<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended April 30, 1999
OR
[_] 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 0-23001
SIGNATURE EYEWEAR, INC.
(Exact Name of Registrant as Specified in its Charter)
California 95-3876317
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
498 North Oak Street
Inglewood, California 90302
(Address of Principal Executive Offices)
(310) 330-2700
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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
_____ _____
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, par value
$0.001 per share, 5,084,689 shares issued and outstanding as of June 11,
1999.
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<PAGE>
SIGNATURE EYEWEAR, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements:
Balance Sheets as of April 30, 1999 (Unaudited) and October 31, 1998......... 3
Statement of Income (Unaudited) for the Three Months and Six Months
Ended April 30, 1999 and 1998.............................................. 4
Statement of Cash Flows (Unaudited) for the Six Months Ended
April 30, 1999 and 1998.................................................... 5
Notes to Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 18
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders............................ 20
Item 6. Exhibits and Reports on Form 8-K............................................. 20
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNATURE EYEWEAR, INC.
Balance Sheets
<TABLE>
<CAPTION>
April 30, October 31,
Assets 1999 1998
----------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,842,647 $ 4,256,655
Accounts receivable, trade 7,401,061 5,854,722
Inventories 9,669,177 11,308,589
Deferred tax asset 368,000 368,000
Income taxes refundable 0 186,481
Prepaid expenses and other current assets 1,622,167 1,573,627
----------- -----------
24,903,052 23,548,074
----------- -----------
Property and Equipment (net of accumulated depreciation and amortization) 1,487,862 1,472,954
----------- -----------
Other Assets:
Deferred tax asset 7,000 7,000
Deposits and other assets 125,862 123,312
----------- -----------
132,862 130,312
----------- -----------
$26,523,776 $25,151,340
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $ 3,769,725 $ 4,309,026
Current portion of long-term debt 104,167 0
Income taxes payable 250,328 0
Accrued expenses and other current liabilities 1,957,888 1,427,369
----------- -----------
6,082,108 5,736,395
----------- -----------
Long-term Debt 395,833 0
----------- -----------
Stockholders' Equity:
Preferred stock (authorized 5,000,000 shares, $.001 par value, none issued or outstanding) 0 0
Common stock (authorized 30,000,000 shares, $.001 par value, 5,084,689 shares issued and
outstanding at April 30, 1999 and 5,119,337 shares issued and Outstanding at October 31, 1998) 9,216 9,251
Paid-in capital 14,390,009 14,544,284
Retained earnings 5,646,610 4,861,410
----------- -----------
20,045,835 19,414,945
----------- -----------
$26,523,776 $25,151,340
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
SIGNATURE EYEWEAR, INC.
Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1999 1998 1999 1998
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $12,425,739 $12,173,163 $21,461,640 $18,895,649
Cost of Sales 5,019,358 4,826,375 9,004,305 7,577,581
----------- ----------- ----------- -----------
Gross Profit 7,406,381 7,346,788 12,457,335 11,318,068
----------- ----------- ----------- -----------
Operating Expenses:
Selling 3,921,641 3,860,087 7,028,911 5,779,647
General and administrative 2,297,123 1,772,974 4,221,064 3,284,391
----------- ----------- ----------- -----------
6,218,764 5,633,061 11,249,975 9,064,038
----------- ----------- ----------- -----------
Income from Operations 1,187,617 1,713,727 1,207,360 2,254,030
----------- ----------- ----------- -----------
Other Income (Expense):
Interest, net 28,604 79,951 66,628 187,914
Sundry Income 2,120 23,162 6,212 29,501
----------- ----------- ----------- -----------
30,724 103,113 72,840 217,415
----------- ----------- ----------- -----------
Income before Income Taxes 1,218,341 1,816,840 1,280,200 2,471,445
Provision for Income Taxes 472,000 700,745 495,000 963,909
----------- ----------- ----------- -----------
Net Income $ 746,341 $ 1,116,095 $ 785,200 $ 1,507,536
=========== =========== =========== ===========
Earnings Per Share, Basic and Diluted:
Earnings per common share $ 0.15 $ 0.21 $ 0.15 $ 0.29
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 5,084,689 5,268,027 5,095,836 5,268,027
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
SIGNATURE EYEWEAR, INC.
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended April 30,
1999 1998
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 785,200 $ 1,507,536
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 316,834 274,014
Provision for bad debts (100) (14,684)
Loss on sale of equipment 5,842 0
Changes in assets -- (increase) decrease:
Accounts receivable, trade (1,546,239) (3,498,201)
Inventories 1,639,412 (844,771)
Income taxes refundable 186,481 0
Prepaid expenses and other assets (51,090) (485,156)
Changes in liabilities--increase (decrease):
Accounts payable, trade (539,301) 1,044,231
Income taxes payable 250,328 89,909
Accrued expenses and other current liabilities 530,519 (147,195)
------------ ------------
Net cash provided by (used in) operating activities 1,577,886 (2,074,317)
------------
Cash Flows Used in Investing Activities:
Purchases of property and equipment (359,284) (282,298)
Proceeds from sale of equipment 21,700 0
------------ ------------
Net cash used in investing activities (337,584) (282,298)
------------ ------------
Cash Flows from Financing Activities:
Borrowings on long-term debt 500,000 0
Principal payments on long-term debt 0 (6,676)
Repurchase of common stock (154,310) 0
------------ ------------
Net cash provided by (used in) financing activities 345,690 (6,676)
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,585,992 (2,363,291)
------------ ------------
Cash and Cash Equivalents, Beginning of Period 4,256,655 8,133,423
------------ ------------
Cash and Cash Equivalents, End of Period $ 5,842,647 $ 5,770,132
============ ============
Supplementary Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 23,461 $ 3,845
============ ============
Income taxes $ 85,452 $ 923,421
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
SIGNATURE EYEWEAR, INC.
Notes to the Financial Statements
(Unaudited)
Note 1--Unaudited Interim Financial Statements
- ----------------------------------------------
Interim financial statements are prepared pursuant to the requirements for
reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual
financial statements prepared in accordance with generally accepted accounting
principles are omitted.
In the opinion of the management of the Company, all adjustments, consisting
solely of normal recurring adjustments, necessary for the fair presentation of
the financial statements for these interim periods have been included. The
current period's results of operations are not necessarily indicative of results
which ultimately may be achieved for the year.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
6
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Note 2--Basis of Presentation
- -----------------------------
A summary of significant accounting policies is as follows:
Income Taxes--The Company's effective income tax rate at April 30, 1999 varies
from the federal statutory tax rate of 34% principally due to state income
taxes.
Earnings Per Share--The Company has adopted Statement of Financial Accounting
Standards No. 128 which establishes standards for computing and presenting
earnings per share by replacing the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires the dual
presentation of basic and diluted earnings per share on the face of the income
statement. Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
For the Three Months Ended April 30, 1999
-------------------------------------------------------------------
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------ -------------------
<S> <C> <C> <C>
Basic and diluted EPS income available
to common stockholders $ 746,341 5,084,689 $ 0.15
================== ================== ===================
<CAPTION>
For the Six Months Ended April 30, 1999
-------------------------------------------------------------------
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------ -------------------
<S> <C> <C> <C>
Basic and diluted EPS income available
to common stockholders $ 785,200 5,095,836 $ 0.15
================== ================== ===================
</TABLE>
For the three and six months ended April 30, 1999, there was no difference
between basic and diluted EPS. Warrants and options to purchase 180,000 shares
and 419,000 shares, respectively, of common stock at $12 and $10 per share,
respectively, were outstanding during the quarter. They were not included in
the computation of diluted EPS because the warrants' and options' exercise
prices were greater than the average market price of the common stock during the
three and six months ended April 30, 1999.
Note 3--Term Loan
- -----------------
In December 1998, the Company entered into an agreement with its commercial bank
to provide the Company with an unsecured term loan of $500,000, with interest
accruing at a fixed rate of 6.75% per year, and interest and principal payments
scheduled throughout the life of the term loan. The term loan matures in
November 2001. At April 30, 1999, $500,000 was due to the bank under the term
loan, of which $104,167 is current.
7
<PAGE>
Note 4--Operating Lease
- -----------------------
In February 1999, the Company entered into an operating lease allowing the
Company to lease in aggregate of $3,500,000 for the use of computer equipment
and software. At April 30, 1999, the Company had used approximately $1,500,000
of the $3,500,000. The lease payments will be made in monthly installments over
a 42-month period beginning in June 1999.
Note 5--License Agreements
- --------------------------
In March 1999, the Company entered into a license agreement with COACH, a
division of Sara Lee Corporation, which grants the Company rights to use the
"COACH" trademarks in connection with the distribution, marketing and sale of
COACH eyewear products. The license period extends for ten years from the date
when sales of COACH Eyewear begin, provided that specified minimum sales are
achieved and the Company is not in material default under the agreement.
In March 1999, the Company amended its license agreement with Eddie Bauer to
authorize the Company to design, manufacture and market Eddie Bauer Performance
Sunwear using patented technology lenses provided by Oakley, Inc. The Company
also entered into an agreement with Oakley, Inc. pursuant to which Oakley agreed
to supply the lenses through the initial term of the Eddie Bauer license.
Note 6--Subsequent Event
- ------------------------
On June 11, 1999, the Company entered into an agreement to acquire the assets of
California Design Studio, Inc. ("CDS"), a privately held corporation. CDS's
assets include its proprietary names Dakota Smith and Nukes, and a license for
Nicole Miller Eyewear. Under the Agreement, the purchase price for the assets
would consist of $1.1 million in cash, a three-year promissory note and other
deferred payments amounting to $1.75 million, and the assumption of certain
liabilities of CDS anticipated to be approximately $6.15 million. The
consummation of the transaction is subject to various closing conditions.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Signature Eyewear, Inc. ("Signature" or the "Company") designs, markets and
distributes prescription eyeglass frames primarily under exclusive licenses for
Laura Ashley Eyewear, Eddie Bauer Eyewear and Hart Schaffner & Marx Eyewear, as
well as its own private labels. In March 1999, the Company entered into a
license agreement with COACH, a leading American brand of quality leather goods
and accessories, under which Signature will have the exclusive license to
design, market and distribute COACH Eyewear. The Company also entered into an
amendment to its license agreement with Eddie Bauer, under which Signature
received the right to design, manufacture and distribute Eddie Bauer Performance
Sunwear using lenses from Oakley, Inc. Signature concurrently entered into an
agreement with Oakley which provides that Oakley will supply its patented
technology lenses for Eddie Bauer Performance Sunwear.
The following discussion and analysis, which should be read in connection
with the Company's Financial Statements and accompanying footnotes, contain
forward-looking statements that involve risks and uncertainties. Important
factors that could cause actual results to differ materially from the Company's
expectations are set forth in "Year 2000" and "Factors That May Affect Future
Results" below as well as those discussed elsewhere in this Form 10-Q. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the "Year 2000" and "Factors That May Affect Future Results." Those
forward-looking statements relate to, among other things, the Company's cash
flows and working capital requirements.
Results of Operations
The following table sets forth, for the indicated periods, selected statement
of income data shown as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -----------------
April 30, April 30,
--------- ---------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of sales.......................... 39.6 40.4 40.1 42.0
-------- -------- -------- --------
Gross profit........................... 60.4 59.6 59.9 58.0
-------- -------- -------- --------
Operating expenses:
Selling............................... 31.7 31.5 30.6 32.7
General and administrative............ 14.6 18.5 17.4 19.7
-------- -------- -------- --------
Total operating expenses............. 46.3 50.0 48.0 52.4
-------- -------- -------- --------
Income from operations................. 14.1 9.6 11.9 5.6
Other income (expense), net............ .8 .2 1.2 .4
-------- -------- -------- --------
Income before provision for income
taxes................................. 14.9 9.8 13.1 6.0
Provision for income taxes............. 5.7 3.7 5.1 2.3
-------- -------- -------- --------
Net income............................. 9.2% 6.1% 8.0% 3.7%
======== ======== ======== ========
</TABLE>
Net Sales. Net sales were $12,426,000 for the quarter ended April 30, 1999
(the "1999 second quarter"), an increase of 2.1% compared to net sales of
$12,173,000 for the quarter ended April 30, 1998 (the "1998 second quarter").
Net sales for the six months ended April 30, 1999 (the "1999 period") were
$21,462,000, an increase of 13.6% compared to net sales of $18,896,000 for the
six months ended April 30, 1998 (the "1998 period").
The increases in net sales for the 1999 second quarter and the 1999 period
were due principally to increases of net sales of $1,204,000 and $3,955,000,
respectively, of Eddie Bauer Eyewear, which the Company launched in March 1998.
Sales of Eddie Bauer Eyewear increased by 43.7%, from $2,757,000 for the 1998
second quarter to $3,961,000 for the 1999 second quarter, and by 142.8% from
$2,770,000 for the 1998 period to $6,725,000 for the 1999 period. The increase
in net sales was also due to increases of $201,000 and $77,000 in the net sales
of Hart Schaffner & Marx Eyewear for the 1999 second quarter and the 1999
period, respectively. Net sales of Hart Schaffner & Marx Eyewear increased by
41.2%, from $488,000 for the 1998 second quarter to $689,000 for the 1999 second
quarter, and by 7.0% from $1,107,000 for the 1998 period to $1,184,000 for the
1999 period.
Sales of Laura Ashley Eyewear decreased by 14.4% from $7,021,000 for the 1998
second quarter to $6,013,000 for the 1999 second quarter, and by 9.6% from
$11,623,000 for the 1998 period to $10,511,000 for the 1999 period. Net sales in
the aggregate of Jean Nate Eyewear, private label collections, USA Optical and
Optical Surplus decreased by 9.4% to $1,515,000 for the 1999 second
9
<PAGE>
quarter from $1,672,000 for the 1998 second quarter, and by 14.6% to $2,614,000
for the 1999 period from $3,062,000 for the 1998 period.
Gross Profit. Gross profit increased from $7,347,000 in the 1998 second
quarter to $7,406,000 for the 1999 second quarter, and from $11,318,000 in the
1998 period to $12,457,000 for the 1999 period. This increase was due
principally to the increase in net sales. The Company's gross profit margin
remained relatively stable from 60.4% in the 1998 second quarter to 59.6% in the
1999 second quarter. The gross profit margin decreased from 59.9% in the 1998
period to 58.0% in the 1999 period. These decreases were primarily due to the
sales of certain styles at lower margins to reduce the Company's inventory.
Operating Expenses. Operating expenses increased from $5,633,000 in the 1998
second quarter to $6,219,000 in the 1999 second quarter, and from $9,064,000 in
the 1998 period to $11,250,000 in the 1999 period. Operating expenses for the
1999 second quarter and the 1999 period included an increase of $62,000 and
$1,249,000, respectively, in selling expenses and an increase of $524,000 and
$937,000, respectively, in general and administrative expenses. General and
administrative expenses increased as a percentage of net sales from 14.6% in the
1998 second quarter to 18.5% in the 1999 second quarter, and from 17.4% in the
1998 period to 19.7% in the 1999 period. General and administrative expenses
for the 1999 second quarter increased as a result of $310,000 in compensation
and other expenses related to the Company hiring additional mid-level managers
and other personnel to prepare for the Company's planned expansion, and an
increase of $211,000 in employee benefits. Selling expenses as a percentage of
net sales remained relatively stable, decreasing from 31.7% of net sales for the
1998 second quarter to 31.6% of net sales for the 1999 second quarter, but
increasing from 30.6% of net sales for the 1998 period to 32.8% of net sales for
the 1999 period.
Net Other Income. Net other income in the 1999 second quarter and the 1999
period were $31,000 and $73,000, respectively, as compared to net other income
in the 1998 second quarter and the 1998 period of $103,000 and $217,000,
respectively. These decreases in other income were primarily due to a decrease
in interest income.
Provision for Income Taxes. The Company's income tax provisions were $472,000
and $495,000 for the 1999 second quarter and the 1999 period, respectively, and
$701,000 and $964,000 for the 1998 second quarter and the 1998 period,
respectively. These decreases were due to decreases in income before income
taxes.
Net Income. Net income was $1,116,000 and $1,508,000 in the 1998 second
quarter and 1998 period, respectively, and $746,000 and $785,000 in the 1999
second quarter and 1999 period, respectively. These decreases in net income
were due to the factors set forth above.
10
<PAGE>
Liquidity and Capital Resources
At April 30, 1999, the Company had $5,843,000 in cash and cash equivalents,
of which $4,333,000 was invested in commercial paper with interest rates ranging
from 4.41% to 4.80%, and $515,000 was invested in money market funds bearing
interest at 4.05%.
The Company entered into a credit agreement with its commercial bank (the
"Credit Agreement") in October 1997. Under the Credit Agreement, the bank has
agreed to provide to the Company an unsecured revolving line of credit up to an
aggregate of $5,000,000. At the Company's option, interest may be based on the
London Interbank Offered Rate plus 2%, or at the bank's prime rate. At April 30,
1999, no amounts were due to the bank under the Credit Agreement. In December
1998, the Company entered into an agreement with its commercial bank to provide
the Company with an unsecured term loan of $500,000 (the "Term Loan"), with
interest accruing at a fixed rate of 6.75% per year, and interest and principal
payments scheduled throughout the life of the Term Loan. The Term Loan matures
in November 2001. At April 30, 1999, $500,000 was due to the bank under the
Term Loan. The Company entered into the Term Loan to borrow funds at a
favorable interest rate while preserving its cash for the Company's projected
growth in fiscal 1999.
Of the Company's accounts payable at April 30, 1999, $971,019 were payable in
foreign currency. To monitor risks associated with currency fluctuations, the
Company on a weekly basis assesses the volatility of certain foreign currencies
and reviews the amounts and expected payment dates of its orders and accounts
payable in those currencies. Based on those factors, the Company may from time
to time mitigate some portion of that risk by purchasing forward commitments to
deliver foreign currency to the Company. The Company held $223,083 in foreign
currency forward commitments at April 30, 1999.
In anticipation of its planned future growth, the Company in the 1999 second
quarter began a project to upgrade its warehouse and operating systems,
including computer software and hardware. A significant portion of the project
will be funded by an operating lease line of credit for $3,500,000 with a 42-
month term and even monthly payments throughout the term. The Company
anticipates that for this project in fiscal 1999, approximately $350,000 will be
capitalized and about $750,000 will be charged to general and administrative
expenses (including $400,000 in payments under the operating lease), largely in
the Company's fiscal quarters ending July 31, 1999 and October 31, 1999.
The Company believes that cash generated from operations, borrowings under
its commercial bank, credit from its suppliers, and credit under the operating
lease will be sufficient to fund its working capital requirements for the next
twelve months.
Year 2000
Commencing in 1996, the Company began a project to address the potential
impact of the Year 2000 problem on the processing of date-sensitive information
by the information technology systems used by the Company and its key customers
and vendors. The Year 2000 problem is the result of computer programs being
written using two digits to define the applicable year. As a result, certain
computer programs may recognize a date using "00" as the year 1900 rather than
2000, which could cause miscalculations or system failures. The objectives of
the Company's Year 2000 project are to determine and assess the risks of the
Year 2000 problem and to plan and institute mitigating actions to minimize those
risks to acceptable levels.
11
<PAGE>
The Company is not heavily dependent upon internally developed information
technology systems. The Company's core operations systems are largely standard
package systems for business management and inventory control, which have been
developed by vendors whose products are widely used in industry. The Company
has already contacted the major information technology vendors and suppliers of
its current systems, and has obtained assurances that the technology is Year
2000 compliant. In the 1999 second quarter, the Company began a project to
upgrade its warehouse and operating systems, including computer software and
hardware. The Company anticipates that the portion of the project relating to
computer software and hardware will be installed during the fourth quarter of
the Company's 1999 fiscal year. The Company has contacted all the vendors and
suppliers of the new computer software and hardware, and has been assured that
all the technology is Year 2000 compliant. The Company does not presently
anticipate any material Year 2000 issues or significant expenses arising from
any conversion of its own information systems, databases or programs to be Year
2000 compliant. However, if the Company's current estimates of the resources
required to address and resolve Year 2000 issues prove to be understated, the
additional costs and resources required to address the Year 2000 problem could
result in a material financial risk. There can be no assurance that there will
not be a delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the Year 2000 issues, and the Company's
inability to implement such systems and changes in a timely manner could have a
material adverse effect on future results of operations.
Because third party failures could have a material impact on the Company's
ability to conduct business, the Company has sent questionnaires to
substantially all of the Company's key vendors and business partners, including
manufacturers of the Company's eyeglass frames and significant retailers of the
Company's products. The purposes of these questionnaires are to obtain
reasonable assurances about the Year 2000 readiness status of these key vendors
and business partners, and their plans to become Year 2000 compliant. The
returned questionnaires are being assessed by the Company, categorized based
upon readiness for the Year 2000, and prioritized in order of significance to
the business of the Company. To the extent that key vendors and business
partners do not provide the Company with satisfactory evidence of their
readiness to handle Year 2000 issues, contingency plans will be developed. The
Company cannot yet determine how the Year 2000 problem or that problem's effect
on its customers and vendors will impact the Company. Based on the Company's
current assessment, the costs of addressing potential problems are not currently
expected to have a material adverse impact on the Company's financial position,
results of operations or cash flows in future periods. However, the failure by
any of these key vendors or business partners to adequately address the Year
2000 problem could result in disruptions in the supply or sale of the Company's
products, either of which would have a material adverse effect on the Company's
business, financial condition and results of operations. Accordingly, the
Company plans to devote the necessary resources to resolve all significant Year
2000 issues in a timely manner.
Factors That May Affect Future Results
The following is a discussion of certain factors that may affect the
Company's financial condition and results of operations.
Substantial Dependence upon Laura Ashley License
Net sales of Laura Ashley Eyewear accounted for 74.6%, 72.5%, 56.4%, and
48.4% of the Company's net sales in fiscal 1996, fiscal 1997, fiscal 1998, and
the 1999 second quarter, respectively. In March 1998, the Company launched the
Eddie Bauer Eyewear collection, which accounted for
12
<PAGE>
20.9% of the Company's 1998 fiscal year net sales although it was on the market
for eight months of that fiscal year, and 31.9% of the Company's net sales in
the 1999 second quarter. While the Company intends to continue reducing its
dependence on the Laura Ashley Eyewear line through the development of Eddie
Bauer Eyewear and other brand names and product offerings, the Company expects
the Laura Ashley Eyewear line to continue to be one of the Company's leading
sources of revenue for the foreseeable future. The Company designs, markets and
distributes Laura Ashley Eyewear through an exclusive license with Laura Ashley
entered into in 1991. The Laura Ashley license terminates in 2001, but may be
renewed by the Company at least through January 2006 so long as the Company is
not in breach of the license agreement and meets certain minimum net sales
requirements. Laura Ashley may terminate the license before its term expires if
(i) the Company commits a material breach of the license agreement and fails to
cure that breach within 30 days after notice is given, (ii) the management or
control of the Company passes from Bernard Weiss and Julie Heldman to other
parties whom Laura Ashley may reasonably regard as unsuitable, (iii) the Company
fails to propose a selection of styles of eyewear which Laura Ashley in
exercising good faith is willing to approve for manufacture and distribution,
(iv) the Company fails to have net sales of Laura Ashley Eyewear sufficient to
generate minimum royalties in each of any two years, (v) the Company is unable
to pay its debts in the ordinary course of business or enters into liquidation,
becomes bankrupt or insolvent, or is placed in the control of a receiver or
trustee, or (vi) the Company in any year fails to spend a specified percentage
of net sales of Laura Ashley Eyewear on advertising and promotion. For purposes
of renewal and early termination of the license agreement, the Company must
generate total Laura Ashley Eyewear minimum net sales of $11,000,000,
$12,000,000, and $13,000,000 for the contract years ending January 31, 2000,
2001 and 2002, respectively. The Company has substantially exceeded its minimum
net sales requirements each year under the license agreement. The termination of
the Laura Ashley Eyewear license would have a material adverse effect on the
Company's business, operating results and financial condition.
Approval Requirements of Brand-Name Licensors
The Company's business is predominantly based on its brand-name licensing
relationships. In addition to its licensing relationship with Laura Ashley, the
Company licenses the right to use proprietary marks from Eddie Bauer, Hart
Schaffner & Marx, and COACH. Each of the Laura Ashley, Eddie Bauer, Hart
Schaffner & Marx, and COACH licenses requires mutual agreement of the parties
for significant matters. Each of these licensors has final approval over all
eyeglass frames and other products bearing the licensor's proprietary marks, and
the frames must meet the licensor's general design specifications and quality
standards. Consequently, each licensor may, in the exercise of its approval
rights, delay the distribution of eyeglass frames bearing its proprietary marks.
The Company expects that each future license it obtains will contain similar
approval provisions. Accordingly, there can be no assurance that the Company
will be able to continue to maintain good relationships with each licensor, or
that the Company will not be subject to delays resulting from disagreements
with, or an inability to obtain approvals from, its licensors. These delays
could materially and adversely affect the Company's business, operating results
and financial condition.
Limitations on Ability to Distribute other Brand-Name Eyeglass Frames
Each of the Company's licenses limits the Company's right to market and
sell products with competing brand names. The Laura Ashley license prohibits the
Company from selling any range of designer eyewear that is similar to Laura
Ashley Eyewear in price and any of style, market position and market segment.
The Eddie Bauer license prohibits the Company from entering into license
agreements with companies which Eddie Bauer believes are its direct competitors.
The Hart Schaffner & Marx
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license prohibits the Company from marketing and selling another men's brand of
eyeglass frames under a well-known fashion name with a wholesale price in excess
of $40. The COACH license prohibits the Company from marketing and selling
eyewear under the brand names COACH considers to be its direct competitors. The
Company expects that each future license it obtains will contain some
limitations on competition within market segments. The Company's growth,
therefore, will be limited to capitalizing on its existing licenses in the
prescription eyeglass market, introducing eyeglass frames in other segments of
the prescription eyeglass market, and manufacturing and distributing products
other than prescription eyeglass frames such as sunglasses. In addition, there
can be no assurance that disagreements will not arise between the Company and
its licensors regarding whether certain brand-name lines would be prohibited by
their respective license agreements. Disagreements with licensors may adversely
affect sales of the Company's existing eyeglass frames or prevent the Company
from introducing new eyewear products in market segments the Company believes
are not being served by its existing products.
Dependence Upon Contract Manufacturers; Foreign Trade Regulation
The Company's frames are manufactured to its specifications by a number of
contract manufacturers located outside the United States, principally in Japan,
Hong Kong/China, France and Italy. The manufacture of high quality metal frames
is a labor-intensive process which can require over 200 production steps
(including a large number of quality-control procedures) and from 90 to 180 days
of production time. These long lead times increase the risk of overstocking, if
the Company overestimates the demand for a new style, or understocking, which
can result in lost sales if the Company underestimates demand for a new style.
While a number of contract manufacturers exist throughout the world, there can
be no assurance that an interruption in the manufacture of the Company's
eyeglass frames will not occur. An interruption occurring at one manufacturing
site that requires the Company to change to a different manufacturer could cause
significant delays in the distribution of the styles affected. This could cause
the Company to miss delivery schedules for these styles, which could materially
and adversely affect the Company's business, operating results and financial
condition.
In addition, the purchase of goods manufactured in foreign countries is
subject to a number of risks, including foreign exchange rate fluctuations,
economic disruptions, transportation delays and interruptions, increases in
tariffs and duties, changes in import and export controls and other changes in
governmental policies. For frames purchased other than from Hong Kong/China
manufacturers, the Company pays for its frames in the currency of the country in
which the manufacturer is located and thus the costs (in United States dollars)
of the frames vary based upon currency fluctuations. Increases and decreases in
costs (in United States dollars) resulting from currency fluctuations generally
do not affect the price at which the Company sells its frames, and thus currency
fluctuations can impact the Company's gross margin and results of operations.
Relationships with Domestic Distributors
The Company distributes its eyeglass frames to independent optical
retailers in the United States (other than California and Arizona) largely
through distributors who sell competing lines of eyeglass frames. The optical
industry is undergoing a period of consolidation, and during fiscal 1997 and
fiscal 1998, three of the Company's distributors were acquired by other
companies. Although the Company believes that its distributors currently devote
a great deal of time and resources to promoting the Company's products, there
can be no assurance that these distributors will continue to do so. The Company
does not have written agreements with its domestic distributors except for
written
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<PAGE>
understandings not to resell or divert Laura Ashley Eyewear through unauthorized
channels of distribution, and not to expand the territories in which they sell
the Company's products without the Company's prior consent. Accordingly, the
Company's domestic distributors may spend an increased amount of effort and
resources marketing competing products, and may terminate their relationships
with the Company at any time without penalty. There can be no assurance that the
informal nature of the Company's relationships with its domestic distributors
will not lead to disagreements between the Company and its distributors or
between the distributors themselves, which could have a material adverse impact
on the Company's business, operating results and financial condition.
International Sales
International sales accounted for approximately 8.8%, 7.7% and 8.4% of the
Company's net sales in fiscal 1996, fiscal 1997, and fiscal 1998, respectively.
These sales were primarily in England, Canada, Australia, New Zealand, France
and the Netherlands. The Company's international business is subject to numerous
risks, including the need to comply with export and import laws, changes in
export or import controls, tariffs and other regulatory requirements, the
imposition of governmental controls, political and economic instability, trade
restrictions, the greater difficulty of administering business overseas and
general economic conditions. Although the Company's international sales are
principally in United States dollars, sales to international customers may also
be affected by changes in demand resulting from fluctuations in interest and
currency exchange rates. There can be no assurance that these factors will not
have a material adverse effect on the Company's business, operating results and
financial condition.
Product Returns
The Company has a product return policy which it believes is standard in
the optical industry. Under that policy, the Company generally accepts returns
of non-discontinued product for credit, upon presentment and without charge.
According to the 1996 U.S. Optical Industry Handbook, the existence of this
policy in the optical business has led to some companies having return rates
over 20%. While the Company's product returns for fiscal 1996, fiscal 1997, and
fiscal 1998 amounted to 12.1%, 12.5%, and 13.8% of gross sales (sales before
returns), respectively, and while the Company maintains reserves for product
returns which it considers adequate, the possibility exists that the Company
could experience returns at a rate significantly exceeding its historical
levels, which could have a material adverse impact on the Company's business,
operating results and financial condition.
Availability of Vision Correction Alternatives
The Company's future success could depend to a significant extent on the
availability and acceptance by the market of vision correction alternatives to
prescription eyeglasses, such as contact lenses and refractive (optical)
surgery. While the Company does not believe that contact lenses, refractive
surgery or other vision correction alternatives materially and adversely impact
its business at present, there can be no assurance that technological advances
in, or reductions in the cost of, vision correction alternatives will not occur
in the future, resulting in their more widespread use. Increased use of vision
correction alternatives could result in decreased use of the Company's eyewear
products, which would have a material adverse impact on the Company's business,
operating results and financial condition.
15
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Acceptance of Eyeglass Frames; Unpredictability of Discretionary Consumer
Spending
The Company's success will depend to a significant extent on the market's
acceptance of the Company's brand-name eyeglass frames. If the Company is unable
to develop new, commercially successful styles to replace revenues from older
styles in the later stages of their life cycles, the Company's business,
operating results and financial condition could be materially and adversely
affected. The Company's future growth will depend in part upon the effectiveness
of the Company's marketing and sales efforts as well as the availability and
acceptance of other competing eyeglass frames released into the market place at
or near the same time, the availability of vision correction alternatives,
general economic conditions and other tangible and intangible factors, all of
which can change and cannot be predicted.
The Company's success also will depend to a significant extent upon a
number of factors relating to discretionary consumer spending, including the
trend in managed health care to allocate fewer dollars to the purchase of
eyeglass frames, and general economic conditions affecting disposable consumer
income, such as employment business conditions, interest rates and taxation. Any
significant adverse change in general economic conditions or uncertainties
regarding future economic prospects that adversely affect discretionary consumer
spending generally, and purchasers of prescription eyeglass frames specifically,
could have a material adverse effect on the Company's business, operating
results and financial condition.
Competition
The markets for prescription eyewear are intensely competitive. There are
thousands of styles, including hundreds with brand names. At retail, the
Company's eyewear styles compete with styles that do and do not have brand
names, styles in the same price range, and styles with similar design concepts.
To obtain board space at an optical retailer, the Company competes against many
companies, both foreign and domestic, including Luxottica Group S.p.A.
(operating in the United States through a number of its subsidiaries), Safilo
Group S.p.A. (operating in the United States through a number of its
subsidiaries) and Marchon Eyewear, Inc. Signature's largest competitors have
significantly greater financial, technical, sales, manufacturing and other
resources than the Company. They also employ direct sales forces that are
significantly larger than the Company's, and are thus able to realize a higher
gross profit margin. At the distributor level, sales representatives often carry
many lines of eyewear, and the Company must vie for their attention. At the
major retail chains, the Company competes not only against other eyewear
suppliers, but also against the chains themselves, which license some of their
own brand names for design, manufacture and sale in their own stores. Luxottica,
one of the largest eyewear companies in the world, is vertically integrated in
that it manufactures frames, distributes them through direct sales forces in the
United States and throughout the world, and owns LensCrafters, one of the
largest United States retail optical chains.
The Company competes in its target markets through the quality of the brand
names it licenses, its marketing, merchandising and sales promotion programs,
the popularity of its frame designs, the reputation of its styles for quality,
and its pricing policies. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition.
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Dependence on Key Personnel
The Company's success has and will continue to depend to a significant
extent upon its executive officers, including Bernard Weiss (Chief Executive
Officer), Julie Heldman (President), Michael Prince (Chief Financial Officer),
Robert Fried (Senior Vice President of Marketing) and Robert Zeichick (Vice
President of Advertising and Sales Promotion). The loss of the services of one
or more of these key employees could have a material adverse effect on the
Company. The Company has entered into employment agreements with each of Ms.
Heldman and Messrs. Weiss, Prince, Fried and Zeichick, pursuant to which they
have agreed to render services to the Company until October 31, 2000. The
Company maintains and is the sole beneficiary of "key person" life insurance on
Ms. Heldman and Messrs. Weiss, Prince, Fried and Zeichick in the amount of
$1,500,000 each. In the event of the death of an executive officer, a portion of
the proceeds of the applicable policy would be used to pay the Company's
obligation under the officer's employment agreement. There can be no assurance
that the remaining proceeds of these policies will be sufficient to offset the
loss to the Company due to the death of that executive officer. In addition, the
Company's future success will depend in large part upon its ability to attract,
retain and motivate personnel with a variety of creative, technical and
managerial skills. There can be no assurance that the Company will be able to
retain and motivate its personnel or attract additional qualified members to its
management staff. The inability to attract and retain the necessary managerial
personnel could have a material adverse effect on the Company's business,
operating results and financial condition.
Management of Growth
The Company has grown rapidly in recent years, with net sales increasing
from $20.1 million in fiscal 1994 to $40.9 million in fiscal 1998, and the
number of employees increasing from approximately 50 at October 31, 1994 to 142
at April 30, 1999. The Company's growth has placed substantial burdens on its
management resources, and as a result, the Company has made additions to its
management team. The Company's ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and controls and to train, motivate and manage a larger
number of employees. There can be no assurance that the Company will be able to
sustain its historic rate of revenue growth, continue its profitable operations
or manage future growth successfully.
Control by Directors and Executive Officers
The directors and executive officers of the Company owned approximately
56.5% of the Company's outstanding shares at April 30, 1999. As a result, the
directors and executive officers control the Company and its operations,
including the approval of significant corporate transactions and the election of
at least a majority of the Company's Board of Directors and thus the policies of
the Company. The voting power of the directors and executive officers could also
serve to discourage potential acquirors from seeking to acquire control of the
Company through the purchase of the Common Stock, which might depress the price
of the Common Stock.
Quarterly and Seasonal Fluctuations
The Company's results of operations have fluctuated from quarter to quarter
and the Company expects these fluctuations to continue in the future.
Historically, the Company's net sales in the quarter ending January 31 (its
first fiscal quarter) have been lower than net sales in other fiscal quarters.
The
17
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Company attributes lower net sales in the first quarter in part to low consumer
demand for prescription eyeglasses during the holiday season and year-end
inventory adjustments by distributors and independent optical retailers. A
factor which may significantly influence results of operations in a particular
quarter is the introduction of a brand-name collection, which results in
disproportionate levels of selling expenses due to additional advertising,
promotions, catalogs and in-store displays. Introduction of a new brand may also
generate a temporary increase in sales due to initial stocking by retailers.
Other factors which can influence the Company's results of operations include
customer demand, the mix of distribution channels through which the eyeglass
frames are sold, the mix of eyeglass frames sold, product returns, delays in
shipment and general economic conditions.
No Dividends Anticipated
The Company does not currently intend to declare or pay any cash dividends
and intends to retain earnings, if any, for the future operation and expansion
of the Company's business.
Possible Anti-Takeover Effects
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those of
the Common Stock. No shares of Preferred Stock of the Company are outstanding,
and the Company has no present intention to issue any shares of Preferred Stock.
However, the rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company, which may depress the market value of the Common Stock. In addition,
each of the Laura Ashley, Hart Schaffner & Marx, and Eddie Bauer licenses allows
the licensor to terminate its license upon certain events which under the
license are deemed to result in a change in control of the Company. See "--
Substantial Dependence Upon Laura Ashley License." The licensors' rights to
terminate their licenses upon a change in control of the Company could have the
effect of discouraging a third party from acquiring or attempting to acquire a
controlling portion of the outstanding voting stock of the Company and could
thereby depress the market value of the Common Stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks, which include foreign exchange
rates and changes in U.S. interest rates. The Company does not engage in
financial transactions for trading or speculative purposes.
Foreign Currency Risks. During fiscal 1998, a maximum of $2,174,000 and a
minimum of $667,000 of the Company's accounts payable were payable in foreign
currency. During the 1999 second quarter, a maximum of $1,284,218 and a minimum
of $468,570 of the Company's accounts payable were payable in foreign currency.
These foreign currencies included Japanese Yen, Italian Lire and French Francs.
Any significant change in foreign currency exchange rates could therefore
materially affect the Company's business, operating results and financial
condition. To monitor risks associated with currency fluctuations, the Company
on a weekly basis assesses the volatility of certain
18
<PAGE>
foreign currencies and reviews the amounts and expected payment dates of its
purchase orders and accounts payable in those currencies. Based on those
factors, the Company may from time to time mitigate some portion of that risk by
purchasing forward commitments to deliver foreign currency to the Company. The
Company held forward commitments for foreign currencies in the amount of $59,000
at October 31, 1998 and $223,000 at April 30, 1999. International sales
accounted for approximately 8.4% of the Company's net sales in fiscal 1998 and
6.6% of the Company's net sales in the 1999 second quarter. Although the
Company's international sales are principally in United States dollars, sales to
international customers may also be affected by changes in demand resulting from
fluctuations in interest and currency exchange rates. There can be no assurance
that these factors will not have a material adverse effect on the Company's
business, operating results and financial condition. For frames purchased other
than from Hong Kong/China manufacturers, the Company pays for its frames in the
currency of the country in which the manufacturer is located and thus the costs
(in United States dollars) of the frames vary based upon currency fluctuations.
Increases and decreases in costs (in United States dollars) resulting from
currency fluctuations generally do not affect the price at which the Company
sells its frames, and thus currency fluctuation can impact the Company's gross
margin.
Interest Rate Risk. Under the Company's Credit Agreement, its bank has
agreed to provide the Company an unsecured revolving line of credit up to an
aggregate of $5,000,000. At the Company's option, interest may be based on the
London Interbank Offered Rate ("LIBOR") plus 2%, or at the bank's prime rate.
At April 30, 1999, no amounts were due to the bank under the Credit Agreement.
Any interest which may in the future become payable on the Company's bank line
of credit will be based on variable interest rates and will therefore be
affected by changes in market interest rates. In addition, the Company has
fixed income investments consisting of cash equivalents, which are also affected
by changes in market interest rates. The Company does not use derivative
financial instruments in its investment portfolio. The Company places its cash
equivalents with high-quality financial institutions, limits the amount of
credit exposure to any one institution and has established investment guidelines
relative to diversification and maturities designed to maintain safety and
liquidity.
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's 1999 Annual Meeting of Shareholders held on April 23, 1999
(the "Annual Meeting"), the Company's shareholders elected Bernard Weiss, Julie
Heldman, Michael Prince, Daniel Warren, Maurice Buchsbaum and Joel Johnson to
serve as directors of the Company until the next annual meeting and until their
respective successors have been elected. Bernard Weiss and Maurice Buchsbaum
each were elected by a vote of 4,981,878 shares in favor of, and 6,200 shares
against, that director, and Julie Heldman, Michael Prince, Daniel Warren and
Joel Johnson each were elected by a vote of 4,982,378 shares in favor of, and
5,700 shares against, that director. There were no broker non-votes at the
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.1 License Agreement, dated as of March 11, 1999,
between the Registrant and Coach, a division of Sara
Lee Corporation. [Portions of this exhibit have been
omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for an
order granting confidential treatment.]
Exhibit 10.2 First Addendum to License Agreement Dated June 24,
1997, dated as of March 26, 1999, between the
Registrant and Eddie Bauer, Inc. [Portions of this
exhibit have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a
request for an order granting confidential
treatment.]
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by this
quarterly report.
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SIGNATURES
Pursuant to the requirements 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.
Date: June 14, 1999 SIGNATURE EYEWEAR, INC.
By: /s/ Michael Prince
--------------------
Michael Prince
Chief Financial Officer
/s/ Michael Prince
--------------------
Michael Prince
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT 10.1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED HEREIN HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
LICENSE AGREEMENT
This Agreement is entered into this 11th day of March, 1999, by and between
Coach, a division of Sara Lee Corporation, a Maryland corporation having offices
at 516 West 34th Street, New York, New York 10001 (hereinafter referred to as
"Licensor") and Signature Eyewear, Inc., a California corporation with offices
at 498 N. Oak Street, Inglewood, California 90302 (hereinafter referred to as
"Licensee").
WHEREAS, Licensor is the owner of the trade name Coach (hereinafter
referred to as "the Trade Name") and the trademarks COACH, COACH and Lozenge
Design, and COACH and Tag Design (hereinafter collectively referred to as "the
Licensed Marks"), which Licensed Marks are depicted in Schedule 1 attached
hereto and made a part hereof, the Licensed Marks having been used in connection
with a wide variety of leathergoods and accessories, and having been registered
on the Principal Register of the United States Patent and Trademark Office and
in numerous other countries throughout the world;
WHEREAS, Licensee distributes, markets and sells ophthalmic frames,
corrective or non-corrective sunglasses and eyeglass cases, chains and cords
(hereinafter collectively referred to as "Eyewear"), and desires to use the
Trade Name and Licensed Marks in connection with the Exploitation (as
hereinafter defined) of Eyewear; and
WHEREAS, Licensor is willing to grant Licensee the right to use the Trade
Name and Licensed Marks under the terms and conditions hereinafter set forth;
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
1
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
-----------
As used herein the term(s):
1.1 "Licensed Products" shall mean Eyewear marketed and sold under the
Trade Name and/or the Licensed Marks.
1.2 "Style" shall mean a particular Eyewear design, created by Licensee
and/or Licensor for Licensor and marketed and sold under the Trade Name and/or
the Licensed Marks.
1.3 "Contract Year" shall mean each twelve (12) month period following the
Market Roll-Out; provided that the first Contract Year shall mean the period
commencing immediately following the Market Roll-Out (as defined in Section
1.11) and ending on the last day of the twelfth full calendar month following
the Market Roll-Out.
1.4 "Period" shall mean each calendar month within a Contract Year.
1.5 "Wholesale Price" shall mean the regular published wholesale price
charged by Licensee for Licensed Products.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
2
<PAGE>
1.6 "United States" shall mean the United States of America, its
territories and possessions, including without limitation Puerto Rico.
1.7 "Territory" shall mean the United States and Canada.
1.8 "Licensor Channels" shall mean retail outlets or facilities owned,
franchised to third persons or otherwise controlled by Licensor, including
without limitation Licensor's catalog, Licensor's stand alone retail stores,
Licensor's factory outlet stores, Licensor's retail stores that are situated
within department stores, Licensor's Corporate Accounts Channel, the Internet or
any similar electronic vehicle, and Licensor's facilities for sales to employees
of Licensor and its affiliates.
1.9 "Non-Licensor Channels" shall mean retail outlets and wholesale
distributors or facilities not controlled by Licensor in the Territory,
including without limitation, department stores, concessions or stores in
department stores, specialty accessories stores, independent opticians,
optometrists and ophthalmologists offices and optical chains.
1.10 "Net Sales" in any period shall mean the total of the amounts
invoiced or billed by Licensee for Licensed Products sold in such period, less
(i) returns in such period evidenced by Licensee's credit memoranda or other
legitimate receipt documentation; (ii) sales taxes, if applicable in such
period; and ( iii) freight, transportation and insurance costs related thereto
in such period, but only if invoiced separately to Licensee's customers.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
3
<PAGE>
1.11 "Market Roll-Out" shall mean Licensee's initial distribution of
Licensed Products to Licensor Channels and Non-Licensor Channels.
1.12 "Person" shall mean any corporation, partnership, limited liability
company, trust, association or other entity, or any individual.
1.13 "Exploit" shall mean design, manufacture, produce, advertise, market,
promote, merchandise, publicize, use, sell and/or distribute, and "Exploitation"
and "Exploiting" shall have correlative meanings.
2. GRANT OF LICENSE
----------------
2.1 Upon the terms and conditions hereinafter set forth, Licensor grants
to Licensee a license to use the Trade Name and Licensed Marks on and in
connection with the Exploitation of the Licensed Products. This license shall
be exclusive to Licensee in the Territory only. Licensor agrees not: (i) to
license any other Person the right to Exploit the Trade Name or any Licensed
Mark in connection with Eyewear in the Territory; and (ii) to Exploit the Trade
Name and/or any Licensed Mark in connection with Eyewear in the Territory,
provided that (a) Licensor may market and sell through Licensor Channels in the
Territory Licensed Products purchased from Licensee in accordance with this
Agreement and (b) Licensor mayExploit eyeglass cases both in the Territory
and/or outside the Territory in both Licensor and/or Non-
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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<PAGE>
Licensor Channels. Nothing in this Agreement shall further prevent Licensor from
licensing to Persons other than Licensee the right to Exploit the Trade Name
and/or any Licensed Mark in connection with Eyewear outside the Territory,
provided that any such license shall expressly (i) prohibit the licensee from
Exploiting the Trade Name and Licensed Marks in the Territory in connection with
Eyewear; and (ii) shall permit Licensor to terminate the license if any Eyewear
manufactured or produced pursuant to such license is marketed and sold in the
Territory (either directly by licensee or any other Person).
3. OWNERSHIP OF LICENSED MARKS
---------------------------
3.1 Licensor represents and warrants to Licensee that it is the owner of
all right, title and interest in and to the Trade Name and Licensed Marks as
covered by the registrations (not applications) set forth on Schedule 1.1.
Licensor further agrees to maintain all registrations and to pursue all pending
applications for registration set forth thereon or that may become necessary
throughout the term of the Agreement.
3.2 Licensee hereby acknowledges that Licensor has represented to it that
Licensor is the owner of all right, title, and interest in and to the Trade Name
and Licensed Marks, and agrees that it will not, during the term of this
Agreement or thereafter, challenge Licensor's rights in and to same. Licensee
further acknowledges that it will support Licensor's rights in and to same, and
agrees that it will not attack the validity of this License.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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<PAGE>
3.3 Licensee recognizes the great value of the good will associated with
the Trade Name and Licensed Marks and acknowledges that the Trade Name and
Licensed Marks and all rights therein and good will pertaining thereto, belong
exclusively to Licensor. Licensee further acknowledges that all use of the
Trade Name and Licensed Marks by Licensee shall inure to the benefit of
Licensor.
3.4 Licensee shall not place trademarks, trade names, model names, logos,
endorsements, sub-brand names or line names ("Marks") on, or use other Marks in
connection with the marketing, sale and distribution of, Licensed Products
except the Licensed Marks and other Marks approved by Licensor ("Authorized
Marks") and except for Licensee's Marks not created for or in connection with
the Licensed Products. Licensee agrees that Licensor shall be the owner of all
right, title and interest in and to the Authorized Marks created or developed by
Licensor and/or Licensee solely for use in connection with the Licensed
Products and that all use of such Authorized Marks shall inure to the benefit of
Licensor. Licensor shall be responsible for applying for and obtaining all
appropriate trademark and related registrations for such Authorized Marks. To
the extent any rights in and to such Authorized Marks, or with respect to any
materials incorporating the Authorized Marks used in the advertising or
promotion of the Licensed Products including without limitation copy, artwork
and photographs, are deemed to accrue to Licensee pursuant to this Agreement or
otherwise, Licensee hereby assigns any and all such rights, at such time as they
may be deemed to accrue, to Licensor. Licensee agrees that it will execute and
deliver to Licensor any documents reasonably requested by Licensor necessary to
effect any such assignment.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
6
<PAGE>
4. RELATIONSHIP OF PARTIES
-----------------------
4.1 Licensee is a "related company" pursuant to 15 U.S.C. Sec. 1127.
Neither party is an agent or employee of the other, nor shall either party in
any event be liable for the other's acts or omissions. This Agreement does
not, and shall not be deemed to, make any party hereto the agent, partner, joint
venturer or legal representative of any other party for any purpose whatsoever.
Neither Licensor nor Licensee shall have the right or authority to assume or
create any obligations or responsibility whatsoever, express or implied, on
behalf of, or in the name of, the other, or to bind the other in any respect
whatsoever, except as may be herein provided.
5. USE OF THE LICENSED MARKS AND TRADE NAME
----------------------------------------
5.1 Licensee agrees to use the Licensed Marks only in the form approved by
Licensor. All use of the Licensed Marks on the Licensed Products and on labels,
packaging, in advertising and otherwise must faithfully reproduce the form
approved by Licensor. Approval of the form of use of the Licensed Marks, once
given, shall be continuing until Licensee receives written notice to the
contrary from Licensor. In the event Licensee receives such written notice, all
uses of the Licensed Marks to which such notice applies shall cease not later
than six (6) months after receipt by Licensee of all Licensed Products on order
as of the date of such notice. Notwithstanding the foregoing, Licensee shall
immediately cease and desist all uses of the Licensed Marks that are not
consistent with the form approved by Licensor upon receipt of written notice
from Licensor.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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5.2 Licensee shall comply with all notice and marking requirements of any
law or regulation applicable or necessary for the protection of the Licensed
Marks, including those which Licensor, in its legal judgment, may deem
appropriate. Without limiting the foregoing, at the request of Licensor,
Licensee shall cause to be placed on all Licensed Products appropriate notice
designating Licensor as the copyright or design patent owner thereof, as the
case may be, to the extent that the Style (and not the various elements in
Style) is eligible for copyright or patent protection. Licensee shall not, at
any time, do or permit any third party within its control to do any act or
thing that will, in any way, impair the rights of Licensor in and to the
Licensed Marks, copyrights and patents, or which will affect the validity
thereof.
5.3 Any use of the Trade Name by Licensee shall be solely in connection
with the Exploitation of the Licensed Products. Licensee shall not, at any
time, do or permit any third party within its control to do any act or thing
that will, in any way, impair the rights of Licensor in and to the Trade Name or
which will affect the validity thereof.
6. QUALITY CONTROL AND PRODUCT DEVELOPMENT
---------------------------------------
6.1 Licensee acknowledges that the Licensed Marks have established
prestige and good will and are well recognized in the minds of the public, and
that it is of great importance to Licensor that in the manufacture and sale of
the Licensed Products, the high standards and reputation that Licensor has
established be maintained. Licensor shall have the right to exercise quality
control over Licensee's use of the Licensed Marks on and in connection with the
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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Licensed Products to a degree reasonably necessary to maintain the validity and
prestige thereof and to protect the good will associated therewith. The parties
hereby acknowledge that the target audience for the Licensed Products shall be
premier luxury consumers. Licensor is familiar with the quality and workmanship
associated with the Eyewear products Licensee currently distributes under other
trademarks. Licensee agrees that the standards, features and quality Licensor
shall prescribe and Licensee shall follow and apply to the Licensed Products
shall be commensurate with the standards, features and quality for other Eyewear
offered for sale to premier luxury consumers, such as Gucci, Polo and Armani, in
the superior to high end eyewear category with wholesale pricepoints ranging
between $60 and $120.
6.2 Licensee is responsible, at its own cost and expense, for creating and
developing Styles of Licensed Products, and shall submit such Styles to Licensor
for review. In reviewing a Style submitted by Licensee, Licensor may approve or
reject adoption of the Style on Licensed Products. No Licensed Product /Style
shall be manufactured by Licensee or any party with whom Licensee contracts
without Licensor's written approval of such Style. Licensor shall use all
reasonable efforts to complete its review of a Style within fifteen (15)
business days of submission by Licensee, but in no event is Licensor required to
approve a Style submitted by Licensee. Licensee is responsible for assuring
that any and all Styles submitted to Licensor for approval do not infringe the
intellectual property rights (trademark, design or other patent, or copyright)
of any third party. If Licensor rejects a Style submitted to Licensor for
approval hereunder, such Style shall not be governed by or a part of this
Agreement.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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6.3 Licensee is responsible, at its own cost and expense, for creating and
developing detailed product specifications and prototypes for every approved
Licensed Product Style. Upon Licensor's approval of the Licensed Product Style,
Licensee shall provide to Licensor, for Licensor's approval, detailed product
specifications and prototypes for such Style. No Licensed Product Style will be
manufactured by Licensee or any party with whom Licensee contracts without
Licensor's written approval of the detailed product specifications and
prototypes for such Style. Upon approval of such product specifications and
prototypes, Licensee shall manufacture the Licensed Products in accordance with
such specifications. Licensee shall not modify or vary from the approved product
specifications and prototypes, except for modifications or variances that are
within acceptable industry tolerance levels. All Licensed Products sold or
distributed by Licensee shall conform with the approved product specifications
and prototypes.
6.4 Licensee shall employ a product development and management team,
mutually agreed upon by the parties, which shall include one Designer, one
Product/Operations Manager, customer service agents and senior sales staff, who
shall be responsible for the day-to-day product development, design efforts,
sales and service efforts and operations of the Licensed Products business ("the
Licensed Products Team"). Licensee shall appoint one manager level employee
who will be the primary contact for Licensor regarding the Licensed Products
business. The Licensed Products Team shall work closely with Licensor to create
the Licensed Products.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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6.5 Upon Licensor's reasonable request, Licensee will submit to Licensor
reasonable quantities of representative production samples of each Style of
Licensed Product to evaluate whether the production samples conform to the
previously approved product specifications and prototypes at Licensor's expense.
In addition, Licensee shall provide to Licensor, at Licensee's sole cost and
expense, up to three (3) samples of each Style of Licensed Product for
Licensor's public relations, marketing and/or showroom use.
6.6 In the event that any Licensed Product, in the judgment of Licensor,
is not being manufactured in adherence to the approved product specifications
and prototypes established pursuant to Section 6.3 of this Agreement, Licensor
shall notify Licensee thereof in writing and Licensee shall promptly take such
steps as are necessary to bring Licensed Product manufactured thereafter into
conformity; otherwise Licensee shall be in material breach of this Agreement. In
no event may Licensee sell or otherwise dispose of any nonconforming Licensed
Products, unless Licensee first obtains Licensor's written approval pursuant to
Section 12.8.
6.7 Licensor shall have the right to inspect upon reasonable notice and
during normal business hours Licensee's manufacturing facilities for the
Licensed Products, including without limitation the facilities of third-party
manufacturers with whom Licensee contracts. Licensee shall provide to Licensor
a list of all third-party manufacturers of Licensed Products and notify Licensor
of changes to such list as such changes occur. Should Licensor find
deficiencies in such manufacturing facilities which have an adverse effect on
the quality of the Licensed Products, or if such manufacturing facilities fail
to comply with the Sara Lee Corporation
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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Supplier Selection Guidelines or Sara Lee Corporation Global Operating
Principles (see Section 21.7 herein), Licensor will notify Licensee of such
deficiencies. Upon notification by Licensor, Licensee will immediately take such
steps as are necessary to rectify the deficiency. If the deficiency or
deficiencies relate to a particular manufacturing facility's failure to comply
with the Sara Lee Corporation Supplier Selection Guidelines or Sara Lee
Corporation Global Operating Principles, Licensee shall be in material breach of
this Agreement if Licensee fails to correct the deficiency or deficiencies
within ten (10) days of its receipt of notice from Licensor. Alternatively,
Licensee shall provide Licensor with a written explanation of why the deficiency
cannot be corrected within ten (10) days along with a plan, including timing, to
correct the deficiency, which Licensor may or may not approve in its sole
discretion. If Licensee subsequently fails to correct the deficiency within the
timetable and guidelines set forth in the written plan, Licensee shall be in
material breach of this Agreement. With respect to manufacturing facility
deficiencies which have a material adverse effect on the quality of the Licensed
Products, Licensee shall be in material breach of this Agreement if, after
thirty (30) days of its receipt of notice from Licensor the deficiency or
deficiencies are not corrected by Licensee. Licensor acknowledges that Licensee
may cure or correct any such deficiency under this Section 6.7 by terminating
its use, for the Licensed Products, of the manufacturer which does not comply
with the Sara Lee Supplier Selection Guidelines or the Sara Lee Corporation
Global Operating Principles, or which has manufacturing facilities which have a
material adverse effect on the quality of the Licensed Products.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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6.8 Licensee agrees that the Licensed Products shall carry a lifetime
warranty against manufacturing defects. With respect to customer inquiries and
complaints of any nature, including but not limited to manufacturing defects,
which are directed to Licensor, Licensor, in its discretion, will decide how to
handle all such inquiries and complaints, which may include turning such inquiry
or complaint over to Licensee for handling. With respect to customer inquiries
and complaints which are directed or turned over to Licensee, Licensee will
handle all such inquiries and complaints in a commercially reasonable fashion,
given the established prestige and good will associated with the Licensed Marks,
and Licensee will keep a record of all such complaints for each Contract Year
and provide this record to Licensor quarterly within each Contract Year as set
forth in Section 9. Regardless of how such inquiries and complaints are
handled, and regardless of whether Licensor or Licensee handles them, Licensee
shall be solely responsible for all costs associated with the provision of
service, repair and replacement consistent with the warranties relating to the
Licensed Products. If Licensor handles a particular inquiry and/or complaint
pursuant to this Section 6.8, Licensee will be required to pay any significant
costs in addition to the foregoing warranty related repair, replacement and
service costs only if Licensee preapproves such additional significant costs.
6.9 Licensee agrees that Licensor shall own each Style and all trademark,
copyright and patent (design and utility) (if any) in and to each Style.
Licensee shall provide to Licensor upon Licensor's request in written form the
product design and specifications for each Style. Licensor acknowledges that
each particular Style contains many elements, some of which have been used in
other eyewear (including elements which may be patented by other Persons), and
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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the ownership of the rights in the Style does not include ownership of the
rights in any element of the Style. Notwithstanding the foregoing, Licensor
shall own an element in a Style if: (i) Licensee or Licensor shall have created
such element and shall have proprietary ownership rights in such element which
give Licensee or Licensor the right to prohibit other Persons from using such
element in Eyewear; and (ii) such element was created by Licensee or Licensor
specifically for one or more Styles under this Agreement (and not created as
part of Licensee's design and development of styles of Eyewear to be marketed
under trademarks of Licensee or other Persons. Licensee agrees, however, that
none of the Styles it creates for the Licensed Products or elements it
incorporates into any Style shall infringe any other Person's existing
trademark, copyright and/or patent (design and utility) rights. To the extent
any of the foregoing rights are deemed to accrue to Licensee pursuant to this
Agreement or otherwise, Licensee hereby assigns any and all such rights, at such
time as they may be deemed to accrue, to Licensor. Licensee agrees that it will
execute and deliver to Licensor any documents reasonably requested by Licensor
necessary to effect any such assignment. Notwithstanding the foregoing, Licensor
shall not have exclusive use or rights to any product designs, specifications
and other materials, including without limitation patterns, sketches, stylings,
prototypes and copyrightable material that were previously used by Licensee or
by any third party on or as part of Eyewear.
6.10 Any and all trademarks, copyrights or other intellectual property
rights ("Rights") which may exist or come into being, including without
limitation sub-brand names, and which are used on labeling, packaging,
advertising or promotional material for the Licensed Products, or on the
Licensed Products themselves, shall be the exclusive property of Licensor,
except for
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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Rights of Licensee not created for or in connection with the Licensed Products.
To the extent any Rights are deemed to accrue to Licensee, Licensee hereby
assigns to Licensor any and all such Rights, at such time as they may be deemed
to accrue. Patents on the designs of the Licensed Products, if any, shall be
owned exclusively by Licensor, shall be applied for by Licensee on behalf of
Licensor at Licensee's discretion and expense, and shall designate Licensor as
the patent owner thereof, except for patentable designs that were used by a
third party or previously used by Licensee.
7. MARKET ROLL-OUT
---------------
7.1 It is the intention of the parties that Market Roll-Out of the
Licensed Products will commence on or about February 1, 2000. If, by May 1,
2000, the Market Roll-Out has not occurred, and if such delay is not due to the
act or acts of Licensor or Licensor's failure to act, or if such delay is not
due to reasons of force majeure, Licensee shall be in material breach of this
-------------
Agreement.
7.2 On or before six (6) months prior to initial shipment of the Licensed
Products (i.e., October 1, 1999), Licensee shall prepare and submit to Licensor
for approval, specific written plans for the Market Roll-Out and distribution of
the Licensed Products. Licensor shall advise Licensee in writing of its
approval or disapproval of Licensee's written plan on or before five (5) months
prior to initial shipment of the Licensed Products (i.e., November 1, 1999).
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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8. PRODUCT SALES AND DISTRIBUTION
------------------------------
8.1 Licensee agrees to exercise all reasonable efforts in the performance
of this Agreement and, specifically, in establishing a market and supplying the
market demand for Licensed Products. Licensee agrees to exercise its best
efforts to safeguard the established prestige and good will of the Licensed
Marks at the same level of prestige and good will as heretofore maintained.
8.2 Licensee shall sell to Licensor Licensed Products to be sold through
Licensor Channels. Licensee shall also sell Licensed Products through Non-
Licensor Channels. Licensee shall not use any Person other than a Licensee
employee to sell Licensed Products to Non-Licensor Channel customers unless
Licensee shall first obtain an agreement in writing from such Person containing
the provisions set forth in Schedule 2 attached hereto that such Person shall
abide by Licensor's anti-diversion policies along with an acknowledgement that
such Person shall be terminated from selling the Licensed Products and will be
responsible for associated damages if they sell Licensed Products to any Person
other than a customer approved pursuant to this Section 8.2. Licensor has
discretion, based on whether a proposed customer shall enhance the quality and
prestige of the Licensed Marks, to approve or withhold approval of any Non-
Licensor Channel potential customer. Licensor also has discretion to withdraw
approvals previously granted; provided, however, that if Licensor withdraws
approval of a Non-Licensor Channel customer previously granted, Licensee shall
be permitted to complete any open purchase orders to such Non-Licensor Channel
customer as of the date of Licensee's receipt of
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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such withdrawal of approval from Licensor. In no event shall Licensee sell or
distribute Licensed Products to any Non-Licensor Channel that is not within the
Annual Operating Plan provided for in Section 12.2(d), which plan has been
approved by Licensor. For purposes of this Section 8, the word "customer"
includes any Non-Licensor Channel outlet. Without limiting the foregoing, any
liquidation by Licensee of any Licensed Products which are excess inventory,
discontinued product or quality imperfect product, shall only be done on terms
and conditions, excluding terms relating to price, that Licensor shall expressly
approve in writing, consistent with the provisions of Section 12.8.
8.3 Licensee agrees to make available for purchase and to sell on its
customary credit and payment terms all Styles of Licensed Products to Licensor
for subsequent sale by Licensor through Licensor Channels. All such sales to
Licensor shall be at [*] provided however, that Licensor shall not be required
to make any purchases of Licensed Products in any Contract Year of this
Agreement. Licensee agrees to ship such sales FOB Licensee's warehouse.
8.4 Licensee acknowledges that in order to preserve the good will attached
to the Licensed Marks, the Licensed Products are to be sold at prices and terms
reflecting the prestigious nature of the Licensed Marks consistent with Sections
6.1 and 8.2, it being understood, however, that Licensor is not empowered to fix
or regulate the prices at which the Licensed Products are to be sold. Nothing
contained in this Agreement is intended or will be construed as giving either
party any right of approval with respect to any of the prices at which the other
party sells or offers to sell any of the Licensed Products.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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8.5 Licensee agrees to exercise best efforts to prevent and/or stop any
diversion of Licensed Products from Non-Licensor Channels. Licensee
acknowledges that its standard terms of sale shall be to require all Non-
Licensor Channel customers to whom it sells Licensed Products to agree to only
sell such Licensed Products to approved retail outlets (per Section 8.2) or the
end-using consumer. Any and all Non-Licensor Channel customers and third-party
manufacturers must agree in writing to abide by Licensor's anti-diversion
policies, executing such agreement in the form depicted in Schedule 3 attached
hereto and made a part hereof. Should Licensor notify Licensee of any diversion
of Licensed Products, or should Licensee become aware of any such diversion,
Licensee shall take all reasonable steps necessary to end such diversion,
including without limitation tracking down the source of the diverted Licensed
Products and discontinuing all sales of Licensed Products to said source.
Licensee shall keep Licensor apprised of any such efforts.
8.6 Licensee shallfulfill Licensor's purchase orders for Licensed Products
within customary lead times for such products, and shall plan production and
manufacturing of Licensed Product with particular regard to Licensor's projected
volumes.
8.7 Licensee shall take the lead, with the active support of Licensor, to
introduce the Licensed Products to Licensor's retail management and staff and,
at Licensee's expense, will regularly train such persons on sales,
merchandising, and display techniques related thereto according to a schedule
to be mutually agreed upon by the parties.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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9. ROYALTY
-------
9.1 Licensee shall pay to Licensor a royalty based on Licensee's Net
Sales of the Licensed Products to Non-Licensor Channels. No royalty will apply
to Licensee's sale of Licensed Products to Licensor. The royalty rates to be
applied throughout the term of the Agreement shall be as follows:
Contract Year 1 [*]
Contract Year 2 [*] up to [*];[*] for all Net Sales
thereafter
Contract Year 3 [*] up to [*];[*] for all Net Sales
thereafter
Contract Years 4-10 [*]
Licensee shall make its royalty payments on a quarterly basis (every three
months), with the first such royalty payment being due within thirty (30) days
following the end of the first quarter following the Market Roll-Out, and
subsequent royalty payments being due within thirty (30) days following each
succeeding quarter of each Contract Year during the term of this Agreement.
Together with each quarterly royalty payment, Licensee agrees to provide
Licensor with a report showing the quarterly sales, in both units and dollars,
and by Style, of the Licensed Products to Licensor-approved outlets. In
addition, Licensee shall provide Licensor with a monthly unaudited sales report
in the format provided in Schedule 4 hereto. All royalty payments shall be made
in U.S. Dollars.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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9.2 Licensee shall pay to Licensor an additional royalty of [*] for Net
Sales of Licensed Products to Non-Licensor Channels in any given Contract Year
between [*] and [*], and a further additional royalty of [*] for Net Sales of
Licensed Products to Non-Licensor Channels in any given Contract Year in excess
of [*].
9.3 [*]:
1. [*].
2. [*].
3. [*].
4. [*].
5. [*].
6. [*].
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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10. SALES TARGETS AND MINIMUMS
--------------------------
10.1 The parties have established certain sales targets and minimums
pertaining to Licensee's sale of Licensed Products to Non-Licensor Channels.
These targets and minimums are set forth below:
Contract
Year Target Sales Plan Minimum Sales Minimum Royalty
- ---- ----------------- ------------- ---------------
1 [*] [*] [*]
2 [*] [*] [*]
3 [*] [*] [*]
In Contract Years 4 through 10 of the Agreement, Minimum Sales shall be the
greater of [*] of the prior Contract Year's actual Net Sales of Licensed
Products to Non-Licensor Channels or [*], and the Minimum Royalty shall be [*]
of such Minimum Sales.
10.2 If during a particular Contract Year Licensee's actual Net Sales
never reach the established minimum sales figure for that Contract Year as set
forth in Section 10.1 above, Licensee shall pay to Licensor, within sixty (60)
days following the conclusion of that Contract Year, an additional sum equal to
the difference between the royalties actually paid by Licensee that Contract
Year and the minimum royalty for such Contract Year provided for in Section
10.1.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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10.3 If Licensee's sales to Non-Licensor Channels in Contract Year 3 are
not at least [*] of the Contract Year 3 Target (i.e., [*]), both Licensor and
Licensee shall each have the option to terminate this Agreement, such
termination to become effective upon the conclusion of Contract Year 4. Should
either party choose to exercise this termination option, the party so doing must
give written notice to the other party within sixty (60) days following
Licensor's receipt of the annual sales report Licensee is required to provide
pursuant to Section 13.2 below. If either party exercises this termination
option, there shall be no minimum royalty or minimum advertising amount
applicable in Contract Year 4. Upon termination of this Agreement at the
conclusion of Contract Year 4, Licensee's right to use the Trade Name and
Licensed Marks pursuant to this Agreement shall immediately cease, Licensee
shall be required to destroy remaining inventory of the Licensed Products on
hand in excess of [*] (valued at Licensee's cost) at its sole cost and expense
and, at Licensor's option, either: (a) Licensee shall deliver, FOB Licensee's
warehouse, any remaining inventory of Licensed Products on hand after the end of
Contract Year 4 to a location or locations of Licensor's choosing, and Licensor
shall reimburse Licensee for [*] of the landed costs of the Licensed Products;
or (b) Licensee shall have six (6) months after the end of Contract Year 4, to
dispose of any inventory remaining on hand in approved locations per Section
12.8 after which time Licensee shall be required to destroy any remaining
inventory of Licensed Products at its sole cost and expense. Licensee shall be
further required to provide to Licensor written certification of any destruction
of inventory required hereunder.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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10.4 If Licensee's sales to Non-Licensor Channels in Contract Year 5 are
not at least [*] of the Contract Year 4 actual Net Sales, both Licensor and
Licensee shall each have the option to terminate this Agreement, such
termination to become effective upon the conclusion of Contract Year 6. If
either party exercises this termination option, there shall be no minimum
royalty or minimum advertising amount applicable in Contract Year 6. Should
either party choose to exercise this termination option, the party so doing must
give written notice to the other party within sixty (60) days following
Licensor's receipt of the annual sales report Licensee is required to provide
pursuant to Section 13.2 below. Upon termination of this Agreement at the
conclusion of Contract Year 6, Licensee's right to use the Trade Name and
Licensed Marks pursuant to this Agreement shall immediately cease, Licensee
shall be required to destroy remaining inventory of the Licensed Products on
hand in excess of [*] (valued at Licensee's cost) at its sole cost and expense
and, at Licensor's option, either: (a) Licensee shall deliver, FOB Licensee's
warehouse, any remaining inventory of Licensed Products on hand after the end of
Contract Year 6 to a location or locations of Licensor's choosing, and Licensor
shall reimburse Licensee for [*] of the landed costs of the Licensed Products;
or (b) Licensee shall have six (6) months after the end of Contract Year 6, to
dispose of any inventory remaining on hand in approved locations per Section
12.8 after which time Licensee shall be required to destroy any remaining
inventory of Licensed Products at its sole cost and expense. Licensee shall be
further required to provide to Licensor written certification of any destruction
of inventory required hereunder.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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10.5 In determining whether Licensee meets the established sales minimum
in a particular Contract Year, only sales made during that particular Contract
Year shall be considered. Sales over and above the established minimum for a
particular Contract Year shall not be applied or credited toward the established
minimum for the succeeding Contract Year.
10.6 All sales figures and sales calculations referred to in this section
are represented in U.S. Dollar amounts.
11. LICENSOR PURCHASES
------------------
11.1 During the term of this Agreement, Licensor may purchase Licensed
Products for sale in Licensor Channels from Licensee only, pursuant to the terms
set forth in Section 8.3 above; provided however, Licensor shall not be required
to make any minimum purchases of Licensed Products or to satisfy any minimum
purchase obligations.
12. MARKETING AND ADVERTISING
-------------------------
12.1 Licensee shall prepare and submit to Licensor for approval all
proposed advertising, promotional materials, showroom designs, product displays
and product display policies for the Licensed Products. Licensor shall have
final approval on all such advertising, promotion, showroom designs, product
displays and product display policies. Licensor shall use all reasonable efforts
to approve or disapprove any submission made by Licensee hereunder
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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within fifteen (15) days of submission by Licensee, but in no event is Licensor
required to approve any submission.
12.2 No later than six (6) months prior to the commencement of each
Contract Year during the term of this Agreement, Licensee shall prepare and
present to Licensor for review, feedback, and approval an annual operating plan
setting forth the information described below (hereinafter referred to as the
"Annual Operating Plan"). The Annual Operating Plan shall set forth in
reasonable detail, Licensee's plans for conducting the Licensed Products
business during the next Contract Year and during the next three Contract Years,
with particular emphasis on the marketing, promotion and sales of the Licensed
Products. The Plan shall include, without limitation, (a) sales volume
projections by price point range in units and dollars; (b) price marketing
strategies, including wholesale and suggested retail pricing by price point and
market; (c) assessment of customer base and customers; (d) distribution,
including door roll-out and breakdown by chain, channel, store (if applicable)
and geographic area; (e) advertising and media plans and budget, including
breakdown by geographic area; (f) packaging, point of sale and trade
exhibitions; and (g) the results of market research relating to the Licensed
Products and similar products, and market trends, and a detailed sales forecast
by category, product group and market for the Licensed Products, it being
understood, however, that Licensor is not empowered to fix or regulate the
prices at which the Licensed Products are to be sold.
12.3 As soon as practicable upon the execution hereof, and thereafter at
all times during the term hereof, Licensee shall create a trade show display for
the Licensed Products within
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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Licensee's trade show booth. Any and all display of the Licensed Products and
signage referenced in this Section 12.3 must be approved by Licensor, which
approval Licensor agrees not to unreasonably withhold or delay.
12.4 Licensee agrees that in each Contract Year that it shall expend
through Licensor at least the minimum advertising amount as defined herein for
advertising expenses. Advertising expenses shall include media and production
costs for consumer purposes, and specifically does not include trade
advertising, co-op advertising and visual merchandising. The minimum
advertising amount shall be the greater of [*] or [*] of Net Sales during the
current Contract Year. Licensee shall pay any additional amounts that may be
due hereunder for a particular Contract Year in conjunction with its first
royalty payment made pursuant to Section 9.1 for the following Contract Year.
Alternatively, if Licensee has made payment hereunder in an amount in excess of
the minimum advertising amount for a particular Contract Year, such amount shall
be applied to Licensee's minimum advertising expense commitment for the
following Contract Year. Licensor shall direct such advertising expenses, but
shall regularly consult with Licensee with respect to advertising; provided,
however, that Licensor shall not have the right to commit Licensee to
advertising expenses in excess of the minimum advertising amount. Licensor and
Licensee acknowledge that in certain circumstances, with the prior consent of
Licensor, Licensee may produce advertising, in which case Licensee shall be
entitled to be paid the fair market value of its services (and such payment
shall be considered advertising expenses hereunder). Licensee shall pay
advertising expenses to Licensor on a monthly basis; provided that Licensee
shall not be required to pay more than the following percentages (which
percentages may be modified at
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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any time as part of the planning required in Section 12.2) of the minimum
advertising amount for any Contract Year:
Contract Year Quarter Maximum Percentage of Minimum
---------------------------------------------------------
Advertising Amount
------------------
1 [*]
2 [*]
3 [*]
4 [*]
Licensee, or Licensee's duly authorized agents or representatives, shall have
access to and the right to examine Licensor's records relating to the minimum
advertising expenses that Licensor maintains in the ordinary course of business
at Licensor's premises, provided that any such examination (a) shall be at
Licensee's expense, (b) shall be during normal business hours upon reasonable
prior notice which shall be no less than five (5) business days, and (c) shall
not unreasonably interfere with Licensor's operations and activities. Should
an audit disclose that Licensee overpaid the minimum advertising amount for any
Contract Year, such overage shall be applied to Licensee's minimum advertising
expense commitment for the following Contract Year; provided, however, that in
the event of termination or expiration of this Agreement, Licensor shall
forthwith and upon written demand refund to Licensee the amount overpaid.
Further, should an audit disclose that Licensee underpaid the minimum
advertising amount in any Contract Year, Licensee shall forthwith and upon
written demand pay Licensor the additional amount owed. In addition, Licensee
shall, at its own cost and expense, participate in
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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co-op, visual merchandising and other advertising with the trade of the Licensed
Products, subject to Licensor's prior approval.
12.5 Upon request of Licensee, Licensor will sell to Licensee Coach
product, all bearing the Licensed Marks (the "Coach Merchandise") for use only
in connection with Licensee's customer programs ("the Programs") on the
following terms: the price of the Coach Merchandise to Licensee for use in the
Program shall be Licensor's retail price, less [*]; Licensor agrees to ship the
Coach Merchandise ex-Distribution Center or ex-Factory, as appropriate, in
either event, title and risk of loss to the Coach Merchandise shall be borne by
Licensee upon delivery of such Coach Merchandise at the point of shipment from
the applicable Licensor Distribution Center or Factory, as appropriate. The
Coach Merchandise may be used only in connection with the Programs, and neither
Licensee nor any of its employees, agents, distributors or accounts may sell the
Coach Merchandise directly to the end-using consumer. Should Licensor notify
Licensee of any diversion of the Coach Merchandise, or should Licensee become
aware of any such diversion, Licensee shall take all reasonable steps necessary
to end such diversion, including without limitation tracking down the source of
the diverted Coach Merchandise and discontinuing all sales of the Coach
Merchandise to said source.
12.6 Licensee shall exercise its best efforts to maintain and safeguard
the established image and good will represented by and embodied in the Trade
Name and Licensed Marks. "Image" as used herein refers primarily to quality and
style of packaging, advertising, trade show displays and promotion, and types of
outlets with reference to the quality of service provided for
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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and the quality of presentation of the Licensed Products. Licensee shall take
all reasonable and necessary steps, and all steps reasonably requested by
Licensor, to prevent or avoid any misuse of the Trade Name or Licensed Marks by
any of Licensee's customers or contractors.
12.7 Without the consent of the other party, neither Licensor nor Licensee
shall: (a) make any public statements or issue any press release regarding this
Agreement or the relationship of the parties prior to the publication of a joint
press release announcing this Agreement; or (b) make any public statement or
issue any press release which primarily discusses this Agreement and/or the
relationship of the parties or the Licensed Products. In addition, Licensor and
Licensee each agree to maintain as confidential and not to disclose to any
Person the royalty rate, the minimum royalty, the amount of royalties paid and
the minimum advertising amount except: (i) if legally required pursuant to
subpoena or legal process (in which case the disclosing party shall promptly
notify the other and shall cooperate in any effort to obtain a protective
order); (ii) to Persons providing or proposing to provide debt or equity
financing, underwriters and/or broker-dealers arranging for debt or equity
financing, or potential acquirers; provided in each case that such Person is
placed under a confidentiality obligation with respect to such information;
(iii) to the extent such information is required to be disclosed under
applicable securities laws; and (iv) to the attorneys and auditors of either
party.
12.8 In addition to and consistent with the provisions of Section 8.2,
Licensee's liquidation of any excess inventory, discontinued product or quality
imperfect product through Non-Licensor Channels shall be done only on terms and
conditions, excluding terms relating to
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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price, that Licensor preapproves in writing. Licensee may submit to Licensor a
list of proposed customers and doors for liquidation of Licensee's excess
inventory, discontinued product or quality imperfect product for Licensor's
preapproval, which preapproval shall not be unreasonably withheld.
13. BOOKS AND RECORDS
-----------------
13.1 Licensee shall keep and maintain at its regular place of business, or
at such off-site documents storage facility as Licensee shall use from time to
time for the retention of its business records generally, complete and accurate
records and accounts in accordance with Generally Accepted Accounting Principles
showing the business transacted in connection with the Licensed Products
manufactured and sold pursuant to this Agreement, including without limitation
records and accounts relating to sales, shipments and orders for Licensed
Products and expenditures on advertising, gallery build-outs and promotional
materials, for at least six (6) years following the creation of the record or
account.
13.2 Within sixty (60) days following the end of each Contract Year of
this Agreement, and within sixty (60) days after the termination of this
Agreement, Licensee shall deliver to Licensor a statement signed by an
authorized officer of Licensee reporting Net Sales of the Licensed Products to
Non-Licensor Channels and to Licensor, royalties due and royalties paid during
the preceding Contract Year. Sales of Licensed Products shall be broken out to
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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accurately reflect sales by Style in units and dollars. In the case of
termination of this Agreement, such information shall be provided for the period
ending at termination.
13.3 Licensor, or Licensor's duly authorized agents or representatives,
shall have access to and the right to examine all records and accounts that
Licensee is required to maintain pursuant to this Agreement at Licensee's
premises, provided that any such examination (a) shall be at Licensor's expense,
(b) shall be during normal business hours upon reasonable prior notice which
shall be no less than five (5) business days, and (c) shall not unreasonably
interfere with Licensee's operations and activities. Should an audit disclose
that Licensee underpaid royalties for any given Contract Year, Licensee shall
forthwith and upon written demand pay Licensor the amount owed, together with
interest thereon, calculated at the base prime rate per annum for short term
loans at the First National Bank of Chicago , which amount shall be calculated
from the due date of such royalties. Further, should an audit disclose that
Licensee underpaid royalties by a margin exceeding five percent (5%) in any
given Contract Year, Licensee shall pay for all costs relating to the audit.
14. TERM AND TERMINATION
--------------------
14.1 This Agreement shall remain in full force and effect from the date
this Agreement is entered into by the parties until the last day of the tenth
(10th) Contract Year, subject to the termination provisions of Sections 10.3 and
10.4 above or as provided below.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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14.2 Except with respect to the events described in Sections 6.6 and 6.7,
in the event either party commits a material breach of this Agreement, the other
party may, upon sixty (60) days prior written notice, terminate this Agreement,
provided, however, that this Agreement shall not be terminated if the breaching
party cures the breach within said sixty (60) days after receipt of said notice.
14.3 Notwithstanding anything to the contrary in Section 14.2, Licensor
shall have the right to terminate this Agreement immediately upon notice to
Licensee if any of the following events occur:
(a) Any installment of royalty payments is not paid when due and such
default continues for more than fifteen (15) days after written notice
thereof to Licensee;
(b) Any report required hereunder from Licensee is not provided when due
to Licensor three (3) times in any Contract Year;
(c) Licensee, three (3) times during any given Contract Year, pays its
royalties after the due date specified herein;
(d) Licensee fails, after receiving written notice from Licensor three
(3) times in any Contract Year, to manufacture the Licensed Products in
accordance with the quality standards prescribed in Section 6 of this
Agreement;
(e) Licensee fails to secure Licensor's approval as required herein;
(f) Licensee intentionally uses the Trade Name or any of the Licensed
Marks in a manner for which rights therein have not been granted and which
use impacts materially and adversely upon the Trade Name or Licensed Marks;
(g) Licensee commits any material fraud upon Licensor in connection with
the performance of Licensee's obligations hereunder;
(h) Licensee makes an intentional written material misrepresentation
pertaining to sales of the Licensed Products;
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Exchange Commission.
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(i) Licensee intentionally participates in the diversion of Licensed
Products or knowingly permits a third party to do so.
Upon termination of this Agreement pursuant to this Section 14.3, Licensee's
right to use the Licensed Marks pursuant to this Agreement shall immediately
cease and, at Licensor's sole discretion, any remaining inventory of Licensed
Products shall be sold and delivered to Licensor at cost, or Licensee shall be
given six (6) months after the end of the Contract Year in which termination is
effective to dispose of any inventory remaining on the date the Licensee
receives notice of termination from Licensor in accordance with Section 12.8,
after which time Licensee shall be required to destroy any remaining inventory
of Licensed Products at its sole cost and expense and to certify such
destruction to Licensor in writing. Furthermore, upon termination of this
Agreement pursuant to Section 14.3, subsections (d) and (f), Licensor shall have
the additional right, in its sole discretion, to require Licensee to destroy any
inventory remaining on the effective date of termination and to certify such
destruction to Licensor in writing.
14.4 Notwithstanding anything to the contrary in Section 14.2, if
Licensee files a petition in bankruptcy, or by an equivalent proceeding is
adjudicated a bankrupt, or if a petition in bankruptcy is filed against Licensee
which is not dismissed within 120 days, or if Licensee becomes insolvent or
makes an assignment for the benefit of creditors or any arrangement pursuant to
any bankruptcy law, or if Licensee discontinues its business or if a receiver is
appointed for Licensee, this Agreement shall automatically terminate without any
notice whatsoever being necessary, to the full extent allowed by applicable law.
All royalties on sales made prior to such act shall become immediately due and
payable. In the event this Agreement
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Exchange Commission.
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is terminated pursuant to this Section 14.4, Licensee, its receivers,
representatives, trustees, agents, administrators, successors and/or assigns,
shall have no right to sell any of the Licensed Products covered by this
Agreement or use the Trade Name in any manner whatsoever, except with the
special consent and written instructions of Licensor, which instructions shall
be followed. The non-assumption of this Agreement by a trustee presiding over a
bankruptcy proceeding pursuant to any bankruptcy law where the Licensee is named
as a debtor, shall operate to automatically terminate this Agreement, without
any notice whatsoever being necessary, effective as of the date of the
commencement of the bankruptcy proceedings.
14.5 Upon expiration or termination of this Agreement, Licensee shall
cease using the Trade Name and Licensed Marks, provided, however, that unless
such termination is pursuant to Sections 10.3, 10.4, 14.3 or 14.4, Licensee may,
for a period of no more than six (6) months after expiration or termination,
sell and distribute Licensed Products existing in inventory or on order on the
date of expiration or termination. Licensee remains liable for the payment of
all royalties based on those sales and must otherwise comply with the terms
herein. If at the end of six (6) months Licensee still possesses inventory of
Licensed Products, Licensee shall sell and deliver, at cost, to Licensor the
remaining inventory, and Licensee's right to use the Licensed Marks pursuant to
this Agreement shall cease.
14.6 Upon expiration or termination of this Agreement for any reason,
Licensee shall immediately relinquish to Licensor all product designs,
specifications and other materials, including without limitation patterns,
sketches, stylings, prototypes and copyrightable material,
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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relating to a Style or Styles of the Licensed Products, whether created by
Licensor or Licensee. At such time, Licensee shall cooperate with Licensor to
comply with Sections 3.4, 6.9 and 6.10 herein, which Sections shall survive the
expiration or termination of this Agreement.
15. INDEMNIFICATION
---------------
15.1 Except as provided in Section 16.2 below, Licensee hereby agrees to
pay on behalf of Licensor and to defend it against any and all claims, suits,
liabilities, causes of action, settlements, costs, damages, or expenses,
including reasonable attorneys' fees, arising out of Licensee's design,
manufacture, packaging, sale, marketing or distribution of the Licensed
Products, or in connection with any claim, suit or proceeding for infringement
of another's patent. This indemnification provision shall survive the
termination of this Agreement.
16. TRADEMARK, PATENT, COPYRIGHT ENFORCEMENT
----------------------------------------
16.1 Licensee agrees to notify Licensor of any unauthorized use of the
Trade Name or Licensed Marks by others in connection with Eyewear, promptly as
it comes to Licensee's attention. Licensor shall have the sole right and
discretion to bring infringement actions involving the Trade Name or Licensed
Marks, or any patents or copyrights relating to the Licensed Products. Any award
received by Licensor in any such actions shall belong solely to Licensor.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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16.2 In the event that a Person institutes a trademark infringement action
against Licensee arising from Licensee's use of the Trade Name or Licensed
Marks, or in the event a Person institutes a copyright infringement action
against Licensee directly pertaining to the Licensed Products, Licensee shall
promptly notify Licensor. Licensor shall indemnify and defend, at its own
expense and with counsel of its choosing, any such claim or action, and Licensee
shall cooperate in such defense as reasonably requested by Licensor. Licensor
shall pay any judgments, settlements, costs, damages, or expenses, including
reasonable attorneys' fees, resulting from any such action. Any award received
by Licensor in such action shall belong solely to Licensor.
16.3 In the event that a Person institutes a design or utility patent
infringement action against Licensor arising from or directly pertaining to the
Licensed Products, Licensor shall promptly notify Licensee. Licensee shall
defend with counsel of its choosing, any such claim or action and Licensor
shall cooperate in such defense as reasonably requested by Licensee. Licensee
shall indemnify Licensor against the costs, expenses, judgements, settlements
and/or damages associated with any such action, including, but not limited to,
reasonable attorneys' fees. In the event Licensor wishes to assume its own
defense of any action which Licensee is responsible for defending pursuant to
this Section 16.3, it may do so provided Licensor assumes all costs and expenses
related thereto.
16.4 Licensor and Licensee shall cooperate in stopping, by any and all
legal means available, the manufacture, sale or distribution of counterfeit
Licensed Products bearing marks
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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<PAGE>
which are identical to or indistinguishable from the Licensed Marks (hereinafter
referred to as "Counterfeit Merchandise"). If it is determined that the
manufacture, sale or distribution of counterfeit Licensed Products has been
caused or contributed to by Licensee or any third party within its control or
with whom Licensee has a contractual relationship, then, in addition to the
rights and remedies provided for in Section 14.3 of this Agreement, the
reasonable costs associated with investigating and stopping the counterfeiting
activities and actions shall be reimbursed to Licensor by Licensee.
17. INSURANCE
----------
17.1 Licensee shall obtain and maintain, at its own cost and expense,
Commercial General Liability insurance and Umbrella liability insurance written
on an occurrence basis with the following coverage and limits:
Coverage Limits
-------- ------
General Aggregate Limit $5,000,000
Products/Completed
Operations Aggregate Limit $3,000,000
Personal and Advertising
Injury - Per Injury $3,000,000
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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17.2 Licensor shall be named as an additional insured on the Commercial
General Liability policy. Licensee shall provide Licensor with a certificate of
insurance evidencing all of the required coverage. The certificate shall also
provide evidence that the policy has been amended to afford at least thirty (30)
days advance written notice to Licensor of cancellation, nonrenewal or material
change of any of the required coverages.
18. NO ASSIGNMENT OR SUBLICENSE BY LICENSEE
---------------------------------------
18.1 This Agreement and all its rights and duties hereunder are personal
to the Licensee and shall not, without the express written consent of Licensor,
be assigned, sublicensed or otherwise encumbered by Licensee ; provided,
however, that notwithstanding anything to the contrary contained herein,
Licensee shall have the right (a) to have the Licensed Products manufactured by
one or more third-party manufacturers, and (b) to assign any or all of its
rights and duties hereunder to any other entity which either controls or is
controlled directly by Licensee provided that the original Licensee named herein
simultaneously with such assignment enters into an agreement with Licensor in a
form reasonably satisfactory to Licensor by which Licensee guarantees all of the
obligations, including without limitation, all financial and performance
obligations, of such assignee. The acquisition of more than 50% of the
outstanding Common Stock of Licensee by any Person or their affiliates
identified on Schedule 6, which Schedule may be amended from time to time by
Licensor during the term of this Agreement to (i) add names of Persons who
market and/or sell Eyewear to premier luxury consumers in the superior to high-
end eyewear category; or (ii) delete the names of Persons who no longer meet
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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the standards for being included in Schedule 6, shall constitute an
impermissible assignment under this Section 18.1. Any other acquisition of
capital stock by any Person other than those listed on Schedule 5 shall not be
deemed to be an impermissible assignment under this Section 18.1. All references
herein to "Licensee" shall include any and all such permitted assignees.
19. NON-COMPETITION COVENANTS
-------------------------
19.1 Non-Competition. Licensee covenants and agrees that it shall not,
during the term of this Agreement, regardless of the reason for the termination,
do any one or more of the following, directly or indirectly, alone or in
association with others, either as a principal, agent, owner, shareholder,
officer, director, partner, employee, lender, investor, consultant, manager, or
in any other capacity:
(a) divert, take away, solicit or interfere with or attempt to divert,
take away, solicit or interfere with the relationship of Licensor with one or
more persons or entities who or which are or have been customers or accounts of
Licensor; or
(b) directly or indirectly manufacture, distribute, sell or advertise in
the Territory during the term of this Agreement any Eyewear which bears the name
or is associated with the name of any Person listed on Schedule 6 hereto, which
schedule may be amended from time to time by Licensor during the term of this
Agreement to (i) add names of Persons who market and/or sell Eyewear to premier
luxury consumers in the superior to high-end eyewear category; or (ii) delete
the names of
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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Persons who no longer meet the standards for being included in Schedule
6,without Licensor's prior written consent.
19.2 Equitable Relief. It is further agreed that a breach of the covenants
regarding non-competition set forth above will result in irreparable harm and
continuing damages to Licensor and its business and that Licensor's remedy at
law for any such breach or threatened breach will be inadequate and,
accordingly, in addition to such other remedies as may be available to Licensor
at law or in equity in such event, any court of competent jurisdiction may issue
a decree of specific performance and a temporary and permanent injunction,
without posting bond or furnishing other security, enjoining and restraining the
breach, or threatened breach, of any such covenant. If Licensee breaches said
covenants, it will pay all of Licensor's costs and expenses, including
reasonable attorney's fees, incurred in enforcing such covenants.
19.3 Enforceability. If any provision of this Section 19 is found by a
court to be invalid or unenforceable for any reason, including, without
limitation, the geographic or business scope or the duration hereof, such
provision shall be construed and/or reduced or reformulated by the court in such
a way as to make it valid and enforceable to the maximum extent possible. Any
invalidity or unenforceability of any provision of this Section 19 shall attach
only to such provision and shall not affect or render invalid or unenforceable
any other provisions of this Section 19 or this Agreement.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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20. CONFIDENTIALITY
---------------
20.1 Each Party (a "Receiving Party") acknowledges that it and its
employees or agents may, in the course of performing the services or satisfying
its obligations hereunder, be exposed to or acquire information which is
proprietary to or confidential to the other Party (a "Disclosing Party") or its
affiliated companies or their customers. Any and all information of any form
obtained by a Receiving Party or its employees or agents in the performance of
the services or the satisfaction of such Party's obligations hereunder shall be
deemed to be the confidential and proprietary information of the Disclosing
Party. The Receiving Party agrees to hold such information in strict confidence
and not to copy, reproduce, sell, assign, license, market, transfer or otherwise
dispose of, give or disclose such information to third parties or to use such
information for any purposes whatsoever other than the purposes set forth in
this Agreement and to advise each of its employees and agents of their
obligations to keep such information confidential. All such confidential and
proprietary information described herein, in whatever form, is hereinafter
collectively referred to as "Confidential Information", provided that
Confidential Information shall exclude all information which is or becomes
publicly known (other than by unauthorized disclosure by the Receiving Party).
The Receiving Party shall promptly advise the Disclosing Party immediately in
the event the Receiving Party learns or has reason to believe that any person
who has had access to Confidential Information has violated or intends to
violate the terms of this Agreement, and the Receiving Party will at its expense
cooperate with the Disclosing Party in seeking injunctive or other equitable
relief against any such person.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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21. MISCELLANEOUS
-------------
21.1 In the event that either party shall, at any time, waive any of its
rights under this Agreement, or the performance by the other party of any of its
obligations hereunder, such waiver shall not be construed as a continuing waiver
of the same rights or obligations or a waiver of any other rights or
obligations.
21.2 This Agreement constitutes the entire agreement between the parties
as to the Trade Name and Licensed Marks and no modifications or revisions
thereof shall be of any force or effect unless the same are in writing and
executed by the parties hereto.
21.3 Any provisions of this Agreement which are, or shall be determined to
be, invalid shall be ineffective, but such invalidity shall not affect the
remaining provisions hereof. The titles to the sections herein are for
convenience only and have no substantive effect.
21.4 This Agreement is binding upon the parties hereto, any parent,
subsidiary and affiliated companies thereof and Licensor's successors and
assigns.
21.5 Licensee shall be responsible for compliance with the requirements of
all local laws in the countries where it manufactures, markets, distributes or
sells the Licensed Products, except for obligations with respect to filing as
registered user or similar obligations where required under applicable trademark
law. It is understood that Licensor is responsible for the
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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<PAGE>
costs and fees for, or incidental to, obtaining trademark registrations. It is
understood that Licensor shall have the sole right and discretion to file, at
its own expense, patent and copyright applications pertaining to the Licensed
Products.
21.6 This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, applicable to contracts made and to be wholly
performed therein without regard to its conflicts of law rules. Any action or
proceeding arising out of or relating in any way to this Agreement, shall be
brought and enforced in the courts of the United States for the Southern
District of New York, or, if such courts do not have, or do not accept, subject
matter jurisdiction over the action or proceeding, in the courts of the state of
New York and each party hereby consents to the personal jurisdiction of each
such court in respect of any such action or proceeding. Each of the parties
hereby consents to service of process in any such action or proceeding by the
mailing of copies thereof by Registered or Certified Mail, postage prepaid,
return receipt requested, to it at its address provided for notices hereunder.
The foregoing shall not limit the right of any of the parties to serve process
in any other manner permitted by law or to obtain execution or enforcement of
any judgment in any other jurisdiction. Each of the parties hereby waives (a)
any objection that it may now or hereafter have to the laying of venue of any
action or proceeding arising under or related to the Agreement in the court
located in the Borough of Manhattan, City and State of New York, (b) any claim
that a court located in the
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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Borough of Manhattan, City and State of New York is not a convenient forum for
any such action or proceeding, and (c) any claim that is not subject to the
personal jurisdiction of the courts of the United States of the Southern
District of New York or of the courts of the State of New York located in the
Borough of Manhattan, City and State of New York.
21.7 Licensee acknowledges that it has received a copy of the Sara Lee
Corporation Supplier Selection Guidelines and Sara Lee Corporation Global
Operating Principles (the "Guidelines"). Licensee hereby represents and warrants
that it has reviewed and understands the Guidelines, and Licensee and, to its
knowledge, any approved third-party manufacturer are presently in compliance and
will remain in compliance with the Guidelines for the term of this Agreement.
Furthermore, Licensee agrees to notify Licensor immediately if Licensee becomes
aware that a violation by Licensee or any approved third-party manufacturer of
the standards set forth in the Guidelines has occurred during the term of this
Agreement. The Guidelines are hereby incorporated herein by reference.
21.8 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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21.9 All notices required hereunder shall be in writing and dispatched by
overnight courier addressed to Licensee or Licensor as set forth below, and
shall be effective upon receipt:
Licensor: Chairman and CEO
Coach
516 West 34th Street
New York, New York 10001
Copies to: Vice President and Chief Counsel
Coach
516 West 34th Street
New York, New York 10001
Chief Counsel - Intellectual Property
Sara Lee Corporation
470 Hanes Mill Road
Winston-Salem, North Carolina 27105
Licensee: Signature Eyewear, Inc.
498 N. Oak Street
Inglewood, California 90302
Attn: President
Chief Financial Officer
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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<PAGE>
21.10 Force Majeure. Neither party shall be responsible for any delay or
-------------
failure in performance hereunder resulting from any act which is beyond its
reasonable control and without its fault or negligence. Each party shall notify
the other party as promptly as practicable after such party becomes aware of the
occurrence of any such force majeure condition. If any such delay should occur,
then the applicable periods for the completion of the parties' respective
obligations hereunder will be automatically extended by the period of such
delay.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
Date: March 11, 1999 COACH
-------------------------
A Division of Sara Lee Corporation
By: /s/ Keith Monda
----------------------------
Name: Keith Monda
----------------------------
Title: Chief Operating Officer
----------------------------
Date: March 11, 1999 SIGNATURE EYEWEAR, INC.
--------------------------
By: /s/ Julie Heldman
----------------------------
Name: Julie Heldman
----------------------------
Title: President
----------------------------
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
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SCHEDULE 1
COACH
LICENSED MARKS
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
SCHEDULE 6
Restricted Names/Accounts
Ralph Lauren/Polo
Calvin Klein/CK
Donna Karan/ DKNY
Giorgio Armani
Gucci
Dooney & Bourke
Kate Spade
Gurka
9West
Kenneth Cole
Liz Claiborne
J.P. Tod's
Jones Apparel
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
SCHEDULE 3
NO TRANSSHIPMENT POLICY FORM LETTER
TRANSSHIPMENT POLICY FORM LETTER - EXHIBIT LICENSE AGREEMENT
[FOR LICENSEE]
[DATE]
[DISTRIBUTOR,AUTHORIZED RETAILER OR MANUFACTURER ADDRESS]
Dear ____________:
This letter serves as a declaration of Coach's policy on distribution. As you
know, the Coach brand is synonymous with quality and excellence, and Coach
applies consistently high standards to its products, its consumer services and
its relationships with its retail [wholesale/manufacturing] partners.
To maintain these standards, Coach limits distribution to a select group of
retailers who are carefully chosen for their ability and willingness to provide
the resources to drive the sale of Coach products in an image-enhancing manner.
Coach offers its products to stores that carry better leathergoods and
accessories, are attractively fixtured and well-appointed, have well-trained
sales personnel, have desirable locations, and are financially strong and
creditworthy.
As a licensee of Coach brand products, we are responsible for positioning the
Coach brand and supporting the attributes which Coach believes are important to
maintaining and developing consumer relationships. We believe that
unauthorized retailers lack commitment to the Coach product, the capital
investment required and, possibly, other criteria that are very important to the
Coach brand.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
[NAME]
[DATE]
PAGE [#]
Therefore, we require that all Coach products shipped to you must be sold only
from authorized retail outlets [authorized retailers--operated by your firm and]
approved by us and by Coach. Transshipment of Coach products is prohibited
unless specifically authorized in writing, in advance of each shipment, by
Coach's Chief Executive Officer or Chief Operating Officer. Again, any retailer
[distributor/wholesaler or manufacturer] that does not follow this policy will
be terminated.
This policy helps to ensure that Coach product is sold only in stores that are
able to provide the customer with the selection and service expected with
quality products. As a result, we believe that this policy is in our collective
best interests.
We hope this letter helps you understand the reasons for, and the great
importance we place on, the above policy and practices. We solicit your
agreement and your compliance with this policy. In addition, we encourage you
to share this agreement throughout your organization to facilitate an
understanding of the policies and practices applicable to Coach products.
Please indicate your confirmation by signing this letter at the place indicated
below and returning it to our office.
Our best wishes for continued success. We look forward to continuing our long
and mutually advantageous relationship.
Sincerely,
[LICENSE REPRESENTATIVE]
[TITLE]
CONSENTED and AGREED to:
Name: __________________________
Title: __________________________
(company)
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
SCHEDULE 2
SIGNATURE-COACH THIRD PARTY REPRESENTATIVE OR DISTRIBUTOR
AGREEMENT LANGUAGE
Representative shall use best efforts to prevent and/or stop any diversion
of Coach Products from Customers or potential Customers to any end user which is
not Coach approved. Representative acknowledges that its standard terms of sale
shall be to require all end users to whom it sells Coach Products to agree only
to use such Products for approved purposes and not to resell such Products.
Should Coach or Signature notify Representative of any diversion of Coach
Products, or should Representative become aware of any such diversion,
Representative shall take all reasonable steps necessary to end such diversion,
including without limitation tracking down the source of the diverted Coach
Products and discontinuing all sales of Coach Products to said end user.
Representative shall keep Coach and Signature apprised of all such efforts.
Nothing herein shall in any way limit Signature's right, in its sole discretion,
to terminate Representative from selling Coach products in the event it is
determined that Representative is selling to Customer(s) who are violating this
paragraph, and to seek damages from Representative as a consequence of any such
violation.
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
SCHEDULE 5
[*]
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
SCHEDULE 4
FORM-MONTHLY UNAUDITED SALES REPORT
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 10.2
CERTAIN CONFIDENTIAL INFORMATION CONTAINED HEREIN HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
FIRST ADDENDUM TO LICENSE AGREEMENT DATED JUNE 24, 1997
-------------------------------------------------------
THIS FIRST ADDENDUM TO LICENSE AGREEMENT DATED JUNE 24, 1997 by and between
Eddie Bauer, Inc., a Delaware corporation with a principal place of business at
15010 N.E. 36th Street, Redmond, Washington 98052 ("Licensor") and Signature
Eyewear, Inc., a California corporation, with a principal place of business at
498 N. Oak Street, Inglewood, California 90302 ("Licensee") is effective as of
March 26, 1999. The License Agreement Dated June 24, 1997 shall be referred to
hereinafter as "License Agreement" and this First Addendum to the License
Agreement shall be referred to hereinafter as "First Addendum."
1. In the event of a conflict or ambiguity between this First Addendum and the
License Agreement, the First Addendum shall control. Any matter not addressed
in this First Addendum shall be governed by the License Agreement. The attached
SUNWEAR EXHIBIT A to FIRST ADDENDUM TO LICENSE AGREEMENT DATED JUNE 24, 1997 is
applicable to Licensed Sunwear Products (hereinafter defined) only. The
original exhibits attached to the License Agreement shall remain in full force
and effect with respect to Licensed Products (hereinafter defined) except that
Exhibit A is stricken and the royalties set forth in Exhibit C apply only to
Licensed Products other than Licensed Sunwear Products.
2. The definitions of "Products" and Licensed Products are stricken and
replaced with the following:
"Products" means (a) Eyewear Frames, Eyeglasses, Eyeglass cases, chains
and cords, all manufactured for use with prescription lenses including
prescription sunglass lenses; and (b) Sunwear Products. The term
"Products" does not include Sunwear other than Sunwear Products.
"License Products" shall mean: (a) Products containing the Licensed
Mark; and (b) Licensed Sunwear Products.
3. The following definitions are added to the License Agreement:
"Sunwear Products" means ready-to-wear sunglasses that contain Oakley,
Inc.'s patented performance lens technology, specifically XYZ Optics(TM),
Plutonite(TM) lens material and Iridium(TM) lens coating.
"Licensed Sunwear Products" means Sunwear Products containing the
Licensed Mark.
4. This Addendum shall be in effect from the date first written above.
However, with respect to Licensed Sunwear Products, the right to use the
Licensed Mark in the sale
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
1
<PAGE>
of Licensed Sunwear Products shall not accrue until January 1, 2000. This
Addendum shall continue in effect to December 31, 2002 unless sooner terminated
pursuant to the License Agreement (or the terms herein) and only so long as the
License Agreement remains in effect with respect to Licensed Products other than
Licensed Sunwear Products or, unless extended pursuant to Section 10 hereof.
Distribution of Licensed Sunwear Products shall be only to optometrists,
ophthalmologists, opticians and national optical chains in the Territory unless
Licensor provides prior written approval to distribute to other than
optometrists, ophthalmologists, opticians and national optical chains.
5. Licensee shall pay a royalty for Licensed Sunwear Products in accordance
SUNWEAR EXHIBIT A to FIRST ADDENDUM TO LICENSE AGREEMENT DATED JUNE 24, 1997
attached hereto.
6. Section 8.3 of the License Agreement is stricken and replaced with the
following:
All costs and expenses associated with the design, manufacture,
development, advertising, marketing, packaging and interactive media of
Licensed Products shall be borne by Licensee.
7. Section 8.6 of the License Agreement is stricken and replaced with the
following:
In order to maintain a consistent brand image, Licensee shall submit to
Licensor a comprehensive marketing plan for the next calendar year no
later than three months prior to the commencement of the next calendar
year which plan shall include advertising strategy and tactics, including
timetables ("Comprehensive Marketing Plan"). The Comprehensive Marketing
Plan shall be subject to the prior written approval of Licensor, which
approval shall not be unreasonably withheld. Licensor may, at its
option, provide a strategic outline for the Comprehensive Marketing Plan.
Any and all advertising produced in furtherance of the Comprehensive
Marketing Plan (or otherwise) including, but not limited to, consumer and
trade advertising, marketing materials, interactive media, trade shows,
advertising slicks, sales materials and promotional materials shall be
submitted to Licensor at first concept stage, first art and final art
prior to production and distribution. Licensor shall advise Licensee of
its objections to any original materials within ten (10) business days of
receipt thereof, and of its objections to any revised materials within
five (5) business days of receipt thereof. Failure to object within the
specified time period shall be deemed approval. Licensor and/or
Licensor's agents may provide, and Licensee shall accept, creative
direction and styling for the Comprehensive Marketing Plan, including
advertising, and the execution thereof. Licensee shall cooperate with
Licensor and/or Licensor's agents in developing the Comprehensive
Marketing Plan and the content and presentation of all advertising.
Licensor shall notify Licensee in the event that Licensor intends to
incur any fees from third party consultants or agents for developing or
implementing the comprehensive Marketing Plan. Licensee
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
2
<PAGE>
shall reimburse Licensor for such third-party fees only if Licensee gives
prior written approval for them. The Comprehensive Marketing Plan shall
provide, among other things, that Licensee shall expend, in addition to
the sums spent on Licensed Products other than Licensed Sunwear Products
pursuant to Section 6.2 of the Agreement, no less than [*] ([*]) of Net
Sales of Licensed Sunwear Products, Net Sales being measured in the
calendar year prior to the year in which the expenditure is made, on
consumer advertising for Licensed Sunwear Products in each calendar years
2000, 2001 and 2002 and in any calendar year thereafter that this
Agreement is extended. Expenditure on consumer advertising is contingent
on Licensor approving distribution of the Licensed Products beyond
optometrists, ophthalmologists, opticians and national optical chains.
The content and presentation of all designs for the Licensed Products,
and the use of the Licensed Mark with Licensed Products shall be subject
to the prior written approval of Licensor. Licensee shall submit an
annual product development calendar to Licensor not less than two months
prior to the beginning of the calendar year. Licensee shall submit
designs to Licensor at color stage, concept stage, first sample and final
sample prior to production. Licensor will advise Licensee of its
objections to designs within (10) ten business days of receipt thereof.
Failure to object within the specified time period shall be deemed
approval. Licensee will send to Licensor two (2) production samples of
each style and SKU of Licensed Products.
Licensee shall establish display presentation and price guidelines, and
shall monitor and enforce those guidelines, to maintain the integrity of
the Licensor brand presentation outside Licensor stores and catalog.
Licensee will send to Licensor one (1) copy of the line sheets and one
(1) sample of each promotional material and advertising which features or
references the Licensed Products or any variation of Licensor's name or
mark. No materials will be produced or distributed which have not been
approved by Licensor.
All talent and all talent wardrobe in all advertising and marketing
materials shall be styled by Licensor and must be approved by Licensor
prior to production. All propping shall be with Licensor product or
Licensor licensed product other than Licensed Products, Wardrobe and
propping, if provided by Licensor, shall be provided to Licensee at cost
plus expenses, including shipping. Licensee shall pay such expenses
directly.
8. Licensee's obligation to perform hereunder with respect to Licensed Sunwear
Products is contingent upon Licensee entering into a license agreement with
Oakley, Inc., a California corporation, for use of their patented performance
lens technology, specifically XYZ Optics(TM), Plutonite(TM) lens material and
Iridium(TM) lens coating.
9. The last sentence of Section 2.3 of the License Agreement is stricken and
replaced with the following:
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
3
<PAGE>
Nothing in this Agreement shall preclude Licensor from using the Licensed
Mark in connection with the sale by Licensor of any type of sunwear in
any and all of Licensor's direct distribution channels, namely Licensor
owned stores, Licensor catalogues and Licensor internet web sites.
10. Licensor may renew the License Agreement with respect to Licensed Sunwear
Products in accordance with Section 3.2 thereof, however, any such renewal with
respect to Licensed Sunwear Products shall be for one (1), three (3) year term,
only. Licensee's option to renew shall be subject to all other restrictions and
conditions set froth in the License Agreement. Licensee may elect to renew the
License Agreement with respect to Licensed Products but not to renew the License
Agreement with respect to Sunwear Products. In such event, as of the first day
of the renewal period: (i) Licensee's right to Exploit the Licensed Mark in
connection with Sunwear Products shall cease (except that Licensee shall have
the rights to sell stock on hand or which has been ordered prior to termination
in accordance with Section 3.4 of the License Agreement); (ii) Licensee shall
have no obligation with respect to Licensed Sunwear Products under Section 8.6
of the License Agreement as amended hereby; and (iii) Licensed Sunwear Products
shall no longer be Licensed Products.
11. Except as modified by the First Addendum, all other terms and conditions of
the License Agreement shall remain in full force and effect.
EDDIE BAUER, INC.
Licensor
By: /s/ Don Perinchief
-----------------------------------
Title: DVP New Business and Licensing
---------------------------------
Date: March 26, 1999
---------------------------------
SIGNATURE EYEWEAR, INC.
Licensee
By: /s/ Julie Heldman
-----------------------------------
Title: President
---------------------------------
Date: March 25, 1999
---------------------------------
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
4
<PAGE>
SUNWEAR EXHIBIT A TO FIRST ADDENDUM TO LICENSE AGREEMENT DATED JUNE 24, 1997
----------------------------------------------------------------------------
ROYALTY SCHEDULE FOR LICENSED SUNWEAR PRODUCTS
The following royalty rate shall apply to Licensed Sunwear Products during
the initial Term:
[*] of total Net Sales during the first year (January 1, 2000 through
December 31, 2000);
[*] of total Net Sales during the second year (January 1, 2001 through
December 31, 2001);
[*] of total Net Sales during the third year (January 1, 2002 through
December 31, 2002) so long as Licensor approves distribution of Licensed Sunwear
Products through other than optometrists, ophthalmologists, opticians and
national optical chains. Should Licensor not approve such distribution, the
royalty rate shall be [*].
Should License exercise the option to renew the License Agreement with
respect to Licensed Sunwear Products, the royalty rate shall be [*] for each of
the three years of the option term so long as Licensor approves distribution of
Licensed Sunwear Products through other than optometrists, ophthalmologists,
opticians and national optical chains. Should Licensor not approve such
distribution, the royalty shall be [*] for any year such approval is not given.
Licensee shall pay Licensor [*] upon execution of this First Addendum,
which shall be applied against the first royalties (minimum or actual) accruing
in 2000.
This Exhibit, dated March 26, 1999, is incorporated by reference in THE
FIRST ADDENDUM TO LICENSE AGREEMENT DATED JUNE 24, 1997.
Approved:
By: /s/ Don Perinchief
--------------------
By: /s/ Julie Heldman
--------------------
* Confidential Information Omitted and Filed Separately With the Securities and
Exchange Commission.
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS OF SIGNATURE EYEWEAR, INC. AS OF AND FOR THE SIX MONTHS
ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 5,842,647
<SECURITIES> 0
<RECEIVABLES> 7,472,629
<ALLOWANCES> 71,568
<INVENTORY> 9,669,177
<CURRENT-ASSETS> 24,903,052
<PP&E> 3,144,983
<DEPRECIATION> 1,657,121
<TOTAL-ASSETS> 26,523,776
<CURRENT-LIABILITIES> 6,082,108
<BONDS> 0
0
0
<COMMON> 9,216
<OTHER-SE> 20,036,619
<TOTAL-LIABILITY-AND-EQUITY> 26,523,776
<SALES> 21,461,640
<TOTAL-REVENUES> 21,461,640
<CGS> 9,004,305
<TOTAL-COSTS> 20,254,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,280,200
<INCOME-TAX> 495,000
<INCOME-CONTINUING> 785,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 785,200
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
