UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31,1996
Commission File Number: 1-8509
NANTUCKET INDUSTRIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-0962699
-------- ----------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
105 Madison Avenue, New York, New York 10016
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212)889-5656
-------------
(Registrant's telephone number, including area code)
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 twelve 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 ninety days. X YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1996, the Registrant had outstanding 3,238,796 shares of
common stock not including 3,052 shares classified as Treasury Stock.
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------
QUARTERLY REPORT
----------------
QUARTER ENDED AUGUST 31, 1996
-----------------------------
I N D E X
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PAGE
----
Part I.- FINANCIAL INFORMATION
---------------------
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6 - 8
Management's discussion and analysis of
financial condition and results of operations 9 - 10
Part II.- OTHER INFORMATION 11 - 12
-----------------
Signature 13
2
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, March 2,
1996 1996
--------------------- ---------------------
(unaudited) (1)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $15,085 $15,085
Accounts receivable, less allowance for
doubtful accounts of $91,000 and $40,000,
respectively 4,858,194 4,417,033
Inventories (Note 2) 9,186,869 10,156,639
Other current assets 675,659 729,145
--------------------- ---------------------
Total current assets 14,735,807 15,317,902
PROPERTY, PLANT AND EQUIPMENT - NET 3,277,938 3,498,825
OTHER ASSETS,NET 292,983 38,413
--------------------- ---------------------
$18,306,728 $18,855,140
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6) $420,000 $1,275,000
Accounts payable 1,094,315 1,721,852
Accrued salaries and employee benefits 280,510 383,595
Accrued unusual charge (Note 5) 465,000 465,000
Accrued expenses and other liabilities 378,555 392,789
Accrued royalties 281,447 249,792
Income taxes payable 1,909 2,934
--------------------- ---------------------
Total current liabilities 2,921,736 4,490,962
LONG-TERM DEBT (Note 6) 7,747,580 8,428,782
ACCRUED UNUSUAL CHARGE (Note 5) 474,875 678,879
CONVERTIBLE SUBORDINATED DEBT (Note 4) 2,760,000 -
--------------------- ---------------------
13,904,191 13,598,623
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 4)
Preferred stock, $.10 par value; 500,000 shares authorized,
of which 5,000 shares have been designated as non-voting
convertible and are issued and outstanding 500 500
Common stock, $.10 par value; authorized
6,000,000 shares; issued 3,241,848 324,185 299,185
Additional paid-in capital 12,364,503 11,556,386
Deferred issuance cost (191,697)
Accumulated deficit (8,075,017) (6,579,617)
--------------------- ---------------------
4,422,474 5,276,454
Less 3,052 shares at August 31, 1996 and 3,052 at March 2, 1996
of common stock held in treasury, at cost 19,937 19,937
--------------------- ---------------------
4,402,537 5,256,517
--------------------- ---------------------
$18,306,728 $18,855,140
===================== =====================
(1) Derived from audited financial statements
The accompanying notes are an integral part of these statements.
</TABLE>
3
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended Thirteen Weeks Ended
--------------------------------- ---------------------------------
AUGUST 31, August 26, AUGUST 31, August 26,
1996 1995 1996 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $14,662,655 $17,853,238 $7,974,742 $7,360,502
Cost of sales 11,880,131 13,121,959 6,168,991 5,235,817
--------------- ---------------- --------------- ----------------
Gross profit 2,782,524 4,731,279 1,805,751 2,124,685
Selling, general and administrative
expenses 3,723,534 3,771,712 1,958,051 1,752,686
--------------- ---------------- --------------- ----------------
Operating (loss) profit (941,010) 959,567 (152,300) 371,999
Interest expense 554,390 655,494 282,701 324,167
--------------- ---------------- --------------- ----------------
Net (loss) income (1,495,400) 304,073 (435,001) 47,832
=============== ================ =============== ================
Net (loss) income per share ($0.51) $0.10 ($0.15) $0.02
=============== ================ =============== ================
Weighted average common shares outstanding 3,010,774 2,982,296 3,032,752 2,983,318
=============== ================ =============== ================
The accompanying notes are an integral part of these statements.
</TABLE>
4
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
------------------------------------------
AUGUST 31, August 26,
1996 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income ($1,495,400) $304,073
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating activities
Depreciation and amortization 152,434 181,903
Provision for doubtful accounts 60,000 60,000
Treasury stock issued in compliance with credit agreement - 9,125
Provision for obsolete and slow moving inventory 265,000 120,000
(Increase) decrease in assets
Accounts receivable (501,161) 721,152
Inventories 704,770 (635,885)
Other current assets 53,486 131,968
(Decrease) increase in liabilities
Accounts payable (627,537) (1,199,894)
Accrued expenses and other liabilities (85,663) (464,203)
Income taxes payable (1,025) -
Accrued unusual charge (204,004) (189,585)
------------------- -------------------
Net cash used in operating activities (1,679,100) (961,346)
------------------- -------------------
Cash flows from investing activities
Removals (additions) to property, plant and equipment 68,453 (73,115)
Decrease in other assets 990 63,368
------------------- -------------------
Net cash provided by (used in) investing activities 69,443 (9,747)
------------------- -------------------
Cash flows from financing activities
Payments of short-term debt (800,000) -
Issuance of common stock 641,419 -
Proceeds from long-term debt 2,760,000 -
Increase in deferred finance costs (255,560) -
Net proceeds from sale of treasury stock - 250
(Repayments) borrowings under line of credit agreement, net (736,202) 970,747
------------------- -------------------
Net cash provided by financing activities 1,609,657 970,997
------------------- -------------------
NET INCREASE (DECREASE) IN CASH 0 ($96)
Cash at beginning of period 15,085 32,049
------------------- -------------------
Cash at end of period $15,085 $31,953
=================== ===================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $494,675 $610,601
=================== ===================
Income taxes - -
=================== ===================
The accompanying notes are an integral part of these statements
</TABLE>
5
NANTUCKET INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of August 31, 1996 and the
consolidated statements of operations for the twenty-six and thirteen
week periods and statements of cash flows for the twenty-six weeks
ended August 31, 1996 and August 26, 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation of the financial position of the Company and its
subsidiaries at August 31, 1996 and the results of their operations for
the twenty-six and thirteen week periods and cash flows for the
twenty-six weeks ended August 31, 1996 and August 26, 1995 have been
made on a consistent basis.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included
in the Company's 1996 Annual Report on Form 10-K.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows:
August 31, August 26,
1996 1995
---- ----
Raw materials $ 1,469,835 $ 1,895,724
Work in process 4,161,763 5,848,226
Finished goods 3,555,271 3,756,131
----------------- ----------------
$ 9,186,869 $ 11,500,081
----------------- ----------------
6
NANTUCKET INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
(continued)
(unaudited)
3. INCOME TAXES
At August 31, 1996 the Company had a net deferred tax asset in excess
of $5,500,000 which is fully reserved until it can be utilized to
offset deferred tax liabilities or realized against taxable income. The
Company had a net operating loss carryforward for book and tax purposes
of approximately $12,000,000. Accordingly, no provision for income
taxes has been reflected in the accompanying financial statements.
Certain tax regulations relating to the change in ownership may limit
the Company's ability to utilize its net operating loss carryforward
if the ownership change, as computed under such regulations, exceeds
50%. Through August 31, 1996 the change in ownership was approximately
46%.
4. PRIVATE PLACEMENT
On August 15, 1996, the Company completed a $3.5 million private
placement with an investment partnership. Terms of this transaction
included the issuance of 250,000 shares and $2,760,000 12.5%
convertible subordinated debentures which are due August 15, 2001.
The convertible subordinated debentures are secured by a second
mortgage on the Company's manufacturing and distribution facility
located in Carterville, GA. The debentures are convertible into the
Company's common stock over the next five years as follows:
Conversion Conversion
Shares Price
Currently Convertible 305,000 $3.83
After June 15, 1997 318,370 $5.00
The agreement grants the investor certain registration rights for the
shares issued and the Conversion Shares to be issued.
The difference between the purchase price of the shares issued and
their fair market value aggregated $197,500. This was reflected as
deferred issue costs and will be amortized over the expected 5 year
term of the subordinated convertible debentures.
Costs associated with this private placement aggregated $360,000
including $104,000 related to the shares issued which have been charged
to paid in capital. The remaining balance of $256,000 will be amortized
over the 5 year term of the debentures
7
The Company utilized $533,333 of the proceeds to prepay all of its
obligations pursuant to its Credit Agreement dated March 21, 1994 with
Chemical Bank.
5. UNUSUAL CHARGE
In March, 1994, the Company terminated the employment contracts of its
Chairman and Vice Chairman. In accordance with the underlying
agreement, they will be paid an aggregate of approximately $400,000 per
year in severance, as well as certain other benefits, through February
28, 1999. The present value of these payments, $1,915,000, was accrued
at February 26, 1994. Through August 31, 1996, $975,000 of this accrual
has been paid; $770,000 through March 2, 1996 and $205,000 in the
current fiscal year through August 31, 1996
6. CREDIT AGREEMENT AMENDMENT
On May 31, 1996, the Company amended its Loan and Security Agreement
with Congress Financial Corporation dated March 24, 1994. This
amendment provided (a) $ 251,000 in additional equipment term loan
financing, (b) extension of the repayment period for all outstanding
equipment term loans, (c) supplemental revolving loan availability from
March 1st through June 30th of each year and (d) extension of the
renewal date to March 20, 1998.
8
NANTUCKET INDUSTRIES, INC.
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Sales
Net sales for the six months ended August 31, 1996 decreased 18% from prior year
levels to $14,663,000. This decline reflects the planned inventory reductions by
Nantucket's customers during the first fiscal quarter of the current fiscal year
in anticipation of the introduction of Brittania by Levi's line. In the second
fiscal quarter, sales increased $738,000 over prior year levels, generally
reflecting the initial shipments of this exciting new product designation. Sales
of the Company's GUESS? products decreased slightly from prior year levels,
reflecting a transition from the close-out of slow moving products to the
Company's new GUESS? Essentials line. In the second quarter of the current
fiscal year, Nantucket shipped two GUESS? Essentials product groups and initial
shipments of the third group were made in September, 1996.
Gross Margin
Gross profit margins for the six months ended August 31, 1996 decreased from
prior year levels of 27% to 19%. Gross profit margins for the second quarter
decreased from 29% to 23%. This decline is a result of increased manufacturing
variances associated with additional processing costs of imported garments
coupled with the impact of fully reserved close-out sales of the GUESS? product
during the first and second quarters.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended August 31,
1996 reflect a slight decrease of $48,000 from prior year levels to $3,724,000.
Increases in fixed expenses for the period of $300,000 were offset by decreases
in variable selling expenses of $348,000. Second quarter expenses increased by
$205,000 to $1,958,000 compared to $1,753,000 from the second quarter of the
prior year. This increase is due to a reduction in prior year expenses of
$102,000 as a result of an insurance claim settlement and an increase in
administrative management staffing in the current year.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In March, 1994 the Company was successful in refinancing its credit agreements
with (i) a three year $15,000,000 revolving credit facility with Congress
Financial, (ii) a $2,000,000 Term Loan Agreement with Chemical Bank and (iii) an
additional $1,500,000 Term Loan with Congress replacing the Industrial Revenue
Bond financing of the Cartersville, Georgia manufacturing plant.
Additionally, the Company has increased its equity over the past three years
through (i) a $1,000,000 investment by the Management Group (ii) the $2.9
million sale of 490,000 shares of common treasury stock to GUESS?, Inc. and
certain of its affiliates and (iii) the $3.5 million private placement which
included the issuance of 250,000 shares and $2,760,000 convertible subordinated
debentures. These transactions, combined with its stronger credit facilities
enhanced the Company's liquidity and capital resources.
Under the terms of the $2,000,000 Term Loan Agreement with Chemical Bank,
scheduled installments of $500,000 each were due on December 15, 1995 and March
15, 1996. As of December 15, 1995 the Company agreed to an amendment providing
for payments of $100,000 each on December 31, 1995 and January 31, 1996, with
the remaining $800,000 to be paid in 15 equal installments which commenced March
31, 1996. In August, 1996, the Company utilized $533,333 of the proceeds from
the private placement to prepay all of its obligations with Chemical Bank.
The Company believes that the Congress credit facility provides adequate
financing flexibility to fund its operations at current levels.
Working capital increased $987,000 from year-end levels to $11,814,000. Proceeds
from the issuance of common stock and subordinated convertible debt were used to
prepay the short-term debt to Chemical Bank, reduced accounts payable and reduce
the long term debt under the Congress revolving credit facility. A decrease in
inventory levels of $970,000 was offset by an increase in accounts receivable of
$441,000.
The Company believes that the moderate rate of inflation over the past few years
has not had significant impact on sales or profitability.
10
PART II
-------
ITEM 1. LEGAL PROCEEDINGS None
- ------- ----------------- ----
ITEM 2. CHANGES IN SECURITIES None
- ------- --------------------- ----
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
- ------- ------------------------------- ----
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a) The Company held a Special Meeting of Stockholders in Lieu of
Annual Meeting on October 7, 1996
(b) Not applicable
(c) At the stockholders meeting
(i) the number of directors constituting the Board of
Directors was set at nine (9), by a vote of 2,328,734 shares
for and 203,402 shares against;
(ii) the Company's nominees for director were elected by the
following votes:
Votes Votes to
Nominee in Favor Withhold Authority
------- -------- ------------------
Donald Gold 2,328,734 203,402
Roger A. Williams 2,331,119 201,017
Ronald S. Hoffman 2,330,699 201,437
(iii) the stockholders approved a motion to amend the
Company's Certificate of Incorporation to increase the
authorized shares of Common Stock from six million (6,000,000)
shares with $.10 par value to twenty million (20,000,000)
shares with $.10 par value. Such motion was approved by a vote
of 2,250,130 shares in favor and 272,476 shares against;
(iv) the stockholders approved a motion to amend the Company's
Certificate of Incorporation to reduce certain voting
requirements of the Board of Directors necessary for approval
of a business transaction with Related Persons. Such motion
was approved by a vote of 1,861,007 shares in favor and 51,854
shares against and 619,875 shares abstaining;
(v) the stockholders approved a motion to ratify the
appointment of Grant Thornton LLP, independent certified
accountants, to audit the consolidated financial statements of
11
the Company for the fiscal year ending February, 1997. Such
motion was approved by a vote of 2,519,503 shares in favor and
10,315 shares against and 2,918 shares abstaining.
ITEM 5. OTHER INFORMATION
- ------- -----------------
As of September 30, 1996 the Company signed a license agreement with
Brittania Sportswear Limited, a subsidiary of Levi Strauss & Co.
effective as of January 1, 1997. This license agreement extended the
Company's license through December 31, 1999 for the manufacture and
sale of men's underwear and loungewear under the "BRITTANIA" trademark.
On October 9, 1996 the Company signed an amendment to its license
agreement with GUESS?, Inc. effective as of June 1, 1996. This
amendment (a) omitted the Company's license for men's underwear
product, (b) formalized certain terms and conditions on the manner the
Company conducts business with the GUESS? owned stores and (c)
established minimum sales levels and royalties for the renewal term
which will expire May 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
Item 6(a) Exhibits
(10)(e)(iii) Filed Herewith
License Agreement between the Company and Brittania Sportswear
Limited, a subsidiary of Levi Strauss & Co. effective as of
January 1, 1997 extending the Company's license through
December 31, 1999 for the manufacture and sale of men's
underwear and loungewear under the "BRITTANIA" trademark
(10)(bb)(i) Filed Herewith
Amendment to License Agreement with GUESS?, Inc. and the
Company effective as of June 1, 1996 with respect to the
"GUESS?" trademark.
(27) Financial Data Schedule Filed Herewith
Item 6(b) Reports on Form 8-K
A report dated August 29, 1996 was filed during the quarter
which ended August 31, 1996. Such report outlined the $3.5
million private placement transaction. No financial statements
were filed as part of that report.
12
SIGNATURE
---------
Pursuant to the requirements of the `Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NANTUCKET INDUSTRIES, INC.
(Registrant)
By:
October 14, 1996 s/Ronald S. Hoffman
-------------------
Vice President - Finance
(Chief Accounting Officer)
13
Exhibit 10(e)(iii)
NANTUCKET INDUSTRIES, INC.
LICENSE AGREEMENT
-----------------
This License Agreement (the "Agreement") is effective as of
the 1st day of January, 1997 (the "Effective Date"), by and between Brittania
Sportswear Limited (A subsidiary of Levi Strauss & Co.), a California
corporation with its principal office at 500 Naches Ave. SW, Renton, Washington,
98055 (hereinafter called "Licensor") and Nantucket Industries, Inc., a Delaware
corporation with its principal office at 105 Madison Avenue, New York, NY, 10016
(hereinafter called "Licensee").
R E C I T A L S:
----------------
WHEREAS, Brittania Sportswear Limited, and its predecessor
companies have manufactured garments, particularly blue jeans and other casual
clothing, for many years; and
WHEREAS, for many years the trademarks and distinctive
features of Licensor's products have come to be recognized by the consuming
public as constituting a desirable image of superior quality and thus possess
considerable value and goodwill; and
WHEREAS, Licensor is well-established in marketing apparel and
presently distributes garments to numerous retail outlets having a reputation
for quality, service and dependability; and
WHEREAS, Licensee has manufactured and sold underwear in the
USA for nearly 40 years, and has attained a reputation for quality and
dependability with respect to such articles; and
WHEREAS, Licensee possesses marketing experience for the
distribution of these products; and
1
WHEREAS, the primary purpose of Licensor's BRITTANIA(R)
accessory licensing program is to provide a unique line of accessories bearing
the BRITTANIA(R) trademarks which complements Licensor's product lines.
NOW, THEREFORE, in consideration of the premises and of the
following promises, the parties hereto hereby agree as follows:
ARTICLE 1. DEFINITIONS
----------------------
A. "Net Sales" shall mean gross receipts generated from the
sale of the Products (as defined below), less customary discounts and allowances
allowed and less any credits for returns, transportation charges allowed on
returns, or other credits.
B. "Net Sales Price" shall mean the wholesale billing price to
customers or distributors, less customary discounts and allowances allowed and
less any credits for returns, transportation charges allowed on returns, or
other credits.
C. "Products" shall mean those products set forth on Schedule
B hereto.
D. "Trademarks" shall mean the trademark BRITTANIA(R) and the
various BRITTANIA(R) logos and distinctive marks as set forth on Schedule A
hereto. Should Licensor, during the term of this Agreement, develop additional
registered or unregistered marks which, in the judgment of Licensor, are
appropriate for use by Licensee, Licensor may extend this Agreement to
incorporate such marks.
E. "Territory" shall mean the United States of America,
including its territories, overseas possessions and military bases.
ARTICLE 2. LICENSE GRANT
------------------------
2
A. Licensor grants to Licensee the exclusive right to use the
Trademarks on and in connection with the manufacture, sale, distribution and
advertising of the Products in the Territory to those stores pre-approved by
Licensor per Article 11 below for the period and upon the terms and conditions
hereinafter set forth.
ARTICLE 3. TERM OF AGREEMENT
----------------------------
A. This Agreement shall continue in full force and effect from
January 1, 1997 until December 31, 1999, unless sooner terminated by the mutual
agreement of both Licensor and Licensee; provided, however, that:
(1) If at any time Licensor or Licensee shall become
bankrupt, insolvent or make any assignment for the benefit of creditors, the
other party, as the case may be, shall have the right to immediately terminate
this Agreement.
(2) If either party shall cause or permit any
material breach of this Agreement, the other party shall have the right to
terminate this Agreement by written notice to the party causing or permitting
the material breach which notice shall specify the alleged breach, and said
termination shall be effective ninety (90) days after the receipt of such
notice, unless prior thereto such default or breach shall have been cured and
thereafter royalties shall be due and payable only on the basis of Net Sales
actually made.
(3) If at any time, any person who is not, at the
date hereof, an officer or a director of Licensee becomes, directly or
indirectly, the owner of 50% or more of the total outstanding common stock of
the company, and active control of the Licensee passes to any party other than
those persons currently in active control of the Licensee, then Licensor shall,
within 30 days of receiving written notice of such acquisition of stock, or of
Licensor becoming aware of such change in ownership or control, shall have the
right to terminate this Agreement.
3
B. The rights and remedies set forth in this article shall not
be exhaustive and are in addition to any other rights and remedies provided by
law.
C. During the term of this Agreement, at the request of either
party holding a good faith belief that this Agreement should be replaced by an
arrangement or organization better providing for the mutual benefit of both, the
parties shall meet to discuss such possible replacement.
D. Unless earlier terminated in accordance with the provisions
of this Article 3, this Agreement may be renewed as set forth in Article 14
below.
E. Article 13 below shall survive the termination of this
Agreement.
ARTICLE 4. ROYALTIES
--------------------
A. For purposes of this Agreement, an item shall be considered
"sold" upon the date when such item is billed or invoiced, shipped, consigned or
paid for, whichever event occurs first.
B. The annual royalty percentage shall be four percent (4%) of
the Net Sales Price of Products sold by Licensee under the terms of this
Agreement.
C. The annual royalty percentages expressed as a percentage of
Net Sales of Products are set forth in Schedule E. Commencing January 1, 1997
Licensee shall remain current, on a quarterly basis, on the minimum royalty
amounts for the contract period as set forth in Schedule E. For example, in the
first period annual period (1997), at the end of the first quarter, royalty
payments made shall equal or exceed the stated annual minimum for that quarter
(1997, I), at the end of the second quarter total royalties paid under the
contract shall equal or exceed the accumulated minimum royalties for that annual
period through the second quarter (1997, II), at the end of the third quarter of
the first annual period total royalties paid shall equal or exceed the
4
accumulated minimum royalties for that annual period through the third quarter
(1997, III), and so on through the contract period. Thus, if the total minimum
royalty due is achieved and paid prior to the end of the Initial term of this
Agreement, the only royalties due throughout the remainder of the term shall be
those calculated on the basis of a percentage of Net Sales.
D. Within thirty (30) days after the end of each month, a
report shall be made by Licensee to Licensor setting forth the number and type
of Products which have been sold during the preceding month and also showing the
Net Sales Price of such Products and other information on an appropriate form,
such as the monthly sales report attached hereto as Schedule C.1.
E. Licensee shall make royalty payments to Licensor for sold
Products within thirty (30) days after the end of each calendar quarter and
shall submit an appropriate form, such as the quarterly royalty remittance
report attached hereto as Schedule D, for all Products sold. Interest shall
accrue and be payable by Licensee on royalties earned by Licensor, beginning on
the thirty-first (31st) day after the completion of each quarter in which the
Products were invoiced and for which royalties are due. Interest shall be
calculated on a floating basis of one percent (1%) over the commercial reference
rate in effect at the end of each month at Citibank, New York.
F. The annual minimum royalty to be paid during the term of
the Agreement is shown in Schedule E.
ARTICLE 5. WARRANTY AND INDEMNITY
---------------------------------
A. Licensee warrants that the Products shall be of good
quality in design, material, and workmanship, and that they shall be suitable
for their intended purposes; that no injurious, poisonous, deleterious or toxic
substances or materials will be used in or on the Products; that the Products in
normal and proper use will not harm the user thereof; and that the
5
Products will be manufactured, sold and distributed in strict compliance with
all applicable laws and regulations. Licensee agrees to defend, indemnify and
hold Licensor harmless against any liabilities and expenses arising out of use
by any person of Products sold by Licensee. Similarly, Licensor will defend,
indemnify and hold Licensee harmless from all product liability on any other
products bearing the Trademarks not manufactured, sold, distributed or
advertised by the Licensee, and Licensee shall give Licensor prompt notice in
writing of all such suits, claims or other actions or proceedings brought
against it.
B. Licensee agrees to defend, indemnify and hold Licensor
harmless against any liabilities and expenses arising from the infringement of a
patent or copyright caused by the manufacture, advertisement or sale of the
Products.
C. Licensor will promptly notify Licensee in writing of all
suits, claims or other actions or proceedings brought against Licensor and
against which Licensee has agreed to defend, indemnify and hold Licensor
harmless. Licensee at its sole expense agrees to defend the same; provided,
however, that Licensor shall have given Licensee prompt notice in writing and
shall have given Licensee all pertinent information in Licensor's possession to
enable and permit Licensee to defend.
D. Licensee shall procure and maintain at its own expense in
full force and effect at all times during which the Products are being sold and
for three (3) years after the sales are complete, a Commercial General Liability
Insurance with limits and conditions set as follows: throughout the term of the
Agreement, Licensee will carry a Commercial General Liability Insurance on an
Occurrence Basis with a Combined Single Limit for Bodily Injury and Property
Damage of not less than $1,500,000 for each Occurrence and to include Blanket
Contractual Liability, Product/ Completed Operations, Advertising Injury and
Personal Injury Liability. It is agreed that such insurance limits may be
provided by both a primary and excess policy totaling
6
not less than $1,500,000 per occurrence/ $3,000,000 annual aggregate. This is
not a limit of Licensee's liability.
It is agreed that the Licensee will provide the Licensor with
a certificate of insurance evidencing such coverage within ten (10) days of
executing this Agreement, naming Brittania Sportswear Limited, Levi Strauss &
Co., and their respective directors, officers, employees, agents and assigns as
additional insureds for liabilities related to this Agreement. This policy shall
not be cancelable or subject to reduction of coverage or limits or to any other
modification without providing thirty (30) days written notice of cancellation
or reduction of coverage to the Licensor.
It is further agreed that the Licensee during the term of the
Agreement will procure this Commercial General Liability insurance contract with
an insurance company which has an A.M. Best Rating of A or better, unless
otherwise approved in writing by Licensor.
ARTICLE 6. INFRINGEMENT, INDEMNITY, AND DEFENSE
-----------------------------------------------
A. Licensor represents and warrants that it is the owner of
the Trademarks set forth in Paragraph 1.D. above.
B. Licensor represents and warrants that it will not take any
action with regard to the Trademarks so as to interfere with the manufacture,
sale, distribution and advertising of Products as contemplated by this
Agreement.
C. Licensor represents and warrants that on its own initiative
and at its own expense it will take all appropriate actions necessary to protect
Licensee's exclusive right to use the Trademarks and will in good faith
prosecute against all such infringements; provided, however, that Licensee will
not be precluded from initiating at its own expense actions pursuant
7
to any rights and remedies Licensee may have under any law arising outside the
scope of this Agreement.
D. Licensor agrees to defend, indemnify and hold Licensee
harmless from and against any liabilities and expense resulting from any suit,
claim or other action or proceeding brought against Licensee for trademark
infringement arising out of the use of the licensed Trademarks.
E. Licensee will promptly notify Licensor in writing of all
suits, claims or other actions or proceedings brought against Licensee and
against which Licensor has agreed to defend, indemnify and hold harmless.
Licensor at its sole expense agrees to defend the same; provided, however, that
Licensee shall have given Licensor prompt notice in writing and shall have given
Licensor all pertinent information in Licensee's possession to enable and permit
Licensor to defend.
ARTICLE 7. COMPETING BRANDS
---------------------------
Licensee agrees that during the term of this Agreement it will
not enter into new license arrangements with other producers of men's branded
casual apparel that are marketed and sold in national and regional discount
channels and that in Licensor's reasonable judgment compete in the marketplace
with Licensor's line of BRITTANIA(R) products. This provision does not apply to
store or private branded programs.
ARTICLE 8. QUALITY AND PRODUCT CONTROL
--------------------------------------
A. Licensee agrees to submit to Licensor for product and
quality approval two (2) prototype samples ("Samples"), made under normal
production conditions, of each Product proposed to be advertised, sold,
manufactured, or distributed by Licensee. Promptly after receipt
8
of said Samples, Licensor shall give the Licensee its written approval or
disapproval of the Samples. "Promptly" is intended to mean within ten (10)
working days under ordinary circumstances. If Licensee does not receive notice
of disapproval within ten (10) working days of delivery of Samples, Licensor
shall be deemed to have approved such Samples. Licensor shall specifically set
forth in writing its reasons for disapproval of any Sample and in no case will
Licensor unreasonably withhold its approval. Licensee will not manufacture,
advertise, sell, or distribute any such Products without prior approval.
B. Licensor shall have the right to refuse to approve any
Sample which in good faith is considered to impair the value or reputation of
any of the Trademarks by reason of poor or substandard quality, inadequate or
improper resemblance to the quality standard represented, or otherwise. Licensee
agrees to maintain the quality of all Products made or sold by or through it
under this Agreement up to the quality and finish of the Samples approved by
Licensor and agrees not to change the Products in any substantial respect
without the prior written consent of Licensor. However, Licensor understands and
agrees that Licensee, from time to time and in its sole discretion, may change
the materials and components used in and on an approved Product without the
prior written approval of Licensor provided that the quality of the Product, its
construction, or its appearance are not substantially affected thereby. From
time to time after the Licensee has commenced selling the Products, Licensee
shall, at the request of Licensor, furnish to Licensor without cost, a
reasonable number of random samples not to exceed three (3) of each different
style being manufactured and sold by or through Licensee hereunder, together
with any labels, cartons, containers, and packing and wrapping materials used in
connection therewith.
C. Licensee agrees to promptly furnish Licensor with the
addresses of Licensee's production and warehouse facilities for the Products and
the names and addresses of
9
the persons, firms or corporations, if any, which are manufacturing each of the
Products for Licensee. Licensor shall have the right upon reasonable notice (ten
(10) working days or more) to Licensee, during regular business hours and at its
own expense, to inspect any production and warehouse facilities where any of the
Products are being manufactured or stored for the purpose of enabling Licensor
to determine whether Licensee is adhering to the requirements of this Agreement
relating to the nature and quality of the Products and the use of the Trademarks
in connection therewith.
It is understood that all manufacturing processes, including
but not limited to equipment used, technical data, systems, methods and
procedures, and all other information involved in the manufacturing and
execution of Licensee's business shall be considered "Proprietary Information"
as defined in Article 13 of this Agreement and shall not be disclosed by
Licensor.
D. Licensee agrees to develop and submit to Licensor an annual
Marketing Plan for all products manufactured pursuant to this Agreement.
"Marketing Plan" is defined as a plan which projects sales estimates and sets
forth retail distribution, product, advertising, and promotional plans for the
coming year.
E. Licensor shall not require Licensee to pay royalties on
off-quality Products, commonly referred to as "seconds" or "irregulars,"
provided that the Trademarks are removed from such Products. If Licensee is
unable to remove the Trademarks from off-quality Products without unreasonable
effort or expense, as determined by Licensee in its sole discretion, Licensee
shall dispose of such branded off-quality Products through selected retailers
approved by Licensor or to employees of Licensee or Licensor and only after
clearly marking and packaging the Products as "irregular." The royalty
percentage shall be reduced to one-half (1/2) of the royalty rate then in effect
for branded, first-quality Products. The amount of such branded off-quality
10
products allowed shall not exceed two percent (2%) of annual Net Sales. Branded,
off-quality Products in excess of two percent (2%) of the annual Net Sales shall
be subject to the regularly applicable royalty rate. Licensee shall report
amounts of such branded off-quality Products on a report such as the Monthly
Sales of Irregulars report attached hereto as Schedule C.2.
ARTICLE 9. ETHICS CODE AND GLOBAL SOURCING AND OPERATING GUIDELINES
-------------------------------------------------------------------
A. Licensor has and is determined to maintain a world-wide
reputation for ethical business conduct. To further this aim, Licensor has
adopted a Code of Ethics and has also adopted Global Sourcing and Operating
Guidelines setting forth standards of conduct it requires from, among others,
its licensees, including Licensee. Licensee acknowledges that its conduct, and
the conduct of any permitted sub-contractor, must reflect positively on
Licensor's reputation and agrees to the provisions of this Article 9
accordingly.
B. Licensee represents and warrants that Licensee and its key
officers and managers have read and understand Licensor's Code of Ethics, a copy
of which is attached to this Agreement as Exhibit 1, and agrees that Licensee
will, and will cause its permitted sub-contractors to, abide by the principles
set forth therein (as amended from time to time by Licensor) in conducting all
aspects of its operations under this Agreement.
C. Licensee further represents and warrants that its key
officers and managers have read and understand the Global Sourcing and Operating
Guidelines attached to this Agreement as Exhibit 2, and agrees that Licensee
will, and will cause its permitted sub-contractors to, comply with the
requirements of the Terms of Engagement at all times.
D. Licensee remains fully responsible for compliance with all
local laws and regulations applicable to Licensee's operations. If the
requirements of the Code of Ethics or of the Global Sourcing and Operating
Guidelines are stricter than the requirements of applicable law,
11
the requirements of the Code of Ethics and the Global Sourcing and Operating
Guidelines shall control.
E. This Article is of the essence of this Agreement. Any
material failure by Licensee or any of its sub-contractors to comply with the
Code of Ethics or any failure by Licensee or any of its sub-contractors to
comply with the Global Sourcing and Operating Guidelines will be grounds for
termination of this Agreement by Licensor.
ARTICLE 10. TRADEMARK CONTROL
-----------------------------
A. Licensor shall provide standards, specifications and
instructions for the use of the Trademarks and Licensee agrees to strictly abide
by them. The Trademarks shall be reproduced precisely as set forth on Schedule A
hereto.
B. Licensee agrees that no advertising or display materials
shall be unethical, immoral or offensive to good taste, and no display or
advertising material shall be used without the prior written approval of
Licensor, which approval may be granted or withheld in Licensor's reasonable
discretion; provided, however, that Licensor's approval shall be communicated
not more than ten (10) working days after Licensee's submission of such material
to Licensor, and such communication shall specifically describe the Licensor's
basis for disapproval and suggest corrective action which may be taken to secure
approval of such material. If Licensee does not receive notice of Licensor's
disapproval within ten (10) working days, Licensor shall be deemed to have
approved the material. The proposed uses and estimated duration of the displays
and advertising material shall be stated by Licensee when submitting the same to
Licensor for approval, and said approval shall extend only to the said proposed
uses and duration thereof, except that once an advertisement has been approved
by Licensor, it need not be resubmitted for subsequent repeats, changes in size
of the advertisement or cropping. Samples of each
12
advertisement shall be retained by Licensee together with records of media and
frequency of appearance of the advertisement.
C. Licensee further agrees to cooperate with Licensor in
maintaining advertising standards. This provision in no way shall operate to
restrain resales, but only to avoid purchaser confusion and protect the valuable
image represented by the Trademarks in all advertising and promotion.
D. Licensee shall cooperate with Licensor, if necessary and
upon request, in protecting and proving use of the Trademarks.
E. Licensee agrees to place upon all hangtags, identification
tags, price lists, catalogs, and similar trade advertising materials other than
radio and television advertising, the phrase "Manufactured under license from
Brittania Sportswear Ltd., Renton, WA 98055."
F. Licensee agrees to keep records of sales volume and
advertising expenditures on an annual basis.
G. Licensee agrees to cooperate with Licensor in obtaining any
further registrations and agrees not to use or register any trademarks
confusingly similar to the Trademarks.
ARTICLE 11. MARKETING OF THE PRODUCTS
-------------------------------------
A. Licensee shall use its best efforts to exploit the rights
granted herein consistent with Licensor's marketing policies and the maintenance
of Licensor's goodwill.
B. Licensee shall not sell Products to any account until it
has obtained Licensor's prior written approval to sell to the specified account.
Such approval or rejection shall be made by Licensor within ten (10) working
days of receipt of Licensee's request for approval. If Licensee does not receive
notice of Licensor's rejection within ten (10) working days, Licensor
13
shall be deemed to have approved the account. Licensee is not required to obtain
approval for an account if Licensor, as of the effective date of the Agreement,
already offers first quality Brittania(R) brand merchandise to the account.
ARTICLE 12. ASSISTANCE BY LICENSOR
----------------------------------
A. Licensor shall, from time to time, furnish Licensee with
such assistance and information in the following categories as Licensor and
Licensee mutually deem necessary to aid Licensee in the production and marketing
of Products under this Agreement.
(1) Advertising and promotional materials for use by
Licensee in the marketing, advertising or production of Products under this
Agreement; and
(2) Information concerning sales and trend data,
promotions, credit information, marketing, and customers of Licensor for its
garments, provided that Licensor shall have the right to withhold proprietary
information in its sole discretion.
B. Licensee shall reimburse Licensor for the out-of-pocket
cost of furnishing Licensee with the material described in subparagraph A(1) of
this article (which may include development and production cost for materials
developed especially for use by Licensee at Licensee's request and otherwise
will be limited to actual reproduction and shipping cost), and the salaries,
traveling, and living expenses of Licensor's employees rendering assistance away
from their normal employment location whose work activities do not normally
involve licensing or sales, but only when such materials or assistance have been
approved in advance in each instance by the Licensee in writing.
14
C. Licensor agrees to provide expertise in the development of
markets for licensed Products, and the marketing of items of wearing apparel
with the Products and Licensee agrees to coordinate all marketing activities
with Licensor.
ARTICLE 13. PROPRIETARY INFORMATION
-----------------------------------
A. Except as otherwise provided in this Agreement, all
proprietary information disclosed by one of the parties (the "Discloser") to the
other party (the "Recipient") is Confidential Information and (1) shall remain
the exclusive property of the Discloser, (2) shall be used by the Recipient only
in connection with its performance under this Agreement and (3) shall be
protected by the Recipient. Confidential Information includes, without
limitation, any formula, pattern, program, method, technique, process, design,
business plan, business opportunity, customer or personnel list, or financial
statement that: (1) derives independent economic value, actual or potential, for
not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use; and (2) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy.
Confidential Information includes, but is not limited to, information disclosed
in connection with this Agreement, and shall not include information that: (1)
is now or subsequently becomes generally available to the public through no
wrongful act or omission of Recipient; (2) Recipient has legally obtained from
sources other than the Discloser and is in its possession prior to disclosure to
Recipient by Discloser; (3) is independently developed by Recipient without use,
directly or indirectly, of any Confidential Information; or (4) Recipient
obtains from a third party who has the right to transfer or disclose it.
15
B. Except as specifically authorized by Discloser in writing,
Recipient shall not reproduce, use, distribute, disclose or otherwise
disseminate the Confidential Information and shall not take any action causing,
or fail to take any action necessary to prevent, any Confidential Information
disclosed to Recipient pursuant to this Agreement to lose its character as
Confidential Information. Upon termination of this Agreement or upon request by
Discloser, Recipient shall promptly deliver to Discloser all Confidential
Information and all embodiments thereof then in its custody, control or
possession and shall deliver within five (5) days after such termination or
request a written statement to Discloser certifying to such action.
C. Recipient agrees that access to Confidential Information
will be limited to those employees or other authorized representatives of
Recipient who: (1) need to know such Confidential Information in connection with
their work related to this Agreement and (2) have signed agreements with
Recipient obligating them to maintain the confidentiality of Confidential
Information disclosed to them. Recipient further agrees to inform such employees
or authorized representatives of the confidential nature of Confidential
Information and agrees to take all necessary steps to ensure that the terms of
this Agreement are not violated by them.
D. Recipient's duty to protect Discloser's Confidential
Information pursuant to this Agreement extends both during the term of this
Agreement (including any extension or renewal thereof) and after its
termination.
ARTICLE 14. RENEWAL
-------------------
If during the second year of the Agreement (1998), Licensee's Net
Sales meet or exceed a Net Sales volume of nine million dollars ($9,000,000),
then Licensee shall have the option to renew the Agreement for an additional
two-year period at the royalty rate and minimum royalties shown in Schedule E.
Should Licensee exercise its option to renew, the parties agree,
16
during the first year of such renewal term, to meet and discuss terms on which a
further renewal might be negotiated; provided, however, that Licensor shall be
under no obligation to enter into an additional renewal if acceptable terms
cannot be agreed to by the parties.
During each annual renewal year Licensee shall remain current, on
a quarterly basis, on the minimum royalty amounts for each annual renewal period
as set forth above in Article 4.C. hereof.
Should the Licensee not meet the terms required to automatically
renew this Agreement, the Licensee and Licensor agree to meet at least six (6)
months prior to the expiration of this Agreement to discuss the progress of the
program and to negotiate possible terms for renewal.
ARTICLE 15. BOOKS OF ACCOUNT
----------------------------
A. Licensee shall keep full and accurate books of account and
all documents and other material relating to this Agreement and the subject
matter thereof in accordance with generally-accepted accounting principles at
Licensee's principal office at all times during the continuation of this
Agreement and for two (2) years thereafter. Licensee agrees to keep complete and
correct account of the number and Net Sales Price of Products sold according to
this Agreement.
B. Licensee shall submit to Licensor the monthly sales report
and such other reports as will enable Licensor to evaluate the success of
Licensee's marketing activities related to this Agreement.
C. Licensor or its duly authorized agent or representative
shall have the right upon ten (10) days' advance notice, during regular business
hours, and at its own expense, to examine such books, documents, and other
material relating to the Products and shall be at liberty
17
to make copies of all or any part of such books, documents and other related
materials. Licensor agrees that all information, data, books, documents, and
other materials acquired by it pursuant to this paragraph will be treated by it
as proprietary information of Licensee in the same manner and upon the same
terms as are set forth in Article 13 above.
ARTICLE 16. USE OF TRADEMARKS
-----------------------------
A. Licensee recognizes that (1) there is great value to
Licensor in the Trademarks and the goodwill associated therewith, (2) that
Licensor may license third parties to use such Trademarks and goodwill in
connection with other goods and services in various countries, including the
United States, (3) that nothing contained in this Agreement gives Licensee any
interest or property rights in the Trademarks except the right to use the same
as specifically granted herein, and (4) that all uses by Licensee of the
Trademarks shall inure to the benefit of Licensor.
B. Licensee agrees that it will not during the existence of
this Agreement or thereafter, directly or indirectly, assert any interest or
property rights in or to any of the Trademarks which are now or hereafter owned
or controlled by Licensor and which have not been abandoned by Licensor.
C. Upon termination of this Agreement, Licensee shall cease
using the Trademarks, but shall have the right to dispose of stocks of Products
in inventory and to complete and dispose of those Products in the process of
manufacture; provided, however, that the same is completed within the period
specified in Article 21 herein.
ARTICLE 17. SPECIAL PURCHASE
----------------------------
18
Licensor, from time to time, may purchase Products covered by this
Agreement from Licensee for use in special retail promotions in connection with
its apparel products and for resale to employees of Licensor as part of its
established Employee Purchase Program (EPP). Such purchases as described in this
Article shall be at a price to be agreed upon between the parties.
ARTICLE 18. FORCE MAJEURE
-------------------------
Neither party shall be deemed to be in breach of this Agreement,
shall be subject to having this Agreement terminated, or shall in any way be
liable to the other party for damages of any type or for any relief of any type
on account of any act, omission, failure of performance, event, occurrence, or
cause which is unavoidable or beyond its reasonable control, including, but not
by way of limitation, accident, fire, flood, natural disaster, strike or labor
disturbances, vandalism, riot or insurrection, war, embargo, any order, decree,
law or regulation of any court, government or governmental agency.
ARTICLE 19. NOTICE
------------------
All demands and requests required or permitted by this Agreement
shall be by notice given hereunder. Notices for routine business matters, such
as under Articles 8 and 10 above, shall be as agreed upon by the parties. If no
form of notice is agreed upon, notice shall be given by a mailing in writing,
postage prepaid, addressed to the parties as follows or to such other addresses
as one party may specify in notice to the other party:
19
Brittania Sportswear Ltd.
500 Naches Ave. S.W.
Renton, WA 98055
Attention: Director of Marketing
(206) 227 - 7800
(206) 227 - 8616 (FAX)
Nantucket Industries, Inc.
105 Madison Avenue
New York, NY 10016
Attn: Chairman
(212) 889 - 5656
(212) 532 - 3217 (FAX)
Levi Strauss & Co.
1155 Battery Street
San Francisco, CA 94111
Attention: Director of Licensing, LSNA
(415) 544-7515
(415) 544-1495 (FAX)
Such notice shall be effective upon receipt by the party to whom it is
addressed.
ARTICLE 20. ASSIGNMENT
----------------------
Licensee shall not assign, sublicense or otherwise transfer its
right under this Agreement, to any subsidiary, parent company, affiliated
entity, or any other third party without the prior written approval of Licensor
which approval shall not be unreasonably withheld. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their successors
and permitted assigns.
ARTICLE 21. DISPOSAL OF STOCKS/TERMINATION
------------------------------------------
In the event this Agreement is terminated for any reason, Licensee
shall discontinue the manufacture of Products under this Agreement on or before
the effective date of such termination; provided, however, Licensee shall have
the right to dispose of existing stocks of
20
Products on hand, in process, or in transit, produced in the ordinary course of
business, in accordance with the terms of this Agreement (including, without
limitation, the provisions of Article 11.B. regarding approved accounts). The
right to dispose of stocks shall be non-exclusive with regard to use of the
trademarks and shall not extend beyond one hundred and eighty (180) days from
the date of termination of this Agreement, and may be shortened or eliminated at
the discretion of Licensor if this Agreement is terminated by default by
Licensee. Upon termination, Licensor shall continue to be paid on a quarterly
basis during any permitted disposal period.
ARTICLE 22. GOVERNING LAW; VENUE
--------------------------------
A. The validity, construction, and performance and effect of
this Agreement shall be governed by and construed under and in accordance with
the laws of the State of California without regard to its choice of law
principles.
B. The parties hereto consent to the jurisdiction of the
federal and state courts of the State of California. The parties agree that any
action or proceeding arising out of this Agreement shall be brought in a federal
or state court of competent jurisdiction in the State of California, and in no
other jurisdiction.
ARTICLE 23. AGREEMENT EMBODIES ALL UNDERSTANDINGS
-------------------------------------------------
This Agreement embodies all understandings between the parties
hereto. Any promises, agreements, representations, or obligations which may have
been previously made or undertaken by either of the parties and not set out
herein are canceled and shall be of no further force or effect. This Agreement
shall not be changed, modified, abrogated, or superseded unless by a writing
signed the party to be bound.
21
ARTICLE 24. WAIVER
------------------
The waiver by either party of any specific provision of the
Agreement or either party's failure to exercise any right which accrues to it
under this Agreement shall not affect the enforceability of any other provision
or rights accruing hereunder.
ARTICLE 25. SEVERABILITY
------------------------
Should any part or provision of this Agreement be held
unenforceable or in conflict with the laws of any jurisdiction, the validity of
the remaining parts or provisions shall not be affected by such holding.
ARTICLE 26. ATTORNEYS' FEES
---------------------------
In any litigation, arbitration or court proceeding between the
parties, the prevailing party shall be entitled to recover, in addition to any
other amounts rewarded, reasonable attorneys' fees and all costs of proceedings
incurred in enforcing this Agreement.
ARTICLE 27. HEADINGS
--------------------
The section headings provided herein are provided for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
ARTICLE 28. COUNTERPARTS
------------------------
This Agreement may be executed in counterparts, each of which
shall be deemed an original and which together shall constitute one and the same
agreement.
22
IN WITNESS WHEREOF, the parties have executed this License
Agreement as of the Effective Date.
BRITTANIA SPORTSWEAR LTD. NANTUCKET INDUSTRIES, INC.
LICENSOR LICENSEE
By: By:
------------------------------- --------------------------------
Printed Name: Printed Name:
-------------------- ---------------------
Title: Title:
---------------------------- -----------------------------
23
SCHEDULE A
----------
BRITTANIA(R) LOGOS AND DISTINCTIVE TRADEMARKS
* Trademark usage is divided into 3 categories:
o on Product
o on Packaging
o Advertising
Attached hereto are the specific trademarks and exact approved uses thereof.
SCHEDULE B
----------
PRODUCTS
UNDERWEAR
- ---------
Men's knit colored/patterned underwear
Men's knit boxer shorts
LOUNGEWEAR
- ----------
Top Silhouettes:
- ----------------
Athletic Shirts
Muscle Shirts
Tee Back Athletic Shirts
Tee Shirts
Henley Neck Shirts
Unconstructed CPO Shirt, V-Neck
Fabrications:
-------------
Knits: Jersey, Rib, Thermal and Mesh
Woven: Flannel, Sheeting
Fabric Weight:
--------------
Between 130 and 180 grams per square meter
Bottom Silhouettes:
- -------------------
Boxer Shorts
Jams
Pull-On Pants Elastic Waist
Pull-On Pants Draw String Waist
Fabrications:
-------------
Knits: Jersey, Rib, Thermal and Mesh
Woven: Flannel, Sheeting
Fabric Weight:
--------------
Between 130 and 180 grams per square meter
Unionsuits:
- -----------
One Piece
Fabrication:
------------
Knit: Jersey
Fabric Weight:
--------------
Between 130 and 180 grams per square meter
SCHEDULE C.1.
-------------
LEVI STRAUSS & CO.
MONTHLY SALES REPORT FOR REGULAR PRODUCT
Nantucket Industries
Licensee
Country: United States
Month of , 19 Preparation Date:
---------------------------------- --- ---------
- --------------------------------------------------------------------------------
PRODUCT GROUP NET UNITS NET SALES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTALS:
- --------------------------------------------------------------------------------
(1) Total Sales for Month
---------------
(2) Royalty at _____ percent
---------------
(3) Royalties Accrued Quarter-to-Date
---------------
SCHEDULE C.2.
-------------
BRITTANIA SPORTSWEAR LTD.
MONTHLY SALES REPORT FOR IRREGULAR PRODUCT
Nantucket Industries
Licensee
Country: United States
Month of , 19 Preparation Date:
---------------------------------- --- ---------
- --------------------------------------------------------------------------------
PRODUCT GROUP NET UNITS NET SALES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTALS:
- --------------------------------------------------------------------------------
(1) Total Sales for Month
(2) Royalty at _____ percent
(3) Royalties Accrued Quarter-to-Date
SCHEDULE D
----------
BRITTANIA SPORTSWEAR LTD.
QUARTERLY ROYALTY REMITTANCE REPORT
REPORT FOR THE QUARTER ENDING
---------------------------- --------------------
Date Prepared Licensee
------------------------- -----------------
<TABLE>
<CAPTION>
<S> <C> <C>
Month Net Sales - Firsts Net Sales - Seconds
- --------- ------------------ -------------------
- -------------------- ---------------------
- -------------------- ---------------------
- -------------------- ---------------------
1. Total Sales Current Quarter _____________________ ____________________
2. Sales- Prior Qtr(s)
[Line 3 from prior report] _____________________ ____________________
3. Total Sales - through current
Qtr. [Line 1 + Line 2] _____________________ ____________________
4. Royalty Earned [1sts + 2nds]
Thru Cur Qtr [R.R.* X Line 3] _____________________ ____________________
5. Total Royalty Earned
[Total of 1sts + 2nds] _____________________
6. Minimum Royalty Due
End of Quarter** _____________________
7. Enter Line 5 or Line 6
whichever is greater _____________________
8. Royalties Paid in Prior Qtr.(s)
of Current Agreement _____________________
9. Royalty Due BSL - Current
Qtr. [Line 7 less Line 8] _____________________
* Royalty Rate for 1sts is 4%. Royalty Rate for 2nds up to a maximum of 2% of Total Net Sales is 2% [see article
4.B. and 9.F.]
** Minimum Royalty Figure: See Schedule E.
</TABLE>
SCHEDULE E
----------
<TABLE>
<CAPTION>
ANNUAL/ ACCUMULATED
PERIOD MINIMUM MINIMUM MINIMUM
QUARTER NET SALES ROYALTY ROYALTY ROYALTY
($000) (% NET SALES) ($000) ($000)
<S> <C> <C> <C> <C> <C>
1997 I 1,500.00 4.0% 60.00 60.00
II 1,500.00 4.0% 60.00 120.00
III 1,500.00 4.0% 60.00 180.00
IV 1,500.00 4.0% 60.00 240.00
TOTAL $ 6,000.00 $ 240.00
1998 I 1,531.25 4.0% 61.25 301.25
II 1,531.25 4.0% 61.25 362.50
III 1,531.25 4.0% 61.25 423.75
IV 1,531.25 4.0% 61.25 485.00
TOTAL $ 6,125.00 $ 245.00
1999 I 1,562.50 4.0% 62.50 547.50
II 1,562.50 4.0% 62.50 610.00
III 1,562.50 4.0% 62.50 672.50
IV 1,562.50 4.0% 62.50 735.00
TOTAL $ 6,250.00 $ 250.00
</TABLE>
SCHEDULE E (continued)
<TABLE>
<CAPTION>
RENEWAL/ ACCUMULATED
PERIOD MINIMUM MINIMUM MINIMUM
QUARTER NET SALES ROYALTY ROYALTY ROYALTY
($000) (% NET SALES) ($000) ($000)
<S> <C> <C> <C> <C> <C>
2000 I 1,750.00 4.0% 70.00 70.00
II 1,750.00 4.0% 70.00 140.00
III 1,750.00 4.0% 70.00 210.00
IV 1,750.00 4.0% 70.00 280.00
TOTAL $ 7,000.00 $ 280.00
2001 I 1,950.00 4.0% 78.00 358.00
II 1,950.00 4.0% 78.00 436.00
III 1,950.00 4.0% 78.00 514.00
IV 1,950.00 4.0% 78.00 592.00
TOTAL $ 7,800.00 $ 312.00
</TABLE>
EXHIBIT 1
LICENSOR'S CODE OF ETHICS
Levi Strauss & Co. has a long and distinguished history of ethical conduct and
community involvement. Essentially, these are a reflection of the mutually
shared values of the founding families and of our employees.
Our ethical values are based on the following elements:
A commitment to commercial success in terms broader than merely financial
measures.
A respect of our employees, suppliers, customers, consumers and stockholders.
A commitment to conduct which is not only legal but fair and morally correct in
a fundamental sense.
Avoidance of not only real, but the appearance of conflict of interest.
From time to time the Company will publish specific guidelines, policies and
procedures. However, the best test whether something is ethically correct is
whether you would be prepared to present it to our senior management and board
of directors as being consistent with our ethical traditions. If you have any
uneasiness about an action you are about to take or which you see, you should
discuss the action with your supervisor or management.
EXHIBIT 2
LEVI STRAUSS & CO.'S
GLOBAL SOURCING & OPERATING GUIDELINES
Levi Strauss & Co. seeks to conduct its business in a responsible manner. We
believe this is an important element of our corporate reputation which
contributes to the strength of our commercial success. As we expand our
marketing activities abroad, and work with contractors and suppliers throughout
the world to help meet our customers' needs, it is important to protect our
Company's reputation in selecting where and with whom to do business.
Levi Strauss & Co.'s GLOBAL SOURCING & OPERATING GUIDELINES includes two parts:
the BUSINESS PARTNER TERMS OF ENGAGEMENT, which address work place issues that
are substantially controllable by individual business partners; and the COUNTRY
ASSESSMENT GUIDELINES, which address larger, external issues beyond the control
of the individual business partners.
BUSINESS PARTNER TERMS OF ENGAGEMENT:
The TERMS OF ENGAGEMENT are tool that help protect Levi Strauss & Co.'s
CORPORATE REPUTATION and, therefore, its COMMERCIAL SUCCESS. They assist us in
selecting business partners* that follow work place standards and business
practices consistent with our Company's policies. As a set of guiding
principles, they also help to identify potential problems so that we can work
with our business partners to address issues of concern as they arise.
Specially, we expect our business partners to operate work places where the
following standards and practices are followed:
1. EMPLOYMENT STANDARDS:
We will only do business with partners whose workers are in all cases
present voluntarily, not put at risk of physical harm, fairly
compensated, allowed the right of free association and not exploited in
any way. In addition, the following specific guidelines will be
followed.
WAGES AND BENEFITS
We will only do business with partners who provide wages and benefits
that comply with any applicable law or match the prevailing local
manufacturing or finishing industry practices.
WORKING HOURS
While permitting flexibility in scheduling, we will identify prevailing
local work hours and seek business partners who do not exceed them
accept for appropriately compensated overtime. While we favor partners
who utilize less than sixty-hour work weeks, we will not use
contractors who, on a regularly scheduled basis, require excess of a
sixty-hour week. Employees should be allowed at least one day off in
seven days.
CHILD LABOR
Use of child labor is not permissible. Workers can be no less than 14
years of age and not younger than the compulsory age to be in school.
We will not utilize partners who use child labor in any of their
facilities. We support the development of legitimate workplace
apprenticeship programs for the educational benefit of younger people.
PRISON LABOR/FORCED LABOR
We will not knowingly utilize prison or forced labor in contracting
relationships in the manufacture and finishing of our products. We will
not utilize or purchase materials from a business partner utilizing
prison or forced labor.
DISCRIMINATION
While we recognize and respect cultural differences, we believe that
workers should be employed on the basis of their ability to do the job,
rather than on the basis of personal characteristics or beliefs. We
will favor business partners who share this value.
DISCIPLINARY PRACTICES
We will not utilize business partners who use corporal punishment or
other forms of mental or physical coercion.
HEALTH & SAFETY
We will only utilize business partners who provide workers with a safe
and healthy work environment. Business partners who provide residential
facilities for their workers must provide safe and healthy facilities.
2. ENVIRONMENTAL STANDARDS:
We will only do business with partners who share our commitment to the
environment and who conduct their business in a way that is consistent
with Levi Strauss & Co.'s Environmental Philosophy and Guiding
Principles.
3. ETHICAL STANDARDS:
We will only seek to identify and utilize business partners who aspire
as individuals and in the conduct of their business to a set of ethical
standards not incompatible with our own.
4. LEGAL STANDARDS:
We expect our business partners to be law abiding as individuals and to
comply with legal requirements relevant to the conduct of their
business.
5. COMMUNITY INVOLVEMENT:
We will favor business partners who share our commitment to contribute
to improving community conditions.
* Business partners are contractors and subcontractors who manufacture or finish
our products and suppliers who provide raw materials used in the production of
our products. We have begun applying the Terms of Engagement to business
partners involved in manufacturing and finishing, and plan to extend their
application to suppliers.
Exhibit 2 continued
COUNTRY ASSESSMENT GUIDELINES:
The diverse cultural, social, political, and economic circumstances of the
various countries where Levi Strauss & CO. has existing or future business
interests raise issues that could subject our CORPORATE REPUTATION and
therefore, our BUSINESS SUCCESS, to potential harm. The COUNTRY ASSESSMENT
GUIDELINES are intended to help us assess these issues. The GUIDELINES are tools
that assist us in making practical and principled decisions as we balance the
potential risks and opportunities associated with conducting business in a
particular country.
In making these decisions, we consider the degree to which our global CORPORATE
REPUTATION and COMMERCIAL SUCCESS may be exposed to UNREASONABLE RISK.
Specially, we assess whether the:
BRAND IMAGE would be adversely affected by a country's perception or image among
our customers and/or consumers;
HEALTH AND SAFETY of our employees and their families, or our Company
representatives would be exposed to unreasonable risk;
HUMAN RIGHTS ENVIRONMENT would prevent us from conducting business activities in
a manner that is consistent with the Global Sourcing Guidelines and other
Company policies;
LEGAL SYSTEM would prevent us from adequately protecting our trademarks,
investments or other commercial interests, or from implementing the Global
Sourcing Guidelines and other Company policies; and
POLITICAL, ECONOMIC AND SOCIAL ENVIRONMENT would threaten the Company's
reputation and/or commercial interest.
In making these assessments, we take into account the various types of business
activities and objectives proposed (e.g., procurement of fabric and sundries,
sourcing, licensing, direct investments in subsidiaries) and, thus, the
accompanying level of risk involved.
Levi Strauss & Co. is committed to continuous improvement in the implementation
of its Global Sourcing & Operating Guidelines. As we apply these tools
throughout the world, we will acquire greater experience and gain new insight
from a variety of sources. The knowledge will enable us to continue our efforts
to update our Guidelines, better address issues of concern, and meet new
challenges.
Exhibit 10(bb)(i)
SECOND AMENDMENT TO TECHNICAL ASSISTANCE
AND TRADEMARK LICENSE AGREEMENT
BETWEEN GUESS ?, INC. AND NANTUCKET INDUSTRIES, INC.
THIS SECOND AMENDMENT TO TECHNICAL ASSISTANCE AND TRADEMARK
LICENSE AGREEMENT, dated as of June 1, 1996 ("Second Amendment"), between GUESS
?, INC. ("LICENSOR") and NANTUCKET INDUSTRIES, INC. ("LICENSEE"), amends that
certain Technical Assistance and Trademark License Agreement, as previously
amended (the "Agreement"), dated as of December 9, 1992, between LICENSOR and
LICENSEE. Capitalized terms used but not otherwise defined in this Second
Amendment shall have the respective meanings ascribed to them in the Agreement.
WHEREAS, LICENSOR and LICENSEE entered into the Agreement for the
manufacture and sale of the Products; and
WHEREAS, LICENSOR and LICENSEE desire to amend the Agreement on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the covenants and
agreements contained in this Second Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by the
execution hereof, the parties agree as follows:
1. The parties acknowledge and agree that, effective as of June 1, 1996
and except for the non-exclusive sell-off period of existing inventory until
September 30, 1996 (as described below), LICENSEE is no longer authorized to
manufacture or sell any men's knit or woven underwear products that bear the
Guess Marks or any other GUESS trademarks (the "Discontinued Products"). All
provisions of the Agreement granting LICENSEE any rights to use the Guess Marks
in connection with the manufacture, promotion, distribution or sale of the
Discontinued Products are hereby deleted. The Discontinued Products shall no
longer be deemed to be "Products" under the Agreement.
LICENSEE shall take the following actions in connection with
the disposition of its Discontinued Products inventory:
A. Within 10 days of execution of this Second Amendment,
LICENSEE shall furnish LICENSOR with a certificate listing all
inventories of Discontinued Products and related work in
process, including all fabrics, trim, packaging and other
materials used in the manufacture and marketing of such
Discontinued Products, on hand or in process, and the location
thereof.
B. On or before September 30, 1996, to stop, and to cause all
LICENSEE's accounts to stop, all sales and shipment of the
Discontinued Products.
C. On or before September 30, 1996, to return to LICENSOR's
representative, all advertising, packaging, promotional, point
of sale and showroom materials relating to the Discontinued
Products.
D. Except as expressly permitted otherwise in writing by
LICENSOR, all sales of the Discontinued Products shall comply
with the conditions set forth in the Agreement (including the
payment of Trademark Royalties thereon), and in particular all
sales shall be made so as to maintain the goodwill, prestige
and reputation for quality associated with GUESS goods.
Notwithstanding the foregoing, the sales of the Discontinued
Products from June 1, 1996 through September 30, 1996, shall
be excluded from the Closeout limitation described in Section
7.2.5, but not from any other limitation contained in the
Agreement.
E. Discontinued Products which remain unsold after September
30, 1996, shall be sold, liquidated or otherwise transferred
only with LICENSOR's prior written consent.
LICENSOR may immediately terminate the Agreement, without any
right to cure, if LICENSEE breaches any provision of the
sell-off plan described above.
2. Pursuant to Section 9.2 of the Agreement, LICENSEE has requested,
and LICENSOR agrees, to renew this License (as amended herein) for a three (3)
year Term through May 31, 1999, in accordance with the terms and conditions of
this Second Amendment.
3. The following new Section 5.11 is hereby added to the Agreement:
"5.11 Notwithstanding Section 7.2.2, LICENSEE shall grant to
LICENSOR a ten percent (10%) Trade Discount on purchases of
Products by LICENSOR from LICENSEE for sale in LICENSOR's
retail and/or factory stores. LICENSEE shall accept from
LICENSOR for full credit in the amount originally invoiced to
LICENSOR, the return of up to fifteen percent (15%) of
Products purchased by LICENSOR from LICENSEE for sale in
LICENSOR's retail and/or factory stores, which remain unsold
and which were shipped by LICENSEE during any part of any
individual contract quarter."
4. Section 7.2.1 of the Agreement is amended to add the following after
the word "Allowances" in the first line thereof:
"(excluding credit given to LICENSOR for return of unsold
Products pursuant to Section 5.11)".
5. Section 7.2.3 of the Agreement is amended as follows:
(i) add the following after the word "Allowances" in
the first line thereof:
"(excluding credit given to LICENSOR for return of
unsold Products pursuant to Section 5.11)".
(ii) add the following after the word "Discounts" in
the second line thereof:
"(excluding the ten percent (10%) Trade Discount
granted to LICENSOR pursuant to Section 5.11)".
6. Section 7.2.4 of the Agreement is amended to add the following after
the word "Products" in the first line thereof:
"(excluding returns of unsold Products by LICENSOR pursuant to Section
5.11)".
7. Section 7.2.5 of the Agreement is amended in its entirety as
follows:
"7.2.5 Closeouts (which are defined as Products sold at a
reduction of ten percent (10%) or more from the list wholesale
selling price shown on the Licensed Product Approval Form)
shall not exceed three percent (3%) of total units shipped;
provided however, that sales of closeouts to LICENSOR's own
Guess stores, and sales of Products returned by LICENSOR to
LICENSEE as unsold pursuant to Section 5.11, shall both be
excluded from this limitation."
8. The Notice Addresses at Section 17.1 of the Agreement are replaced
in their entirety with the following:
"TO LICENSOR: GUESS ?, INC.
1444 South Alameda Street
Los Angeles, California 90021
Telephone: (213) 765-3100
Facsimile: (213) 765-3666
Attn: Licensing Department
with a copy to: GUESS ?, INC.
1444 South Alameda Street
Los Angeles, California 90021
Telephone: (213) 765-3100
Facsimile: (213) 744-7821
Attn: General Counsel/Licensing
TO LICENSEE: NANTUCKET INDUSTRIES, INC.
105 Madison Avenue
New York, New York 10016
Telephone: (212) 889-5656
Facsimile: (212) 532-3217
Attn: Mr. Steve Samberg,
Chairman"
9. The following new Section 17.11 is hereby added to the Agreement:
"17.11 The Exhibits attached hereto and as revised from time
to time are hereby incorporated by reference and form integral
parts hereof. The reporting, approval and other similar forms
of LICENSOR attached as Exhibits hereto may be revised by
LICENSOR at any time and from time to time."
10. Exhibit A of the Agreement shall be replaced in its entirety with
Exhibit A attached hereto.
11. Exhibit F of the Agreement shall be replaced in its entirety with
Exhibit F attached hereto.
12. Exhibit G of the Agreement shall be replaced in its entirety with
Exhibit G attached hereto.
13. Except as expressly modified by this Second Amendment, the
Agreement is confirmed and shall continue to be and remain in full force and
effect in accordance with its terms. Any existing or future reference to the
Agreement and any document or instrument delivered in connection with the
Agreement shall be deemed to be a reference to the Agreement as modified by this
Second Amendment. To the extent anything in this Second Amendment is
inconsistent with the Agreement, this Second Amendment shall control.
14. This Second Amendment may be executed in any number of
counterparts, each of which, when taken together, shall constitute but one and
the same instrument.
15. This Second Amendment shall be governed by and construed according
to the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused their
respective duly- authorized representatives to execute this Second Amendment as
of the date first-above written.
NANTUCKET INDUSTRIES, INC. GUESS ?, INC.
By: By:
-------------------------- ---------------------------
Name: Name:
------------------------ -------------------------
Title: Title:
----------------------- ------------------------
EXHIBIT A
PRODUCTS
Ladies' undergarments including only panties, matching soft bras, matching tank
tops and matching crop tops all to be sold in the underwear department of
department stores and retail stores which sell underwear.
EXHIBIT F
MINIMUM NET SALES
Initial Term Minimum Net Sales
- ------------ -----------------
First Contract Year
December 1, 1992 - May 31, 1994 $1,000,000
Second Contract Year
June 1, 1994 - May 31, 1995 $2,000,000
Third Contract Year
June 1, 1995 - May 31, 1996 $3,000,000
Renewal Term
Fourth Contract Year
June 1, 1996 - May 31, 1997 $8,000,000
Fifth Contract Year
June 1, 1997 - May 31, 1998 $10,000,000
Sixth Contract Year
June 1, 1998 - May 31, 1999 $12,000,000
EXHIBIT G
ROYALTY MINIMUMS
INITIAL TERM
II. For the first Contract Year of the Initial Term, LICENSEE shall pay the sum
of US$70,000 one half upon execution and the balance in three equal installments
of US$11,666.67 each, the first due on July 1, 1993, the second due on October
1, 1993 and the third due on January 1, 1994.
III. For the second Contract Year, LICENSEE shall pay the sum of US$105,000 in
four equal installments of US$26,250 each, the first due on April 1, 1994, the
second due on July 1, 1994, the third due on October 1, 1994 and the fourth due
on January 1, 1995.
IV. For the third Contract Year, LICENSEE shall pay the sum of US$140,000 in
four equal installments of US$35,000 each, the first due on April 1, 1995, the
second due on July 1, 1995, the third due on October 1, 1995 and the fourth due
on January 1, 1996.
RENEWAL TERM:
V. For the fourth Contract Year, LICENSEE shall pay the sum of US$560,000 as
follows: US$87,500 has been paid as of the date of signing this Second
Amendment; the remaining US$472,500 shall be paid in two equal installments of
US$236,250 each, the first due on October 1, 1996 and the second due on January
1, 1997.
VI. For the fifth Contract Year, LICENSEE shall pay the sum of US$700,000 in
four equal installments of US$175,000 each, the first due on April 1, 1997, the
second due on July 1, 1997, the third due on October 1, 1997 and the fourth due
on January 1, 1998.
VII. For the sixth Contract Year, LICENSEE shall pay the sum of US$840,000 in
four equal installments of US$210,000 each, the first due on April 1, 1998, the
second due on July 1, 1998, the third due on October 1, 1998 and the fourth due
on January 1, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE STATEMENTS DATED AUGUST
31, 1996 AS FILED IN FORM 10-Q FOR THE QUARTERLY PERIOD THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 15,085
<SECURITIES> 5,335
<RECEIVABLES> 4,949,194
<ALLOWANCES> 91,000
<INVENTORY> 9,186,869
<CURRENT-ASSETS> 14,735,807
<PP&E> 7,373,901
<DEPRECIATION> 4,095,963
<TOTAL-ASSETS> 18,306,728
<CURRENT-LIABILITIES> 2,921,737
<BONDS> 0
0
500
<COMMON> 324,185
<OTHER-SE> 4,097,788
<TOTAL-LIABILITY-AND-EQUITY> 18,306,728
<SALES> 7,974,742
<TOTAL-REVENUES> 7,974,742
<CGS> 6,168,991
<TOTAL-COSTS> 6,168,991
<OTHER-EXPENSES> 1,958,051
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 282,701
<INCOME-PRETAX> (435,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> (435,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (435,001)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
