<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 1-10157
L.A. GEAR, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3375118
(State or other (I.R.S. Employer
incorporation or organization) Identification Number)
2850 OCEAN PARK BOULEVARD, SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices) (Zip code)
(310) 452-4327
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
------- -------
The number of shares outstanding of the registrant's Common Stock, no par value,
at April 10, 1997 was 22,959,070 shares.
THE EXHIBIT INDEX APPEARS ON PAGE 18.
<PAGE>
L.A. GEAR, INC.
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
February 28, 1997 and November 30, 1996 3
Consolidated Condensed Statements of Operations and
Accumulated Deficit for the three months ended
February 28, 1997 and February 29, 1996 4
Consolidated Condensed Statements of Cash Flows for
the three months ended February 28, 1997 and
February 29, 1996 5
Notes to Consolidated Condensed 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 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit Index 18
2
<PAGE>
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,774 $ 34,239
Accounts receivable, net 28,957 23,938
Inventories 31,914 32,809
Assets held for sale 5,722 --
Prepaid expenses and other current assets 2,251 1,933
------------ ------------
Total current assets 75,618 92,919
Property and equipment, net 2,516 4,445
Goodwill, net 1,504 1,538
Other assets 2,081 2,054
------------ ------------
$ 81,719 $ 100,956
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 34,780 $ 46,452
------------ ------------
Total current liabilities 34,780 46,452
7 3/4% convertible subordinated debentures due 2002 50,000 50,000
Shareholders' (deficit) equity:
7.5% Series B Cumulative Convertible Preferred Stock,
$100 stated value; 1,161,822 shares authorized; 1,161,337
shares issued and outstanding at February 28, 1997 and
November 30, 1996 115,473 115,473
Preferred stock, no stated value; 8,838,178 shares authorized
and unissued at February 28, 1997 and November 30, 1996 -- --
Common stock, no par value; 80,000,000 shares authorized;
22,958,070 shares issued and outstanding at
February 28, 1997; 22,936,433 shares issued and
outstanding at November 30, 1996 128,130 128,093
Cumulative currency translation adjustment 145 296
Accumulated deficit (246,809) (239,358)
------------ ------------
Total shareholders' (deficit) equity (3,061) 4,504
------------ ------------
Commitments and contingencies -- --
------------ ------------
$ 81,719 $ 100,956
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28 AND 29,
--------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 34,852 $ 78,666
Cost of sales 26,877 54,112
---------- ----------
Gross profit 7,975 24,554
Selling, general and administrative expenses 12,607 23,396
Litigation settlements, net (102) --
Interest expense, net 744 613
---------- ----------
(Loss) income before income taxes and minority interest (5,274) 545
Income taxes -- --
Minority interest -- 554
---------- ----------
Net (loss) income (5,274) 1,099
Dividends on Series B Cumulative Convertible
Preferred Stock (2,177) --
Dividends on mandatorily redeemable
Series A Cumulative Convertible Preferred Stock -- (2,042)
---------- ----------
Loss applicable to common stock (7,451) (943)
Accumulated deficit, beginning of period (239,358) (169,281)
---------- ----------
Accumulated deficit, end of period $ (246,809) $ (170,224)
---------- ----------
---------- ----------
Loss per common share $ (0.32) $ (0.04)
---------- ----------
---------- ----------
Weighted average common shares outstanding 22,954 22,937
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28 AND 29,
-----------------------
1997 1996
------- -------
Net cash used in operating activities $(27,928) $ (7,081)
------- -------
Investing activities:
Capital expenditures (13) (484)
------- -------
Financing activities:
Issuance of common stock 37 --
Net repayments under international credit facilities -- (1,218)
------- -------
Effect of exchange rate changes on cash and
cash equivalents 439 168
------- -------
Net decrease in cash and cash equivalents (27,465) (8,615)
Cash and cash equivalents, beginning of the period 34,239 35,956
------- -------
Cash and cash equivalents, end of period $ 6,774 $ 27,341
------- -------
------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which consist only of
normal recurring adjustments necessary to present fairly the consolidated
financial position of L.A. Gear, Inc. and its subsidiaries (collectively
referred to as the "Company") at February 28, 1997 and the results of operations
and cash flows for the three months ended February 28, 1997 and February 29,
1996. This interim financial information and notes thereto should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1996. The Company's results of operations and cash flows for
interim periods are not necessarily indicative of the results to be expected for
any other interim period or the full year.
NOTE 2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
THREE MONTHS ENDED
FEBRUARY 28 AND 29,
-----------------------
1997 1996
------- -------
(IN THOUSANDS)
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
INTEREST PAID $ 1,943 $ 82
------- -------
------- -------
INTEREST RECEIVED $ (233) $ (434)
------- -------
------- -------
NONCASH FINANCING ACTIVITY:
DIVIDENDS ACCRUED AND UNPAID ON MANDATORILY
REDEEMABLE SERIES A CUMULATIVE CONVERTIBLE
PREFERRED STOCK $ -- $ 2,042
------- -------
------- -------
DIVIDENDS ACCRUED AND UNPAID ON SERIES B
CUMULATIVE CONVERTIBLE PREFERRED STOCK $ 2,177 $ --
------- -------
------- -------
NOTE 3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowance for doubtful accounts and merchandise
returns, consist of the following:
FEBRUARY 28, NOVEMBER 30,
1997 1996
------- -------
(IN THOUSANDS)
TRADE RECEIVABLES
DOMESTIC $ 19,222 $ 12,581
INTERNATIONAL 9,989 14,216
------- -------
TOTAL TRADE RECEIVABLES 29,211 26,797
OTHER RECEIVABLES 3,258 1,280
------- -------
32,469 28,077
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND MERCHANDISE RETURNS (3,512) (4,139)
------- -------
$ 28,957 $ 23,938
------- -------
------- -------
NOTE 4. ASSETS HELD FOR SALE
In the quarter ended February 28, 1997 the Company sold certain assets of
its Italian subsidiary. In addition, the Company entered into letters of intent
to sell its Dutch subsidiary and certain assets of its German subsidiary.
6
<PAGE>
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The net assets of the Dutch subsidiary and certain assets of the German
subsidiary have been classified as assets held for sale on the accompanying
consolidated condensed balance sheet.
NOTE 5. INCOME TAXES
At February 28, 1997, deferred tax assets totaled $88.3 million. A
valuation allowance has been established against the entire deferred tax asset
balance.
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
FEBRUARY 28, NOVEMBER 30,
1997 1996
------- -------
(IN THOUSANDS)
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES $ 12,670 $ 17,869
ACCRUED INVENTORY PURCHASES 8,314 8,417
ACCRUED RESTRUCTURING CHARGES 11,619 20,166
ACCRUED DIVIDENDS ON SERIES B
CUMULATIVE CONVERTIBLE PREFERRED STOCK 2,177 --
------- -------
$ 34,780 $ 46,452
------- -------
------- -------
In the fourth quarter of fiscal 1996, management committed to a
restructuring plan aimed at bringing the Company's operating expenses in line
with its sales base and recorded a restructuring charge of $28.8 million. Of
the $20.2 million remaining reserve at November 30, 1996, $8.5 million was
utilized in the first quarter of fiscal 1997 primarily for severance payments,
the transition to service certain of the Company's European customers through
independent distributors rather than through direct subsidiaries, and space
consolidation at the Company's Santa Monica, California headquarters and
Ontario, California distribution center. The Company anticipates that most of
the contemplated restructuring actions will be completed by November 30, 1997
and will be financed through the Company's existing working capital and credit
facility.
NOTE 7. BANK BORROWINGS
Effective November 30, 1996, the Company entered into an amendment to its
existing revolving credit facility with BankAmerica Business Credit Inc.
("BABC") for loans and letters of credit (the "Revolving Facility"). The
amendment provided for, among other things, (i) a reduction in the term of the
Revolving Facility from November 30, 1999 to May 31, 1998, (ii) a reduction in
the maximum amount available for aggregate loans and letters of credit at any
time from $50 million to $25 million, (iii) a reduction in the maximum amount of
aggregate loans permitted to be outstanding at any time from $20 million to $10
million, (iv) certain revisions to the borrowing availability calculation
including the elimination of a reserve against availability, (v) a reduction in
the minimum Adjusted Tangible Net Worth required to be maintained under the
Revolving Facility and (vi) an increase in bank fees. The Company is currently
negotiating with various lenders to secure borrowing facilities beyond May 31,
1998.
The Revolving Facility is secured primarily by the Company's domestic
assets and is subject to certain financial covenants. Cash borrowings under
the Revolving Facility bear interest at a rate equal to Bank of America's
publicly announced reference rate plus one and one-half percent. There were
no domestic cash borrowings under the Revolving Facility at any time during
the quarter ended February 28, 1997 and, as of that date, approximately $13.3
million of domestic letters of credit were outstanding under the Revolving
Facility and $10 million was available for borrowing.
7
<PAGE>
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8. SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Series B Preferred Stock, stated value $100 per share, accrues
dividends at a rate of 7.5% per annum, and is convertible into shares of the
Company's Common Stock at a conversion price of $6.75 per share. The Company
elected not to pay the cash dividend of $2.2 million required on the Series B
Preferred Stock due February 28, 1997. The unpaid dividends will bear
additional dividends accruing at a rate of 8.625% per annum, compounded
quarterly, until all such arrearages are paid.
NOTE 9. SUBSEQUENT EVENT
In March 1997, the Company received $1.0 million in proceeds on dissolution
of its Far East joint venture with Inchcape Pacific Limited. This $1.0 million
will be recognized as income in the Company's second fiscal quarter.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ALL REFERENCES TO YEARS ARE TO FISCAL YEARS ENDING NOVEMBER 30, 1997 AND 1996,
AS APPLICABLE.
NET SALES
- --------------------------------------------------------------------------------
In the first quarter of 1997, the number of pairs sold worldwide decreased
by 52.7% to 2.6 million pairs compared to 5.5 million pairs in the first quarter
of 1996. The Company's net sales decreased by 55.7% to $34.9 million compared
to $78.7 million in the prior year period. Domestic net sales in the first
quarter of 1997 decreased by 59.9% compared to the same period in 1996.
International net sales, which accounted for approximately 31.9% of the
Company's total net sales in the first quarter of 1997, decreased by 42.9%
compared to the same period in 1996.
The following table sets forth certain information regarding the Company's
net sales:
THREE MONTHS ENDED FEBRUARY 28 AND 29, NET SALES
- ------------------------------------- --------------------------------
1997 1996
--------------------------------
(DOLLARS IN THOUSANDS)
DOMESTIC FOOTWEAR
CHILDREN'S $ 14,442 41% $ 26,819 34%
WOMEN'S 5,100 15 19,698 25
MEN'S 4,187 12 12,356 16
OTHER -- - 323 -
------ --- ------ ---
TOTAL DOMESTIC SALES 23,729 68 59,196 75
INTERNATIONAL FOOTWEAR
CHILDREN'S $ 5,691 16% $ 9,985 13%
WOMEN'S 3,407 10 5,395 7
MEN'S 1,717 5 3,009 4
OTHER 308 1 1,081 1
------ --- ------ ---
TOTAL INTERNATIONAL SALES 11,123 32 19,470 25
------ --- ------ ---
TOTAL NET SALES $ 34,852 100% $ 78,666 100%
------ --- ------ ---
------ --- ------ ---
The following table sets forth the percentage changes, by Children's,
Women's and Men's categories, in the number of pairs sold during the 1997 period
as compared to the same period of 1996:
THREE MONTHS ENDED FEBRUARY 28 AND 29, VOLUME OF FOOTWEAR SOLD
- ------------------------------------- -----------------------
CHANGES BETWEEN 1997 AND 1996
------------------------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -----
CHILDREN'S (44.3%) (35.8%) (42.4%)
WOMEN'S (76.7%) 0.7% (64.7%)
MEN'S (63.8%) (48.8%) (61.0%)
TOTAL VOLUME INCREASE (DECREASE) (59.2%) (27.8%) (52.7%)
The decrease in domestic net sales was primarily attributable to sales of
$30.2 million (2.4 million pairs) to Wal-Mart in the first quarter of 1996 in
fulfillment of Wal-Mart's 1995 minimum purchase commitment. In the first
quarter of fiscal 1997, sales to Wal-Mart amounted to $3.4 million (0.2 million
pairs). The decrease in international sales was principally due to (i) reduced
demand for the Company's products in Europe and Central and South America, (ii)
the closure of the Company's Far East joint venture with Inchcape Pacific
Limited ("Inchcape") in September 1996 and the lack of alternative distribution
arrangements in those markets since that time and (iii) a decrease in the
average selling price per pair of the Company's women's and children's product
lines, primarily due to prior inventory write-downs in preparation for the
Company's transition from direct subsidiaries to independent distributors in
certain European markets.
9
<PAGE>
Total sales of the Company's children's lighted shoes decreased by $8.5
million to $11.8 million in the first quarter of 1997 from $20.3 million in the
comparable prior year period, primarily due to a decrease internationally in
both volume (0.1 million pairs from 0.5 million pairs) and average selling price
per pair ($16.24 from $19.08) as a result of overall reduced demand
internationally for children's lighted product.
GROSS MARGIN
- --------------------------------------------------------------------------------
The gross margin for the first quarter of 1997 decreased to 22.9% from
31.2% for the same period in the prior year. Domestic margins decreased from
31.0% in the first quarter of fiscal 1996 to 20.5% in the first quarter of
fiscal 1997 primarily as a result of the reduced level of sales to Wal-Mart and
a greater proportion of sales of discontinued product. Internationally, margins
decreased from 31.9% in the first quarter of fiscal 1996 to 28.0% in the first
quarter of fiscal 1997 principally due to reduced margins at the Company's
European subsidiaries resulting from the write-down of inventory in the fourth
quarter of fiscal 1996 in preparation for the transition to independent
distributors from direct subsidiaries in certain European markets. These
decreases were partially offset by increased margins on sales to international
distributors and increased margins on sales by the Company's Mexico subsidiary.
Increased margins on sales by the Company's Mexico subsidiary were primarily due
to the significant increased percentage of locally manufactured products in the
first quarter of fiscal 1997 following the start up of production in Mexico in
the second quarter of fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------------------------------------------
Total selling, general and administrative expenses decreased by $10.8
million, or 46.2%, to $12.6 million in the first quarter of 1997 compared to
$23.4 million for the comparable prior year period. Approximately $8.5
million in restructuring costs incurred in the first quarter of 1997 were
applied against the restructuring reserve established in 1996. Domestic
selling, general and administrative expenses decreased by $8.2 million, or
47.1%, to $9.2 million in the first quarter of 1997 compared to $17.4 million
for the comparable prior year period. This decrease is largely due to
expense reductions realized from implementation of the Company's 1996
corporate reorganization plan and includes reductions in (i) compensation
and benefit expenses of $3.0 million, (ii) advertising and promotional
expenses of $2.4 million and (iii) other net expenses of $2.8 million.
International operating expenses decreased by $2.6 million, or 43.3%, to $3.4
million compared to $6.0 million in the first quarter of 1996 primarily due
to (i) reduced overhead expenses in Europe as a result of staff reductions
and other actions in preparation for the closure of certain of the Company's
European subsidiaries and (ii) the elimination of all operating expenses
associated with the Company's Far East joint venture with Inchcape.
As a percentage of net sales, selling, general and administrative expenses
increased to approximately 36.2% in the first quarter of 1997 from
approximately 29.7% in the prior year period, primarily due to the inclusion of
$30.2 million of sales to Wal-Mart in the first quarter of 1996 compared to $3.4
million in the same period of 1997. Changes in the Company's selling, general
and administrative expenses cannot be directly related to fluctuations in sales
volume as a substantial portion of such expenses are relatively fixed in nature.
INTEREST EXPENSE (INCOME), NET
- --------------------------------------------------------------------------------
Interest expense of $1.0 million for the three months ended February 28,
1997 and February 29, 1996 primarily related to interest costs on the $50
million, 7 3/4% convertible subordinated debentures due 2002 (the "Debentures")
issued in December 1992. Interest income decreased by $0.2 million to $0.2
million in the first quarter of 1997 compared to $0.4 million in the first
quarter of 1996 primarily as a result of decreased average cash balances.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The following table sets forth certain information regarding the Company's
liquidity and capital resources:
FEBRUARY 28, NOVEMBER 30,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS $ 6,774 $ 34,239
WORKING CAPITAL 40,838 46,467
OUTSTANDING LETTERS OF CREDIT 13,274 26,467
CONVERTIBLE SUBORDINATED DEBENTURES 50,000 50,000
THREE MONTHS ENDED
---------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
AVERAGE DAILY SHORT-TERM BORROWINGS $ -- $ 9
WEIGHTED AVERAGE INTEREST RATES -- 8.25%
CASH AND CASH EQUIVALENTS Cash and cash equivalent balances decreased by $27.5
million from November 30, 1996 to a balance of $6.8 million at February 28, 1997
primarily due to $27.9 million in net cash used for operating activities
including the payment of certain restructuring costs of $4.2 in the first
quarter of fiscal 1997.
ACCOUNTS RECEIVABLE, NET Accounts receivable increased from $23.9 million at
November 30, 1996 to $29.0 million at February 28, 1997 predominantly as a
result of increased sales in January and February 1997 compared to October and
November 1996 partially offset by the reclassification of the receivables of
certain of the Company's European subsidiaries to assets held for sale at
February 28, 1997.
BORROWING FACILITIES Effective November 30, 1996, the Company entered into an
amendment to its Revolving Facility with BABC (the "November 30 Amendment").
The amendment provides for, among other things, (i) a reduction in the term of
the Revolving Facility from November 30, 1999 to May 31, 1998, (ii) a reduction
in the maximum amount available for aggregate loans and letters of credit at any
time from $50 million to $25 million, (iii) a reduction in the maximum amount of
aggregate loans permitted to be outstanding at any time from $20 million to $10
million, (iv) certain revisions to the borrowing availability calculation
including the elimination of a reserve against availability, (v) a reduction in
the minimum Adjusted Tangible Net Worth required to be maintained under the
Revolving Facility and (vi) an increase in bank fees. The Company is currently
negotiating with various lenders to secure borrowing facilities beyond May 31,
1998.
The Revolving Facility is secured primarily by the Company's domestic
assets and is subject to certain financial covenants. Cash borrowings under the
Revolving Facility bear interest at a rate equal to Bank of America's publicly
announced reference rate plus one and one-half percent. There were no domestic
cash borrowings under the Revolving Facility at any time during the quarter
ended February 28, 1997 and, as of that date, approximately $13.3 million of
domestic letters of credit were outstanding under the Revolving Facility and $10
million was available for borrowing.
The Company's liquidity is contingent primarily on (i) attaining forecast
levels of sales, gross margins and operating expenses and (ii) securing
financing beyond May 31, 1998, for which it is currently negotiating with
various lenders. The Company believes that, based on its current forecast, its
present funding sources are sufficient to meet its short-term liquidity needs
through fiscal 1997. However, the Company can make no assurances that it will
meet its current forecast. In the event that the Company's future operating
results fall below management's expectations, additional sources of working
capital funding may be necessary and difficult to obtain.
11
<PAGE>
CONVERTIBLE DEBENTURES The $50 million Debentures are convertible into shares
of the Company's Common Stock at a conversion rate of $12.30 per share, and are
redeemable by the Company at any time, initially at a specified premium to par,
declining to par for redemptions on or after November 30, 2000.
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK The Series B Preferred Stock,
stated value $100 per share, accrues dividends at a rate of 7.5% per annum, and
is convertible into shares of the Company's Common Stock at a conversion price
of $6.75 per share. The Company elected not to pay the cash dividend of $2.2
million required on the Series B Preferred Stock due February 28, 1997. The
unpaid dividends will bear additional dividends accruing at a rate of 8.625% per
annum, compounded quarterly, until all such arrearages are paid.
12
<PAGE>
FUTURE OUTLOOK
- --------------------------------------------------------------------------------
THIS DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH IN THIS
DISCUSSION. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS".
As part of its November 1996 restructuring plan, in addition to a cost
reduction plan designed to reduce operating expenses by over $30 million on an
annualized basis, the Company adopted a new strategy regarding its product
offerings, distribution channels and sales force utilization. The restructuring
plan is designed to generate increased sales and margins, rejuvenate brand
identity and keep operating expenses in line with the Company's anticipated
sales base.
For its Fall 1997 product line, the Company has implemented a strategy of
segmenting its products between its tiers of distribution and is offering its
newest technologies and brands at high-end department and footwear specialty
stores while continuing to offer its basic lines to all distribution outlets.
Domestically, the Company has now completed the transition from an in-house
sales force to a combination of an in-house sales management team and
independent agents, divided into separate adult's and children's
representatives. The transition has resulted in an increased number of sales
people in the field.
The Company's strategy aimed at building on the success of children's
lighted shoes, repositioning its women's athletic product in a more favorable
market niche and introducing new brands to the market has been favorably
received by most retailers. However, additional time may be needed to fully
restore the brand's appeal to consumers and the confidence of retailers.
The Company had a combined domestic and international order backlog of
$40.7 and $64.2 million at March 31, 1997 and 1996, respectively. The domestic
backlog declined by $15.4 million from $47.0 million at March 31, 1996 to $31.6
million at March 31, 1997 primarily due to overall reduced demand for the
Company's products. The international backlog declined by $8.1 million from
$17.3 million at March 31, 1996 to $9.2 million at March 31, 1997 primarily due
to reduced sales prices resulting from inventory write-downs in the fourth
quarter of fiscal 1996 in preparation for the transition to independent
distributors from direct subsidiaries in certain European markets. Children's
lights as a percentage of the total backlog at March 31, 1997 and 1996 were
43.9% and 48.1%, respectively. Shipments and sales for future periods depend
on, among other things, the combination of "futures" and "at once" orders.
Accordingly, the comparison of backlog from period to period may not be
indicative of eventual actual shipments.
Tight overhead and working capital controls, increased confidence by
retailers in the new strategies and demand from retailers for the Company's
Fall 1997 product line will be critical to the Company's financial
performance for the balance of the year. The Company is currently
negotiating to enter into a new external financing arrangement on more
favorable terms than its existing credit facility; however, there can be no
assurance that such arrangement will be consummated. In addition, if sales
and margins fall below management's expectations, additional sources of
working capital may be needed and difficult to obtain. There can be no
assurance that the Company will be able to successfully exploit its strategy
or that the strategy will have the desired effect.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; the size and growth of the overall athletic footwear
market; changes in consumer preferences and demographics; competition; success
of operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or adherence to development
schedules; the existence
13
<PAGE>
of adverse publicity; new product development and introduction; the loss of
significant customers; availability, location and terms of product
distribution channels; changes in business strategy or development plans;
quality of management; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; labor and employee benefit costs; changes in, or the failure to
comply with, governmental regulations; liability and other claims asserted
against the Company; business disruptions; the ability to reverse recent
trends that have caused reductions in market share and substantial losses;
continued access to licensed intellectual property rights; continued access
to adequate sources of product supply; risks associated with unaffiliated
manufacturers and international operations; and other factors referenced in
this report. Given such uncertainties, shareholders are cautioned not to
place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such forward-looking statements to
reflect future events or developments.
In addition, the Company has implemented several measures in fiscal 1996
and 1997 discussed elsewhere in this Form 10-Q in an effort to reorganize its
production and distribution structures and to reduce its overhead and other
costs. The Company's ability to capitalize on these measures will depend in
large part on its ability to predict and quickly exploit fashion trends in the
footwear market and thereby attain its revenue and margin goals. The Company
believes that its business strategy for fiscal 1997 will better position it to
address changes in the marketplace and to build on its past successes in
offering branded footwear in the children's market. However, if sales, margins
and operating expense savings in fiscal 1997 fall below management's
expectations, additional sources of working capital may be necessary and
difficult to obtain. There can be no assurance that the Company will be able to
successfully exploit this strategy or that the strategy will have the desired
effect.
14
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- Not applicable
ITEM 2 - CHANGES IN SECURITIES
- Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- The Company determined it was in its best interest not to, and it did
not, pay the $2.2 million cash dividend on the Series B Preferred
Stock ("Series B Preferred Stock") to Trefoil Capital Investors, L.P.
("Trefoil"), the holder of all of the issued and outstanding shares of
Series B Preferred Stock, due on February 28, 1997. The coupon rate
for dividends is 7.5% (arrearages of dividends will bear additional
dividends compounded quarterly at a rate of 8.625% per annum through
the date of payment of such arrearages).
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- Not applicable.
ITEM 5 - OTHER INFORMATION
- Effective March 7, 1997, the Company entered into a revised
arrangement with BBC International, Ltd. for the design, development
and sourcing of the Company's children's lighted footwear, pursuant to
which, among other things, the Company has obtained an exclusive
sublicense with respect to certain new lighting technologies, and
expects to have an increased ability to directly seek and obtain
satisfactory remedies in the event of future manufacturing delays or
other supply difficulties.
15
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PART II - OTHER INFORMATION (cont.)
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Lighted Footwear Design, Development and Sourcing Agreement,
dated March 7, 1997 by and between the Company and BBC
International, Ltd. Portions of this Agreement have been
omitted and filed separately with the Commission pursuant to
a request for confidential treatment.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on February
20, 1997, under Item 5. - Other Events, with respect to the
Eighth Amendment to Loan and Security Agreement entered into
between the Company and BankAmerica Business Credit Inc.
which amends the terms of the existing revolving line of
credit, effective November 30, 1996.
16
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 11, 1997 L.A. GEAR, INC.
------------------
By: /s/ Bruce W. Macgregor
---------------------------
Bruce W. MacGregor
President and
Chief Operating Officer
By: /s/ Victor J. Trippetti
---------------------------
Victor J. Trippetti
Senior Vice President and
Chief Financial Officer
17
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EXHIBIT INDEX
Exhibit No. Document
- ----------- ---------------------------------------
10.1 Lighted Footwear Design, Development and Sourcing
Agreement, dated March 7, 1997 by and between the
Company and BBC International, Ltd. Portions of this
Agreement have been omitted and filed separately with
the Commission pursuant to a request for confidential
treatment.
27.1 Financial Data Schedule
18
<PAGE>
LIGHTED FOOTWEAR DESIGN,
DEVELOPMENT, AND SOURCING AGREEMENT
This LIGHTED FOOTWEAR DESIGN, DEVELOPMENT, AND SOURCING AGREEMENT
("Agreement") is made and entered into this 7th day of March, 1997, between BBC
International, Ltd., a New York corporation having an office at 19 West 34th
Street, New York, NY 10001 (hereinafter "BBC"), and L.A. Gear, Inc., a
California corporation, having an office at 2850 Ocean Park Boulevard, Santa
Monica, CA 90405 (hereinafter "LAG").
WHEREAS, BBC has in the past designed, developed and acted as a buying
agent for LAG with respect to certain children's lighted footwear marketed and
distributed by LAG.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth and for other valuable and sufficient consideration
extended by each party hereto to the other, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. INCORPORATION OF WHEREAS CLAUSES. The Whereas clauses are incorporated
in the text of this Agreement.
2. SCOPE OF SERVICES.
(a) LAG grants to BBC the exclusive right (i) to design and develop
all children's lighted footwear marketed and distributed by LAG, including any
and all sizes, genders, types and constructions thereof (collectively, the
"Product") to be shipped to LAG or its customers during the Term (as defined
below); and (ii) subject to the provisions set forth in Section 4 below, to
source (i.e., arrange for the manufacture, inspection, packaging, shipment and
delivery of) all Product; PROVIDED, HOWEVER, that during the pendency of the
litigation entitled L.A. GEAR, INC., etc. v. ORLAFORD LIMITED, etc., et al.,
Case No. 26-776726B (CWx), United States District Court for the Central District
of California, and/or ORLAFORD, etc., et al. v. L.A. GEAR, etc., et al., Civil
Action No. 96C-973-5, United States District Court for the Western District of
Wisconsin (collectively, the "Rodgers Litigation"), BBC shall not source Product
utilizing (i) the apparatus disclosed and claimed in United States Patent
No.4,848,009 in the name of Nicholas A. Rodgers and Canadian Patent No.
1,253,832 in the name of Nicholas A. Rodgers (the "Rodgers Patents") or (ii)
any footwear which was found to have infringed the Rodgers Patents in a
judgment in ORLAFORD LIMITED, et al. v. K-MART CORPORATION et al., Civil Action
No. 96-C0058-S, United States District Court for the Western District of
Wisconsin (collectively, "Excluded Product"). With respect to any and all
Product which is not to be sourced by BBC (including, without limitation any
and all Excluded Product), BBC shall (i) instruct all of its agents and
affiliates, and all factories manufacturing such Product (including, without
limitation, any and all Excluded Product) and any and all
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agents therefor (including, without limitation, Continents (Taiwan) and Saihon
(Hong Kong)) and all suppliers or vendors of lighting components utilized in
such Product (including, without limitation, any and all Excluded Product) (x)
to cooperate fully with LAG and/or any sourcing agent designated by LAG and (y)
to provide any and all information (including, without limitation,
specifications and costing information) regarding such Product (including,
without limitation, any and all Excluded Product) to LAG and/or any sourcing
agent designated by LAG so to ensure the timely manufacture and delivery of such
Product (including, without limitation, any and all Excluded Product); and (ii)
send letters (as requested by, and in a form satisfactory to LAG) to each of the
parties set forth in clause (i) of this sentence confirming the instructions
described therein.
(b) BBC shall incorporate into Product designs the particular type of
lighting technology specified or approved by LAG. BBC shall employ only those
lighting component suppliers or vendors that are approved by LAG, in the design,
development and/or sourcing of any Product hereunder; PROVIDED, HOWEVER, that
(i) LAG (or its designee) shall have the right to purchase any and all lighted
components utilized in the Product directly and provide such lighted components
to the factory or factories manufacturing such Product, (ii) LAG shall have the
right to designate lighting component suppliers or vendors with respect to any
"New Technology" (as defined in Section 6(c) below), the rights to which have
been obtained by LAG from a party other than BBC; PROVIDED, that any such
lighting component supplier or vendor designated by LAG is able to meet the
quality standards established by LAG and BBC with respect to lighting technology
to be utilized in Product, and (iii) lighting components shall not be purchased
from Reflex Corporation of America, Inc. ("Reflex") prior to the settlement or
dismissal of the Rodgers Litigation without the prior written consent of LAG.
3. DESIGN AND DEVELOPMENT SERVICES.
On a seasonal basis, BBC shall, through its special line-building staff,
and based on LAG's marketing team's requests or briefs, create new lines of
Product expressly for LAG. BBC shall maintain coordinated calendar timetables
with LAG to facilitate Product design and development in accordance with the
provisions of Section 3(h) below. Individual design and development staffs for
each line shall be designated by BBC to communicate directly with their LAG
counterpart on an "as needed" basis. For such purpose, each of BBC and LAG
shall designate in writing one or more members of its respective line building
and/or development staffs to serve as the principal liaison(s) with the other
party hereto. Each such designee shall make himself or herself available to the
other to the extent reasonably necessary and appropriate for the performance of
the respective duties of BBC and LAG hereunder. The initial Designee of each of
the respective parties to this Agreement shall be as specified in ExhibitA
attached hereto.
(a) PRODUCT BRIEFS. On a seasonal basis, each of LAG and BBC shall
prepare and submit to the other a product brief, in the form attached hereto as
Exhibit B ("Product Brief"), for each Product it proposes to be designed and/or
developed by BBC
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<PAGE>
for LAG hereunder. LAG reserves the right to amend, revise, expand and
otherwise change the form of the Product Brief in its absolute discretion at any
time and from time to time. LAG shall review all Product Briefs submitted to it
by BBC and, from the entire group of the exchanged Briefs, shall (i) select
those proposed Products, if any, with respect to which it wishes BBC to develop
detailed sketch designs, color graphics and prototypes ("Stage I Products"), and
(ii) provide BBC with its comments and/or instructions as to any desired changes
or modifications to the Product Briefs for such Stage I Products.
(b) INITIAL DESIGN AND SAMPLES. BBC shall produce detailed sketch
design and color graphics for (i) each Stage I Product, and (ii) each Product
for which LAG has prepared and submitted a Product Brief to BBC ("LAG
Original(s)"). BBC shall then produce, or cause to be produced, at least two
(2) pairs of prototypes or initial samples of each such Stage I Product and/or
LAG Original and deliver one pair to LAG for its review and approval and retain
one pair for its own reference.
LAG shall then (i) review the refined sketches and prototypes; (ii)
select those Stage I Products and/or LAG Originals for which it wishes BBC to
develop and produce refined samples ("Stage II Products"); and (iii) shall
provide BBC with its comments and/or instructions as to the changes or
modifications, if any, that it desires to be made in the prototypes of such
Stage II Products.
(c) REFINED SAMPLES. BBC shall then re-develop and produce refined
samples of the Stage I Products selected by LAG, and shall produce or cause to
be produced at least two pairs of each such refined initial sample Stage II
Product, and shall deliver one pair to LAG for its review and approval and shall
retain one pair for its own reference.
LAG shall then (i) review the refined samples; (ii) select those Stage
II Products for which it wishes BBC to develop and produce final development
samples ("Stage III Products"), and shall provide BBC with its comments and/or
instructions as to the changes or modifications, if any, that it desires to be
made in the refined samples of such Stage III Products.
(d) FINAL DEVELOPMENT SAMPLING. BBC shall then develop and produce
final development samples of the Stage III Products selected by LAG and shall
produce, or cause to be produced, at least two (2) pairs of final development
samples of each such Stage III Product, and shall deliver one pair to LAG for
its review and approval and shall retain one pair for BBC's own reference.
Concurrently with its delivery of each final development sample to LAG pursuant
to this Section 3(d), BBC shall deliver to LAG a fully completed FCA price
confirmation memo, in the form attached hereto as Exhibit C (the "Price
Confirmation Memo"), setting forth the FCA price, by factory and country, of
such Stage III Product, and the production volume and size range upon which such
FCA price is based, and shall be accompanied by detailed cost breakdown sheets
for each such Stage IV Product from the factory proposed by BBC to manufacture
such Product, setting
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<PAGE>
forth the projected cost of each component thereof, its manufacturing, assembly,
packaging and freight cost for shipment to LAG's consolidator ("Cost Breakdown
Sheets"), together with detailed computerized specification sheets, in the form
attached hereto as Exhibit D, complete as to each and every material feature,
part, component, fabrication method, weight breakdown, required box size, and
color description and codes based on LAG's approved color list and referenced to
the Pantone color system ("Specification Sheets"), developed for such Stage III
Product; PROVIDED, HOWEVER, that (i) if such Price Confirmation Memo (x) is for
a Product style that would constitute any EEC quota style (only where
applicable) and (y) identifies the People's Republic of China as the proposed
country-of-origin, then BBC shall deliver a second fully completed Price
Confirmation Memo for such Product style (together with the corresponding Cost
Breakdown Sheets and Specification Sheets) which sets forth a country-of-origin
other than the People's Republic of China; and (ii) the proposed manufacturer of
such Product, and the proposed supplier of the lighted technology to be
contained therein, must be acceptable to LAG in its sole discretion.
LAG shall then (i) review the final development samples, (ii) select
those Stage III Products for which it wishes to make sales samples ("Stage IV
Product"), and (iii) provide BBC with its comments and/or instructions as to the
changes or modifications, if any, that it desires to be made for the sales
samples of such Stage IV Products.
(e) SALES SAMPLES. For each Stage IV Product selected by LAG for
sales sampling by BBC in accordance with Section 3(d) above, LAG shall prepare
and submit to BBC a written Sales Sample Request Form, in the form attached
hereto as Exhibit E, together with a memorandum outlining any special
manufacturing and/or delivery procedures to be followed in connection therewith.
BBC shall source and cause to be produced the number of pairs of such sales
samples as directed in such forms, but not to exceed one hundred seventy eight
(178) pairs thereof, and shall deliver or cause them to be delivered, to LAG for
its review and disposition. BBC shall invoice LAG for the manufacturer's
actual, FCA cost of all such sales samples developed by it, or shall cause the
manufacturer thereof to invoice LAG directly therefor, in either case upon "Net
30 day" terms.
Upon LAG's approval of a sales sample of a Stage IV Product, BBC shall
provide at least three pairs of production confirmation samples that incorporate
any alterations, corrections or improvements specified by LAG after review of
the sales sample of such Stage IV Product. BBC shall provide one pair of the
production confirmation sample, together with copies of the corresponding
specification sheets pertaining thereto, to (i) the appointed quality control
entity (the "Q.C. Agent") and (ii) to LAG, for its review and approval, and BBC
shall retain one pair for its own reference. The production confirmation
samples approved by LAG, together with the corresponding specification sheets,
shall thereafter be the standard by which the applicable Product shall be
judged, and except as otherwise agreed in writing by the parties hereto, each
Product
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<PAGE>
shall conform strictly to its respective production confirmation sample and
specification sheets, in terms of its specifications, construction, materials,
workmanship and quality.
(f) DETAILED COMMERCIALIZATION PACKAGE. For each Stage IV Product
selected by LAG for sales sampling in accordance with Section 3(d) above, BBC
shall provide LAG with a commercialization package ("Commercialization
Package(s)") comprising the following elements:
(1) Detailed drawings (dimensioned and/or to scale) illustrating
every feature and component of each such Stage IV Product, together with the
corresponding Specification Sheets.
(2) A "Minimum Matrix", in the form attached hereto as Exhibit
F, that sets forth the minimum quantity or pairage, of such Stage IV Product
that any proposed manufacturer of such Product requires be ordered; PROVIDED,
HOWEVER, that if such Minimum Matrix (i) is for a Product style that would
constitute an EEC quota style (only where applicable) and (ii) sets forth a
proposed manufacturer located in the Peoples Republic of China, then BBC shall
deliver a second Minimum Matrix for such Product style based on a proposed
manufacturer located outside the People's Republic of China;
(3) An information package (hereinafter a "Tech Pak"), including
such detailed drawings, lists of components, materials, specifications, and
specification of manufacturing processes, as is necessary and sufficient to
define completely at least one size (VIZ, the selected confirmation sample size)
of such Stage IV Product to a manufacturer of the Product;
(4) A list and description of all tooling (including, without
limitation, all molds, dies, plates, stamps, patterns, embroidery and lasts to
be used in the manufacture of such Product or any component thereof) developed
or produced specifically by or on behalf of BBC, or procured from its vendors
and/or subcontractors, to make the sales samples of each Stage IV Product; and
(5) Detailed amortization schedules for all molds and permanent
tooling required for the commercialization of each such Stage IV Product.
(g) SMU DESIGN AND DEVELOPMENT. A similar design and development
procedure to that set forth above in this Section 3 shall be followed relative
to special makeup Products ("SMU Products") that are specially designed for
particular customers of LAG and which do not otherwise form a part of its
seasonal Product line; provided, however, that (i) any and all product briefs
prepared by BBC with respect to SMU Products shall be in the form attached
hereto as Exhibit G ("SMU Product Brief") and (ii) such design and development
procedure fully complies with the SMU Design and Development Guidelines attached
hereto as Exhibit H ("SMU Guidelines"). LAG reserves the right to amend,
revise, expand and otherwise change the form of SMU
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<PAGE>
Product Brief and/or the SMU Guidelines in its absolute discretion at any time
and from time to time.
(h) DESIGN AND DEVELOPMENT SCHEDULES. BBC shall perform the services
and accomplish the tasks assigned to it under the provisions hereinabove with
respect to all in-line Products and SMU Products in strict compliance with LAG's
season-specific In-Line Product Development Calendar, a copy of which is
attached hereto as Exhibit I, and LAG's SMU Product Development Calendar, a copy
of which is attached hereto as Exhibit J, respectively, LAG reserves the right
to amend, revise, expand and otherwise change such In-Line and/or SMU Product
Development Calendars in its absolute discretion at any time and from time to
time.
(i) ADDITIONAL STAFF SERVICES. In furtherance of the development of
the Product line, BBC shall implement an LAG-exclusive development and
customer-service staff that is coordinated with its overseas liaison offices,
such staff including technical staff, laboratory quality control and related
communications functions. BBC shall provide LAG in writing with the names,
addresses and phone numbers of such overseas staff personnel, which sourcing may
include in BBC's discretion a person responsible for sourcing Products and a
separate person for research and development.
(j) PRODUCTS NOT SOURCED. BBC shall not be responsible for
fulfilling the obligations of BBC set forth in Sections 3(e) and 3(f) of this
Agreement with respect to Products which are not to be sourced by BBC.
4. PROCEDURES REGARDING PRICING.
(a) Within twenty (20) calendar days of LAG's receipt of one or more
Price Confirmation Memos from BBC pursuant to the terms of Section 3 above, LAG
shall deliver to BBC one of the following written responses thereto: (i) an
acceptance of the terms specified in such Price Confirmation Memo; (ii) a notice
of its intention not to commercialize such Product at such time; or (iii) a copy
of a bona fide written offer (a "Competitive Offer") from a third party sourcing
agent and/or factory (other than * or * ) to source the identical
Product that includes an FCA Price that is at least * lower than that
contained in BBC's Price Confirmation Memo for such Product.
(b) Any and all Price Confirmation Memos and/or Competitive Offers
(i) must be for the identical Product, and (ii) must be able to meet the minimum
specifications of such Product as set forth in the Specification Sheets.
- ---------------
* Material omitted and filed separately with the SEC pursuant to a request for
confidential treatment.
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<PAGE>
(c) In the event that LAG delivers a Competitive Offer to BBC in
accordance with Section 4(a) above, BBC may, within ten (10) calendar days of
its receipt thereof, deliver to LAG, a revised Price Confirmation Memo;
PROVIDED, HOWEVER, that the FOB price for such Product set forth therein must be
lower than that contained in the Competitive Offer, and the proposed
manufacturer of such Product (and the proposed supplier of the lighted
technology to be contained therein) must be acceptable to LAG in its sole
discretion. In the event that BBC fails to deliver such revised Price
Confirmation Memo within the time period specified above in this Section 4(c),
or if such revised Price Confirmation Memo does not satisfy the conditions set
forth in the proviso to the first sentence in this Section 4(c), then LAG shall
be free to accept the Competitive Offer.
(d) In the event LAG accepts the terms set forth on BBC's initial or
revised Price Confirmation Memo, BBC shall (i) secure from each of the Product
manufacturers specified or approved by LAG such manufacturer's entrance into and
execution of a written "Footwear Manufacturing Agreement" between LAG and such
manufacturer in the form attached hereto as Exhibit K (the "Manufacturing
Agreement"), and (ii) use its best efforts to secure from each supplier or
vendor of lighting components to be utilized in the Product, such supplier's or
vendor's entrance into and execution of a written "Lighting Component Supply
Agreement" between LAG or LAG's approved factory and such supplier or vendor in
the form attached hereto as Exhibit M (the "Electronic Component Supply
Agreement"), the terms and conditions of which Manufacturing Agreement and
Component Supply Agreement, by this reference, are incorporated herein, and BBC
shall serve as LAG's agent with respect to such manufacturers and suppliers and
vendors to secure to LAG all of the rights, privileges, and benefits accorded to
it under such Manufacturing Agreement and Supply Agreement. BBC shall not
source any Product from any manufacturer unless and until such manufacturer has
executed a Manufacturing Agreement with LAG. BBC shall not source any lighting
components (or permit any factory or agent to source any lighting components)
from any supplier or vendor unless and until BBC has used it best efforts to
cause such supplier or vendor to execute a Component Supply Agreement with LAG
or LAG's approved factory. LAG shall not source any Product through any third
party sourcing agent other than BBC unless and until the proposed manufacturer
of such Product has executed a Manufacturing Agreement with LAG. BBC shall
promptly deliver to LAG executed originals of all Manufacturing Agreements
entered into by factories manufacturing Product and all Supply Agreements
entered into by suppliers or vendors of lighting components.
(e) Upon reasonable notice, and while in the company of designated
BBC liaison staff, LAG shall have access to all factories or other facilities
wherein any Product is being sourced by BBC for LAG, as well as to all
development and commercialization schedules generated by BBC with respect to
such Product.
(f) The parties contemplate that, during the "Term" (as defined
below) of this Agreement, the governments of the United States or certain
foreign countries or jurisdictions may enact into law such measures affecting
international trade that could render the sourcing of Product from certain
countries, e.g., the People's Republic of
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China, practically or economically unfeasible. In light of the foregoing, BBC
agrees that it will make all commercially reasonable efforts to develop its
Product development and sourcing capabilities in multiple countries, and will
take other and further measures, such as the procurement of portable or
duplicate tooling and Tech Paks, such that, in the event it becomes practically
or economically necessary in the reasonable determination of LAG (under the
circumstances existing at the time) to shift the development and/or manufacture
of Products from one country to another quickly, BBC will be able to, and shall,
accomplish the same with a minimum of cost and schedule delays.
5. SOURCING SERVICES. In addition to the obligations of BBC set forth
above in Section 4 hereof, with respect to Product sourced by BBC hereunder, BBC
shall perform the following services:
(a) Identify factories suitable for the manufacture of Product and,
on LAG's behalf, solicit bids from, and negotiate most favorable terms with,
such factories and their agents with respect thereto;
(b) Act as LAG's buying agent for the ordering, manufacture,
inspection, packing and shipment of Product sourced through the agency of BBC;
(c) In strict accordance with LAG's written instructions, place
purchase orders with the selected factories on behalf of LAG and confirm that
all such purchase orders are received, understood and confirmed in writing by
the relevant factory or factories; such orders shall include all details
concerning design specifications, sizes, genders, quantities, prices, packaging
instructions, labeling requirements, branding, shipping dates, delivery dates
and instructions regarding country of destination, payment terms and other terms
of purchase specified by LAG in its instructions;
(d) Ensure that the Q.C. Agent (i) performs random inspections during
the production process to assure that the quality and workmanship of the Product
in process strictly complies with the relevant sales samples and design and
manufacturing specifications, (ii) promptly advise LAG in writing of any
problems affecting the completion of orders for Product in accordance with the
specified quality and delivery terms therefor, and (iii) certify to LAG in
writing (in the form of a signed certificate of inspection) that each order
meets all quality specifications for that particular Product in accordance with
the quality specifications and sales samples established and/or provided for it;
(e) Obtain any and all documentation necessary for the exportation
and/or importation of Product from and/or into their respective countries of
origin and destinations;
(f) Provide LAG with the relevant factory's original invoices for
Product, it being understood that BBC shall never act as a seller of any Product
to LAG;
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(g) Maintain complete and accurate records of all Product ordered, in
progress, finished and in transit for the account of LAG and, at the request of
LAG, provide LAG with access to, or copies of, such records;
(h) In the event that delivery of any Product is refused by LAG, or
not shipped, use its best efforts to prevent the manufacturer of such Product
from disposing thereof prior to removing any labels, trademarks and/or other
markings identifying or belonging to LAG; and
(i) Pay all costs of conducting its agency and all taxes, including
assessments, which may be made against the salary or wages of those directly or
indirectly employed by it.
6. EXCLUSIVITY OBLIGATIONS OF BBC.
(a) * BBC shall not design, develop and/or source, or sell
or permit the sale of, lighted footwear anywhere in the world by any party other
than LAG * .
(b) The exclusive rights granted herein shall include and extend to
all patent rights which BBC has obtained a license to use or may hereafter
acquire during the Term of this Agreement, and any extension thereof or
improvement thereon, and any other rights whatsoever anywhere in the world (the
"Light Rights") specifically including, but not limited to U.S. Pat.
No.5,408,764 to Wut and U.S. Pat. No.5,430,621 to Raskas. BBC hereby grants to
LAG a royalty-free license of U.S. Pat. Nos. 5,408,764 and 5,430,621 to make,
have made, use, sell, offer for sale, and otherwise dispose of Products
incorporating the inventions of such patents through the agency of BBC and this
Agreement. No Product incorporating any of the Light Rights shall be made,
used, sold, offered for sale or otherwise disposed of unless and until (i) a
Sublicense Agreement, in the form attached hereto as Exhibit M, has been entered
into between BBC and LAG and (ii) a Consent to Sublicense Agreement, in the form
attached hereto as Exhibit N, has been entered into between BBC and the owner or
holder of such Light Rights.
(c) In the event that subsequent to the date of this Agreement, BBC
develops or obtains the license or rights to use new lighted technology ("New
Technology"), BBC shall deliver a written offer to sublicense the right to
utilize such New Technology to LAG before offering any rights to such New
Technology to any third party. Any such offer shall be accompanied by (i) a
true, correct and complete copy of any proposed license agreement between BBC
and any third party with respect to such New Technology, (ii) a written
non-infringement opinion from patent counsel to BBC (on which LAG shall be
entitled to rely) with respect to such New Technology, and (iii) a
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* Material omitted and filed separately with the SEC pursuant to a request for
confidential treatment.
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working prototype of such New Technology. LAG shall have a period of ninety
(90) days to enter into a sublicense agreement with respect to the New
Technology and if the parties, negotiating in good faith, are unable to do so,
then BBC may design, develop, source and/or sell lighted footwear containing
such New Technology for or to any third party whatsoever; PROVIDED, that it may
not do so on terms more favorable than those offered to LAG with respect to such
New Technology. If LAG accepts BBC's offer with respect to any New Technology,
Products containing such New Technology shall fall within the scope of BBC's
exclusivity obligations under this Section 6 (unless otherwise specifically
provided in Section 6(d) below or in the sublicense agreement between LAG and
BBC with respect to such New Technology); for purposes of this Agreement, the
lighting technology utilized in LAG's NEONZ, Faderz and Lazerlites product lines
shall constitute New Technology.
(d) BBC and LAG agree to meet in September, 1997 to discuss in mutual
good faith whether it is reasonably likely that sales of LAG's Lazerlites-TM-
Product during the remainder of the term of BBC's license agreement with
Solefound, Inc. ("Solefound") with respect to U.S. Pat. No. 5,430,621 (the
"Solefound License Agreement") would be sufficient to satisfy the minimum
guaranteed royalty obligation of BBC set forth therein (the "GMR") and, if BBC
and LAG agree (with each acting in good faith) that such sales of LAG's
Lazerlites Product would not be reasonably likely to allow BBC to satisfy the
GMR, then LAG, at its option, shall (i) agree that it will reimburse BBC for an
amount equal to any cash shortfall paid by BBC to Solefound, when due under the
Solefound License Agreement, to satisfy the GMR, or (ii) allow BBC to design,
develop and/or source, or sell or permit the sale of, lighted footwear
practicing U.S. Pat. No. 5,430,621 to non-branded, volume customers of BBC
anywhere in the world for the remainder of the term of the Solefound License
Agreement.
(e) Notwithstanding any understanding or provision contained in any
license agreement between BBC and any third party with respect to any New
Technology adopted for use by LAG under this Agreement, BBC agrees that LAG
shall have the unrestricted right to contact and negotiate with such third party
an agreement providing for a license of such New Technology running directly
from such third party to LAG in the event of any circumstances that threaten to
interfere with or terminate any license of such New Technology running from BBC
to LAG, and BBC hereby covenants that it will give LAG prompt, factual notice of
the occurrence or existence of any such circumstances throughout the Term of
this Agreement and any extension thereof.
(f) Where BBC is permitted, under the terms of this Section 6, to
design and develop lighted footwear for parties other than LAG, BBC shall only
create for such third parties, lighted footwear that is ornamentally distinct
from, and avoids infringement of LAG's trade dress rights in, the Product.
7. MUTUAL CONFIDENTIALITY. Neither party shall disclose to others any
trade secret or confidential information that belongs to the other, but which
was disclosed pursuant to this Agreement. For purposes of this Agreement, the
terms "confidential information" or
-10-
<PAGE>
"trade secrets" shall include all information of any nature and in any form
which is owned by BBC or LAG (or their Affiliates) and which is not publicly
available or generally known to persons engaged in businesses similar to that of
BBC and LAG (either on or after the date of this Agreement), including, but not
limited to, research techniques; patents and patent applications; inventions and
improvements, whether patentable or not; development projects; computer software
and related documentation and materials; designs, practices, equipment,
processes, methods, know-how and other facts relating to the business of BBC and
LAG; practices, processes, methods, know-how and other facts related to sales,
advertising, promotions, financial matters, customers, customer lists or
customers' purchases of goods or services from BBC and LAG; and all other
secrets and information of a confidential and proprietary nature.
The parties hereto agree to keep the terms of this Agreement confidential,
except where and to the extent that disclosure of such terms is required by law.
8. TERM. The Term of this Agreement shall be for the period commencing on
the date this Agreement is executed and ending on May 31, 1998 (the "Term").
Thereafter, unless terminated as elsewhere provided for in this Agreement, this
Agreement shall continue, pursuant to the terms and conditions set forth herein,
for successive one year terms (the "Extended Term") commencing on June 1 of each
year and ending on the subsequent May 31.
9. MINIMUM QUANTITY.
(a) During the Term of this Agreement, and in each Extended Term, in
consideration for the rights granted herein, LAG shall purchase a minimum of *
pairs of Product, including, without limitation, any and all Excluded Product
(the "Minimum Quantity"), during the Term or any Extended Term.
(b) All purchases of Product shall be facilitated by a letter of
credit opened by LAG a minimum of forty-five (45) days prior to production, with
the beneficiary as designated by LAG. The price to LAG for the Products shall
be "FCA ( . . . named place)".
10. COMMISSIONS; METHOD OF PAYMENT.
(a) In consideration for the design, development and sourcing
services provided by BBC hereunder and the fulfillment of BBC's obligations
under Section 11 hereof, and subject to the provisions of Sections 10(b) and
10(d) below, LAG shall pay BBC a design, development and sourcing commission of
* of the FCA price of
- ---------------
* Material omitted and filed separately with the SEC pursuant to a request for
confidential treatment.
-11-
<PAGE>
each pair of Product designed, developed and sourced by BBC pursuant to the
terms of this Agreement (a "Commission"); PROVIDED, HOWEVER, that (i) BBC shall
not be entitled to a Commission with respect to any Product determined to
contain a design defect, and (ii) any and all Commissions payable to BBC with
respect to Product designed and developed, but not sourced, by BBC (including,
without limitation, any and all Excluded Product) shall be at a rate equal to
* of the FCA price of each pair of such Product produced by or on behalf
of LAG.
(b) Unless otherwise agreed in writing by the parties hereto, any
Commission payable pursuant to Section 10(a) above shall be due and payable by
wire transfer of funds thirty (30) days after the date on which the documents
specified by LAG in the letter of credit used by it to pay for such Product are
presented for processing to LAG's correspondent bank by the factory which
manufactured such Product or such factory's agent.
(c) In the event that Products sourced by BBC hereunder are
designated "B-grades" pursuant to the terms of the Manufacturing Agreement, the
Commission payable with respect to such Products shall be * for such
Products. BBC shall not be entitled to a Commission on Products sourced by BBC
hereunder which are designated "C-grades" pursuant to the term of the
Manufacturer Agreement. BBC shall have the right to inspect any such returned
Product to confirm the existence and determine the nature of any such defect.
BBC shall use its best efforts to assist LAG in the collection of any and all
monies or credits due LAG, and the enforcement of any and all of LAG's rights,
under any and all Manufacturing Agreements entered into by LAG with the
factories manufacturing Products sourced by BBC hereunder. In the event that
BBC is not able to fully resolve any dispute between LAG and any manufacturer of
Product (including, without limitation, any disputes relating to the quality or
timely delivery of Product) to the complete satisfaction of LAG within sixty
(60) days of being notified of the existence of any such dispute by LAG (the
"BBC Dispute Resolution Period"), LAG shall be entitled to communicate directly
with, and to proceed directly against, any such manufacturer; PROVIDED, HOWEVER,
that if LAG is unable to resolve any such dispute to its complete satisfaction
within thirty (30) days of the date of expiration of the BBC Dispute Resolution
Period, BBC shall not be entitled to a Commission on the Product at issue in
such dispute, and LAG shall be entitled to offset against Commissions payable to
BBC an amount equal to the Commission paid by LAG to BBC with respect to such
Product.
(d) The Commission payable to BBC hereunder shall be listed
separately on the commercial and any special customs invoices prepared by BBC
and submitted to LAG.
- ---------------
* Material omitted and filed separately with the SEC pursuant to a request for
confidential treatment.
-12-
<PAGE>
(e) BBC shall accept no remuneration from anyone other than LAG for
the provision of design, development and/or sourcing services with respect to
any Product or constituent thereof other than the Commission set forth herein,
and BBC shall not share any portion of any such commissions in any manner with
(i) any agents or affiliates of BBC, or (ii) any factory manufacturing Product
(or any component thereof), or any agent thereof, or material or component
supplier thereto.
11. OWNERSHIP OF DESIGNS; EXCLUSIVITY.
(a) During the entirety of the design and development process set
forth herein, BBC shall not utilize, nor develop for or offer to any third
parties, any Product styles or designs that are the same as, or substantially
similar to, the Product styles or designs presented by BBC to, and under
consideration by, LAG. Any and all original ornamental design (and elements
thereof) of Products (including SMU Products) created or developed by BBC for
LAG hereunder or heretofore created or developed by BBC shall be the exclusive
property of LAG as "works made for hire"; PROVIDED, HOWEVER, that any Product
not selected by LAG for sales sampling pursuant to Section 3(d) hereof (or
heretofore not selected by LAG for sales sampling) shall become and remain the
exclusive property of BBC. BBC shall be prohibited from either utilizing or
developing for, or offering to, any third parties any footwear styles or designs
for which LAG has filed an application for a design patent in the United States
Patent and Trademark Office (a copy of which shall be delivered to BBC by LAG
promptly after any such filing), such prohibition to remain in effect for so
long as any such design patent application is pending and/or the resulting
design patent remains valid.
(b) BBC hereby assigns and agrees to assign to LAG all original
ornamental designs and design elements of Product created or developed by BBC
for LAG hereunder and commercialized by LAG. BBC further undertakes to assist
LAG in such efforts as LAG may reasonably deem necessary to secure and protect
LAG's ownership of such ornamental designs and elements thereof against
infringement by third parties, including, without limitation, the execution of
any and all documents reasonably necessary to perfect and/or defend LAG's title
and interest to such designs, and full cooperation in the preparation, filing
and prosecution of applications for United States and/or foreign letters patent,
copyrights and trademark registration therefor. BBC shall secure such
agreements with its employees and/or subcontractors as are necessary to carry
out the provisions of this Section 11(b).
12. TRADEMARKS.
(a) The parties hereto agree that LAG alone shall determine the
trademarks and style names (the "Trademarks") to be used exclusively on or in
connection with any Products designed and/or developed by BBC hereunder, and LAG
alone shall be responsible for the registration of such Trademarks at LAG's
expense. Upon the termination of this Agreement for any reason whatsoever, the
parties agree that any Trademarks developed by LAG for use with any Products
hereunder shall remain the
-13-
<PAGE>
exclusive property of LAG and may be used by LAG on or in association with any
product marketed by LAG.
(b) BBC hereby acknowledges (i) the validity of the Trademarks,
(ii) that LAG has at all times had, and shall continue to have, the exclusive
right, title and interest in and to the Trademarks, (iii) that neither this
Agreement nor the performance of any services by BBC hereunder shall confer on
BBC any right, title or interest in or to the Trademarks, and (iv) that, except
as provided herein, BBC does not have any permission to and will not adopt, use,
register or attempt to register as a trademark, trade name, business name or
corporate name or part thereof, whether during the continuance of this Agreement
or after its termination, any word(s), symbol, logo or emblem identical or
confusingly similar to any of the Trademarks.
13. INDEMNIFICATION.
(a) BBC shall indemnify without limitation and hold harmless LAG from
and against any and all damages, liabilities, claims (including, without
limitation, third party claims), costs and expenses, including reasonable
attorneys' fees and other reasonable legal costs, which may be incurred by LAG
arising out of or resulting from the breach by BBC of any of its obligations,
covenants, representations and warranties set forth in this Agreement.
(b) LAG shall indemnify without limitation and hold harmless BBC from
and against any and all damages, liabilities, claims (including, without
limitation, third party claims), costs and expenses, including reasonable
attorneys' fees and other legal costs, which may be incurred by BBC arising out
of or resulting from the breach by LAG of any of its obligations, covenants,
representations and warranties set forth in this Agreement.
(c) BBC shall defend, indemnify and hold LAG harmless of, from and
against any charges, suits, damages, costs, expenses (including reasonable
attorneys' fees), judgments, penalties, claims, liabilities or losses of any
kind or nature whatsoever, which may be sustained or suffered by or secured
against LAG based upon, or arising out of, actual or alleged patent, trade
dress, or copyright infringement arising solely out of the manufacture,
purchase, use or resale by LAG of the Products designed, developed and/or
sourced by BBC hereunder; PROVIDED, HOWEVER, that LAG shall give BBC prompt
notice of any such claims or suits. LAG shall have the option of undertaking
and conducting the defense and settlement of any such claims or suits, or of
tendering such defense and settlement to BBC, in either case, at BBC's sole cost
and expense; PROVIDED, HOWEVER, that, (i) the party undertaking the defense of
any such claims or suits shall keep the other party hereto advised of the status
of such claims or suits and (ii) LAG shall not settle any such claims or suits
without the prior written consent of BBC.
14. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and
warrants to the other as follows:
-14-
<PAGE>
(a) It has the full and unrestricted right, power and authority to
enter into, and to perform the terms, covenants and conditions of, this
Agreement, and to be bound thereby during the entire Term of this Agreement and
any extension thereof; this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with the terms hereof;
(b) There is no action, suit or proceeding by or before any court,
arbitrator or other governmental body pending or threatened against it which
questions the validity or legality of this Agreement or any act to be performed
or taken by it in connection with this Agreement;
(c) None of the representations or warranties made by it in this
Agreement and no other information provided by it to the other contains an
untrue statement of material fact, or omits to state a material fact necessary
to make the statements herein or therein not misleading;
(d) No consent, approval or authorization of, or filing or
registration with, any third party or governmental body is required in
connection with the execution, delivery and performance by it of this Agreement.
15. ADDITIONAL BBC REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Provided that the light module in each Product is utilized for
the purposes for which it is intended, such module will function properly for a
minimum period of four (4) months from the completion date of any Product
incorporating it. The completion date shall be clearly and indelibly marked on
each Product by the manufacturer thereof at the time of its construction. All
patents will be identified on the light modules and on the Products.
(b) BBC is the exclusive licensee of all of the Light Rights proposed
to be licensed by it to LAG herein pursuant to a license agreement with the
holder of those patents; those license agreements are in full force and effect;
there are no defaults of any provision of them; and, BBC has the full and
unrestricted right, power and authority to license the use and practice of the
patent rights to LAG in the manner proposed to be exercised by it hereunder, and
such sublicense, use and practice by LAG does not conflict with, infringe upon,
or violate any rights of any other person or entity.
(c) None of the Product designs provided to LAG by BBC hereunder will
conflict with, infringe, or otherwise violate any rights of any other person or
entity; BBC has not granted, nor will it grant, to any other person or entity
any license or other right to manufacture, sell or use the Product designs
developed by it for LAG hereunder, except as specifically provided for herein.
-15-
<PAGE>
(d) Neither BBC nor any affiliate thereof has any ownership or
financial interest in, nor any control of, (i) the factories manufacturing any
Product hereunder, (ii) any supplier or vendor of any components or raw
materials utilized in any Product, or (iii) any agent representing BBC or any of
the parties referenced in clause (ii) of this sentence. BBC does not, for its
own account or the account of any of its agents or affiliates, sell raw
materials or components to the factories manufacturing any Products hereunder
and none of such factories, or any agents thereof, have any ownership interest
in, or any control over, BBC or any of its agents or affiliates.
-16-
<PAGE>
16. TERMINATION.
(a) This Agreement may be terminated by either party for a material
breach of it by the other party upon thirty (30) days' written notice to the
breaching party, PROVIDED that the breach is not cured during such thirty (30)
day period.
(b) Either party may terminate this Agreement by giving written
notice thereof to the other not less than ninety (90) days prior to the
expiration of the Term or any Extended Term.
(c) EFFECTS OF TERMINATION.
(i) In the event this Agreement is terminated, all orders for
Products then in hand with BBC shall be completed and honored by LAG, (including
payment of any Commissions due BBC therefor); PROVIDED, HOWEVER, that no new
orders shall be commenced from and after the termination date. LAG shall have
the right to continue to sell any Products then in inventory, in transit to LAG
or its customers and/or to be completed pursuant to this Section 16(c)(i).
(ii) In the event that BBC breaches, but fails to cure within the
aforementioned thirty (30) day notice period, in addition to all other remedies
available, LAG's obligations to purchase the Minimum Quantity, as set forth in
Section 7 of this Agreement, shall cease and be of no further force and effect.
(iii) In the event this Agreement is terminated on any grounds
LAG shall have a continuing obligation to pay BBC the Commission provided for in
clause (ii) of the proviso to Section 10(a) above with respect to all Product
styles produced by LAG after the date of such termination, and for which no
Commission was previously paid, and such obligation shall continue for eight (8)
months following such termination date.
17. WAIVER. The failure of either party at any time or times to demand
strict performance by the other of any of the terms, covenants or conditions set
forth herein shall not be construed as a continuing waiver or relinquishment
thereof, and each may at any time demand strict and complete performance by the
other of said terms, covenants and conditions.
18. NO ASSIGNMENT. This Agreement shall bind and inure to the benefit of
BBC and LAG and their successors and affiliates, and the rights granted LAG
hereunder shall be personal to it and shall not, without the prior written
consent of BBC, be transferred or assigned to any other party. BBC may not
assign its rights, nor designate the performance of any of its duties under this
Agreement without the prior written consent of LAG, which consent shall not be
unreasonably withheld.
19. SIGNIFICANCE OF HEADINGS. Section headings contained herein are
solely for the purpose of aiding in speedy location of subject matter and not in
any sense to be given
-17-
<PAGE>
weight in the construction of this Agreement. Accordingly, in case of any
questions in the construction of this Agreement, it is to be construed as though
such section heading had been omitted.
20. ENTIRE AGREEMENT. This Agreement, with the documents referred to
herein and therein, constitutes the entire Agreement and understanding between
the parties hereto and supersedes all prior negotiations, agreements and
understandings relating to the subject matter hereof. This Agreement may not be
changed or modified except by a writing signed by all parties hereto.
21. JOINT VENTURE. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between BBC and LAG.
Neither party shall have any right to obligate or bind the other party in any
manner whatsoever, other than pursuant to the terms contained herein, nor shall
BBC or LAG have the right or authority to assume, create or incur any liability
or obligation of any kind, express or implied, against, or in the name of, or on
behalf of, the other, except pursuant to the terms contained herein, and nothing
contained herein shall give, or is intended to give, any rights of any kind to
any third persons.
22. NOTICE. Notices required or permitted hereunder shall be in writing
and shall be deemed given upon receipt by the party to be notified (a) by
personal delivery or telecopier or telex transmissions, with confirmed receipt,
or (b) by registered or certified mail, return receipt requested, addressed to
the respective party at the address set forth below:
To LAG: Mr. Bruce MacGregor, President
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, CA 90405
Facsimile No.: (310) 581-7715
With copy to: Don Lawrence, Esq.
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, CA 90405
Facsimile No.: (310) 581-7766
To BBC: Mr. Robert Campbell
BBC International, Ltd.
19 West 34th Street
New York, NY 10001
Facsimile No.: (212) 239-1923
-18-
<PAGE>
With copy to: John P. Zampino, Esq.
600 Third Avenue, 39th Floor
New York, NY 10016
Facsimile No.: (212) 297-0150
23. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be
governed by and interpreted in accordance with the substantive laws and not the
conflict-of-laws provisions of the State of California; any action brought by
either of the parties hereto against the other for the enforcement or
interpretation of this Agreement shall be brought exclusively in a state or
federal court within the County of Los Angeles, California, and each party
hereto irrevocably consents to the exclusive venue in and jurisdiction of such
courts for such purposes.
24. PATENT MARKINGS. Each Product manufactured pursuant to this Agreement
in accordance with any patent rights and licensed rights shall bear appropriate
patent markings, either by fixing thereon the word "patent" or the abbreviation
"pat.", together with the number of the patent, in accordance with Title 35
United States Code Section 287.
25. SURVIVAL. The rights and obligations of each of the parties under
Sections 9, 11, 12, 13, 15, and 17(e) hereunder shall survive termination or
expiration of this Agreement. The representations and warranties set forth in
Sections 14 and 15 hereof shall continue throughout the duration of any Term or
Extended Term.
26. EXECUTION AND DELIVERY REQUIRED. This Agreement shall not be binding
unless and until signed by all parties hereto.
27. FURTHER ASSURANCES. Each party hereto shall from time to time at and
after the date hereof, execute and deliver such instruments, documents and
assurances, and take such further actions as the other party may reasonably
request to carry out the purpose and intent of the Agreement.
28. SUPERSEDURE. The parties agree that the respective representations,
warranties, covenants, and obligations made and/or assumed by them with respect
to any Product designed, developed, and/or sourced by BBC for LAG pursuant to
the Buying Agency Agreement between them dated March 6, 1996 (the "Buying Agency
Agreement"), shall survive and continue in full force and effect with respect to
all such Products, and except for those, this Agreement shall, for all other
intents and purposes, supersede and replace that agreement in its entirety and,
except for the foregoing purposes, such Buying Agency Agreement is hereby
terminated and is null, void and of no further force and effect.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have affixed their respective
signatures as of the day and year first written above.
BBC INTERNATIONAL, LTD.,
a New York corporation
By: Robert B. Campbell
-----------------------------
Robert B. Campbell, Chairman
L.A. GEAR, INC.,
a California corporation
By: Bruce MacGregor
-----------------------------
Bruce MacGregor, President
-20-
<PAGE>
EXHIBIT "A"
-----------
(TBD)
-21-
<PAGE>
EXHIBIT "B"
-----------
(TBD)
-22-
<PAGE>
EXHIBIT "C"
-----------
(TBD)
-23-
<PAGE>
EXHIBIT "D" Page 1
-----------
L. A. GEAR SPECIFICATION SHEET
SRF#: S/N#:
SHOE NAME:
ACTIVITY:
EX.RATE: 1: DATE:
<TABLE>
<S> <C> <C> <C> <C> <C>
Category: S/N#: A: /A C1:
PDM: Division: B: /B C2:
Designer: Series: C: /C C3: Approved by Costing Manager :
Season: Last Code: D: /D C4: Approved by Factory :
Factory: Fac Code: E: /E C5: Approved by R&D China :
Country: Height: F: /F C6: Approved by PDM LA Gear :
Descriptions:
Gender: Sample Size: Construction:
Quantity: Size Run: Pattern#: New
Sku: O/S#: New:
M/S#: New:
</TABLE>
Upper: Lining:
PM:
<TABLE>
<CAPTION>
# Component Description C2 C3 C4 C5 Vendor Unit Nett Loss Gross Unit Price Pair Remarks
Spec Info. Usage Usage NT$ US$ Price
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UPPER:
1 TOE CAP
2 VAMP
3 VAMP PERFS
4 VAMP PIPPING
5 LOWER EYEROW / BRACE
6 UPPER EYEROW / BRACE
7 QUARTER
8 QUARTER PIPPING
9 HEEL COUNTER
10 COLLAR
11 MOUSTACHE
12 TONGUE
13 TONGUE LACE KEEPER
14 LACE #1
15 LACE #2
16 LOWER EYEROW EYELETS
17 UPPER EYEROW EYELETS
LOGOS:
18 TONGUE LOGO HORIZONTAL
19 LOWER EYEROW/BRACE-HORIZ
20 SOCK LOGO-HORIZONTAL
21 OUTSOLE LOGO-HORIZONTAL Pair
</TABLE>
<PAGE>
EXHIBIT "D" (Cont.) Page 2
-------------------
<TABLE>
<CAPTION>
L. A. GEAR SPECIFICATION SHEET
SRF#: S/N#:
SHOE NAME:
# Unit Nett Loss Gross Unit Price Pair Remarks
Usage Usage NT$ US$ Price
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LININGS & FOAMS:
22 TONGUE LINING
23 COLLAR LINING
24 FOREFOOT LINING
25 QUARTER LINING
26 SOCK LINING
27
28
27
REINFORCEMENTS:
28 Q'tr Extension
29 Eyestay Reinf.
30 Heel Counter
31 Heel Lining
32 Cement
BOTTOM:
33 Insole Board
34 OUTSOLE
35 OUTSOLE SIDEWALL
36 OUTSOLE LOGO
37 Outsole
PACKAGING:
38 Inner Box
39 Carton
40 Tape
41 Tissue
42 Warpping
43 UPC Label
44 Size Label
45 Loss
TOTAL MATERIAL COST
LABOUR COST
OVER HEAD
PROFIT
SEE PAGE 3 FOR ELECTRONIC COMPONENT (if applicable)
SUB TOTAL
TOOLING'S AMORTIZATION
MATERIAL VENDOR'S NAME
FOB COST
</TABLE>
<PAGE>
EXHIBIT "D" (Cont.) Page 3
-------------------
L. A. GEAR SPECIFICATION SHEET
SRF#: S/N#:
SHOE NAME:
ELECTRONIC COMPONENT
1 Outline & Mounting Drawing
1a Schematic Drawing
2 Printed Wiring Board(if any)
3 E.L. Pattern Drawing(if any)
4 Parts List
a.
b.
c.
d.
e.
f.
g.
<PAGE>
EXHIBIT "E"
------------
(TBD)
<PAGE>
EXHIBIT "F"
-----------
(TBD)
<PAGE>
EXHIBIT "G"
-----------
- ------------------------
SPECIAL MAKE-UP REQUEST [L.A. GEAR LOGO]
- ------------------------
ATTN: Vicki Whicker FAX#: 310-581-7736
REQUESTED BY: BUYER:
------------------ --------------------------
DATE: CUSTOMER:
------------------ -------------------------
IN-LINE NAME: IN-LINE STYLE#:
------------------ -------------------
SIZE RUN/GNDR: IN-LINE WHSL:
------------------ ---------------------
SMU DESCRIPTION: (UPPER MATERIALS, OUTSOLE, LOGO, OR ANY OTHER CHANGES)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLORWAYS:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
DELIVERY MONTH: OPENING ORDER:
------------------ --------------------------
TARGET WHSL: ANNUAL ORDER:
------------------ --------------------------
SAMPLE DUE DATE: DISCOUNTS:
------------------ --------------------------
CAD DRAWING ONLY
------------------ (If Applicable)
- -----------------
DEPARTMENTAL USE
- -----------------
PROJECT APPROVAL:
------------------
SRF#:
------------------
CC: BRUCE MACGREGOR, BOB PETERSON, MARKETING DIRECTOR
<PAGE>
EXHIBIT "H"
-----------
MEMORANDUM
[L.A. GEAR LOGO]
VICKI WHICKER
DIRECTOR SPECIAL MAKE-UP
(P) 310-581-7327
(F) 310-581-7736
TO: BBC
DATE: 3/5/97
RE: SPECIAL MAKE-UP PROCEDURES
- --------------------------------------------------------------------------------
1-SAMPLE REQUEST-SEE EXHIBIT G:
- -THIS MUST BE FILLED OUT COMPLETELY BY LA. GEAR SALES
- -THIS FORM IS NOT VALID UNLESS SIGNED OFF BY LA. GEAR DIRECTOR OF SALES AND LA.
GEAR DIRECTOR OF MARKETING
- -ROUTED TO YOU BY DIRECTOR SPECIAL MAKE-UP
- -QUESTIONS REGARDING SMU PROJECTS SHOULD BE DIRECTED TO DIRECTOR SPECIAL MAKE-UP
2-TIMELINES-SEE EXHIBIT J
- -TIMELINES WILL BE QUOTED ACCORDING TO EACH INDIVIDUAL PROJECT
- -ALL SMU PROJECTS ARE PRIORITIZED BASED ON DELIVERY MONTH
4-CONFRMATION:
- -CONFIRMATION GUIDELINES TO FOLLOW SAME PROCESS AS OUTLINED FOR IN-LINE
<PAGE>
EXHIBIT "I"
-----------
(TBD)
<PAGE>
EXHIBIT "J"
-----------
SPECIAL MAKE-UP
DEVELOPMENT CALENDAR
NEW UPPER ONLY
SEASON SEASON LATEST FINAL BUY PRODUCTION DELIVERY
PREVIEW REQUEST SAMPLES MONTH MONTH
SPRING * * * * * *
* * * * *
* * * * *
*
Q2 * * * * * *
* * * * *
* * * * *
FALL * * * * * *
* * * * *
* * * * *
HOLIDAY * * * * * *
* * * * *
* * * * *
IF SPECIAL MAKE-UP REQUIRES NEW OUTSOLE MOLD ADD * TO PRODUCTION AND DELIVERY *
*Material omitted and filed separately with the SEC pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT "K"
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FOOTWEAR MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT (this "Agreement") is made and entered into as of
the day of , 199___, by and between:
(1) _______________________________________________________________________,
a company incorporated under the laws of __________________________________
_________________________________, with its principal place of business at
___________________________________________________________________________
________________("MANUFACTURER");
and,
(2) L.A. GEAR, INC., a company incorporated under the laws of the State of
California, U.S.A., with its principal place of business at 2850 Ocean Park
Blvd., Santa Monica, California, 90405 U.S.A. ("GEAR").
IN CONSIDERATION of the mutual undertakings herein contained, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, the parties agree as follows:
1 DEFINITIONS
1.1 "Confidential Information" shall mean any patterns, markers, specification
sheets, know-how, drawings, designs, plans, cost or pricing information,
buying habits, customer lists, trade secrets, trade dress, concepts or
ideas related to the business of GEAR and any information or know-how
acquired from or through GEAR in connection with this Agreement or the
production or delivery of the Products, including information related to
products, processes or services, research, development, inventions,
marketing, manufacture, purchasing, accounting, engineering, merchandising,
selling, customer agreements, samples, prototypes and/or any part thereof.
1.2 "Footwear Products" shall mean the range of footwear products that
MANUFACTURER is authorized to produce under this Agreement pursuant to one
or more valid written purchase orders from GEAR or its authorized
representative for same.
1.3 "GEAR" shall include L.A. Gear, its employees, and its authorized Footwear
Product sourcing agents and representatives.
1.4 "Inventions" shall mean discoveries, novel concepts, ideas, materials,
substances and devices, whether patentable or not, relating to any past,
present, or prospective activities of GEAR in the field of footwear,
including but not limited to structures, processes, methods, Footwear
Products, formulae, techniques and improvements to the foregoing and
know-how conceived or developed (whether or not reduced to practice) by
MANUFACTURER, its employees or its permitted Sub-contractors within the
scope and
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during the course of their performance under this Agreement.
1.5 "Molds" shall mean all molds, dies, tools, plates, silk screens, stamps,
embroidery tooling and lasts used in the manufacture of the Footwear
Products or any Trim or component thereof, and which bear a Trademark.
1.6 "Trademarks" shall mean and include trademarks, copyrights, trade names,
symbols, logos, slogans, designs, design rights, style names and components
thereof, owned by GEAR and any other intellectual property rights which are
owned or controlled by GEAR or which GEAR has the right to use in
connection with the manufacture, use and sale of the Footwear Products.
1.7 "Trim" shall mean Footwear Product component and accessory items that bear
a Trademark, including but not limited to inflation, rebound, or other
devices, studs, heel inserts, thread, closures, snaps, rivets, soles,
midsoles, linings, laces, shoe boxes, packaging materials, tags and labels
used in the manufacture or packaging of the Footwear Products.
2 AGREEMENT FOR MANUFACTURE AND SUPPLY
2.1 Subject to the terms of this Agreement, MANUFACTURER, at GEAR's express,
written order only, shall manufacture and pack the Footwear Products and
deliver them to GEAR in strict accordance with the patterns,
specifications, technical information, drawings, samples and quality
standards that have been approved in writing by GEAR and/or supplied by
GEAR to the MANUFACTURER for such purpose. MANUFACTURER expressly
acknowledges and agrees that GEAR may purchase the Footwear Products from
persons other than MANUFACTURER.
2.2 MANUFACTURER shall produce and ship only the specific quantity of the
Footwear Products specified in the purchase order from GEAR or such other
quantity as may be agreed in writing by GEAR and MANUFACTURER. Production
of Footwear Products in excess of the amount ordered is expressly
prohibited, and any such excess Footwear Products ("overruns") shall be
deemed unauthorized and counterfeit.
2.3 MANUFACTURER shall not make or supply any Footwear Products or goods
whatsoever that use any Confidential Information or bearing any of the
Trademarks for or to any person other than GEAR, or such other person as
GEAR may authorize in writing. MANUFACTURER shall at no time make or sell
(or assist others in making or selling) any footwear or other goods that
bear a trademark or design that, in the sole opinion of GEAR, infringes or
is confusingly or deceptively similar to any of the Trademarks, or is
likely to be confused with or regarded as confusingly similar to the
Footwear Products.
3 SAMPLES AND INSPECTION
3.1 GEAR shall have the right on reasonable notice during business hours to
visit any places under the control of the MANUFACTURER (including those of
its permitted Sub-contractors) in order to inspect and take a reasonable
amount of samples of approved Footwear Products or components thereof then
in production (Production Samples). Such Production Samples are to be made
available to GEAR free of charge.
3.2 MANUFACTURER will not deliver or otherwise dispose of any Footwear Products
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whatsoever unless and until GEAR has given written approval for their
shipment following their complete and final inspection.
4 PLACING AND FILLING ORDERS
4.1 Unless otherwise authorized by GEAR in writing, purchase orders for the
Footwear Products may be placed by only by GEAR or its authorized buying
agent. MANUFACTURER shall not make, sell, use, deliver or otherwise supply
or dispose of any Footwear Products for or to any person other than GEAR;
PROVIDED, however, that GEAR may, in its sole discretion and in writing
only, authorize the MANUFACTURER to make and supply the Footwear Products
to certain third parties, under such terms and conditions as GEAR shall
specify in writing to MANUFACTURER.
4.2 Any and all orders for Footwear Products shall be made by a written
purchase order only. In the event of any conflict between the terms of such
purchase order, any confirmation thereof, and this Agreement, the terms of
this Agreement shall govern.
4.3 MANUFACTURER shall immediately acknowledge receipt of all purchase orders
or proposed amendments thereto by telex or telefax notice to GEAR.
4.4 MANUFACTURER shall accept or reject each purchase order within five (5)
calendar days of its receipt by telex or telefax notice to GEAR;
MANUFACTURER's failure to acknowledge its receipt of any purchase order or
amendment thereto shall be deemed an acceptance of same. Acceptance of any
purchase order shall be strictly limited to the terms specified in this
Agreement and the purchase order. Any other terms contained in the
MANUFACTURER's order confirmation or any other document used by
MANUFACTURER to communicate its acceptance shall be void unless otherwise
accepted by GEAR in writing.
4.5 Amendments to purchase orders may be proposed by GEAR by telex or telefax
notice thereof to the MANUFACTURER. Unless the MANUFACTURER rejects the
proposed amendment by telex or telefax notice to GEAR within two (2)
business days of MANUFACTURER's receipt of such proposed amendment, the
affected purchase order shall be deemed amended as provided in the proposed
amendment.
5 PRICE, PAYMENT AND INVOICES
5.1 The price for any particular Footwear Product to be produced by
MANUFACTURER under this Agreement shall be agreed to in writing by GEAR and
MANUFACTURER prior to the placement of any purchase orders therefor. After
such price agreement has been reached, the price of such Footwear Product
shall remain firm and unchanged, except as may otherwise be agreed between
GEAR and MANUFACTURER in writing.
5.2 Unless otherwise specified, all payments for the Footwear Products shall be
made by means of: _______________________________________________________;
terms of payment for the Footwear Products shall
be:_____________________________________________________________________.
5.3 The prices charged by the MANUFACTURER for the Footwear Products and the
terms and conditions applied by it with respect to them, shall be no less
favorable to GEAR than the
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prices charged by the MANUFACTURER for equivalent footwear products, or the
terms or conditions applied by it with regard to such products, to any
other person for whom MANUFACTURER produces similar footwear products.
6 SHIPMENT, DELIVERY AND TITLE
6.1 Unless otherwise specified in a particular purchase order, MANUFACTURER
shall sell the Footwear Products to GEAR "FCA (...named place)" terms,
where FCA shall mean "Free Carrier," as defined in International Chamber of
Commerce, Incoterms, 1990. It is understood and agreed by the parties that,
unless otherwise agreed to in writing by the parties hereto, all risk and
title to all Footwear Products made and purchased hereunder shall remain in
the MANUFACTURER until delivery of same to the Carrier or freight
consolidator at the "named place" designated by GEAR in the relevant
purchase order, and upon such delivery, shall then pass to and vest in
GEAR.
6.2 MANUFACTURER shall immediately notify GEAR of any event that might delay
delivery of the Footwear Products ordered beyond the delivery or shipping
date specified in the relevant purchase order and the related letter of
credit, and shall use its best efforts to avoid or minimize any such delay.
MANUFACTURER acknowledges that TIME IS OF THE ESSENCE, and that any
delivery delay in excess of ten (10) days shall constitute a material
breach of this Agreement unless GEAR waives MANUFACTURER's default in
writing. Unless MANUFACTURER's default is so waived, GEAR shall have the
right to notify MANUFACTURER of its rejection of any delayed Footwear
Products within thirty (30) business days after being notified of such
delay and the circumstances thereof, and may in its sole discretion choose,
and MANUFACTURER shall comply with, one of the following four methods of
handling such delay:
(i) In the event Footwear Production of the delayed Footwear Products
has not been completed, GEAR may, without liability, cancel the
purchase order for the delayed Footwear Products. Immediately
upon receipt of notice of cancellation, MANUFACTURER at its own
cost shall comply with any instructions of GEAR mandating
destruction or disposition of any components, Trim, or Footwear
Products bearing the Trademarks that were produced pursuant to
the canceled purchase order; or,
(ii) Immediately on receipt of instructions from GEAR, MANUFACTURER
shall deliver the delayed Footwear Products by air, and shall
bear the portion of the air freight in excess of the estimated
normal ocean freight of such Footwear Products. "Normal ocean
freight" shall mean the rate per cubic centimeter charged on the
most recent ocean shipment; or,
(iii) GEAR may purchase the delayed Footwear Products for * of
the price for the Footwear Products set forth on the relevant
purchase order; or,
(iv) GEAR may order such delayed Footwear Products to be destroyed,
without cost to GEAR, in a manner approved in writing by GEAR.
GEAR and/or its authorized representative may, in their sole
discretion, witness such destruction or require such proof of
destruction as they deem necessary.
The provisions of this Section are subject to Section 14 ("Force
Majeure"), but the
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* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
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remedies provided in this sub-section shall not be affected by any prior
inspection of the Footwear Products, and are without prejudice to any other
remedies provided by this Agreement or by law or in equity.
7 INSPECTIONS AND DEFECTIVE FOOTWEAR PRODUCTS
7.1 Upon receipt of reasonable notice, MANUFACTURER shall provide GEAR and/or
its authorized representatives with access to all parts of MANUFACTURER's
factory and any other facilities used by MANUFACTURER for Footwear
Production, packaging, storage and delivery of the Footwear Products to
enable GEAR to inspect and monitor the manufacture of the Footwear
Products.
7.2 Prior to any shipment of a particular purchase order, MANUFACTURER shall
deliver to GEAR an inspection certificate for each style of Footwear
Product produced. MANUFACTURER shall only deliver the Footwear Products to
GEAR after receipt of a copy of the inspection certificate signed by GEAR
or its authorized representative. Footwear Products for which such a signed
inspection certificate has not been obtained shall be considered
unauthorized and may not be sold or transferred by MANUFACTURER except with
the prior written consent of L.A. Gear. The signature by GEAR or its
authorized representative on the inspection certificate shall not
constitute a waiver of any rights under this Agreement or provided by law,
and shall not bind GEAR should it subsequently determine that the Footwear
Products do not conform to the quality standards or other specifications of
the Footwear Products provided to the MANUFACTURER.
7.3 Immediately upon discovery of any defects in the Footwear Products,
MANUFACTURER shall notify GEAR of such defects by telex or facsimile. The
defective Footwear Products shall, at the option of GEAR, be:
(i) Classified by GEAR as "cosmetically flawed" or "B-grade" Footwear
Products, and sold to GEAR for a price that is * of the
price for the Footwear Products specified in the relevant
purchase order; or,
(ii) Classified by GEAR as "functionally flawed," or "C-grade"
Footwear Products, and so notified to MANUFACTURER. Upon receipt
of such notification from GEAR, MANUFACTURER shall arrange for
such "C-grade" Footwear Products to be destroyed at its own cost
in a manner approved in writing by GEAR and/or L.A. Gear under
the supervision of GEAR and/or its authorized representatives;
or,
(iii) Rectified or corrected in accordance with the written
instructions of GEAR and/or its authorized representatives to
MANUFACTURER. GEAR shall have a right to re-inspect the Footwear
Products after the alterations or rectifications have been
completed by MANUFACTURER, and to specify air shipment of the
rectified Footwear Products at Manufacturer's cost if necessary
to meet the original delivery or shipment date.
The provisions of this Section are not subject to Section 14, and the
remedies provided herein shall not be affected by any prior inspection of
the Footwear Products, and are
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* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
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without prejudice to any other remedies provided by law. MANUFACTURER
acknowledges that any breach of this Section shall constitute a material
breach of this Agreement.
7.4 If GEAR exercises option (iii) set forth in Sub-section 7.3 above, and
MANUFACTURER is unwilling or unable for any reason to make the corrections
suggested by GEAR within a reasonable time period stipulated by GEAR, GEAR
reserves the right to make such corrections itself and to set off the cost
thereof, including any air freight costs made necessary to meet the
original delivery or shipping date, against any outstanding payments for
the defective Footwear Products or against any future orders for the
Footwear Products.
7.5 MANUFACTURER shall provide to GEAR, on at least a monthly basis, a written
report (in a form approved by L.A. Gear) describing and quantifying the
defective Footwear Products produced in each category thereof during that
month.
7.6 If any controversy arises concerning defective Footwear Products or other
property of GEAR that is in the possession of MANUFACTURER, MANUFACTURER
shall immediately notify GEAR of such controversy and the number of
Footwear Products or other property at issue, and such Footwear Products or
other property shall, unless GEAR otherwise consents in writing, be stored
by MANUFACTURER at its own expense pending resolution of such controversy.
7.7 MANUFACTURER expressly agrees that it will not sell, distribute or dispose
of any Footwear Products rejected by GEAR as defective without the express
prior written consent of GEAR.
7.8 MANUFACTURER acknowledges that certain manufacturing defects cannot be
detected until after the Footwear Products have been delivered to GEAR and
resold to consumers as components of finished footwear. Accordingly,
MANUFACTURER agrees to pay GEAR or its nominee an amount equal to the
landed, FOB cost of all Footwear Products manufactured by the MANUFACTURER
for GEAR that are defective and returned to GEAR by any of its customers
because of a defect contained in the Footwear Product, as well as a $1.50
(USD) per pair handling charge. MANUFACTURER agrees to pay such amount to
GEAR within thirty (30) calendar days of notification of such returned
Devices. MANUFACTURER shall have the right to inspect any such returned
Footwear Products to determine the nature of the defect, and GEAR may, at
its option, reduce the amount that MANUFACTURER shall pay it for such
returned Products, PROVIDED that MANUFACTURER completes such inspection and
notifies GEAR of the results thereof within such 30-day period.
8 MANUFACTURING AND INVENTORY DATA
MANUFACTURER shall at all times during the continuance of this Agreement
and for one year thereafter keep at its usual place of business appropriate
and accurate records of the manufacture and inventory of the Footwear
Products and all purchases of materials and Trim for the Footwear Products.
GEAR and/or its authorized representatives shall have reasonable access to
MANUFACTURER's books of account, manufacturing and inventory data and other
records and shall be allowed to make copies from such records.
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9 WARRANTIES
MANUFACTURER represents and warrants to GEAR that all Footwear Products
shall conform strictly to the approved confirmation and quality samples
thereof, any related Confidential Information, and all other applicable
specifications and standards therefor, that they shall be free from defects
in materials and workmanship, and that they shall be merchantable and
saleable to GEAR's customers in the ordinary course of its business. GEAR
may, without prejudice to any other of its remedies under law or this
Agreement, return to MANUFACTURER any Footwear Products produced by it that
do not comply with this warranty. In the event of such a return, GEAR shall
be given full credit for the cost of the returned Footwear Products, plus
any applicable shipping costs, duties and a reasonable handling fee.
10 TRIM AND MOLDS
10.1 With respect to MANUFACTURER's manufacture or procurement of Trim, and in
particular, any Trim bearing the Trademarks, MANUFACTURER shall comply with
the following conditions, unless otherwise agreed by GEAR or its designated
representative.
(i) Upon request by GEAR, MANUFACTURER shall forward to GEAR the
names and addresses of each proposed Trim subcontractor, and (if
different), the proposed provider(s) thereof (the "Trim
Subcontractors"), as well as copies of all contracts or other
documents between MANUFACTURER and such Trim providers concerning
its procurement of Trim from them.
(ii) Any order for Trim placed by MANUFACTURER shall be authorized by
GEAR before it becomes effective. MANUFACTURER agrees to obtain
such authorization from GEAR prior to dispatching any orders for
Trim to any Trim Subcontractor.
(iii) MANUFACTURER shall be responsible for obtaining executed Trim
manufacturing agreements from each of its Trim Subcontractors
substantially in the form of the Trim Agreement attached hereto
as EXHIBIT K-I.
10.2 All Trim shall be and remain the exclusive property of GEAR, and shall be
used by MANUFACTURER only in the manufacture of the Footwear Products.
MANUFACTURER acknowledges that the loss of any Trim bearing the Trademarks
would cause irreparable harm to GEAR, the amount of which would be
difficult and impractical to establish. Therefore, MANUFACTURER agrees to
pay to GEAR immediately upon demand by it the sum of * for each
unaccounted for, lost or misplaced item of Trim bearing the Trademarks. The
parties agree that this sum represents a fair and reasonable estimate of
the damage to GEAR caused by any such loss.
10.3 At such time as GEAR in its sole discretion so requests, MANUFACTURER and
its Trim Subcontractors shall immediately deliver to GEAR or its designee
any samples, Molds, Trim or Footwear Products bearing the Trademarks.
Neither MANUFACTURER nor any of the Trim Subcontractors shall be entitled
under any circumstances to retain any such items as a setoff against any
monies due or to become due from GEAR or any other
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* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
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authorized purchaser of the Footwear Products. GEAR shall reimburse the
relevant party for its reasonable costs incurred in the production of such
items and their delivery to it. In the case of Molds or other hard tooling
bearing any of the Trademarks, including GEAR proprietary ornamental
designs, such reasonable costs shall include the unamortized value of the
Molds according to the terms of the Tooling Agreement attached hereto as
EXHIBIT K-II.
10.4 All Molds made or procured by MANUFACTURER in connection with the Footwear
Products shall be and remain the property of GEAR; GEAR may, under certain
conditions and in its sole discretion, allow MANUFACTURER or the relevant
Subcontractor to retain ownership and/or possession of certain Molds;
PROVIDED, however, that in such instances, MANUFACTURER and its
Subcontractors shall comply strictly with GEAR's instructions regarding
removal of the Trademarks from the Molds, and shall permit GEAR and/or its
authorized representative to supervise such removal.
10.5 MANUFACTURER acknowledges that all Molds made or procured by MANUFACTURER
in connection with the Footwear Products are and shall remain the property
of GEAR, and that the loss of any such Mold would cause irreparable harm to
GEAR, the amount of which would be difficult and impractical to establish.
Therefore, MANUFACTURER agrees to pay to GEAR immediately upon demand by it
the sum of * for each such unaccounted for, lost or misplaced Mold.
The parties agree that this sum represents a fair and reasonable estimate
of the damage to GEAR caused by any such loss.
10.6 MANUFACTURER agrees (i) not to sell, transfer possession or otherwise
dispose of any Molds without the prior written consent of GEAR or its
representative, (ii) to use such Molds solely for the manufacture of the
Footwear Products, and (iii) not to reproduce such Molds, unless so
authorized in writing by GEAR.
10.7 MANUFACTURER agrees that GEAR and its authorized representatives shall be
entitled to enter upon any premises of MANUFACTURER where any samples,
Molds, Trim or Footwear Products or other property of GEAR are reasonably
thought to be located, and may peaceably recover possession of any such
items located there, if, in GEAR's reasonable opinion, MANUFACTURER is in
breach of any of the terms of this Section 10.
11 TRADEMARKS
11.1 MANUFACTURER hereby acknowledges (i) the validity of the Trademarks, (ii)
that GEAR has at all times had, and shall continue to have, the exclusive
right, title and interest in and to the Trademarks, (iii) that neither this
Agreement nor the performance of any services by MANUFACTURER hereunder
shall confer on MANUFACTURER any right, title or interest in or to the
Trademarks, and (iv) that, except as authorized herein, MANUFACTURER does
not have any permission to and will not adopt, use, register, or attempt to
register as a trademark, trade name, business name or corporate name or
part thereof, whether during the continuance of this Agreement or after its
termination, any word, symbol, brand, chop or other emblem identical or
confusingly similar to any of the Trademarks.
11.2 MANUFACTURER agrees that any use whatsoever of the Trademarks by
MANUFACTURER shall inure to the benefit of GEAR, and agrees to assist GEAR
to
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* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
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maintain, perfect and enhance its title and interest in relation to its
Trademarks. MANUFACTURER shall not do or cause to be done any act or thing
contesting or in any way impairing or likely to impair any part of GEAR's
right, title and interest in and to the Trademarks, or detrimental to the
reputation and goodwill of GEAR or the Footwear Products.
11.3 MANUFACTURER acknowledges that the sale and/or distribution of the Footwear
Products and/or use of any of the Trademarks except as herein agreed may
result in immediate irremediable damage to GEAR, and MANUFACTURER further
acknowledges that GEAR may have no adequate remedy for such damage. In the
event of such failure, GEAR shall be entitled to equitable relief by way of
temporary, preliminary and/or permanent injunction.
11.4 MANUFACTURER agrees to use its best efforts to protect the Trademarks. If
any of the Trademarks is infringed, GEAR may take such action as GEAR may
deem appropriate, and upon request, MANUFACTURER shall, at GEAR's expense,
cooperate fully with it in any such action. MANUFACTURER further agrees to
notify GEAR immediately of any instance in which any person other than GEAR
requests MANUFACTURER to manufacture Footwear Products using any of the
Trademarks or any name, trademark, logo or design identical to or
confusingly similar to those used by GEAR, and of any other facts or
circumstance that suggests that any other person may be wrongfully using
any such name, trademark, logo or design; PROVIDED, however, that
MANUFACTURER shall not take any action with respect to any such request or
use unless requested to do so by GEAR in writing.
12 INSURANCE
12.1 During the entire term of this Agreement and at all times during which the
Footwear Products are sold and for one (1) year thereafter, MANUFACTURER
shall, at its own expense, maintain in full force and effect a policy of
commercial general liability insurance, including product liability
insurance, written on an "occurrence" form and with a reputable insurer, in
an amount of not less than five million U.S. Dollars (US$5,000,000.00),
naming GEAR and its affiliates as an "additional insured" thereon; such
policy shall provide for at least thirty (30) days' advance written notice
to the named insureds of any cancellation or substantial modification
thereof (including, without limitation, any reduction of the aggregate
coverage limit).
12.2 Within thirty (30) days of its execution of this Agreement, and as GEAR may
reasonably request from time-to-time thereafter, MANUFACTURER shall provide
GEAR with a certificate of such insurance coverage; renewal certificates of
such policy shall be issued at least ten (10) days prior to the date of the
policy expiration.
13 INVENTIONS
13.1 MANUFACTURER shall inform GEAR promptly and fully of all Inventions made or
developed by it in the course of or in connection with MANUFACTURER's
performance of services under this Agreement and/or on GEAR's behalf. Upon
request by GEAR, such information shall be in the form of a written report,
setting forth in detail the structures, procedures, processes, compositions
and methodology employed therein, as well as the results achieved thereby.
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13.2 MANUFACTURER hereby assigns and agrees to assign to GEAR all of
MANUFACTURER's rights in and to such Inventions and in and to any
applications for United States or foreign letters patent and copyrights and
to any resulting letters patent and copyright registrations therefor.
MANUFACTURER warrants to GEAR that it shall secure such agreements with its
employees and/or permitted Sub-contractors as are necessary to carry out
the provisions of this Section. MANUFACTURER shall execute all documents
when reasonably called upon by GEAR to do so in order to perfect L.A.
Gear's title and interest to all Inventions.
14 CONFIDENTIAL INFORMATION AND NON-DISCLOSURE
14.1 MANUFACTURER acknowledges that it may receive Confidential Information from
GEAR and/or the Purchasers in connection with the manufacture of the
Footwear Products. MANUFACTURER agrees that it shall use such Confidential
Information solely for the purpose of the manufacture of Footwear Products
in accordance with this Agreement. It shall not at any time disclose,
appropriate or use, and shall at all times prevent its directors, officers,
employees, agents and independent contractors from disclosing,
appropriating or using such Confidential Information on their own behalf or
on behalf of others.
14.2 MANUFACTURER acknowledges that GEAR has at all times had, and shall
continue to have title to all Confidential Information. MANUFACTURER shall
restrict the circulation of Confidential Information to such persons who
must have access to such Confidential Information in order for MANUFACTURER
to manufacture the Footwear Products. MANUFACTURER shall not make or permit
to be made by its directors, officers, employees, agents or independent
contractors any copies, abstracts, or summaries of any Confidential
Information. MANUFACTURER shall immediately, upon GEAR's request, or upon
termination of this Agreement for any reason whatsoever, promptly return
all Confidential Information, including all copies, abstracts, or summaries
made, whether or not authorized, to GEAR or, at GEAR's election, destroy
the same in the presence of GEAR's authorized representative. MANUFACTURER
shall obtain from its key personnel separate undertakings with respect to
the restriction of circulation, the making of any copies, abstracts or
summaries, and the return, as aforesaid, of any Confidential Information.
14.3 The provisions of this Section shall not apply to Confidential Information
if the same was in the public domain at the time it was disclosed or
thereafter shall fall into the public domain, except through the fault of
MANUFACTURER, its employees, agents or Sub-contractors.
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15 FORCE MAJEURE
If MANUFACTURER is materially inhibited from performing any of its
obligations under this Agreement by act of God or governmental action or
similar act reasonably beyond MANUFACTURER's control, MANUFACTURER shall
immediately notify GEAR thereof, giving full particulars of the
circumstances in question. MANUFACTURER shall then be relieved of liability
to GEAR for failure to perform such obligations, but shall nevertheless use
its best efforts to resume full performance thereof without avoidable
delay, provided that if any delay in MANUFACTURER's performance caused by
act of God or governmental action exceeds thirty (30) days: (i) GEAR may
cancel any pending purchase order without any liability, and/or (ii) GEAR
may, at its option, terminate this Agreement effective immediately.
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16 TERM AND TERMINATION
16.1 This Agreement shall continue in full force and effect until terminated
by either party as herein provided. Insofar as they are not
unenforceable, the provisions of Sections 1, 8-13, 15, 16, 23, 24 and
25 shall survive any termination of this Agreement.
16.2 This Agreement may be terminated by any party, without cause, on ninety
(90) days' written notice. In addition, GEAR shall have the right to
terminate this Agreement, and GEAR shall have the right to cancel any
purchase order, without further liability to MANUFACTURER, for good
cause, at any time by giving fourteen (14) days' notice in writing to
MANUFACTURER in any of the following events (each constituting "good
cause"):
(i) If MANUFACTURER commits a material breach of any of the terms of
this Agreement and fails to remedy the same within thirty (30)
days of being notified by GEAR of the breach;
(ii) If MANUFACTURER shall sell or transfer more than 33% of its
assets, or any person competing or likely to compete with the
Footwear Products acquires direct or indirect control of
MANUFACTURER; or,
(iii) If MANUFACTURER shall make an assignment for the benefit of its
creditors, or shall fail to meet its obligations as they come
due, or a trustee or receiver shall be appointed for MANUFACTURER
or any of its assets or if MANUFACTURER petitions for or is
ordered into bankruptcy or liquidation or reorganization.
17 CONSEQUENCES OF TERMINATION
17.1 On the termination of the Agreement for any reason, MANUFACTURER hereby
undertakes to:
(i) Immediately cease manufacturing, distributing, selling, or in any
way dealing with, any Footwear Products or Trim bearing the
Trademarks, or any carton, container, packing or wrapping
material, or advertising, promotional, or display material
pertaining thereto, except as consented to by GEAR in writing;
and
(ii) Upon receipt of a written request from GEAR therefor, promptly
sell to GEAR, at MANUFACTURER's cost, all raw materials,
packaging materials or components and unfinished Footwear
Products held by or on behalf of MANUFACTURER or under the
control of MANUFACTURER at the date of termination.
17.2 Sixty (60) days before the expiration of this Agreement and/or ten (10)
days after receipt of notice of earlier termination by MANUFACTURER,
MANUFACTURER shall furnish GEAR with a statement showing the number
and description of the Footwear Products and Trim in its possession or
under its control. GEAR reserves the right to take a physical inventory
of the Footwear Products and Trim to verify such inventory, and
MANUFACTURER agrees to allow Purchaser's authorized representatives
into its premises to carry out the physical inventory. Such physical
inventory may be undertaken during regular business hours by GEAR or
its authorized representatives without advance notice to MANUFACTURER.
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17.3 The termination of this Agreement shall not affect the respective
rights and liabilities of each of the parties hereto that accrued prior
to such termination. After the termination of this Agreement, the
parties shall continue to be bound by the terms herein until
MANUFACTURER completes any outstanding order(s) that had commenced
prior to the notice for termination.
18 COMPLIANCE WITH LOCAL LAWS
18.1 MANUFACTURER warrants that all Footwear Products produced during the
term of this Agreement shall be in full compliance with all applicable
laws and regulations then in force.
18.2 Whenever registration of this Agreement with relevant governmental
authorities is necessary to preserve GEAR's rights under this
Agreement, MANUFACTURER shall give prompt notice to GEAR thereof so
that GEAR may preserve its rights herein.
19 HUMAN RIGHTS POLICY
MANUFACTURER acknowledges that it has read the document entitled, "L.A.
Gear, Inc. Human Rights Commitment," attached hereto as EXHIBIT K-III, and
agrees that GEAR may terminate its relationship with MANUFACTURER in the
event of any willful non-compliance with, or refusal to correct promptly
any non-compliance with, the Guidelines set forth therein by the
MANUFACTURER.
20 NOTICES
All notices to be sent to any party shall either be (i) dispatched by telex
or telefax with confirmed answer back by telex or telefax, or (ii) mailed
by first class prepaid air mail, return receipt requested, to the parties
at the following addresses:
If to MANUFACTURER: ____________________________
____________________________
____________________________
____________________________
Telefax: ____________________________
If to GEAR: L.A. Gear, Inc.
Operations Dept.
2850 Ocean Park Blvd.
Santa Monica, CA 90405
Telefax: (310) 581-____
with a copy to: L.A. Gear, Inc.
Legal Dept.
2850 Ocean Park Blvd.
Santa Monica, California 90405
Telefax: (310) 581-7766
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or to such other address as may have been notified in writing by one party
to the other in accordance with this paragraph. Any notice sent by telex or
telefax shall be deemed received on the following business day in the
location of the recipient. Any notice sent by air mail shall be deemed to
have been received ten (10) days after mailing.
21 ASSIGNMENT
GEAR may assign in whole or in part its rights and obligations hereunder to
any other entity. Without the prior written consent of GEAR, MANUFACTURER
shall not transfer or assign this Agreement or any rights or obligations
thereunder.
22 NO PARTNERSHIP OR AGENCY
Nothing in this Agreement shall be deemed to constitute a partnership
between the parties or to make MANUFACTURER an agent of GEAR for any
purpose. MANUFACTURER shall have no authority to bind GEAR or to contract
in the name of or create any liability of GEAR.
23 NO SUB-CONTRACTORS
Except as provided in Section 10, MANUFACTURER shall not, without the prior
written consent of GEAR, authorize or permit any portion of any of the
Footwear Products bearing the Trademarks to be produced or manufactured by
any person other than MANUFACTURER. MANUFACTURER agrees that it shall be
responsible for the actions or omissions to act of any sub-contractor used
by it in connection with any of the Footwear Products or with satisfying
any of MANUFACTURER's responsibilities under this Agreement.
24 WAIVER
The failure of any party to enforce any term or provision hereof shall not
be construed to be a waiver of such term or provision and shall in no way
affect the right of such party thereafter to enforce such term or provision
or any other term or provision hereof.
25 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, United States of America (regardless of
any jurisdiction's choice of law principles). However, if any law in the
Territory require terms other than or in addition to those contained
herein, then this Agreement shall be deemed modified so as to comply with
such laws, but only to the extent necessary to prevent the invalidity of
this Agreement or any material provision hereof, the imposition of fines or
penalties, or the creation of civil or criminal liability as a result
thereof. The forum for the resolution of any dispute related to this
Agreement, or between the parties to this Agreement, whether sounding in
tort, contract or equity, or based upon federal or state statute or
regulation, shall be Los Angeles County, California, except that GEAR
reserves the option of choosing MANUFACTURER's legal domicile as the forum
if MANUFACTURER is a defendant in the dispute. MANUFACTURER waives any
objection to (1) jurisdiction; (2) venue; and (3) service of process of any
federal or state court in Los Angeles County, California. GEAR and
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MANUFACTURER each agrees that service of process upon it, in any such suit,
action or proceeding shall be deemed in every respect effective service of
process upon it if given in the manner set forth in section 18 (other than
by mail).
26 REPRESENTATION AND WARRANTIES
Each party represents and warrants to the others that: (a) it has full
power and authority to enter into and to discharge its responsibilities
under this Agreement, and (b) the making and performance of this Agreement
does not violate any applicable provision of law or violate any other
agreement to which it is a party.
27 ENTIRE AGREEMENT
This Agreement and the Exhibits attached hereto contain the entire
understanding of the parties and supersede all prior written and oral
agreements, understandings or commitments made by the parties with respect
to the subject matter hereof. If any provision of this Agreement shall be
found void or unenforceable under the laws of any jurisdiction, such
invalidity or unenforceability shall not affect the remaining provisions of
this Agreement or the interpretation of this Agreement under the laws of
any other jurisdiction.
28 AMENDMENT
This Agreement may be amended only in a writing signed by all parties.
29 EFFECTIVENESS
The submission of this Agreement does not constitute an offer. This
Agreement shall become effective only upon execution thereof by Company and
Distributor.
30 AUTHORITY
Each signatory hereto personally represents and warrants that he or she has
the legal authority, right and power to execute this Agreement on behalf of
the party on whose behalf he or she is signing, and personally represents
and warrants that such party has the legal authority, right and power to
grant the rights and undertake the duties provided for in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective, duly authorized representatives as of the date first written
above.
MANUFACTURER: L.A. GEAR, INC.:
By:________________________ By:________________________
Title:______________________ Title:______________________
Date:______________________ Date:______________________
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EXHIBIT K-I
TRIM MANUFACTURING AGREEMENT
WHEREAS, L.A. Gear, Inc. ("GEAR") is the owner of the trademark, L.A. GEAR,
and other valuable trademarks ("Trademarks");
WHEREAS,____________________________________ ("MANUFACTURER"), has entered
into a Manufacturing Agreement with GEAR wherein MANUFACTURER is authorized to
produce certain footwear products ("Footwear Products") for GEAR to its order;
AND WHEREAS, MANUFACTURER now desires to contract with
_______________________________________ ("SUBCONTRACTOR"), to make or otherwise
supply MANUFACTURER with accessory items bearing the Trademarks ("Trim") to be
used in the production of the Footwear Products;
NOW THEREFORE, the parties hereto agree, for the benefit of themselves and
GEAR, as follows:
1. That all Trademark-bearing accessory items, including but not limited
to, insoles, midsoles, outsoles, linings or inserts; inflation, rebound or other
devices; thread, closures, snaps, studs, rivets, fasteners, and laces; boxes,
packaging, materials, tags, and labels; computer chips, PROMS, cams, Gross
tapes, and Jacquard tapes; and any other materials bearing the Trademarks of
GEAR (hereinafter, "Trim") are the property of GEAR, and that the
misappropriation of such items is theft and may be prosecuted.
2. That said Trim items have a substantially greater value in the
marketplace than said items not bearing such Trademarks.
3. That the above mentioned Trademarks have come to represent and connote
quality goods and their authenticity.
4. That diversion, loss or misappropriation of any Trim items or any
other items bearing the Trademarks or essential to the Footwear Production of
Trademarked items by anyone may have a substantial negative impact on the value
of such Trademarks if such items subsequently become incorporated into
counterfeit goods or are otherwise misused.
5. That in order to protect the value of the above Trademarks and in
consideration of the selection of SUBCONTRACTOR to perform labor and work for
MANUFACTURER, SUBCONTRACTOR will maintain a strict accounting for and inventory
of all items of Trim bearing said Trademarks.
6. SUBCONTRACTOR agrees to supply the Trademarked Footwear Products which
are the subject of this Agreement only to GEAR or the MANUFACTURER specifically
designated above. SUBCONTRACTOR further agrees to supply GEAR periodically and
upon request with an accounting of the quantity of Footwear Products ordered
and/or shipped to MANUFACTURER.
7. SUBCONTRACTOR is not entitled to dispose of any such items, whether
first quality or scrap in any manner, but agrees to return each and every such
item to GEAR or to
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MANUFACTURER. SUBCONTRACTOR acknowledges its duties of strict accountability for
all Trademarked items hereunder.
8. Failure of the SUBCONTRACTOR to furnish a strict accounting and
inventory to GEAR or to MANUFACTURER that is acceptable to GEAR, will result in
CONTRACTOR's liability to GEAR and MANUFACTURER for damages, as well as
potential criminal liability.
9. SUBCONTRACTOR agrees to be subject to inspection by representatives of
GEAR or MANUFACTURER. SUBCONTRACTOR further agrees that, with respect to Quality
Control, it shall be bound by the same provisions as those that bind
MANUFACTURER in the Manufacturing Agreement with GEAR.
10. SUBCONTRACTOR agrees to allow access to its premises and physical
inventory of all Trademark-bearing goods at any reasonable time by GEAR,
MANUFACTURER, or the agents of either of them.
11. The parties hereto acknowledge that SUBCONTRACTOR may have need for
computer chips, PROMs, cams, Jacquard tapes, Gross tapes, dies, molds, or other
materials to accurately reproduce the Trademarks. SUBCONTRACTOR acknowledges
that said items are the property of GEAR, and that, immediately on demand or
upon termination of the contractual relationship, it shall immediately deliver
said items, together with any other items of Trim, to GEAR or the MANUFACTURER.
SUBCONTRACTOR further acknowledges its liability for any unauthorized
reproduction of the Trademarks and, in addition to any actual damages for
violation of this Agreement, SUBCONTRACTOR agrees to pay reasonable attorney's
fees and costs necessary to enforce this Agreement with or without litigation.
12. In the event that, prior to the execution of this Agreement,
SUBCONTRACTOR possessed any above mentioned Trademarked items, said items shall
be subject to this Agreement. This Agreement shall cover all Trademarked items
in the possession of the SUBCONTRACTOR.
MANUFACTURER TRIM MANUFACTURER
By:______________________ By:_______________________
Title:____________________ Title:_____________________
Dated:___________________ Dated:____________________
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EXHIBIT K-II
TOOLING AGREEMENT
For Style No._____________________ Contract #_________________________
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ITEM QUANTITY SIZES UNIT COST USD
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Total tooling cost: _____________________ U.S. Dollars ("USD")
This Tooling Agreement is entered into as of _________, 199__, by and between
L.A. Gear, Inc., 2850 Ocean Park Boulevard, Santa Monica, California, 90405,
U.S.A. ("GEAR"), and ___________________________________________________________
__________________________________________________ ("MANUFACTURER").
MANUFACTURER agrees to use the tooling described above (the "Tooling") to
manufacture the style of footwear designated above according to L.A. Gear's
specifications and other instructions. GEAR agrees to pay MANUFACTURER the
amount of $_______________ USD for the total tooling cost as set forth above by
adding $________________ USD to the F.O.B. price on the first ___________ pairs
of footwear of the identified style that MANUFACTURER produces pursuant to
GEAR's order using such Tooling. GEAR shall not be obligated to order any or all
of the pairs identified, and if, by the end of one year from the date of this
Tooling Agreement, said total tooling cost has not been fully paid for by GEAR,
or if GEAR, in its sole discretion, wishes MANUFACTURER to surrender the Tooling
to GEAR, GEAR will pay the unpaid balance of such Tooling to MANUFACTURER.
MANUFACTURER acknowledges that GEAR owns each and every part of the Tooling, and
MANUFACTURER shall surrender each and every part of the Tooling, including all
original molds and any copies or duplicates thereof, to GEAR within 10 calendar
days of its request to do so.
MANUFACTURER agrees that the Tooling was received in new or like-new condition
and MANUFACTURER agrees to keep the Tooling in new or like-new condition
throughout the time
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period in which MANUFACTURER has the Tooling in its possession or control,
reasonable wear and tear excepted. In the event that the Tooling that is
surrendered to GEAR is not in new or like new condition, MANUFACTURER agrees to
pay all costs incurred to bring the Tooling back up to like-new condition.
MANUFACTURER agrees that the Tooling shall be used only as expressly approved
and authorized by GEAR, and shall not be used for anything other than GEAR
business.
MANUFACTURER: L.A. Gear, Inc.:
_____________________________ ____________________________
(Authorized signature) (Authorized signature)
_____________________________ ____________________________
(Title) (Title)
_____________________________ ____________________________
(Date) (Date)
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EXHIBIT K-III
L.A. GEAR, INC.
HUMAN RIGHTS COMMITMENT
As a responsible corporate citizen and an active participant in an ever-growing
global economy, L.A. Gear, Inc. ("L.A. Gear") accepts its moral and ethical
obligation to enter into and maintain business relationships only with business
partners which adhere to the human rights guidelines set forth below.
Our "business partners" are defined as contractors, subcontractors and suppliers
who provide labor and/or materials utilized in the manufacture of LA Gear
products.
In developing these guidelines we have sought (i) to use standards that are fair
and that define issues which are substantially under the control of our
individual business partners, (ii) to recognize the diverse cultures in which
our business partners operate, and (iii) to ensure that our products are
manufactured in an environment which encourages individuals to take pride in
their work
In general, LA Gear seeks business partners whose workers are employed
voluntarily, not put at risk of physical harm, fairly compensated, enjoy the
right of free association, and are not otherwise exploited in any manner.
1. NON-DISCRIMINATION. LA Gear will seek business partners who base their
hiring and employment practices on the basis of the ability of workers to
do the job correctly, rather than on personal characteristics (e.g., race,
color, national origin, gender, sexual orientation, etc.) or political,
religious or other beliefs.
2. COMPENSATION. LA Gear will only do business with partners who compensate
their workers in accordance with applicable local law, if any, and
prevailing local manufacturing industry practices. LA Gear will seek
business partners who are committed, within the context of national
practices and conditions, to improving community conditions and addressing
the basic needs of workers and their families.
3. WORKING HOURS. LA Gear will seek business partners who do not require work
weeks, on a regularly scheduled basis, of in excess of 60 hours, and who
provide appropriate compensation for overtime in compliance with applicable
local law, if any, and prevailing local manufacturing industry practices.
4. CHILD LABOR. LA Gear will not do business with partners who employ child
labor. A "child" is defined as a person who is under the greater of (i) 14
years of age, or (ii) the age for completing compulsory education in the
country in which a business partner is located.
5. FORCED AND/OR PRISON LABOR. L.A. Gear will not do business with partners
who use or exploit forced and/or prison labor, including compulsory labor
intended to accomplish the suppression of political beliefs.
6. FREEDOM OF ASSOCIATION. L.A. Gear values the individual rights of freedom
of association and freedom of assembly, and will not do business with
partners who seek to suppress or violate these basic human rights.
7. WORKPLACE SAFETY. LA Gear will seek business partners who provide workers
with a safe and healthy work environment, free from exposure to hazardous
conditions. Any residential facilities provided to workers by business
partners should likewise be safe and healthy facilities.
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8. LEGAL REQUIREMENTS. L.A. Gear expects its business partners to be aware of
and to comply with any and all local legal requirements applicable to the
conduct of their respective businesses.
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EXHIBIT "L"
LIGHTING COMPONENT SUPPLY AGREEMENT
This AGREEMENT, effective as of ________________, 199___, is made by and
between the following Parties:
1.
_____________________________________________________________("Vendor"),
having an office located at __________________________________________________;
and,
2. L. A. Gear, Inc. ("L. A. Gear"), a corporation organized and existing
under the laws of the State of California, having an office located at 2850
Ocean Park Blvd., Santa Monica, California, 90405.
WITNESSETH:
WHEREAS, VENDOR possesses the technical and manufacturing skills,
experience, equipment, know-how and facilities necessary to manufacture certain
electronic light Components (as defined in Section 2.1 below), which Components
are adapted for incorporation into certain lighted footwear, and desires to
enter into a manufacturing and supply relationship with L. A. Gear wherein
VENDOR will make and sell the Components to L. A. Gear and/or its Designees (as
defined in Section 1.2 below), at their order, for such purpose; and,
WHEREAS, L. A. Gear is in the business of designing, developing, making (or
having made), importing, exporting, selling, offering for sale, distributing and
otherwise disposing of quality lighted footwear, and desires to have VENDOR make
and supply the Components to it and/or its Designees for incorporation into such
lighted footwear.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the Parties hereto hereby agree as
follows.
SECTION 1.0: DEFINITIONS
As used throughout this Agreement, and unless otherwise specified, the following
terms shall have the meanings indicated below:
1.1 "COMPONENTS" shall mean * to be manufactured by VENDOR to
agreed-upon specifications for purchase by L. A. Gear or its Designees, which
are suitable for incorporation into footwear, comprising * which, when
assembled, interconnected, and incorporated into footwear, result in lighted
footwear.
1.2 "DESIGNEES" shall mean such third-party footwear manufacturers in
privity with L.A. Gear as it may, from time-to-time, authorize to order and
purchase Components from VENDOR during the course of this Agreement for the
purpose of making lighted footwear.
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* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
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1.3 "Term" shall mean the period of time beginning on the effective date
of this Agreement and ending upon any termination of this Agreement pursuant to
any termination provisions thereof.
1.4 Purchaser" shall mean the entities, i.e., either L.A. Gear, its
authorized buying agent(s), or one of the Designees, who are authorized to place
purchase orders for the Components under this Agreement.
SECTION 2.0: MANUFACTURING
2.1 OBLIGATIONS OF THE PARTIES. During the Term of this Agreement, VENDOR
shall manufacture (or cause to be manufactured) and deliver to the order of
L. A. Gear and/or its Designees such quantities of the Components as they shall
order, and L. A. Gear and/or its Designees shall order, purchase and pay for,
such Components.
2.2 CONFIRMATION SAMPLES. No later than ten (10) days after the execution
and delivery of this Agreement, but in any event, prior to placement of any
purchase order for any particular type of Component, VENDOR shall deliver to
L.A. Gear for its approval at its California offices three identical samples of
each type of Component that L.A. Gear proposes be purchased or have purchased
from VENDOR under this Agreement, together with a quote of the price which
VENDOR proposes to charge L.A. Gear or its Designees for such Components, broken
down by quantity; the samples shall be approved by L.A. Gear in its sole and
absolute discretion (collectively, the "Confirmation Samples") as follows:
(a) If L.A. Gear approves the Confirmation Samples, it shall so notify
VENDOR in writing.
(b) If L.A. Gear disapproves the Confirmation Samples, it shall promptly
provide written notice thereof to VENDOR, accompanied by an explanation of
the grounds for such disapproval and suggestions of appropriate changes to
the Confirmation Samples and/or other components or materials which, if
made, would result in approval. VENDOR shall strictly comply with any such
comments or instructions in the manufacture of the Confirmation Components,
and shall, within ten (10) U.S. business days thereof, deliver to L.A. Gear
for its approval at its California offices three identical samples of
Confirmation Components that have been modified in accordance with such
comments or instructions, or if it cannot, shall provide L.A. Gear with a
written explanation of why it cannot comply with such comments or
instructions.
(c) Failure of L.A. Gear to respond to delivery of any Confirmation
Samples or to provide express approval of them from an authorized officer
of L.A. Gear shall be deemed disapproval of the samples.
(d) VENDOR shall deliver Confirmation Samples to L.A. Gear, and L.A. Gear
shall approve or disapprove of them in accordance with the terms of this
Section until L.A. Gear approves the particular Samples in question and so
notifies VENDOR in writing. VENDOR shall not commence the manufacture of
production quantities of any type of Components on behalf of L.A. Gear or
any of its Designees based on such samples and/or other materials, without
making the changes or revisions requested by or otherwise approved by L.A.
Gear, and until L.A. Gear has agreed with VENDOR in writing that the
particular Confirmation Samples in question comply fully with its
requirements, including its price in production quantities. Upon acceptance
by L.A. Gear, the Confirmation Sample in question, together with the
current specification thereof, shall become and remain the standard by
which any claims for form, fit, function, workmanship or quality shall be
judged. Each party shall maintain in its custody one of the three
L.A.-Gear-approved Confirmation Samples, certified as such by an
appropriate officer of the other party, and the third sample shall be
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made available for use the quality control agent or representative
appointed to inspect the production Components. From and after acceptance
in writing by L.A. Gear of the Confirmation Samples, all Components
manufactured and supplied by Vendor must meet or exceed the functional
requirements, workmanship and quality of the relevant specifications and
Confirmation Samples.
2.3 PLANT INSPECTIONS; QUALITY SAMPLES. L. A. Gear and/or its authorized
agent or representative shall have the right, on reasonable notice and during
business hours, to visit any Component manufacturing and/or assembly facility
under the control of VENDOR, and any other facilities used by VENDOR for
production, packaging, storage and delivery of the Components, to enable them to
inspect and monitor the manufacture and/or delivery of the Components and to
take a reasonable number of inspection samples of Components then in production
without charge.
2.4 PROTOTYPE COMPONENTS. During the Term of this Agreement, L. A. Gear
may, from time to time, request that VENDOR produce samples of certain new types
of Components ("Prototype Components") having application to new types or styles
of Lighted Footwear, and/or participate in the design and development of same;
promptly after receipt of such request, VENDOR shall quote a price for the
manufacture and delivery of such Prototype Components, and, upon L. A. Gear's
order, shall make and deliver to L. A. Gear such number of such Components as
may be requested; VENDOR acknowledges that L. A. Gear's purchase of such samples
shall not obligate it to purchase production quantities of such Components.
2.5 PLACING AND FILLING ORDERS.
(a) Unless otherwise agreed by the parties, purchase orders for Components
may be placed by L. A. Gear, its authorized buying agent(s) and/or any
authorized L.A. Gear Designee; L. A. Gear may, in its sole discretion, add
to or subtract from the list of approved Designees by written notice to
VENDOR.
(b) Unless otherwise agreed in writing between the parties, all orders to
VENDOR for Components shall be made by a written purchase order, in the
English language, initiated by either L. A. Gear, its authorized agents,
and/or its Designees not less than thirty (30) days prior to the required
shipping date for such order; the Parties acknowledge and agree that, while
the Designees are neither related to nor the agents of L.A. Gear, the
provisions of this Agreement shall apply to purchase orders initiated by a
Designee as if such Designee were a party hereto; in the event of any
conflict between the terms of any purchase order and this Agreement, the
terms of this Agreement shall govern.
(c) All purchase orders for the Components are subject to acceptance by
VENDOR by written confirmation thereof sent by VENDOR to the ordering
Purchaser via telex or telefax within five (5) U.S. business days of the
receipt of such order.
(d) Purchase orders may be placed or amended by the ordering Purchaser
after their placement by sending a telex or telefax notice thereof to
VENDOR; VENDOR shall acknowledge receipt of such notice reasonably promptly
after its receipt by sending a telex or telefax notice thereof to its
originator, and shall accept or reject each such order or amendment by
telex or telefax within five (5) calendar days after its receipt.
(e) Acceptance of any purchase order shall be strictly limited to the
terms specified in this Agreement and the purchase order itself; any other
terms contained in VENDOR's order confirmation or any other document used
by VENDOR to communicate its acceptance shall be void unless otherwise
agreed to, in writing, by the ordering Purchaser.
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2.6 PRICE, PAYMENT AND INVOICES.
(a) The confirmation price, quantity and delivery schedule terms for each
type of Component to be produced by VENDOR hereunder shall be as agreed in
writing by VENDOR and L.A. Gear prior to issuance of any purchase order
applicable thereto; thereafter, such terms shall remain firm and unchanged
as to such purchase order, except as otherwise subsequently agreed in
writing between VENDOR and L.A. Gear.
(b) Unless otherwise agreed in writing between VENDOR and L.A. Gear,
payment for the Components shall be made by means of ____________________
______________, upon the following terms:________________________________
_______________.
2.7 COMPONENT SHIPMENT, DELIVERY AND TITLE. Unless otherwise specified in
a particular purchase order, VENDOR shall sell the Components to the Purchasers
"FCA (...named place)" terms, where FCA shall mean "Free Carrier," as defined in
International Chamber of Commerce, Incoterms, 1990, and "Carrier" shall refer to
the carrier designated by the Purchaser in the relevant purchase order or
elsewhere. It is understood and agreed by the parties that, unless otherwise
agreed to in writing by the parties hereto, all risk and title to all Components
made and purchased hereunder shall remain in VENDOR until delivery of same to
the Carrier at the "named place" designated by the Purchaser in the relevant
purchase order, and upon such delivery, shall then pass to and vest in the
Purchaser.
2.8 DELAYED COMPONENT DELIVERY. VENDOR shall promptly notify L.A. Gear and
any other affected Purchaser of the Components of any event that will delay
delivery of the Components ordered beyond the delivery or shipping date
specified in the relevant purchase order and the related letter of credit, and
shall use all reasonable efforts to avoid or minimize any such delay; VENDOR
acknowledges that TIME IS OF THE ESSENCE, and that any delay in the delivery of
the Components is substantially prejudicial to L. A. Gear's interests; PROVIDED,
however, and subject to the provisions of Section 9.0 ("Force Majeure"), and in
lieu of any other remedy available to it, and upon notice thereof by the
affected Purchaser to VENDOR within five (5) business days of the delayed
delivery date, that such Purchaser's remedy with respect to any delayed portion
of any order for Production Components shall be limited to the following
remedies:
Shipping Delay
Period, Days Remedy
------------ ------
* to * VENDOR shall, at its own expense, ship such
portion during the remainder of this period VIA
D.H.L. "International Rush Service," or
equivalent.
* to * In addition to shipping such portion during the
remainder of this period VIA D.H.L. "International
Rush Service," or equivalent, VENDOR shall pay the
Purchaser a penalty of * of the FCA invoice
price of such portion.
- -----------------------
* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
-4-
<PAGE>
* to * In addition to shipping such portion during the
balance of this period VIA D.H.L. "International
Rush Service," or equivalent, VENDOR shall pay the
Purchaser a penalty of * of the FCA invoice
price of such portion.
* to * The Purchaser may elect between requiring VENDOR
to ship such portion during the balance of this
period VIA D.H.L. "International Rush Service," or
equivalent and paying the Purchaser a penalty of
* of the FCA invoice price of such portion,
OR, may cancel such portion without further
expense to itself.
* or greater Subject to the provisions of Sections 3.3 above,
and in addition to any other remedies contained
herein, the Purchaser may cancel such portion
without further expense to itself and make the
Components itself or have them made by someone
other than VENDOR.
The remedies provided in this Section shall not be affected by any prior
inspection of the Components.
2.9 COMPONENT QUALITY CONTROL. For each purchase order placed hereunder,
VENDORshall deliver to the ordering Purchaser thereof an inspection certificate
for the Components manufactured and delivered thereunder; such inspection
certificate shall be signed by VENDOR or such other person or entity as the
Purchaser shall designate, and shall certify that the Components made and
delivered under such purchase order have been inspected in accordance with the
provisions of this Section; provided, however, that such inspection certificate
shall not constitute a waiver by the Purchaser of any its rights hereunder nor
otherwise bind the Purchaser should it subsequently determine that the
Components do not conform to the specifications or the quality standards defined
by the Confirmation Samples.
2.10 DEFECTIVE COMPONENTS. VENDOR shall notify the affected Purchaser of
any recurring defects in Components then in work for such Purchaser by telex or
facsimile within a reasonable time of their discovery by VENDOR, as well as the
likelihood and extent of any delay in the shipment of the Components that will
be occasioned thereby; VENDOR shall not knowingly ship any defective Components.
2.11 DEFECT REPORTS. VENDOR shall provide to L. A. Gear, on at least a
quarterly basis, a written report (in a form approved by L.A. Gear) describing
and quantifying the defective Components produced during the preceding quarter.
2.12 Q. C. DISPUTES. L. A. Gear shall serve as arbitrator for, and shall
exercise all reasonable efforts to arbitrate promptly and fairly any dispute or
controversy arising between VENDOR and any Designee, concerning defective
Components.
2.13 DEFECTS AT PURCHASER. Any Component discovered by any Purchaser to be
defective prior to its incorporation into Footwear shall be reported to VENDOR
promptly upon its discovery, and shall be returned by such Purchaser promptly to
VENDOR at VENDOR's expense; in lieu of any other remedy available to the
Purchaser, VENDOR shall, at the Purchaser's election, and within 15 days after
receipt of the defective Component and such report, either:
(a) At VENDOR's sole expense, replace the defective Component with one of
an identical type by D.H.L. "International Rush Service," or equivalent;
or,
* Material omitted and filed separately with the SEC pursuant to a request
for confidential treatment.
-5-
<PAGE>
(b) Set off the cost of the defective Component against any Component that
is scheduled to be shipped to the affected Purchaser within that period;
or,
(c) Refund the full amount of the purchase price of the defective
Component to the Purchaser.
2.14 CONSUMER RETURNS. In the event that any Lighted Footwear is returned
to L. A. Gear by any wholesale or retail purchaser thereof because of a
defective Component contained therein (exclusive of any defect caused by
customer abuse) and such Lighted Footwear is returned within a 4-month period
after its purchase, or within a 1-year period after the delivery by VENDOR of
such Component, whichever period is shorter, VENDOR shall refund to L. A. Gear
the price paid for the Components contained therein, plus Five Dollars (US$5.00)
for shipping and handling, in lieu of any other remedy available to L. A. Gear.
2.15 MANUFACTURING, INVENTORY AND Q. C. RECORDS. VENDOR shall at all times
during the continuance of this Agreement and for one year thereafter keep at its
usual place of business proper and accurate records of the orders placed and
payments received for the Components made hereunder, and the data pertaining to
their manufacture, inventory, delivery, and quality control, and shall
administer all L.A. Gear document requirements pertaining thereto as reasonably
requested by L.A. Gear or its designated personnel; L.A. Gear and/or its
authorized representatives shall have reasonable access to such records, and
shall be allowed to make copies from such records; all such copies, records and
data shall be held and kept strictly confidential by L. A. Gear, and disclosed
only to persons within its organization who have a need to know, and L. A. Gear
shall cause such persons to observe the confidentiality thereof.
SECTION 3.0: TERM AND TERMINATION
3.1 TERM OF AGREEMENT. This Agreement shall remain in force until
terminated by one of the Parties in accordance with the termination provisions
herein.
3.2 TERMINATION. Either party may terminate this Agreement for material
breach of it by the other party on thirty (30) days written notice to the
breaching party, PROVIDED that the breach is not cured during such thirty (30)
day period; otherwise, either Party may terminate this Agreement upon ninety
(90) days written notice of such termination.
3.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. Upon termination of this
Agreement, VENDOR shall have the obligation to complete and deliver to all
Purchasers all Components then on order by such Purchasers, and such Purchasers
shall have the obligation to pay for such Components in accordance with this the
relevant purchase orders and this Agreement.
SECTION 4.0: WARRANTIES, INDEMNIFICATIONS
4.1 VENDOR REPRESENTATIONS AND WARRANTIES . VENDOR represents, warrants
and covenants to L. A. Gear as follows:
(a) All Components supplied by Vendor will function in the manner intended
for a period of four (4) months from the date that they are incorporated
into footwear; this warranty is inclusive of battery function where the
Components include permanently incorporated batteries, and is exclusive of
battery function where the Components incorporate replaceable batteries.
(b) All Components designed and developed by the VENDOR, or with respect
to which VENDOR participated materially in the design and development,
shall be free of any design defect and will not infringe the intellectual
property rights of any third party.
-6-
<PAGE>
(c) The manufacture, purchase, use and sale of the Components or lighted
footwear incorporating them will not cause any injury or damage to any
person, property or the environment.
(d) VENDOR has the full and unrestricted right, corporate power and
authority to enter into and perform the terms, covenants and conditions of
this Agreement and to be bound thereby during the entire Term of this
Agreement; this Agreement constitutes the legal, valid and binding
obligation of VENDOR, enforceable against it in accordance with its terms.
(e) No representations or warranties of VENDOR contained in this
Agreement, and no other information provided to L. A. Gear by VENDOR
contains an untrue statement of material fact, or omits to state a material
fact necessary to make the statements herein or therein not misleading.
(f) No consent, approval or authorization of, or filing or registration
with, any third party or governmental body is required in connection with
the execution, delivery and performance of this Agreement by VENDOR.
(g) The Components delivered by VENDOR under this Agreement will conform
in all material respects to the Confirmation Samples established therefor,
shall be merchantable in the ordinary course of business, and shall be fit
for their intended purpose.
(h) VENDOR shall indemnify without limitation and hold harmless L. A. Gear
from and against any and all damages, liabilities, claims (including,
without limitation, third party claims), costs and expenses, including
reasonable attorneys' fees and other legal costs, which may be incurred by
L. A. Gear arising out of or resulting from the breach by VENDOR of any of
its obligations, covenants, representations and warranties set forth in
this Agreement.
4.2 L. A. GEAR REPRESENTATIONS AND WARRANTIES. L. A. Gear, on behalf of
itself and its affiliates, represents, warrants and covenants to VENDOR as
follows:
(a) L. A. Gear has the full and unrestricted right, corporate power and
authority to enter into and perform the terms, covenants and conditions of
this Agreement and to be bound thereby during the entire Term of this
Agreement and any extension thereof; this Agreement constitutes the legal,
valid and binding obligation of L. A. Gear, enforceable against it in
accordance with its terms.
(b) No representations or warranties of L. A. Gear contained in this
Agreement, and no other information provided to VENDOR by L. A. Gear
contains an untrue statement of material fact, or omits to state a material
fact necessary to make the statements herein or therein not misleading.
(c) No consent, approval or authorization of, or filing or registration
with, any third party or governmental body is required in connection with
the execution, delivery and performance of this Agreement by L. A. Gear.
(d) L. A. Gear shall indemnify without limitation and hold harmless VENDOR
from and against any and all damages, liabilities, claims (including,
without limitation, third party claims), costs and expenses, including
reasonable attorneys' fees and other legal costs, which may be incurred by
VENDOR arising out of or resulting from the breach by L. A. Gear of any of
its obligations, covenants, representations and warranties set forth in
this Agreement.
SECTION 5.0: MISCELLANEOUS PROVISIONS
-7-
<PAGE>
5.1 NOTICE . Notices required or permitted hereunder shall be in writing
and shall be deemed given upon receipt by the Party to be notified (a) by
personal delivery, facsimile or telex transmissions, with confirmed receipt, or
(b) by registered or certified mail, return receipt requested, addressed to the
respective Party at the address set forth below:
If to L. A. Gear: L.A. Gear, Inc.
2850 Ocean Park Blvd.
Los Angeles, California 90405
Attention: Bob Peterson, V.P., Product
Facsimile No. (310) 581-7736
If to VENDOR: __________________________________
__________________________________
__________________________________
Attention: _______________________
Facsimile No._____________________
Either party hereto may change its address or facsimile number as set forth in
this Section at any time by notice in writing to the other, provided that such
new address shall become effective only upon actual receipt by the other party.
5.2 MUTUAL CONFIDENTIALITY. Neither party shall disclose to others a trade
secret or any confidential information that demonstrably belongs to the other
party, but which was disclosed pursuant to this Agreement; for purposes of this
Agreement, the terms "confidential information" or "trade secrets" shall include
all information of any nature and in any form which is owned by VENDOR,
L. A. Gear, or any of their subsidiaries, agents, or Designees, and which is not
publicly available or generally known to persons engaged in businesses similar
to that of VENDOR and/or L. A. Gear, including, but not limited to: research
techniques; patents and patent applications; inventions and improvements,
whether patentable or not; development projects; computer software and related
documentation and materials; designs, practices, equipment, processes, methods,
know-how and other facts relating to the business of VENDOR and/or L. A. Gear;
practices, processes, methods, know-how and other facts related to sales,
advertising, promotions, financial matters, customers, customer lists or
customers' purchases of goods or services from VENDOR and/or L. A. Gear; and,
all other secrets and information of a confidential and proprietary nature;
PROVIDED, however, that neither party shall be under any obligation not to
disclose any information that: (i) was already known to the other at the time of
its receipt; (ii) is publicly known or becomes so through no fault of the other;
or, (iii) is required to be disclosed by law; L. A. Gear shall bind its agents
and Designees and any second sources with which it contracts to make the
Components and/or lighted footwear to the obligations assumed in this Section to
the same extent that it is bound hereby; this obligation of the Agreement shall
survive the termination of this Agreement, and upon such termination, each party
shall return to the other all confidential materials belonging to the other that
were delivered during the course of the Agreement.
5.3 PATENT RIGHTS. If the VENDOR owns or holds any patents or patent
rights in any Component supplied by it under this Agreement, or in any product
incorporating the same, then in consideration of GEAR's purchase of such
Components from the VENDOR hereunder, GEAR and its authorized agents and
Designees shall be deemed to have a royalty-free license of all of such patents
and patent rights.
5.4 INVENTIONS.
-8-
<PAGE>
(a) VENDOR shall inform GEAR promptly and fully of all Inventions made or
developed by it in the course of or in connection with VENDOR's performance
of services under this Agreement and/or on GEAR's behalf. Upon request by
GEAR, such information shall be in the form of a written report, setting
forth in detail the structures, procedures, processes, compositions and
methodology employed therein, as well as the results achieved thereby.
(b) VENDOR hereby assigns and agrees to assign to GEAR all of VENDOR's
rights in and to such Inventions and in and to any applications for United
States or foreign letters patent and copyrights and to any resulting
letters patent and copyright registrations therefor. VENDOR warrants to
GEAR that it shall secure such agreements with its employees and/or
permitted Sub-contractors as are necessary to carry out the provisions of
this Section. VENDOR shall execute all documents when reasonably called
upon by GEAR to do so in order to perfect L.A. Gear's title and interest to
all Inventions.
5.4 WAIVER. Failure of either party at any time to require performance by
the other party of any provision in this Agreement shall in no way affect the
right of such party to require performance of that provision; any waiver of
either party of any breach of any provision of this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself or a waiver of any right under this Agreement.
5.5 GOVERNING LAW; EXCLUSIVE FORUM. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, United
States of America (regardless of any jurisdiction's choice of law principles).
However, if any law in any other jurisdiction require terms other than or in
addition to those contained herein, then this Agreement shall be deemed modified
so as to comply with such laws, but only to the extent necessary to prevent the
invalidity of this Agreement or any material provision hereof, the imposition of
fines or penalties, or the creation of civil or criminal liability as a result
thereof. The exclusive forum for the resolution of any dispute related to this
Agreement, or between the parties to this Agreement, whether sounding in tort,
contract or equity, or based upon federal or state statute or regulation, shall
be Los Angeles County, California. The parties each waives any objection to (1)
jurisdiction; (2) venue; and (3) service of process of any federal or state
court in Los Angeles County, California, and agree that service of process upon
it, in any such suit, action or proceeding shall be deemed in every respect
effective service of process upon it if given in the manner set forth in section
5.1 above.
5.6 ATTORNEYS FEES. If any legal action or other proceedings are brought
for the enforcement of this Agreement, the successful or prevailing party shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
such action or proceeding, in addition to any other relief to which that party
may be entitled.
5.7 JOINT VENTURE. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between VENDOR and
L. A. Gear; neither party shall have any right to obligate or bind the other
party in any manner whatsoever, other than pursuant to the terms contained
herein, nor shall VENDOR or L. A. Gear have the right or authority to assume,
create or incur any liability or obligation of any kind, express or implied,
against, or in the name of, or on behalf of, the other, except pursuant to the
terms contained herein, and nothing contained herein shall give, or is intended
to give, any rights of any kind to any third persons.
5.8 SEVERABILITY. In the event that any covenant, condition or other
provision herein contained is held to be invalid, void or illegal by any court
of competent jurisdiction, the same shall be deemed severable from the remainder
of this Agreement and shall in no way affect, impair or invalidate any other
covenant, condition or other provision herein contained; if such covenant,
condition, or other provision shall be deemed invalid due to its scope or
breadth, such covenant, condition or other provision shall be deemed valid to
the extent of the scope or breadth permitted by law.
-9-
<PAGE>
5.9 ASSIGNABILITY. This Agreement and the rights and obligations granted
and assumed herein are not assignable or transferable by either party, except as
part of the sale of all or substantially all of such party's assets, or as may
be required by law; SUBJECT, however to the other party's consent, which shall
not be unreasonably withheld.
5.10 BINDING AGREEMENT. This Agreement shall be binding upon the parties
hereto as well as upon any successors and assignees of the parties hereto.
5.11 COUNTERPARTS. This Agreement may be executed in counterparts, and when
each party has signed and delivered at least one such counterpart to the other
party hereto, each counterpart shall be deemed an original and taken together
shall constitute one and the same agreement, which shall be binding and
effective as to all of the parties hereto.
5.12 CAPTIONS AND INTERPRETATIONS. Paragraph titles or captions contained
herein are inserted as a matter of convenience and for reference, and in no way
define, limit, extend or describe the scope of this Agreement or any provision
hereof; no provision of this Agreement is to be interpreted for or against any
party because that party or its legal representative drafted such provision.
5.13 FURTHER ASSURANCES. Each party hereto shall, from time to time at and
after the date hereof, execute and deliver such instruments, documents and
assurances and take such further actions as the other party may reasonably
request to carry out the purpose and intent of this Agreement.
5.14 ENTIRE AGREEMENT AND SUBSEQUENT MODIFICATION. This Agreement
constitutes the entire agreement of the parties and supersedes and merges all
prior or contemporaneous agreements, discussions or representations, oral or
written, with respect to the subject matter hereof, and each of the parties
hereto states that he or it has read the same, and understands the legal
obligations created hereto; no modification or amendment of this Agreement shall
be valid unless made in writing and signed by or on behalf of each party hereto.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their representatives and duly authorized officers as indicated
below:
VENDOR__________________________
Dated: ____________, 1997 By: ____________________________
Title:__________________________
L.A. Gear, Inc.
Dated: ____________, 1997 By: ____________________________
Title:__________________________
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<PAGE>
EXHIBIT 'M'
[Solefound]
SUBLICENSE AGREEMENT
This Sublicense Agreement made and entered into this __ day of ____, 1997
by and between BBC International, Ltd., a New York corporation having a place of
business at 19 West 34th Street, New York, New York 10001 ("BBC") and L.A. Gear,
Inc., a California corporation having a place of business at 2850 Ocean Park
Blvd., Santa Monica, California 90405 ("L.A. Gear").
WHEREAS, BBC and Solefound Inc. ("Solefound"), the assignee of U.S. Patent
No. 5,430,621 (the "'621 Patent" ), have entered into a license agreement dated
July 19, 1995 which grants BBC exclusive rights in the '621 Patent including the
right to grant sublicenses thereunder (the "License Agreement").
AND WHEREAS, BBC desires to grant to L.A. Gear and L.A. Gear desires to
acquire from BBC a sublicense under the '621 Patent in connection with L.A.
Gear's sale of its "Lazerlites" product.
NOW, THEREFORE, in consideration of the mutual promises and obligations
hereinafter set forth and for other valuable and sufficient consideration
extended by each party hereto the other, it is mutually agreed as follows:
1. SUBLICENSE GRANT. BBC hereby grants to L.A. Gear an exclusive
royalty-free sublicense under the '621 Patent, together with any improvements
thereon that may issue during the term of the License Agreement, coextensive
with the rights BBC received under the License Agreement.
2. ROYALTY PAYMENTS UNDER LICENSE AGREEMENT. L.A. Gear or its agent
shall make all required royalty payments under the License Agreement and royalty
reports as required by sections 5(e) and 9 of the License Agreement with regard
to the sale of L.A. Gear footwear utilizing the '621 Patent. To the extent that
BBC has prepaid minimum royalties under the License Agreement, L.A. Gear will
pay the applicable royalty to BBC
<PAGE>
until the pre-payment has been exhausted. BBC and L.A. Gear agree that
Solefound has the right to inspect and audit the records relating to L.A. Gear's
sale of the licensed products as required by section 5(f) of the License
Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS BY BBC. BBC represents,
warrants and agrees as follows:
(a) the License Agreement is in full force and effect and BBC is not
aware of any outstanding claims of breach of any of the terms or
conditions thereunder;
(b) BBC has made all required payments to Solefound under section 5
of the License Agreement;
(c) BBC has the full and unrestricted right, power and authority to
grant this sublicense under the '621 Patent;
(d) BBC has not granted and will not grant any rights to any third
parties under the '621 Patent;
(e) BBC has complied with the provisions of 8(b) of the License
Agreement and, upon execution of this Agreement, BBC shall
provide Solefound with (i) written notice that it has granted a
sublicense under the '621 Patent to L.A. Gear; (ii) written
notice of L.A. Gear's address; and (iii) a fully executed copy of
this Agreement;
(f) BBC shall submit or has submitted samples of L.A. Gear's
Lazerlites product to Solefound as required by section 9(i) of
the License Agreement;
(g) BBC shall take all necessary measures to maintain the License
Agreement, and the sublicense granted to L.A. Gear under this
Agreement, in full force and effect;
(h) BBC shall take all necessary measures to renew the License
Agreement for subsequent terms; and
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<PAGE>
(i) BBC shall promptly notify L.A. Gear of any claims of breach or
notices of termination by either party under the License
Agreement.
4. NO RIGHT TO SUBLICENSE. LAG shall have no right to sublicense any of
the rights which are sublicensed by BBC to LAG.
5. RIGHT TO CONTRACT. LAG may contract with third parties for
performance under the Sublicense Agreement, but LAG will remain fully
responsible for the performance of all applicable provisions of the Sublicense.
6. TERMINATION. In the event LAG fails to fulfill any of the terms and
conditions of the sublicense, BBC shall have the right on written notice to LAG
to terminate the Agreement with such notice being effective thirty (30) days
after receipt by LAG and only if the violation has not been fully remedied
during such thirty (30) day period by LAG.
7. INSOLVENCY. In the event either LAG or BBC (a) becomes insolvent or
makes any assignment for the benefit of creditors or (b) institutes for its
protection or is made defendant in any proceeding under any bankruptcy,
insolvency, reorganization or receivership law and (i) BBC or LAG is adjudicated
a bankrupt or insolvent or a receiver shall be appointed for it or for all or
substantially all of its property and it shall not be discharged within sixty
(60) days, or (ii) BBC or LAG shall indicate its consent to, or acquiescence in,
such proceedings, then during the continuance of any such event, BBC or LAG may
elect to terminate this Agreement by written notice to BBC or LAG without
prejudice to any right or remedy either BBC or LAG may have, including, but not
limited to, damages for breach to the extent that the same may be recoverable.
8. INDEMNIFICATION.
(a) LAG does hereby indemnify and agrees to save and hold harmless
from and against any and all liabilities, claims, causes or actions, suits,
damages and expenses (including reasonable attorneys' fees and expenses), which
BBC becomes liable for, or may incur or be compelled to pay by reason of any
acts, whether of omission or
-3-
<PAGE>
commission, that may be committed or suffered by LAG or any of its agents or
employees in connection with LAG's performance of this Agreement, except for (a)
any liability which shall arise by reason of BBC's acts of omission or
commission; (b) any liability which shall arise by reason of LAG's complying
with the terms of this Agreement; and (c) any liability which shall arise based
upon a third party claim of infringement arising out of BBC's complying with the
terms of this Agreement.
(b) BBC does hereby indemnify and agrees to save and hold harmless
from and against any and all liabilities, claims, causes or actions, suits,
damages and expenses (including reasonable attorneys' fees and expenses), which
LAG becomes liable for, or may incur or be compelled to pay by reason of any
acts, whether of omission or commission, that may be committed or suffered by
BBC or any of its agents or employees in connection with BBC's performance of
this Agreement or the License Agreement, except for (a) any liability which
shall arise by reason of LAG's acts of omission or commission; (b) any liability
which shall arise by reason of BBC's complying with the terms of this Agreement;
and (c) any liability which shall arise based upon a third party claim of
infringement arising out of LAG's complying with the terms of this Agreement.
9. ASSIGNMENT. This Sublicense is not assignable by LAG without the
prior written consent of BBC.
10. NO JOINT VENTURE. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between BBC and L.A.
Gear. 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 party.
-4-
<PAGE>
11. NOTICE. Notices required or permitted under this Agreement shall be
in writing and shall be given (a) by personal delivery or fax, with confirmed
receipt, or (b) by registered or certified mail, return receipt requested,
addressed to the respective party at the address set forth below:
To BBC: BBC International, Ltd.
19 West 34th Street
New York, New York 10001
Attn: Mr. Robert Campbell
Facsimile No. (212) 239-1923
To L.A. Gear: L.A. Gear, Inc.
2850 Ocean Park Blvd.
Santa Monica, California 90405
Attn: Mr. Bruce MacGregor, President
Facsimile No. (310) 581-7715
12. CONSENT: BBC shall provide prompt notice to Solefound of the grant of
this Sublicense, with a copy to L.A. Gear, and will take all necessary steps to
have Solefound acknowledge consent to this sublicense in a manner acceptable to
L.A. Gear and BBC.
13. GOVERNING LAW. This Agreement shall be governed by the laws of the
state of California.
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<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement, by their duly
authorized officers, the date and year first above written.
BBC International, Ltd.
By:_________________________
L.A. Gear, Inc.
By:_________________________
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<PAGE>
EXHIBIT 'N'
[SOLEFOUND]
CONSENT TO SUBLICENSE AGREEMENT
This Agreement made and entered into this __ day of ____, 1997 by and
between Solefound, Inc., a Missouri corporation having a place of business at
8220 Delmar Blvd., Suite 220, St. Louis, Missouri 63124 ("Solefound") and L.A.
Gear, Inc., a California corporation having a place of business at 2850 Ocean
Park Blvd., Santa Monica, California 90405 ("L.A. Gear").
WHEREAS, Solefound is the assignee of U.S. Patent No. 5,430,621 (the "'621
Patent" ).
WHEREAS, Solefound and BBC International, Ltd. ("BBC") have entered into a
license agreement dated July 19, 1995 which grants BBC exclusive rights in the
'621 Patent, including the right to grant sublicenses thereunder (the "License
Agreement").
WHEREAS, BBC has granted to L.A. Gear a sublicense under the '621 Patent
(the "Sublicense Agreement") in connection with L.A. Gear's sale of its
"Lazerlites" product or any footwear product covered by the Patents (the
"Licensed Product").
AND WHEREAS, Solefound and L.A. Gear desire to memorialize Solefound's
consent to the Sublicense Agreement and their agreement on a number of other
provisions relating to the License Agreement and the Sublicense Agreement.
NOW, THEREFORE, in consideration of the mutual promises and obligations
hereinafter set forth and for other valuable and sufficient consideration
extended by each party hereto the other, it is mutually agreed as follows:
1. CONSENT TO SUBLICENSE. Solefound hereby provides its consent to the
Sublicense Agreement, a copy of which has been received by it and is attached
hereto as Exhibit A, and acknowledges that, as of the date of execution of this
Agreement, the
1
<PAGE>
License Agreement is in full force and effect and Solefound is not aware of any
outstanding claims of breach of any of the terms or conditions thereunder.
2. ROYALTY PAYMENTS UNDER LICENSE AGREEMENT. It is understood that (a)
on L.A. Gear's behalf, all required royalty payments under the License Agreement
and royalty reports as required by sections 5(e) and 9 of the License Agreement
will be made by L.A. Gear or its agent for L.A. Gear footwear utilizing the '621
Patent and (b) Solefound has the right to inspect and audit the records relating
to the Licensed Product as required by section 5(f) of the License Agreement.
Solefound further agrees to provide L.A. Gear with confirmation of royalty
payments and copies of royalty reports made on L.A. Gear's behalf a reasonable
time after they are received by Solefound.
3. BBC'S BREACH UNDER THE LICENSE AGREEMENT. Solefound agrees that it
will provide L.A. Gear with notice of any breach by BBC under the License
Agreement. Should BBC fail to remedy any such breach pursuant to provisions of
the License Agreement to maintain the License Agreement in full force and
effect, Solefound will provide L.A. Gear with a thirty (30) day period to remedy
the breach.
4. TERMINATION OF THE LICENSE AGREEMENT. In the event of termination of
the License Agreement, either as a result of a breach by BBC or as a result of
BBC's failure to renew the License Agreement, the undersigned parties agree
that, as long as L.A. Gear is continuing to sell the Licensed Product at that
time, they will negotiate in good faith a license agreement granting L.A. Gear
rights to the '621 Patent under terms and conditions similar to those set forth
in the License Agreement. Until such an agreement is finally executed and in
effect, Solefound hereby grants L.A. Gear an interim license to the '621 Patent
on the same terms and conditions as are set forth in the License Agreement.
5. JOINT VENTURE. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between Solefound and
L.A. Gear. Neither party shall have any right to obligate or bind the other
party in any manner
2
<PAGE>
whatsoever, and nothing herein contained shall give, or is intended to give, any
rights of any kind to any third party.
6. NOTICE. Notices required or permitted under this Agreement shall be
in writing and shall be given (a) by personal delivery or fax, with confirmed
receipt, or (b) by registered or certified mail, return receipt requested,
addressed to the respective party at the address set forth below:
To L.A. Gear: L.A. Gear, Inc.
2850 Ocean Park Blvd.
Santa Monica, California 90405
Attn: [Mr. Bruce MacGregor, President]
Facsimile No. (310) 581-7715
To Solefound: Solefound, Inc.
8220 Delmar Blvd., Suite 220
St. Louis, Missouri 63124
Attn: [______________]
Facsimile No. [______________]
7. GOVERNING LAW. This Agreement shall be governed by the laws of the
state of Missouri.
IN WITNESS WHEREOF, the parties have entered into this Agreement, by their
duly authorized officers, the date and year first above written.
Solefound, Inc.
By:_________________________
L.A. Gear, Inc.
By:_________________________
3
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