time as the tenant vacates the premises, be it
at the conclusion or termination of this lease or otherwise, the premises shall
be left in a vacant and broom cleaned condition with no noxious or toxic
substances in or about the premises. The tenant, and if the tenant is a
corporation, then the stockholders, directors and officers of the tenant
corporation do jointly and severally agree to, and by this lease provision, do
indemnify and hold harmless the landlord from any and all damages that may
result fom the breach of this
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<PAGE> 7
demised premises, for the tax year 1995/96 as originally billed and paid. The
amount of any such increase shall be deemed additional rent and shall be paid
by the tenant to the landlord not later than the first day of the calendar
month occurring subsequent to the giving of notice to the tenant of the amount
of such increase and the simultaneously exhibiting to the tenant a copy of a tax
bill evidencing such increase. Such notice to be given by the landlord to the
tenant may be given personally or by certified mail, return receipt requested.
The tenant, at its sole cost and expense, shall have the right to contest all
future tax bills in accordance with the requirements of the tax authority
and the landlord shall cooperate in any such undertaking by providing any
documents or information in their possession.
In the event that any of the aforesaid taxes are decreased and refunds
received by landlord, they shall be for the sole benefit of the landlord without
any reduction or refunds of rent to tenant.
In the event that the total of the aforesaid taxes for any year subsequent
to the base year 1995/96 are less than the base year total taxes, then and in
that event the total taxes for said subsequent year shall be substituted for
the 1995/96 base year for any tax adjustment for all years following the year
of said base year substitution.
45th. The tenant shall maintain the lawn, shrubs and lawn sprinkler system
if any, and security system.
46th. Anything to the contrary notwithstanding, if the landlord is required
to or has the option to make repairs under paragraphs 5th and 26th hereof,
whether the repairs are of a substantial nature or otherwise, the landlord
shall complete or substantially complete said repairs within 120 days from the
date of casualty loss or the date of notification of a governmental authority
of the required change. In the event that the landlord should contest any
governmental order to make changes in the building, the 120 day period shall
commence from the date of adjudication of the landlord's requirement to make
said repairs.
47th. The landlord agrees to furnish and provide ten (10) parking spaces
for the tenant.
48th. The tenant is presently in possession of part of the premises.
49th. Tenant shall be responsible for any and all lighting and fans in the
warehouse area.
50th. The tenant represents that the tenant shall not at any time dispose
of noxious or toxic substances or waste, if any of this type of material be on
the premises at any time, through the sanitary disposal system of the premises,
be it cesspool, septic tank or sewer, or through any public or private sewer or
disposal system on or adjoining the premises. In the event that any noxious or
toxic substances are used, stored, created or otherwise obtained and/or
maintained by the tenant, including heating oil,same shall be at all times
handled in a safe and proper manner and in accordance with all municipal
and governmental standards. At such time as the tenant vacates the premises, be
it at the conclusion or termination of this lease or otherwise,the premises
shall be left in a vacant and broom cleaned condition with no noxious or toxic
substances in or about the premises. The tenant, and if the tenant is a
corporation, then the stockholders, directors and officers of the tenant
corporation do jointly and severally agree to, and by this lease provision, do
indemnify and hold harmless the landlord from any and all damages that may
result from the breach of this
4
<PAGE> 8
lease provision, including but not limited to clean up and repair or replacement
of the premises, elimination of any noxious or toxis substances and purification
of the premises, carting and disposal of such substances, reasonable attorney's
fees, loss of rental due to any dangerous condition thereby created and any and
all losses stemming therefrom, the foregoing list being intended to be
illustrative only and not in limitation of the provisions hereof. The aforesaid
indemnification shall likewise be applicable to indemnify and hold harmless the
landlord from any third party claim made against the landlord which arises from
the tenants activities, actions and operation.
51st. The parties hereto represent that they have dealt with no real estate
broker other then DeLalio Associates and that all commissions will be paid by
the landlord in accordance with a separate agreement.
52nd. Tenant shall have the right to place containers in the rear of the
building in an orderly fashion and subject to the approval of the town and all
other authorities.
Tenant shall pay as additional rent any and all costs incurred by landlord
for refuse removal.
54th. Landlord agrees to furnish the following:
1. Up to 600 square feet of carpet and cove base at a cost not to exceed
$6,000.00 as per agreement attached hereto and made a part hereof.
2. Painting in accordance with agreement attached hereto and made a part
hereof.
3. Renovations to premises in accordance with plans attached hereto and
made a part hereof.
SUNGOLD ENTERPRISES LIMITED
By: /s/ LIONEL GOLDMAN
--------------------------
Title Tenant
/s/ ROBERT P. DELALIO
----------------------------
Robert P. Delalio, Landlord
/s/ LEONARD DELALIO
----------------------------
Leonard Delalio, Landlord
5
<PAGE> 9
SECOND RIDER TO LEASE BETWEEN LEONARD DELALIO and ROBERT P. DELALIO, as
LANDLORD and SUNGOLD ENTERPRISES LIMITED, as TENANT, DATED NOVEMBER 27, 1996.
Paragraph 1st - monthly rental for the period of December 1, 1999 to and
including November 1, 2000 shall be $16,660.83 in lieu of $16,608.33 as
stated in the lease.
Paragraph 8th - add after last period: "not withstanding the foregoing
re-entering by force shall be permitted only when the premises are deserted
or become vacant for any other default lawful court process will be
required.
Paragraph 11th - add after end of paragraph "notwithstanding the foregoing, all
signs as they presently exist may be retained by the Tenant as long as they
continue to conform to the requirements of the governing municipality. The
approval by the Landlord for any additional signs shall not be unreasonably
withheld."
Paragraph 13th - after re-possess and enjoy on second line add "upon lawful
court process". Delete last sentence beginning with the said Tenant ----
Paragraph 32nd - change last period of the paragraph to a comma and add "which
permission shall not be unreasonably withheld."
Paragraph 33rd - change last period of the paragraph to a comma and add "except
as is specifically set forth in paragraph 54th herein."
Paragraph 44th - at the first sentence on page 4, insert after tax year 1995/96
"covering the fiscal period of December 1, 1995 through November 30, 1996."
Paragraph 46th - on line 5 after within, the 120 days is changed to 90 days.
Paragraph 54th item 1 - delete in its entirety and substitute following: "Carpet
and cove base shall be provided by Landlord or allowed to Tenant, at
Tenant's option, at a cost not to exceed Ten ($10.00) Dollars per square
yard for the number of yards required by the agreed plans not to exceed 660
square yards."
Paragraph 55th - add to the first rider the following:
In the event that the building is sold and the new owner gives
notification to the Tenant of his intentions to terminate the lease, then
add in that event, the Tenant shall have a period of six (6) months to move
from the premises with all other terms and conditions of this lease
remaining in full force and effect.
Paragraph 56th - The Tenant shall have the following option provided that all
rentals provided herein have been paid timely and there are no breaches of
any term, covenant or condition stated herein.
The Tenant shall have the option to extend this Lease for a term of five
(5) additional years at an annual rental as follows:
<TABLE>
<CAPTION>
ANNUAL ANNUAL
RENTAL RENTAL
----------- ----------
<S> <C> <C>
First Year 4% %214,092.00 $17,841.00
Second Year 222,656.00 18,554.67
Third Year 231,562.00 19,296.83
Fourth Year 240,824.00 20,068.67
Fifth Year 250,457.00 20,871.42
</TABLE>
In order for the Tenant to exercise this option it must give written
notice of its intention to exercise the option at least
<PAGE> 10
eighteen (18) months prior to the expiration of the original term of the lease
and execute an agreement extending the term within ten (10) days after said
agreement is presented to it by the landlord. All other terms of this lease
shall remain in full force and effect through the extended term.
SUNGOLD ENTERPRISES LIMITED
By [SIG]
-----------------------------------
Title Tenant
/s/ ROBERT P. DE LALIO
-----------------------------------
Robert P. DeLalio, Landlord
/s/ LEONARD DE LALIO
-----------------------------------
Leonard DeLalio, Landlord
And the said Landlord doth covenant that the said Tenant on paying the said
yearly rent, and performing the covenants aforesaid, shall and may peacefully
and quietly have, hold and enjoy the said demised premises for the term
aforesaid, provided however, that this covenant shall be conditioned upon the
retention of title to the premises by the Landlord.
AND IT IS MUTUALLY UNDERSTOOD AND AGREED that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the parties have interchangeably set their hands and
seals (or cause these presents to be signed by their proper corporate officers
and caused their proper corporate seal to be hereto affixed) this 27th day of
November, 1996.
<TABLE>
<CAPTION>
<S> <C>
Signed, sealed and delivered
in the presence of SUNGOLD ENTERPRISES LIMITED
/s/ ELEANOR GOLDMAN By [SIG] L.S.
- ------------------------------------ -----------------------------------
Secretary TITLE TENANT
/s/ ROBERT P. DE LALIO L.S.
-----------------------------------
ROBERT P. DELALIO, LANDLORD
/s/ LEONARD DE LALIO L.S.
-----------------------------------
LEONARD DELALIO, LANDLORD
</TABLE>
<PAGE> 1
EXHIBIT 10.60
RENEWAL TERM NOTE
$16,470,000 January 15, 1998
For value received, the undersigned, GARGOYLES, INC. ("Borrower"),
promises to pay to the order of U. S. BANK NATIONAL ASSOCIATION ("U. S. Bank"),
at its principal place of business, 1420 Fifth Avenue, Seattle, Washington
98101, or such other place or places as the holder hereof may designate in
writing, the principal sum of Sixteen Million Four Hundred Seventy Thousand
Dollars ($16,470,000) in lawful immediately available money of the United States
of America, in accordance with the terms and conditions of that certain credit
agreement of even date herewith dated as of April 7, 1997, by and between
Borrower and U. S. Bank (together with all supplements, exhibits, amendments,
and modifications thereto, the "Credit Agreement"). Borrower also promises to
pay interest on the unpaid principal balance hereof, in like money in accordance
with the terms and conditions and at the rate or rates provided for in the
Credit Agreement. All principal, interest, and other charges are due and payable
in full on April 30, 1999.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U. S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof (1) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U. S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement; (2) consent to the release of any property now or hereafter
securing this Note with or without substitution; and (3) agree that additional
makers, endorsers, guarantors, or sureties may become parties hereto without
notice to them and without affecting their liability hereunder.
This Note is the Renewal Term Note referred to in the Third Amendment to
First Amended and Restated Credit Agreement and as such is entitled to all of
the benefits and obligations specified in the Credit Agreement, including but
not limited
<PAGE> 2
to any Collateral and any conditions to making advances hereunder. Terms defined
in the Credit Agreement are used herein with the same meanings. Reference is
made to the Credit Agreement for provisions for the repayment of this Note and
the acceleration of the maturity hereof.
GARGOYLES, INC., a
Washington corporation
By: /s/ Douglas B. Hauff
-----------------------------------
Title: President and CEO
-----------------------------------
<PAGE> 1
EXHIBIT 10.61
RENEWAL REVOLVING NOTE
$14,000,000 January 15, 1998
For value received, the undersigned, GARGOYLES, INC. ("Borrower"),
promises to pay to the order of U. S. BANK NATIONAL ASSOCIATION ("U. S. Bank"),
at its principal place of business, 1420 Fifth Avenue, Seattle, Washington
98101, or such other place or places as the holder hereof may designate in
writing, the principal sum of Fourteen Million Dollars ($14,000,000) or so much
thereof as advanced by U. S. Bank in lawful, immediately available money of the
United States of America, in accordance with the terms and conditions of that
certain credit agreement of even date herewith dated as of April 7, 1997, by and
between Borrower and U. S. Bank (together with all supplements, exhibits,
amendments and modifications thereto, the "Credit Agreement"). Borrower also
promises to pay interest on the unpaid principal balance hereof, in like money
in accordance with the terms and conditions, and at the rate or rates provided
for in the Credit Agreement. All principal, interest, and other charges are due
and payable in full on April 30, 1999.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U. S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof (1) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U. S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement; (2) consent to the release of any property now or hereafter
securing this Note with or without substitution; and (3) agree that additional
makers, endorsers, guarantors, or sureties may become parties hereto without
notice to them and without affecting their liability hereunder.
<PAGE> 2
This Note is the Renewal Revolving Note referred to in the Third Amendment
to First Amended and Restated Credit Agreement of even date herewith and as such
is
<PAGE> 3
entitled to all of the benefits and obligations specified in the Credit
Agreement, including but not limited to any Collateral and any conditions to
making advances hereunder. Terms defined in the Credit Agreement are used herein
with the same meanings. Reference is made to the Credit Agreement for provisions
for the repayment of this Note and the acceleration of the maturity hereof.
GARGOYLES, INC., a
Washington corporation
By: */s/ DOUGLAS B. HAUFF
-----------------------------------
Title: President & CEO
-----------------------------------
<PAGE> 1
EXHIBIT 10.62
RENEWAL EQUIPMENT NOTE
$3,650,000 January 15, 1998
FOR VALUE RECEIVED, the undersigned, GARGOYLES, INC. ("Borrower"),
promises to pay to the order of U. S. BANK NATIONAL ASSOCIATION ("U. S. Bank"),
at its principal place of business, 1420 Fifth Avenue, Seattle, Washington
98101, or such other place or places as the holder hereof may designate in
writing, the sum of Three Million Six Hundred Fifty Thousand Dollars
($3,650,000) in lawful immediately available money of the United States of
America, in accordance with the terms and conditions of that certain credit
agreement dated April 7, 1997, by and between Borrower and U. S. Bank (together
with all supplements, exhibits, amendments, and modifications thereto, the
"Credit Agreement"). Borrower also promises to pay interest on the unpaid
principal balance hereof, in like money in accordance with the terms and
conditions, and at the rate or rates provided for in the Credit Agreement. All
principal, interest, and other charges are due and payable in full on April 30,
1999.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U. S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U. S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement, and to the release of any property now or hereafter securing
this Note with or without substitution and agree that additional makers,
endorsers, guarantors, or sureties may become parties hereto without notice to
them or affecting their liability hereunder.
<PAGE> 2
This Note is one of the Renewal Equipment Notes referred to in the Third
Amendment to First Amended and Restated Credit Agreement of even date herewith
and as such is entitled to all of the benefits and obligations specified in the
Credit Agreement, including but not limited to any Collateral and any conditions
to making Fundings hereunder. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the repayment of this Note and the acceleration of the maturity
hereof.
GARGOYLES, INC., a
Washington corporation
By: s/s DOUGLAS B. HAUFF
-----------------------------------
Title: President & CEO
-----------------------------------
<PAGE> 1
EXHIBIT 10.63
RENEWAL EQUIPMENT NOTE
$250,000 January 15, 1998
FOR VALUE RECEIVED, the undersigned, GARGOYLES, INC. ("Borrower"),
promises to pay to the order of U. S. BANK NATIONAL ASSOCIATION ("U. S. Bank"),
at its principal place of business, 1420 Fifth Avenue, Seattle, Washington
98101, or such other place or places as the holder hereof may designate in
writing, the sum of Two Hundred Fifty Thousand Dollars ($250,000) in lawful
immediately available money of the United States of America, in accordance with
the terms and conditions of that certain credit agreement dated April 7, 1997,
by and between Borrower and U. S. Bank (together with all supplements, exhibits,
amendments, and modifications thereto, the "Credit Agreement"). Borrower also
promises to pay interest on the unpaid principal balance hereof, in like money
in accordance with the terms and conditions, and at the rate or rates provided
for in the Credit Agreement. All principal, interest, and other charges are due
and payable in full on April 30, 1999.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U. S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U. S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement, and to the release of any property now or hereafter securing
this Note with or without substitution and agree that additional makers,
endorsers, guarantors, or sureties may become parties hereto without notice to
them or affecting their liability hereunder.
<PAGE> 2
This Note is one of the Renewal Equipment Notes referred to in the Third
Amendment to First Amended and Restated Credit Agreement of even date herewith
and as such is entitled to all of the benefits and obligations specified in the
Credit Agreement, including but not limited to any Collateral and any conditions
to making Fundings hereunder. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the repayment of this Note and the acceleration of the maturity
hereof.
GARGOYLES, INC., a
Washington corporation
By: /s/ DOUGLAS B. HAUFF
-----------------------------------
Title: President & CEO
-----------------------------------
<PAGE> 1
EXHIBIT 10.64
SECURITY AGREEMENT
This security agreement ("Agreement") is made and entered into as of
January 15, 1998, by SUNGOLD EYEWEAR, INC., formerly known as Gargoyles
Acquisition Corporation, a Washington corporation ("Sungold"), for the benefit
of U. S. BANK NATIONAL ASSOCIATION ("U. S. Bank").
R E C I T A L S :
A. Concurrently with the execution hereof, U. S. Bank and Gargoyles,
Inc. ("Borrower") entered into a credit agreement (together with all
supplements, exhibits, and amendments thereto, referred to as the "Credit
Agreement"), pursuant to which U. S. Bank agreed to extend to Borrower credit
facilities as more fully described therein (the "Loans").
B. Sungold will benefit from the credit facilities to be extended to
Borrower under the Credit Agreement, and accordingly wishes to grant to U. S.
Bank a security interest in all its assets as security for all the Secured
Obligations.
C. This Agreement is a restatement of that certain Security Agreement
dated as of April 7, 1997, which is being restated merely to reflect the name
change of Sungold and to update Schedule I attached thereto.
NOW, THEREFORE, in order for U. S. Bank to make the Loans, Sungold agrees
as follows:
ARTICLE I. DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings when used herein. For the purposes of this
Agreement, the following terms shall have the following meanings:
"Account" means any right to payment for goods sold or leased or for
services rendered that is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the party who is obligated on or under any Account,
Chattel Paper, or General Intangible.
"Assignee Deposit Account" shall have the meaning set forth in Section 5.7
hereof.
<PAGE> 2
"Chattel Paper" means all interest of Sungold in writings that evidence
both a monetary obligation and a security interest in or a lease of specific
goods, including any group of writings consisting of both a security agreement
or a lease and an Instrument or series of Instruments.
"Collateral" means all property, real, personal, and mixed, tangible and
intangible, wherever located, now owned or hereafter acquired by Sungold, or in
which Sungold has or later obtains an interest, and all products, profits,
rents, and proceeds of such property, including, but not limited to, Accounts,
Chattel Paper, Deposit Accounts, Documents, Equipment, Financial Assets, General
Intangibles, Goods, Instruments, Inventory, Investment Property, Patents,
Trademarks, and Vehicles.
"Deposit Account" means a demand, time, savings, passbook, or like account
maintained with a bank, savings and loan association, credit union, or like
organization, other than an account evidenced by a certificate of deposit.
"Document" means all of Sungold's right, title, and interest in or to any
document of title as defined in RCW 62A.1-201 and any receipt of the kind
described in RCW 62A.7-201(2).
"Equipment" means all of Sungold's right, title, and interest in and to
Goods that are used or bought for use primarily in business and that are not
included within the definition of Inventory, including, but not limited to, all
machinery, equipment, furnishings, fixtures, vehicles, tools, supplies, and
other equipment of any kind and nature and all additions, substitutions, and
replacements of any of the foregoing, together with all attachments, components,
parts, accessories, improvements, upgrades, and accessories installed thereon or
affixed thereto.
"Event of Default" means an occurrence of an Event of Default as defined
in the Credit Agreement.
"Financial Assets" means all of Sungold's right, title, and interest in
and to any financial asset as defined in RCW 62A.8-102.
"General Intangibles" means all personal property (including things in
action) other than Goods, Accounts, Chattel Paper, Documents, Financial Assets,
Instruments, Investment Property, and money, and shall include, but not be
limited to, all Patents, Trademarks, insurance proceeds, patents, copyrights,
trade names, trade secrets, goodwill, registrations, license rights, licenses,
royalty rights, royalties, permits, corporate and other business records, rights
to refunds or indemnification, computer
<PAGE> 3
software (including all source codes and mask works), and all other intangible
personal property of Sungold of every kind and nature.
"Goods" means all things that are movable or that are fixtures, not
including money, Documents, Financial Assets, Instruments, Investment Property,
Accounts, Chattel Paper, or General Intangibles.
"Instrument" means any negotiable instrument or security or other writing
that evidences a right to the payment of money and is not itself a security
agreement or lease and is of a type that is in the ordinary course of business
transferred by delivery with any necessary endorsement or assignment.
"Inventory" means all Goods held by Sungold for sale or lease, furnished
or to be furnished by Sungold under any contract of service, or held by Sungold
as raw materials, work in progress, or materials used or consumed in Sungold's
business.
"Investment Property" means all of Sungold's right, title, and interest in
and to any investment property as defined in RCW 62A.9-115.
"Patents" means (a) any patents and the goodwill associated therewith and
all rights arising out of or related thereto, now existing or hereafter adopted
or acquired, any registration or recording thereof, and any application in
connection with any of the foregoing, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States or of
any state thereof, or any other country or any political subdivision thereof, or
otherwise, including, but not limited to, any thereof referred to in Schedule I
hereto, and (b) all renewals thereof.
"Secured Obligations" means any past, present, or future Indebtedness of
Borrower to U. S. Bank, and includes, but is not limited to, (a) any
indebtedness, obligation, or liability of any kind arising in any way of
Borrower to U. S. Bank, now existing or hereafter created, under the Credit
Agreement, the Notes, or the other Loan Documents, including any refinancing,
renewal, replacement, extension, amendment, or substitution of such
indebtedness, (b) any liability or obligation of Sungold hereunder, (c) the
obligations of Sungold under any guaranty executed by Sungold and delivered to
U. S. Bank, whereby Sungold guarantees the indebtedness of any Person other than
Sungold to U. S. Bank, and (d) any cost, expense, or liability, including, but
not limited to, reasonable attorneys' fees, that may be incurred and advances
that may be made by U. S. Bank in any way in connection with any of the
foregoing or any security therefor.
"Trademark" means (a) any trademark, trade name, corporate name, company
name, business name, fictitious business name, trade style, service mark, logo,
or
<PAGE> 4
other source or business identifier, and the goodwill associated therewith
and all rights arising out of or related thereto, now existing or hereafter
adopted or acquired, any registration or recording thereof, and any application
in connection with any of the foregoing, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States or of
any state thereof, or any other country or any political subdivision thereof, or
otherwise, including, but not limited to, any thereof referred to in Schedule I
hereto, and (b) all renewals thereof.
"Vehicle" means any car, truck, trailer, construction or earth-moving
equipment, or other vehicle covered by a certificate of title of any state,
including, but not limited to, any tires or other appurtenances to any of the
foregoing.
ARTICLE II. GRANT OF SECURITY INTEREST
As security for the payment and satisfaction of the Secured Obligations,
Sungold hereby grants to U. S. Bank a continuing security interest in and
assigns to U. S. Bank all of Sungold's right, title, and interest in the
Collateral and all products, profits, rents, and proceeds thereof.
ARTICLE III. COVENANTS OF SUNGOLD
Sungold shall fully perform each of the covenants set forth below.
3.1 OBLIGATIONS TO PAY
(a) Sungold shall pay to U. S. Bank, in timely fashion and in
full, all amounts payable by Sungold to U. S. Bank pursuant to Sungold's
Guaranty and the other Loan Documents; and
(b) Borrower shall pay and reimburse U. S. Bank for all
expenditures including reasonable attorneys' fees and legal expenses in
connection with the exercise by U. S. Bank of any of its rights or remedies
under Sungold's Guaranty or the other Loan Documents.
3.2 PERFORMANCE
Sungold shall fully perform in a timely fashion every covenant,
agreement, and obligation of Sungold set forth in its Guaranty and the other
Loan Documents.
3.3 FURTHER DOCUMENTATION
At its own expense, Sungold shall execute and deliver any financing
statement, any renewal, substitution, or correction thereof, or any other
document; shall
<PAGE> 5
procure any document; and shall take such further action as U.
S. Bank may require in obtaining the full benefits of this Agreement.
3.4 FILING FEES
Sungold shall pay all costs of filing any financing, continuation, or
termination statement with respect to the security interests granted herein,
including the filing of this Agreement with the United States Patent and
Trademark Office.
3.5 PLEDGES
Sungold shall deliver and pledge to U. S. Bank, endorsed or accompanied by
instruments of assignment or transfer satisfactory to U. S. Bank, any
Instruments, Investment Property, Documents, General Intangibles, or Chattel
Paper that U. S. Bank may specify from time to time.
3.6 MAINTENANCE OF RECORDS
Sungold shall keep and maintain at its own cost and expense satisfactory
and complete records of the Collateral, including, but not limited to, a record
of all payments received and all credits granted with respect to the Collateral
and all other dealings with the Collateral. Sungold shall mark its books and
records pertaining to the Collateral to evidence this Agreement and the security
interests granted herein. Sungold shall deliver and turn over to U. S. Bank all
books and records pertaining to the Collateral at any time after the occurrence
and during the continuation of an Event of Default, if so demanded by U. S.
Bank.
3.7 DISPOSITION OF COLLATERAL
Except as allowed in the Credit Agreement, Sungold shall not sell or
transfer any of the Collateral or release, compromise, or settle any obligation
or receivable due to Sungold.
3.8 INDEMNIFICATION
Sungold agrees to pay, and to indemnify U. S. Bank and hold U. S. Bank
harmless from, all liabilities, costs, and expenses, including, but not limited
to, legal fees and expenses with respect to or resulting from (a) any delay in
paying any excise, sales, or other taxes that may be payable or determined to be
payable with respect to any of the Collateral, (b) any delay by Sungold in
complying with any requirement of law applicable to any of the Collateral, or
(c) any of the transactions contemplated by this Agreement. In any suit,
proceeding, or action brought by U. S. Bank under any Account to enforce payment
of any sum owing thereunder or to enforce any provisions of any Account,
Sungold will indemnify U. S. Bank and hold U. S. Bank harmless from all expense,
loss, or damage suffered by reason of any defense, setoff, counterclaim,
recoupment, reduction, or liability whatsoever of the Account Debtor thereunder
arising out of a breach by Sungold of any obligation thereunder or arising out
of any other agreement, indebtedness, or liability at any time owing to or in
favor of such Account Debtor or its successors from Sungold.
3.9 LIMITATIONS ON AMENDMENTS, MODIFICATIONS, TERMINATIONS, WAIVERS, AND
EXTENSIONS OF CONTRACTS AND AGREEMENTS GIVING RISE TO ACCOUNTS
Sungold will not (a) amend, modify, terminate, waive, or extend any
provision of any agreement giving rise to an Account in any manner that could
reasonably be expected to have a material adverse effect on the value of such
Account as Collateral unless deemed necessary by Sungold in the reasonable
exercise of its business judgment, or (b) fail to exercise promptly and
diligently every material right that it may have under each agreement giving
rise to an Account, other than any right of termination unless deemed necessary
by Sungold in the reasonable exercise of its business judgment.
3.10 LIMITATIONS ON DISCOUNTS, COMPROMISES, AND EXTENSIONS OF ACCOUNTS
Sungold will not grant any extension of the time of payment of any of the
Accounts; compromise, compound, or settle the same for less than the full amount
thereof; release, wholly or partially, any Person liable for the payment
thereof; or allow any credit or discount whatsoever thereon unless deemed
necessary by Sungold in the reasonable exercise of its business judgment.
3.11 FURTHER IDENTIFICATION OF COLLATERAL
Sungold will furnish to U. S. Bank from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as U. S. Bank may request, all in
reasonable detail.
3.12 NOTICES
Sungold will advise U. S. Bank promptly in reasonable detail at its
address set forth in Section 7.9(a) hereof of any lien (other than liens created
hereby or permitted under the Credit Agreement) on or claim asserted against any
of the Collateral and (b) of the occurrence of any other event that could
reasonably be expected to have a material adverse effect on the Collateral or on
the liens created hereunder.
<PAGE> 6
3.13 CHANGES IN LOCATIONS, NAME, ETC.
Sungold will not (a) change the location of its chief executive
office/chief place of business from that specified in Section 4.10 or remove its
books and records from the location specified in Section 4.7 hereof, (b) permit
any of the Inventory or Equipment (excluding Vehicles) to be kept at locations
other than those listed on Schedule II hereto, or (c) change its name, identity,
or structure to such an extent that any financing statement filed by U. S. Bank
in connection with this Agreement would become seriously misleading, unless it
shall have given U. S. Bank at least ten days' prior written notice thereof.
3.14 PATENTS AND TRADEMARKS
(a) Sungold (either itself or through licensees) will (i) continue
to use all Trademarks on each and every trademark class of goods applicable to
its current line as reflected in its current catalogs, brochures, and price
lists in order to maintain such Trademarks in full force free from any claim of
abandonment for nonuse, (ii) maintain as in the past the quality of products and
services offered under all Patents and Trademarks, (iii) employ all Patents and
Trademarks with the appropriate notice of registration, (iv) not adopt or use
any mark that is confusingly similar to or a colorable imitation of any
Trademarks unless U. S. Bank shall obtain a perfected security interest in such
mark pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
Patent or Trademark may become invalidated.
(b) Sungold will notify U. S. Bank immediately if it knows, or has
reason to know, of (i) any application or registration relating to any Patent or
Trademark material to its business that may become abandoned or dedicated, or
(ii) any adverse determination or development (including, but not limited to,
the institution of, or any adverse determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding Sungold's ownership of any Patent or
Trademark or its right to register, keep, or maintain the same.
(c) Whenever Sungold, either by itself or through any agent,
employee, licensee, or designee, shall file an application for the registration
of any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency in any state or other country or any political
subdivision thereof, Sungold shall report such filing to U. S. Bank within five
Business Days after the last day of the calendar month in which such filing
occurs. Sungold shall execute and deliver to U. S. Bank all agreements,
instruments, powers of attorney, documents,
<PAGE> 7
and papers that U. S. Bank may request to evidence U. S. Bank's security
interest in any such Patent and Trademark and in the goodwill and general
intangibles of Sungold relating to or represented thereby; provided that Sungold
acknowledges that it is Sungold's intent that this Agreement grant to U. S. Bank
a valid, perfected, and enforceable security interest in all Patents and
Trademarks now owned or hereafter adopted or acquired, without the necessity of
further documentation. Sungold hereby constitutes U. S. Bank its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, with all acts of such attorney being hereby ratified and confirmed;
and such power, being coupled with an interest, is irrevocable until all Secured
Obligations are paid in full.
(d) Sungold will take all reasonable and necessary steps,
including, but not limited to, all reasonable and necessary steps in any
proceeding before the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof, to
maintain and pursue each application, to obtain the relevant registration, and
to maintain each registration of all Patents and Trademarks, including, but not
limited to, filing applications for renewal, affidavits of use, and affidavits
of incontestability.
(e) If any Patent or Trademark that is included in the Collateral
is infringed, misappropriated, or diluted by a third party, Sungold shall
promptly notify U. S. Bank after it learns thereof and shall take such action as
Sungold reasonably deems appropriate under the circumstances to protect such
Patent or Trademark.
3.15 VEHICLES
Upon the request of U. S. Bank, Sungold shall take all steps necessary for
U. S. Bank to obtain a valid, perfected, and first priority security interest in
any Vehicle constituting Collateral, including the delivery to U. S. Bank of the
original certificate of title for each Vehicle. Each certificate of title shall
thereafter indicate U. S. Bank's first priority lien on the Vehicle covered by
such certificate. Sungold shall execute and deliver to U. S. Bank any and all
agreements, instruments, documents, powers of attorney, and papers that U. S.
Bank may request to evidence and perfect U. S. Bank's security interest in any
Vehicle. Sungold hereby constitutes U. S. Bank its attorney-in-fact to execute
and file all such writings for the foregoing purposes, with all acts of such
attorney being hereby ratified and confirmed; and such power, being coupled with
an interest, is irrevocable until all Secured Obligations are paid in full.
<PAGE> 8
3.16 INSURANCE
Sungold agrees to insure the Collateral against all hazards in form and
amount satisfactory to U. S. Bank. If Sungold fails to obtain such insurance, U.
S. Bank shall have the right, but not the obligation, to obtain either insurance
covering both Sungold's and U. S. Bank's interest in the Collateral, or
insurance covering only U. S. Bank's interest in the Collateral. Sungold agrees
to pay any premium charged for such insurance. This amount may be added to the
outstanding balance of the Loans, and interest thereon shall be charged at the
rate specified in any applicable loan document, or U. S. Bank may demand
immediate payment. Any unpaid insurance premium advanced by U. S. Bank shall be
secured under the terms of this Agreement. U. S. Bank will have no liability
whatsoever for any loss that may occur by reason of the omission or lack of
coverage of any such insurance. Sungold hereby assigns to U. S. Bank the right
to receive proceeds of such insurance to the full amount of the Secured
Obligations and hereby directs any insurer to pay all proceeds directly to U. S.
Bank, and authorizes U. S. Bank to endorse any draft. In U. S. Bank's sole
discretion, U. S. Bank may apply any insurance proceeds either toward repair of
the property or reduction of the balance of the Secured Obligations.
3.17 FINANCING STATEMENTS
Sungold agrees that a carbon, photographic, or other reproduction of a
financing statement or this Agreement is sufficient as a financing statement.
Sungold also acknowledges and agrees that all security agreements and financing
statements previously executed by Sungold and delivered to U. S. Bank shall
remain in full force and effect, and shall secure all Indebtedness of Sungold to
U. S. Bank, including, without limitation, repayment of the Loans.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Sungold hereby makes the following representations and warranties:
4.1 TITLE TO COLLATERAL
Sungold has good and marketable title to all the Collateral, free and
clear of all liens excepting only the security interests created pursuant to
this Agreement or permitted pursuant to the Credit Agreement.
4.2 NO IMPAIRMENT OF COLLATERAL
None of the Collateral shall be impaired or jeopardized because of the
security interest herein granted.
<PAGE> 9
4.3 OTHER AGREEMENTS
The execution and delivery of this Agreement, the consummation of the
transactions provided for herein, and the fulfillment of the terms hereof will
not result in the breach of any of the terms, conditions, or provisions of, or
constitute a default under, or conflict with, or cause any acceleration of any
obligation under any (a) agreement or other instrument to which Sungold is a
party or by which Sungold is bound or (b) Applicable Law.
4.4 NO APPROVALS
No Governmental Approvals of any nature are required in connection with
the security interests herein granted.
4.5 AUTHORITY
Sungold has full power and authority to assign to U. S. Bank and to grant
to U. S. Bank a security interest in the Collateral.
4.6 LOCATION OF RECORDS
The address of the office where the books and records of Sungold are kept
concerning the Collateral is set forth on Schedule II.
4.7 LOCATION OF COLLATERAL
The locations of all Inventory and Equipment of Sungold are described on
Schedule II.
4.8 NAME
Sungold conducts its business only under the names "Sungold Enterprises,
Inc.," "Sungold Eyewear," and "Sungold I-Wear."
4.9 ACCOUNTS
The amount represented by Sungold to U. S. Bank from time to time as owing
by each Account Debtor or by all Account Debtors in respect of the Accounts will
at such time be the correct amount actually owing by such Account Debtor or
Debtors thereunder. No material amount payable to Sungold under or in connection
with any Account is evidenced by any Instrument or Chattel Paper that has not
been delivered to U. S. Bank.
<PAGE> 10
4.10 CHIEF EXECUTIVE OFFICE
Sungold's chief executive office and chief place of business is located at
the address set forth on Schedule II.
4.11 PATENTS AND TRADEMARKS
Schedule I hereto includes all Patents and Trademarks owned by Sungold in
its own name as of the date hereof. To the best of Sungold's knowledge, each
such Patent and Trademark is valid, subsisting, unexpired, and enforceable and
has not been abandoned. Except as set forth in Schedule I, none of such Patents
or Trademarks is the subject of any licensing or franchise agreement except as
otherwise disclosed to U. S. Bank in writing prior to the execution of this
Agreement. No holding, decision, or judgment that would limit, cancel, or
question the validity of any such Patent or Trademark has been rendered by any
Governmental Body. No action or proceeding is pending that (a) seeks to limit,
cancel, or question the validity of any such Patent or Trademark or (b) would,
if adversely determined, have a material adverse effect on the value of any
Patent or Trademark.
4.12 VEHICLES
Schedule III hereto is a complete and correct list of all Vehicles owned
by Sungold on the date hereof that constitute Collateral hereunder.
ARTICLE V. U. S. BANK'S RIGHTS WITH RESPECT TO THE COLLATERAL
5.1 NO DUTY ON U. S. BANK'S PART
U. S. Bank shall not be required (except at its option upon the occurrence
and during the continuation of any Event of Default) to realize upon any
Accounts, Financial Assets, Instruments, Investment Property, Chattel Paper, or
General Intangibles; collect the principal, interest, or payment due thereon,
exercise any rights or options of Sungold pertaining thereto; make presentment,
demand, or protest; give notice of protest, nonacceptance, or nonpayment; or do
any other thing for the protection, enforcement, or collection of such
Collateral. The powers conferred on U. S. Bank hereunder are solely to protect
U. S. Bank's interests in the Collateral and shall not impose any duty upon U.
S. Bank to exercise any such powers. U. S. Bank shall be accountable only for
amounts that U. S. Bank actually receives as a result of the exercise of such
powers; and neither U. S. Bank nor any of its officers, directors, employees, or
agents shall be responsible to Sungold for any act or failure to act hereunder.
<PAGE> 11
5.2 NEGOTIATIONS WITH ACCOUNT DEBTORS
Upon the occurrence and during the continuation of any Event of Default,
U. S. Bank may, in its sole discretion, extend or consent to the extension of
the time of payment or maturity of any Instruments, Accounts, Chattel Paper, or
General Intangibles.
5.3 RIGHT TO ASSIGN
Except as otherwise provided in the Credit Agreement, U. S. Bank may
assign or transfer the whole or any part of the Secured Obligations and may
transfer therewith as collateral security the whole or any part of the
Collateral; and all obligations, rights, powers, and privileges herein provided
shall inure to the benefit of the assignee and shall bind the successors and
assigns of the parties hereto.
5.4 DUTIES REGARDING COLLATERAL
Beyond the safe custody thereof, U. S. Bank shall not have any duty as to
any Collateral in its possession or control, or as to any preservation of any
rights of or against other parties.
5.5 COLLECTION FROM ACCOUNT DEBTORS
Upon the occurrence and during the continuation of any Event of Default,
Sungold shall, upon demand by U. S. Bank (and without any grace or cure period),
notify all Account Debtors to make payment to U. S. Bank of any amounts due or
to become due. Sungold authorizes U. S. Bank to contact the Account Debtors for
the purpose of having all or any of them pay their obligations directly to U. S.
Bank. Upon demand by U. S. Bank, Sungold shall enforce collection of any
indebtedness owed to it by Account Debtors.
5.6 INSPECTION
U. S. Bank and its designees, from time to time at reasonable times and
intervals, may inspect the Equipment and Inventory and inspect, audit, and make
copies of and extracts from all records and all other papers in the possession
of Sungold.
5.7 ASSIGNEE DEPOSIT ACCOUNT
Upon demand by U. S. Bank, Sungold will transmit and deliver to U. S.
Bank, in the form received, immediately after receipt, all cash, checks, drafts,
Chattel Paper, Instruments, or other writings for the payment of money,
including Investment
<PAGE> 12
Property (properly endorsed, where required, so that the items may be collected
by U. S. Bank) that may be received by Sungold at any time. All items or amounts
that are delivered by Sungold to U. S. Bank, or collected by U. S. Bank from the
Account Debtors, shall be deposited to the credit of a Deposit Account
("Assignee Deposit Account") of Sungold with U. S. Bank, as security for the
payment of the Secured Obligations. Sungold shall have no right to withdraw any
funds deposited in the Assignee Deposit Account. U. S. Bank may, from time to
time in its discretion, and shall, upon the request of Sungold made not more
than twice in any week, apply all or any of the balance, representing collected
funds, in the Assignee Deposit Account, to payment of the Secured Obligations,
whether or not then due, in such order of application, not inconsistent with the
terms of the Credit Agreement and this Agreement, as U. S. Bank may determine;
and U. S. Bank may, from time to time in its discretion, release all or any of
such balance to Sungold.
ARTICLE VI. U. S. BANK'S RIGHTS AND REMEDIES
6.1 GENERAL
Upon the occurrence of any Event of Default, U. S. Bank may exercise its
rights and remedies in the Credit Agreement and in any other Loan Documents and
any other rights and remedies at law and in equity, simultaneously or
consecutively, all of which rights and remedies shall be cumulative. The choice
of one or more rights or remedies shall not be construed as a waiver or election
barring other rights and remedies. Sungold hereby acknowledges and agrees that
U. S. Bank is not required to exercise all rights and remedies available to it
equally with respect to all the Collateral and that U. S. Bank may select less
than all the Collateral with respect to which the rights and remedies as
determined by U. S. Bank may be exercised.
6.2 NOTICE OF SALE: DUTY TO ASSEMBLE COLLATERAL
In addition to or in conjunction with the rights and remedies referred to
in Section 6.1 hereof:
(a) Written notice mailed to Sungold at the address designated
herein ten days or more prior to the date of public or private sale of any of
the Collateral shall constitute reasonable notice.
(b) If U. S. Bank requests, Sungold will assemble the Collateral
and make it available to U. S. Bank at places that U. S. Bank shall reasonably
select, whether on Sungold's premises or elsewhere.
<PAGE> 13
ARTICLE VII. GENERAL PROVISIONS
7.1 ENTIRE AGREEMENT
This Agreement, together with the Credit Agreement and the other Loan
Documents, sets forth all the promises, covenants, agreements, conditions, and
understandings between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements, or conditions, express or implied, oral or written,
with respect thereto, except as contained or referred to herein. This Agreement
may not be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of such
amendment, waiver, discharge, or termination is sought.
7.2 INVALIDITY
If any provision of this Agreement shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereunder, but this Agreement shall be construed as if such
invalid or unenforceable provision had never been contained herein.
7.3 NONWAIVER AND NONEXCLUSIVE RIGHTS AND REMEDIES
(a) No right or remedy herein conferred upon or reserved to U. S.
Bank is intended to be to the exclusion of any other right or remedy, but each
and every such right or remedy shall be cumulative and shall be in addition to
every other right or remedy given hereunder and now or hereafter existing at law
or in equity.
(b) No delay or omission by U. S. Bank in exercising any right or
remedy accruing upon an Event of Default shall impair any such right or remedy,
or shall be construed to be a waiver of any such Event of Default, or an
acquiescence therein, nor shall it affect any subsequent Event of Default of the
same or of a different nature.
7.4 TERMINATION OF SECURITY INTEREST
When all the Secured Obligations have been paid in full, the security
interest provided herein shall terminate and U. S. Bank shall return to Sungold
all Collateral then held by U. S. Bank, if any, and upon written request of
Sungold, shall execute, in form for filing, termination statements of the
security interests herein granted. Thereafter, no party hereto shall have any
further rights or obligations hereunder.
<PAGE> 14
7.5 SUCCESSORS AND ASSIGNS
All rights of U. S. Bank hereunder shall inure to the benefit of its
successors and assigns, and all obligations of Sungold shall be binding upon its
successors and assigns.
7.6 U. S. BANK'S APPOINTMENT AS ATTORNEY-IN-FACT
(a) Sungold hereby irrevocably constitutes and appoints U. S. Bank
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of Sungold and in the name of Sungold or in its own name, from
time to time in U. S. Bank's discretion, for the purpose of carrying out the
terms of this Agreement, to take any and all appropriate action, and to execute
any and all documents and instruments that may be necessary or desirable to
accomplish the purposes of this Agreement; and without limiting the generality
of the foregoing, Sungold hereby gives U. S. Bank the power and right, on behalf
of Sungold, without consent by or notice to Sungold, to do the following:
(i) to transfer to U. S. Bank or to any other person all or any of
said Collateral, to endorse any Instruments pledged to U. S. Bank, and to
fill in blanks in any transfers of Collateral, powers of attorney, or
other documents delivered to U. S. Bank;
(ii) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Agreement, and to pay all or any part of
the premiums therefor and the costs thereof;
(iii) upon the occurrence and during the continuation of any Event
of Default (A) to take possession of, endorse, and collect any checks,
drafts, notes, acceptances, or other instruments for the payment of moneys
due under any Account, Instrument, or General Intangible or with respect
to any other Collateral and (B) to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by U. S. Bank for the purpose of collecting all such moneys
due under any Account, Financial Asset, Instrument, Investment Property,
or General Intangible or with respect to any other Collateral whenever
payable; and
(iv) upon the occurrence and during the continuation of any Event
of Default (A) to direct any party liable for any payment under any of the
Collateral to make payment of all moneys due or to become due thereunder
<PAGE> 15
directly to U. S. Bank or as U. S. Bank shall direct; (B) to ask for,
demand, collect, and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices, and
other documents in connection with any of the Collateral; (D) to commence
and prosecute any suits, actions, or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of any Collateral; (E)
to defend any suit, action, or proceeding brought against Sungold with
respect to any Collateral; (F) to settle, compromise, or adjust any suit,
action, or proceeding described in clause (E) above and, in connection
therewith, to give such discharge or releases as U. S. Bank may deem
appropriate; (G) to assign any Patent and Trademark (along with the
goodwill of the business to which any such Patent and Trademark pertains)
throughout the world for such terms or terms, on such conditions, and in
such manner as U. S. Bank shall in its sole discretion determine; and (H)
generally, to sell, transfer, pledge, and make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though U. S. Bank were the absolute owner thereof for all purposes; and to
do, at U. S. Bank's option and Sungold's expense, at any time or from time
to time, all acts and things that U. S. Bank deems necessary to protect,
preserve or realize upon the Collateral and U. S. Bank's liens thereon and
to effect the intent of this Agreement, all as fully and effectively as
Sungold might do.
(b) Sungold hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
(c) Sungold also authorizes U. S. Bank, at any time and from time
to time, to execute, in connection with the sale provided for in Article VI
hereof, any endorsements, assignments, or other instruments of conveyance or
transfer with respect to the Collateral.
(d) The powers conferred on U. S. Bank hereunder are solely to
protect U. S. Bank's interests in the Collateral and shall not impose any duty
upon U. S. Bank to exercise any such powers. U. S. Bank shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees, or agents
shall be responsible to Sungold for any act or failure to act hereunder.
<PAGE> 16
7.7 PERFORMANCE BY U. S. BANK OF SUNGOLD'S OBLIGATIONS
If Sungold fails to perform or comply with any of its agreements contained
herein and U. S. Bank, as provided for by the terms of this Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expense of U. S. Bank incurred in connection with such
performance or compliance, together with interest thereon at the rate provided
for in the Credit Agreement upon the occurrence of an Event of Default, shall be
payable by Sungold to U. S. Bank on demand and shall constitute Secured
Obligations.
7.8 GOVERNING LAW
This Agreement and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with and shall be governed by the
laws of the state of Washington, without regard to the choice of law rules
thereof.
7.9 NOTICES
All notices, requests, consents, demands, approvals, and other
communications hereunder shall be deemed to have been duly given, made, or
served if in writing and when delivered personally, or sent via facsimile, or
mailed by first-class mail, postage prepaid, to the respective parties to this
Agreement as follows:
(a) If to U. S. Bank:
U. S. Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: David C. Larsen
Facsimile No.: (612) 973-2148
(b) If to Sungold:
Sungold Eyewear, Inc.
5866 S. 194th Street
Kent, Washington 98032
Attn: Steven R. Kingma
Facsimile number (206) 872-3317
The designation of the person to be so notified or the address of such person
for the purposes of such notice may be changed from time to time by similar
notice in writing, except that any communication with respect to a change of
address shall be
<PAGE> 17
deemed to be given or made when received by the party to whom such communication
was sent.
7.10 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original Agreement, but all of which together shall
constitute one and the same instrument.
<PAGE> 18
IN WITNESS WHEREOF, Sungold and U. S. Bank have caused these presents to
be duly executed by their respective duly authorized signatories as of the day
and year first above written.
SUNGOLD EYEWEAR, INC.,
a Washington corporation
By: /s/ DOUGLAS B. HANFF
-------------------------------------
Title: CEO
-------------------------------------
ACCEPTED BY: U. S. BANK NATIONAL ASSOCIATION
By: /s/ DAVID C. LARSEN
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 19
SCHEDULE I
PATENTS AND TRADEMARKS
<PAGE> 20
SCHEDULE II
Address of chief executive office:
Sungold Eyewear, Inc.
5866 S. 194th Street
Kent, Washington 98032
Address of Office where
books and records are kept:
Sungold Eyewear, Inc.
5866 S. 194th Street
Kent, Washington 98032
Addresses of locations of collateral:
Sungold Eyewear, Inc.
2095 New Highway
Farmingdale, New York 11735
<PAGE> 21
SCHEDULE III
VEHICLES
None.
<PAGE> 1
EXHIBIT 10.65
SECURITY AGREEMENT
This security agreement ("Agreement") is made and entered into as of
January 15, 1998, by PRIVATE EYES SUNGLASS CORPORATION, formerly known as
Gargoyles Acquisition Corporation II, a Washington corporation ("Private Eyes"),
for the benefit of U. S. BANK NATIONAL ASSOCIATION ("U. S. Bank").
R E C I T A L S :
A. On April 7, 1997, U. S. Bank and Gargoyles, Inc. ("Borrower")
entered into a credit agreement (together with all supplements, exhibits, and
amendments thereto, referred to as the "Credit Agreement"), pursuant to which U.
S. Bank agreed to extend to Borrower credit facilities as more fully described
therein (the "Loans").
B. Private Eyes will benefit from the credit facilities to be extended
to Borrower under the Credit Agreement, and accordingly wishes to grant to U. S.
Bank a security interest in all its assets as security for all the Secured
Obligations.
C. This Agreement is a restatement of that certain Security Agreement
dated as of May 9, 1997, which is being restated merely to reflect the name
change of Private Eyes and to update Schedule I attached thereto.
NOW, THEREFORE, in order for U. S. Bank to extend credit to Borrower,
Private Eyes agrees as follows:
ARTICLE I. DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings when used herein. For the purposes of this
Agreement, the following terms shall have the following meanings:
"Account" means any right to payment for goods sold or leased or for
services rendered that is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the party who is obligated on or under any Account,
Chattel Paper, or General Intangible.
"Assignee Deposit Account" shall have the meaning set forth in Section 5.7
hereof.
<PAGE> 2
"Chattel Paper" means all interest of Private Eyes in writings that
evidence both a monetary obligation and a security interest in or a lease of
specific goods, including any group of writings consisting of both a security
agreement or a lease and an Instrument or series of Instruments.
"Collateral" means all property, real, personal, and mixed, tangible and
intangible, wherever located, now owned or hereafter acquired by Private Eyes,
or in which Private Eyes has or later obtains an interest, and all products,
profits, rents, and proceeds of such property, including, but not limited to,
Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Financial
Assets, General Intangibles, Goods, Instruments, Inventory, Investment Property,
Patents, Trademarks, and Vehicles.
"Deposit Account" means a demand, time, savings, passbook, or like account
maintained with a bank, savings and loan association, credit union, or like
organization, other than an account evidenced by a certificate of deposit.
"Document" means all of Private Eyes's right, title, and interest in or to
any document of title as defined in RCW 62A.1-201 and any receipt of the kind
described in RCW 62A.7-201(2).
"Equipment" means all of Private Eyes's right, title, and interest in and
to Goods that are used or bought for use primarily in business and that are not
included within the definition of Inventory, including, but not limited to, all
machinery, equipment, furnishings, fixtures, vehicles, tools, supplies, and
other equipment of any kind and nature and all additions, substitutions, and
replacements of any of the foregoing, together with all attachments, components,
parts, accessories, improvements, upgrades, and accessories installed thereon or
affixed thereto.
"Event of Default" means an occurrence of an Event of Default as defined
in the Credit Agreement.
"Financial Assets" means all of Private Eyes's right, title, and interest
in and to any financial asset as defined in RCW 62A.8-102.
"General Intangibles" means all personal property (including things in
action) other than Goods, Accounts, Chattel Paper, Documents, Financial Assets,
Instruments, Investment Property, and money, and shall include, but not be
limited to, all Patents, Trademarks, insurance proceeds, patents, copyrights,
trade names, trade secrets, goodwill, registrations, license rights, licenses
(with the exception of the Ellen Tracy and Emmanuelle Khanh licenses), royalty
rights, royalties, permits, corporate and other business records, rights to
refunds or indemnification, computer software
<PAGE> 3
(including all source codes and mask works), and all other intangible personal
property of Private Eyes of every kind and nature.
"Goods" means all things that are movable or that are fixtures, not
including money, Documents, Financial Assets, Instruments, Investment Property,
Accounts, Chattel Paper, or General Intangibles.
"Instrument" means any negotiable instrument or security or other writing
that evidences a right to the payment of money and is not itself a security
agreement or lease and is of a type that is in the ordinary course of business
transferred by delivery with any necessary endorsement or assignment.
"Inventory" means all Goods held by Private Eyes for sale or lease,
furnished or to be furnished by Private Eyes under any contract of service, or
held by Private Eyes as raw materials, work in progress, or materials used or
consumed in Private Eyes's business.
"Investment Property" means all of Private Eyes's right, title, and
interest in and to any investment property as defined in RCW 62A.9-115.
"Patents" means (a) any patents and the goodwill associated therewith and
all rights arising out of or related thereto, now existing or hereafter adopted
or acquired, any registration or recording thereof, and any application in
connection with any of the foregoing, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States or of
any state thereof, or any other country or any political subdivision thereof, or
otherwise, including, but not limited to, any thereof referred to in Schedule I
hereto, and (b) all renewals thereof.
"Secured Obligations" means any past, present, or future Indebtedness of
Borrower to U. S. Bank, and includes, but is not limited to, (a) any
indebtedness, obligation, or liability of any kind arising in any way of
Borrower to U. S. Bank, now existing or hereafter created, under the Credit
Agreement, the Notes, or the other Loan Documents, including any refinancing,
renewal, replacement, extension, amendment, or substitution of such
indebtedness, (b) any liability or obligation of Private Eyes hereunder, (c) the
obligations of Private Eyes under any guaranty executed by Private Eyes and
delivered to U. S. Bank, whereby Private Eyes guarantees the indebtedness of any
Person other than Private Eyes to U. S. Bank, and (d) any cost, expense, or
liability, including, but not limited to, reasonable attorneys' fees, that may
be incurred and advances that may be made by U. S. Bank in any way in connection
with any of the foregoing or any security therefor.
<PAGE> 4
"Trademark" means (a) any trademark, trade name, corporate name, company
name, business name, fictitious business name, trade style, service mark, logo,
or other source or business identifier, and the goodwill associated therewith
and all rights arising out of or related thereto, now existing or hereafter
adopted or acquired, any registration or recording thereof, and any application
in connection with any of the foregoing, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States or of
any state thereof, or any other country or any political subdivision thereof, or
otherwise, including, but not limited to, any thereof referred to in Schedule I
hereto, and (b) all renewals thereof.
"Vehicle" means any car, truck, trailer, construction or earth-moving
equipment, or other vehicle covered by a certificate of title of any state,
including, but not limited to, any tires or other appurtenances to any of the
foregoing.
ARTICLE II. GRANT OF SECURITY INTEREST
As security for the payment and satisfaction of the Secured Obligations,
Private Eyes hereby grants to U. S. Bank a continuing security interest in and
assigns to U. S. Bank all of Private Eyes's right, title, and interest in the
Collateral and all products, profits, rents, and proceeds thereof.
ARTICLE III. COVENANTS OF PRIVATE EYES
Private Eyes shall fully perform each of the covenants set forth below.
3.1 OBLIGATIONS TO PAY
(a) Private Eyes shall pay to U. S. Bank, in timely fashion and in
full, all amounts payable by Private Eyes to U. S. Bank pursuant to Private
Eyes's Guaranty and the other Loan Documents; and
(b) Borrower shall pay and reimburse U. S. Bank for all
expenditures including reasonable attorneys' fees and legal expenses in
connection with the exercise by U. S. Bank of any of its rights or remedies
under Private Eyes's Guaranty or the other Loan Documents.
3.2 PERFORMANCE
Private Eyes shall fully perform in a timely fashion every covenant,
agreement, and obligation of Private Eyes set forth in its Guaranty and the
other Loan Documents.
<PAGE> 5
3.3 FURTHER DOCUMENTATION
At its own expense, Private Eyes shall execute and deliver any financing
statement, any renewal, substitution, or correction thereof, or any other
document; shall procure any document; and shall take such further action as U.
S. Bank may require in obtaining the full benefits of this Agreement.
3.4 FILING FEES
Private Eyes shall pay all costs of filing any financing, continuation, or
termination statement with respect to the security interests granted herein,
including the filing of this Agreement with the United States Patent and
Trademark Office.
3.5 PLEDGES
Private Eyes shall deliver and pledge to U. S. Bank, endorsed or
accompanied by instruments of assignment or transfer satisfactory to U. S. Bank,
any Instruments, Investment Property, Documents, General Intangibles, or Chattel
Paper that U. S. Bank may specify from time to time.
3.6 MAINTENANCE OF RECORDS
Private Eyes shall keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including, but not limited
to, a record of all payments received and all credits granted with respect to
the Collateral and all other dealings with the Collateral. Private Eyes shall
mark its books and records pertaining to the Collateral to evidence this
Agreement and the security interests granted herein. Private Eyes shall deliver
and turn over to U. S. Bank all books and records pertaining to the Collateral
at any time after the occurrence and during the continuation of an Event of
Default, if so demanded by U. S. Bank.
3.7 DISPOSITION OF COLLATERAL
Except as allowed in the Credit Agreement, Private Eyes shall not sell or
transfer any of the Collateral or release, compromise, or settle any obligation
or receivable due to Private Eyes.
3.8 INDEMNIFICATION
Private Eyes agrees to pay, and to indemnify U. S. Bank and hold U. S.
Bank harmless from, all liabilities, costs, and expenses, including, but not
limited to, legal fees and expenses with respect to or resulting from (a) any
delay in paying any excise, sales, or other taxes that may be payable or
determined to be payable with respect to
<PAGE> 6
any of the Collateral, (b) any delay by Private Eyes in complying with any
requirement of law applicable to any of the Collateral, or (c) any of the
transactions contemplated by this Agreement. In any suit, proceeding, or action
brought by U. S. Bank under any Account to enforce payment of any sum owing
thereunder or to enforce any provisions of any Account, Private Eyes will
indemnify U. S. Bank and hold U. S. Bank harmless from all expense, loss, or
damage suffered by reason of any defense, setoff, counterclaim, recoupment,
reduction, or liability whatsoever of the Account Debtor thereunder arising out
of a breach by Private Eyes of any obligation thereunder or arising out of any
other agreement, indebtedness, or liability at any time owing to or in favor of
such Account Debtor or its successors from Private Eyes.
3.9 LIMITATIONS ON AMENDMENTS, MODIFICATIONS, TERMINATIONS, WAIVERS, AND
EXTENSIONS OF CONTRACTS AND AGREEMENTS GIVING RISE TO ACCOUNTS
Private Eyes will not (a) amend, modify, terminate, waive, or extend any
provision of any agreement giving rise to an Account in any manner that could
reasonably be expected to have a material adverse effect on the value of such
Account as Collateral unless deemed necessary by Private Eyes in the reasonable
exercise of its business judgment, or (b) fail to exercise promptly and
diligently every material right that it may have under each agreement giving
rise to an Account, other than any right of termination unless deemed necessary
by Private Eyes in the reasonable exercise of its business judgment.
3.10 LIMITATIONS ON DISCOUNTS, COMPROMISES, AND EXTENSIONS OF ACCOUNTS
Private Eyes will not grant any extension of the time of payment of any of
the Accounts; compromise, compound, or settle the same for less than the full
amount thereof; release, wholly or partially, any Person liable for the payment
thereof; or allow any credit or discount whatsoever thereon unless deemed
necessary by Private Eyes in the reasonable exercise of its business judgment.
3.11 FURTHER IDENTIFICATION OF COLLATERAL
Private Eyes will furnish to U. S. Bank from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as U. S. Bank may request, all in
reasonable detail.
<PAGE> 7
3.12 NOTICES
Private Eyes will advise U. S. Bank promptly in reasonable detail at its
address set forth in Section 7.9(a) hereof of any lien (other than liens created
hereby or permitted under the Credit Agreement) on or claim asserted against any
of the Collateral and (b) of the occurrence of any other event that could
reasonably be expected to have a material adverse effect on the Collateral or on
the liens created hereunder.
3.13 CHANGES IN LOCATIONS, NAME, ETC.
Private Eyes will not (a) change the location of its chief executive
office/chief place of business from that specified in Section 4.10 or remove its
books and records from the location specified in Section 4.7 hereof, (b) permit
any of the Inventory or Equipment (excluding Vehicles) to be kept at locations
other than those listed on Schedule II hereto, or (c) change its name, identity,
or structure to such an extent that any financing statement filed by U. S. Bank
in connection with this Agreement would become seriously misleading, unless it
shall have given U. S. Bank at least ten days' prior written notice thereof.
3.14 PATENTS AND TRADEMARKS
(a) Private Eyes (either itself or through licensees) will (i)
continue to use all Trademarks on each and every trademark class of goods
applicable to its current line as reflected in its current catalogs, brochures,
and price lists in order to maintain such Trademarks in full force free from any
claim of abandonment for nonuse, (ii) maintain as in the past the quality of
products and services offered under all Patents and Trademarks, (iii) employ all
Patents and Trademarks with the appropriate notice of registration, (iv) not
adopt or use any mark that is confusingly similar to or a colorable imitation of
any Trademarks unless U. S. Bank shall obtain a perfected security interest in
such mark pursuant to this Agreement, and (v) not (and not permit any licensee
or sublicensee thereof to) do any act or knowingly omit to do any act whereby
any Patent or Trademark may become invalidated.
(b) Private Eyes will notify U. S. Bank immediately if it knows,
or has reason to know, of (i) any application or registration relating to any
Patent or Trademark material to its business that may become abandoned or
dedicated, or (ii) any adverse determination or development (including, but not
limited to, the institution of, or any adverse determination or development in,
any proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding Private Eyes's ownership of any Patent or
Trademark or its right to register, keep, or maintain the same.
<PAGE> 8
(c) Whenever Private Eyes, either by itself or through any agent,
employee, licensee, or designee, shall file an application for the registration
of any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency in any state or other country or any political
subdivision thereof, Private Eyes shall report such filing to U. S. Bank within
five Business Days after the last day of the calendar month in which such filing
occurs. Private Eyes shall execute and deliver to U. S. Bank all agreements,
instruments, powers of attorney, documents, and papers that U. S. Bank may
request to evidence U. S. Bank's security interest in any such Patent and
Trademark and in the goodwill and general intangibles of Private Eyes relating
to or represented thereby; provided that Private Eyes acknowledges that it is
Private Eyes's intent that this Agreement grant to U. S. Bank a valid,
perfected, and enforceable security interest in all Patents and Trademarks now
owned or hereafter adopted or acquired, without the necessity of further
documentation. Private Eyes hereby constitutes U. S. Bank its attorney-in-fact
to execute and file all such writings for the foregoing purposes, with all acts
of such attorney being hereby ratified and confirmed; and such power, being
coupled with an interest, is irrevocable until all Secured Obligations are paid
in full.
(d) Private Eyes will take all reasonable and necessary steps,
including, but not limited to, all reasonable and necessary steps in any
proceeding before the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof, to
maintain and pursue each application, to obtain the relevant registration, and
to maintain each registration of all Patents and Trademarks, including, but not
limited to, filing applications for renewal, affidavits of use, and affidavits
of incontestability.
(e) If any Patent or Trademark that is included in the Collateral
is infringed, misappropriated, or diluted by a third party, Private Eyes shall
promptly notify U. S. Bank after it learns thereof and shall take such action as
Private Eyes reasonably deems appropriate under the circumstances to protect
such Patent or Trademark.
3.15 VEHICLES
Upon the request of U. S. Bank, Private Eyes shall take all steps
necessary for U. S. Bank to obtain a valid, perfected, and first priority
security interest in any Vehicle constituting Collateral, including the delivery
to U. S. Bank of the original certificate of title for each Vehicle. Each
certificate of title shall thereafter indicate U. S. Bank's first priority lien
on the Vehicle covered by such certificate. Private Eyes shall execute and
deliver to U. S. Bank any and all agreements, instruments, documents, powers of
attorney, and papers that U. S. Bank may request to evidence
<PAGE> 9
and perfect U. S. Bank's security interest in any Vehicle. Private Eyes hereby
constitutes U. S. Bank its attorney-in-fact to execute and file all such
writings for the foregoing purposes, with all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, is
irrevocable until all Secured Obligations are paid in full..
3.16 INSURANCE
Private Eyes agrees to insure the Collateral against all hazards in form
and amount satisfactory to U. S. Bank. If Private Eyes fails to obtain such
insurance, U. S. Bank shall have the right, but not the obligation, to obtain
either insurance covering both Private Eyes's and U. S. Bank's interest in the
Collateral, or insurance covering only U. S. Bank's interest in the Collateral.
Private Eyes agrees to pay any premium charged for such insurance. This amount
may be added to the outstanding balance of the Loans, and interest thereon shall
be charged at the rate specified in any applicable loan document, or U. S. Bank
may demand immediate payment. Any unpaid insurance premium advanced by U. S.
Bank shall be secured under the terms of this Agreement. U. S. Bank will have no
liability whatsoever for any loss that may occur by reason of the omission or
lack of coverage of any such insurance. Private Eyes hereby assigns to U. S.
Bank the right to receive proceeds of such insurance to the full amount of the
Secured Obligations and hereby directs any insurer to pay all proceeds directly
to U. S. Bank, and authorizes U. S. Bank to endorse any draft. In U. S. Bank's
sole discretion, U. S. Bank may apply any insurance proceeds either toward
repair of the property or reduction of the balance of the Secured Obligations.
3.17 FINANCING STATEMENTS
Private Eyes agrees that a carbon, photographic, or other reproduction of
a financing statement or this Agreement is sufficient as a financing statement.
Private Eyes also acknowledges and agrees that all security agreements and
financing statements previously executed by Private Eyes and delivered to U. S.
Bank shall remain in full force and effect, and shall secure all Indebtedness of
Private Eyes to U. S. Bank, including, without limitation, repayment of the
Loans.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Private Eyes hereby makes the following representations and warranties:
<PAGE> 10
4.1 TITLE TO COLLATERAL
Private Eyes has good and marketable title to all the Collateral, free and
clear of all liens excepting only the security interests created pursuant to
this Agreement or permitted pursuant to the Credit Agreement.
4.2 NO IMPAIRMENT OF COLLATERAL
None of the Collateral shall be impaired or jeopardized because of the
security interest herein granted.
4.3 OTHER AGREEMENTS
The execution and delivery of this Agreement, the consummation of the
transactions provided for herein, and the fulfillment of the terms hereof will
not result in the breach of any of the terms, conditions, or provisions of, or
constitute a default under, or conflict with, or cause any acceleration of any
obligation under any (a) agreement or other instrument to which Private Eyes is
a party or by which Private Eyes is bound or (b) Applicable Law.
4.4 NO APPROVALS
No Governmental Approvals of any nature are required in connection with
the security interests herein granted.
4.5 AUTHORITY
Private Eyes has full power and authority to assign to U. S. Bank and to
grant to U. S. Bank a security interest in the Collateral.
4.6 LOCATION OF RECORDS
The address of the office where the books and records of Private Eyes are
kept concerning the Collateral is set forth on Schedule II.
4.7 LOCATION OF COLLATERAL
The locations of all Inventory and Equipment of Private Eyes are described
on Schedule II.
4.8 NAME
Private Eyes conducts its business only under the names "Private Eyes
Sunglass Corporation," and "Private Eyes."
<PAGE> 11
4.9 ACCOUNTS
The amount represented by Private Eyes to U. S. Bank from time to time as
owing by each Account Debtor or by all Account Debtors in respect of the
Accounts will at such time be the correct amount actually owing by such Account
Debtor or Debtors thereunder. No material amount payable to Private Eyes under
or in connection with any Account is evidenced by any Instrument or Chattel
Paper that has not been delivered to U. S. Bank.
4.10 CHIEF EXECUTIVE OFFICE
Private Eyes's chief executive office and chief place of business is
located at the address set forth on Schedule II.
4.11 PATENTS AND TRADEMARKS
Schedule I hereto includes all Patents and Trademarks owned by Private
Eyes in its own name as of the date hereof. To the best of Private Eyes's
knowledge, each such Patent and Trademark is valid, subsisting, unexpired, and
enforceable and has not been abandoned. Except as set forth in Schedule I, none
of such Patents or Trademarks is the subject of any licensing or franchise
agreement except as otherwise disclosed to U. S. Bank in writing prior to the
execution of this Agreement. No holding, decision, or judgment that would limit,
cancel, or question the validity of any such Patent or Trademark has been
rendered by any Governmental Body. No action or proceeding is pending that (a)
seeks to limit, cancel, or question the validity of any such Patent or Trademark
or (b) would, if adversely determined, have a material adverse effect on the
value of any Patent or Trademark.
4.12 VEHICLES
Schedule III hereto is a complete and correct list of all Vehicles owned
by Private Eyes on the date hereof that constitute Collateral hereunder.
ARTICLE V. U. S. BANK'S RIGHTS WITH RESPECT TO THE COLLATERAL
5.1 NO DUTY ON U. S. BANK'S PART
U. S. Bank shall not be required (except at its option upon the occurrence
and during the continuation of any Event of Default) to realize upon any
Accounts, Financial Assets, Instruments, Investment Property, Chattel Paper, or
General Intangibles; collect the principal, interest, or payment due thereon,
exercise any rights or options of Private Eyes pertaining thereto; make
presentment, demand, or protest;
<PAGE> 12
give notice of protest, nonacceptance, or nonpayment; or do any other thing for
the protection, enforcement, or collection of such Collateral. The powers
conferred on U. S. Bank hereunder are solely to protect U. S. Bank's interests
in the Collateral and shall not impose any duty upon U. S. Bank to exercise any
such powers. U. S. Bank shall be accountable only for amounts that U. S. Bank
actually receives as a result of the exercise of such powers; and neither U. S.
Bank nor any of its officers, directors, employees, or agents shall be
responsible to Private Eyes for any act or failure to act hereunder.
5.2 NEGOTIATIONS WITH ACCOUNT DEBTORS
Upon the occurrence and during the continuation of any Event of Default,
U. S. Bank may, in its sole discretion, extend or consent to the extension of
the time of payment or maturity of any Instruments, Accounts, Chattel Paper, or
General Intangibles.
5.3 RIGHT TO ASSIGN
Except as otherwise provided in the Credit Agreement, U. S. Bank may
assign or transfer the whole or any part of the Secured Obligations and may
transfer therewith as collateral security the whole or any part of the
Collateral; and all obligations, rights, powers, and privileges herein provided
shall inure to the benefit of the assignee and shall bind the successors and
assigns of the parties hereto.
5.4 DUTIES REGARDING COLLATERAL
Beyond the safe custody thereof, U. S. Bank shall not have any duty as to
any Collateral in its possession or control, or as to any preservation of any
rights of or against other parties.
5.5 COLLECTION FROM ACCOUNT DEBTORS
Upon the occurrence and during the continuation of any Event of Default,
Private Eyes shall, upon demand by U. S. Bank (and without any grace or cure
period), notify all Account Debtors to make payment to U. S. Bank of any amounts
due or to become due. Private Eyes authorizes U. S. Bank to contact the Account
Debtors for the purpose of having all or any of them pay their obligations
directly to U. S. Bank. Upon demand by U. S. Bank, Private Eyes shall enforce
collection of any indebtedness owed to it by Account Debtors.
<PAGE> 13
5.6 INSPECTION
U. S. Bank and its designees, from time to time at reasonable times and
intervals, may inspect the Equipment and Inventory and inspect, audit, and make
copies of and extracts from all records and all other papers in the possession
of Private Eyes.
5.7 ASSIGNEE DEPOSIT ACCOUNT
Upon demand by U. S. Bank, Private Eyes will transmit and deliver to U. S.
Bank, in the form received, immediately after receipt, all cash, checks, drafts,
Chattel Paper, Instruments, or other writings for the payment of money,
including Investment Property (properly endorsed, where required, so that the
items may be collected by U. S. Bank) that may be received by Private Eyes at
any time. All items or amounts that are delivered by Private Eyes to U. S. Bank,
or collected by U. S. Bank from the Account Debtors, shall be deposited to the
credit of a Deposit Account ("Assignee Deposit Account") of Private Eyes with U.
S. Bank, as security for the payment of the Secured Obligations. Private Eyes
shall have no right to withdraw any funds deposited in the Assignee Deposit
Account. U. S. Bank may, from time to time in its discretion, and shall, upon
the request of Private Eyes made not more than twice in any week, apply all or
any of the balance, representing collected funds, in the Assignee Deposit
Account, to payment of the Secured Obligations, whether or not then due, in such
order of application, not inconsistent with the terms of the Credit Agreement
and this Agreement, as U. S. Bank may determine; and U. S. Bank may, from time
to time in its discretion, release all or any of such balance to Private Eyes.
ARTICLE VI. U. S. BANK'S RIGHTS AND REMEDIES
6.1 GENERAL
Upon the occurrence of any Event of Default, U. S. Bank may exercise its
rights and remedies in the Credit Agreement and in any other Loan Documents and
any other rights and remedies at law and in equity, simultaneously or
consecutively, all of which rights and remedies shall be cumulative. The choice
of one or more rights or remedies shall not be construed as a waiver or election
barring other rights and remedies. Private Eyes hereby acknowledges and agrees
that U. S. Bank is not required to exercise all rights and remedies available to
it equally with respect to all the Collateral and that U. S. Bank may select
less than all the Collateral with respect to which the rights and remedies as
determined by U. S. Bank may be exercised.
<PAGE> 14
6.2 NOTICE OF SALE: DUTY TO ASSEMBLE COLLATERAL
In addition to or in conjunction with the rights and remedies referred to
in Section 6.1 hereof:
(a) Written notice mailed to Private Eyes at the address
designated herein ten days or more prior to the date of public or private sale
of any of the Collateral shall constitute reasonable notice.
(b) If U. S. Bank requests, Private Eyes will assemble the
Collateral and make it available to U. S. Bank at places that U. S. Bank shall
reasonably select, whether on Private Eyes's premises or elsewhere.
ARTICLE VII. GENERAL PROVISIONS
7.1 ENTIRE AGREEMENT
This Agreement, together with the Credit Agreement and the other Loan
Documents, sets forth all the promises, covenants, agreements, conditions, and
understandings between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements, or conditions, express or implied, oral or written,
with respect thereto, except as contained or referred to herein. This Agreement
may not be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of such
amendment, waiver, discharge, or termination is sought.
7.2 INVALIDITY
If any provision of this Agreement shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereunder, but this Agreement shall be construed as if such
invalid or unenforceable provision had never been contained herein.
7.3 NONWAIVER AND NONEXCLUSIVE RIGHTS AND REMEDIES
(a) No right or remedy herein conferred upon or reserved to U. S.
Bank is intended to be to the exclusion of any other right or remedy, but each
and every such right or remedy shall be cumulative and shall be in addition to
every other right or remedy given hereunder and now or hereafter existing at law
or in equity.
(b) No delay or omission by U. S. Bank in exercising any right or
remedy accruing upon an Event of Default shall impair any such right or remedy,
or
<PAGE> 15
shall be construed to be a waiver of any such Event of Default, or an
acquiescence therein, nor shall it affect any subsequent Event of Default of the
same or of a different nature.
7.4 TERMINATION OF SECURITY INTEREST
When all the Secured Obligations have been paid in full, the security
interest provided herein shall terminate and U. S. Bank shall return to Private
Eyes all Collateral then held by U. S. Bank, if any, and upon written request of
Private Eyes, shall execute, in form for filing, termination statements of the
security interests herein granted. Thereafter, no party hereto shall have any
further rights or obligations hereunder.
7.5 SUCCESSORS AND ASSIGNS
All rights of U. S. Bank hereunder shall inure to the benefit of its
successors and assigns, and all obligations of Private Eyes shall be binding
upon its successors and assigns.
7.6 U. S. BANK'S APPOINTMENT AS ATTORNEY-IN-FACT
(a) Private Eyes hereby irrevocably constitutes and appoints U. S.
Bank and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Private Eyes and in the name of Private Eyes or in its
own name, from time to time in U. S. Bank's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action, and to execute any and all documents and instruments that may be
necessary or desirable to accomplish the purposes of this Agreement; and without
limiting the generality of the foregoing, Private Eyes hereby gives U. S. Bank
the power and right, on behalf of Private Eyes, without consent by or notice to
Private Eyes, to do the following:
(i) to transfer to U. S. Bank or to any other person all or
any of said Collateral, to endorse any Instruments pledged to U. S. Bank,
and to fill in blanks in any transfers of Collateral, powers of attorney,
or other documents delivered to U. S. Bank;
(ii) to pay or discharge taxes and liens levied or placed on
or threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Agreement, and to pay all or any
part of the premiums therefor and the costs thereof;
<PAGE> 16
(iii) upon the occurrence and during the continuation of any
Event of Default (A) to take possession of, endorse, and collect any
checks, drafts, notes, acceptances, or other instruments for the payment
of moneys due under any Account, Instrument, or General Intangible or with
respect to any other Collateral and (B) to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by U. S. Bank for the purpose of collecting all such
moneys due under any Account, Financial Asset, Instrument, Investment
Property, or General Intangible or with respect to any other Collateral
whenever payable; and
(iv) upon the occurrence and during the continuation of any
Event of Default (A) to direct any party liable for any payment under any
of the Collateral to make payment of all moneys due or to become due
thereunder directly to U. S. Bank or as U. S. Bank shall direct; (B) to
ask for, demand, collect, and receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices, and
other documents in connection with any of the Collateral; (D) to commence
and prosecute any suits, actions, or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of any Collateral; (E)
to defend any suit, action, or proceeding brought against Private Eyes
with respect to any Collateral; (F) to settle, compromise, or adjust any
suit, action, or proceeding described in clause (E) above and, in
connection therewith, to give such discharge or releases as U. S. Bank may
deem appropriate; (G) to assign any Patent and Trademark (along with the
goodwill of the business to which any such Patent and Trademark pertains)
throughout the world for such terms or terms, on such conditions, and in
such manner as U. S. Bank shall in its sole discretion determine; and (H)
generally, to sell, transfer, pledge, and make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though U. S. Bank were the absolute owner thereof for all purposes; and to
do, at U. S. Bank's option and Private Eyes's expense, at any time or from
time to time, all acts and things that U. S. Bank deems necessary to
protect, preserve or realize upon the Collateral and U. S. Bank's liens
thereon and to effect the intent of this Agreement, all as fully and
effectively as Private Eyes might do.
(b) Private Eyes hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable.
<PAGE> 17
(c) Private Eyes also authorizes U. S. Bank, at any time and from
time to time, to execute, in connection with the sale provided for in Article VI
hereof, any endorsements, assignments, or other instruments of conveyance or
transfer with respect to the Collateral.
(d) The powers conferred on U. S. Bank hereunder are solely to
protect U. S. Bank's interests in the Collateral and shall not impose any duty
upon U. S. Bank to exercise any such powers. U. S. Bank shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees, or agents
shall be responsible to Private Eyes for any act or failure to act hereunder.
7.7 PERFORMANCE BY U. S. BANK OF PRIVATE EYES'S OBLIGATIONS
If Private Eyes fails to perform or comply with any of its agreements
contained herein and U. S. Bank, as provided for by the terms of this Agreement,
shall itself perform or comply, or otherwise cause performance or compliance,
with such agreement, the expense of U. S. Bank incurred in connection with such
performance or compliance, together with interest thereon at the rate provided
for in the Credit Agreement upon the occurrence of an Event of Default, shall be
payable by Private Eyes to U. S. Bank on demand and shall constitute Secured
Obligations.
7.8 GOVERNING LAW
This Agreement and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with and shall be governed by the
laws of the state of Washington, without regard to the choice of law rules
thereof.
7.9 NOTICES
All notices, requests, consents, demands, approvals, and other
communications hereunder shall be deemed to have been duly given, made, or
served if in writing and when delivered personally, or sent via facsimile, or
mailed by first-class mail, postage prepaid, to the respective parties to this
Agreement as follows:
(a) If to U. S. Bank:
U. S. Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
<PAGE> 18
Attention: David C. Larsen
Facsimile No.: (612) 973-2148
(b) If to Private Eyes:
Private Eyes Sunglass Corporation
5866 S. 194th Street
Kent, Washington 98032
Attn: Steven R. Kingma
Facsimile number (206) 872-3317
The designation of the person to be so notified or the address of such person
for the purposes of such notice may be changed from time to time by similar
notice in writing, except that any communication with respect to a change of
address shall be deemed to be given or made when received by the party to whom
such communication was sent.
7.10 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original Agreement, but all of which together shall
constitute one and the same instrument.
<PAGE> 19
IN WITNESS WHEREOF, Private Eyes and U. S. Bank have caused these presents
to be duly executed by their respective duly authorized signatories as of the
day and year first above written.
PRIVATE EYES SUNGLASS CORPORATION,
a Washington corporation
By: /s/ DOUGLAS B. HANFF
-------------------------------------
Title: CEO
-------------------------------------
ACCEPTED BY: U. S. BANK NATIONAL ASSOCIATION
By: /s/ DAVID C. LARSEN
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 20
SCHEDULE I
PATENTS AND TRADEMARKS
<PAGE> 21
SCHEDULE II
Address of chief executive office:
Private Eyes Sunglass Corporation
5866 S. 194th Street
Kent, Washington 98032
Address of Office where
books and records are kept:
Private Eyes Sunglass Corporation
5866 S. 194th Street
Kent, Washington 98032
Addresses of locations of collateral:
Private Eyes Sunglass Corporation
77 Accord Park Drive
Units B-1 through B-6
Norwell, MA 02061
Private Eyes Sunglass Corporation
Suites 901-903
385 Fifth Avenue
New York, NY 10016
Private Eyes Sunglass Corporation
5866 S. 194th Street
Kent, Washington 98032
<PAGE> 22
SCHEDULE III
VEHICLES
None.
<PAGE> 1
EXHIBIT 21.1
SUBSIDARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
------------------ ----------------------
<S> <C>
H.S.C., Inc. Washington
the kindling company California
Sungold Eyewear, Inc. Washington
Private Eyes Sunglass Corporation Washington
</TABLE>
