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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22378
MOVADO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEW YORK 13-2595932
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201) 460-4800
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 the number of shares outstanding of each of the Issuer's classes
of Common Stock, as of the latest practicable date.
As of December 6, 1999 the Registrant had 3,509,733 shares of Class A
Common Stock, par value $0.01 per share, outstanding and 9,492,778 shares of
Common Stock, par value $0.01 per share, outstanding.
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MOVADO GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
OCTOBER 31, 1999
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Page
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Part I Financial Information
Item 1. Consolidated Balance Sheets at October 31, 1999, January 31,
1999 and October 31, 1998 3
Consolidated Statements of Income for the nine months ended
October 31, 1999 and 1998 and the three months ended October
31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the nine months
ended October 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
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<CAPTION>
OCTOBER 31, JANUARY 31, OCTOBER 31,
1999 1999 1998
---------------- ------------------ ----------------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash $15,328 $5,626 $5,469
Trade receivables, net 129,974 109,102 138,076
Inventories, net 110,215 104,027 121,551
Assets held for sale - 22,187 -
Other 16,669 21,489 20,749
---------------- ------------------ ----------------
Total current assets 272,186 262,431 285,845
---------------- ------------------ ----------------
Plant, property and equipment, net 27,371 22,998 23,451
Other assets 13,231 10,946 11,460
---------------- ------------------ ----------------
$312,788 $296,375 $320,756
================ ================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Loans payable to banks $20,000 $ 2,200 $53,611
Current portion of long-term debt 5,000 10,000 5,000
Accounts payable 18,736 25,181 15,733
Accrued liabilities 25,632 20,020 26,021
Deferred and current taxes payable 12,210 10,179 9,560
---------------- ------------------ ----------------
Total current liabilities 81,578 67,580 109,925
---------------- ------------------ ----------------
Long-term debt 50,000 55,000 35,000
Deferred and non-current foreign income taxes 5,481 5,728 5,950
Other liabilities 1,487 1,641 1,863
Shareholders' equity:
Preferred Stock, $0.01 par value,
5,000,000 shares authorized; no shares issued - - -
Common Stock, $0.01 par value,
20,000,000 shares authorized; 9,490,754, 9,419,781 and
9,389,236 shares issued, respectively 95 94 94
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,509,773, 3,530,922 and
3,533,529 shares issued and outstanding, respectively 35 35 35
Capital in excess of par value 65,558 65,332 64,872
Retained earnings 127,699 106,141 100,965
Accumulated other comprehensive income (6,320) (2,188) 4,497
Treasury Stock; 539,290, 159,019 and 137,319 shares,
at cost, respectively (12,825) (2,988) (2,445)
---------------- ------------------ ----------------
174,242 166,426 168,018
---------------- ------------------ ----------------
$312,788 $296,375 $320,756
================ ================== ================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
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NINE MONTHS ENDED OCTOBER 31, THREE MONTHS ENDED OCTOBER 31,
----------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $216,223 $208,039 $99,032 $97,455
Costs and expenses:
Cost of sales 84,326 86,272 37,391 39,967
Selling, general and administrative 103,630 97,633 42,629 40,460
-------------- ----------------- ----------------- ----------------
Operating income 28,267 24,134 19,012 17,028
Net interest expense 3,797 3,951 1,132 1,435
Gain on disposition of business 4,752 - - -
-------------- ----------------- ----------------- ----------------
Income before income taxes 29,222 20,183 17,880 15,593
Provision for income taxes 6,722 4,642 4,113 3,586
-------------- ----------------- ----------------- ----------------
Net income $22,500 $15,541 $13,767 $12,007
============== ================= ================= ================
Basic net income per share $1.78 $1.21 $1.10 $0.94
============== ================= ================= ================
Diluted net income per share $1.73 $1.17 $1.07 $0.91
============== ================= ================= ================
Dividends declared per share $0.075 $0.06 $0.025 $0.02
============== ================= ================= ================
Average shares outstanding 12,610 12,860 12,463 12,813
Dilutive effect of stock options 404 422 403 337
-------------- ----------------- ----------------- ----------------
Average shares outstanding assuming dilution 13,014 13,282 12,866 13,150
============== ================= ================= ================
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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NINE MONTHS ENDED OCTOBER 31,
---------------------------------------
1999 1998
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Cash flows from operating activities:
Net income $22,500 $15,541
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 3,527 2,929
Deferred and non-current foreign income taxes 115 2,018
Provision for losses on accounts receivable 799 812
Gain on disposition of business (4,752) -
Changes in current assets and liabilities:
Trade receivables (21,821) (45,430)
Inventories (8,852) (21,987)
Other current assets 492 3,221
Accounts payable (5,975) (9,661)
Accrued liabilities 2,348 9,032
Deferred and current taxes payable 2,471 (971)
Other non-current assets 2,580 (854)
Other non-current liabilities (312) 55
----------------- -----------------
Net cash (used in) operating activities (6,880) (45,295)
----------------- -----------------
Cash flows used for investing activities:
Capital expenditures (7,770) (7,248)
Proceeds from disposition of business 28,409 2,416
Goodwill, trademarks and other intangibles (1,255) (862)
----------------- -----------------
Net cash provided by (used in) investing activities 19,384 (5,694)
----------------- -----------------
Cash flows from financing activities:
Repayment of senior notes (5,000) (5,000)
Net proceeds from bank borrowings 12,800 53,611
Principal payments under capital leases (69) (276)
Stock options exercised 301 340
Dividends paid (942) (770)
Purchase of treasury stock (9,837) (2,320)
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Net cash (used in) provided by financing activities (2,747) 45,585
----------------- -----------------
Effect of exchange rate changes on cash and cash equivalents (55) (1)
----------------- -----------------
Net increase (decrease) in cash 9,702 (5,405)
Cash at beginning of period 5,626 10,874
----------------- -----------------
Cash at end of period $ 15,328 $ 5,469
================= =================
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Movado Group, Inc. (the "Company") in a manner consistent with that used in
the preparation of the financial statements included in the Company's fiscal
1999 Annual Report filed on Form 10-K. In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal and recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods presented. These
consolidated financial statements should be read in conjunction with the
aforementioned annual report.
NOTE 1 - RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform with the
current period presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
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OCTOBER 31, JANUARY 31, OCTOBER 31,
1999 1999 1998
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Finished goods $71,816 $64,438 $76,923
Work-in-process and component parts 38,399 39,589 44,628
----------------------- ----------------------- -----------------------
$110,215 $104,027 $121,551
======================= ======================= =======================
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NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
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<CAPTION>
NINE MONTHS
ENDED OCTOBER 31,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $4,846 $4,125
Income taxes 4,524 3,782
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NOTE 4 - COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
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NINE MONTHS THREE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $22,500 $15,541 $13,767 $12,007
Foreign currency translation adjustment (4,132) 9,634 1,024 10,018
----------- ------------ ----------- -----------
Comprehensive income $18,368 $25,175 $14,791 $22,025
=========== ============ =========== ===========
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NOTE 5 - SEGMENT INFORMATION
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (the "Statement"), which requires
reporting certain financial information regarding the Company's segments
according to the "management approach". This approach requires reporting
information regarding operating segments on the basis used internally by
management to evaluate segment performance. The Company conducts its business
primarily in two operating segments: "Wholesale" and "Other". The Company's
wholesale segment includes the design, manufacture and distribution of quality
watches. The Company's other segment includes the retail and service center
operations. The Statement also requires quarterly disclosure of certain segment
information. Operating segment data is as follows (in thousands):
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NET SALES OPERATING PROFIT (LOSS)
------------------------------------ --------------------------------------
FOR THE NINE MONTHS ENDED OCTOBER 31,
-----------------------------------------------------------------------------------
1999 1998 1999 1998
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Wholesale $ 191,619 $ 187,125 $ 29,268 $ 25,990
Other 24,604 20,914 (1,001) (1,856)
-------------- --------------- --------------- ----------------
Consolidated $ 216,223 $ 208,039 $ 28,267 $ 24,134
============== =============== =============== ================
<CAPTION>
NET SALES OPERATING PROFIT (LOSS)
------------------------------------ --------------------------------------
FOR THE THREE MONTHS ENDED OCTOBER 31,
-----------------------------------------------------------------------------------
1999 1998 1999 1998
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Wholesale $ 89,422 $ 89,861 $ 19,355 $ 17,224
Other 9,610 7,594 (343) (196)
-------------- --------------- --------------- ----------------
Consolidated $ 99,032 $ 97,455 $ 19,012 $ 17,028
============== =============== =============== ================
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NOTE 6 - DISPOSITION OF BUSINESS
On December 22, 1998, the Company entered into an agreement with VLG North
America, Inc. ("VLG") for the sale to VLG of substantially all of the assets,
properties and rights related to the Piaget business. The transaction was
completed on February 22, 1999 at a sales price of $28.4 million. After
adjusting for the net assets sold and the expenses related to the sale, the
Company earned an after tax gain of $3.7 million, or $0.28 per share. In fiscal
1999, the Piaget business had annual sales and operating income of approximately
$14.2 million and $100,000 respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements included under Management's Discussion and Analysis of Financial
Condition and Results of Operations, in this report, as well as statements in
future filings by the Company with the Securities and Exchange Commission
("SEC"), in the Company's press releases and oral statements made by or with the
approval of an authorized executive officer of the Company, which are not
historical in nature, are intended to be, and are hereby identified as, "forward
looking statements" for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934. The Company cautions readers that forward
looking statements include, without limitation, those relating to the Company's
future business prospects, revenues, working capital, liquidity, capital needs,
plans for future operations, effective tax rates, margins, interest costs, and
income, as well as assumptions relating to the foregoing. Forward looking
statements are subject to certain risks and uncertainties, some of which cannot
be predicted or quantified. Actual results and future events could differ
materially from those indicated in the forward looking statements due to several
important factors herein identified, among others, and other risks and factors
identified from time to time in the Company's reports filed with the SEC
including, without limitation, the following: general economic and business
conditions which may impact disposable income of consumers, competitive products
and pricing, ability to enforce intellectual property rights, seasonality,
availability of alternative sources of supply in the case of loss of any
significant supplier, the Company's dependence on key officers, continued
availability to the Company of financing and credit on favorable terms, and
success of hedging strategies with respect to currency exchange rate
fluctuations.
NINE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO NINE MONTHS ENDED OCTOBER 31,
1998.
Net Sales. Net sales for the nine months ended October 31, 1999 increased 3.9%
to $216.2 million from $208 million for the nine months ended October 31, 1998.
Prior year sales included the Piaget distribution business, which the Company
sold in February 1999. Sales from ongoing operations increased 9.7%. The
increase in sales from ongoing operations was mainly attributable to a 10.5%
increase in domestic sales and a 6.3% increase in international sales. The
domestic sales increase resulted from increased sales in the Concord, Movado and
Coach brands offset by a decrease in the Corum brand. Domestic sales also
increased due to both volume increases as well as new store openings of both
Retail Outlets and the Movado Boutiques. International sales increased primarily
due to the continuing rollout of the Company's Coach brand.
Gross Margins. Gross margins for the nine months ended October 31, 1999 and
October 31, 1998 were $131.9 million (61.0% of sales) and $121.8 million (58.5%
of sales), respectively. The gross margin increase of 250 basis points was
attributable to a combination of a reduction in supply chain costs, a decline in
the value of the Swiss franc against the U.S. dollar, which reduced the
Company's production costs, and the disposition of the Piaget distribution
business, which had margins below the Company's manufactured brands.
Operating expenses. Operating expenses for the nine months ended October 31,
1999 were $103.6 million (47.9% of sales) as compared to $97.6 million (46.9%
of sales) for the nine months ended October 31, 1998. The increase in operating
expenses was due to the launch of the Company's Movado Boutiques late in the
first quarter of fiscal 1999, the expansion of the Company's retail outlet
business and continued investment in the Coach Brand. In addition, advertising
expenses increased due to the introduction of the Company's new Concord and ESQ
advertising campaigns in the third quarter of fiscal 2000. Overall selling
expenses decreased due mainly to the disposition of the Piaget distribution
business. General and administrative expenses continue to be impacted by the
amortization and other costs of the Company's new core information system as
well as cost increases in employee benefit programs as a result of an increase
in headcount.
Interest Expense. Net interest expense, which consists primarily of interest on
the Company's 6.56% Senior Notes ("Senior Notes"), 6.90% Series A Senior Notes
("Series A Senior Notes") and borrowings against its working capital and
revolving lines of credit, was $3.8 million for the nine months ended October
31, 1999 as
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compared to $4.0 million for the nine months ended October 31, 1998. The
decrease relates to lower interest expense on working capital borrowings due to
lower receivables and inventory and interest income from the investment of the
proceeds from the disposition of the Piaget business, offset partially by
interest on the 6.90% Series A Senior Notes issued in December 1998.
Income Taxes. The Company recorded a provision for income taxes of $6.7 million
for the nine months ended October 31, 1999 and $4.6 million for the nine months
ended October 31, 1998. Taxes were provided at an effective rate of 23%, which
the Company believes will approximate the effective annual rate for fiscal 2000;
however, there can be no assurance of this as it is dependent on a number of
factors including: mix of foreign to domestic earnings, local statutory tax
rates and utilization of net operating losses. The 23% effective rate differs
from the United States statutory rate due primarily to the mix of earnings
between the Company's U.S. and international operations, the most significant of
which are located in Switzerland. The Company's international operations are
generally subject to tax rates that are significantly lower than U.S. statutory
rates.
THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1998.
Net Sales. Net sales for the three months ended October 31, 1999 increased 1.6%
to $99 million from $97.5 million for the comparable prior year period. Sales
for the prior period included the Piaget distribution business which the Company
sold in February 1999. Sales from ongoing operations increased 5.7% to $99
million from $93.7 million for the comparable prior year period. The sales
increase from ongoing operations was attributable to a 5.2% increase in domestic
sales and an 9.1% increase in international sales. The international sales
increase was the result of increased sales of the Concord and Coach brands. The
domestic sales increase was primarily attributable to increases in retail sales
by the Company's Movado Boutiques and outlet stores, offset somewhat by a
decline in the Corum brand.
Gross Margins. Gross margins for the three months ended October 31, 1999 were
$61.6 million (62.2% of sales) as compared to $57.5 million (59% of sales) for
the three months ended October 31, 1998. The increase in gross margins as a
percentage of sales was primarily attributable to a reduction in supply chain
costs, a decline in the value of the Swiss franc against the U.S. dollar, which
reduces the Company's production costs, and the disposition of the Piaget
distribution business, which had gross margins below the Company's manufactured
brands.
Operating Expenses. Operating expenses for the three months ended October 31,
1999 were $42.6 million (43% of net sales) as compared to $40.5 million (41.5%
of net sales) for the three months ended October 31, 1998. The increases in
operating expenses were due to the continuing expansion of the Company's Movado
Boutiques and retail outlet businesses, introduction of the Company's new
Concord and ESQ advertising campaigns and the continued investment in the Coach
brand. General and administrative expenses continue to be impacted by the
amortization and other costs of the Company's new core information system
as well as cost increases in employee benefit programs as a result of an
increase in headcount.
Interest Expense. Net interest expense, which consists primarily of interest on
the Company's Senior Notes, Series A Senior Notes and borrowings against its
working capital and revolving lines of credit, was $1.1 million for the three
months ended October 31, 1999 as compared to $1.4 million for the three months
ended October 31, 1998. Interest expense on borrowings decreased due to lower
interest expense on working capital borrowings and interest income from the
investment of the proceeds from the disposition of the Piaget business offset
partially by interest on the Series A Senior Notes issued in December 1998.
Income Taxes. The Company recorded a provision for income taxes of $4.1 million
for three months ended October 31, 1999 and $3.6 million for the three months
ended October 31, 1998. Taxes were provided at an effective rate of 23%, which
the Company believes will approximate the effective annual rate for fiscal 2000;
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however, there can be no assurance of this as it is dependent on a number of
factors including mix of foreign to domestic earnings, local statutory tax
rates and utilization of net operating losses. The 23% effective rate differs
from the United States statutory rate due primarily to the mix of earnings
between the Company's U.S. and international operations, the most significant of
which are located in Switzerland. The Company's international operations are
generally subject to tax rates that are significantly lower than U.S. statutory
rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements, which have increased due
to significant growth in sales over the two previous years. The Company's
business is not capital intensive and liquidity needs for capital investments
have not been significant in relation to the Company's overall financing
requirements.
The Company has met its liquidity needs primarily through bank borrowings under
working capital lines of credit with domestic and Swiss banks as well as funds
from operations. The Company's future requirements for capital will relate not
only to working capital requirements for the expected continued growth of its
existing brands, but also to fund new product lines. In addition, the Company is
required to make a $5 million sinking fund payment on January 31, 2000 in
connection with its Senior Notes, which were issued in the original principal
amount of $40 million.
The Company's revolving credit and working capital lines with its domestic bank
group provide for a three year, $90.0 million unsecured revolving line of
credit, pursuant to an Amended and Restated Credit Agreement, dated July 23,
1997, between the Company, Chase Manhattan Bank, as agent, Fleet Bank N.A. as
co-agent, and other banks signatory thereto ("Restated Bank Credit Agreement"),
and $28.3 million of uncommitted working capital lines of credit. At October 31,
1999, the Company had $20.0 million in outstanding balances under the Restated
Bank Credit Agreement. The Company is currently in the process of renegotiating
the revolving and working capital lines.
In March 1998, the Company's Board of Directors authorized the repurchase of up
to 400,000 shares of the Company's common stock. In March 1999, the Board
approved a revised stock repurchase program for the repurchase of shares of the
Company's common stock up to an aggregate repurchase price of $10.0 million in
addition to the shares previously purchased. In October 1999, the Board approved
a $10.0 million increase in the total amount authorized for share repurchases up
to a total aggregate repurchase amount of $20 million. Since March 1998, the
Company has repurchased approximately 534,800 shares at an aggregate cost of
approximately $12.4 million.
As of October 31, 1999, the Company's debt to total capitalization ratio was
30.1% as compared to 28.8% at January 31, 1999 and 35.8% at October 31, 1998.
The decrease in the debt to total capitalization from October 31, 1998 is
primarily due to lower borrowings in fiscal 2000. The increase from January 31,
1999 was primarily due to an increase in loans under the working capital lines.
The Company's net working capital, consisting primarily of trade receivables and
inventories, amounted to $190.6 million at October 31, 1999, $194.9 million at
January 31, 1999 and $175.9 million at October 31, 1998. The decrease in working
capital from January 31, 1999 was primarily the result of an increase in loans
payable to banks offset by the cash proceeds from the sale of the Piaget
business. The increase in working capital from October 31, 1998 was primarily
due to an increase in receivables due to growth in the Company's business, and
the proceeds from the sale of the Piaget business.
Accounts receivable at October 31, 1999 were $130.0 million as compared to
$109.1 million at January 31, 1999 and $138.1 million at October 31, 1998. The
increase in accounts receivable from January 31, 1999 was
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due to seasonal sales volume increases. The decrease in accounts receivable from
October 31, 1998 was primarily the result of better cash collections.
Inventories at October 31, 1999 were $110.0 million as compared to $104.0
million at January 31, 1999 and $121.6 million at October 31, 1998. The increase
from January 31, 1999 relates to the anticipation of the upcoming selling
season. The decrease from October 31, 1998 relates to the Company's
implementation of new inventory reduction initiatives which includes, more
effective supply chain management and better utilization of inventories.
The Company's fiscal 2000 year-to-date capital expenditures approximated $7.8
million as of October 31, 1999 and $7.2 million as of October 31, 1998.
Expenditures in fiscal 2000 primarily related to the construction of the
Company's sales booth for the Basel Fair in Switzerland and improvements in
information systems. The Company expects that capital expenditures in the future
will approximate the average of fiscal 1999 and 1998 levels.
YEAR 2000
General
Many older computer software programs and other equipment with embedded chips or
processors (collectively "systems") refer to years in terms of their last two
digits only. Such systems may incorrectly interpret the year 2000 to mean the
year 1900. If not corrected, those systems could cause date related transaction
failures.
Project
The Company initiated a project in 1997 (the "Project") to improve and
standardize data and computer technology. The Project is designed to replace all
obsolete hardware and software with systems that are Year 2000 compliant and in
addition, to replace most business software systems. The Project calls for the
replacement or upgrade of all PCs, servers, network components, desktop software
and core business software which support manufacturing, distribution, sales,
accounting, after sales service, retail point of sale, and electronic data
interchange (EDI). A new global technical network infrastructure (hardware,
software, and communication technology) and a new retail point-of-sale and
merchandise system that are Year 2000 compliant have been implemented. As part
of the Project, new client/server core business applications software (which is
designed to be Year 2000 compliant) supporting manufacturing, distribution,
sales, accounting and after sales service was implemented in the U.S. in March
1999. The Company expects to complete the implementation of this software in
Switzerland in May 2000 and in Canada and the Far East during the second half of
fiscal 2001. Existing business applications software systems operating in
Switzerland, Canada and the Far East, however, have been made Year 2000
compliant. The Company has tested its applications software by reviewing the
database and program definitions to confirm that the date formats are four digit
year specific and by simulating the date change to January 1, 2000. As a result
of the Project and its contingency planning, the Company expects that it will be
Year 2000 compliant, on a global basis, by the end of calendar year 1999.
By the use of questionnaire the Company is monitoring the Year 2000 system
status of customers and vendors involved with electronic interchange of data
with our systems. This monitoring will continue throughout calendar year 1999.
Non-electronic data exchange contingency approaches, including reliance on
communications by fax, will be used, if required, with those customers or
vendors which fail to reach Year 2000 system compliance by January 1, 2000.
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Costs
Costs associated with systems replacement and modification to become Year 2000
compliant under the contingency plan (outside of the Project) are expected to be
approximately $400,000. The estimated total cost of the Project is approximately
$11.0 million. The total amount expended on the Project through October 31, 1999
was approximately $10.2 million. This estimate assumes that the Company will not
incur significant Year 2000 related costs due to the failure of customers,
vendors and other third parties to be Year 2000 compliant.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem. The Company believes that, with the completion of the Project and the
implementation of the Company's contingency plan, the possibility of significant
interruptions of normal operations should be reduced. No major information
technology projects have been deferred as a result of the Project.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1* Second Amendment dated as of September 1, 1999 to
the December 1, 1996 license agreement between
Sara Lee Corporation and Movado Group, Inc.
10.2* License Agreement entered into as of June 3, 1999
between Tommy Hilfiger Licensing, Inc. and Movado
Group, Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
*Confidential portions of Exhibits 10.1 and 10.2 were omitted and filed
separately with the Securities and Exchange Commission pursuant to rule 24b-2 of
the Securities Exchange Act of 1934.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: December 14, 1999 By: /s/ Kenneth J. Adams
-------------------------------
Kenneth J. Adams
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer)
Dated: December 14, 1999 By: /s/ Glenn E. Tynan
-------------------------------
Glenn E. Tynan
Vice President and
Corporate Controller
(Principal Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1* Second Amendment dated as of September 1,1999 to the December
1, 1986 license agreement between Sara Lee Corporation and
Movado Group, Inc.
10.2* License Agreement entered into as of June 3, 1999 between Tommy
Hilfiger Licensing, Inc. and Movado Group, Inc.
27 Financial Data Schedule.
*Confidential portions of Exhibits 10.1 and 10.2 were omitted and filed
separately with the Securities and Exchange Commission pursuant to rule 24b-2 of
the Securities Exchange Act of 1934.
17
<PAGE> 1
Exhibit 10.1*
AMENDMENT NUMBER 2
TO LICENSE AGREEMENT
This amendment dated as of September 1, 1999, (the "Second Amendment") is
to the License Agreement dated December 9, 1996, as amended by Amendment Number
1 thereto dated as of February 1, 1998 (referred to herein as "the Agreement")
by and between Coach, a division of Sara Lee Corporation, ("Licensor") and
Movado Group, Inc., ("MGI"), and NA Trading SA ("NAT") ("MGI and NAT hereinafter
referred to together as "Licensee").
WHEREAS, the parties desire to make certain additional changes to the
Agreement as set forth below:
NOW THEREFORE in consideration of the mutual covenants and the premises
set forth herein, the Agreement is hereby amended as follows:
1. Immediately following the last sentence of section 11.1 add the following:
With respect to Licensee's sales of the Licensed Products in Japan
only, to those Non-Licensor Channels set forth on Exhibit A hereto
(which Exhibit may be amended from time to time to add and delete
locations upon mutual agreement of the parties) Licensee shall
pay *.
2. Except as set forth in this Second Amendment, the Agreement shall remain in
full force and effect.
3. This Second Amendment may be signed by the parties duly executing counterpart
originals.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their authorized officers and to become effective as of the date first above
written.
COACH
A Division of Sara Lee Corporation
By: /s/ Keith Monda
--------------------------------
Name: Keith Monda
Title: EVP, COO
MOVADO GROUP, INC.
By: /s/ Tim Michno
--------------------------------
Name: Tim Michno
Title: Secretary/General Counsel
NA TRADING SA
By: /s/ Michael Bush
--------------------------------
Name: Michael Bush
Title:
* CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED FROM PAGE 1 AND FROM
EXHIBIT A AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC") PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934 ("1934
ACT")
1
<PAGE> 2
EXHIBIT A
Japan Locations
* CONFIDENTIAL PORTION OF THIS EXHIBIT
OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 1
EXHIBIT 10.2*
LICENSE AGREEMENT
BETWEEN
TOMMY HILFIGER LICENSING, INC.
AND
MOVADO GROUP, INC.
* CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED FROM PAGES 2, 6,
11-19, 22-24, 27-29, AND EXHIBITS C, D, L, M AND O AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") PURSUANT TO RULE 24 b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934 ("1934 ACT").
<PAGE> 2
EXHIBITS
EXHIBIT A TRADEMARKS
EXHIBIT B LICENSED PRODUCTS
EXHIBIT C ORGANIZATION CHART
EXHIBIT D DESIGN AND PRODUCTION PLAN
EXHIBIT E APPROVAL FORM
EXHIBIT F CODE OF CONDUCT
EXHIBIT G THIRD PARTY MFR CERTIFICATION
EXHIBIT H THIRD PARTY MFR AGREEMENT
EXHIBIT I SUPPLIER CERTIFICATION
EXHIBIT J LEASE
EXHIBIT K ROYALTY STATEMENT
EXHIBIT L LIST OF COMPETING NAMES
EXHIBIT M COMPETING NAMES
EXHIBIT N CARIBBEAN ISLANDS
EXHIBIT O LEASE TERM SHEET
<PAGE> 3
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 3 day of June, 1999, by and between
TOMMY HILFIGER LICENSING, INC., a Delaware corporation, having an address at 913
N. Market Street, Wilmington, Delaware 19801 ("Hilfiger") and Movado Group,
Inc., a New York corporation, having its offices at 125 Chubb Avenue, Lyndhurst,
New Jersey 07071 ("MGI") and N.A. Trading, S.A., a Swiss corporation, having its
offices at Bettlachstrasse 8, 2540 Grenchen, Switzerland ("NAI") (MGI and NAI
are hereinafter jointly referred to as "Licensee"), with reference to the
following premises.
P R E M I S E S
A. Hilfiger's Trademarks (as defined below) are famous and valuable, and are
associated with substantial goodwill in connection with apparel and related
products.
B. Licensee recognizes the fame, value of, and goodwill associated with, the
Trademarks and that all rights to the Trademarks and the goodwill associated
therewith belong exclusively to Hilfiger.
C. Licensee desires to have the license to use the Trademarks, on and in
connection with the manufacture, marketing, advertising, sale and distribution
of Licensed Products (as defined below) in the Territory (as defined below).
D. Hilfiger is willing to grant such license to Licensee subject to the terms
and conditions set forth below.
E. In consideration of these premises and the mutual covenants herein expressed,
and for other good consideration, which the parties hereby acknowledge, the
parties hereby agree as follows.
ARTICLE 1. DEFINITIONS
1.1 AFFILIATES OF LICENSEE means all persons and business entities that
now or hereafter control, or are owned or controlled, directly or indirectly, by
Licensee, or are under common control with Licensee.
1.2 ANNUAL PERIOD means the period beginning as of the date above through
December 31, 2001 and thereafter each twelve-month period beginning on January 1
and ending on December 31.
1.3 CLOSE-OUTS means first quality Licensed Products that under
applicable industry standards cannot be or are not sold to regular customers.
1.4 GROSS SALES means the invoiced amount of Licensed Products sold and
shipped by Licensee, before any deductions for allowances, discounts and
returns, insurance and freight.
1.5 GUARANTEED MINIMUM ROYALTY means the minimum royalties that Licensee
must pay in each Annual Period, as set forth in Paragraph 9.1.
1
<PAGE> 4
1.6 INVENTORY means Licensee's inventory of Licensed Products and of
related work in progress.
1.7 INVENTORY SCHEDULE means a complete and accurate schedule of
Inventory.
1.8 LABELS means all labels, tags, packaging material, tickets,
advertising and promotional materials and all other forms of identification
affixed to or connected with the Licensed Products, that bear the Trademarks.
1.9 LICENSED PRODUCTS means only those products listed in EXHIBIT B
attached hereto, that bear the Trademarks under authorization from Hilfiger.
1.10 MINIMUM SALES LEVEL means the minimum Net Sales (as defined below)
of Licensed Products that Licensee must achieve during each Annual Period, as
set forth in Paragraph 7.5.
1.11 NET SALES means the Gross Sales of Licensed Products, including but
not limited to, Off-Price Sales, Seconds and Close-Outs, to retailers (including
outlet stores operated by Licensee or an Affiliate of Licensee and those who
sell directly to the consumer) who are not Affiliates of Licensee, less only:
(a) returns that Licensee actually authorizes and receives, (b) allowances
(defined as credits to a customer after delivery, including credits for returns)
that Licensee actually grants in writing, (c) trade discounts (defined as
reductions in the list wholesale selling price that are customary in the trade)
that Licensee actually grants in writing prior to delivery, and (d) taxes,
freight and insurance to the extent the same are separately stated on Licensee's
invoices. For the purpose of computing Net Sales, the deductions from the Gross
Sales for returns, allowances and trade discounts may not exceed * of the Gross
Sales of Licensed Products shipped in any Annual Period.
1.12 OFF-PRICE SALES means any sales at a price that is more than *
percent less than the listed wholesale price.
1.13 PERCENTAGE ROYALTY means the amount of money that Licensee will pay
to Hilfiger in consideration for the grant of this license, which amount is
* percent of Net Sales. The Percentage Royalty will be based on the bona fide
wholesale prices that Licensee charges for Licensed Products to independent
retailers in arms' length transactions. If Licensee sells Licensed Products to
Affiliates of Licensee, the Percentage Royalty will be on such bona fide
wholesale price, irrespective of Licensee's internal accounting treatment of
such sales.
1.14 SEASONAL COLLECTIONS means the collection of Licensed Products that
Licensee will present to the market at least * per year.
1.15 SECONDS means damaged, imperfect, defective or otherwise non-first
quality Licensed Products.
1.16 SUBCONTRACTOR means an entity or an individual hired by a Third
Party Manufacturer (as defined below) to perform manufacturing in relation to
this Agreement.
2
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE
SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 5
1.17 SUPPLIER means an individual or entity that produces components for
the Licensed Products, and provides such components to the manufacturer in order
to assemble the finished Licensed Products, provided that such individual or
entity does not contribute further to the manufacture of the Licensed Products.
1.18 TERM means the duration of this Agreement, as set forth in Paragraph
3.1, including, if not expressly excluded, all Extensions (as defined below), if
any.
1.19 TERRITORY means the geographic areas comprising the United States
(including its territories and possessions as of the date of this Agreement),
Canada, the Caribbean Islands (as set forth on Exhibit N), duty free shops (such
as, but not limited to D.F.S.) only worldwide, and United States military bases
worldwide.
1.20 TOMMY HILFIGER STORES means retail and outlet stores, including
flagship stores owned by or affiliated with Hilfiger that bear the name "Tommy
Hilfiger" or "Hilfiger".
1.21 THIRD PARTY MANUFACTURER means an entity or an individual which or
whom Licensee either hires or pays to manufacture the Licensed Products.
1.22 TRADE SECRETS means any and all information that derives to its
owner independent economic value, actual or potential, from not being generally
known to the public or to other persons who can obtain economic value from its
disclosure or use; and that is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
1.23 TRADEMARKS means only the trademarks set forth in EXHIBIT A attached
hereto, the direct derivatives and variants thereof, and any trademarks used or
licensed by Hilfiger for use on products with the Trademarks.
ARTICLE 2. GRANT
2.1 LICENSE. Hilfiger hereby grants to Licensee an exclusive
non-assignable license during the Term, subject to all of the obligations and
conditions contained in this Agreement, to use the Trademarks in connection with
(a) the manufacture of Licensed Products anywhere in the world, and (b)
marketing, advertising, sale and distribution at wholesale (except for retail
sales made through outlet stores owned or operated by Licensee or its
Affiliates) of Licensed Products by MGI in the United States (including its
territories and possessions) and by NAI in the remainder of the geographic areas
comprising the Territory.
2.2 RESERVATIONS. This Agreement does not constitute a grant of any
rights other than those set forth in paragraph 2.1 above. In particular,
Hilfiger does not grant to Licensee:
a. the right to use the name "TOMMY" or "HILFIGER"
individually except as otherwise permitted in the event
either or both of those names are included within the
definition of Trademarks;
b. the right to use any derivative of, or modification to, the
Trademarks;
3
<PAGE> 6
c. the right to form a business entity whose name includes the
terms "Tommy Hilfiger" or "Hilfiger;" and
d. an assignment of any right, title or interest in or to the
Trademarks.
Hilfiger, and its other licensees and sublicensees, have the right to
manufacture or authorize third parties to manufacture Licensed Products in the
Territory for sale outside of the Territory, or to manufacture and sell or
authorize third parties to manufacture and sell products of any and all types
and descriptions other than the Licensed Products in or outside the Territory.
Except as otherwise required by applicable law, no license is granted hereunder
for the manufacture, sale or distribution of Licensed Products to be used for
publicity purposes, other than to promote the sale of Licensed Products, in
combination sales, premiums or giveaways, or to be disposed of under or in
connection with similar methods of merchandising. Hilfiger will not use or
permit others to use, the Licensed Products for such uses.
2.3 EXCLUSIVITY. Hilfiger agrees that in the event it desires to enter
into a license arrangement for the distribution of the Licensed Products in any
country other than those included in the Territory, it shall send a notice to
Licensee of such intention. Licensee shall have the right to submit a business
plan to Hilfiger outlining its proposal for obtaining such a license, which
Hilfiger shall consider reasonably and in good faith, provided, however, that
Hilfiger's decision whether to grant such license shall be final and binding
and, provided, further that nothing stated herein shall be construed as an
obligation for Hilfiger to grant Licensee any additional license for countries
other than those included in the Territory.
ARTICLE 3. TERM OF THE AGREEMENT
3.1 TERM. The initial term of this Agreement begins as of the date
written on page 1 and expires on December 31, 2005 (the "Term") unless sooner
terminated in accordance with the provisions of this Agreement.
3.2 EXTENSION. This Agreement shall be extended for one additional five
(5) year period through December 31, 2010 ("Extension"), if Licensee:
a. requests the Extension in writing at least twelve (12)
months but not more than eighteen (18) months before the
expiration of the Term; and
b. at the time it requests the Extension, is in compliance
with all material terms and conditions of this Agreement
and the lease defined in Paragraph 7.9(a) below between
Licensee and Hilfiger or its affiliate.
Licensee acknowledges that the minimum twelve (12) month advance notice is
necessary to maintain the continuity of Hilfiger's licensing and marketing
programs and the goodwill associated with the Trademarks. Licensee agrees that
timing is critically important in this regard and that Licensee's failure to
make its request in time will be construed as a decision by Licensee that it has
elected not to seek an Extension. Upon such failure, Hilfiger has the right,
without notice to Licensee, to immediately replace Licensee as of the end of the
Term, subject to Paragraph 15.4
4
<PAGE> 7
hereunder.
ARTICLE 4. ORGANIZATION
4.1 ORGANIZATION. Licensee will, at its sole cost and expense, employ a
President, a Vice President of Sales, and a Vice President of Marketing, or
persons with similar titles and responsibility, who will all work exclusively
with Hilfiger's representatives on Licensee's business arising under this
Agreement and will report directly to the President of Licensee or his or her
designee. Licensee will also employ a designer to work with Hilfiger's
representatives in the design of Licensed Products and to assist in product
development. All of these individuals will be hired with the prior approval of
Hilfiger and will be relieved of their duties under this Agreement at the
request of Hilfiger. In addition, Licensee will maintain a sales force dedicated
exclusively to the sale of Licensed Products. The sales force shall not be
deemed to include merchandise coordinator's or account representatives. EXHIBIT
C attached hereto sets forth Licensee's proposed organization chart of said
personnel. Licensee shall, within thirty (30) days after the date hereof,
establish a separate division of its company dedicated exclusively to the sale
of Licensed Products.
ARTICLE 5. APPROVALS
5.1 APPROVALS. Licensee must present to Hilfiger in writing all approvals
required or permitted by this Agreement. Except as otherwise stated in this
Agreement, all approvals of Hilfiger will be at its sole and subjective
discretion. A submission for approval will be deemed disapproved unless Hilfiger
delivers a notice of approval within twenty (20) days after receipt of the
request from Licensee. Hilfiger will endeavor to provide an explanation for its
disapprovals, but its failure to do so will not affect the finality of its
determination. Without limitation to the foregoing, Hilfiger has no obligation
to approve, review or consider any item that does not strictly comply with
submission procedures announced by Hilfiger. Approval by Hilfiger will not be
deemed to be a determination that the approved matter complies with all
applicable regulations and laws. Licensee may not exhibit, display, manufacture,
sell, use, distribute or advertise any disapproved item in connection with the
Trademarks. In the event that it is reasonably necessary for Hilfiger to do
on-site approvals, Licensee will pay any and all reasonable expenses and airfare
incurred by Hilfiger with respect to such on-site approvals provided that
appropriate documentation is submitted to Licensee substantiating all such
expenses, such as receipts or other evidence of payment.
ARTICLE 6. DESIGN AND MANUFACTURING
6.1 DESIGN AND PRODUCTION PLAN. Attached hereto as EXHIBIT D is
Licensee's design and production plan for the start of the Agreement. The design
and production plan shall not be binding and may be changed by Licensee upon
notice to Hilfiger with written explanation for such change. Each January 15th,
Licensee must present a design and production plan for the next succeeding July
through December. Each July 15th, Licensee must present a design and production
plan for the next succeeding January through June.
5
<PAGE> 8
6.2 OVERALL COMMITMENT TO QUALITY. Licensee will maintain the
distinctiveness of the Trademarks and the image and high quality of the goods
bearing Trademarks presently manufactured and sold by Hilfiger and its other
licensees. Licensee agrees that Licensed Products will be of high quality as to
workmanship, design and materials used therein, and will be at least equal in
quality, workmanship, appearance, design and material (collectively "Quality")
to the samples of the particular Licensed Product submitted by Licensee and
approved by Hilfiger pursuant to Paragraph 6.3 hereof.
6.3 SAMPLES OF MANUFACTURED PRODUCTS. Before Licensee may exhibit,
display, or distribute any Licensed Products in any Seasonal Collection,
Licensee must submit samples of each of such Licensed Products to Hilfiger for
its prior written approval. Any such request for approval must be submitted to
Hilfiger on the form attached hereto as EXHIBIT E. Licensee will submit to
Hilfiger a reasonable quantity of additional production samples of Licensed
Products upon Hilfiger's reasonable request. Licensee will provide all samples
to Hilfiger free of charge. Once samples have been approved, Licensee may
manufacture only in accordance with such approved samples and will not make any
changes for manufacture without Hilfiger's prior written approval. No Licensed
Products (including samples) may be exhibited, displayed, distributed and/or
sold by Licensee pursuant to this Agreement unless such Licensed Products are in
substantial conformity with and at least equal in Quality to the samples
previously approved by Hilfiger in accordance with this Paragraph 6.3.
6.4 NON-CONFORMING PRODUCTS. In the event that any Licensed Product is,
in the judgment of Hilfiger, not being manufactured and distributed with the
previously approved Quality, Hilfiger will notify Licensee and Licensee must
promptly repair or change such Licensed Product to conform thereto. If after
Hilfiger's request a Licensed Product as repaired or changed does not strictly
conform and conformity cannot be obtained after one (1) resubmission, Licensee
may sell the item but only after removing from the item the Trademarks and
Labels or may sell the same as a clearly marked Second or irregular.
Notwithstanding anything in this Paragraph 6.4 to the contrary, sales of all
such products using any of Hilfiger's exclusive designs, whether or not bearing
Labels or the Trademarks, will nonetheless be subject to royalty payments
pursuant to Article 9. In the event that Hilfiger finds any Licensed Products in
the marketplace that, in Hilfiger's judgment, are inconsistent with approved
Quality for such Licensed Products at the time of their sale, then Hilfiger will
notify Licensee thereof and promptly provide such information with respect
thereto as Licensee shall reasonably request. In the event that, after receiving
all such information, Licensee fails within ten (10) days to either correct such
inconsistencies or remove such Licensed Products from the market, then Hilfiger
may, at Licensee's expense, purchase such Licensed Products and bill such costs
to Licensee. Licensee must pay all royalties due on sales of nonconforming
goods. Hilfiger may require Licensee to recall any Licensed Products not
consistent with approved Quality.
6.5 WITHDRAWAL OF APPROVAL. Hilfiger will have the right in the exercise
of its sole discretion to withdraw approval of any Licensed Product a "Family"
of which (meaning all mens and womens models) in any Annual Period (following
the first full Annual Period in which such Family is first introduced) sells
less than * not including Seconds and Close-Outs, in the aggregate. Any such
withdrawal of approval will be on reasonable advance notice to Licensee. Upon
the effective date of withdrawal of approval, Licensee will cease the use of
the Trademarks in connection with the manufacture, distribution, promotion,
advertising, and use of such Licensed Product(s); provided, however, that
notwithstanding the foregoing, Licensee may, however, complete work in progress
and utilize materials on hand, and sell off and advertise any inventory
6
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT
<PAGE> 9
on hand and the resulting inventory provided that it submits proof of such
inventory, work in progress and inventory of materials to Hilfiger. Notice of
such election by Hilfiger to withdraw approval will not relieve Licensee from
its obligation to pay royalties on sales of such product(s) made by Licensee
prior to the date of disapproval or thereafter as permitted.
6.6 ASSISTANCE BY HILFIGER. At least four (4) times during each Annual
Period, Licensee may, at its expense, visit Hilfiger's offices, factories,
showroom, and other places of business, and attend Hilfiger's sales meetings to
obtain additional know-how and assistance with respect to Licensed Products. The
scheduling of such visits will be at times mutually convenient to the parties
hereto. If Licensee requests Mr. Tommy Hilfiger or any other member(s) of
Hilfiger's staff to make a personal appearance, to attend any function, to visit
Licensee's manufacturing plants or facilities or to attend any design meetings,
Licensee will pay all reasonable expenses in connection therewith, including air
travel and hotel accommodations (which for Mr. Tommy Hilfiger will be first
class). Hilfiger will, at least four (4) times during each Annual Period, make
available to Licensee at Licensee's request certain samples, designs, colors,
samples of materials, Labels and artwork, and the cost of which will be borne by
Licensee at the cost incurred by Hilfiger to provide the same. In addition to
the foregoing, for marketing purposes, Hilfiger will, upon reasonable request,
make available to Licensee such of the following which are available to
Hilfiger: (a) reports on marketing policy of Hilfiger; (b) reports on color,
style and fabric trends; (c) samples of advertising materials; (d) display
ideas; and (e) Labels.
6.7 OWNERSHIP OF DESIGNS. All right, title and interest in and to all
samples, sketches, designs, and other materials, whether created by Hilfiger or
created by Licensee or by third parties (and, if created by Licensee or by third
parties, used on or as part of or in connection with the Licensed Products),
including any modifications or improvements thereto, are the exclusive property
of Hilfiger and this Agreement constitutes an assignment by Licensee to Hilfiger
of such rights, to the extent they are not already the property of Hilfiger, and
are licensed hereunder solely and exclusively for use in connection with the
manufacture and distribution of Licensed Products in the Territory. Provided,
however, that notwithstanding anything to the contrary contained herein,
Hilfiger shall not have any exclusive right, title or interest in or to any such
samples, sketches, designs or other materials that were previously used by
Licensee or by any third party on or as part of watches or clocks other than the
Licensed Products. Hilfiger may use and permit others to use said designs and
other materials in any manner it desires, provided that such use does not
conflict with any rights that Hilfiger is granting to Licensee hereunder.
Licensee specifically acknowledges that such designs and other materials may be
used by Hilfiger and other licensees on Licensed Products in jurisdictions
outside the Territory and on products other than Licensed Products anywhere in
the world. Licensee will, if requested by Hilfiger and if reasonably possible,
place appropriate notices, reflecting ownership of design rights by Hilfiger, on
all Licensed Products, Labels and advertising and promotional materials.
Licensee will not do or allow to be done anything that may adversely affect any
of Hilfiger's design rights. Licensee must disclose and freely make available to
Hilfiger any and all developments or improvements it may make relating to the
manufacture, promotion and sales of the Licensed Products, including, without
limitation, developments and improvements in any machine, process or product
design, that may be disclosed or suggested by Hilfiger or regarding any patent
or trademark that Licensee is entitled to utilize.
6.8 COST OF DESIGNS. Licensee shall be responsible for all of its design
costs and shall promptly reimburse Hilfiger for (a) all shipping costs
associated with the approval and delivery of the designs, and (b) all reasonable
travel expenses incurred by Hilfiger in the event Hilfiger travels
7
<PAGE> 10
to Licensee's factories or other facilities as part of the design
process.
6.9 CODE OF CONDUCT. Attached hereto as EXHIBIT F is Hilfiger's Supplier
Code of Conduct ("Code") which applies to any entity manufacturing Licensed
Products (including the components thereof). Licensee must use its best
commercial efforts to ensure that Licensee and all Third Party Manufacturers,
Subcontractors and Suppliers comply with the terms of the Code and will evidence
such compliance by:
a. Licensee executing, and having all Third Party
Manufacturers, Subcontractors and Suppliers execute, the
Code in the form attached hereto, and returning such
document to Hilfiger prior to placing any order for
Licensed Products with the same; and
b. displaying and having all Third Party Manufacturers,
Subcontractors and Suppliers display the Code, in a clearly
visible location in Licensee's manufacturing facilities (if
applicable) and in the manufacturing facilities of
Licensee's Third Party Manufacturers, Subcontractors and
Suppliers, at all times during the Term of this Agreement.
6.10 MONITORING PROGRAM. Licensee acknowledges that it has in effect or
within the first three (3) months of the Term, will have in effect, to the
satisfaction of Hilfiger, a program of monitoring manufacturing facilities,
whether operated by Licensee, by Third Party Manufacturers, Subcontractors or
Suppliers, that is designed to ensure their compliance with the Code and all
applicable laws and regulations pertaining to wages, overtime compensation,
benefits, hours, hiring and employment, workplace conditions and safety, the
environment, collective bargaining, freedom of association, and that their
products and the components thereof are made without the use of child (persons
under the age of 15 or younger than the age for completing compulsory education,
if that age is higher than 15), prison, indentured, exploited, bonded, forced or
slave labor. Such compliance will be evidenced by Licensee, upon execution of
this Agreement, executing and abiding by the Certification in the form as
attached hereto as EXHIBIT G, and executing and abiding by any such other form
as may reasonably be provided by Hilfiger from time to time.
6.11 THIRD PARTY MANUFACTURING AGREEMENT. Within thirty (30) days after
establishing a new arrangement with a Third Party Manufacturer or Subcontractor,
Licensee must inspect each Third Party Manufacturer or Subcontractor and provide
approval, signed by an authorized employee or agent of Licensee that such Third
Party Manufacturer or Subcontractor is in compliance with Paragraph 6.9 above,
and will obtain and provide to Hilfiger the signature of an authorized
representative from each of such parties on a Third Party Manufacturing
Agreement in the form of EXHIBIT H attached hereto, or such other form as may
reasonably be provided by Hilfiger from time to time. Within thirty (30) days
after establishing a new arrangement with a Supplier, Licensee must obtain and
provide to Hilfiger the signature of an authorized representative from each
Supplier on a Certification in the form as EXHIBIT I attached hereto, or such
other form as may reasonably be provided by Hilfiger from time to time. In the
event Licensee has knowledge of, has reason to believe that any Third Party
Manufacturer, Subcontractor or Supplier is in breach of the Third Party
Manufacturing Agreement or Certification, as the case may be, Licensee must
immediately notify Hilfiger and Licensee shall, at its sole expense, take prompt
action to rectify such breach, including, where Hilfiger deems it necessary,
immediate termination of its relationship with such Third Party Manufacturer,
8
<PAGE> 11
Subcontractor or Supplier. If Licensee fails to take prompt action or such
action is not successful, Licensee will assign its rights to proceed against
such Third Party Manufacturer, Subcontractor or Supplier to Hilfiger and
Hilfiger will, at Licensee's expense, have the right to pursue all available
remedies to protect its rights. Notwithstanding the foregoing, Licensee
acknowledges that it will remain primarily liable and completely obligated under
all of the provisions of this Agreement in respect of the production of Licensed
Products hereunder.
6.12 INFORMATION ABOUT THIRD PARTY MANUFACTURERS, ETC. In order to
maintain Hilfiger's high standard of quality control and to ensure that
appropriate measures are taken against counterfeiting, Licensee will provide
notice to Hilfiger, on a quarterly basis, including all of the following
information:
a. the name and address of each Third Party Manufacturer,
Subcontractor and Supplier;
b. the type of Licensed Products manufactured by such Third
Party Manufacturer and Subcontractor;
c. quantity of Licensed Products currently on order from each
such entity;
d. the type of components provided by each Supplier; and
e. any other relevant information regarding all such entities.
6.13 COMPLIANCE WITH APPLICABLE LAWS - GENERALLY. All Licensed Products
manufactured and distributed by, or on behalf of, Licensee must be marked,
labeled, packaged, advertised, and distributed in accordance with this
Agreement, in accordance with all applicable laws, rules and regulations in the
Territory, and in such a manner as will not tend to mislead or deceive the
public or damage the reputation of the Trademarks.
6.14 COMPLIANCE WITH PARTICULAR LAWS.
a. FLAMMABILITY. Licensee will ensure that all Licensed Products
are manufactured in compliance with all applicable laws, including, without
limitation, the Flammable Fabrics Act, as amended, and regulations thereunder
and Licensee guarantees, that with regard to all products, fabrics or related
materials used in the manufacture of Licensed Products, for which flammability
standards have been issued, amended or continued in effect under the Flammable
Fabrics Act, as amended, reasonable and representative tests, as prescribed by
the Consumer Product Safety Commission, have been performed that show that
Licensed Products at the time of their shipment or delivery conform to the
above-referenced flammability standards as are applicable.
b. FAIR LABOR STANDARDS. All Licensed Products manufactured in the
United States of America (whether by Licensee, by Licensee's manufacturer or by
manufacturers' contractors) will be in compliance with all applicable
requirements of Sections 6, 7, and 12 of the Fair Labor Standards Act, as
amended, and all regulations and orders of the United States Department of Labor
under Section 14 thereof, and applicable state and local laws pertaining to
child labor, minimum wage and overtime compensation; and, all Licensed Products
manufactured outside the United States (whether by Licensee, by Licensee's
manufacturer or by manufacturers'
9
<PAGE> 12
contractors) will be manufactured in compliance with the wage, overtime
compensation, benefits, hour, hiring and employment, workplace conditions and
safety, environmental, collective bargaining, freedom of association laws of the
country of manufacture and without the use of child (persons under the age of
fifteen or younger than the age for completing compulsory education, if that age
is higher than 15), prison, indentured, exploited, bonded, forced or slave
labor.
c. [INTENTIONALLY OMITTED]
d. [INTENTIONALLY OMITTED]
e. NOTICES ON INVOICES. Licensee will require that all commercial
invoices (bills of lading) to Licensee that accompany all Licensed Products
include the following language (either pre-printed or "stamped") including (1)
if the merchandise is manufactured in the United States of America, and (2) if
the merchandise is manufactured outside the United States of America:
We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with the Tommy Hilfiger Supplier Code of Conduct and: (1) it was
manufactured in compliance with (a) sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and
orders of the United States Department of Labor under section 14
thereof, and (b) state and local laws pertaining to child labor,
minimum wage and overtime compensation; or (2) it was manufactured
in compliance with the wage and hour laws of the country of
manufacture and without the use of child (persons under the age of
15 or younger than the age for completing compulsory education, if
that age is higher than 15), prison, indentured, exploited,
bonded, forced or slave labor. We further certify that we have in
effect a program of monitoring our subcontractors and suppliers
and other designated contract facilities that manufacture TOMMY
HILFIGER brand merchandise for compliance with the foregoing. We
also certify that the merchandise is in compliance with all laws
governing the designation of country of origin and, if applicable,
is being shipped under legally issued and valid export license or
visa.
6.15 INSPECTION OF FACILITIES. Licensee will regularly, and not less than
two (2) times per year, inspect the facilities it utilizes and those facilities
utilized by Third Party Manufacturers, Subcontractors, and Suppliers for
compliance with Section 6.14 and will take all action necessary to cure any
deficiencies. Licensee further agrees that it will terminate any agreement with
any such third party found to be in default of Section 6.14 on three (3)
separate inspections. Hilfiger and its duly authorized representatives will have
the right, during normal business hours and upon reasonable notice, at its own
expense (to be reimbursed by Licensee in the event such inspection reveals a
material breach at the facility), to inspect all facilities utilized by
Licensee, its Third Party Manufacturers, Subcontractors and Suppliers in
connection with the manufacture, storage or distribution of Licensed Products,
and to examine: (a) Licensee's manufacturing facilities, residential facilities
(if any) and any manufacturing and/or residential facility operated by any of
Licensee's Third Party Manufacturers or Subcontractors; and (b) Licensee's and
any of Licensee's Third Party Manufacturers or Subcontractors books, records and
documents necessary to evidence such entities' compliance with the Code and all
applicable laws, rules and regulations. For purposes of this Paragraph, all such
books, records and documents shall be maintained by Licensee in a secure and
readily accessible location for a period of three (3) years from their
10
<PAGE> 13
creation.
6.16 MEETINGS. Hilfiger may from time to time but no more than twice a
year hold a meeting of Hilfiger's licensees/distributors. Licensee agrees upon
receipt of reasonable notice to attend any such meeting(s) at its own expense.
ARTICLE 7. SALES AND MARKETING
7.1 BEST EFFORTS. Licensee will use its best efforts to exploit this
license throughout the Territory. Without limitation, Licensee will: (a) offer
for sale a commercially reasonably representative quantity of all styles of
Licensed Products; (b) offer for sale Licensed Products so that they may be sold
to consumers on a timely basis; and (c) reasonably cooperate with Hilfiger's
merchandising, sales and anti-counterfeiting programs. Licensee acknowledges
that to preserve the goodwill associated with the Trademarks, Licensed Products
should be sold at prices and terms reflecting the prestigious nature of the
Trademarks, and the reputation of the Trademarks as appearing on goods of high
quality and reasonable price, it being understood, however, that Hilfiger is not
empowered and has no desire to fix or regulate the prices for which the Licensed
Products are to be sold, either at the wholesale or retail level. Licensee shall
at all times maintain a sales force for the sale of Licensed Products that will
be sufficient to provide effective distribution of the Licensed Products
throughout the entire Territory.
7.2 SALES AND DELIVERIES. Consistently each quarter during the Term,
Licensee will ship no less than * of Licensed Products ordered and approved by
Licensee for shipment by the date requested by Licensee's customers. An order
to be shipped to a customer which is on credit hold or other hold shall not be
deemed to be an untimely shipment, provided that Licensee notifies the customer
in writing of the existence of the hold on the account and the reason for the
hold, prior to the requested shipment date. Each order must bear the respective
shipping schedule. On January 15, April 15, July, 15 and October 15, Licensee
will supply documentation evidencing such timely delivery during the preceding
quarter. Licensee shall not be deemed in breach of this Paragraph until the
second quarter in which it violates the terms hereof.
7.3 CERTIFICATION. Within seventy-five (75) days after the end of each
Annual Period, Licensee will present to Hilfiger a certification by an
authorized officer of Licensee of the Net Sales of Licensed Products during such
Annual Period (the "Certification"). On or before the fifteenth (15th) day of
each month, Licensee shall provide to Hilfiger monthly net shipment reports and
retail selling reports for the prior month.
7.4 SALES/MARKETING AND PRODUCTION PLANS. Beginning January 1, 2001, each
January 1, April 1, July 1 and October 1, Licensee will submit to Hilfiger, for
Hilfiger's approval, a schedule showing in detail the projected sales and
marketing plans for the Licensed Products as follows:
SUBMISSION DATE PERIOD TO BE COVERED
--------------- --------------------
January 1 April 1 - June 30
April 1 July 1 - September 30
July 1 October 1 - December 31
October 1 January 1 - March 31
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THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 14
The first bona fide shipment of Licensed Products to a customer of Licensee
shall occur no later than *.
7.5 MINIMUM SALES LEVELS. During each Annual Period, Licensee must achieve the
following Minimum Sales Levels:
Annual Period Minimum Sales Level
------------- -------------------
First *
Second *
Third *
Fourth *
Fifth *
The Minimum Sales Level for each Annual Period must be the greater of (a) the
amounts set forth above for such Annual Period, if any, and (b) * of the actual
Net Sales for the immediately preceding Annual Period. In no event may the
Minimum Sales Level for any Annual Period be less than the Minimum Sales Level
for the immediately preceding Annual Period.
7.6 CERTAIN SALES EXCLUDED. Licensee may satisfy its obligation to reach
the Minimum Sales Levels set forth above with Net Sales of Licensed Products in
the Territory only, including, but not limited to, sales to Licensee's
employees, representatives and outlet stores owned or operated by Licensee or
its Affiliates. Licensee will not receive credit against Minimum Sales Levels
for (a) sales outside the Territory; or (b) sales under Paragraphs 7.10, 7.11,
7.12, or 7.13.
7.7 APPROVED CUSTOMERS. Licensee may sell Licensed Products only to those
specialty shops, department stores and retail outlets (including those who sell
directly to the consumer) that carry high quality and prestige merchandise and
whose operations are consistent with Hilfiger's reputation and sales policies.
Upon execution of this Agreement, and prior to the opening of each selling
season (and whenever Licensee wishes to sell Licensed Products to customers not
previously approved by Hilfiger), Licensee must submit a list of its proposed
customers (not including previously approved customers) for Hilfiger's written
approval. Hilfiger has the right to withdraw any such approval on written notice
to Licensee, provided, however, that Hilfiger will not withdraw approval of a
customer which is then carrying any products of Hilfiger's mens sportswear
licensee unless Hilfiger is reasonably dissatisfied with the display, delivery
or inventory model of Licensed Products of such customer. After such notice,
Licensee may not accept additional orders for Licensed Products from such
customer, but may fill any existing order.
7.8 PROHIBITED SALES. Except as expressly permitted by Hilfiger in
writing, Licensee may not (a) market or promote or seek customers for Licensed
Products outside of the Territory; (b) establish a branch, wholly owned
subsidiary, distribution center or warehouse with inventories of Licensed
Products outside of the Territory which shall not be a manufacturing facility
where such Licensed Products are manufactured or a party under contract,
directly or indirectly, with such a manufacturing facility; (c) sell or
distribute any Licensed Products to wholesalers, jobbers, diverters, catalog
vendors or any other entity that does not operate retail stores exclusively
other than to a distributor which distributes only to U.S. military bases; (d)
sell Licensed Products directly to the public in retail stores, except through
outlet stores operated by Licensee or an
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THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 15
Affiliate of Licensee; (e) sell or distribute any Licensed Products over the
Internet or any other global or regional computer access network; (f) use
Licensed Products as giveaways, prizes or premiums, except for promotional
programs which have received the prior written approval of Hilfiger; or (g) sell
Licensed Products to any Affiliate of Licensee (except for Affiliates of
Licensee which operate outlet stores) or any of its directors, officers,
employees or any person having an equity participation in or any other
affiliation to Licensee, other than to Licensee's employees or other
representatives for their personal use, without the prior written approval of
Hilfiger. Hilfiger may, at Licensee's expense, purchase any Licensed Products
found in the marketplace that Licensee has sold to unapproved customers.
Licensee shall include and shall enforce the following on all invoices to its
customers:
"Limitations on Sale by Buyer.
Seller expressly reserves the right to limit the amount of
merchandise delivered to only such quantities as are necessary to
meet the reasonably expected demand at Buyer's store locations.
This Merchandise is sold to Buyer for resale to the ultimate
consumer only and only from such store locations as have been
approved in writing by Seller. Buyer shall be expressly prohibited
from selling the merchandise purchased hereunder to a retailer or
other dealer in like merchandise, or to any party who Buyer knows,
or has reason to know, intends to resell the merchandise.
The merchandise purchased hereunder may not be sold by Buyer from
any store locations which Seller has advised Buyer do not qualify
as an acceptable location."
7.9 SHOWROOMS AND IN-STORE SHOPS.
a. SHOWROOM. Licensee may display Licensed Products for wholesale
sale only in a separate showroom, designed and displayed in accordance with
Hilfiger's specifications, apart from any showroom(s) in which Licensee or
another business may sell goods other than Licensed Products. The style and
manner in which Licensed Products will be displayed in said showroom are subject
to Hilfiger's approval. Licensee acknowledges that Hilfiger may require Licensee
to lease (the "Lease") a portion of the premises at 25 West 39th Street, New
York, New York for Licensee's divisional offices and primary showroom. The Lease
shall include the business terms listed on Exhibit O and shall be in the form
attached hereto as EXHIBIT J as the same may be reasonably modified and agreed
to by the parties;
b. OTHER LICENSEE'S SHOWROOM. In the event that Licensee maintains
a showroom in a city in which another licensee of Hilfiger maintains a showroom,
Hilfiger may require Licensee's showroom to be located in that showroom or
adjacent thereto.
c. FIXTURES. Licensee will, as hereinafter set forth, participate
in any in-store shop or main floor fixturing program with any of Licensee's
customers for the sale of Licensed Products. Licensee will fixture or cause to
be refixtured each in-store shop and area dedicated to the sale of Licensed
Products within sixty (60) days after notice from Hilfiger or, without notice
from Hilfiger, no less often than * during the Term. Such notice may be given
by Hilfiger as to a particular in-store shop no more often than once every
13
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE
SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 16
six (6) months. Hilfiger and Licensee shall, each six (6) months during the
Term, consult in good faith regarding standards and specifications for such
fixturing, however, such standards and specifications ultimately shall be
subject to Hilfiger's approval, and Licensee shall be responsible for causing
all fixturing to be undertaken in a manner consistent with such plans and
specifications, as modified from time to time, during each six month review. To
the extent that the same is not paid for by Licensee's customers, Licensee shall
pay for such fixturing. Without limitation to the foregoing, during the Term,
Licensee will spend not less than the following amounts to fixture or cause to
be refixtured each in-store and area dedicated to the sale of Licensed Products.
Annual Period Fixturing Obligation
------------- --------------------
First *
Second *
Third *
Fourth *
Fifth and thereafter *
Any amounts set forth above that are not expended in the designated Annual
Period will be added to the amounts set forth the next succeeding Annual Period.
Any amounts in excess of the Fixturing Obligations set forth above which
Hilfiger requires Licensee to spend in any Annual Period shall be reasonably
required.
7.10 PRODUCTS FOR HILFIGER'S USE. Licensee will supply to Hilfiger, at
Licensee's sole cost and expense, two (2) sets of each Seasonal Collection for
Hilfiger's public relations purposes, two (2) sets of for Hilfiger's advertising
purposes, a reasonable quantity of Licensed Products for Hilfiger's showrooms
and advertising and a reasonable quantity of Licensed Products for Mr. Tommy
Hilfiger's personal use.
7.11 PURCHASES BY HILFIGER. In addition to the Licensed Products which
Licensee provides to Hilfiger pursuant to Paragraph 7.10 above, Licensee will
permit Hilfiger to purchase a reasonable amount of Licensed Products for the
personal use of Hilfiger's employees from Licensee at * of such Licensed
Products on standard industry terms.
7.12 PURCHASES BY OUTLET STORES OWNED BY OR AFFILIATED WITH HILFIGER.
Licensee will offer for sale all Closeouts and Seconds to outlet Tommy Hilfiger
Stores ("Outlet Stores") prior to offering such Closeouts and Seconds to other
parties. In no event shall Licensee make available to Outlet Stores fewer
Licensed Products than it makes available to outlet stores operated by Licensee
or an Affiliate of Licensee. The price for such Closeouts and Seconds and any
other Licensed Products purchased by Outlet Stores will *. Licensee will fill
the orders of the Outlet Stores in a manner at least as favorable as Licensee
fills orders from its other customers. Hilfiger and Licensee agree to waive any
restrictions in their respective real estate leases for outlet stores which
prohibit the sale of each other's products.
7.13 PURCHASES BY RETAIL STORES OWNED BY OR AFFILIATED WITH HILFIGER.
Beginning on the first day of each of Licensee's market periods, retail and
flagship Tommy Hilfiger Stores
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* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 17
("Retail Stores") may purchase Licensed Products at a price equal to *.
Licensee will fill the orders of the Retail Stores a manner at least as
favorable as Licensee fills orders from its other customers. In addition,
Retail Stores may contract for special programs of Licensed Products at a price
equal to * which would be reasonably ascribed to such products if the same were
to be sold by Licensee to other customers.
7.14 DISPOSAL OF SECONDS AND CLOSE-OUTS.
a. SECONDS. Licensee may sell Seconds only in a way that will not
reduce the value of the Trademarks and will obtain the express prior written
consent of Hilfiger with respect to the terms and method of such disposal.
Licensee shall have the right to sell Seconds to outlet stores operated by
Licensee or an Affiliate of Licensee. All Seconds approved for sale by Hilfiger
must be clearly marked "Seconds" or "Irregular". The percentage of Seconds that
may be disposed of pursuant to this Paragraph 7.14(a) may not, in any event,
exceed * the total number of units of Licensed Products distributed by Licensee
in any Annual Period.
b. CLOSE-OUTS/OFF-PRICE SALES. Licensee may sell Close-Outs and
Off-Price Sales items only in a way that will not reduce the value of the
Trademarks and will obtain the express prior written consent of Hilfiger with
respect to the terms and method of such disposal. Licensee may make Close-Outs
and Off-Price Sales to outlet stores operated by Licensee or an Affiliate of
Licensee. The percentage of Close-Outs and Off-Price Sales of any of the
Licensed Products combined that may be disposed of pursuant to this Paragraph
7.14(b) may not, in any event, exceed * the total number of units of Licensed
Products distributed by Licensee in each Annual Period. All sales of Licensed
Products by Outlet Stores operated by Licensee or an Affiliate of Licensee
shall be considered Off-Price Sales hereunder.
ARTICLE 8. ADVERTISING
8.1 GUARANTEED MINIMUM ADVERTISING PAYMENT. Licensee will, during each
Annual Period or portion thereof (calculated on a pro rata basis), pay to
Hilfiger the Guaranteed Minimum Advertising Payments listed below. Guaranteed
Minimum Advertising Payments will be payable in quarterly installments
concurrently with the Guaranteed Minimum Royalty Payments in advance on the
first day of each quarter, except that for the First Annual Period, the
Guaranteed Minimum Advertising Payments shall be paid as follows: * on
the date hereof, and five equal payments of *.
Guaranteed Minimum
Annual Period Advertising Payment
------------- -------------------
First *
Second *
Third *
Fourth *
Fifth *
15
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 18
In the event that the foregoing payment schedule is not sufficient to pay for
expenditures made by Hilfiger pursuant to the advertising plan submitted by
Hilfiger for that Annual Period, Licensee will accelerate, any or all of such
payments, as necessary, on ten (10) days written notice. In the event that
during any Annual Period, the Percentage Advertising Payments under Paragraph
8.2 below exceed the entire Guaranteed Minimum Advertising Payment with respect
to that Annual Period, no further Guaranteed Minimum Advertising Payment need be
made for such Annual Period.
In no event shall the Guaranteed Minimum Advertising Payment for any Annual
Period be less than * for such Annual Period as the same may be adjusted
pursuant to Paragraph 7.5 above.
8.2 ADVERTISING PAYMENTS.
a. PERCENTAGE AND BRAND ADVERTISING PAYMENTS. During each Annual
Period or portion thereof during the Term, Licensee will pay to Hilfiger a
Percentage Advertising Payment equal to * and a Brand Advertising Payment equal
to *. Percentage Advertising Payments will be payable in quarterly installments
on January 15, April 15, July 15 and October 15 for the immediately preceding
quarter in which the Licensed Products are sold, less Guaranteed Minimum
Advertising Payments for such period. Payment of the Guaranteed Minimum
Advertising Payment provided for in paragraph 8.1 will not relieve Licensee of
its obligation to make the Percentage Advertising Payments, it being understood
and agreed by Licensee that it is obligated each Annual Period to pay the
greater of (i) the Guaranteed Minimum Advertising Payment and (ii) the
Percentage Advertising Payment. No advertising payment will be due on purchases
of Licensed Product by Tommy Hilfiger Retail Stores or Outlet Stores, or with
respect to purchases by Hilfiger. Brand Advertising Payments will be payable
simultaneously with the Percentage Advertising Payments. There will be no
credit for Guaranteed Minimum Advertising Payments against the Brand
Advertising Payments.
b. ADDITIONAL ADVERTISING PAYMENT. Beginning with the second
Annual Period, in addition to the Percentage Advertising Payment, Licensee shall
pay to Hilfiger * per Annual Period. These payments shall hereinafter be
referred to as " Additional Advertising Payments." The Additional Advertising
Payments shall be made in equal installments and shall be due simultaneously
with the Percentage Advertising Payments.
8.3 MEDIA PLAN AND ADVERTISING SPENDING.
a. MEDIA PLAN. Each January and June, Hilfiger and Licensee will
discuss the media plan for the next six (6) month period (July - December and
January-June respectively) in an effort to reach an agreement regarding such
plans. A similar discussion will be had in connection with any changes to any
such plan. In the absence of such agreement, Hilfiger may prohibit the planned
placement of any advertisement, but may not require the new placement without
Licensee's written consent, which consent Licensee may withhold in its sole
discretion.
b. HILFIGER'S ADVERTISING SPENDING. Hilfiger and Licensee shall
discuss the creative and media plans in an effort to reach a mutual agreement,
but in the absence of such agreement, Hilfiger will spend the amounts received
from Licensee pursuant to Paragraphs 8.1 and 8.2 above within twelve (12) months
of the time the same is received by Hilfiger from
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* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 19
Licensee in promoting and advertising Licensed Products and the Trademarks in
the Territory as follows: (i) * of the Guaranteed Minimum Advertising Payments
and Percentage Advertising Payments will be spent on advertisements which
promote and depict Licensed Products and contain the words "watch" or
"watches"; (ii) Brand Advertising Payments, other than the Guaranteed Minimum
Advertising Payments and Percentage Advertising Payments will be expended by
Hilfiger in any manner that Hilfiger, in its sole discretion, deems
appropriate; and (iii) the Additional Advertising Payment will be spent on
advertisements that include Licensed Products without any input from Licensee.
Such expenditures will include, without limitation, marketing, advertising,
public relations, special events and promotions, production, administration and
other costs related to all of the foregoing. Additionally, Licensee
acknowledges that, as it derives certain benefits from advertising activities,
Hilfiger may allocate a portion of Licensee's payments toward Hilfiger's (or
its affiliates' or licensees') production of advertising materials and costs
incurred in connection therewith (e.g. costs for photographers, models, usage
rights, advertising shoots, etc.). Within sixty (60) days after the end of each
quarter during each Annual Period, Hilfiger will provide to Licensee a
statement of advertising for Licensed Products placed during that preceding
quarter. Such statement shall also include a detailed breakdown of (i) the cost
of such advertising, including without limitation, the cost by advertisement of
all photography, talent, production costs, agency fees, media and all relevant
costs (ii) identification of all publications and broadcasts in which
advertising appeared including publication or broadcast date, estimated
audience/impressions and proof of performance (for Radio and TV ads, station
affidavits and invoices and for print ads, tear-sheets and invoices) and such
other details as Licensee shall reasonably request. In the event that the cost
of such advertising is less than the total advertising payments made by
Licensee to Hilfiger for that Annual Period, Hilfiger agrees to place
additional advertising in an amount equal to the shortage during the next
Annual Period. Any apportionment of advertising costs among Licensed Products
and other products bearing the Trademark shall be made by Hilfiger in its sole
discretion. Additionally, Hilfiger intends to undertake various endorsements,
team and event sponsorship and other such activities as Hilfiger deems
appropriate as part of a worldwide marketing program to develop its image
internationally. Subject to the foregoing, Hilfiger will be entitled to
allocate a portion of Licensee's advertising payments toward Licensee's share
of the cost of such program.
8.4 APPROVAL OF LABELS AND LICENSEE'S ADVERTISING. All Labels and
advertising copy and the medium of all advertising placed by Licensee, if any,
must comply strictly with specifications provided from time to time by Hilfiger
and are, at all times, subject to the approval of Hilfiger. No advertising,
including cooperative advertising whereby Licensee provides a customer with a
contribution toward the cost of an advertisement for Licensed Products, whether
credit or otherwise, may be used without the prior written consent of Hilfiger
in each instance. Additionally, under no circumstances will Licensee be
permitted to advertise Licensed Products over any medium not previously approved
by Hilfiger in writing. To such end, unless otherwise approved in writing by
Hilfiger, the Internet or any other global or regional computer access network
is deemed an unapproved medium for advertising. The use of any Labels or
advertising not approved by Hilfiger is expressly prohibited. All Labels must
use the Trademarks, but no other trademark or trade name may be used on any
Label or on the Licensed Products except as may be required by applicable law or
permitted by Hilfiger in writing. Licensee shall not be permitted to use its
name(s) on Licensed Products or Labels displaying the Trademark other than as
specifically approved by Hilfiger in writing. Any Labeling materials provided by
Hilfiger to Licensee will be so provided at Licensee's expense, at Hilfiger's
cost of producing and providing the same. To protect the Trademarks, Hilfiger
reserves the right to require Licensee to purchase Labels only from sources
designated by Hilfiger, provided that such sources provide the labels to
Licensee in a
17
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THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 20
reasonably competitive manner as to price and delivery.
8.5 LAUNCH. In addition to the advertising requirements of Paragraphs 8.1
and 8.2, Licensee will host a launch event and distribute a gift package to the
fashion and financial press and to major retail accounts during the initial
selling season for the first Seasonal Collection to be sold under this
Agreement. Such event shall be comparable to similar launch events hosted by
Hilfiger's other licensees of the Trademarks and shall reasonably reflect the
prestige of the Trademarks and the relative significance of Licensed Products to
Hilfiger.
8.6 FASHION SHOW. Licensee shall, at Licensee's sole cost and expense,
provide Licensed Products in reasonable quantities for fashion shows held by
Hilfiger and/or its other licensees.
8.7 TRADE SHOWS. Licensee may not participate in trade shows, other than
the Basel and Las Vegas trade shows, without the prior written consent of
Hilfiger.
8.8 PUBLIC ANNOUNCEMENTS. Licensee's press releases and other public
announcements related to Licensee's operations hereunder, are subject to
approval by Hilfiger, which shall not be unreasonably withheld in the event the
same is required by law.
ARTICLE 9. ROYALTIES AND RELATED FEES
9.1 GUARANTEED MINIMUM ROYALTY. Licensee shall, during each Annual Period
or portion thereof (calculated on a pro rata basis), pay to Hilfiger the
Guaranteed Minimum Royalties listed below. Guaranteed Minimum Royalties will be
payable in quarterly installments in advance on the first day of each quarter
during each Annual Period during the Term, except that for the First Annual
Period, the Guaranteed Minimum Royalties will be paid in four (4) equal
installments as follows: the first on the date hereof, and the others on April
1, 2001, July 1, 2001 and October 1, 2001.
Annual Period Guaranteed Minimum Royalty
------------- --------------------------
First *
Second *
Third *
Fourth *
Fifth *
In the event that during any Annual Period, the actual payments under Paragraph
9.2 below exceed the entire Guaranteed Minimum Royalty with respect to that
Annual Period, no further Guaranteed Minimum Royalty payments need be made for
such Annual Period.
In no event shall the Guaranteed Minimum Royalty for any Annual Period be less
than * percent of the Minimum Sales Level for such Annual Period as the same
may be adjusted pursuant to Paragraph 7.5 above.
9.2 PERCENTAGE ROYALTY. Except as specifically exempted, all Licensed
Products sold by Licensee, or Affiliates of Licensee or subsidiaries, require
the payment of the Percentage
18
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 21
Royalty. No Percentage Royalty will be due on purchases of Licensed Product
(including Closeouts, Seconds, Off-Price Sales items, or special programs) by
Retail Stores or Outlet Stores, or with respect to purchases by Hilfiger or any
entity controlled by, under common control with or controlling Hilfiger,
including purchases under Paragraphs 7.10 through 7.13. Percentage Royalties
shall be payable in quarterly installments within thirty (30) days after the end
of each Annual Period quarter for the immediately preceding quarter in which the
Licensed Products are sold, less Guaranteed Minimum Royalty payments for such
period, and each payment must be submitted with the royalty statement described
below. All royalties shall accrue upon the sale of Licensed Products, regardless
of the time of collection by Licensee. For purposes of this paragraph, a
Licensed Product shall be considered "sold" upon the date of billing, invoicing,
shipping, or payment, whichever occurs first.
9.3 ROYALTY STATEMENTS. Licensee will submit, at the time each Percentage
Royalty Payment is due, to Hilfiger complete and accurate royalty statements in
the form attached hereto as EXHIBIT K, signed by an authorized officer of
Licensee and certified by him/her as accurate indicating all of the following
information by month: (a) the total invoice price of all Licensed Products sold
during the period covered by such Percentage Royalty payment; (b) the amount of
discounts and credits from Gross Sales that may be deducted therefrom, during
said period; and (c) computation of the amount of Percentage Royalty for said
period. Licensee will identify separately all sales to Affiliates of licensee.
Receipt or acceptance by Hilfiger of any statement furnished, or of any sums
paid by Licensee, will not preclude Hilfiger from questioning their correctness
at any time. On the other hand, reports submitted by Licensee will be binding
and conclusive on Licensee in the event of any termination based on a breach by
Licensee arising out of any payment or report.
9.4 MERCHANDISE COORDINATOR PROGRAM. For the first Annual Period,
Licensee shall use its own merchandise coordinators, but will have them trained
and supervised by Hilfiger's coordinator training personnel, at Licensee's cost.
Licensee total cost for maintaining a merchandise coordinator program in this
manner shall be not less than * of Licensee's Net Sales. At the end of the
first Annual Period, or at any time thereafter, Hilfiger may review the
performance of Licensee's coordinators and if Hilfiger reasonably determines
that Licensee's coordinators are not performing adequately, Licensee will turn
this responsibility over to Hilfiger's Merchandise Coordinator Program. In such
event, Licensee will pay to Hilfiger * of Net Sales (excluding sales of Seconds
and Close-Outs) in each Annual Period for its participation in Hilfiger's
Merchandise Coordinator Program. This amount will be payable in quarterly
installments on January 1, April 1, July 1 and October 1.
9.5 NO SET-OFF. The obligation of Licensee to pay royalties hereunder is
absolute notwithstanding any claim that Licensee may assert against Hilfiger.
Licensee will not have the right to set-off, compensate or make any deduction
from such royalty payments for any reason whatsoever.
ARTICLE 10. MANNER OF PAYMENT, INTEREST, BOOKS AND RECORDS, INSPECTION
10.1 MANNER OF PAYMENT. All payments required by Licensee hereunder will
be made to Hilfiger in Delaware in U.S. Dollars.
19
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 22
10.2 INTEREST ON LATE PAYMENTS. In addition to any other remedy available
to Hilfiger, if any payment due under this Agreement is delayed for any reason,
interest will accrue and be payable, to the extent legally enforceable, on such
unpaid principal amounts from and after the date on which the same became due,
at a per annum rate equal to the lesser of (a) two (2) points above the prime
rate of interest in effect on the due date of the late payment as quoted by
Chase Manhattan Bank in New York, New York, U.S.A. and (b) the highest rate
permitted by law in New York.
10.3 TAXES. Licensee will bear all taxes, duties and other governmental
charges in the Territory relating to or arising under this Agreement, including
without limitation, any state or federal income taxes (except withholding taxes
on royalties and except taxes based on the income of Hilfiger which shall be
paid by Hilfiger), any stamp or documentary taxes or duties, turnover, sales or
use taxes, value added taxes, excise taxes, customs or exchange control duties
and any other charges relating to or on any royalty payable by Licensee to
Hilfiger. Licensee will obtain, at its own cost and expense, all licenses,
reserve bank, commercial bank or other bank approvals, and any other
documentation necessary for the importation of materials and the transmission of
royalties and all other payments relevant to Licensee's performance under this
Agreement. If any tax or withholding is imposed on the royalties due hereunder,
Licensee shall promptly provide Hilfiger with appropriate evidence of the tax
payment or withholding or of an extension of time to pay the same.
10.4 BOOKS AND RECORDS. Licensee will, at its sole cost and expense,
maintain complete and accurate books and records (specifically including,
without limitation, the originals or copies of documents supporting entries in
the books of account) covering all transactions arising out of or relating to
this Agreement for at least three (3) years after the date of such transaction.
Hilfiger will have the right, upon ten (10) days prior written notice to
Licensee, during normal business hours, for the duration of this Agreement and
for three (3) years thereafter, to examine and copy said books and records and
all other supporting documents and materials in the possession of and under the
control of Licensee with respect to the subject matter and terms of this
Agreement, including Licensee's internal control report. The exercise by
Hilfiger of any right to audit at any time or times or the acceptance by
Hilfiger of any statement or payment shall be without prejudice to any of
Hilfiger's rights or remedies and shall not bar Hilfiger from thereafter
disputing the accuracy of any payment or statement and Licensee will remain
fully liable for any balance due under this Agreement. Licensee will assign
style or stock keeping unit (SKU) numbers to Licensed Products that are unique
from numbers for any products other than the Licensed Products that Licensee may
manufacture and/or sell. The style or SKU number assigned to each Licensed
Product shall be identical to the style or SKU number utilized to identify that
Licensed Product in all Licensee's books and records. All documents evidencing
the sale of Licensed Products shall state the style and number of each of such
products. Licensee may not use terms such as "assorted" or "irregular" without a
style specification. All sales of the Licensed Products will be made on invoices
that (a) contain a statement that the invoice shall be paid only to an account
owned by Licensee or its assignee, and (b) are recorded in a separate ledger
account. Licensee shall maintain separate monthly customer statements showing
sales of Licensed Products only.
10.5 UNDERPAYMENTS. If, upon any examination of Licensee's books and
records, Hilfiger discovers any royalty underpayment by Licensee, Licensee will
make all payments required to be made to correct and eliminate such underpayment
within ten (10) days thereafter. In addition, if said examination reveals a
royalty underpayment of five percent (5%) or more, for
20
<PAGE> 23
any royalty period, Licensee will reimburse Hilfiger for the cost of said
examination within ten (10) days after Hilfiger's demand. Any payment by
Licensee hereunder shall not preclude Licensee from contesting the results of
Hilfiger's audit.
10.6 FINANCIAL STATEMENTS. Licensee will provide to Hilfiger copies of
its annual report on form 10-K and quarterly reports on form 10-Q as filed with
the United States Securities and Exchange Commission within five (5) days after
the date such reports are filed.
ARTICLE 11. REPRESENTATIONS AND WARRANTIES
11.1 REPRESENTATIONS AND WARRANTIES. Each party hereby represents,
warrants and covenants that:
a. it has the full right, power and authority to enter into
this Agreement, and to perform all of its obligations
hereunder;
b. it is financially capable of undertaking the business
operations which it conducts and of performing its
obligations hereunder;
c. it is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation;
d. all necessary corporate acts have been effected by it to
render this Agreement valid and binding upon it; and
e. in its negotiations relative to this Agreement, it has not
utilized the services of any finder, broker or agent and it
owes no commission or fees to any such person in relation
hereto. Each party agrees to indemnify the other against,
and hold it harmless from, any and all liabilities
(including, without limitation, reasonable legal fees) to
any person, firm or corporation claiming commissions or
fees in connection with this Agreement or the transactions
contemplated hereby as a result of an agreement with or
services rendered to such party.
11.2 REPRESENTATIONS BY HILFIGER.
a. Hilfiger represents that no other party has superior rights
to the Trademarks for the Licensed Products; and
b. Hilfiger has not previously granted a license covering the
Licensed Products in the Territory to any third party.
11.3 REPRESENTATIONS BY LICENSEE.
a. MGI represents that on the date hereof and throughout the
Term NAI shall be a wholly-owned subsidiary of MGI.
21
<PAGE> 24
ARTICLE 12. CONFIDENTIALITY AND HIRING OF EMPLOYEES
12.1 CONFIDENTIALITY. Any and all information of any kind in any form
acquired, devised or developed from either party, such party's files or such
party's personnel, suppliers, subcontractors, or Third Party Manufacturers by
the other, including but not limited to the terms of this Agreement, prints,
designs, ideas, sketches and other materials or Trade Secrets, shall be deemed
Confidential Information and shall be maintained by each such party and its
Affiliates and their respective employees, attorneys, accountants and bankers,
in strict confidentiality. Confidential Information shall not include
information (a) generally known to the public, (b) previously known to the
recipient, or (c) properly received by the recipient outside the scope of this
Agreement and from any third party not affiliated with the protected party and
not under any duty to the protected party not to disclose such information. Each
party agrees not to disclose, in whole or in part, any Confidential Information
to any third party, except upon consent of the other or pursuant to, or as may
be required by law, or in connection with regulatory or administrative
proceedings and only then with reasonable advance notice of such disclosure to
the other, and provided, (a) that each such person shall agree to be bound by
the terms of this Agreement; (b) that Confidential Information shall be used by
the party to whom disclosed, and such persons solely as provided hereunder; and
that Confidential Information shall be revealed only to those officers,
directors and employees of such party, respectively, on a need to know basis.
Licensee shall take all reasonable precautions to protect the secrecy of the
materials, samples, and designs constituting Confidential Information prior to
their commercial distribution or the showing of samples for sale, and shall not
sell any merchandise employing or adapted from any of said designs except under
the Trademarks. Hilfiger shall take all reasonable precautions to protect the
secrecy of the original designs created by Licensee for Licensed Products prior
to their advertisement, commercial distribution or the showing of samples for
sale. Neither Hilfiger nor Licensee may, at any time during the term of this
Agreement, disclose or use for any purpose, other than as contemplated by this
Agreement, any revealed or otherwise acquired confidential information and data
relating to the business of the other. The identity of Licensee's Third Party
Manufacturers, Subcontractors and Suppliers shall be deemed Confidential
Information and Hilfiger shall not directly contract with the same in connection
with the manufacture of Licensed Products.
12.2 HIRING OF EMPLOYEES. During the Term and for a period of *
thereafter, neither party will directly or indirectly solicit the employment on
a full or part- time basis of any employee of the other or of its affiliates.
ARTICLE 13. TRADEMARKS AND COPYRIGHTS
13.1 RIGHTS TO THE TRADEMARKS. Licensee acknowledges the great value of
the goodwill associated with the Trademarks, and acknowledges that the
Trademarks and all the rights therein, and goodwill attached thereto, belong
exclusively to Hilfiger. Licensee will not, during the Term or thereafter: (a)
do, or otherwise suffer to be done, any act or thing that might, in any way,
adversely affect the rights of Hilfiger in and to the Trademarks or that,
directly or indirectly, may reduce the value of the Trademarks or detract from
their reputation; (b) prosecute an application to register the Trademarks; (c)
attack Hilfiger's title or right in and to the Trademarks; (d) attack the
validity of this license or the Trademarks; or (e) contest the fact that
Licensee's rights under this Agreement (i) are solely those of a manufacturer
and distributor and, (ii) subject to the provisions of Articles 14 and 15
hereof, cease upon expiration or termination of
22
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 25
this Agreement. The provisions of this Paragraph 13.1 will survive the
expiration and termination of this Agreement.
13.2 PROTECTING THE TRADEMARKS. Licensee will cooperate fully and in good
faith with Hilfiger for the purpose of securing, preserving and protecting
Hilfiger's rights in and to the Trademarks. At the request of Hilfiger, Licensee
will execute and deliver to Hilfiger any and all documents and do all other acts
and things that Hilfiger reasonably deems necessary or appropriate to make fully
effective or to implement the provisions of this Agreement relating to the
ownership, use or registration of the Trademarks. Hilfiger will reimburse
Licensee for Licensee's reasonable out of pocket expenses incurred in providing
the foregoing.
13.3 COMPLIANCE WITH NOTICE AND OTHER REQUIREMENTS. Licensee will use the
Trademarks strictly in compliance with all applicable legal requirements.
Whenever the Trademarks are used on any item of packaging or labeling or in any
advertisement, there must be an indication of trademark status, in the case of a
registered trademark by use of the registration symbol, i.e., (R) and in the
case of all other trademarks by the symbol TM, or other appropriate symbols of
similar import acceptable to Hilfiger or required by applicable law. Upon
expiration or termination of this Agreement for any reason whatsoever, Licensee
will execute and deliver to Hilfiger any and all documents required by Hilfiger
for terminating any and all registered user agreements and other documents
regarding Licensee's use of the Trademarks.
13.4 OWNERSHIP OF COPYRIGHTS. Except as otherwise provided in Section
6.7, any copyrights created by or for Licensee in any sketch, design, print,
package, label, tag or the like designed and approved for use exclusively in
connection with Licensed Products are hereby assigned by Licensee to Hilfiger.
Licensee will not, at any time, do, or otherwise suffer to be done by any of its
Affiliates or any Third Party Manufacturer, any act or thing that may adversely
affect any rights of Hilfiger in such copyrights, and will, at Hilfiger's
request, do all things reasonably required by Hilfiger to preserve and protect
said rights, including the placement of appropriate notices of copyright
ownership.
13.5 INFRINGEMENT. Licensee must promptly notify Hilfiger of any
infringement or other misuse of the Trademarks or the use by any person of any
trademarks or trade names confusingly similar to the Trademarks that comes to
its attention. Hilfiger will take such action as it deems advisable, and
Licensee will assist in such action, as Hilfiger may reasonably request, at
Hilfiger's expense. In no event, however, will Hilfiger be required to take any
action if it deems it inadvisable to do so and Licensee will have no right to
take any action without the prior written consent of Hilfiger. However, In the
event of any infringement or other misuse of the Trademarks on items identical
or similar to Licensed Products, Hilfiger will take the measures it deems
appropriate to protect the Trademarks and Licensee, at Hilfiger's request, will
pay the costs incurred therefor..
13.6 COUNTERFEIT PROTECTION. Licensee will cooperate with Hilfiger as
reasonably requested by Hilfiger in all efforts to prevent counterfeiting. All
Licensed Products shall bear and use any counterfeit preventive system, devices
or labels reasonably designated by Hilfiger. At its option, Hilfiger may supply
the system, devices or labels (provided that they are supplied on a timely
basis), that Licensee must use for which Licensee will pay all reasonable out of
pocket costs incurred by Hilfiger, in advance upon presentation to Licensee of
appropriate documentation substantiating such costs. In no event shall Licensee
be required to pay more costs hereunder in excess of * during any Annual
Period.
23
** CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE
SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 26
13.7 USE OF OTHER TRADEMARKS. During the Term (except for the tenth
Annual Period if this Agreement has not been further renewed or extended),
neither Licensee, nor any Affiliate of Licensee, or company in which the
controlling shareholders of Licensee are partners, or in which Licensee is a
partner, may act as a licensee or distributor in the Territory of any products
within the definition of Licensed Products, under any name which is set forth on
EXHIBIT L, or in the future as to names which * unless expressly consented to
by Hilfiger, except as a result of the acquisition by Licensee of substantially
all of the assets of or the outstanding securities of or otherwise acquiring
control of an entity which, other than as its primary function, acts as a
distributor or licensee of products bearing such competitive names. If such
consent is given, unless prohibited by other agreements, Licensee will provide
Hilfiger with samples of any such competitive products it manufactures and
distributes that do not bear the Trademarks. (Licensee may act as a
manufacturer only of such products, provided that Licensee is not the licensee
or distributor thereof.) In all cases, the design and style of any such
products or any of Licensee's private label products, must be clearly
distinguished from Licensed Products. A breach of this clause will constitute a
violation of Licensee's obligation to use its best efforts to exploit this
license. Licensee must maintain the design, merchandising, packaging, sales and
display of all of Licensee's other products separate and distinct from Licensed
Products.
13.8 USE OF TRADEMARKS ON INVOICES, ETC. Licensee must submit to Hilfiger
for prior approval, the proposed use of the Trademarks on invoices, business
cards, order forms, stationery and related materials and in advertising in
telephone and other directory listings.
13.9 MONITORING. Licensee will actively monitor use of the Trademarks by
third parties, including by its customers, and will use its best efforts to see
that such use does not impair the image or reputation of the Trademarks;
provided, however, that Licensee will have no obligation to place any unlawful
restrictions on third parties.
ARTICLE 14. INSOLVENCY
14.1 EFFECT OF PROCEEDING IN BANKRUPTCY, ETC. If either party institutes
for its protection or involuntarily is made a defendant in any proceeding under
bankruptcy, insolvency, reorganization or receivership law, and in the event of
such an involuntary proceeding, the same is not dismissed within sixty (60)
days, or if either party is placed in receivership or makes an assignment for
benefit of creditors or is unable to meet its debts in the regular course of
business, the other party may elect to terminate this Agreement immediately by
written notice to the other party without prejudice to any right or remedy the
terminating party may have, including, but not limited to, damages for breach.
14.2 RIGHTS PERSONAL. The license and rights granted hereunder are
personal to Licensee. No assignee for the benefit of creditors, receiver,
trustee in bankruptcy, sheriff or any other officer or court charged with taking
over custody of Licensee's assets or business, shall have any right to continue
performance of this Agreement or to exploit or in any way use the Trademarks if
this Agreement is terminated pursuant to Paragraphs 14.1 and 14.2, except as may
be required by law.
24
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 27
14.3 TRUSTEE IN BANKRUPTCY. Notwithstanding the provisions of Paragraph
14.2 above, in the event that, pursuant to applicable bankruptcy law (the
"Code"), a trustee in bankruptcy, receiver or other comparable person, of
Licensee, or Licensee, as 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 Code, the trustee or Licensee, as
the case may be, must notify Hilfiger. Said notice shall set forth the name and
address of the proposed assignee, the proposed consideration for the assignment
and all other relevant details thereof. The giving of such notice will be deemed
to constitute an offer to Hilfiger to have this license assigned to it or its
designee for such consideration, or its equivalent in money, and upon such terms
as are specified in the notice. Hilfiger may accept the aforesaid offer only by
written notice given to the trustee or Licensee, as the case may be, within
fifteen (15) days after Hilfiger's receipt of the notice to such party. If
Hilfiger fails to deliver such notice within the said fifteen (15) days, such
party may complete the assignment referred to in its notice, but only if such
assignment is to the entity named in said notice and for the consideration and
upon the terms specified therein. Nothing contained herein will be deemed to
preclude or impair any rights that Hilfiger may have as a creditor in any
bankruptcy proceeding.
ARTICLE 15. EXPIRATION AND TERMINATION
15.1 OTHER RIGHTS UNAFFECTED. Expiration or termination of this Agreement
will not affect any obligation of either party to make payments to the other
hereunder accruing prior to such expiration or termination or in respect to an
antecedent breach of this Agreement, and will not prejudice any other right of
either party hereunder including, without limitation damages for breach and each
party agrees to reimburse the other for any reasonable costs and expenses
(including reasonable attorneys' fees) incurred by such other party in enforcing
its rights hereunder. Except as required by law, no assignee for the benefit of
creditors, receiver, liquidator, sequestrator, trustee in bankruptcy, sheriff or
any other officer of the court or official charged with taking over custody of
Licensee's assets shall have the right to continue the performance of this
Agreement.
15.2 TERMINATION WITHOUT RIGHT TO CURE. Hilfiger will have the right to
immediately terminate this Agreement by giving Licensee a notice of termination,
without giving Licensee any right to cure, if Licensee:
a. makes an unauthorized disclosure of Confidential
Information or Trade Secrets, other than inadvertent
disclosures;
b. institutes proceedings seeking relief under a bankruptcy
act or any similar law, or otherwise violates the
provisions of Paragraph 14.1 thereof;
c. transfers or agrees to transfer substantially all of its
property, its shares of stock or, this Agreement in
violation of Paragraphs 21.5 or 21.6 hereof;
d. exhibits, displays, or distributes unapproved products that
bear the Trademarks, which action would reasonably be
expected to adversely effect any of the image, prestige,
value or ownership of the Trademarks, the Licensed Products
or Hilfiger;
25
<PAGE> 28
e. without the prior written consent of Hilfiger, uses the
Trademarks in an unauthorized or improper manner, other
than as a result of inadvertence, which action would
reasonably be expected to adversely effect any of the
image, prestige, value or ownership of the Trademarks, the
Licensed Products or Hilfiger;
f. uses the Trademarks with another trademark or name in
connection with the sale of Licensed Products, other than
as a result of inadvertence, which action would reasonably
be expected to adversely effect any of the image, prestige,
value or ownership of the Trademarks, the Licensed Products
or Hilfiger;
g. intentionally misrepresents any financial data regarding
its business under this license; or
h. places, or participates in, any unapproved or prohibited
consumer, trade or cooperative advertising including or
displaying the Trademarks or the Licensed Products, which
action would reasonably be expected to adversely effect any
of the image, prestige, value or ownership of the
Trademarks, the Licensed Products or Hilfiger.
15.3 TERMINATION WITH RIGHT TO CURE.
a. BY HILFIGER. If Licensee breaches any of its other obligations
under this Agreement, Hilfiger will have the right to terminate this Agreement
by giving Licensee a notice of intention to terminate. Termination will become
effective automatically and without further notice unless Licensee completely
cures the breach within thirty (30) days after the giving of such notice.
Termination based upon Licensee's failure to comply with the Minimum Sales
Levels will become effective thirty (30) days after the giving of the notice. If
the notice relates to product quality, pending cure Licensee may ship no
Licensed Products; if Licensee does ship in violation of this Section 15.3, it
will automatically forfeit its right to cure and the license shall terminate
immediately. To fully cure its breach, Licensee must also reimburse Hilfiger for
its reasonable attorneys' fees incurred in investigating and analyzing the
breach and issuing the notice of breach and for any other communication in
connection therewith. Upon the giving of a notice of intention to terminate for
a non-monetary breach for the third time in any five (5) year period, for a
breach or the same provision of this Agreement, Licensee will no longer have the
right to cure any violation, and termination will be effective upon the giving
of a notice of termination. Upon the giving of a notice of intention to
terminate for a monetary breach for the third time in any twenty-four (24) month
period, Licensee will no longer have the right to cure any violation, and
termination will be effective upon the giving of a notice of termination.
b. BY LICENSEE. If Hilfiger breaches any of its obligations under
this Agreement, Licensee will have the right to terminate this Agreement by
giving Hilfiger a notice of intention to terminate. Termination will become
effective automatically and without further notice unless Hilfiger cures the
breach within sixty (60) days after the giving of such notice.
26
<PAGE> 29
15.4 EFFECT OF EXPIRATION OR TERMINATION. Upon expiration or termination
of this Agreement for any reason whatsoever:
a. REVERSION OF RIGHTS. Except as specified below, all of the
rights of Licensee under this Agreement will terminate and immediately revert to
Hilfiger and Licensee will immediately discontinue use of the Trademarks,
whether in connection with the sale, advertisement or manufacture of Licensed
Products or otherwise, and will not resume the use thereof or adopt any
colorable imitation of the Trademarks or any of their components or designs
incorporated therein or material parts thereof.
b. ROYALTIES. All royalties on sales theretofore made will become
immediately due and payable.
c. RETURN OF LABELS AND OTHER MATERIALS. At Hilfiger's option,
exercised, if at all, by notice to Licensee within thirty (30) days after
termination or expiration of this Agreement, Licensee will (i) promptly destroy,
or (ii) convey to Hilfiger (at a price equal to Licensee's book value therefor)
and free of all liens and encumbrances, all plates, engravings, silkscreens,
computer tapes, molds, stitching patterns or the like used to make or reproduce
the Trademarks in Licensee's possession or control, and all items affixed with
likenesses or reproductions of the Trademarks in Licensee's possession or
control whether Labels, bags, boxes, tags or otherwise, except such quantity
reasonably required by Licensee in connection with its permitted sell off of
Licensed Products under Paragraph 15.4(f). Licensee will deliver to Hilfiger,
free of charge, all sketches, designs and the like in its possession or control,
designed or approved by Hilfiger, and all Labels supplied by Hilfiger in
Licensee's possession or control, except such quantity reasonably required by
Licensee in connection with its permitted sell off of Licensed Products under
Paragraph 15.4(f). Hilfiger will have the option, exercisable upon notice to
Licensee within thirty (30) days after termination, to negotiate the purchase of
the Labels that were not supplied by Hilfiger. If such negotiations do not
result in the purchase of those Labels, Licensee will destroy those Labels under
the supervision of Hilfiger, except such quantity reasonably required by
Licensee in connection with its permitted sell off of Licensed Products under
Paragraph 15.4(f) and Licensee, will deliver to Hilfiger a certificate of
destruction signed by an authorized officer of Licensee.
d. PENDING ORDERS. Except as otherwise provided below, Licensee
will be entitled for a period of * after expiration or termination of this
Agreement, to consummate all sales of Licensed Products that were firm upon the
delivery of the Inventory Schedule specified in Paragraph 15.4(e) below,
e. INVENTORY / RIGHT TO PURCHASE. Within ten (10) business days
after such termination or expiration, Licensee shall deliver to Hilfiger an
Inventory Schedule. The Inventory Schedule will be prepared as of the close of
business on the date of such termination and will reflect the direct cost of
each Licensed Product (actual manufacturing cost, not including overhead or any
general or administrative expenses). Hilfiger will have the right to conduct a
physical inventory of Licensed Products in Licensee's possession or control
provided that such physical inventory will only be done at a mutually agreeable
time and in the presence of a representative of Licensee. Hilfiger will have the
option, exercisable by notice to Licensee, within thirty (30) days after its
receipt of the complete Inventory Schedule, to purchase any or all of the
Inventory for an amount equal to Licensee's cost. In the event Hilfiger sends
such notice, Hilfiger will collect and
27
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 30
pay for the Inventory it elects to purchase within sixty (60) days after
Hilfiger's notice.
f. INVENTORY / RIGHT TO SELL OFF. Except as otherwise provided
below, if Hilfiger does not elect to purchase the Inventory, Licensee may sell
off Licensed Products not purchased by Hilfiger up to a period of * after the
date of expiration or termination. Licensee further, shall have the right, in
connection with such sell-off, to use the Labels and other materials and,
promptly after such sell-off period, Licensee will destroy all such Labels and
materials.
g. NON-CONFORMING PRODUCTS. Under no circumstances will Licensee
be permitted to (i) sell Licensed Products that have not been approved in
accordance with paragraph 6.3 above or are in any way non-conforming as to style
or quality or; (ii) advertise or promote the Trademarks during the sell-off
period without Hilfiger's prior approval. The sell off of Licensed Products will
be subject to all of Licensee's obligations hereunder, including, but not
limited to royalty payment obligations.
h. REMAINING PRODUCTS. At the end of such * period, any Licensed
Products remaining in Licensee's possession will, at the request of and under
the supervision of Hilfiger, be destroyed.
15.5 FREEDOM TO LICENSE. In the event of expiration or termination of
this Agreement or the receipt by Hilfiger of a notice of termination from
Licensee, Hilfiger will be free to license to others the use of the Trademarks
in connection with the manufacture and sale of Licensed Products in the
Territory.
15.6 ROYALTY PAYMENTS ON TERMINATION. Upon termination of this Agreement
as a result of a breach by Licensee, the total amount of the following stated
Guaranteed Minimum Royalties for * following such termination, although not yet
due, shall, without notice of demand, remain due and payable in quarterly
installments as if the License had not so terminated. The stated Guaranteed
Minimum Royalties for the purposes of this Paragraph will be deemed to be as
follows:
Annual Period Stated Guaranteed Minimum Royalty
------------- ---------------------------------
First *
Second *
Third *
Fourth *
Fifth *
Sixth *
Seventh *
Eighth *
Ninth *
Tenth *
In the event Hilfiger shall enter into a License with a new Licensee covering
Licensed Products before the expiration of * from the termination, Hilfiger
will refund to Licensee a pro rata portion of the payment made by Licensee to
Hilfiger corresponding to the portion of time from the commencement of the
payment of royalties to Hilfiger by such new license to the end of
28
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE
SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 31
the * period. This provision shall survive termination.
In the event that this License was terminated for failure to meet the Minimum
Sales Levels only, Licensee shall be permitted to continue to ship Licensed
Products until the commencement of the new license and shall pay Percentage
Royalty to the extent the same exceeds the Guaranteed Minimum Royalty Payments
made pursuant to this paragraph.
ARTICLE 16. RELATIONSHIP BETWEEN THE PARTIES
16.1 NO AGENCY. Neither party shall represent itself as the agent or
legal representative of the other or its Affiliates for any purpose whatsoever
and shall have no right to create or assume any obligation of any kind, express
or implied, for or on behalf of them in any way whatsoever.
ARTICLE 17. CUSTOMS
17.1 COMPLIANCE. Licensee, as importer of record for the Licensed
Products, shall, at all times, fully comply with the terms of the Customs
Modernization Act and shall provide to the United States Customs Services ("U.S.
Customs") complete and accurate information relevant to the classification,
valuation and admissibility of Licensed Products manufactured in whole, or in
part, outside the United States of America. Licensee shall further provide to
U.S. Customs all relevant information and accompanying documentation regarding
the payment of royalties, buying commissions, etc. in connection with imported
Licensed Product as required by applicable law.
17.2 NOTICES TO HILFIGER. Licensee shall promptly notify Hilfiger of any
written or oral communication from, or to U.S. Customs relating to the
importation of Licensed Products. Licensee shall provide to Hilfiger copies of
all written correspondence including, but not limited to the following:
a. correspondence to and from U.S. Customs involving matters
whereby Licensee requests a formal ruling, e.g.,
classifications, value or marking, etc.
b. protests and Applications for Formal Review (CF-19);
c. Requests for Information (CF-28);
d. Notice of Action (CF-29);
e. Notice to Mark and/or Notice to Redeliver (CF-4647);
f. Notice of Penalty or Liquidated Damages Incurred and Demand
for Payment (CF-5955A); and
g. Pre-Penalty and Penalty Notices.
Under no circumstances will Licensee seek any formal Customs ruling in
connection with the importation of Licensed Products, that may in any way
adversely affect Hilfiger, Hilfiger's
29
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE
SEC PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 32
reputation, the reputation of the Trademarks or the reputation of Licensed
Products, without the express written approval of Hilfiger.
17.3 [INTENTIONALLY OMITTED]
ARTICLE 18. INDEMNIFICATION AND INSURANCE
18.1 INDEMNIFICATION BY LICENSEE. Licensee will indemnify, defend, and
hold harmless Hilfiger, Tommy Hilfiger individually, and their directors,
officers, employees, agents, officials and related companies from and against
any and all losses, liability, claims, causes of action, damages and expenses
(including reasonable attorneys' fees and expenses) that they or any of them may
incur or be obligated to pay in any action, claim or proceeding against them or
any of them, for or by reason of any acts, whether of omission or commission,
that may be committed or suffered by Licensee or any of its servants, agents or
employees in connection with or in any way related to Licensee's performance of
this Agreement, including Licensee's use of Licensee's own designs, in
connection with Licensed Products manufactured by or on behalf of Licensee or
patent, trademark, copyright or other proprietary rights; provided, however,
that Hilfiger gives Licensee prompt notice of, and full cooperation in the
defense against, such claim. If any action or proceeding is brought or asserted
against Hilfiger in respect of which indemnity may be sought from Licensee under
this paragraph 18.1, Hilfiger will promptly notify Licensee thereof in writing,
and Licensee will assume and direct the defense thereof. Hilfiger may
thereafter, at its own expense, be represented by its own counsel in such action
or proceeding. Hilfiger and Licensee will keep each other fully advised of all
developments and shall cooperate fully with each other and in all respects in
connection with any such defense. The provisions of this paragraph and
Licensee's obligations hereunder will survive any termination or rescission of
this Agreement.
18.2 NOTICE OF SUIT OR CLAIM. Licensee shall promptly inform Hilfiger by
written notice of any suit or claim against Licensee in connection with or in
any way related to Licensee's performance under this Agreement, whether such
suit or claim is for personal injury, involves alleged defects in the Licensed
Products manufactured, sold or distributed hereunder, or otherwise.
18.3 INDEMNIFICATION BY HILFIGER. Hilfiger will indemnify, defend, and
hold harmless Licensee, and each Affiliate of Licensee and each of their
respective parties against any and all liabilities, damages and expense
(including reasonable attorneys' fees, costs and expenses) which Licensee may
incur or be obligated to pay in any action or claim against Licensee for
infringement of any other person's claimed right to use a trademark in the
Territory, including such infringements as may be contained in advertising
placed by Hilfiger, but only where such action or claim results from Licensee's
use of the Trademarks in the Territory in accordance with the terms of this
Agreement. Licensee will give Hilfiger prompt written notice of any such claim
or action, and thereupon Hilfiger will undertake and conduct the defense of any
suit so brought. It is understood, however, that if there is a dispute between
Hilfiger and Licensee as to whether the suit was brought as a result of
Licensee's failure to use the Trademarks in accordance with this Agreement,
Licensee may be required to conduct such defense unless and until it is
determined that no such misuse of the Trademarks occurred. In the event
appropriate action is not taken by Hilfiger within thirty (30) days after its
receipt of notice from Licensee, Licensee will have the right to defend such
claim or action in its own name, but no settlement or compromise of any such
30
<PAGE> 33
claim or action may be made without the prior written approval of Hilfiger. In
either case, Hilfiger and Licensee will keep each other fully advised of all
developments and shall cooperate fully with each other and in all respects in
connection with any such defense. Such indemnification will be deemed to apply
solely to the amount of the judgment, if any, against Licensee, and sums paid by
Licensee in connection with its defense, and will not apply to any consequential
damages suffered by Licensee that are not included in the aforementioned
judgment. Such indemnification will not apply to any damages sustained by
Licensee by reason of claimed infringement other than those specified above.
18.4 INSURANCE.
a. REQUIREMENTS. Without limiting Licensee's liability pursuant to
the indemnity provisions of this Agreement, Licensee will maintain comprehensive
general liability insurance in the amount of at least US$10,000,000 (combined
single limit per occurrence) with a broad form property damage liability
endorsement. This insurance must include broad form blanket contractual
liability, personal injury liability, advertising injury, liability, products
and completed operations liability. Each coverage shall be written on an
"occurrence" form.
b. THEFT AND DESTRUCTION COVERAGE. Licensee must purchase
insurance against theft and destruction of the Licensed Products that will (i)
be written on an "all risk" basis; (ii) provide that Licensee will be reimbursed
for loss in an amount equal to the manufacturer's selling price for the products
(this may be accomplished by either a selling price endorsement or business
interruption insurance); (iii) be in effect while goods are on premises owned,
rented or controlled by Licensee and while in transit or storage; and (iv)
include a brand and label clause stating that the insurer will pay the cost of
removing Hilfiger's name from damaged merchandise and relabeling goods.
c. GENERAL PROVISIONS. The insurance described in subparagraphs
(a) and (b) will include: (i) a cross-liability endorsement; (ii) an endorsement
stating that Hilfiger will receive at least thirty (30) days written notice
prior to cancellation or non-renewal of coverage; (iii) an endorsement naming
Hilfiger as an additional insured as its interests may appear; (iv) an
endorsement stating that the insurance required by this Agreement is primary and
that any insurance purchased by Hilfiger will only apply in excess of the
insurance purchased by Licensee; (v) a waiver of subrogation in favor of
Hilfiger; and (vi) an endorsement stating that Hilfiger may recover for any loss
caused Hilfiger, its agents or employees by the negligence (including active,
passive and gross negligence) of Licensee.
d. APPROVED CARRIER/POLICY CHANGES. All insurance must be obtained
from an insurance company approved by Hilfiger. Licensee shall must notify
Hilfiger at least thirty (30) days prior to the cancellation of, or any
modification in, such insurance policy that would affect Hilfiger's status or
benefits thereunder. Licensee may obtain this insurance for Hilfiger in
conjunction with a policy that covers products other than the Licensed Products.
e. EVIDENCE OF COVERAGE. No later than thirty (30) days from the
date hereof, Licensee shall furnish to Hilfiger evidence, in form and substance
satisfactory to Hilfiger, of the maintenance and renewal of the required
insurance including, but not limited to, copies of policies with applicable
riders and endorsements, and certificates of insurance.
31
<PAGE> 34
f. TERRITORY. The insurance set forth in this section must
cover the entire Territory.
ARTICLE 19. NOTICES
19.1 MANNER OF NOTICE. Any notice, request for approval, communication or
legal service of process required or arising out of or under this Agreement will
be effective only when personally delivered in writing; or on the date when the
notice, request, service or communication is transmitted confirmed by electronic
facsimile (with a second confirmation copy to be sent by mail) or the day after
the notice, service or communication is sent by overnight air courier service
(e.g., FedEx Courier); or five (5) days after the date of mailing by first class
registered mail. All notices will be sent to the parties at the addresses listed
below or to such other persons and addresses as may be designated in writing by
the parties to each other. The date a notice will be deemed to be transmitted,
sent by overnight air courier or mailed will be the date at the notifying
party's place of business at the time of transmission, sending or mailing.
To Hilfiger: TOMMY HILFIGER LICENSING, INC.
913 N. Market Street
Wilmington, Delaware 19801, U.S.A.
Attention: Lynn Shanahan
with a copy to: TOMMY HILFIGER U.S.A, INC.
25 West 39th Street
New York, New York 10018, U.S.A.
Attention: Law Department
Telephone: (212) 548-1891
Facsimile: (212) 548-1958
To Licensee: Movado Group, Inc.
125 Chubb Avenue
Lyndhurst, New Jersey 07071
Attention: Michael Bush
Telephone: (201) 460-3299
Facsimile: (201) 460-4540
with a copy to: Movado Group, Inc.
125 Chubb Avenue
Lyndhurst, New Jersey 07071
Attention: General Counsel
Telephone: (201) 460-3792
Facsimile: (201) 460-4857
32
<PAGE> 35
ARTICLE 20. SUSPENSION OF OBLIGATIONS
20.1 SUSPENSION OF OBLIGATIONS (FORCE MAJEURE). If Licensee is prevented
from performing any of its obligations because of governmental regulation or
order, or by strike or war, declared or undeclared, or other calamities such as
fire, earthquake, or similar acts of God, or because of other similar or
dissimilar cause beyond the control of Licensee, Licensee's obligations will be
suspended during the period of such condition. If such condition continues for a
period of more than ninety (90) days, Hilfiger will have the right to terminate
this Agreement. If the force majeure does not impact Licensee directly but it
prevents Licensee from manufacturing and/or delivering Licensed Products, due to
an inability to obtain fabric or other materials, destruction of manufacturing
facilities, inability to deliver finished product, or similar conditions,
Licensee will have no more than one hundred twenty (120) days to find alternate
sources and Licensee will advise Hilfiger on a weekly basis of the progress it
has made in that regard. If, in Hilfiger's reasonable opinion, Licensee fails to
diligently proceed to obtain alternate sources, or if the condition continues
for more than one hundred twenty (120) days, whichever first occurs, Hilfiger
shall have the right to terminate this Agreement.
ARTICLE 21. MISCELLANEOUS
21.1 BENEFIT. This Agreement will inure to the benefit of and be binding
upon the parties hereto, and, to their permitted successors and assigns.
21.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
this Agreement may not be amended or modified, except in a writing signed by
both parties hereto.
21.3 NON-WAIVER. The failure of either party to enforce at any time any
term, provision or condition of this Agreement, or to exercise any right or
option herein, except Licensee's request for Extension, will in no way operate
as a waiver thereof, nor will any single or partial exercise preclude any other
right or option herein; and no waiver whatsoever will be valid unless in
writing, signed by the waiving party, and only to the extent set forth in such
writing.
21.4 NO ASSIGNMENT WITHOUT CONSENT. The license and rights granted to
Licensee hereunder are personal in nature, and Licensee may not sell, transfer,
lease, sublicense or assign this Agreement or its rights or interest hereunder,
or any part hereof, without the prior written consent of Hilfiger, which consent
may be withheld by Hilfiger in its sole and absolute discretion, except that
Licensee shall have the right, upon written notice to Hilfiger, to assign this
Agreement to any Affiliate of Licensee; provided, however, that in such event
Licensee unconditionally guarantees the performance and obligations of such
Affiliate under this Agreement.
21.5 SALE OF ASSETS. A sale or other transfer of all or substantially all
of the assets of Licensee will be deemed an assignment of Licensee's rights and
interests under this Agreement to which the terms and conditions of Paragraph
21.4 of this Agreement shall apply. Notwithstanding the foregoing, Hilfiger's
consent shall not be required for such transfer, if following such transfer,
Efraim Grinberg remains in control of Licensee, but Licensee shall not, without
Hilfiger's consent, be permitted to enjoy any option or extension period which
has not then commenced.
33
<PAGE> 36
21.6 SALE OF STOCK/INTEREST. Any transfer of, (i) Licensee's interest in
this Agreement (in whole or in part) except to an Affiliate of Licensee or as
otherwise permitted hereunder; (ii) a fifty (50%) percent or greater interest of
the voting control of Licensee other than transfers by any stockholder to any
affiliate (as defined in the Securities Exchange Act of 1934) of such
stockholder (whether in one or in a series of transactions in Licensee, whether
of stock, partnership interest or otherwise); or (iii) any shares of Class A
common stock of Licensee by Efraim Grinberg or any member of the Grinberg family
to a competitor of Hilfiger (as the same is set forth on Exhibit M annexed
hereto) shall be deemed an assignment of Licensee's rights and interest under
this Agreement to which the terms and conditions of Paragraph 21.4 of this
Agreement shall apply. Notwithstanding anything herein contained to the
contrary, (i) a transfer of a fifty (50%) percent or greater interest in the
voting control of Licensee shall not be deemed a transfer requiring Hilfiger's
consent if Efraim Grinberg remains in control of Licensee following such
transfer, but Licensee shall not, without Hilfiger's consent, be permitted to
enjoy any option or extension period for the license granted pursuant to this
Agreement, which has not then commenced and (ii) Hilfiger's consent shall not be
unreasonably withheld in connection with (a) the sale of stock in brokers'
transactions (within the meaning of Section 4(4) and Rule 144 of the Securities
Act of 1933) by persons or parties through the "over-the-counter" market or
through any recognized stock exchange; (b) an initial public offering, a public
offering or a tender offer for any of the outstanding shares of Licensee; or (c)
the sale of non-voting stock in any amount to non-competitors of Hilfiger.
21.7 ASSIGNMENT BY HILFIGER. Hilfiger has a complete and unrestricted
right to sell, transfer, lease or assign its rights and interests in this
Agreement to person or entity, providing that such transferee agrees to be bound
by all of the terms and obligations of Hilfiger hereunder. When Hilfiger wishes
to sell, transfer, lease or assign its rights and interests in this Agreement,
Hilfiger will give reasonable notice to Licensee.
21.8 PUBLIC OFFERING. Licensee agrees that, without the prior written
consent of Hilfiger, which consent may not be unreasonably withheld in keeping
with applicable laws, neither Licensee nor any Affiliate of Licensee will make
any reference, explicit or otherwise, in any registration statement, prospectus
or other offering document (including any related exhibits, schedules or other
materials) relating to any public or private offering of equity by Licensee or
any Affiliate of Licensee whose business will directly or indirectly involve or
derive any benefit from this license or the Trademarks, to (a) the Trademarks or
(b) this Agreement or the existence of the arrangement contemplated hereby.
21.9 SEVERABILITY. If any provision or any portion of any provision of
this Agreement is construed to be illegal, invalid, or unenforceable, such shall
be deemed stricken and deleted from this Agreement to the same extent and effect
as if never incorporated herein, but all other provisions of this Agreement and
any remaining portion of any provision which is not deemed illegal, invalid or
unenforceable in part shall continue in full force and effect.
21.10 GOVERNING LAW. This Agreement has been negotiated, prepared,
executed and delivered in several jurisdictions, including the State of New
York, United States of America. Accordingly, in order to establish with
certainty that this Agreement will be governed by one body of well-developed
commercial law, the parties hereto have expressly agreed that this Agreement
shall be governed by, and construed in accordance with, the laws of the State of
34
<PAGE> 37
New York, applicable to contracts executed and fully to be performed therein, to
the exclusion of any other applicable body of governing law including, without
limitation, the United Nations Convention on Contracts for the International
Sale of Goods.
21.11 JURISDICTION. The parties hereby consent to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any of the courts of the State of New York in any dispute
arising under this Agreement and agree further that service of process or notice
in any such action, suit or proceeding will be effective if in writing and
issued provided in Paragraph 20.1 hereof.
21.12 EXHIBITS. All Exhibits are incorporated into this Agreement.
Hilfiger may revise its reporting, approval and related forms at any time at its
sole discretion.
21.13 HEADINGS. The headings of the Articles and Paragraphs of this
Agreement are for convenience only and in no way limit or affect the terms or
conditions of this Agreement.
21.14 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
MOVADO GROUP, INC. TOMMY HILFIGER LICENSING, INC.
By: [sig] By: [sig]
---------------------------- ----------------------------
Name: [sig] Name: [sig]
-------------------------- --------------------------
Title: President Title: Assistant Secretary
------------------------- -------------------------
N.A. TRADING, S.A.
By: [sig]
----------------------------
Name: [sig]
--------------------------
Title: Attorney-in-Fact
-------------------------
35
<PAGE> 38
EXHIBIT A
TRADEMARKS
TOMMY HILFIGER
FLAG/LOGO DESIGN
CREST DESIGN
TOMMY JEANS
TOMMY
TOMMY GIRL
HILFIGER ATHLETICS
<PAGE> 39
EXHIBIT B
LICENSED PRODUCTS
Men's and women's watches
<PAGE> 40
EXHIBIT C
Organization Chart
Tommy Hilfiger Watches
[The following was depicted as a flow chart in the printed material.]
President
Tommy Hilfiger Watches
Executive Assistant
Vice President
Sales
Account Executives (5 - Year 1) Additional as needed
TH dedicated Account Representatives *
Vice President
Marketing/Merchandising Manager (includes sourcing)
Designer
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934
ACT.
<PAGE> 41
EXHIBIT D
DESIGN AND PRODUCTION PLAN
design&productionplan TOMMY HILFIGER 6/3/99
*
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934
ACT.
<PAGE> 42
*
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934
ACT.
<PAGE> 43
EXHIBIT E
APPROVAL FORM
FORM MUST BE SUBMITTED COMPLETE TO THE ATTENTION OF:
TOMMY HILFIGER LICENSING, INC.
25 WEST 39TH STREET
NEW YORK, NEW YORK 10018
LICENSEE NAME:
--------------------------------------------------------------
LICENSED CONTACT:
---------------------------------------------------------
CONTACT TELEPHONE NUMBER:
--------------------------------------------------
LICENSEE ADDRESS:
-----------------------------------------------------------
PRODUCT NAME:
---------------------------------------------------------------
SKU# DESCRIPTION WHOLESALE PRICE
- ---- ----------- ---------------
DATE OF PRODUCTION INTRODUCTION:
---------------------------
DATE OF PRODUCT LAUNCH:
------------------------------
APPROVED: DISAPPROVED:
--------------------------- -----------------------
COMMENTS
-------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- ------------------------------------- -------------------------------
SIGNATURE OF LICENSEE / DATE SIGNATURE OF HILFIGER / DATE
DATE RETURNED TO LICENSEE
---------------------------------------
<PAGE> 44
EXHIBIT F
TOMMY HILFIGER CORPORATION
SUPPLIER CODE OF CONDUCT
We, at the Tommy Hilfiger Corporation (hereinafter "Tommy Hilfiger") are proud
of our tradition of conducting our business in accordance with the highest
ethical standards and in compliance with the laws of the United States and of
the countries in which we produce, buy and sell our products. Tommy Hilfiger is
committed to legal compliance and ethical business practices in all operations
and seeks to do business with suppliers who share that commitment. Tommy
Hilfiger actively seeks to engage as its suppliers, companies that offer their
workers safe and healthy workplaces.
Tommy Hilfiger will not tolerate exploitative or abusive conditions once known.
The Tommy Hilfiger Supplier Code of Conduct (hereinafter the "Code of Conduct")
defines our minimum expectations. No Code can be all inclusive, but we expect
our suppliers to act reasonably in all respects and to ensure that no abusive,
exploitative or illegal conditions exist at their workplaces. Tommy Hilfiger
requires its suppliers to extend principles of fair and honest dealing to all
others with whom they do business, including employees, subcontractors and other
third parties. We also require our suppliers to ensure and to certify to us that
no abusive, exploitative or illegal conditions exist at the workplaces of their
suppliers and subcontractors. Tommy Hilfiger will only do business with
suppliers who obey the laws of the country in which they operate and the
principles expressed in this Code of Conduct.
Tommy Hilfiger will only do business with suppliers who have certified to us
that their business practices are lawful, ethical and in compliance with the
principles set forth in this Code of Conduct. Moreover, Tommy Hilfiger will only
do business with suppliers who have agreed to be subjected to the scrutiny of
the Tommy Hilfiger Supplier Monitoring Program under which they will be
inspected and evaluated to ensure their compliance with this Code of Conduct.
Forced Labor: Tommy Hilfiger will not purchase products or components thereof
from suppliers that use forced labor, prison labor, indentured labor or
exploited bonded labor, or permit their suppliers to do so.
Child Labor: Tommy Hilfiger will not purchase products or components thereof
manufactured by persons younger than 15 years of age or younger than the age of
completing compulsory education in the country of manufacture where such age is
higher than 15.
Harassment or Abuse: Tommy Hilfiger suppliers and subcontractors must treat
their employees with respect and dignity. No employee shall be subject to
physical, sexual or psychological harassment or abuse.
Nondiscrimination: Tommy Hilfiger suppliers and subcontractors shall not subject
any person to discrimination in employment, including hiring, salary, benefits,
advancement, discipline, termination or retirement, on the basis of gender,
race, religion, age, disability, sexual orientation, nationality, political
opinion, or social or ethnic origin.
Health and Safety: Tommy Hilfiger suppliers and subcontractors shall provide a
safe and healthy working environment to prevent accidents and injury to health
arising out of, linked with, or occurring in the course of work or as a result
of the operation of employer facilities. Employers must fully comply with all
applicable workplace conditions, safety and environmental laws.
<PAGE> 45
Freedom of Association: Tommy Hilfiger suppliers and subcontractors shall
recognize and respect the right of employees to freely associate in accordance
with the laws of the countries in which they are employed.
Wages and Benefits: Tommy Hilfiger suppliers and subcontractors recognize that
wages are essential to meeting employees' basic needs. Tommy Hilfiger suppliers
and subcontractors shall pay employees at least the minimum wage required by
local law regardless of whether they pay by the piece or by the hour and shall
provide legally mandated benefits.
Work Hours: Tommy Hilfiger suppliers and subcontractors shall not require their
employees to work more than the limits on regular and overtime hours allowed by
the law of the country of manufacture. Except under extraordinary business
circumstances, Tommy Hilfiger suppliers' and subcontractors' employees shall be
entitled to one day off in every seven day period. Tommy Hilfiger suppliers and
subcontractors must inform their workers at the time of their hiring if
mandatory overtime is a condition of their employment. Tommy Hilfiger suppliers
and subcontractors shall not compel their workers to work excessive overtime
hours.
Overtime Compensation: Tommy Hilfiger suppliers' and subcontractors' employees,
shall be compensated for overtime hours at such premium rate as is legally
required in the country of manufacture or, in countries where such laws do not
exist, at a rate at least equal to their regular hourly compensation rate.
Contract Labor; Tommy Hilfiger suppliers or subcontractors shall not use workers
obligated under contracts which exploit them, which deny them the basic legal
rights available to people and to workers within the countries in which they
work or which are inconsistent with the principles set forth in this Code of
Conduct
Legal and Ethical Business Practices: Tommy Hilfiger suppliers and
subcontractors must fully comply with all applicable local, state, federal,
national and international laws, rules and regulations including, but not
limited to, those relating to wages, hours, labor, health and safety, and
immigration. Tommy Hilfiger suppliers and subcontractors must be ethical in
their business practices.
Penalties: Tommy Hilfiger reserves the right to terminate its business
relationship with any supplier who violates this Code of Conduct or whose
suppliers or subcontractors violate this Code of Conduct. Tommy Hilfiger
reserves the right to terminate its business relationship with suppliers who
fail to provide written confirmation to Tommy Hilfiger that they have a program
in place to monitor their suppliers and subcontractors for compliance with this
Code of Conduct.
<PAGE> 46
EXHIBIT G
CERTIFICATION
In consideration of ____________________ ("Company") placing orders for the
manufacture of Tommy Hilfiger brand merchandise with us in the future, and in
compliance with Company's Manufacturing Agreement with us (the "Agreement"), we
hereby certify that:
I. Any merchandise (including components thereof) we manufacture or
cause to be manufactured under the Agreement will be manufactured in compliance
with: (1) all applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor under Section 14 thereof, and applicable state and local
laws pertaining to child labor, minimum wage and overtime compensation, and, if
the merchandise is manufactured outside the United States, it will be
manufactured in compliance with the wage, overtime compensation, benefits, hour,
hiring and employment, workplace conditions and safety, environmental,
collective bargaining, freedom of association laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger than the
age for completing compulsory education, if that age is higher than 15), prison,
indentured, bonded, forced or slave labor; (2) we currently have in effect and
will maintain a program of monitoring all of our suppliers and subcontractors
and other designated contract facilities producing TOMMY HILFIGER brand
merchandise for compliance with (1) above; (3) we will obtain the signature of
an authorized representative of (i) our subcontractors and other designated
contract facilities producing TOMMY HILFIGER brand merchandise on a current
Manufacturing Agreement in the same form as that which we have executed with
Company and (i) our suppliers on a Certification in the same form as this
Certification; and (4) within two (2) weeks of the execution of this
Certification, we will provide to Company the names and addresses of all of our
suppliers, and subcontractors and other designated contract facilities producing
TOMMY HILFIGER brand merchandise under the Agreement and all such merchandise
shall be manufactured solely in factories (whether operated by our suppliers,
subcontractors or other designated contract facilities) that have been inspected
and approved in writing by our authorized employee or agent; and (5) all
commercial invoices which accompany all TOMMY HILFIGER brand merchandise will
include the following language (either pre-printed or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with (1) all applicable requirements of Sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and orders
of the United States Department of Labor under Section 14 thereof,
and applicable state and local laws pertaining to child labor,
minimum wage and overtime compensation, and, (2) if manufactured
outside the United States, was manufactured in compliance with all
applicable requirements of the wage, overtime compensation,
benefits, hour, hiring and employment, workplace conditions and
safety, environmental, collective bargaining, freedom of association
laws of the country of manufacture and without the use of child
(persons under the age of 15 or younger than the age for completing
compulsory education, if that age is higher than 15), prison,
indentured, bonded, forced or slave labor. We further certify that
we currently have in effect a program of monitoring of our suppliers
<PAGE> 47
and subcontractors and other designated contract facilities which
manufacture TOMMY HILFIGER brand merchandise to ensure their
compliance with the Fair Labor Standards Act and all state, local
and foreign laws pertaining to wages, overtime compensation,
benefits, hours, hiring and employment, workplace conditions and
safety, environmental, collective bargaining, freedom of association
and that their products or and the components thereof are made
without the use of child (persons under the age of 15 or younger
than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, bonded, forced or slave labor.
We also certify that upon importation (if applicable) this shipment
is in compliance with all laws applicable to the designation of
country of origin and is being shipped under legally issued and
valid export license or visa."
----------------------------------
[Name of your Company]
Date: By:
--------------------- -------------------------------
[Authorized Signature]
Print Name:
-----------------------
<PAGE> 48
EXHIBIT H
THIRD PARTY MANUFACTURING AGREEMENT
THIS AGREEMENT is made as of the ____ day of ___________ 199__, by and between
______________________________, having an office at
__________________________________ (hereinafter referred to as the "Company"),
and ________________________________________________________________ having an
office at ________________________________________________________________
(hereinafter referred to as the "Manufacturer").
W I T N E S S E T H :
WHEREAS, Manufacturer is engaged is the manufacture of watches;
WHEREAS, Company wishes to contract with Manufacturer for manufacture of certain
watches from time to time, which watches (the "Products") will bear the
trademark TOMMY HILFIGER, the trade name TOMMY HILFIGER, all related logos,
crests, emblems or symbols, and all combinations, forms and derivatives thereof
as are from time to time used by Company or any of its affiliates, whether
registered or unregistered (the "Trademarks"); and
WHEREAS, Company has been licensed by Tommy Hilfiger Licensing, Inc. ("THLI"),
the owner of all rights, title and interests in and to the Trademarks, to use
the Trademarks.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereby agree as follows:
1. THE PRODUCTS.
Company and THLI have created certain designs based upon which Manufacturer will
create prototypes and submit the same to Company for review. Company shall
advise Manufacturer if the prototypes meet Company's specifications and quality
requirements within fifteen (15) days of receipt. Manufacturer shall make any
modifications to the prototypes as required by Company.
Based upon the approved prototypes, Manufacturer will produce pre-production
samples and submit same to Company for review. Company will advise Manufacturer
if such pre-production samples meet Company's specifications and quality
requirements.
2. TERM.
(a) The term of this Agreement shall commence as of the date hereof and continue
through December 31, _________.
<PAGE> 49
(b) In the event that Manufacturer shall have faithfully performed each and
every obligation of this Agreement during the Term referred to in Paragraph 2(a)
above, then this Agreement shall automatically renew from month to month
commencing immediately upon expiration of the term, unless either party has
given the other thirty (30) days written notice of its intention to terminate
the Agreement.
3. MANUFACTURE.
(a) Manufacturer shall only manufacture the specific number of Products as
requested by Company and at no time shall manufacture excess goods or overruns.
Manufacturer shall not sell any Products bearing the Trademarks to any third
parties without the express written consent of Company.
(b) Manufacturer shall manufacture the Products and Packaging to conform in
quality and specifications to the prototypes as defined in Paragraph 1, above.
(c) All Products and Packaging manufactured by Manufacturer shall be delivered
to locations specified by Company or directly to Company, whichever Company may
direct.
4. COMPLIANCE WITH CODE; APPLICABLE LAWS.
(a) Attached hereto as ADDENDUM A is THLI's Supplier Code of Conduct (the
"Code") which applies to any entity manufacturing merchandise using any of the
Trademarks (including the components thereof). As a condition to manufacturing
Products hereunder, Manufacturer shall comply with the terms of the Code and
evidence such compliance by, (1) upon execution of this Agreement, executing the
Code in the form as attached or such other form as provided by THLI, and
returning such document to THLI, and (2) publicly displaying the Code, in a form
as provided by THLI from time to time, in a clearly visible location in
Manufacturer's facility at all times while this Agreement is in effect.
(b) In order to ensure compliance with the Code, Company has developed a program
of monitoring its manufacturers and such manufacturers' subcontractors
(hereinafter the "Supplier Monitoring Program"). As a condition to manufacturing
Product hereunder, Manufacturer hereby agrees that it shall cooperate fully with
the Supplier Monitoring Program, which cooperation includes but is not limited
to Company's inspections in accordance with Paragraph 5, below.
(c) For purposes of this Agreement a "Subcontractor" means an entity or an
individual that or whom Manufacturer either hires or pays to perform the
manufacturing tasks that Manufacturer could otherwise perform itself at its own
facility or through its own employees and staff. A "Supplier" means an entity or
individual that produces components for merchandise, and provides such
components to the Manufacturer in order to assemble the finished merchandise.
Prior to utilizing any Subcontractor or Supplier, Manufacturer shall provide
written notice to Company of: (i) the name and address of each such
Subcontractor and Supplier; (ii) the nature and type of work performed or
product supplied to Manufacturer; and (iii) duration of the Subcontractor or
Supplier relationship.
(d) Within thirty (30) days from executing this Agreement for any existing
Subcontractor and Suppliers, and within thirty (30) days after establishing a
new arrangement with a subcontractor or
<PAGE> 50
supplier, Manufacturer shall obtain and provide to Company the signature of an
authorized representative from each of its Subcontractors (if any) on a
Manufacturing Agreement in the same form as this Agreement. Manufacturer shall
further obtain and provide to Company the signature of an authorized
representative from each of Manufacturer's Suppliers on a Certification in the
same form as that which is attached hereto and hereafter referred to as ADDENDUM
B, and provided by Company from time, or such other form as provided by Company.
In the event Manufacturer has knowledge of, has reason to believe, or should
have reason to know that any Supplier or Subcontractor used by Manufacturer is
in breach of the Certification or Manufacturing Agreement, as the case may be,
Manufacturer shall immediately notify Company and Manufacturer shall, at its
sole expense, take immediate action to rectify such breach, including, where
Company deems it necessary, immediate termination of its relationship with such
Supplier or Subcontractor. If Manufacturer fails to take immediate action,
Company shall have the right to terminate this Manufacturing Agreement
immediately. Manufacturer acknowledges that it shall remain primarily liable and
completely obligated under all of the provisions of this Agreement in respect of
such subcontracting and supplier arrangement.
(e) Manufacturer certifies that it has in effect a program of monitoring its
subcontractors and suppliers and other designated contract facilities which
manufacture TOMMY HILFIGER brand merchandise which is sufficient to ensure their
compliance with the Code and all applicable state, local and foreign laws and
regulations pertaining to wages, overtime compensation, benefits, hours, hiring
and employment, workplace conditions and safety, the environment, collective
bargaining, freedom of association and that their products or and the components
thereof are made without the use of child (persons under the age of 15 or
younger than the age for completing compulsory education, if that age is higher
than 15), prison, indentured, exploited bonded, forced or slave labor.
(f) Manufacturer shall ensure that all merchandise manufactured hereunder shall
be manufactured in compliance with all federal, state and local laws.
(g) Manufacturer shall manufacture or cause to manufacture all Products
(including components thereof) manufactured in the United States, in compliance
with all applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor under Section 14 thereof, and applicable state and local
laws pertaining to child labor, minimum wage and overtime compensation, and, if
the Products are manufactured outside the United States, in compliance with all
applicable laws, including but not limited to, wage, overtime compensation,
benefits, hour, hiring and employment, workplace conditions and safety,
environmental, collective bargaining, freedom of association laws of the country
of manufacture and without the use of child (persons under the age of fifteen or
younger than the age for completing compulsory education, if that age is higher
than 15), prison, indentured, exploited bonded, forced or slave labor.
(h) Manufacturer acknowledges that it has read and understands Company's policy
with regard to the manufacture of Products for Company. Manufacturer further
agrees that it shall, simultaneous to executing this Agreement, execute and
abide by the Certification, shall execute and abide by all Certifications
provided by Company from time to time. Failure by Manufacturer to execute and
abide by such Certification shall be grounds for immediate termination of this
Agreement by Company.
<PAGE> 51
5. INSPECTION.
(a) Manufacturer shall arrange for and provide access to Company's and THLI's
representative, including, but not limited to, any independent entity designated
by Company or THLI's legal representative, to: (i) Manufacturer's manufacturing
facility, residential facilities (if any) and any manufacturing and/or
residential facility operated by any of Manufacturer's Subcontractors; and (ii)
Manufacturer's books, records and documents necessary to evidence Manufacturer's
compliance with the Code and all applicable laws, rules and regulations
including, but not limited to, employee wages, employee timecards, withholding
rates and deductions, worker's contracts and/or agreements, any company policies
affecting employees, evidence of employee age, shipping documents, cutting
reports and other documentation relating to the manufacture and shipment of the
Products. For purposes of this Paragraph, all such books, records and
Manufacturer shall maintain documents in a secure and readily accessible
location for a period of three (3) years from their creation.
(b) The access provided by Manufacturer as set forth in Paragraph 5(a), above,
shall include Company's and THLI's right to inspect, test, and take samples of
the Products, whether finished or semi-finished, at any time during the
manufacturing process to ensure that the manufacture of the Products is in
accordance with the terms and restrictions herein contained
(c) Company shall have the right to reject any Products or packaging not meeting
the standards described in Paragraph 1, above. Manufacturer shall not have the
right to sell or otherwise distribute any rejected Products or packaging. All
such products shall be destroyed according to methods and procedures provided by
Company.
6. SHIPPING LEGEND.
All commercial invoices (bills of lading) which accompany all Products must
include the following language (either pre-printed or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with the Tommy Hilfiger Supplier Code of Conduct and: (1) if the
merchandise was manufactured in the United States, it was
manufactured in compliance with (a) sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and orders
of the United States Department of Labor under section 14 thereof,
and (b) state and local laws pertaining to child labor, minimum wage
and overtime compensation; or (2) if the merchandise was
manufactured outside the United States, it was manufactured in
compliance with the wage and hour laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger
than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, exploited bonded, forced or
slave labor. We further certify that we have in effect a program of
monitoring our subcontractors and suppliers and other designated
contract facilities which manufacture TOMMY HILFIGER brand
merchandise for compliance with the foregoing. We also certify that
the merchandise is in compliance with all laws governing the
designation of country of origin and, if applicable, is being
shipped under legally issued and valid export license or visa."
Any merchandise shipped that is not accompanied by a commercial invoice bearing
the required
<PAGE> 52
language will be subject to rejection and if rejected returned at Manufacturer's
expense and Manufacturer may be charged for any and all costs that are incurred
by Company due to the rejection, including, but not limited to, damages
sustained as a result of Company's liability to customers, any resulting fines
and penalties and attorneys' fees for said rejected goods. Such rejected goods
may not be sold or distributed by Manufacturer to any entity other than Company.
7. USE OF TRADEMARKS; TRADEMARKS.
(a) Manufacturer shall not use the Trademarks, in any manner whatsoever
(including, without limitation, for advertising, promotion and publicity
purposes), except as necessary to manufacture the Products exclusively for
Company as expressly provided hereunder. In any event Manufacturer shall not at
any time use, promote, advertise, display or otherwise commercialize the
Trademarks or any material utilizing or reproducing the Trademarks in any
manner. Manufacturer shall not make any reference in its business materials,
advertising or in any of its business activities to the fact that Manufacturer
is being contracted by Company to manufacture merchandise under the Tommy
Hilfiger label.
(b) The Trademarks will appear on all of the Products and all packaging in the
manner provided by Company.
(c) No other trademarks or notices shall appear on Products or packaging without
Company's and THLI's prior written consent in each instance.
(d) Manufacturer's use of the Trademarks shall inure to the benefit of THLI.
Manufacturer shall take any and all steps required by THLI and the law to
perfect THLI's rights therein.
8. PROPERTY OF OWNER.
(a) Manufacturer recognizes the great value of the goodwill associated with the
Trademarks and the identification of the Products with the Trademarks and
acknowledges that the Trademarks and all rights therein and goodwill pertaining
thereto belong exclusively to THLI Manufacturer further recognizes and
acknowledges that a breach by Manufacturer of any of its covenants, agreements
or other undertakings hereunder will cause THLI irreparable damage, which cannot
be adequately remedied in damages in an action at law, and may, in addition
thereto, constitute an infringement of THLI's rights in the Trademarks, thereby
entitling THLI to equitable remedies, costs and reasonable attorney's fees.
(b) To the extent any rights in and to the Trademarks are deemed to accrue to
Manufacturer, Manufacturer hereby assigns any and all such rights, at such time
as they may be deemed to accrue, including the related goodwill, to THLI.
(c) Manufacturer shall (i) never challenge the validity of THLI's ownership in
and to the Trademarks or any application for registration thereof, or any
trademark registration thereof and (ii) never contest the fact that
Manufacturer's rights under this Agreement are solely those of a manufacturer
and terminate upon expiration of this Agreement. Manufacturer shall, at any
time, whether during or after the term of the Agreement, execute any documents
reasonably requested by THLI to confirm THLI's ownership rights. All rights in
the Trademarks other than those specifically granted herein are reserved by THLI
for its own use and benefit.
<PAGE> 53
(d) Without limiting the generality of any other provision of this Agreement,
Manufacturer shall not (i) use the Trademarks, in whole or in part, as a
corporate or trade name or (ii) join any name or names with the Trademarks so as
to form a new trademark. Manufacturer agrees not to register, or attempt to
register, the Trademarks in its own name or any other name, anywhere in the
world.
(e) All provisions of this paragraph shall survive the expiration or termination
of this Agreement.
9. TRADEMARK PROTECTION.
(a) In the event that Manufacturer learns of any infringement or imitation of
the Trademarks or of any use by any person or entity of a trademark similar to
the Trademarks, it shall promptly notify Company and thereupon, Company shall so
notify THLI. THLI shall take such action as it deems advisable for the
protection of its rights in and to the Trademark and, if requested to do so by
THLI, Manufacturer shall cooperate with THLI in all respects. In no event,
however, shall THLI be required to take any action if it deems it inadvisable to
do so.
(b) THLI shall defend, at its cost and expense, and with counsel of its own
choice, any action or proceeding brought against Manufacturer for alleged
trademark infringement arising out of Manufacturer's use of the Trademarks in
accordance with the provisions of this Agreement.
(c) Manufacturer shall cooperate with THLI in the execution, filing and
prosecution of any trademark, copyright or design patent applications that THLI
may desire to file and for that purpose Manufacturer shall supply to THLI from
time to time such samples as may be reasonably required.
(d) All provisions of this paragraph shall survive the expiration or termination
of this Agreement.
10. TRANSSHIPMENT. Transshipment is an illegal practice of falsely documenting
the country of origin of the raw materials used to manufacture the Products and
the finished Products shipped to the United States in order to evade quota
restraints on the country of actual production and the shipment of products
under counterfeit export licenses or visas. Manufacturer acknowledges that
transshipment, in any form, violates U.S. federal law, that Company and THLI
will review all documents received from Manufacturer to assure the veracity and
the authenticity of the sources of Products and that, upon indication of
transshipment of the Products by Manufacturer, Company or THLI reserves the
right to immediately terminate this Agreement and pursue available remedies
against Manufacturer.
11. SECONDS, THIRDS OR EXCESS GOODS. Manufacturer shall not have the right to
sell any Products or packaging which are determined to be seconds, thirds or are
in excess of the amount of the Products requested by Company. Company shall
purchase all seconds, thirds or excess products, including trim, at a reasonable
fair market price. Company shall have the right to inspect any seconds, thirds
or excess Products to ensure that they comply with the terms of this Agreement.
12. STOLEN GOODS OR DAMAGED GOODS. Manufacturer will provide Company with
immediate notice of any stolen Products or damaged Products including Products
that were then in production. With regard to damaged Products, Manufacturer
shall not have the right to sell any
<PAGE> 54
damaged Products. With regard to stolen Products, Manufacturer shall cooperate
with Company with respect to any action regarding the stolen Products.
13. DESIGN OWNERSHIP. All rights, including without limitation, copyright, trade
secret and design patent, to designs for the Products including, without
limitation, artwork, prints, patterns, package designs, labels, advertising or
promotional materials or any other designs using or used on or affixed thereto,
and to any package design, bearing the Trademarks shall, as between the parties
hereto be the property of THLI. All Products manufactured from designs submitted
by Manufacturer and approved by THLI shall bear the Trademarks.
14. CONFIDENTIALITY. During the term of this Agreement and thereafter, each
party shall keep strictly secret and confidential any and all information
acquired from the other party hereto or its designee and shall take all
necessary precautions to prevent unauthorized disclosure of such information.
Manufacturer acknowledges that it will receive from Company prints, designs,
ideas, sketches, and other materials which Company and THLI intend to use on or
in connection with lines of merchandise which have not yet been put into the
channels of distribution. The parties recognize that these materials are
valuable property of THLI. Manufacturer acknowledges the need to preserve the
confidentiality and secrecy of these materials and agrees to take all necessary
steps to ensure that use by it or by its employees and/or agents will in all
respects preserve such confidentiality and secrecy. Manufacturer shall take all
reasonable precautions to protect the secrecy of the materials, samples, and
designs prior to their commercial distribution or the showing of samples for
sale, and shall not manufacture any merchandise employing or adapted from any of
said designs except for Company, THLI or its affiliates or designees.
15. FORCE MAJEURE.
(a) No failure or omission by either of the parties to perform any of its
obligations under this Agreement shall be deemed a breach of this Agreement if
such failure or omission is the result of acts of God, war, riot, accidents,
compliance with any action or restriction of any government or agency thereof,
strikes or labor disputes, inability to obtain suitable raw materials, fuel,
power or transportation, or any other factor or circumstance beyond the control
of the party, which is not attributable to the negligence of such party.
(b) Any suspension of performance by reason of this paragraph shall be limited
to the period during which such cause of failure exists, but such suspension
shall not affect the running of the term of this Agreement. However, if the
suspension of performance by reason of this paragraph exceeds six months, either
party may give written notice of termination of this Agreement.
16. MANUFACTURER'S WARRANTIES AND REPRESENTATIONS.
Manufacturer warrants and represents that:
(a) It has and will have throughout the term of this Agreement, the full power,
authority and legal right to execute and deliver, and to perform fully and in
accordance with all of the terms of this Agreement.
(b) The entering of this Agreement by Manufacturer does not violate any
agreements, rights or obligations existing between Manufacturer and any other
person, entity, or corporation.
<PAGE> 55
(c) It is not engaged in and will not engage in any activities which are in
violation of any applicable domestic, foreign or international laws, rules or
regulations, including without limitation laws, rules or regulations governing
labor, the environment, the manufacture and sale of goods, U.S. Customs laws or
illegal transshipment. Company maintains a policy against engaging in any
illegal activities and will not buy or sell products provided throughout the use
of any unlawful or unethical practices.
(d) It accurately states the country of origin on all products, that it does not
and will not transship, and it will act to stop or prevent any known illegal
transshipment activity.
17. COMPANY'S WARRANTIES AND REPRESENTATIONS.
Company warrants and represents that:
(a) it has, and will have throughout the Term of this Agreement, the right to
authorize use of the Trademark to Manufacturer in accordance with the terms and
provisions of this Agreement; and
(b) the entering of this Agreement by Company does not violate any agreements,
rights or obligations existing between Company and any other person, entity, or
corporation.
18. INDEMNIFICATIONS.
(a) Company hereby indemnifies Manufacturer and shall hold it harmless from any
loss, liability, damage, cost or expense (including reasonable attorneys' fees)
arising out of any claims or suits which may be brought against Manufacturer by
reason of the breach by Company of the warranties or representations as set
forth in Paragraph 17, above, provided that Manufacturer gives prompt written
notice, and full cooperation and assistance to Company relative to any such
claim or suit, and that Company shall have the option to undertake and conduct
the defense of any suit so brought. Manufacturer shall cooperate fully in all
respects with Company in the conduct and defense of said suit and/or
proceedings.
(b) Manufacturer indemnifies and agrees to hold Company harmless from any loss,
liability, damage, cost or expense (including reasonable attorneys' fees),
arising out of (i) any breach of the terms herein contained; (ii)any claims or
suits by reason of any unauthorized use by Manufacturer in connection with the
Products or the Trademarks covered by this Agreement; (iii) Manufacturer's
noncompliance with any applicable federal, state, or local law or with any other
applicable governmental units or agency's rules, regulations; and (iv) any
alleged defects and/or inherent dangers in Products or use thereof.
(c) If reasonably available in the country in which Manufacturer operates its
factory, Manufacturer agrees to obtain, at its own expense, product liability
insurance providing adequate protection for Company and Manufacturer against any
claims or suits in an amount no less than US$3,000,000. If applicable, within
thirty (30) days from the date hereof, Manufacturer undertakes to submit to
Company a fully paid policy or Certificate of Insurance naming Company as an
insured party and, requiring that the insurer shall not terminate or materially
modify such without written notice to Company of at least twenty (20) days.
<PAGE> 56
19. TERMINATION.
(a) Company shall have the right to terminate this Agreement immediately upon
written notice to Manufacturer if Manufacturer breaches any of its obligations
under this Agreement or such other occurrences as outlined below, and such
breach remains uncured or cannot be cured by Manufacturer within ten (10) days
from receipt of notice;
(b) Company shall have the right to terminate this Agreement immediately upon
written notice to Manufacturer, any governmental agency or other body or office
or official vested with appropriate authority deems the Products to be harmful
or defective in any way, manner or form, or are being sold or distributed in
contravention of applicable laws and regulations or in a manner likely to cause
harm;
(c) Company shall have the right to terminate this Agreement immediately upon
written notice to Manufacturer, if Manufacturer manufactures the Products
without the prior written approval of Company as provided herein;
(d) Company shall have the right to terminate this Agreement upon ten (10) days
written notice to Manufacturer, if Manufacturer is unable to pay its debts when
due, or makes any assignment for the benefit of creditors, or files any petition
under the bankruptcy or insolvency laws of any jurisdiction, country or place,
or has or suffers a receiver or trustee to be appointed for its business or
property, or is adjudicated a bankrupt or an insolvent;
(e) Company shall have the right to terminate this Agreement upon ten (10) days
written notice to Manufacturer, if Manufacturer fails to make timely delivery of
the Products; or
(f) Notwithstanding the foregoing provisions, Company shall have the right to
terminate this Agreement, with or without cause, upon thirty (30) days notice to
Manufacturer, provided however, that, upon written approval by Company,
Manufacturer shall have the right to complete any work then in progress.
20. ACTS UPON EXPIRATION OR TERMINATION OF THIS AGREEMENT.
(a) Upon and after the expiration or termination of this Agreement, Manufacturer
agrees not to make reference in its advertising or its business materials to
having been formerly associated with Company or the Trademarks.
(b) Upon and after the expiration or termination of this Agreement, Manufacturer
will refrain from further use of the Trademarks or of anything confusingly
similar thereto, in connection with the manufacture of any products.
Additionally, Manufacturer shall immediately return all originals and copies of
all sketches, patterns, prototypes, samples or other materials relating to the
Products to Company.
(c) In the event of expiration or termination of this Agreement, as herein
provided, with the exception of the Products which Manufacturer may, with
Company's consent, ship to satisfy any unfilled, confirmed orders for the
current season it had received prior to said expiration or termination, Company
shall have the prior right and option to purchase any or all of the Products and
packaging materials, as then in Manufacturer's possession or carried on its
books of account.
<PAGE> 57
Upon such termination or expiration, Manufacturer shall immediately cause
physical inventories to be taken of (i) Products on hand; (ii) Products in the
process of manufacture; and (iii) all packaging materials, which inventories
shall be reduced to writing and a copy thereof shall be delivered to Company not
later than fifteen (15) days from such termination or expiration. Written notice
of the taking of each inventory shall be given to Company at least forty-eight
(48) hours prior thereto. Company shall have the right to be present at such
physical inventory or to take its own inventory, and to exercise all rights it
has available with respect to the examination of Manufacturer's books and
records. If Manufacturer does not allow Company to take such inventory, it shall
have no right to sell the remaining Products without Company's prior approval.
(d) Manufacturer recognizes that any sale of the Products upon termination or
expiration, would cause irreparable damage to the prestige of Company and to the
Trademarks, and to the goodwill pertaining thereto.
(e) Upon expiration or termination of this Agreement, Manufacturer shall cease
the manufacture of Products. All the Products set forth on the inventories
referred to in subdivision (i) and (ii) of Paragraph 20(c) which are not
purchased by Company pursuant to such paragraph may be sold subject to Company's
prior right to approve the customers in writing and the terms and conditions of
each sale. Such sale shall otherwise be strictly in accordance with the terms,
covenants and conditions of this Agreement as though the Agreement had not
expired or terminated. In no event shall Manufacturer sell any Products to any
third party without the prior written approval of Company.
21. NOTICES.
All notices which either party hereto is required or may desire to give shall be
given by addressing the same to the address hereinafter in this paragraph, or at
such other address as may be designated in writing by any party in a notice to
the other given in the manner prescribed in this paragraph. All such notices
shall be deemed to be sufficiently given five (5) days after the mailing by
registered or certified mail, or on the date of electronic facsimile for which
the sender obtains a confirmation of successful transmission. The address to
which any such notices, shall be given are the following:
TO COMPANY: TO MANUFACTURER:
22. NO PARTNERSHIP, ETC.
This Agreement does not constitute and shall not be construed as a partnership
or joint venture between Company and Manufacturer. Neither party shall have any
right to obligate or bind the other party in any manner whatsoever, and nothing
herein contained shall give, or is intended to give, any rights of any kind to
any third persons.
<PAGE> 58
23. NON-ASSIGNABILITY, ETC.
This Agreement shall bind and inure to the benefit of Company and its successors
and assigns. This Agreement is personal to Manufacturer, and Manufacturer shall
not transfer or sublicense its rights hereunder and neither this Agreement nor
any of the rights of Manufacturer hereunder shall be sold, transferred or
assigned by Manufacturer and no rights hereunder shall devolve by operation of
law or otherwise upon any receiver, liquidator, trustee or other party.
24. SEVERABILITY.
If any provision or any portion of any provision of this Agreement shall be
construed to be illegal, invalid, or unenforceable, such shall be deemed
stricken and deleted from this Agreement to the same extent and effect as if
never incorporated herein, but all other provisions of this Agreement and
remaining portion of any provision which is illegal, invalid or unenforceable in
part shall continue in full force and effect.
25. HEADINGS.
The headings of the Paragraphs of this Agreement are for convenience only and
shall in no way limit or affect the term or conditions of this Agreement.
26. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
27. CONSTRUCTION.
This Agreement shall be construed in accordance with the laws of the State of
New York of the United States of America with the same force and effect as if
fully executed and to be performed therein.
28. JURISDICTION
The parties hereby consent to the exclusive jurisdiction of the United States
District Court for the Southern District of New York and of any of the courts of
the State of New York in any dispute arising under this Agreement and agree
further that service of process or notice in any such action, suit or proceeding
shall be effective if in writing and delivered in person or sent as provided in
Paragraph 21 hereof.
29. WAIVER, MODIFICATION, ETC.
No waiver, modification or cancellation of any term or condition of this
Agreement shall be effective unless executed in writing by the party charged
therewith. No written waiver shall excuse the performance of any acts other than
those specifically referred to herein. The fact that Company has not previously
insisted upon Manufacturer expressly complying with any provision of this
Agreement shall not be deemed to be a waiver of Company's future right to
require compliance in respect thereof and Manufacturer specifically acknowledges
and agrees that the prior forbearance in respect of any act, term or condition
shall not prevent Company from
<PAGE> 59
subsequently requiring full and complete compliance thereafter.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date
first written above.
- ------------------------------------- ---------------------------
[LICENSEE NAME] [MANUFACTURER NAME]
By: By:
-------------------------- -------------------------
Name: Name:
----------------------- -----------------------
Title: Title:
---------------------------- -----------------------
<PAGE> 60
ADDENDUM A
TO THIRD PARTY MANUFACTURING AGREEMENT
TOMMY HILFIGER CORPORATION
SUPPLIER CODE OF CONDUCT
We, at the Tommy Hilfiger Corporation (hereinafter "Tommy Hilfiger") are proud
of our tradition of conducting our business in accordance with the highest
ethical standards and in compliance with the laws of the United States and of
the countries in which we produce, buy and sell our products. Tommy Hilfiger is
committed to legal compliance and ethical business practices in all operations
and seeks to do business with suppliers who share that commitment. Tommy
Hilfiger actively seeks to engage as its suppliers, companies that offer their
workers safe and healthy workplaces.
Tommy Hilfiger will not tolerate exploitative or abusive conditions once known.
The Tommy Hilfiger Supplier Code of Conduct (hereinafter the "Code of Conduct")
defines our minimum expectations. No Code can be all inclusive, but we expect
our suppliers to act reasonably in all respects and to ensure that no abusive,
exploitative or illegal conditions exist at their workplaces. Tommy Hilfiger
requires its suppliers to extend principles of fair and honest dealing to all
others with whom they do business, including employees, subcontractors and other
third parties. We also require our suppliers to ensure and to certify to us that
no abusive, exploitative or illegal conditions exist at the workplaces of their
suppliers and subcontractors. Tommy Hilfiger will only do business with
suppliers who obey the laws of the country in which they operate and the
principles expressed in this Code of Conduct.
Tommy Hilfiger will only do business with suppliers who have certified to us
that their business practices are lawful, ethical and in compliance with the
principles set forth in this Code of Conduct. Moreover, Tommy Hilfiger will only
do business with suppliers who have agreed to be subjected to the scrutiny of
the Tommy Hilfiger Supplier Monitoring Program under which they will be
inspected and evaluated to ensure their compliance with this Code of Conduct.
Forced Labor: Tommy Hilfiger will not purchase products or components thereof
from suppliers that use forced labor, prison labor, indentured labor or
exploited bonded labor, or permit their suppliers to do so.
Child Labor: Tommy Hilfiger will not purchase products or components thereof
manufactured by persons younger than 15 years of age or younger than the age of
completing compulsory education in the country of manufacture where such age is
higher than 15.
Harassment or Abuse: Tommy Hilfiger suppliers and subcontractors must treat
their employees with respect and dignity. No employee shall be subject to
physical, sexual or psychological harassment or abuse.
Nondiscrimination: Tommy Hilfiger suppliers and subcontractors shall not subject
any person to discrimination in employment, including hiring, salary, benefits,
advancement, discipline, termination or retirement, on the basis of gender,
race, religion, age, disability, sexual orientation, nationality, political
opinion, or social or ethnic origin.
Health and Safety: Tommy Hilfiger suppliers and subcontractors shall provide a
safe and healthy
<PAGE> 61
working environment to prevent accidents and injury to health arising out of,
linked with, or occurring in the course of work or as a result of the operation
of employer facilities. Employers must fully comply with all applicable
workplace conditions, safety and environmental laws.
Freedom of Association: Tommy Hilfiger suppliers and subcontractors shall
recognize and respect the right of employees to freely associate in accordance
with the laws of the countries in which they are employed.
Wages and Benefits: Tommy Hilfiger suppliers and subcontractors recognize that
wages are essential to meeting employees' basic needs. Tommy Hilfiger suppliers
and subcontractors shall pay employees at least the minimum wage required by
local law regardless of whether they pay by the piece or by the hour and shall
provide legally mandated benefits.
Work Hours: Tommy Hilfiger suppliers and subcontractors shall not require their
employees to work more than the limits on regular and overtime hours allowed by
the law of the country of manufacture. Except under extraordinary business
circumstances, Tommy Hilfiger suppliers' and subcontractors' employees shall be
entitled to one day off in every seven day period. Tommy Hilfiger suppliers and
subcontractors must inform their workers at the time of their hiring if
mandatory overtime is a condition of their employment. Tommy Hilfiger suppliers
and subcontractors shall not compel their workers to work excessive overtime
hours.
Overtime Compensation: Tommy Hilfiger suppliers' and subcontractors' employees,
shall be compensated for overtime hours at such premium rate as is legally
required in the country of manufacture or, in countries where such laws do not
exist, at a rate at least equal to their regular hourly compensation rate.
Contract Labor: Tommy Hilfiger suppliers or subcontractors shall not use workers
obligated under contracts which exploit them, which deny them the basic legal
rights available to people and to workers within the countries in which they
work or which are inconsistent with the principles set forth in this Code of
Conduct
Legal and Ethical Business Practices: Tommy Hilfiger suppliers and
subcontractors must fully comply with all applicable local, state, federal,
national and international laws, rules and regulations including, but not
limited to, those relating to wages, hours, labor, health and safety, and
immigration. Tommy Hilfiger suppliers and subcontractors must be ethical in
their business practices.
Penalties: Tommy Hilfiger reserves the right to terminate its business
relationship with any supplier who violates this Code of Conduct or whose
suppliers or subcontractors violate this Code of Conduct. Tommy Hilfiger
reserves the right to terminate its business relationship with suppliers who
fail to provide written confirmation to Tommy Hilfiger that they have a program
in place to monitor their suppliers and subcontractors for compliance with this
Code of Conduct.
<PAGE> 62
ADDENDUM B
TO THIRD PARTY MANUFACTURING AGREEMENT
SUPPLIER'S CERTIFICATION
In consideration of Tommy Hilfiger U.S.A., Inc. ("THUSA") placing orders for the
manufacture of TOMMY HILFIGER brand merchandise with us in the future, and in
compliance with THUSA's Manufacturing Agreement with us (the "Agreement"), we
hereby certify that:
I. Any merchandise (including components thereof) we manufacture or cause to be
manufactured under the Agreement will be manufactured in compliance with: (1)
all applicable requirements of Sections 6, 7, and 12 of the Fair Labor Standards
Act, as amended, and all regulations and orders of the United States Department
of Labor under Section 14 thereof, and applicable state and local laws
pertaining to child labor, minimum wage and overtime compensation, and, if the
merchandise is manufactured outside the United States, it will be manufactured
in compliance with the wage, overtime compensation, benefits, hour, hiring and
employment, workplace conditions and safety, environmental, collective
bargaining, freedom of association laws of the country of manufacture and
without the use of child (persons under the age of 15 or younger than the age
for completing compulsory education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor; (2) we currently have in
effect and will maintain a program of monitoring all of our suppliers,
subcontractors, subcontract sewing shops and other designated contract
facilities producing TOMMY HILFIGER brand merchandise for compliance with (1)
above; (3) we will obtain the signature of an authorized representative of our
suppliers, subcontractors, subcontract sewing shops and other designated
contract facilities producing TOMMY HILFIGER brand merchandise on a current
supplier agreement, as provided by THUSA; and (4) within two (2) weeks of the
execution of this Certification, we will provide to THUSA the names and
addresses of all of our suppliers, subcontractors, subcontract sewing shops and
other designated contract facilities producing TOMMY HILFIGER brand merchandise
under the Agreement and all such merchandise shall be manufactured solely in
factories (whether operated by our suppliers, subcontractors, subcontract sewing
shops or designated contract facilities) that have been inspected and approved
in writing by our authorized employee or agent; and (5) all shipping documents
which accompany all TOMMY HILFIGER brand merchandise will include the following
language (either pre-printed or "stamped"):
"We hereby certify that the merchandise (including
components thereof) covered by this shipment was, if
manufactured in the United States, in compliance with all
applicable requirements (1) of Sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and
orders of the United States Department of Labor under
Section 14 thereof; (2) state and local laws pertaining to
child labor, minimum wage and overtime compensation; or if
the merchandise was manufactured outside the United States,
in compliance with the wage and hour laws of the country of
manufacture and without the use of child (persons under the
age of 15 or younger than the age for completing compulsory
education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor; and for
all merchandise, wherever manufactured, in compliance with
the Tommy Hilfiger Supplier Code of Conduct. We further
certify that we have
<PAGE> 63
in effect a program of monitoring our subcontractors and
suppliers and other designated contract facilities which
manufacture TOMMY HILFIGER brand merchandise which is
sufficient to ensure such entities' compliance with the
foregoing. We also certify that upon importation (if
applicable) this shipment is in compliance with all laws
applicable to the designation of country of origin and is
being shipped under legally issued and valid export license
or visa.
----------------------------------
[Name of your Company]
Date: By:
---------------------- -------------------------------
[Authorized Signature]
Print Name:
-----------------------
EXHIBIT I
SUPPLIER'S CERTIFICATION
In consideration of Tommy Hilfiger U.S.A., Inc. ("THUSA") placing orders for the
manufacture of TOMMY HILFIGER brand merchandise with us in the future, and in
compliance with THUSA's Manufacturing Agreement with us (the "Agreement"), we
hereby certify that:
I. Any merchandise (including components thereof) we manufacture or cause to be
manufactured under the Agreement will be manufactured in compliance with: (1)
all applicable requirements of Sections 6, 7, and 12 of the Fair Labor Standards
Act, as amended, and all regulations and orders of the United States Department
of Labor under Section 14 thereof, and applicable state and local laws
pertaining to child labor, minimum wage and overtime compensation, and, if the
merchandise is manufactured outside the United States, it will be manufactured
in compliance with the wage, overtime compensation, benefits, hour, hiring and
employment, workplace conditions and safety, environmental, collective
bargaining, freedom of association laws of the country of manufacture and
without the use of child (persons under the age of 15 or younger than the age
for completing compulsory education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor; (2) we currently have in
effect and will maintain a program of monitoring all of our suppliers,
subcontractors, subcontract sewing shops and other designated contract
facilities producing TOMMY HILFIGER brand merchandise for compliance with (1)
above; (3) we will obtain the signature of an authorized representative of our
suppliers, subcontractors, subcontract sewing shops and other designated
contract facilities producing TOMMY HILFIGER brand merchandise on a current
supplier agreement, as provided by THUSA; and (4) within two (2) weeks of the
execution of this Certification, we will provide to THUSA the names and
addresses of all of our suppliers, subcontractors, subcontract sewing shops and
other designated contract facilities producing TOMMY HILFIGER brand merchandise
under the Agreement and all such merchandise shall be manufactured solely in
factories (whether
<PAGE> 64
operated by our suppliers, subcontractors, subcontract sewing shops or
designated contract facilities) that have been inspected and approved in writing
by our authorized employee or agent; and (5) all shipping documents which
accompany all TOMMY HILFIGER brand merchandise will include the following
language (either pre-printed or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was, if manufactured in the
United States, in compliance with all applicable requirements (1)
of Sections 6, 7, and 12 of the Fair Labor Standards Act, as
amended and all regulations and orders of the United States
Department of Labor under Section 14 thereof; (2) state and local
laws pertaining to child labor, minimum wage and overtime
compensation; or if the merchandise was manufactured outside the
United States, in compliance with the wage and hour laws of the
country of manufacture and without the use of child (persons
under the age of 15 or younger than the age for completing
compulsory education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor; and for all
merchandise, wherever manufactured, in compliance with the Tommy
Hilfiger Supplier Code of Conduct. We further certify that we
have in effect a program of monitoring our subcontractors and
suppliers and other designated contract facilities which
manufacture TOMMY HILFIGER brand merchandise which is sufficient
to ensure such entities' compliance with the foregoing. We also
certify that upon importation (if applicable) this shipment is in
compliance with all laws applicable to the designation of country
of origin and is being shipped under legally issued and valid
export license or visa.
----------------------------------
[Name of your Company]
Date: By:
--------------------- -------------------------------
[Authorized Signature]
Print Name:
-----------------------
<PAGE> 65
EXHIBIT J
LEASE AGREEMENT
AGREEMENT effective as of the ____ day of _______, ____ between TOMMY HILFIGER
U.S.A., INC., a Delaware corporation, having an office at 25 West 39th Street,
New York, New York 10018 ("THUSA") and _______________________, a _______
corporation having offices at ___ _____________________________________________
("Licensee").
W I T N E S S E T H :
WHEREAS, THUSA is the owner of that certain real property located in the borough
of Manhattan, City and State of New York, and known as and by the street address
of 25 West 39th Street, New York, New York (the "Building"); and
WHEREAS, Tommy Hilfiger Licensing, Inc. ("Hilfiger") and Licensee, did on
_______, ____ enter into a license agreement (the "License Agreement") which
provides in paragraph 2.7 thereof that Licensee would occupy a portion of the
Building; and
WHEREAS, Licensee now occupies or desires to occupy a portion of the ____ floor
at the Building and THUSA is willing to allow such occupancy or the continuance
thereof on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants contained herein, it is
agreed as follows:
1. THUSA hereby agrees to allow Licensee to use and occupy a portion of the ____
floor of the Building as marked with diagonal lines on the floor plan annexed
hereto as Exhibit A (the "Premises") for the term commencing _________, ____ and
ending concurrently with the License Agreement, but in no event later than
______, ____ or such later date as the term of the License Agreement is extended
pursuant to the terms thereof.
2. In the event the License Agreement shall terminate, for whatever reason, this
Agreement shall likewise terminate effective on the date the License Agreement
terminates.
A. In consideration of THUSA's agreement to allow Licensee to use and occupy the
Premises, Licensee shall pay to THUSA a fee of (i) $________ per month
(hereinafter called "Base Rent") for each month of occupancy during the term
hereof; and (ii) any and all sums other than Base Rent which are due THUSA under
this Agreement, which such sums shall be due and payable as additional rent
(hereinafter called "Additional Rent"). The Base Rent shall be due on the first
day of each and every month of such term. Additional Rent shall be immediately
due and payable in accordance with the terms hereof. If either the Base Rent or
Additional Rent are not paid when due the unpaid amounts shall bear interest at
a rate equal to the Interest Rate, as defined in the License Agreement, from the
due date of such installment or payment to the date of payment thereof. In
addition, if Licensee fails to pay any Base Rent or Additional Rent, Licensee
shall pay
<PAGE> 66
a late charge of $.05 for each $1.00 which thereafter remains unpaid to
compensate THUSA for additional expenses incurred by THUSA in processing such
late payment. All amounts due hereunder shall be payable absolutely and without
offset. The foregoing Base Rent shall be subject to five (5%) percent increases
every two (2) years during the term of this Agreement, the first of such
increases shall commence on January 1, 1999.
B. Licensee shall pay to THUSA as Additional Rent during the term hereof,
charges for real estate taxes, porter's wages, operating expenses, water and
other utilities (other than electricity which is to be billed on a per square
foot basis as provided in Section 6 hereof) in an amount equal to $1.25 per
rentable square foot area of the Premises which the parties have agreed shall be
_____ square feet for purposes of this Section. The foregoing charges shall be
subject to four (4%) percent annual increases during the term of this Agreement,
commencing twelve (12) months after the date hereof.
C. In addition to the foregoing, Licensee shall pay to THUSA, as Additional
Rent, a Common Share, as defined herein, of the following services: provision by
THUSA of visual display changes, flowers, drinks and other "shared common"
office amenities, receptionist (including benefits), and kitchen supplies and
the like (the "Services"). For purposes of this Agreement, Licensee's "Common
Share" shall mean the cost of the foregoing services divided equally among all
licensees occupying the floor of the Building on which the Premises is located.
Licensee shall pay its Common Share of the cost of such Services promptly after
rendition of a bill or statement therefor. Notwithstanding the foregoing, with
respect to the provision by THUSA of visual display changes only, such services
may from time to time be supplied individually to Licensee (as well as on a
"shared" basis with other licensees occupying the floor of the Building on which
the Premises is located). In such event, Licensee shall pay for the cost of one
hundred (100%) percent of the visual display changes provided by THUSA to the
extent same are solely for Licensee's benefit. In the event THUSA provides such
visual display changes for other (but not all) licensees occupying the floor of
the Building on which the Premises is located, Licensee shall pay for the cost
of the foregoing divided equally among such licensees.
D. Licensee shall also pay to THUSA, as Additional Rent, Licensee's
Proportionate Share, as defined herein, of the following services: cleaning and
security. For purposes of this Agreement, Licensee's "Proportionate Share" shall
mean ______ (__%) percent. Licensee shall pay its Proportionate Share of the
cost of such cleaning and security services promptly after rendition of a bill
or statement therefor.
E. Licensee shall pay for the cost of all individual telephone units required by
it in connection with THUSA's telephone system servicing the Premises.
Notwithstanding the foregoing, however, Licensee shall order its own telephone
number and telephone service from the telephone company (using THUSA's
equipment) and shall pay all charges for telephone calls directly to the
telephone company or long distance provider used by Licensee. Licensee shall be
solely responsible for the payment for equipment and/or of any charges
pertaining to facsimile services including the cost of telephone line
installation, hook-up and removal.
F. Licensee agrees to pay for use by it of THUSA's photocopying equipment, for
which THUSA shall separately bill Licensee on a per copy basis, such amount to
be payable as Additional Rent upon presentation to Licensee of THUSA's statement
therefor.
4. A. THUSA's agreement to allow Licensee to use and occupy the Premises, as
set forth
<PAGE> 67
herein, is for the sole purpose of fulfilling its obligations under the License
Agreement.
B. Licensee acknowledges that a default by Licensee under the License Agreement
shall be considered and shall constitute a default under this Agreement.
5. A. Licensee acknowledges that THUSA is making no representation or warranty
whatsoever regarding the condition of the Premises or the Building, and THUSA
acknowledges that Licensee has fully inspected the Premises and the Building
accepts same in their physical condition "as is". Licensee hereby waives any
claims that License may assert against THUSA based on any condition of the
Premises and/or the Building. THUSA shall have no obligation to furnish, render
or supply any work, labor, services, material, fixtures, equipment or
decorations to make the Premises ready for Licensee's use and occupancy.
B. Notwithstanding the foregoing, THUSA shall perform the work set forth on
Exhibit B annexed hereto ("Licensee's Work"). Licensee shall pay for Licensee's
Work on a per square foot basis as follows: $______ per square foot for showroom
space; and $_____ per square foot for office space.
C. The foregoing cost for Licensee's Work shall be paid to THUSA in full on the
date which is the earlier of (i) the day on which the Premises shall first be
available for occupancy at determined in Section D below and (ii) the day
Licensee (or anyone claiming under or through Licensee) occupies or takes
possession of the Premises.
D. For purposes of this Agreement, the Premises shall be conclusively deemed
"available for occupancy" on the date upon which Licensee's Work shall be
substantially completed. Licensee's Work shall be deemed substantially completed
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment or decoration shall remain to be performed. If substantial
completion of Licensee's Work shall have been delayed by reason of any act or
omission by Licensee, its agents, servants, contractors or employees, Licensee's
Work shall be deemed to have been substantially completed on the day it would
have been completed if not for any such delay.
6. A. Licensee shall have the right to avail itself of any existing water and
electrical services located at or serving the Premises, provided, however, that
the THUSA makes no representation or warranty as to the capacity of the
utilities or adequacy of the utilities for Licensee's intended use. THUSA shall
not be responsible or liable for failure to furnish any such utilities to
Licensee if the failure to furnish such service is due to causes beyond THUSA's
control. Licensee shall have no remedy against THUSA for any breach or default
by THUSA in providing any such utilities.
B. In consideration for receiving these utilities, Licensee shall pay to THUSA
the charges resulting from Licensee's use and consumption of such utility
services and Licensee shall pay for such charges either, at the option of THUSA
on the basis of a reasonable estimate made by THUSA of Licensee's consumption
and demand, with the parties agreeing that electrical charges for general office
use will be $2.85 per square foot per annum unless THUSA's electric consultant
determines higher consumption levels. Said electric charge is in addition to,
but not included in, the monthly rental. Licensee shall not tie into or connect
with any electrical lines or power sources serving any other party or space in
the Premises. Notwithstanding the foregoing, Licensee shall not be charged for
water, so long as Licensee's use is not extraordinary, as determined by THUSA in
its sole discretion.
<PAGE> 68
7. A. Licensee shall not make or cause, suffer or permit the making of any
alteration, change, replacement or addition in or to the Premises whatsoever,
including without limitation, changes of a cosmetic or decorative nature,
without obtaining the prior written consent of THUSA, which THUSA shall have the
right to withhold in its sole and absolute discretion. Licensee shall not
perform any work of any kind whatsoever outside of the Premises and Licensee
shall not store or otherwise maintain any such work in any other area of the
Premises or the Building (including, but not limited to, any common areas) for
any purpose whatsoever.
B. Licensee shall maintain the Premises and systems therein in good, safe and
clean condition, free of rubbish, refuse and vermin. Licensee shall make all
necessary repairs to the Premises and systems therein.
C. Licensee shall comply with all requirements of applicable laws, ordinances,
codes, rules and regulations of any applicable governmental or
quasi-governmental agency relating to the use and occupancy of the Premises
including, but not limited to, laws and requirements governing the removal
and/or disposal of rubbish and waste, requirements under the Department of
Health Codes, and all requirements of insurance policies covering the Premises
and the Building, and of the New York Board of Insurance Underwriters.
D. Licensee shall not interfere with the use and enjoyment by other occupants of
all or any portion of the Building. Licensee shall, at its sole cost and
expense, remove all rubbish and debris promptly and in a manner that does not
inconvenience or annoy THUSA and/or any other occupants of all or a portion of
the Building. Licensee shall not permit any odor to emanate from the Premises.
E. Licensee acknowledges that the provisions of this Section 7 represent an
integral and material part of this Agreement and that, but for such
representation, THUSA would not otherwise enter into this Agreement.
8. THUSA shall have no responsibility or liability to Licensee for the loss or
destruction of any property of Licensee or its employees or invitees unless
caused by the gross negligence or willful misconduct of THUSA. Licensee, on
behalf of itself, its agents, employees, invitees, contractors and
subcontractors, assumes all risk in connection with the maintenance, operations,
use and occupancy of the Premises. Licensee shall indemnify and save THUSA, its
officers, subsidiaries, parent, affiliates, partners and its and their owners,
directors, officers, members, employees and agents, (each, an "Indemnitee") from
and against any and all liability, loss, damage, claim or expense (including
reasonable attorneys' fees) arising out of or resulting from the use, occupancy
and operation of the Premises by Licensee or its invitees, employees, agents or
contractors or by a breach by the Licensee of any of the provisions of this
Agreement. Licensee shall also indemnify and save THUSA harmless from and
against all claims, action, losses, damages, liability, judgments, costs and
expenses on the part of the State of New York and its agencies and
instrumentalities against THUSA based upon acts or omissions of Licensee which
constitute a violation of the provisions of this Agreement.
9. Licensee shall at all times during the term hereof maintain in effect, and
pay the full premium for, the following insurance: (i) a policy of public
liability insurance with a combined single policy of Three Million ($3,000,000)
Dollars for property damage and for bodily injury, including death; and (ii)
statutory workers compensation and employer's liability coverage, if required by
law, in
<PAGE> 69
statutory amounts. All insurance required under this Section 9 shall be
issued by a reputable insurance carrier authorized to do business in the State
of New York. THUSA and its designees shall be named as additional insureds under
each such policy. Prior to the first day of the term, Licensee shall provide the
THUSA a certificate of insurance demonstrating satisfaction of the requirements
of this Section
10. A. At any time prior to or during the term hereof, THUSA may substitute for
the Premises at such time (such premises hereinafter called the "Replaced
Premises"), whether or not any other substitution has been made pursuant to this
Section prior to such time, other space in the Building (such other space
hereinafter called the "Substitute Premises") by a written notice given to
Tenant not later than thirty (30) days prior to the date specified in such
notice as the effective date for substitution. THUSA shall prepare, at its
expense, the Substitute Premises in substantially the same manner, location and
design as the Premises originally leased to Licensee. In the event of a
substitution of space pursuant hereto, the "Premises" as used in this Agreement
shall thereafter and for all purposes be deemed to refer to the Substitute
Premises at such time.
B. The Substitute Premises shall have substantially at least as much rental area
as the Replaced Premises, and shall be suitable for a showroom for the Licensed
Products, as such term is defined in the License Agreement.
C. In the event the size of the rental area of the Substitute Premises shall
vary by five (5%) percent, more or less, from that of the Replaced Premises, the
Base Rent and Additional Rent shall be equitably adjusted between the parties,
and such amounts shall be increased or decreased, as the case may be, in order
to reflect same.
11. Licensee shall not assign this Agreement, or sublease any part of the
Premises or permit anyone other than the Licensee's employees to use or occupy
the Premises. THUSA may assign this Agreement.
12. THUSA, its agents and employees shall be permitted to access to the Premises
for purposes of inspection and/or to perform necessary or desirable repairs,
replacements and/or additions to the Premises or to the Building.
13. In no event shall Licensee continue in occupancy of the Premises after the
date of expiration or termination of this Agreement or of the License Agreement.
On the date of expiration or termination, Licensee shall vacate and surrender
possession of the Premises leaving it broom clean and free of debris and in good
repair, and THUSA may re-enter and repossess the Premises, and relicense same
and/or exercise any other legal remedies available to THUSA, which remedies
shall be cumulative and not mutually exclusive.
14. THUSA may terminate this Agreement at any time on five (5) days prior
written notice to Licensee if (i) any Base Rent or any Additional Rent are not
paid within five (5) business days after same is due, or (ii) Licensee fails to
comply with the terms and conditions hereof or of the License Agreement and
fails to cure such breach within five (5) days after written notice to cure from
THUSA. Licensee agrees that on the termination date, Licensee shall forthwith
vacate the Premises leaving it broom clean and free of debris. If Licensee fails
to vacate the Premises on such termination date, THUSA shall be entitled to
collect from Licensee a sum equal to three times the Base Rent and Additional
Rent for the use and occupancy of the Premises by Licensee after the termination
date commencing as of the date immediately succeeding the termination
<PAGE> 70
date and continuing for each day thereafter until Licensee vacates the Premises.
The foregoing provision, however, shall in no way abridge or affect any other
right or remedy which THUSA may have available to it or in equity (including,
but not limited to injunctive relief) and THUSA's acceptance of any Base Rent
paid by Licensee pursuant to the preceding sentence shall not preclude THUSA
from commencing and prosecuting a summary proceeding. If Licensee shall hold
over beyond the expiration date, Licensee shall be subject to summary proceeding
and all damages related thereto (including, but not limited to, THUSA's
attorneys' fees). All damages to THUSA by reason of such holding over by
Licensee may be the subject of a separate action and need not be asserted by
THUSA in any summary proceedings against Licensee.
15. THUSA agrees that subject to the terms and provisions of this Lease, if, and
so long as, Licensee keeps and performs each and every covenant, agreement,
term, provision and condition herein contained on the part or on behalf of
Licensee to be kept or performed, then Licensee's right under this Lease shall
not be cut off or ended before the expiration of the term of this Lease, subject
however, to: (i) the obligations of this Lease, and (ii) full compliance by
Licensee with the terms, provisions and conditions of the License Agreement.
16. A. If fire or other casualty thereof shall damage the Premises or any part,
Licensee shall give immediate notice thereof to THUSA and this Lease shall
continue in full force and effect except as hereinafter set forth.
B. If the Premises are partially damaged or rendered partially unusable by fire
or other casualty, the damages thereto shall be repaired by and at the expense
of THUSA and the Base Rent and other items of Additional Rent, until such repair
shall be substantially completed, shall be apportioned from the day following
the casualty according to the part of the Premises which is unusable.
C. If the Premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the Base Rent and other items of Additional Rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the Premises shall
have been repaired and restored by THUSA (or sooner reoccupied in part by
Licensee then Base Rent and other items of Additional Rent shall be apportioned
as provided in subsection B above, subject to THUSA's right to elect not to
restore the same as hereinafter provided.
D. If the Premises are rendered wholly unusable or (whether or not the Premises
are damaged in whole or in part) if the Building shall be so damaged that THUSA
shall decide to demolish it or to rebuild it, then, in any of such events, THUSA
may elect to terminate this Lease by written notice to Licensee, given within
ninety (90) days after such fire or casualty, or thirty (30) days after
adjustment of the insurance claim for such fire or casualty, whichever is
sooner, specifying a date for the expiration of the Lease, which date shall not
be more than sixty (60) days after the giving of such notice, and upon the date
specified in such notice the term of this Lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this Lease and Licensee shall forthwith quit, surrender and vacate the Premises
without prejudice however, to THUSA's rights and remedies against Licensee under
the Lease provisions in effect prior to such termination, and any Base Rent and
other items of Additional Rent owing shall be paid up to such date and any
payments of the foregoing made by Licensee which were on account of any period
subsequent to such date shall be returned to Licensee. Unless THUSA shall serve
a termination notice as provided herein, THUSA shall make the repairs and
<PAGE> 71
restorations under the conditions of subsections B and C hereof, with all
reasonable expedition, subject to delays due to adjustment of insurance claims,
labor troubles and causes beyond THUSA's control. After any such casualty,
Licensee shall cooperate with THUSA's restoration by removing from the Premises
as promptly as reasonably possible, all of Licensee's salvageable inventory and
moveable equipment, furniture, and other property. License's liability for Base
Rent and other items of Additional Rent shall resume five (5) days after written
notice from Licensee that the Premises are substantially ready for Licensee's
occupancy.
E. Nothing contained hereinabove shall relieve Licensee from liability that may
exist as a result of damage from fire or other casualty. Notwithstanding the
foregoing including THUSA's obligation to restore under subsection B above, each
party shall look first to any insurance in its favor before making any claim
against the other party for recovery for loss or damage resulting from fire or
other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, THUSA and Licensee each hereby
releases and waives all right of recovery with respect to subsections B, D, and
E above, against the other or any one claiming through or under each of them by
way of subrogation or otherwise. The release and waiver herein referred to shall
be deemed to include any loss or damage to the Premises and/or to any personal
property, equipment, trade fixtures, goods and merchandise located therein. The
foregoing release and waiver shall be in force only if both releasors' insurance
policies contain a clause providing that such a release or waiver shall not
invalidate the insurance. If, and to the extent, that such waiver can be
obtained only by the payment of additional premiums, then the party benefiting
from the waiver shall pay such premium within ten (10) days after written demand
or shall be deemed to have agreed that the party obtaining insurance coverage
shall be free of any further obligation under the provisions hereof with respect
to waiver of subrogation. Licensee acknowledges that THUSA will not carry
insurance on Licensee's furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances removable by Licensee and agrees that
THUSA will not be obligated to repair any damage thereto or replace the same.
F. Licensee hereby waives the provisions of Section 227 of the Real Property Law
and agrees that the provisions of this section shall govern and control in lieu
thereof.
17. If the whole or any part of the Premises shall be acquired or condemned by
Eminent Domain for any public or quasi public use or purpose, then and in that
event, the term of this Lease shall cease and terminate from the date of title
vesting in such proceeding and Licensee shall have no claim for the value of any
unexpired term of said Lease and assigns to THUSA, Licensee's entire interest in
any such award.
18. All notices are to be sent to the following:
A. As to THUSA: Tommy Hilfiger U.S.A., Inc.
25 West 39th Street
New York, New York 10018
Attention: Law Department
With a copy in same manner to:
Gursky & Ederer, P.C.
21 East 40th Street, 15th Floor
New York, New York 10016
<PAGE> 72
Attention: Steven R. Gursky, Esq.
B. As to the Licensee:
19. All notices given under this Agreement or in relation to this Agreement
shall be in writing and sent by either Certified Mail, Return Receipt Requested,
personal delivery, Federal Express or Express Mail, all postage and delivery
costs prepaid, to the parties at their respective addresses set forth above, or
at such other addresses as may be furnished by notice so given. An attorney for
a party may also give notice. Notice shall be deemed given at the time that the
same shall have been actually received at the addressee's address as evidenced
by a signed receipt given upon personal delivery or overnight or by postal
return receipt of the United States mail. Each party agrees that it will not
refuse delivery of any notice tendered in accordance with the terms of this
Agreement.
20. This Agreement supersedes all prior or contemporaneous agreements,
understandings and arrangements (whether oral or writing) relating to the
Premises made either between the parties hereto or between Licensee and any
other party. If Licensee has made any use of the Premises or other portion of
the Premises prior to the term hereof, (i) it is hereby acknowledged and agreed
that this Agreement supersedes any prior licenses, permits or other agreements
covering such space; and (ii) Licensee agrees not to assert against THUSA any
claim that Licensee may have in respect of such prior use.
21. Notwithstanding the termination of this Agreement, Licensee shall remain
liable to THUSA for any undischarged obligations of Licensee, which shall
survive the termination. Subject to Section 14, Licensee shall not, however, be
responsible for any future license Base Rent or Additional Rent from and after
the date upon which Licensee properly vacates the Premises in the event this
Agreement has been terminated in accordance with the terms hereof.
22. Licensee acknowledges that THUSA shall have the right to create Operating
Rules for the Building and the Premises. The Operating Rules are hereby deemed
to be incorporated herein by reference and shall form a part hereof.
23. Licensee hereby waives trial by jury in any action, proceeding or
counterclaim brought or interposed by THUSA against Licensee on any matters
whatsoever arising out of or in any way relating to this Agreement or the use or
occupancy of the Premises, and with respect to any claim of injury or damage. It
is further mutually agreed that in the event THUSA commences any proceeding
(including, without limitation, any summary proceeding) for possession of the
Premises, Licensee will not interpose any counterclaim of whatever nature or
description in such proceeding.
24. Licensee shall not interfere with, or permit interference with, the rights
of THUSA or other occupants of any portion of the Building or the Premises or
ingress and egress to and from any portion of the Building or the Premises.
<PAGE> 73
25. Licensee shall not post or install any signs of any kind whatsoever at the
Premises or any portion of the Building or the Premises without the prior
written approval of THUSA, which approval THUSA shall have the right to withhold
in its sole and absolute discretion.
26. This Agreement represents the entire understanding of the parties relative
to the use and occupancy of the Premises by Licensee and takes the place of all
prior agreements with respect thereto including all prior subleases between the
parties. This Agreement may not be changed except by a writing signed by both
parties. This Agreement and the use and occupancy of the Premises by Licensee
shall be governed by the laws of the State of New York and shall be binding on
the parties and Licensee hereby consents to the exclusive jurisdiction of any
court of the State of New York having jurisdiction thereover. This Agreement
shall inure to the benefit of THUSA's successors and assigns.
IN WITNESS WHEREOF, the parties have executed this instrument as of the date
first written above.
LANDLORD: LICENSEE:
TOMMY HILFIGER U.S.A., INC.
By: By:
------------------------------ ---------------------
Name: Name:
------------------------------ ---------------------
Title: Title:
------------------------------ ---------------------
WITNESS: WITNESS:
------------------------ ---------------------
<PAGE> 74
EXHIBIT K
STATEMENT OF ROYALTIES
PERIOD
LICENSEE NAME
LICENSEE ADDRESS
<TABLE>
<CAPTION>
LESS
GROSS LESS LESS TRADE NET ROYALTY ROYALTY
MONTH SALES RETURNS ALLOWANCES DISCOUNTS SALES RATE DUE
-------- --------- ------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------- -------- --------- ---------- -------- -------- ---------
TOTAL $ - $ - $ - $ - $ - $ - $ -
-------- -------- --------- ---------- -------- -------- ---------
SEND STATEMENT TO: TOMMY HILFIGER LICENSING, INC.
913 N. Market Street
Wilmington, Delaware 19801
U.S.A.
TOMMY HILFIGER LICENSING, INC. MOVADO GROUP, INC.
------------------------------ ---------------------------------
DATE DATE
----------------------------- --------------------------------
</TABLE>
THE ABOVE INFORMATION HAS BEEN PROVIDED IN ACCORDANCE WITH THE LICENSE AGREEMENT
BETWEEN TOMMY HILFIGER LICENSING, INC. AND MOVADO GROUP, INC. AND IS NOT FOR
PUBLIC DISSEMINATION.
<PAGE> 75
EXHIBIT L
LIST OF COMPETING NAMES
*
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24 b-2 OF THE 1934
ACT.
<PAGE> 76
EXHIBIT M
COMPETING NAMES
*
The foregoing shall include all of the affiliates of the entities which own the
trademarks or tradenames set forth above.
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<PAGE> 77
EXHIBIT N
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
Tortola
Virgin Gorda
<PAGE> 78
EXHIBIT 0
LEASE TERM SHEET
TERM SHEET FOR
LICENSEE LEASE AGREEMENTS
25 W. 39Th Street
(as of 4/26/99 - subject to revision)
Assumptions:
- --------------------------------------------------------------------------------
Fixed space proportionate share sq. footage
- --------------------------------------------------------------------------------
Common space proportionate share sq. footage
- --------------------------------------------------------------------------------
Occupied space sq. footage
- --------------------------------------------------------------------------------
Total Rentable Sq. Footage:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Base Rent per sq ft: *
- --------------------------------------------------------------------------------
Proportionate Share: (per sq. ft)
- --------------------------------------------------------------------------------
(real estate taxes, porter's wage, operating
- --------------------------------------------------------------------------------
expenses, water & utilities other than electricity) *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone (Purchase at $400 per phone)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Electricity (per sq. ft) *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Service Agreement:
- --------------------------------------------------------------------------------
Office Equipment
- --------------------------------------------------------------------------------
Copier (Per Copy) *
- --------------------------------------------------------------------------------
Security (per sq. ft.) *
- --------------------------------------------------------------------------------
Cleaning (per sq. ft.) *
- --------------------------------------------------------------------------------
Office Tenant Improvement w/Furn @ $125
- --------------------------------------------------------------------------------
Showroom Tenant Improvement w/Furn @ $200
- --------------------------------------------------------------------------------
APPROVED BY: ____________________________
DATE: _______________________
* CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH THE SEC
PURSUANT TO RULE 24 b-2 OF THE 1934 ACT.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED OCTOBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 15,328
<SECURITIES> 0
<RECEIVABLES> 129,974
<ALLOWANCES> 0
<INVENTORY> 110,215
<CURRENT-ASSETS> 272,186
<PP&E> 27,371
<DEPRECIATION> 0
<TOTAL-ASSETS> 312,788
<CURRENT-LIABILITIES> 81,578
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 174,112
<TOTAL-LIABILITY-AND-EQUITY> 312,788
<SALES> 216,223
<TOTAL-REVENUES> 216,223
<CGS> 84,326
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,797
<INCOME-PRETAX> 29,222
<INCOME-TAX> 6,722
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,500
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.73
</TABLE>
