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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES ACT OF 1934
COMMISSION FILE NO. 1-7604
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CROWN CRAFTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-0678148
(State of Incorporation) (I.R.S. Employer Identification No.)
1600 RIVEREDGE PARKWAY, 30328
SUITE 200 (Zip Code)
ATLANTA, GEORGIA
(Address of principal executive offices)
</TABLE>
Registrant's Telephone Number, including area code: (770) 644-6400
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [ ] No [X].
As of June 15, 1998, 8,599,967 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock (based upon the NYSE closing
price of these shares on that date) held by persons other than Officers,
Directors, the Company's Employee Stock Option Plan, and 5% shareholders was
approximately $74,864,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Crown Crafts, Inc., Proxy Statement in connection with its Annual Meeting
of Shareholders on August 25, 1998 (Part III).
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PART I
ITEM 1. BUSINESS
Crown Crafts, Inc., a Georgia corporation founded in 1957, operates, both
directly and indirectly through its subsidiaries, in a single business segment
within the textile industry. Crown Crafts, Inc. and its subsidiaries
(individually and collectively, the "Company") design, manufacture, market and
distribute home furnishings products. These products are marketed under a
variety of Company-owned trademarks, under trademarks licensed from others,
without trademarks as unbranded merchandise and with customers' private labels.
During the fiscal year ended March 29, 1998, the Company completed four
acquisitions. Three of the acquired entities, Hamco, Inc., Noel Joanna, Inc. and
Pinky Baby Products, are engaged in the design, manufacture, marketing and
distribution of infant products. The fourth acquisition, Burgundy
Interamericana, S.A. de C.V., operated in Mexico as a contract manufacturer of
consumer textile products. The Company expects to utilize all of Burgundy's
productive capacity in the manufacture of its own infant and other products,
moving production from independent foreign manufacturers into Burgundy.
PRODUCTS
The Company's products fall into three groups: bedroom products, throws and
decorative home accessories, and infant and juvenile products.
The Company's bedroom products include comforters, comforter sets, sheets,
pillowcases, pillow shams, bed skirts, duvets, daybed sets, window treatments,
decorative pillows, coverlets and jacquard-woven bedspreads. These products are
made from a variety of natural and man-made fibers.
The Company offers its bedroom products in a wide variety of styles and
patterns, from comforters to woven bedspreads and from solid colors to designer
prints. The Company believes the trend toward coordination of the bedroom will
remain strong and expects to continue its emphasis on comforter sets with
coordinated sheets and accessories.
Throws are manufactured and imported in a variety of colors, designs and
fabrics, including cotton, acrylic, cotton/acrylic blends, rayon, wool, fleece
and chenille. Coordinated decorative home accessories include table runners,
doorknob pillows, bell pulls and other items.
Infant and juvenile products include crib bedding, diaper stackers,
mobiles, bibs, receiving blankets, burp cloths, bathing accessories and other
infant soft goods.
During the fiscal years ended March 29, 1998, March 30, 1997 and March 31,
1996, respectively, bedroom products represented 40%, 45% and 56% of
consolidated net sales, throws and decorative home accessories represented 30%,
34% and 37% of consolidated net sales, and infant and juvenile products
represented 30%, 20% and 6% of consolidated net sales.
PRODUCT DESIGN AND STYLING
The Company's research and development expenditures focus primarily on
product design and styling. The Company believes styling and design are key
components to its success. In recent years the Company has significantly
increased the number of people and other resources dedicated to this area. The
Company's designs include traditional, contemporary, textured and whimsical
patterns. The Company designs and manufactures products across a broad spectrum
of retail price points. The Company is continually developing new designs for
all three of its product groups.
The Company's designers and stylists work closely with the marketing staff
to develop new designs. The Company develops internally and obtains designs from
numerous sources, including graphic artists, decorative fabric manufacturers,
apparel designers, the Company's employees and museums. The Company utilizes
computer aided design systems to increase its design flexibility and reduce
costs. In addition, these systems
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significantly shorten the time for responding to customer needs and changing
market trends. The Company also creates designs for exclusive sale by certain of
its customers.
SALES AND MARKETING, CUSTOMERS
The Company markets its products through a national sales force consisting
of salaried sales executives and employees and independent commissioned sales
representatives. Independent representatives are used most significantly in
sales to the gift trade through Goodwin Weavers and Churchill Weavers, and to
the infant markets. Sales outside the United States and Canada are made
primarily through distributors.
The Company's customers consist principally of department stores, chain
stores, mass merchants, specialty home furnishings stores, wholesale clubs, gift
stores and catalogue and direct mail houses. During the fiscal years ended March
29, 1998, March 30, 1997, and March 31, 1996, sales to Wal-Mart Stores, Inc.
accounted for 19%, 17% and 18% of net sales, respectively. In June 1998,
Wal-Mart informed the Company that effective February 1, 1999, it would
discontinue the Company's "Signature Series" line of bedding and accessories.
Sales of all products in this line represented 9% of the Company's net sales in
the fiscal year ended March 29, 1998. Because Wal-Mart will continue to purchase
these products from the Company during most of the current fiscal year, the full
impact on net sales of this decision will not be felt until the fiscal year
which begins March 29, 1999.
The Company's primary showroom and sales office is located in New York
City. Sales offices are also maintained in Chicago, Atlanta, Boston, Los
Angeles, Dallas, and Tyler, Texas. An additional showroom is located in the
Company's Atlanta corporate headquarters location.
The Company sells the majority of its products to retailers for resale to
consumers. The Company generally introduces new products to the retail trade
during the industry's April and October home textile markets. Initial shipments
of successful new designs generally occur at least six months after the product
introduction as more conservative buyers follow the lead of market innovators.
New product introductions for the gift trade are concentrated in January-March
and June-August when Goodwin Weavers and Churchill Weavers participate in
numerous local and regional gift shows. The Company's infant product
subsidiaries generally introduce new products once each year during the annual
Juvenile Products Manufacturers' Association trade show. Private label products
manufactured by the Company are introduced throughout the year.
The Company uses visually appealing and informative packaging,
point-of-sale displays and advertising materials for retailers. Most of these
are produced in the Company's own print shop, which offers design, typesetting
and finishing services. The Company also regularly advertises its products in
publications directed to the trade.
The Company also markets primarily close-out and irregular products through
its own retail stores located in Calhoun, Georgia, Roxboro, North Carolina,
Blowing Rock, North Carolina, Berea, Kentucky, Rancho Santa Margarita,
California and in several outlet malls and resort areas located primarily in the
southeastern United States. In fiscal 1998, less than 2.5% of the Company's
sales were made through its outlet stores.
MANUFACTURING
The Company has made significant investments in modernization and expansion
to lower manufacturing costs, maximize design flexibility, improve quality and
service, and increase productive capacity.
The Company produces adult comforters and accessories at its owned facility
in Roxboro, North Carolina. The Roxboro Plant utilizes an automated warehouse
and distribution system which allows the Company to reduce inventories, improve
physical control over inventories, reduce order fulfillment lead times, and
provide enhanced levels of service.
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The Company produces jacquard-woven bedspreads and throws at its weaving
mills in Dalton, Georgia, and Ronda, North Carolina. These products are then
finished, packed and shipped from the Calhoun, Georgia, facilities. The Company
also utilizes a warehouse and distribution center in Chatsworth, Georgia.
The Company's infant products are produced primarily by domestic and
foreign contract manufacturers. These products are then warehoused and shipped
from facilities in Compton, California, Rancho Santa Margarita, California and
Prairieville, Louisiana.
RAW MATERIALS
The principal raw materials used in the manufacture of adult and infant
comforters, sheets and accessories are wide-width and narrow printed and solid
color cotton and polycotton fabrics, and polyester fibers used as filling
material. The principal raw materials used in the manufacture of jacquard-woven
bedspreads, throws and other products are natural-color and pre-dyed 100% cotton
yarns and acrylic yarns. The principle raw materials used in the production of
infant bibbs are knit-terry polycotton, woven polycotton and vinyl fabrics.
Although the Company usually maintains supply relationships with only a limited
number of suppliers, the Company believes these raw materials presently are
available from several sources in quantities sufficient to meet the Company's
requirements.
The Company uses significant quantities of cotton, either in the form of
cotton yarn, cotton fabric or polycotton fabric. Cotton is subject to ongoing
price fluctuations. The price fluctuations are a result of cotton being an
agricultural product subject to weather patterns, disease and other factors as
well as supply and demand considerations, both domestically and internationally.
To reduce the effect of potential price fluctuations, the Company often makes
commitments for future purchases of cotton yarns and fabrics up to a year before
delivery. Nonetheless, significant increases in the price of cotton could
adversely affect the Company's operations.
SEASONALITY, INVENTORY MANAGEMENT
Historically, the Company has experienced a seasonal sales pattern, with a
greater sales volume in each of the last three fiscal quarters of the year (July
through March). This seasonality results from retailers having higher sales in
the second half of the year.
The Company carries normal inventory levels to meet delivery requirements
of customers. Customer returns of merchandise shipped are not material.
ORDER BACKLOG
The Company's backlogs of unfilled customer orders believed by management
to be firm were $34,503,000 and $26,518,000 at May 31, 1998 and June 1, 1997
respectively. The majority of these unfilled orders are scheduled to be shipped
within approximately eight weeks, and none are expected to be shipped beyond the
completion of the current fiscal year ending March 28, 1999. Due to the
prevalence of quick-ship programs adopted by its customers, the Company does not
believe that its backlogs are a meaningful indicator of future business.
TRADEMARKS, COPYRIGHTS AND PATENTS
The Company's products are marketed in part under well-known trademarks.
The Company considers its trademarks to be of material importance to its
business. Adult comforters and accessories primarily carry the trademark Crown
Crafts(R). The majority of throws carry the trademarks Crown Crafts(R) and
Goodwin Weavers(R). Infant products carry the trademarks Red Calliope(R), Little
Bedding(R), NoJo(R), Hamco(R) and Pinky(R). Protection for these marks is
obtained through domestic and foreign registrations. Also important to the
Company is the trademark Royal Sateen(R), which was developed in a joint effort
with Kitan Textile Industries Ltd. of Israel. Kitan is the registered owner of
the mark and the Company is the exclusive marketer of Royal Sateen products in
the United States and other parts of the Western Hemisphere.
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In addition, certain products are manufactured and sold pursuant to
licensing agreements that include, among others: Disney(R), Bob Timberlake(TM),
Colonial Williamsburg(R), Warner Bros.(R), Hallmark(R), and Raymond Waites(R).
The licensing agreements for the Company's designer brands generally are for a
term of 2 to 6 years, and may or may not be subject to automatic renewal or
extension. Sales of product under the Company's license with The Walt Disney
Company accounted for 14% of the Company's total sales volume during fiscal
1998. Although revenue has not been material, the Company has licensed and has
sold fabric for certain of its more successful designs to manufacturers of other
products such as bath accessories, table linens, wallpaper borders and rugs. The
Company believes that its licensing activities, both as a licensee and licensor,
will continue to increase in importance as the Company grows.
Many of the designs used by the Company are copyrighted by other parties
including trademark licensors and are available to the Company through copyright
licenses. Other designs are the subject of copyrights and design patents owned
by the Company.
Following the end of the March 29, 1998 fiscal year, the Company entered
into licensing agreements with Calvin Klein, Inc. and Disney Enterprises, Inc.
The Calvin Klein license grants the Company the right to produce and sell
bedcoverings and associated products under the Calvin Klein Home name. The
Disney license expands the Company's right to produce and sell products
featuring Disney characters.
The Company's commitment for minimum guaranteed royalty payments under all
license agreements is $4,200,000, 13,500,000, 11,900,000, $5,000,000, 5,000,000
and 4,200,000 respectively for fiscal 1999, 2000, 2001, 2002, 2003 and 2004. The
Company believes that future sales of royalty products will exceed amounts
required to cover the minimum royalty guarantees. The Company's total royalty
expense, net of royalty income, was $8,687,000, $7,336,000 and $3,404,000 for
fiscal 1998, 1997 and 1996 respectively.
COMPETITION
The textile industry, including the market for home furnishings products,
is highly competitive. The Company competes with a variety of manufacturers,
many of which are vertically integrated textile companies with substantially
greater resources than the Company, and many of which are of similar size to the
Company. Competitors may have customer relationships that may be superior to
those of the Company and may have substantially greater resources. The Company
believes that it is the fifth largest domestic manufacturer of bed coverings,
including comforters, comforter sets and jacquard-woven bedspreads, with a total
market share of less than 10%. The Company also believes that it is the largest
domestic manufacturer of throws controlling about one-third of this market, and
it is the largest producer of infant bed coverings and bibs controlling about
one-fourth of these markets.
The Company competes on the basis of quality, design, price, service and
packaging. Except for acrylic throws, luxury linens, and matelasse coverlets and
bedspreads, the Company's products have not experienced significant competition
from imports. The Company believes that its ability to implement future price
increases for its products may be limited by current or future overcapacity in
the domestic textile industry.
GOVERNMENT REGULATION; ENVIRONMENTAL CONTROL
The Company is subject to various federal, state and local environmental
laws and regulations which regulate, among other things, the discharge, storage,
handling and disposal of a variety of substances and wastes. The Company's
operations are also governed by laws and regulations relating to employee safety
and health, principally the Occupational Safety and Health Administration Act
and regulations thereunder.
The Company believes that it currently complies in all material respects
with applicable environmental, health and safety laws and regulations. Although
the Company believes that future compliance with such existing laws or
regulations will not have a material adverse effect on its capital expenditures,
earnings or competitive position, there can be no assurances that such
requirements will not become more stringent in the future or that the Company
will not incur significant costs in the future to comply with such requirements.
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EMPLOYEES
At June 15, 1998, the Company had 2,559 employees. None of the Company's
employees is represented by a labor union, and the Company considers its
relationship with its employees to be good. The Company attracts and maintains
qualified personnel by paying competitive salaries and benefits and offering
opportunities for advancement.
INTERNATIONAL SALES
Sales to customers in foreign countries are not currently material to the
Company's business. The Company believes, however, its presence in foreign
countries will increase in the future as a result of, among other factors, the
passage of NAFTA, its acquisition of a business located in Mexico, and its sales
efforts in Europe, Japan and Australia.
ITEM 2. PROPERTIES
The Company's headquarters are located in executive offices in Atlanta,
Georgia. A showroom is also located in these offices. The Company occupies
approximately 41,200 square feet at this location under leases that expire June
29, 2002 and September 30, 2000.
The following table summarizes certain information regarding the Company's
principal properties.
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION USE SQUARE FEET LEASED
- -------- --- ----------- ------
<S> <C> <C> <C>
Berea, Kentucky......... Offices, manufacturing, warehouse, and 38,000 Owned
distribution facilities and retail store
Calhoun, Georgia........ Two buildings, housing offices, manufacturing 267,000 Owned
facilities, sample department, print shop and
factory outlet store
Calhoun, Georgia........ Warehouse and distribution center 233,000 Owned
Chatsworth, Georgia..... Manufacturing facility, warehouse and 115,000 Owned
distribution center
Compton, California..... Offices, warehouse and distribution center 157,400 Leased(1)
Dalton, Georgia......... Two buildings housing manufacturing facilities 161,000 Owned
Ronda, North Carolina... Two buildings, housing offices, manufacturing 62,800 Owned
facility and warehouse
Atlanta, Georgia........ Executive offices and showroom 41,200 Leased(2)
Roxboro, North Three buildings, housing manufacturing 424,000 Owned
Carolina.............. facilities, warehouse and distribution centers,
administrative offices and factory outlet store
Roxboro, North Seven buildings, housing manufacturing 453,000 Leased(3)
Carolina.............. facilities, warehouses and distribution
facilities
Blowing Rock, North Three buildings, housing administrative and 21,000 Owned
Carolina.............. sales offices, and factory outlet store
New York, New York...... Sales and design offices and show-room 41,600 Leased(4)
Rancho Santa Margarita, Offices, warehouse, and distribution center 51,900 Leased(5)
California............
Prairieville, Offices, warehouse, and distribution center 33,000 Leased(6)
Louisiana.............
Houston, Texas.......... Offices, warehouse, and distribution center 32,900 Leased(7)
Aguascalientes, Offices, warehouse, and distribution center 86,000 Leased(8)
Mexico................
</TABLE>
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(1) Lease expires May 31, 2001 (renewable for one two-year period and one
three-year period).
(2) Leases expire June 29, 2002 and September 30, 2000.
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(3) Leases expire as follows: (a) 75,000 square feet on February 28, 2005; (b)
50,000 square feet on September 30, 1998 (renewable for one five-year
period); (c) a lease for 223,000 square feet expired on April 30, 1998 and
is currently a month to month lease; and (d) two month to month leases of
105,000 square feet.
(4) Lease expires April 30, 2007 (renewable for up to two additional five-year
periods).
(5) Lease expires July 31, 2001.
(6) Leases expire March 30, 2000.
(7) Leases expire March 31, 2001 and November 30, 1998.
(8) Leases expire January 31, 2000 (renewable for one two year period).
The Company also leases space for it's various sales offices and outlet
stores.
Management believes that its properties are suitable for the purposes for
which they are used, are in generally good condition and provide adequate
production capacity for current and anticipated future operations. The Company's
business is somewhat seasonal so that during the late summer and fall months
these facilities are fully utilized, while at other times of the year the
Company has excess capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company, one of its subsidiaries, and Calvin Klein, Inc. are defendants
in a lawsuit filed on June 8, 1998 by Decorative Home Accents, Inc. and related
companies (hereinafter "DHA"). Because DHA is under the protection of the
Bankruptcy Court in the Southern District of New York, the suit was brought as
an adversary proceeding in that court. DHA complains that the grant by Calvin
Klein, Inc. of a license for soft home products to the Company's subsidiary,
instead of renewing DHA's license, which expired on April 30, 1998, was wrongful
on various legal theories. DHA seeks to have the new license to the Company's
subsidiary declared invalid, and to have the old license restored to DHA, and
seeks actual and punitive damages. On June 12, 1998, the Bankruptcy Court denied
DHA's motion for a temporary restraining order and indicated its intention not
to grant a preliminary injunction based, inter alia, on a finding that DHA had
not established the requisite probability of success on the merits. The Company
believes that it is entitled to retain and operate under the Calvin Klein
license and that its conduct in competing for and obtaining the license was
lawful. The Company intends to defend the suit vigorously and expects to prevail
on the merits. The suit was filed in the midst of negotiations among DHA, the
Company, and Calvin Klein, Inc. for the Company to acquire from DHA its
inventory and other assets used in the licensed business after the defendants
refused a further extension of a standstill agreement that had been in effect
since April 30, 1998. The acquisition negotiations are continuing.
In the Company's pending arbitration with Kitan Textile Industries Ltd. of
Israel, the Company's supplier of the Royal Sateen(R) bedding line, all claims
and counterclaims for monetary damages have been settled on terms not involving
any cash payments. Both companies have agreed to spend additional money in
developing the U.S. market for the Royal Sateen(R) brand of bedding. The
arbitration remains pending for interpretation of certain contract terms.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended March 29, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company is authorized by its Articles of Incorporation to issue up to
50,000,000 shares of capital stock, all of which are designated Common Stock,
par value $1.00 per share.
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COMMON STOCK
The Company's common stock (the "Common Stock") is traded on the New York
Stock Exchange ("NYSE") under the symbol "CRW". The following table presents
quarterly information on the price range of the Company's Common Stock for the
fiscal years ended March 29, 1998 and March 30, 1997. This information indicates
the high and low sale prices as reported by the NYSE.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
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<S> <C> <C>
FISCAL 1998
First Quarter............................................... $12 1/8 $10 1/4
Second Quarter.............................................. 14 15/16 10 3/16
Third Quarter............................................... 17 5/16 13 3/4
Fourth Quarter.............................................. 22 1/16 14 7/16
FISCAL 1997
First Quarter............................................... $11 5/8 $ 9
Second Quarter.............................................. 10 1/8 7 3/4
Third Quarter............................................... 10 8 3/8
Fourth Quarter.............................................. 12 9 1/4
</TABLE>
As of June 15, 1998 there were issued and outstanding 8,599,967 shares of
the Company's Common Stock held by approximately 1,425 beneficial holders. The
estimated number of beneficial holders does not reflect the approximately 1,925
individual employee accounts in the Company's Employee Stock Ownership Plan. At
June 15, 1998, the Company's Common Stock closed at $14 7/16.
In fiscal 1998, the Company continued its policy, begun in February 1989,
of paying dividends on a quarterly basis. The Company paid a dividend of $0.03
per share on its Common Stock on June 4, 1997, September 23, 1997, December 23,
1997 and March 24, 1998. Dividends paid by the Company on its Common Stock in
the future will depend upon the earnings and financial condition of the Company.
The Company presently anticipates paying dividends for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the Company's
financial statements for the five years ended March 29, 1998. The data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
MARCH 29, MARCH 30, MARCH 31, APRIL 2, APRIL 3,
1998 1997 1996 1995 1994*
--------- --------- --------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales................................... $319,238 $256,385 $219,002 $210,963 $187,335
Gross profit................................ 71,089 51,737 42,452 46,731 37,998
Earnings from operations.................... 18,993 11,641 10,625 18,878 15,374
Net earnings................................ 7,806 3,631 3,947 11,050 9,010
Basic earnings per share.................... 0.97 0.46 0.49 1.31 1.08
Diluted earnings per share.................. 0.92 0.45 0.48 1.29 1.06
Cash dividends per share.................... 0.12 0.12 0.12 0.12 0.12
AT YEAR END
Total assets................................ $241,666 $189,556 $185,698 $134,031 $123,348
Long-term debt.............................. 50,100 71,200 69,300 5,000 10,000
Shareholders' equity........................ 97,323 85,695 83,017 87,000 75,385
</TABLE>
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* Fiscal 1994 contained 53 weeks of operations
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS AND DISPOSITIONS
During the fiscal year ended March 29, 1998, the Company acquired four
companies, Hamco, Inc., Pinky Baby Products, Noel Joanna, Inc. and Burgundy
Interamericana, S.A. de C.V. Hamco and Pinky design, manufacture, market and
distribute bibs and other infant soft goods. Noel Joanna designs, markets and
distributes infant bedding and accessories. Burgundy, located in Aguascalientes,
Mexico, is a contract manufacturer of consumer textile products.
Post-acquisition, Burgundy's production capacity is expected to be utilized
exclusively for the manufacture of the Company's products. The effect of these
acquisitions on fiscal 1998 operating results is discussed below in the section
"Results of Operations: Fiscal 1998 Compared to Fiscal 1997."
During the fiscal year ended March 30, 1997, Hans Benjamin Furniture, Inc.,
a 51-percent owned subsidiary of the Company, announced a nationwide voluntary
recall of all furniture products it manufactured following a determination that
many of its products had been mislabeled. Subsequent to the recall, the Company
decided to terminate the operations of Hans Benjamin and to dispose of Benn
Corporation, a wholly-owned subsidiary engaged in the manufacture of textile
machinery.
During fiscal 1997, the Company recorded an after-tax loss of approximately
$1.3 million for costs associated with the product recall and the disposition of
the two subsidiaries. The recorded loss includes a settlement reached with the
Office of the District Attorney in Sacramento, California, related to mislabeled
product shipped into that state. The loss is reflected in the Consolidated
Statement of Earnings for fiscal 1997 as follows:
<TABLE>
<S> <C>
Reduction in net sales.................................... $ 407,000
Increase in cost of products sold......................... 894,000
Increase in marketing and administrative expenses......... 213,000
Increase in other expenses -- net......................... 74,000
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Reduction in earnings before income taxes................. 1,588,000
Reduction in provisions for income taxes.................. 325,000
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Reduction in net earnings................................. $1,263,000
==========
</TABLE>
Hans Benjamin was liquidated on March 27, 1997. Benn Corporation was sold
during the fourth quarter of fiscal 1998, resulting in a reduction of costs and
expenses of $335,000, net of related taxes.
During the fiscal year ended March 31, 1996, the Company acquired four
companies, The Red Calliope and Associates, Inc., KKH Corporation, Churchill
Weavers, Inc. and Textile, Inc. Red Calliope designs, markets and distributes
infant bedding and accessories. KKH designs, markets and distributes
animal-shaped pillows for the juvenile market. Churchill designs, manufactures,
markets and distributes hand-woven throws and other luxury woven textile
products. The effect of owning these three companies throughout fiscal 1997 and
for only a portion of fiscal 1996 is discussed below in the section "Results of
Operations: Fiscal 1997 Compared to Fiscal 1996." Textile, Inc., a contract
manufacturer of jacquard-woven products, was acquired on the first day of fiscal
1996 to supplement internal production capacity.
ERP SOFTWARE
From October through December 1997, the Company conducted an assessment of
its computer applications and systems in order to determine whether existing
systems were sufficient to meet the Company's future business information needs.
As a result, the Company decided to install new Enterprise Resource Planning
(ERP) software programs. The ERP programs are expected to replace substantially
all of the Company's existing applications software and to result in significant
improvements in the functionality and efficiency of the Company's business
processes.
From January through March 1998, the Company developed a more detailed
assessment of its current business processes and systems, identified potentially
appropriate software packages, prepared requests for
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proposals, interviewed software vendors and evaluated alternatives. All costs
and expenses associated with this process were expensed as incurred.
In April 1998, the Company selected its ERP vendor and began to develop
implementation schedules. The Company presently estimates that the ERP systems
will be implemented at the parent company over a period of eighteen months at a
total cost of $14.3 million, of which $12.0 million is expected to be
capitalized. Of the total amount, $10.9 million is expected to be expended in
the fiscal year ended March 28, 1999, and $3.4 million is expected to be
expended in the fiscal year ended April 2, 2000. Following such implementation,
the Company expects to develop budgets for extending the new systems to its
operating subsidiaries.
YEAR 2000 ISSUE
In the latter portion of the 1990s, an issue affecting most companies has
emerged regarding the ability of computer applications and systems to properly
interpret dates later than December 31, 1999. This issue arises because, until
recently, many computer applications were written using only the two rightmost
digits to define the applicable year. Accordingly, when the need arises to enter
a date after December 31, 1999, it is unclear how any particular application
will interpret the digits 00. Unless corrective measures are taken, applications
that are not Year 2000 compliant may create erroneous results or, in the worst
case, fail to operate.
Prior to its decision to install new ERP software, the Company had begun
investigating the impact of the Year 2000 on its operations. The ERP vendor has
advised the Company that the software selected for implementation is Year 2000
compliant. Because the Company expects to complete its conversion to the new
software at the parent company before any Year 2000 issues arise, the Company
has greatly reduced the effort needed to correct existing programs.
The Company intends to review the progress of its ERP conversion project in
September 1998 to determine whether it should begin to execute a contingency
plan under which certain of the programs currently in use will be assessed and,
if necessary, upgraded to become Year 2000 compliant. Both internal and external
resources will be utilized to make any such assessment, to make necessary
modifications and to test the results.
In addition, the Company has begun communicating with others with whom it
does business to determine their Year 2000 compliance readiness and the extent
to which the Company is vulnerable to any third-party Year 2000 issues. All
costs associated with Year 2000 compliance activities have been expensed as
incurred. The total cost to the Company of these Year 2000 compliance activities
has not been and is not expected to be material to its financial position or
results of operations in any given year.
RESULTS OF OPERATIONS: FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased $62.9 million, or 24.5%, to $319.2
million. Net sales of bedroom products increased $12.5 million to $128.0
million, net sales of throws and decorative home accessories increased $6.5
million to $94.2 million, and net sales of infant and juvenile products
increased $43.3 million to $94.3 million. The four companies acquired during
fiscal 1998 accounted for $25.4 million of the sales increase, all in the infant
and juvenile products group.
The increase in sales of bedroom products was primarily attributable to
increased sales of imported sheets. The increase in sales of throws and
decorative home accessories was primarily attributable to increased sales of
imported fleece throws.
Cost of sales declined to 77.7% of sales in fiscal 1998 from 79.8% in
fiscal 1997, primarily due to increased sales of higher-margin products. Gross
margin increased to 22.3% in fiscal 1998 from 20.2% in fiscal 1997. The unusual
charges related to Hans Benjamin and Benn Corporation referred to above
increased the ratio of cost of sales to sales and reduced the gross margin by
0.5 percentage points in fiscal 1997.
Marketing and administrative expenses increased by $12.0 million, or 29.9%,
for fiscal 1998. Of this increase, $4.9 million is attributable to the companies
acquired during fiscal 1998. The balance of the increase is primarily due to
increases in personnel costs, legal expenses and other professional fees.
9
<PAGE> 11
Interest expense increased by $1.7 million in fiscal 1998. Approximately
$1.2 million of this increase is the result of debt incurred or assumed in
acquisition transactions.
The effective income tax rate declined to 37.6% in fiscal 1998 from 47.4%
in fiscal 1997 due to lower effective state income tax rates in the current year
as a result of various state employment and investment tax credits earned. The
fiscal 1997 effective tax rate was unusually high due to nondeductible expenses
associated with the Hans Benjamin and Benn Corporation charges referred to
above.
RESULTS OF OPERATIONS: FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased $37.4 million, or 17.1%, to $256.4
million. The increase was largely attributable to incremental net sales of $34.6
million from businesses acquired in fiscal 1996. Net sales of bedroom products
declined $6.8 million to $115.5 million, net sales of throws and decorative home
accessories increased $7.0 million to $87.8 million, and net sales of infant and
juvenile products increased $37.2 million to $51.0 million.
Cost of sales declined to 79.8% in fiscal 1997 from 80.6% in fiscal 1996,
primarily due to increased sales of higher-margin products. Gross margin
increased to 20.2% in fiscal 1997 from 19.4% in fiscal 1996. Fiscal 1997 gross
margin would have been 20.7% absent the unusual charges related to Hans Benjamin
and Benn Corporation referred to above.
Marketing and administrative expenses increased by $8.3 million, or 26.0%,
in fiscal 1997. Incremental marketing and administrative expenses of companies
acquired in fiscal 1996 accounted for $4.5 million of the increase. The
remainder of the increase was due to increases in promotional expenses, sales
personnel costs, legal and other professional fees, and bad debts expense.
Interest costs increased to $4.9 million in 1997 from $4.2 million
(including capitalized interest of $402,000) in 1996. The increase in interest
expense was primarily the result of higher levels of debt outstanding during the
first and second quarters of the fiscal year. The higher debt levels were
primarily the result of significant investment spending in 1996 including
capital expenditures of $23.7 million, acquisitions of $20.5 million, and
treasury stock purchases of $7.5 million.
The fiscal 1997 effective income tax rate increased to 47.4% from 39.6% in
fiscal 1996 due to non-deductible losses recorded in conjunction with the Hans
Benjamin and Benn Corporation costs discussed above.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, the Company expended $19.6 million on acquisitions, net
of cash acquired, and another $8.3 million on capital additions. The cash
necessary for these expenditures and for operating needs was provided primarily
by increases in notes payable of $20.3 million and increases in borrowings under
revolving credit agreements of $9.0 million. The Company maintains unsecured
committed revolving credit facilities totaling $30 million with two banks at
interest rates which vary based upon the London Interbank Offered Rate (LIBOR).
At March 29, 1998, the maximum amount was outstanding under these committed
facilities. The facilities are scheduled to expire on August 25, 1998. The
Company expects to negotiate new revolving credit facilities to provide greater
borrowing capacity prior to such expiration. In addition to its committed
revolving credit lines, the Company currently has uncommitted lines of credit
totaling $50 million with two commercial banks at floating interest rates.
Borrowings of $24.9 million were outstanding under these lines at March 29,
1998.
The Company expects that its total expenditures for property, plant and
equipment will exceed $20 million in fiscal 1999, with about half of this amount
resulting from the ERP project referred to above. The Company may also make
additional strategic acquisitions. The Company does not believe that cash
provided by operations and by its committed and uncommitted bank facilities will
be sufficient to cover these needs. The Company anticipates that, in addition to
increasing its borrowing capacity under revolving credit agreements, it will
also obtain additional long-term debt financing to meet its anticipated
requirements for cash.
10
<PAGE> 12
To reduce its exposure to credit losses and to enhance its cash flow
forecasts, the Company factors the majority of its trade accounts receivable.
The Company's factor establishes customer credit lines, and accounts for and
collects receivable balances. The factor remits payment to the Company on the
due dates of the factored invoices. The Company does not take advances against
its factored receivable balances. The factor assumes all responsibility for
credit losses on sales within approved credit lines, but may deduct from its
remittances to the Company the amounts of customer deductions for returns,
allowances, disputes and discounts. The Company's factor at any time may
terminate or limit its approval of shipments to a particular customer. If such a
termination occurs, the Company may either assume the credit risks for shipments
after the date of such termination or cease shipments to such customer.
During fiscal 1996, the Company's Board of Directors authorized the
purchase of up to 1,000,000 shares of outstanding common stock. During 1996, the
Company purchased a total of 636,200 shares of its stock for a total of $7.5
million. No shares were purchased in fiscal 1997 or in fiscal 1998, and no
decision has been made as to whether the Company will acquire the remaining
363,800 shares covered under this authorization.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, FASB issued Statement No. 130, "Reporting Comprehensive Income,"
and Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements, which are effective for periods beginning after
December 15, 1997, expand or modify disclosures and, accordingly, will have no
impact on the Company's reported financial position, results of operations, or
cash flows.
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements within the meaning
of the federal securities law. Such statements are based upon management's
current expectations, projections, estimates and assumptions. Words such as
"expects," "believes," "anticipates" and variations of such words and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause future results to differ materially from those anticipated. These
risks include, among others, general economic conditions, changing competition,
the level and pricing of future orders from the Company's customers, the
Company's dependence upon third-party suppliers, including some located in
foreign countries, such as Indonesia, with unstable political situations, the
Company's ability to successfully implement new information technologies, the
Company's ability to integrate its acquisitions and new licenses, and the
Company's ability to implement operational improvements in its acquired
businesses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-14 herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has neither changed its independent accountants nor had any
disagreements on accounting or financial disclosure with such accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the Company's directors is set forth in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
August 25, 1998 (the "Proxy Statement") under the
11
<PAGE> 13
caption "Election of Directors" and is incorporated herein by reference. The
Information with respect to the Company's executive officers is set forth in the
Proxy Statement under the caption "Executive Officers" and is incorporated
herein by reference. The information with respect to Item 405 of Registration
S-K is set forth in the Proxy Statement under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Rights and Principle
Shareholders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(A)1. FINANCIAL STATEMENTS
The following consolidated financial statements of Registrant are filed
with this report and included in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of March 29, 1998 and March
30, 1997.................................................. F-3
Consolidated Statements of Earnings for the Three Fiscal
Years in the Period Ended March 29, 1998.................. F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Fiscal Years in the Period Ended March 29,
1998...................................................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 29, 1998.................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(A)2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Registrant is filed with this
report:
<TABLE>
<S> <C>
Schedule VIII -- Valuation and Qualifying Accounts.......... Page 13
</TABLE>
All other schedules not listed above have been omitted because they are not
applicable or the required information is included in the financial statements
or notes thereto.
12
<PAGE> 14
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SCHEDULE VIII
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
--------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ----------- ----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS* PERIOD
---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accounts Receivable Valuation Accounts:
Year Ended March 31, 1996............................ $ 30 $ 67 $ 18 $ 79
Reserve for doubtful accounts........................ 723 453 1,176
Reserve for customer deductions......................
Year Ended March 30, 1997
Reserve for doubtful accounts........................ $ 79 $1,123 $ (18) $1,220
Reserve for customer deductions...................... 1,176 169 1,345
Year Ended March 29, 1998
Reserve for doubtful accounts........................ $1,220 $ 951 $1,472 $ 699
Reserve for customer deductions...................... 1,345 357 1,702
</TABLE>
- ---------------
* Deductions from the reserve for doubtful accounts represent the amount of
accounts written off reduced by any subsequent recoveries.
13
<PAGE> 15
(A)3. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following Executive Compensation Plans and Arrangements are filed with
this Form 10-K or have been previously filed as indicated below:
1. Crown Crafts, Inc. 1976 Non-Qualified Stock Option Plan.
(6)(Exhibit 10(b)(i))
2. Philip Bernstein Death Benefits Agreement dated March 30, 1992 (5)
(Exhibit 10(b)(ii))
3. Description of Crown Crafts, Inc. Executive Incentive Bonus Plan
(5) (Exhibit 10(b)(iii))
4. Crown Crafts, Inc. 1995 Stock Option Plan (1) (Exhibit 10(b)(iv))
5. Form of Nonstatutory Stock Option Agreement (pursuant to 1995 Stock
Option Plan) (1) (Exhibit 10(b)(v))
6. Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan) (1)
(Exhibit 10(b)(vi))
(A)5. EXHIBITS
Exhibits required to be filed by Item 601 of Regulation S-K are included as
Exhibits to this report as follows:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2(a) -- Merger Agreement dated as of October 8, 1995 between and
among Registrant and CC Acquisition Corp, and Neal Fohrman
and Stanley Glickman and The Red Calliope and Associates,
Inc.(7)
3(a) -- Restated Articles of Incorporation of Registrant.(1)
3(b) -- Bylaws of Registrant.(1)
4(a) -- Instruments defining the rights of security holders are
contained in the Restated Articles of Incorporation of
Registrant, and Article I of the Restated Bylaws of
Registrant.(1)
4(b) -- Form of Rights Agreement dated as of August 11, 1995 between
the Registrant and Trust Company Bank, including Form of
Right Certificate and Summary of Rights to Purchase Common
Shares.(2)
10(a)(i) -- 9.22% Note Agreement with The Prudential Insurance Company
of America.(3)
10(a)(ii) -- Letter Agreement with The Prudential Insurance Company of
America dated July 23, 1991.(4)
10(a)(iii) -- Letter Agreement with The Prudential Insurance Company of
America dated April 9, 1992.(4)
10(a)(iv) -- Letter Agreement with The Prudential Insurance Company of
America dated May 21, 1993.(5)
10(a)(v) -- Letter Agreement with The Prudential Insurance Company of
America dated July 14, 1994.(8)
10(a)(vi) -- Letter Agreement with The Prudential Insurance Company of
America dated July 29, 1994(8)
10(a)(vii) -- Letter Agreement with The Prudential Insurance Company of
America dated March 31, 1995.(8)
10(a)(viii) -- Letter Agreement with The Prudential Insurance Company of
America dated October 12, 1995.(1)
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10(b)(i) -- Crown Crafts, Inc. Non-Qualified Stock Option Plan.(6)
10(b)(ii) -- Philip Bernstein Death Benefits Agreement dated March 30,
1992.(5)
10(b)(iii) -- Description of Crown Crafts, Inc. Executive Incentive Bonus
Plan.(5)
10(b)(iv) -- Crown Crafts, Inc. 1995 Stock Option Plan.(1)
10(b)(v) -- Form of Nonstatutory Stock Option Agreement (pursuant to
1995 Stock Option Plan).(1)
10(b)(vi) -- Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan).(1)
10(c)(i) -- Revolving Credit Agreement dated August 25, 1995 with
NationsBank, National Association (Carolinas).(1)
10(c)(ii) -- Amendment No. 1 to Revolving Credit Agreement dated May 1,
1996 with NationsBank, National Association (Carolinas).(9)
10(c)(iii) -- Amendment No. 2 to Revolving Credit Agreement dated June 28,
1996 with Nationsbank, National Association (Carolinas).(10)
10(c)(iv) -- Letter Agreement with Nationsbank, N.A. dated December 23,
1996.(10)
10(c)(v) -- Letter Agreement with Nationsbank, N.A. dated January 23,
1997.(10)
10(c)(vi) -- Letter Agreement with Nationsbank, N.A. dated May 22,
1997.(10)
10(c)(vii) -- Letter Agreement with Nationsbank, N.A. dated November 6,
1997.
10(c)(viii) -- Letter Agreement with Nationsbank, N.A. dated January 14,
1998.
10(d)(i) -- Revolving Credit Agreement dated August 25, 1995 with
Wachovia Bank of Georgia, N.A.(1)
10(d)(ii) -- Amendment No. 1 to Revolving Credit Agreement dated May 1,
1996 with Wachovia Bank of Georgia, N.A.(9)
10(d)(iii) -- Amendment No. 2 to Revolving Credit Agreement dated June 28,
1996 with Wachovia Bank of Georgia, N.A.(10)
10(d)(iv) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
December 24, 1996.(10)
10(d)(v) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
January 22, 1997.(10)
10(d)(vi) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
May 22, 1997.(10)
10(d)(vii) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
November 7, 1997.
10(d)(viii) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
January 22, 1998.
10(e)(i) -- Note Purchase and Private Shelf Facility dated October 12,
1995 with The Prudential Insurance Company of America.(1)
10(e)(ii) -- Letter Agreement dated April 4, 1996 with The Prudential
Insurance Company of America.(9)
10(f) -- Lease Agreement dated June 28, 1996 between 1185 Avenue of
the Americas Associates as Lessor and Crown Crafts Home
Furnishings, Inc. as Lessee.(9)
10(g) -- License Agreement dated January 1, 1998 between Disney
Enterprises, Inc. as Licensor and Crown Crafts, Inc. as
Licensee
10(h) -- License Agreement dated May 11, 1998 between Calvin Klein,
Inc. as Licensor, and Crown Crafts Designer, Inc. as
Licensee a wholly-owned subsidiary of Crown Crafts, Inc. as
Guarantor.
21 -- Subsidiaries of the Registrant
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
23 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Restated Financial Data Schedule, March 30, 1997 (for SEC
use only)
27.3 -- Restated Financial Data Schedule, March 31, 1996 (for SEC
use only)
27.4 -- Restated Financial Data Schedule, June 30, 1996 (for SEC use
only)
27.5 -- Restated Financial Data Schedule, September 29, 1996 (for
SEC use only)
27.6 -- Restated Financial Data Schedule, December 29, 1996 (for SEC
use only)
27.7 -- Restated Financial Data Schedule, June 29, 1997 (for SEC use
only)
27.8 -- Restated Financial Data Schedule, September 28, 1997 (for
SEC use only)
There were no reports on Form 8-K during the quarter ended March 29, 1998.
</TABLE>
- ---------------
(1) Incorporated herein by reference to exhibit of same number to Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 1, 1995.
(2) Incorporated herein by reference to exhibit of same number to Registrant's
Report on Current Form 8-K dated August 22, 1995.
(3) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1991.
(4) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 29, 1992.
(5) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 28, 1993.
(6) Incorporated herein by reference to exhibit of same number to Registrant's
Registration Statement on Form S-8, filed April 8, 1994. (Reg. No.
33-77558).
(7) Incorporated herein by reference to exhibit of same number to Registrants
Report on Current Form 8-K dated November 13, 1995.
(8) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended April 2, 1995.
(9) Incorporated herein by reference to exhibit of the same number to
Registrant's Annual Report on Form 10-K for the fiscal year ended March 31,
1996.
(10) Incorporated herein by reference to exhibit of the same number to
Registrant's Annual Report on Form 10-K for the fiscal year ended March 30,
1997.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CROWN CRAFTS, INC.
By: /s/ MICHAEL H. BERNSTEIN
------------------------------------
Michael H. Bernstein
President and Chief Executive
Officer
Date: July 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ MICHAEL H. BERNSTEIN President and Chief Executive July 13, 1998
- ----------------------------------------------------- Officer, Director
Michael H. Bernstein
/s/ PHILIP BERNSTEIN Chairman of the Board July 13, 1998
- -----------------------------------------------------
Philip Bernstein
/s/ E. RANDALL CHESTNUT Director July 13, 1998
- -----------------------------------------------------
E. Randall Chestnut
/s/ ROGER D. CHITTUM Director July 13, 1998
- -----------------------------------------------------
Roger D. Chittum
/s/ PAUL A. CRISCILLIS, JR. Director and Chief Financial July 13, 1998
- ----------------------------------------------------- Officer
Paul A. Criscillis, Jr.
/s/ MARVIN A. DAVIS Director July 13, 1998
- -----------------------------------------------------
Marvin A. Davis
/s/ RUDOLPH J. SCHMATZ Director July 13, 1998
- -----------------------------------------------------
Rudolph J. Schmatz
/s/ JANE E. SHIVERS Director July 13, 1998
- -----------------------------------------------------
Jane E. Shivers
/s/ ALFRED M. SWIREN Director July 13, 1998
- -----------------------------------------------------
Alfred M. Swiren
/s/ RICHARD N. TOUB Director July 13, 1998
- -----------------------------------------------------
Richard N. Toub
/s/ ROBERT E. SCHNELLE Chief Accounting Officer, July 13, 1998
- ----------------------------------------------------- Treasurer
Robert E. Schnelle
</TABLE>
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of March 29, 1998 and March
30, 1997............................................... F-3
Consolidated Statements of Earnings for the Three Fiscal
Years in the Period Ended March 29, 1998............... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Fiscal Years in the Period Ended March
29, 1998............................................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 29, 1998............... F-6
Notes to Consolidated Financial Statements................ F-7
Note # 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Note # 2 -- ACQUISITIONS
Note # 3 -- DISCONTINUANCE OF CERTAIN BUSINESSES
Note # 4 -- INVENTORIES
Note # 5 -- FINANCING ARRANGEMENTS
Note # 6 -- INCOME TAXES
Note # 7 -- RETIREMENT PLANS
Note # 8 -- STOCK OPTIONS
Note # 9 -- EARNINGS PER SHARE
Note #10 -- MAJOR CUSTOMERS
Note #11 -- COMMITMENTS AND CONTINGENCIES
Supplemental Financial Information:
Selected Quarterly Financial Information (unaudited)...... F-14
</TABLE>
F-1
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Crown Crafts, Inc.:
We have audited the accompanying consolidated balance sheets of Crown
Crafts, Inc. and subsidiaries as of March 29, 1998 and March 30, 1997, and the
related consolidated statements of earnings, changes in shareholders' equity and
cash flows for each of the three years in the period ended March 29, 1998. Our
audits also included the financial statement schedule listed at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Crown Crafts, Inc. and
subsidiaries as of March 29, 1998 and March 30, 1997, and the results of their
operations and their cash flow for each of the three years in the period ended
March 29, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
May 29, 1998
F-2
<PAGE> 21
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 29, 1998 AND MARCH 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLAR AMOUNTS IN
THOUSANDS, EXCEPT
PAR VALUE PER SHARE)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 809 $ 602
Accounts receivable (less allowances of $3,407 in 1998 and
$3,502 in 1997):
Due from factor........................................... 32,234 30,866
Other..................................................... 16,192 7,496
Inventories................................................. 82,432 56,860
Deferred income taxes....................................... 1,943 2,392
Other current assets........................................ 4,938 3,307
-------- --------
Total current assets.............................. 138,548 101,523
-------- --------
PROPERTY, PLANT AND EQUIPMENT -- at cost:
Land, buildings and improvements............................ 45,496 44,903
Machinery and equipment..................................... 76,053 68,435
Furniture and fixtures...................................... 1,774 1,487
-------- --------
123,323 114,825
Less accumulated depreciation............................... 51,361 41,809
-------- --------
Property, plant and equipment -- net.............. 71,962 73,016
-------- --------
OTHER ASSETS:
Goodwill.................................................... 28,747 13,192
Other....................................................... 2,409 1,825
-------- --------
Total other assets................................ 31,156 15,017
-------- --------
Total Assets...................................... $241,666 $189,556
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................... $ 24,850
Accounts payable............................................ 20,831 $ 13,212
Income taxes payable........................................ 86 1,336
Accrued wages and benefits.................................. 5,091 4,312
Accrued royalties........................................... 1,758 1,369
Other accrued liabilities................................... 2,930 3,429
Current maturities of long-term debt........................ 30,100 100
-------- --------
Total current liabilities......................... 85,646 23,758
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt.............................................. 50,100 71,200
Deferred income taxes....................................... 7,852 7,877
Other....................................................... 745 1,026
-------- --------
Total non-current liabilities..................... 58,697 80,103
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock -- par value $1.00 per share; 50,000,000 shares
authorized................................................ 9,654 9,051
Additional paid-in capital.................................. 41,800 34,438
Retained earnings........................................... 63,838 57,005
Common stock held in treasury -- at cost.................... (17,969) (14,799)
-------- --------
Total shareholders' equity........................ 97,323 85,695
-------- --------
Total Liabilities and Shareholders' Equity........ $241,666 $189,556
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 22
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED MARCH 29, 1998, MARCH 30, 1997 AND MARCH 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Sales................................................... $319,238 $256,385 $219,002
Cost of products sold....................................... 248,149 204,648 176,550
-------- -------- --------
Gross profit................................................ 71,089 51,737 42,452
Marketing and administrative expenses....................... 52,096 40,096 31,827
-------- -------- --------
Earnings from operations.................................... 18,993 11,641 10,625
Other income (expense):
Interest expense.......................................... (6,562) (4,887) (3,807)
Cotton futures transactions............................... (847)
Other -- net.............................................. 84 151 568
-------- -------- --------
Earnings before income taxes................................ 12,515 6,905 6,539
Provisions for income taxes................................. 4,709 3,274 2,592
-------- -------- --------
Net earnings...................................... $ 7,806 $ 3,631 $ 3,947
======== ======== ========
Basic earnings per share.................................... $ 0.97 $ 0.46 $ 0.49
======== ======== ========
Diluted earnings per share.................................. $ 0.92 $ 0.45 $ 0.48
======== ======== ========
Average shares outstanding -- basic......................... 8,065 7,944 8,125
======== ======== ========
Average shares outstanding -- diluted....................... 8,495 8,018 8,156
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 23
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 29, 1998, MARCH 30, 1997 AND MARCH 31, 1996
<TABLE>
<CAPTION>
TREASURY STOCK
ADDITIONAL -------------------
COMMON PAID-IN RETAINED NUMBER OF
STOCK CAPITAL EARNINGS SHARES COST
------ ---------- -------- --------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCES -- APRIL 2, 1995...................... $9,004 $33,811 $51,352 464,188 $ 7,167
Net earnings................................... 3,947
Cash dividends ($0.12 per share)............... (972)
Exercises of stock options..................... 47 557
Treasury stock acquired in conjunction with
exercises of stock options................... 6,047 97
Tax benefits realized from exercises of stock
options...................................... 70
Treasury stock purchases....................... 636,200 7,535
------ ------- ------- --------- -------
BALANCES -- MARCH 31, 1996..................... 9,051 34,438 54,327 1,106,435 14,799
Net Earnings................................... 3,631
Cash Dividends ($0.12 per share)............... (953)
------ ------- ------- --------- -------
BALANCES -- MARCH 30, 1997..................... 9,051 34,438 57,005 1,106,435 14,799
Net earnings................................... 7,806
Cash dividends ($0.12 per share)............... (973)
Exercises of stock options..................... 536 4,608
Treasury stock acquired in conjunction with
exercises of stock options................... 154,504 3,170
Tax benefits realized from exercises of stock
options...................................... 1,821
Stock issued in connection with an
acquisition.................................. 67 933
------ ------- ------- --------- -------
BALANCES -- MARCH 29, 1998..................... $9,654 $41,800 $63,838 1,260,939 $17,969
====== ======= ======= ========= =======
</TABLE>
Number of shares of common stock issued: 9,654,043 at March 29, 1998, and
9,050,636 at March 30, 1997.
See notes to consolidated financial statements.
F-5
<PAGE> 24
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 29, 1998, MARCH 30, 1997 AND MARCH 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................................ $ 7,806 $ 3,631 $ 3,947
Adjustments to reconcile net earnings to net cash provided
by (used for) operating activities:
Depreciation and amortization of property, plant and
equipment.............................................. 10,193 9,798 8,885
Amortization of goodwill.................................. 998 618 357
Deferred income tax provisions............................ 629 59 767
Loss (gain) on sale of property, plant and equipment...... 51 11 (10)
Changes in assets and liabilities, net of effects of
acquisitions of businesses:
Accounts receivable.................................... (5,230) 2,617 (7,792)
Inventories............................................ (18,471) (9,476) 4,756
Other current assets................................... (1,067) 167 (1,171)
Other assets........................................... (454) (321) (86)
Accounts payable....................................... 4,750 669 (1,311)
Income taxes payable................................... (1,662) 1,290 (1,078)
Accrued liabilities.................................... (664) 2,169 27
Other liabilities...................................... (281) 45 51
-------- ------- --------
Net Cash Provided by (Used for) Operating Activities........ (3,402) 11,277 7,342
-------- ------- --------
INVESTING ACTIVITIES:
Capital expenditures........................................ (8,300) (5,702) (23,650)
Acquisitions, net of cash acquired.......................... (19,611) (459) (20,471)
Proceeds from sale of property, plant and equipment......... 200 372 444
-------- ------- --------
Net Cash Used for Investing Activities...................... (27,711) (5,789) (43,677)
-------- ------- --------
FINANCING ACTIVITIES:
Long-term borrowings........................................ 50,400
Payment of long-term debt................................... (775) (5,100) (6,564)
Increase in bank revolving credit........................... 9,000 2,000 19,000
Increase (decrease) in notes payable........................ 20,273 (1,350) (18,621)
Purchases of treasury stock................................. (7,535)
Stock options exercised..................................... 3,795 577
Cash dividends.............................................. (973) (953) (972)
-------- ------- --------
Net Cash Provided by (Used for) Financing Activities........ 31,320 (5,403) 36,285
-------- ------- --------
NET INCREASE (DECREASE) IN CASH............................. 207 85 (50)
CASH AT BEGINNING OF YEAR................................... 602 517 567
-------- ------- --------
CASH AT END OF YEAR......................................... $ 809 $ 602 $ 517
======== ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid........................................... $ 5,368 $ 2,534 $ 3,541
======== ======= ========
Interest paid, net of interest capitalized of $402 (1996)... $ 6,452 $ 4,773 $ 3,172
======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 25
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 29, 1998, MARCH 30, 1997 AND MARCH 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Crown Crafts, Inc. and its subsidiaries
(collectively, the "Company") operate in a single business segment within the
textiles industry and are principally engaged in the design, manufacture and
sale of home furnishing products. The Company's three principal product groups
are bedroom products, throws and decorative home accessories, and infant and
juvenile products. Sales are generally made directly to retailers, primarily
department and specialty stores, mass merchants, large chain stores and gift
stores.
Basis of Presentation: The consolidated financial statements include the
accounts of Crown Crafts, Inc. and its subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
The Company's fiscal year ends on the Sunday nearest March 31. Fiscal years
are designated in the consolidated financial statements and notes thereto by
reference to the calendar year within which the fiscal year ends. The
consolidated financial statements encompass 52 weeks of operations for each of
the three years presented.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
Revenue Recognition: Sales are recorded when goods are shipped to
customers, and are reported net of returns and allowances in the consolidated
statements of earnings.
Inventory Valuation: Inventories are valued at the lower of first-in,
first-out cost or market.
Depreciation and Amortization: Depreciation of property, plant and
equipment is computed using the straight-line method over the estimated useful
lives of the respective assets. Estimated useful lives are 15 to 40 years for
buildings, 3 to 7 1/2 years for machinery and equipment, and 8 years for
furniture and fixtures. The cost of improvements to leased premises is amortized
over the shorter of the estimated life of the improvement or the term of the
lease.
Goodwill, which represents the unamortized excess of purchase price over
fair value of net identifiable assets acquired in business combinations, is
amortized using the straight-line method over periods of up to 30 years. The
Company reviews the carrying value of goodwill and other long-lived assets if
the facts and circumstances suggest that their recoverability may have been
impaired. The Company believes that no impairment of goodwill exists at March
29, 1998.
Futures Transactions: Realized and unrealized gains and losses in the fair
values of cotton futures contracts are recognized in earnings during the periods
in which such changes occur. The Company did not enter into any futures
contracts during 1997 or 1998.
Provisions for Income Taxes: The provisions for income taxes include all
currently payable federal, state and local taxes that are based upon the
Company's taxable income and the change during the fiscal year in net deferred
income tax assets and liabilities. The Company provides for deferred income
taxes based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates that will be in effect when the
differences are expected to reverse.
Earnings Per Share: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaced previously reported primary and fully-diluted earnings per share
amounts with basic and diluted earnings per share. Earnings per share for all
prior periods have been restated to conform to the requirements of SFAS 128.
Stock-Based Compensation: The Company accounts for stock option grants
using the intrinsic value method and only issues stock options that have an
exercise price that is equal to or more than the fair value of the underlying
shares at the date of grant. Accordingly, no compensation expense is re-
F-7
<PAGE> 26
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corded in the accompanying statements of earnings
with respect to stock option grants.
2. ACQUISITIONS
During 1998, the Company acquired four businesses: Hamco, Inc. ("Hamco") on
March 31, 1997; Noel Joanna, Inc. ("NoJo") on August 18, 1997; Pinky Baby
Products ("Pinky") on January 2, 1998; and Burgundy Interamericana, S.A.de C.V.
("Burgundy") on January 30, 1998. NoJo designs and markets infant bedding and
accessories. Hamco and Pinky manufacture infant soft goods such as bibs, hooded
towels and burp cloths. Burgundy is a Mexican contract manufacturer of consumer
textile products. The total consideration for these four acquisitions, including
transaction costs, was $20.6 million, of which $19.6 million was paid in cash
with the balance paid through the issuance of approximately 67,000 shares of the
Company's common stock.
All four 1998 acquisitions were accounted for as purchases. Accordingly,
the net purchase price was allocated based upon the respective acquisition-date
fair market values of assets acquired and liabilities assumed, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Assets acquired, other
than cash............ $14,181
Goodwill............... 16,324
-------
30,505
Less liabilities
assumed.............. 10,121
-------
Purchase price, net of
cash acquired........ $20,384
=======
</TABLE>
The consolidated statement of earnings for 1998 includes the revenues,
expenses and operating results for each of these four companies commencing with
its respective acquisition date. The following unaudited pro forma information
presents the Company's consolidated results of operations as though the
acquisition of Hamco, Pinky and NoJo had occurred on the first day of fiscal
1997. Had the acquisition of Burgundy occurred on the first day of fiscal 1997,
the pro forma information would not differ materially from the amounts
presented. These pro forma results do not purport to be indicative of the
results which would have been achieved had the acquisitions been made on that
date, or of future results of operations.
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales................ $331,805 $287,681
Net earnings............. 7,436 3,417
Basic earnings per
share.................. 0.92 0.43
Diluted earnings per
share.................. 0.88 0.43
</TABLE>
During 1997, the Company acquired Woven Classic Throws, Inc., a small
manufacturer of specialty woven throws, for a cash purchase price of $0.2
million, including transaction costs. The acquisition was accounted for as a
purchase and did not have a material effect on the Company's 1997 operating
results.
During 1996, the Company acquired four businesses: Textile, Inc.
("Textile") on April 3, 1995; The Red Calliope and Associates, Inc. ("Red
Calliope") on October 31, 1995; KKH Corporation ("Pillow Buddies") on December
19, 1995; and Churchill Weavers, Inc. ("Churchill") on January 4, 1996. Red
Calliope designs and markets infant bedding products and related accessories.
Pillow Buddies designs and markets imported patented animal-shaped children's
pillows. Churchill manufactures and markets luxury throws and other hand-woven
textile products. Textile operated as a contract manufacturer of jacquard-woven
throws prior to the acquisition and is now used primarily to provide a portion
of the Company's production capacity for throws. The total consideration for
these four acquisitions, including transaction costs and certain contingent
payments and adjustments that occurred in 1997 and 1998, was $21.3 million, all
of which was paid in cash.
F-8
<PAGE> 27
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The four 1996 acquisitions were accounted for as purchases. Accordingly, in
the 1996 financial statements the net purchase price was allocated based upon
the respective acquisition-date fair market values of assets acquired and
liabilities assumed, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Assets acquired, other
than cash............ $18,899
Goodwill............... 13,829
-------
32,728
Less liabilities
assumed.............. 12,257
-------
Purchase price, net of
cash acquired........ $20,471
=======
</TABLE>
The Textile acquisition occurred on the first day of 1996. Had the
remaining three acquisitions also occurred on that date, the Company's earnings
per share would not have differed materially from the amounts reported in the
consolidated financial statements.
3. DISCONTINUANCE OF CERTAIN
BUSINESSES
In 1997, the Company recorded costs and expenses of $1,263,000, net of
related income tax benefits, as a result of plans adopted to liquidate Hans
Benjamin Furniture, Inc. ("Hans Benjamin"), a 51-percent-owned subsidiary, and
to divest itself of Benn Corporation, a wholly-owned manufacturer of textile
machinery.
The decision to liquidate Hans Benjamin was precipitated by the receipt of
notices from two California regulatory agencies stating that a line of juvenile
foam-core furniture manufactured by Hans Benjamin did not comply with a
California flammability standard, that such products were mislabeled, and that
these matters could subject Hans Benjamin to civil penalties. The Company's
subsequent internal investigation revealed that other products manufactured by
Hans Benjamin were not in compliance with the California flammability standard,
were similarly mislabeled and that such mislabeled products had also been
shipped into states other than California. Hans Benjamin responded by announcing
a nationwide voluntary recall of all furniture products it manufactured. During
the fourth fiscal quarter of 1997, Hans Benjamin negotiated a settlement with
California regarding the civil penalties to be paid, and was liquidated.
The decision to sell Benn Corporation was based upon the Company's desire
to concentrate its resources on its consumer products businesses. The sale of
Benn Corporation was consummated in the fourth fiscal quarter of 1998, resulting
in a reduction of costs and expenses of $335,000, net of related income taxes.
4. INVENTORIES
Major classes of inventory were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and
supplies........... $34,013 $27,415
Work in process...... 3,441 1,961
Finished goods....... 44,978 27,484
------- -------
$82,432 $56,860
======= =======
</TABLE>
5. FINANCING ARRANGEMENTS
Factoring Agreement: The Company assigns the majority of its trade
accounts receivable to a commercial factor. The Company does not borrow funds
from its factor or take advances against accounts receivable so assigned. Under
the terms of the factoring agreement, the factor remits payments to the Company
on the average due date of each group of invoices assigned. The factor bears
credit losses with respect to assigned accounts receivable that are within
approved credit lines. The Company bears losses resulting from returns,
allowances, claims and discounts. Factoring fees, which are included in
marketing and administrative expenses in the consolidated statements of
earnings, were: $1,944,000, $1,777,000 and $1,477,000, respectively, in 1998,
1997 and 1996.
Notes Payable: At March 29, 1998, the Company had available uncommitted
lines of credit totaling $40,000,000 with two banks at floating rates of
interest. No fees or compensating balances are required under these
arrangements, and the lines are cancelable at the banks' discretion. Annual
average borrowings and weighted average interest rates under these arrangements
were $16,502,000 at 6.3%
F-9
<PAGE> 28
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in 1998 and $7,161,000 at 5.8% in 1997. Borrowings of $24,850,000 were
outstanding under these arrangements at March 29, 1998 at an average interest
rate of 6.5%. In addition, the Company had outstanding letters of credit,
primarily for purchases of inventory, aggregating $5.1 million which reduced the
available credit under these arrangements.
Long-Term Debt: At March 29, 1998 and March 30, 1997, long-term debt
consisted of:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
6.92% unsecured notes due in
annual installments of $7,143
from October 1999 through
October 2005.................. $50,000 $50,000
Floating rate unsecured
revolving credit facilities
maturing August 1998.......... 30,000 21,000
Other........................... 200 300
------- -------
80,200 71,300
Less current maturities......... 30,100 100
------- -------
$50,100 $71,200
======= =======
</TABLE>
The Company's unsecured revolving credit facilities provide for a total of
$30 million of committed funds. The interest rate on borrowings under these
lines is based on the London Interbank Offered Rate. At March 29, 1998 and March
30,1997, the weighted average interest rates on amounts outstanding under these
facilities were 6.1% and 6.1%, respectively. The Company pays facility fees at
the rate of 0.15% per annum on the unused portions of the committed credit
lines.
The unsecured notes, which are placed with an insurance company, and the
floating rate unsecured revolving credit facilities, which are placed with two
banks, contain similar restrictive covenants requiring the Company to maintain
certain ratios of earnings to fixed charges and of total debt to total
capitalization. In addition, the bank revolving credit facilities contain
certain covenants requiring the Company to maintain minimum levels of
shareholders' equity and certain ratios of total debt to cash flow. The bank
facilities also place restrictions on the amounts the Company may expend on
acquisitions and purchases of treasury stock. At March 29, 1998, the Company was
in compliance with all restrictive covenants, and retained earnings of
approximately $9.2 million were available for dividend payments.
Scheduled maturities of long-term debt in each of the next five fiscal
years are: $30,100,000 in 1999, $7,243,000 in 2000, $7,143,000 in 2001,
$7,143,000 in 2002 and $7,143,000 in 2003. The fair value at March 29, 1998 of
the Company's long-term obligations, which amount has been estimated by
discounting the projected cash flows using rates currently available to the
Company for loans with similar terms and maturities, approximates their carrying
value.
6. INCOME TAXES
The provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................. $3,870 $2,887 $1,645
State and local......... 210 328 180
------ ------ ------
Total current.... 4,080 3,215 1,825
------ ------ ------
Deferred:
Federal................. 404 (223) 824
State and local......... 225 282 (57)
------ ------ ------
Total deferred... 629 59 767
------ ------ ------
$4,709 $3,274 $2,592
====== ====== ======
</TABLE>
The tax effects of temporary differences that comprise the deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax
liabilities:
Property, plant and equipment... $7,318 $7,292
DISC earnings deferral.......... 763 873
Other........................... 922 601
------ ------
Total gross deferred
income tax
liabilities............ 9,003 8,766
------ ------
Gross deferred income tax assets:
Employee benefit accruals....... 1,721 1,512
Accounts receivable reserves.... 917 972
Other........................... 456 797
------ ------
Total gross deferred
income tax assets...... 3,094 3,281
------ ------
Net deferred income tax
liability....................... $5,909 $5,485
====== ======
</TABLE>
F-10
<PAGE> 29
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the provisions for income taxes computed by
applying the applicable maximum federal statutory rates to earnings before
income taxes and the provisions for income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at federal
statutory rates......... $4,380 $2,417 $2,289
Non-deductible
amortization of
goodwill................ 278 210 125
Operating losses of 51-
percent-owned subsidiary
not deductible in
consolidated federal
income tax return....... 430 80
State income taxes net of
federal income tax
benefit................. 283 403 80
Other..................... (232) (186) 18
------ ------ ------
Provisions for income
taxes................... $4,709 $3,274 $2,592
====== ====== ======
</TABLE>
7. RETIREMENT PLANS
The Company maintains an Employee Stock Ownership Plan, which provides for
annual contributions by the Company at the discretion of the Board of Directors
for the benefit of eligible employees. Contributions can be made either in cash
or in shares of the Company's common stock. Participation in the Plan is open to
all Company employees who are at least twenty-one years of age and who have been
employed by the Company for at least one year. The Company recognized expense of
$520,000, $450,000, and $600,000, respectively, for its cash contributions to
the Plan in 1998, 1997 and 1996.
Effective January 1, 1996, the Company established an Employee Savings Plan
under Section 401(k) of the Internal Revenue Code. The plan covers substantially
all employees. Under the Plan, employees generally may elect to exclude up to
15% of their compensation from amounts subject to income tax as a salary
deferral contribution. The Board of Directors determines each calendar year the
portion, if any, of employee contributions that will be matched by the Company.
For calendar 1996 and calendar 1997, the Company made a matching contribution to
each employee in an amount equal to the first 2% of such contributions. In
calendar 1998, the Company has made or will make a matching contribution to each
employee in an amount equal to 100% of the first 2% and 50% of the next 1%
contributed by the employee. The Company's matching contributions to the Plan
were approximately $577,000, $550,000 and $118,000, respectively, for 1998, 1997
and 1996.
8. STOCK OPTIONS
The Company's 1976 and 1995 Stock Option Plans provide for the grant of
non-qualified stock options to officers and key employees at prices no less than
the price of the stock on the date of each grant. In addition, the 1995 Stock
Option Plan provides for the grant of incentive stock options to employees and a
fixed annual grant of 2,000 non-qualified stock options to each non-employee
director on the day after each year's annual meeting of shareholders. Through
March 29, 1998, non-qualified options covering a total of 20,000 shares have
been issued to non-employee directors and no incentive options have been issued.
One-third of the non-qualified options become exercisable on each of the first
three anniversaries of their issuance. The non-qualified options expire on the
fifth anniversary of their issuance.
A total of 5,225,000 shares of common stock has been authorized for
issuance under the Plans. At March 29, 1998, 545,276 options were reserved for
future issuance. The options outstanding at March 29, 1998 expire through March
2, 2003, have a weighted average remaining contractual life of 3.5 years, and
include 148,073 options exercisable at March 29, 1998 with a weighted average
exercise price of $9.86.
F-11
<PAGE> 30
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity during each of the
most recent three fiscal years:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE EXERCISE
OF SHARES PER SHARE PRICE
---------- --------------- --------
<S> <C> <C> <C>
Options outstanding,
April 2, 1995...... 1,385,207 $10.63 -- 20.63 $14.51
Options granted...... 515,209 9.50 -- 17.50 12.57
Options canceled..... (109,629) 11.75 -- 19.50 14.55
Options exercised.... (46,645) 10.63 -- 15.75 12.94
---------- --------------- ------
Options outstanding,
March 31, 1996..... 1,744,142 9.50 -- 20.63 13.97
Options granted...... 2,224,686 7.88 -- 11.75 9.61
Options canceled..... (1,890,076) 7.88 -- 20.63 13.64
---------- --------------- ------
Options outstanding,
March 30, 1997..... 2,078,752 7.88 -- 13.25 9.60
Options granted...... 486,800 10.25 -- 21.31 12.66
Options canceled..... (138,585) 7.88 -- 15.63 9.50
Options exercised.... (536,740) 7.88 -- 11.75 9.59
---------- --------------- ------
Options outstanding
March 29, 1998..... 1,890,227 7.88 -- 21.31 10.39
---------- --------------- ------
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at March 29, 1998 by range of exercise price:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
NUMBER OF REMAINING PRICE OF NUMBER OF PRICE OF
RANGE OF OPTIONS CONTRACTUAL OPTIONS SHARES SHARES
EXERCISE PRICES OUTSTANDING LIFE OUTSTANDING EXERCISABLE EXERCISABLE
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 7.88 -- $11.75 1,744,627 3.4 years $10.00 144,071 $ 9.79
12.13 -- 15.75 105,600 4.8 years 14.02 4,002 13.25
16.31 -- 21.31 40,000 4.8 years 17.98 -- --
--------- -------
1,890,227 148,073
--------- -------
</TABLE>
Optionees may pay the option price of options exercised by surrendering to
the Company shares of the Company's stock that the optionee has owned for at
least six months prior to the date of such exercise. Optionees may also satisfy
their required income tax withholding obligations upon the exercise of options
by requesting the Company to withhold the number of otherwise issuable shares
with a market value equal to such tax withholding obligation.
Activity for 1997 includes 1,569,936 and 1,613,474 options granted and
canceled, respectively, on April 12, 1996 as the result of an exchange offer
which was authorized by the Compensation Committee of the Company's Board of
Directors under which the Company issued new stock options in exchange for
options which had been issued after December 31, 1991, were held by active
employees who elected to participate in the exchange, and for which the closing
market price on April 12, 1996 was at least $0.25 below the option exercise
price. The number of repriced options so issued was equal to 80% of options
exchanged which had originally been issued in calendar 1992 and 100% of options
exchanged which had originally been issued after December 31, 1992. The average
price of the options surrendered for cancellation under this exchange offer was
$14.14. Options granted under the offer have an exercise price of $10.25 per
share, or $0.25 in excess of the closing market price of the Company's stock on
April 12, 1996. The repriced options vest and expire on the same basis as any
other options issued by the Company.
The weighted-average grant-date fair value of options granted in 1998, 1997
and 1996, respectively, was $4.02, $2.60 and $4.04 per share. Had compensation
cost for the Company's stock option grants been determined and recorded as
expense at the grant dates, the Company's pro forma net income and earnings per
share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income........... $6,305,000 $2,371,000 $3,713,000
Basic earnings per
share.............. 0.78 0.30 0.46
Diluted earnings per
share.............. 0.74 0.30 0.46
---------- ---------- ----------
</TABLE>
The pro forma information for 1997 considers repriced options which were
originally issured prior to 1996 as newly-issued options.
For purposes of the pro forma disclosure, the fair value of each option was
estimated as of the date of grant using the Black-Scholes option-pricing model
and is amortized to expense ratably as the option vests. The following
assumptions were used for options granted in 1998: dividend yield of 0.9
percent, expected volatility of 32.2 percent, risk-free interest rate of 6.1
percent, and expected lives of 4 years. The following assumptions were used for
options granted in 1997: dividend yield of 0.9 percent, expected volatility of
31.7 percent, risk-free interest rate of 6.2 percent, and expected lives of 4
years. The following assumptions were used for options granted in 1996: dividend
yield of 0.9 percent, expected volatility of 31.8 percent, risk-free interest
rate of 6.1 percent, and expected lives of 4 years.
F-12
<PAGE> 31
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option valuation models require the use of highly subjective assumptions
including the stock price volatility. Because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable measure of the
fair value of its employee stock options.
9. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted earnings per share for each of the last three
years:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Numerators:
Numerator for both
basic and diluted
earnings per share,
net income.......... $7,806,000 $3,631,000 $3,947,000
---------- ---------- ----------
Denominators:
Denominators for basic
earnings per share,
weighted average
common shares
outstanding......... 8,064,559 7,944,201 8,125,048
Potential dilutive
shares resulting from
stock option plans.... 430,219 73,666 30,843
---------- ---------- ----------
Denominator for diluted
earnings per share.... 8,494,778 8,017,867 8,155,891
---------- ---------- ----------
Earnings per share:
Basic................... $ 0.97 $ 0.46 $ 0.49
Diluted................. $ 0.92 $ 0.45 $ 0.48
---------- ---------- ----------
</TABLE>
10. MAJOR CUSTOMERS
The Company's sales to Wal-Mart Stores, Inc. constituted 19%, 17% and 18%
of net sales, respectively, in 1998, 1997 and 1996.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments: At March 29, 1998, the Company's minimum annual rentals
under noncancelable operating leases, principally for manufacturing, warehousing
and office facilities, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999................. $ 3,759
2000................. 3,573
2001................. 3,166
2002................. 2,399
2003................. 1,513
Thereafter........... 5,557
-------
$19,967
=======
</TABLE>
Total rent expense was $4,718,000, $3,710,000, and $3,123,000,
respectively, for 1998, 1997, and 1996.
Contingencies: In order to resolve certain disputes which have arisen
between them, the Company and its Israeli supplier of ROYAL SATEEN(R) fabric and
products, Kitan Textile Industries Ltd. ("Kitan"), have entered into a binding
arbitration proceeding. In connection with the arbitration, the Company made a
claim against Kitan for payment of $9.9 million in damages stemming primarily
from Kitan's failure to make timely deliveries over a three-year period, and
Kitan made a claim against the Company for payment of $8.5 million for damages
allegedly suffered primarily as a result of differences between the Company's
forecasts of demand and its actual orders for Kitan's fabric and products. On
April 9, 1998, the Company and Kitan entered into a settlement agreement
concerning all claims and counterclaims for monetary damages. The settlement
agreement did not involve a cash payment by either party. Within the framework
of the settlement agreement, both companies have agreed to spend an additional
amount of money in developing the U.S. market for ROYAL SATEEN(R) bedding. The
arbitration remains pending for interpretation of certain contract terms. Normal
commerce between the companies has continued during the arbitration process.
The Company is party to other legal proceedings arising in the ordinary
course of business. In management's opinion, the outcome of these proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
F-13
<PAGE> 32
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- --------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 29, 1998
Net sales................................................ $52,644 $86,334 $103,037 $77,223
Gross profit............................................. 10,565 20,856 24,698 14,970
Net earnings (loss)...................................... (194) 3,440 4,481 79
Basic earnings (loss) per share.......................... (0.02) 0.43 0.55 0.01
Diluted earnings (loss) per share........................ (0.02) 0.41 0.52 0.01
FISCAL YEAR ENDED MARCH 30, 1997
Net sales................................................ $44,400 $74,848 $ 72,887 $64,250
Gross profit............................................. 6,912 15,379 14,766 14,680
Net earnings (loss)...................................... (1,343) 1,921 1,425 1,628
Basic earnings (loss) per share.......................... (0.17) 0.24 0.18 0.21
Diluted earnings (loss) per share........................ (0.17) 0.24 0.18 0.20
</TABLE>
F-14
<PAGE> 1
Exhibit 10(c)(vii)
LETTER AGREEMENT
November 6, 1997
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, GA 30328
Attn: Mr. Robert Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996 and
that certain amendment dated June 28, 1996 between Crown Crafts, Inc. ("Crown
Crafts") and NationsBank, N.A. ("NationsBank"), formerly NationsBank, National
Association (Carolinas). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement.
Whereas, the Borrower has requested that NationsBank waive compliance with
Section 7.4 Consolidated Cash Flow Ratio of the Credit Agreement for the period
ended 9/28/97.
Now, therefore, pursuant to the request of the Borrower, the Lender agrees to
waive compliance with Section 7.4 of Article VII of the Credit Agreement for the
quarter ended September 28, 1997. This waiver is subject to the payment of the
Amendment Fee as stated below.
Amendment Fee. Crown Crafts agrees to pay NationsBank an amendment fee of
$9,000, which shall be earned and paid as of such date.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of NationsBank under the Credit Agreement or any related document
or agreement. Except as expressly set forth herein, all of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement and any related document ratified and affirmed in all respects and
shall continue in full force and effect.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY: /s/ DAVID H. DINKINS
------------------------------------
David H. Dinkins
Vice President
Agreed and Accepted by: Crown Crafts, Inc.
BY: /s/ROBERT E. SCHNELLE
------------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(c)(viii)
LETTER AGREEMENT
January 14, 1998
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, GA 30328
Attn: Mr. Robert Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and NationsBank, N.A. ("NationsBank"), formerly NationsBank,
National Association (Carolinas). Capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
Whereas, the Borrower has requested that NationsBank amend Section 7.7 (v) to
allow the aggregate amount of all Cost of Acquisitions to exceed $40,000,000
during the term of this Agreement.
Now, therefore, pursuant to the request of the Borrower, the Lender agrees to
amend Section 7.7 (v) such that the aggregate amount of the Cost of
Acquisitions shall not exceed $42,000,000 during the term of this Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of NationsBank under the Credit Agreement or any related document
or agreement. Except as expressly set forth herein, all of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement and any related document ratified and affirmed in all respects and
shall continue in full force and effect.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY: /S/DAVID H. DINKINS
-------------------------------------------
David H. Dinkins
Vice President
Agreed and Accepted by: Crown Crafts, Inc.
BY: /S/ROBERT E. SCHNELLE
-------------------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(d)(vii)
LETTER AGREEMENT
November 7, 1997
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, GA 30328
Attn: Mr. Robert E. Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and Wachovia Bank, N.A. ("Wachovia"), formerly Wachovia Bank
of Georgia, N.A. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Credit Agreement.
Whereas, the Borrower is required under Article VII of the Agreement to comply
with certain financial covenants regarding the merger, purchase, or acquisition
of other Persons.
Whereas, the Borrower has requested that Wachovia waive compliance with Section
7.4 Consolidated Cash Flow Ratio of the Credit Agreement for the period ended
9/28/97.
Now, therefore, pursuant to the request of the Borrower, the Lender agrees to
waive compliance with Section 7.4 of Article VII of the Credit Agreement for
the quarter ended September 28, 1997. This waiver is subject to the payment of
the Amendment Fee as stated below.
Amendment Fee. Crown Crafts agrees to pay Wachovia an amendment fee of $9,000,
which shall be earned and paid as of such date.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of Wachovia under the Credit Agreement or any related document or
agreement. Except as expressly set forth herein, all of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement and any
related document ratified and affirmed in all respects and shall continue in
full force and effect.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY: /S/RICHARD E.S. BOWEN
-------------------------------------------
Richard E.S. Bowen
Commercial Officer
Agreed and Accepted by: Crown Crafts, Inc.
BY: /S/ROBERT E. SCHNELLE
-------------------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(d)(viii)
LETTER AGREEMENT
January 22, 1998
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, GA 30328
Attn: Mr. Robert E. Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and Wachovia Bank, N.A. ("Wachovia"), formerly Wachovia Bank
of Georgia, N.A. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Credit Agreement.
Whereas, the Borrower has requested that Wachovia amend Section 7.7 (v) to
allow the aggregate amount of all Cost of Acquisitions to exceed $40,000,000
during the term of this Agreement.
Now, therefore, pursuant to the request of the Borrower, the Lender agrees to
amend Section 7.7 (v) such that the aggregate amount of the Cost of
Acquisitions shall not exceed $42,000,000 during the term of this Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of Wachovia under the Credit Agreement or any related document or
agreement. Except as expressly set forth herein, all of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement and any
related document ratified and affirmed in all respects and shall continue in
full force and effect.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY: /S/RICHARD E.S. BOWEN
-------------------------------------------
Richard E.S. Bowen
Assistant Vice President
Agreed and Accepted by: Crown Crafts, Inc.
BY: /S/ROBERT E. SCHNELLE
-------------------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
LICENSE AGREEMENT
Date: January 1, 1998
Re: MULTIPLE BRANDS/PROPERTIES
This license agreement ("Agreement") is entered into by and between Disney
Enterprises, Inc. ("Disney"), with a principal place of business at 500 South
Buena Vista Street, Burbank, California 91521, and CROWN CRAFTS, INC.
("Licensee"), with its principal place of business at 1600 RiverEdge Parkway,
Suite 200, Atlanta, Georgia 30328. Disney and Licensee agree as follows:
1. MEANING OF TERMS
A. "LICENSED MATERIAL" means the graphic representations of the
following:
Such characters and depictions of such characters, and such
still scenes and accompanying design elements, as may be
designated by Disney, from those Properties (as defined
below) as are licensed hereunder and are the subject of
separate written "Schedules" attached hereto, pursuant to
such specifications as set forth in the applicable Schedule
for each individual Property licensed hereunder. Said
Schedules shall be numbered consecutively starting with
Schedule 1 for the first Property so licensed, subject to the
terms of this Agreement, and each Schedule is hereby
incorporated herein by reference as if fully set forth.
B. "TRADEMARKS" means "WALT DISNEY", "DISNEY", the
representations of Licensed Material included in Paragraph
1.A. above, and the brand name(s) and logo(s) of the
Properties in which Licensed Material included in Paragraph
1.A. above appears, as are licensed hereunder, pursuant to
the specifications stated in the applicable Schedule for each
such licensed Property.
C. "ARTICLES" means the items on or in connection with which the
Licensed Material and/or the Trademarks are reproduced or
used, and includes each and every stock keeping unit ("SKU")
of each Article as are specified on the applicable Schedule
for each Property licensed hereunder.
D. "MINIMUM PER ARTICLE ROYALTY" means for each Article
identified herein which is sold the sum indicated herein:
None.
<PAGE> 2
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 2
E. "TERM" of this Agreement means the period commencing as of
January 1, 1998, and ending upon the expiration of the latest
Schedule entered into hereunder. The term applicable for each
specific Property licensed hereunder shall be the period
commencing as of the Effective Date and ending on the
Termination Date stated on the applicable Schedule for each
such Property.
F. "TERRITORY" means the United States, United States PX's
wherever located, and United States territories and
possessions, excluding Puerto Rico, Guam, Commonwealth of
Northern Mariana Islands and Palau. However, if sales are
made to chain stores in the United States which have stores
in Puerto Rico, such chain stores may supply Articles to such
stores in Puerto Rico.
G. "ROYALTIES" means a royalty in the amounts set forth below in
Paragraphs 1.G.(1)(a) - (e) and Royalties shall be further
governed by the provisions contained in Paragraphs
1.G.(2)-(6):
[*](1)
H. "NET INVOICED BILLINGS" means the following:
(1) actual invoiced billings (i.e., sales quantity
multiplied by Licensee's selling price) for
Articles sold, and all other receivables of any
kind whatsoever, received in payment for the
Articles, whether received by Licensee or any of
Licensee's Affiliates, except as provided in
Paragraph 1.H.(2), less "Allowable Deductions" as
hereinafter defined.
(2) The following are not part of Net Invoiced
Billings: invoiced charges for transportation of
Articles within the Territory which are
separately identified on the sales invoice, and
sales taxes.
I. [*](2)
J. "ROYALTY PAYMENT PERIOD" means each calendar monthly period
during the Term and during the sell-off period, if granted.
- --------------------------
(1) Confidential portions omitted and filed separately with the Commission.
(2) Confidential portions omitted and filed separately with the Commission.
<PAGE> 3
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 3
K. "ADVANCE" means the non-refundable sum(s) stated in the
applicable Schedule for each Property, payable by the date(s)
indicated therein, as an advance on Royalties to accrue in
the period(s) stated in the applicable Schedule.
L. "GUARANTEE" means the sum(s) which Licensee guarantees to pay
as minimum Royalties on Licensee's cumulative sales of
Articles for each Property as stated in the applicable
Schedule attached hereto, in the calendar year increments
stated in the subject Schedule. Any shortfall shall be
payable at the end of the applicable calendar year. For any
given Property, the Guarantee may be broken down into
separate Guarantees for each of the individual product lines
licensed thereunder.
M. "SAMPLES" means six (6) samples of each SKU of each Article,
from the first production run of each supplier of each SKU of
each Article.
N. "PROMOTION COMMITMENT" means the following sum(s) which
Licensee agrees to spend in the following way(s):
[*](3)
O. "MARKETING DATE" means the date(s) specified on the
applicable Schedule for each Property by which the specified
Article(s) shall be available for purchase by the public at
the retail outlets authorized pursuant to Paragraph 2.A.
P. "AFFILIATE" means, with regard to Licensee, any corporation
or other entity which directly or indirectly controls, is
controlled by, or is under common control with Licensee; with
regard to Disney, "Affiliate" means any corporation or other
entity which directly or indirectly controls, is controlled
by, or is under common control with Disney. "Control" of an
entity shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or
policies of such entity, whether through ownership of voting
securities, by contract or otherwise.
Q. "LAWS" means any and all applicable laws, rules, and
regulations, including but not limited to, local and national
laws, rules and regulations, treaties, voluntary industry
standards, association laws, codes or other obligations
pertaining to the grant and exercise of the license granted
herein and to any
- ------------------------------
(3) Confidential portions omitted and filed separately with the Commission.
<PAGE> 4
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 4
of Licensee's activities under this Agreement, including but
not limited to those applicable to any tax, and to the
manufacture, pricing, sale and/or distribution of the
Articles.
R. "RETAILER" means independent and chain retail outlets which
have storefronts and business licenses, and which customers
walk into, not up to; "WHOLESALER" means a seller of items to
retailers, not consumers, and includes the term
"distributor". The following do not qualify as authorized
sales outlets for Articles under this Agreement under any
circumstances: swap meets, flea markets, street peddlers,
unauthorized kiosks, and the like.
S. "MANUFACTURER" means any of Licensee's third-party
manufacturers and suppliers (and their sub-manufacturers and
suppliers) which reproduce or use the Licensed Material
and/or Trademarks on Articles, or components thereof, and/or
which assemble such Articles.
T. "PROPERTIES" means any or all of the "Studio Properties" and
the "Branded Properties" as defined below.
U. "STUDIO PROPERTIES" means those Disney children-oriented
studio properties (including children-oriented properties
developed by Disney for ABC) released or introduced on or
before December 31, 1999, from any source, including but not
limited to books, feature films, television and home video,
which receive Disney advertising and licensing support.
(1) The specific characters and Licensed Material
licensed under any Studio Property shall be
specified on the relevant Schedule for said
Studio Property.
[*](4)
V. "BRANDED PROPERTIES" means the children-oriented Disney
copyrighted characters or properties not necessarily
associated with a Studio Property, which include any and all
Disney classic characters, the Disney Standard Characters and
the Winnie the Pooh characters, and which may be licensed by
Disney as either individual characters or as part of one or
more merchandise programs or brands of merchandise. The
specific characters and Licensed Material licensed under any
Branded Property shall be specified on the relevant Schedule
for said Branded Property.
- --------------------------------
(4) Confidential portions omitted and filed separately with the Commission.
<PAGE> 5
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 5
W. "SCHEDULE" means each separate "Schedule to License
Agreement" entered into between Disney and Licensee on a
Property-by-Property basis, the terms of each of which are
hereby incorporated herein by reference and made a part
hereof as though fully set forth. The Schedule for each
Property licensed hereunder shall state any and all contract
terms as are specific to such Property.
2. RIGHTS GRANTED
A. (1) In consideration for Licensee's promise to pay and
Licensee's payment of all monetary obligations
required hereunder, and Licensee's performance of
all other obligations required of Licensee hereunder
for each Property that becomes the subject of a
separate Schedule entered into between Disney and
Licensee, Disney grants Licensee the non-exclusive
right, during the term of the relevant Schedule for
each subject Property, and only within the
Territory, to reproduce the subject Licensed
Material only on or in connection with the Articles,
to use such specified Trademarks and uses thereof as
may be approved when each SKU of the Articles is
approved and only on or in connection with the
Articles, and to manufacture, distribute for sale
and sell the Articles as authorized by this
Paragraph 2.A.
(2) Licensee will sell the Articles only to authorized
customers in the Territory as specified in the
relevant Schedule for the subject Property.
(3) Licensee may not sell the Articles by direct
marketing methods, which includes but is not limited
to, computer on-line selling, direct mail and
door-to-door solicitation. Licensee may not sell the
Articles to Retailers selling merchandise on a
duty-free basis, or to Wholesalers for resale to
such Retailers, unless such Retailer or Wholesaler
has a then-current license agreement with Disney or
any of Disney's Affiliates permitting it to make
such duty-free sales.
(4) Licensee may sell the Articles to authorized
customers for resale through the pre-approved mail
order catalogs listed on the Catalog Schedules to
this Agreement, and Licensee shall pay Royalties on
such sales at the rate specified for Retailers in
the applicable Schedule.
<PAGE> 6
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 6
(5) All rights not expressly granted to Licensee
herein are reserved to Disney.
B. Unless Disney consents in writing, Licensee shall not sell or
otherwise provide Articles for use as premiums (including
those in purchase-with- purchase promotions), promotions,
give-aways, fund-raisers, or entries in sweepstakes, or
through unapproved direct marketing methods, including but
not limited to, home shopping television programs, or to
customers for inclusion in another product. Licensee shall
not sell Articles to any customer whose business methods are
legally or ethically questionable. If Licensee wishes to sell
the Articles to customers for resale through mail order
catalogs other than those listed on the Catalog Schedules
hereto, Licensee must obtain Disney's prior written consent
in each instance. However, Licensee may solicit orders by
mail from those Retailers authorized pursuant to the
applicable Schedule for the subject Property, and Licensee
may sell to Retailers which sell predominantly at retail, but
which include the Articles in their mail order catalogs, or
otherwise sell Articles by direct marketing methods as well
as at retail.
C. The prohibition of computer on-line selling referenced in
Paragraph 2.A. includes, but is not limited to, the display,
promotion or offering of Articles in or on any on-line venues
(e.g. Websites), except as specifically permitted in the next
two sentences. Articles approved by Disney may be displayed
and promoted on Disney-controlled on-line venues, only within
the Territory. In addition, Articles approved by Disney may
be displayed and promoted on Licensee's own on-line venue,
and may be displayed, promoted and sold on authorized
Retailers' on-line venues, subject to Disney's applicable
policies and guidelines; however, Licensee must obtain
Disney's prior written approval of all creative and editorial
elements of such uses, in accordance with the provisions of
Paragraph 7 of this Agreement.
D. Unless Disney consents in writing, Licensee shall not give
away or donate Articles to Licensee's accounts or other
persons for the purpose of promoting sales of Articles,
except for minor quantities or samples which are not for
onward distribution.
E. Nothing contained herein shall preclude Licensee from selling
Articles to Disney or to any of Disney's Affiliates, or to
Licensee's or Disney's employees, subject to the payment to
Disney of Royalties on such sales.
F. Disney further grants Licensee the right to reproduce the
Licensed Material and to use the approved Trademarks, only
within the Territory, during the
<PAGE> 7
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 7
term of the relevant Schedule for each subject Property, on
containers, packaging and display material for the Articles,
and in advertising for the Articles.
G. Nothing contained in this Agreement shall be deemed to imply
any restriction on Licensee's freedom and that of Licensee's
customers to sell the Articles at such prices as Licensee or
they shall determine.
H. Licensee recognizes and acknowledges the vital importance to
Disney of the characters and other proprietary material
Disney owns and creates, and the association of the Disney
name with them. In order to prevent the denigration of
Disney's products and the value of their association with the
Disney name, and in order to ensure the dedication of
Licensee's best efforts to preserve and maintain that value,
Licensee agrees that, during the Term and any extension
hereof, Licensee will not manufacture or distribute any
merchandise embodying or bearing any artwork or other
representation which Disney determines, in Disney's
reasonable discretion, is confusingly similar to Disney's
characters or other proprietary material.
I. During the Term, and within the Territory, in order to ensure
Licensee's complete company-wide and highly focused
commitment to marketing and promoting the Articles and the
Disney Properties licensed hereunder, Licensee agrees that
neither Licensee nor its Affiliates will enter into any
license agreement during the Term for any other studio
properties, or characters therefrom, including but not
limited to book properties, classic characters, television
properties or major motion picture properties, whether live
action or animated, if such license agreement(s) has
significant merchandising potential, as determined by Disney
in its absolute discretion. [*](5)
3. ADVANCE
A. Licensee agrees to pay the Advance, which shall be on account
of Royalties to accrue during the term for the relevant
Schedule for each subject Property only, and only with
respect to sales in the Territory; provided, however, that if
any part of the Advance is specified as applying to any
period less than the entire term of the subject Schedule,
such part shall be on account of Royalties to accrue during
such lesser period only. If said Royalties should be less
than the Advance, no part of the Advance shall be repayable.
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(5) Confidential portions omitted and filed separately with the Commission.
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B. Royalties accruing during any sell-off period or extension of
the Term or any term of any relevant Schedule shall not be
offset against the Advance for any given Property unless
otherwise agreed in writing. Royalties accruing during any
extension of the Term or any other term shall be offset only
against an advance paid with respect to such extended term.
C. In no event shall Royalties accruing by reason of any sales
to Disney or any of Disney's Affiliates or by reason of sales
outside the Territory pursuant to a distribution permission
be offset against the Advance for any given Property or any
subsequent advance.
4. GUARANTEE
A. Licensee shall, with Licensee's statement for each Royalty
Payment Period ending on a date indicated in Paragraph 1.L.
hereof defining "Guarantee," or upon termination if the
Agreement or the relevant Schedule for the subject Property
is terminated prior to the end of the Term or the stated term
of such Schedule, as applicable, pay Disney the amount, if
any, by which cumulative Royalties paid with respect to sales
in the Territory during any period or periods covered by the
Guarantee provision, or any Guarantee provision contained in
any agreement extending the term hereof, fall short of the
amount of the Guarantee for such period.
B. Advances for a Property applicable to Royalties due on sales
in the period to which the Guarantee for said Property
relates apply towards meeting the Guarantee for that
Property.
C. In no event shall Royalties paid with respect to sales to
Disney or to any of Disney's Affiliates, or with respect to
sales outside the Territory pursuant to a distribution
permission, apply towards the meeting of any Guarantee or any
subsequent guarantee.
5. PRE-PRODUCTION APPROVALS
A. As early as possible, and in any case before commercial
production of any Article, Licensee shall submit to Disney
for Disney's review and written approval (to utilize such
materials in preparing a pre-production sample) all concepts,
all preliminary and proposed final artwork, and all three-
dimensional models which are to appear on or in any and all
SKUs of the Article. Thereafter, Licensee shall submit to
Disney for Disney's written approval a pre-production sample
of each SKU of each Article. Disney shall endeavor to respond
to such requests within a reasonable time, but such
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approvals should be sought as early as possible in case of
delays. In addition to the foregoing, as early as possible,
and in any case no later than sixty (60) days following
written conceptual approval, Licensee shall supply to Disney
for Disney's use for internal purposes, a mock-up, prototype
or pre-production sample of each SKU of each Article on or in
connection with which the Licensed Material is used. Licensee
acknowledges that Disney may not approve concepts or artwork
submitted near the end of the term of the relevant Schedule
for the subject Property. Any pre-production approval Disney
may give will not constitute or imply a representation or
belief by Disney that such materials comply with any
applicable Laws.
B. Approval or disapproval shall lie solely in Disney's
discretion, and any SKU of any Article not so approved in
writing shall be deemed unlicensed and shall not be
manufactured or sold. If any unapproved SKU of any Article is
being sold, Disney may, together with other remedies
available to Disney, including but not limited to, immediate
termination of this Agreement, by written notice require such
SKU of such Article to be immediately withdrawn from the
market. Any modification of any SKU of an Article, including,
but not limited to, change of materials, color, design or
size of the representation of Licensed Material must be
submitted in advance for Disney's written approval as if it
were a new SKU of an Article. Approval of any SKU of an
Article which uses particular artwork does not imply approval
of such artwork for use with a different Article. The fact
that artwork has been taken from a Disney publication or a
previously approved Article does not mean that its use will
necessarily be approved in connection with an Article
licensed hereunder.
C. If Licensee submits for approval artwork from an article or
book manufactured or published by another licensee of
Disney's or of any of Disney's Affiliates, Licensee must
advise Disney in writing of the source of such artwork. If
Licensee fails to do so, any approval which Disney may give
for use by Licensee of such artwork may be withdrawn by
giving Licensee written notice thereof, and Licensee may be
required by Disney not to sell Articles using such artwork.
D. Licensee is responsible for the consistent quality and safety
of the Articles and their compliance with applicable Laws.
Disney will not unreasonably object to any change in the
design of an Article or in the materials used in the
manufacture of the Article or in the process of manufacturing
the Articles which Licensee advises Disney in writing is
intended to make the Article safer or more durable.
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E. If Disney has supplied Licensee with forms for use in
applying for approval of artwork, models, pre-production and
production samples of Articles, Licensee shall use such forms
when submitting anything for Disney's approval.
F. Disney may, in its absolute discretion, waive some or all of
the foregoing approval requirements upon written notice to
Licensee.
G. If and as applicable, the likenesses and product application
of the characters used on or in connection with the Articles
are subject to any third party approvals Disney deems
necessary to obtain. Disney will act as the liaison with such
third parties during the approval process.
6. APPROVAL OF PRODUCTION SAMPLES
A. Unless advised by Disney in writing that Disney does not need
to approve any given production sample(s), before shipping an
Article to any customer, Licensee agrees to furnish to
Disney, from the first production run of each supplier of
each of the Articles, for Disney's approval of all aspects of
the Article in question, the number of Samples with packaging
which is hereinabove set forth, which shall conform to the
approved artwork, three- dimensional models and
pre-production sample. Approval or disapproval of the artwork
as it appears on any SKU of the Article, as well as of the
quality of the Article, shall lie in Disney's sole discretion
and may, among other things, be based on unacceptable quality
of the artwork or of the Article as manufactured. Any SKU of
any Article not so approved shall be deemed unlicensed, shall
not be sold and, unless otherwise agreed by Disney in
writing, shall be destroyed. Such destruction shall be
attested to in a certificate signed by one of Licensee's
officers. Production samples of Articles for which Disney has
approved a pre-production sample shall be deemed approved,
unless within twenty (20) days of Disney's receipt of such
production sample Disney notifies Licensee to the contrary.
Any approval of a production sample attributable to Disney
will not constitute or imply a representation or belief by
Disney that such production sample complies with any
applicable Laws.
B. Licensee agrees to make available at no charge such
additional samples of any or all SKUs of each Article as
Disney may from time to time reasonably request for the
purpose of comparison with earlier samples, or for Disney's
anti-piracy efforts, or to test for compliance with
applicable Laws, and to permit Disney to inspect Licensee's
manufacturing operations and testing
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records (and those of Licensee's Manufacturers) for the
Articles in accordance with Paragraphs 11 and 24.
C. Licensee acknowledges that Disney may disapprove any SKU of
an Article or a production run of any SKU of an Article
because the quality is unacceptable to Disney, and
accordingly, Disney recommends that Licensee submit
production samples to Disney for approval before committing
to a large original production run or to purchase a large
shipment from a new supplier.
D. No modification of an approved production sample shall be
made without Disney's further prior written approval. All
SKUs of Articles being sold must conform in all respects to
the approved production sample. It is understood that if in
Disney's reasonable judgment the quality of any SKU of an
Article originally approved has deteriorated in later
production runs, or if the SKU has otherwise been altered,
Disney may, in addition to other remedies available to
Disney, by written notice require such SKU of the Article to
be immediately withdrawn from the market.
E. Licensee is authorized to sell Articles which do not meet the
quality standards of approved samples provided that such
Articles are clearly marked "irregular" and provided they
have Licensee's uncut label on them. Such sales shall be
reported separately and the quantity of any Articles sold as
an irregular shall not exceed [*]6of the total of such
Article sold during the Term. All other Articles not meeting
the standard of approved samples shall be destroyed or all
Licensed Material and Trademarks shall be removed or
obliterated therefrom. If Licensee sells "irregulars" in
excess of the [*]7 limit set forth above, without limiting
Disney's remedies hereunder, Licensee agrees to pay Disney
Royalties on such sales as if such sales were regular sales
at Licensee's normal selling price for Articles. In the event
that Licensee is authorized to sell roll stock fabric as a
supplier to any other Disney licensee, Licensee shall not be
permitted, under any circumstances, to sell irregular roll
stock fabric.
F. Licensee shall only be entitled to sell and distribute
irregulars through those Retailers expressly approved by
Disney, said sales to be made in accordance with non-price
terms and conditions specified by Disney.
- ----------------------------
(6) Confidential portions omitted and filed separately with the Commission.
(7) Confidential portions omitted and filed separately with the Commission.
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Accordingly, prior to selling and/or distributing any
irregulars to an authorized Retailer, Licensee shall provide
Disney with such information as Disney may request, to allow
Disney to determine whether such Retailer(s) have, in
Disney's absolute discretion, sufficient standards of quality
and a general business reputation acceptable to Disney.
Licensee shall provide all available information to Disney
when requesting approval of a potential Retailer of
irregulars. Disney shall have the right, in its absolute
discretion, to revoke any approval previously made with
respect to a Retailer of irregulars.
G. Articles may be classified as "irregulars" if there is an
irregularity (e.g., minor snag) in the fabric, but no
"seconds" or unsafe Articles may be sold whatsoever. In
addition, Articles flawed in the way in which the Licensed
Material is applied or depicted due to defective inking,
printing, coloring, etc., of the Licensed Material may not be
sold as "irregulars" pursuant to the foregoing, and instead
must be immediately destroyed (such destruction to be
attested to in a certificate signed by one of Licensee's
officers.)
H. Licensee is responsible for the consistent quality and safety
of the Articles and their compliance with applicable Laws.
Disney will not unreasonably object to any change in the
design of an Article or in the materials used in the
manufacture of the Article or in the process of manufacturing
the Articles which Licensee advises Disney in writing is
intended to make the Article safer or more durable.
I. Disney shall have the right, by written notice to Licensee,
to require modification of any SKU of any Article approved by
Disney under this or any previous agreement between the
parties pertaining to Licensed Material. Likewise, if the
Term of this Agreement is extended by mutual agreement,
Disney shall have the right, by written notice to Licensee,
to require modification of any SKU of any Article approved by
Disney under this Agreement. It is understood that there is
no obligation upon either party to extend the Agreement.
J. If Disney notifies Licensee of a required modification under
Paragraph 6.I. with respect to any SKU of a particular
Article, such notification shall advise Licensee of the
nature of the changes required, and Licensee shall not accept
any order for any such Article until the subject SKU has been
resubmitted to Disney with such changes and Licensee has
received Disney's written approval of the Article as
modified. However, Licensee may continue to distribute
Licensee's inventory of the previously approved Articles
until such inventory is exhausted (unless such Articles are
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dangerously defective or are alleged to be violative of any
third party rights, as determined by Disney).
K. Upon Disney's request, Licensee agrees to give Disney written
notice of the first ship date for each Article.
L. If Disney has inadvertently approved a concept,
pre-production sample, or production sample of a product
which is not included in the Articles under this Agreement,
or if Disney has inadvertently approved an Article using
artwork and/or trademarks not included in the Agreement, such
approval may be revoked at any time without any obligation
whatsoever on Disney's part to Licensee. Any such product as
to which Disney's approval is revoked shall be deemed
unauthorized and shall not be distributed or sold by or for
Licensee.
7. APPROVAL OF PACKAGING, PROMOTIONAL
MATERIAL, AND ADVERTISING
A. All containers, packaging, display material, promotional
material, catalogs, and all advertising, including but not
limited to, television advertising and press releases, for
Articles must be submitted to Disney and receive Disney's
written approval before use. To avoid unnecessary expense if
changes are required, Disney's approval thereof should be
procured when such is still in rough or storyboard format.
Disney shall endeavor to respond to requests for approval
within a reasonable time. Approval or disapproval shall lie
in Disney's sole discretion, and the use of unapproved
containers, packaging, display material, promotional
material, catalogs or advertising is prohibited. Disney's
approval of any containers, packaging, display material,
promotional material, catalogs or advertising under this
Agreement will not constitute or imply a representation or
belief by Disney that such materials comply with any
applicable Laws. Whenever Licensee prepares catalog sheets or
other printed matter containing illustrations of Articles,
Licensee will furnish to Disney five (5) copies thereof when
they are published.
B. If Disney has supplied Licensee with forms for use in
applying for approval of materials referenced in this
Paragraph 7, Licensee shall use such forms when submitting
anything for Disney's approval.
C. Disney has designed character artwork and/or a brand name
logo(s) to be used by all licensees in connection with the
packaging of all merchandise using the Licensed Material,
and, if applicable, on hang tags and garment
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labels for such merchandise. Disney will supply Licensee with
reproduction artwork thereof, and Licensee agrees to use such
artwork and/or logo(s) on the packaging of the Articles, and,
if applicable, on hang tags and garment labels, which
Licensee will have printed and attached to each Article at
Licensee's cost. Disney recommends that Licensee source the
hang tags and garment labels from Disney's authorized
manufacturer (if any) of pre-approved hang tags and garment
labels, the name of which will be provided to Licensee upon
request. However, Licensee may use another manufacturer for
the required hang tags and garment labels if the hang tags
and garment labels manufactured are of equivalent quality and
are approved by Disney in accordance with Disney's usual
approval process.
8. ARTWORK
Licensee shall pay Disney, within thirty (30) days of receiving an
invoice therefor, for Style Guides and for artwork done at Licensee's
request by Disney or third parties under contract to Disney in the
development and creation of Articles, display, packaging or
promotional material (including any artwork which in Disney's opinion
is necessary to modify artwork initially prepared by Licensee and
submitted to Disney for approval, subject to Licensee's prior written
approval) at Disney's then prevailing commercial art rates. Estimates
of artwork charges are available upon request. While Licensee is not
obligated to utilize the services of Disney's Art Department, Licensee
is encouraged to do so in order to minimize delays which may occur if
outside artists do renditions of Licensed Material which Disney cannot
approve and to maximize the attractiveness of the Articles. Artwork
will be returned to Licensee by overnight courier, at Licensee's cost
(unless other arrangements are made).
9. PRINT, RADIO OR TV ADVERTISING
Licensee will obtain all approvals necessary in connection with print,
radio or television advertising, if any, which Disney may authorize.
Licensee represents and warrants that all advertising and promotional
materials shall comply with all applicable Laws. Disney's approval of
copy or storyboards for such advertising will not constitute or imply
a representation or belief by Disney that such copy or storyboards
comply with any applicable Laws. This Agreement does not grant
Licensee any rights to use the Licensed Material in animation.
Licensee may not use any animation or live action footage from the
Property from which the Licensed Material comes without Disney's prior
written approval in each instance. In the event Disney approves the
use of film clips of the Property from which the Licensed Material
comes, for use in a television commercial, Licensee shall be
responsible for any re-use fees which may be applicable, including SAG
payments
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for talent. No reproduction of the film clip footage shall be made
except for inclusion, as approved by Disney, in such commercial and
there shall be no modifications of the film clip footage. All film
clip footage shall be returned to Disney immediately after its
inclusion in such commercial. Disney shall have the right to prohibit
Licensee from advertising the Articles by means of television and/or
billboards. Such right shall be exercised within Disney's absolute
discretion, including without limitation for reasons of overexposure
of the Licensed Material.
10. LICENSEE NAME AND ADDRESS ON ARTICLES
A. Licensee's name, trade name (or Licensee's trademark which
Licensee has advised Disney in writing that Licensee is
using) and Licensee's address (at least city and state) will
appear on permanently affixed labeling on each Article or, if
the Article is sold to the public in packaging or a
container, printed on such packaging or a container so that
the public can identify the supplier of the Article. On soft
goods "permanently affixed" shall mean sewn on; however,
permanently affixed stick-on labeling will be acceptable on
certain Articles as approved by Disney. RN numbers do not
constitute a sufficient label under this paragraph.
B. Licensee shall advise Disney in writing of all trade names or
trademarks Licensee wishes to use on Articles being sold
under this license. Licensee may sell the Articles only under
mutually agreed upon trade names or trademarks.
11. COMPLIANCE WITH APPROVED SAMPLES AND
APPLICABLE LAWS AND STANDARDS
A. Licensee covenants that each Article and component thereof
distributed hereunder shall be of good quality and free of
defects in design, materials and workmanship, and shall
comply with all applicable Laws, and such specifications, if
any, as may have been specified in connection with this
Agreement (e.g., Disney's Apparel Performance Specification
Manual, if the Articles are items of apparel), and shall
conform to the Sample thereof approved by Disney. Licensee
covenants that it will comply with all applicable Laws in
performing this Agreement, including but not limited to,
those pertaining to the manufacture, pricing, sale and
distribution of the Articles.
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B. Without limiting the foregoing, Licensee covenants on behalf
of Licensee's own manufacturing facilities, and agrees to
require all Manufacturers to covenant by signing the
Consent/Manufacturer's Agreement (referenced in Paragraph
24), as follows:
(1) Licensee and the Manufacturers agree not to use
child labor in the manufacturing, packaging or
distribution of Disney merchandise. The term
"child" refers to a person younger than the local
legal minimum age for employment or the age for
completing compulsory education, but in no case
shall any child younger than fifteen (15) years
of age (or fourteen (14) years of age where local
law allows) be employed in the manufacturing,
packaging or distribution of Disney merchandise.
Licensee and the Manufacturers employing young
persons who do not fall within the definition of
"children" agree also to comply with any Laws
applicable to such persons.
(2) Licensee and the Manufacturers agree only to
employ persons whose presence is voluntary.
Licensee and the Manufacturers agree not to use
any forced or involuntary labor, whether prison,
bonded, indentured or otherwise.
(3) Licensee and the Manufacturers agree to treat
each employee with dignity and respect, and not
to use corporal punishment, threats of violence,
or other forms of physical, sexual, psychological
or verbal harassment or abuse.
(4) Unless required by applicable Laws to treat a
specific group of employees differently, Licensee
and the Manufacturers agree not to discriminate
in hiring and employment practices, including
salary, benefits, advancement, discipline,
termination, or retirement, on the basis of race,
religion, age, nationality, social or ethnic
origin, sexual orientation, gender, political
opinion or disability.
(5) Licensee and the Manufacturers recognize that
wages are essential to meeting employees' basic
needs. Licensee and Manufacturers agree to
comply, at a minimum, with all applicable wage
and hour Laws, including minimum wage, overtime,
maximum hours, piece rates and other elements of
compensation, and to provide legally mandated
benefits. If local Laws do not provide for
overtime pay, Licensee and
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Manufacturers agree to pay at least regular wages
for overtime work. Except in extraordinary
business circumstances, Licensee and the
Manufacturers will not require employees to work
more than the lesser of (a) 48 hours per week and
12 hours overtime or (b) the limits on regular
and overtime hours allowed by local law, or,
where local law does not limit the hours of work,
the regular work week in such country plus 12
hours overtime. In addition, except in
extraordinary business circumstances, employees
will be entitled to at least one day off in every
seven-day period. Licensee and the Manufacturers
agree that, where local industry standards are
higher than applicable legal requirements, they
will meet the higher standards.
(6) Licensee and the Manufacturers agree to provide
employees with a safe and healthy workplace in
compliance with all applicable Laws, ensuring, at
a minimum, reasonable access to potable water and
sanitary facilities, fire safety, and adequate
lighting and ventilation. Licensee and the
Manufacturers also agree to ensure that the same
standards of health and safety are applied in any
housing they provide for employees. Licensee and
the Manufacturers agree to provide Disney with
all information Disney may request about
manufacturing, packaging and distribution
facilities for the Articles.
(7) Licensee and the Manufacturers agree to respect
the rights of employees to associate, organize
and bargain collectively in a lawful and peaceful
manner, without penalty or interference, in
accordance with applicable Laws.
(8) Licensee and the Manufacturers agree to comply
with all applicable environmental Laws.
(9) Licensee and the Manufacturers agree to comply
with all applicable Laws, including those
pertaining to the manufacture, pricing, sale and
distribution of the Articles.
(10) Licensee and the Manufacturers agree that Disney
and its designated agents (including third
parties) may engage in monitoring activities to
confirm compliance with this Paragraph 11,
including unannounced on-site inspections of
manufacturing, packaging and distribution
facilities, and employer-provided housing, such
inspections to include reviews of books and
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records relating to employment matters and
private interviews with employees. Licensee and
the Manufacturers agree to maintain on site all
documentation necessary to demonstrate compliance
with this Paragraph 11. Licensee agrees to
promptly reimburse Disney for the actual costs of
inspections performed pursuant to this Paragraph
11 when any of Licensee's manufacturing
facilities or any Manufacturer does not pass the
inspection(s).
(11) Licensee and the Manufacturers agree to take
appropriate steps to ensure that the provisions
of this Code of Conduct are communicated to
employees, including the prominent posting of a
copy of the Code of Conduct for Manufacturers
(copy attached) in the local language and in a
place readily accessible to employees at all
times.
C. Licensee agrees to take appropriate steps, in consultation
with Disney, to develop, implement and maintain procedures to
evaluate and monitor the Manufacturers it uses to manufacture
the Articles or components thereof, and to ensure compliance
with Paragraph 11.B., including but not limited to,
unannounced on-site inspections of manufacturing, packaging
and distribution facilities and employer-provided housing,
reviews of books and records relating to employment matters
and private interviews with employees.
D. Both before and after Licensee puts Articles on the market,
Licensee shall follow reasonable and proper procedures for
testing that Articles comply with all applicable product
safety Laws, and shall permit Disney's designees to inspect
testing, manufacturing and quality control records and
procedures and to test the Articles for compliance with
product safety and other applicable Laws. Licensee agrees to
promptly reimburse Disney for the actual costs of such
testing. Licensee shall also give due consideration to any
recommendations by Disney that Articles exceed the
requirements of applicable Laws. Articles not manufactured,
packaged or distributed in accordance with applicable Laws
shall be deemed unapproved, even if previously approved by
Disney, and shall not be shipped unless and until they have
been brought into full compliance therewith.
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12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL
Licensee acknowledges that the copyrights and all other proprietary
rights in and to Licensed Material are exclusively owned by and
reserved to Disney, or its licensors if applicable to any Property.
Licensee shall neither acquire nor assert copyright ownership or any
other proprietary rights in the Licensed Material or in any
derivation, adaptation, variation or name thereof. Without limiting
the foregoing, Licensee hereby assigns to Disney all Licensee's
worldwide right, title and interest in the Licensed Material and in
any material objects consisting of or to the extent that they
incorporate drawings, paintings, animation cels, or sculptures of
Licensed Material, or other adaptations, compilations, collective
works, derivative works, variations or names of Licensed Material,
heretofore or hereafter created by or for Licensee or any of
Licensee's Affiliates. All such new materials shall be included in the
definition of "Licensed Material" under this Agreement. If any third
party makes or has made any contribution to the creation of any new
materials which are included in the definition of Licensed Material
under this Paragraph 12, Licensee agrees to obtain from such party a
full assignment of rights so that the foregoing assignment by Licensee
shall vest full rights to such new materials in Disney. Licensee
further covenants that any such new materials created by Licensee or
by any third party Licensee has engaged are original to Licensee or
such third party and do not violate the rights of any other person or
entity; this covenant regarding originality shall not extend to any
materials Disney supplies to Licensee, but does apply to all materials
Licensee or Licensee's third party contractors may add thereto.
13. COPYRIGHT NOTICE
As a condition to the grant of rights hereunder, each Article and any
other matter containing Licensed Material shall bear a properly
located permanently affixed copyright notice in Disney's name (e.g.,
"C Disney"), or such other notice as Disney specifies to Licensee in
writing. Licensee will comply with such instructions as to form,
location and content of the notice as Disney may give from time to
time. Licensee will not, without Disney's prior written consent, affix
to any Article or any other matter containing Licensed Material a
copyright notice in any other name. If through inadvertence or
otherwise a copyright notice on any Article or other such matter
should appear in Licensee's name or the name of a third party,
Licensee hereby agrees to assign to Disney the copyright represented
by any such copyright notice in Licensee's name and, upon request,
cause the execution and delivery to Disney of whatever documents are
necessary to convey to Disney that copyright represented by any such
copyright notice. If by inadvertence a proper copyright notice is
omitted from any Article or other matter containing Licensed Material,
Licensee agrees at Licensee's expense to use all
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reasonable efforts to correct the omission on all such Articles or
other matter in process of manufacture or in distribution. Licensee
agrees to advise Disney promptly and in writing of the steps being
taken to correct any such omission and to make the corrections on
existing Articles which can be located.
14. NON-ASSOCIATION OF OTHER FANCIFUL
CHARACTERS WITH LICENSED MATERIAL
To preserve Disney's identification with Disney's characters and to
avoid confusion of the public, Licensee agrees not to associate other
characters or licensed properties with the Licensed Material or the
Trademarks either on the Articles or in their packaging, or, without
Disney's written permission, on advertising, promotional or display
materials. If Licensee wishes to use a character which constitutes
Licensee's trademark on the Articles or their packaging, or otherwise
in connection with the Articles, Licensee agrees to obtain Disney's
prior written permission.
15. ACTIVE MARKETING OF ARTICLES
Licensee agrees to manufacture (or have manufactured for Licensee) and
actively offer for sale all the Articles and to actively exercise the
rights granted herein. Licensee agrees that by the Marketing Date
applicable to a particular Article or, if such a date is not specified
in Paragraph 1.O., by six (6) months from the commencement of the term
of the applicable Schedule or the date of any applicable amendment,
shipments to customers of such Article will have taken place in
sufficient time that such Article shall be available for purchase in
commercial quantities by the public at the retail outlets in all
distribution channels authorized pursuant to Paragraph 2.A. In any
case in which such sales have not taken place or when the Article is
not then and thereafter available for purchase in commercial
quantities by the public, Disney may either invoke Disney's remedies
under Paragraph 28, or withdraw such Article from the list of Articles
licensed in this Agreement, or withdraw the applicable distribution
channel, or withdraw such Article from the applicable Schedule,
without obligation to Licensee other than to give Licensee written
notice thereof.
16. PROMOTION COMMITMENT
Licensee agrees to carry out the Promotion Commitment, if any, as
defined in Paragraph 1.N.
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17. TRADEMARK RIGHTS AND OBLIGATIONS
A. All uses of the Trademarks by Licensee hereunder shall inure
to Disney's benefit. Licensee acknowledges that Disney (or
its licensors, if applicable) is the exclusive owner of all
the Trademarks, and of any trademark incorporating all or any
part of a Trademark or any Licensed Material, and the
trademark rights created by such uses. Without limiting the
foregoing, Licensee hereby assigns to Disney all the
Trademarks, and any trademark incorporating all or any part
of a Trademark or any Licensed Material, and the trademark
rights created by such uses, together with the goodwill
attaching to that part of the business in connection with
which such Trademarks or trademarks are used. Licensee agrees
to execute and deliver to Disney such documents as Disney
requires to register Licensee as a Registered User or
Permitted User of the Trademarks or such trademarks and to
follow Disney's instructions for proper use thereof in order
that protection and/or registrations for the Trademarks and
such trademarks may be obtained or maintained.
B. Licensee agrees not to use any Licensed Material or
Trademarks, or any trademark incorporating all or any part of
a Trademark or of any Licensed Material, on any business
sign, business cards, stationery or forms (except as licensed
herein), or to use any Licensed Material or Trademark as the
name of Licensee's business or any division thereof, unless
otherwise agreed by Disney in writing.
C. Nothing contained herein shall prohibit Licensee from using
Licensee's own trademarks on the Articles or Licensee's
copyright notice on the Articles when the Articles contain
independent material which is Licensee's property. Nothing
contained herein is intended to give Disney any rights to,
and Disney shall not use, any trademark, copyright or patent
used by Licensee in connection with the Articles which is not
derived or adapted from Licensed Material, Trademarks, or
other materials owned by Disney (or its licensors, if
applicable).
18. REGISTRATIONS
Except with Disney's written consent, neither Licensee nor any of
Licensee's Affiliates will register or attempt in any country to
register copyrights in, or to register as a trademark, service mark,
design patent or industrial design, or business designation, any of
the Licensed Material, Trademarks or derivations or adaptations
thereof, or any word, symbol or design which is so similar thereto as
to suggest association with or sponsorship by Disney or any of
Disney's Affiliates.
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In the event of breach of the foregoing, Licensee agrees, at
Licensee's expense and at Disney's request, immediately to terminate
the unauthorized registration activity and promptly to execute and
deliver, or cause to be delivered, to Disney such assignments and
other documents as Disney may require to transfer to Disney all rights
to the registrations, patents or applications involved.
19. UNLICENSED USE OF LICENSED MATERIALS
A. Licensee agrees that Licensee will not use the Licensed
Material, or the Trademarks, or any other material the
copyright to which is owned by Disney in any way other than
as herein authorized (or as is authorized in any other
written contract in effect between the parties). In addition
to any other remedy Disney may have, Licensee agrees that all
revenues from any use thereof on products other than the
Articles (unless authorized by Disney in writing), and all
revenues from the use of any other copyrighted material of
Disney's (or its licensors', if applicable) without written
authorization, shall be immediately payable to Disney.
B. Licensee agrees to give Disney prompt written notice of any
unlicensed use by third parties of Licensed Material or
Trademarks, and that Licensee will not, without Disney's
written consent, bring or cause to be brought any criminal
prosecution, lawsuit or administrative action for
infringement, interference with or violation of any rights to
Licensed Material or Trademarks. Because of the need for and
the high costs of an effective anti-piracy enforcement
program, Licensee agrees to cooperate with Disney, and, if
necessary, to be named by Disney as a sole complainant or co-
complainant in any action against an infringer of the
Licensed Material or Trademarks and, notwithstanding any
right of Licensee to recover same, legal or otherwise,
Licensee agrees to pay to Disney, and hereby waives all
claims to, all damages or other monetary relief recovered in
such action by reason of a judgment or settlement whether or
not such damages or other monetary relief, or any part
thereof, represent or are intended to represent injury
sustained by Licensee as a licensee hereunder; in any such
action against an infringer, Disney agrees to reimburse
Licensee for reasonable expenses incurred at Disney's
request, including reasonable attorney's fees if Disney has
requested Licensee to retain separate counsel.
20. STATEMENTS AND PAYMENTS OF ROYALTIES
A. Licensee agrees to furnish to Disney by the 25th day after
each Royalty Payment Period full and accurate statements on
statement forms Disney designates for Licensee's use, showing
all information requested by such
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forms separately for each Property licensed hereunder,
including but not limited to, the name of the subject
Property, the quantities, Net Invoiced Billings and
applicable Royalty rate(s) of Articles using Licensed
Material from such Property invoiced during the preceding
Royalty Payment Period, and the quantities and invoice value
of Articles returned for credit or refund in such period. At
the same time Licensee will pay Disney all Royalties and CMF
payments (if applicable) due on billings shown by such
statements. To the extent that any Royalties or CMF payments
are not paid, Licensee authorizes Disney to offset Royalties
and/or CMF payments due against any sums which Disney or any
of Disney's Affiliates may owe to Licensee or any of
Licensee's Affiliates. No deduction or withholding from
Royalties payable to Disney shall be made by reason of any
tax. Any applicable tax on the manufacture, distribution and
sale of the Articles shall be borne by Licensee.
B. The statement forms Disney designates for Licensee's use may
be changed from time to time, and Licensee agrees to use the
most current form designated by Disney provides to Licensee
(including for example, forms to be sent by electronic
transmission). If it is necessary for Licensee to adapt its
system to be able to report statements by electronic
transmission, all costs of such adaptation shall be borne
entirely by Licensee. Licensee agrees to fully comply with
all instructions supplied by Disney for completing any
reporting forms, or adhering to any required format.
C. In addition to the other information requested by the
statement forms, and any special requirements stated in the
applicable Schedule for any Property licensed hereunder,
Licensee's statement shall with respect to all Articles
report separately:
(1) F.O.B. In Sales;
(2) F.O.B. Out Sales;
(3) sales of Articles outside the Territory pursuant
to a distribution permission (indicating the
country involved);
(4) Licensee's sales of Articles to any of Disney's
licensees or Disney's Affiliates' licensees who
are licensed to sell the Articles, and who are
reselling such Articles and paying Disney
royalties on such resales; in such cases,
Licensee needs only report the sales on the
statements, because double royalties are not owed
to Disney on these sales;
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(5) sales of Articles to Disney or any of Disney's
Affiliates;
(6) sales of Articles to Licensee's or Disney's
employees;
(7) sales of Articles using Licensed Material from
each brand or program, motion picture, television
series and other Property identified in Paragraph
1.B. hereinabove or in any Schedule attached
hereto;
(8) sales of Articles to or for distribution through
any mail order catalogs approved under this
Agreement.
D. Sales of items licensed under contracts with Disney other
than this Agreement shall not be reported on the same
statement as sales of Articles under this Agreement.
E. Licensee's statements and payments, including all Royalties,
shall be delivered to Wachovia South Metro Center, DEI
Account, P.O. Box 101947, Atlanta, Georgia 30392. A copy of
each statement must be sent to Disney at 500 South Buena
Vista Street, Burbank, California 91521- 6687, to the
attention of the Contract Administrator, Consumer Products
Division. If Licensee wishes to send statements and payments
by overnight courier, please use the following address:
Wachovia South Metro Center, DEI Account, 3585 Atlanta
Avenue, Hapeville, GA 30354, Attention Peggy Morris,
Reference Lock box 101947. However, Advances should be mailed
directly to Disney at 500 South Buena Vista Street, Burbank,
California 91521-6687, to the attention of the Contract
Administrator or Legal Department, Consumer Products
Division.
F. Licensee shall take all necessary steps to ensure that its
information systems, including without limitation, all its
proprietary and all third party hardware and software,
process dates correctly prior to, during and after the
calendar year 2000 ("Year 2000 Compliance"). Year 2000
Compliance shall include, without limitation, correct century
recognition, calculations that properly accommodate same
century and multi-century formulas and date values, and
interface values that reflect the appropriate century.
Necessary steps to ensure Year 2000 Compliance shall include,
without limitation, analysis of all components of Licensee's
information systems and, as necessary, development,
installation and testing of software fixes, patches and/or
updates. In a timely manner, but no later than by December
31, 1998, Licensee shall certify to Disney in writing that
its information systems are Year 2000 Compliant. Such
certification is a
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material term of this Agreement. Upon a breach by Licensee of
its obligation under this paragraph, Disney shall be entitled
to terminate this Agreement in accordance with the provisions
for termination set forth herein.
G. Licensee has represented to Disney that its monthly
statements will be reported on an as close to actual basis,
but that certain adjustments may be necessary. Therefore, on
a calendar quarterly basis, Licensee shall be permitted to
reconcile the preceding three (3) months statements to
actuals, subject to providing to Disney appropriate
supporting documentation for any resulting adjustment to the
prior statements.
21. CONFIDENTIALITY
Licensee represents and warrants that Licensee did not disclose to any
third party the prospect of a license from Disney, and that Licensee
did not trade on the prospect of a license from Disney, prior to full
execution of this Agreement. Licensee agrees to keep the terms and
conditions of this Agreement confidential, and Licensee shall not
disclose such terms and conditions to any third party without
obtaining Disney's prior written consent; provided, however, that this
Agreement may be disclosed on a need-to-know basis to Licensee's
attorneys and accountants who agree to be bound by this
confidentiality provision. In addition, Licensee may have access to
information concerning Disney's and/or its Affiliates' business and
operations, and/or information concerning works in progress, artwork,
plots, characters or other matters relating to Disney's and/or its
Affiliates' artistic creations, which information may not be
accessible or known to the general public. Licensee agrees not to use
or disclose such information to any third party without obtaining
Disney's prior written consent.
22. INTEREST
Royalties or any other payments due to Disney hereunder which are
received after the due date shall bear interest at the rate of 18% per
annum from the due date (or the maximum permissible by law if less
than 18%).
23. AUDITS AND MAINTAINING RECORDS
A. Licensee agrees to keep accurate records of all transactions
relating to this Agreement and any prior agreement with
Disney regarding the Licensed Material, including, without
limitation, shipments to Licensee of Articles and components
thereof, inventory records, records of sales and shipments by
Licensee, and records of returns, and to preserve such
records for the
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lesser of seven (7) years or two (2) years after the
expiration or termination of this Agreement.
B. Disney, or Disney's representatives, shall have the right
from time to time, during Licensee's normal business hours,
but only for the purpose of confirming Licensee's performance
hereunder, to examine and make extracts from all such
records, including the general ledger, invoices and any other
records which Disney reasonably deems appropriate to verify
the accuracy of Licensee's statements or Licensee's
performance hereunder, including records of Licensee's
Affiliates and/or any unaffiliated sublicensees if they are
involved in activities which are the subject of this
Agreement. In particular, Licensee's invoices shall identify
the Articles separately from goods which are not licensed
hereunder. Licensee acknowledges that Disney may furnish
Licensee with an audit questionnaire, and Licensee agrees to
fully and accurately complete such questionnaire, and return
it to Disney within the designated time. Disney's use of an
audit questionnaire shall not limit Disney's ability to
conduct any on-site audit(s) as provided above. Licensee
acknowledges that an audit conducted by Disney or its
representatives, may involve one or more license agreements
at a time.
C. If in an audit of Licensee's records it is determined that
there is a short fall of five percent (5%) or more in
Royalties reported for any Royalty Payment Period, Licensee
shall upon request from Disney reimburse Disney for the full
out-of-pocket costs of the audit, including the costs of
employee auditors calculated at $60 per hour per person for
travel time during normal working hours and actual working
time.
D. If Licensee has failed to keep adequate records for one or
more Royalty Payment Periods, Disney will assume that the
Royalties owed to Disney for such Royalty Payment Period(s)
are equal to a reasonable amount, determined in Disney's
absolute discretion, which may be up to but will not exceed
the highest Royalties owed to Disney in a Royalty Payment
Period for which Licensee has kept adequate records; if
Licensee has failed to keep adequate records for any Royalty
Payment Period, Disney will assume a reasonable amount of
Royalties which Licensee will owe to Disney, based on the
records Licensee has kept and other reasonable assumptions
Disney deems appropriate.
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24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS
A. Licensee agrees to supply Disney with the names and addresses
of all of its own manufacturing facilities for the Articles.
If Licensee at any time desires to have Articles or
components thereof containing Licensed Material and/or
Trademarks manufactured by a third party, whether the third
party is located within or outside the United States,
Licensee must, as a condition to the continuation of this
Agreement, notify Disney of the accurate name and complete
address of such Manufacturer and the Articles or components
involved and obtain Disney's prior written permission to do
so. If Disney is prepared to grant permission, Disney will do
so if Licensee and each of Licensee's Manufacturers sign a
Consent/Manufacturer's Agreement in a form which Disney will
furnish to Licensee and Disney receives all such agreements
properly signed.
(A SAMPLE OF SAID AGREEMENT FORM IS AVAILABLE ON REQUEST)
B. It is not Disney's policy to reveal the names of Licensee's
Manufacturers to third parties or to any Disney division
involved with buying products, except as may be necessary to
enforce Disney's contract rights or protect Disney's
trademarks and copyrights.
C. If any such Manufacturer utilizes Licensed Material or
Trademarks for any unauthorized purpose, Licensee shall
cooperate fully in bringing such utilization to an immediate
halt. If, by reason of Licensee's not having supplied the
above mentioned agreements to Disney or not having given
Disney the name of any Manufacturer, Disney makes any
representation or takes any action and is thereby subjected
to any penalty or expense, Licensee will fully compensate
Disney for any cost or loss Disney sustains (in addition to
any other legal or equitable remedies available to Disney).
D. If any Manufacturer fails to pass a compliance inspection as
referenced in Paragraph 11, and thereafter fails to remedy
the cited failure(s) within the time designated by Disney, or
if the Manufacturer otherwise breaches the
Consent/Manufacturer's Agreement, the Consent/Manufacturer's
Agreement for such Manufacturer may be terminated immediately
by Disney, and Licensee shall not thereafter use such
Manufacturer to manufacture Articles or components thereof.
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25. INDEMNITY
A. Licensee shall indemnify Disney during and after the term
hereof against all claims, demands, suits, judgments, losses,
liabilities (including settlements entered into in good faith
with Licensee's consent, not to be unreasonably withheld) and
expenses of any nature (including reasonable attorneys' fees)
arising out of Licensee's activities under this Agreement,
including but not limited to, any actual or alleged: (1)
negligent acts or omissions on Licensee's part, (2) defect
(whether obvious or hidden and whether or not present in any
Sample approved by Disney) in an Article, (3) personal
injury, (4) infringement of any rights of any other person by
the manufacture, sale, possession or use of Articles, (5)
breach on Licensee's part of any covenant, representation or
warranty contained in this Agreement, or (6) failure of the
Articles or by Licensee to comply with applicable Laws. The
parties indemnified hereunder shall include Disney
Enterprises, Inc., its licensors, if applicable, and its and
their parent, Affiliates and successors, and its and their
officers, directors, employees and agents. The indemnity
shall not apply to any claim or liability relating to any
infringement of the copyright of a third party caused by
Licensee's utilization of the Licensed Material and the
Trademarks in accordance with the provisions hereof, unless
such claim or liability arises out of Licensee's failure to
obtain the full assignment of rights referenced in Paragraph
12.
B. Disney shall indemnify Licensee during and after the term
hereof against all claims, demands, suits, judgments, losses,
liabilities (including settlements entered into in good faith
with Disney's consent, not to be unreasonably withheld) and
expenses of any nature (including reasonable attorneys' fees)
arising out of any claim that Licensee's use of any
representation of the Licensed Material or the Trademarks
approved in accordance with the provisions of this Agreement
infringes the copyright of any third party or infringes any
right granted by Disney to such third party, except for
claims arising out of Licensee's failure to obtain the full
assignment of rights referenced in Paragraph 12. Licensee
shall not, in any case, be entitled to recover for lost
profits.
C. Additionally, if by reason of any claims referred to in
Paragraph 25.B., Licensee is precluded from selling any stock
of Articles or utilizing any materials in Licensee's
possession or which come into Licensee's possession by reason
of any required recall, Disney shall be obligated to purchase
such Articles and materials from Licensee at their
out-of-pocket cost to Licensee, excluding overheads, but
Disney shall have no other responsibility or liability with
respect to such Articles or materials.
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D. Disney gives no warranty or indemnity with respect to any
liability or expense arising from any claim that use of the
Licensed Material or the Trademarks on or in connection with
the Articles hereunder or any packaging, advertising or
promotional material infringes on any trademark right of any
third party or otherwise constitutes unfair competition by
reason of any prior rights acquired by such third party,
other than rights acquired from Disney. It is expressly
agreed that it is Licensee's responsibility to carry out such
investigations as Licensee may deem appropriate to establish
that Articles, packaging, and promotional and advertising
material which are manufactured or created hereunder,
including any use made of the Licensed Material and the
Trademarks therewith, do not infringe such right of any third
party, and Disney shall not be liable to Licensee if such
infringement occurs.
E. Licensee and Disney agree to give each other prompt written
notice of any claim or suit which may arise under the
indemnity provisions set forth above. Without limiting the
foregoing, Licensee agrees to give Disney written notice of
any product liability claim made or suit filed with respect
to any Article, any investigations or directives regarding
the Articles issued by the Consumer Product Safety Commission
("CPSC") or other federal, state or local consumer safety
agency, and any notices sent by Licensee to, or received by
Licensee from, the CPSC or other consumer safety agency
regarding the Articles within seven (7) days of Licensee's
receipt or promulgation of the claim, suit, investigation,
directive, or notice.
26. INSURANCE
Licensee shall maintain in full force and effect at all times while
this Agreement and all Schedules entered into hereunder are in effect
and for three years thereafter commercial general liability insurance
on a per occurrence form, including broad form coverage for
contractual liability, property damage, products liability and
personal injury liability (including bodily injury and death), waiving
subrogation, with minimum limits of no less than [*](8) per occurrence,
and naming as additional insureds those indemnified in Paragraph 25
hereof. Licensee also agrees to maintain in full force and effect at
all times while this Agreement and all Schedules entered into
hereunder are in effect such Worker's Compensation Insurance as is
required by applicable law and Employer's Liability Insurance with
minimum limits
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(8) Confidential portions omitted and filed separately with the Commission.
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of [*](9) per occurrence. All insurance shall be primary and not
contributory. Licensee shall deliver to Disney a certificate or
certificates of insurance evidencing satisfactory coverage and
indicating that Disney shall receive thirty (30) days unrestricted
prior written notice of cancellation, non-renewal or of any material
change in coverage. Licensee's insurance shall be carried by an
insurer with a BEST Guide rating of B + VII or better. Compliance
herewith in no way limits Licensee's indemnity obligations, except to
the extent that Licensee's insurance company actually pays Disney
amounts which Licensee would otherwise pay Disney.
27. WITHDRAWAL OF LICENSED MATERIAL
Licensee agrees that Disney may, without obligation to Licensee other
than to give Licensee written notice thereof, withdraw from the scope
of this Agreement any Licensed Material which by the Marketing Date
or, if such a date is not specified in Paragraph 1.O., by six (6)
months from the commencement of the term of the applicable Schedule or
the date of any applicable amendment, is not being used on or in
connection with the Articles. Disney may also withdraw any Licensed
Material or Articles the use or sale of which under this Agreement
would infringe or reasonably be claimed to infringe the rights of a
third party, other than rights granted by Disney, in which case
Disney's obligations to Licensee shall be limited to the purchase at
cost of Articles and other materials utilizing such withdrawn Licensed
Material which cannot be sold or used. In the case of any withdrawal
under the preceding sentence, the Advances and Guarantees shall be
adjusted to correspond to the time remaining in the term of the
affected Schedule(s), or the number of Articles remaining under such
Schedule(s), at the date of withdrawal.
28. TERMINATION
Without prejudice to any other right or remedy available to Disney:
A. Disney shall have the right at any time to terminate this
Agreement (or any Schedule(s) entered into hereunder) by
giving Licensee written notice thereof, if Licensee fails to
manufacture, sell and distribute the Articles in accordance
with this Agreement, or fails to furnish statements and pay
Royalties as herein provided, or fails to notify Disney of
the accurate name and complete address of its own
manufacturing facilities or any Manufacturer of the Articles,
or fails to have any such Manufacturer execute the
Consent/Manufacturer's Agreement, or if Licensee otherwise
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(9) Confidential portions omitted and filed separately with the Commission.
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breaches the terms of this Agreement or any Schedule(s)
hereto, and if any such failure or other breach is not
corrected within fifteen (15) days after Disney sends
Licensee written notice thereof.
B. Disney shall have the right at any time to terminate this
Agreement immediately by giving Licensee written notice
thereof:
(1) if Licensee delivers to any customer without
Disney's written authorization merchandise
containing representations of Licensed Material
or other material the copyright or other
proprietary rights to which are owned by Disney
other than Articles listed herein and approved in
accordance with the provisions hereof;
(2) if Licensee delivers Articles outside the
Territory or knowingly sells Articles to a third
party for delivery outside the Territory, unless
pursuant to a written distribution permission or
separate written license agreement with Disney or
any of Disney's Affiliates;
(3) if a breach occurs which is of the same nature,
and which violates the same provision of this
Agreement, as a breach of which Disney has
previously given Licensee written notice;
(4) if Licensee breaches any material term of any
other license agreement between the parties, and
Disney terminates such agreement for cause;
(5) if Licensee shall make any assignment for the
benefit of creditors, or file a petition in
bankruptcy, or is adjudged bankrupt, or becomes
insolvent, or is placed in the hands of a
receiver, or if the equivalent of any such
proceedings or acts occurs, though known by some
other name or term;
(6) if Licensee is not permitted or is unable to
operate Licensee's business in the usual manner,
or is not permitted or is unable to provide
Disney with assurance satisfactory to Disney that
Licensee will so operate Licensee's business, as
debtor in possession or its equivalent, or is not
permitted, or is unable to otherwise meet
Licensee's obligations under this Agreement or to
provide Disney with assurance satisfactory to
Disney that Licensee will meet such obligations;
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(7) if Licensee breaches any covenant set forth in
Paragraph 11 of this Agreement; and/or
(8) if more than three Consent/Manufacturer's
Agreements are terminated in any twelve-month
period by Disney for the Manufacturers' failure
to pass compliance inspections as referenced in
Paragraphs 11 and 24.
29. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
A. Upon the expiration or termination of this Agreement, all
rights herein granted to Licensee shall revert to Disney, any
unpaid portion of the Guarantee shall be immediately due and
payable, and Disney shall be entitled to retain all
Royalties, CMF payments and other things of value paid or
delivered to Disney. Licensee agrees that the Articles shall
be manufactured during the term of each applicable Schedule
in quantities consistent with anticipated demand therefor so
as not to result in an excessive inventory build-up
immediately prior to the end of the term thereof. Licensee
agrees that from the expiration or termination of this
Agreement Licensee shall neither manufacture nor have
manufactured for Licensee any Articles, that Licensee will
deliver to Disney any and all artwork (including Style
Guides, animation cels and drawings) which may have been used
or created by Licensee in connection with this Agreement,
that Licensee will at Disney's option either sell to Disney
at cost or destroy or efface any molds, plates and other
items used to reproduce Licensed Material or Trademarks, and
that, except as hereinafter provided, Licensee will cease
selling Articles. Any unauthorized distribution of Articles
after the expiration or termination of this Agreement or any
applicable Schedule shall constitute copyright infringement.
B. If Licensee has any unsold Articles in inventory on the
expiration or termination date of the applicable Schedule,
Licensee shall provide Disney with a full statement of the
kinds and numbers of such unsold Articles. If such statement
has been provided to Disney and if Licensee has fully
complied with the terms of this Agreement, including the
payment of all Royalties due and the Guarantee, upon notice
from Disney Licensee shall have the right for a limited
period of three (3) calendar months from such expiration or
earlier termination date to sell off and deliver such
Articles as authorized under Paragraph 2.A. Licensee shall
furnish Disney statements covering such sales and pay Disney
Royalties in respect of such sales. Such Royalties shall not
be applied against the Advance or towards
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meeting the Guarantee. All rights and remedies available to
Disney during the Term shall be equally available to Disney
during the sell-off periods.
C. In recognition of Disney's interest in maintaining a stable
and viable market for the Articles during and after the Term
and any sell-off period, Licensee agrees to refrain from
"dumping" the Articles in the market during any sell- off
period granted to Licensee. "Dumping" shall mean the
distribution of product at volume levels significantly above
Licensee's prior sales practices with respect to the
Articles, and at price levels so far below Licensee's prior
sales practices with respect to the Articles as to disparage
the Articles; provided, however, that nothing contained
herein shall be deemed to restrict Licensee's ability to set
product prices at Licensee's discretion.
D. Except as otherwise agreed by Disney in writing, any
inventory of Articles in Licensee's possession or control
after the expiration or termination of the term of the
applicable Schedule hereof and of any sell-off period granted
hereunder shall be destroyed, or all Licensed Material and
Trademarks removed or obliterated therefrom.
E. If Disney supplies Licensee with forms regarding compliance
with this Paragraph 29, Licensee agrees to complete, execute
and return such forms to Disney expeditiously. Licensee
acknowledges that this will be necessary at the end of the
term of each Schedule entered into under this Agreement.
F. Notwithstanding any provision to the contrary, in the case of
termination under Paragraph 28.B. (5) or (6), in order to
protect the value of the Articles and to avoid any
disparagement of the Articles which could occur as a result
of the circumstances of termination, Disney shall have the
option, in Disney's absolute discretion, to purchase any or
all unsold Articles in Licensee's inventory on the
termination date at [*]10 over Licensee's cost of goods for
such Articles (not including overhead).
30. WAIVERS
A waiver by either party at any time of a breach of any provision of
this Agreement shall not apply to any breach of any other provision of
this Agreement, or imply that a breach of the same provision at any
other time has been or will be waived, or that this Agreement has been
in any way amended, nor shall any failure
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by either party to object to conduct of the other be deemed to waive
such party's right to claim that a repetition of such conduct is a
breach hereof.
31. PURCHASE OF ARTICLES BY DISNEY
If Disney wishes to purchase Articles, Licensee agrees to sell such
Articles to Disney or any of Disney's Affiliates at as low a price as
Licensee charges for similar quantities sold to Licensee's regular
customers and to pay Disney Royalties on any such sales.
32. NON-ASSIGNABILITY
A. This Agreement is personal to Licensee, who was specifically
chosen by Disney to be licensed hereunder because of
Licensee's particular expertise and ability to perform the
Agreement. Licensee shall not voluntarily or by operation of
law assign, sub-license, transfer, encumber or otherwise
dispose of all or any part of Licensee's interest in this
Agreement (including, but not limited to, any encumbrance of
the Articles) without Disney's prior written consent, to be
granted or withheld in Disney's absolute discretion. Any
attempted assignment, sub-license, transfer, encumbrance or
other disposal without such consent shall be void and shall
constitute a material default and breach of this Agreement.
"Transfer" within the meaning of this Paragraph 32 shall
include any merger or consolidation involving Licensee or any
directly or indirectly controlling Affiliate(s) of Licensee
("Controlling Affiliate); any sale or transfer of all or
substantially all of Licensee's or its Controlling
Affiliate(s)' assets; any transfer of Licensee's rights
and/or obligations hereunder to a division, business segment
or other entity different from the one specifically
referenced on page 1 hereof (or any sale or attempted sale of
Articles under a trademark or trade name of such division,
business segment or other entity); any public offering, or
series of public offerings, whereby a cumulative total of
thirty-three and one-third percent (33 1/3%) or more of the
voting stock of Licensee or its Controlling Affiliate(s) is
offered for purchase; and any acquisition, or series of
acquisitions, by any person or entity, or group of related
persons or entities, of a cumulative total of thirty-three
and one-third percent (33-1/3%) or more of the voting stock
of Licensee or its Controlling Affiliate(s), or the right to
vote such percentage (or, if Licensee is a partnership,
resulting in the transfer of thirty-three and one-third
percent (33 1/3%) or more of the profit and loss
participation in Licensee, or the occurrence of any of the
foregoing with respect to any general partner of Licensee).
<PAGE> 35
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 35
[*]11
B. Licensee agrees to provide Disney with at least thirty (30)
days prior written notice of any desired assignment of this
Agreement or other transfer as defined in Paragraph 32.A. At
the time Licensee gives such notice, Licensee shall provide
Disney with the information and documentation necessary to
evaluate the contemplated transaction. Disney's consent (if
given) to any assignment of this Agreement or other transfer
as defined in Paragraph 32.A. shall be subject to such terms
and conditions as Disney deems appropriate, including but not
limited to, payment of a transfer fee. The amount of the
transfer fee shall be determined by Disney based upon the
circumstances of the particular assignment or transfer,
taking into account such factors as the estimated value of
the license being assigned or otherwise transferred; the risk
of business interruption or loss of quality, production or
control Disney may suffer as a result of the assignment or
other transfer; the identity, reputation, creditworthiness,
financial condition and business capabilities of the proposed
assignee or other entity involved in the transfer; and
Disney's internal costs related to the assignment or other
transfer; provided, however, in no event shall the transfer
fee be in an amount less than [*]12. The foregoing transfer
fee shall not apply if this Agreement is assigned to one of
Licensee's Affiliates as part of a corporate reorganization
exclusively among some or all of the entities existing in
Licensee's corporate structure when this Agreement is signed;
provided, however, that Licensee must give Disney written
notice of such assignment and a description of the
reorganization. The provisions of this Paragraph 32 shall
supersede any conflicting provisions on this subject in any
merchandise license agreement previously entered into between
the parties for this Territory.
C. Licensee acknowledges that it has read and understands the
Transfer Fee Policy attached hereto, which governs transfer
fee procedures under this Agreement. The Transfer Fee Policy
is incorporated herein by this reference.
D. Notwithstanding Paragraphs 32.A. and B., Licensee may, upon
Disney's prior written consent, sublicense Licensee's rights
and/or obligations hereunder to any of Licensee's Affiliates,
provided that each such Affiliate
- -----------------------------------
(11) Confidential portions omitted and filed separately with the Commission.
(12) Confidential portions omitted and filed separately with the Commission.
<PAGE> 36
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 36
agrees to be bound by all of the terms and conditions of this
Agreement, and provided that each such Affiliate agrees to
guarantee Licensee's full performance of this Agreement
(including but not limited to Paragraph 25) and to indemnify
Disney for any failure of such performance, and further
provided that Licensee and each such Affiliate agree to
provide Disney with satisfactory documentation of such
agreement(s), guarantee(s), and indemnification upon Disney's
request therefor. Licensee hereby represents and irrevocably
and unconditionally guarantees that any and all Affiliates
sublicensed hereunder will observe and perform all of
Licensee's obligations under this Agreement, including, but
not limited to, the provisions governing approvals, and
compliance with approved samples, applicable Laws, and all
other provisions hereof, and that they will otherwise adhere
strictly to all of the terms hereof and act in accordance
with Licensee's obligations hereunder. Any involvement of an
Affiliate in the activities which are the subject of this
Agreement shall be deemed carried on pursuant to such a
sublicense and thus covered by such guarantee; however,
unless Licensee has obtained Disney's consent to sublicense
an Affiliate in each instance, such Affiliate shall be deemed
to be included in the term "Licensee" for all purposes under
this Agreement, and Disney may treat such unapproved
involvement of the Affiliate as a breach of the Agreement. In
the event of any sublicense to an Affiliate hereunder, the
reference in Paragraph 32.A. to "Controlling Affiliate" shall
include such Affiliate sublicensee.
33. RELATIONSHIP
This Agreement does not provide for a joint venture, partnership,
agency or employment relationship between the parties, or any other
relationship than that of licensor and licensee.
34. CONSTRUCTION
The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning and not strictly
for or against any of the parties. Headings of paragraphs herein are
for convenience of reference only and are without substantive
significance.
35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT
Except as otherwise provided herein, this Agreement can only be
extended or modified by a writing signed by both parties; provided,
however, that certain
<PAGE> 37
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 37
modifications shall be effective if signed by the party to be charged
and communicated to the other party.
36. NOTICES
All notices which either party is required or may desire to serve upon
the other party shall be in writing, addressed to the party to be
served at the address set forth on page 1 of this Agreement, and may
be served personally or by depositing the same addressed as herein
provided (unless and until otherwise notified), postage prepaid, in
the United States mail. Such notice shall be deemed served upon
personal delivery or upon the date of mailing; provided, however, that
Disney shall be deemed to have been served with a notice of a request
for approval of materials under this Agreement only upon Disney's
actual receipt of the request and of any required accompanying
materials. Any notice sent to Disney hereunder shall be sent to the
attention of "Vice President, Licensing", unless Disney advises
Licensee in writing otherwise.
37. MUSIC
Music is not licensed hereunder. Any charges, fees or royalties
payable for music rights or any other rights not covered by this
Agreement shall be additional to the Royalties and covered by separate
agreement.
38. PREVIOUS AGREEMENTS
This Agreement, and any confidentiality agreement Licensee may have
signed pertaining to any of the Licensed Material, contains the entire
agreement between the parties concerning the subject matter hereof and
supersedes any pre-existing or contemporaneous agreement and any oral
or written communications between the parties.
39. CHOICE OF LAW AND FORUM
This Agreement shall be deemed to be an executory agreement entered
into in California and shall be governed and interpreted according to
the laws of the State of California applicable to contracts made and
to be fully performed in California. Any legal actions pertaining to
this Agreement shall be commenced within the State of California and
within either Los Angeles or Orange Counties, and Licensee hereby
waives trial by jury and consents to the jurisdiction of the courts
located in Los Angeles or Orange Counties.
<PAGE> 38
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 38
40. EQUITABLE RELIEF
Licensee acknowledges that Disney will have no adequate remedy at law
if Licensee continues to manufacture, sell, advertise, promote or
distribute the Articles upon the expiration or termination of the term
of any applicable Schedule under this Agreement. Licensee acknowledges
and agrees that, in addition to any and all other remedies available
to Disney, Disney shall have the right to have any such activity by
Licensee restrained by equitable relief, including, but not limited
to, a temporary restraining order, a preliminary injunction, a
permanent injunction, or such other alternative relief as may be
appropriate, without the necessity of Disney posting any bond.
41. GOODWILL
Licensee acknowledges that the rights and powers retained by Disney
hereunder are necessary to protect Disney's (or its licensors', if
applicable) copyrights and property rights, and, specifically, to
conserve Disney's (and its licensors', if applicable) goodwill and
good name, and the name "Disney", and therefore Licensee agrees that
Licensee will not allow the same to become involved in matters which
will, or could, detract from or impugn the public acceptance and
popularity thereof, or impair their legal status.
42. POWER TO SIGN
The parties warrant and represent that their respective
representatives signing this Agreement have full power and proper
authority to sign this Agreement and to bind the parties.
43. SURVIVAL OF OBLIGATIONS
The respective obligations of the parties under this Agreement, which
by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, including but not limited to
indemnification, insurance, payment of Royalties, and Paragraph 29,
shall survive termination, cancellation or expiration of this
Agreement.
44. SEVERABILITY OF PROVISIONS
The terms of this Agreement are severable and the invalidity of any
term of this Agreement shall not affect the validity of any other
term.
<PAGE> 39
Crown Crafts, Inc.
Multiple Brands/Properties
Agreement dated January 1, 1998
Page 39
Please sign below under the word "Agreed". When signed by both parties
this shall constitute an agreement between Disney and Licensee.
AGREED:
DISNEY ENTERPRISES, INC.
By: /s/ Steve Cipolla
------------------------------------
Title: Vice President Licensing
---------------------------------
Date: April 24, 1998
----------------------------------
CROWN CRAFTS, INC.
By: /s/ E. Randall Chestnut
------------------------------------
Title: Vice President
---------------------------------
<PAGE> 40
TRANSFER FEE POLICY
As provided in Paragraph 32.B. of the License Agreement, it is Disney's policy
to charge a transfer fee in connection with any permitted assignment of the
license or other "transfer," as that term is defined in Paragraph 32.A. The
amount of the transfer fee is based on the circumstances of the particular
assignment or transfer, taking into account such factors as:
- - the estimated value of the license being assigned or involved in the
transfer
- - the risk of business interruption
- - the risk of loss of quality, production or control
- - the identity, reputation, creditworthiness, financial condition and
business capabilities of the proposed assignee or entity involved in
the transfer
- - Disney's internal costs related to the assignment or transfer
No Licensee or any company involved with a Licensee in an assignment or
transfer situation should rely upon any express or implied verbal
representations that are purported to be made on Disney's behalf as to the
amount of any given fee to be assessed. Disney Licensing's Finance Department
will communicate the actual amount of the fee calculated in each approved
transaction.
In any prospective assignment or transfer situations, Licensees must inform the
persons and companies with which they are dealing that no assignment or
transfer may occur without Disney's prior written consent, to be granted or
withheld in Disney's absolute discretion, and that any approved transaction
will also entail a transfer fee. Licensees must give Disney at least 30 days
prior written notice of any desired assignment or other transfer, together with
any information and documentation necessary to evaluate the contemplated
transaction. Licensees should not endanger the closing of their desired
transactions by failing to comply with these provisions of the License
Agreement.
If Disney grants consent to a proposed transaction subject to the payment of a
transfer fee, and the transaction is concluded but the transfer fee is not paid
within the designated time, the subject License Agreement(s) shall
automatically terminate and any Guarantee shortfall(s) shall be immediately due
and payable to Disney. If Disney does not grant consent to a proposed
assignment or transfer and the Licensee nevertheless closes the transaction,
the subject License Agreement(s) shall automatically terminate and any
Guarantee shortfall(s) shall be immediately due and payable to Disney.
Disney's consent to any assignment or other transfer should in no way be
understood to be a guarantee or promise by Disney of a grant of any future
license(s), as those determinations will continue to be made on a contract by
contract basis.
<PAGE> 41
CODE OF CONDUCT FOR MANUFACTURERS
At The Walt Disney Company, we are committed to:
- a standard of excellence in every aspect of our business and
in every corner of the world;
- ethical and responsible conduct in all of our operations;
- respect for the rights of all individuals; and
- respect for the environment.
We expect these same commitments to be shared by all manufacturers of Disney
merchandise. At a minimum, we require that all manufacturers of Disney
merchandise meet the following standards:
CHILD LABOR Manufacturers will not use child labor.
The term "child" refers to a person younger than 15
(or 14 where local law allows) or, if higher, the
local legal minimum age for employment or the age
for completing compulsory education.
Manufacturers employing young persons who do not
fall within the definition of "children" will also
comply with any laws and regulations applicable to
such persons.
INVOLUNTARY
LABOR Manufacturers will not use any forced or involuntary
labor, whether prison, bonded, indentured or
otherwise.
COERCION AND
HARASSMENT Manufacturers will treat each employee with dignity
and respect, and will not use corporal punishment,
threats of violence or other forms of physical,
sexual, psychological or verbal harassment or abuse.
NONDISCRIMINATION Manufacturers will not discriminate in hiring and
employment practices, including salary, benefits,
advancement, discipline, termination or retirement,
on the basis of race, religion, age, nationality,
social or ethnic origin, sexual orientation, gender,
political opinion or disability.
ASSOCIATION Manufacturers will respect the rights of employees
to associate, organize and bargain collectively in a
lawful and peaceful manner, without penalty or
interference.
HEALTH AND
SAFETY Manufacturers will provide employees with a safe and
healthy workplace in compliance with all applicable
laws and regulations, ensuring at a minimum,
reasonable access to potable water and sanitary
facilities, fire safety, and adequate lighting and
ventilation.
<PAGE> 42
Manufacturers will also ensure that the same
standards of health and safety are applied in any
housing that they provide for employees.
COMPENSATION We expect manufacturers to recognize that wages are
essential to meeting employees' basic needs.
Manufacturers will, at a minimum, comply with all
applicable wage and hour laws and regulations,
including those relating to minimum wages, overtime,
maximum hours, piece rates and other elements of
compensation, and provide legally mandated benefits.
If local laws do not provide for overtime pay,
manufacturers will pay at least regular wages for
overtime work. Except in extraordinary business
circumstances, manufacturers will not require
employees to work more than the lesser of (a) 48
hours per week and 12 hours overtime or (b) the
limits on regular and overtime hours allowed by
local law or, where local law does not limit the
hours of work, the regular work week in such country
plus 12 hours overtime. In addition, except in
extraordinary business circumstances, employees will
be entitled to at least one day off in every
seven-day period.
Where local industry standards are higher than
applicable legal requirements, we expect
manufacturers to meet the higher standards.
PROTECTION OF THE
ENVIRONMENT Manufacturers will comply with all applicable
environmental laws and regulations.
OTHER LAWS Manufacturers will comply with all applicable
laws and regulations, including those pertaining to
the manufacture, pricing, sale and distribution of
merchandise.
All references to "applicable laws and regulations"
in this Code of Conduct include local and national
codes, rules and regulations as well as applicable
treaties and voluntary industry standards.
SUBCONTRACTING Manufacturers will not use subcontractors for the
manufacture of Disney merchandise or components
thereof without Disney's express written consent,
and only after the subcontractor has entered into a
written commitment with Disney to comply with this
Code of Conduct.
MONITORING AND
COMPLIANCE Manufacturers will authorize Disney and its
designated agents (including third parties) to
engage in monitoring activities to confirm
compliance with this Code of Conduct, including
unannounced on-site inspections of manufacturing
facilities and employer-provided housing; reviews of
books and records relating to employment matters;
and private interviews with employees. Manufacturers
will maintain on site all documentation that may be
needed to demonstrate compliance with this Code of
Conduct.
PUBLICATION Manufacturers will take appropriate steps to ensure
that the provisions of this Code of Conduct are
communicated to employees, including the prominent
posting of a copy of this Code of Conduct, in the
local language and in a place readily accessible to
employees, at all times.
<PAGE> 43
CODE OF CONDUCT FOR LICENSEES
At The Walt Disney Company, we are committed to:
- - a standard of excellence in every aspect of our business and in every
corner of the world;
- - ethical and responsible conduct in all of our operations;
- - respect for the rights of all individuals; and
respect for the environment.
We expect these same commitments to be shared by all Disney licensees and the
manufacturers with which they work in the production of Disney merchandise. At
a minimum, we require that all Disney licensees meet the following standards:
CONDUCT OF
MANUFACTURING Licensees that engage directly in the manufacturing
of Disney merchandise will comply with all of the
standards set forth in Disney's Code of Conduct for
Manufacturers, a copy of which is attached.
Licensees will ensure that each manufacturer other
than the licensee also enters into a written
commitment with Disney to comply with the standards
set forth in Disney's Code of Conduct for
Manufacturers.
Licensees will prohibit manufacturers from
subcontracting the manufacture of Disney merchandise
or components thereof without Disney's express
written consent, and only after the subcontractor
has entered into a written commitment with Disney to
comply with Disney's Code of Conduct for
Manufacturers.
MONITORING AND
COMPLIANCE Licensees will take appropriate steps, in
consultation with Disney, to develop, implement and
maintain procedures to evaluate and monitor
manufacturers of Disney merchandise and ensure
compliance with Disney's Code of Conduct for
Manufacturers, including unannounced on-site
inspections of manufacturing facilities and
employer-provided housing; review of books and
records relating to employment matters; and private
interviews with employees.
Licensees will authorize Disney and its designated
agents (including third parties) to engage in
similar monitoring activities to confirm Licensees'
compliance with this Code of Conduct. Licensees will
maintain on site all documentation that may be
needed to demonstrate such compliance.
<PAGE> 44
CATALOG SCHEDULE
(LIST OF PRE-APPROVED CATALOGS)
MASS
[*]14
This Catalog Schedule is subject to change. Disney reserves the right to
add catalogs to or delete catalogs from the Catalog Schedule without prior
notice to Licensee. Licensee agrees to cease selling Articles to a deleted
catalog within sixty (60) days after written notice of the deletion. Disney
will consider new catalogs requested by Licensee on a case-by-case basis.
- -------------------------------------
(14) Confidential portions omitted and filed separately with the Commission.
<PAGE> 45
CATALOG SCHEDULE
(LIST OF PRE-APPROVED CATALOGS)
HOME FURNISHINGS/HOUSEWARES
[*]130
This Catalog Schedule is subject to change. Disney reserves the right to
add catalogs to or delete catalogs from the Catalog Schedule without prior
notice to Licensee. Licensee agrees to cease selling Articles to a deleted
catalog within sixty (60) days after written notice of the deletion. Disney
will consider new catalogs requested by Licensee on a case-by-case basis.
- -----------------------------------
(130) Confidential portions omitted and filed separately with the Commission.
<PAGE> 46
Schedule to License Agreement
1. Schedule #1 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: BABY MICKEY MOUSE, BABY MINNIE MOUSE, BABY DONALD
DUCK, BABY DAISY DUCK, BABY PLUTO AND BABY GOOFY.
5. Trademarks: DISNEY BABIES.
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*]131
8. (Royalty) Advance payment(s) and due date(s):
[*]132
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]133
10. Royalty rate:
[*]134
11. Articles:
A. Infant Bedding
[*]135
B. Infant Accessories
- --------
(131) Confidential portions omitted and filed separately with the Commission.
(132) Confidential portions omitted and filed separately with the Commission.
(133) Confidential portions omitted and filed separately with the Commission.
(134) Confidential portions omitted and filed separately with the Commission.
(135) Confidential portions omitted and filed separately with the Commission.
<PAGE> 47
[*]136
C. Infant Blankets/Throws
[*]137
12. Distribution:
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*]138
13. Special provisions, if any:
[*]139
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s Steve Cipolla By: /s/ E. Randall Chestnut
-------------------------------- -----------------------------------
Title: Vice President Licensing Title: Vice President
----------------------------- --------------------------------
Date: April 24, 1998
------------------------------
- --------
(136) Confidential portions omitted and filed separately with the Commission.
(137) Confidential portions omitted and filed separately with the Commission.
(138) Confidential portions omitted and filed separately with the Commission.
(139) Confidential portions omitted and filed separately with the Commission.
<PAGE> 48
Schedule to License Agreement
1. Schedule #2 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: BABY MICKEY MOUSE, BABY MINNIE MOUSE, BABY DONALD
DUCK, BABY DAISY DUCK, BABY PLUTO AND BABY GOOFY.
5. Trademarks: BABY MICKEY & CO.
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*]140
8. (Royalty) Advance payment(s) and due date(s):
[*]141
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]142
10. Royalty rate:
[*]143
11. Articles:
A. Infant Bedding
[*]144
B. Infant Accessories
- -------------------------------------
(140) Confidential portions omitted and filed separately with the Commission.
(141) Confidential portions omitted and filed separately with the Commission.
(142) Confidential portions omitted and filed separately with the Commission.
(143) Confidential portions omitted and filed separately with the Commission.
(144) Confidential portions omitted and filed separately with the Commission.
<PAGE> 49
[*]145
C. Infant Blankets/Throws
[*]146
12. Distribution:
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*]147
13. Special provisions, if any:
[*]148
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s Steve Cipolla By: /s/ E. Randall Chestnut
-------------------------------- ----------------------------------
Title: Vice President Licensing Title: Vice President
----------------------------- -------------------------------
Date: April 24, 1998
-------------------------------
- ------------------------------------
(145) Confidential portions omitted and filed separately with the Commission.
(146) Confidential portions omitted and filed separately with the Commission.
(147) Confidential portions omitted and filed separately with the Commission.
(148) Confidential portions omitted and filed separately with the Commission.
<PAGE> 50
Schedule to License Agreement
-----------------------------
1. Schedule #3 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000, although Licensee
acknowledges that in the case of Articles Numbers D.1 through D.5
Licensee's rights with respect to such Articles may only be exercised
from January 1, 1998, until December 31, 1998.
4. Licensed Material: WINNIE THE POOH, CHRISTOPHER ROBIN, PIGLET, RABBIT,
EEYORE, TIGGER, OWL, GOPHER, KANGA, AND ROO, ALL IN THE STYLE AS
DESIGNED BY DISNEY.
5. Trademarks: POOH (Juvenile).
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*](149)
8. (Royalty) Advance payment(s) and due date(s):
[*](150)
9. (Royalty) Guarantee increments during the term of this Schedule:
[*](151)
10. Royalty rate:
[*](152)
11. Articles:
A. Infant Bedding
- --------
(149) Confidential portions omitted and filed separately with the
Commission.
(150) Confidential portions omitted and filed separately with the
Commission.
(151) Confidential portions omitted and filed separately with the
Commission.
(152) Confidential portions omitted and filed separately with the
Commission.
<PAGE> 51
[*](153)
B. Infant Accessories
[*](154)
C. Infant Blankets/Throws
[*](155)
D. Toddler Bedding
[*](156)
E. Juvenile
[*](157)
12. Distribution:
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*](158)
13. Special provisions:
a. [*](159)
b. Copyright notice:
Without limiting the provisions of Paragraph 13 of the
Agreement, Licensee agrees to include on the Article, or the
packaging for the Article, or the hang tag for the Article (if
applicable), the following language: Based on the "Winnie The
Pooh" works, copyright A.A. Milne and E.H. Shepard.
- --------
(153) Confidential portions omitted and filed separately with the Commission.
(154) Confidential portions omitted and filed separately with the Commission.
(155) Confidential portions omitted and filed separately with the Commission.
(156) Confidential portions omitted and filed separately with the Commission.
(157) Confidential portions omitted and filed separately with the Commission.
(158) Confidential portions omitted and filed separately with the Commission.
(159) Confidential portions omitted and filed separately with the Commission.
<PAGE> 52
When signed by both parties, this shall constitute a binding Schedule subject to
the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
---------------------------- -----------------------------
Title: Vice President Licensing Title: Vice President
------------------------- --------------------------
Date: April 24, 1998
--------------------------
<PAGE> 53
Schedule to License Agreement
-----------------------------
1. Schedule #4 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: WINNIE THE POOH, CHRISTOPHER ROBIN, PIGLET, RABBIT,
EEYORE, TIGGER, OWL, GOPHER, KANGA, AND ROO, ALL IN THE STYLE AS
DESIGNED BY DISNEY.
5. Trademarks: POOH (Adult).
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*](160)
8. (Royalty) Advance payment(s) and due date(s):
[*](161)
9. (Royalty) Guarantee increments during the term of this Schedule:
[*](162)
10. Royalty rates:
[*](163)
11. Articles:
[*](164)
12. Distribution:
- ----------
(160) Confidential portions omitted and filed separately with the Commission.
(161) Confidential portions omitted and filed separately with the Commission.
(162) Confidential portions omitted and filed separately with the Commission.
(163) Confidential portions omitted and filed separately with the Commission.
(164) Confidential portions omitted and filed separately with the Commission.
<PAGE> 54
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*](165)
13. Special provisions:
a. [*](166)
b. Copyright notice:
Without limiting the provisions of Paragraph 13 of the
Agreement, Licensee agrees to include on the Article, or the
packaging for the Article, or the hang tag for the Article (if
applicable), the following language: Based on the "Winnie The
Pooh" works, copyright A.A. Milne and E.H. Shepard.
When signed by both parties, this shall constitute a binding Schedule subject to
the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipola By: /s/ E. Randall Chestnut
---------------------------- ------------------------------
Title: Vice President Licensing Title: Vice President
------------------------- ---------------------------
Date: April 24, 1998
----------------
- --------
(165) Confidential portions omitted and filed separately with the Commission.
(166) Confidential portions omitted and filed separately with the Commission.
<PAGE> 55
Schedule to License Agreement
-----------------------------
1. Schedule #5 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: WINNIE THE POOH, CHRISTOPHER ROBIN, PIGLET, RABBIT,
EEYORE, TIGGER, OWL, GOPHER, KANGA, AND ROO, ALL IN THE STYLE AS
DESIGNED BY DISNEY.
5. Trademarks: POOH 100 ACRE COLLECTION (Adult and Juvenile brands).
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*](167)
8. (Royalty) Advance payment(s) and due date(s):
[*](168)
9. (Royalty) Guarantee increments during the term of this Schedule:
[*](169)
10. Royalty rate:
[*](170)
11. Articles:
A. Infant Bedding
[*](171)
- --------
(167) Confidential portions omitted and filed separately with the Commission.
(168) Confidential portions omitted and filed separately with the Commission.
(169) Confidential portions omitted and filed separately with the Commission.
(170) Confidential portions omitted and filed separately with the Commission.
(171) Confidential portions omitted and filed separately with the Commission.
<PAGE> 56
B. Infant Accessories
[*](172)
C. Infant Blankets/Throws
[*](173)
D. Juvenile/Adult
[*](174)
12. Distribution:
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*](175)
13. Special provisions:
a. [*](176)
b. Copyright notice:
Without limiting the provisions of Paragraph 13 of the
Agreement, Licensee agrees to include on the Article, or the
packaging for the Article, or the hang tag for the Article (if
applicable), the following language: Based on the "Winnie The
Pooh" works, copyright A.A. Milne and E.H. Shepard.
When signed by both parties, this shall constitute a binding Schedule subject to
the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
----------------------------- --------------------------
Title: Vice President Licensing Title: Vice President
--------------------------- ------------------------
Date: April 24, 1998
---------------------------
- --------
(172) Confidential portions omitted and filed separately with the Commission.
(173) Confidential portions omitted and filed separately with the Commission.
(174) Confidential portions omitted and filed separately with the Commission.
(175) Confidential portions omitted and filed separately with the Commission.
(176) Confidential portions omitted and filed separately with the Commission.
<PAGE> 57
Schedule to License Agreement
-----------------------------
1. Schedule #6 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: Characters from the stories by the late A.A. Milne
entitled "Winnie The Pooh," "The House At Pooh Corner," "When We Were
Very Young," and "Now We Are Six" as drawn by the late E.H. Shepard for
the purpose of illustrating the stories.
5. Trademarks: CLASSIC POOH.
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*](177)
8. (Royalty) Advance payment(s) and due date(s):
[*](178)
9. (Royalty) Guarantee increments during the term of this Schedule:
[*](179)
10. Royalty rate:
[*](180)
11. Articles:
A. Infant Bedding
[*](181)
- --------
(177) Confidential portions omitted and filed separately with the
Commission.
(178) Confidential portions omitted and filed separately with the
Commission.
(179) Confidential portions omitted and filed separately with the
Commission.
(180) Confidential portions omitted and filed separately with the
Commission.
(181) Confidential portions omitted and filed separately with the
Commission.
<PAGE> 58
B. Infant Accessories
[*](182)
C. Infant Blankets/Throws
[*](183)
D. Juvenile/Adult
[*](184)
12. Distribution:
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*](185)
13. Special provisions:
a. [*](186)
b. Copyright notice:
Without limiting the provisions of Paragraph 13 of the
Agreement, Licensee agrees to include on the Article, or the
packaging for the Article, or the hang tag for the Article (if
applicable), the following language: Based on the "Winnie The
Pooh" works, copyright A.A. Milne and E.H. Shepard.
When signed by both parties, this shall constitute a binding Schedule subject to
the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
----------------------------- --------------------------
Title: Vice President Licensing Title: Vice President
--------------------------- ------------------------
Date: April 24, 1998
---------------------------
- --------
(182) Confidential portions omitted and filed separately
with the Commission.
(183) Confidential portions omitted and filed separately with the
Commission.
(184) Confidential portions omitted and filed separately with the
Commission.
(185) Confidential portions omitted and filed separately with the
Commission.
(186) Confidential portions omitted and filed separately with the
Commission.
<PAGE> 59
Schedule to License Agreement
1. Schedule #7 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY DUCK,
PLUTO AND GOOFY (BUT NOT SPORT GOOFY).
5. Trademarks: MICKEY & CO.
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*]187
8. (Royalty) Advance payment(s) and due date(s):
[*]188
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]189
10. Royalty rate:
[*]190
11. Articles:
[*]191
12. Distribution:
- --------
187 Confidential portions omitted and filed separately with the Commission.
188 Confidential portions omitted and filed separately with the Commission.
189 Confidential portions omitted and filed separately with the Commission.
190 Confidential portions omitted and filed separately with the Commission.
191 Confidential portions omitted and filed separately with the Commission.
<PAGE> 60
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*]192
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s Steve Cipolla By: /s/ E. Randall Chestnut
------------------------------ --------------------------------
Title: Vice President Licensing Title: Vice President
--------------------------- -----------------------------
Date: April 24, 1998
----------------------------
- ------------------------------------
(192) Confidential portions omitted and filed separately with the Commission.
<PAGE> 61
Schedule to License Agreement
1. Schedule #8 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY
DUCK, PLUTO AND GOOFY (BUT NOT SPORT GOOFY).
5. Trademarks: MICKEY FOR KIDS.
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*]193
8. (Royalty) Advance payment(s) and due date(s):
[*]194
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]195
10. Royalty rate:
[*]196
11. Articles:
[*]197
- -------------------------------------------
(193) Confidential portions omitted and filed separately with the Commission.
(194) Confidential portions omitted and filed separately with the Commission.
(195) Confidential portions omitted and filed separately with the Commission.
(196) Confidential portions omitted and filed separately with the Commission.
(197) Confidential portions omitted and filed separately with the Commission.
<PAGE> 62
12. Distribution:
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*]198
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
------------------------------- ---------------------------------
Title: Vice President Licensing Title: Vice President
---------------------------- ------------------------------
Date: April 24, 1998
-----------------------------
- ------------------------
(198) Confidential portions omitted and filed separately with the Commission.
<PAGE> 63
Schedule to License Agreement
1. Schedule #9 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY
DUCK, PLUTO AND GOOFY (BUT NOT SPORT GOOFY).
5. Trademarks: MICKEY UNLIMITED.
6. Anticipated release date of Property: Not applicable.
7. Marketing Date(s): [*]199
8. (Royalty) Advance payment(s) and due date(s):
[*]200
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]201
10. Royalty rate:
[*]202
11. Articles:
[*]203
12. Distribution:
- ---------------------------
(199) Confidential portions omitted and filed separately with the Commission.
(200) Confidential portions omitted and filed separately with the Commission.
(201) Confidential portions omitted and filed separately with the Commission.
(202) Confidential portions omitted and filed separately with the Commission.
(203) Confidential portions omitted and filed separately with the Commission.
<PAGE> 64
Licensee will sell the Articles only to the following Retailers in the
Territory for resale to the public in the Territory: [*]204
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
------------------------------- ----------------------------------
Title: Vice President Licensing Title: Vice President
---------------------------- -------------------------------
Date: April 24, 1998
-----------------------------
- --------------------------
(204) Confidential portions omitted and filed separately with the Commission.
<PAGE> 65
Schedule to License Agreement
1. Schedule #10 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 1999.
4. Licensed Material: DISNEY'S MULAN characters, but only such
characters and depictions of such characters, and accompanying design
elements, as may be designated by Disney.
5. Trademarks: DISNEY'S MULAN.
6. Anticipated release date of Property: To be determined. When the
actual release date of the motion picture is determined, Licensee
shall be advised of such date in writing.
7. Marketing Date: [*]205
8. (Royalty) Advance payment and due date:
[*]206
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]207
10. Royalty rate:
[*]208
11. Articles:
[*]209
- --------
(205) Confidential portions omitted and filed separately with the Commission.
(206) Confidential portions omitted and filed separately with the Commission.
(207) Confidential portions omitted and filed separately with the Commission.
(208) Confidential portions omitted and filed separately with the Commission.
(209) Confidential portions omitted and filed separately with the Commission.
<PAGE> 66
12. Distribution:
Licensee will sell the Articles only to Retailers in the Territory for
resale to the public in the Territory. [*]210
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
------------------------------- -----------------------------------
Title: Vice President Licensing Title: Vice President
---------------------------- --------------------------------
Date: April 24, 1998
----------------------------
- -------------------------------------
(210) Confidential portions omitted and filed separately with the Commission.
<PAGE> 67
Schedule to License Agreement
1. Schedule #11 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: June 30, 2000.
4. Licensed Material: DISNEY'S THE LION KING - SIMBA'S PRIDE characters,
but only such characters and depictions of such characters, and
accompanying design elements, as may be designated by Disney.
5. Trademarks: DISNEY'S THE LION KING - SIMBA'S PRIDE.
6. Anticipated release date of Property: To be determined. When the
actual direct-to-home video release date is determined, Licensee shall
be advised of such date in writing.
7. Marketing Date: [*]211
8. (Royalty) Advance payment and due date:
[*]212
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]213
10. Royalty rate:
[*]214
11. Articles:
[*]215
- -------------------------------------
(211) Confidential portions omitted and filed separately with the Commission.
(212) Confidential portions omitted and filed separately with the Commission.
(213) Confidential portions omitted and filed separately with the Commission.
(214) Confidential portions omitted and filed separately with the Commission.
(215) Confidential portions omitted and filed separately with the Commission.
<PAGE> 68
12. Distribution:
Licensee will sell the Articles only to Retailers in the Territory for
resale to the public in the Territory. [*]216
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
-------------------------------- -----------------------------------
Title: Vice President Licensing Title: Vice President
----------------------------- --------------------------------
Date: April 24, 1998
------------------------------
- ---------------------
(216) Confidential portions omitted and filed separately with the Commission.
<PAGE> 69
Schedule to License Agreement
1. Schedule #12 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: June 30, 2000.
4. Licensed Material: A BUG'S LIFE characters, but only such characters
and depictions of such characters, and accompanying design elements,
as may be designated by Disney.
5. Trademarks: A BUG'S LIFE.
6. Anticipated release date of Property: To be determined. When the
actual release date of the motion picture is determined, Licensee
shall be advised of such date in writing.
7. Marketing Date: [*]217
8. (Royalty) Advance payment and due date:
[*]218
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]219
10. Royalty rate:
[*]220
11. Articles:
[*]221
- -------------------------------
(217) Confidential portions omitted and filed separately with the Commission.
(218) Confidential portions omitted and filed separately with the Commission.
(219) Confidential portions omitted and filed separately with the Commission.
(220) Confidential portions omitted and filed separately with the Commission.
(221) Confidential portions omitted and filed separately with the Commission.
<PAGE> 70
12. Distribution:
Licensee will sell the Articles only to Retailers in the Territory for
resale to the public in the Territory. [*]222
13. Special Provisions:
a. Hang tags:
Hang tags must have the artwork title of the motion picture
on the first line, and "A Disney/Pixar Production" on the
second line.
b. Copyright notice:
Without limiting the provisions of Paragraph 13 of the
Agreement, the Articles shall display a copyright notice in
Disney's and Pixar Animation Studios' names (e.g., "(C)
Disney Enterprises, Inc., and Pixar Animation Studios" or, if
space is limited, "(C) Disney/Pixar").
c. Statements and Payments of Royalties:
In addition to the information required in Paragraph 20 of
the Agreement, Licensee must separately report sales of
Articles by SKU and character.
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s Steve Cipolla By: /s/ E. Randall Chestnut
-------------------------------- -----------------------------------
Title: Vice President Licensing Title: Vice President
----------------------------- --------------------------------
Date: April 24, 1998
------------------------------
- -----------------------------
(222) Confidential portions omitted and filed separately with the Commission.
<PAGE> 71
Schedule to License Agreement
1. Schedule #13 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: Characters from the Disney animated motion picture
to be released for Summer 1999 (to be determined), but only such
characters and depictions of such characters, and accompanying design
elements, as may be designated by Disney.
5. Trademarks: To be determined.
6. Anticipated release date of Property: To be determined. When the
actual release date of the motion picture is determined, Licensee
shall be advised of such date in writing.
7. Marketing Date: [*]223
8. (Royalty) Advance payment and due date:
[*]224
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]225
10. Royalty rate:
[*]226
11. Articles:
[*]227
- --------
(223) Confidential portions omitted and filed separately with the Commission.
(224) Confidential portions omitted and filed separately with the Commission.
(225) Confidential portions omitted and filed separately with the Commission.
(226) Confidential portions omitted and filed separately with the Commission.
(227) Confidential portions omitted and filed separately with the Commission.
<PAGE> 72
12. Distribution:
Licensee will sell the Articles only to Retailers in the Territory for
resale to the public in the Territory. [*]228
13. Special Provisions:
The parties recognize that due to the fact that the identity of the
Property that is the subject of this Schedule is presently
undetermined, certain special provisions may need to be added to this
Schedule, and/or certain provisions hereof may need to be revised,
based on the specific terms and conditions as may be applicable to the
actual Property when determined. The parties hereby agree to amend
this Schedule accordingly, at such time as the Property has been
identified.
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
-------------------------------- ----------------------------------
Title: Vice President Licensing Title: Vice President
----------------------------- -------------------------------
Date: April 24, 1998
------------------------------
- --------
(228) Confidential portions omitted and filed separately with the Commission.
<PAGE> 73
Schedule to License Agreement
1. Schedule #14 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: July 1, 1998.
3. Termination date of this Schedule: June 30, 2001.
4. Licensed Material:TOY STORY II characters, but only such characters
and depictions of such characters, and accompanying design elements,
as may be designated by Disney.
5. Trademarks: TOY STORY II
6. Anticipated release date of Property: To be determined. When the
actual release date of the motion picture is determined, Licensee
shall be advised of such date in writing.
7. Marketing Date: [*]229
8. (Royalty) Advance payment and due date:
[*]230
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]231
10. Royalty rate:
[*]232
11. Articles:
[*]233
- ----------------------------
(229) Confidential portions omitted and filed separately with the Commission.
(230) Confidential portions omitted and filed separately with the Commission.
(231) Confidential portions omitted and filed separately with the Commission.
(232) Confidential portions omitted and filed separately with the Commission.
(233) Confidential portions omitted and filed separately with the Commission.
<PAGE> 74
12. Distribution:
Licensee will sell the Articles only to Retailers in the Territory for
resale to the public in the Territory. [*]234
13. Special Provisions:
a. Hang tags:
Hang tags must have the artwork title of the motion picture
on the first line, and "A Disney/Pixar Production" on the
second line.
b. Copyright notice:
Without limiting the provisions of Paragraph 13 of the
Agreement, the Articles shall display a copyright notice in
Disney's and Pixar Animation Studios' names (e.g., "(C)
Disney Enterprises, Inc., and Pixar Animation Studios" or, if
space is limited, "(C) Disney/Pixar").
c. Statements and Payments of Royalties:
In addition to the information required in Paragraph 20 of
the Agreement, Licensee must separately report sales of
Articles by SKU and character.
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
------------------------------- ----------------------------------
Title: Vice President Licensing Title: Vice President
---------------------------- -------------------------------
Date: April 24, 1998
-----------------------------
- --------
(234) Confidential portions omitted and filed separately with the Commission.
<PAGE> 75
Schedule to License Agreement
1. Schedule #15 to License Agreement Dated January 1, 1998 between Disney
Enterprises, Inc. and CROWN CRAFTS, INC. ("Agreement").
2. Effective date of this Schedule: January 1, 1998.
3. Termination date of this Schedule: December 31, 2000.
4. Licensed Material: DISNEY CLASSICS, comprised of the following
properties (collectively, the "Disney Classics Properties"):
(1) WALT DISNEY'S BAMBI characters, but only such characters and
depictions of such characters, and accompanying design
elements, as may be designated by Disney;
(2) WALT DISNEY'S SLEEPING BEAUTY characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by Disney;
(3) WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS characters, but
only such characters and depictions of such characters, and
accompanying design elements, as may be designated by Disney;
(4) WALT DISNEY'S THE JUNGLE BOOK characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by Disney;
(5) WALT DISNEY'S CINDERELLA characters, but only such characters
and depictions of such characters, and accompanying design
elements, as may be designated by Disney;
(6) WALT DISNEY'S DUMBO characters, but only such characters and
depictions of such characters, and accompanying design
elements, as may be designated by Disney;
(7) WALT DISNEY'S LADY AND THE TRAMP characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by Disney;
(8) WALT DISNEY'S PINOCCHIO characters, but only such characters
and depictions of such characters, and accompanying design
elements, as may be designated by Disney;
(9) WALT DISNEY'S ALICE IN WONDERLAND characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by Disney;
<PAGE> 76
(10) WALT DISNEY'S PETER PAN characters, but only such characters
and depictions of such characters, and accompanying design
elements, as may be designated by Disney.
5. Trademarks:
WALT DISNEY'S BAMBI
WALT DISNEY'S SLEEPING BEAUTY
WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS
WALT DISNEY'S THE JUNGLE BOOK
WALT DISNEY'S CINDERELLA
WALT DISNEY'S DUMBO
WALT DISNEY'S LADY AND THE TRAMP
WALT DISNEY'S PINOCCHIO
WALT DISNEY'S ALICE IN WONDERLAND
WALT DISNEY'S PETER PAN
6. Anticipated release date of Property: Not applicable.
7. Marketing Date: [*]235
8. (Royalty) Advance payment(s) and due date(s):
[*]236
9. (Royalty) Guarantee increments during the term of this Schedule:
[*]237
10. Royalty rate:
[*]238
11. Articles:
A. Infant Bedding
[*]239
- -------------------------------------
(235) Confidential portions omitted and filed separately with the Commission.
(236) Confidential portions omitted and filed separately with the Commission.
(237) Confidential portions omitted and filed separately with the Commission.
(238) Confidential portions omitted and filed separately with the Commission.
(239) Confidential portions omitted and filed separately with the Commission.
<PAGE> 77
B. Infant Accessories
[*]240
C. Infant Blankets/Throws
[*]241
D. Juvenile
[*]242
12. Distribution:
Licensee will sell the Articles only to Retailers in the Territory for
resale to the public in the Territory; [*]243
13. Special provisions:
[*]244
b. Statements and Payments of Royalties:
In addition to the information requested pursuant to
Paragraph 20 of the Agreement, Licensee shall report all
information required under the Agreement separately by
individual Character Classic Property.
When signed by both parties, this shall constitute a binding Schedule subject
to the terms of the Agreement.
DISNEY ENTERPRISES, INC. CROWN CRAFTS, INC.
By: /s/ Steve Cipolla By: /s/ E. Randall Chestnut
-------------------------------- ----------------------------------
Title: Vice President Licensing Title: Vice President
----------------------------- -------------------------------
Date: April 24, 1998
------------------------------
- --------------------------------
(240) Confidential portions omitted and filed separately with the Commission.
(241) Confidential portions omitted and filed separately with the Commission.
(242) Confidential portions omitted and filed separately with the Commission.
(243) Confidential portions omitted and filed separately with the Commission.
(244) Confidential portions omitted and filed separately with the Commission.
<PAGE> 1
Home License/Crown
LICENSE AGREEMENT
between
CALVIN KLEIN, INC.
and
CROWN CRAFTS DESIGNER, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions................................................................2
1. Grant of License.................................................... 5
2. Term................................................................10
3. Design..............................................................11
4. Quality Control.....................................................15
5. Operations of Licensee..............................................19
6. Advertising/Promotion...............................................23
7. Approval Standard...................................................26
8. Minimum Guaranteed Fees ............................................27
9. Percentage Fees.....................................................28
10. Audit................................................................30
11. Certain Additional Matters...........................................31
12. Other Designers......................................................31
13. Breach/Default.......................................................32
14. Effects of Termination...............................................35
15. Miscellaneous........................................................38
</TABLE>
Exhibits/Schedules
Exhibit A Licensed Mark
Exhibit 1.1.1 Products
Exhibit 3.1 Design and Development Chart; Time and Action Calendar
Exhibit 11
Schedule 111-3 Power of Attorney
Schedule 15.2 Shareholders
Guarantee
<PAGE> 3
CONFIDENTIAL -- NEITHER THE RELATIONSHIP CONTEMPLATED BY THIS DOCUMENT NOR ITS
CONTENTS IS TO BE DISCUSSED WITHOUT THE CONSENT OF CALVIN KLEIN, INC. THIS DRAFT
DOES NOT CONSTITUTE AN OBLIGATION OF THE PARTIES. NO BINDING AGREEMENT WILL
RESULT UNLESS A DEFINITIVE WRITTEN AGREEMENT IS EXECUTED AND DELIVERED BY THE
PARTIES. DELIVERY OF THIS DRAFT AGREEMENT SHOULD NOT BE CONSTRUED AS ANY
COMMITMENT ON THE PART OF CALVIN KLEIN, INC. TO ENTER INTO THIS OR ANY OTHER
AGREEMENT; THERE IS NO OBLIGATION TO EXECUTE ANY SUCH AGREEMENT.
CALVIN KLEIN, INC.
and
CROWN CRAFTS DESIGNER, INC.
This AGREEMENT, dated as of May 11, 1998, between CALVIN KLEIN, INC., a New York
corporation ("Licensor"), and Crown Crafts Designer, Inc., a Delaware
corporation ("Licensee") and a wholly-owned subsidiary of Crown Crafts, Inc., a
Georgia corporation ("Guarantor"),
<PAGE> 4
WITNESSETH:
In consideration of the premises and the mutual covenants hereinafter set forth,
the parties hereby agree as follows:
Definitions
As used in this Agreement, the following definitions will
apply:
"Affiliates" of any person or entity means persons or entities
controlled by, controlling or under common control with such person or entity.
"Annual Period" means, the period commencing May 11, 1998
through December 31, 1998 and each subsequent calendar year (or portion thereof)
during the term hereof or any renewal or extension of the term. Licensee's
fiscal year is a 52/53 week year ending on the Sunday closest to 31 March.
Except for specific references to a calendar quarter, each "quarter" for
purposes of accounting for the Percentage Fee and the "balance" of the
advertising expenditures during each Annual Period shall be based on the
Licensee's fiscal quarter substantially concurrent with a calendar quarter.
"Articles" means Products approved by Licensor from time to
time for sale hereunder as part of any particular Collection.
"Business Day" means any date that is not a Saturday, Sunday
or a legal holiday on which banking institutions in the State of New York are
authorized or required to close.
2
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"Close-Out Articles" means Articles sold (i) at least one
month after Licensee's regular shipping season, and (ii) at a discount of more
than 25% off Licensee's regular wholesale price for such Articles.
"Collection" means a seasonal collection of Articles.
"Consumer Advertising" means advertisements on television and
print advertisements in prestigious national publications, and such other forms
of advertising as Licensor reasonably deems to be "consumer" advertising, but
will not include any point-of-sale, co-operative or trade advertising or
advertising in local publications.
"Licensed Mark" means the mark "CALVIN KLEIN", in the form
attached as Exhibit A, or in any subsequent form as may be specified by
Licensor. The term "Licensed Mark" does not include the name "CK/CALVIN KLEIN",
the mark "CK" or any other variation, modification or derivative of such
trademarks or the Licensed Mark.
"Net Sales" means [*](1)
"Products" means a line of soft home products particularly
described in Exhibit B.
"Stores" means free-standing retail locations bearing the
Licensed Mark (or another trademark of Licensor and the Calvin Klein Trademark
Trust) operated by Licensor or its licensees or sublicensees.
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(1) Confidential portions omitted and filed separately with the Commission.
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"Territory" means the countries specified in Exhibit C. The
Territory shall not include duty-free outlets or similar tax-free areas
("Duty-free") except as may be expressly authorized by Licensor in its sole
discretion.
1. Grant of License
1.1.1 Subject to the provisions of this Agreement, Licensor
hereby grants to Licensee an exclusive license to use the Licensed Mark
throughout the Territory during the term on and in connection with the
manufacture, distribution and sale at wholesale of the Products; provided, that
Licensee may not commence the distribution and sale of Products in the countries
included in Europe, the Middle East, Central America or South America unless
Licensor shall have approved, not to be unreasonably withheld, a detailed
business plan submitted by Licensee for any such region, indicating country -
by-country development, specific doors, merchandise mix and projected Net Sales
for each Annual Period and evidencing Licensee's ability and intent to execute
such plan and such other information as Licensor reasonably requests. Licensee
may request Licensor's consent to the manufacture of Articles on a non-exclusive
basis outside the Territory. Licensor may grant or withhold such consent in its
sole discretion based upon information supplied by the Licensee as to the
specific Articles, manufacturing facilities and contractors involved.
Furthermore, Licensor may from time to time, on a non-exclusive, seasonal basis,
permit Licensee to sell Articles to certain specified retail outlets outside the
Territory, subject to all of the terms of this Agreement.
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<PAGE> 7
1.1.2 Except as otherwise provided in this Agreement, all
Articles must bear the Licensed Mark and no Articles may be sold or otherwise
distributed by Licensee under any mark other than the Licensed Mark.
1.1.3 Prior to any use thereof, Licensee will submit a list
of proposed third party contractors to Licensor, and such related information as
Licensor may reasonably request, for its approval (which approval may be
withdrawn at any time by Licensor in its reasonable discretion). Licensee will
use commercially reasonable efforts to require all of its contractors to comply
with all of the provisions of this Agreement relating to quality standards,
confidentiality and trademark protection, and to ensure that its own facilities
and those of such third party contractors observe all applicable laws and
regulations including, without limitation those governing workplace and fair
labor standards. Licensee will use commercially reasonable efforts to ensure
that no contractor sells Articles including seconds, damaged Articles and
Articles from which the Licensed Mark has been removed to any entity other than
Licensee (or another duly authorized licensee of Licensor) or ships Articles to
any location other than to the facilities of Licensee or such other licensees or
to their respective customers within the Territory as directed by Licensee.
1.1.4 In the event Licensor determines to grant a license
for Products in jurisdictions in Asia (other than Japan), Licensor shall so
advise Licensee, and Licensee shall have the right for a 30-day period to make
an offer to Licensor for such jurisdictions and if such offer is made and
accepted, to negotiate the terms of a license for such jurisdictions during a
period not to exceed 60 days following the date of such offer. Following such
period, Licensor may license (or not license) such
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<PAGE> 8
jurisdictions to any party it selects in its sole discretion on terms generally
no less favorable to Licensor than those offered by Licensee.
1.2 Licensor reserves all rights to the Licensed Mark
except as specifically granted herein, and Licensor may exercise any of its
rights at any time. Licensee specifically acknowledges that Licensor has
retained:
(a) the right to use, and to grant to any other third party
the right to use, the Licensed Mark:
(i) in the Territory, with regard to any
services or merchandise other than Products, and
(ii) outside the Territory, with regard to any
services or merchandise;
(b) The right to own, operate and license retail outlets and
boutiques throughout the world, identified by or with the Licensed Mark or other
trademarks;
(c) the right to use, and to license third parties the right
to use any trademark other than the Licensed Mark without restriction; and
(d) the right to manufacture, and to grant to third parties
the right to manufacture, Products in the Territory solely for the purpose of
export from and sale outside the Territory.
1.3 Licensee acknowledges that Articles hereunder may bear some
similarity of design to products bearing trademarks other than the Licensed Mark
which may now or hereafter be manufactured, distributed or sold in the Territory
in connection with the Licensed Mark, by Licensor or duly authorized licensees
or authorized users, and that such similarity will not constitute a breach or
default hereunder. To the extent practicable,
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<PAGE> 9
Licensor will endeavor to arrange to distinguish such merchandise from Articles
hereunder, whether by design, fabrication, distribution channels, target market,
price range or otherwise.
1.4 Any dispute between Licensee and any other non-Affiliate
licensee of Licensor in the Territory as to whose license covers what
merchandise shall be submitted to Licensor for its good faith determination,
which determination shall be final and binding on the Licensee.
1.5 Licensee will use its commercially reasonable efforts,
including without limitation financing and investing in the staffing,
advertising, promotion and development (both Product development and in-store
development) of operations under this Agreement to exploit the rights herein
granted throughout each jurisdiction in the Territory and to sell the maximum
quantity of Articles therein, consistent with the high standards and prestige
represented by the Licensed Mark.
1.6 Licensee will not export Articles from the Territory and will
not sell Articles to any third party which it knows or has reason to believe
intends to export Articles from the Territory, in each case including sales or
deliveries to Duty-free. Licensee will utilize such product identification
systems and other measures as Licensor may from time to time reasonably specify
in order to facilitate effective control of the distribution of Products and the
Licensed Mark, both within and outside the Territory, and the monitoring and
prevention of "parallel" or "grey goods" marketing.
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<PAGE> 10
1.7 Notwithstanding the provisions of Section 1.1.1, Licensor may
grant third parties the right to produce (within or outside the Territory)
Products for sale outside the Territory. Upon Licensor's request, Licensee will
provide all relevant sourcing information to such parties and will otherwise
cooperate as reasonably requested by Licensor ; provided, that Licensee shall
not be required to disclose proprietary information. Licensee will timely supply
Licensor or its distributors or other permitted licensees (including Stores
licensees) with Articles for distribution in such quantities as Licensor may
reasonably request on a priority basis, subject to reasonable credit
considerations, and will maintain inventory to make Articles available to Stores
on an ongoing and staged shipment (also known as "quick-ship") basis. [*](2)
1.8 The Products described are among a range of product lines
utilizing the Licensed Mark now or hereafter sold by Licensor, its licensees and
other duly authorized parties. In order to provide for consistency in scope and
to prevent confusion in the market, Licensee will use commercially reasonable
efforts to arrange for the placement of items constituting Articles in the
market to be consistent with the placement of such other product lines bearing
the Licensed Mark and to be distinguishable from the placement of product lines
bearing other trademarks of Licensor.
2. Term
2.1 The initial term of this Agreement shall be five years and
approximately eight months commencing as of May 11, 1998 and continuing
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(2) Confidential portions omitted and filed separately with the Commission.
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<PAGE> 11
through December 31, 2003 (the "Initial Term") unless sooner terminated in
accordance with this Agreement. Licensee shall have the option to renew this
Agreement for an additional five-year term (the "Renewal Term"), commencing on
January 1, 2004, provided that: (i) written notice thereof is delivered to
Licensor at least six months prior to the expiration date of the Initial Term;
(ii) Licensee is in compliance in all material respects with all the terms and
provisions of this Agreement on the date the renewal notice is delivered and on
the last day of the Initial Term; (iii) Net Sales of Licensed Articles during
the 12-month period ending June 30, 2003 (the "Reference Period") shall be equal
to at least (A) [*](3) in respect of the U.S., Canada, Mexico and (without
duplication) Stores, plus (B) (without duplication for Net Sales in respect of
Stores) an amount equal to the aggregate regional minimum Net Sales thresholds
for the Reference Period for Europe, Middle East, Central America and South
America (in each case, a "Regional Threshold") as determined in good faith
between the parties when the business plans for such regions are approved
pursuant to Section 1.1.1) (the sum of (A) plus (B) are referred to as the
"Renewal Threshold") and (iv) Licensor in its reasonable discretion shall have
approved Licensee's proposed detailed five year business plan for such renewal
term (as submitted by Licensee by December 31, 2002). Notwithstanding the
foregoing, if Licensee satisfies all of the conditions for renewal except that
Licensee's Net Sales for the Reference Period are less than Renewal Threshold
(but more than 85% of the Renewal Threshold) the Initial Term shall be extended
to December 31, 2004; and if Licensee's Net Sales for the 12-month period ending
June 30, 2004 are at least equal to the Renewal Threshold and Licensee continues
to be in compliance in all material respects with all of the terms and
provisions
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(3) Confidential portions omitted and filed separately with the Commission.
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<PAGE> 12
of this Agreement on December 31, 2004, then this Agreement shall be renewed for
the balance of the Renewal Term. If Licensee's Net Sales for the Reference
Period in respect of any of Europe, the Middle East, Central America or South
America are less than the applicable Regional Threshold, this Agreement shall
terminate in respect of such region upon the expiration of the Initial Term,
except as otherwise agreed by Licensee. The Initial Term and the Renewal Term
shall be collectively referred to herein as the "Term".
3. Design
3.1 Licensor and Licensee will cooperate and will exercise
their respective commercially reasonable efforts in the preparation of
Collections and to carry out their respective duties and responsibilities set
forth in the "Time and Action Calendar" attached hereto as Exhibit 3.1. At least
60 days before the development stage of any Collection, Licensee will provide a
merchandising plan setting forth the number of styles, estimated unit
production, in-store delivery dates, target wholesale price points, target
market segment, potential jurisdictions for product sourcing and, where
applicable, historical sales statistics for Licensor's review and use in
developing such Collection as provided herein.
3.2.1 Licensor will provide Licensee with creative concepts and
fashion direction including recommendations as to color, material, design and
styling of Articles as Licensor deems reasonably sufficient to develop each
Collection of Articles, and such additional design assistance as it determines
in its discretion. Licensor will designate a member of its design staff who will
be dedicated primarily to the development of Articles. Licensor will, from time
to time, submit to Licensee sketches, designs,
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<PAGE> 13
colors, samples, labels and packaging and other materials in such quantity as it
determines in its sole discretion, for use by Licensee in connection with its
preparation of Collections.
3.2.2 Licensee will utilize substantially all of the designs
submitted or approved by Licensor for each Collection and will timely produce,
offer for sale and ship all Articles produced therefrom, except as the parties
may otherwise agree (taking into account technical or production problems which
might affect the ability to timely develop and produce certain designs).
3.3 Licensee will advise Licensor of innovative concepts and
techniques in the industry relating to the manufacture of Articles and may, from
time to time, deliver examples of materials for Licensor's consideration in
development of the collections of Articles, which Licensor may accept, modify or
reject in its sole discretion.
3.4 Licensee may use only sketches, designs, colors, packaging,
labels and other materials provided or approved by Licensor in connection with
Articles.
3.5.1 Licensee will be responsible for making all design and
production prototypes and samples as well as for the production of Articles, and
Licensee will bear all costs in connection therewith. To the extent Licensor
reasonably determines necessary for the promotion of the prestige and image of
the Licensed Mark or to respond to the sourcing preferences of particular
markets, Licensor may from time to time request that specified Articles be
produced in particular jurisdictions specified by Licensor. Licensee will not
unreasonably refuse to comply with any such request.
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3.5.2 Licensee will be responsible for [*](4) the design,
development, construction and maintenance and periodic refurbishments of a
showroom or showrooms in accordance with the provisions of Section 5 hereof and
of the in-store shops or in-store areas within stores of Licensee's customers
("shop-in-shops") referred to in the next sentence. Licensee will arrange for
the opening of shop-in-shops within department stores and specialty stores using
appropriate fixtures and signage, and to fully stock such shop-in-shops with an
appropriate merchandise mix of Articles, all as approved by Licensor, pursuant
to and consistent with the shop-in-shop development program included in the
business plan approved by Licensor prior to the execution of this Agreement
(such approval not to be unreasonably withheld) or in connection with the
commencement of the Renewal Term, as the case may be. Licensee will use
commercially reasonable efforts to carry out its shop-in-shop development
programs in a manner comparable to and commensurate with the standards, sizes,
locations and quality of the shop-in-shop programs of Licensor's competition as
to Articles. By the end of the second Annual Period (1999), Articles are to be
sold within at least [*](5) shop-in-shops and [*](6) fixtured areas (within the
United States). However, to the extent Licensee establishes to Licensor's
reasonable satisfaction that Licensee has been prevented from achieving such
minimum numbers due to refusals or delays by its customers, such failure shall
not be deemed a default hereunder; provided, that Licensee continues to use
commercially reasonable efforts to achieve such numbers at the earliest
practicable date. Licensor may periodically inspect Licensee's showrooms, trade
exhibition shows, and shop-
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(4) Confidential portions omitted and filed separately with the Commission.
(5) Confidential portions omitted and filed separately with the Commission.
(6) Confidential portions omitted and filed separately with the Commission.
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<PAGE> 15
in-shops. Any such inspection will be at Licensor's expense unless Licensor
determines as a result of such inspection that Licensee's showrooms, trade
exhibition shows or shop-in- shops have not been established and maintained in
accordance with Licensor's specifications, in which case Licensee will at its
expense promptly make such modifications to design, layout, decor, visual
display or merchandise display formats as Licensor may reasonably require and
will reimburse Licensor's reasonable costs and expenses in connection with such
inspections and any follow-up inspections to determine the satisfactory
completion of such modifications.
3.5.3 [*](7)
3.6.1 Licensee will make available to Licensor, without charge, such
quantity of Articles as is reasonably requested by Licensor for use in fashion
shows of "Calvin Klein" merchandise and for use by Licensor in the promotion of
Articles, including public relations promotions.
3.6.2 Licensee will permit Licensor's employees and other
representatives to purchase Articles for personal use at Licensee's regular
wholesale prices less [*](8).
4. Quality Control
4.1 The components, workmanship, fit and durability of Articles
and of all related tags, labels, packaging and ancillary materials will at all
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(7) Confidential portions omitted and filed separately with the Commission.
(8) Confidential portions omitted and filed separately with the Commission.
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<PAGE> 16
times be of the highest quality commensurate with the reputation, image and
prestige of the Licensed Mark. Licensor will design or approve the styles,
designs, packaging, components, workmanship, quality, display, merchandising,
advertising and promotion of all Articles so as to ensure that Articles comply
with the preceding sentence. The foregoing will not apply to cooperative
advertising developed and placed by retail outlets if Licensee has no right to
review, approve or control the same (it being understood that Licensee will use
its commercially reasonable efforts to obtain such rights). Licensee will
maintain production and other quality control procedures so as to ensure that
the quality of Articles meets or surpasses that of the approved samples of
Articles. Articles will be distributed, merchandised and sold with packaging and
sales promotion materials appropriate for highest quality Products. Licensee has
facilities for printing inserts in packaging, and other forms of promotional
and/or collateral materials, and, subject to satisfaction of Licensor's
specifications, quality standards and delivery requirements on an ongoing basis,
such facilities will be the preferred source of production thereof. All Articles
will be manufactured, sold, labeled, packaged, distributed and advertised in
accordance with all applicable laws and regulations, including those governing
workplace and labor standards.
4.2 Before selling, distributing or promoting any Article,
Licensee will deliver for Licensor's inspection and correction a prototype
sample of each such Article together with prototype tags, labels and packaging
to be used in connection therewith. Licensee will also deliver one initial
production sample of each Article, together with the tags, labels and packaging
to be used in connection therewith, for Licensor's approval. In addition, upon
Licensor's request, Licensee will deliver to Licensor, free of
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<PAGE> 17
charge, then current production samples of each Article produced hereunder
together with the tags, labels and packaging being used in connection therewith
so that Licensor may assure itself of the maintenance of the quality standards
set forth herein. The foregoing deliveries shall be free of charge to Licensor.
In the event Licensor determines that any Article so submitted fails to meet the
quality standards set forth herein, Licensee will make any corrections
determined by Licensor to be necessary to meet such quality standards. All
Articles to be sold hereunder will be at least equal in quality to the samples
approved by Licensor. If during any Annual Period, Licensee provides a
substantial quantity of production samples, Licensor will retain a "sampling" of
the same and will return the balance after its review of the same. Licensor's
duly authorized representatives will have the right, upon reasonable advance
notice and during normal business hours, to examine Articles in the process of
being manufactured and to inspect all facilities utilized and controlled by
Licensee or its Affiliates (including those of all its contractors) in
connection with the manufacture, distribution and sale of Articles. Licensee's
agreements with third party contractors related to Articles shall include a
similar provision permitting Licensor's inspection of such contractors'
facilities, as well as provisions permitting production and shipment of Articles
and other materials bearing the Licensed Mark or other "Calvin Klein"
identification only to the Licensee or as otherwise expressly directed by
Licensee in accordance with this Agreement.
4.3 All Articles will bear the Licensed Mark in such form and
manner as may be approved by Licensor. Notwithstanding the foregoing, the
Licensed Mark and all other "Calvin Klein" identification will be removed from
all Articles to be sold by Licensee as other than first-quality merchandise,
unless such removal would not be commercially feasible, in which case
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Licensee will mark such Articles in a manner (approved by Licensor) that clearly
indicates that they are "irregular"; and such irregular and all Close-Out
Articles will be sold only if there is no advertising or promotion in connection
therewith utilizing or referring to the Licensed Mark. Each distribution outlet
for the sale of "irregular" Articles, Close-Out Articles and excess piece goods
(e.g., fabric), will be subject to the periodic prior approval of Licensor.
4.4 Any and all proposed advertising, or promotional or publicity
material (including issuing press releases, interviews or other public relations
media) and any other printed or other communications media in connection with
the promotion, sale or distribution of Articles, must be approved by Licensor
prior to use by Licensee.
4.5 If Licensor should disapprove any sample Article, tag, label,
package or the like, or any advertising, promotional, merchandising or publicity
material or the proposed placement thereof or any other printed matter, Licensee
will not use or permit the use of the same in any manner, whether or not in
connection with Articles or the Licensed Mark.
4.6 In order to maintain the reputation, image and prestige of the
Licensed Mark, Licensee's distribution patterns must consist solely of retail
outlets for resale directly to consumers and solely those retail outlets and
doors whose location, merchandising and overall operations are consistent with
(i) the high quality of Articles and the reputation, image and prestige of the
Licensed Mark and as set forth in a distribution plan, specifying the location
of each such door and outlet, submitted by Licensee at least 90 days prior to
the opening date for each seasonal Collection for Licensor's review
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and approval or (ii) as otherwise approved by Licensor on an ongoing basis.
Licensee acknowledges and agrees that such distribution patterns shall not
include specialty stores or national chains without Licensor's prior written
approval, which may be given or withheld in its sole discretion. Licensee will
utilize commercially reasonable efforts to ensure that all department store
distribution outlets utilize fixturing consistent with Licensor-approved
specifications for the proper display and merchandising of Articles.
5. Operations of Licensee
5.1 Licensee shall be exclusively engaged in the business of
performing its obligations and responsibilities hereunder. In connection
therewith, Licensee shall:
(a) (i) employ, (A) on an exclusive basis (1) a "President" of the
Company who shall be subject to the ongoing approval of Licensor, and (2) such
sales, merchandising and product development personnel, and (B) either on an
exclusive basis or substantially dedicated to Licensee's operations hereunder to
the extent reasonably required by Licensor, such production, technical, quality
control, retail development, and visual display personnel, as will enable
Licensee to exploit the License herein granted and to maintain the quality
standards required hereunder; and
(ii) [*](9); and
(iii) in the case of visual display and retail development
personnel, Licensee shall employ, retain or contribute to the cost of Licensor's
dedicated personnel, as the case may be. The approximate annual
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(9) Confidential portions omitted and filed separately with the Commission.
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cost of visual display and retail development staff (as employed or retained
by the predecessor licensee for Products) is currently [*](10)
(b) (i) contribute to the cost and expense (including maintenance
and seasonal set-ups) of a showroom at 205 West 39th Street, New York, New York
for the purpose of displaying and promoting and if so determined, selling the
Articles in an amount reasonably allocated by Licensor (the current cost of
which is [*](11)) and (ii) if Licensee so determines, to establish and maintain
an additional showroom for the display and sale of the Articles, the location
and the decor of which, and any subsequent or renovated showroom, shall be
subject to the ongoing approval of Licensor (which shall include the selection
or approval of the architect for such showroom, as well as plans for such
location;
(c) maintain throughout the term of this Agreement separate
showrooms in specific regional locations outside the United States (as set forth
in the business plans provided for in Section 1.1.1), to be established as soon
as practicable, for the sole purpose of displaying, promoting and selling
Articles (the general location (and relocation) and decor of such showrooms, and
trade show and exhibition areas will be subject to the ongoing approval of
Licensor, and the architect retained by Licensee in connection with such
showroom will be either selected or approved by Licensor). All funds for all of
the foregoing will be provided by Licensee;
(d) establish, and thereafter maintain throughout the term of this
Agreement: production and other facilities, whether by ownership or by
contractual arrangement, to exploit the license herein granted and maintain the
quality standards required hereunder;
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(10) Confidential portions omitted and filed separately with the Commission.
(11) Confidential portions omitted and filed separately with the Commission.
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(e) at all times maintain an adequate operating performance and
financial position, and adequately finance all of the above and the operations
as specified in this Agreement;
(f) retain or employ on an exclusive or non-exclusive basis such
in-store sales and merchandising personnel as Licensor may reasonably require
consistent with its corporate program to exploit the sale of Articles within
certain key accounts of Licensee;
5.2 Licensee will deliver:
(i) within 30 days after the close of the regular shipping
season of each Collection, its sales results (reflecting goods actually
shipped), by style, on a unit basis, of Articles shown and sold; and within 90
days following the close of the regular shipping season a report setting forth
the sell-through by Licensee's customers of Articles shipped to them;
(ii) annually, within 60 days following the close of the
each Annual Period, (A) a detailed analysis of Licensee's operations under this
Agreement, including sales results by Article, and by distribution outlet for
each jurisdiction (country) and region of the Territory as determined in which
Licensee is authorized hereunder to sell Articles, and (B) if mutually agreed,
an independent analysis of sales and distribution of comparable products and of
the overall market for Articles and other brands of Products, in each case in
such form or forms as may be agreed upon by the parties;
(iii) within 180 days after the close of each Annual Period,
(A) copies of Guarantor's audited annual financial reports (balance sheets, and
statements of income and cash flow) prepared in accordance with U.S. generally
accepted accounting principles, consistently applied ("U.S. GAAP"), reported on
by an internationally recognized accounting firm together with a
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certificate executed by Guarantor's chief financial officer setting forth the
computations necessary to demonstrate Guarantor's compliance with the financial
covenants referred to in the second sentence of Guarantor's guarantee
substantially in the form attached hereto (the "Guarantee"); and (B) copies of
Licensee's unaudited annual financial statements prepared on a basis consistent
with Guarantor's financial statements;
(iv) within 45 days after the close of each calendar quarter
copies of Licensee's unaudited quarterly financial statements, which will be
prepared on a basis consistent with its annual financial statements;
(v) promptly (and in any event within five business days)
after discovery thereof, notice of any failure to comply with any of the
financial covenants contained in Section 5.1(e) or any other default under this
Agreement;
(vi) (A) By September 30 of each Annual Period, (i) Net Sales
estimates (projecting in reasonable detail Net Sales by region for each of the
next three succeeding Annual Periods), and (ii) a certificate, executed by
Licensee's chief financial officer, certifying and setting forth appropriate
evidence that Licensee's internal and committed external sources of liquidity
are sufficient to fund its operations during the next succeeding Annual Period
in light of such Net Sales estimates), and (B) estimated total Net Sales and
total aggregate advertising and promotional expenses (including all cooperative
and trade advertising, and all promotional expenses) for each Annual Period, by
January 30 of the following Annual Period; and
(vii) promptly, and in any event within 5 days of filing,
copies of all annual, quarterly or current reports, registration statements,
proxy statements or similar filings made by the Guarantor under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
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(viii) such additional information as Licensor may from time
to time reasonably request.
5.3 Annually, as soon as practicable following receipt of the
reports referred to in Section 5.2(i) and (ii), the parties will review and
discuss the same and any other relevant aspects of Licensee's operations.
Licensor may recommend such changes in such operations or in the design or
merchandising of, or distribution patterns for, Articles, as it deems necessary
or desirable to exploit the license granted hereunder or to ensure the cohesive
development, presentation, sale, merchandising, distribution, advertising and
promotion of Articles and the Licensed Mark in light of the range of other
merchandise produced by Licensor or by other authorized licensees and users of
the Licensed Mark. Licensee will give due consideration to such recommendations
in light of its obligations hereunder.
6. Advertising/Promotion
6.1 Licensee will spend for co-operative and trade advertising,
during each Annual Period, such amounts which will be adequate to enable
Licensee to exploit the license herein granted, and which will be commensurate
with expenditures of Licensor's competitors for Articles. Cooperative
expenditures shall include expenditures for advertising in support of store
sales, marketing tools, catalogs, fixturing for shop-in-shops, in-store point of
sale materials, promotional materials and public relations event costs.
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6.2 [*](12)
6.3 (a) For each advertising campaign: (i) Licensee will provide
appropriate market information, and (ii) after consultation with Licensee but in
Licensor's sole discretion, Licensor will develop themes and creative concepts
and make all other necessary decisions regarding models, production, placement,
execution and final product. The parties may from time to time mutually agree to
arrange for an independent market study relating to Products, demographics, or
market trends. Licensee will bear the costs of any such studies, which amounts
will not be credited towards the Minimum Advertising Expenditure, but will be
credited towards Licensee's obligations set forth in Section 6.1. Licensor may
utilize CRK Advertising, a division of Licensor, for the promotion of the
Articles, and for the development and placement of advertising hereunder.
(b) [*](13)
6.4 Any qualified expenditure incurred by Licensee during any
Annual Period for Consumer Advertising of Articles and the Licensed Mark in
excess of the Minimum Advertising Expenditure for such Annual Period will not be
credited against the Minimum Advertising Expenditure for any other Annual
Period.
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(12) Confidential portions omitted and filed separately with the Commission.
(13) Confidential portions omitted and filed separately with the Commission.
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6.5 Licensee recognizes that its public actions and statements can
affect the image of Licensor, the Licensed Mark, the Articles and Licensor's
other trademarks, licensees and licensed products. Accordingly, (a) the use and
release of any and all promotional material (printed or otherwise) relating to
the Article or Licensee's activities pursuant to this Agreement in the nature of
press releases, interviews or other public relations events, and (b) any other
corporate release, prospectus (preliminary and final) data or information which
will or is likely to become public and, if so, could affect such image, will be
prepared or conducted in consultation with, and subject to the prior approval
of, Licensor's Public Relations Department. After any such approval, Licensee
will not modify the approved material or activity in any material respect unless
such modification is specifically approved by Licensor's Public Relations
Department.
7. Approval Standard
7.1 Licensee acknowledges that except as otherwise specifically
provided herein, Licensor's approvals required pursuant to this Agreement may be
based solely on Licensor's subjective aesthetic standards and may be granted or
withheld in Licensor's sole and absolute discretion, exercised in good faith.
8. Minimum Guaranteed Fees
8.1 [*](14)
- --------
(14) Confidential portions omitted and filed separately with the Commission.
23
<PAGE> 26
9. Percentage Fees
9.1 In consideration of the license granted and the design
services performed by Licensor hereunder, Licensee will pay to Licensor a fee
(in each case, a "Percentage Fee") equal to [*](15)
9.2 [*](16)
9.3 Within 30 days after the end of each quarter, Licensee will
deliver a statement setting forth (i) the monthly amount of Net Sales for such
quarter (ii) a computation of the amount of Percentage Fee for such quarter and
(iii) an appropriate summary of all expenditures made by or on behalf of
Licensee pursuant to Article 6 of this Agreement. Such statement will also set
forth in detail and separately for each country, for each category of Articles
and for each account of Licensee: the style number, description, number of
units, unit price and the total amount of gross sales of Articles shipped during
such quarter, the type and amount of discounts and credits from gross sales
deducted therefrom (separately as to each type of discount or credit) and all
advertising and promotional expenditures. Each such statement will be signed by
Licensee's chief financial officer and certified by him as complete and
accurate.
9.4 Within 180 days after the close of each Annual Period, a
report certified by Guarantor's independent certified public accountants who
report on its audited financial statements, setting forth for the entire Annual
- --------
(15) Confidential portions omitted and filed separately with the Commission.
(16) Confidential portions omitted and filed separately with the Commission.
24
<PAGE> 27
Period the information required by the first sentence of Section 9.3. For
purposes of Sections 8 and 9, the effective date of any termination of this
Agreement will be deemed to be the close of an Annual Period and the close of a
quarter, and the period between the last day of the preceding Annual Period and
such effective date will be deemed to be an Annual Period.
10. Audit
10.1 Licensee will prepare and maintain, in accordance with US
GAAP, complete and accurate books of account and records covering all of its
operations. While this Agreement remains in effect and for three years
thereafter, during regular business hours and upon reasonable notice Licensor
and its representatives may from time to time examine said books of account and
records and all other documents and material in the possession or under the
control of Licensee or its Affiliates relating to the subject matter of this
Agreement, including the work papers of Licensee's auditors. All such books of
account, records and documents will be kept available by Licensee for at least
three years after the Annual Period to which they relate.
10.2 If any such examination indicates that the amount of
Percentage Fee for any Annual Period should have been higher than the Percentage
Fee as previously computed and reported by Licensee, Licensee will immediately
remit the shortfall to Licensor, together with interest thereon computed in
accordance with Section 13.1(a). If the shortfall is [*](17) or more of the
- --------
(17) Confidential portions omitted and filed separately with the Commission.
25
<PAGE> 28
Percentage Fee as previously computed and reported by Licensee, or if such
examination indicates that Licensee should have known of such shortfall at the
time of such computation and report, Licensee will promptly reimburse Licensor
for the cost of such examination within five days of Licensor's demand therefor.
If such examination indicates that Licensee made an overpayment of Percentage
Fee, and such overpayment was not subsequently adjusted, Licensor shall advise
Licensee and provide for appropriate adjustments or credits towards future
payments by Licensee.
11. Certain Additional Matters
Exhibit 11 sets forth certain additional provisions regarding trademark
ownership and protection (including use of Licensee's corporate name in
connection with the Licensed Mark), infringement/parallel imports, copyright,
confidentiality, indemnification/insurance, representations, brokerage and
certain miscellaneous sections, all of which provisions are intended to be an
integral part of this Agreement and are incorporated herein by reference.
12. Other Designers
12.1 During the term of this Agreement and any extension or renewal
thereof:
(a) [*](18)
- ------------
(18) Confidential portions omitted and filed separately with the Commission.
26
<PAGE> 29
(b) [*](19)
13. Breach/Default
13.1 If any of the following breaches or defaults occurs, then the
non-breaching party may by written notice to the breaching party terminate this
Agreement as provided below:
(a) If Licensee fails to make any payment hereunder on the date
such payment is due (i) Licensee will pay interest on the unpaid balance of the
amount due at a rate equal to three percentage points above the prime rate per
annum announced by Chase Bank in New York, New York as its prime rate as of the
close of business on the date such payment initially became due until the date
such amount is paid in full; and (ii) if such failure to pay continues for five
business days or more following written notice thereof, Licensor may terminate
this Agreement forthwith.
(b) If Licensee fails to comply with the first sentence of Section
1.5, Section 5.1(e) or Section 15.2, or the Guarantor fails to comply with the
second paragraph of the Guarantee, Licensor may terminate this Agreement
forthwith.
(c) If Licensee fails to perform any of its obligations hereunder,
which failure may adversely affect the Licensed Mark, Licensor may terminate
this Agreement forthwith: (i) if such default is incurable; or (ii) if such
default is curable but continues uncured for a period of ten days or more after
written notice thereof has been given to Licensee.
- --------
(19) Confidential portions omitted and filed separately with the Commission.
27
<PAGE> 30
(d) If either party fails to perform any other obligation
hereunder, the non-defaulting party may terminate this Agreement forthwith: (i)
if such default is incurable; (ii) if such default is curable, within 30 days,
but continues uncured for a period of 30 days or more after written notice
thereof has been given to the defaulting party or (iii) if such default is
curable but not within such 30 day period and (A) all reasonable steps necessary
have not been taken by the defaulting party within said 30 day period or (B)
such defaulting party fails to diligently take all steps necessary to cure such
default as promptly as practicable or (C) such default continues uncured within
60 days after written notice thereof has been given to the defaulting party.
(e) If the Guarantor defaults under any of its financial covenants
set forth in the Guarantee or the Guarantor otherwise disavows, breaches or
defaults under the Guarantee, or the Guarantor otherwise asserts that the
Guarantee is invalid or unenforceable, Licensor may terminate this Agreement
forthwith.
(f) If any indebtedness of the Licensee or the Guarantor in excess
of $5 million is accelerated or otherwise comes due and payable before its
stated maturity, Licensor may terminate this Agreement forthwith.
13.2.1 If Licensee files a petition in bankruptcy, is adjudicated a
bankrupt, becomes insolvent, makes an assignment for the benefit of creditors,
or files a petition or otherwise seeks relief under or pursuant to any
bankruptcy, insolvency or reorganization statute or proceeding, or if it
discontinues its business or discontinues reasonable commercial exploitation of
Articles for a period of 60 days or more, or a custodian, receiver or trustee is
appointed for it or a substantial portion
28
<PAGE> 31
of its business or assets for any reason, or if it defaults on any obligation
that is secured by a security interest in any Articles, this Agreement will
forthwith automatically terminate, in which case no assignee for the benefit of
creditors, custodian, receiver, trustee in bankruptcy, sheriff or any other
officer of the court or official charged with taking over custody of Licensee's
assets or business will have the right to continue this Agreement or to exploit
or in any way use the Licensed Mark.
13.2.2 No assignee for the benefit of creditors, custodian, receiver,
trustee in bankruptcy, sheriff or any other officer of the court or official
charged with taking over custody of Licensee's assets or business will have the
right to continue this Agreement or to exploit or in any way use the Licensed
Mark if this Agreement terminates pursuant to Section 13.2.1 above.
13.2.3 Notwithstanding the provisions of Section 13.2.1, if a trustee
in bankruptcy of Licensee (the "Trustee") or Licensee, as debtor ,properly
elects to assume this Agreement pursuant to the United States Bankruptcy Code or
any amendment or successor thereto (the "Bankruptcy Code") and thereafter
desires to assign this Agreement to a third party in accordance with the
Bankruptcy Code, the Trustee or the Licensee, as the case may be, will notify
Licensor of same in writing (the "Notice"). The Notice will constitute the grant
of an option to Licensor to have this Agreement assigned to it or to its
designee for such consideration, or its equivalent in money, and upon such
terms, as are specified in the Notice. Such option may be exercised only by
written notice given by Licensor to the Trustee or the Licensee, as the case may
be, within 15 days after Licensor's receipt of
29
<PAGE> 32
the Notice or such shorter period of time as may be deemed appropriate by the
court in the bankruptcy proceeding. If Licensor fails to give its notice within
the exercise period, the assigning party may complete the assignment but only to
the entity named in the Notice and upon the terms specified therein. This
Section 13.2.3 shall not preclude or impair any rights which Licensor may have
as a creditor in any bankruptcy proceeding.
13.3 Notwithstanding any termination in accordance with the
foregoing, Licensor hereby reserves, all the rights and remedies which it has or
which are granted to it by operation of law, to collect fees due, earned or
payable by Licensee pursuant to this Agreement, to be compensated for damages
for breach of this Agreement and to enjoin the unlawful or unauthorized use of
the Licensed Mark without the necessity of posting any bond or proving any
actual damages (which injunctive relief may also be sought prior to or in lieu
of termination).
14. Effects of Termination
14.1.1 On the expiration or earlier termination of this Agreement
pursuant to Section 13 or otherwise, all the rights of Licensee hereunder will
forthwith terminate and automatically revert to Licensor; provided, that except
in the case of a termination (i) by Licensor pursuant to Section 13.1, or (ii)
pursuant to Section 13.2, for an additional period of 180 days only on a
non-exclusive basis, Licensee may continue to sell its inventory of Articles
(including work-in-process and work necessary to utilize special materials not
usable except in the production of Articles) ("Inventory") on hand at the date
of termination, but only to the extent the
30
<PAGE> 33
existence and amount of such Inventory as of the date of termination is
disclosed in the statement (described in Section 14.1.2 below) certified by
Guarantor's independent public accountants and delivered to Licensor within 15
days following termination. Such Inventory, and statement will be subject to
verification by Licensor. Sales by Licensee of such Inventory will be made under
the Licensed Mark and in accordance with all of the terms and provisions of this
Agreement (including the payment of the Percentage Fee in connection therewith
without credit for any Minimum Guaranteed Fee previously paid by Licensee), only
to Licensee's regular accounts in the ordinary course of business, in accordance
with sales policies in effect prior to termination, or otherwise only as may be
approved by Licensor.
14.1.2 Upon expiration or early termination of this Agreement (but
only in the event that Licensee has a non-exclusive period in which to dispose
of inventory of finished Articles), Licensee will forthwith deliver to Licensor
a statement setting forth its Inventory of Articles. Such statement will specify
quantity, design and styles and will set forth Licensee's cost (as indicated in
the books and records of Licensee) of such Articles and other materials and
shall set forth Licensee's cost (as indicated in the books and records of
Licensee) of each of such Articles and other materials. Licensor shall have the
option (hereinafter called the "Inventory Purchase Option") to purchase all such
Articles (other than damages and irregulars) and/or all or any portion, in its
discretion, of such damages, irregulars and other materials which are included
in the inventory of Licensee on the date of purchase for an amount equal to
[*](20)
- --------
(20) Confidential portions omitted and filed separately with the Commission.
31
<PAGE> 34
14.2 Except as provided in Section 14.1, on the expiration or
earlier termination of this Agreement, and regardless of any claim for wrongful
termination, Licensee will forthwith discontinue all use of the Licensed Mark,
will no longer have the right to use the Licensed Mark or any variation or
simulation thereof, will transfer to CKTT or Licensor, as applicable, all
registrations, filings and rights with regard to the Licensed Mark which it may
have possessed at any time, and will cease doing business as "Calvin Klein
Home". Licensee will also thereupon deliver to Licensor or to Licensor's
designee free of charge, or at Licensor's option will destroy, all materials
utilized in connection with Articles and all labels, tags and other material in
its possession with the Licensed Mark thereon, and will use its best efforts to
cause stencils, sketches and other materials related to the production of
Articles in the possession of third parties to be destroyed or otherwise
rendered unusable. Licensee will not reproduce or adapt any of said stencils,
sketches or other materials for use on or in connection with merchandise
subsequent to the termination of this Agreement.
14.3 Licensor may, in its sole discretion, at any time, enter into
such agreements as it desires pursuant to which Products bearing the Licensed
Marks may be shown, advertised, distributed or sold in the Territory by it or by
any duly authorized third party other than Licensee, so long as such agreements
do not become effective as to the offer, sale, advertising, promotion or
shipment of Exclusive Products within the Territory prior to the date of
termination of this Agreement.
32
<PAGE> 35
15. Miscellaneous
15.1 All reports, approvals and notices required or permitted by
this Agreement to be given to any party shall be in writing and shall be
delivered personally, by reputable overnight courier, telecopied or sent by
certified, registered or express mail (in each case with return receipt
requested), postage prepaid. Any such notice shall be deemed given when so
delivered personally, telecopied, or on the date received if deposited in the
mail or sent by reputable overnight courier, in each case to the party concerned
at its address as set forth below or at such other address as a party may
specify by notice to the other.
Licensor: Calvin Klein, Inc.
205 West 39th Street
New York, New York 10018
Attention: President
Facsimile: 212/221-3259
Copies: Calvin Klein, Inc.
205 West 39th street
New York, NY 10018
Attention: Licensing Department
Facsimile: 212/944-1959
Attention: Corporate Affairs
Facsimile: 212/768-8930
Licensee: Crown Crafts Designer, Inc.
1185 Avenue of the Americas, 8th Floor
New York, NY 10036
Attention: President
Facsimile: 212-824-2680
Copy: Crown Crafts, Inc.
1600 RiverEdge Parkway, 2nd Floor
Atlanta, GA 30328
Attention: President
Facsimile: 770-644-6264
Attention: General Counsel
Facsimile: 770-644-6264
15.2 Licensee acknowledges and recognizes that: (a) it has been
granted the license herein because of its particular expertise, knowledge,
33
<PAGE> 36
judgement, skill and ability; (b) it has substantial and direct responsibilities
to perform this Agreement in accordance with its terms; (c) Licensor is relying
on Licensee's unique knowledge, experience and capabilities to perform this
Agreement in specific manner consistent with the high standards of integrity and
quality associated with Licensor and its business; (d) the granting of the
license under this Agreement creates a relationship of confidence and trust
between Licensee and Licensor; and (e) this Agreement is one under which
applicable law excuses Licensor from accepting performance from, or rendering
performance to, a person or entity other than licensee, within the meaning of
Section 365(c) and (e) of the Bankruptcy Code (title 11, U.S. Code). Licensee
may not assign or otherwise transfer any of its rights or obligations hereunder
(including any attempt by Licensee to establish a sublicense or a
distributorship without the prior consent of Licensor as to such sublicensee and
sublicense or distributor and distributorship agreement). Any such attempted
assignment, sublicense or transfer, whether voluntary or by operation of law,
directly or indirectly, will be void and of no force or effect. For purposes
hereof, any transfer of all or a controlling portion of the shares of Licensee
(by a shareholder other than Licensor) in one or more transactions (whether over
a period of time or all at once) except to Licensor or a Licensor-approved
shareholder, will be deemed an attempted transfer prohibited by this Section
15.2 and will be void pursuant to the preceding sentence. In addition, upon the
occurrence of a "Change of Control" (as defined) of the Guarantor, Licensor may
by written notice terminate this Agreement. For purposes of this Agreement, a
"Change of Control" of Guarantor shall have occurred if:
34
<PAGE> 37
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than the current shareholder(s) at the time of
execution of this Agreement, as set forth in Section 15.2, becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,)
directly or indirectly, of more than 35% of the total voting power of the voting
stock of the Guarantor (or its successor by merger, consolidation or purchase of
all or substantially all of its assets) or the Guarantor consummates any merger
or consolidation and the stockholders of Guarantor immediately prior to such
merger or consolidation do not control in the aggregate the majority of the
total voting power of the voting stock of the Guarantor (or the successor formed
by such merger or consolidation) immediately following such merger or
consolidation ; or
(ii) during any period of two consecutive years individuals who at
the beginning of such period constituted the Board of Directors of the Guarantor
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Guarantor was approved
by a vote of a majority of the directors of the Guarantors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved or is a designee of the then
remaining members of the Board of Directors of the Guarantor or was nominated or
elected by such then remaining members of the Board of Directors of the
Guarantor) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or
35
<PAGE> 38
(iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Guarantor; or
(iv) the adoption by the stockholders of a plan for the liquidation
or dissolution of the Guarantor.
15.3 This Agreement together with the Exhibits and Schedules
attached hereto, all of which are incorporated herein by reference, contains the
final, complete and exclusive understanding and agreement between the parties
hereto with respect to the subject matter hereof, supersedes all prior oral and
written understandings (except for the confidentiality agreement entered into by
the parties) and may not be modified, nor may any of the provisions hereof be
waived, except by a writing executed by the parties.
15.4 This Agreement will be considered as having been entered into
in the State of New York and will be construed and interpreted in accordance
with the laws of that state applicable to agreements made and to be performed
therein. However, disputes regarding the Licensed Mark will be resolved in
accordance with the U.S. Federal trademark laws and related laws, statues, rules
and regulations of the United States unless there are no U.S. Federal laws,
statutes, rules or regulations dispositive of such dispute, in which event such
disputes will be resolved in accordance with the previously described laws of
the State of New York.
15.5 Licensee acknowledges and agrees that the effectiveness of
this Agreement is contingent upon simultaneous execution and delivery of the
Guarantee by the Guarantor.
36
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
CALVIN KLEIN, INC.
BY:/s/ BARRY SCHWARTZ
-------------------------------
CROWN CRAFTS DESIGNER, INC.
BY:/s/ Michael Bernstein
-------------------------------
37
<PAGE> 40
Exhibit A
Licensed Mark
[CALVIN KLEIN LOGO APPEARS HERE]
38
<PAGE> 41
EXHIBIT 11
I. Trademark Ownership and Protection
I-1 Licensee will not (a) co-join any name or names with the
Licensed Mark, (b) use the name "Calvin Klein" or "CK" or any portion or
derivative thereof in its corporate name, or (c) use any other name, or names in
connection with the Licensed Mark, in any advertising, promotion, publicity,
labeling, packaging or other printed matter of any kind in connection with the
distribution or sale of Articles except as may be required or approved by
Licensor; provided, that Licensee may do business as "Calvin Klein Home" and in
connection therewith will make appropriate "fictitious name" filings (subject to
Licensor's prior review and approval). Any use of Licensee's corporate name or
that of its Affiliates in connection with the Licensed Mark will be subject to
the approval of Licensor, and will clearly indicate that the Licensee is using
the Licensed Mark pursuant to a license from Licensor.
I-2 Licensee acknowledges that Calvin Klein Trademark Trust
("CKTT") is the owner, and Licensor is the beneficial owner, of all right, title
and interest in and to the mark "CALVIN KLEIN," and to any variant or
modification thereof, for Products in the Territory in any form or embodiment
thereof. CKTT also owns the goodwill related to such mark and to the business
and goods in relation to which such mark has been or will be used. Licensee will
not at any time directly or indirectly do or suffer to be done any act or thing
that might in any way adversely affect any rights of CKTT or Licensor in and to
any of such mark, any registrations thereof or any applications for
registration, thereof or that might reduce the value thereof or detract from its
reputation, image or prestige of that of CKTT, Licensor or Mr. Calvin Klein.
Sales by Licensee and its Affiliates will be deemed to have been made by CKTT
for purposes of trademark registration and all uses of the Licensed Mark by
Licensee and its Affiliates and goodwill generated by use of the Licensed Mark
will inure to the benefit of CKTT.
I-3 At Licensor's request, Licensee will execute any and all
reasonable documents (including registered user agreements) and take any other
similar actions reasonably required by Licensor to confirm CKTT's ownership or
Licensor's beneficial ownership of the marks referred to in Section I-2 and the
respective rights of CKTT, Licensor and Licensee pursuant to this Agreement.
Licensee will cooperate with Licensor and will take any actions reasonably
requested by Licensor in connection with the filing and prosecution by Licensor
of applications in CKTT's name (or if applicable, Licensor's name) to register
the Licensed Mark for Articles and in connection with the maintenance and
renewal of such registrations as may issue. Upon termination of this Agreement,
Licensee will execute such documents as reasonably required by Licensor to
evidence such termination. Licensor will bear all expenses in connection with
the preparation and filing of all such documents (excluding any costs or
expenses for review of such documents by Licensee or its representatives) filing
of registered user agreements and with any documents required to evidence
termination of this Agreement, including termination of such registered user
agreements. In order to effect the foregoing, Licensee will execute the power of
attorney set forth as Exhibit 11 I-3 hereto.
I-4 Licensee will use the Licensed Mark in the Territory strictly
in compliance with the legal requirements obtaining therein and will use such
<PAGE> 42
markings in connection therewith as may be required by applicable legal
provisions. Licensee will cause to appear on all Articles and on all materials
on or in connection with which the Licensed Mark is used, such legends, markings
and notices as may reasonably be necessary in order to give appropriate notice
of any trademark, trade name or other rights therein or pertaining thereto as
Licensor may request.
I-5 Whether during the term of this Agreement or subsequent to its
termination, Licensee will never (a) challenge Licensor's ownership of or the
validity of the Licensed Mark or any application for registration thereof, or
any trademark registration thereof, or any rights of Licensor therein, or (b)
challenge the fact that Licensee's rights pursuant to this Agreement are solely
those of a licensee.
II. Infringement/Parallel Imports
II-1. Whenever Licensee learns of any infringement or imitation of
the Licensed Mark or of any use by any person of a trademark similar to the
Licensed Mark or of any acts of unfair competition involving the Licensed Mark
as they relate to Products, it will promptly notify Licensor thereof. Licensor
will thereupon take such action as it deems advisable for the protection of
Licensor's rights in and to the Licensed Mark, including, without limitation,
reasonably requiring Licensee to take action in Licensor's name and on
Licensor's behalf, in which case Licensee will cooperate with Licensor in all
reasonable respects. In no event will Licensor be required to take any action
which Licensor deems in good faith to be inadvisable. In the event Licensor
requires Licensee to take action on Licensor's behalf, Licensee will do so, as
Licensor deems reasonably appropriate, strictly in accordance with Licensor's
directions and will advise Licensor of all developments as they occur. In all
such instances Licensor and Licensee will consider the effect the infringement
is having on the market, the costs of such contemplated action and the
likelihood of success. Licensee will take no action with respect to the Licensed
Mark including, without limitation, initiating proceedings, settling any action,
appealing any adverse decision or discontinuing any action taken by it, except
to the extent the same is approved in advance by Licensor. Subject to Section
II-4, Licensee will bear all expenses (including investigation expenses and
legal fees and expenses) incurred with respect to any actions taken pursuant to
this Section. Any damages recovered or sums obtained in settlement in or with
respect to any action described in this Section II-1 or Section II-2 will first
be applied to reimburse Licensee and/or Licensor for the legal expenses incurred
and actually paid by it; the balance, if any, will be allocated 50% to each of
the parties.
II-2 Licensee will use commercially reasonable efforts to minimize
and deter the diversion of Articles for sale outside of the Territory
(including, without limitation, unauthorized distribution of Articles by
Licensee's manufacturers and subcontractors) ("Diversion"). Licensee will
cooperate with Licensor in Licensor's efforts to minimize and deter Diversion
("Anti-Diversion Efforts"). Without limiting the foregoing:
(a) Licensee will promptly provide such information as
Licensor may from time to time reasonably request concerning its manufacturing,
subcontracting and distribution locations, activities and
<PAGE> 43
shipments, product and label identification systems and data and sales to and
by its customers; and
(b) Licensee will promptly reimburse all out-of-pocket
expenses reasonably incurred by Licensor in its Anti-Diversion Efforts
(including, without limitation, reasonable attorneys' fees and expenses).
II-3 Where Licensor deems it advisable and with Licensee's consent,
Licensor will initiate criminal or civil actions against the persons outside
Territory seeking to manufacture counterfeit Articles or sell or ship
counterfeit Articles into the Territory (excluding, for this purpose,
manufacturers or subcontractors described in the definitions of Diversion). The
cost related to any such actions will be entirely for Licensee's account.
II-4. Licensor will consult with Licensee in planning and
enforcement activities pursuant to this Section II. The parties will establish
and from time to time revise a budget for such enforcement activities. Licensor
may not seek reimbursement from Licensee with respect to any action covered by
Sections II-1 or II-2 unless, at the time of commencement thereof, Licensee
shall have consented to such commencement. Licensor will use commercially
reasonable efforts to control the costs of all such actions. The parties will
consult and cooperate to forecast Licensor's reimbursable expenses hereunder and
make suitable arrangements so that Licensor may receive Licensee's payments in
respect thereof at or shortly before such expenses are incurred.
III. Copyright
III-1. Licensee acknowledges that all rights (including copyright and
design patent rights) in any works or contributions to works including, without
limitation, sketches, designs, packaging, labels, tags, advertisements,
promotional material or the like used in connection with the Licensed Mark
("Works") which are created by Licensor will be owned by Licensor. In addition,
Licensee hereby assigns to Licensor all right, title and interest in any Works
or contributions to Works which may be created by Licensee. Licensee will
execute and deliver to Licensor such further instruments of ownership and
transfer in respect thereto as Licensor may request in connection with the
foregoing and, if Licensee will fail to do so, Licensor may execute such
instruments on behalf of Licensee and make appropriate dispositions thereof.
Works and contributions to Works may be prepared by Licensee only through
Licensee's employees whose contribution is to be considered a "work made for
hire" and by others who have executed a written assignment in favor of Licensee.
Licensee will not, at any time, do or suffer to be done any Works, including,
without limitation, filing any application to record in its name any claims to
copyrights with respect to Articles or material utilizing the Licensed Mark; and
Licensee will do any and all things reasonably required by Licensor to preserve
and protect said rights, including, but not by way of limitation, placing the
copyright notice specified by the Universal Copyright Convention on all such
copyrightable material.
IV. Confidentiality
IV-1. All information relating to this Agreement and any related
agreements entered into by the parties or relating to Licensor and its
Affiliates and/or designees which Licensee learns or has learned since the
commencement of negotiation of this Agreement, all design concepts which
<PAGE> 44
Licensor or its Affiliates or designees provide to Licensee hereunder and all
sketches and designs received by Licensee from Licensor or its Affiliates or
designees or are approved for use in connection with the Articles and all Works
(collectively, "Licensor's Data") are valuable property of Licensor and such
Affiliates or designees. Licensee acknowledges the need to preserve the
confidentiality and secrecy of Licensor's Data. During and after the term of
this Agreement, Licensee will not use or disclose same (except for use required
to fulfill the provisions of this Agreement during the term or any renewal or
extension hereof), and will take all necessary steps to ensure that the use of
Licensor's Data by Licensee or its Affiliates or designees (which use and
designees will be solely as necessary for the manufacture, distribution, sale,
advertising or promotion of Articles hereunder) will preserve such
confidentiality and secrecy in all respects. Notwithstanding the foregoing,
Licensee's obligations to keep Licensor's Data confidential will terminate
(except for designs and design concepts and materials) at such time and solely
to the extent that any such Licensor's Data will become generally known to the
public and in the public domain, through no fault of Licensee or any or its
Affiliates or designees. Licensee agrees that in the event if reasonably
determines that it must disclose certain information regarding this Agreement
and/or file this Agreement as a exhibit to any public filings, that it will (i)
consult with Licensor prior to any such disclosures and (ii) use is commercially
reasonable efforts to seek confidential treatment of portions of this Agreement
under the Securities Act of 1933, as amended or the Exchange Act, as the case
may be, as agreed to between Licensor and Licensee.
IV-2. All information relating to Licensee and its Affiliates and/or
designees which Licensor learns or has learned since the commencement of
negotiation of this Agreement other than Licensor's Data (collectively
"Licensee's Data") is valuable property of Licensee and such Affiliates or
designees. Licensor acknowledges the need to preserve the confidentiality and
secrecy of Licensee's Data. During and after the term of this Agreement,
Licensor will not use or disclose same (except for use required to fulfill the
provisions of this Agreement during the term of any renewal or extension hereof
and use deemed necessary by Licensor in connection with its business), and will
take all necessary steps to ensure that the use of Licensee's Data by Licensor
or its Affiliates or designees (which use by such designees will be solely as
necessary for the manufacture, distribution, sale, advertising or promotion of
Articles hereunder) will preserve such confidentiality and secrecy in all
respects. Notwithstanding the foregoing, Licensor's obligations to keep
Licensee's Data confidential will terminate at such time and solely to the
extent that any such Licensee's Data will become generally known to the public
and in the public domain, through no fault of Licensor or any of its Affiliates
or designees.
V. Indemnification/Insurance
V-1. Licensee hereby indemnifies and holds harmless each of
Licensor, CKTT and Calvin Klein, individually, and their respective Affiliates,
directors, shareholders, employees and agents from and against any and all
losses, liability, damages and expenses (including reasonable attorneys' fees
and expenses) which any of them incur or for which any of them may become liable
or be compelled to pay in any action or claim, for or by reason of or resulting
from any acts of Licensee or its Affiliates or any of their respective
directors, shareholders, employers or agents pursuant to (or
<PAGE> 45
failure of Licensee to take acts required by) this Agreement, excluding those
matters as to which Licensee is indemnified pursuant to Section V-3. The
provisions of this section and the obligations of Licensee set forth herein will
survive expiration or other termination of this Agreement.
V-2. Licensee will procure and maintain at its own expense in full
force and effect at all times during which Articles are being sold with a
responsible insurance carrier licensed to do business in the State of New York
and acceptable to Licensor, a public liability insurance policy including
products liability coverage as well as contractual liability with respect to
this Agreement with a limit of liability of not less than $5,000,000. Such
insurance policy will insure against occurrences happening at any time during
which Articles are being sold or used regardless of when claims may be made.
Such insurance policy will be written for the benefit of CKTT, Licensor,
Licensee and Calvin Klein, individually, and will provide for at least ten days
prior written notice to Licensor and Licensee of the cancellation or substantial
modification thereof. Such insurance may be obtained by Licensee in conjunction
with a policy of products liability insurance which covers products other than
Articles. Licensee will deliver a certificate of such insurance to Licensor
promptly upon issuance of said insurance policy and will, annually and otherwise
from time to time, upon reasonable request by Licensor, promptly furnish to
Licensor evidence of the maintenance of said insurance policy. Nothing contained
in this Section V-2 will be deemed to limit in any way the indemnification
provisions of Section V-1 above.
V-3. [*](21)
VI. Representations
VI-1. Licensor represents and warrants that (i) it has full right,
power and authority to enter into this Agreement, including the right to grant
the License to use the Licensed Mark contemplated by this Agreement, and to
perform all of its obligation hereunder. [*](22)
VI-2. Licensee represents and warrants that it has full right, power
and authority to enter into this Agreement and to perform all of its obligations
hereunder.
VII. Additional Miscellaneous Provisions
VII-1. Each party hereby indemnifies and holds the other party and
its respective employees and Affiliates harmless from and against any and all
liabilities (including reasonable attorneys' fees and disbursements paid or
incurred in connection with any such liabilities) for any brokerage commissions
or finder's fees due any broker or finder engaged, utilized or
- --------
(21) Confidential portions omitted and filed separately with the Commission.
(22) Confidential portions omitted and filed separately with the Commission.
<PAGE> 46
contacted by such indemnifying party in connection with this Agreement or the
transactions contemplated hereby.
Each party agrees that it will bear its own expenses related to any claim
arising from the predecessor license as referred to in the Agreement, and will
refrain from making claims against the other in connection herewith.
VII-2. Except as otherwise provided herein, this Agreement will inure
to the benefit of and will be binding upon the parties and permitted successors
and assigns.
VII-3. This Agreement will not constitute the parties as partners or
as joint venturers, or either as agent of the other, and Licensee will have no
power to obligate or bind Licensor in any manner whatsoever. Licensor will have
no responsibility for the operation or production of Licensee's manufacturing,
distribution or sales facilities or for any decisions that may be made in
connection therewith regardless of whether Licensor approves or suggests any of
the same.
VII-4. No waiver by either party of any breach hereof or default
hereunder will constitute a continuing waiver of such provision or of any other
provision of this Agreement. Acceptance of payment by Licensor will not be
deemed a waiver by Licensor of any violation of or default under any of the
provisions of this Agreement by Licensee.
VII-5. If any portion of this Agreement will be held to be void or
unenforceable, the remaining provisions of this Agreement and the remaining
portion of any provision held void or unenforceable in part will continue in
full force and effect.
VII-6 The parties expressly agree that the courts of the State of
New York and the federal courts located in the State of New York will be the
exclusive forum for the adjudication of any disputes relating to this Agreement
or the subject matter hereof, and that any judgement, award or order issued by
the courts of the State of New York and/or the federal courts located in the
State of New York will be enforceable in the courts in any jurisdiction in the
Territory. Licensee expressly and irrevocably submits to the jurisdiction of the
courts of the State of New York the federal courts located in the State of New
York and waives any right to contest the jurisdiction of such courts to
adjudicate disputes relating to this Agreement or the subject matter hereof and
waives any objection to the laying of venue of any suit or proceeding in such
courts. Notwithstanding anything to the contrary in this Agreement, Licensee
expressly agrees that Licensor will have the right to enjoin use of the Licensed
Mark in any venue or jurisdiction in the Territory. Service of any notice,
process, motion or other document in connection with proceedings relating in any
way to this Agreement or the subject matter hereof may be effectuated, either by
personal service or in the same manner as notices are to be given pursuant to
Section 15.1.
VII-7 This Agreement will be construed without regard to any
presumption or other rule requiring construction against the party causing this
Agreement to be drafted. If any words or phrases in this Agreement will have
been stricken out or otherwise eliminated, whether or not any other words or
phrases have been added, this Agreement will be construed as if those words or
phrases were never included in this Agreement, and no
<PAGE> 47
implication or inference will be drawn from the fact that the words or phrases
were so stricken out or otherwise eliminated.
VII-8 Bankruptcy Option Notwithstanding the provisions of Section
13.2.1 above, in the event that, pursuant to the Bankruptcy Code or any
amendment or successor thereto (hereinafter referred to as the "Bankruptcy
Code"), a trustee in bankruptcy of Licensee (hereinafter referred to as the
"Trustee") or Licensee, as debtor (hereinafter referred to as the "Debtor"), is
permitted to assume this Agreement and does so and, thereafter, desires to
assign this Agreement to a third party, which assignment satisfies the
requirements of the Bankruptcy Code, the Trustee or the Debtor, as the case may
be, will notify Licensor of same in writing (hereinafter referred to as the
"Notice"). The giving of the Notice will be deemed to constitute the grant of an
option to Licensor to have this Agreement assigned to it or to its designee for
such consideration, or its equivalent in money, and upon such terms, as are
specified in the Notice. The aforesaid option may be exercised only by written
notice given by Licensor to the Trustee or the Debtor, as the case may be,
within 15 days after Licensor's receipt of the Notice from such party or such
shorter period of time as may be deemed appropriate by the court in the
bankruptcy proceeding. If Licensor fails to give its notice to such party within
the exercise period, such party may complete the assignment referred to in its
notice but only to the entity named in the Notice and upon the terms specified
therein. Nothing contained herein will be deemed to preclude or impair any
rights which Licensor may have as a creditor in any bankruptcy proceeding.
<PAGE> 48
Schedule 15.2
SHAREHOLDERS OF CROWN CRAFTS, INC.
[*](23)
- --------
(23) Confidential portions omitted and filed separately with the Commission.
<PAGE> 49
Schedule 11 1-3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned (the
"Licensee") hereby confirms that the Calvin Klein Trademark Trust ("CKTT") is
the owner, and Calvin Klein, Inc. ("CKI") is a beneficial owner, of "Calvin
Klein", "CK/Calvin Klein", and all modifications and derivatives thereof (the
"Licensed Mark") and hereby appoints any and all officers of CKI including but
not limited to Deirdre Miles-Graeter, Assistant Secretary and Vice President
Corporate Affairs, as its true and lawful attorney-in-fact, with full power of
substitution, in connection with the maintenance, prosecution, defense and
transfer of the Licensed Mark, with full irrevocable power and authority in the
place of the Licensee and in the name of the Licensee or in its own name as
nominee for the Licensee, to take any and all appropriate action and to execute
any and all documents and instruments which may be necessary or desirable to
accomplish the foregoing including, without limitation:
(i) the full power to sign its name upon all
documents and filings (including registered user agreements) and to take any
actions required to confirm the ownership of CKTT or CKI's beneficial ownership
of the Licensed Mark in the jurisdictions covered by its licensee agreement (the
"Territory") and the respective rights of CKTT, CKI and Licensee with respect to
the Licensed Mark;
(ii) the full power to sign its name upon all
documents and filings and to take any actions required by CKI and/or CKTT in
connection with the filing and prosecution of applications in CKTT's name (or,
if applicable, CKI's name) to register the Licensed Mark in the Territory and in
connection with the maintenance and renewal of such registrations as may issue;
and
(iii) from and after such time as Licensee's right
to use the Licensed Mark terminates, the full power to sign its name upon all
documents and filings and to take any actions required by CKI to evidence such
termination, including, without limitation, documents and filings required by
CKI to transfer to CKI all registrations, filings and rights with regard to the
Licensed Mark which Licensee may have possessed at any time and to affirm or
confirm CKTT's or CKI's rights in and to the Licensed Mark.
<PAGE> 50
This Power of Attorney is governed by the laws of the State of New York
applicable to powers of attorney made and to be exercised wholly within such
State.
Dated: This ____ day of _____________, 199__
Crown Crafts Designer, Inc.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address
-----------------------------
------------------------------------
------------------------------------
<PAGE> 51
SCHEDULE B
LICENSED PRODUCTS
SOFT HOME FURNISHED PRODUCTS
Comforters (Std. & Down)(23)
Pillows (Std. & Down)(1)
Down Featherbeds(1)
Decorative Pillows
Sheets and Pillowcases
Towels
Bedspreads
Coverlets
Quilts
Shams
Dust Ruffles
Shower Curtains
Bath Rugs
Bath Valances
Duvets/Duvet Covers
Napkins
Placemats
Chair Pads
Table Rounds
Tablecloths
Throws
Blankets
Window Treatments
Bath Accessories: (bath mirrors, soap dishes, tumblers, tissue boxes,
bathroom trays)(24)
- --------
(1) Down comforters and pillows (standard and down) and Down Featherbeds
are to be produced and sold pursuant to a sublicense and by a
sublicensee to be subject to the approval of Licensor (including the
specific terms of any sublicense)
(2) To be produced by Swid Powell, Inc. or other contractors designated by
Licensor and sold by Licensee.
<PAGE> 52
SCHEDULE C
1. United States of America
2. Canada
3. Mexico
4. Europe
- Belgium
- Netherlands
- Luxembourg
- Denmark
- Germany
- France
- Monaco
- Italy
- Great Britain
- Ireland
- Portugal
- Spain
- Greece
- Austria
- Finland
- Iceland
- Liechtenstein
- Norway
- Sweden
- Switzerland
5. South America
- Venezuela
- Guyana
- Suriname
- French Guiana
- Colombia
- Ecuador
- Brazil
- Peru
- Bolivia
- Paraguay
- Chile
- Uruguay
- Argentina
6. Central America
- Belize
- Guatemala
- Honduras
<PAGE> 53
SCHEDULE C (continued)
- El Salvador
- Nicaragua
- Costa Rica
- Panama
7. Caribbean Islands
- The Bahamas
- Cayman Islands
- Jamaica
- Haiti
- Dominican Republic
- Puerto Rico
- British Virgin Islands
- U.S. Virgin Islands
- Anguilla
- St. Martin
- St. Barthelemy
- St. Kitts & Nevis
- Antigua & Barbuda
- Montserrat
- Guadeloupe
- Dominica
- Martinique
- St. Lucia
- Barbados
- Grenada
- Trinidad & Tobago
- Aruba
- Curacao
- Cuba
- Turks & Caicos Islands
- Bermuda
- St. Vincent & the Grenadines
- Netherlands Antilles
8. The Middle-East
- Israel
- Egypt
- Jordan
- Kuwait
- Saudi Arabia
- Turkey
- United Arab Emirates
- Dubai
<PAGE> 54
SCHEDULE D
[*](24)
- --------
(24) Confidential portions omitted and filed separately with the
Commission.
<PAGE> 55
GUARANTEE
In order to induce Calvin Klein, Inc. ("Licensor") to enter into
the license agreement (the "Agreement") with Crown Crafts, Inc. ("Licensee")
which is being executed simultaneously herewith and in consideration of the
covenants and promises made by Licensor in the Agreement, the undersigned (the
"Guarantor"), being the parent of Licensee, unconditionally guarantees that
Licensee will perform and observe each and every agreement, covenant,
representation, warranty, term and condition of the Agreement to be performed or
observed by it, and upon Licensee's failure to do so, the Guarantor will
promptly perform and cause the same promptly to be performed and observed. The
Guarantor unconditionally guarantees that all sums of whatever character which
may become payable by Licensee pursuant to the Agreement or contemplated by the
Agreement (including amounts which would be paid but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. 362(a) of
any other provision of bankruptcy law) will be paid promptly in full when due.
If for any reason whatsoever any sum hereinabove referred to, or any part
thereof, shall not be paid promptly when due, the Guarantor will immediately pay
the same regardless of whether Licensor has taken steps to enforce any right
against Licensee to collect any of said sums and regardless of any other
condition or contingency.
The Guarantor undertakes to adequately finance the operations of
the Licensee and shall, at all times throughout the Term, maintain (i) a
tangible net worth (where "tangible net worth" shall mean the amount of
shareholders' equity shown in the consolidated balance sheet of Crown Crafts,
Inc. and subsidiaries reduced by the unamortized balance of any intangibles
shown in such consolidated balance sheet) of not less than [*](25), and (ii) a
ratio of debt to total capitalization (where "debt" shall mean the total amounts
of notes payable, current maturities of long-term debt as shown in the
consolidated balance sheet of Crown Crafts, Inc. and subsidiaries and "total
capitalization" shall mean the sum of "debt" plus shareholders' equity as shown
in such consolidated balance sheet) of not more than [*](26) percent.
Notwithstanding anything to the contrary contained herein, to the
extent this Guarantee relates to the payment of sums due to Licensor under the
Agreement, it is a Guarantee of payment and not of collection and a continuing
guarantee which will remain in full force and effect and be binding upon the
undersigned until payment in full by Licensee to Licensor of all sums due
pursuant to the Agreement.
The representations, warranties, obligations, covenants,
agreements, and duties of the Guarantor under this Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of the
following with respect to the Agreement although without notice to or the
further consent of the Guarantor: (i) the waiver by Licensor of the performance
or observance by Licensee of any agreement, covenant, warranty, representation,
term, or condition contained in the Agreement; (ii) the
- --------
(25) Confidential portions omitted and filed separately with the
Commission.
(26) Confidential portions omitted and filed separately with the
Commission.
<PAGE> 56
extension, in whole or in part, of the time for the payment by Licensee of any
sums owing or payable under the Agreement, or of the time or performance by
Licensee of any of its other obligations under or arising out of the Agreement;
(iii) the modification or amendment (whether material or otherwise) of any of
the obligations of Licensee under the Agreement; (iv) any failure, omission,
delay or lack on the part of Licensor to enforce, assert or exercise any right,
power or remedy conferred on Licensor in the Agreement or otherwise; (v) the
release or equitable discharge of Licensee from the performance or observance of
any agreement, covenant, warranty, representation, term or condition of the
Agreement by operation of law; (vi) the voluntary or involuntary liquidation,
reorganization or dissolution of, or the receivership, insolvency, bankruptcy,
assignment for the benefit of a creditors or similar proceedings affecting the
Licensee or any of its assets; or (vii) any discharge of Licensee from any of
its obligations under the Agreement.
No failure on the part of Licensor to exercise, and no delay in the
exercise of, any right, remedy or power hereunder will operate as covenant, term
or condition under the Agreement or in the payment of any sums payable by it
thereunder.
This Guarantee will be construed and enforced under the laws of the
State of New York applicable to agreements made and to be performed in said
State.
The Guarantor represents and warrants that it is not entitled to
immunity from judicial proceedings commenced in the State of New York, U.S.A.,
and agrees that, should any judicial proceedings be brought to enforce their
liability hereunder, they will not claim any immunity from such proceedings for
itself or with respect to its property.
The Guarantee cannot be changed, discharged or terminated orally.
The Guarantor hereby waives acceptance of this Guarantee.
Crown Crafts, Inc.
Dated: 6 May 1998
New York, New York
By: /s/ Michael Bernstein
----------------------------------
1600 RiverEdge Parkway, Suite 200
-------------------------------------
Address
Atlanta, Georgia 30328
-------------------------------------
<PAGE> 57
May 6, 1998
License Agreement
Dated as of May 11, 1998
(Supplemental Agreement)
WHEREAS, Calvin Klein, Inc. ("Licensor") and Crown Crafts Designer, Inc.
("Licensee") have today entered into the above-captioned License Agreement
relating to certain soft home furnishings products (the "License Agreement");
and
WHEREAS, the parties desire to set forth certain clarifications and
modifications of the license Agreement; and
WHEREAS, terms not otherwise clarified herein shall have the meanings ascribed
to such terms in the License Agreement;
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. [*] (27)
2. [*] (28)
3. [*] (29)
4. [*] (30)
- -------------------------
(27) Confidential portions omitted and filed separately with the
Commission.
(28) Confidential portions omitted and filed separately with the
Commission.
(29) Confidential portions omitted and filed separately with the
Commission.
(30) Confidential portions omitted and filed separately with the
Commission.
<PAGE> 58
5. [*] (31)
6. [*] (32)
Except as modified by this Supplementary Agreement, the License Agreement shall
remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this letter as of the date above
written.
CALVIN KLEIN, INC.
By: /s/ Bary Schwartz
------------------------------
Name: Bary Schwartz
Title: Chairman
CROWN CRAFTS DESIGNER, INC.
By: /s/ Michael H. Bernstein
------------------------------
Name: Michael H. Bernstein
Title: President
- ------------------------------
(31) Confidential portions omitted and filed separately with the
Commission.
(32) Confidential portions omitted and filed separately with the
Commission.
2
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Burgundy Interamericana, S.A. de C.V., a Mexican corporation
Churchill Weavers, Inc., a Kentucky corporation
Crown Crafts Designer, Inc., a Georgia corporation
Crown Crafts Home Furnishings, Inc., a New York corporation
Crown Crafts Home Furnishings of Illinois, Inc., a Delaware corporation
Crown Crafts Infant Products, Inc., a Delaware corporation
Crown Crafts International, Inc., a Georgia corporation
Crown Crafts Real Estate, Inc., a Georgia corporation
G.W. Stores, Inc., a North Carolina corporation
Hamco, Inc., a Louisiana corporation
Noel Joanna, Inc., a California corporation
Textile, Inc., a North Carolina corporation
The Red Calliope and Associates, Inc., a California corporation
Woven Classic Throws, Inc., a New Hampshire corporation
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement of
Crown Crafts, Inc. and subsidiaries on Form S-8 of our report dated May 29,
1998, appearing in the Annual Report on Form 10-K Crown Crafts, Inc. and
subsidiaries for the year ended March 29, 1998.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-29-1998
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<RECEIVABLES> 48,426
<ALLOWANCES> 0
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<CURRENT-ASSETS> 138,548
<PP&E> 123,323
<DEPRECIATION> 51,361
<TOTAL-ASSETS> 241,666
<CURRENT-LIABILITIES> 85,646
<BONDS> 50,100
0
0
<COMMON> 9,654
<OTHER-SE> 87,669
<TOTAL-LIABILITY-AND-EQUITY> 241,666
<SALES> 319,238
<TOTAL-REVENUES> 319,238
<CGS> 248,149
<TOTAL-COSTS> 248,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,562
<INCOME-PRETAX> 12,515
<INCOME-TAX> 4,709
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,806
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-30-1997
<CASH> 602
<SECURITIES> 0
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<INVENTORY> 56,860
<CURRENT-ASSETS> 101,523
<PP&E> 114,825
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0
0
<COMMON> 9,051
<OTHER-SE> 76,644
<TOTAL-LIABILITY-AND-EQUITY> 189,556
<SALES> 256,385
<TOTAL-REVENUES> 256,385
<CGS> 204,648
<TOTAL-COSTS> 204,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,887
<INCOME-PRETAX> 6,905
<INCOME-TAX> 3,274
<INCOME-CONTINUING> 3,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,631
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-03-1995
<PERIOD-END> MAR-31-1996
<CASH> 517
<SECURITIES> 0
<RECEIVABLES> 40,844
<ALLOWANCES> 0
<INVENTORY> 47,269
<CURRENT-ASSETS> 93,614
<PP&E> 111,600
<DEPRECIATION> 34,265
<TOTAL-ASSETS> 185,698
<CURRENT-LIABILITIES> 25,745
<BONDS> 69,300
9,051
0
<COMMON> 0
<OTHER-SE> 73,966
<TOTAL-LIABILITY-AND-EQUITY> 185,698
<SALES> 219,002
<TOTAL-REVENUES> 219,002
<CGS> 176,550
<TOTAL-COSTS> 176,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,807
<INCOME-PRETAX> 6,539
<INCOME-TAX> 2,592
<INCOME-CONTINUING> 3,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,947
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 281
<SECURITIES> 0
<RECEIVABLES> 26,199
<ALLOWANCES> 0
<INVENTORY> 56,219
<CURRENT-ASSETS> 87,829
<PP&E> 111,951
<DEPRECIATION> 35,625
<TOTAL-ASSETS> 179,091
<CURRENT-LIABILITIES> 39,706
<BONDS> 50,300
9,051
0
<COMMON> 0
<OTHER-SE> 72,384
<TOTAL-LIABILITY-AND-EQUITY> 179,091
<SALES> 44,400
<TOTAL-REVENUES> 44,400
<CGS> 37,488
<TOTAL-COSTS> 37,488
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,258
<INCOME-PRETAX> (2,367)
<INCOME-TAX> (1,024)
<INCOME-CONTINUING> (1,343)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,343)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 414
<SECURITIES> 0
<RECEIVABLES> 40,994
<ALLOWANCES> 0
<INVENTORY> 57,846
<CURRENT-ASSETS> 103,908
<PP&E> 113,190
<DEPRECIATION> 38,092
<TOTAL-ASSETS> 193,834
<CURRENT-LIABILITIES> 35,753
<BONDS> 67,300
9,051
0
<COMMON> 0
<OTHER-SE> 74,067
<TOTAL-LIABILITY-AND-EQUITY> 193,834
<SALES> 119,248
<TOTAL-REVENUES> 119,248
<CGS> 96,957
<TOTAL-COSTS> 96,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,567
<INCOME-PRETAX> 1,042
<INCOME-TAX> 464
<INCOME-CONTINUING> 578
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CROWN CRAFTS FOR THE 9 MONTH PERIOD ENDED DECEMBER 29,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 565
<SECURITIES> 0
<RECEIVABLES> 26,399
<ALLOWANCES> 0
<INVENTORY> 57,412
<CURRENT-ASSETS> 88,730
<PP&E> 113,484
<DEPRECIATION> 39,640
<TOTAL-ASSETS> 177,205
<CURRENT-LIABILITIES> 34,922
<BONDS> 50,300
0
0
<COMMON> 9,051
<OTHER-SE> 75,254
<TOTAL-LIABILITY-AND-EQUITY> 177,205
<SALES> 192,135
<TOTAL-REVENUES> 192,135
<CGS> 155,078
<TOTAL-COSTS> 155,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,770
<INCOME-PRETAX> 4,107
<INCOME-TAX> 2,104
<INCOME-CONTINUING> 2,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,003
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 355
<SECURITIES> 0
<RECEIVABLES> 27,129
<ALLOWANCES> 0
<INVENTORY> 74,838
<CURRENT-ASSETS> 109,527
<PP&E> 116,253
<DEPRECIATION> 44,129
<TOTAL-ASSETS> 201,504
<CURRENT-LIABILITIES> 28,528
<BONDS> 0
9,058
0
<COMMON> 0
<OTHER-SE> 76,221
<TOTAL-LIABILITY-AND-EQUITY> 201,504
<SALES> 52,644
<TOTAL-REVENUES> 52,644
<CGS> 42,079
<TOTAL-COSTS> 42,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,304
<INCOME-PRETAX> (311)
<INCOME-TAX> (117)
<INCOME-CONTINUING> (194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (194)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CROWN CRAFTS, INC. FOR THE SIX MONTH PERIOD ENDED
SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 749
<SECURITIES> 0
<RECEIVABLES> 49,778
<ALLOWANCES> 0
<INVENTORY> 87,294
<CURRENT-ASSETS> 146,305
<PP&E> 118,838
<DEPRECIATION> 46,522
<TOTAL-ASSETS> 246,451
<CURRENT-LIABILITIES> 101,523
<BONDS> 0
0
0
<COMMON> 9,186
<OTHER-SE> 80,807
<TOTAL-LIABILITY-AND-EQUITY> 246,451
<SALES> 138,978
<TOTAL-REVENUES> 138,978
<CGS> 107,557
<TOTAL-COSTS> 107,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,950
<INCOME-PRETAX> 5,207
<INCOME-TAX> 1,961
<INCOME-CONTINUING> 3,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,246
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
</TABLE>
