SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-18926
INNOVO GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2928178
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1808 North Cherry Street, Knoxville, Tennessee 37917
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (423) 546-1110
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or (for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of February 16, 1999, 5,432,113 shares of common stock were
outstanding. The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $10 million at the
close of business on February 16, 1999.
Documents incorporated by reference:
Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of November 30,
1998 is incorporated by reference into Part III of this Report.
INNOVO GROUP INC.
FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures 40
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 41
SIGNATURES 47
PART I
ITEM 1. BUSINESS
Introduction
Innovo Group Inc. ("Innovo Group"), operating through its wholly-owned
subsidiaries (which, collectively with Innovo Group are referred to as the
"Company"), designs, manufactures and domestically markets and distributes
various cut and sewn canvas and nylon consumer products, such as tote bags and
insulated lunch bags and coolers, along with aprons and vests, for sale in the
premium and advertising specialty market and to retailers including Wal-Mart, K-
Mart, Michael's, Hobby Lobby, Dollar General, Goody's and Joanne's. The
Company internationally markets and distributes sport bags, backpacks
waistpacks and other stationary bags. Many of the Company's products include
licensed NFL, NBA, NHL, Major League Baseball, collegiate teams and NASCAR
drivers, custom artwork and other artwork designed in house. The Company's
overseas products also include bags utilizing the characters of Walt Disney Co.
and Warner Bros. Looney Tunes and the new NFL European football teams under a
new license with NFL Europe. From April 1996 through September 1998, the
Company also manufactured and domestically marketed ladies ready-to-wear,
at-home sleep and lounge wear for sale to retailers and through mail order
distribution.
The Company's operations were classified into two industry segments
prior to its fiscal year ended November 30, 1998: "Canvas and Nylon Consumer
Products" and "Apparel Products." See Note 13 of Notes to Consolidated
Financial Statements for financial information on industry segments. The
Company discontinued all operations relating to the Apparel Products segment in
September 1998 as described below in "Discontinued Operations." See Note 11 of
Notes to Consolidated Financial Statements for financial information on industry
segments.
The principal executive offices of the Company are located at 1808 North
Cherry Street, Knoxville, Tennessee 37917. Its telephone number is
(423) 546-1110.
Principal Operating Subsidiaries
The Company's continuing operations are currently conducted primarily
through two wholly owned subsidiaries:
Innovo, Inc. ("Innovo") designs, markets and distributes domestically cut
and sewn canvas and nylon consumer products for the utility, craft, sports
licensed and advertising specialty markets. Innovo's products are primarily
domestically manufactured at facilities owned or leased by the Company,
although some products are obtained from foreign suppliers.
NASCO Products International, Inc. ("NP International") markets and
distributes overseas, principally in Europe and the Middle East, products
similar to some of those marketed domestically by Innovo, as well as licensed
sports bags and backpacks, which the Company generally obtains from foreign
suppliers.
Products
Domestic Product Lines. Innovo designs, manufactures, markets and
distributes a wide variety of cut and sewn canvas and nylon consumer products
in the United States. Following are the principal products that Innovo
manufactures and distributes in the United States to the utility, craft and
licensed product markets:
Utility Craft Licensed
tote bags tote bags travel and tote bags
gift bags aprons and smocks waist packs
laundry bags banners duffel bags
shoe bags vests stadium totes/cushions
duffel bags Christmas stockings insulated lunch bags
and soft coolers
aprons and smocks Stonewashed denim Backpacks
Product Design. Innovo develops the designs and artwork
for its utility market products in-house. Innovo manufactures its craft market
products without artwork to be sold (sometimes packaged with paints or other
supplies)for finishing by retail craft customers. Innovo's licensed products
are produced with the logos or other designs licensed from the four major
professional sports leagues and colleges. Beginning in September 1998, the
Company added a licensed NASCAR driver product line. See "Licensing
Agreements" below.
International Product Lines. NP International designs and distributes
licensed sports products internationally, principally in Europe and the Middle
East, to distributors that in turn sell to sporting goods, department and mass
merchandise chains, hypermarkets, through mail order and to grocery and drug
store chains. Its line of products consists of a variety of insulated soft
lunch bags and coolers, backpacks and sport, gym, equipment and duffel bags.
NP International's products are generally imprinted or embroidered with logos
licensed from the four major professional sports leagues, colleges, the
characters licensed from Walt Disney and Warner Bros. or, beginning in
September 1998, motor sports logos and artwork. Sales to foreign customers,
principally in Europe, accounted for 21.2%, 19.4% and 14.8% of net sales in
fiscal 1998, 1997 and 1996, respectively.
Advertising Specialty Market. Innovo also markets each of its products
to the advertising specialty market. Those products include the customer's
logo, design or slogan for use in connection with a customer or employee
promotion or as a premium sale item.
Licensing Agreements
The Company's sports-licensed, Walt Disney Co. and Warner Bros.
Studios Looney Tunes products display logos, insignia, names, slogans or
cartoon characters licensed from the various licensors. Innovo and NP
International hold licenses for the use of the logos and names of the teams of
the National Football League, the National Basketball Association, Major
League Baseball, the National Hockey League, NFL Europe and over 130 colleges
on various products. For the year ended November 30, 1998, the sale of licensed
products represented 35.65% of the Company's net sales.
During September 1998, the Company entered into an agreement with the
Fan Fueler division of Action Performance Companies, Inc. ("AP") providing the
Company with exclusive manufacturing and non-exclusive distribution rights with
respect to seat cushions, soft lunch bags and coolers, waist packs, tote bags
and backpacks bearing motorsports-related trademarks and copyrights under AP's
control. Among the NASCAR drivers represented by AP are Dale Earnhardt, Dale
Earnhardt, Jr., Jeff Gordon, Rusty Wallace and Dale Jarrett.
The following sets forth certain information concerning the license
agreements currently held by the Company.
Licensor Types of Products Geographical Areas
National Basketball Tote, lunch, shoe and laundry bags; United States;
Association stadium seat cushions, European Union
Coolers, garment bags
Backpacks, sportbags and ("UK")
waistpacks.
Major League Baseball Tote, lunch, shoe and laundry bags, United States;
stadium seat cushions, UK;
Sport bags and backpacks. EU
National Football Tote, lunch, shoe and laundry bags, United States;
League stadium seat cushions, UK;
Sports bags and backpacks. EU
National Hockey Tote, lunch, shoe and laundry bags, United States;
League stadium seat cushions. UK;
Sports bags and backpacks. EU
Colleges/logos of Tote, lunch, shoe and laundry bags; United States;
approximately 130 seat cushions; sports bags and UK;
colleges backpacks. EU
Walt Disney/Walt Tote, sport, gym and other bags; UK;
Disney characters backpacks, waistpacks; wallets and
other stationary bags
Warner Bros Tote, sport, gym and other bags; EU; Middle East
backpacks and waistpacks.
Fan Fueler Seat cushions; soft lunch bags and United States; EU
coolers; waist packs; tote bags and
backpacks.
Each license agreement grants the Company either an exclusive or non-
exclusive license for use in connection with specific products and/or specific
territories. The license agreements with the major professional sports
licensing organizations are generally non-exclusive. However, the Company's
experience has been that while the licenses are non-exclusive, the licensing
entities generally limit the number of licenses they grant for any particular
line of products. Thus, direct competition is limited by the availability of
licenses.
Typically, a license agreement is effective for a one or two-year term for
the use of particular characters or designs of the licensor on some or all of
the Company's products. A royalty is paid to the licensor that is usually a
percentage of net sales, with a minimum annual guarantee for the license period.
The royalty rates range from 9% to 17% and the minimum annual guarantees range
from $5,000 to $200,000. Some license agreements grant the licensor broad
termination rights, and most of the license agreements grant the licensor the
right to terminate the license in the event minimum sales targets are not
reached, if the Company does not diligently market the licensed products, or for
the breach of any material term of the license agreement by the Company. The
Company believes that it is in substantial compliance with the terms of all
material licenses.
The expiration dates of most of the current license agreements range from
1999 to 2000. Generally, the renewal provisions of the license agreements
provide that the licensee may, at its option, renew the license for an
additional one- or two-year term, provided certain conditions are satisfied.
Historically, licenses have been terminated by the Company due to decreased
sales or popularity, rather than by the licensors, and to date the Company has
generally been able to obtain the renewal of licenses it wished to continue.
The Company believes that it will continue to be able to obtain the renewal of
all material licenses; however, there can be no assurance that competition for
an expiring license from another entity, or other factors will not result in the
non-renewal of a license.
Company History
Innovo began operations in April 1987. In August 1990, Innovo merged
into Elorac Corporation, a so called "blank check" company that changed its
name to "Innovo Group Inc." pursuant to the merger. In fiscal 1991, the
Company acquired the business of NASCO, Inc., a manufacturer, importer and
distributor of sports-licensed sports bags, backpacks and other sporting goods
that had its headquarters approximately 30 miles north of Nashville in
Springfield, Tennessee.
NASCO, Inc., which was subsequently renamed "Spirco", was also
engaged in the marketing of fundraising programs to school and youth
organizations. The fundraising programs involved the sale of magazines, gift
wraps, food items and seasonal gift items. Effective April 30, 1993, the
Company sold Spirco's youth and school fundraising business. Its business of
importing and distributing sports-licensed products was retained by NASCO
Products, Inc. ("NASCO Products"), a wholly-owned subsidiary.
Spirco had incurred significant trade debt and losses during its 1992
fiscal year in its fundraising business and from undisclosed liabilities
incurred by Spirco prior to its acquisition. On August 27, 1993, Spirco filed
for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Innovo Group
and its other subsidiaries were not parties to the filing. Spirco's plan of
reorganization was confirmed by the court on August 5, 1994, and became
effective on November 7, 1994.
Under the Spirco plan of reorganization, administrative claims were paid
in cash from funds borrowed under the Company's bank credit facility. Leasall
Management, Inc. ("Leasall"), a newly formed subsidiary of Innovo Group,
acquired Spirco's equipment and plant and assumed the related equipment and
mortgage debt (which Innovo Group had previously guaranteed), and Spirco was
merged into Innovo Group. Spirco claims were paid either by issuing common
stock of the Company to creditors or, in the case of claims for federal,
state and local taxing authorities, by issuing shares to a trust
which sold the stock and distributed the proceeds to such claimants. Unsecured
claims did not receive any distribution and were extinguished under the plan of
reorganization.
On July 31, 1995, NASCO Products sold to Accessory Network
Group,
Inc. ("ANG") its business of importing into and distributing within
the United
States sports bags, backpacks and equipment bags bearing the logos
of the teams
of the four major professional sports leagues. NASCO Products
discontinued all
of its operations following the sale to ANG. For the licenses, ANG
paid NASCO
Products $750,000 in installments through December 1997. In
addition, ANG will
make ongoing annual payments for up to forty years to NASCO Products
of 2% of
sales under each of the National Football League, Major League
Baseball and
National Hockey League licenses, and 1% of sales under the NBA
license, up to
aggregate sales of $15 million, and 1.5% and 0.5% of sales,
respectively,
thereafter. The payments will continue unless a license expires or
is
terminated and is not renewed or reinstated within twelve months.
In April 1996, the Company acquired Thimble Square, Inc.
("Thimble
Square"). Thimble Square manufactured and marketed ladies' ready-
to-wear at-
home, sleep and lounge wear and provided "sew-only" manufacturing
for other
distributors of private-label sleep and lounge wear. It had three
manufacturing facilities, one facility it owned in Pembroke,
Georgia, and two
leased facilities in Baxley, Georgia. See "Discontinued Operations"
below.
Discontinued Operations
From 1996 through 1998, Thimble Square contributed a declining
percentage of the Company's net sales, from approximately 18.5% in
1996 to
16.5% and 13.0% in 1997 and 1998, respectively. At the same time,
the Thimble
Square apparel products segment of the Company's business generated
operating
losses of approximately $110,000 in fiscal 1997 and $346,000 in
fiscal 1998.
See Notes 11 of Notes to Consolidated Financial Statements.
Based on Thimble Square's deteriorating operating results, an
ongoing
operating capital drain of more than $20,000 per month and
management's need to
focus on the Company's core business, on September 13, 1998 the
Company
entered into an agreement with Confident Colors LLC (a company
formed by a
former officer of the Company, the chief operating officer of
Thimble Square
and others) ("Confident Colors") to lease to Confident Colors one of
Thimble
Square's Baxley, Georgia facilities and equipment and to allow it to
succeed to
all of Thimble Square's business and operations. Upon execution of
the lease,
Thimble Square discontinued all operations. In October 1998, the
lease on
Thimble Square's second Baxley facility expired. The Company sold
Thimble
Square's Pembroke facility on December 10, 1998 for net proceeds of
$122,354 and
the equipment in the Baxley facility for $30,000 on January 13,
1999. The
Company recorded losses totaling $1,400,165 (including $639,000 of
goodwill) as
the result of the sale of Thimble Square during the fourth quarter
of fiscal
1998.
Summary of Significant 1998 Developments
1998 brought numerous changes to the Company. In March, Sam
Furrow
joined the Board of Directors of the Company. Jay Furrow joined the
Company as
Vice President of Corporate Development and in-house counsel in
August. Later
in August, Robert Talbott joined the Board. Also in August, the
Board directed
management to dispose of all non-core product lines and assets of
the Company in
order to concentrate the Company's capital and its management
efforts on core
business operations.
In early September 1998, a reverse stock split of which one share of
new
Common Stock was exchanged for ten shares of old Common Stock, was
effectuated in order to help maintain the Company's Nasdaq listing.
In mid-
September, the business of Thimble Square was discontinued. Thimble
Square's
principal Baxley, Georgia manufacturing facility and equipment were
leased to
Confident Colors and Confident Colors' succeeded to Thimble Square
business.
In October, the lease on Thimble Square's second Baxley, Georgia
facility
expired.
In early October 1998, the Company leased an office, warehouse
and
manufacturing facility in Knoxville, Tennessee from Furrow-Holrob
Development
II, LLC, a company owned by Board members Sam Furrow and Robert
Talbott.
The facility had previously been used by Levi Strauss for
manufacturing and
distribution of its products. A few weeks later, a capital infusion
of
$1,798,000 was made through the purchase of 899,000 shares of Common
Stock at
$2.00 per share by Furrow-Holrob Development II, LLC.
In November 1998, the Company began the move of its offices,
warehouse
and manufacturing operations from Springfield to the Knoxville
facility.
Also in November, Bradley White, CPA, joined the Company as
Controller, and
Patricia Anderson-Lasko, the founder of Innovo and Company
President, was
authorized to focus solely on Company sales, marketing and product
development
functions. Finally, George Bell was employed in November as
Southeastern
Regional Sales Manager for the Company.
Significant Recent Developments
In December 1998, the Company's move to its Knoxville facility
was
completed and is expected to provide the Company with a more
efficient
manufacturing facility. In addition, Thimble Square's Pembroke
facility was
sold. Finally, in December, Karen Thomas was employed as National
Sales Manager
for the Company.
During February 1999, the Company obtained from Sam Furrow, the
Company's CEO, and Dan Page, the Company's COO, separate lines of
credit in the
amount of $50,000 each. Additionally, these officers, together with
other
principals, have committed to provide additional credit as may be
needed from
time to time of up to an aggregate of $500,000. The lines will
remain
available until June, 1999, a time of year during which the Company
would
normally experience greater cash flow and liquidity due to the
seasonal nature
of the Company's business. See "Seasonality."
Growth Strategy and Product Development
The Company believes that growth in its business can be
accomplished
both by the expansion of the sales of its existing products with new
and
existing customers, and through the development or acquisition of
new product
designs and the acquisition of new licenses.
The Company also continually evaluates the market potential for
the sale
of products bearing licensed logos, characters or artwork. Those
evaluations
involve both situations where a license has been offered to the
Company, and
where the Company itself identifies a logo or character that may
have market
potential. Where such an evaluation indicates a sufficient
likelihood of market
acceptance, the Company attempts to negotiate and obtain a license
from the
owner of the logo or character. In general, a period of from four
to six months
is required, once a license is obtained, to develop and obtain the
approval for
the art and the products for the new license, to produce samples and
to begin
marketing. The Company began the product development for its Action
Performance
Fan Fueler licenses in the fourth quarter of fiscal 1998. Shipments
under these
new licenses began in January 1999. However, there can be no
assurance that the
Company will be able to obtain other new licenses or renew existing
licenses on
favorable terms in the future.
Marketing and Customers
During fiscal 1998, the Company's Innovo operations sold
products to a
mix of mass merchandisers such as K Mart and Wal-Mart, department,
sporting
goods, grocery, craft and drug store chains, mail order retailers
and other
retail accounts. NP International's operations sold to 12 foreign
distributors
which in turn resell to retail accounts. The Company estimates that
its
products are carried in over 8,000 retail outlets in the United
States and
numerous retail outlets in Europe.
Generally the Company's domestic accounts are serviced by the
Company's sales personnel working with marketing organizations that
have sales
representatives which are compensated on a commission basis. NP
International's marketing is conducted by the Company's European
Sales and
Marketing Manager selling directly to foreign distributors for
resale to its
retail customers which NPII assists in presentations to European
retailers.
In marketing its products the Company attempts to emphasize the
competitive pricing and quality of its products, its ability to
assist customers
in designing marketing programs, its short lead times, and the high
sell-through
its products have historically achieved. To assist customers in
achieving a
higher sell-through of its sports team (professional and college)
logoed
products, the Company tracks the retail sales by team logo for
various
geographic areas. The Company then uses this information to assist
customers in
selecting the optimum mix of team logos for their market. The
Company has an
electronic data interchange system that allows certain larger
customers to place
orders directly.
The Company also continues to solicit customers whose buying
seasons
are contrary to the Company's existing seasonality. See
"Seasonality."
For fiscal 1998, two customers accounted for sales in excess of
10% of net
sales: Wal-Mart, a customer of Innovo which accounted for 37.4% of
net sales,
and Crown-Tex, a customer of Thimble Square, accounted for 92.0% of
its sales.
The loss of Wal-Mart as a customer would have a material adverse
effect on the
Company.
Backlog
Although the Company may at any given time have significant
business
booked in advance of purchase orders, customers' purchase orders are
typically
filled and shipped within two to six weeks. As of November 30,
1998, there
were no significant backlogs.
Seasonality
The Company's business is seasonal. The majority of the
marketing and
sales activities take place from late fall to early spring. The
greatest volume
of shipments and sales are generally made from late spring through
the summer,
which coincides with the Company's second and third fiscal quarters
and the
Company's cash flow is strongest in its third and fourth fiscal
quarters. See
Item 7 - "Management's Discussion and Analysis of Financial
Condition and
Results of Operations - Seasonality."
Manufacturing
Innovo's products are either manufactured domestically in
facilities
operated by the Company or obtained from foreign suppliers through
manufacturing agreements. The Company manufactures its domestic
products from
an inventory of unfinished fabric rolls using cutting, sewing and
finishing
equipment owned or leased by the Company. Innovo utilizes silk-
screening
machines to permanently imprint designs onto its various products.
Using its
in-house design staff and its computer graphic equipment, the
Company has the
capacity to rapidly produce new products.
The principal materials used in Innovo's products include
denim, canvas,
plain and printed rolls of nylon, polyester and cotton, mesh and
webbing. The
Company buys raw materials in bulk for the products it manufactures
domestically. The Company has generally concentrated its purchases
of each type
of raw materials for domestic manufacturing among a small number of
suppliers,
and during fiscal 1998 purchased the majority of each type of raw
material it
used from one or two suppliers. Although the Company does not have
any
long-term agreements with these or other suppliers, it has to date
been able to
obtain supply to satisfy its raw material requirements. Management
believes
that if its current suppliers were unable to supply the necessary
raw materials
in sufficient quantities or on acceptable price terms, alternative
suppliers
would be available on comparable price terms and delivery schedules.
In the
event the Company was unable to find such alternative suppliers at
competitive
prices and on a timely basis, its operations could be materially
adversely
affected.
The sport and gym bags and backpacks marketed overseas by NP
International and lunch bags, coolers and sport bags for Innovo for
domestic
distribution are generally obtained from overseas manufacturers in
order to
reduce the cost of these labor intensive products. The independent
overseas
contractors that manufacture these products are responsible for
obtaining the
necessary supply of raw materials and for manufacturing the products
to the
Company's specifications. The Company generally uses one
independent contractor
to fulfill all of its requirements in order to maximize its control
over
production quality and scheduling. Although the Company uses this,
and other
methods, to reduce the risk that the independent contractor will
fail to meet
the Company's requirements, the use of independent overseas
contractors does
reduce the Company's control over production and delivery and
exposes the
Company to the other usual risks of sourcing products abroad. The
Company does
not have any long-term supply agreements with independent overseas
contractors,
but believes that there are a number of contractors that could
fulfill the
Company's requirements.
The Company has generally utilized overseas contractors that
employ
production facilities located in China. As a result, the products
manufactured
for the Company are subject to export quotas and other restrictions
imposed by
the Chinese government. To date the Company has not been adversely
affected by
such restrictions; however, there can be no assurance that future
changes in
such restrictions by the Chinese government would not adversely
affect the
Company, even if only temporarily while the Company shifted
production to other
countries or regions such as Mexico, Korea, Taiwan or Latin America.
In the
past, substantially all of the products manufactured overseas for
the Company
were shipped directly to customers outside the United States, but
the Company is
now importing more products for domestic distribution. It is
anticipated that
in fiscal 1999 more than 50% of the Company's domestic sales will be
imported
products which are subject to United States import quotas,
inspection or duties.
In 1998, the Company entered into a manufacturing arrangement
with
Sunwaki Industrial Company LTD pursuant to which Sunwaki provided a
$500,000
trade credit to Innovo. Management expects this arrangement to
substantially
lower receiving, packing and shipping costs on those orders handled
by
Sunwaki. See also Item 7- Management's Discussion and Analysis --
Liquidity
and Capital Resources.
Competition
The industries in which the Company operates are fragmented and
highly
competitive. The Company competes against a large number of baggage
manufacturers and importers, and other generally small companies
that
distribute products similar to Innovo's and NP International's. NP
International's sports-licensed products also compete with those of
sporting
goods manufacturers, such as Reebok, Nike and Adidas, that produce
or license
the manufacture of sports bags bearing their names and logos. The
Company does
not hold a dominant competitive position, and its ability to sell
its products
is dependent upon the anticipated popularity of its designs, the
logos or
characters its products bear, the price and quality of its products
and its
ability to meet its customers' delivery schedules.
The Company believes that it is competitive in each of the
above-
described areas with companies producing goods of like quality and
pricing, and
that new product development, product identity through marketing,
promotions
and low price points will allow it to maintain its competitive
position. In
addition, the Company's ability to manufacture its products
domestically and
fill orders more promptly than companies whose sole or predominant
source of
products are outside the United States is an important aspect of
remaining
competitive. However, some of the Company's competitors possess
substantially
greater financial, technical and other resources than the Company,
including the
ability to implement more extensive marketing campaigns.
Intellectual Property
Innovo's utility line includes tote bags imprinted with the
E.A.R.T.H.
("EVERY AMERICAN'S RESPONSIBILITY TO HELP") BAG trademark.
E.A.R.T.H. Bags are marketed as a reusable bag that represents an
environmentally conscious alternative to paper or plastic bags.
Sales of
E.A.R.T.H. Bags, while significant in Innovo's early years, have not
been
significant in the last five years. The Company still considers the
trademark
to be a valuable asset, and has registered it with the United States
Patent and
Trademark Office.
Employees
As of February 18, 1999, the Company employed 83 full-time
personnel
at the Knoxville, Tennessee facility, comprised of 4 persons in
management, 14
persons in general administration and 65 persons in manufacturing
and
production. The Company continued to employ 1 full-time management
employee in
Springfield, Tennessee. Due to varying seasonal demands and
redesign of the
Company's manufacturing facilities, the Company's total work force
reached a
high of 356 employees during 1998, including 164 Thimble Square
employees prior
to discontinuing those operations. Management considers its
relationship with
its employees to be excellent. None of the Company's employees is
party to a
collective bargaining agreement. There has never been any material
interruption
of operations due to labor disagreements.
ITEM 2. PROPERTIES
The Company's headquarters, manufacturing and distribution
facilities
were located in Springfield, Tennessee, where Leasall owned three
buildings
throughout fiscal 1998 and until December 1998. The main
Springfield complex
was situated on seven acres of land with approximately 220,000
square feet of
usable space, including 30,000 square feet of office space and
35,000 square
feet of cooled manufacturing area. A warehouse annex contained
30,000 square
feet. First Independent Bank of Gallatin, Tennessee holds a First
Deed of Trust
on the real property located in Springfield. The Springfield
facilities are
currently held for lease or sale, and approximately 25% of the
facilities had
been leased as of February 15, 1999.
The Company's headquarters and manufacturing and distribution
facilities
were moved to a 78,000 square foot facility located in Knoxville,
Tennessee
during November and the first half of December 1998. The Knoxville
facility
provides approximately 65,000 square feet for manufacturing and
distribution
operations, as well as approximately 13,000 square feet of office
spaces.
The Company believes that the Knoxville facilities are adequate
for its
current and anticipated executive, administrative, sales and
domestic
manufacturing and distribution needs. Manufacturing capacity could
be increased
by approximately 50% in the Knoxville facility. To the extent that
additional
manufacturing capacity is required, management believes that
additional
facilities and capacity are available at reasonable cost, both
domestically and
overseas.
Innovo also leased a 5,000 square foot sewing facility in Red
Boiling
Springs, Tennessee under a three year lease having an annual rental
of $24,000
and expiring in August 1999. The facility was used to allow the
Company to
avoid the effects of labor shortages through the second quarter of
fiscal 1997.
In August 1997, as the result of increases in the production
efficiencies of the
Company's main plant in Springfield, Tennessee, the Company idled
this
additional plant. The Red Boiling Springs facility has been
subleased at a
monthly rent of $1,000 through the term of Innovo's lease.
Thimble Square leased two facilities in Baxley, Georgia. The
principal
facility was a 21,000 square foot manufacturing facility with an
annual rental
of $36,000. The lease runs through August 2000 and provided Thimble
Square
with a purchase option. The second lease was for a 7,000 square
foot cutting
facility with annual lease payments of $10,000 which expired in
October 1998.
The primary Baxley facility was sub-leased to Confident Colors on
September 14,
1998 as part of the discontinuation of the former Thimble Square
operations by
the Company. The terms of the lease provide for a $3,500 rental
payable monthly
and an option to purchase the 21,000 square foot facility. In
addition, the
lessees have exercised a right to purchase the production equipment
located in
the Baxley facilities for $30,000.
Thimble Square also owned a 40,000 square foot manufacturing
and
distribution facility in Pembroke, Georgia, which was subject to
liens held by
the First Bank of Coastal Georgia, the Bryan County Development
Authority, Inc.
and the Business Development Corporation of Georgia, Inc. This
plant was idled
and sewing capacity was absorbed by Baxley in August 1997. In
December 1997,
the Pembroke, Georgia cutting operation was moved to Baxley. The
Pembroke
property was sold in December 1998 for approximately $122,000 net of
selling
expenses.
The Company acquired a Florida retail property with
approximately
32,000 square feet of rentable space, operated as the "Good Deal
Mall," in
fiscal 1995. Through August 1997 the Company was engaged in
readying the
property to operate as an indoor multiple vendor open space mall in
which
retailers operate from permanent booths. The property was initially
opened in
August 31, 1997 with approximately 24% of its available space
leased. After
several lease terminations the Company closed the facility in
November 1997.
The property is currently held for lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to lawsuits in the ordinary course of
its business.
While the damages sought in some of these actions are material, the
Company
does not believe that it is probable that the outcome of any
individual action
will have a material adverse effect, or that it is likely that
adverse outcomes
of individually insignificant actions will be sufficient enough, in
number or
magnitude, to have a material adverse effect in the aggregate.
In May 1996, a foreign manufacturer that had previously
supplied
imported products to NASCO Products filed suit against NASCO
Products asserting
that it is owed approximately $470,000, which is $300,000 in excess
of the
amount presently recorded on the books of NASCO Products (Pannoy
Enterprises
Corporation v. NASCO Products, Inc., Case No. 12948, in the Chancery
Court for
Robertson County, Tennessee). The Company contends that NASCO
Products and
the supplier had previously reached an agreement on the balance owed
(which is
the balance recorded), as well as an arrangement under which the
schedule for
NASCO Products' payments reducing the balance would be based on
future purchases
by NP International. The Company has denied the supplier's claims,
and has
asserted affirmative defenses, including the supplier's late
shipment of the
original products, the supplier's refusal to accept and fill NP's
International
orders on agreed terms, and the supplier's agreement to a lesser
balance owed
and a payment arrangement. NASCO Products sold its operations in
July 1995, and
has no ongoing business operations. See Item 7 - "Management's
Discussion and
Analysis of Financial Condition and Results of Operations - General
and -
Liquidity and Capital Resources."
In December 1991, a former employee filed suit against the
Company,
Patricia Anderson-Lasko and others alleging breach of an employment
agreement
and conversion of his interest in certain property rights (Michael
J. Tedesco v.
Innovo, Inc.., et al., Case No. 91-64033, District Court of Harris
County,
Texas, 164th Judicial Circuit). Following an appeal and a second
trial, a final
judgment was rendered against Innovo for $194,045.62 on August 17,
1998.
Thereafter, 20,000 shares of Common Stock which has been held in the
registry of
the court, as security during the appeal and subsequent trial, were
released to
the plaintiff. If the sale of that stock does not generate
sufficient net
proceeds to pay the judgment, then Innovo will be liable for any
shortfall.
In July 1992, a former employee filed suit against the Company
and Spirco
for alleging breach of an employment agreement and asserting other
related
claims (Wayne Copelin v. Innovo Group, Inc., et al., Case No. 11950,
in the
Chancery Court of Robertson County, Tennessee). When Spirco went
into
bankruptcy in August 1993, the case proceeded against Innovo Group
and a summary
judgment of $100,000 was entered against it in March 1995. However,
because the
Copelin judgment was classified as a Class 8 Claim in the Spirco
bankruptcy, the
Company believed that the judgment was fully paid when it issued
35,211 shares
of Common Stock to Copelin, in compliance with the confirmed Plan of
Reorganization. When Copelin sought to enforce the judgment, Innovo
Group, as
the successor by merger to Spirco, brought a motion in the Spirco
bankruptcy to
enforce the terms of the Plan of Reorganization against Copelin.
The bankruptcy
judge granted the motion and permanently enjoined Copelin from
enforcing the
judgment in an order entered on October 18, 1996. Copelin appealed
to the
United States District Court and on April 13, 1998, the District
Court reversed.
The case is now on appeal to the United States Third Circuit Court
of Appeals.
Unless the Circuit Court reverses, Innovo Group will be liable for
$100,000 plus
accrued interest since March 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security holders during
the
Company's fourth fiscal quarter.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock is currently traded on the Nasdaq SmallCap
Market
maintained by The Nasdaq Stock Market, Inc under the symbol
"INNO." The following sets forth the high and low bid quotations
for the Common
Stock in such market for the periods indicated. This information
reflects
inter-dealer prices, without retail mark-up, mark-down or
commissions, and may
not necessarily represent actual transactions. No representation is
made by the
Company that the following quotations necessarily reflect an
established public
trading market in the Common Stock. The following information (as
all other
information herein) is adjusted to reflect a reverse stock split in
which one-
share of new Common Stock with a par value of $.10 per share was
exchanged for
every ten shares of old common stock having a par value of $.01 per
share (the
"Reverse Split"). The Reverse Stock Split was completed effective
September 11,
1998).
Fiscal 1997 High Low
First Quarter $5.00 $1.5625
Second Quarter 3.125 1.5625
Third Quarter 9.6875 1.40625
Fourth Quarter 8.4375 4.6875
Fiscal 1998
First Quarter $6.875 $5.625
Second Quarter 6.25 4.063
Third Quarter 4.375 1.875
Fourth Quarter 2.813 1.156
As of February 25, 1999, there were approximately 862 record
holders of
the Common Stock.
The Company has never declared or paid a cash dividend and does
not
anticipate paying cash dividends on its Common Stock in the
foreseeable future.
In deciding whether to pay dividends on the Common Stock in the
future, the
Company's Board of Directors will consider factors it deems
relevant, including
the Company's earnings and financial condition and its capital
expenditure
requirements.
In July 1997, the SEC and Nasdaq announced revised standards for
listing
on the Nasdaq SmallCap Market that required that a company's listed
securities
trade for not less than $1.00 and that the company have net tangible
assets
(total assets, excluding goodwill, minus total liabilities) of at
least
$2,000,000. The change became effective in February 1998. On
February 27,
1998, Nasdaq notified the Company that it was not in compliance with
the revised
standards and was given to May 28, 1998 to come into compliance.
The Common Stock generally traded at prices below $1.00
beginning in
November 1995 and until the Reverse Split was completed effective
September 11,
1998. The Company had been able to maintain its Nasdaq SmallCap
listing by
complying with an alternative $2,000,000 stockholder's equity
requirement
that is no longer available. Under the new Nasdaq requirements, the
Company
faced delisting unless the bid price on its stock increased to a
minimum of
$1.00 through normal markets or such other steps as deemed necessary
by the
Company. Following the Reverse Split, the bid price on the
Company's stock has
consistently exceeded $1.00. However, as the result of the losses
incurred
during the fourth quarter of fiscal 1998, the Company has net
tangible assets of
approximately $1,722,000 as of November 30, 1998 and did not meet
the $2,000,000
net tangible asset requirement.
During February 1999, the Company issued an aggregate of 150,000
shares of
Common Stock to two officers, for total aggerate proceeds of
$300,000. The
shares were issued pursuant to the exemption provided by Section
4(2) of the
Securities Act of 1933, as amended, and are restricted for purposes
of Rule 144
promulgated under that Act. On a pro forma basis, the Company's net
tangible
assets as of November 30, 1998 would therefore be approximately
$2,022,000
after giving effect to the sale of shares. Although the Company
believes that
this sale of shares will forestall any delisting of the Common Stock
based on
the Company's net tangible asset level as of November 30, 1998, the
Company
expects to incur operating losses during the first quarter of 1999
and that
additional sales of Common Stock or other steps to increase tangible
net assets
will be necessary to maintain net tangible assets of at least
$2,000,000.
See also Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations -- Liquidity and Capital Resources.
Although the Company will continually use its best efforts to
maintain its
Nasdaq SmallCap listing, there can be no assurance that it will be
able to do
so. If in the future, the Company is unable to satisfy the Nasdaq
criteria for
maintaining listing, its securities would be subject to delisting,
and trading,
if any, the Company's securities would thereafter be conducted in
the over-the-
counter market, in the so-called "pink sheets" or on the National
Association of
Securities Dealers, Inc. ("NASD") "Electronic Bulletin Board." As a
consequence
of any such delisting, a stockholder would likely find it more
difficult to
dispose of, or to obtain accurate quotations as to the prices, of
the Common
Stock.
During the fourth quarter of fiscal 1998, the Company issued
899,000
shares of Common Stock in a private placement for $1,798,000 in
gross cash
proceeds. No commissions or other discounts were paid. The shares
were issued
in reliance upon the exemption under Section 4(2) of, and Rule 506
promulgated
under, the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The table below (includes the notes hereto) sets forth a
summary of
selected consolidated financial data. The selected consolidated
financial data
should be read in conjunction with the related consolidated
financial statements
and notes thereto.
Years Ended (3)
11/30/98 11/30/97 11/30/96 10/31/95 10/31/94
(000's except per share data)
Net Sales $6,790 $7,901 $6,023 $5,276 $8,028
Costs of Goods Sold 4,493 5,303 3,981 3,808 5,044
Gross Profit 2,297 2,598 2,042 1,468 2,984
Operating Expenses (5) 4,203 4,007 4,008 3,134 5,389
Income (Loss) from
Operations (1,906) (1,009) (1,966) (1,666) (2,405)
Interest Expense (503) (657) (870) (511) (821)
Other Income
(Expense) (4) 142 337 (147) 2,110 (1,000)
Income (Loss) Before
Income Taxes (2,267) (1,729) (2,983) (67) (7,905)
Income Taxes (6) 0 0 0 0 3,679
Loss from Continuing
Operations (2,267) (1,729) (2,983) (67) (7,905)
Discontinued
Operations (1) (1,747) (110) (105) (626) (685)
Extraordinary Item (2) 0 524 0 (258) 699
Net Loss $(4,014) $(1,315) $(3,088) $(951) $(7,891)
Loss per share
from Continuing
Operations $ (0.49) $ (0.50) $ (2.19) $(0.26) $(39.92)
Weighted Average
Shares Outstanding 4,618 3,438 1,361 261 198
Balance Sheet Data:
Total Assets $7,232 $9,168 $9,433 $5,667 $11,143
Long-Term Debt 2,234 1,854 3,303 1,565 1,514
Stockholder s' Equity 1,722 3,791 2,275 (230) (2,372)
(1) The amounts for 1998, 1997 and 1996 represent the operations
of Thimble
Square. Thimble Square's operations were discontinued during
the fourth
fiscal quarter of 1998 and most of its assets have since been
leased or
sold. The 1995 and 1994 amounts reflect the operations and
July 1995
sale of the import operations of NASCO Products.
(2) Represents gains (losses) from extinguishment of debt.
(3) Effective November 1, 1995 the Company changed its fiscal year
to end
on November 30. Previously the Company's fiscal year ended
October 31.
(4) Amounts include, $1.9 million from the settlement of
litigation in 1995.
(5) Amount includes a $300,000 write down of long-term assets in
1998.
(6) Amount includes $3,679,000 in deferred tax valuation allowance
in 1994.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion analyzes the Company's financial
condition and
results of operations for years ended November 30, 1998, 1997 and
1996 and
their likely impact on 1999.
The Company has incurred losses from continuing operations in
each of
the last three fiscal years, principally as a result of lower sales
and a lack
of adequate working capital. Management is addressing both of these
shortfalls
and taking steps to boost sales and the profitability of the
Company.
During 1998, the Company shed itself of the assets of Thimble
Square,
Inc., effectively taking the Company out of the apparel segment of
the
industry. Thimble Square had not achieved profitability since it
was acquired
in 1996 and no longer fit into the long-term operating plan of the
Company. The
Company also decided to move its operations to Knoxville, Tennessee
into a more
efficient and advanced production facility. The move to Knoxville
was completed
on December 15, 1998. In addition to the steps to minimize
continued operating
losses and cut costs, the Company has created a sales and marketing
department
around Patricia Anderson-Lasko. During December 1998 and January
1999, a
National Sales Manager was hired to focus on the grocery and
drugstore market
and a National Marketing Manager was hired to facilitate a new
product
development program and work closely with the packaging, displaying
and sales
materials/promo's for existing products.
Results of Operations
The following table sets forth the Statement of Operations for
the years
ended November 30, 1998, 1997 and 1996.
Years Ended
11/30/98 11/30/97 11/30/96
Net Sales $6,790 $7,901 $6,023
Costs of Goods Sold 4,493 5,303 3,981
Gross Profit 2,297 2,598 2,042
Selling, General &
Administrative 3,638 3,740 3,498
Write down of long-term
assets 300 -- --
Depreciation & Amortization 265 267 510
Income (Loss) from
Operations (1,906) (1,009) (1,966)
Interest Expense (503) (657) (870)
Other Income (Expense) 142 337 (147)
Income (Loss) Before
Income Taxes (2,267) (1,729) (2,983)
Income Taxes 0 0 0
Income (Loss)
from Continuing Operations (2,267) (1,729) (2,983)
Discontinued Operations (1,747) (110) (105)
Extraordinary Item 0 524 0
Net Loss $(4,014) $(1,315) $(3,088)
Comparison of Fiscal Year Ended November 30 1998 to Fiscal Year
Ended
November 30, 1997
Net Sales for the year ended November 30 decreased $1.1
million or 14%
from $7.9 million in 1997 to $6.8 million in 1998. This decrease is
primarily
the result of the loss of programs with two significant customers.
The gross margin percentage increased one point from 32.9% in
1997 to
33.8% in 1998 due to improved material pricing and a reduction in
production
costs. The Company anticipates a further reduction in material
costs in 1999
from favorable pricing on imported items and domestic goods due to
improved
vendor selection and cost reduction strategies.
Selling, General and Administrative costs decreased $100,000 or
2.7%
from 1997 to 1998 due to decreased royalties from the reduced sales.
The
reductions in royalties were offset by an increase in legal and
professional
fees that resulted from the work performed on two potential
acquisitions during
1998 and from a one time charge of $187,000 for the settlement of a
lawsuit.
Under the guidelines of SFAS 121 the Company recorded a
$300,000
impairment loss representing a valuation adjustment on the Good Deal
Mall
facility as of November 30, 1998.
Depreciation and Amortization expenses were not significantly
different
from 1997 to 1998 due to the lack of significant purchases of fixed
assets and
intangible assets during 1998.
Interest expense for the year ended November 30 decreased
$154,000
or 23% from 1997 to 1998 due to the payoff of debt in 1997 from the
proceeds
of the private placement to the Smith Group as well as a reduction
in
interest rates for new debt instruments placed during 1998.
Comparison of Fiscal Year Ended November 30 1997 to Fiscal Year
Ended
November 30, 1996
Net Sales for the year ended November 30 increased $1,900,000
or 31.2%
from $6.0 million in 1996 to $7.9 million in 1997 primary due to the
introduction of new items into the Company's craft product line.
The gross margin percentage decreased one point from 33.9% in
1996 to
32.9% in 1997 due to increases in sewing costs.
Selling, General and Administrative costs decreased $200,000 or
3.9%
from 1996 to 1997 due to reduced head count in the marketing,
customer service
and shipping departments.
Depreciation and Amortization expense decreased $300,000 or 55%
from
1996 to 1997. The decrease resulted from the disposal of a
significant amount
of assets in 1996.
Interest expense for the year ended November 30 decreased
$300,000 or
32% from 1996 to 1997 due to the payoff of debt in 1997 from the
proceeds of
the private placement to the Smith Group.
Seasonality
The Company's business is seasonal. The majority of the
marketing and
sales activities take place from late fall to early spring. The
greatest volume
of shipments and sales are generally made from late spring through
the summer,
which coincides with the Company's second and third fiscal quarters
and the
Company's cash flow is strongest in its third and fourth fiscal
quarters.
During the first half of the calendar year, the Company incurs the
expenses of
maintaining corporate offices, administrative, sales and production
employees,
and developing the marketing programs and designs for and conducting
the
majority of its sales campaigns. Inventory levels also increase
during the
first half of the year. Consequently, during the first half of each
calendar
year, corresponding to the Company's first and second fiscal
quarters, the
Company utilizes substantial working capital and its cash flows are
diminished,
whereas the second half of the calendar year, corresponding to the
Company's
third and fourth fiscal quarters, generally provides increased cash
flows and
the build-up of working capital.
Liquidity and Capital Resources
Innovo Group is a holding company and its principal assets are
the
common stock of the operating subsidiaries. As a result, to satisfy
its
obligations Innovo Group is dependent on cash obtained from the
operating
subsidiaries, either as loans, repayments of loans made by Innovo
Group to the
subsidiary, or distributions, or on the proceeds from the issuance
of debt or
equity securities by Innovo Group. Leasall's first mortgage loan
contains
restrictions on its ability to make advances or distributions to
Innovo Group;
however, Leasall's activities are limited to the ownership of the
Company's real
property and the servicing of the mortgage debt thereon. The debt
agreements of
the other subsidiaries do not restrict advances or distributions to
Innovo
Group.
Cash flows from operations were a negative $1,238,000 for the
year ended
November 30, 1998. The primary reason was a net loss from
continuing operations
of $2,267,000, offset by $626,000 of non-cash charges principally
for
depreciation and amortization and an asset impairment charge. There
were also
decreases in receivables, inventories and prepaid expenses totaling
$539,000
which were offset by a corresponding net decrease in payables and
accrued
expenses of $273,000.
The Company has continued to generate losses throughout the first
quarter of
1999. However, these losses are in line with expectations due to
the seasonal
nature of the Company's business (see discussion above). The
Company
anticipates improved financial performance for fiscal year 1999 due
to
additional product lines and an improved marketing effort. The
improved
financial performance should allow the Company to generate positive
cash flows
from operations for the year ended November 30, 1999.
The Company's principal credit facility for working capital is
its December
1997 factoring agreement with First American National Bank ("First
American").
Under this facility, First American advances up to 90% of approved
invoices.
There is no established limit on the facility. first American
charges Innovo 1%
for the first 15 days an inovice is outstanding and .05% per day
thereafter
until paid, up to a maximum of 6%. The facility is secured by a
first
position on accounts receiveable and inventory and personal
guarantees of
certain members of the Board of Directors and management. Prior to
the
agreement with First American, the Company factored its receivables
with
another lender. The facility can be terminated upon thirty day
written
notice by either party.
The Company has taken a number of steps to improve its liquidity
in 1999,
as more fully discussed below, including
Obtaining a trade credit facility of up to $500,000 from a
key vendor;
Paying off in December 1998 a $126,000 short term note and a
$179,000
long-term note from the proceeds of the sale of the
Pembroke facility
as it completed its disposal of the Thimble Square
operations;
Obtaining in February 1999 an extension to February 2000 on
a $350,000
line of credit that had expired in December 1998;
Obtaining in February 1999 $300,000 in cash from the
proceeds of a sale
of common stock to two officers, who also committed to
provide an
aggregate of $100,000 in additional credit.
As a reult of recent efforts with vendors, the Company believes
it has made
progress in reestablishing normalized trade relationships. In 1998,
the Company
entered into an agreement with Sunwaki Industrial Company, Ltd. of
Hong Kong to
produce the Company's licensed products for both domestic and
international
distribution. Sunwaki has the capability to meet a substantial
portion of the
Company's needs for such products. In connection with this
arrangement, Sunwaki
agreed to extend up to $500,000 of trade credit to Innovo for fiscal
year 1999.
Management expects the arrangement to lower production and other
related costs
for 1999.
In connection with the Company's discontinuance of its apparel
manufacturing
operations it disposed of its former Thimble Square operations and
its assets.
On December 10, 1998, the Company completed the sale of Thimble
Square's
Pembroke facility from which it realized net proceeds of
approximately $122,000
which together with available cash was used to pay a $179,000 long-
term
mortgage and a $126,000 short term note.
In December 1997, the Company negotiated a line of credit at
First
Independent Bank for $350,000 collateralized by the equipment of
Innovo and
Leasall and the guarantees of certain officers. A total of $349,000
had been
drawn under this facility which matured on December 30, 1998. In
February 1999,
the bank renewed the facility extneding its due date to February 27,
2000.
During February 1999, the Company issued $300,000 in Common
Stock to Sam
Furrow, the Company's CEO, and Dan Page, the Company's COO. In
addition to the
placement of stock, the officers made available to the Company
separate lines of
credit in the amount of $50,000 each. the lines will remain
available until
June, 1999, a time of year during which the Company would normally
experience
greater cash flow and liquidity due to the seasonal nature of the
Company's
business. See "Seasonality."
In addition to these steps, the Company has entered into
negotiation for an
inventory-based credit facility to supplement its current receivable
factoring
facility. The Company believes that the lending base represented by
these
assets has not been effectively leveraged in the recent past and
that the steps
taken to restore the Company's credit capacity will facilitate these
traditional
borrowing sources.
Additionally, the Company is in negotiations to sell a $703,000
promissory
note receivable due from its President which had been received in
conneciton
with the President's exercise of a stock purchase award and has been
reflected
in the Company's financial statements as a reduction of equity.
Proceeds from
the sale of this note receivable would be used to repay an existing
not payable
in the amount of $650,000 which would increase the Company's
borrowing capacity.
Additionally, collection of the note receivable would serve to
increase the
Company's tangible net assets.
Based on the foregoing, the Company believes that working
capital will be
sufficient to fund operations and required debt reductions during
fiscal 1999.
However, due to the seasonality of the Company's business and likely
negative
cash flow during the first half of the year, the Company may be
required to
obtain additional capital through debt or equity financing. The
Company has
received a commitment from certain of its officers for additional
credit in an
amount not to exceed $500,000 to fund short-term cash requirements
as may be
required from time to time during 1999. The Company believes that
nay
additional capital, to the extent needed, oculd be obtained from the
sale of
equity securities or short-term working capital loans. However,
there can be
no assurance that this or other financing will be available if
needed. The
inability of the Company to be able to fulfill any interim working
capital
requirements would force the Company to contrict its operations.
Year 2000
In 1998, the Company assessed its computer systems and
determined that much
of the hardware that runs the critical software will need to be
updated as well
as the operating systems that support the critical software. The
software used
for billing, inventory, job costing and other accounting functions
is currently
year 2000 compliant. The Company purchased new computer hardware and
operating
systems in December 1998 for approximately $10,000. The Company
estimates that
it will spend an additional $20,000 to $30,000 to convert the
critical systems
to the new hardware and upgrade end-user equipment. The Company
plans to have
the conversion complete by the end of the second quarter or
beginning of the
third quarter of 1999. If the Company should not be able to
successfully
convert its computer hardware and operating systems to be in
compliance with the
year 2000, the Company will use a manual order processing system to
continue to
make and order customer product. Due to the mechanical nature of
the equipment
used in the production process, no interruption of production is
anticipated.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income" is effective for
years
beginning after December 15, 1997. This statement establishes
standards for
reporting and display of comprehensive income, its components and
accumulated
balances. This pronouncement is not expected to have a material
impact on the
Company's financial statements when adopted.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related
Information" is effective for years beginning after December 15,
1997. This
statement establishes standards for the way that public business
enterprises
report information about operating segments in annual financial
statements. It
also establishes standards for related disclosures about products
and services,
geographic areas, nd major customers. This pronouncement is not
expected to
have a material impact on the Company's financial statements when
adopted.
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging
Activities is effective for all fiscal years beginning after June
15, 1999.
This statement requires recognition of all derivative contracts as
either assets
or liabilities in the balance sheet and the measurement of them at
fair value.
If certain conditions are met, a derivative may be specifically
designated as a
hedge, the objective of which is to match the timing of any gains or
losses on
the hedge with the recognition of (i) the changes in the fair value
of the
hedged asset or liability that are attributable to the hedged risk
or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not
designated as a hedging instrument, the gain or loss is recognized
in income
in the period of change. Historically, the Company has not entered
into
derivative contracts either to hedge existing risks or for
speculative
purposes. The adoption of the new standard on January 1, 2000 will
not affect the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS
Innovo Group Inc.
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants
19
Consolidated Balance Sheets
20
Consolidated Statements of Operations
21
Consolidated Statements of Stockholders' Equity
22 - 23
Consolidated Statements of Cash Flows
24 - 25
Notes to Consolidated Financial Statements
26 - 39
Financial Statement Schedules are included at Item 14.
Report of Independent Certified Public Accountants
Board of Directors
Innovo Group Inc.
We have audited the accompanying consolidated balance sheets of
Innovo Group
Inc. and subsidiaries as of November 30, 1998 and 1997, and the
related
consolidated statements of operations, stockholders' equity, and
cash flows for
each of the years ended November 30, 1998, 1997 and 1996. These
financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan and perform the
audit to obtain
reasonable assurance about whether the financial statements are free
of material
misstatement. An audit includes examining, on a test basis,
evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes
assessing the accounting principles used and significant estimates
made by
management, as well as evaluating the overall presentation of the
financial
statements. We believe that our audits provide a reasonable basis
for our
opinion.
In our opinion, the consolidated financial statements referred to
above present
fairly, in all material respects, the consolidated financial
position of Innovo
Group Inc. and subsidiaries as of November 30, 1998 and 1997, and
the
consolidated results of their operations and their cash flows for
each of the
years ended November 30, 1998, 1997 and 1996, in conformity with
generally
accepted accounting principles.
/s/BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Atlanta, Georgia
February 10, 1999, except for Note 13 which is as of March 10, 1999
INNOVO GROUP INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's except for share data)
11/30/98 11/30/97
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,078 $ 469
Accounts receivable net of allowance
($67,000 for 1998 and $123,000 for
1997) (Note 5) 708 895
Inventories (Note 5) 1,101 1,582
Prepaid expenses 267 398
TOTAL CURRENT ASSETS 3,154 3,344
PROPERTY, PLANT and EQUIPMENT, net 4,037 5,071
OTHER ASSETS 41 753
TOTAL ASSETS $ 7,232 $ 9,168
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 5) $ 914 $ 1,131
Current maturities of long-term debt (Note 6) 270 211
Accounts payable 1,139 1,412
Accrued expenses 906 769
TOTAL CURRENT LIABILITIES 3,229 3,523
LONG-TERM DEBT, less current maturities (Note 6) 2,234 1,854
OTHER 47 -
TOTAL LIABILITIES 5,510 5,377
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 9)
Common stock, $0.10 par - shares
authorized 7,000,000 in 1998 and 1997;
issued 5,387,113 in 1998 and 4,459,613
in 1997 538 446
Additional paid-in capital 30,282 28,429
Promissory note - officer (703) (703)
Deficit (25,969) (21,955)
Treasury stock (2,426) (2,426)
TOTAL STOCKHOLDERS' EQUITY 1,722 3,791
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 7,232 $ 9,168
See accompanying notes to consolidated financial statements
INNOVO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's except per share data)
Year Ended November 30,
1998 1997 1996
NET SALES $6,790 $7,901 $6,023
COST OF GOODS SOLD 4,493 5,303 3,981
Gross profit 2,297 2,598 2,042
OPERATING EXPENSES
Selling, general and administrative 3,638 3,740 3,498
Write down of long-term assets 300 -- --
Depreciation and amortization 265 267 510
4,203 4,007 4,008
LOSS FROM OPERATIONS (1,906) (1,009) (1,966)
INTEREST EXPENSE (503) (657) (870)
OTHER INCOME (EXPENSE), net 142 337 (147)
LOSS BEFORE INCOME TAXES (2,267) (1,729) (2,983)
INCOME TAXES (BENEFIT) - - -
LOSS FROM CONTINUING
OPERATIONS (2,267) (1,729) (2,983)
DISCONTINUED OPERATIONS
Results from Thimble Square operations (346) (110) (105)
Loss on disposal of Thimble Square (1,401) - -
(1,747) (110) (105)
LOSS BEFORE EXTRAORDINARY ITEM (4,014) (1,839) (3,088)
EXTRAORDINARY ITEM (Note 7) - 524 -
NET LOSS $ (4,014) $(1,315) $(3,088)
LOSS PER SHARE:
Continuing operations $(0.49) $(0.50) $(2.19)
Discontinued operations $(0.38) $(0.03) $(0.08)
Net loss $(0.87) $(0.38) $(2.27)
WEIGHTED AVERAGE SHARES OUTSTANDING 4,618 3,438 1,361
See accompanying notes to consolidated financial statements
<TABLE>
INNOVO GROUP INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000's except for share data)
Additional Promissory
Stock Paid-in Note Treasury
Shares Amount Subscription Capital Deficit Officer Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
November 30, 1995 387,886 $ 39 $ 292 $ 20,138 $(17,552) $ - $(2,389) $ 528
Issuance of common stock
Cash 731,628 73 - 1,737 - - - 1,810
Subscription agreements 31,136 3 (292) 289 - - - -
Spirco reorganization 31,299 3 - 295 - - - 298
Manufacturing agreement 120,000 12 - 388 - - - 400
Thimble Square acquisition 124,118 12 - 621 - - - 633
Extinguishment of debt 126,947 13 - 410 - - - 423
Conversion of debentures 752,191 75 - 915 - - - 990
Exercise of warrants and options 337,273 34 - 412 - - - 446
Loan fees 10,580 1 - 31 - - - 32
Debt settlement - - - - - - (37) (37)
Issuance of warrants - - - 40 - - - 40
Issuance costs - - - (200) - - - (200)
Net Loss - - - - (3,088) - - (3,088)
Balance, November 30, 1996 2,653,058 265 - 25,076 (20,640) - (2,426) 2,275
Issuance of common stock - - - - - - - -
Smith group purchase 675,000 68 - 1,282 - - - 1,350
Cash 150,000 15 - 660 - - - 675
Conversion of debentures 412,793 41 - 359 - - - 400
Exercise of stock purchase right400,000 40 - 1,085 - (1,125) - -
Conversion of convertible notes 210,000 21 - 383 - - - 404
Exercise of warrants 76,500 8 - 135 - - - 143
Debt settlement 75,000 1 - 50 - - - 51
Other 24,762 2 - 41 - - - 43
Costs of issuance - - - (85) - - - (85)
Retire shares subject to stock
purchase right (150,000) (15) - (407) - 422 - -
Warrant repurchase - - - (150) - - - (150)
Net Loss - - - - (1,315) - - (1,315)
Balance, November 30, 1997 4,459,613 446 - 28,429 (21,955) (703) (2,426) 3,791
Issuance of common stock
Furrow-Holrob Development
purchase 899,000 89 - 1,709 - - - 1,798
Issuance for compensation 16,450 2 - 96 - - - 98
Issuance for debt service 8,550 1 - 55 - - - 56
Exercise of warrants and options 3,500 - - 9 - - - 9
Cost of issuance - - - (16) - - - (16)
Net loss - - - - (4,014) - - (4,014)
Balance, November 30, 1998 5,387,113 $ 538 $ - $30,282 $(25,426) $(703) $(2,426) $1,722
See accompanying notes to consolidated financial statements
<TABLE/>
INNOVO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's)
Year Ended November 30,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,014) $(1,315) $(3,088)
Adjustment to reconcile net loss to
cash used in operating activities from
continuing operations:
Loss on disposal of discontinued operations 1,401 - -
Loss from discontinued operations 346 520 105
Compensatory stock options 100 - -
Depreciation and amortization 265 267 510
Asset impairment charge 300 - -
Provision for uncollectable accounts (39) (49) 78
Extraordinary gain - (524) -
Other - - 6
Changes in assets and liabilities:
Accounts receivable 226 392 (430)
Inventories 137 167 (406)
Prepaid expenses and other 176 (66) 560
Accounts payable (273) (173) 558
Accrued expenses 137 (134) (598)
Other - (14) (11)
Cash used in operating activities of
continuing operations (1,238) (929) (2,716)
Cash used in operating acivities of
discontinued operations (202) (318) (27)
Cash used in operating activities (1,440) (1,247) (2,743)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18) (469) (379)
Increase (decrease) in other assets - 43 -
Proceeds from sale of discontinued operations - - 257
Disposal of fixed assets - 216 -
Cash used in investing activities (18) (210) (122)
CASH FLOWS FROM FINANCING ACTIVITIES:
Addition of notes payable 7,865 869 -
Repayments of notes payable (8,027) (221) (444)
Additions to long-term debt 650 - 1,675
Debt issue costs - - (285)
Repayments of long-term debt (212) (729) (226)
Proceeds from issuance of common stock 1,807 2,168 2,256
Stock issuance costs (16) (85) (200)
Warrant repurchase - (150) -
Other - 43 -
Cash provided by financing activities 2,067 1,895 2,776
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 609 438 (89)
CASH AND CASH EQUIVALENTS, at beginning of
period 469 31 120
CASH AND CASH EQUIVALENTS, at end of period $1,078 $ 469 $ 31
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid for interest 555 767 618
Cash paid for income taxes - - -
See accompanying notes to consolidated financial statements
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of business
Innovo Group Inc. ("Innovo Group") is a holding company, the
principal
assets of which are the outstanding securities of three operating
subsidiaries,
Innovo, Inc. ("Innovo"), NASCO Products International, Inc. ("NP
International") and Thimble Square, Inc. (Thimble Square"). Certain
assets of
Thimble Square were disposed of and its operations ceased on
September 13, 1998
(see Note 12). The Innovo Group and its wholly owned subsidiaries
are referred
to as "the Company".
Innovo is a domestic manufacturer of cut and sewn canvas and
nylon
consumer products, such as tote and other bags and aprons, which are
sold to
the utility, craft, sports licensed and advertising specialty
markets. Innovo
is also an importer of sports licensed products produced with logos
or other
designs licensed from various sports licensors. These items such as
coolers,
seat cushions and back packs are sold to the sports licensed and
advertising
specialty markets. Innovo grants credit to customers, substantially
all of
which are retail merchandisers or are in the premium incentive
industry.
NP International distributes in foreign, principally European
markets,
nylon sports bags and backpacks, imprinted or embroidered with logos
or other
designs licensed from various sports and entertainment related
licensors.
Thimble Square manufactured and marketed ladies' ready-to-wear
at
home, sleep and lounge wear. Its products were sold to mail order
companies,
retailers and through mail order distribution. Thimble Square also
provided
"sew-only" manufacturing for other distributors of private-label
sleep and
lounge wear; in those instances, the customer provided the raw
materials and
Thimble Square manufactured the products to the customer's
specifications.
The Company operated in two business segments throughout the
majority
of fiscal 1998. See Note 11. Sales to two customers (one a
customer of
Innovo, and one a customer of Thimble Square) accounted for 37.4%,
and 92.0% of
the net sales of each company respectively for the year ended
November 30, 1998.
Sales to foreign customers of Nasco Products Internationa,
principally in
Europe, accounted for 18.4%, 16.4% and 12.1% of net sales in fiscal
1998, 1997
and 1996, respectively.
(b) Principles of consolidation
The accompanying consolidated financial statements include the
accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany
transactions and balances have been eliminated.
(c) Use of estimates
The preparation of financial statements in conformity with
generally
accepted accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and
liabilities and dis-
closure of contingent assets and liabilities at the date of the
financial
statements and the reported amounts of revenues and expenses during
the
reporting period. Estimates most significantly affect the
amortization of
goodwill, the evaluation of contingencies, and the determination of
allowances
for accounts receivable and inventories.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Revenue recognition
Revenues are recorded on the accrual basis of accounting when
the
Company ships products to its customers. Sales returns must be
approved by the
Company and are typically only allowed for damaged goods. Such
returns are
typically not material. The Company provides an allowance ($67,000
and $123,000
at year ended November 30, 1998 and 1997, respectively) for
estimated losses to
be incurred in the collection of accounts receivable.
(e) Loss per share
Loss per share is computed using weighted average common shares
and
dilutive common equivalent shares outstanding. Potentially dilutive
securities
consist of outstanding options and warrants. Potentially dilutive
securities
were not considered in the computation of weighted average common
shares as
their effect would have been antidilutive.
On September 13, 1998 the Company declared a reverse stock
split of
which one share of new Common Stock was exchanged for ten shares of
old
Common Stock. All share and per share amounts have been restated to
reflect the
effects of the reverse stock split.
(f) Capitalization policy
Cost incurred in the issuance of debt securities or to obtain
bank
financing are capitalized and are amortized as a component of
interest expense
using the level yield method.
The Company charges to expense in the year incurred costs to
develop new
products and programs. Amounts charged to expense approximated $
2,000,
$182,000 and $363,000 in fiscal 1998, 1997 and 1996, respectively.
(g) Financial Instruments
The fair values of the Company's financial instruments
(consisting of
cash, accounts receivable, accounts payable, notes payable, long-
term debt and
notes payable officer) do not differ materially from their recorded
amounts.
The Company neither holds, nor is obligated under, financial
instruments
that possess off-balance sheet credit or market risk.
(h) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are
reviewed for
impairment whenever events or changes in circumstances indicate that
the
carrying amount of an asset may not be recoverable. Recoverability
of assets to
be held and used is measured by a comparison of the carrying amount
of an
asset to future net cash flows expected to be generated by the
asset. If such
assets are considered to be impaired, the impairment to be
recognized is
measured by the amount by which the carrying amount of the assets
exceed the
fair value of the assets. Assets to be disposed of are reported at
the lower of
the carrying amount or fair value less costs to sell.
(i) New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income" is effective for
years
beginning after December 15, 1997. This statement establishes
standards for
reporting and display of comprehensive income, its components and
accumulated
balances. This pronouncement is not expected to have a material
impact on the
Company's financial statements when adopted.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related
Information" is effective for years beginning after December 15,
1997. This
statement establishes standards for the way that public business
enterprises
report information about operating segments in annual financial
statements. It
also establishes standards for related disclosures about products
and services,
geographic areas, and major customers. This pronouncement is not
expected to
have a material impact on the Company's financial statements when
adopted.
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging
Activities is effective for all fiscal years beginning after June
15, 1999.
This statement requires recognition of all derivative contracts as
either assets
or liabilities in the balance sheet and the measurement of them at
fair value.
If certain conditions are met, a derivative may be specifically
designated as a
hedge, the objective of which is to match the timing of any gains or
losses on
the hedge with the recognition of (i) the changes in the fair value
of the
hedged asset or liability that are attributable to the hedged risk
or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not
designated as a hedging instrument, the gain or loss is recognized
in income in
the period of change. Historically, the Company has not entered
into derivative
contracts either to hedge existing risks or for speculative
purposes. The
adoption of the new standard on January 1, 2000 will not affect the
Company's
financial statements.
NOTE 2 - INVENTORY
Inventories are stated at the lower of cost, as determined by
the first-
in, first-out method, or market.
Inventories consisted of the following:
November 30,
1998 1997
(000's) (000's)
Finished goods $ 766 $ 680
Work-in-process 18 246
Raw materials 353 692
1,137 1,618
Less inventory reserve (36) (36)
$1,101 $1,582
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3 PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment, including assets utilized under
capital
leases, are stated at cost. Depreciation and amortization are
provided in
amounts sufficient to allocate the cost of depreciable assets to
operations over
their estimated useful lives using the straight-line method.
Leasehold
improvements are amortized over the lives of the respective leases
or the
estimated service lives of the improvements, whichever is shorter.
On sale or
retirement, the asset cost and related accumulated depreciation or
amortization
are removed from the accounts, and any related gain or loss is
included in the
determination of income.
Property and equipment consisted of the following:
Useful
Lives November 30,
(Years) 1998 1997
(000's) (000's)
Buildings, land and improvements 8-38 $ 3,250 $ 4,575
Machinery and equipment 5-10 1,153 1,526
Furniture and fixtures 3-8 637 674
Transportation equipment 5 56 65
Leasehold improvements 5-8 3 3
5,099 6,843
Less accumulated depreciation
and amortization (1,841) (1,772)
3,258 ---
Net property, plant and equipment of
discontinued operations 779 ---
Net property and equipment $4,037 $5,071
The cost and accumulated depreciation for assets utilized under
capital
leases were $577,000 and $137,000, respectively, at November 30,
1998.
The Thimble Square facility in Pembroke, Georgia was sold on
December
10, 1998 for approximately $122,000 net of selling expenses. This
sale resulted
in a $278,000 loss on disposal. Under the provision of SFAS 121,
the value of
the Pembroke property was adjusted to net realizable value as of
November 30,
1998.
Fixed assets and fixed assets to be disposed of are accounted
for under
Statement of Financial Accounting Standards ("SFAS") No. 121. Under
the
standard, where there is a significant change in use or value of a
long-lived
asset, the asset is written down to recoverable value if it is
determined that
recoverable value is less than the Company's cost basis. Under the
provisions
of SFAS 121, the Florida property's value was adjusted downward by
$300,000 in
1998.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 OTHER ASSETS
Other assets consisted of the following:
November 30,
1998 1997
(000's) (000's)
Goodwill, net of accumulated
amortization $ --- $ 702
Debt issue costs, net 23 8
Other 18 43
_____ ______
$ 41 $ 753
The goodwill, which arose in the Company's acquisition of Thimble
Square, was
written off when Thimble Square was disposed (see Note 11).
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
November 30,
1998 1997
(000's) (000's)
Accounts receivable factoring facility $ 439 $ 504
Bank credit facility 349 273
NP International loan --- 251
Other 126 103
______ ______
$ 914 $1,131
Innovo and Thimble Square previously borrowed under an accounts
receivable factoring facility with Riviera Finance ("Riviera") under
which
Riviera advanced 90% and 80% of assigned accounts receivable,
respectively.
The factoring facility provided for advances up to $1,500,000.
Riviera charged
.75% of each invoice assigned plus 1.5% per month of outstanding
advances.
Borrowings under the facility were collateralized by assigned
accounts
receivable, which aggregated $603,000 at November 30, 1997.
In December 1997 the Company replaced this factoring facility
with a new
accounts receivable factoring facility with First American National
Bank
("First American"). Under the facility, First American advances 90%
of
approved invoices. There is no established limit on the total
facility. First
American charges Innovo 1% for the first 15 days an invoice is
outstanding and
.05% per day thereafter until paid, up to a maximum of 6%. Thimble
Square was
charged 1.5% for the first 30 days an invoice is outstanding and
.033% per day
thereafter, also to a maximum of 6%. The facility is secured by
first position
on accounts receivable and inventory and personal guarantees of
certain members
of the Board of Directors and management. The agreement with First
American
terminates upon thirty day written notice from either party.
As of November 30, 1998, Thimble Square had a note payable to a
local bank
that used the Pembroke, Georgia facility as collateral. This loan
bears
interest at the rate of 2.75 points over the prime rate per annum.
The loan
balance of approximately $126,000 was paid off when the Pembroke
facility was
sold in December 1998.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 - NOTES PAYABLE (continued)
In December 1997 the Company entered into a revolving line of
credit
with a bank for $350,000 at a fixed rate of 9.5%. The line is
secured by
equipment and the personal guarantees of certain members of
management. The
line of credit had an outstanding balance of $349,000 as of November
30, 1998
and expired on December 30, 1998. The Company renewed the line of
credit
through February 27, 2000 at an interest rate of 10.75%.
In October 1997 Innovo Group obtained a secured bank line of
credit of
$762,000. $273,000 was outstanding on the line at November 30,
1997. This loan
was paid during 1998 from the proceeds of the private placement of
common stock.
The weighted average interest rate on outstanding short-term
borrowings
was 11.1% and 17.7% at November 30, 1998 and 1997, respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt consisted of the following:
November 30,
1998 1997
(000's)
(000's)
First mortgage loan $ 754 $ 783
Non-recourse first mortgage on
Florida property 727 759
Thimble Square SBA loan 179 194
Thimble Square first mortgage loan ---- 112
Capital lease obligation 194 211
Bank promissory note secured by receivable
from an officer of the Company 650 ----
Other ---- 6
______ ______
Total long-term debt 2,504 2,065
Less current maturities (270)
(211)
______ ______
$2,234 $ 1,854
The first mortgage loan is collateralized by a first deed of
trust on real
property in Springfield, Tennessee and by an assignment of key-man
life
insurance on the president of the Company in the amount of $950,000.
The loan
bears interest at 2.75% over the lender's prime rate per annum
(which was 8.50%
at November 30, 1998) and requires monthly payments of $9,900. In
order for the
loan to be guaranteed by the Small Business Administration ("SBA"),
Innovo
Group, Innovo, NASCO Products, and the president of the Company
agreed to act
as guarantors for the obligations under the loan agreement.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - LONG-TERM DEBT (continued)
In November 1995 the Company acquired a facility which it
developed as
an indoor retail outlet featuring antique and flea market shops.
The $1.5
million purchase price was paid by the issuance to the seller of (i)
warrants to
purchase 1 million shares of the Company's common stock, exercisable
at $.01 per
share through March, 1998, and (ii) an $800,000 first lien non-
recourse
mortgage secured by the property. The mortgage is payable $25,500
quarterly;
all unpaid principal, and interest (which accrues at the rate of
9.5% per annum)
is due January, 2006. Construction period interest of $79,000 was
capitalized
during fiscal 1996. The stock option was exercised in March, 1996.
The Company
also issued a warrant, exercisable for the purchase of 100,000
shares at $.01
per share, as a finder's fee on the property acquisition. The
warrant was
exercised in April, 1996.
Thimble Square's SBA loan is collateralized by a lien on that
company's
Pembroke, Georgia plant. This loan was repaid in conjunction with
the December
1998 sale of the Pembroke facility. The loan bears interest at
2.75%, over the
prime rate and was paid in full in conjunction with the December
1998 sale of
the Pembroke plant. The capital lease obligation represents the
lease on
Thimble Square's Baxley, Georgia plant. Interest on the capital
lease is
imputed at the rate of 10% per annum.
In April 1998, Innovo Group entered into a secured note with a
bank for
$650,000 at a rate of 13.5% per annum. A $703,000 note receivable
that the
Company holds from an officer and 250,000 shares owned by Pat
Anderson-Lasko
serve as collateral for the note. The secured note is also
guaranteed by
certain members of management. The secured note requires monthly
payments of
interest only. The principal amount of the secured note is due on
April 1, 2003.
In fiscal 1996, the Company privately placed $1,625,000 of 8%
Convertible Debentures due September 30, 1998. As of November 30,
1996,
$1,205,000 of the debentures had been converted into 752,191 shares
of common
stock. During fiscal 1997 the remaining convertible debentures were
converted
into 412,793 shares of common stock.
Principal maturities of long-term debt of continuing operations
as of
November 30, 1998 are as follows:
Year ending November 30, Amount
1999 90,000
2000 86,000
2001 102,000
2002 112,000
2003 774,000
Thereafter 1,160,000
The current maturities of long term debt for discontinued
operations is
$180,000 in 1999.
NOTE 7 - DEBT SETTLEMENTS
In the fourth quarter of 1997 the Company settled debts with 44
creditors
recorded at $930,000. The Company made cash payments totaling
$406,000 and
recognized an extraordinary gain in the amount of $524,000.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8 - INCOME TAXES
No provision for income tax for any of the last three fiscal
years has
been provided for, as income tax benefits arising from net operating
losses are
offset by corresponding increases in the deferred tax asset
valuation.
Net deferred tax assets result from the following temporary
differences
between the book and tax bases of assets and liabilities:
November 30,
1998 1997
(000's) (000's)
Deferred tax assets:
Allowance for doubtful accounts $ 23 $ 36
Inventory reserves 12 18
Property and equipment -- 111
Other -- 31
Benefit of net operating loss
carryforwards 3,773 3,664
______ ______
Gross deferred tax assets 3,808 3,860
Deferred tax assets valuation allowance (3,808) (3,860)
______ ______
Net deferred tax assets $ - $ -
______ ______
The reconciliation of the effective income tax rate to the
federal
statutory rate is as follows:
Year ended
November 30,
1998 1997 1996
(000's) (000's) (000's)
Computed tax (benefit)
at the statutory rate (34%) (34%) (34%)
State income tax - - -
Change in valuation allowance 34% 34% 34%
______ ______ ______
- - -
______ ______ ______
The Company has consolidated net operating loss carryforwards
of
approximately $31.6 million expiring through the year 2013.
However, as the
result of "changes in control" as defined in Section 382 of the
Internal Revenue
Code, approximately $25 million of such carryforwards may be subject
to an
annual limitation, which is currently estimated to be a minimum of
$432,000,
subject to adjustment. Such limitation would have the effect of
limiting to
approximately $12.7 million the future taxable income which the
Company may
offset through the year 2013 through the application of its net
operating loss
carryforwards. Any changes in control subsequent to the
aforementioned one
may have the effect of further limiting the utilization of the net
operating
loss carryforwards. A subsidiary of the Company has state tax net
operating
loss carryforwards of approximately $12.1 million to offset state
taxable
income. These carryforwards expire in varying amounts between the
years 1999
and 2006.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9 - STOCKHOLDERS' EQUITY
(a) Common Stock
On September 13, 1998, the Company's Board of Directors
approved a
reverse ten for one stock split. All references to the number of
shares and
price per share have been adjusted to reflect the reverse split.
The Company adopted a Stock Option Plan (the "1991 Plan") in
December 1991 (amended in April 1992) under which 10,000 shares of
the
Company's common stock have been reserved for issuance to officers,
directors,
consultants and employees of the Company under the terms of the 1991
Plan. The
1991 Plan will expire on December 10, 2001.
In September 1993 the Company issued 18,976 shares of restricted
common stock to extinguish notes payable and accrued interest of
$1,423,000.
The holders of such shares hold options ("put options") that allowed
them, until
April, 1995, to require that the Company repurchase any or all of
the shares at
a price of $75 per share. The put options continue to be
exercisable at $300
per share, in the event of certain "changes in control" not approved
by the
board of directors. The put options grant the Company a right of
first refusal
to purchase any of the related shares upon the payment of the same
price offered
to the holders by another party. Also, the Company can cancel the
put options
by paying nominal consideration.
During fiscal 1996 the Company issued common stock to acquire
Thimble
Square, to extinguish an aggregate of $423,000 in liabilities, as a
loan fee
extension, and to convert $1,205,000 of 8% Convertible Debentures
(see Notes 4
and 11). The Company also issued warrants and a mortgage note to
acquire
property for $1.5 million (see Note 7).
During the third quarter of fiscal 1996, the Company completed
a private
placement of 175,152 shares of its common stock for net cash
proceeds of
$560,000. The placements included the issuance of warrants for the
purchase of
77,576 shares of the Company's common stock exercisable for five
years at an
exercise price of $5.20 per share. In connection with the third
quarter
fiscal 1996 placements of common stock and the 8% Convertible
Debentures, the
Company issued to the placement agent warrants (Class I warrants)
for the
purchase of an aggregate of 122,059 shares of its common stock,
subject to
adjustment, exercisable for a period of five years at an exercise
price of $1.70
per share. In the third quarter of fiscal 1997 all the outstanding
Class I
warrants were repurchased by the Company for $150,000.
During the first quarter of fiscal 1997 the Company issued
$271,000 in
10% unsecured convertible promissory notes due January 1998. The
notes were
convertible into 210,000 shares of common stock. Also, in
connection
therewith, the Company issued 50,000 Class J warrants exercisable at
$1.25 per
share which expired in January 1998. In the second quarter of fiscal
1997 the
notes were converted and the warrants were exercised for net cash
proceeds of
$63,000.
On April 4, 1997 the Company's stockholders approved an
increase in the
number of authorized shares of common stock to 7 million.
On August 4, 1997, the Company's president exercised a stock
purchase
right (the "Purchase Right") awarded her by the board of directors
on February
12, 1997. The Purchase Right entitled her to purchase up to 400,000
shares of
the Company's common stock during the period April 30, 1997, to
April 30, 2002
at a price of $2.8125 per share. The president paid for the shares
by the
delivery of a non-recourse promissory note, bearing no interest, due
April 30,
2002. The promissory note is collateralized by the shares purchased
therewith,
which shares would be forfeited to the extent the note is not paid
on or before
maturity, and would be payable (including prepayable), in whole or
in part, by
the delivery to the Company
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
of (i) cash or (ii) other shares of the Company's common stock that
the
president has owned for a period of at least six months, which
shares would be
credited against the note on the basis of the closing bid price for
the
Company's common stock on the date of delivery. Any dividends or
distributions
made with respect to shares collateralizing any unpaid note will be
held in
an escrow to be established for such shares and note until such
time, if any, as
the related promissory note is paid. In November 1997, 150,000
shares subject
to this Purchase Right were returned to the Company for a pro-rata
reduction
in the note. Concurrently, the President relinquished any further
rights to
such 150,000 shares of common stock. At November 30, 1998, $703,000
remains
outstanding under this promissory note. The promissory note, and
the shares
securing it, have been pledged by the Company to secure a 650,000
loan. See
Note 6.
On August 13, 1997, the Company issued 675,000 shares of common
stock to a group of investors ("the Smith Group") for $1,350,000
pursuant to a
stock purchase agreement also dated August 13, 1997 between members
of the
Smith group, the Company and Patricia Anderson-Lasko. Concurrent
with the
execution of the stock agreement and in conjunction with employment
agreements
with key executives, the Company granted 292,500 in non-qualified
stock options
to those executives. Subject to vesting provisions, the options
remain
exercisable until August, 2002 at a price of $3.315 per share. At
November 30,
1998 183,000 options were vested.
During the fourth quarter of fiscal 1997, 1,500 Class G
warrants and all
25,000 Class E warrants were exercised. In connection therewith,
the Company
extinguished $66,000 in indebtedness and received $14,000 in cash.
Additionally, in the fourth quarter of fiscal 1997 the Company
received net
proceeds of $645,000 in a private placement for 150,000 shares of
common stock.
In fiscal 1997, an aggregate of 427,793 shares of common stock
were
issued to extinguish a total of $482,000 in indebtedness, including
the
remaining amounts outstanding of the 8% convertible debentures.
During fiscal 1997 the Company issued stock to extinguish an
aggregate
of $855,000 of liabilities.
As of November 30, 1998 the Company has outstanding common
stock
purchase warrants as follows:
Class Exercise Price Shares Expiration
_____ ______________ ______ __________
H $5.20 77,576 August 2001
On October 8, 1998, the Company sold 899,000 shares of common
stock
in a private placement to Furrow-Holrob Development II, L.L.C. for
$1,798,000.
During 1998, the Company issued options to acquire 200,000
shares of
common stock to two members of the Board of Directors. These shares
are
exercisable at $4.75 per share and vest at the rate of 2,083 per
month for 48
months. As of November, 30, 1998, total number of shares vested
under these
option agreements was 37,494. These options were accounted for as
employee
grants. The options were issued at prices equal to fair market
value at the
time of the grant. The fair value of the options granted during the
year ended
November 30, 1998 ranges from $1.39 to $1.99 per share.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
During 1998, the Company also issued options to acquire 25,000
shares
of common stock to a member of management. These shares are
exercisable at
$3.33 per share and vest at the rate of 2,083 per month for 12
months. As of
November 30, 1998, the total number of shares vested under this
option
agreement was 8,332.
The Company has reserved 620,076 shares for issuance upon the
exercise
of the outstanding common stock purchase warrants and options.
(b) Stock based compensation plans
The Company follows the guidance set forth in APB No. 25 as it
pertains
to the recording of expenses from the issuance of incentive stock
options. The
Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recorded in conjunction
with options
issued to employees. Had compensation cost been determined based on
the fair
value of the options at the grant date, consistent with the method
prescribed
y SFAS No. 123, the Company's net earnings would have been reduced
to the pro
forma amounts indicated below:
(000's except per share information)
1998 1997
Net income (loss) - as reported $(4,014) $(1,315)
Net income (loss) - pro forma (4,325) (1,496)
Net income (loss) per common share - as
reported (.87) (.38)
Net income (loss) per common share -
pro forma (.94) (.44)
The fair value of each option granted is estimated on the date
of grant
using the Black-Scholes option-pricing model with the following
assumptions
used for grants in 1997; expected volatility of 40%; risk-free
interest rate of
5.8%; and expected lives from one to five years. Used for grants in
1998;
expected volatility of 35%; risk-free interest rate of 6.5%; and
expected lives
from one to four years.
Stock option activity during the periods indicated is as follows:
Number Weighted-
average
of shares exercise price
Balance at November 30, 1996 --- ---
Granted 292,500 $3.32
Forfeited --- ---
Balance at November 30, 1997 292,500 $3.32
Granted 225,000 $4.14
Forfeited --- $ ---
Balance at November 30, 1998 17,500 $3.68
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases certain property, buildings and equipment.
Rental
expense for the years ended November 30, 1998, 1997 and 1996 was
approximately
$40,000, $63,000 and $54,000 respectively. The minimum rental
commitments
under noncancellable operating leases as of November 30, 1998 are as
follows:
1999, $190,000; 2000, $169,055; 2001, $168,000; 2002, $158,000 and
2003,
$158,000. During October of 1998, the Company entered into a lease
agreement
with a related party (Furrow-Holrob Development II, L.L.C.) to lease
a
production facility. The lease term began December 15, 1998 and
runs for five
years at a lease rate of $2 per square foot for 78,900 square feet.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
The Company displays characters, names and logos on its
products under
license agreements that require royalties ranging from 7% to 17% of
sales. The
agreements expire through 1999 and require annual advance payments
(included in
prepaid expenses) and certain annual minimums. Royalties were
$346,000,
$363,000 and $441,000 for fiscal 1998, 1997 and 1996, respectively.
Four executive officers of the Company have entered into employment
agreements that expire in August 1999. The Company or the employee
may
terminate the agreement at any time for cause, or without cause with
60 days
notice and 12 months severance. Annual salaries under the
employment agreements
are $157,500, $70,000, $30,000 and $30,000.
In May, 1996, a foreign manufacturer that had previously
supplied
imported products to a nonoperating subsidiary, NASCO Products,
filed suit
against NASCO Products asserting that it is owed approximately
$470,000, which
was approximatly $300,000 in excess of the amount presently recorded
on the
books of NASCO Products. NASCO Products and the supplier had
previously reached
an agreement on the balance owed (which is the balance recorded), as
well as an
arrangement under which the schedule for NASCO Products' payments
reducing the
balance would be based on future purchases from that supplier of
products
distributed internationally by NP International. The Company has
denied the
supplier's claims, and has asserted affirmative defenses, including
the
supplier's late shipment of the original products, and the
supplier's refusal to
accept and fill NP International orders on terms contained in the
agreement.
NASCO Products sold its operations in July, 1995, and that company
currently has
no operations or unencumbered assets. No provisions for the
additional amount
sought has been recorded in the consolidated financial statements.
In December 1991, a former employee filed suit against the
Company,
Patricia Anderson-Lasko and others alleging breach of an employment
agreement
and conversion of his interest in certain property rights (Michael
J. Tedesco
v. Innovo, Inc.., et al., Case No. 91-64033, District Court of
Harris County,
Texas, 164th Judicial Circuit). Following an appeal and a second
trial, a final
judgment was rendered against Innovo for $194,045.62 on August 17,
1998.
Thereafter, 20,000 shares of Common Stock which has been held in the
registry of
the court, as security during the appeal and subsequent trial, were
released to
the plaintiff. If the sale of that stock does not generate
sufficient net
proceeds to pay the judgment, then Innovo will be liable for any
shortfall.
The Company will monitor the price of its stock in the market and
make
adjustments to the amount recorded in the financial statements if
necessary.
In July 1992, a former employee filed suit against the Company
and Spirco
for alleging breach of an employment agreement and asserting other
related
claims (Wayne Copelin v. Innovo Group, Inc., et al., Case No. 11950,
in the
Chancery Court of Robertson County, Tennessee). When Spirco filed
for
bankruptcy in August 1993, the case proceeded against Innovo Group
and a summary
judgment of $100,000 was entered against it in March 1995. However,
because the
Copelin judgment was classified as a Class 8 Claim in the Spirco
bankruptcy, the
Company believed that the judgment was fully paid when it issued
35,211 shares
of Common Stock to Copelin, in compliance with the confirmed Plan of
Reorganization. When Copelin sought to enforce the judgment, Innovo
Group, as
the successor by merger to Spirco, brought a motion in the Spirco
bankruptcy to
enforce the terms of the Plan of Reorganization against Copelin.
The bankruptcy
judge granted the motion and permanently enjoined Copelin from
enforcing the
judgment in an order entered on October 18, 1996. Copelin appealed
to the
United States District Court and on April 13, 1998, the District
Court reversed.
The case is now on appeal to the United States Third Circuit Court
of Appeals.
Unless the Circuit Court reverses, Innovo Group will be liable for
$100,000 plus
accrued interest since March 1995. The Company does not have the
$100,000
recorded as a liability as of November 30, 1998. Management feels
that the
Circuit Court will revese on the grounds that the claim was released
in
bankruptcy.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
Management is currently taking steps to improve profits by
increasing the
number of marketing personnel, introducing new products and product
lines and
by attempting to keep fixed costs low. The Company has also taken
several steps
to increase liquidity in 1999. In 1998 the Company obtained a trade
credit
facility with a key vendor. In February 1999, the Company obtained
an extension
until February 2000 on a $350,000 line of credit that expired in
December 1998.
Also in February 1999, the Company received $300,000 of proceeds
from the
sale of common stock of two officers who also committed to provide
an aggregate
of $100,000 in additional credit. Additionally, the Company
received in 1999
a commitment from certain officers to fund short-term cash
requirements to the
extent needed up to an amount not to exceed $500,000 in the
aggregate. Also,
in 1999 the Company is in negotiations to sell a $703,000 not
receivable from an
officer. No assurances can be made that those efforts will be
successful or
that the Company will achieve profitability in the near future. The
inability
of the Company to achieve the foregoing could require the Company to
constrict
its operations.
NOTE 11-SALE OF THIMBLE SQUARE (DISCONTINUED OPERATIONS)
On September 13, 1998 Thimble Square entered into a sale
agreement with
Confident Colors, LLC. Under the terms of the agreement, Confident
Colors
leased the Baxley, Georgia, facility and equipment for $3,000
monthly and
succeeded to the business of Thimble Square. Thimble Square ceased
all operations following the lease to Confident Colors. The
Pembroke, Georgia,
facility was sold on December 10, 1998 to H.N. Properties L.L.C. for
$122,354
net of selling expenses. As a result of the cessation of the
Thimble Square
business and the sale of the Pembroke, Georgia, building to H.N.
Properties,
L.L.C., the Company recorded a loss totaling $1,401,000 including
write off of
unamortized goodwill and adjustment of property and equipment and
assets under
capital lease to their estimated net realizable values. Thimble
Square's
operations for the years ending November 30, 1998, 1997 and 1996
have been
reclassified as discontinued operations on the statement of
operations for those
years. In conjunction with the disposition of assets of Thimble
Square, the
Company paid off, in December 1998, an aggregate of approximately
$306,000 of
debt collateralized by Thimble Square assets. The net assets of
Thimble Square
as of 1998 and 1997 are as follows:
1998 1997
Accounts Receivable $ 0 $ 65,000
Inventory 12,000 207,000
Other Current Liabilities 0 61,000
Property, Plant and Equipment 1,020,000 1,526,000
Accumulated Depreciation (241,000) (196,000)
Goodwill 0 702,000
Other Long-term Assets 0 12,000
Current debt (327,000) (287,000)
Accounts Payable (19,000) (45,000)
Accrued Expenses (55,000) (76,000)
Long-term debt (173,000) (365,000)
________ _________
$ 217,000 $2,377,000
NOTE 12 - RELATED PARTY TRANSACTIONS
During 1998, the Company employed a consultant to assist the
Company
with its public filings and accounting statements. This consultant
was also an
executive of Confident Colors. The person chiefly responsible for
the
operations of the Thimble Square was also an officer of Confident
Colors. The
transactions between Confident Colors and the Company were arms
length and
valued at market.
NOTE 13 - SUBSEQUENT EVENTS
In February 1999, the Company sold 75,000 shares of common
stock each to
two officers, or 150,000 shares in the aggregate, for proceeds of
$300,000
which approximated fair value of the common stock.
In February 1999, the Company obtained an extension until
February 2000 on
a $350,000 line of credit that expired in December 1998.
On March 10, 1999 the Company received a commitment from certain of
its officers
to fund short-term cash requirements, in an amount not to exceed
$500,000, as
may be required from time to time in fiscal 1999.
ITEM 9. CHANGES IS AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information set forth under the captions Directors and
Executive
Officers contained in the Company's 1999 Proxy Statement is
incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions Compensation and
Employment and Stock Option Agreements contained in the Company's
1999
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information set forth under the caption Beneficial
Ownership of
Common Stock contained in the Company's 1999 Proxy Statement is
incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information set forth under the caption Certain
Relationships and
Related Transactions contained in the Company's 1998 Proxy Statement
is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements. See Item 8.
(2) Financial Statement Schedules
Schedule
Page Reference
Report of Independent Certified Public
Accountants on Financial Statement Schedules
76
Schedule II - Valuation and Qualifying Accounts
77
(3) Exhibits
Exhibit
Reference
Number Description
No.
3.1 Form of Amended and Restated Certificate
of Incorporation of Registrant.
3.1 (12)
3.2 Amended and Restated Bylaws of Registrant.*
4.2 (5)
4.1 Article Four of the Registrant's Amended and
Restated Certificate of Incorporation
(included in Exhibit 3.1)*
10.1 Registrant's 1991 Stock Option Plan.*
10.5 (2)
10.2 NASCO, Inc. Amended Stock Bonus Plan dated
as of December 31, 1991.*
10.6 (2)
10.3 Note executed by NASCO, Inc. and payable to
First Independent Bank, Gallatin, Tennessee
in the principal amount of $950,000 dated
August 6, 1992.*
10.21 (2)
10.4 Deed of Trust between NASCO, Inc. and First
Independent Bank, Gallatin, Tennessee dated
August 6, 1992.*
10.22 (2)
10.5 Authorization and Loan Agreement from the
U.S. Small Business Administration, Nashville,
Tennessee dated July 21, 1992.*
10.23 (2)
10.6 Indemnity Agreement between NASCO, Inc. and
First Independent Bank, Gallatin, Tennessee.*
10.24 (2)
10.7 Compliance Agreement between NASCO, Inc. and
First Independent Bank, Gallatin, Tennessee
dated August 6, 1992.*
10.25 (2)
10.8 Assignment of Life Insurance Policy issued
by Hawkeye National Life Insurance Company
upon the life of Patricia Anderson-Lasko to
First Independent Bank, Gallatin, Tennessee
dated July 31, 1992.*
10.26 (2)
10.9 Guaranty of Patricia Anderson-Lasko on behalf
of NASCO, Inc. in favor of First Independent
Bank, Gallatin, Tennessee dated August 6, 1992.*
10.27 (2)
10.10 Guaranty of Innovo Group Inc. on behalf of
NASCO, Inc. in favor of First Independent Bank,
Gallatin, Tennessee dated August 6, 1992.*
10.28 (2)
10.11 Guaranty of Innovo, Inc. on behalf of NASCO,
Inc. in favor of First Independent Bank,
Gallatin, Tennessee dated August 6, 1992.*
10.29 (2)
10.12 Guaranty of NASCO Products, Inc. on behalf of
NASCO, Inc. in favor of First Independent Bank,
Gallatin, Tennessee dated August 6, 1992.*
10.30 (2)
10.13 Note executed by NASCO, Inc. and payable to
ICON Cash Flow Partners, L.P., Series D, in
the principal amount of $750,000 dated
August 7, 1992.*
10.36 (2)
10.14 Security Agreement between NASCO, Inc.
and ICON Cash Flow Partners, L.P., Series
D dated August 7, 1992.*
10.37 (2)
10.15 Guaranty of Innovo Group Inc. on behalf
of NASCO, Inc. in favor of ICON Cash Flow
Partners, L.P., Series D dated July 30, 1992.*
10.38 (2)
10.16 Guaranty of Innovo, Inc. on behalf of NASCO,
Inc. in favor of ICON Cash Flow Partners,
L.P., Series D dated July 30, 1992.*
10.39 (2)
10.17 Guaranty of NASCO Products, Inc. on behalf
of NASCO, Inc. in favor of ICON Cash Flow
Partners, L.P., Series D dated July 30, 1992.*
10.40 (2)
10.18 Guaranty of NASCO Sportswear, Inc. on behalf
of NASCO, Inc. in favor of ICON Cash Flow
Partners, L.P., Series D dated July 30, 1992.*
10.41 (2)
10.19 1993-1996 U.S. Olympic Merchandise Agreement
between United States Olympic Committee and
Innovo Group Inc. dated April 29, 1993.*
10.51 (6)
10.20 Non-Competition and Non-Solicitation Agreement
dated May 10, 1993 among QSP, Inc., NASCO,
Inc. and Innovo Group Inc.*
10.45 (4)
10.21 Employment Agreement dated September 30, 1993
between Innovo Group Inc. and Patricia
Anderson-Lasko.*
10.56 (6)
10.22 Form of Common Stock Put Option.*
10.61 (6)
10.23 Form of Debt Conversion Agreement between
Innovo Group Inc. and certain holders of
notes payable or Subordinated Notes Payable.*
10.63 (6)
10.24 Form of Agreement between Innovo Group Inc.
and Purchasers under the June 11, 1993 Unit
Purchase Agreement.*
10.64 (6)
10.25 Agreement dated April 29, 1994 between C.I.
Sports, Inc. and NASCO Products, Inc.*
10.65 (7)
10.26 Amended Plan of Reorganization of Spirco, Inc.*
10.67 (8)
10.27 $600,000 Secured Promissory Note and Security
Agreement dated July 20, 1994 between Innovo
Group Inc., Innovo, Inc. and NASCO Products,
Inc. and certain individual lenders.*
10.68 (8)
10.28 License Agreement dated January 24, 1994
between NFL Properties Europe B.V. and NASCO
Marketing, Inc.*
10.66 (9)
10.29 License Agreement dated July 7, 1997 between
National Football League Properties, Inc. and
Innovo Group Inc.
10.30 First Amendment to $600,000 Secured Promissory
Note and Security Agreement dated April 15, 1995.*
10.70 (9)
10.31 Security Agreement dated April 28, 1995 between
Innovo, Inc. and Riviera Finance.*
10.71 (9)
10.32 Form of Amendment to Common Stock Put Option.*
10.72 (9)
10.33 Agreement dated July 31, 1995 between NASCO
Products, Inc. and Accessory Network Group, Inc.*
10.1 (11)
10.34 License Agreement dated November 14, 1995 between
Innovo Group Inc., United States Olympic Committee
and Warner Bros. Studios*
10.47 (12)
10.35 Agreement dated December 11, 1995 between Innovo
Group Inc., United States Olympic Committee and
Original Appalachian Artworks, Inc.*
10.48 (12)
10.36 License Agreement dated August 9, 1995 between
Innovo, Inc. and NHL Enterprises, Inc.*
10.49 (12)
10.37 License Agreement dated August 9, 1995 between
NASCO Products International, Inc. and NHL
Enterprises, B.V.*
10.50 (12)
10.38 License Agreement dated December 15, 1995
between Major League Baseball Properties, Inc.
and Innovo Group Inc.*
10.51 (12)
10.39 License Agreement dated October 6, 1995
between Major League Baseball Properties
and NASCO Products International, Inc.*
10.52 (12)
10.40 License Agreement dated August 1, 1997
between NBA Properties, Inc. and Innovo, Inc.
10.41 License Agreement dated August 1, 1997
between NBA Properties, Inc. and NASCO
Products International, Inc.
10.42 Merger Agreement dated April 12, 1996 between
Innovo Group Inc. and TS Acquisition, Inc.
and Thimble Square, Inc. and the Stockholders
of Thimble Square, Inc.*
10.1 (13)
10.43 Property Acquisition Agreement dated
April 12, 1996 between Innovo Group Inc.,
TS Acquisition, Inc. and Philip Schwartz
and Lee Schwartz.*
10.2 (13)
10.44 License Agreement between Innovo, Inc. and
Anheuser-Busch Cos., Inc.*
10.57(14)
10.45 License Agreement between Innovo Group Inc.
and Warner Bros. dated June 25, 1996.*
10.45(15)
10.46 License Agreement between Innovo Group Inc.
and Walt Disney dated September 12, 1996.*
10.46(15)
10.47 Indenture of Lease dated October 12, 1993
between Thimble Square, Inc. and Development
Authority of Appling County, Georgia*
10.47(15)
10.48 Lease dated October 1, 1996 between Innovo,
Inc. and John F. Wilson, Terry Hale, and
William Dulworth*
10.48(15)
10.49 Incentive Stock Option between Samuel J. Furrow, Jr.
and Innovo Group Inc.
10.49
10.50 Incentive Stock Option between Samuel J. Furrow
and Innovo Group Inc.
10.50
10.51 Incentive Stock Option Between Robert S. Talbott
and Innovo Group Inc.
10.51
10.52 Real Property and Asset Lease Agreement between
Thimble Square and Confident Colors
10.52
10.53 Manufacturing and Distribution Agreement between
Nasco Products International and Action Performance
Companies, Inc.
10.53
10.54 Auction Agreement between Innovo Group, Inc.
and Furrow Auction Company
10.54
10.55 Auction Agreement between Innovo Group, Inc.
and Furrow Auction Company
10.55
10.56 Sale Agreement of Property in Pembroke, GA between
Thimble Square and H.N. Properties, L.L.C.
10.56
10.57 Lease Agreement between Furrow-Holrob Development, L.L.C.
and Innovo Group, iNc.
10.57
10.58 Marketing Agreement between Coulver Marketing Group and
10.58
Innovo Group, Inc.
10.59 Amendment to License Agreement with
National Football League
10.59
10.60 Amendment to License Agreement with
Warner Bros.
10.60
10.61 License agreement with NBA Properties and Innovo, Inc
10.61
10.62 License agreement with NBA Properties and Nasco Prducts
International
10.62
10.63 License agreement with Major League Baseball and Nasco
Products Internatonal 10.63
10.64 License agreement with Major League Baseball and Innovo, Inc.
10.64
10.65 License agreement with Walt Disney and Nasco Products
International, Inc. 10.65
21 Subsidiaries of the Registrant
21 (13)
23.1 Consent of BDO Seidman, LLP (incorporated by
reference as Exhibit 23.2 to Registration
Statements No. 33-71576 and No. 333-12527).
27 Financial Data Schedule (appears only in
electronically filed version of this report).
_________________________
* Certain of the exhibits to this Report, indicated by an asterisk,
are
incorporated by reference to other documents on file with the
Securities and
Exchange Commission with which they were physically filed, to be
part hereof as
of their respective dates. Documents to which reference is made are
as follows:
(1) Amendment No. 4 Registration Statement on Form S-18 (No. 33-
25912-NY) of
ELORAC Corporation filed October 4, 1990.
(2) Amendment No. 2 to the Registration Statement on Form S-1 (No.
33-51724)
of Innovo Group Inc. filed November 12, 1992.
(3) Annual Report on Form 10-K of Innovo Group Inc. (file no. 0-
18926) for the
year ended October 31, 1993.
(4) Current Report on Form 8-K of Innovo Group Inc. (file no. 0-
18926) dated
May 10, 1993 filed May 25, 1993.
(5) Registration Statement on Form S-8 (No. 33-71576) of Innovo
Group Inc.
filed November 12, 1993.
(6) Annual Report on Form 10-K of Innovo Group Inc. (file 0-18926)
for the
year ended October 31, 1993.
(7) Amendment No. 2 to the Registration Statement on Form S-1 (No.
33-77984)
of Innovo Group Inc. filed July 25, 1994.
(8) Amendment No. 4 to the Registration Statement on Form S-1 (No.
33-77984)
of Innovo Group Inc. filed August 18, 1994.
(9) Annual Report on Form 10-K of Innovo Group Inc. (file 0-18926)
for the
year ended October 31, 1994.
(10) Registration Statement on Form S-8 (No. 33-94880) of Innovo
Group Inc.
filed July 21, 1995.
(11) Current Report on Form 8-K of Innovo Group Inc. (file 0-18926)
dated
July 31, 1995 filed September 13, 1995.
(12) Annual Report on Form 10-K of Innovo Group Inc. (file 0-18926)
for the
year ended October 31, 1995.
(13) Current Report on Form 8-K of Innovo Group Inc. (file 0-18926)
dated
April 12, 1996, filed April 29, 1996.
(14) Registration Statement on Form S-1 (No. 333-03119) of Innovo
Group Inc.,
as amended June 28, 1996.
(15) Annual Report on Form 10-K of Innovo Group Inc. (file 0-18926)
for the
year ended November 30, 1996.
(b) Reports on Form 8-K
1. On September 15, 1998, the Company filed a Current Report on
Form 8-K
to report pursuant to Item 5, Other Events, that the Company had
completed a
reverse one-for-ten stroke split effective September 11, 1998 and to
file the
press release with respect to such reverse split as an exhibit.
2. On October 15, 1998, the Company filed a Current Report on
Form 8-K
to report pursuant to Item 5, Other Events, that the Company had
entered into an
agreement to dispose of the Thimble Square business, and to file the
press
release with respect to such event.
3. On October 15, 1998, the Company filed a Current Report on
Form 8-K
to report pursuant to Item 5, Other Events, that the Company would
relocate its
operations to Knoxville, Tennessee, and to file the press release
with respect
to such event.
4. On October 22, 1998, the Company filed a Current Report on
Form 8-K
to report pursuant to Item 5, Other Events, that the Company once
again
satisfied the tangible net worth requirements for listing on the
Nasdaq SmallCap
Market and to file the press release with respect to such
qualification as an
exhibit.
5. On October 22, 1998, the Company filed a Current Report on
Form 8-K
to report pursuant to Item 5, Other Events, that the Company had
sold 599,000
shares of common stock for aggregate consideration of $1,798,000 and
to file the
press release with respect to such sale as an exhibit.
6. On November 3, 1998, the Company filed a Current Report on
Form 8-
K/A pursuant to Item 5, Other Events, containing a pro forma balance
sheet as of
September 30, 1998 reflecting the effect on the Company's net
tangible assets of
the sale of common stock for aggregate proceeds of $1,798,000 and
filing the
press release with respect to such pro forma balance sheet as an
exhibit.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed
on its
behalf by the undersigned, thereunto duly authorized.
INNOVO GROUP INC.
By:__\s\ Samuel J. Furrow____________________________
Samuel J. Furrow
Chairman of the Board and Chief Executive
Officer
March 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this
Report has been signed by the following persons on behalf of the
Registrant in
the capacities and on the dates indicated.
Signature and Title
Date
_\s\ Samuel J. Furrow Chief Executive Officer March 15, 1999
Samuel J. Furrow
Chairman of the Board,
Chief Executive Officer
and Director
\s\ Dan Page___ March 15, 1999
Dan Page
Chief Operating Officer and Director
\s\ Paticia Anderson-Lasko March 15, 1999
Patricia Anderson-Lasko
President and Director
_______________________ March 15, 1999
J. Eric Hendrickson
Vice President, Treasurer
and Director
\s\ L.E. Smith March 15, 1999
L.E. Smith
Director
____________________________ March 15, 1999
Herb Newton
Director
\s\ Samuel J. Furrow, Jr. March 15, 1999
Samuel J. Furrow, Jr.
Vice President and Director
___________________________ March 15, 1999
Marc B. Crossman
Director
\s\ Bradley White Chief Financial Officer March 15, 1999
Bradley T. White
Controller
\s\ Bradley White Chief Accounting Officer March 15, 1999
Bradley T. White
Controller
\s\ Robert S. Talbott March 15, 1999
Robert S. Talbott
Director
Report of Independent Certified Public Accountants on Financial
Statement
Schedules
Board of Directors
Innovo Group Inc.
The audits referred to in our report to Innovo Group Inc. and
subsidiaries,
dated February 9, 1999 which is contained in Item 8, included the
audits of the
schedule listed under Item 14(a)(2). This financial statement
schedule is the
responsibility of the Company's management. Our responsibility is
to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such schedule presents fairly, in all material
respects, the
information set forth therein.
/s/BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Atlanta, Georgia
February 10, 1999,
except for Note 13 which
is as of March 10, 1999.
</TABLE>
<TABLE>
INNOVO GROUP INC AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged Charged to Balance
Beginning to Costs Other Accounts- Deductions- at End
Description of Period And Expense Describe Describe of Period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 30, 1998 $ 106,000 $132,000 $ - $ 171,000 (A) $ 67,000
Year ended November 30, 1997 66,000 153,000 - 113,000 (A) 106,000
Year ended November 30, 1996 99,000 78,000 - 111,000 (A) 66,000
Allowance for inventories:
Year ended November 30, 1998 $ 36,000 $ - $ - $ - (B) $ 36,000
Year ended November 30, 1997 73,000 - - 37,000 (B) 36,000
Year ended November 30, 1996 18,000 55,000 - - (B) 73,000
Allowance for deferred taxes:
Year ended November 30, 1998 $ 3,860,000 $ - $ - $ 52,000 $3,808,000
Year ended November 30, 1997 3,415,000 - 445,000 - 3,860,000
Year ended November 30, 1996 8,815,000 - - 5,400,000 3,415,000
Note A - Uncollected receivables written off, net of receivables.
Note B - Recovery of valuation reserve.
</TABLE>
EXHIBIT 10.49
NEITHER THIS OPTION NOR THE UNDERLYING COMMON SHARES HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE
CORPORATION WILL NOT TRANSFER THIS OPTION OR THE
UNDERLYING COMMON SHARES UNLESS (I) THERE IS AN EFFECTIVE
REGISTRATION COVERING SUCH OPTION OR SUCH SHARES. AS THE
CASE MAY BE, UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATES SECURITIES LAWS, (ii) IT FIRST RECEIVES A LETTER FROM AN
ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS
AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE
PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE
SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE
144 UNDER THE SECURITIES ACT OF 1933.
INNOVO GROUP, INC.
NON-QUALIFIED SHARE OPTION AGREEMENT
This Agreement is entered into this day by and between INNOVO GROUP
INC., a
Delaware corporation with its offices located at 27 North Main
Street,
Springfield, Tennessee 37172, (Corporation), and Samuel J. Furrow,
Jr.
(Furrow), a Tennessee resident whose principal residence address is
5817 Toole
Dr., Knoxville Tennessee 37919.
WHEREAS, the Corporation desires to obtain Furrow's services as V.P.
of
Corporate Development and Spokesperson;
WHEREAS, this Option will provide equity incentives for Samuel J.
Furrow,
Jr. to become and remain a member of the Corporation, by granting
such
person options to purchase shares of the Corporation's common stock
(Shares);
WHEREAS, the Board has determined to grant to Furrow a non-qualified
share option (Option) to purchase 250,000 upon and subject to the
terms
and conditions stated in this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Grant of Option. Subject to the terms and conditions
of this
Agreement, the Corporation hereby grants to Furrow, during the
period
ending 5:00 p.m. Springfield, Tennessee time on August 31, 2003
(Expiration Date), the option to purchase from the Corporation, from
time
to time, at a price of $0.33 per Share (Exercise Price), up to, but
not to
exceed, an aggregate of 250,000 Shares (Option Shares).
Section 2. Exercise of Option.
2.1 Date Exercisable. This Option shall become exercisable by
Furrow
with respect to 20,834 Shares per month for the next 12 months after
the date of this Agreement during which Furrow continues to serve
as an employee of the Corporation up to a maximum of 250,000
Shares.
2.2 Manner of Exercise. This Option may be exercised in whole or
in
part by delivery to the Corporation, from time to time, of a written
notice in substantially the form set forth in Exhibit A hereto,
signed
by Furrow, specifying the number of Option Shares that Furrow then
desires to purchase, together with cash, certified check, or bank
draft
payable to the order of the Corporation, or other form of payment
acceptable to the Corporation, for an amount of United States
dollars
equal to the Exercise Price of such shares. If the Corporation, in
its
sole discretion, elects to allow payment of all or a portion of the
Exercise Price secured by a pledge, also in form satisfactory to the
Corporation, of the Shares purchased by such exercise of this
Option.
2.3 Certificates. Promptly after any exercise in whole or in
part of this
Option by Furrow, the Corporation shall deliver to Furrow a
certificate or
certificates for the number of Option Shares with respect to which
this Option
was so exercised, registered in Furrow's name.
2.4 Duration of Option. This Option, to the extent not
previously
exercised, shall terminate upon the earliest of the following dates:
2.4.1 the Expiration Date
2.4.2 immediately upon Furrow's resignation from the
Board or upon failure to be re-nominated or reelected
to the Board.
2.4.3 three months after Furrow's termination as an
employee, if such termination is by reason of
Furrow's disability (as defined in IRC 22(e)(3)) or
death.
Section 3. Nontransferability.
3.1 Restriction. This Option is not transferable by Furrow
otherwise than
by testamentary will or the laws of descent and distribution and,
during
Furrow's lifetime, may be exercised only by Furrow or Furrow's
guardian or
legal representative. Except as permitted by the preceding
sentence, neither
this Option nor any of the rights and privileges conferred thereby
shall be
transferred, assigned, pledged, or hypothecated in any way (whether
by operation
of law or otherwise), and no such option, right, or privilege shall
be subject
to execution, attachment, or similar process. Upon any attempt to
transfer
this Option, or of any right or privilege conferred thereby,
contrary to the
provisions hereof, , or upon the levy of any attachment or similar
process
upon such option, right, or privilege, this Option and any such
rights and
privileges shall immediately become null and void.
3.2 Exercise in Event of Death or Disability. Whenever the word
Furrow is used in any provision of this Agreement under
circumstances
when the provision should logically be construed to apply to
Furrow's
guardian, legal representative, executor, administrator, or the
person or
persons to whom this Option may be transferred by testamentary will
or by
the laws of descent and distribution, the word Furrow shall be
deemed to
include such person or persons.
3.3. No Rights As Shareholder Prior To Exercise. Furrow shall not,
by
virtue hereof, be entitled to any rights of a shareholder in the
Corporation,
either at law or equity, unless and until this Option is exercised.
The
rights of Furrow are limited to those expressed in this Option and
are not
enforceable against the Corporation except to the extent set forth
herein.
Section 4. Anti-Dilution Provisions.
4.1 The number and kind of Shares purchasable upon the exercise of
this
Option and the Exercise
Price shall be subject to adjustment from time to time as follows:
4.1.1 In case the Corporation shall (i) pay a dividend or make a
distribution on the outstanding
Shares payable in Shares, (ii) subdivide the outstanding Shares into
a greater
number of Shares, (iii) combine the outstanding Shares into a lesser
number
of Shares, or (iv) issue by reclassification of the Shares any
Shares of the
Corporation, Furrow shall thereafter be entitled, upon exercise, to
receive the
number and kind of shares which, if this Option had been exercised
immediately prior to the happening of such event, Furrow would have
owned
upon such exercise and been entitled to receive upon such dividend,
distribution, subdivision, combination, or reclassification. Such
adjustment
shall become effective on the day next following (v) the record date
of such
dividend or distribution or (vi) the day upon which such
subdivision,
combination, or reclassification shall become effective.
4.1.2 In case the Corporation shall consolidate or merge into or
with
another corporation, or in
case the Corporation shall sell or convey to any other person or
persons all
or substantially all the property of the Corporation, Furrow shall
thereafter
be entitled, upon exercise, to receive the kind and amount of
shares, other
securities, cash, and property receivable upon such consolidation,
merger,
sale, or conveyance by a holder of the number of Shares which might
have
been purchased upon exercise of this Option immediately prior to
such
consolidation, merger, sale, or conveyance, and shall have no other
conversion rights. In any such event, effective provision shall be
made, in
the certificate or articles of incorporation of the resulting or
surviving
corporation, in any contracts of sale and conveyance, or otherwise
so that, so
far as appropriate and as nearly as reasonable may be, the
provisions set forth
herein for the protection of the rights of Furrow shall thereafter
be made
applicable.
4.1.3 Whenever the number of Shares purchasable upon exercise of
this Option is adjusted
pursuant to this Section, the Exercise Price per Share in effect
immediately
prior to such adjustment by a fraction, of which the numerator shall
be the
number of Shares purchasable upon exercise of this Option
immediately prior
to such adjustment, and of which the denominator shall be the number
of
Shares so purchasable immediately after such adjustment, so that the
aggregate Exercise Price of this Option remains the same.
4.1.4 No adjustment in the number of Shares which may be
purchased upon exercise of this
Option shall be required unless such adjustment would require an
increase or
decrease of more than 1/100 of a Share in the number of Shares
which may
be so purchased, provided, however, that any adjustment which by
reason of
this Section is not required to be made shall be carried forward
cumulatively
and taken into account in any subsequent calculation. All
calculations under
this Section shall be made to the nearest cent or to the nearest
one-hundredth
of a Share, as the case may be.
4.1.5 In the event that at any time, as a result of an adjustment
made
pursuant to this Section,
Furrow shall become entitled to receive upon exercise of this Option
cash,
property, or securities.
4.1.6 Irrespective of any adjustments in the Exercise Price or in
the
number or kind of Shares purchasable upon exercise of this
Option, the form of Options theretofore or thereafter issued
may continue to express the same price and number and kind
of shares as are stated in this Option.
Section 5. Officer's Certificate. Whenever the number or kind
of
securities purchasable upon exercise of this Option or the Exercise
Price shall
be adjusted as required by the provisions of Section 4, the
Corporation shall
forthwith file with its Secretary or its Assistant Secretary at its
principal
office and with its stock transfer agent, if any, an officer's
certificate
showing the adjusted number of kind of securities purchasable upon
exercise of
this Option and the adjusted Exercise Price determined as herein
provided and
setting forth in reasonable detail such facts as shall be necessary
to show the
reason for and the manner of computing such adjustments. Each such
officer's certificate shall be made available at all reasonable
times for
inspection by Furrow and the Corporation shall, forthwith after each
such
adjustment, mail by certified mail a copy of such certificate to
Furrow.
Section 6. No Effect On Powers of Corporation. The existence of
this
Option shall not affect in any way the right or power of the
Corporation or its
shareholders to make or authorize any adjustments,
recapitalizations,
reorganization, or other changes in the Corporation's capital
structure or its
business, or any merger or consolidation of the Corporation, or any
issue of
bonds, debentures, preferred shares with rights greater than or
affecting the
Shares, or the dissolution or liquidation of the Corporation, or any
sale or
transfer of all or any part of its assets or business, or any other
corporate
act or proceeding, whether of a similar character or otherwise.
Section 7. No Waiver of Corporation's Right to Terminate
Employment.
Nothing in this Agreement shall be construed to confer or shall be
deemed
to confer on Furrow any right to continue as an employee of the
Corporation,
or to continue any other relationship with, the Corporation or any
parent or
subsidiary of the Corporation, or limit in any way the right of the
Corporation
or its shareholders to terminate Furrow's employment or other
relationship
at any time, with or without cause. If Furrow is terminated without
cause,
this agreement shall not be effected by such termination.
Section 8. Compliance With Securities Laws.
8.1 No Exercise Until Compliance. If the Corporation at any time
determines that registration or qualification of the Shares or this
Option under state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable, then this
Option may not be exercised, in whole or in part, until such
registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the
Corporation..
8.2 Investment Interest. If required by the Corporation at the time
of any
exercise of this Option as a condition to such exercise, Furrow
shall
enter into an agreement with the Corporation in form satisfactory to
counsel for the Corporation by which Furrow (I) shall represent that
the Shares are being acquired for Furrow's own account for
investment and not with a view to, or for sale in connection with,
any
resale or distribution of such Shares, and (ii) shall agree that, if
Furrow should decide to sell, transfer, or otherwise, dispose of any
of
such Shares, Furrow may do so only if the shares are registered
under
the Securities Act of 1933 and the relevant state securities laws,
unless, in the opinion of counsel for the Corporation, such
registration
is not required, or the transfer in pursuant to the Securities and
Exchange Commission Rule 144; provided, however, that the
Corporation agrees to use its best efforts to cause a Registration
Statement on Form S-8 with respect to the Shares issuable upon
exercise of this Option to be filed and declared effective as soon
as is
practicable, and to maintain the effectiveness of such Registration
Statement until such time as the Option has been fully exercised or
terminated.
Section 9. Violation. Any provision of this Agreement to the
contrary
notwithstanding, this Option shall not be exercisable at any time,
in whole or
in part, if issuance and delivery of the Option Shares would violate
any law
or registration.
Section 10. Representations of Furrow. Furrow represents that he
has been
advised that he is not being represented in this transaction by the
corporation's attorneys and that Furrow has been advised to seek
separate
legal counsel for advice in this matter.
Section 11. Notices. Any notice under this Agreement shall be in
writing
and shall be effective when actually delivered in person or three
days after
being deposited in the U.S. mail, registered or certified, postage
prepaid and
addressed to the party at the address stated in this Option or such
other
address as either party may designate by written notice to the
other.
Section 12. Law Governing. This Option shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the date first above written.
INNOVO GROUP INC.
By:
_________________________________
Sam Furrow, Chairman
and CEO
__________________________________
Samuel J. Furrow, Jr.
EXHIBIT A
INNOVO GROUP INC.
NOTICE OF EXERCISE OF SHARE OF OPTION
I hereby exercise my Non-Qualified Share Option granted by INNOVO
GROUP INC. (Corporation) and seek to purchase _____________
shares of common shares of the Corporation pursuant to said Option.
I
understand that this exercise is subject to all the terms and
provisions of
my Non-Qualified Share Option Agreement.
Enclosed is my check in the sum of $_________________ in payment for
such shares.
Dated:_____________,________
___________________________
Signature
___________________________
Address
___________________________
___________________________
___________________________
Social Security Number
Receipt is hereby acknowledged of the delivery to me by INNOVO GROUP
INC. of certificates for ______________________ common shares of the
Corporation purchased by me pursuant to the terms and conditions of
Non-
Qualified Share Option Agreement referred to above.
Date:_____________,________
__________________________
Signature
EXHIBIT 10.50
NEITHER THIS OPTION NOR THE UNDERLYING COMMON SHARES HAVE
BBEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE
CORPORATION WILL NOT TRANSFER THIS OPTION OR THE
UNDERLYING COMMON SHARES UNLESS (I) THERE IS AN EFFECTIVE
REGISTRATION COVERING SUCH OPTION OR SUCH SHARES. AS THE
CASE MAY BE, UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATES SECURITIES LAWS, (ii) IT FIRST RECEIVES A LETTER FROM AN
ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS
AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE
PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE
SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE
144 UNDER THE SECURITIES ACT OF 1933.
INNOVO GROUP, INC.
NON-QUALIFIED SHARE OPTION AGREEMENT
This Agreement is entered into this day by and between INNOVO GROUP
INC., a
Delaware corporation with its offices located at 27 North Main
Street,
Springfield, Tennessee 37172, (Corporation), and Samuel J. Furrow
(Furrow),
a Tennessee resident whose principal residence address is 5300
Turtle Point
Ln., Knoxville TN, 37919.
WHEREAS, the Corporation desires to obtain Furrow's services as a
member
of the Corporation's Board of Directors;
WHEREAS, this Option will provide equity incentives for Samuel J.
Furrow
to become and remain a member of the Board of Directors (Board) of
the
Corporation, by granting such person options to purchase shares of
the
Corporation's common stock (Shares);
WHEREAS, the Board has determined to grant to Furrow a non-qualified
share option (Option) to purchase 1,000,000 upon and subject to the
terms
and conditions stated in this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Grant of Option. Subject to the terms and conditions
of this
Agreement, the Corporation hereby grants to Furrow, during the
period
ending 5:00 p.m. Springfield, Tennessee time on March 31, 2003
(Expiration Date), the option to purchase from the Corporation, from
time
to time, at a price of $0.475 per Share (Exercise Price), up to, but
not to
exceed, an aggregate of 1,000,000 Shares (Option Shares).
Section 2. Exercise of Option.
2.3 Date Exercisable. This Option shall become exercisable by
Furrow
with respect to 20,834 Shares during each of the first 48 calendar
months after the date of this Agreement during which Furrow
continues to serve as a member of the Board up to a maximum of
1,000,000 Shares.
2.4 Manner of Exercise. This Option may be exercised in whole or
in
part by delivery to the Corporation, from time to time, of a written
notice in substantially the form set forth in Exhibit A hereto,
signed
by Furrow, specifying the number of Option Shares that Furrow then
desires to purchase, together with cash, certified check, or bank
draft
payable to the order of the Corporation, or other form of payment
acceptable to the Corporation, for an amount of United States
dollars
equal to the Exercise Price of such shares. If the Corporation, in
its
sole discretion, elects to allow payment of all or a portion of the
Exercise Price secured by a pledge, also in form satisfactory to the
Corporation, of the Shares purchased by such exercise of this
Option.
2.3 Certificates. Promptly after any exercise in whole or in
part of this
Option by Furrow, the Corporation shall deliver to Furrow a
certificate or
certificates for the number of Option Shares with respect to which
this Option
was so exercised, registered in Furrow's name.
2.4 Duration of Option. This Option, to the extent not
previously
exercised, shall terminate upon the earliest of the following dates:
2.4.4 the Expiration Date
2.4.5 immediately upon Furrow's resignation from the
Board or upon failure to be re-nominated or reelected
to the Board.
2.4.6 three months after Furrow's termination of
membership on the Board, if such termination is by
reason of Furrow's disability (as defined in IRC
22(e)(3)) or death.
Section 3. Nontransferability.
3.1 Restriction. This Option is not transferable by Furrow
otherwise than
by testamentary will or the
laws of descent and distribution and, during Furrow's lifetime, may
be
exercised only by Furrow or Furrow's guardian or legal
representative.
Except as permitted by the preceding sentence, neither this Option
nor any of
the rights and privileges conferred thereby shall be transferred,
assigned,
pledged, or hypothecated in any way (whether by operation of law or
otherwise), and no such option, right, or privilege shall be subject
to
execution, attachment, or similar process. Upon any attempt to
transfer this
Option, or of any right or privilege conferred thereby, contrary to
the
provisions hereof, , or upon the levy of any attachment or similar
process
upon such option, right, or privilege, this Option and any such
rights and
privileges shall immediately become null and void.
3.2 Exercise in Event of Death or Disability. Whenever the word
Furrow is used in any provision of this Agreement under
circumstances
when the provision should logically be construed to apply to
Furrow's
guardian, legal representative, executor, administrator, or the
person or
persons to whom this Option may be transferred by testamentary will
or by
the laws of descent and distribution, the word Furrow shall be
deemed to
include such person or persons.
3.4. No Rights As Shareholder Prior To Exercise. Furrow shall not,
by
virtue hereof, be entitled to
any rights of a shareholder in the Corporation, either at law or
equity, unless
and until this Option is exercised. The rights of Furrow are
limited to those
expressed in this Option and are not enforceable against the
Corporation
except to the extent set forth herein.
Section 4. Anti-Dilution Provisions.
4.1 The number and kind of Shares purchasable upon the exercise of
this
Option and the Exercise
Price shall be subject to adjustment from time to time as follows:
4.1.7 In case the Corporation shall (i) pay a dividend or make a
distribution on the outstanding
Shares payable in Shares, (ii) subdivide the outstanding Shares into
a greater
number of Shares, (iii) combine the outstanding Shares into a lesser
number
of Shares, or (iv) issue by reclassification of the Shares any
Shares of the
Corporation, Furrow shall thereafter be entitled, upon exercise, to
receive the
number and kind of shares which, if this Option had been exercised
immediately prior to the happening of such event, Furrow would have
owned
upon such exercise and been entitled to receive upon such dividend,
distribution, subdivision, combination, or reclassification. Such
adjustment
shall become effective on the day next following (v) the record date
of such
dividend or distribution or (vi) the day upon which such
subdivision,
combination, or reclassification shall become effective.
4.1.8 In case the Corporation shall consolidate or merge into or
with
another corporation, or in
case the Corporation shall sell or convey to any other person or
persons all
or substantially all the property of the Corporation, Furrow shall
thereafter be
entitled, upon exercise, to receive the kind and amount of shares,
other
securities, cash, and property receivable upon such consolidation,
merger,
sale, or conveyance by a holder of the number of Shares which might
have
been purchased upon exercise of this Option immediately prior to
such
consolidation, merger, sale, or conveyance, and shall have no other
conversion rights. In any such event, effective provision shall be
made, in
the certificate or articles of incorporation of the resulting or
surviving
corporation, in any contracts of sale and conveyance, or otherwise
so that, so
far as appropriate and as nearly as reasonable may be, the
provisions set forth
herein for the protection of the rights of Furrow shall thereafter
be made
applicable.
4.1.9 Whenever the number of Shares purchasable upon exercise of
this Option is adjusted
pursuant to this Section, the Exercise Price per Share in effect
immediately
prior to such adjustment by a fraction, of which the numerator shall
be the
number of Shares purchasable upon exercise of this Option
immediately prior
to such adjustment, and of which the denominator shall be the number
of
Shares so purchasable immediately after such adjustment, so that the
aggregate Exercise Price of this Option remains the same.
4.1.10 No adjustment in the number of Shares which may be
purchased upon exercise of this
Option shall be required unless such adjustment would require an
increase or
decrease of more than 1/100 of a Share in the number of Shares which
may
be so purchased, provided, however, that any adjustment which by
reason of
this Section is not required to be made shall be carried forward
cumulatively
and taken into account in any subsequent calculation. All
calculations under
this Section shall be made to the nearest cent or to the nearest
one-hundredth
of a Share, as the case may be.
4.1.11 In the event that at any time, as a result of an adjustment
made
pursuant to this Section,
Furrow shall become entitled to receive upon exercise of this Option
cash,
property, or securities.
4.1.12 Irrespective of any adjustments in the Exercise Price or in
the
number or kind of Shares purchasable upon exercise of this
Option, the form of Options theretofore or thereafter issued
may continue to express the same price and number and kind
of shares as are stated in this Option.
Section 5. Officer's Certificate. Whenever the number or kind
of
securities purchasable upon exercise of this Option or the Exercise
Price shall
be adjusted as required by the provisions of Section 4, the
Corporation shall
forthwith file with its Secretary or its Assistant Secretary at its
principal
office and with its stock transfer agent, if any, an officer's
certificate
showing the adjusted number of kind of securities purchasable upon
exercise of
this Option and the adjusted Exercise Price determined as herein
provided and
setting forth in reasonable detail such facts as shall be necessary
to show the
reason for and the manner of computing such adjustments. Each such
officer's certificate shall be made available at all reasonable
times for
inspection by Furrow and the Corporation shall, forthwith after each
such
adjustment, mail by certified mail a copy of such certificate to
Furrow.
Section 6. No Effect On Powers of Corporation. The existence of
this
Option shall not affect in any way the right or power of the
Corporation or its
shareholders to make or authorize any adjustments,
recapitalizations,
reorganization, or other changes in the Corporation's capital
structure or its
business, or any merger or consolidation of the Corporation, or any
issue of
bonds, debentures, preferred shares with rights greater than or
affecting the
Shares, or the dissolution or liquidation of the Corporation, or any
sale or
transfer of all or any part of its assets or business, or any other
corporate
act or proceeding, whether of a similar character or otherwise.
Section 7. No Waiver of Corporation's Right to Terminate
Employment.
Nothing in this Agreement shall be construed to confer or shall be
deemed
to confer on Furrow any right to continue as a member of the Board
of, or to
continue any other relationship with, the Corporation or any parent
or
subsidiary of the Corporation, or limit in any way the right of the
Corporation
or its shareholders to terminate Furrow's membership on the Board or
other
relationship at any time, with or without cause.
Section 8. Compliance With Securities Laws.
8.3 No Exercise Until Compliance. If the Corporation at any time
determines that registration or qualification of the Shares or this
Option under state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable, then this
Option may not be exercised, in whole or in part, until such
registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the
Corporation..
8.4 Investment Interest. If required by the Corporation at the time
of any
exercise of this Option as a condition to such exercise, Furrow
shall
enter into an agreement with the Corporation in form satisfactory to
counsel for the Corporation by which Furrow (i) shall represent that
the Shares are being acquired for Furrow's own account for
investment and not with a view to, or for sale in connection with,
any
resale or distribution of such Shares, and (ii) shall agree that, if
Furrow should decide to sell, transfer, or otherwise, dispose of any
of
such Shares, Furrow may do so only if the shares are registered
under
the Securities Act of 1933 and the relevant state securities laws,
unless, in the opinion of counsel for the Corporation, such
registration
is not required, or the transfer in pursuant to the Securities and
Exchange Commission Rule 144; provided, however, that the
Corporation agrees to use its best efforts to cause a Registration
Statement on Form S-8 with respect to the Shares issuable upon
exercise of this Option to be filed and declared effective as soon
as is
practicable, and to maintain the effectiveness of such Registration
Statement until such time as the Option has been fully exercised or
terminated.
Section 9. Violation. Any provision of this Agreement to the
contrary
notwithstanding, this Option shall not be exercisable at any time,
in whole or
in part, if issuance and delivery of the Option Shares would violate
any law
or registration.
Section 10. Representations of Furrow. Furrow represents that he
has been
advised that he is not being represented in this transaction by the
corporation's attorneys and that Furrow has been advised to seek
separate
legal counsel for advice in this matter.
Section 11. Notices. Any notice under this Agreement shall be in
writing
and shall be effective when actually delivered in person or three
days after
being deposited in the U.S. mail, registered or certified, postage
prepaid and
addressed to the party at the address stated in this Option or such
other
address as either party may designate by written notice to the
other.
Section 12. Law Governing. This Option shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the date first above written.
INNOVO GROUP INC.
By:
_________________________________
L.E. Smith, Chairman
and CEO
__________________________________
Samuel J. Furrow
EXHIBIT A
INNOVO GROUP INC.
NOTICE OF EXERCISE OF SHARE OF OPTION
I hereby exercise my Non-Qualified Share Option granted by INNOVO
GROUP INC. (Corporation) and seek to purchase _____________
shares of common shares of the Corporation pursuant to said Option.
I
understand that this exercise is subject to all the terms and
provisions of
my Non-Qualified Share Option Agreement.
Enclosed is my check in the sum of $_________________ in payment for
such shares.
Dated:_____________,________
___________________________
Signature
___________________________
Address
___________________________
___________________________
___________________________
Social Security Number
Receipt is hereby acknowledged of the delivery to me by INNOVO GROUP
INC. of certificates for ______________________ common shares of the
Corporation purchased by me pursuant to the terms and conditions of
Non-
Qualified Share Option Agreement referred to above.
Date:_____________,________
__________________________
Signature
EXHIBIT 10.51
NEITHER THIS OPTION NOR THE UNDERLYING COMMON SHARES HAVE
BBEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE
CORPORATION WILL NOT TRANSFER THIS OPTION OR THE
UNDERLYING COMMON SHARES UNLESS (I) THERE IS AN EFFECTIVE
REGISTRATION COVERING SUCH OPTION OR SUCH SHARES. AS THE
CASE MAY BE, UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATES SECURITIES LAWS, (ii) IT FIRST RECEIVES A LETTER FROM AN
ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS
AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE
PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE
SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE
144 UNDER THE SECURITIES ACT OF 1933.
INNOVO GROUP, INC.
NON-QUALIFIED SHARE OPTION AGREEMENT
This Agreement is entered into this day by and between INNOVO GROUP
INC., a
Delaware corporation with its offices located at 27 North Main
Street,
Springfield, Tennessee 37172., (Corporation), and Robert S. Talbott
(Talbott), a Tennessee resident whose principal residence address is
7016 Old
Kent Dr., Knoxville Tennessee 37919.
WHEREAS, the Corporation desires to obtain Talbott's services as a
member
of the Corporation's Board of Directors;
WHEREAS, this Option will provide equity incentives for Robert S.
Talbott
to become and remain a member of the Board of Directors (Board) of
the
Corporation, by granting such person options to purchase shares of
the
Corporation's common stock (Shares);
WHEREAS, the Board has determined to grant to Talbott a non-
qualified
share option (Option) to purchase 1,000,000 upon and subject to the
terms
and conditions stated in this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Grant of Option. Subject to the terms and conditions
of this
Agreement, the Corporation hereby grants to Talbott, during the
period
ending 5:00 p.m. Springfield, Tennessee time on August 31, 2003
(Expiration Date), the option to purchase from the Corporation, from
time
to time, at a price of $0.475 per Share (Exercise Price), up to, but
not to
exceed, an aggregate of 1,000,000 Shares (Option Shares).
Section 2. Exercise of Option.
2.5 Date Exercisable. This Option shall become exercisable by
Talbott
with respect to 20,834 Shares during each of the first 48 calendar
months after the date of this Agreement during which Talbott
continues to serve as a member of the Board up to a maximum of
1,000,000 Shares.
2.6 Manner of Exercise. This Option may be exercised in whole or
in
part by delivery to the Corporation, from time to time, of a written
notice in substantially the form set forth in Exhibit A hereto,
signed
by Talbott, specifying the number of Option Shares that Talbott then
desires to purchase, together with cash, certified check, or bank
draft
payable to the order of the Corporation, or other form of payment
acceptable to the Corporation, for an amount of United States
dollars
equal to the Exercise Price of such shares. If the Corporation, in
its
sole discretion, elects to allow payment of all or a portion of the
Exercise Price secured by a pledge, also in form satisfactory to the
Corporation, of the Shares purchased by such exercise of this
Option.
2.3 Certificates. Promptly after any exercise in whole or in
part of this
Option by Talbott, the Corporation shall deliver to Talbott a
certificate or
certificates for the number of Option Shares with respect to which
this Option
was so exercised, registered in Talbott's name.
2.4 Duration of Option. This Option, to the extent not
previously
exercised, shall terminate upon the earliest of the following dates:
2.4.7 the Expiration Date
2.4.8 immediately upon Talbott's resignation from the
Board or upon failure to be re-nominated or reelected
to the Board.
2.4.9 three months after Talbott's termination of
membership on the Board, if such termination is by
reason of Talbott's disability (as defined in IRC
22(e)(3)) or death.
Section 3. Nontransferability.
3.1 Restriction. This Option is not transferable by Talbott
otherwise than
by testamentary will or the
laws of descent and distribution and, during Talbott's lifetime, may
be
exercised only by Talbott or Talbott's guardian or legal
representative.
Except as permitted by the preceding sentence, neither this Option
nor any of
the rights and privileges conferred thereby shall be transferred,
assigned,
pledged, or hypothecated in any way (whether by operation of law or
otherwise), and no such option, right, or privilege shall be subject
to
execution, attachment, or similar process. Upon any attempt to
transfer this
Option, or of any right or privilege conferred thereby, contrary to
the
provisions hereof, , or upon the levy of any attachment or similar
process
upon such option, right, or privilege, this Option and any such
rights and
privileges shall immediately become null and void.
3.2 Exercise in Event of Death or Disability. Whenever the word
Talbott is used in any provision of this Agreement under
circumstances
when the provision should logically be construed to apply to
Talbott's
guardian, legal representative, executor, administrator, or the
person or
persons to whom this Option may be transferred by testamentary will
or by
the laws of descent and distribution, the word Talbott shall be
deemed to
include such person or persons.
3.5. No Rights As Shareholder Prior To Exercise. Talbott shall
not, by
virtue hereof, be entitled to
any rights of a shareholder in the Corporation, either at law or
equity, unless
and until this Option is exercised. The rights of Talbott are
limited to those
expressed in this Option and are not enforceable against the
Corporation
except to the extent set forth herein.
Section 4. Anti-Dilution Provisions.
4.1 The number and kind of Shares purchasable upon the exercise of
this
Option and the Exercise
Price shall be subject to adjustment from time to time as follows:
4.1.13 In case the Corporation shall (i) pay a dividend or make a
distribution on the outstanding
Shares payable in Shares, (ii) subdivide the outstanding Shares into
a greater
number of Shares, (iii) combine the outstanding Shares into a lesser
number
of Shares, or (iv) issue by reclassification of the Shares any
Shares of the
Corporation, Talbott shall thereafter be entitled, upon exercise, to
receive
the number and kind of shares which, if this Option had been
exercised
immediately prior to the happening of such event, Talbott would have
owned
upon such exercise and been entitled to receive upon such dividend,
distribution, subdivision, combination, or reclassification. Such
adjustment
shall become effective on the day next following (v) the record date
of such
dividend or distribution or (vi) the day upon which such
subdivision,
combination, or reclassification shall become effective.
4.1.14 In case the Corporation shall consolidate or merge into or
with
another corporation, or in
case the Corporation shall sell or convey to any other person or
persons all
or substantially all the property of the Corporation, Talbott shall
thereafter
be entitled, upon exercise, to receive the kind and amount of
shares, other
securities, cash, and property receivable upon such consolidation,
merger,
sale, or conveyance by a holder of the number of Shares which might
have
been purchased upon exercise of this Option immediately prior to
such
consolidation, merger, sale, or conveyance, and shall have no other
conversion rights. In any such event, effective provision shall be
made, in
the certificate or articles of incorporation of the resulting or
surviving
corporation, in any contracts of sale and conveyance, or otherwise
so that, so
far as appropriate and as nearly as reasonable may be, the
provisions set forth
herein for the protection of the rights of Talbott shall thereafter
be made
applicable.
4.1.15 Whenever the number of Shares purchasable upon exercise of
this Option is adjusted
pursuant to this Section, the Exercise Price per Share in effect
immediately
prior to such adjustment by a fraction, of which the numerator shall
be the
number of Shares purchasable upon exercise of this Option
immediately prior
to such adjustment, and of which the denominator shall be the number
of
Shares so purchasable immediately after such adjustment, so that the
aggregate Exercise Price of this Option remains the same.
4.1.16 No adjustment in the number of Shares which may be
purchased upon exercise of this
Option shall be required unless such adjustment would require an
increase or
decrease of more than 1/100 of a Share in the number of Shares which
may
be so purchased, provided, however, that any adjustment which by
reason of
this Section is not required to be made shall be carried forward
cumulatively
and taken into account in any subsequent calculation. All
calculations under
this Section shall be made to the nearest cent or to the nearest
one-hundredth
of a Share, as the case may be.
4.1.17 In the event that at any time, as a result of an adjustment
made
pursuant to this Section,
Talbott shall become entitled to receive upon exercise of this
Option cash,
property, or securities.
4.1.18 Irrespective of any adjustments in the Exercise Price or in
the
number or kind of Shares purchasable upon exercise of this
Option, the form of Options theretofore or thereafter issued
may continue to express the same price and number and kind
of shares as are stated in this Option.
Section 5. Officer's Certificate. Whenever the number or kind
of
securities purchasable upon exercise of this Option or the Exercise
Price shall
be adjusted as required by the provisions of Section 4, the
Corporation shall
forthwith file with its Secretary or its Assistant Secretary at its
principal
office and with its stock transfer agent, if any, an officer's
certificate
showing the adjusted number of kind of securities purchasable upon
exercise of
this Option and the adjusted Exercise Price determined as herein
provided and
setting forth in reasonable detail such facts as shall be necessary
to show the
reason for and the manner of computing such adjustments. Each such
officer's certificate shall be made available at all reasonable
times for
inspection by Talbott and the Corporation shall, forthwith after
each such
adjustment, mail by certified mail a copy of such certificate to
Talbott.
Section 6. No Effect On Powers of Corporation. The existence of
this
Option shall not affect in any way the right or power of the
Corporation or its
shareholders to make or authorize any adjustments,
recapitalizations,
reorganization, or other changes in the Corporation's capital
structure or its
business, or any merger or consolidation of the Corporation, or any
issue of
bonds, debentures, preferred shares with rights greater than or
affecting the
Shares, or the dissolution or liquidation of the Corporation, or any
sale or
transfer of all or any part of its assets or business, or any other
corporate
act or proceeding, whether of a similar character or otherwise.
Section 7. No Waiver of Corporation's Right to Terminate
Employment.
Nothing in this Agreement shall be construed to confer or shall be
deemed
to confer on Talbott any right to continue as a member of the Board
of, or to
continue any other relationship with, the Corporation or any parent
or
subsidiary of the Corporation, or limit in any way the right of the
Corporation
or its shareholders to terminate Talbott's membership on the Board
or other
relationship at any time, with or without cause.
Section 8. Compliance With Securities Laws.
8.5 No Exercise Until Compliance. If the Corporation at any time
determines that registration or qualification of the Shares or this
Option under state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable, then this
Option may not be exercised, in whole or in part, until such
registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the
Corporation..
8.6 Investment Interest. If required by the Corporation at the time
of any
exercise of this Option as a condition to such exercise, Talbott
shall
enter into an agreement with the Corporation in form satisfactory to
counsel for the Corporation by which Talbott (i) shall represent
that
the Shares are being acquired for Talbott's own account for
investment and not with a view to, or for sale in connection with,
any
resale or distribution of such Shares, and (ii) shall agree that, if
Talbott should decide to sell, transfer, or otherwise, dispose of
any of
such Shares, Talbott may do so only if the shares are registered
under
the Securities Act of 1933 and the relevant state securities laws,
unless, in the opinion of counsel for the Corporation, such
registration
is not required, or the transfer in pursuant to the Securities and
Exchange Commission Rule 144; provided, however, that the
Corporation agrees to use its best efforts to cause a Registration
Statement on Form S-8 with respect to the Shares issuable upon
exercise of this Option to be filed and declared effective as soon
as is
practicable, and to maintain the effectiveness of such Registration
Statement until such time as the Option has been fully exercised or
terminated.
Section 9. Violation. Any provision of this Agreement to the
contrary
notwithstanding, this Option shall not be exercisable at any time,
in whole or
in part, if issuance and delivery of the Option Shares would violate
any law
or registration.
Section 10. Representations of Talbott. Talbott represents that
he has been
advised that he is not being represented in this transaction by the
corporation's attorneys and that Talbott has been advised to seek
separate
legal counsel for advice in this matter.
Section 11. Notices. Any notice under this Agreement shall be in
writing
and shall be effective when actually delivered in person or three
days after
being deposited in the U.S. mail, registered or certified, postage
prepaid and
addressed to the party at the address stated in this Option or such
other
address as either party may designate by written notice to the
other.
Section 12. Law Governing. This Option shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the date first above written.
INNOVO GROUP INC.
By:
_________________________________
Sam Furrow, Chairman
and CEO
__________________________________
Robert S. Talbott
EXHIBIT A
INNOVO GROUP INC.
NOTICE OF EXERCISE OF SHARE OF OPTION
I hereby exercise my Non-Qualified Share Option granted by INNOVO
GROUP INC. (Corporation) and seek to purchase _____________
shares of common shares of the Corporation pursuant to said Option.
I
understand that this exercise is subject to all the terms and
provisions of
my Non-Qualified Share Option Agreement.
Enclosed is my check in the sum of $_________________ in payment for
such shares.
Dated:_____________,________
___________________________
Signature
___________________________
Address
___________________________
___________________________
___________________________
Social Security Number
Receipt is hereby acknowledged of the delivery to me by INNOVO GROUP
INC. of certificates for ______________________ common shares of the
Corporation purchased by me pursuant to the terms and conditions of
Non-
Qualified Share Option Agreement referred to above.
Date:_____________,________
__________________________
Signature
EXHIBIT 10.52
REAL PROPERTY AND ASSET LEASE
AGREEMENT
This Real Property and Asset Lease Agreement
(the Lease) is made and entered into this the
14th day of September, 19998, by and between
Thimble Square, Inc. (Lessor) and Confident
Colors, LLC (Lessee).
WITNESSETH
WHEREAS, Lessor is the owner and operator of
a commercial sewing enterprise located in Baxley,
Georgia know as Thimble Square, Inc (the
Business); and
WHEREAS, Lessor desires to lease to Lessee,
and Lessee desires to lease from Lessor upon the
terms and conditions hereto, the Business,
including the real property, physical plant,
equipment, assets, contracts, good will and other
tangible and intangible property associated with
said Business.
NOW, THEREFORE, in consideration of the
following covenants and agreements, the parties
hereby contract and agree as follows;
1. Leased Real Property and Assets. Lessor,
for and in
consideration of the rents, covenants, agreements,
and stipulations hereinafter mentioned, provided
for and contained to be paid, kept and performed
by Lessee, hereby leases, hires and rents unto
Lessee, and Lessee hereby leases, hires, rents and
takes from Lessor upon the terms and conditions
which hereinafter appear, the following real
property and assets, together with all
replacements thereof and additions thereto, as
follows:
(a) Real Property: 230 Frost Industrial
Blvd., Baxley, Georgia 31513, as more specifically set forth
in the legal description attached as Exhibit A hereto
(the Real Property);
(b) Building: all improvements upon the Real Property,
including without limitation that certain building consisting
of
approximately 21,000 square feet of space, together with all
systems, fixtures and other improvements located therein, all
as
more specifically described in the floor plan attached as
Exhibit
B hereto (the Building);
(c) Equipment and Assets: all equipment and other tangible
assets used and useful in the ownership and operation of the
Business [and located at the Plant], including without
limitation
all assets identified on Exhibit C hereto (the Tangible
Assets);
(d) Licenses: all of Lessor's right, title and interest in
and to the licenses, permits, authorizations, qualifications,
orders, franchises, certificates, consents and approvals issued
to
Lessor by any governmental or regulatory agency or authority,
whether Federal, state or local, and used in connection with
the
operation of the Business (the Licenses);
(e) Intangible Assets: all of Lessor's right, title and
interest in and to the copyrights, trademarks, trade names,
logos,
service marks and other intangible assets used in connection
with
the Business, together with all good will associated with the
Business (the Intangible Assets and, together with the Real
Property, Building, Tangible Assets and Licenses, the Business
Assets); and
(f) Contracts: all of Lessor's rights and privileges under
those contracts, leases and agreements necessary or relating to
Lessor's ownership and operation of the Business, including
Without limitation (I) those contract listed on Exhibit D
(unless specifically excluded therein), (ii) that certain lease
and option agreement for the Real Property and Building dated
October 12, 1993, by and between the Development Authority of
Appling County, Georgia and Thimble Square, Inc., a Georgia
Corporation (the Capital Lease), and (iii) that certain
production agreement between Lessor and Crown Tex (the
Contracts).
2. Term. Lessee shall have and hold the Business Assets for the
term of two (2) years beginning on the _____ day of September,
1998 (the Commencement Date), and ending at midnight on the 30th day
of
September, 2000, unless earlier terminated as hereinafter
provided (the Term).
3. Continuation of Business. The Lessee
agrees to continue the Business operations without
interruption and to offer continued employment,
either directly or through an employee leasing
company, to substantially all of the employees of
the Lessor. It is Lessee's current intention to
continue the Business operations throughout the
Term and to expand the Business and operations
conducted on the Real Property and the Building.
4. Capital Lease. As an inducement to Lessee
entering into this Lease, Lessor hereby
represents, warrants and covenants with respect to
the Capital Lease as follows: (i) that the term
of the Capital Lease expires on September 30,
2000; (ii) that Lessor's rental obligation under
the Capital Lease (which includes both the Real
Property and Building) is $3,000 per month; (iii)
that Lessor has the right, which is valid and in
force, to purchase the Real Property and Building
at the expiration of the Capital Lease for
consideration of $158,000; (iv) that Lessor has
paid all rent due and is current on all of its
obligations under the Capital Lease; (v) that no
breaches or violations exist under the terms of
the Capital Lease, and no conditions exist which
do or might cause a default thereunder or
otherwise provide the landlord the right to
terminate the Capital Lease; (vi) that the Capital
Lease is valid and in full force ad effect as of
the date hereof, and will remain so as of the
Effective Date; and (vii) that Lessor shall do all
things necessary to ensure that the Capital Lease
remains in full force and effect during the Term
hereof. Lessor hereby grants to Lessee the
unconditional right to cure any default by Lessor
under the Capital Lease which might occur during
the Term hereof. Upon any exercise by Lessee of
said right to cure, Lessee shall notify
Lessor of the same in writing and may deduct all
costs of said cure from rental payments otherwise
owing to Lessor under Section 5 hereof.
5. Rental; Late Charges. During the Term of
this Lease, Lessee agrees to pay to Lessor, at 27 North Main Street,
Springfield, Tennessee 37172, or any other person
or place at the written direction of Lessor,
without demand, deduction or set off, except as
provided herein, the rental payments set forth
herein, payments being due on the 1st day of each
month in advance during the Term:
(a) On the Commencement Date, Lessee shall
pay Lessor the sum of $3,000 plus a pro-rata
portion of the first month's rent.
(b) During the period beginning on the
first day of the next calendar month immediately
following the Commencement Date, and through the
ten (10) months after the Commencement Date, base
rent of $4,500 per month, payable as follows:
$3,000 paid directly by Lessee to the landlord
under the Capital Lease, and $1,500 paid to Lessor
at the address indicated herein.
(c) During the period beginning on the
first day of the eleventh (11th) calendar month
after the Commencement Date and through the period
including twenty-two (22) months after the
Commencement Date, base rent of $5,000 per month,
payable as follows: 43,000paid directly by Lessee
to the landlord under the Capital Lease, and
$2,000 paid to Lessor at the address indicated
herein.
(d) During the period beginning on the
first day of the twenty-third (23rd) calendar
month after the Commencement Date and through the
period including the expiration of the Term, base
rent of $3,000 per month, payable as follows:
$3,000 paid directly by Lessee to the landlord
under the Capital Lease.
(e) During the Term hereof, in addition to
the base rent specified in paragraphs (a), (b),
(c) and (d) above (Base Rent), Lessee shall also
pay to Lessor additional rental payments
(Percentage Rent) equal to two percent (2%) of
any annual gross revenues in excess of five
Million Dollars ($5,000,000) earned by Lessee from
the operation of the Business during the Term.
The Percentage Rent shall be calculated at the end
of the twelfth (12th) and twenty fourth (24th)
months after the Commencement Date, and shall be
payable two (2) months in arrears. Upon the
payment of any Percentage Rent due hereunder,
Lessee shall provide Lessor with a written
calculation of said Percentage Rate. Lessor shall
also have the right on an annual basis to inspect
the books and records of Lessee to verify same.
The time and place of such inspection shall be
convenient to Lessee ad at Lessee's principle
office.
(f) If Lessor or Lessor's appointed agent
or representative fails to receive any Base Rent
or Percentage Rent payment due hereunder within
ten (10) days after it becomes due, Lessee shall
pay Lessor, as additional rental, a late charge
equal to five percent (5%) of the overdue amount.
An additional five percent (5%) will accrue for
each additional ten (10) days such payment is
late. The parties agree that the Lessor's damages
by reason of late payments will be difficult to
ascertain, that such late charge represents a fair
and reasonable estimate of the costs and damages
Lessor would incur by reason of any such late
payment and represents liquidated damages and not
a penalty.
6. Use of Business Assets. The Business
Assets shall be used by Lessee (or any sublessee)
in the operation of the Business or any lawful
purpose related thereto. The Business Assets
shall not be used by Lessee for any illegal
purposes, nor in any manner to create any nuisance
or trespass, nor in any manner to vitiate the
insurance or increase the rate of insurance on the
Business Assets. Unless approved by Lessor, which
approval shall not be unreasonably withheld,
Lessee and sublessees agree to keep all Tangible
Assets in the operation facilities in Baxley,
Georgia. Lessee hereby assumes all of the
Lessor's obligations under the Licences and the
Contracts and agrees to comply, in all respects,
with the terms and conditions thereof, except only
those obligations which are expressly undertaken
by Lessor hereunder.
7. Utilities. Lessee shall pay all charges
for utilities used in the operation and
maintenance of the Business Assets and Business,
including electricity, light, water, sewer, gas,
heat, fuel, garbage collection, sanitary and other
services relating to the operation of the
Business.
8. Abandonment of Business Assets. Lessee
agrees not to abandon or vacate the Business
Assets during the Term of this Lease, and agrees
to use the Business Assets for the purposes herein
leased until the expiration hereof.
9. Repairs and Maintenance by Lessor.
Lessor agrees to keep in good repair the roof,
foundation and exterior walls of the Building,
including glass and exterior doors, and
underground utility and sewer pipes outside the
exterior wall of the Building, except repairs
rendered necessary by the negligence or
intentional wrongful acts of Lessee, its agents,
employees or invitees. Lessor gives Lessee
exclusive control of the Real Property and
Building, and shall be under no obligation to
inspect the same. Lessee shall promptly report in
writing to Lessor any defective condition on or
about the Real Property or Building known to
lessee which Lessor is required to repair, and
failure to report such conditions shall make
Lessee responsible to lessor for any liability
incurred by Lessor by reason of such conditions.
Lessee agrees to pay any insurance deductible for
any damage caused directly by Lessee.
10. Repairs and Maintenance by Lessee.
Lessee accepts the
business Assets in their present condition as
being suited for the use intended by Lessee.
Lessee shall maintain in good working order and
repair all heating and air conditioning systems
serving the Building (including but not limited to
replacement of parts, compressors, air handling
units and heating units). Further, Lessee shall,
throughout the Term of this Lease, maintain in
good order and repair all of the Business Assets,
and any additions to or replacements thereof,
except those repairs expressly required to be made
by Lessor hereunder. Lessee agrees to return the
Business Assets to Lessor at the expiration or
earlier termination of the Lease in as good
condition and repair as when first received,
ordinary wear and tear, damage by storm, fire,
lightning, earthquake or other casualty alone
excepted.
11. Destruction of or Damages to Business
Assets. If the Business Assets indicated in item
nine (9) above are completely or substantially
destroyed by storm, fire, lightning, earthquake or
other casualty, this Lease shall terminate as of
the date of such destruction and renal shall be
accounted for as between Lessor and Lessee as of
that date. If the Business Assets indicated in
item (9) above are damaged but not wholly or
substantially destroyed by any such casualties,
rental shall abate in such proportion as Lessee's
use of the Business Assets to substantially the
same condition as before said damages occurred as
soon as is practicable, whereupon full retal shall
recommence.
12. Insurance and Indemnification.
(a) Indemnification.
(i) Lessee agrees to, and hereby
does, indemnify and save Lessor harmless against
all claims or damages to persons or property by
reason of Lessee'S use or occupancy of the
Business Assets and operation of the Business from
and after the Commencement Date (exclusive of any
claims or damages resulting from maintenance to be
performed in or on the Business Assets by Lessor
or its agents hereunder), and expenses incurred by
Lessor as a result thereof, including reasonable
attorneys' fees and costs.
(ii) Lessor agrees to, and hereby
does, indemnify and save Lessee harmless against
all claims or damages to persons or property by
reason of Lessee's ownership, use or occupancy of
the Business Assets and the operation of the
Business prior to the Commencement Date, and all
expenses incurred by Lessee as a result thereof,
including reasonable attorneys' fees and costs.
(b) Liability insurance.
(i) Lessee shall, at Lessee's sole
expense, maintain in
effect throughout the Term of this Lease personal
injury liability insurance covering the Business
Assets and its appurtenances in the amount of not
less than Two Hundred Fifty Thousand Dollars
($250,000), for injury to or death of any one
person, and One Million Dollars ($1,000,000)
aggregate for each incident. Such insurance
shall specifically insure Lessee against all
liability assumed by it or by Lessor hereunder, as
well as liability imposed by law upon Lessee or
Lessor, and shall name Lessor as an additional
insured thereunder. Such insurance policy, or
certificate thereof, shall contain an endorsement
expressly waiving any right of the insurer of
subrogation against Lessor, and shall provide that
Lessor will be given ten (10) days written notice
prior to cancellation or expiration of the
insurance evidenced thereby. Within a reasonable
period of time following the Commencement Date,
Lessee shall provide the foregoing certificate and
endorsement required hereby to Lessor.
(ii) Lessor shall, at Lessor's
sole expense, maintain property damage liability
insurance in the amount of Four Hundred Fifty
Thousand Dollars ($450,000). Such insurance shall
specifically insure Lessor against all liability
assumed by it or by Lessee hereunder, as well as
liability imposed by law upon Lessee or Lessor,
and shall name Lessee as an additional insured
thereunder. Such insurance policy, or certificate
thereof, shall contain an endorsement expressly
waiving any right of the insurer of subrogation
against Lessee, and shall provide that Lessee will
be given ten (10) days written notice prior to
cancellation or expiration of the insurance
evidenced thereby. Within a reasonable period of
time following the Commencement Date, Lessor shall
provide the foregoing certificate and endorsement
required hereby to Lessee.
13. Governmental Orders. Lessee agrees, at its own
expense, promptly to comply with all codes, rules,
regulations, ordinances, laws, orders and other requirements
of any legally constituted public authority having
jurisdiction over the Business Assets (requirements) made
necessary by reason of Lessee's occupancy of the Real
property and Building, use of the Business Assets and
operation of the Business. Lessor agrees promptly to comply
with any such requirements if the same are not made
necessary by reason of Lessee's occupancy. It is mutually
agreed, however, between Lessor and Lessee, that if in order
to comply with such requirements, the cost to Lessor or
Lessee, as the case may be, shall exceed a sum equal to one
year's rent hereunder, then the party hereto obligated to
comply with such requirements may terminate this Lease by
giving written notice of termination to the other party,
which termination shall become effective sixty (60) days
after receipt of such notice and which notice shall
eliminate necessity of compliance with such requirements
unless the party giving such notice of termination, shall,
before termination becomes effective, pay to the party
giving notice all costs of compliance in excess of one
year's rent, or secure payment of said sum in any manner
satisfactory to the party giving notice.
Condemnation. If the whole of the Business Assets
shall Be taken under the power of eminent domain by any public or
quasi-public authority, or conveyance shall be made in lieu
thereof, or if a portion of the Business Assets is so taken or
conveyed
and the remainder of the Business Assets shall not, in the opinion
of Lessee, be suitable for Lessee's use, or if access to the
remainder of the Business Assets from an adjoining public
thoroughfare
shall be eliminated or substantially impaired, this Lease shall
terminate as of the date of such taking or conveyance, the parties
shall be released from any further liability hereunder, and the
rental otherwise due shall be prorated as of such date. If this
Lease is not terminated pursuant to this Section and if a portion of
the Business Assets has been taken or conveyed, rental shall be
reduced by an amount which represents the percentage by which
Lessee's use of the Business Assets, as a whole, is reduced by such
taking or conveyance. If any condemnation proceeding, Lessee and
Lessor shall have the right to seek all compensation and damages
due to each party under the laws of the State of Georgia as a
result of such taking.
15. Assignment and Subletting. Subject to obtaining
the consent of the Lessor under the Capital Lease, Lessee
may sublease portions of the Business Assets to other
persons, provided any such sublessee's operation is either
(i) part of the general operation of the Business, or (ii)
is under the supervision and control of Lessee, and provided
such operation is within the purposes for which the Business
Assets shall be used hereunder; and further provided that
the annual gross revenues of such sublessee shall be
included in the calculation of additional rent under Section
5 (e) hereof, except to the extent such revenues are derived
from sale of goods or services to the Lessee. Except as
provided in the preceding sentence, Lessee shall not,
without the prior written consent of Lessor, which consent
shall not be unreasonably withheld, conditioned, or delayed,
assign this Lease or any interest hereunder or sublet the
Business Assets or any part thereof, or permit the use of
the Business Assets by any party other than Lessee. Consent
by Lessor to any assignment or sublease shall not impair
this provision, and all later assignment or subleases,
except as herein provided, shall be made likewise only on
the prior written consent of Lessor. Assignee of Lessee, at
the option of Lessor, shall become directly liable to Lessor
for all obligation of Lessee hereunder; provided, however,
no sublease or assignment y lessee shall relieve Lessee of
any liability hereunder.
16. Removal of Trade Fixtures and Equipment. At the
termination of this Lease, Lessee may (if not in default
hereunder)remove any of the trade fixtures, equipment and other
unattached items which Lessee may have installed or stored in or on
the
Real Property or Building. Lessee shall repair any damage
to the
Business Assets caused by its removal of such items. The
failure of Lessee to remove such items at the end of this
Lease shall be deemed an abandonment thereof at the option
of Lessor. If Lessee fails to so remove such items as
herein provided, or fails to repair any damage caused to the
Business Assets by such removal, then Lessor may do so and
charge Lessee with the cost and expense thereof and all such
cost and expense shall be paid by Lessee to Lessor on
demand. Lessee shall not remove any plumbing or electrical
fixtures or equipment, any central heating, ventilating or
air conditioning equipment, floor coverings, walls or
ceilings, or any other property which may and shall be
deemed to constitute a part of the Real Property and
Building.
17. Peaceful Possession. Upon payment by Lessee of
the rent herein provided, and upon the observance and
performance of all other covenants and conditions on
Lessee's part to be observed and performed, Lessee shall
peaceably ad quietly hold and enjoy the leased Business
Assets for the Term hereby demised, without hindrance or
interruption.
18. Default by lessee. If: (a) Lessee fails to pay
any rental when due, and if such default is not remedied within
ten (10) days after receipt of written notice by lessee from
Lessor; Lessee defaults in any of the other covenants, terms,
conditions, provisions or agreements of this Lease on
the part of the Lessee to be kept, observed or performed and
such default is not remedied within twenty (20) days after
notice from Lessor, provided, however, if the action require
to cure the default is of such a nature that it can not be
cure within twenty (20) days, Lessee shall not be in default
if, within such twenty (20) day period, Lessee commences to
cure such default. The time for Lessee to cure shall be
extended for such reasonable period as may be required to
complete such cure with all diligence; (c) a petition in
bankruptcy is filed by, or against, Lessee; (d) the interest
of Lessee in this Lease is levied upon by execution or other
legal process; (e) the Lessee is declared insolvent
according to law; (f) Lessee makes an assignment to, or for
the benefit of creditors, or petitions any court to make
such an arrangement; (g) Lessee abandons the Business assets
or any material part thereof or vacates the Building; or (h)
a permanent receiver is appointed for Lessee's property and
such receiver is not removed within sixty (60) days after
written notice from Lessor to Lessee to obtain such removal;
then, and in any of such events of default, Lessor shall
have the following rights in addition to the any other
rights or remedies available to Lessor at law, in equity or
under other provisions of this Lease: (i) to terminate this
Lease and to re-enter and repossess the Business Assets, or
(ii) without terminating this Lease, to re-enter and
repossess the Business Assets. If Lessor takes possession
of the Business Assets pursuant tot he preceding option of
this Section 18(ii), Lessor shall rent the Business Assets
at the best rental obtainable by its good faith best efforts
and for any term and on such conditions as Lessor deems
reasonably proper. Lessee shall be liable to Lessor for any
deficiency, if any, between the rental due hereunder and the
remainder of the rent obtained by Lessor upon reletting
after deduction of all expenses reasonable incurred by
Lessor in connection with such reletting. Lessee agrees to
be responsible for any attorney fees incurred by Lessor to
cure any default
hereunder.
19. Default by Lessor. In the event of Lessor's
obligations hereunder, Lessee must give Lessor notice thereof and
allow
Lessor thirty (30) days from Lessor's receipt of such notice
to cure such default, or, in the event of a default which
can not be cured within thirty (30) days, to commence
curing such default. In the event of any default by Lessor
under the Capital Lease, Lessee shall have the right to cure
said default on behalf of Lessor pursuant to Section 4
hereof. In the event of any material default by Lessor
hereunder which is not cured by Lessor within 30 days after
Lessor receives notice from lessee, Lessee may, at its sole
option, terminate this Lease at no further liability to
Lessee, and may recover any and all damages entitled to
Lessee under applicable law on account of lessor
default, including without limitation Lessee's actual
attorneys' fees incurred as a result of thereof.
20. Exterior Signs. Lessee shall place no signs upon
the outside walls or roof of the Building except with the written
consent of the Lessor, which consent will not be
unreasonably withheld. Any and all signs placed on the Real
Property by Lessee shall be maintained in compliance with
applicable laws, rules and regulations governing such signs,
and Lessee shall be responsible to Lessor for any damage
caused by installation, use or maintenance of said signs,
and all damages incident to such removal.
21. Representations and Warranties.
Lessor's Representations and Warranties. Lessor hereby
represents and warrants to Lessee, as an inducement to
lessee to enter into this Lease, as follows:
21A.1 Organization; Good Standing. Lessor (i) is
a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Georgia; (ii)
is qualified to do business and is in good standing under
the laws of the State of Georgia; and (iii) has all
requisite corporate power and authority to own and operate
the Business Assets, to carry on its business as now being
conducted, to enter into this Agreement and to perform its
obligations hereunder.
21A.2 Authority. Lessor has the full right and
authority to execute and deliver this Lease, to perform its
obligations hereunder, and to consummate the transactions
provided for herein. All required corporate action with
respect to Lessor has been taken to approve this Agreement
and the transactions contemplated hereby. This Lease has
been duly executed and delivered by Lessor and constitutes
the valid and binding obligation of Lessor, enforceable
against Lessor in accordance with its terms, except as such
enforceability may be limited by bankruptcy and similar laws
affecting the rights of creditors generally and general
principles of equity. Except as expressly provided in this
Agreement, the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the
performance by Lessor of this Agreement in accordance with
its terms will not require the approval or consent of or
notice to any foreign, federal, state, county, local or
other governmental, financial or regulatory body.
21A.3 Title to Tangible Assets. Except as set
forth on Exhibit C, Lessor has good and marketable title
to the Tangible Assets, free and clear of all liabilities,
obligations, security interests, liens, rights and
encumbrances of others whatsoever.
21A.4 No Breach or Violation. The execution and
delivery by Lessor of this Lease, the consummation by Lessor
of the transactions contemplated hereby, and compliance by
Lessor with the terms hereof, does not and will not:
(i) violate or result in the breach of or
contravene any of the terms, conditions or provisions of, or
constitute a
default under, Lessor's Articles of Incorporation or Bylaws,
or any law, regulation, order, writ, injunction, decree,
determination or award of any court, governmental
department, board, agency or instrumentality, decree,
determination or award of any court, governmental
department, board, agency or instrumentality, domestic or
foreign, or any arbitrator, applicable to Lessor or its
assets and properties; or
(ii) result in prohibited action under any term
or provision of, the material breach of any term or
provision of, the termination of, or the acceleration or
permitting the acceleration of the performance required by
the terms of, or constitute a default under or require the
consent of any party to any loan agreement, indenture,
mortgage, deed of trust or other contract, agreement or
instrument, to which Lessor is a party or by which it is
bound; or
(iii) cause the suspension or revocation of any
authorization, consent, approval or License currently in
effect with respect to Lessor.
21A.5 Approvals. No authorizations, approvals
or consents from any governmental or regulatory authorities
or agencies are necessary to permit Lessor to execute and
deliver this Agreement and to perform its obligations
hereunder.
21A.6 No Litigation. There are no actions,
suits, investigations or proceedings pending or, to the best
of Lessor's knowledge, threatened against or affecting the
Business Assets, in any court or before any arbitrator, or
before or by any governmental department, commission,
bureau, board, agency or instrumentality, domestic or
foreign, which, if adversely determined, would impair the
ability of Lessor to perform its obligations hereunder or
would impair or hinder the ability or right of Lessee to
operate the Business after the Commencement Date in the
manner heretofore operated by Lessor.
21A.7 Brokerage. Lessor has not dealt with any
broker or finder in connection with any of the transactions
contemplated by this Agreement, and, to the best of Lessor's
knowledge, no other person is entitled to any commission or
finder's fee in connection with any of these transactions.
21A.8 Condition of Tangible Assets. Tangible
Assets are leased as is without any express or implied
warranty of any kind, including without limitation any
warranty of merchantability or fitness for a particular
purpose.
21A.9 Contracts. All of the leases, contracts and
agreements to which Lessor is a party with respect to the
Business are listed on Exhibit D. Lessor has performed
all of its duties and obligations under each of the
Contracts in all material respects, the failure to perform
which would have a material adverse effect on the business,
operations or financial condition of the Business. There
are no material defaults under any of the Contracts by
Lessor or, to best of Lessor's knowledge, by any other
party, or any events, which with notice, the passage of time
or both, would constitute a material default under any of
the Contracts. All Contracts are in full force and effect
and are valid and enforceable in accordance with their
respective terms. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions
contemplated hererby does or will result in a breach or
default under, or permit any party to modify any obligations
under, or cause or permit any termination, cancellation or
loss of benefits under, any of the Contracts. Lessor has
obtained any necessary consent to this Lease required under
the Capital Lease.
21A.10 Personnel. Lessor has performed, in all
material respects, all obligations required to be performed
by it under its agreements and plans with or for the benefit
of its employees at the Business, and is not in material
breach or in material default of any of the terms thereof.
There is no material dispute between Lessor and any of its
former or current employees at the Business related to
compensation, severance pay, vacation or pension benefits,
or discrimination.
21A.11 No Union Contract. Lessor is not a party to
any collective bargaining agreement covering any of its
employees at the Business. Within the past three years, to
the knowledge of Lessor, there have not been any
jurisdictional disputes or organizing activities by or with
respect to the employees of the Business. Within the past
three years, there have not been any, and to the knowledge
of Lessor there are not now any6 threatened strikes,
lockouts, work stoppages, or slowdowns with respect to
employees of the Business.
21A.12 Rights in Intangible Assets. (i) All of the
Intangible Assets are owned by Lessor free and clear of
adverse claims and none of such Intangible Assets infringes
on the rights of others; (ii) no proceedings are pending
against Lessor or, to the best of Lessor's knowledge, are
threatened which challenge the validity of the ownership of
the Intangible Assets by lessor; and (iii) Lessor has not
with respect to the Business violated any of the provisions
of the Copyright Act of 1976, 17 U.S.C. Section 101, et seq.
21A.13 Compliance with Laws. Lessor has all
licenses, permits or other authorizations of governmental,
regulatory or administrative agencies required to conduct
its business with respect to the Business as currently
conducted. No judgment, decree, order or notice of
violation has been issued by any such agency or authority
which permits, or would permit, revocation, modification or
termination of any of governmental permit, license or
authorization or which results or could result in any
material impairment of any rights thereunder. With respect
4to the Business, Lessor is in compliance with all applicable
federal, state, local or foreign laws, regulations,
statutes, rules, ordinances, directives and orders and any
other requirements of any governmental, regulatory or
administrative agency or authority or court or other
tribunal applicable to it.
21A.14 Environmental matters. The Real Property and
Building are free of any substantial amounts of (1) waste or
debris; (2) hazardous waste as defined by the Resource
Conservation and Recovery Act as amended from time to time
(RCRA), or any hazardous substance as defined in the
statutes of Georgia, as amended from time to time, and
regulations promulgated thereunder, or as defined by the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time
(CERCLA), and regulations promulgated thereunder; (3) any
substance the presence of which is prohibited by any law
similar to those set forth in this subparagraph; and (4) any
materials which, under federal, state, or local law,
statute, ordinance or regulation, or court or administrative
order or decree, or private agreement, require special
handling in collection, storage, treatment or disposal (the
wastes, substances and materials referred to in items (1)-
(4) being hereafter collectively referred to as Hazardous
Materials).
21A.15 Insurance. The insurable properties relating
to the Business and the conduct of the Business are, and
will be until the Commencement Date, in the reasonable
judgement of Lessor, adequately insured.
21A.16 Operating Statements. All financial and
operating statements which have been previously provided by
Lessor to Lessee, were prepared in accordance with the books
and records of Lessor in conformity with generally accepted
accounting principles consistent with past practices (except
for normal year-end adjustments) and fairly present the
results of operations of the Business for the respective
periods covered thereby.
21A.17 Bulk Transfers. The provisions of the Bulk
Transfer laws of the State of Georgia will be complied with
by Lessor, if applicable, upon the exercise by Lessee of its
option to purchase under Section 24.
21A.18 Employee Benefits. Schedule 21.18 identifies
each personnel policy, summary plan description, profit
sharing plan or other employee benefit plan or document
(whether written or oral) providing for insurance coverage
or for deferred compensation, bonuses, stock options or
other forms of incentive compensation, severance benefits,
post-retirement compensation or benefits, welfare or similar
plans or profit sharing plans (Benefit Plans) which (i)
are administered, entered into or maintained as the case may
be, by Lessor and (ii) cover any employee of Lessor at the
Business. True and correct copies or descriptions of each
such document (and, if applicable, any related trust
agreements or descriptions, in the case or oral arrangement)
are also attached as part of such Schedule 21.18. Each such
Benefit Plan has been maintained in compliance with the
requirements prescribed by any and all statutes, order,
rules and regulations applicable to it, including, but not
limited to, the Employee Retirement Income Security Act of
1974, as amended (ERISA), and the Internal Revenue Code of
1986, as amended (Code).
21A.19 Accuracy of Information Furnished. No
statement by Lessor contained in this Lease or in any
Schedule or Exhibit hereto contains any material untrue
statement of a material fact, or omits to state any material
fact which is necessary to make the statements contained
herein, in light of the circumstances under which they were
made, not materially misleading.
Lessee's Representations and Warranties. Lessee hereby
represents and warrants to Lessor, as an inducement to
Lessor to enter into this Lease, as follows:
21B.1 Organization; Good Standing. Lessee (i) is a
limited liability company duly incorporated, validly
existing and in good standing under the laws of the State of
Georgia; (ii) is qualified to do business and is in good
standing under the laws of the State of Georgia; and (iii)
has all requisite corporate power and authority to own and
operate the Business Assets, to carry on its business as now
being conducted, to enter into this Agreement and to perform
its obligations hereunder.
21B.2 Authority. Lessee has the full right and
authority to execute and deliver this Lease, to perform its
obligations hereunder, and to consummate the transactions
provided for herein. All required corporate action with
respect to Lessee has been taken to approve this Agreement
and the transactions contemplated hereby. This Lease has
been duly executed and delivered by Lessee and constitutes
the valid and binding obligation of Lessee, enforceable
against Lessee in accordance with its terms, except as such
enforceability may be limited by bankruptcy and similar laws
affecting the rights of creditors generally and general
principles of equity. Except as expressly provided in this
Agreement, the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the
performance by Lessee of this Agreement in accordance with
its terms will not require the approval or consent of or
notice to any foreign, federal, state, county, local or
other governmental, financial or regulatory body.
22. Lessor's Entry of Real Property and Building.
Lessor may card the Real Property and Building For Rent or For Sale
ninety (90) days before the expiration of the Term of this
Lease (subject to Lessee's option to purchase pursuant to
Section 24). Lessor may enter the Real Property and
Building at reasonable hours to exhibit the same to
prospective lessees or purchasers and to make repairs
required of Lessor under the term hereof.
23. Effect of Termination of Lease. No termination
of this Lease prior to the normal ending thereof, by lapse
of time or otherwise, shall effect Lessor's right to collect
rent for the period prior to termination thereof.
24. Purchase Option. At any time during the Term of
this Lease, Lessor hereby grants and Lessee hereby accepts, the
option
to purchase all of Lessor's interest in the Business (the
Option), including without limitation the Business Assets
(including all rights under and subject to the terms of the
Capital Lease). In the event Lessee elects to exercise the
Option, Lessee shall provide Lessor with written notice
thereof no later than sixty (60) days, or the required time
period required by the Lessor's Capital Lease, whichever is
longer, prior to the exercise of the Option. The purchase
price for the Option shall be Four Hundred Eighty Thousand
Dollars ($480,000), less thirty-three and one-third percent
(33 1/3%) of all Base Rent and fifty percent (50%) of all
Percentage Rent paid by Lessee during the Term hereof, and
shall be payable by Lessee on the Option Date in U.S. cash
or certified funds or other form of payment reasonably
accepted by Lessor.
In the event Lessee exercises its Option
hereunder, Lessor shall timely notify the landlord under the
terms of the Capital Lease of Lessor's intention to exercise
its option to purchase the Real Property ad Building.
Lessor hereby covenants and agrees to take all actions
necessary to exercise and close upon its option under the
Capital Lease in the time and manner required thereby, in
order that Lessor shall acquire marketable, fee simple title
to the Real Property and Building on or prior to the Option
Date hereunder. On the Option Date, Lessor shall execute
and deliver to Lessee, in form and substance reasonably
acceptable to Lessee, a warranty deed for the Real Property
and Building, a bill of sale for the Tangible Assets, and
such other documents as may reasonably be required by Lessee
to effectuate its exercise of the Option and the transfer of
all the Business Assets to Lessee.
25. Mortgagee's Rights. Lessee's rights hereunder
shall be subject to the Capital lease or any bona fide mortgage or
deed to secure debt which is now in place or to be placed
upon the Business Assets by Lessor. Lessee shall, if
requested by Lessor, execute a separate agreement reflecting
such subordination.
26. No Estate in Land. This Lease shall create the
relationship of Lessor and Lessee between the parties hereto. No
estate
shall pass out of Lessor. Lessee has only usufruct not
subject to levy and sale, which is assignable only pursuant
to the terms if this Lease.
27. Holding Over. If lessee remains in possessior of
the Business Assets after expiration of the Term hereof,
with Lessor's acquiescence and without any express agreement
of parties, Lessee shall be a tenant at will at the rental
rate which is in effect at the end of such Term, and there
shall be no renewal of the Lease by operation of law. If
Lessee remains in the Business Assets after expiration of
the Term hereof without Lessor's acquiescence, the Lessee
shall be a tenant at sufferance and commencing on the date
following the date of such expiration, the monthly rental
payable under Section 5 hereof shall, for each month or
fraction thereof during which Lessee so remains in
possession of the Premises, be twice the monthly Base Rent
otherwise payable under Section 5 hereof. Percentage Rent
otherwise due under Section 5 hereof will remain due for any
period Lessee holds over.
28. Attorneys' Fees and Homestead. If any rent or
other sum of owing under this Lease is collected by or
through any attorney, Lessee agrees to pay the reasonable
attorneys' fees incurred by Lessor as a result thereof.
Lessee waives all homestead rights and exemptions which
Lessee may have under any law as against any obligation
owing under this Lease. Lessee hereby assigns Lessor
Lessee's homestead exemption.
29. Rights Cumulative. All rights, powers and
privileges conferred hereunder upon parties hereto shall be
cumulative
and no restrictive to those given by law.
30. Notice. All notices required or permitted under
this Lease shall be in writing and shall be personally
delivered or sent by telefax, overnight delivery (next day
service) by a national delivery service, or by U.S.
certified mail, return receipt requested, postage prepaid,
to the following addresses:
Lessor:
Thimble Square, Inc.
27 North Main Street
Springfield, TN 37172
Attn: L.E. Smith, Chairman and CEO
Telefax No. (615) 384-2911
Lessee:
Confident Colors, LLC
230 Frost Industrial Blvd.
Baxley, GA 31513
Attn: Scott Parliament, Vice President and
Treasurer
Telefax No. (912) 367-1320
Either party hereto may, upon written notice to
the other, change such parties' address for notices
hereunder. For purposes of this Lease, any notice received
by Lessor or Lessee from the Lessor under the Capital Lease
shall be deemed to have been received from the other party
to this Lease.
31. Waiver of Rights. No failure to Lessor to
exercise any power given to Lessor hereunder or to insist
upon strict compliance by Lessee of his obligations
hereunder, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of
Lessor's right to demand exact compliance with the terms
hereof.
32. Time of Essence. Time is of the essence in this
Lease.
33. Definitions. Lessor as used in this Lease shall
include first party, its heirs, representatives, assigns,
and successors in title to the Business Assets. Lessee
shall include second party, its heirs and representatives,
and if this Lease shall be validly assigned or sublet, shall
include also Lessee's assignees or sublessees as to the
Business Assets covered by such an assignment or sublease.
Lessor and Lessee include male and female, singular and
plural, corporation, partnership or individual, as may fit
the particular parties.
34. Exhibits. All Exhibits attached to this Lease are
incorporated into, and made a part of, this Lease. In the
event of a conflict between an Exhibit and any of the
foregoing provisions of this Lease, said Exhibit shall
control.
35. Merger. This Lease contains the entire agreement
of the parties hereto, and o representations, inducements, promises
or agreements, oral or otherwise, between the parties not
embodies herein shall be of any force or effect.
36. Governing Law. The terms of this Lease and
interpretation thereof shall be governed by the laws of the State of
Georgia, without reference to conflicts of law principles.
37. Consent of Lessor under Capital Lease. This Lease
shall not be effective unless or until the Lessor under the Capital
Lease gas given its written consent to this Lease and the
subtenancy created hereunder.
IN WINTESS WHEREOF, the parties hereunto have set their
hands and seals, intending to be bound thereby, as of the
date and year first above written.
Signed, sealed and delivered as
to Lessor, in the presence of: LESSOR:
Thimble Square,
Inc.
/s/ Scott Parliament By: /s/ L.E. Smith
CEO
-------------------- --------------
(Unofficial Witness) Name
Title
/s/ Jennifer Gregory
--------------------
Notary Public
Signed, sealed and delivered as
to Lessor, in the presence of: LESSEE:
Confident Colors,
LLC
/s/ Scott Parliament /s/ L. Winston Biggs
-------------------- --------------------
Unofficial Witness Name
Title
/s/ Jennifer Gregory
--------------------
Notary Public
EXHIBIT A
LEGAL DESCRIPTION
EXHIBIT B
BUILDING FLOOR PLAN
EXHIBIT C
LIST OF TANGIBLE ASSETS
EXHIBIT D
LIST OF CONTRACTS
MUTUAL RELEASE AGREEMENT
On this 15th day of September, 1998 Thimble Square,
Inc. (Employer) and Jane Silk (Employee) mutually agree
to release each other from any further contractual
obligations related to an Employment Agreement (Agreement)
dated 4/12/96.
This release is conditioned on the binding execution of
a lease agreement for Thimble Square real and personal
property between Confident Colors, LLC and Thimble Square,
Inc. Such lease is expected to become effective the week of
September 14, 1998.
Subject to the execution of the lease above, this
release shall become effective beginning September 14, 1998.
This release shall include all aspects of the Agreement
including, but not limited to, salary, benefits and
agreement not to compete.
/s/ Jane Silk
- -------------
Employee
Jane Silk
Thimble Square, Inc.
- --------------------
For Employer
L.E. Smith, CEO
/s/ L.E. Smith CEO
MUTUAL RELEASE AGREEMENT
On this 15th day of September, 1998 Thimble Square,
Inc. (Employer) and Ron Silk (Employee) mutually agree
to release each other from any further contractual
obligations related to an Employment Agreement (Agreement)
dated 4/12/96.
This release is conditioned on the binding execution of
a lease agreement for Thimble Square real and personal
property between Confident Colors, LLC and Thimble Square,
Inc. Such lease is expected to become effective the week of
September 14, 1998.
Subject to the execution of the lease above, this
release shall become effective beginning September 14, 1998.
This release shall include all aspects of the Agreement
including, but not limited to, salary, benefits and
agreement not to compete.
/s/ Ronald Silk
- ---------------
Employee
Ron Silk
Thimble Square, Inc.
- --------------------
For Employer
L.E. Smith, CEO
/s/ L.E. Smith CEO
CERTIFICATE OF ORGANIZATION
I, Lewis A. Massey, the Secretary of State from the State of
Georgia, do hereby certify under the seal of my office that
CONFIDENT COLORS, L.L.C.
A GEORGIA LIMITED LIABILITY
COMPANY
Has been duly organized under the laws of the State of
Georgia on the effective date stated above by the filing of
articles of organization in the office of the Secretary of
State and by the paying of fees as provided by Title 14 of
the Official Code of Georgia Annotated.
WITNESS my hand and official seal in the City of Atlanta and
the State of Georgia on the date set forth above.
/s/ Lewis A. Massey
- -------------------
Lewis A. Massey
Secretary of State
ARTICLES OF ORGANIZATION
OF
CONFIDENT COLORS, L.L.C.
Pursuant to Section 14-11-100 et seq. Of the Georgia
Limited Liability Act (the Act), the following Articles of
Organization for the instant Georgia limited liability
company (the Company) are set forth as follows:
Article I.
The name of the Company is Confident Colors, L.L.C.".
Article II.
The initial registered office of the Company is 230
Frost Industrial Blvd., Baxley, Georgia 31513. The
Company's initial registered agent for service of process is
Scott Parliament, an individual resident of the State of
Georgia, who is located at the same address as the initial
registered office of the Company.
Article III.
The purpose for organization of the Company is to
engage in any and all lawful business in which corporations
for profit formed in the State of Georgia may engage.
Article IV.
The principal office of the Company where the records
required by Section 14-11-313 of the Act will be maintained
is located at 230 Frost Industrial Blvd., Baxley, Georgia
31513.
Article V.
The period of duration for the Company shall be until
(i) the date of dissolution thereof pursuant to either
Section 14-11-602 of the Act or the Company's effective
operating agreement, or (ii) December 31, 2028, whichever
date first occurs.
Article VI.
Management of the Company shall be vested in one (1)
manager, who shall be selected and shall govern the
operations of the Company in accordance with the provisions
of the Company's Operating Agreement to be executed by the
Members following the effective date hereof.
Article VII.
In accordance with the provisions of O.C.G.A. Section
14-11-306, the Company shall indemnify and hold harmless
each of its Members and Manager from and against any and all
claims, demands and liabilities whatsoever arising in
connection with the Company; provided, however, that the
Company shall not indemnify any Member or Manager for any
liability arising out of or relating to (i) intentional
misconduct or a knowing violation of law by said Member or
Manager, or (ii) any transaction for which said Member or
Manager received a personal benefit in violation or breach
of any provision of the Company's written Operating
Agreement then in effect.
The foregoing Articles executed this 10th day of
September, 1998.
/s/ Jay D. Brownstein
- ---------------------
Jay D. Brownstein
Organizer
CONFIDENT COLORS, LLC
Unanimous Consent
The undersigned, representing all members of Confident
Colors, LLC, hereby agree unanimously to the following:
That Winston Biggs is authorized as Manager and
President of Confident Colors, LLC to execute a certain
lease agreement between Thimble Square, Inc. and Confident
Colors, LLC as to certain real estate and equipment located
in Baxley, Georgia, to be dated at or near September 14,
1998.
/s/ Winston Biggs 9/15/98
- ----------------- -------
Winston Biggs
/s/ Scott Parliament 9/15/98
- -------------------- -------
Scott Parliament
/s/ Jane Silk 9/14/98
- ------------- -------
Jane Silk
/s/ Jerry Stewart 9/15/98
- ----------------- -------
Jerry Stewart
MEMO
TO: Scott Parilament
FROM: Eric Hendrickson
SUBJECT: Authorization for the negotiation and lease of
Thimble Square, Inc.
This memorandum is to affirm that Mr. L.E. Smith, CEO
and Chairman for Innovo Group, Inc., and subsidiaries, has
been authorized to negotiate and consummate the
lease/purchase of the Thimble Square, Inc. land, building
and equipment. Following is the appropriate section from
the August 31, 1998 Board of Directors meeting authorizing
the transaction:
Smith introduced a proposal from Scott Parliament for
the lease/purchase of the Thimble Square, INC. land,
building and equipment. The discussed proposal is attached
and is made a part of the corporate minutes. Authorization
to further negotiate and consummate the transaction was
given to Smith. The motion was made by Furrow and seconded
by Anderson. The affirmative vote was unanimous.
Eric Hendrickson----------------
Eric Henrickson, Secretary, Treasurer and V.P.
CORPORATE SEAL
EXHIBIT 10.53
THIS AGREEMENT is made this 20th day of
August, 1998, between, NASCO PRODUCTS
INTERNATIONAL, INC., INNOVO GROUP, INC., and any
and all subsidiaries, successors and assigns
(hereinafter referred to as Innovo), whose
business address is 27 North Main Street,
Springfield, Tennessee 37172, and ACTION
PERFORMANCE COMPANIES, INC. and any and all
subsidiaries, successors and assigns (hereinafter
referred to as AP), whose business address is
4707 E. Baseline Road, Phoenix, AZ 85040.
WHEREAS, Innovo is a manufacturer and
distributor, as well as a seller and marketer, of
various products;
WHEREAS, AP operates a division known as Fan
Fueler, and has requested that Innovo manufacture
and distribute certain products it produces in the
manner herein provided;
WHEREAS, Fan Fueler is a discrete business
unit of AP, separate and distinct from AP's other
business units, including, but not limited to,
such operations currently known as Sports Image,
Action Racing Collectibles and Image Works;
WHEREAS, Fan Fueler maintains its own methods
of product distribution maintained by each of AP's
other business units;
NOW, THEREFORE, in consideration of the
mutual promises contained herein, Innovo and AP
agree as follows:
1. Exclusive Distributorship/Manufacturing
Rights. AP hereby appoints Innovo as exclusive
manufacturer and as a non-exclusive distributor
along with AP's own Fan Fueler division, or any
successor thereof, and its method of distribution;
and AP hereby grants to Innovo an exclusive right
to manufacture and a right to distribute certain
Products (as defined in Section 3, below) within
the Territory (as defined below).
In consideration for the rights granted to
Innovo by AP, Innovo shall not distribute, or
manufacture for distribution, within the
Territory, any products which are the same as, or
substantially similar to, Products and which bear
any trademark, copyright or other mark or any
driver, team, team sponsor or sanctioning body
involved in Motorsports. For purposes of this
Agreement, Motorsports shall mean any
international or domestic professional motorsports
association including, but not limited to, NASCAR,
NHRA, IRL, CART, Formula One, World of Outlaws,
AMA, IHRA, Slim Jim, ARCA, Goody's Dash Series and
USAC.
2. Sale. Innovo hereby agrees, as the
exclusive manufacturer and as a distributor of
Products, to manufacture, sell and distribute
Products to retailers, during the term of this
Agreement, in accordance with the provisions of
this Agreement, in the quantities set forth in
purchase orders submitted to Innovo, at the
prices, subject to the provision of Section 9,
Possible Price Modifications, specified in Exhibit
A, attached hereto (hereinafter referred to as a
Retail Sale); Innovo shall also be the exclusive
manufacturer for sales to AP, competitively priced
with the market, of the Products referred to
herein, during the term of this Agreement, in
accordance with the provisions of this Agreement,
in quantities set forth in purchase orders
submitted to Innovo at the prices also specified
in Exhibit B (hereinafter referred to as a Sale
to AP). All division of AP will purchase the
various Products at the price contained in Exhibit
B, except for AP's Fan Fueler division, or any
successor thereof, which will pay the prices
listed as the "Selling Price in Exhibit A.
3. Products. As used in this Agreement, the
term Products shall include the products,
bearing motorsports related trademarks and
copyrights under the control of AP, manufactured
and/or sold by Innovo in the following categories:
Cush-n-Carry
Cooler
Lunch Pack
Waist Pack
Tote Bag
Back Pack
Products, as defined by this section shall, from
time to time, be subject to the deletion of the
product categories listed above and the addition
of other product categories, as the parties many
agree, in writing, during the term of this
Agreement.
4. Territory. Innovo shall have the right to
distribute Products throughout the United States
and, to the extent allowed by reference to
individual license agreements through which AP
controls the trademarks and copyrights, additional
countries throughout the European Union
Territory. Innovo shall not distribute, or
manufacture for distribution, Products outside the
Territory.
5. Method and Place of Delivery. With regard
to retail Sales, Innovo, as manufacturer/distributor, shall be
responsible
for negotiating terms for delivery and the payment
thereof with each retailer. In a Sale to AP, AP
shall be responsible for all shipping and delivery
charges.
6. Allocation of Risk. All risks arising
under this Agreement with respect to any casualty
to the goods in a Sale to AP as defined herein are
to be borne by the titleholder of the goods. Once
title passes, as defined by the terms of each
sale, risk passes therewith. Allocation of risk in
a Retail Sale made by Innovo shall be negotiated
between Innovo and the retailer as described in
paragraph 4 above.
7. Right of Inspection. For each driver, AP
shall have the right to inspect each new Product,
including new designs of existing product (New
Product), and any and all artwork including, but
not limited to advertisements, packaging and
promotion materials (Artwork) pertaining to said
New Product. Within ten (10) days of receipt, AP
shall approve or disapprove of said New Product
and Artwork. Grounds for disapproval include, but
are not limited to, failure of any New Product to
meet AP's production specification requirements or
failure of any Artwork to meet the stated artistic
requirements of AP. AP shall specify in detail the
basis of any disapproval. In the event that AP
disapproves of any New Product or Artwork, Innovo
shall promptly work to modify such submittal to
conform to the requirements of AP and shall
resubmit such New Product or Artwork for review
and approval of AP. Innovo shall not manufacture,
distribute, market, sell or use New Product or
Artwork prior to approval by AP. AP shall not
unreasonably withhold approval of New Product or
Artwork. Unreasonable delay in approval or
disapproval of New Product or Artwork by AP shall
constitute approval of the New Product submission
provided Innovo gives AP ten (10) days written
notice of its intent to deem delay as constituting
an approval.
Notwithstanding the preceding paragraph,
Innovo acknowledges that, in accordance with the
terms and conditions of their license agreements,
AP is obligated to provide samples, in certain
cases pre-production samples as well as production
samples (Samples), of any and all New Product
and Artwork to the impacted licensors (Impacted
Licensors) for their review and approval. AP
shall be allowed a reasonable period of time, as
determined by reference to the individual
agreements with Impacted Licensors, to obtain the
requisite approval of Impacted Licensors, in
addition to the ten (10) days provided for in the
preceding paragraph for AP to review and approve
said New Product and Artwork on its own behalf.
Innovo shall provide, at no additional cost to AP,
two (2) Samples of any and all New Product and
Artwork in addition to the number of said New
Product and Artwork that AP is required to provide
to the Impacted Licensors.
If through best efforts AP fails to obtain
approval of New Product or Artwork from the
Impacted Licensors, Innovo agrees to work with AP
to modify such submittal to conform to the
requirements of the Impacted Licensors. In the
even any Impacted Licensor disapproves of any New
Product or Artwork, Innovo shall not manufacture,
distribute, market, sell or use said New Product
of Artwork in any capacity whatsoever. At the
request of any Impacted Licensor, Innovo shall
destroy or turn over to AP any disapproved New
Product or Artwork. AP shall be responsible for
informing Innovo within seven (7) working days of
any and all approvals, disapprovals or other
instruction received from Impacted Licensors
relating to New Product or Artwork.
8. Terms of Payment. Within seven (7) days of
the end of each month, Innovo agrees to issue one
purchase order to AP representing all Retail Sales
and inventory increases of AP items during such
period. With regard to Retail Sales, Innovo shall
make payment, within thirty (30) days of the
issuance of a purchase order, to AP for the
Reimbursement to AP specified in Exhibit A,
attached hereto. With regard to all Sales to AP,
other than Fan Fueler or any successor thereof, AP
shall make payment, within thirty (30) days of
shipment, to Innovo at the price established in
Exhibit B attached hereto.
9. Possible Price Modification. The prices
contained in Exhibit A may be adjusted by Innovo
upon thirty (30) days notice to AP. In the event
that AP does not agree to any price adjustment,
Innovo shall cease to be the exclusive
manufacturer of said Product and AP shall be
entitled to seek any and all alternative means
necessary for the manufacture of said Product.
10. Cancellation of Purchase Orders. In the
event that Any AP purchase order is canceled, AP
hereby agrees to purchase the Product manufactured
by Innovo at the prevailing price at which Innovo
is selling the Product to AP at the time of
cancellation (a Sale to AP). Innovo agrees to
use all efforts to minimize costs to AP in the
event of a canceled AP Sale.
11. Duration of Contract. Except in the case
of Termination of this Agreement as defined in
16, this Agreement shall continue in effect for a
period of three (3) years from the date of the
execution of this Agreement (Initial Term). If
Innovo is not then in default under this Agreement
at the end of the Initial Term, Innovo shall have
the right of first refusal to negotiate for the
extension of the Agreement, on a year-to-year
basis (Extension). Upon Innovo's exercise of its
right(s) of first refusal, the parties hereto
shall use their best efforts to negotiate in good
faith any modification or amendments that may be
reasonably necessary to continue the parties'
rights and obligations under the Agreement. In the
event that Innovo desires to exercise its right(s)
of first refusal, it shall do so by providing
written notice to AP at any time prior to sixty
(60) days before the expiration of the Initial
Term or Extension, as the case may be. If Innovo
is in default under the terms of the Agreement at
the end of any Extension, Innovo shall forfeit its
rights of first refusal for future Extensions and
any Extensions agreed to for future years shall be
null and void.
12. Marketing. Innovo is authorized to enter into
agreements with retailers relating to the Products
identified in this Agreement. Innovo will use its
best efforts to sell Products to retailers.
13. Product Warranty Policies.
a. Innovo's Products are sold to retailers
and AP at prices that contemplate that such
Products are free from defects in manufacture and
workmanship at the time of sale. In the event that
any Product is defective at the time of sale,
neither AP nor any retailer shall be under any
obligation to purchase said Product unless Innovo,
at Innovo's cost, cures any and all defects. With
regard to sales to AP, Innovo and AP shall work
together, in good faith, to determine whether any
Product is defective. With regard to Retail Sales,
Innovo and the retailer shall work together, in
good faith to determine whether any product is
defective. To the extent any Product does not meet
AP's production specification requirements or
stated artistic requirements, upon proof to
Innovo's satisfaction of the defect, that Product
shall be deemed defective.
b. For any and all defective Product
claims or demands made against AP, Innovo agrees
to protect AP and hold AP harmless from any loss
or claim arising out of inherent defects in any of
Innovo's Product existing at the time such Product
is sold by Innovo or any retailer. AP and Innovo
shall give each other immediate notice of any such
loss or claim and cooperate fully with each other
in the handling thereof. AP agrees to protect
Innovo and hold Innovo harmless for any loss or
claim arising out of negligence of AP or AP's
agents.
14. Tooling. All tools or molds created by
Innovo exclusively to produce the Products
referenced herein for AP will be detailed in AP's
purchase orders and the cost of said tools/molds
will be billed to AP. Once purchased by AP, AP
will own the tools and molds, but allow Innovo to
use the tools and molds in the manufacture and
production of the Product. Other tools or molds
may follow and may be specifically added by
agreement of the parties to this Agreement by way
of addendum from time to time. Tools or molds used
by Innovo in the production of AP's Products which
are not used exclusively for AP's Products will
not be billed to AP and will not become the
possession of AP. For any and all tools built
exclusively for and billed to AP, Innovo shall at
no later time use said tools on a non-exclusive
basis without prior permission from AP.
15. Order Processing and Shipment Policies.
Innovo shall use best efforts to meet its delivery
commitments with regard to Retail Sales and shall
at all times conduct its business in a manner
which enhances the reputation of AP and Fan Fueler
in the marketplace. In order to meet these
commitments, Innovo shall build and maintain
within the United States, inventory in amounts
reasonably expected to meet the needs of its
customers, including AP (hereinafter Inventory on
Hand). Innovo will employ its best efforts to
fill AP's orders promptly on acceptance, but
reserves the right to allow Inventory on Hand as
it deems best. However, to the extent that AP's
orders of Product identified in 3 of this
Agreement cannot be fulfilled with Inventory on
Hand, Innovo commits to manufacturing or, upon
written approval of AP, effecting the
manufacturing of said product in quantities
sufficient to fulfill AP's orders prior to
producing additional amounts of the same Product
or Products for purposes of Retail Sales. Innovo
warrants that it shall use best efforts to fulfill
AP's orders within (I) four weeks to the extent
that sufficient quantities of Inventory on Hand
exist to fulfill said orders, or (ii) seventy-five
days to the extent that fulfillment of said orders
specially require overseas production of Products.
Notwithstanding the preceding sentence, Innovo
shall not be liable for failure to ship Innovo's
Products specified in the accepted order because
of strikes, differences with workers, inability to
secure transportation facilities or other
circumstances beyond its control. AP shall not be
liable for failure to accept shipments of Products
ordered from Innovo when such failure is due to
strikes, or any other cause beyond AP's control,
provided Innovo receives notice in writing to
suspend such shipments prior to delivery to
carrier.
16. Termination. The following provisions
shall govern the termination of this Agreement:
a. The parties may terminate this
Agreement by mutual written agreement.
b. If Innovo becomes unable to pay its
debts as they become due, or if Innovo files or
has filed against it a petition in bankruptcy,
reorganization or for the adoption of an
arrangement under any present or future
bankruptcy, reorganization or similar law (which
petition, if filed against Innovo, is not
dismissed within 30 days after the filing date),
or if a receiver, trustee, liquidator or
sequestrator of all or substantially all of
Innovo's property is Appointed, or if Innovo
discontinues its business, this Agreement
automatically shall terminate forthwith upon
written notice to Innovo.
c. If Innovo or AP fail to meet the terms
of payment outlined in Section 8 and continue to fail to
render such payment then due during the 20
business days immediately following written notice
of such default, Innovo or AP, as the case may be,
may terminate this Agreement upon final written
notice to the other party.
d. If Innovo's business is sold or
transferred by operation of law or otherwise, and
if there is a substantial change in Innovo's
management, AP in its sole and absolute
discretion, shall have the right, upon written
notice to Innovo, to convert this Agreement to a
non-exclusive manufacturing and distribution
agreement having a yearly term cancelable by AP
upon written notice given at least 30 days prior
to the end of each calendar year.
e. If (A) Innovo (I) manufactures, offers
to sell, sells, distributes or otherwise disposes
of articles in any way utilizing any of the
Products which are not Approved as provided
herein; (ii) registers or attempts to register any
claim to copyright, trademark, service mark,
design patent or any other right in or to any
element of the Products; (iii) fails to obtain or
maintain insurance coverage as required hereunder;
or (iv) materially breaches the terms and
conditions of this Agreement in any manner, and
(B) Innovo fails to cure any such condition within
30 days written notice of the occurrence thereof
from AP, AP may terminate this Agreement upon
written notice to Innovo.
f. Upon termination of this Agreement, AP
shall purchase from Innovo all new, current,
unused and saleable Product, exclusive of parts,
on hand or in transit that may have been delivered
to AP under this Agreement which are represented
on a current or forthcoming purchase order. The
price to be paid by AP shall be controlled by the
prevailing price in a Sale to AP at the time of
termination, plus transportation costs previously
paid or incurred by Innovo, and less any cash or
other discounts that may have been allowed or paid
by AP. Innovo may dispose of any other remaining
Product through its retail distribution channels.
g. Innovo shall not accept any purchase
orders for the sale of any Products covered by
this Agreement after the termination or expiration
of the distributorship created by this Agreement,
unless Products have previously been manufactured.
However, purchase orders received prior to
termination of this Agreement may be fulfilled
after said termination and shall be governed in
the same manner as are ordinary purchase orders
placed with Innovo pursuant to this Agreement.
17. Notice of Changes or Cancellations. AP
agrees to notify Innovo of any driver changes,
cancellations or any other changes which may have
any affect on Innovo's production, sales,
marketing or distribution of any of the products
which are or shall be the subject of this
Agreement. Said notice shall be given to Innovo no
later than sixty (60) days prior to the close of
each calendar year.
18. Insurance. Innovo and AP, each at its sole
cost, will obtain and maintain throughout the
Initial Term and extensions, and will provide the
Other Party (hereinafter defined) written evidence
from the insurance carrier of commercial general
liability insurance including broad form coverage
for contractual liability, products liability and
personal injury (including bodily injury and
death), and advertiser's liability insurance, each
from a legally qualified insurance company
reasonably acceptable to the Other Party; (1) in
an amount, with respect to the Products Liability
Insurance, not less than $2,000,000 combined
single limited for each single occurrence and with
a deductible no greater than $10,000; (2) in an
amount, with respect to the other general
liability insurance, no less than
$1,000,000/$3,000,000 with a deductible no greater
than $10,000; (3) naming the Other Party (and its
designees from time to time) as an additional
insured and requesting that each such insurance
company shall waive any rights of subrogation
against the Other Party (and its designees from
time to time); (4) non-cancelable except on 30
days prior written notice to the Other Party and
only if replaced so that there is no lapse in
coverage as required herein; (5) providing that
such insurance shall be primary insurance
notwithstanding the existence or coverage of any
other policy of insurance maintained by the Other
Party or by any other insured or third party; (6)
as proof of such insurance, fully paid
certificates of insurance shall be submitted to
the Other Party for their prior written approval
before any product is distributed or sold, not
later than thirty (30) days after the date of this
Agreement. Each such certificate shall provide for
no less than thirty (30) days prior written notice
to the Other Party of any lapse, cancellation or
termination of such insurance, and any proposed
change in any certificate of insurance shall be
submitted to the Other Party for its prior written
approval. For purposes of this section, the term
"Other Party shall, in the case of Innovo, mean
AP and, in the case of AP, mean Innovo.
19. Entire Agreement. This Agreement
constitutes the entire agreement between the
parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous
agreements, representations and understandings of
the parties. No supplement, modification or
amendment of this Agreement shall be binding
unless executed in writing by all the parties to
this Agreement. No waiver of any of the provisions
of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party
making the waiver.
20. Notices. All notices and other
communications hereunder shall be in writing and
shall be delivered personally or shall be sent by
registered mail, certified mail, or express mail
service, postage prepaid and return receipt
requested, or by nationally utilized over night
delivery service, addressed to the parties as
follows:
As to Innovo: Innovo, Inc.
1808 N. Cherry St.
Knoxville, TN 37917
As to AP: Action Performance
Companies, Inc.
Attn: Paul Oursler
4707 E. Baseline Road
Phoenix, AZ 85040
21. Severability and Operation of Law If any
provision of this Agreement is prohibited by the
laws of any jurisdiction as those laws Apply to
this Agreement, that provision is ineffective to
the extent of such prohibition and/or is modified
to conform with such laws, without invalidating
the remaining provisions hereto. Any such
prohibition in any jurisdiction shall not
invalidate such provision in any other
jurisdiction.
22. Attorney Fees. If any legal action or
other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the
successful or prevailing party or parties shall be
entitled to recover reasonable attorney fees and
other costs incurred in that AP or proceeding, in
addition to any other relief to which it may be
entitled.
23. Indemnification.
a. Indemnification of AP: Innovo shall
indemnify and hold harmless AP and any of its
affiliates, shareholders, agents, employees or
directors and Innovo hereby indemnifies and holds
harmless AP from and against all damages, claims,
losses, expenses, costs, obligations and
liabilities, including, without limitation,
liabilities for attorney's fees (hereinafter
collectively referred to as Loss and Expense)
suffered or incurred by AP directly or indirectly
as a result of (I) subject to the exception noted
in subparagraph (b)(ii), any injury to or death or
any person or persons directly or indirectly
arising out of or resulting from any goods or
services manufactured, finished, distributed, sold
or offered by Innovo, its employees, agents or
representatives (ii) any damage to or loss of any
property directly or indirectly arising out of or
resulting from any goods or services manufactured,
finished, distributed, sold or offered by Innovo,
its employees, agents or representatives (iii) any
injury or loss to AP resulting from violation of
any of its license agreement directly or
indirectly arising out of or resulting from any
goods or services manufactured, finished,
distributed, sold or offered by Innovo, its
employees, agents or representatives, which are
not approved by AP pursuant to Section 7 of this
Agreement.
b. Indemnification of Innovo: AP shall
indemnify and hold harmless Innovo and any of its
affiliates, partners, shareholders, agents,
employees or directors and AP hereby indemnifies
and holds harmless Innovo from and against any
Loss and Expense suffered or incurred by Innovo
directly or indirectly as a result of any person
making a claim for (I) any injury or damage
arising out of false advertising, trademark or
copyright infringement arising out of Innovo's
manufacture, distribution, marketing, sale or use
of any product and any and all related Artwork so
long as said products and Artwork are approved by
AP in the manner set forth in Section 7 of this Agreement
(ii) any physical injury or death of any officer,
agent or employee of AP, arising out of or in
connection with products to be provided under this
Agreement so long as said injury or death relates
to the products to which title has passed to AP,
or (iii) any injury or damage arising out of
Innovo's use of any tool or mold owned and
provided to Innovo by AP which results from defect
of said tool or mold.
24. Governing Law, Consent to Jurisdiction,
Venue. The parties agree that this Agreement is
made under and governed by the laws of Arizona.
The parties agree and consent to the jurisdiction
of any state or federal court in the State of
Arizona over its person in connection with any AP
or proceeding brought by either party. The parties
also agree that venue for any such AP or
proceeding brought by either party shall be proper
in Maricopa County, Arizona. Such consent to
jurisdiction and acknowledgment of venue shall be
in addition to any other jurisdiction or venue
available at law.
25. Alterations. Unless otherwise state in
this Agreement, this Agreement shall not be
terminated, amended or altered except by written
documentation signed by all parties hereto.
26. Assignability. Upon written agreement of
the parties, this Agreement may be assigned by any
of the undersigned parties. Notwithstanding the
preceding sentence, either party may, upon written
notice to the other party, assign its rights and
obligations hereunder, subject to the same terms
and conditions, to any wholly owned subsidiary of
the party. Notwithstanding the preceding sentence,
AP may assign its rights or obligations hereunder
to any subsidiary owned one hundred percent (100%)
by AP.
27. Counterparts. This Agreement may be
executed in any number of counterparts and such
counterparts, after execution by all parties
hereto shall be treated for all purposes as one
instrument.
28. Authority to Bind. Each person executing
this Agreement hereby warrants that the person has
full and legal authority to execute this agreement
for and on behalf of the respective corporation
and to bind such corporations.
29. Press Releases. The content of all press
releases and other communications relating to this
Agreement shall be subject to the mutual agreement
of AP and INNOVO, and the existence of this
Agreement and the provisions hereof shall not be
disclosed to any person except upon the mutual
agreement of AP and INNOVO; provided, however, the
existence of this Agreement and the provisions
hereof and any other information relating to this
Agreement may be disclosed by AP or INNOVO without
the agreement of the other party (but AP or
INNOVO, as the case may be, shall consult with the
other party regarding the contents of such
disclosure) to the extent determined by AP or
INNOVO to be required by applicable securities
laws or the rules, regulations and interpretations
of the Securities and Exchange Commission or
NASDAQ. From and after the date of this Agreement,
copies of all disclosures made by AP of INNOVO, as
the case may be, with respect to the existence of
this Agreement and the provisions hereof shall be
furnished to the other party at the time of the
disclosure or, if impracticable, promptly
thereafter.
IN WITNESS WHEREOF, the parties hereto have
set their hands and seals on the same day first
written above.
IN THE PRESENCE OF: INNOVO GROUP,
INC.
_____________________________
By:_____________________________
_____________________________
Its:____________________________
ACTION PERFORMANCE COMPANIES,
INC.
_____________________________
By:______________________________
_____________________________
Its:_____________________________
EXHIBIT 10.54
DATE THIS AGREEMENT, made the 6th day of October, 1998
by and between Innovo Group, Inc.
MAILING ADDRESS
Attn: Mr. Butch Smith, CEO
27 North Main Street
Springfield, TN 37172
Telephone (561) 833-1661
(hereinafter called OWNER) and FURROW AUCTION
COMPANY, 1022 Elm Street, Knoxville, Tennessee 37921, (423)
546-3206 (hereinafter called AUCTIONEER) witnesseth that it is
agreed by and between the parties as follows;
OWNER does hereby irrevocably commission AUCTIONEER to
sell to the highest bidder(s) the following described property at
Absolute Auction, without minimum or reservation, to wit:
PROPERTIES
Property located at 2425 North Dixie Highway, Lake Worth, Palm
Beach County, FL
LOCATION
said property located at above location
said sale to be held at above location
DATE
and to be sold on or about the 12th day of November, 1998
WARRANTY OF TITLE
OWNER warrants to AUCTIONEER that he is the OWNER of
the above described property, or that he is authorized by the
OWNER thereof to execute this agreement, and further warrants
that he has full authority and right to transfer said property free
and clear of all liens and encumbrances including, without
limitation,unrecorded liens, tax liens, mechanic's and
materialman's liens, and claims of creditor under any BULK
SALES LAW, except Utility and Roadway rights-of-way, zoning by
governmental bodies, and current year property taxes, which will
be prorated as of closing, and mortgages as shown on title
commitment will so transfer said property to the purchaser
thereof when same is sold by AUCTIONEER.
Signing of this Agreement authorizes AUCTIONEER to obtain a
title search/commitment and provide a title commitment at
OWNER'S expense.
OWNER further agrees to indemnify and defend AUCTIONEER
against, and hold AUCTIONEER harmless from, any and all loss
and liability which AUCTIONEER may sustain or incur as a result
of a breach of the foregoing warranty, or a failure by OWNER to
transfer said property free and clear of liens and claims.
AUCTIONEER shall have the right, after receiving his
compensation and expenses as provided herein, to use the
residue of funds to first pay any bona fide liens necessary to give
clear title to property sold.
OWNER further agrees to indemnify and defend AUCTIONEER
against, and hold AUCTIONEER harmless from, any and all loss
and liability which AUCTIONEER may sustain or incur as a result
of any misrepresentations and/or warranties made by OWNER to
AUCTIONEER.
HAZARDOUS WASTE WARRANTY
OWNER warrants to AUCTIONEER and any purchaser that
neither he (it), nor, to his (its) knowledge any predecessor in
title to
the property, disposed of or discharged on the property any
hazardous waste or substance, as defined by any federal or state
law. Further, the OWNER warrants that there are not now located
or stored on the property any hazardous wastes or substances,
except, Owner will advise
(description of hazardous waste or substance), which OWNER
warrants will be removed in accordance with law prior to the sale.
OWNER authorizes AUCTIONEER to disclose to any potential
purchaser of the property the fact of the location and storage of
the material on the property, and further agrees to indemnify and
defend AUCTIONEER against, and hold AUCTIONEER harmless
from, any and all loss and liability which AUCTIONEER may
sustain or incur as a result of a breach of the foregoing
warranties.
PREPARATION FOR SALE
OWNER agrees to prepare the property for sale to include all
painting, reconditioning, mowing, and repairing at OWNER'S
expense.
SURVEY
OWNER agrees to furnish a current survey of said property at
OWNER'S expense. OWNER shall be responsible for the costs of
any soil mapping, health department evaluation, and related work,
i.e., perk tests, etc.; stakes (large stakes at $2.75/stake; small
stakes at $2.25/stake); parcel signs at $7.50 each.
TITLES
OWNER agrees to furnish deeds of title for all properties sold in
this sale.
MARKETING
OWNER agrees to pay the cost of advertising and promotion of
this sale in the amount of $24,405.01 (PER ATTACHED SCHEDULE "A")
and, OWNER
agrees to pay all other expenses as shown on Schedule "A",
which shall be billed at AUCTIONEER'S cost which shall be
substantiated by paid receipts. AUCTIONEER agrees to promote
the attendance of the best buyers for this sale.
SALE LOCATION
OWNER agrees to furnish a location on which the auction sale
can be conducted at OWNER'S expense. Toilet facilities and
refreshments are available upon OWNER'S request and at
OWNER'S expense. Tent and chairs will be furnished at
OWNER'S expense to include cost of erection, dismantling, and
staging not to exceed $ at cost per tent to be paid in full
at
closing of the property.
PAYMENT OF AUCTIONEER'S FEE AND EXPENSES
OWNER hereby grants to the AUCTIONEER a first position
security interest in all proceeds of any sale conducted by the
AUCTIONEER to secure the payment of all expenses incurred by
the AUCTIONEER pursuant to this agreement, and to secure the
payment of all commissions earned by the AUCTIONEER under
this agreement. In the event proceeds do not exceed
commissions and expenses, OWNER agrees to reimburse
AUCTIONEER in full.
OWNER agrees to reimburse AUCTIONEER for sale day staff in
the amount of $ @ cost to be paid in full at closing of the
property.
COMMISSIONS
For and in consideration of AUCTIONEER'S service in selling
said property, OWNER agrees to pay to AUCTIONEER'S the
following commissions, to wit: 10(see special conditions) % on
the TOTAL GROSS SALES PRICE of all property sold during the
period covered by this contract to be paid in full at the closing of
the property. This constitutes an exclusive contract to sell and
receive commission on the listed property from date until sold.
CONTINUING AGENCY TO SELL
In the event the auction sale is not confirmed by OWNER, or for
any reason the sale is not closed, AUCTIONEER shall be granted an
exclusive
90-day listing in which to continue to offer the property for sale
under the
same terms and conditions as herein described at mutually agreeable
prices.
BREACH OF AGREEMENT
This contract is irrevocable and OWNER cannot remove any
item from said sale without the express consent of AUCTIONEER.
In the event such consent be given, OWNER agrees to pay to
AUCTIONEER 10 % of the fair market value of the items
withdrawn, as liquidated damages, and agrees that said sum is a
fair amount to be paid to AUCTIONEER for the breach of this
agreement by OWNER. It is further agreed that AUCTIONEER
may institute suit to enforce the performance of such damages
heretofore set out, together with reasonable attorney's fees. The
intent of this paragraph is to make AUCTIONEER the
EXCLUSIVE AGENT for the OWNER, and all transactions
regarding these properties prior to the said sale will be conducted
by and through AUCTIONEER.
OWNER further agrees that should AUCTIONEER'S consent be
given that OWNER will provide AUCTIONEER a letter stating that
OWNER will indemnify and hold AUCTIONEER harmless from
any and all claims arising out of the removal of these items from
said sale.
CANCELLATION
In the event the auction is canceled for any reason ohter than sale
of
property to third parties, OWNER shall reimburse AUCTIONEER for all
expenses
as outlined, in addition to all out-of-pocket personnel expenses
associated
with this auction. OWNER shall also pay AUCTIONEER a cancellation
fee of
$ to be determined .OWNER further agrees to indemnify
AUCTIONEER against any and all claims which may arise due to
cancellation.
CLOSING AND SETTLEMENT
All checks shall be drawn payable to Furrow Auction Company,
Escrow Account who shall collect all checks and accounts.
Settlement shall be made within twenty (20) days after sale with
respect to all checks and other items collected at that time. Final
settlement shall not be made until all outstanding checks and
other items have been finally settled.
Closing to be conducted by title company and Buyer to incur
one-half of title company's closing fee. AUCTIONEER'S
fees,expenses, and commissions shall be paid in full at closing.
In the event the property does not sell and/or does not close,
all
aforementioned fees shall be paid in full to AUCTIONEER within
twenty (20) days of said sale.
RISK OF LOSS
AUCTIONEER agrees to exercise due care in the protection of
said property while same is under the provisions of this contract.
The risk of fire, damage, and other loss prior to the delivery to
the
purchaser thereof shall be with OWNER and OWNER agrees to
obtain insurance or self-insure therefor, and to hold
AUCTIONEER harmless for any such loss.
SPECIAL CONDITIONS
RE: Commission: Auctioneer shall pay listing co-broker a
3% commission from the sale of these assets by auction.
OWNER'S ACCEPTANCE
If fewer than all OWNERS of the Premises have executed this
Agreement, those OWNERs whose signatures appear below
warrant full authority to act for any other OWNERS, accept
personal responsibility and obligate themselves to pay all sale or
lease commissions due AUCTIONEER. This Agreement shall be
binding upon and inure to the benefit of AUCTIONEER and
OWNER and their respective heirs, successors, assigns,
executors and/or administrators. This Agreement applies to all or
any parts of the Premises.
If not executed, the terms and conditions of this contract are
void
after thirty (30) days.
SIGNATURES
IN TESTIMONY WHEREOF the parties hereto have caused this
instrument to be executed on the day and year first above written.
OWNER:
FURROW AUCTION COMPANY
____________________________
1022 Elm Street
Knoxville, Tennessee 37921
(423) 546-3206
by________________________________
Title_____________________________
by______________________________
by_______________________________
Title_____________________________
Title_______________________________
EXHIBIT 10.55
DATE THIS AGREEMENT, made the 6th day of October, 1998
by and between Innovo Group, Inc.
MAILING ADDRESS Attn: Mr. Butch Smith, CEO
27 North Main Street
Springfield, TN 37172
Telephone (561) 833-1661
(hereinafter called OWNER) and FURROW AUCTION COMPANY, 1022 Elm
Street, Knoxville, Tennessee 37921, (423) 546-3206 (hereinafter
called
AUCTIONEER) witnesseth that it is agreed by and between the parties
as
follows;
OWNER does hereby irrevocably commission AUCTIONEER to sell to
the
highest bidder(s) the following described property at Absolute
Auction, without
minimum or reservation, to wit:
PROPERTIES
Property located in J. Dixie Harn Industrial Park, Pembroke, Bryan
County, GA
LOCATION
said property located at above location
said sale to be held at above location
DATE
and to be sold on or about the 11th day of November, 1998
WARRANTY OF TITLE
OWNER warrants to AUCTIONEER that he is the OWNER of the above
described property, or that he is authorized by the OWNER thereof to
execute
this agreement, and further warrants that he has full authority and
right to
transfer said property free and clear of all liens and encumbrances
including,
without limitation,unrecorded liens, tax liens, mechanic's and
materialman's
liens, and claims of creditor under any BULK SALES LAW, except
Utility and
Roadway rights-of-way, zoning by governmental bodies, and current
year property
taxes, which will be prorated as of closing, and mortgages as shown
on title
commitment will so transfer said property to the purchaser thereof
when same
is sold by AUCTIONEER.
Signing of this Agreement authorizes AUCTIONEER to obtain a title
search/commitment and provide a title commitment at OWNER'S expense.
OWNER further agrees to indemnify and defend AUCTIONEER against,
and
hold AUCTIONEER harmless from, any and all loss and liability which
AUCTIONEER may sustain or incur as a result of a breach of the
foregoing
warranty, or a failure by OWNER to transfer said property free and
clear of
liens and claims. AUCTIONEER shall have the right, after receiving
his
compensation and expenses as provided herein, to use the residue of
funds to
first pay any bona fide liens necessary to give clear title to
property sold.
OWNER further agrees to indemnify and defend AUCTIONEER against,
and
hold AUCTIONEER harmless from, any and all loss and liability which
AUCTIONEER may sustain or incur as a result of any
misrepresentations and/or
warranties made by OWNER to AUCTIONEER.
HAZARDOUS WASTE WARRANTY
OWNER warrants to AUCTIONEER and any purchaser that neither he
(it), nor,
to his (its) knowledge any predecessor in title to the property,
disposed of or
discharged on the property any hazardous waste or substance, as
defined by
any federal or state law. Further, the OWNER warrants that there are
not now
located or stored on the property any hazardous wastes or
substances, except,
Owner will advise (description of hazardous waste or substance),
which OWNER
warrants will be removed in accordance with law prior to the sale.
OWNER authorizes AUCTIONEER to disclose to any potential
purchaser of
the property the fact of the location and storage of the material on
the
property, and further agrees to indemnify and defend AUCTIONEER
against, and
hold AUCTIONEER harmless from, any and all loss and liability which
AUCTIONEER
may sustain or incur as a result of a breach of the foregoing
warranties.
PREPARATION FOR SALE
OWNER agrees to prepare the property for sale to include all
painting,
reconditioning, mowing, and repairing at OWNER'S expense.
SURVEY
OWNER agrees to furnish a current survey of said property at
OWNER'S
expense. OWNER shall be responsible for the costs of any soil
mapping, health
department evaluation, and related work, i.e., perk tests, etc.;
stakes (large
stakes at $2.75/stake; small stakes at $2.25/stake); parcel signs
at $7.50 each.
TITLES
OWNER agrees to furnish deeds of title for all properties sold
in this sale.
MARKETING
OWNER agrees to pay the cost of advertising and promotion of this
sale in
the amount of $9,078.63 (PER ATTACHED SCHEDULE "A") and, OWNER
agrees to pay
all other expenses as shown on Schedule "A", which shall be billed
at
AUCTIONEER'S cost which shall be substantiated by paid receipts.
AUCTIONEER agrees to promote the attendance of the best buyers for
this sale.
SALE LOCATION
OWNER agrees to furnish a location on which the auction sale can
be
conducted at OWNER'S expense. Toilet facilities and refreshments are
available
upon OWNER'S request and at OWNER'S expense. Tent and chairs will be
furnished at OWNER'S expense to include cost of erection,
dismantling, and
staging not to exceed $ at cost per tent to be paid in full
at closing
of the property.
PAYMENT OF AUCTIONEER'S FEE AND EXPENSES
OWNER hereby grants to the AUCTIONEER a first position security
interest in
all proceeds of any sale conducted by the AUCTIONEER to secure the
payment
of all expenses incurred by the AUCTIONEER pursuant to this
agreement, and
to secure the payment of all commissions earned by the AUCTIONEER
under
this agreement. In the event proceeds do not exceed commissions and
expenses, OWNER agrees to reimburse AUCTIONEER in full.
OWNER agrees to reimburse AUCTIONEER for sale day staff in the
amount
of $ @ cost to be paid in full at closing of the property.
COMMISSIONS
For and in consideration of AUCTIONEER'S service in selling said
property,
OWNER agrees to pay to AUCTIONEER'S the following commissions, to
wit:
6% Buyer's Premium to be paid by Buyer (see special conditions) on
the TOTAL
GROSS SALES PRICE of all property sold during the period covered by
this
contract to be paid in full at the closing of the property. This
constitutes an
exclusive contract to sell and receive commission on the listed
property from
date until sold.
CONTINUING AGENCY TO SELL
In the event the auction sale is not confirmed by OWNER, or for
any reason
the sale is not closed, AUCTIONEER shall be granted an exclusive 90-
day listing
in which to continue to offer the property for sale under the same
terms and
conditions as herein described at mutually agreeable prices.
BREACH OF AGREEMENT
This contract is irrevocable and OWNER cannot remove any item
from said
sale without the express consent of AUCTIONEER. In the event such
consent
be given, OWNER agrees to pay to AUCTIONEER 10 % of the fair market
value of the items withdrawn, as liquidated damages, and agrees that
said sum
is a fair amount to be paid to AUCTIONEER for the breach of this
agreement by
OWNER. It is further agreed that AUCTIONEER may institute suit to
enforce the
performance of such damages heretofore set out, together with
reasonable
attorney's fees. The intent of this paragraph is to make AUCTIONEER
the
EXCLUSIVE AGENT for the OWNER, and all transactions regarding these
properties prior to the said sale will be conducted by and through
AUCTIONEER.
OWNER further agrees that should AUCTIONEER'S consent be given
that
OWNER will provide AUCTIONEER a letter stating that OWNER will
indemnify
and hold AUCTIONEER harmless from any and all claims arising out of
the
removal of these items from said sale.
CANCELLATION
In the event the auction is canceled for any reason other than
sale of
property to third parties, OWNER shall reimburse AUCTIONEER for all
expenses as
outlined, in addition to all out-of-pocket personnel expenses
associated with
this
auction. OWNER shall also pay AUCTIONEER a cancellation fee of $ to
be
determined. OWNER further agrees to indemnify AUCTIONEER against
any
and all claims which may arise due to cancellation.
CLOSING AND SETTLEMENT
All checks shall be drawn payable to Furrow Auction Company,
Escrow
Account who shall collect all checks and accounts. Settlement shall
be made
within twenty (20) days after sale with respect to all checks and
other items
collected at that time. Final settlement shall not be made until all
outstanding checks and other items have been finally settled.
Closing to be conducted by title company and Buyer to incur one-
half of
title company's closing fee. AUCTIONEER'S fees,expenses, and
commissions shall
be paid in full at closing.
In the event the property does not sell and/or does not close,
all
aforementioned fees shall be paid in full to AUCTIONEER within
twenty (20)
days of said sale.
RISK OF LOSS
AUCTIONEER agrees to exercise due care in the protection of said
property
while same is under the provisions of this contract. The risk of
fire, damage,
and other loss prior to the delivery to the purchaser thereof shall
be with
OWNER and OWNER agrees to obtain insurance or self-insure therefor,
and to hold
AUCTIONEER harmless for any such loss.
SPECIAL CONDITIONS
RE: Commission: Auctioneer shall pay a 2% commission from the sale
of
these assets at auction to any qualified broker whose buyer is the
high
bidder and consummates the sale.
OWNER'S ACCEPTANCE
If fewer than all OWNERS of the Premises have executed this
Agreement,
those OWNERs whose signatures appear below warrant full authority to
act for
any other OWNERS, accept personal responsibility and obligate
themselves to
pay all sale or lease commissions due AUCTIONEER. This Agreement
shall be
binding upon and inure to the benefit of AUCTIONEER and OWNER and
their
respective heirs, successors, assigns, executors and/or
administrators. This
Agreement applies to all or any parts of the Premises.
If not executed, the terms and conditions of this contract are
void after
thirty (30) days.
SIGNATURES
IN TESTIMONY WHEREOF the parties hereto have caused this
instrument to
be executed on the day and year first above written.
OWNER:
FURROW AUCTION COMPANY
______________________
1022 Elm Street
Knoxville, Tennessee 37921
(423)546-3206
by____________________
Title_______________________
by__________________________
by____________________
Title___________________
Title_______________________
EXHIBIT 10.56
Brown & Livingston, P.C.
26 North Main Street
Statesboro, GA 30458
GEORGIA, BRYAN COUNTY
WARRANTY DEED
THIS INDENTURE, made this 15th day of December, in the
year One Thousand Nine Hundred Ninety-eight, between THIMBLE
SQUARE, INC., a Georgia corporation, as party of the first
part, hereinafter called Grantor, and H.N. PROPERTIES, L.L.C.,
a Georgia limited liability company, as party of the second
part, hereinafter called Grantee (the words Grantor and
Grantee to include their respective heirs, successors and
assigns where the context requires or permits.)
WITNESSETH that: Grantor, for and in consideration of the
sum of ONE HUNDRED FORTY FIVE THOUSAND SEVEN HUNDRED FIFTY
($145,750.00) DOLLARS and other valuable consideration in hand
paid at and before the sealing and delivery of these presents,
the receipt whereof is hereby acknowledged, has granted,
bargained, sold aliened, conveyed and confirmed, and by these
presents does grant, bargain, sell, alien, convey and confirm
unto the said Grantee, all of the following described property,
to wit:
All that certain tract or parcel of land lying and being
in
the 19th G.M. District of Bryan County, and in the City of
Pembroke, containing 8.24 acres, as depicted on a plat
prepared for Thimble Square, Inc., Furrow Auction Company
(Agent),
by Eason Land Surveying, dated October 28, 1998, recorded in
Plat
Book ____, Page _____, Bryan County Records, which tract is
located
at the northeast corner of intersection of South Industrial
Blvd.
and West Industrial Blvd. and fronts westerly on South
Industrial Blvd.
Said tract is bound now or formerly as follows: North by
Property of Bryan County Industrial Authority Road a distance
of
500.97';
East by Pembroke Steel Company a distance of 717.26';
South by West Industrial Blvd. a distance of 500.00'; and West
by South
Industrial Blvd. a distance of 717.00'.
The aforesaid plat and the description thereon are by
reference incorporated herein and made a part of this
description.
THIS PROPERTY IS SOLD AS IS, AS INSPECTED" CONDITION WITH NO
WARRANTIES EITHER IMPLIED OR EXPRESS EXCEPT WARRANTY OF TITLE.
TO HAVE AND TO HOLD the said tract or parcel of land, with
all and singular the rights, members and appurtenances thereof,
to the same being, belonging, or in anywise appertaining, to
the only proper use, benefit and behoof of the said Grantee
forever in FEE SIMPLE.
AND THE SAID Grantor will warrant and forever defend the
right and title to the above described property unto the said
Grantee against the claims of all person whomsoever.
IN WITNESS WHEREOF, the Grantor has signed and sealed this
deed, the day and year above written.
THIMBLE SQUARE, INC.
BY:________________________SEAL
ATTEST:____________________SEAL
Signed, sealed and delivered
in the presence of:
____________________________Witness
____________________________Notary
EXHIBIT 10.57
WAREHOUSE LEASE AGREEMENT
THIS WAREHOUSE LEASE AGREEMENT is made and entered into this _____
day
of ________________, 1998, by and between FURROW-HOLROB DEVELOPMENT
II, LLC, a
Tennessee limited liability company (referred to as "Landlord"), and
INNOVO
GROUP, INC., a Delaware corporation (referred to as "Tenant").
W I T N E S S E T H:
1. Premises: Landlord hereby leases to Tenant, and Tenant leases
and accepts,
the Premises containing approximately 78,900 square feet of
warehouse space with
such warehouse space outlined and designated on the site plan
attached hereto as
Exhibit A which is incorporated herein by reference (such space is
referred to
collectively hereinafter as the "Leased Premises"). The Leased
Premises are part
of the approximately 300,000 square foot warehouse complex (which
includes the
warehouse space shown on the att
2. Term: The original term of this Lease shall be for a period of
five (5) year
(the "Base Term") from the Commencement Date hereinafter provided
unless sooner
terminated hereby. Said term, and Tenant's obligation to pay rent,
shall
commence on the earlier of the following days (referred to as
"Commencement
Date"): (a) the date which is thirty (30) days after Tenant has been
notified in
writing by Landlord that the Leased Premises are ready for
occupancy, or (b) the
date on which Tenant shall open the Lea
3. Minimum Rent: Tenant shall pay to the Landlord as minimum rent
an annual
amount equal to $2.00 times the total square footage of the Leased
Premises (the
"Minimum Rent"). All Minimum Rent shall be paid in advance in equal
monthly
installments on the first day of each month at the address of the
Landlord
stated herein without demand, setoff or deduction. Minimum Rent for
any partial
months shall be prorated.
4. Pro-rata Share of Real Estate Taxes, Insurance Premiums and
Maintenance
Expenses: Tenant shall remit to Landlord as additional rent its
Pro-Rata Share,
as hereinafter defined, multiplied by the Real Estate Taxes,
Insurance Premiums,
and Common Expenses incurred by the Landlord in connection with the
operation of
the Project. Tenant's "Pro-Rata Share" shall be a fraction, (i) the
numerator
of which shall be the number of square feet of the Warehouse leased
by Tenant
and (ii) the denominator of which sha
The term "Real Estate Taxes" shall mean all taxes and assessments
(special or
otherwise) levied or assessed against the Project (land, buildings
and
improvements), and other taxes arising out of the use and/or
occupancy of the
Project imposed by federal, state or local governmental authority or
any other
taxing authority having jurisdiction over the Project (including
expenses
directly incurred by Landlord in contesting the validity of, in
seeking a
reduction in, or seeking to prevent an increase in any such tax(es)
or
assessment(s)), but shall exclude franchise, capital stock, estate
or
inheritance taxes personal in nature to Landlord.
In addition to Tenant's proportionate share of Real Estate
Taxes, Tenant
shall pay any and all sales, excise, gross receipts and other taxes
(not
including, however, Landlord's income taxes) levied, imposed or
assessed by
the state in which the Project is situated or any political
subdivision
thereof or other taxing authority (be it federal, state, local or
otherwise)
upon any amounts payable hereunder.
The term "Insurance Premiums" shall mean the premiums charged
for fire and
extended coverage insurance on the Warehouse and the improvements
constructed
as part of the Leased Premises and/or installed by the Landlord in
the Leased
Premises and for rent insurance thereon, together with premiums
charged for
liability insurance on the common areas in the Project, and any
other
reasonable insurance costs related to the Project and incurred in
the normal
course of business.
The term "Common Expenses" shall mean the total cost and
expense incurred in
operating, maintaining, cleaning and repairing the Common Areas and
the
Warehouse including, without limitation, utilities, landscaping and
gardening, maintenance, repair and replacement of the parking lot,
line
painting, lighting, sanitary control, removal of snow, trash,
rubbish and
garbage, security and police service, maintenance and repair costs
of the
plumbing, electrical, sprinkler and HVAC systems in the Project and
a
reasonable sum to cover the administravtive and personnel costs
relative to the
operation of the said Common Areas.
5. Estimation of Taxes, Insurance and Maintenance Charges: Landlord
may, at
its option, estimate for each succeeding calendar year the Tenant's
Pro-Rata
Share of the expenses enumerated in Paragraph 4 hereof (the
"Tenant's
Estimated Share"), and Landlord may require the Tenant to pay, with
each
monthly installment of rent for such succeeding calendar year, one-
twelfth
(1/12) of the Tenant's Estimated Share. Within sixty (60) days
after the
expiration of such calendar year, the Landlord shall forward to the
Tenant an
itemized statement showing the Tenant's actual share of such
expenses ("Tenant's
Actual Share"). Should the Tenant's Actual Share differ from the
Tenant's
Estimated Share, then, within thirty (30) days after the date of
Landlord's
itemized statement, either Landlord shall refund to Tenant any
amount paid in
excess of the Tenant's Actual Share, or Tenant shall remit to
Landlord any
amount by which the Tenant's Estimated Share was deficient.
6. Triple Net Lease. This Lease is intended to be a "triple net"
lease in
favor of Landlord and shall be liberally construed to give effect to
such
intention. All expenses borne by Tenant for partial years at the
commencement and end of this Lease shall be appropriately prorated.
7. Tenant's Use and Operation: The Leased Premises shall be used
and
occupied by Tenant solely as an office, warehouse and light
manufacturing
facility and for no other use without Landlord's prior written
consent.
Tenant shall comply with all rules, regulations and laws of any
governmental
authority or Landlord with respect to use and occupancy of the
Leased
Premises.
8. Utilities: Tenant shall pay promptly as in when the same shall
become due
its Pro Rata Share of all water rents, electricity, gas, sewer,
heat,
sprinkling systems and all other utilities and all taxes or charges
on such
utility services which are used on or attributable to the Leased
Premises.
To the extent Landlord provides air conditioning to the Leased
Premises, the
Landlord may increase the Tenant's Pro Rata Share of the costs of
the
utilities to reflect the providing of such additional utilities
based upon
Landlord's good faith estimate of such additional costs.
9. Landlord's Duty to Repair: Landlord shall keep and maintain in
good
repair the foundation, exterior walls, HVAC and roof of the
Warehouse and the
structural portions of the Warehouse exclusive of doors, door
frames, door
checks, windows, and window frames located in exterior building
walls.
10. Tenant's Duty to Repair; Alterations: Except for the repairs to
be performed
by Landlord, Tenant shall keep and maintain in good order, condition
and repair
the Leased Premises.
11. Hazardous Substances: Tenant shall not generate, store, treat,
dispose
of, install or otherwise permit any Hazardous Substances on, in, or
under or
in any way related to the Leased Premises, or any other portion of
the
Project or cause or permit any such generation, storage, treatment,
disposal,
installation or other use with respect thereto except in accordance
with all
laws, rules and regulations. Tenant shall fully indemnify and hold
Landlord
harmless from any liability, damage, cost or expense that Landlord
might
otherwise suffer from Tenant's failure to fully comply with this
provision.
This indemnity shall survive expiration or other termination of this
Lease.
As used herein, "Hazardous Substances" means and inlcudes any
substances,
materials, elements or compounds that are listed as Hazardous
Substances on any
list adopted or maintained by any federal, state or local
governmental authority
or agency.
12. Surrender of Leased Premises: At the termination of the Base
Term or any
Option Term, if applicable, the Tenant does agree to deliver the
Leased
Premises in the same condition as received by it on the Commencement
Date
(subject to the removals hereinafter required), reasonable wear and
tear
excepted, and shall surrender all keys for the Leased Premises to
Landlord at
the place then fixed for the payment of rent and shall inform
Landlord of all
combination locks, safes and vaults, if any, in the Leased Premises.
Any items
remaining in the Leased Premises on the termination date of this
Lease shall be
deemed abandoned for all purposes and shall become the property of
the Landlord
and the latter may dispose of the same without liability of any type
or nature.
13. Property of Tenant: Tenant's property on the Leased Premises
shall be at
the sole risk and hazard of Tenant. Landlord shall not be liable or
responsible for any loss of or damage to Tenant or Tenant's
property.
14. Waiver of Subrogation: If any property owned by Tenant and
located on
the Leased Premises is damaged or destroyed by an insured peril,
Landlord
shall not have any liability to Tenant, nor to any insurer of
Tenant,
for such damage or destruction. Tenant shall require all policies
of risk
insurance carried by it on its property on the Leased Premises to
contain a
provision in and by which the insurer shall waive its rights of
subrogation
against Landlord.
15. Partial Destruction: If the Leased Premises are partially
destroyed by
fire or any other casualty (as determined by Landlord), and if two
or more
years remain on the Base Term or any Option Term, Landlord shall
restore or
repair the Leased Premises with reasonable diligence. In the event
of such
restoration or repair, Landlord shall expend such sums as required
to repair
or restore the Leased Premises to the condition it was in
immediately prior
to the date of the destruction; provided, Landlord shall not be
obligated to
expend any sums for repair or replacement of Tenant's property nor
shall
Landlord be obligated to expend sums in excess of the insurance
proceeds
received by Landlord as a result of such damage or destruction. A
just and
proportionate part of the rent payable by Tneant, tot eh extent that
such
damage or destruction renders the Leased Premises untenantable,
shall abate
from the date of such damage or destruction until the Leased
Premises are
repaired.
In the event of a loss from fire or other casualty where the terms
of this
Lease do not require the Landlord to restore or repair the
Warehouse,
Landlord shall have an election not to rebuild or recondition the
Leased
Premises, which election shall be exercised by written notice
thereof to
Tenant, given within sixty (60) days from date of said loss. If
Landlord
exercises such election, this Lease shall cease and terminate,
effective on the date of such loss, and Tenant shall pay the accrued
rent up
to the date of such loss, or Landlord, if the rent has been paid
beyond such
date, will refund to Tenant the proportionate part of any such rent
prepaid, and
thereupon this lease shall become null and void, with no further
obligation on
the part of either party hereto, even though the building may at a
later date be
rebuilt, restored or reconditioned. No damage or destruction shall
allow Tenant
to surrender possession of the Leased Premises, nor affect Tenant's
liability
for the payment of rent, except as speciaically provided in this
Lease.
If Landlord is required or elects to repair or rebuild the Leased
Premises as
herein provided, Landlord's obligation hereunder shall be limited to
that
work specifically designated herein as being Landlord's
responsibility.
Tenant shall repair or replace its merchandise, trade fixtures,
furnishings, and
equipment.
16. Substantial Destruction: If the Leased Premises are
substantially
destroyed by fire or other casualty (as determined by Landlord),
then
Landlord shall have the option to terminate this Lease by giving
Tenant
written notice within sixty (60) days after such destruction, and
any
unearned rent shall be apportioned and returned to Tenant. If
Landlord does
not elect to cancel this Lease, then the same shall remain in full
force and
effect and Landlord shall proceed with all reasonable diligence to
repair the
Leased Premises. In the event of such restoration or repair,
Landlord shall
expend such sums as required to repair or restore the building to
the condition
it was in immediately prior to the date of destruction; provided,
Landlord shall
not be obligated to expend any sums in excess of the inusrance
proceeds
received by Landlord as a result of such damage or destruciton. A
just and
proportionate part of the rent payable by Tenant, to the extent that
such
damage or destruction renders the Leased Premises untenantable,
shall abate from
the date of such damage or destruction until the Leased Premises are
repaired.
17. Right of Termination: Notwithstanding anything else to the
contrary
contained in this Lease, Landlord, at its option, may terminate this
Lease on
thirty (30) days' notice to Tenant given within sixty (60) days
after the
occurrence of any one of the following: (i) the Leased Premises or
the
Warehouse shall be damaged or destroyed as a result of an occurrence
that is
not covered by Landlord's insurance; (ii) the Leased Premises or the
Warehouse shall be damaged or destroyed and the cost to repair the
same shall
amount to more than twenty-five percent (25%) of the cost of
replacement
thereof; (iii) the Leased Premises shall be damaged or destroyed
during the last
two (2) years of the Base Term or Option Term, if applicable, or
(iv) any or all
of the buildings or Common Areaas of the Project are damaged
(whether or not the
Leased Premises are damaged) to such an extent that, in the sole
judment of
Landlord, the Warehouse cannot be operated as an economically viable
unit.
18. Eminent Domain. If a portion of the Leased Premises shall be
taken for
public improvements or otherwise under the exercise of the right of
eminent
domain, and the Leased Premises shall continue to be reasonably
suitable for
the use which is herein authorized then the rental herein provided
shall be
reduced from the date of such taking in direct proportion to the
reduction in
usefulness of the Leased Premises. If the Leased Premises, or a
part thereof,
sufficient to render the Leased Premises wholly unfit for the use
herein
authorized shall be condemned or acquired in the exercise of the
right of
eminent domain, Tenant shall have the right, at Tenant's option, to
terminate
and cancel this Lease on thirty (30) days' prior written notice to
Landlord and
Landlord's lender, such notice to be given within sixty (60) days of
the date of
the taking, and Tenant shall be liable only for rents and other
charges accrued
and earned to the date of surrender of possession of the Leased
Premises to
Landlord and for the performance of other obkigations maturing prior
to said
date. Tenant shall not be entitled to participate in or receive any
part of the
damages or award which may be paid to or awarded Landlord by reason
of a taking
except where said award shall provide for moving or other
reimbursable expenses
for Tenant under applicable statute.
19. Rights of Landlord's Lender: Notwithstanding anything contained
herein
to the contrary, the obligation of Landlord with respect to
repairing or
rebuilding the Leased Premises is subject to the prior right of
Landlord's
lender to receive insurance proceeds as a result of a fire or other
casualty,
with any obligation of Landlord to be limited to the extent
insurance proceeds
are received by Landlord for such repair or rebuilding.
20. Quiet Enjoyment: Landlord agrees that, if the Minimum Rent and
other
expenses required to be paid by Tenant pursuant to the terms of this
Lease
are being paid in the manner and at the time prescribed and the
covenants and
obligations of the Tenant are being all and singularly kept,
fulfilled and
performed, Tenant shall lawfully and peaceably have, hold, possess,
use and
occupy and enjoy the Leased Premises so long as this Lease remains
in force,
without hindrance, disturbance or molestation from Landlord, subject
to the
specific provisions of this Lease.
21. Subordination. Subject to the Tenant's rights of quiet
enjoyment as
heretofore provided, Tenant hereby subordinates all of its interest
under
this Lease to the lien of any deed of trust or mortgage now or
hereafter in
force against the real estate or buildings of which the Leased
Premises are
a part.
22. Indemnity: Tenant shall indemnify and hold Landlord harmless
from and
against all and any liability and expense of any kind, including
reasonable
attorneys' fees, arising from injuries or damages to persons or
property in,
on or about the Leased Premises arising out of or resulting in any
way from
any act or omission of Tenant, its agents, invitees, servants and
employees,
in the use of the Leased Premises. Tenant's property on the Premises
shall be
at the sole risk and hazard of Tenant. Landlord shall not be liable
or
responsible for any loss of or damage to Tenant or Tenant's
property.
Landlord shall indemnify and hold Tenant harmless from and against
all and any
liability and expense of any kind, including reasonable attorneys'
fees,
arising from injuries or damages to persons or property in, on or
about the
Leased Premises arising out of or resulting in any way from any act
or
omission of Landlord, its agents, invitees, servants and employees,
in
connection with its ownership of the Leased Premises.
23. Attorneys' Fees and Expenses. If Landlord or Tenant engages
legal counsel
for the enforcement of any of the terms of this Lease as a result of
a default
by the other party, whether for suit or other legal services
required to
secure compliance on the part of Landlord or Tenant, the defaulting
party shall
pay to the non-defaulting party upon demand said reasonable
attorneys' fees and
any other reasonable expenses incurred by such non-defaulting party.
24. Tenant Assignment and Subletting: Neither Tenant, any court
officer thereof
nor any receiver or trustee in bankruptcy shall assign or transfer
this lease or
any part thereof, or interest therein, or sublet the Leased Premises
or any
part thereof without Landlord's prior written consent. Tenant shall
always
remain liable for any default of any assignee, transferee or
subtenant.
25. Events of Default and Remedies. The occurrence of any of the
following
shall be an Event of Default:
a. Failure by Tenant to pay in full any rent payment or other sum
payable
hereunder within ten (10) days of the date such payment is due;
b. Failure by Tenant to perform of any of the terms or conditions
of this
Lease, other than the payment of money, of for a period of thirty
(30) days
after notice thereof to Tenant by Landlord;
c. The abandonment of the Leased Premises as a going business by
Tenant for
any period exceeding thirty (30) consecutive days, regardless of
whether
Tenant continues to pay all rent.
Upon the occurrence of an Event of Default and exercise of such
remedies,
Landlord may immediately or at any time thereafter re-enter the
Leased
Premises and remove all persons and all or any property therefrom by
any
suitable action or proceedings at law or in equity, or by force or
otherwise,
without being liable for any prosecution therefor or damages
therefrom, and
repossess and enjoy the Leased Premises, together with all
additions,
alterations and improvements. Such re-entry shall not relieve
Tenant from the
obligation to make the rental payments required by this Lease at any
time and in
the manner provided herein. Upon such re-entry Landlord may, but
shall not be
required to, repair, remodel and/or change the character of the
Leased Premises
as Landlord may see fit, and/or at any time relet the Leased
Premises in whole
or in part, as the agent of Tenant, or otherwise, in the name of
Landlord or of
Tenant, as Landlord shall see fit, and Landlord may receive the
rents therefor,
applying the same first to the payment of such reasonable expenses
hereinabove
specified in addition to the payment of the rent required hereunder,
and
fulfillment of the covenants of Tenant herein, Tenant shall pay to
Landlord such
difference at the end of the each month during the remainder of the
term. In
attempting to relet the Leased Premises, Landlord shall be the sole
judge as to
whether or not a proposed tenant is suitable and acceptable.
Landlord shall
not, by receiving partial payments of rent in arrears, be deemed to
have waived
any rights herein for non-pyament of rent, or for any other default
on the part
of Tenant. In addition to all of the remedies grnated Landlord in
this respect,
Landlord shall also have the right to invoke any remedy allowed at
law or
equity to enforce Landlord's rights hereunder or any of them, as if
re-entry
and other remedies were nfot herein provided for.
No remedy herein conferred upon or reserved to Landlord is intended
to be
exclusive of any other available remedy or remedies, but each and
every such
remedy shall be cumulative, and shall be in addition to every other
remedy
given under this agreement or now or hereafter existing at law or in
equity
or by statute. No delay or omission by Landlord to exercise any
right or
power accruing upon any default of Tenant shall impair any such
right or power
or shall be construed to be a waiver thereof, but any such right and
power may
be exercised by Landlord at any time, from time to time and as often
as may be
deemed expedient. In order to entitle Landlord to exercise any
rememdy reserved
to it hereunder, it shall not be necessary to give any notice, other
than such
notice as is expressly required by this agreement.
26. Notices: All notices required or permitted by the terms of this
Lease must
be given by hand-delivery, by telecopier (confirmed by U.S. Mail
delivery) or
United States registered or certified mail addressed to Tenant at
the Leased
Premises or as listed below and addressed to Landlord at:
Landlord:
FURROW-HOLROB DEVELOPMENT, LLC
c/o Holrob Leasing and Management Company
2607 Kingston Pike, Suite 3
Knoxville, Tennessee 37919
Telephone: (423) 637-3770
Telecopier: (423) 637-8217
Tenant:
Telephone: (___)
Telecopier: (___)
The date when such notice shall be deemed to have been given
shall be the
date when it is deposited in the United States Mail, postage
prepaid, in
accordance with the provisions of this paragraph. Any address
herein
specified may be changed from time to time by either party by
written notice
given to the other party as above provided.
27. Successors: The provisions, covenants and conditions of this
Lease shall
bind and inure to the benefit of the legal representatives,
successors and
assigns of each of the parties, except that no assignment or
subletting by
Tenant without the written consent of Landlord shall vest any right
in the
assignee or sublessee of Tenant.
28. Governing Law: The Lease shall be governed by, and construed in
accordance
with, the laws of Tennessee
29. Landlord's Exculpatory Clause: In the event of a breach or
default by
Landlord of any of its obligations under this Lease, Tenant shall
look solely
to any right of offset allowed by law against any amounts due
hereunder or to
the equity of the Landlord in the Leased Premises for the
satisfaction of
Tenant's remedies, it being understood and agreed that the
exculpation of
Landlord (and its successors and assigns) shall be absolute. In the
event of
any sale of such land or interest, or assignment of Landlord's
rights under this
Lease, Landlord shall be and hereby is released of all obligations
of Landlord
hereunder. It shall be deemed, without further agreement between
the parties or
their successors in interest, that the successor to landlord's
interest has
assumed all obligations of Landlord hereunder. It is specifically
understood
and agreed that there shall be no personal liability of Landlord in
respect to
any of the covenants, conditions, or provisions of this Lease.
30. Entire and Binding Agreement: This Lease contains all of the
agreements
between the parties hereto, and it may not be modified in any manner
other
than by agreement signed by all parties hereto or their successors
in interest.
The Tenant hereby covenants and agrees not to disclose or discuss
with any third
party the provisions, covenants, and conditions of this Lease
without the prior
written consent of the Landlord. In the event Tenant violates this
covenant,
Landlord reserves the right to either (i) terminate this Lease, or
(ii) revoke
any rental or other concessions granted hereunder.
31. Addenda: All addenda and exhibits attached hereto are made a
part of this
Lease for all purposes.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the day
and date first above written.
LANDLORD:
FURROW-HOLROB DEVELOPMENT II,
LLC
By:
Name: Robert S. Talbott
Title: President
TENANT:
INNOVO GROUP, INC.
By:
Name:
Title:
EXHIBIT 10.58
SALES AND MARKETING
AGREEMENT
THIS SALES AND MARKETING AGREEMENT (the "Agreement") has been
entered into as
of the 14th day of January, 1999 (the "Effective Date"), by and
between INNOVO
GROUP INC. ("Innovo"), a Delaware corporation with principle offices
in
Knoxville, Tennessee and The Coulver Marketing Group ("Coulver"), a
Michigan
Limited Liability Company.
RECITALS
WHEREAS, Innovo desires to enter into the Agreement to obtain
the services
of Coulver in selling and marketing Innovo's products as specified
hereafter;
WHEREAS, the financial relationship between Coulver and Innovo
is based
completely on performance;
WHEREAS, this Agreement constitutes the entire agreement
between the parties
in regards to all subject matter and supersedes all prior written
and oral
agreements and understandings between Innovo and Coulver including
but not
limited to an agreement dated July 15, 1998 and titled "Sales
Representative
Agreement."
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained
herein, the parties agree as follows:
1. Payment. Innovo will pay Coulver $25,000.00 (twenty-five
thousand dollars)
pursuant to the aforementioned sales representative agreement dated
July 15, 1998. This payment shall represent the final payment owed
to Coulver
under the July 15, 1998 agreement. Furthermore, it is agreed that
Innovo has
previously made two payments in the amount of $16,666.66 to Coulver.
When
combined with the final payment of $25,000.00 the total payments
towards the
draw per the agreement totals $58,333,32. The final payment of
$25,000.00
shall be made within 5 (five) business days of the mutual signing of
this
Agreement.
2. Commission Rate for Future Earned Commissions. The commission
rate for
future earned commissions shall be five-percent (5%) of written
special
account pricing for those accounts listed in "Exhibit A." The
commission
rate for future earned commissions shall be ten-percent (10%) of
written regular
wholesale pricing for these accounts listed in "Exhibit B."
3. Commission Due Date. The commissions owed to Coulver under the
Agreement
shall be paid to Coulver upon receipt of payment to Innovo.
4. Coulver's Right to Accounts and Channels of Distribution.
Coulver shall
have the exclusive right to the accounts and channels of
distribution described
in "Exhibit C," the customers can be expanded but not reduced during
the term of
the Agreement or during any extension period without Coulver's
written consent.
5. Term of Agreement. The terms of this Agreement shall be for 12
months with
the Agreement commencing on January 1, 1999 and ending on January 1,
2000. This
Agreement can be renewed annually upon the mutual written agreement
of Innovo
and Coulver Marketing. Upon the termination of this Agreement, the
period
following such termination shall be referred to as the post-
termination period
(hereinafter "Post-Termination Period"). Any period prior to the
Post-
Termination period shall be referred to as the pre-termination
period
(hereinafter "Pre-Termination Period").
6. Commissions upon Termination of the Agreement. Upon termination
of this
Agreement, Coulver shall have the right to the commissions
associated with the
Post-Termination Period sale of Innovo product to customers
generated directly
pursuant to Coulver's marketing efforts during the Pre-Termination
Period so
long as the Post-Termination Period sales are a direct product of
Coulver's
continuing marketing efforts during the Post-Termination Period. To
receive
Post-Termination Period commissions, Coulver must continue to
service the Pre-
Termination Period Coulver generated customers materially in the
same manner
as during the Pre-Termination Period of this Agreement. If after
written notice
from Innovo that Coulver is not properly servicing customers and
after Coulver
fails to cure its alleged failure within 60 days, then Coulver shall
forfeit
their right to commissions as defined under section 6 of this
Agreement. The
Post-Termination Period shall last for no longer than 5 (five)
years.
7. Expenses. Coulver shall be responsible for all of Coulver's
expenses that
are associated with performing under this Agreement.
8. Confidential Information.
(A) Definition. For purposes of this Agreement, the term
"Confidential
Information: shall mean information that Innovo owns or possesses,
that it
uses or is potentially useful in its business, that it treats as
proprietary,
private, or confidential, and that is not generally known to the
public,
including, but not limited to, information relating to Innovo's
existing and
contemplated businesses, sales, company financial information,
products,
technology, manufacturing techniques, engineering processes,
chemical formulae,
marketing, sales methods, techincal service expertise, employees,
list of actual
or potential customers, actual and potential customer usage and
requirements,
new and existing programs or services, prices and terms, pricing
strategy,
sources of supplies and materials, iperating and other cost data,
trade secrets,
inventions, patent applications, and other proprietary information
as may exist
or be developed from time to time by Innovo or its affiliates.
(B) Information Access and Disclosure. Coulver, its employees,
sub-
contractors, associates and affiliates acknowledge that they shall
occupy a
position of trust and confidence with Innovo and will potentially
have access
to and may develop Confidential Information of actual or potential
value to
or otherwise useful to Innovo. Coulver, its employees, sub-
contractors,
associates and affiliates shall hold in strictest confidence and not
disclose,
without express written authorization from the Officers or the Board
of
Directors of Innovo, to any persons or entity, other than Innovo,
Innovo's
affiliates and their officers and agents, or use in whole or in part
any
Confidential Information that Coulver, its employees, sub-
contractors,
associates and affiliates may acquire while this Agreement exists
between
Coulver and Innovo.
(C) Innovo Property Return. At the termination of this Agreement,
or at any
other time that Innovo may request, Coulver or any one associated
with Coulver
shall promptly deliver to Innovo all memoranda, notes, records,
reports,
documents, sketches, plans, models, compositions, formulations,
computer data,
and other tangible items made or compiled by Coulver or in Coulver's
possession
concerning or relating to Innovo or its affiliates and their
businesses,
operations or affairs and any Confidential Information that Coulver
may posses
or have under their control (Company Property).
9. Governing Law. This Agreement and all performance hereunder
shall be
construed and governed by the laws of the State of Tennessee,
without regard for
the conflicts of laws principles.
10. Entire Agreement. This Agreement constitutes the entire
agreement between
the parties with respect to subject matter of this Agreement and
supersedes all
prior written and oral agreements and understandings between Innovo
and Coulver
with respect to the subject matter of this Agreement. This
Agreement may not be
amended except by a written agreement executed by the party to be
charged with
the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of
the date first above written.
INNOVO GROUP INC.
By:
__________________________
Pat Anderson
Title: President, V.P. of Sales
COULVER MARKETING GROUP
By:
__________________________
Herschel S. Wright
Title: President
EXHIBIT 10.59
6TH August 1998
Pat Anderson-Lasko
Nasco Products Int Inc
27 North Main Street
Springfield
Tennessee 37172
USA
Dear Pat
This letter constitutes an amendment to your existing NFL
Agreement numbers NFL172C and GB371.
The original term of these agreements are hereby extended
Until 31st March 2001 with no additional guarantee payments.
Special terms: Outstanding invoice number 97/009 for
$25,000 will be paid in full by 1st August 1999.
All terms and conditions of these license agreements, except
Where specifically amended herein, shall remain in full force
And effect.
Please acknowledge your understanding and acceptance of the
Above by signing all three copies of this letter and returning
Two copies to this office for our records.
Yours sincerely,
Buckley
Sara Buckley
NFL Properties (UK)Ltd
Signed and agreed on behalf of
Nasco Products International Inc: /s/ Pat Anderson, President
Dated: 9/02/98
EXHIBIT 10.60
8th June 1998
INNOVO GROUP INC. trading as NASCO INTERNATIONAL LIMITED
27 North Main Street
Springfield
Tennessee 37172
USA
Dear Sirs
RE: LOONEY TUNES TRADEMARK LICENSE NO. 50541-WBLT
Reference is made to the above Trademark License date 25th June 1996
("the
Agreement") between WARNER BROS. A DIVISION OF TIME WARNER
ENTERTAINMENT
COMPANY L.P. c/o WARNER BROS. CONSUMER PRODUCTS, A TIME WARNER
ENTERAINMENT
COMPANY ("Licensor") and INNOVO GROUP INC. trading as NASCO
INTERNATIONAL
LIMITED ("Licensee").
It is agreed between Licensor and Licensee that the Agreement is
amended as
set forth below:
Paragraph 8, shall have the following deleted: "28th February 1998"
which
shall be replaced by: "28th February 1999"
In all other respects the Agreement shall remain in full force and
effect
between us.
Please confirm acceptance of the foregoing by countersigning where
indicated
below.
This Side Letter shall be of no force and effect unless and until
signed by all
parties hereto as specified below.
Your faithfully Accepted and agreed for and on
behalf of
WARNER BROS. A DIVISION OF TIME INNOVO GROUP INC. trading as
WARNER ENTERTAINMENT COMPANY, L.P. NASCO INTERNATIONAL LIMITED
By its agent WARNER BROS. CONSUMER
PRODUCTS, A TIME WARNER ENTERTAINMENT
COMPANY
EXHIBIT 10.61
FORM: NBAP
U.S./Non-Apparel
NPIR
LICENSEE: INNOVO INC. RETAIL PRODUCT LICENSE AGREEMENT
ADDRESS: 27 North Main Street
Springfield, TN 37172
THIS RETAIL PRODUCT LICENSE AGREEMENT is entered into by NBA
Properties,
Inc. ("NBAP"), with its principal office at 645 Fifth Avenue, New
York, New
York 10022, and the licensee listed above ("LICENSEE") with regard
to the
commercial use of certain names, logos, symbols, emblems, designs
and
uniforms and all identifications, labels, insignia or indicia
thereof (the
"Marks") of the National Basketball Association (the "NBA") and its
Member
Teams (collectively, the "NBA Marks"). Subject to the terms of this
Agreement and the terms of the attached NBAP Standard Terms and
Conditions,
NBAP hereby grants to LICENSEE, and LICENSEE hereby accepts, the
non-exclusive (except as otherwise expressly provided in this
Agreement)
right and license to use the Marks of the Member Teams, the
silhouetted
dribbler logo (the "NBA Logo") and Marks of the NBA, NBA All-Star
Weekend
and NBA Playoffs and Finals (collectively, the "Licensed Marks")
solely in
connection with the manufacture, distribution, advertisement,
promotion and
sale of the products described in Paragraph A below including one or
more
of the Licensed Marks ("Licensed Products"). No license or right is
granted
for the use of the Licensed Marks for any purpose other than on the
Licensed Products and in the manufacture, distribution,
advertisement,
promotion and sale of the Licensed Products in accordance with this
Agreement.
A. LICENSED PRODUCTS:
Insulated and non-insulated vinyl lunch bags and soft-sided
coolers
Cotton canvas tote bags
Nylon, vinyl and/or cotton laundry bags
Shoe bags
Garment bags
Seat cushion totes
B. TERM: August 1, 1998 to July 31, 1999 (the "Term").
C. TERRITORY: Licensed Products may only be distributed in the 50
United
States and the District of Columbia, except that product may be
shipped
to the in-arena concessionaires of the Toronto Raptors and Vancouver
Grizzlies (the "Territory").
D. ROYALTY RATES: LICENSEE shall pay monthly to NBAP a combined
royalty
and advertising and promotion payment (hereinafter referred to as
"royalty") equal to twelve percent (12%) of "Net Sales" (as defined
in
Paragraph 1 of the attached NBAP Standard Terms and Conditions).
E. MINIMUM GUARANTEES: LICENSEE guarantees that its aggregate
royalty
payments to NBAP for the Term under this Agreement shall not be less
than twenty thousand dollars ($20,000).
F. ADVANCES: Upon execution of this Agreement, LICENSEE shall pay
to NBAP
the sum of twelve thousand five hundred dollars ($12,500) as an
advance
to be credited against LICENSEE's Minimum Guarantee as set forth
above.
G. ADVERTISING AND PROMOTION:
(i) Consistent with NBAP's past practice of creating, undertaking
or
supporting advertising and promotion activities with respect to
NBAP-licensed products sold at retail, NBAP shall devote up to two
percent (2%) of Net Sales (from the royalties received from LICENSEE
pursuant to this Agreement) to cover the expenses incurred by NBAP
in
connection with such advertising and promotion activities.
(ii)LICENSEE shall exhibit, at its sole cost and expense, a fair and
representative selection of Licensed Products at the Super Show and
every other trade show where LICENSEE exhibits licensed products.
H. SELLING PRACTICES: LICENSEE acknowledges NBAP's legitimate and
reasonable interest in protecting the value of the NBA Marks and
maximizing the effectiveness of its advertising, promotion and
distribution efforts by segmenting the classes of trade into which
its
licensees sell NBAP-licensed products. Therefore, LICENSEE shall
only
sell Licensed Products to a buyer that, to its best knowledge, (i)
purchases Licensed Products from LICENSEE solely for sale directly
to
the consumer and operates a retail establishment that supports the
high
quality and image of NBA officially licensed products with
appropriate
merchandising displays, promotion and/or customer service, or (ii)
sells
to retailers that support the high quality and image of NBA
officially
licensed products with appropriate merchandising displays, promotion
and/or customer service. LICENSEE acknowledges that a failure to
comply
with the selling practices set forth in this Paragraph shall cause
significant harm to NBAP's efforts to effectively and efficiently
distribute NBAP-licensed products.
AGREED TO AND ACCEPTED, subject AGREED TO AND ACCEPTED:
to and incorporating the attached NBAP NBA PROPERTIES, INC.
Standard Terms and Conditions which
the undersigned has read:
INNOVO INC, By:
Pat Anderson Harvey E. Benjamin
President Senior Vice President,
Business Affairs
Dated: 8/12/98
NBAP STANDARD TERMS AND CONDITIONS
ADDITIONAL DEFINITIONS
For the purposes of this Agreement:
(a) "Contract Year" shall mean a twelve (12) month accounting
period
commencing August 1 and concluding July 31.
(b) "Counterfeit Goods" shall mean and include: (i) goods that
bear any
NBA Mark that has been reproduced and/or affixed without
authorization from NBAP; (ii) goods that bear any NBA Mark produced
by any source in excess of an amount ordered by an NBAP licensee;
and (iii) goods that bear any NBA Mark that have been rejected by
NBAP or an NBAP licensee and nevertheless enter the stream of
commerce.
(c) "Diverted Goods" shall mean and include any goods produced by
someone acting on behalf of an NBAP licensee, which goods are not
delivered by the producer to such licensee or to a person
designated by such licensee to receive such goods.
(d) "Net Sales" shall mean the total amount of the gross sales of
a
Licensed Product by LICENSEE, after deducting any bona-fide credit
or adjustment for returns actually made and volume discounts
actually and customarily given to the trade (such discounts may not
exceed two percent (2%) of the gross sales for the applicable
accounting period). In computing Net Sales, no direct or indirect
expenses or costs incurred in connection with paying royalties due
under this Agreement (including transferring funds for royalties or
converting currency into U.S. dollars) or manufacturing, selling,
distributing, importing or advertising (including cooperative and
other advertising and promotion allowances) the Licensed Products
shall be deducted, nor shall any deduction be made for
uncollectible accounts, cash discounts, early payment discounts,
discounts relating to advertising, mark-down allowances or other
allowances. Net Sales resulting from sales to any party directly or
indirectly related to or affiliated with LICENSEE (a "Related
Transaction") shall be computed based on regular selling prices to
the trade. If such related party or affiliate is a reseller to the
trade of the Licensed Products, the sales price for purposes of
determining Net Sales of a Related Transaction shall be the higher
of the sales price to the related or affiliated party or the sales
price charged to the trade by such related or affiliated party. If
a purchaser from LICENSEE purchases FOB the manufacturing source or
participates in other arrangements which result in such purchaser
paying less for the Licensed Products than LICENSEE's regular
selling prices to the trade, Net Sales with respect to any such
transaction shall be computed based on the regular selling prices
to the trade.
(e) "Parallel Goods" shall mean and include Licensed Products
transferred outside of the Territory or brought into the Territory
in violation of this Agreement.
(f) "Premium" shall mean anything given free or sold at
substantially
less than its usual selling price (but does not include sales made
pursuant to periodic price reductions resulting from "specials,"
"sales," or volume pricing discounts) for the purpose of increasing
the sale of, or publicizing, any product or service, or other
giveaway or promotional purpose. Other giveaway or promotional
purposes include, but are not limited to, self-liquidating offers,
uses of Licensed Products as sales force or trade incentives and
sales of Licensed Products through distribution schemes involving
earned discounts or "bonus" points based on the consumer's use of
the offeror's product or service.
2. TEAM REPRESENTATION; LIMITATIONS ON LICENSE
(a) Unless otherwise approved in writing by NBAP, each Licensed
Product
must be manufactured and offered for sale on LICENSEE's standard
terms in a version for each Member Team. LICENSEE acknowledges
that, unless the NBA Logo is specifically contained in the
definition of Licensed Marks above, no license is granted for the
use of the NBA Logo except insofar as the NBA Logo is embodied in
the NBA "Official Licensed Product" logo. Unless otherwise approved
in writing by NBAP, the
NBA Logo may only be used in combination with the Marks of one (1)
or more Member Teams (i.e., the NBA Logo may not be used by
itself), which must be shown with equal or greater prominence than
the NBA Logo.
(b) All designs of the Licensed Products, including any packages,
containers or tags, shall be subject to NBAP's prior written
approval and shall be used solely in furtherance of this Agreement,
and such designs will not be used in any other respect by LICENSEE
nor will LICENSEE authorize any third party to use such designs
except as may be required by NBAP. Notwithstanding the foregoing,
NBAP acknowledges that LICENSEE may hold other licenses pursuant to
which LICENSEE manufactures, distributes or sells products similar
in design to the Licensed Products and nothing in this Agreement is
intended to prohibit LICENSEE's manufacture, distribution or sale
of such products not bearing or relating to the Licensed Marks.
3. STATEMENTS AND PAYMENTS; REPORTING
(a) Statement and Payments: By the fifteenth (15th) day following
the
end of each month, LICENSEE shall furnish (on forms provided by or
approved by NBAP) full and accurate statements (on a
country-by-country and unit basis, if more than one country is
contained within the definition of the Territory), certified by an
officer of LICENSEE, showing all information relating to the
calculation of Net Sales for the preceding month. Simultaneously
with the submission of such statement, LICENSEE shall make all
monthly royalty payments required under this Agreement for the
preceding month. The minimum amount of royalties to be paid by
LICENSEE by the end of each quarter with respect to each Licensed
Product category shall be the amount which, when added to payments
of royalties previously made for the Contract Year with respect to
such Licensed Product category, shall be equal to one-fourth (25%)
of the Minimum Guarantee for such Licensed Product category for
such Contract Year required under Paragraph E above multiplied by
the number of quarters then elapsed. Aggregate royalties paid each
Contract Year may exceed the Minimum Guarantee for such Contract
Year. Such monthly statements shall be furnished and the required
payments made by LICENSEE whether or not there are any Net Sales
for that month. All payments made by LICENSEE to NBAP under this
Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any income, stamp or other taxes,
charges, fees, deductions or withholdings. If any such taxes,
charges, fees, deductions or withholdings are required by law to be
withheld from any amounts payable to NBAP hereunder, the amounts so
payable shall be increased to the extent necessary to yield to NBAP
the amounts specified in this Agreement. All payments shall be in
U.S. dollars, from a U.S. source approved by NBAP. All computations
and payments shall be in U.S. dollars, at the spot rate for the
local currency as published in the Wall Street Journal for the last
business day of the preceding month. If LICENSEE shall fail to
timely pay any amount due under this Paragraph, LICENSEE shall pay
interest on such amount at a rate equal to the lesser of (i) three
percent (3%) per annum over the highest prime rate (announced by
Chase Bank, New York branch) prevailing during the period between
the date the payment first became due and the date such payment is
actually paid or (ii) the highest rate permitted by law during the
period between the date the payment first became due and the date
such payment is actually paid. The receipt or acceptance by NBAP of
any of the statements furnished or royalties paid by LICENSEE
(including the cashing of any royalty checks) shall not preclude
NBAP from questioning their accuracy at any time, auditing
LICENSEE's books and records pursuant to Paragraph 12 or claiming
any shortfall in royalty payments. In order to assist with NBAP's
annual budget process, by April 15 of each Contract Year, LICENSEE
shall deliver a statement detailing LICENSEE's projections for
sales of each Licensed Product for the following Contract Year,
broken down on a quarterly basis. If LICENSEE fails to comply with
the reporting requirements contained in this Paragraph, NBAP may
charge
LICENSEE, and LICENSEE shall pay, two thousand U.S. dollars (USD
2,000) for each instance of non-compliance with this Paragraph.
(b) No Cross Collateralization: Any royalty payment for a unit of
Licensed Product sold shall only be applied against the Minimum
Guarantee for such Licensed Product for the Contract Year in which
the unit of such Licensed Product was sold (i.e., any shortfall in,
or payment in excess of, the Minimum Guarantee for a Contract Year
may not be offset or credited against the Minimum Guarantees for
any other Contract Year, against any other Licensed Product or
against any other NBA license (including premium license agreements
entered into pursuant to Paragraph 5 hereof) held by LICENSEE). If
Minimum Guarantees are stated separately for different categories
of Licensed Products or for different territories, royalty payments
resulting from Net Sales of a category of Licensed Product or in a
particular territory shall be applied only against the Minimum
Guarantee for such category of Licensed Product or territory.
4. NON-RESTRICTIVE GRANT; RIGHTS RESERVED
Nothing in this Agreement shall prevent NBAP from granting any other
licenses and rights. All rights not specifically granted in this
Agreement are expressly reserved by NBAP. No right of renewal or
option to extend is granted or implied and LICENSEE shall have no
right to continue manufacturing or selling Licensed Products or to
continue holding itself out as a licensee of NBAP after the
expiration
or termination of this Agreement except as provided in Paragraph 14.
5. PREMIUMS
LICENSEE shall not use, nor allow any third party to use, any
Licensed
Product as a Premium without the prior written authorization of NBAP
pursuant to a separate agreement with NBAP. In addition, no Premium
shall be offered with the Licensed Products without the prior
written
approval of NBAP. Nothing in this Agreement shall prohibit LICENSEE
from marketing Licensed Products using creative techniques
consistent
with industry practice, including, but not limited to, periodic
"specials," "sales," or volume discount prices, so long as all
receipts are accounted for in Net Sales and in accordance with this
Agreement.
6. GOODWILL
LICENSEE recognizes that (i) a portion of the value of the NBA Marks
is attributable to goodwill, (ii) the goodwill attached to the NBA
Marks belongs exclusively to NBAP, the NBA and its Member Teams and
(iii) that such NBA Marks have secondary meanings in the minds of
the
public. LICENSEE shall not, during the Term or thereafter, challenge
(y) the property rights of the Member Teams, whether severally owned
or held in association as the NBA, or NBAP's property rights, in and
to NBA Marks, or (z) the validity, legality or enforceability of
this
Agreement.
7. PROTECTION OF RIGHTS
(a) Unauthorized Activities: LICENSEE shall promptly notify NBAP
in
writing of any infringements of the Licensed Marks or the Licensed
Products or the sale of any Licensed Products outside the Territory
(e.g., unauthorized importation/exportation of goods) which may
come to LICENSEE's attention. NBAP shall have the sole right to
determine whether or not any action shall be taken on account of
any such infringement or unauthorized importation/exportation.
LICENSEE agrees not to contact any third party, not to make any
demands for claims and not to institute any suit or action on
account of such infringement or unauthorized
importation/exportation without obtaining the express prior written
permission of NBAP in each instance.
(b) Assistance in Protecting Marks: LICENSEE shall cooperate to
the
fullest extent necessary to assist NBAP in the protection of the
rights of NBAP, the NBA and the Member Teams in and to the Licensed
Marks. NBAP shall reimburse LICENSEE for any reasonable
out-of-pocket costs actually incurred by LICENSEE in providing such
cooperation and assistance. LICENSEE shall cooperate with NBAP in
its enforcement efforts, including being named by NBAP as a
complainant in any action
against an infringer. LICENSEE shall pay to NBAP, and waives all
claims to, ail damages or other monetary relief recovered in any
such
NBAP-initiated action by reason of a judgment or settlement (other
than for reasonable attorneys' fees and expenses incurred at NBAP's
request) whether or not such damages or any part of such damages
represent or are intended to represent injury sustained by LICENSEE.
(c) Ownership of Marks: LICENSEE acknowledges that NBAP and/or the
Member
Teams are the exclusive owners of the Licensed Marks. Any
intellectual property rights in the Licensed Marks that may accrue
to
LICENSEE shall inure to the benefit of NBAP and shall be assigned to
NBAP upon its request. Any copyright, trademark, service mark or
other right used, created or procured by LICENSEE with respect to or
involving the Licensed Marks, derivations or adaptations of the
Licensed Marks, or any word, symbol or design which uses or is
similar to the Licensed Marks so as to suggest association with or
sponsorship by the NBA, one of its Member Teams or any of their
affiliates, shall be procured for the benefit of and in NBAP's name,
but at LICENSEE's expense, notwithstanding their creation by
LICENSEE. LICENSEE shall take all necessary steps to secure an
assignment to NBAP of the copyright from a creator of work that is
not work-for-hire. Any copyright, trademark or service mark
affecting
or relating to the Licensed Marks already procured or applied for
shall be assigned to NBAP. LICENSEE shall supply NBAP with any
necessary supporting materials required to obtain copyright or
trademark registrations of any copyrights or trademarks required to
be assigned to NBAP under this Agreement.
(d) Notices, Labeling and Records: NBAP may from time-to-time
designate
such copyright, trademark or service mark notices (including the
form, location and content of such notices) that LICENSEE shall
cause
to appear on or within each Licensed Product sold, by means of a
tag,
label, imprint or other appropriate device, in every instance in
which any Licensed mark is used. The following general notice (in
the
English language and the language of the country where the Licensed
Products will be sold) must be included on a label, the packaging
material or on a separate slip of paper packed with or attached to
the Licensed Product:
"The NBA and individual NBA member team identifications
reproduced on this product are trademarks and copyrighted
designs, and/or other forms of intellectual property, that
are the exclusive property of NBA Properties, Inc. and the
respective NBA member teams and may not be used, in whole or
in part, without the written consent of NBA Properties, Inc."
LICENSEE shall: (i) cause all Licensed Products to bear the NBA
"Official Licensed Product' logo on either the article or its
packaging in such place, and in such prominence, as NBAP may
designate from time-to-time, (ii) faithfully comply with and adhere
to NBAP's mandatory hologram "Official Licensed Product'
identification system or such other shipment tracking,
identification
and anti-counterfeiting systems, tags and labels that NBAP may
establish from time-to-time, (iii) unless approved in writing by
NBAP, not cross-license or otherwise use other licensed properties
or
other Marks with the Licensed Products or Licensed Marks and (iv)
keep appropriate records, and advise NBAP, of the date when each of
the Licensed Products is first placed on sale or sold in each
country
of the Territory and the date of first use in each country of each
different Licensed Mark on the Licensed Products and any promotional
or packaging materials.
(e) Recordation and Registered User Applications: With respect to
those
countries in which LICENSEE may distribute and which require
applications to register LICENSEE as a permitted or registered user
of the Licensed Marks, or which require the recordation of this
Agreement, LICENSEE shall execute and deliver to NBAP such
applications, agreements or other documents as may be necessary. In
such event, this Agreement rather than such agreements will govern
any disputes between
LICENSEE and NBAP, and when this Agreement expires or is
terminated, any such other agreement shall also be deemed expired
or terminated.
(f) LICENSEE Trade Names and Trademarks: LICENSEE shall
permanently
affix labeling on each Licensed Product or its packaging,
indicating its name, trade name and address so that the public can
identify the supplier of the Licensed Product. Prior to any
distribution or sale of any Licensed Products, LICENSEE shall
advise NBAP in writing of LICENSEE's trade names or trademarks used
on Licensed Products and the proposed placement of such trade names
and trademarks on the Licensed Products. LICENSEE shall only sell
Licensed Products under mutually agreed upon trade names or
trademarks and with approved copyrighted designs, shall not
incorporate the Licensed Marks into LICENSEE's corporate or
business name or trademark in any manner whatsoever and shall place
its trade names and trademarks on Licensed Products only as
approved by NBAP. As requested by NBAP, LICENSEE shall supply NBAP,
in advance of shipping any Licensed Products, with at least twelve
(12) copies of each type of its hang tags, labels and other
markings of origin for use in identifying and authenticating
Licensed Products in the marketplace. LICENSEE shall not use,
whether during or after the Term, any Marks: (i) in connection with
the Licensed Marks without NBAP's authorization, (ii) confusingly
similar to the Licensed Marks, or (iii) intended to relate or refer
to the Licensed Marks, the Member Teams or events involving the NBA
or the Member Teams.
8. INDEMNIFICATIONS; INSURANCE
(a) LICENSEE shall be solely responsible for, and shall defend,
hold
harmless and indemnify NBAP, NBA Entertainment, Inc. ("NBAE"), the
NBA, its Member Teams and the National Basketball Players
Association ("NBPA") and their respective affiliates, owners,
directors, governors, officers, employees and agents (collectively
"NBA Parties") against, any claims, demands, causes of action or
damages, including attorneys' fees (collectively, "Claims"),
arising out of: (i) any act or omission of LICENSEE, any Third
Party Contributor (as defined in Paragraph 11 (b) below) or any
other entity acting on LICENSEE's behalf (whether or not approved
by NBAP pursuant to this Agreement), (ii) any breach of this
Agreement by LICENSEE, any Third Party Contributor or any other
entity acting on LICENSEE's behalf (whether or not approved by NBAP
pursuant to this Agreement), (iii) the manufacture, distribution,
advertisement, promotion, sale, possession or use of any Licensed
Product (including, but not limited to, claims relating to (w) any
defect (whether obvious or hidden and whether or not present in any
sample approved by NBAP) in a Licensed Product or in any packaging
or other materials (including advertising materials), (x) any
alleged injuries to persons or property, (y) any infringement of
any rights of any other person or entity or (z) the alleged failure
by LICENSEE to comply with applicable laws, regulations, standards
or the terms of the NBAP Code of Conduct, as amended from time to
time by NBAP (the "Code of Conduct"), attached hereto as or (iv)
any claim that any Licensed Product or element thereof (other than
the Licensed Marks) violates or infringes upon the trademark,
copyright or other intellectual property rights (including trade
dress and rights of publicity and privacy) of a third party,
provided LICENSEE is given prompt written notice of and shall have
the option to undertake and conduct the defense of any such Claim.
In any instance to which the foregoing indemnities pertain, NBAP
shall cooperate fully with and assist LICENSEE in all respects in
connection with any such defense. LICENSEE shall reimburse NBAP for
all reasonable out-of-pocket costs actually incurred by NBAP in
connection with such cooperation and assistance. In any instance to
which such indemnities pertain, LICENSEE shall keep NBAP fully
advised of all developments pertaining to such Claim and shall not
enter into a settlement of such Claim or admit liability or fault
without NBAP's prior written approval. LICENSEE shall obtain and
maintain product liability insurance providing protection for the
NBA Parties against any Claims arising out of any alleged defects
in the Licensed Products or any use of
the Licensed Products, in an amount and providing coverage
satisfactory to NBAP (including the amount of the deductible). Such
insurance shall be carried by an insurer with a rating by A.M. Best
& Co. of A-7 or other rating satisfactory to NBAP. Such insurance
policy shall also provide that NBAP receive written notice within
thirty (30) days prior to the effective date of the cancellation,
non-renewal or any material change in coverage. In the event that
LICENSEE has failed to deliver to NBAP a certificate of such
insurance evidencing satisfactory coverage prior to NBAP's
execution of this Agreement (or fails to maintain such insurance in
accordance with this Paragraph), NBAP shall have the right to
withdraw its consent to use any or all of the Licensed Marks and/or
terminate this Agreement at any time. Such insurance obligations
shall not limit LICENSEE's indemnity obligations, except to the
extent that LICENSEE's insurance company actually pays NBAP amounts
which LICENSEE would otherwise be obligated to pay NBAP.
(b) NBAP shall be solely responsible for, and shall defend, hold
harmless and indemnify LICENSEE, its directors, officers, employees
and agents against any Claims arising out of: (i) a claim that the
use of the Licensed Marks as specifically approved by NBAP in
accordance with the terms of this Agreement violates or infringes
upon the trademark, copyright or other intellectual property rights
(including trade dress) of a third party in or to the Licensed
Marks or (ii) any breach of this Agreement by NBAP, provided NBAP
is given prompt written notice of and shall have the option to
undertake and conduct the defense of any such Claim. In any
instance to which the foregoing indemnities pertain, LICENSEE shall
cooperate fully with and assist NBAP in all respects in connection
with any such defense. NBAP shall reimburse LICENSEE for all
reasonable out-of-pocket expenses actually incurred by LICENSEE in
connection with such cooperation and assistance. In any instance to
which such indemnities pertain, NBAP shall not enter into a
settlement of such Claim or admit liability or fault without
LICENSEE's prior written approval.
9. QUALITY; APPROVALS; SAMPLES
LICENSEE shall cause the Licensed Products to meet and conform to
high
standards of style, quality and appearance. In order to assure NBAP
that it is meeting such standards and other provisions of this
Agreement, LICENSEE shall comply with the following:
(a) Pre-Production: Before commercial production and distribution
of
any product bearing a Licensed Mark, LICENSEE shall submit to NBAP
all preliminary and proposed final artwork, three dimensional
models (if any), prototypes, mock-ups and pre-production samples of
each product, including all styles, colors and variations, together
with its labels, tags, cartons and containers (including packaging
and wrapping materials). All LICENSEE submissions under this
Paragraph shall be accompanied by forms supplied by NBAP, using one
(1) form for each submission and filling in all necessary
information. NBAP shall approve or disapprove in writing all
submissions, in its sole discretion, before LICENSEE shall be
entitled to distribute, advertise, use, produce commercial
quantities of or sell any item relating to any such submission. Any
article actually submitted and not disapproved within sixty (60)
days after receipt by NBAP shall be deemed approved. Approval of an
article which uses particular artwork does not imply approval of
such artwork with a different article or of such article with
different artwork. LICENSEE acknowledges that NBAP's approval of an
article does not imply approval of, or license to use, any non-NBA
controlled elements contained in any article. After a sample of an
article has been approved, LICENSEE shall not make any changes
without resubmitting the modified article for NBAP's written
approval.
(b) Production Samples: Before selling or distributing any product
bearing a Licensed Mark, LICENSEE shall furnish NBAP with, at no
charge, for its permanent use, two (2) samples of the product from
the first production run of each manufacturer of the Licensed
Products, including all styles, colors and variations, together
with its labels, tags, cartons and containers (including packaging
and wrapping materials). If such
samples do not conform to all aspects of the Licensed Product as
approved or if the quality of any such sample does not meet the
requirements of this Paragraph 9, NBAP shall notify LICENSEE and
such
article shall be deemed disapproved and all such articles shall be
promptly destroyed. LICENSEE shall also furnish NBAP, free of
charge,
with any additional pieces of Licensed Product as may reasonably be
requested by NBAP to promote the sale of Official Licensed Products
(e.g., for NBAP's display room, advertisements, catalogs, mailers,
product placement and trade shows) or for comparison with earlier
samples. In addition, LICENSEE shall provide NBAP with any
additional
pieces of Licensed Product as may be required for the permanent use
of the Member Teams, not to exceed one (1) piece per Member Team. If
NBAP wishes to purchase Licensed Products for give-away purposes and
not for resale, LICENSEE shall sell the Licensed Products to NBAP at
LICENSEE's direct manufacturing cost for such Licensed Products and
LICENSEE shall not be required to pay royalties on such sales to
NBAP.
(c) Rejections and Non-Compliance: The rights granted under this
Agreement do not permit the sale of "seconds" or "irregulars." All
submissions or samples not approved by NBAP shall promptly be
destroyed by LICENSEE. LICENSEE shall advise NBAP regarding the time
and place of such destruction (in sufficient time to arrange for an
NBAP representative to witness such destruction, if NBAP so desires)
and such destruction shall be attested to in a certificate signed by
one of LICENSEE's officers and submitted to NBAP within fifteen (15)
days of the date on which the sample was not approved. In the event
of LICENSEE's unapproved or unauthorized manufacture, distribution,
use or sale of any products or materials bearing the Licensed Marks,
including promotional and advertising materials, or the failure of
LICENSEE to comply with Paragraphs 7(d), 7(f), 9, 11(c) or 11(e),
NBAP shall have the right to: (i) immediately revoke LICENSEE's
rights with respect to any Licensed Product licensed under this
Agreement, (ii) charge LICENSEE two thousand U.S. dollars (USID
2,000) for each instance (e.g., per unit) of non-compliance with
this
Paragraph with respect to any article, product or materials and/or
(iii) at LICENSEE's expense, confiscate or order the destruction of
such unapproved, unauthorized or non-complying products. Such
right(s) shall be without prejudice to any other rights NBAP may
have
under this Agreement or otherwise.
(d) Testing: Both before and after Licensed Products are put on
the
market, LICENSEE shall follow reasonable and proper procedures for
testing the Licensed Products for compliance with laws, regulations,
standards and procedures, and shall permit NBAP (upon reasonable
notice) to inspect its and its authorized manufacturers testing,
manufacturing and quality control records, procedures and facilities
and to test or sample Licensed Products for compliance with this
Paragraph and the other terms and conditions of this Agreement.
Licensed Products found by NBAP at any time not to comply with
applicable laws, regulations, standards and procedures shall be
deemed disapproved, even if previously approved by NBAP, and shall
not be shipped unless and until LICENSEE can demonstrate to NBAP's
satisfaction that such Licensed Products have been brought into full
compliance.
(e) Revocation of Approval: In the event that: (i) the quality,
appearance or style of any Licensed Product ceases to be acceptable
to NBAP, (ii) LICENSEE uses the Licensed Marks improperly or
violates
any term of this Paragraph 9 or (iii) NBAP becomes aware of
something
relating to any such Licensed Product or LICENSEE which, in the
opinion of NBAP, reflects unfavorably upon the professional,
business
or personal reputation of NBAP, the NBA or any of its Member Teams,
then, in any such event, NBAP shall have the right, in its sole
discretion, to withdraw its approval of such Licensed Product. In
the
event of such withdrawal, NBAP shall provide immediate written
notice
to LICENSEE and LICENSEE shall cease the use of the Licensed Marks
in
connection with the manufacture, sale, distribution, advertisement
or
use of such Licensed Product and such Licensed Product shall
immediately be
withdrawn from the market and destroyed; provided, however, that in
the event of a revocation of approval pursuant to (i) above, NBAP
and LICENSEE shall negotiate in good faith to provide for a
reasonable sell-off period for such Licensed Product. Within ten
(10) days after LICENSEE's receipt of such notice, LICENSEE shall
pay all royalties and Minimum Guarantees due NBAP with respect to
the Licensed Product for which approval has been revoked. If there
are other Licensed Products for which approval has not been
withdrawn under this subparagraph, then this Agreement shall remain
in full force and effect as to such other Licensed Products.
LICENSEE shall notify NBAP in writing of any Licensed Products
deleted from its product lines.
10. PROMOTIONAL MATERIAL
LICENSEE shall not use the Licensed Marks or any reproduction of the
Licensed Marks in any advertising, promotion or display material in
connection with any product or in any other manner whatsoever
without
prior written approval from NBAP. Under no circumstance will
"lotteries," "games of chance" or any other type of promotion which
NBAP believes reflects unfavorably upon the NBA or its Member Teams
be
approved. All advertising or promotional copy and material depicting
or
using the Licensed Marks (including display material, catalogs and
press releases) shall be submitted for approval well in advance of
production (but in no event less than ten (10) business days prior
to
the start of commercial production) to allow adequate time for NBAP,
in
its sole discretion, to approve, disapprove or comment upon such
materials and for any required changes to be made. By way of
example,
no television or cinema advertising containing any Licensed Mark may
be
used unless it has been approved in all stages (i.e., storyboard,
production "rough-cut" and final version). Unless otherwise approved
by
NBAP, any NBA game action photographs or footage that LICENSEE uses
in
connection with the Licensed Products must be obtained from NBAE and
shall be subject to NBAE's search and edit charges and any
applicable
use fee. Any promotional material submitted that is not approved or
disapproved by NBAP within thirty (30) days of its receipt by NBAP
shall be deemed approved by NBAP.
11. DISTRIBUTION; COMPLIANCE
(a) Distribution: LICENSEE shall use its best efforts to
distribute and
sell, within and throughout the Territory, the Licensed Products in
such manner as may be required to meet competition by reputable
manufacturers of similar articles. In any ninety (90) day period in
which LICENSEE fails to sell or distribute Licensed Products in
reasonable commercial quantities, LICENSEE shall be deemed not to
have used its best efforts. LICENSEE shall make and maintain
adequate arrangements for the distribution and timely delivery of
Licensed Products to retailers within and throughout the Territory.
In the event NBAP advises LICENSEE that a special promotional
effort is to take place in an individual store or chain, LICENSEE
shall use its best efforts to sell the Licensed Products to said
store or chain. In addition, LICENSEE shall give the Licensed
Products wide distribution and shall not, subject to the provisions
set forth in this Agreement, refrain for any reason from selling
Licensed Products to any retail outlet within the Territory that
may desire to purchase Licensed Products and whose credit rating
and marketing image warrants such sale.
(b) Third Party Contributors: If LICENSEE desires to use a third
party
manufacturer or distributor (if permitted under this Agreement)
(each, a "Third Party Contributor") in connection with the
manufacturing of all or any part of, or the distribution (if
permitted by this Agreement) of, any Licensed Product, LICENSEE
must first notify NBAP of the name and address of such proposed
Third Party Contributor and of the Licensed Product LICENSEE
desires such proposed Third Party Contributor to manufacture or
distribute. NBAP shall have the right, in its sole discretion, to
withhold or withdraw approval of any proposed Third Party
Contributor and may predicate its approval on any terms or
conditions as NBAP shall determine in its sole discretion. LICENSEE
may not use a Third Party Contributor in connection with the
manufacture of all or any part of, or the distribution (if
permitted by this Agreement) of, any Licensed Product prior to
receiving such approval from NBAP. If any of LICENSEE's Third
Party Contributors uses the Licensed Marks or Licensed
Attributes for any unauthorized purpose, LICENSEE shall be
responsible for, and shall cooperate fully and use its best
efforts to stop such unauthorized use. Attached as Schedule A is
a true and complete list of all Third Party Contributors
authorized by NBAP as of the date of execution of this
Agreement.
(c) Counterfeit, Diverted and Parallel Goods: LICENSEE understands
and
acknowledges the meanings of "Counterfeit Goods , Diverted Goods"
and
"Parallel Goods" as set forth in Paragraph 1 above and LICENSEE
shall
use all commercially reasonable means to prevent the creation of any
such goods by its employees, agents, representatives or any others
operating under its direction, supervision or control and involving
the NBA Marks. LICENSEE shall stamp on all invoices, and shall
require any third party distributors (to whom LICENSEE is authorized
to sell under this Agreement) and any authorized sublicensees and
distributors to stamp on their invoices, a prominent legend that
states that the Licensed Products are allowed to be sold only within
the Territory and only to an end user. LICENSEE shall periodically,
and at the request of NBAP, inquire of its authorized distributors,
agents and customers as to whether they are observing territorial
limits and shall periodically report in writing to NBAP the results
of such inquiries. LICENSEE shall notify NBAP of all orders from, or
on behalf of, a customer who LICENSEE knows (or has reason to know
after having made reasonable inquiry) is located outside the
Territory or intends to resell the Licensed Products outside the
Territory. If LICENSEE knows or has reason to know that any Licensed
Product sold by LICENSEE is resold outside the Territory, LICENSEE
shall compensate NBAP for the injury to its licensing and
distribution program and shall pay all costs and expenses, including
attorney's fees, required to remove such goods from the marketplace.
Any such monetary damages shall be in addition to, and not in lieu
of, such other rights and relief (including injunctive relief) as
may
be available to NBAP. LICENSEE shall incorporate within its
contracts
of sale or sales orders a provision similar in substance to this
subparagraph and which provides that the obligations set forth in
this subparagraph shall be a continuing obligation on the re-sale of
the Licensed Products to subsequent authorized wholesale purchasers
and which makes NBAP a third party beneficiary of such provision.
(d) Selling, Distributing and Reporting: In the event LICENSEE
sells or
distributes other licensed merchandise of a similar grade or quality
as the Licensed Products, but which do not bear any of the Licensed
Marks, LICENSEE will not discriminate, in a manner which adversely
impacts the Licensed Products, in the granting of commissions or
discounts to salespeople, dealers and distributors between the
Licensed Products and the licensed products of any third party.
LICENSEE may not package the Licensed Products in combination with
other products, whether similar or different, without the prior
written approval of NBAP. In the event that NBAP believes in good
faith that LICENSEE has employed selling or reporting methods which
circumvent or reduce the royalty or other payment or reporting
obligations contained in this Agreement, NBAP may, in addition to
any
other rights and remedies it may have, at its option and upon
fifteen
(15) days' prior written notice, adjust the minimum royalty per
unit.
(e) Shipping and Anti-Counterfeiting Compliance: LICENSEE shall at
all
times conduct all aspects of its business in a fair and reasonable
manner and in compliance with all shipment tracking, identification
and anti-counterfeiting systems and labels that NBAP may establish
from time-to-time and all applicable laws, government rules and
regulations, court and administrative decrees and the highest
standard of business ethics then prevailing in the industry.
LICENSEE
shall faithfully comply with and adhere to NBAP's shipping and
distribution policies established from time-to-time. LICENSEE shall
use its commercially reasonable efforts to ensure that all retailers
and authorized distributors purchasing Licensed Products comply
with NBAP's anticounterfeiting systems, labels and shipping and
distribution policies established from time to time.
(f) Conduct Requirements: LICENSEE represents and warrants to NBAP
that
LICENSEE shall faithfully comply with and adhere to, and LICENSEE
shall take all steps necessary to ensure that all Third Party
Contributors shall faithfully comply with and adhere to, all of the
terms, provisions and policies contained in this Agreement, the
Code of Conduct and all applicable United States and foreign laws,
government rules and regulations, court and administrative decrees
and the highest standard of business ethics then prevailing in the
industry with regard to the conduct of all aspects of LICENSEE's
(or any Third Party Contributor's) business and the manufacture,
distribution, sale, testing and use of all Licensed Products
(collectively, "Conduct Requirements"). NBAP and its authorized
representatives shall have the right, upon reasonable prior notice,
to examine and audit LICENSEE to ensure compliance with the Conduct
Requirements. LICENSEE shall allow NBAP access to any of its
premises and personnel at all reasonable times for the purposes of
such auditing. LICENSEE shall take all necessary steps in
negotiating contracts with Third Party Contributors to provide NBAP
and its authorized representatives with a contractual right to
audit such Third Party Contributors to ensure compliance with the
Conduct Requirements, including the right of NBAP to have access to
the premises and personnel of any Third Party Contributor at all
reasonable times for the purposes of such auditing.
(g) Governmental Approvals: It shall be LICENSEE's sole
responsibility,
at its sole expense, to obtain all approvals (including, but not
limited to, approvals of advertising materials) of all governmental
authorities which may be necessary in connection with LICENSEE's
performance under this Agreement.
(h) NBA Store: LICENSEE acknowledges that NBAP intends to offer
various
NBA and/or Member Team-identified products for sale in an
NBAP-owned "showcase" retail store ("NBA Store"). LICENSEE further
acknowledges that it will receive a variety of tangible and
intangible benefits as a result of having merchandise manufactured
by LICENSEE displayed, sold and promoted at the NBA Store.
Therefore, LICENSEE shall, in addition to and in consideration for
the license granted under this Agreement and in consideration of
the benefits it will receive from having merchandise displayed,
sold and promoted at the NBA Store, (i) upon the request of NBAP,
perform contract manufacturing services for NBAP in connection with
the manufacture of products for sale in the NBA Store on terms as
mutually agreed upon by NBAP and LICENSEE and (ii) offer Licensed
Products to the NBA Store on terms at least as favorable as those
offered to LICENSEE's most preferred high-volume customers,
including price, priority of delivery, discounts, cooperative or
other advertising and promotional allowances and other benefits
(regardless of volume).
12. RECORDS; AUDITS
LICENSEE shall keep accurate books of account and records
covering
all transactions relating to the license granted in this
Agreement
(including, but not limited to, sales of Licensed Products,
purchases
and uses of NBA hologram hang tags and compliance with
shipment tracking, identification and anti-counterfeiting
systems
and labels that NBAP may establish from time to time). NBAP
and its
authorized representatives shall have the
right, at all reasonable hours of the day and upon reasonable
prior
notice, to examine and
audit such books of account and records and all other
documents and
materials in LICENSEE's possession or under its control
(including
records of LICENSEE's parents, subsidiaries, affiliates and
third parties,
if they are involved in activities which relate to this
Agreement) relating to this Agreement. NBAP shall have free
and
full access for such purposes and for the purpose of making
extracts
and copies. Should an audit by NBAP establish a deficiency
between the
amount found to be due NBAP and the amount LICENSEE actually
paid or
reported, the LICENSEE shall pay the amount of such deficiency,
plus
interest at the then current prime rate (as announced by Chase
Bank,
New York branch) from the date such amount should have been paid
until the date of payment. Should such audit establish a
deficiency
of more than five percent (5%), LICENSEE shall also pay for the
cost
of the audit. LICENSEE shall pay such amount within thirty (30)
days. All such books of account and records shall be kept
available
for at least two (2) years after the expiration or termination
of
this Agreement, or three (3) years after the end of the Contract
Year to which they relate, whichever is earlier. In order to
facilitate inspection of its books and records, LICENSEE shall
designate a symbol or number which will be used exclusively in
connection with the Licensed Products on which royalty payments
are
payable and shall maintain for inspection as provided in this
Agreement duplicates of all billings to customers with respect
to
Licensed Products. LICENSEE shall, within ten (10) business days
of
NBAP's request (which shall not be made more than four (4) times
per
Contract Year), furnish NBAP with a list of LICENSEE's top
twenty-five (25) retail accounts for Licensed Products (on a
country
by country basis) and their monthly purchases of Licensed
Products
(broken down by unit sales and in dollar volume by retailer).
LICENSEE
shall supply NBAP with true and complete copies of any agreement it
has
entered into, or in the future enters into, with any Member Team or
any NBA
player. In addition, LICENSEE shall, on a quarterly basis during the
Term,
provide NBAP with copies of either (i) financial information
furnished to
the United States Securities and Exchange Commission or (ii) with
all
financial statements and other financial information prepared by
LICENSEE
for distribution to its banks or other financial lending
institutions to
whom it reports regularly. LICENSEE shall cooperate with NBAP in
developing
an electronic data interchange through which NBAP may access
LICENSEE's
electronic database relating to the manufacture, distribution and
sale of
Licensed Products (such as work-in-process, finished goods on hand,
orders
received, deliveries made and any other on-line information relating
to the
Licensed Products) or developing such other system as will enable
NBAP to
obtain such information or facilitate NBAP's review of LICENSEE's
graphic
designs for Licensed Products.
13. EARLY TERMINATION
Without prejudice to any other rights NBAP may have pursuant to this
Agreement or otherwise, NBAP shall have the right to terminate this
Agreement at any time if:
(a) Within three (3) months from the date that this Agreement is
executed on behalf of NBAP, LICENSEE shall not have begun the
bona-fide distribution and sale of each Licensed Product within and
throughout the Territory in accordance with this Agreement.
(b) LICENSEE shall fail to timely remit any payment of any nature
due
to NBAP or any of its affiliates when due and shall fail to cure
such non-payment within thirty (30) days (ten (10) days for a
payment default other than a royalty payment default) of its
receipt of written notice from NBAP; provided, however, that
LICENSEE shall not have the right to cure any subsequent payment
default.
(c) LICENSEE or any guarantor under this Agreement shall be unable
to
pay its liabilities when due, or shall make any assignment for the
benefit of creditors, or under any applicable law admits in writing
its inability to meet its obligations when due or commit any other
act of bankruptcy, institute voluntary proceedings in bankruptcy or
insolvency or permit institution of such proceedings against it.
(d) LICENSEE shall exhibit a pattern of frequent failure to make
timely
delivery of sufficient quantities of the Licensed Products to its
retail accounts.
(e) LICENSEE (or any entity that controls LICENSEE or is
controlled by
LICENSEE) now or in the future holds a license from NBAP and such
license is terminated by NBAP during the Term.
(f) LICENSEE (i) delivers Licensed Products outside the Territory;
(ii)
sells Licensed Products to a third party who LICENSEE knows, or has
reason to know, intends to deliver the Licensed Products outside
the Territory; or (iii) LICENSEE is in breach of Paragraph 11 (c)
(g) LICENSEE sells to any third party that LICENSEE knows, or has
reason to know, is altering or modifying the Licensed Products
prior to sale to the ultimate consumer.
(h) LICENSEE is in breach of Paragraphs 11 (b) or 11 (D.
(i) LICENSEE shall fail to perform or shall be in breach of any
other
term or condition of this Agreement (other than a payment default).
A termination pursuant to this subparagraph (i) shall take effect
(i) thirty (30) days after written notice of such failure to
perform or breach is sent by NBAP if such failure to perform or
breach can be Completely Cured (as defined below) and such failure
to perform or breach has not been Completely Cured during such
thirty (30) day period, or (ii) immediately after written notice of
such failure to perform or breach is sent by NBAP if such failure
to perform or breach cannot be Completely Cured. For purposes of
this subparagraph, "Completely Cured" means that such failure to
perform or breach is cured so that, in the reasonable judgment of
NBAP, such failure to perform or breach will have had no effect on,
or caused no damage to, NBAP.
In addition to NBAP's other rights and remedies, upon termination of
this Agreement under this Paragraph, LICENSEE shall pay NBAP (within
thirty (30) days of such termination) the Minimum Guarantees for
each
Licensed Product through the end of the Agreement, less the
royalties
paid to NBAP through the date of termination.
14. DISPOSAL OF STOCK; EFFECT OF TERMINATION
Sixty (60) days before the expiration of this Agreement and ten (10)
days after any termination under Paragraphs 9 or 13, LICENSEE will
furnish to NBAP a certificate showing the number and description of
Licensed Products on hand or in process of manufacture. After
expiration or termination of this Agreement, LICENSEE shall have no
right to, nor allow any third party to, manufacture, advertise,
distribute, sell, promote or otherwise deal in any Licensed Products
or
use the Licensed Marks (and LICENSEE shall not engage in any such
activity) except as provided below. For a period of ninety (90) days
following the expiration (but not after the termination) of this
Agreement, LICENSEE may sell-off and deliver Licensed Products which
are on hand or in process at the time of such expiration (the "Sell-
Off
Period"); provided, however that (i) the total number of units of
each
Licensed Product sold during the Sell-Off Period may not be greater
than one hundred ten percent (110%) of the total number of units of
such Licensed Product on hand on the same date the preceding
Contract
Year, (ii) such Licensed Products may only be sold in accordance
with
this Agreement and in the normal course of business and at regular
selling prices, (iii) all payments then due are first made to NBAP
and
(iv) statements and payments with respect to the Sell-Off Period are
made in accordance with this Agreement. NBAP shall have the option
to
conduct physical inventories before the expiration of this Agreement
until the end of the Sell-Off Period in order to verify such
inventory
and/or statements. If LICENSEE refuses to permit such physical
inventory, LICENSEE shall forfeit its right to dispose of Licensed
Products under this Paragraph. After such Sell-Off Period, all
inventory on hand or in process (including all promotional and
packaging materials) will be destroyed. LICENSEE shall have no sell-
off
rights in the event this Agreement is terminated. After such
termination, all inventory on hand or in process (including all
promotional and packaging materials) will be destroyed. Any
destruction
of Licensed Product required pursuant to this Agreement shall be
attested to in a certificate signed by one of LICENSEE's officers.
15. EQUITABLE RELIEF
LICENSEE acknowledges that NBAP is entering into this Agreement not
only in consideration of the royalties or other financial
consideration
to be paid, but also for the promotional value and intrinsic benefit
resulting from the manufacture, advertisement, distribution, sale
and
promotion of the Licensed Products by LICENSEE in the Territory.
LICENSEE acknowledges that the Licensed Marks possess a special,
unique
and extraordinary character which makes difficult the assessment of
the
monetary damage which NBAP would sustain as a result of the
unauthorized use of the Licensed Marks. LICENSEE further
acknowledges
that: (i) its failure to manufacture, advertise, distribute,
sell and promote the Licensed Products in accordance with this
Agreement and (ii) the unauthorized or unapproved use of the
Licensed
Marks, will, in either case, cause immediate and irreparable damage
to
NBAP for which NBAP would not have an adequate remedy at law.
Therefore, LICENSEE agrees that, in the event of a breach of this
Agreement by LICENSEE, in addition to such other legal and equitable
rights and remedies as shall be available to NBAP, NBAP shall be
entitled to injunctive and other equitable relief, without the
necessity of proving damages or furnishing a bond or other security.
16. NOTICES
All notices and statements to be given and all payments to be made
under this Agreement shall be given or made at the respective
address
of the parties as set forth above, unless notification of a change
of
address is given in writing. Any notice of breach or default must be
in
writing and sent by facsimile, overnight express delivery, or
registered or certified mail, return receipt requested, properly
addressed and stamped. Any written notice shall be deemed to have
been
given at the time it is sent.
17. NO JOINT VENTURE
Nothing in this Agreement shall be construed to place the parties in
the relationship of partners or joint venturers. Neither party shall
have the power to obligate or bind the other to a third party in any
manner whatsoever.
18. ARBITRATION OF CERTAIN MATTERS
Any dispute or disagreement between the parties relating solely to
the
amount of royalty payments owing under this Agreement shall be
settled
by arbitration in New York City under the rules then in effect of
the
American Arbitration Association. Judgment upon the award may be
entered in any court having jurisdiction. No other dispute or
disagreement between the parties (including any claim by NBAP that
LICENSEE is using the Licensed Marks in a manner not authorized by
this
Agreement or is otherwise in breach of this Agreement) shall be
settled
by arbitration. All decisions by NBAP relating to disapproval of any
Licensed Product or advertising, promotion or display material shall
be
final and binding on LICENSEE and shall not be subject to review in
any
proceeding.
19. NO USE OF PLAYERS
LICENSEE acknowledges that this Agreement does not grant to LICENSEE
any licenses or rights with respect to the use of the names,
likenesses
or other attributes of any NBA player (collectively, "Player
Attributes"). The license granted under this Agreement does not
include, and shall not be used to imply, a testimonial or
endorsement
of any Licensed Products by any NBA player. LICENSEE shall not use
Player Attributes in any manner without first obtaining written
authorization from the subject player(s). LICENSEE shall not enter
into
any agreement with any NBA player or any other person which would
require that player or other person to wear or use any Licensed
Product
or other product at any NBA game (either courtside or in any locker
room) or at practice.
20. WARRANTIES
Each party represents and warrants that it has the right and
authority
to enter into and perform this Agreement and NBAP represents and
warrants that it has the right to grant the rights to use the
Licensed
Marks in accordance with the terms and conditions of this Agreement.
LICENSEE represents and warrants that the Licensed Products and all
advertising and promotional materials shall comply with all
applicable
laws, regulations and standards. NBAP's approval of such materials
will
not imply a representation or belief that NBAP believes such
materials
are sufficient to meet applicable laws, regulations and standards,
nor
shall it imply that NBAP agrees with or supports any claims made by
LICENSEE in any advertising materials relating to the Licensed
Products. LICENSEE further represents and warrants that all
advertising
and promotional materials and all graphics used on Licensed Products
will not violate the intellectual property rights of any third
party.
21. SEVERABILITY
In the event any provision of this Agreement is found to be void,
invalid or unenforceable
as a result of any judicial or administrative proceeding or decree,
this Agreement shall be
construed and enforced as if such provision were not contained in
this
Agreement.
22. MISCELLANEOUS
(a) Assignment: This Agreement and any rights granted under this
Agreement are personal to LICENSEE and shall not be assigned,
sublicensed, subcontracted or encumbered, directly or indirectly,
by law or by contract, without NBAP's prior written consent, which
consent may, in NBAP's sole discretion, (i) be contingent upon a
fee payable by LICENSEE or the transferee, the amount of which
shall be determined by NBAP in its sole discretion, and/or (ii)
impose other terms and conditions upon the assignment, sublicense
or transfer. Any transfer of a controlling interest in LICENSEE or
in any party which currently controls LICENSEE, directly or
indirectly, shall be deemed an assignment prohibited by the
preceding sentence. Any nonconsensual assignment, sublicense,
subcontract or encumbrance of this Agreement by LICENSEE shall be
invalid and of no force or effect. Upon any such nonconsensual
assignment, sublicense or encumbrance, this Agreement shall
terminate, all payment obligations of LICENSEE hereunder shall be
accelerated and immediately due and payable, and all rights granted
under this Agreement shall immediately revert to NBAP.
(b) Waiver: None of the provisions of this Agreement can be waived
or
modified except expressly by a writing signed by both parties.
There are no representations, promises, agreements, warranties,
covenants or undertakings by either party other than those
contained in this Agreement. No failure on the part of NBAP to
exercise any right under this Agreement shall operate as a waiver
of such right; nor shall any single or partial exercise of any
right preclude any other or further exercise or the exercise of any
other rights.
(c) Survival: No expiration or termination of this Agreement shall
relieve LICENSEE of its obligation to pay NBAP any amounts due to
NBAP at the time of termination, regardless of whether these
amounts are then or thereafter payable. The provisions of
Paragraphs 12 and 22(f) shall survive the expiration or termination
of this Agreement.
(d) Adjustments: NBAP shall have the option to increase the
Royalty
Rates in the event that, at any time during the Term, LICENSEE
agrees to pay or in fact pays royalty rates and/or advertising and
promotion contributions with respect to any other licensed sports
or entertainment property in excess of the Royalty Rate for any
Licensed Product required under this Agreement. From time to time
at NBAP's request, LICENSEE shall deliver a certificate to NBAP
which sets forth the royalty rates and any advertising and
promotion contributions LICENSEE pays to any other professional
sports league or entertainment property.
(e) Governing Law and Jurisdiction: This Agreement shall be
construed
in accordance with the laws of the State of New York, USA, without
regard to its principles of conflicts of laws. Any claim arising
under this Agreement (except as provided under Paragraph 18) shall
be prosecuted in a federal or state court of competent jurisdiction
located within the City of New York, USA and LICENSEE consents to
the jurisdiction of such court and to the service of process by
mail.
(f) Confidentiality: LICENSEE shall not (nor shall it permit or
cause
its employees or agents to) divulge, disseminate or publicize
information relating to this Agreement or the financial or other
terms of this Agreement (including any information on the
specifications or methods of reproduction of the Licensed Marks) to
any third party (other than its attorneys or accountants), except
as may be required by law or to fulfill the terms of this
Agreement. In the event LICENSEE is required by law to publicly
disclose any of the terms of this Agreement, LICENSEE must use best
efforts to request confidential treatment from the applicable
government agency or, if such confidential treatment cannot be
obtained, LICENSEE must redact all sensitive information (e.g.,
royalty rates, minimum guarantees, etc.) from the information to
be publicly disclosed.
(g) Research: LICENSEE shall cooperate with NBAP's reasonable
requests
for information in connection with conducting marketing tests,
surveys and other research ("Research"), provided that any
proprietary information so furnished shall be kept strictly
confidential by NBAP. If LICENSEE performs or causes to be performed
any Research primarily dedicated to evaluating or otherwise
assessing
a Licensed Product (or any LICENSEE (non-NBA) product offering
similar to a Licensed Product), then copies of such Research results
shall be promptly provided to NBAP. As may be reasonably requested
by
NBAP, LICENSEE shall provide NBAP (or NBAP's designated third-party
researcher) with any Research and information that LICENSEE has or
obtains regarding its retail accounts.
(h) Construction: This Agreement has been executed in a text using
the
English language, which text shall be controlling. This Agreement,
together with any exhibits or attachments, when fully-executed,
shall
constitute the entire agreement and understanding between the
parties
and cancels, terminates and supersedes any prior agreement or
understanding relating to the subject matter of this Agreement
between LICENSEE and the NBA, any Member Team, NBAP or NBAE. The
headings in this Agreement are for reference purposes only and shall
not affect the interpretation of this Agreement. This Agreement
shall
not be binding on NBAP until signed on its behalf by its President
or
Senior Vice President, Business Affairs or such other executive
designated by the President to sign.
Schedule A
Third Party Contributors:
Sunwaki Industrial Co. Ltd.
Room 1501 & 1503-4
15-F Mong Kok Comm Ctr.
16 Argyle
Mong Kog Kowloon Hong Kong
Tel: 852-2395-5161
Fax: 852-2789-4977
Hi-Performance
3/F, Kaiser Estate Phase 3, Flat 0
11 Hok Yuen Street, Hunghom Kowloon
Hong Kong
Tel: 852-2774-0324
Fax: 852-2365-6238
EXHIBIT A
NBA PROPERTIES, INC.
LICENSEE AND SUPPLIER CODE OF CONDUCT
The NBA's mission is to be the most respected and successful sports
league
and sports marketing organization in the world. In keeping with this
mission, NBA Properties, Inc. ("NBAP") is committed to conducting
its
business in a socially responsible and ethical manner. We expect all
NBAP
licensees, including their contractors, engaged in the manufacture
and
sourcing of products bearing NBA, WNBA, USA Basketball and NBC
trademarks
(collectively "Product Suppliers") to share this commitment. At a
minimum,
all Product Suppliers must adhere to the following Licensee and
Supplier
Code of Conduct:
1 . ETHICAL STANDARDS
Product Suppliers shall conduct their businesses in accordance with
the
highest standards of ethical behavior.
2. COMPLIANCE WITH APPLICABLE LAWS
Product Suppliers shall comply with all applicable laws and
regulations
of the countries, states and localities in which they operate.
3. EMPLOYMENT PRACTICES
NBAP will only do business with Product Suppliers whose employees
are
appropriately compensated, present at work voluntarily, not at undue
risk of physical harm and not exploited in any way. In addition,
Product
Suppliers must comply with the following specific standards:
Wages and Benefits: Product Suppliers shall provide wages,
overtime
compensation and benefits at not less than the minimum levels
required by applicable laws and regulations or the prevailing local
industry levels, if higher.
Working Hours: Product Suppliers shall, at a minimum, comply
with all
applicable working hours laws and regulations. Except in unusual
business circumstances, employees shall not be required to work more
than the lesser of (a) 48 hours per week and 12 hours of overtime or
(b) the limits on regular and overtime hours allowed by local law
or,
where local law does not limit the hours of work, the regular work
week in such locality plus 12 hours of overtime. In addition, except
in unusual business circumstances, employees shall be entitled to at
least one day off in every seven-day period.
Child Labor. Product Suppliers shall not employ any person under
the
age of 15 (or 14 where allowed by local law) or under the local age
for completing compulsory education, if higher.
Forced Labor. Product Suppliers shall not use any forced labor,
whether in the form of prison labor, indentured labor, bonded labor
or otherwise.
Harassment or Abuse: Product Suppliers shall treat each employee
with
dignity and respect, and shall not use corporal punishment, threats
of violence or other forms of physical, sexual, psychological or
verbal harassment or abuse.
Nondiscrimination: Product Suppliers shall not discriminate in
employment practices on the basis of race, religion, age,
nationality, social or ethnic origin, gender, sexual orientation,
political opinion or disability.
Freedom of Association: Product Suppliers shall recognize and
respect
the right of employees to join organizations of their own choosing
and shall neither threaten nor penalize employees for their efforts
to organize or bargain collectively.
Health and Safety., Product Suppliers shall provide employees with a
safe and healthy working environment. Manufacturing facilities
shall,
at a minimum, contain clean restrooms, potable water, adequate
lighting, adequate ventilation and fire exits. Residential
facilities, if provided, shall also be kept sanitary and safe.
4. ENVIRONMENTAL REQUIREMENTS
Product Suppliers shall comply with all applicable
environmental laws
and regulations.
5. COMMUNICATION
Product Suppliers shall take appropriate steps to ensure that the
provisions of this Code are communicated to employees, including the
prominent posting of the Code (in the local language) in their
manufacturing facilities.
6. MONITORING AND COMPLIANCE
Product Suppliers shall conduct periodic audits of manufacturing
facilities, on the basis of which they shall certify to NBAP on
request
either that (a) all products bearing NBA, WNBA, USA Basketball and
NBC
trademarks have been manufactured in compliance with this Code, or
(b)
identified facilities have been found not to be in compliance with
this
Code, in which event the Product Supplier shall specify appropriate
and
effective steps to remedy the non-compliance. NBAP or its
representatives
are authorized to engage in monitoring activities to confirm
compliance
with this Code, including on-site inspections of manufacturing
facilities
and residential facilities, audits of records relating to employment
matters and private interviews with employees at all levels. Product
Suppliers shall retain and make available to NBAP or its
representatives,
either on site or at agreed upon locations, all documentation that
may be
required to assess whether or not the Product Supplier is in
compliance
with this Code.
7. FAILURE TO COMPLY
NBAP reserves the right, in addition to all other legal and
contractual
rights, to terminate its relationship with any Product Supplier
found to
be in violation of this Code.
FORM: NBA Europe
Int'l./E/Non-Fr
NPR
Non-Apparel
EXHIBIT 10.62
RETAIL PRODUCT LICENSE AGREEMENT
LICENSEE: NASCO PRODUCTS INTERNATIONAL, INC.
ADDRESS: 1808 N. Cherry Street
Knoxville, TN 37917
United States
THIS RETAIL PRODUCT LICENSE AGREEMENT is entered into by NBA Europe
S.A.
("NBA Europe"), a French Societe Anonyme with capital of FF 250,000,
with
its principal office at 40, rue La Boetie, 75008 Paris, France, and
registered with the Registry of Commerce and Companies of Paris
under Number
B 411 908 528, pursuant to the rights and obligations granted to it
under a
license from NBA Properties, Inc. ("NBAP") a New York corporation,
and the
licensee listed above ("LICENSEE") with regard to the commercial use
of
certain names, logos, symbols, emblems, designs and uniforms and
identifications, labels, insignia or indicia thereof (the "Marks")
of the
National Basketball Association (the "NBA) and its Member Teams. On
the
terms of this Agreement and subject to the attached NSA Europe
Standard
Terms and Conditions, NBA Europe hereby grants to LICENSEE, and
LICENSEE
hereby accepts, the nonexclusive (except as otherwise expressly
provided in
this Agreement) right and license to use the Marks of the Member
Teams, the
silhouetted dribbler logo (the "NBA Logo") and Marks of the NBA, NBA
AII-Star Weekend and NBA Playoffs and Finals (collectively, the
"Licensed
Marks") solely in connection with the manufacture, distribution,
advertisement, promotion and sale of the products listed in
Paragraph A
below including one or more of the Licensed Marks ("Licensed
Products"). No
license or right is granted for the use of the Licensed Marks for
any
purpose other than on the Licensed Products and in the distribution,
advertisement, promotion and sale of the Licensed Products in
accordance
with this Agreement.
A. LICENSED PRODUCTS: Sports bags, backpacks and waist packs.
All Licensed Products shall be produced and marketed under the
"NASCO"
label.
B. TERM: August 1, 1998 through July 31, 2000 (the 'Term").
C. TERRITORY: Austria, Belgium, Denmark, Finland, Germany,
Greece, Iceland,
Ireland, Italy, Liechtenstein, Luxembourg, the Netherlands, Norway,
Portugal, Spain, Sweden. Switzerland and the United Kingdom (the
'Territory").
D. ROYALTY RATES: LICENSEE shall pay monthly to NBA Europe a
royalty
equal to thirteen percent (13%) of "Net Sales" (as defined in
Paragraph 1 of
the attached NBA Europe Standard Terms and conditions).
E. MINIMUM GUARANTEES: LICENSEE guarantees that its aggregate
annual
royalty payments to NBA Europe for each Contract Year under this
Agreement shall not be less than the amount set forth opposite such
Contract Year:
1st Contract Year: US$32,000
2nd Contract Year: US$40,000
F. ADVANCES: At the commencement of each Contract Year, LICENSEE
shall pay
to NBA Europe the below indicated sum set forth opposite each
Contract
Year as an advance to be credited against LICENSEE's annual Minimum
Guarantee as set forth above:
1st Contract Year: US$7,000
2nd Contract Year: US$8,000
G. ADVERTISING AND PROMOTION:
(i) Consistent with NBA Europe's past practice of creating,
undertaking or
supporting advertising and promotion activities with respect to NBA
Europe-licensed products sold at retail, NBA Europe shall
devote an
amount up to two percent (2%) of LICENSEE's
Net Sales (from the royalties received from LICENSEE pursuant to
Paragraph D
above) to cover the expenses incurred by NBA Europe in connection
with such
advertising and promotion activities.
(ii) LICENSEE shall exhibit, at its sole cost and expense, a fair
and
representative selection of Licensed Products at every trade show
where
LICENSEE exhibits its products.
(iii) LICENSEE shall also provide NBA Europe with at least three
thousand US
dollars (US $3,000) worth (wholesale cost) of Licensed Products at
no cost.
H.ADDITIONAL PAYMENT: (i) With respect to LICENSEE's shortfall of
thirty
five thousand US dollars (US$35,000) in Minimum Guarantee payments
pursuant
to the Retail Product License Agreement between NBAP and LICENSEE
dated
August 1, 1997, LICENSEE shall pay to NBAP seventeen thousand five
hundred
US dollars (US$ 17,500) prior to execution of this Agreement and
seventeen
thousand five hundred US dollars (US$ 17,500) by no later than March
31,
1999 (collectively, the "Additional Payment").
(ii) If LICENSEE shall fail to timely remit the Additional Payment
NBA
Europe shall have the right to terminate this Agreement at any time
pursuant
to the terms of Paragraph 13 of the NBA Europe Standard Terms and
Conditions
attached hereto.
I.SELLING PRACTICES: LICENSEE acknowledges NBA Europe's legitimate
and
reasonable interest in protecting the value of the Licensed Marks
and
maximizing the effectiveness of its advertising, promotion and
distribution
efforts by segmenting the classes of trade into which its licensees
sell NBA
Europe-licensed products. Therefore, LICENSEE shall sell Licensed
Products
to a buyer that, to its best knowledge, (i) purchases Licensed
Products from
LICENSEE solely for sale directly to the consumer and operates a
retail
establishment that supports the high quality and image of NBA
officially
licensed products with appropriate service or (ii) sells to
retailers that
merchandising displays, promotion and/or customer support the high
quality
and image of NBA officially licensed products with appropriate
merchandising
displays, promotion and/or customer service. LICENSEE acknowledges
that a
failure to comply with the selling practices set forth in this
Paragraph
shall cause significant harm to NBA Europe's efforts to effectively
and
efficiently distribute NBA Europe licensed products.
AGREED TO AND ACCEPTED, subject AGREED TO AND ACCEPTED:
to and incorporating the attached NBA EUROPE S.A.
NBA Europe Standard
Terms and conditions which
the undersigned has read and
fully approved By:/s/ NBA Europe
Title:
By:/s/ Pat Anderson
Title:President
NBA EUROPE STANDARD TERMS AND CONDITIONS
1.ADDITIONAL DEFINITIONS
For the purposes of this Agreement:
(a) "Contract Year' shall mean a twelve (12) month accounting period
commencing August 1 and concluding July 31.
(b) "Counterfeit Goods" shall mean and include: (i) goods that bear
any Licensed Mark that has been reproduced and/or affixed
without authorization from NBA Europe; (ii)
goods that bear any Licensed Mark produced by any source in excess
of
an amount ordered by an NBA Europe licensee; and (iii) goods that
bear
any Licensed Mark that
have been rejected by NBA Europe or an NBA Europe licensee and
nevertheless enter the stream of commerce.
(c) "Diverted Goods" shall mean and include any goods produced by
someone acting on behalf of an NBA Europe licensee, which goods are
not delivered by the producer to such licensee or to
a person designated by such licensee to receive such goods.
(d)"Net Sales" shall mean the total amount of the gross sales of a
Licensed Product by LICENSEE, after deducting any bona-fide credit
or
adjustment for returns actually
made and volume discounts actually and customarily given to the
trade
(such discounts may not exceed two percent (2%) of the gross sales
for
the applicable accounting period). In computing
Net Sales, no direct or indirect expenses or costs
incurred in connection with paying royalties due under this
Agreement
(including transferring funds or royalties or converting currency
into
U.S. dollars) or manufacturing,
selling, distributing, importing or advertising (including
cooperative
and other advertising and promotion allowances) the Licensed
Products
shall be deducted, nor shall any deduction be
made for uncollectible accounts, cash discounts, early
payment discounts, discounts relating to advertising, mark-
down
allowances or other allowances. Net Sales resulting from sales
to any party directly or indirectly related to
or affiliated with LICENSEE (a "Related Transaction") shall be
computed based on regular selling prices to the trade. If such
related
party or affiliate is a reseller to the trade of the
Licensed Products, the sales price for purposes of determining Net
Sales of a Related Transaction shall be the higher of the sales
price
to the related or affiliated party or the sales
price charged to the trade by such related or affiliated
party. If a purchaser from LICENSEE purchases FOB the manufacturing
source or participates in other arrangements which result in such
purchaser paying less for the
Licensed Products than LICENSEE's regular selling prices to the
trade,
Net Sales with respect to any such transaction shall be computed
based
on the regular selling prices to the trade.
(e)"Premium" shall mean anything given free or sold at substantially
less than its usual selling price (but does not
include sales made pursuant to periodic price reductions
resulting from
"specials," "sales," or volume pricing discounts) for the purpose of
increasing the sale of, or publicizing, any product or service, or
other giveaway or promotional purpose. Other giveaway or promotional
purposes include, but are not limited to,
self-liquidating offers, uses of Licensed Products as sales force or
trade incentives and sales of Licensed Products through distribution
schemes involving earned discounts or "bonus" points based on the
consumer's use of the offeror's product or service.
product or service.
2.TEAM REPRESENTATION; LIMITATIONS ON LICENSE
Unless otherwise approved in writing by NBA Europe, each Licensed
Product
must be manufactured and offered for sale on LICENSEE's
Standard terms in a version for each Member Team. Unless otherwise
approved
in writing by NBA Europe, the NBA Logo (I) must be used in
combination with
the Marks of one (1) or more Member Teams (i.e., must be used on all
Licensed Products), which must be shown with equal or greater
prominence
than the NBA Logo or (ii) may be used by itself.
(b)The designs of the Licensed Products, including any packages,
containers
or tags, shall be subject to NBA Europe's prior written approval and
shall
be used solely in furtherance of this Agreement, and such designs
will not
be used in any other respect by LICENSEE nor will LICENSEE authorize
any
third party to use such designs
except as may be required by NBA Europe. Notwithstanding the
foregoing, NBA
Europe acknowledges that LICENSEE may hold other licenses pursuant
to which
LICENSEE manufactures, distributes or sells products similar in
design to
the Licensed Products and nothing in this Agreement is intended to
prohibit
LICENSEE's
manufacture, distribution or sale of such products not bearing or
relating
to the Licensed Marks.
3. STATEMENTS AND PAYMENTS; REPORTING
(a)Statement and Payments: By the fifteenth (15th) day following the
end of
each month, LICENSEE shall furnish (on forms provided by or approved
by NBA
Europe) full and accurate statements (on a country-by-country and
unit
basis, if more than one country is contained within the definition
of the
Territory), certified by an officer of LICENSEE, showing all
information
relating to the calculation of Net Sales for the preceding
statement,
LICENSEE shall make all monthly royalty payments required under this
Agreement for the preceeding month. Simultaneously with the
submission of
such
statement, LICENSEE shall make all monthly royalty payments required
under
this Agreement for the preceding month. The minimum amount of each
monthly
royalty payment with respect to each Licensed Product category shall
be the
amount which, when added to payments of royalties previously made
for the
Contract Year with respect to such Licensed Product category, shall
be equal
to one-twelfth (8.34%) of the Minimum Guarantee for such Licensed
Product
category for such Contract Year required under Paragraph E above,
multiplied
by the number of calendar months then elapsed. Aggregate royalties
paid each
Contract Year may exceed the Minimum Guarantee for such Contract
Year. Such
monthly statements shall be furnished and the required payments made
by
LICENSEE whether or not there are any Net Sales for that month. All
computations and payments shall be in U.S. dollars, at the spot rate
for the
local currency as published in the Wall Street Journal for the last
business
day of the proceeding month. If LICENSEE shall fail to timely pay
any
amount due under this Paragraph, LICENSEE shall pay interest on such
amount
at a rate equal to the lesser of (i) three percent (3%) per
annum over
the highest prime rate (announced by Chase Bank, New York branch)
prevailing
during the period between the date the payment first became due and
the date
such payment is actually paid or (ii) the highest rate permitted by
law
during the period between the date the payment
first became due and the date such payment is, actually paid. The
receipt or
acceptance by NBA Europe of any of the statements furnished or
royalties
paid by LICENSEE (including the cashing of any royalty checks) shall
not
preclude NBA Europe from questioning their accuracy at any firm,
auditing
LICENSEE's books and records pursuant to Paragraph 12 or claiming
any
shortfall in
royalty payments, or advertising and promotion payments. In order to
assist
with NBA Europe's annual budget process, by April 16 of each
Contract Year,
LICENSEE shall deliver a statement detailing LICENSEE's projections
for
sales of each Licensed Product for the
following Contract Year. broken down on a quarterly basis. If
LICENSEE fails to comply with the reporting requirements contained
in this
Paragraph, NBA Europe may charge LICENSEE two thousand U.S. dollars
(U.S.
$2,000) for each instance of non-compliance with this Paragraph.
(b)No Cross Collateralization: Any royalty payment for a unit of
Licensed
Product sold shall only be applied against the Minimum Guarantee for
such
Licensed Product for the Contract Year in which the unit of such
Licensed
Product was sold (i.e., any
shortfall in, or payment in excess of, the Minimum Guarantee for a
Contract
Year may not be offset or credited against the Minimum Guarantees
for any
other Contract Year, against any other Licensed
Product or against any other NBA license (including
premium license agreements entered into pursuant to Paragraph 5
hereof) held
by LICENSEE). If Minimum Guarantees are stated separately for
different
categories of Licensed Products, royalty payments resulting from Net
Sales
of a category of Licensed Product shall be applied only against the
Minimum
Guarantee for such category of Licensed Product.
(c) No Withholdings: All payments made by LICENSEE under this
Agreement
shall be made free and clear of, and without deduction or
withholding for or
on account of, any income, stamp or other taxes, bank charges, fees,
deductions or withholdings. If any
such taxes, charges, fees, deduction or withholdings are required to
be
withheld from any amounts payable to NBA Europe hereunder, the
amounts so
payable shall be increased to the extent necessary to yield to NBA
Europe
the amounts specified in this Agreement.
4.NON-RESTRICTIVE GRANT; RIGHTS RESERVED
Nothing in this Agreement shall prevent NBA Europe from granting any
other
licenses and rights. All rights not specifically granted in this
Agreement
are expressly reserved by NBA Europe. No right of renewal or option
to
extend is granted or implied and LICENSEE shall
have no right to continue manufacturing or selling Licensed Products
or to
continue holding itself out as a licensee of NBA Europe after the
expiration
or termination of this Agreement except as provided in Paragraph 14.
5.PREMIUMS
LICENSEE shall not use, nor allow any third party to use, any
Licensed
Product as a Premium without NBA Europe's prior written
authorization
pursuant to a separate agreement with NBA Europe. In
addition, LICENSEE shall not offer any Premium with the
Licensed Products without the prior written consent of NBA Europe.
Nothing
in this Agreement shall prohibit LICENSEE from marketing Licensed
Products
using creative techniques consistent with industry practice,
including, but
not limited to, periodic "specials," "sales," or volume discount
prices, so
long as all receipts are accounted for in Net Sales and in
accordance with
this Agreement.
6.GOODWILL
LICENSEE recognizes that (i) a portion of the value of the Licensed
Marks is
attributable to goodwill, (ii) the goodwill attached to the Licensed
Marks
belongs exclusively to NBA Europe and/or its affiliates, the NBA and
its
Member Teams and (iii) that such Licensed Marks have secondary
meanings in the
minds of the public. LICENSEE shall not, during the Term or
thereafter,
challenge the property rights of the Member Teams, whether severally
owned or
held
in association as the NBA, or NBA Europe's and/or its affiliates'
property rights, in and to Licensed Marks.
7.PROTECTION OF RIGHTS
(a)Unauthorized Activities: LICENSEE shall promptly notify NBA
Europe in
writing of any infringements of the Licensed Marks or the Licensed
Products
or the sale of any Licensed Products outside the
Territory which may come to LICENSEE's attention.
NBA Europe shall have the sole right to determine whether or not any
action
shall be taken on account of any such infringement. LICENSEE agrees
not to
contact any third party, not to make any demands for claims and not
to
institute any suit or action on account of such
infringement or unauthorized importation/exportation without
obtaining the express prior written permission of NBA Europe in each
instance.
(b)Assistance in Protecting Marks: LICENSEE shall cooperate to the
fullest
extent necessary to assist NBA Europe in the protection of the
rights of NBA
Europe, the NBA and the Member Teams in and to the Licensed Marks.
NBA
Europe shall reimburse LICENSEE for any reasonable out-of-pocket
costs
actually incurred by
LICENSEE in providing such cooperation and assistance. LICENSEE
shall
cooperate with NBA Europe in its enforcement efforts, including
being named
by NBA Europe as a complainant in any action against an infringer.
LICENSEE
shall pay to NBA Europe, and waives all claims to, all damages or
other
monetary relief recovered in any such NBA Europe-initiated action by
reason
of a judgment or settlement (other than for reasonable attoreys'
fees and
expenses incurred at NBA Europe's request) whether or not such
damages or
any part of such damages represent or are intended to represent
injury
sustained by LICENSEE.
(c)Ownership of Marks: LICENSEE acknowledges that NBA Europe, its
affiliates
and/or the Member Teams are the exclusive owners of the Licensed
Marks. Any
intellectual property rights in the Licensed Marks that may accrue
to
LICENSEE shall inure to the benefit of NBA Europe and shall be
assigned to
NBA Europe and/or its affiliates upon its request. Any copyright,
trademark
or service mark used or procured by LICENSEE with respect to or
involving
the Licensed Marks, derivations or adaptations of the Licensed
Marks, or any
word, symbol or design which is similar to the Licensed Marks so as
to
suggest association with or sponsorship by the NBA, one of its
Member Teams
or any of their affiliates, shall be procured for the benefit of and
in NBA
Europe's name, but at LICENSEE's expense, notwithstanding their
creation by
LICENSEE. LICENSEE shall take all necessary steps to secure an
assignment to
NBA Europe of the copyright from a creator of work that is not
work-for-hire. LICENSEE shall assign, and does hereby assign, to NBA
Europe
any copyright, trademark or service mark affecting or relating to
the
Licensed Marks already procured or applied for. LICENSEE shall
supply NBA
Europe with any necessary procured or applied for. LICENSEE shall
supply NBA
Europe with any necessary supporting materials required to obtain
copyright
or trademark registrations of any
copyrights or trademarks required to be assigned to NBA Europe under
this
Agreement. Notwithstanding the above, LICENSEE shall also remain
proprietor
in conjunction with NBA Europe, during and after the termination of
this
Agreement, of any intellectual property right that
LICENSEE acquired in relation to the licensed
trademark.
(d)Notices, Labeling and Records: NBA Europe may from time-to-time
designate
such copyright, trademark or service mark notices (including the
form,
location and content of such notices) that LICENSEE shall cause to
appear on
or within each Licensed
Product sold, by means of a tag, label, imprint or other appropriate
device,
in every instance in which any Licensed Mark is used. The following
general
notice (in the English language and the language of the country
where the
Licensed Products will be sold) must be included on a label, the
packaging
material or on a separate slip of
paper packed with or attached to the Licensed Product:
The NBA and individual NBA member team identifications
reproduced on this product are trademarks and copyrighted designs,
and/or other forms of intellectual property, that are the exclusive
property of NBA Properties, Inc. and the respective NBA member
teams and may not be used, in whole or in part without the written
consent of NBA Properties, Inc."
LICENSEE shall: (I) cause all Licensed Products to bear the NBA
"Official
Licensed Product" logo on either the article or its packaging in
such place,
and in such prominence, as NBA Europe may designate from time-to-
time, (ii)
faithfully comply with and adhere to NBA Europe's mandatory hologram
"Official Licensed Product"
identification system, or such other shipment tracking,
identification and
anticounterfeiting systems, tags and labels that NBA Europe may
establish
from time-to-time, (iii) unless approved in writing by NBA Europe,
not
crosslicense or otherwise use other licensed properties or other
Marks with
the Licensed Products or Licensed Marks and (1v) keep appropriate
records,
and advise NBA Europe, of the date when each of the Licensed
Products is
first placed on sale or sold in each country of the Territory and
the date
of first use in each country of each different Licensed Mark on
the Licensed Products and any promotional or packaging materials.
(e)Recordation and Registered User Applications: which LICENSEE may
distribute and which require applications to register LICENSEE as a
permitted or registered user of the Licensed Marks, or which require
the
recordation of this Agreement, LICENSEE shall execute and deliver to
NBA
Europe such applications, agreements or other documents as may be
necessary.
In such event, this Agreement rather than such agreements will
govern any
disputes between LICENSEE and NBA Europe, and when this Agreement
expires or
is terminated, any such other agreement shall also be deemed expired
or
terminated.
(f) LICENSEE Trade Names and Trademarks: LICENSEE shall
permanently affix
labeling on each Licensed Product or its packaging, indicating its
name,
trade name and address so that the public can identify the supplier
of
the Licensed Product. Prior to any distribution or sale of any
Licensed
Products, LICENSEE shall advise NBA Europe in writing of LICENSEE's
trade
names or trademarks used on Licensed Products and the proposed
placement
of such trade names and trademarks on the Licensed Products.
LICENSEE
shall only sell Licensed Products under mutually agreed upon trade
names
or trademarks and with approved copyrighted designs, shall not
incorporate the Licensed Marks into LICENSEE's corporate or business
name
or trademark in any manner whatsoever and shall place its trade
names and
trademarks on Licensed Products only as approved in writing by NBA
Europe
prior to such use. As requested by NBA Europe, LICENSEE shall supply
NBA
Europe, in advance of shipping any Licensed Products, with at least
twelve (12) copies of each type of its hang tags, labels and other
markings of origin for use in identifying and authenticating
Licensed
Products in the marketplace. LICENSEE shall not use, whether during
or
after the Term, any Marks: (1) in connection with the Licensed Marks
without NBA Europe's authorization, (ii) confusingly-similar to the
Licensed Marks, or (iii) intended to relate or refer to the Licensed
Marks, the Member Teams or events involving the NBA or the Member
Teams.
INDEMNIFICATIONS
(a) LICENSEE shall be solely responsible for, and shall defend,
hold harmless
and indemnify NBA Europe, the NBA, its Member Teams and the National
Basketball Players Association ("NBPA") and their respective
affiliates,
owners, directors, governors, officers, employees and agents
(collectively "NBA Parties") against any claims, demands, causes of
action or damages, including attorneys' fees (collectively,
"Claims"),
arising out of: (i) any act or omission of LICENSEE, (ii) any breach
of
this Agreement by LICENSEE, (iii) the manufacture, distribution,
advertisement, promotion. sale, possession or use of any Licensed
Product
(including, but not limited to, Claims relating to (w) any defect
(whether obvious or hidden and whether or not present in any sample
approved by NBA Europe) in a Licensed Product or in any packaging or
other materials (including advertising materials), (x) any alleged
injuries to persons or property, (y) any infringement of any rights
of
any other person or entity or (z) the alleged failure by LICENSEE to
comply with applicable laws, regulations, standards or the terms of
the
NBA Europe Code of Conduct, as amended from time to time by NBA
Europe
(the "Code of Conduct"), attached hereto as Exhibit or (iv) any
claim
that the use of any design or other graphic component of any
Licensed
Product (other than the Licensed Marks) violates or infringes upon
the
trademark, copyright or other intellectual property rights
(including
trade dress) of a third party, provided LICENSEE is given prompt
written
notice of and shall have the option to undertake and conduct the
defense
of any such Claim. In any instance to which the foregoing
indemnities
pertain, NBA Europe shall cooperate fully with and assist LICENSEE
in all
respects in connection with any such defense. LICENSEE shall
reimburse
NBA Europe for all reasonable out-of-pocket costs actually incurred
by
NBA Europe in connection with such cooperation and assistance. In
any
instance to which such indemnities pertain, LICENSEE shall keep NBA
Europe fully advised of all developments pertaining to such Claim
and
shall not enter into a settlement of such Claim or admit liability
or
fault without NBA Europe's prior written approval. LICENSEE shall
obtain
and maintain product liability insurance providing protection for
the NBA
Parties against any Claims arising out of any alleged defects in the
Licensed Products or any use of the Licensed Products, in an amount
and
providing coverage satisfactory to NBA Europe (including the amount
of
the deductible). Such insurance shall be carried by an insurer with
a
rating by A.M. Best & Co. of A-7 or other rating satisfactory to NBA
Europe. Such insurance policy shall also provide that NBA
Europe receive written notice within thirty (30) days prior to the
effective
date of the cancellation, non-renewal or any material change in
coverage. In
the event that LICENSEE has failed to deliver
to NBA Europe a certificate of such insurance evidencing
satisfactory
coverage prior to NBA Europe's execution of this Agreement (or fails
to
maintain such insurance in accordance with this Paragraph), NBA
Europe shall
have the right to withdraw its consent to use any or all of the
Licensed
Marks
and/or terminate this Agreement at any time. Such insurance
obligations
shall not limit LICENSEE's indemnity obligations, except to the
extent that
LICENSEE's insurance company actually pays NBA Europe amounts which
LICENSEE
would otherwise be obligated to pay NBA Europe.
(b)NBA Europe shall be solely responsible for, and shall defend,
hold
harmless and indemnify LICENSEE, its directors, officers, employees
and
agents against any Claims arising out of: (i) a claim that the use
of a
Licensed Mark that has been registered in the Territory and which is
used as
authorized by this Agreement violates or infringes upon the
trademark,
copyright or other intellectual property rights (including trade
dress) of a
third party in or to the Licensed Marks or (ii) any breach of this
Agreement
by NBA Europe, provided NBA Europe is given prompt written notice of
and
shall have the option to undertake and conduct the defense of any
such
Claim. In any instance to which the foregoing indemnities pertain,
LICENSEE
shall cooperate fully with and assist NBA Europe in all respects in
connection with any such defense. NBA Europe shall reimburse
LICENSEE for
all reasonable out-of-pocket expenses actually incurred by LICENSEE
in
connection with such cooperation and assistance. In any instance to
which
such indemnities pertain, NBA Europe shall not enter into a
settlement of
such Claim or admit liability or fault without LICENSEE's prior
written
approval. NBA Europe shall have the right within seventy (70) days
of
LICENSEE's commencement of production of Licensed Products bearing
such
Marks, to advise LICENSEE that one or more Marks of a Member Team
(other
than the team's name or primary logo) are not covered by this
Paragraph
8(b), whereupon any continued use of such Mark by LICENSEE shall be
at
LICENSEE's sole risk.
9.QUALITY; APPROVALS; SAMPLES
LICENSEE shall cause the Licensed Products to meet and conform to
high
standards of style, quality and appearance. In order to assure NBA
Europe
that it Is meeting such standards and other provisions of this
Agreemtent,
LICENSEE shall submit all materials for
approval to either NBA Europe at the address listed above or NBA
Properties,
Inc. at 645 Fifth Avenue, New York, New York, as directed by NBA
Europe and
shall comply with the following:
(a) Pre-Production: Before commercial production and distribution
of any
product bearing a Licensed Mark, LICENSEE shall submit to NBA Europe
all
preliminary and proposed final artwork, three dimensional models (if
any),
prototypes, mock-ups and pre-production samples of each product,
including
all styles, colors and variations,
together with its labels, tags, cartons and containers (including
packaging
and wrapping materials). All LICENSEE submissions under this
Paragraph shall
be accompanied by forms supplied by NBA Europe, using one (1) form
for each
submission and filling in all necessary information. NBA Europe
shall
approve or disapprove in writing all submissions, in Its sole
discretion,
before LICENSEE shall be
entitled to distribute, advertise, use, produce commercial
quantities of or
sell any item relating to any such submission. Any article actually
submitted and not disapproved within sixty (60) days after receipt
by NBA
Europe shall be deemed approved.
Approval of an article which uses particular artwork does not imply
approval
of such artwork with a different article or of such article with
different
artwork. LICENSEE acknowledges that NBA Europe's approval of an
article does
not imply approval of, or
license to use, any non-NBA controlled elements contained in any
article.
After a sample of an article has been approved, LICENSEE shall not
make any
changes without resubmitting the modified article for NBA Europe's
written
approval.
(b) Production Samples: Before selling or distributing any product
bearing a
Licensed Mark, LICENSEE shall furnish NBA Europe with, at no charge,
for
its permanent use, two (2) samples of the product from the first
production run of each manufacturer of the Licensed Products,
including
all styles, colors and variations, together with its labels, tags,
cartons and containers (including packaging and wrapping materials).
If
such samples do not conform to all aspects of the Licensed Product
as
approved or if the quality of any such sample does not meet the
requirements of this Paragraph 9, NBA Europe shall notify LICENSEE
and
such article shall be deemed disapproved and all such articles shall
be
promptly destroyed. LICENSEE shall also furnish NBA Europe, free of
charge, with any additional pieces of Licensed Product as may
reasonably
be requested by NBA Europe to promote the sale of Official Licensed
Products (e.g., for NBA Europe's display room, advertisements,
catalogs,
mailers, product placement and trade shows) or for comparison with
earlier samples. In addition, LICENSEE shall provide NBA Europe with
any
additional pieces of Licensed Product as may be required for the
permanent use of the Member Teams, not to exceed one (1) piece per
Member
Team. If NBA Europe wishes to purchase Licensed Products for give-
away
purposes and not for resale, LICENSEE shall sell the Licensed
Products to
NBA Europe at LICENSEE's direct manufacturing cost for such Licensed
Products and LICENSEE shall not be required to pay royalties on such
sales to NBA Europe.
(c) Rejections and Non-Compliance: The rights granted under this
Agreement do
not permit the sale of "seconds" or "irregulars." All submissions or
samples not approved by NBA Europe shall promptly be destroyed by
LICENSEE. LICENSEE shall advise NBA Europe regarding the time and
place
of such destruction (in sufficient time to arrange for an NBA Europe
representative to witness such destruction, if NBA Europe so
desires) and
such destruction shall be attested to in a certificate signed by one
of
LICENSEE's officers and submitted to NBA Europe within fifteen (15)
days
of the date on which the sample was not approved. In the event of
LICENSEEs unapproved or unauthorized manufacture, distribution, use
or
sale of any products or materials bearing the Licensed Marks,
including
promotional materials, or the failure of LICENSEE to comply with
Paragraphs 7(d), 7(f) 9, 11 (c) or 11 (e), NBA Europe shall have the
right to: (1) immediately revoke LICENSEE's rights with respect to
any
Licensed Product licensed under this Agreement, (ii) charge LICENSEE
two
thousand
U.S. dollars (U.S. $2,000) for each instance (e.g., per unit) of
non-compliance with respect to any article, product or material
and/or
(iii) at LICENSEE's expense, confiscate or order the destruction of
such
unapproved, unauthorized or noncomplying products. Such right(s)
shall be
without prejudice to any other rights NBA Europe may have under this
Agreement or otherwise.
(d) Testing: Both before and after Licensed Products are put on the
market,
LICENSEE shall follow reasonable and proper procedures for testing
the
Licensed Products for compliance with laws, regulations, standards
and
procedures, and shall permit NBA Europe (upon reasonable notice) to
inspect its and its authorized manufacturer's testing, manufacturing
and
quality control records, procedures and facilities and to test or
sample
Licensed Products for compliance with this Paragraph and the other
terms
and conditions of this Agreement. Licensed Products found by NBA
Europe
at any time not to comply with applicable laws, regulations,
standards
and procedures shall be deemed disapproved, even if previously
approved
by NBA Europe, and shall not be shipped unless and until LICENSEE
can
demonstrate to NBA Europe's satisfaction full compliance.
(e) Revocation of Approval: In the event that: (i) the quality,
appearance
or style of any Licensed Product ceases to be acceptable to NBA
Europe,
(ii) LICENSEE uses the Licensed Marks improperly or violates any
term of
this Paragraph 9 or (iii) NBA
Europe becomes aware of something relating to any such
Licensed
Product or LICENSEE which. in the opinion of NBA Europe. reflects
unfavorably upon the professional, business or personal
reputation of
NBA Europe, the NBA or any of its
Member Teams, then, in any such event, NBA Europe shall have the
right,
in its sole discretion, to withdraw its approval of such
Licensed
Product. In the event of such withdrawal, NBA Europe shall
provide
immediate written notice to LICENSEE and
LICENSEE shall cease the use of the Licensed Marks in connection
with
the manufacture, sale, distribution, advertisement or use of such
Licensed Product and such Licensed Product shall immediately be
withdrawn from the market and destroyed; provided, however,
that in the
event of a revocation of approval pursuant to
(i) above, NBA Europe and LICENSEE shall negotiate in good faith to
provide for a reasonable sell-off period for such Licensed
Product.
Within ten (10) days after LICENSEE's receipt of such notice,
LICENSEE
shall pay all royalties, Monthly Payments, Minimum Guarantees and
advertising and promotion amounts due NBA
Europe with respect to the Licensed Product for which approval has
been
revoked. If there are other Licensed Products for which
approval has not
been withdrawn under this subparagraph, then this Agreement shall
remain
in full force and effect as to such
other Licensed Products. LICENSEE shall notify NBA Europe in writing
of
any Licensed Products deleted from its product lines.
(f) All decisions by NBA Europe relating to disapproval of any
Licensed Product shall be final and binding on LICENSEE and shall
not be
subject to review in any proceeding.
10. PROMOTIONAL MATERIAL
LICENSEE shall not use the Licensed Marks or Player Attributes (as
defined in Paragraph 19) or any reproduction of the Licensed Marks
or
Player Attributes in any advertising, promotion or display material
in
connection with any product or in any other manner whatsoever
without
prior written approval from NBA Europe. Under no circumstance will
"lotteries," "games of chance" or any other type of promotion which
NBA
Europe believes reflects unfavorably upon the NBA or Its Member
Teams be
approved. AJI advertising or promotional copy and material depicting
or
using the Licensed Marks (including display material, catalogs and
press
releases) shall be submitted for approval well in advance of
production
(but in no event less than ten (10) business days prior to the start
of
commercial production) to allow adequate time for NBA Europe, in its
sole discretion, to approve, disapprove or comment upon such
materials
and for any required changes to be made. By way of example, no
television or cinema advertising containing any Licensed Mark may be
used unless it has been approved in all stages (i.e., storyboard,
production rough-cut and final version). Unless otherwise approved
by
NBA Europe, any NBA game action photographs or footage that LICENSEE
uses in connection with the Licensed Products must be obtained from
NBA
Entertainment, Inc. (NBAE") and shall be subject to NBAE's search
and
edit charges and any additional NBAE licensing fees. Any promotional
material submitted that is not approved or disapproved by NBA Europe
within thirty (30) days of its receipt by NBA Europe shall be deemed
approved by NBA Europe. LICENSEE shall be solely responsible and
liable
for any advertising and promotional activities conducted and shall
ensure that all such activities comply with all applicable laws,
regulations and standards in the Territory. AJI decisions by NBA
Europe
relating to disapproval of any advertising, promotion or display
material shall be final and binding on LICENSEE and shall not be
subject
to review in any proceeding.
11. DISTRIBUTION; COMPLIANCE
d sell, within and throughout the (a) LICENSEE shall use its best
efforts to distribute an Territory, the Licensed Products in such
manner
as may be required to meet competition by reputable manufacturers of
similar articles. In any ninety (90) day period in which LICENSEE
fails
to sell or distribute Licensed Products in reasonable commercial
quantities, LICENSEE shall be deemed not to have used its best
efforts.
LICENSEE shall make and maintain adequate arrangements for the
distribution and
timely delivery of Licensed Products to retailers within and
throughout the
Territory. In the event NBA Europe advises LICENSEE that a special
promotional effort is to take place in an individual store or chain,
LICENSEE shall use its best efforts to sell the Licensed Products to
said
store or chain. In addition, LICENSEE shall give the Licensed
Products wide
distribution in the Territory and shall not, subject to the
provisions set
forth in
this Agreement, refrain for any reason from selling Licensed
Products to any retail outlet within the Territory that may desire
to
purchase Licensed Products and whose credit rating and marketing
image
warrants such sale.
(b)If LICENSEE desires to have a third party manufacture or
distribute (if
permitted under this Agreement) any Licensed Product,
LICENSEE must first notify NBA Europe of the
name and address of such third party and of the Licensed Product
LICENSEE
desires such third party to manufacture or distribute. Attached as
Schedule
A is a true and complete list of all third party manufacturers and
distributors (if permitted under this
Agreement) currently authorized by NBA Europe. NBA Europe shall have
the
right, in its sole discretion, to withhold approval for such third
party
manufacture or distribution.
If NBA Europe grants approval for such third party manufacture or
distribution, it may grant such approval pursuant to an agreement
(on a form
supplied by NBA Europe) to
be entered into prior to such manufacture or distribution among NBA
Europe,
LICENSEE and such manufacturer or distributor which will, among
other
things, require that the third party manufacturer or distributor be
subject
to all of the terms and
conditions of this Agreement. If NBA Europe does not require the
third party
to enter into a separate agreement, LICENSEE must provide NBA Europe
with a
copy of its agreement with the third party, which agreement must
provide
that it is subject to this
Agreement. If any of LICENSEE's authorized manufacturers or
distributors
uses the Licensed Marks for any unauthorized purpose, LICENSEE shall
be
responsible for, and shall cooperate fully and use its best efforts
in
stopping, such unauthorized use.
Any change by LICENSEE from a third party manufacturer or
distributor
previously approved by NBA Europe shall require approval in
accordance with
this Paragraph.
(c)LICENSEE understands and acknowledges the meanings of
"Counterfeit Goods"
and "Diverted Goods" as set forth in Paragraph 1 above and LICENSEE
shall
use all commercially reasonable means to prevent the creation of any
such
goods by its employees, agents, representatives or any others
operating
under its direction,
supervision or control and involving the Licensed Marks. Nothing in
this
Agreement, however, shall be deemed to restrict LICENSEE with
respect to its
obligation to fulfill orders from customers in accordance with
applicable
laws.
(d)In the event grade or quality as the Licensed Products, but which
do not
bear any of the Licensed Marks, LICENSEE will not discriminate, in a
manner
which adversely impacts the
Licensed Products, in the granting of commissions and discounts to
salesmen,
dealers and distributors between the Licensed Products and the
licensed
products of any third party. LICENSEE may not package the Licensed
Products
in combination with other products, whether similar or different,
without
the prior written approval of
NBA Europe. In the event that NBA Europe believes in good faith that
LICENSEE has employed selling or reporting methods which circumvent
or
reduce the royalty or other payment or reporting obligations
contained in
this Agreement, NBA Europe may, in addition to any other rights and
remedies
it may have, at its option and upon fifteen (15) days' prior written
notice,
adjust or establish minimum royalties per unit.
(e)LICENSEE shall at all times conduct all aspects of its business
in a fair
and reasonable manner and in compliance with all shipment tracking,
identification and anti-counterfeiting systems and labels that NBA
Europe
may establish from time to time and all applicable laws, government
rules
and regulations, court and administrative decrees and the highest
standard
of business ethics then prevailing in the industry. LICENSEE shall
faithfully comply with and adhere to NBA Europe's shipping and
distribution
policies established from time-to-time. LICENSEE shall use
reasonable
efforts to ensure that all retailers and authorized its commercially
distributors purchasing Licensed Products comply with NBA Europe's
anti-
counterfeiting systems, labels and shipping and distribution
policies
established from time-to-time.
It shall be LICENSEE's sole responsibility, at its sole expense, to
obtain all approvals (including, but not limited to, approvals of
advertising materials) of all governmental authorities which may be
necessary in connection with LICENSEE's performance under this
Agreement.
(g) LICENSEE acknowledges that one or more of NBA Europe's
affiliates
intend to offer various NBA and/or Member Team-identified products
for sale in an NBA Europe owned "showcase" retail store ("NBA
Store"). LICENSEE further acknowledges that it will receive a
variety
of tangible and intangible benefits as a result of having
merchandise
manufactured by LICENSEE displayed, sold and promoted at the NBA
Store. Therefore, LICENSEE shall, in addition to and in
consideration
for the license granted under this Agreement and in consideration of
the benefits it will receive from having merchandise displayed, sold
and promoted at the NBA Store, (i) upon the request of NBA Europe,
perform contract manufacturing services for NBA Europe in connection
with the manufacture of products for sale in the NBA Store on terms
as mutually agreed upon by NBA Europe and LICENSEE and (ii) offer
Licensed Products to the NBA Store on terms at least as favorable as
those offered to LICENSEE's most preferred high-volume customers,
including price, priority of delivery, discounts, cooperative or
other advertising and promotional allowances and other benefits
(regardless of volume).
12. RECORDS; AUDITS
LICENSEE shall keep accurate books of account and records covering
all transactions relating to the license granted in this Agreement
(including, but not limited to, sales of Licensed Products,
purchases
and uses of NBA hologram hang tags and compliance with shipment
tracking, identification and anti-counterfeiting systems and labels
that NBA Europe may establish from time to time). NBA Europe and its
authorized representatives shall have the right, at all reasonable
hours of the day and upon reasonable prior notice, to examine and
audit such books of account and records and all other documents and
materials in LICENSEE's possession or under its control (including
records of LICENSEE's parents, subsidiaries, affiliates and third
parties, if they are involved in activities which relate to this
Agreement) relating to this Agreement. NBA Europe shall have free
and
full access for such purposes and for the purpose of making extracts
and copies. Should an audit by NBA Europe establish a deficiency
between the amount found to be due NBA Europe and the amount
LICENSEE
actually paid or reported, the LICENSEE shall pay the amount of such
deficiency, plus interest at the then current prime rate (as
announced by Chase Bank, New York branch) from the date such amount
should have been paid until the date of payment. Should such audit
establish a deficiency of more than five percent (5%), LICENSEE
shall
also pay for the cost of the audit. LICENSEE shall pay such amount
within thirty (30) days. All such books of account and records shall
be kept available for at least two (2) years after the expiration or
termination of this Agreement, or three (3) years after the end of
the Contact Year to which they relate, whichever is earlier. in
order
to facilitate inspection of Its books and records, LICENSEE shall
designate a symbol or number which will be used exclusively in
connection with the Licensed Products on which royalty payments are
payable and shall maintain for inspection as provided in this
Agreement duplicates of all billings to customers with respect to
Licensed Products. LICENSEE shall, within ten (10) business days of
NBA Europe's request (which shall not be made more than four (4)
times per Contract Year), furnish NBA Europe with a list of
LICENSEE's top twenty-five (25) retail accounts for Licensed
Products
(on a country by country basis) and their monthly purchases of
Licensed Products (broken down by unit sales and in dollar volume by
retailer).
LICENSEE shall supply NBA Europe with true and complete copies of
any
agreement it has entered into, or in the future enters into, with
any Member
Team or any NBA player. In addition, LICENSEE shall, on a quarterly
basis
during the Term, provide NBA Europe with copies
of all financial statements and other financial information
prepared by LICENSEE for distribution to its banks or other
financial
lending institutions to whom it reports regularly. LICENSEE shall
cooperate
with NBA Europe in developing an electronic data interchange through
which
NBA Europe may access
LICENSEE's electronic database relating to the manufacture,
distribution and
sale of Licensed Products (such as work-in-process, finished
goods on hand,
orders received, deliveries made and any other online information
relating
to the Licensed
Products) or developing such other system as Will enable NBA Europe
to
obtain such information or facilitate NBA Europe's review of
LICENSEE's
graphic designs for Licensed Products.
13.EARLY TERMINATION
Without prejudice to any other rights NBA Europe may have pursuant
to this
Agreement or otherwise, NBA Europe shall have the right to terminate
this
Agreement at any time if:
(a) Within three (3) months from the d
NBA Europe, LICENSEE shall not have begun the bona-fide distribution
and
sale of each Licensed Product within and throughout the Territory in
accordance with this Agreement.
(b)LICENSEE shall fail to timely remit a payment when due and shall
fail to
cure such non-payment within thirty (30) days (ten (10) days for a
payment
default other than a royalty payment default) of its receipt of
written
notice from NBA Europe; provided, however, that the LICENSEE shall
not have
the right to cure any subsequent payment default.
(c) LICENSEE or any guarantor under this Agreement shall be unable
to
pay its liabilities when due, or shall make any assignment for the
benefit
of creditors, or under any applicable law admits in writing its
inability to
meet its obligations when due or commit
any other act of bankruptcy, institute voluntary proceedings in
bankruptcy
or insolvency or permit institution of such proceedings against it.
(d)LICENSEE shall exhibit a pattern of frequent failure to make
timely
delivery of sufficient quantities of the Licensed Products to
its
retail accounts.
(e)LICENSEE (or any entity that controls LICENSEE or is controlled
by
LICENSEE) now or in the future holds another license from NBA Europe
or from
any of its affiliates and such license is terminated during the
Term,
LICENSEE is in breach of Paragraph 6 or Paragraph 111 (c).
(g)LICENSEE sells to any third party that LICENSEE knows, or has
reason to
know, is altering or modifying the Licensed Products prior to sale
to the
ultimate consumer.
(h)LICENSEE shall fail to perform or shall be in breach of any other
term or
condition of this Agreement (other than a payment default). A
termination
pursuant to this subparagraph (h) shall take effect (i) thirty (30)
days
after written notice of such failure
to perform or breach is sent by NBA Europe If such failure to
perform or
breach can be Completely Cured (as defined below) and such failure
to
perform or breach has not been Completely Cured during such thirty
(30) day
period, or (ii) immediately after
written notice of such failure to perform or breach is sent by NBA
Europe if
such failure to perform or breach cannot be Completely Cured. For
purposes
of this subparagraph, 'Completely Cured" means that such failure to
perform
or breach is cured so that, in the reasonable judgment of NBA
Europe, such
failure to perform or
breach will have had no effect on, or caused no damage to, NBA
Europe.
In addition to NBA Europe's other rights and remedies, upon
termination of
this Agreement under this Paragraph, LICENSEE shall pay NBA Europe
(within
thirty (30) days of such termination) the Minimum Guarantees for
each
Licensed Product through the end of the Agreement, less the
royalties paid
to NBA Europe through the date of termination.
14. DISPOSAL OF STOCK
Sixty (60) days before the expiration of this Agreement and ten (10)
days
after any termination under Paragraphs 9 or 13, LICENSEE will
furnish to NBA
Europe a certificate showing the number and description of Licensed
Products
on hand or in process of manufacture. After expiration or
termination of
this Agreement, LICENSEE shall have no right to, nor allow any third
party
to,
Manufacture, advertise, distribute, sell, promote or otherwise deal
in any
Licensed Products or use the Licensed Marks (and LICENSEE shall not
engage
in any such activity) except as provided below. For a period of
ninety (90)
days following the expiration (but not after the termination) of
this
Agreement, LICENSEE may sell-off and deliver Licensed Products which
are on
hand or in process at the time of such expiration (the "Sell-Off
Period");
provided, however that (i) the total number of units of each
Licensed
Product sold during the Sell-Off Period may not be greater than one
hundred
ten percent (110%) of the total number of units of such Licensed
Product on
hand on the same date the preceding Contract Year, (ii) such
Licensed
Products may only be sold in accordance with this Agreement and in
the
normal course of business and at regular selling prices, (iii) all
payments
then due are first made to NBA Europe and (iv) statements and
payments with
respect to the Sell-Off Period are made in accordance with this
Agreement.
NBA Europe shall have the option to conduct physical inventories
before the
expiration of this Agreement until the end of the Sell-Off Period in
order
to verify such inventory and/or statements. If LICENSEE refuses to
permit
such physical inventory, LICENSEE shall forfeit its right to dispose
of
Licensed Products under this Paragraph. After such Sell-Off Period,
all
inventory on hand or in process (including all promotional and
packaging
materials) will be destroyed. LICENSEE shall have no sell-off rights
in the
event this Agreement is terminated. After such termination, all
inventory on
hand or in process (including all promotional and packaging
materials) will
be destroyed. Any destruction of Licensed Product required pursuant
to this
Agreement shall be attested to in a certificate signed by one of
LICENSEE's
officers.
15. EQUITABLE RELIEF
LICENSEE acknowledges that NBA Europe-is entering into this
Agreement not
only in consideration of the royalties or other financial
consideration to
be paid, but also for the promotional value and intrinsic benefit
resulting
from the manufacture, advertisement, distribution, sale and
promotion of the
Licensed Products by LICENSEE in the Territory. LICENSEE
acknowledges that
the Licensed Marks possess a special, unique and extraordinary
character
which makes difficult the assessment of the monetary damage which
NBA Europe
would sustain as a result of the unauthorized use of the Licensed
Marks.
LICENSEE further acknowledges that: (I) its failure to manufacture,
advertise, distribute, sell and promote the Licensed Products in
accordance
with this Agreement and (ii) the unauthorized or unapproved use of
the
Licensed Marks, will. in either case, cause immediate and
irreparable damage
to NBA Europe for which NBA Europe would not have an adequate remedy
at law.
Therefore, LICENSEE agrees that, in the event of a breach of this
Agreement
by LICENSEE, in addition to such other legal and equitable rights
and
remedies as shall be available to NBA Europe, NBA Europe shall be
entitled
to injunctive and other equitable relief, without the necessity of
proving
damages or furnishing a bond or other security.
16. NOTICES
All notices and statements to be given and all payments to be made
under
this Agreement shall be given or made at the respective address of
the
parties as set forth above, unless notification of a change of
address is
given in writing. Any notice of breach or default must be in writing
and
sent by facsimile, overnight express delivery, or registered or
certified
mail, return receipt requested, property addressed and stamped. Any
written
notice shall be deemed to have been given at the time it is sent.
17. NO JOINT VENTURE
Nothing in this Agreement shall be construed to place the parties in
the
relationship of partners or joint venturers. Neither party shall
have the
power to obligate or bind the other to a third party in any
mannerwhatsoever
18. ARBITRATION OF CERTAIN MATTERS
Any dispute or disagreement between the parties relating solely to
the
amount of royalty payments owing under this Agreement shall be
settled by
arbitration in New York City under the rules then in effect of the
American
Arbitration Association. Judgment upon the award may be entered in
any court
having jurisdiction. No other dispute or disagreement between the
parties
(including any claim by NBA Europe that LICENSEE is using the
Licensed Marks
in a manner not authorized by this Agreement or is otherwise in
breach of
this Agreement) shall be settled by arbitration.
19. NO USE OF PLAYERS
LICENSEE acknowledges that this Agreement does not grant to LICENSEE
any
licenses or rights with respect to the use of the names, likenesses
or other
attributes of any NBA player (collectively, "Player Attributes")
except in
advertising and promotional materials specifically approved by NBA
Europe.
The license granted under this Agreement does not include, and shall
not be
used to imply, a testimonial or endorsement of any Licensed Products
by any
NBA player. LICENSEE shall not use Player Attributes without first
obtaining
written authorization from the subject player(s). LICENSEE shall not
enter
into any agreement with any NBA player or any other person which
would
require that player or other person or other person to wear or use
any
Licensed Product at any NBA game (either courtside or in any locker
room) or
at practice.
20. WARRANTIES
Each party represents and warrants that it has the right and
authority to
enter into and perform this Agreement and NBA Europe represents and
warrants
that ft has the right to grant the rights to use the Licensed Marks
in
accordance with the terms and conditions of this Agreement. LICENSEE
represents and warrants that the Licensed Products and all
advertising and
promotional materials shall comply with all applicable laws,
regulations and
standards. NBA Europe's approval of such materials will not imply a
representation or belief that NBA Europe believes such materials are
sufficient to meet applicable laws, regulations and standards, nor
shall it
imply that NBA Europe agrees with or supports any
claims made by LICENSEE in any advertising materials relating to the
Licensed Products. LICENSEE further represents and warrants
that all
advertising and promotional materials and all graphics used on
Licensed
Products will not violate the intellectual property rights
of any third party.
21. SEVERABILITY
In the event any provision of this Agreement is found to be void,
invalid or
unenforceable as a result of any judicial or administrative
proceeding or
decree, this Agreement shall be construed and enforced as if such
provision
were not contained in this Agreement.
22. GOVERNING LAW AND JURISDICTION
Pursuant to the obligations of NBA Europe under a license from NBAP,
NBA
Europe is required to cause each license agreement authorizing the
use of
the Licensed Marks to provide that ft shall be governed by the laws
of the
State of New York and that the courts of the State of New York in
New York
County and the United States District Court for the Southern
District of New
York shall have exclusive jurisdiction over any dispute or
controversy
arising under. Accordingly, this Agreement shall be construed in
accordance
with the laws of the State of New York, USA, without regard to its
principles of conflicts of laws. Any claim arising under this
Agreement
(except as provided under Paragraph 18) shall be prosecuted in a
federal or
state court of competent jurisdiction located within the City of New
York,
USA and LICENSEE consents to the jurisdiction of such court and to
the
service of process by mail.
23. MISCELLANEOUS
(a) Assignment: This Agreement and any rights granted under this
Agreement
are personal to LICENSEE and shall not be assigned, sublicensed,
subcontracted or encumbered, directly or indirectly, by law or by
contract,
without N6A Europe's prior written consent, which consent may, in
NBA
Europe's sole discretion, (i) be contingent upon a fee payable by
LICENSEE
or the transferee, the amount of which shall be determined by NBA
Europe in
its sole discretion, and/or (ii) impose other terms and conditions
upon the
assignment, sublicense or transfer. Any transfer of a controlling
interest
in LICENSEE or in any party which currently controls LICENSEE,
directly or
indirectly, shall be deemed an assignment prohibited by the
preceding
sentence. Any nonconsensual assignment, sublicense, subcontract or
encumbrance of this Agreement by LICENSEE shall be invalid and of no
force
or effect. Upon any such nonconsensual assignment, sublicense or
encumbrance, this Agreement shall terminate, all payment obligations
of
LICENSEE hereunder shall be accelerated and immediately due and
payable, and
all rights granted under this Agreement shall immediately revert to
NBA
Europe.
(b) Waiver: None of the provisions of this Agreement can be waived
or
modified except expressly by a writing signed by both parties. There
are no
representations, promises, agreements, warranties, covenants or
undertakings
by either party other than those contained in this Agreement. No
failure on
the part of NBA Europe to exercise any right under this Agreement
shall
operate as a waiver of such right; nor shall any single or partial
exercise
of any right preclude any other or further exercise or the exercise
of any
other rights.
(c)Survival: No expiration or termination of this Agreement shall
relieve
LICENSEE of its obligation to pay NBA Europe any amounts due to NBA
Europe
at the time of termination, regardless of whether these amounts are
then or
thereafter payable. The provisions of Paragraphs 12 and 23(e) shall
survive
the expiration or termination of this Agreement.
(d) Adjustments: NBA Europe shall have the option to increase the
Royalty
Rates and any advertising and promotion commitment in the event
that, at any
time during the Term, LICENSEE agrees to pay or in fact pays royalty
rates
and/or advertising and promotion contributions with respect to any
other
licensed sports or entertainment property in excess of the Royalty
Rate for
any Licensed Product. From time to time at NBA Europe's request,
LICENSEE
shall- deliver a certificate to NBA Europe which sets forth the
royalty
rates and advertising and promotion contributions LICENSEE pays to
any other
professional sports league or entertainment property.
(e) Confidentiality: Neither party shall (nor shall they permit or
cause
their employees or agents to) divulge, disseminate or publicize the
financial terms of this Agreement or, in the case of LICENSEE, any
information on the specifications or methods of reproduction of the
Licensed
Marks to any third party (other than their respective attorneys or
accountants or in the case of NBA Europe, the NBA Board of Governors
and
the NBPA), except as may be required by law or to fulfill the terms
of this
Agreement.
(f)Research: LICENSEE shall cooperate with NBA Europe's reasonable
requests
for information in connection with conducting marketing tests,
surveys and
other research ("Research"), provided that any proprietary
information so
furnished shall be kept strictly confidential by NBA Europe. If
LICENSEE
performs or causes to be performed any Research primarily dedicated
to
evaluating or otherwise assessing a Licensed Product (or any
LICENSEE
(non-NBA) product offering similar to a Licensed Product), then
copies of
such Research results shall be promptly provided to NBA Europe. As
may be
reasonably requested by NBA Europe, LICENSEE shall provide NBA
Europe (or
NBA Europe's designated third-party researcher) with any Research
and
information that LICENSEE has or obtains regarding its retail
accounts.
(g)Construction: This Agreement has been executed in a text using
the
English language, which text shall be controlling. This Agreement,
together
with any exhibits or attachments, when fully executed, shall
constitute the
entire agreement and understanding between the parties and cancels,
terminates and supersedes any prior agreement or understanding
relating to
the subject matter of this Agreement between LICENSEE and the NBA,
any
Member Team or NBA Europe. The headings in this Agreement are for
reference
purposes only and shall not affect the interpretation of this
Agreement.
This Agreement shall not be binding on NBA Europe until signed on
its behalf
by its President or such other executive designated by the President
to
sign.
Schedule A
[Third party manufacturers and distributors]
EXHIBIT A
NBA EUROPE, S.A.
LICENSEE AND SUPPLIER CODE OF CONDUCT
The NBA!s mission is to be the most respected and successful sports
league
and sports marketing organization in the world. In keeping with this
mission, NBA Europe, S.A. ("NBA Europe") is committed to conducting
its
business in a socially responsible and ethical manner. We expect all
NBA
EUROPE licensees, including their contractors, engaged in the
manufacture
and sourcing of products bearing NBA, WNBA, USA Basketball and NBC
trademarks (collectively "Product Suppliers") to share this
commitment. At a
minimum, all Product Suppliers must adhere to the following Licensee
and
Supplier Code of Conduct:
1 . ETHICAL STANDARDS
Product Suppliers shall conduct their businesses in accordance with
the
highest standards of ethical behavior.
2. COMPLIANCE VVITH APPLICABLE LAWS
Product Suppliers shall comply with all applicable laws and
regulations of
the countries, states and localities in which they operate.
3. EMPLOYMENT PRACTICES
NBA EUROPE will only do business with Product Suppliers whose
employees are
appropriately compensated, present at work voluntarily, not at undue
risk of
physical harm and not exploited in any way. In addition, Product
Suppliers
must comply with the following specific standards:
Wages and Benefits: Product Suppliers shall provide wages, overtime
compensation and benefits at not less than the minimum levels
required by
applicable laws and regulations or the prevailing local industry
levels, if
higher.
Working Hours: Product Suppliers shall, at a minimum, comply with
all
applicable working hours laws and regulations. Except in unusual
business
circumstances, employees shall not be required to work more than the
lesser
of (a) 48 hours per week
12 hours of overtime or (b) the limits on regular
and overtime hours allowed by local law or, where
local law does not limit the hours of work, the
regular work week in such
locality plus 12 hours of overtime. In addition, except in unusual
business
circumstances, employees shall be entitled to at least one day off
in every
seven-day
period.
Child Labor. Product Suppliers shall not employ any person under the
age of
15 (or 14 where allowed by local law) or under the local age for
completing
compulsory education, if higher.
Forced Labor.- Product Suppliers shall not use any forced labor,
whether in
the form of prison labor, indentured labor, bonded labor or
otherwise.
Harassment or Abuse: Product Suppliers shall treat each employee
with
dignity and respect, and
shall not use corporal punishment, threats of violence or other
forms of
physical, sexual, psychological or verbal harassment or abuse.
19
I
i
Nondiscrimination: Product Suppliers shall not discriminate in
employment
practices on the basis of race, religion, age, nationality, social
or ethnic
origin, gender, sexual orientation, political opinion or disability.
Freedom of Association: Product
Suppliers shall recognize and
respect the right of employees to
join organizations of their own
choosing and shall neither
threaten nor penalize employees
for their efforts to organize or
bargain collectively.
Health and Safety. Product Suppliers
shall provide employees with a safe
and healthy working environment.
Manufacturing facilities shall, at a
minimum, contain clean restrooms,
potable water, adequate lighting,
adequate ventilation and fire exits.
Residential facilities, if provided,
shall also be kept sanitary and
safe.
4. ENVIRONMENTAL REQUIREMENTS
Product Suppliers shall comply with
all applicable environmental laws
and regulations.
5. COMMUNICATION
Product Suppliers shall take appropriate steps to ensure that the
provisions
of this Code are communicated to employees, including the prominent
posting
of the Code (in the local language) in their manufacturing
facilities.
6. MONITORING AND COMPLIANCE
Product Suppliers shall conduct periodic audits of manufacturing
facilities,
on the basis of which they shall certify to NBA EUROPE on request
either
that (a) all products bearing NBA, WNBA, USA Basketball and NBC
trademarks
have been manufactured in compliance with this Code, or (b)
identified
facilities have been found not to be in compliance with this Code,
in which
event the Product Supplier shall specify appropriate and effective
steps to
remedy the non-compliance. NBA EUROPE or its representatives are
authorized
to engage in monitoring activities to confirm compliance with this
Code,
including on-site inspections of manufacturing facilities and
residential
facilities, audits of records relating to employment matters and
private
interviews with employees at all levels. Product Suppliers shall
retain and
make available to NBA EUROPE or its representatives, either on site
or at
agreed upon locations, all documentation that may be required to
assess
whether or not the Product Supplier is in compliance with this Code.
7. FAILURE TO COMPLY
NBA EUROPE reserves the right, in addition to all other legal and
contractual rights, to terminate its relationship with any Product
Supplier
found to be in violation of this Code.
EXHIBIT 10.63
Contract No: MLI-4024C
MAJOR LEAGUE BASEBALL
LICENSE AGREEMENT
THIS LICENSE AGREEMENT, made and entered into as of this 18th day of
Jauary, 1999, by and among MAJOR LEAGUE BASEBALL PROPERTIES,
INC. of 145 Park Avenue, New York, New York 10167 (hereinafter
referred to
as "Licensor"), and Nasco Products International, Inc. of 1808 North
Charry
St., Knoxville, TN 37917,
(hereinafter referred to as "Company");
WITNESSETH
WHEREAS, Licensor is the exclusive licensing agent of trademarks and
other
proprietary rights (the "Trademarks" defined below) which identify
or are
used by Licensor, the Office of the Commissioner of Baseball, the
American
and National Leagues of Professional Baseball Clubs (the "Leagues")
and
their member Clubs (as listed in Paragraph l(g) below, the "Clubs");
WHEREAS, Company desires to obtain the night to use the Trademarks
within
the "Licensed Territory" (defined below), on and in connection with
the
manufacture, advertisement, promotion, distribution and sale of the
"Licensed Products" (defined below); and
NOW, THEREFORE, in consideration of the mutual agreements contained
herein,
the parties agree as follows:
1. Definitions. For purposes of this Agreement the following
definitions
shall apply:
(a) "Licensed Products" shall mean the following products which
are
manufactured, advertised, promoted, distributed or sold by Company:
(i) Backpacks, referred to by Company as style number PRO 114,
made of 600D nylon fabric measuring 16T x I OW x 6D cm in size and
featuring a zippered main compartment with zipper pull, front
zippered storage compartments, bottom rubber skid, padded adjustable
shoulder straps, 2 inch hang loop and
embroidered Club Trademarks;
(ii) Rucksacks, referred to by Company as style number PRO 115,
made of
600D nylon fabric measuring 30T x 38W x 18D cm in size and featuring
padded back and shoulder straps, padded top handles with key ring,
raincover zippered side pockets, front pocket, flap buckled pocket,
and embroidered Club Trademarks;
(iii) Sport bags (other than authentic), referred to by Company as
style
number TBP23, made of 600D nylon fabric measuring 30T x 38W x 18D cm
in size and featuring padded back and shoulder straps, padded top
handles with key ring, raincover zippered side pockets, front
pocket,
flap buckled pocket, and embroidered Club Trademarks;
(iv) Sport carryall bags (other than authentic), referred to by
Company as
style number PRO 116, made of 600D nylon fabric featuring a 20"
padded/adjustable shoulder strap, double zippered opening on the
main
compartment, a flap buckled pocket, and embroidered Club Trademarks;
(v) Backpacks,, referred to by Company as style number PRO 101,
made of
600D polyester fabric, measuring 40T x 35W x 12D cm in size,
featuring black with trimmed Club colour gusset, half-zippered main
compartment, gusseted front
zipper pocket, padded/adjustable shoulderings, and embroidered Club
Trademarks;
(vi) School satchels, referred to by Company as style number PRO
117, made
of 600D polyester fabric, measuring 30T x 12W x 24D cm in size,
featuring padded shoulder strap, divided compartment with inside
double pockets, and embroidered Club Trademarks;
(vii) Carry school organisers, referred to by Company as style
number PRO
119, made of 600D polyester fabric, featuring top handles, padded
back and shoulder straps, inside organising pencil pouch, card and
pen holder, key ring and calculator slot, 3 major compartments for
notebooks and text books, and embroidered Club Trademarks;
(viii) Equipment bags (other than authentic), referred to by
Company as
style number PRO 107, made of 600D polyester fabric, measuring 27T x
14.5W x 14D cm in size, featuring a double zippered main
compartment,
two gusset zipper end pockets, mesh and slash pocket with zipper
closure, adjustable/detachable should strap, Velcro handlock, sturdy
rubber bottom, and embroidered Club Trademarks;
(ix) Backpacks, referred to by Company as style number PRO 113,
made of
600D polyester fabric, measuring 40T x 35W x 12D cm in size,
featuring a halfzippered main compartment, gusseted front zipper
pocket, padded/adjustable shoulder straps, molded back pad,
enlargement extender zipper on both sides, and embroidered Club
Trademarks.
(x) Waistpacks, refer-red to by Company as style number FPN14SI,
made of 600D polyester fabric, measuring 37T x 11.5W x 8D cm
in size, featuring large compartment with zipper and zipper
pull, adjustable waist strap, and embroidered Club Trademarks;
(xi) Backpacks, referred to by Company as style number PRO 118,
made of
600D polyester fabric, featuring heavy padded back and shoulder
straps, zip-up front hidden organiser with 6 different sections, and
embroidered Club Trademarks;
(xii) Backpacks, referred to by Company as style number HH01BI, made
of 70D
nylon fabric with PVC backing, measuring 37.5T x 29.9W x 12.7D cm in
size, featuring a top zipper closure, padded/adjustable shoulder
straps, gusseted front pocket with zipper closure, and embroidered
Club Trademarks;
(xiii) Backpacks, referred to by Company as style number FFPI,
made of 70D
nylon fabric with PVC backing, measuring 37T x 11.5W x 8D cm in
size,
featuring large compartment with zipper closure, padded/adjustable
shoulder straps, and embroidered Club Trademarks;
(xiv) Waistpacks, referred to by Company as style number FFPI, made
of 70D
nylon fabric with PVC backing, measuring 37T x 11.5W x 8D cm in
size,
featuring large compartment with zipper closure, adjustable waist
strap, and embroidered Club Trademarks;
(xv) Sport bags, referred to by Company as style number HH571, made
of 70D
nylon fabric with PVC backing, measuring 44.5T x 26.7W x 25AD cm in
size, featuring double-pull top zipper closure,
adjustable/detachable
zipper closure, and embroidered Club Trademarks;
(xvi) Backpacks, referred to by Company as style number TBP600, made
of
600D polyester fabric with PVC backing, measuring 40.6T x 33W x 153D
cm in size, featuring padded shoulder straps, retractable pull
handle, zippered main compartment, zippered front gusset pocket,
plastic identification holder, trolley wheels and comers, and
embroidered Club Trademarks;
(xvii) Lunch totes, referred to by Company as style number
LNBIZ, made of
70D nylon fabric, measuring 7.5T x 8.5W x 6D inches in size,
featuring adjustable shoulder strap, League identified zipper pull,
and embroidered Club Trademarks;
(xviii) Lunch totes, referred to by Company as style number LNBIV,
made of
70D nylon fabric, measuring 9.75T x 7W x 3.5D inches in size,
featuring side hook attachment and screen printed Club Trademarks on
front panel;
(xix) Lunch totes/6 pack coolers, referred to by Company as style
number
SPKC, made of 70D nylon fabric, measuring 6.5T x 8.5W x 6D inches in
size, featuring polyweb shoulder strap, League identified zipper
pull, and front panel screen printed Club Trademarks;
(xx) Lunch totes, referred to by Company as style number LNIBIE,
made of
600D polyester fabric, measuring 7.5T x 9.5W x 3.513 inches in size,
featuring adjustable shoulder strap, League identified zipper pull,
and embroidered Club Trademarks;
(xxi) Lunch totes, referred to by Company as style number LNBIZE,
made of
600D polyester fabric, measuring 7.5T x 9.5W x 3.5D inches in size,
featuring adjustable shoulder strap, League identified zipper pull,
and embroidered Club Trademarks;
(xxii) Lunch totes/6 pack coolers, referred to by Company as
style number
SPKCM, made of 600D polyester fabric, measuring 6.5T x 8.5W x 6D
inches in size, featuring adjustable shoulder strap, zippered front
mesh pocket, League identified zipper pull, and screen printed Club
Trademarks.
For the purposes of this Agreement, "authentic" bags shall mean:
bags
that are used in the Clubhouse by the players, coaches or managers
of
the Club whose Trademark is featured.
(b) "Licensed Territory" shall mean Austria, Belgium, Czech
Republic,
Denmark, Eire, Finland, France, Germany, Hungary, Iceland, Italy,
Luxembourg, The Netherlands, Norway, Poland, Portugal, Spain,
Sweden,
Switzerland, United Kingdom, excluding U.S. military bases and post
exchanges.
(c) "Contract Period" shall mean that period of time commencing
with
effect from June 1, 1998 and concluding on May 31, 2000 unless
sooner
terminated pursuant to the provisions hereinafter set forth.
(d) "Contract Year" shall mean a period of twelve successive
months
commencing on any first day of June during the Contract Period.
(e) "Trademarks" shall mean and be limited to those MLB Logos for
which
Licensor owns or controls the trademark registrations and
applications in
the Licensed Territory in those trademark classes which relate to
Licensed
Products.
"MLB Logos" shall mean those names, symbols and logos which identify
or are
used by Licensor, the Office of the Commissioner of Baseball, the
Leagues,
and each of the Clubs.
(g) "Clubs" shall mean the following Major League Baseball Clubs:
American League
Anaheim Angels Minnesota Twins
Baltimore Orioles New York Yankees
Boston Red Sox Oakland Athletics
Chicago White Sox Seattle Mariners
Cleveland Indians Tampa Bay Devil Rays
Detroit Tigers Texas Rangers
National League
Arizona Diamondbacks Milwaukee Brewers
Atlanta Braves New York Mets
Chicago Bulls Montreal Expos
Cincinnati Reds Philadelphia Phillies
Colorado Rockies Pittsburgh Pirates
Florida Marlins St. Louis Cardinals
Houston Astros San Diego Padres
Los Angeles Dodgers San Francisco Giants
2. Grant of Rights.
(a) Licensor hereby grants to Company, during the Contract Period
hereof,
subject to all of the terms and conditions set forth in this
Agreement, the
"Non-Exclusive Rights" described in subparagraph (b) immediately
below.
(b) As used herein, the "Non-Exclusive Rights" shall mean the
non-exclusive night and license to use the Trademarks, in the
Licensed
Territory only, solely in connection with the manufacture,
advertisement,
promotion, distribution and sale of the Licensed
Products described in Paragraph I(a). Licensor shall have the
continuing
right, throughout the Contract Period, to use and to grant to others
the
right to use the Trademarks throughout the Licensed Territory on and
in
connection with the
manufacture, advertisement, promotion, distribution and sale of the
Licensed
Products (and all other items of merchandise).
3. Guaranteed Compensation.
As compensation to Licensor for the grant to Company of the rights
granted
herein, Company shall pay to Licensor, in the manner described in
Paragraph
5 below, with respect to each separate Contract Year during the
Contract
Period, guaranteed minimum compensation (the "Guaranteed
Compensation") as
follows:
Contract Year Guaranteed Compensation Amount
Due Date
First On Execution US$ 10,000.00
Second June 1, 1999 US$ 10,000.00
Guaranteed Compensation as described in this paragraph shall be paid
except
to the extent that cumulative payments of Percentage Compensation
(defined
below) with respect to such Contract Year shall theretofore have
offset all
or a portion of the total of the Guaranteed Compensation payable
with
respect to that Contract Year. Notwithstanding the foregoing, no
part of
Percentage Compensation which may be attributable to Premium Sales
(defined
below) of the Licensed Products shall serve to offset any part of
the
Guaranteed Compensation described in this paragraph. No part of any
Guaranteed Compensation shall be repayable to Company for any
reason. No
part of any Guaranteed Compensation shall be carried forward (or
back) as a
credit from one Contract Year to another.
4. Percentage Compensation.
As additional compensation to Licensor for the grant to Company of
the
rights granted herein, Company shall pay to Licensor, in the manner
described in Paragraph 5 below, Percentage Compensation at the rate
of ten
percent (10%) of all "Net Sales" (as defined in Section F of the
attached
Standard Terms and Conditions) by Company (or any of its affiliated,
associated or subsidiary entities) of Licensed Products covered by
this
Agreement. Such percentage of Net Sales is herein called "Percentage
Compensation." Percentage Compensation shall be reported within
thirty (30)
days after the initial shipment of the Licensed Products, and
promptly on
the fifteenth day of every month thereafter. Percentage Compensation
shall
be payable within thirty (30) days following the conclusion of each
calendar
month with regard to Licensed Products sold during such month,
except to the
extent offset by any portion of the Guaranteed Compensation for that
Contract Year theretofore paid.
5. Payments.
(a) Unless and until Licensor advises Company to the contrary, all
payments pursuant to this Agreement shall be paid either by way of
cheque in
United States Dollars made payable to Licensor which shall be
delivered to
the address of the Licensor's authorized agent, International
Management
Group (UK) Inc ("IMG-UK") as follows:
International Management Group (UK) Inc
Pier House
Strand on the Green
Chiswick
London
W4 3NN
England
Attn: Sarah McNaughton
or, if Company so desires, by bank transfer to the account of Major
League Baseball Properties Inc. at Barclays Bank, 54 Lombard Street,
London EC3V 9EX.
(b) Company shall pay all bank charges, remittance fees, and all
other
fees, charges or deductions of whatever nature (other than
withholding tax)
so that Licensor receives in its account the entire amount payable
by
Company. Company shall be authorized
to withhold from any payment withholding tax at the appropriate rate
provided that Company promptly pays such withholding tax to the
taxing
authority and further provided that Company delivers to IMG-UK
within thirty
(30) days after payment the original receipt issued by the taxing
authority
evidencing payment of withholding tax
to the taxing authority.
(c) Past due payments shall bear interest from the due date at the
rate
of (i) one and one-half percent (1.5%) per month, or (ii) the
maximum
interest rate permissible under law, whichever is less.
6. Market Date.
Company agrees that Licensed Products will be available for shipment
to
customers and distributors of Company in commercially substantial
numbers by
no later than June 1, 1998, and that Company will commence actual
shipment
of Licensed Products to its customers and distributors within thirty
(30)
days following the foregoing date.
7. Marketing Support.
In addition to the consideration payable by Company as set forth
above,
Company agrees that it will budget and spend, each Contract Year,
for the
advertising and promotion of Licensed Products within the Licensed
Territory, an amount which is no less than five percent (5%) of
Company's
"Net Sales" (as defined in the attached Standard Terms and
Conditions) of
Licensed Products during the relevant Contract Year. Within forty-
five (45)
days following the conclusion of the relevant Contract Year, Company
shall
deliver to IMG-UK a report on the foregoing marketing expenditures
(including invoices and other receipts) evidencing the required
level of
expenditure.
8. Product Credit.
In connection with Section I of the attached Standard Terms and
Conditions,
the aggregate value of the merchandise to be supplied by Company to
Licensor
(the "Product Credit") shall be US$ 1,000 wholesale value per
contract year.
9. Liability Insurance.
In connection with Section L of the attached Standard Terms and
Conditions,
the required amount of liability insurance shall be US$
1,000,000.00.
10. List of Manufacturers.
In connection with Section Q of the attached Standard Terms and
Conditions,
the following is a list of each party that Company desires to have
produce
one or more of the Licensed Products, as follows:
(A) Name Sunwaki Industrial Company Ltd
Address 16 Argyle Street, Monkok, Kowloon
Hong Kong
Telephone Number 2395 5161
Principal Contact
11. List of Distributors.
In connection with Section S of the attached Standard Terms and
Conditions,
the following is a list of each party that Company desires to have
distribute one or more of the Licensed Products, as follows:
(A) Name Sportco S.A.
Address 84 Rue de Calevoet, 1180 Brussels,
Belgium
Telephone Number 3223320018
Principal Contact Norman Snoeck
(B) Name Michalis Vasilopoulos & Co
Address 7740 Tochni, Larnaca, Cyprus
Telephone Number 3574332531
Principal Contact Harris Vasilopoulos
(C) Name Trend Fashion Line AP
Address Metalvej 7D, DK-4000 Roskilde,
Denmark
Telephone Number 4546753880
Principal Contact Stig Sorenson
(D) Name BA Sportprodukter AB
Address Torvingegatan 3, 58273 Linkoping
Sweden
Telephone Number 4613 102427
Principal Contact Mats Hagsten
(E) Name U.S. Sports by Pelcor
Address RN 10 Couhe Sud BP 7,
86700 Couhe, France
Telephone Number 33 549 592 424
Principal Contact Nathalie Liege
(F) Name AMCO Sports
Address 77 Rue de Columbus BP, 55-32404
Courevoie, France
Telephone Number 33 1433 43055
Principal Contact Ms Anika Michel
(G) Name Hartstone Deutschland Gmbh
Address Gertigstrasse 48, D-22303 Hamburg
Germany
Telephone Number 49 4027 15110
Principal Contact Mr Gunther Garvs/Mr Udi Ronen
(H) Name Frank Terry SRL
Address Via Monzart 16, 20052 Monza,
Milan, Italy
Telephone Number 39 39 2326258
Principal Contact Mr Gianfranco Terruzzi
Ms Silvana Fontana
(1) Name Cedesmon Trade S.A.
Address C/ Torrent de L'olla 12 - atico
08012 Barcelona, Spain
Telephone Number 34 93 476 1330
Principal Contact Mr Alberto Savalls/Mr Javier Melero
(J) Name Descul
Address Parque Industrial Barrerior
(Quimiparque)
Rua Berthelot I - Caixa Postal
5172-2830 Barreiro, Portugal
Telephone Number 351 12071579
Principal Contact Mr Antonio Liborio
(K) Name Hartstone Leathergoods Ltd
Address 90-92 Great Portland Street
London WIN 5PB, U.K.
Telephone Number 44 1712914900
Principal Contact Ms Judy Kahn
12. Sell-Off Period.
In connection with Section U of the attached Standard Terms and
Conditions,
the period following the last day of the Contract Period during
which
Company may distribute its remaining inventory (the "Sell-Off
Period") shall
be a period of sixty (60) days.
13. Standard Terms and Conditions.
This Agreement is subject to all of the provisions of the Standard
Terms and
Conditions which are attached to and made a part of this Agreement.
14. Execution and Delivery Required.
This instrument shall not be considered to be an agreement or
contract nor
shall it create any obligation whatsoever on the part of Licensor or
Company, or either of them, unless and until it has been signed by
representatives of Licensor and Company, respectively, and delivery
has been
made of a fully signed original.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers
to execute this Agreement as of the day and year first above
Written.
MAJOR LEAGUE BASEBALL NASCO PRODUCTS
PROPERTIES, INC. INTERNATIONAL,
INC.
By By
STANDARD TERMS AND CONDITIONS
FOR
MAJOR LEAGUE BASEBALL LICENSE AGREEMENT
WITH
NASCO PRODUCTS INTERNATIONAL, INC.
SECTION A. LIMITATIONS OF LICENSE:
This license does not constitute and may not be used so as to imply
the
endorsement by Licensor, the Office of the Commissioner of Baseball,
the
Leagues or the Clubs of the Licensed Products or any other product
of
Company. While the Trademarks licensed herein may be used as
trademarks
subject to the terms of this Agreement, the Trademarks are not
licensed
herein for use as certification marks or indications of a particular
standard of quality.
SECTION B. PREMIUM SALES BY LICENSOR/COMPANY.
(1) "Premium" Defined.
For the purposes of this Agreement, a "premium" use of Licensed
Products
shall be defined as including, but not necessarily limited to, free
or
self-liquidating items offered to the public in conjunction with the
sale or
promotion of a product or service, including traffic building or
continuity
visits by the consumer/customer, or any similar scheme or device,
the prime
intent of which is to use the Licensed Products in such a way as to
promote,
publicize and/or sell the products, services or business image of
the
offeror or manufacturer. "Premium" use shall also specifically
include
distribution of Licensed Products for retail sale through
distribution
channels (including, without limitation, catalogues) offering earned
discounts or "bonus" points based upon the extent of usage of the
offeror's
product or service.
(2) Premium Uses by Company.
Company agrees it will not use, or knowingly permit the use of, the
Licensed
Products as a Premium, except with the prior written consent of
Licensor and
the specific negotiation of separate compensation to be payable by
Company
in connection therewith. Notwithstanding the foregoing, if Company
desires
to make any premium use of Licensed Products, Company may submit
such a
request in writing to Licensor, it being understood that Licensor
shall have
the right to approve or disapprove any such proposed premium use in
Licensor's sole and absolute discretion.
SECTION C. NO PLAYER ENDORSEMENTS.
Company acknowledges and agrees that the rights hereinbefore granted
to
Company do not include any right to make any use of the name, image,
likeness, photograph or other identification (the "Player
Endorsement") of
any baseball player, or any other person, living or dead, and
Company
acknowledges and agrees that if Company desires to use the Player
Endorsement of any baseball player (or other individual), it shall
be the
sole and exclusive responsibility of Company to obtain such right
and
license from such individual, at Company's sole cost and expense.
Company
agrees that it will not make any use of any Player Endorsement of
any person
on any Licensed Product unless and until Company shall first obtain
authorization from such individual. Company agrees that Company will
not
make any such use of any Player Endorsement unless and until Company
shall
first submit to IMGUK a photocopy of written authorization obtained
by
Company from such individual.
SECTION D. QUALITY CONTROL.
(1) Company acknowledges and agrees that Licensor shall have the
right of
absolute approval of the Licensed Product(s) and of all packaging,
advertising and promotional materials at all stages of their
development.
For purposes of facilitating this approval
by Licensor, Licensor has retained IMG-UK to act on Licensor's
behalf in
these matters. Accordingly, Company shall deliver to IMG-UK (and, if
IMG-UK
or Licensor shall so request, to Licensor at its address in the
United
States), in a timely manner, free of charge, and at no cost or
expense, for
IMG-Ws written approval as
to quality and style, designs of each of the Licensed Products
covered by
this Agreement and samples of each of the Licensed Products before
their
manufacture, sale or distribution, whichever first occurs, and
samples of
all advertising, point-of-sale displays, catalogues, sales sheets
and other
items that display or picture the Trademarks, and no such Licensed
Product
or other such materials shall be manufactured, sold or distributed
by
Company without such prior written approval. From time to time
subsequent
to final approval, a reasonable number of production samples shall
periodically be sent to IMG-UK (and, if IMG-UK or Licensor shall so
request, to Licensor at its address in the United States), free of
charge,
and at no cost or expense. Such samples shall also be provided, in
the same
manner, upon any change in design, style or quality, which shall
necessitate
subsequent review and approval by IMG-UK. IMG-UK shall also have the
right
to inspect Company's plant
or plants or warehouse or storage facilities at any reasonable time
without
notice.
(2) Subject, in each instance, to the prior written approval of
IMG-UK,
Company or its agents may use textual and/or pictorial matter
pertaining to
the Trademarks on such promotional display and advertising material
as may,
in Company's judgment, promote the sale of the Licensed Products.
All
promotional display and advertising
material must contain and prominently display the official logo of
Licensor.
(3) Company shall, at the advance written request of Licensor
given from
time-to-time, deliver to Licensor, at its address in the United
States, free
of charge, and at no cost or expense, samples of each Licensed
Product then
distributed and sold by Company. Company shall, in addition, at the
advance
written request of Licensor given from time-to-time, deliver to each
Club,
at the address of such Club in the United States, free of charge and
at no
cost or expense, additional samples of each Licensed Product bearing
the
trademark of that Club.
(4) In the event that any item or matter submitted to IMG-UK under
this
Agreement for approval or consent shall not have been approved or
consented to, disapproved or denied, or commented upon within twenty
(20)
IMG-UK business days after receipt thereof and IMG-UK shall have
received
notice from Company that comment is overdue by facsimile or other
written
communication, and IMG-UK shall not have
commented within five (5) additional IMG-UK business days of receipt
of such
notice, any items or matters so submitted shall be deemed approved
and
consented to.
(5) Company agrees that no irregulars, seconds, or other Licensed
Products which do not conform in all material respects to the
approved
samples will be distributed or sold without the express written
advance
approval of IMG-UK. All such sales, if made,
shall bear Percentage Compensation as set forth in this Agreement.
(6) Company acknowledges that no use of any Trademarks shall be
made on
stationery of Company (specifically, without limitation,
letterheads,
envelopes, business cards, shopping bags, invoices, statements,
packing
slips, etc.) without IMG-UK's express
written approval in advance of any such use.
(7) In any instance where any matter is required to be submitted
to
IMG-UK for IMG-UK's approval, that approval shall be granted or
withheld at
IMG-UK's sole discretion.
SECTION E. NOTICES AND SUBMISSIONS.
Unless and until Licensor or IMG-UK shall notify Company to the
contrary,
all advertising materials which incorporate the Trademarks and which
are
submitted hereunder for approval, and all sample Licensed Products
submitted
hereunder for approval, shall be delivered to IMG-UK as follows:
International Management Group (UK) Inc
Pier House
Strand on the Green
Chiswick
London
W4 3NN
England
Attn: Sarah McNaughton
Unless and until Licensor or IMG-UK shall notify Company to the
contrary,
all notices and a copy of each payment, sales report or other
notification
of payment delivered to IMG-UK at the address set forth in Paragraph
5 of
this Agreement, shall be delivered to IMG-UK at the address set
forth above,
with a copy thereof to be delivered at the same time to Licensor at
the
following address:
Major League Baseball Properties, Inc.
245 Park Avenue
New York, New York 10167
Attention: Vice President, International Licensing
All materials shall be delivered to the intended recipient with all
charges
(such as, for example, shipping charges and customs duties) prepaid.
SECTION F. PERCENTAGE COMPENSATION.
For purposes of computing the Percentage Compensation described in
Paragraph
4 of this Agreement, the parties agree that the term "Net Sales"
shall mean
gross sales of Licensed Products based on the wholesale price to the
retail
trade less quantity discounts and actual returns, but no deduction
shall be
made for uncollectible accounts, commissions, taxes, discounts other
than
quantity discounts (such as cash discounts and discounts
attributable to the
issuance of a letter of credit), or any other amount. No costs
incurred in
the manufacture, sale, distribution, promotion or advertisement of
the
Licensed Products shall be deducted from Net Sales in computing
Percentage
Compensation payable by Company. Said Percentage Compensation shall
also be
paid by Company to Licensor on all Licensed Products (including,
without
limitation, any irregulars, seconds, etc. distributed pursuant to
the
provisions of Section D of these Standard Terms and Conditions))
distributed
by Company or any of its affiliated, associated or subsidiary
companies even
if not billed or billed at less than usual net sales price for such
Licensed
Products, and shall be based upon the usual net sales price for such
Licensed Products sold to the trade by Company. Company shall be
responsible
to pay all taxes in connection with Net Sales.
SECTION G. PERIODIC STATEMENTS:
(1) Company shall deliver to IMG-UK, at those periodic intervals
described in Paragraph 4 of this Agreement, complete and accurate
statements, certified to be accurate by Company, or if Company is a
corporation, by an officer of Company, showing the sales volume of
each
Licensed Product (itemized by Club, for each applicable
Licensed Product and for each territory), gross sales price per
unit,
itemized deductions from gross sales price, and the "Net Sales" of
the
Licensed Products distributed and/or sold by Company during the
relevant
reporting period, together with any returns made during such
reporting
period. Such statements shall be furnished to IMG-UK whether or not
any of
the Licensed Products have been sold during the reporting period to
which
such statements refer.
(2) Company shall furnish to Licensor sufficient background
information
so as to make such statements intelligible to Licensor, and on an
annual
basis, a complete list of Company's customers to whom Licensed
Products have
been sold. Licensor agrees that it will not divulge said customer
list to
any other Company, to any other
competitor licensing organization, or to any competitor of Company.
Receipt
or acceptance by Licensor of any of the statements furnished
pursuant to
this Agreement or of any sums paid hereunder shall not preclude
Licensor
from questioning the correctness thereof at any time, and in the
event that
any inconsistencies or mistakes
are discovered in such statements or payments, they shall
immediately be
rectified and the appropriate payments made by Company. Late payment
penalties, if any, shall be
made pursuant to Paragraph 5 of this Agreement. Upon demand of IMG-
UK or
Licensor, Company shall at its own expense, but not more often than
once in
any twelve (12) month period, furnish to IMG-UK a detailed statement
certified by any independent certified public accounting firm
approved by
Licensor showing the sales
volume of each Licensed Product (itemized by Club, for each
applicable
Licensed Product), gross sales price, itemized deductions from gross
sales
price and Net Sales of the Licensed Products covered by this
Agreement
distributed and/or sold by
Company to the date of the IMG-UK's demand.
SECTION H. BOOKS AND RECORDS.
(1) Company shall keep, maintain and preserve (in Company's place
of
business) for at least two (2) years following termination or
expiration of
the license period or any renewal thereof, complete and accurate
records and
accounts including, without limitation, invoices, correspondence,
banking
and financial and other records
pertaining to the various items required to be shown on the
statements to be
submitted by Company. Such records and accounts shall be available
for
inspection, audit and copying (at Licensor's expense) at any time or
times
during or after the term or terms
of the license period during reasonable business hours and upon
reasonable
notice by Licensor or its representatives.
(2) Company agrees not to cause or permit any interference with
Licensor
or representatives of Licensor in the performance of their duties of
inspection and audit.
(3) The exercise by Licensor, in whole or in part or at any time
or
times, of the right to audit records and accounts or of any other
right
herein granted, the acceptance by Licensor of any statement or
statements or
the receipt and deposit by Licensor of any payment tendered by or on
behalf
of Company shall be without prejudice to any rights or remedies of
Licensor
and shall not stop or prevent Licensor from thereafter disputing the
accuracy of any such statement or payment.
(4) If pursuant to its rights hereunder to audit and inspect
Licensor
caused an audit and inspection to be instituted which thereafter
discloses a
deficiency of more than 3% between the amount found to be due to
Licensor
and the amount actually received or
credited to Licensor, then Company shall be responsible for payment
of the
entire deficiency, together with interest (at the rate set forth in
the last
sentence of Paragraph 5 of this Agreement) from the date such amount
became
due until the date of payment,
and the reasonable costs and expenses of such audit and inspection.
SECTION 1. PRODUCT CREDIT.
Company agrees to ship to Licensor and/or IMG-UK, at the address(es)
designated thereby, at Company's sole cost and expense, merchandise
valued
at the amount of the "Product Credit" set forth in Paragraph 8 of
this
Agreement, based upon the best wholesale price, during the First
Contract
Year and annually thereafter during the Contract Period of this
Agreement
and/or any renewal or extension hereof. The parties contemplate that
from
time to time, approximately monthly, Licensor will request that
specific
merchandise be shipped at Company's sole expense and at Licensor's
direction, and that Company shall be under no obligation to provide
said
merchandise unless and until Licensor places an order. Company
agrees that
such merchandise may consist of any part of Company's then current
range and
may be customized to Licensor's specific requirements.
SECTION J. INDEMNIFICATION BY LICENSOR .
(1) Licensor hereby agrees to indemnify, defend and hold Company
and its
owners, shareholders, directors, officers, employees, agents,
representatives, successors and assigns harmless from any claims,
suits,
damages or costs (including reasonable
attorneys' fees and expenses) arising from (i) challenges to
Licensor's
authority as agent for and pursuant to authority granted by the
Clubs to
license the Trademarks in connection with the manufacture,
distribution,
promotion, advertisement and sale of
the Licensed Product(s) or (ii) assertions to any claim of night or
interest
in or to the Trademarks as authorized and used on the Licensed
Products,
provided in each case that Company shall give prompt written notice,
cooperation and assistance to Licensor
relative to any such claim or suit, and provided further in each
case that
Licensor shall have the option to undertake and conduct the defense
of any
suit so brought and to engage in settlement thereof at its sole
discretion.
(2) Company shall assist Licensor, to the extent necessary, in the
procurement of any protection or to protect any of Licensor's rights
to the
Trademarks, and Licensor, if it so desires and in its sole
discretion, may
commence or prosecute any claims of suits in
its own name or in the name of Company or join Company as party
thereto.
Company shall notify Licensor in writing of any infringements or
imitations
by others of the Trademarks of which it is aware. Licensor shall
have the
sole right to determine
whether or not any action shall be taken on account of such
infringements or
imitations. Company shall not institute any suit or take any action
on
account of any such infringements or imitations without first
obtaining the
written consent of Licensor to do so. Company agrees that it is not
entitled
to share in any proceeds
received by Licensor (by settlement or otherwise) in connection with
any
formal or informal action brought by Licensor hereunder.
SECTION K. INDEMNIFICATION BY COMPANY.
Company hereby agrees to indemnify, defend and hold Licensor, IMG-
LJK, the
Office of the Commissioner of Baseball, the Leagues, and the Clubs,
and
their respective owners, shareholders, directors, officers,
employees,
agents, representatives, successors and assigns harmless from any
claims,
suits, damages an costs (including reasonable attorneys' fees and
expenses)
arising out of (i) any unauthorized use of or infringement of any
trademark,
service mark, copyright, patent, process, method of device by
Company in
connection with the Licensed Product(s) covered by this Agreement,
(ii)
alleged defects or deficiencies in said Licensed Product(s) or the
use
thereof, or false advertising, fraud, misrepresentation or other
claims
related to the Licensed Product(s) not involving a claim of right to
the
Trademarks, (iii) the unauthorized use of the Trademarks or any
breach by
Company of this Agreement, (iv) libel or slander against, or
invasion of the
right of privacy, publicity or property of, or violation or
misappropriation
of any other right of any third party, and/or (v) agreements or
alleged
agreements made or entered into by Company to effectuate the terms
of this
Agreement. Licensor or IMG-UK shall give Company notice of the
making of any
claim or the institution of any action hereunder and Licensor may at
its
option participate in any action. The indemnifications hereunder
shall
survive the expiration or termination of this Agreement.
SECTION L. LIABILITY INSURANCE:
Company agrees to obtain, at its own cost and expense, comprehensive
general
liability insurance including product liability insurance from an
insurance
company acceptable to Licensor, providing adequate protection for
Licensor,
IMG-LTK, the Clubs, the Leagues, the Office of the Commissioner of
Baseball
and Company against any claims or suits arising out of any of the
circumstances described in Section K above, in an amount no less
than the
amount set forth in Paragraph 9 of this Agreement, per incident or
occurrence, or Company's standard insurance policy limits, whichever
is
greater, and with a reasonable deductible in relation hereto. Such
insurance
shall remain in force at all times during the Contract Period and
for a
period of five years thereafter. Within thirty (30) days from the
date
hereof, Company will submit to Licensor a fully paid policy or
certificate
of insurance naming Licensor, the Leagues, the Office of the
Commissioner of
Baseball and IMG-LTK as additional insured parties and requiring
that the
insurer shall not terminate or materially modify such policy or
certificate
of insurance without written notice to Licensor at least thirty (30)
days in
advance thereof
SECTION M. COPYRIGHTS AND TRADEMARKS.
(1) Company agrees that in any instance wherein the Trademarks are
used,
the following general notice shall be included (i.e., on the
product, on a
label, on the packaging material or on a separate slip of paper
attached to
the product): "The Major League Club insignias depicted on this
product are
trademarks which are the exclusive
property of the respective Major League Clubs and may not be
reproduced
without their written consent." Further, all products containing the
Trademarks shall contain a hangtag and label with Company's name
stating
"Genuine Merchandise" and containing the Major League Baseball
silhouetted
batter logo and, where appropriate, the Major League Baseball
Cooperstown
Collection logo or Major League Baseball Authentic Diamond
Collection logo.
(2) All Licensed Product(s) shall contain a permanently affixed
label
that displays Company's name. All Licensed Product(s) components
which bear
any of the Trademarks (embroidered emblems, cloth or paper labels,
hangtags,
etc.) shall be manufactured in-house by Company or shall be obtained
only
from one or more
suppliers officially authorized by Licensor to produce those
components. All
Company advertisements displaying the Trademarks, all retailer
advertisements featuring Licensed Product(s) and of which Company
has
knowledge or any Licensed Product(s) shall contain the words
"Genuine
Merchandise" and the silhouetted batter logo.
(3) Company shall require those to whom it sells Licensed
Product(s)
directly or indirectly to display the words "Genuine Merchandise"
(or such
other appropriate notice as directed by Licensor) and the
silhouetted batter
logo in all advertisements.
All uses of the Trademarks shall also include any designations
legally
required or useful for enforcement of copyright, trademark or
service mark
rights (e.g., "C", "R" or "TM"). Company shall submit a copy of its
specifications for all of the above notices
(including copies of its artwork, layouts or mold blueprints) to
Licensor
for its review.
(4) Licensor shall have the right to revise the above notice
requirements
and to require such other notices as shall be reasonably necessary
to
protect the interest of Licensor,
the Clubs and/or the Leagues in the respective Trademarks. Company
agrees to
advise IMG-UK of the initial date of the marketing of each Licensed
Product,
and upon request, to deliver to IMG-UK the required number and type
of
specimen samples of the Licensed Product, labels, or the like upon
which the
Trademarks are
used for use in procuring copyright, trademark and/or service mark
registrations in the name of and at the expense of the person, firm,
corporation or other legal entity owing the Trademarks, in
compliance with
any laws relating to copyright, trademark and service mark
registrations.
(5) Except to the extent set forth in any schedules attached to
this
Agreement, Licensor, the Clubs and/or the Leagues shall be solely
responsible for taking such action as it or they deem appropriate to
obtain
such copyright, trademark or service mark
registrations for its or their Trademarks. If it shall be necessary
for
Company to be the applicant to effect any such registrations,
Company shall
and hereby does assign all of its rights in each such application
and any
resulting registration to Licensor or any
other appropriate owner thereof, and further agrees to execute all
papers
necessary to effectuate and/or confirm such assignments. Company
shall
perform all acts necessary and execute all documents necessary to
effectuate
its registration as a user of the Trademarks where such registration
is
needed.
(6) Company also agrees that, in any case where it employs the
services
of photographers or artists in connection with the production,
promotion,
marketing or distribution of
the Licensed Product(s), it will require each such photographer or
artist to
agree that the photographic or artistic works he or she produces for
Company
shall be "works made for hire" for the purposes of copyright laws,
and that
to the extent such photographic or artistic works may not qualify as
"works
made for hire" or such
definition is not known to the laws of the territory to which such
photographic or artistic works are subject, the copyright in each
such work is assigned to Company.
SECTION N. ACKNOWLEDGMENT OF RIGHTS:
Company hereby acknowledges the proprietary nature of all the
Trademarks,
and acknowledges that all rights, title and interest to the
Trademarks
belong to Licensor. the Office of the Commissioner of Baseball, the
Leagues
or the Clubs. Company represents that Company has not made any
unauthorized
use of the Trademarks and agrees that it will make no use of any
such
Trademarks, other than as provided in this Agreement, without the
prior
written consent of Licensor, the Office of the Commissioner of
Baseball, the
Leagues or the Clubs, as the case may be. Any use Company has made
or will
make of the Trademarks has not conferred or will not confer, as the
case may
be, any rights or benefits upon Company whatsoever, and any rights
created
by such use shall inure to the benefit of the individual Clubs, the
Leagues, the Office of the Commissioner of Baseball and/or Licensor,
as the
case may be.
SECTION 0. GOODWILL:
Company recognizes the great value of the publicity and good will
associated
with the Trademarks and, in such connection, acknowledges that such
good
will belongs exclusively to Licensor, the Office of the Commissioner
of
Baseball, the Leagues and/or the Clubs, and that the Trademarks have
acquired a secondary meaning in the minds of the purchasing public.
SECTION P. SPECIFIC QUALITY CONTROL OBLIGATIONS: During the Contract
Period,
and thereafter, Company agrees that:
(1) Company will not acquire any rights in the Trademarks as a
result of
Company's use thereof pursuant to this Agreement, and all use of the
Trademarks shall inure to Licensor's benefit;
(2) Company agrees it will not, directly or indirectly, attack the
title
of Licensor, the Office of the Commissioner of Baseball, the Leagues
and/or
the Clubs in and to the Trademarks or any copyright, trademark or
service
mark pertaining thereto, nor will it
attack the validity of the license granted hereunder, nor will it
use the
Trademarks in any manner other than as licensed hereunder;
(3) Company agrees it will not harm, misuse or bring into disrepute
the
Trademarks;
(4) Company agrees it will manufacture, sell, promote, advertise
and
distribute the Licensed Products in a legal and ethical manner and
in
accordance with the terms and intent of this Agreement;
(5) Company agrees it will not create any expenses chargeable to
Licensor
without the prior written approval of Licensor;
(6) Company agrees it will protect to the best of its ability the
right
to manufacture, sell and distribute the Licensed Products hereunder;
(7) Company will not use the Licensed Products for combination
sales or
make any premium use of Licensed Products (as described in Section B
of
these Standard Terms and Conditions) except with the prior express
written
consent of IMG-UK and will exercise due care that its customers
likewise
refrain from making such use of the
Licensed Products;
(8) Company agrees it will not, without prior written consent of
the
Licensor, enter into any sublicense or agency agreement for the
manufacture,
sale or distribution of the Licensed Products;
(9) Company agrees it will not engage in tying practices, illegal
restraints of trade, or selling practices that exclude any member of
the
retail trade for any reasons other than poor credit history, known
lack of
integrity or disregard for the rights of Licensor or
Major League Baseball. Nothing in the preceding sentence shall be
deemed to
require Company to violate any other term of this Agreement;
(10) Company agrees it will comply with all laws, regulations and
standards relating or pertaining to the manufacture, sale,
advertising or use of the Licensed Products and shall maintain the
highest quality and standards, and shall comply with the
requirements
of any regulatory agencies which shall have jurisdiction over the
Licensed Products. It will also comply with such guidelines and/or
requirements as Licensor may announce from time to time;
(11) Company agrees it will furnish to Licensor, upon request of
IMG-LTK
(which shall be made only for reasonable cause and no more often
than
once per year), a list of all distributors, sales representatives
and
jobbers for the Licensed Products, as well as a list of all its
"trade names", said list to include the company name, address,
telephone number, territorial representation and key contact name.
Licensor agrees that Licensor and IMG-UK will not divulge any
information provided to it under this paragraph to any competitor;
(12) Company agrees that it will use its diligent efforts to
actively and
aggressively promote the sale of Licensed Products throughout the
Licensed Territory, and Company further agrees it will continue to
manufacture, advertise, promote and distribute commercially
substantial quantities of Licensed Products continuously throughout
the entire duration of the Contract Period;
(13) Company agrees it will not manufacture or allow the
manufacture of,
or accumulate inventory of Licensed Products at a rate greater than
its average rate during the license period as the end of the
Contract
Period approaches;
(14) Company agrees it will not at any time apply for any
registration of
any copyright, trademark, service mark or other designation which
would affect the ownership of the Trademarks, or file any document
with any governmental authority or take any action which would
affect
the ownership of the Trademarks or aid or abet anyone in doing so;
(15) Company will not sell the Licensed Products to parties who it
knows
or reasonably should know will resell or distribute such products
outside the Licensed Territory;
(16) Company will not disclose any confidential, private,
restricted or
otherwise nonpublic information concerning Major League Baseball
which, it acknowledges, it may become privy to during the Contract
Period of this Agreement;
(17) Company will not grant to any third person or entity a
security
interest in the Licensed Products without Licensor's prior written
approval;
(18) With respect to any Licensed Products manufactured outside the
Licensed Territory, Company agrees: (i) Company will take receipt of
goods only at ports of entry located in the Licensed Territory, (ii)
Company will not allow any entity in the Licensed Territory,
including but not limited to distributors, wholesalers and
retailers,
to accept shipment of the Licensed Products from any manufacturer of
such products located outside the Licensed Territory, and (iii)
Company will distribute such Licensed Products to third parties,
including but not limited to distributors, wholesalers and
retailers,
from Company's principal place of business only; and
(19) Company has not had and does not have an investment or
interest in
casinos, any other form of legalized gambling enterprise, or any
activity that Licensor has previously notified Company to have been
made unauthorized or contrary to official policy of Major League
Baseball.
SECTIQN Q. SUBCONTRACT MANUFACTURERS.
Set forth in Paragraph 10 of this Agreement is a list of the names,
addresses, telephone numbers and names of principal contacts of each
party
(hereinafter referred to as a "Manufacturer"), that Company desires
or
intends to have produce one or more of the Licensed Product(s) (in
the event
Company desires not to be the manufacturer of such Licensed
Product(s)). In
this list set forth in Paragraph 10, Company shall specify in
writing the
Licensed Product(s) which each Manufacturer will produce. In the
event
Company later wishes to substitute a Manufacturer for one of those
listed in
the list, or wishes to add an additional party to this list of
Manufacturers, Company shall first provide IMG-UK, with the
information set
forth in that list regarding the proposed new Manufacturer for
Licensor's
written approval of such proposed Manufacturer. Company's failure to
do so
may result in termination of this Agreement and/or confiscation and
seizure
of the Licensed Product(s). Company shall ensure that:
(a) Manufacturer produces no merchandise bearing the Trademarks
other than the Licensed Product(s) described in this Agreement,
unless authorized by Licensor;
(b) Manufacturer produces the Licensed Product(s) only as and when
directed by Company and in accordance with the terms herein and in
compliance with all laws, regulations and governmental rules
applicable to the Licensed Product(s)
and/or their manufacture;
(c) Manufacturer does not supply the Licensed Product(s) to any
person, firm, corporation or business entity other than
Company or to such entities as may be authorized by Company
and Licensor jointly; and
(d) Manufacturer does not delegate in any manner whatsoever its
obligations with respect to the Licensed Product(s).
Prior to the delivery of the Licensed Product(s) from Manufacturers
to
Company, Company shall submit to IMG-UK, free of cost, for written
approval
as to quality and style, at least two samples of the Licensed
Product(s)
produced by Manufacturer.
SECTION R. APPROVAL OF MANUFACTURER:
Nothing contained herein may be construed so as to imply endorsement
of
Manufacturer by Licensor, the Office of the Commissioner of
Baseball, the
Leagues or the Clubs. Company shall submit to IMG-UK, for written
approval
or disapproval thereof by Licensor, a request for written approval
of
Manufacturer prior to Company's engagement of Manufacturer. Any
approval of
Manufacturer granted by Licensor relates solely to the manufacturing
of the
Licensed Product(s) and shall not constitute a grant of any right,
title or
interest in or to the Trademarks, in or to any copyrights, service
marks,
trademarks or other property rights associated therewith. Licensor
hereby
reserves the right to terminate in its discretion the engagement of
Manufacturer at any time. Additionally, Licensor may confiscate
goods or
samples imported by Company or shipped by Manufacturer that bear any
of the
Trademarks and that have not -been approved by Licensor as to
quality.
SECTION S. DISTRIBUTION:
Set forth in Paragraph I I of this Agreement is a list of the names,
addresses, telephone numbers and names of principle contacts of each
party
(hereinafter referred to as a "Distributor"), that Company desires
or
intends to have distribute one or more of the Licensed Products in
the event
Company desires not to be the sole distributor of such Licensed
Products.
For these purposes, a "Distributor" shall mean any individual or
entity,
other than consumers or entities that sell directly to consumers, to
whom
Company sells or otherwise provides the Licensed Products for
subsequent
sale or distribution. Company shall specify in writing the Licensed
Products
which each Distributor will distribute. In the event Company later
wishes to
substitute a Distributor for one of those listed in the list, or
wishes to
add an additional party to this list of Distributors, Company shall
first
provide IMG-UK with the information set forth in that list regarding
the
proposed new Distributor for Licensor's written approval of such
proposed
Distributor. Company's failure to do so may result in termination of
this
Agreement and/or confiscation and seizure of the Licensed
Product(s).
Company shall ensure that:
(a) Distributor distributes no merchandise bearing the Trademarks
other than the Licensed Product(s) described in this Agreement,
unless authorized by Licensor;
(b) Distributor distributes the Licensed Products only as and when
directed by Company and in accordance with the terms herein and in
compliance with all laws, regulations and government rules
applicable
to the Licensed Products
and/or their distribution;
(c) Distributor does not alter or modify, or add any labels,
hangtags or other items featuring Distributor's corporate
identification or other Distributor identification unless authorized
in advance in writing by Licensor;
(d) Distributor does not delegate in any manner its obligations
with respect to the Licensed Products; and
(e) Distributor does not advertise or promote its distribution of
the Licensed Products or its relationship to Major League Baseball,
without Licensor's prior
written authorization.
Company shall sell Licensed Products to jobbers, wholesalers,
distributors
or retailers for sale or resale and distribution to retail stores
and
merchants for their resale and distribution or directly to the
public. In
the event Company sells or distributes a Licensed Product at a
special price
directly or indirectly to itself including, without limitation, any
subsidiary of Company, or to any other person, firm or corporation
related
in any manner to Company or its officers, directors or major
stockholders,
Company shall pay compensation with respect to such sales or
distribution
based upon the price generally charged the trade by Company.
SECTION T. TERMINATION:
Licensor shall have the right to terminate this Agreement without
prejudice
to any other rights which it may have whether under the provisions
of this
Agreement, in law or in equity or otherwise, upon the occurrence of
any one
or more of the following events (herein called "defaults") and
Company's
failure to cure such default(s) completely within ten (10) Licensor
business
days from receipt of notice from Licensor:
(a) If Company falls to deliver to IMG-UK or to maintain in full
force and effect the insurance referred to in Section L hereof, or
(b) If Company fails to make any payment due hereunder on the date
due, at which time all monies which are owed during the current term
or renewal referred to in this Agreement shall become due and
payable
to Licensor; or
(c) If the Company fails to deliver any of the statements referred
to in this Agreement or to give access to the premises and/or
license
records pursuant to the provisions hereof to Licensor's authorized
representatives for the purposes permitted hereunder; or
(d) If any governmental agency or court of competent jurisdiction
finds that the Licensed Product(s) is defective in any way, manner
or
form; or
(e) If Company is unable to pay its debts when due, or makes any
assignment for the benefit of creditors or any arrangement pursuant
to any bankruptcy law, or files or has filed against it any petition
under the bankruptcy or insolvency
laws of any jurisdiction, country or place, or shall have or
suffer a receiver or trustee to be appointed for its business or
property,
or to be adjudicated a bankrupt or an insolvent. In the event the
license
granted hereunder is terminated pursuant to this Section T, neither
Company
nor its receivers, representatives, trustees, agents,
administrators,
successors and/or assigns shall
have any right to sell, exploit or otherwise deal with or in the
Licensed
Product(s) without the prior written consent of Licensor; or
(f) If Company is in default of its obligations pursuant to
Paragraph 6 of this Agreement; or; or
(g) If Company shall discontinue its business as it is now
conducted; or
(h) If Company shall breach any of the undertakings set forth in
Section P hereof, or
(i) If Company shall breach any of the terms of this Agreement; or
If, in the periodic statements furnished pursuant to Section G
of this Agreement, the amounts owed to Licensor are
significantly or consistently understated; or
(k) If Company shall undergo a change in majority or controlling
ownership.
In the event any of these defaults occurs and Licensor desires to
exercise
its rights of termination under the terms of this Section T,
Licensor shall
give notice of termination in writing to Company. Any and all
payments then
or later due from Company hereunder
(including guaranteed minimum annual royalty) shall then become
promptly due
and payable in full to Licensor and without set off of any kind;
i.e. no
portion of any prior payments made to Licensor shall be repayable to
Company. Until payment to Licensor of the monies due it, Licensor
shall have
a lien on any units of the Licensed Product(s) not then disposed of
by
Company and on any monies due Company from any jobber, wholesaler,
distributor, sublicensee or other third parties with respect to
sales of the
Licensed Product(s). Upon termination or expiration of the Contract
Period
hereof, all rights, licenses and privileges granted to Company
hereunder
shall automatically revert to Licensor and Company shall execute any
and all
documents evidencing such automatic reversion.
SECTION U. FINAL STATEMENT UPON TERMINATION OR EXPIRATION:
Company shall deliver, as soon as practicable, to IMG-LTK, following
expiration or termination of this Agreement, a statement indicating
the
number and description of the Licensed Products on hand. Following
expiration or termination Company may manufacture no more Licensed
Products,
but may continue to distribute its remaining inventory for that
period of
time designated in Paragraph 12 of this Agreement (the "Sell-Off
Period),
subject to the terms of Section P(4) and payment of applicable
royalties
relative thereto; provided, however, that such royalties shall not
be
applicable against Guaranteed Compensation. Notwithstanding the
foregoing,
Company shall not manufacture, sell or distribute any Licensed
Products
after the expiration or termination of this Agreement because of (a)
the
failure of Company to cause the appropriate statutory notice of
copyright,
trademark, service mark or user registration to appear wherever the
Trademarks are used; (b) the departure of Company from the quality
and style
approved by Licensor under the terms of Section D hereof-, (c) the
failure
of Company to obtain the approval of Licensor under the terms of
Section D
hereof, or (d) the occurrence of an event of default under the terms
of
Section T hereof. Licensor or its representatives shall have the
option to
conduct physical inventories before termination and continuing until
the end
of the Sell-Off Period in order to ascertain or verify such
inventories
and/or statements. Immediately upon expiration of the Sell-Off
Period,
Company shall furnish IMG-UK with a detailed statement showing the
number
and description of Licensed Products on hand in its inventory, and
Company
shall dispose of such inventory at Licensor's direction and at
Company's
expense. In the event Company refuses to permit Licensor or its
representatives to conduct such physical inventory, Company shall
forfeit
its rights hereunder to dispose of such inventory. In addition to
such
forfeiture, Licensor shall have recourse to all other remedies
available to
it.
SECTION V. INJUNCTION:
Company acknowledges that its failure to perform any of the terms or
conditions of this Agreement, or its failure upon the expiration or
termination of this Agreement to cease the manufacture of the
Licensed
Product(s) and limit their distribution and sale as provided in
Section U
hereof, shall result in immediate and irreparable damage to
Licensor.
Company also acknowledges that there may be no adequate remedy at
law for
such failures and that in the event thereof Licensor shall be
entitled to
equitable relief in the nature of an injunction and to all other
available
relief, at law and/or in equity.
SECTION W. NON-ASSIGNABILITY:
(1) Company acknowledges and recognizes:
(i) that Company has been granted the license hereinbefore
described because of Company's particular expertise, knowledge,
judgment, skill and ability;
(ii) that Company has substantial and direct responsibilities to
perform this Agreement in accordance with all of the terms contained
herein;
(iii) that Licensor is relying upon Company's unique knowledge,
experience and capabilities to perform this Agreement in a specific
manner consistent with the
high standards of integrity and quality associated with Major
League Baseball as a national sport and with Major League
Baseball licensed merchandise; and
(iv) that the granting of the license under this Agreement creates
a
relationship of confidence and trust between Licensor and
Company.
(2) This Agreement is personal to Company, and Company shall not
sublicense or franchise any of its rights hereunder, and neither
this
Agreement nor any of the rights of Company hereunder shall be sold,
transferred or assigned by Company without Licensor's prior written
approval
and no rights hereunder shall devolve by operation of law or
otherwise upon
any assignee, receiver, liquidator, trustee or other party. Subject
to the
foregoing, this Agreement shall be binding upon and shall inure to
the
benefit of the parties hereto, their successors and assigns.
SECTION X. MISCELLANEOUS PROVISIONS.
(1) Reservation Of Rights:
Licensor retains all rights not expressly and exclusively conveyed
herein,
and Licensor may license firms, individuals or partnerships or
corporations
to use the Trademarks, artwork and textual matter in connection with
other
products, including other products identical to the Licensed
Products
contemplated herein. Licensor reserves the right to use, or license
others
to use and/or manufacture, identical items as premiums.
(2) Waiver, Modification, Etc.
No waiver, modification or cancellation of any term or condition of
this
Agreement shall be effective unless executed in writing by the party
charged
therewith. No written waiver shall excuse the performance of any act
other
than those specifically referred to therein. No waiver by either
party
hereto of any breach of this Agreement shall be deemed to be a
waiver of any
preceding or succeeding breach of the same or any other provision
hereof.
The exercise of any right granted to either party hereunder shall
not
operate as a waiver. The normal expiration of the Contract Period of
this
Agreement shall not relieve either party of its respective
obligations
accruing prior thereto, nor impair or prejudice the respective
rights of
either party against the other, which rights by their nature survive
such
expiration. Licensor makes no warranties or representations to
Company
except those specifically expressed herein.
(3) No Partnership, Etc.:
This Agreement does not constitute and shall not be construed as
constituting an agency, partnership or joint venture relationship
between
Company and Licensor, IMG-UK, the Office of the Commissioner of
Baseball,
the Leagues and/or the Clubs. Company shall have no right to
obligate or
bind Licensor in any manner whatsoever, and nothing herein contained
shall
give or is intended to give any rights of any kind to any third
persons.
(4) Paragraph Headings.
Paragraph headings contained in this Agreement are for convenience
only and
shall not be considered for any purpose in governing, limiting,
modifying,
construing or affecting the provisions of this Agreement and shall
not
otherwise be given any legal effect.
(5) Construction:
This Agreement shall be construed in accordance with the laws of the
State
of New York.
(6) Severability
The determination that any provision of this Agreement is invalid or
unenforceable shall not invalidate this Agreement, and the remainder
of this
Agreement shall be valid and enforceable to the fullest extent
permitted by
law.
(7) Time Of The Essence:
Time is of the essence for all parts of this Agreement.
(8) Miscellaneous:
By executing this Agreement, Company acknowledges that this
Agreement is for
the Contract Period specified in Paragraph I of this Agreement only
and that
neither the existence of this Agreement or anything contained herein
shall
impose on Licensor any obligation to renew or otherwise extend this
Agreement after expiration of the Contract Period.
(9) Integration :
This Agreement, when fully executed, shall represent the entire
understanding between the parties hereto with respect to the subject
matter
hereof and supersedes all previous representations, understandings
or
agreements, oral or written, between the parties with respect to the
subject
matter hereof.
(10) Acceptance By Licensor:
This instrument, when signed by a representative of Company, shall
be deemed
an application for a license and not a binding agreement unless and
until
signed by Licensor. The receipt and/or deposit by Licensor of any,
check or
other consideration given by Company and/or delivery of any material
by
Licensor to Company shall not be deemed an acceptance by Licensor of
this
application. The foregoing shall also apply to any documents
relating to
renewals or modifications hereof.
- ----- END ----
EXHIBIT 10.64
Contract No. ML-2474C
MAJOR LEAGUE BASEBALL PROPERTIES, INC.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT by and between Major League Baseball
Properties, Inc., 350 Park Avenue. New York, NY 10022 (hereinafter
referred
to as "Licensor"), as agent for the Major League Baseball Clubs (the
"Clubs"), and Innovo Group, Inc., 27 North Main Street,
Springfield,/,TN 37172
(hereinafter referred to as "Licensee"). This Agreement is not
effective
until signed by the parties hereto.
THIS WILL CONFIRM OUR AGREEMENT AS FOLLOWS:
1. GRANT OF LICENSE: Licensor grants to Licensee for the term
of this
Agreement, subject to the terms and conditions hereinafter
contained, the
non-exclusive license to utilize the names, characters, symbols,
designs,
likenesses and visual representations described in Schedule A
attached
hereto (herein such names. characters, symbols,
designs, likenesses and visual representations are collectively
called
"Logos"), to be used solely in connection with the manufacture,
distribution, promotion, advertisement and sale of the article or
articles
specified in Schedule B attached hereto (herein such article or
articles are
called "Licensed Product(s)"). This license does not constitute and
may not
be used so as to imply the endorsement of the Licensed Product(s) or
any
other product of Licensee by Licensor, the Office of the
Commissioner of
Baseball, the American or National League of Professional Baseball
Clubs
(hereinafter referred to as the "Leagues") or the Clubs. While the
Logos
licensed herein may be used as trademarks subject to the terms of
this
License Agreement, the Logos are not licensed herein for use as
certification marks or indications of a particular standard of
quality. Any
exclusivity granted hereunder shall be subject to presently
outstanding
agreements granted by the Clubs. Further, any exclusivity granted
hereunder
shall pertain only to the extent of the items described and, if
given, at
the price set forth in Schedule E. Licensor warrants and represents
that as
the agent for the Clubs, pursuant to authority granted by the Clubs,
it has
the full authority to license the Logos in connection with the
manufacture,
distribution, promotion, advertisement and sale of the Licensed
Product(s). 1
2. TERRITORY: Licensee shall b e entitled to use the license granted
hereunder only in the territory described in Schedule C attached
hereto
(herein such territory is called "Licensed Territory"). Licensee
will not
make use of or authorize any use of this license or the Licensed
Product(s)
outside the Licensed Territory or distribute or sell the Licensed
Product(s)
directly or through others to retailers outside the Licensed
Territory.
3. LICENSE PERIOD: The license granted hereunder shall be effective
and terminate as of the dates specified in Schedule D attached
hereto,
unless sooner terminated or renewed in accordance with the terms and
conditions hereof.
4. PAYMENT: A. Advance and Guaranteed Compensation: Licensee agrees
to pay Licensor the sums specified in Schedule E attached hereto, as
advance
minimum compensation (herein called "Advance Compensation") and as
guaranteed minimum compensation (herein called "Guaranteed
Compensation").
The Advance Compensation shall be paid as set forth in Schedule E.
and shall
apply against Percentage Compensation as defined below. The
Guaranteed
Compensation shall be paid as provided in Schedule E except to the
extent
that paid Advance Compensation and annual cumulative payments of
Percentage
Compensation shall theretofore have offset all or a portion of the
total of
such Guaranteed Compensation. Notwithstanding the foregoing, no part
of
Percentage Compensation which may be attributable to premium sales
(as
defined hereunder) of the Licensed Product(s) shall serve to offset
any part
of the Total Guaranteed Compensation specified in Schedule E. No
part of
such Advance Compensation and no part of such Guaranteed
Compensation shall
be repayable to Licensee in any event, except as is expressly
provided for
herein.
B. Percentage Compensation: Licensee agrees to pay Licensor a sum
equal to the percentage specified in Schedule E (or Licensor's
prevailing
rate, if greater) of all net sales (as defined below) by Licensee or
any of
its affiliated, associated or subsidiary entities of the Licensed
Product(s)
covered by this Agreement. (Such percentage of net sales is herein
called
"Percentage Compensation.") Percentage Compensation shall be payable
concurrently with the periodic statements required in the following
paragraph, except to the extent offset by Guaranteed Compensation
theretofore remitted. The term "net sales" shall mean gross sales
based on
the wholesale price to the retail trade less quantity discounts and
actual
returns, but no deduction shall be made for uncollectible accounts,
commissions, taxes, discounts other than quantity discounts, such as
cash
discounts and discounts attributable to the issuance of a letter of
credit,
or any other amount. No costs incurred in the manufacture, sale,
distribution, promotion or advertisement of the Licensed Product(s)
shall be
deducted from any Percentage Compensation payable by Licensee. Said
Percentage Compensation shall also be paid by Licensee to Licensor
on all
Licensed Product(s) (including, without limitation, any irregulars,
seconds,
etc. distributed pursuant to the provisions of Paragraph 10 of this
Agreement) distributed by Licensee or any of its affiliates.
associated or
subsidiary entities even if not billed or billed at less than usual
net
sales price for such Licensed Products
and shall be based upon the usual net sales price for such Licensed
Product(s) sold to the trade by Licensee. Any late payments of
Advance
Compensation, Guaranteed Compensation or Percentage Compensation
shall
require Licensee to pay Licensor, in addition to the amounts due,
interest
at one percent(1%) per month or the highest prime lending rate of
Chemical
Bank during the period such amounts are delinquent, whichever is
greater,
on the amounts delinquent for he period of the delinquency, without
prejudice to any other rights of Licensor in connection therewith.
C. Catalog Contribution: Licensee agrees that licensor shall have
the right
in its sole discretion and in a style and manner in which it
chooses, to
print catalogs, sales sheets or brochures (hereinafter "catalogs")
Wherein
representative merchandise from licensees of Licensor shall be
displayed.
S. PERIODIC STATEMENTS: Within thirty (30) days after the first day
of the license period. and 1romptly on the I 5th day of every
calendar month
thereafter, Licensee shall furnish to Licensor complete and accurate
statements, certified to be accurate by Licensee, or if a
corporation. by an
officer of Licensee. showing the sales volume of each Licensed
Product
(itemized by Club, for each applicable Licensed Product), gross
sales price,
itemized
deductions from gross sales price, and net sales price of the
licensed
Product(s) distributed and/or sold by Licensee
during the preceding calendar month, together with any returns
made during
the preceding calendar month. Such statements shall be furnished to
Licensor
whether or not any of the Licensed Product(s) have been sold. or any
payment
to Licensor whether or not any Licensed Product(s) have been
sold, or any
payment is shown to be due Licensor, during the calendar months in
which
such statements we due. Licensee shall furnish to
Licensor sufficient background information so as to make such
statements
intelligible to Licensor, and on an annual basis,
a complete list of Licensee's customers to whom Licensed
Product(s) have
been sold. Licensor agrees that it will not
divulge said customer list to any other licensee, to any other
competitor
licensing organization, or to any competitor of
Licensee. Receipt or acceptance by Licensor of any of the
statements
furnished pursuant to the Agreement or of any sums paid hereunder
shall not
preclude licensor from questioning the correctness thereof at any
time. and in
the event that any inconsistencies or mistakes are discovered in
such statements
or payments, they shall immediately be rectified
and the appropriate payments made by Licensee. Late payment
penalties. if any, shall be made pursuant to Paragraph
4b. Upon demand of Licensor, Licensee "I at its own expense,
but not more
than once in any twelve (12) month will furnish to licensor a
detailed statement certified by an independent certified public
accounting
firm approved by Licensor showing the sales volume of each Licensed
Product
(itemized by Club, for each applicable Licensed Product), gross
sales price,
itemized deductions from gross sales price and net sales price of
the
Licensed Product(s)
covered by this Agreement distributed and/or sold by licensee to the
date of
the Licensor's demand. All amounts payable pursuant to this
Agreement shall
be in U.S. dollars only.
6. BOOKS AND RECORDS: Licensee shall keep, maintain and preserve in
its principal place of business for at least two (2) years following
termination or expiration of this Agreement or any renewal thereof,
complete
and accurate records and accounts covering all transactions relating
to this
Agreement and pertaining to the various items required to be shown
on the
statements to be submitted by Licensee, including, without
limitation,
invoices, correspondence and banking, financial and other records in
Licensee's possession or under its control. Such records and
accounts shall
be available for inspection and audit (and copying at Licensees,
expense) at
any time or times during or after the term or terms of this
Agreement during
reasonable business hours and upon reasonable notice by Licensor or
its
representatives. Licensee agrees not to cause or permit any
interference
with Licensor or representatives of licensor in the performance of
their
duties of inspection and audit.
The exercise by Licensor, in whole or in part or at any time or
times, of the right to audit records and accounts or of any other
right
herein granted, the acceptance by Licensor of any statement or
statements or
the receipt and deposit by Licensor of any payment tendered by or on
behalf
of Licensee shall be without prejudice to any rights or remedies of
Licensor
and shall not stop or prevent Licensor from thereafter disputing the
accuracy of any such statement or payment.
If pursuant to its right hereunder to audit and inspect Licensor
causes an audit and inspection to be instituted which thereafter
discloses a
deficiency of three percent (3%) or more between the amount found to
be due
to Licensor and the amount actually paid or credited to Licensor,
then
Licensee shall be responsible for payment of the entire deficiency,
together
with interest thereon at the then current prime rate of Chemical
Bank or its
successor from the date such amount became due until the date of
payment,
and die costs and expenses of such audit and inspection. If the
audit
discloses a deficiency of less than three percent (3%) between the
amount
found to be due to Licensor and the amount actually paid or credited
to
Licensor, and if the amount actually paid or credited to licensor
plus the
deficiency exceeds the Guaranteed Compensation for the period
covered by the
deficiency. then Licensee shall pay Licensor the amount of the
deficiency
plus interest as calculated above.
7. INDEMNINCATIONS AND PROTECTIONS: A. licensor hereby agrees to
indemnify, defend and hold Licensee and its owners, shareholders,
directors,
officers, employees, agents, representatives, successors and assigns
harmless from any claims. suits, damages or costs (including
reasonable
attorneys' fees and expenses) arising from (I) challenges to
Licensor's
authority as agent for and pursuant to authority granted by the
Clubs to
license the Logos in connection with the manufacture, distribution,
promotion, advertisement and sale of the Licensed
Product(s) or (ii) assertions to any claim of right or interest in
or to
the Logos as authorized and used on the Licensed Products, provided
in each
case that Licensee shall give prompt written notice, cooperation and
assistance to Licensor relative to any such claim or suit, and
provided
further in each case that Licensor shall have the option to
undertake and
conduct the defense of any suit so brought and to engage in
settlement
thereof at its sole discretion.
B. Licensee shall assist Licensor, to the extent necessary, in the
procurement of any protection or to protect any of Licensor's rights
to the
Logos, and Licensor, if it so desires and in its sole discretion,
may
commence or prosecute any claims or suits in its own name or in the
name of
Licensee or join Licensee as a party thereto. Licensee shall notify
Licensor
in writing of any infringements or imitations by others of the Logos
of
which it is aware. Licensor shall have the sole right to determine
whether
or not any action shall be taken on account of such infringements or
imitations. Licensee shall not institute any suit or take any action
on
account of any such infringements or imitations without first
obtaining the
written consent of Licensor to do so. Licensee agrees that it is not
entitled to share in any proceeds received by Licensor (by
settlement or
otherwise) in connection with any formal or informal action brought
by
Licensor hereunder.
C. Licensee hereby agrees to indemnify, defend and hold Licensor,
the
Clubs, the Leagues and the Office of the Commissioner of Baseball
and their
respective owners, shareholders, directors, officers, employees,
agents,
representatives, successors and assigns harmless from any claims,
suits,
damages and costs (including reasonable attorneys' fees and
expenses)
arising out of (i) any unauthorized use of or infringement of any
trademark,
service mark, copyright, patent, process, method or device by
Licensee in
connection with the Licensed Product(s) covered by this Agreement,
(ii)
alleged defects or deficiencies in said Licensed Product(s) or the
use
thereof, or false advertising, fraud, misrepresentation or other
claims
related to the Licensed Product(s) not involving a claim of right to
the
Logos, (iii) the unauthorized use of the Logos or any breach by
Licensee of
this Agreement, (iv) libel or slander against, or invasion of the
right of
privacy, publicity or property of, or violation or misappropriation
of any
other fight of any third party, and/or (v) agreements or alleged
agreements
made or entered into by Licensee to effectuate the terms of this
Agreement.
Licensor shall give Licensee notice of the making of any claim or
the
institution of any action hereunder and Licensor may at its option
participate in any action. The indemnifications hereunder shall
survive the
expiration or termination of this Agreement.
8. INSURANCE: Licensee agrees to obtain, at its own cost and
expense,
comprehensive general liability insurance including product
liability
insurance from an insurance company acceptable to Licensor,
providing
adequate protection for Licensor, the Clubs, the Leagues, the Office
of the
Commissioner of Baseball and Licensee against any claims or suits
arising
out of any of the circumstances described in Paragraph 7C above for
which
insurer is able to provide insurance, in an amount no less than
$3,000,000.00 (three million dollars) per incident or occurrence, or
Licensee's standard insurance policy limits, whichever is greater,
and with
a reasonable deductible in relation thereto. Such insurance shall
remain in
force at all times during the license period and for a period of
five years
thereafter. Within thirty (30) days from the date hereof, Licensee
will
submit to Licensor a fully paid policy or certificate of insurance
naming
Licensor, the Leagues and the Office of the Commissioner of Baseball
as
additional insured parties and requiring that the insurer shall not
terminate or materially modify such policy or certificate of
insurance
without written notice to Licensor at least thirty (30) days in
advance
thereof.
9. COPYRIGHT AND TRADEMARK NOTICES AND REGISTRATIONS: Licensee
further agrees that in any instance wherein the Logos of the Clubs
and/or
the Leagues are used, the following general notice shall be included
(i.e.,
on the product, on a label, on the packaging material or on a
separate slip
of paper attached to the product): "The Major League Club insignias
depicted
on this product are trademarks which are the exclusive property of
the
respective Major League Clubs and may not be reproduced without
their
written consent." Further, all products containing the Logos shall
contain a
hangtag and label with Licensee's name stating "Genuine Merchandise"
and
containing the Major League Baseball silhouetted batter logo and,
where
appropriate, the Major League Baseball Cooperstown Collection logo
or Major
League Baseball Authentic Diamond Collection logo. All Licensed
Product(s)
shall contain a permanently affixed label that displays Licensee's
name. All
Licensed Product(s) components which bear any of the Logos
(embroidered
emblems, cloth or paper labels, hangtags, etc.) shall be
manufactured
in-house by Licensee or shall be obtained only from one or more
suppliers
officially authorized by Licensor to produce those components. All
Licensee
advertisements displaying the Logos, all retailer advertisements
featuring
Licensed Product(s) and of which Licensee has knowledge or any
Licensed
Product(s), shall contain the words "Genuine Merchandise" and the
silhouetted batter logo. Licensee shall require those to whom it
sells
Licensed Product(s) directly or indirectly to display the words
"Genuine
Merchandise" (or such other appropriate notice as directed by
Licensor) and
the silhouetted batter logo in all advertisements. All uses of the
Logos
shall also include any designations legally required or useful for
enforcement of copyright, trademark or service mark rights (e.g.,
"(c),"
"(R)" or "TM"). Licensee shall submit a copy of its specifications
for all
of the above notices (including copies of its artwork, layouts or
mold
blueprints) to Licensor for its review. Licensor shall have the
fight to
revise the above notice requirements and to require such other
notices as
shall be reasonably necessary to protect the interests of Licensor,
the
Clubs and/or the Leagues in the respective Logos. Licensee agrees to
advise Licensor of the initial date of the marketing of each
Licensed
Product, and upon request, to deliver to Licensor the required
number and
type of specimen samples of the Licensed Product, labels or the like
upon
which the Logos are used for use in procuring copyright, trademark
and/or
service mark registrations in the name of and at the expense of the
person,
firm, corporation or other legal entity owning the Logos, in
compliance with
any laws relating to copyright, trademark and service mark
registrations.
Except to the extent set forth in any schedules attached to this
Agreement,
Licensor, the Clubs and/or the Leagues shall be solely responsible
for
taking such action as it or they deem appropriate to obtain such
copyright,
trademark or service mark registrations for its or their Logos. If
it shall
be necessary for Licensee to be the applicant to effect any such
registrations, Licensee shall and hereby does assign all of its
fights in
each such application and any resulting registration to Licensor or
any
other appropriate owner thereof, and further
agrees to execute all papers necessary to effectuate and/or confirm
such
assignments. Licensee shall perform all acts necessary and execute
all
documents necessary to effectuate its registration as a user of the
Logos
where such registration is needed.
Licensee also agrees that, in any case where it employs the services
of photographers or artists in connection with the production,
promotion,
marketing or distribution of the Licensed Product(s), it will
require each
such photographer or artist to agree that the photographic or
artistic works
he or she produces for Licensee shall be "works made for hire" for
the
purposes of the copyright laws, and that to the extent such
photographic or
artistic works may not qualify as "works made for hire," the
copyright in
each such work is assigned to Licensee.
10. APPROVALS: Licensor shall have absolute approval of the Licensed
Product(s) and of all packaging, advertising and promotional
material at all
stages of the development thereof. Licensee agrees to furnish in a
timely
manner to Licensor, free of cost, for its written approval as to
quality and
style, designs of each Licensed Product and samples of each Licensed
Product
before its manufacture, sale, promotion, advertisement, order
distribution,
which ever first occurs, and samples of all advertising, point-of-
sale
displays, catalogs, sales sheets and other items that display or
picture the
Logos, and no such Licensed Product or other such materials shall be
manufactured, sold, promoted, advertised or distributed by Licensee
without
such prior written approval. In particular, no use of any Logo or
Logos
shall be made on stationery of Licensee (specifically including,
without
limitation, letterhead, envelopes, business cards, shopping bags,
invoices, statements, packing slips, etc.) without Licensor's
express
written approval in advance of any such use. In addition, no
irregulars,
seconds or other Licensed Products which do not conform in all
material
respects to the approved samples may be distributed or sold without
the
express written advance consent of Licensor. All such sales, if
made, shall
bear Percentage Compensation as set forth in Paragraph 4.B. Subject,
in each
instance, to the prior written approval of Licensor, Licensee or its
agents
may use textual and/or pictorial matter pertaining to the Logos on
such
promotional display and advertising material as may, in its
judgment,
promote the sale of the Licensed Product(s). All promotional display
and
advertising material must contain and prominently display the
official
logo of Licensor. Ten samples of each Licensed Product shall be
supplied
free of cost to Licensor, and one to each Club whose Logos are used
on such
Licensed Product(s). From time to time subsequent to final approval,
a
reasonable number of production samples shall periodically be sent
to
Licensor free of cost. Such samples shall also be sent upon any
change in
design, style or quality, which shall necessitate subsequent
approvals by
Licensor. Additional samples shall be supplied to Licensor upon
request at
no more than cost. Licensor shall also have the right to inspect
Licensee's
plants, warehouses or store facilities at any reasonable time
without
notice.
In the event that any item or matter submitted to Licensor under
this
Agreement for approval or consent shall not have been approved or
consented
to, disapproved or denied, or commented upon within twenty (20)
Licensor
business days after receipt thereof by Licensor (both Licensing
Director and
Licensed Product Compliance), and Licensor (both Licensing Director
and
Licensed Product Compliance) shall have received notice from
Licensee that
comment is overdue by telegram or other written com-munica6on, and
Licensor
shall not have commented within five (5) additional Licensor
business days
of receipt of such notice, any items or matters so submitted shall
be deemed
approved and consented to.
In any instance where any matter is required to be submitted to
Licensor for Licensor's approval, that approval shall be granted or
withheld
in Licensor's sole discretion.
11. DISTRIBUTION: Licensee shall sell the Licensed Product(s) to
jobbers, wholesalers, distributors or retailers for sale or resale
and
distribution to retail stores and merchants for their resale and
distribution or directly to the public. In the event Licensee sells
or
distributes a Licensed Product at a special price directly or
indirectly to
itself, including, without limitation, any subsidiary of Licensee,
or to any
other person, firm or corporation related in any manner to Licensee
or its
officers, directors or major stockholders, Licensee shall pay
compensation
with respect to such sales or distribution based upon the price
generally
charged the trade by Licensee.
12. GOODWILL: Licensee recognizes the great value of the publicity
and good will associated with the Logos and, in such connection,
acknowledges that such good will belongs exclusively to Licensor,
the Clubs,
the Office of the Commissioner of Baseball and/or the Leagues and,
that the
Logos have acquired a secondary meaning in the minds of the
purchasing
public.
13. SPECIFIC UNDERTAKINGS OF LICENSEE: During the license period,
each additional license period if any and thereafter, Licensee
agrees that:
A. It will not acquire any rights in the Logos as a result of its
use
thereof and all use of the Logos shall inure to Licensor's benefit;
B. It will not, directly or indirectly, attack the title of
Licensor,
the Clubs, the Office of the Commissioner of Baseball and/or the
Leagues in
and to the Logos or any copyright, trademark or service mark
pertaining
thereto, nor will it attack the validity of the license granted
hereunder,
nor will it use the Logos in any manner other than as licensed
hereunder;
C. It will not at any time apply for any registrarion of any
copyright, trademark, service mark or other designation which would
affect
the ownership of the Logos, or file any document with any
governmental
authority or take any action which would affect the ownership of the
Logos
or aid or abet anyone in doing so;
D. It will not harm, misuse or bring into disrepute the Logos;
E. It will manufacture, sell, promote, advertise and distribute the
Licensed Product(s) in a legal and ethical manner and in accordance
with the
terms and intent of this Agreement;
F. It will not create any expenses chargeable to Licensor without
the prior written approval of Licensor:
G. It will protect to the best of its ability the fight to
manufacture, sell and distribute the Licensed Product(s) hereunder;
H. It will not use the Licensed Product(s) for combination sales, as
self-liquidating or free giveaways or for any similar method of
merchandising without the prior written consent of Licensor and will
exercise due care that its customers likewise will refrain from
making such
use of the Licensed Product(s);
I. It will not, without the prior written consent of Licensor, enter
into any sublicense or agency agreement for the manufacture, sale,
promotion, advertisement or distribution of the Licensed Product(s);
J. It will not engage in tying practices, illegal restraints of
trade, or selling practices that exclude any members of the retail
trade for
any reason other than poor credit history, known lack of integrity
or
disregard for the rights of Licensor or Major League Baseball.
Nothing in
the preceding sentence shall be deemed to require Licensee to
violate any
other term of this Agreement;
K. It will not use, or knowingly permit the use of, the Licensed
Product(s) as a premium, except with the prior written consent of
Licensor
and the specific negotiation of a higher royalty payment therefor.
For
purposes of this subparagraph and Paragraph 19 below, the term
"premium"
shall be defined as including, but not necessarily limited to, free
or
self-liquidating items offered to the public in conjunction with the
sale or
promotion of a product or service, including traffic building or
continuity
visits by the consumer/customer, or any similar scheme or device.
the prime
intent of which is to use the Licensed Product(s) in such a way as
to
promote, publicize and/or sell the products, services or business
image of
the third party company or manufacturer. "Premium" use shall also
specifically include distribution of the Licensed Product(s) for
retail sale
through distribution channels (including, without limitation.
catalogs)
offering earned discounts or "bonus" points based upon the extent of
usage
of the offeror's product or service;
L. It will comply with such guidelines and/or requirements as
Licensor
may announce from time to time. It will comply with all laws,
regulations
and standards relating or pertaining to the manufacture, sale,
advertising
or use of the Licensed Product(s) and shall maintain the highest
quality and
standards, and shall comply with the requirements of any regulatory
agencies
(including, without limitation, the United States Consumer Safety
Commission) which shall have jurisdiction over the Licensed
Product(s);
M. It guarantees that Licensor, Clubs, official Club and/or Licensor
retail stores, Club in-stadium concessionaires and the Clubs
belonging to
The National Association of Professional Baseball Leagues ("NAPBL
Clubs")
will obtain the Licensed Product(s) for retail sale at lowest
possible
wholesale prices and shall receive prompt shipments and/ or
deliveries of
the Licensed Product(s), without regard to the relatively small
volume their
orders may represent. Licensor, Clubs and NAPBL Clubs may obtain the
Licensed Product(s) for their use, but not resale, at the
manufacturer's
lowest possible price, which shall in no event be greater than its
lowest
wholesale price;
N. It will furnish to Licensor, upon request of Licensor (which
shall
be made only for reasonable cause and no more often than once per
year), a
list of all its distributors, sales representatives and jobbers for
the
Licensed Product(s), as well as a list of all its "trade names,"
said list
to include the company name, address, telephone number, territorial
representation and key contact name. Licensor agrees that it will
not
divulge any information provided to it under this paragraph to any
other
competitor licensing organization;
0. Concurrently with its execution of this Agreement, it will
provide
Licensor with the names, addresses, telephone numbers and names of
principal
contacts of each party (hereinafter referred to as "Manufacturer"),
both
domestic and foreign, that Licensee desires or intends to have
produce one
or more of the Licensed Products in the event Licensee desires not
to be the
manufacturer of such Licensed Product(s). This information shall be
set
out in Schedule of this Agreement and Licensee shall specify the
Licensed
Product(s) Manufacturer will produce. In the event Licensee wishes
to
substitute a Manufacturer for those listed in Schedule F or wishes
to add to
the number of Manufacturers, Licensee shall first provide Licensor
with the
information set out in Schedule F regarding the proposed new
Manufacturers
for Licensor's written approval of such Manufacturers. Licensee's
failure to
do so may result in termination of this Agreement and/or
confiscation and
seizure of the Licensed Product(s). Licensee shall ensure that:
(a) Manufacturer produces no merchandise bearing the Logos
other than the Licensed Product(s) described in Schedule F of this
Agreement unless authorized by Licensor;
(b) Manufacturer produces the Licensed Product(s) only as and
when directed by Licensee and in accordance with the terms herein
and
in compliance with all laws, regulations and governmental rules
applicable to the Licensed Product(s) and/or their manufacture;
(c) Manufacturer does not supply the Licensed Product(s) to
any person, firm. corporation or business entity other than Licensee
or to such entities as may be authorized by Licensee and Licensor
jointly, and
(d) Manufacturer does not delegate in any manner whatsoever
its obligations with respect to the Licensed Product(s).
Prior to the delivery of the Licensed Product(s) from Manufacturer
to
Licensee, Licensee shall submit to Licensor, free of cost, for its
written
approval as to quality and style, at least two samples of the
Licensed
Product(s) produced by Manufacturer;
P. It will not manufacture or allow the manufacture, or accumulate
inventory, of the Licensed Product(s), at a rate greater than its
average
rate during the license period as the end of the license period
approaches;
Q. It will not sell the Licensed Product(s) to parties whom it knows
or reasonably should know will resell or distribute such Product(s)
outside
the Licensed Territory;
R. It will not disclose any confidential, private, restricted or
otherwise nonpublic information concerning Major League Baseball
which, it
acknowledges, it may become privy to during the term of this
Agreement;
S. It will not grant to any third person or entity a security
interest in the Licensed Product(s) without Licensor's prior written
approval;
T. It has not had and does not have an investment or interest in
casinos, any other form of legalized gambling enterprise, or any
activity
that Licensor or any other Major League Baseball related entity has
made
unauthorized or which is contrary to official policy of Major League
Baseball; and
U. With respect to any Licensed Products manufactured outside the
United States, (i) it will take receipt of goods at U.S. ports of
entry,
(ii) it will not allow any entity in the United States. including
but not
limited to distributors, wholesalers and retailers, to accept
shipment of
the Licensed Products from any non U.S. manufacturer of such
Products. and
(iii) it will distribute such Products to third parties, including
but not
limited to distributors, wholesalers and retailers, from Licensee's
principal place of business only.
14. APPROVAL OF MANUFACTURER, ETC.: Nothing contained herein may be
construed so as to imply endorsement of Manufacturer by Licensor,
the
Office of the Commissioner of Baseball, the Leagues or the Clubs.
Licensee
shall seek Licensor's written approval of Manufacturer prior to
Licensee's
engagement of Manufacturer. Any approval of Manufacturer granted by
Licensor
relates solely to the manufacturing of the Licensed Product(s) and
shall not
constitute a grant of any fight, title or interest in or to the
Logos, nor
to any copyrights, service marks, trademarks or other property
rights
associated therewith. Licensor hereby reserves the right to
terminate in its
discretion the engagement of Manufacturer at any time. Additionally,
Licensor may confiscate goods or samples imported by Licensee or
shipped by
Manufacturer that bear any of the Logos and that have not been
approved by
Licensor as to quality.
15. ACKNOWLEDGEMENT OF RIGHTS: Licensee hereby acknowledges the
proprietary nature of all names and logos of the Major League
Baseball
Clubs, the Leagues, the Office of the Commissioner of Baseball or
Licensor
and acknowledges that all tights, title and interest to such names
or logos
belong to the individual Clubs, the Leagues, the Office of the
Commissioner
of Baseball and/or Licensor, as the case may be. Licensee represents
that it
has not made any unauthorized use of names or logos of the Major
League
Baseball Clubs, the Leagues, the Office of the Commissioner of
Baseball or
Licensor and agrees that it will make no use of any such names or
logos,
other than as provided in this Agreement, without the prior written
consent
of Licensor, the Office of the Commissioner of Baseball or the
appropriate
individual League or Club. Any use Licensee has made or will make of
such
names and logos has not conferred or will not confer, as the case
may be,
any rights or benefits upon it whatsoever, and any rights created by
such
use shall inure to the benefit of the individual Clubs, the Leagues,
the
Office of the Commissioner of Baseball and/or Licensor, as the case
may be.
16. TERMINATION: A. Immediate Termination: Licensor shall have the
right to terminate this A2reement immediately upon the occurrence of
any one
or more of the following events (herein called "defaults"):
(i) If Licensee fails to deliver to Licensor or to maintain in full
force and effect the insurance referred to in Paragraph 8 hereof; or
(ii) If any governmental agency or court of competent jurisdiction
finds that the Licensed Product(s) are defective in any way, manner
or form;
or
(iii) If Licensee shall breach any one of the following undertakings
set forth in Paragraph 13 hereof: 13A through F H through J, Q, R or
T; or
(iv) If Licensee shall undergo a change in majority or controlling
ownership.
B. Termination With Cure Period: Licensor shall have the right to
terminate this Agreement upon the occurrence of any one or more of
the following defaults, and Licensee's failure to cure such
default(s) completely within ten (10) business days from Licensee's
receipt of notice from Licensor:
(i) If Licensee fails to make any payment due hereunder on the date
due, at which time all monies which are owed during the current term
or
renewal referred to in Schedule E of this Agreement shall become due
and
payable to Licensor; or
(ii) If Licensee fails to deliver any of the statements hereinabove
referred to or to give access to the premises and/or license records
pursuant to the provisions hereof to Licensor's authorized
representatives
for the purposes permitted hereunder or
(iii) If Licensee is unable to pay its debts when due, or
makes any
assignment for the benefit of creditors or an arrangement pursuant
to any
bankruptcy law, or files or has filed against it any petition under
the
bankruptcy or insolvency laws of any jurisdiction, county or place,
or
shall have or suffer a receiver or trustee to be appointed for its
business
or property, or be adjudicated a bankrupt or an insolvent. In the
event
the license granted hereunder is terminated
pursuant to this Paragraph 16(B)(iii), neither Licensee nor its
receivers,
representatives. trustees, agents, administrators,
successors and/or assigns shall have any right to sell, exploit or
otherwise deal with or in the Licensed Product(s) without
the prior written consent of Licensor; or
(iv) If Licensee does not commence in good faith to manufacture,
distribute and sell each Licensed Product throughout the Licensed
Territory
within any twelve (12) month period, but such default and Licensor's
resultant right of termination shall apply only to the specific
Licensed
Product(s) and/or the specific territory(ies) which or wherein
Licensee
fails to meet said requirements; or
(v) If Licensee shall discontinue its business as it is now
conducted; or
(vi) If Licensee shall breach any of the undertakings set forth in
Paragraph 13 hereof, except as otherwise provided in Paragraph
16(A)(iii)
above; or
(vii) If Licensee shall breach any of the terms of this Agreement;
or
(viii) If, in the periodic statements furnished pursuant to
Paragraph
5 hereof, the amounts owed to Licensor are significantly or
consistently
understated.
Licensor's fight to terminate this Agreement shall be without
prejudice to any other rights which it may have, whether under the
provisions of this Agreement, in law or in equity or otherwise. In
the event
any of these defaults occurs and Licensor desires to exercise its
fight of
termination under the terms of this Paragraph 16, Licensor shall
give notice
of termination in writing to Licensee. Any and all payments then or
later
due from Licensee hereunder (including Advance Compensation) shall
then
become promptly due and payable in full to Licensor and without set
off of
any kind; i.e., no portion of any prior payments made to Licensor
shall be
repayable to Licensee. Until payment to Licensor of any monies due
it,
Licensor shall have a lien on any units of the Licensed Product(s)
not then
disposed of by Licensee and on any monies due Licensee from any
jobber,
wholesaler, distributor, sublicensee or other third parties with
respect to
sales of the Licensed Product(s). Upon termination or expiration of
the term
hereof, all rights, licenses and privileges granted to Licensee
hereunder
shall automatically revert to Licensor and Licensee shall execute
any and
all documents evidencing such automatic reversion.
17. FINAL STATENMNT UPON TERMNATION OR EXPIRATION: Licensee shall
deliver to Licensor, as soon as practicable, following expiration or
termination of this Agreement, a statement indicating the number and
description of the Licensed Product(s) on hand. Following expiration
or
termination Licensee may manufacture no more Licensed Product(s),
but may
continue to distribute its remaining inventory for a period not to
exceed
sixty (60) days, subject to the terms of Paragraph 13(P) hereof and
payment
of applicable royalties relative thereto; provided, however, that
such
royalties shall not be applicable against Advance Compensation or
Guaranteed
Compensation. Notwithstanding the foregoing, Licensee shall not
manufacture,
sell or distribute any Licensed Product(s) after the expiration or
termination of this Agreement because of (a) the failure of Licensee
to
cause the appropriate statutory notice of copyright, trademark,
service mark
or user registration to appear wherever the Logos are used; (b) the
departure of Licensee from the quality and style approved by
Licensor under
the terms of Paragraph 10 hereof, (c) the failure of Licensee to
obtain the
approval of Licensor under the terms of Paragraph 10 hereof; or (d)
the
occurrence of an event of default under the terms of Paragraph 16
hereof.
Licensor shall have the option to conduct physical inventories
before
termination and continuing until the end of the 60-day sell-off
period in
order to ascertain or verify such inventories and/or statement.
Immediately
upon expiration of the sell-off period, Licensee shall furnish
Licensor a
detailed statement certified by an officer of Licensee showing the
number
and description of Licensed Products on hand in its inventory and
shall
dispose of such inventory at Licensor's direction and at Licensee's
expense.
In the event Licensee refuses to permit Licensor to conduct such
physical
inventory, Licensee shall forfeit its right hereunder to dispose of
such
inventory. In addition to such forfeiture, Licensor shall have
recourse to
all other remedies available to it.
18. INJUNCTION: Licensee acknowledges that its failure to perform
any
of the terms or conditions of this Agreement, or its failure upon
the
expiration or termination of this Agreement to cease the manufacture
of the
Licensed Product(s) and limit their distribution and sale as
provided in
Paragraph 17 hereof, shall result in immediate and irreparable
damage to
Licensor. Licensee also acknowledges that there may be no adequate
remedy at
law for such failures and that in the event thereof Licensor shall
be
entitled to equitable relief in the nature of an injunction and to
all other
available relief, at law and/or in equity.
19. RESERVATION OF RIGHTS: Licensor retains all rights not expressly
and exclusively conveyed herein, and Licensor may license firms,
individuals, partnerships or corporations to use the Logos. artwork
and
textual matter in connection with other products, including other
products
identical to the Licensed Product(s) contemplated herein. Licensor
reserves
the right to use, or license others to use and/or manufacture,
identical
items as premiums.
20. PAYMENTS AND NOTICES: All notices and statements provided for
herein shall be in writing. and all notices hereunder are to be sent
to
Major League Baseball Properties, Inc., 350 Park Avenue, New York,
New York
10022, Attention: President. All statements and payments shall be
made to
Major League Baseball Properties and sent to an address designated
by
Licensor.
21. WAIVER, MODIFICATION, ETC.: No waiver, modification or
cancellation of any term or condition of this Agreement shall be
effective
unless executed in writing by the party charged therewith. No
written
waiver shall excuse the performance of any act other than those
specifically referred to therein. No waiver by either party hereto
of any
breach of this Agreement shall be deemed to be a waiver of any
preceding or
succeeding breach of the same or any other provision hereof. The
exercise of
any right granted to either party hereunder shall not operate as a
waiver.
The normal expiration of the term of this Agreement shall not
relieve either
party of its respective obligations accruing prior thereto, nor
impair or
prejudice the respective rights of either party against the other,
which
rights by their nature survive such expiration. Licensor makes no
warranties
or representations to Licensee except those specifically expressed
herein.
22. NO PARTNERSHIP, ETC.: This Agreement does not constitute and
shall not be construed as constituting an agency, partnership or
joint
venture relationship between Licensee and Licensor arid/or the
Clubs.
Licensee shall have no right to obligate or bind Licensor in any
manner
whatsoever, and nothing herein contained shall give or is intended
to give
any rights of any kind to any third persons.
23. NON-ASSIGNABILITY: Licensee acknowledges and recognizes: (a)
that
it has been granted the license described in Paragraph I because of
its
particular expertise, knowledge, judgement, skill and ability; (b)
that 'it
has substantial and direct responsibilities to perform this
Agreement in
accordance with all of the terms contained herein; (c) that Licensor
is
relying on Licensee's unique knowledge, experience and capabilities
to
perform this Agreement in a specific manner consistent with the high
standards of integrity and quality associated with Major League
Baseball as
a national sport and with Major League Baseball licensed
merchandise; and
(d) that the granting of the license under this Agreement creates a
relationship of confidence and trust between Licensee and Licensor.
This
Agreement is personal to Licensee, and Licensee shall not sublicense
or
franchise any of its rights hereunder, and neither this Agreement
nor any of
the rights of Licensee hereunder shall be sold, transferred or
assigned by
Licensee without Licensor's prior written approval and no fights
hereunder
shall devolve by operation of law or otherwise upon any assignee,
receiver,
liquidator, trustee or other party. Subject to the foregoing, this
Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto,
their successors and assigns.
24. PARAGRAPH HEADINGS: Paragraph headings contained in this
Agreement are for convenience only and shall not be considered for
any
purpose in governing, limiting, modifying, construing or affecting
the
provisions of this Agreement and shall not otherwise be given any
legal
effect.
25. CONSTRUCTION: This Agreement shall be construed in accordance
with the laws of the State of New York, which shall be the sole
jurisdiction
for any disputes.
26. SEVERABILITY: The determination that any provision of this
Agreement is invalid or unenforceable shall not invalidate this
Agreement,
and the remainder of this Agreement shall be valid and enforceable
to the
fullest extent permitted by law.
27. TIME OF THE ESSENCE: Time is of the essence of all parts of this
Agreement.
28. ACCEPTANCE BY LICENSOR: This instrument, when signed by Licensee
or a duly authorized officer of Licensee if Licensee is a
corporation, shall
be deemed an application for a license and not a binding agreement
unless
and until signed by a duly authorized officer of Licensor. The
receipt
and/or deposit by Licensor of any check, or other consideration
given by
Licensee and/or the delivery of any material by Licensor to Licensee
shall
not be deemed an acceptance by Licensor of this application. The
foregoing
shall also apply to any documents relating to renewals or
modifications
hereof.
29. INTEGRATION: This Agreement, when fully executed, shall
represent
the entire understanding between the parties hereto with respect to
the
subject matter hereof and supersedes all previous representations,
understandings or agreements, oral or written. between the parties
with
respect to the subject matter hereof.
30. SURVIVAL OF PROVISIONS: Paragraphs 2,6,7C, 8,12, 3 A, B, C, D,
F,
H, I, K, Q and R, 15, 17, 18, 19, 21, 22, 24. 25, 26, 30 and 31
shall
survive any termination or expiration of this Agreement.
31. NUSCELLANEOUS: By signing below, Licensee acknowledges that this
Agreement is for the term specified in Schedule D only and that
neither the
existence of this Agreement nor anything contained herein shall
impose on
Licensor any obligation to renew or otherwise extend this Agreement
after
expiration of the license period.
_
SCHEDULE A
LOGOS
The names, word marks, logos, uniform designs, characters, symbols,
designs, likenesses, visual representations and such other similar
or
related identifications (hut such similar or related identifications
must be
approved in writing by Licensor in advance of use) of the following
noted
organizations, events, programs and product lines in connection with
the
marketing, promotion and sale of that described in Schedule B
hereof: (1)
Major League Baseball Properties, Inc., (2) the American League, (3)
the
National League and (4) the following Clubs: Anaheim Angels,
Baltimore
Orioles, Boston Red Sox, Chicago White Sox, Cleveland Indians,
Detroit
Tigers, Kansas City Royals, Milwaukee Brewers, Minnesota Twins, New
York
Yankees, Oakland Athletics, Seattle Mariners, Tampa Bay Devil Rays,
Texas
Rangers, Toronto Blue Jays, Arizona Diamondbacks, Atlanta Braves,
Chicago
Cubs, Cincinnati Reds, Colorado Rockies, Florida Marlins, Houston
Astros,
Los Angeles Dodgers, Montreal Expos, New York Mets, Philadelphia
Phillies.
Pittsburgh Pirates, St. Louis Cardinals, San Diego Padres and San
Francisco
Giants.
SCHEDULE B
LICENSED PRODUCT(S)
ALL LICENSED PRODUCTS SHALL CONFORM TO
LICENSOR'S THEN-CURRENT LABELING
REQUIREMENTS.
1. Laundry bags measuring 27" x 19" in size, made of durable
nylon
fabric, and featuring a drawstring closure and screen printed
individual Club Logos.
2. Stadium cushion/tote bags measuring 17" x 19" x 6" in size,
and
featuring a wrap-around zipper, handles that open to form two
separate stadium cushions. and screen printed individual Club Logos.
3. Shoe bags measuring 15" x 5" x 13" in size, made of 100%
cotton
fabric, and featuring a drawstring closure and screen printed
individual Club Logos on one side.
4. Garment bags measuring 22" x 40" x 2" in size, made of nylon
fabric,
and featuring PBC backing, a zippered opening and screen
printed individual Club Logos.
5. Over-the-door organizers designed for children, measuring 24"
x 58"
in size, and featuring imprinted individual Club Logos on one side
and
including, but not limited to, two shoe compartments, two specially
designed pockets with velcro extension straps for baseball
bats and two quick-use clips for hanging baseball. caps.
6. Under-bed storage organizers, measuring 35" x 2C" x 4-3/4" in
size, made
of colored canvas fabric, and featuring a zipper closure and
individual Club Logos on the top flap and such Club's name on the
front
gusset.
7. Vertical insulated lunch bags measuring 9-3/4" x 7" x 3-1/2"
in size,
and featuring polyurethane insulation, a
polyweb handle, velcro closure and individual Club Logos.
8. Vertical insulated lunch bags measuring 9-3/4" x 7" x 3-1/5"
in size,
and featuring a ball flap, polyurethane
insulation, a polyweb handle, velcro closure and individual Club
Logos.
9. Adult insulated lunch totes measuring 6-1/2" x 8-1/2" x 6" in
size, and
featuring 3/8" closed cell foam insulation, top zipper opening, a
polyweb
shoulder strap and individual Club Logos.
10. Kids specialty tote bags measuring 13" x 12" in size, made of
colored
canvas fabric, and featuring polyweb handles and imprinted
individual
Club Logos on one side.
11. Vertical tote bags measuring 12" x 17" x 4" in size, made of
colored
canvas fabric, and featuring 28" polyweb handles and screen printed
individual Club Logco on one side.
12. Wide tote bags measuring 16" x 14" x 4" in size, made of
colored canvas
fabric, and featuring 26" polyweb handles and imprinted
individual Club Logos on one side.
13. Two-toned fashion tote bags measuring 14" x 16" x 4" in size,
made of
colored canvas fabric, and featuring body and bottom of tote bag in
contrasting Club colors, 28" polyweb handles and imprinted
individual Club
Logos on one side.
14. Two-toned fashion tote bags measuring 12" x 16" x 4" in size,
made of
colored canvas fabric, and featuring body and bottom of the tote bag
in contrasting Club colors, matching two-toned 28" polyweb handles
and
imprinted individual Club Logos on one side.
15. Soft-touch portfolios measuring 16" x 12" in size, made of
colored
polyester fabric, and featuring contrasting polyweb handles, a
fashion
strip, a top zipper closure and imprinted individual Club Logos on
one
side.
16. Fashion tote bags measuring 10" x 15" x 5" in size, made of
denim
fabric, and featuring 1/8" closed cell foam insulation, an inside
zipper
pocket, velcro closure and embroidered individual Club Logos in
lower
right corner.
17. Fully-lined fashion tote bags measuring 6-3/4" ~' 10" x 4" in
size,
made of denim fabric, and featuring a front slash pocket, zipper
closure and imprint: individual Club Logos on the front pocket.
18. Boat tote bags made of heavyweight bull denim fabric, and
featuring
body and bottom of tote bag in contrasting Club colors, matching
two-toned 28" handles, a front slash pocket and individual Club
Logos on the front pocket.
19. Boat tote bags made of heavyweight bull denim fabric. and
featuring
body and bottom of tote bag in contrasting Club colors, matching
two-toned 28" handles, a recessed top zipper closure. a front slash
pocket and individual Club Logos on the front pocket.
SCHEDULE C LICENSED TERRITORY
The fifty United States of America, the District of Columbia, Puerto
Rico and U.S. territories and possessions, including U.S. military
bases
worldwide.
SCHEDULE D LICENSE PERIOD
January 1. 1997 - December 31, 1998
SCEDULE 8 COMPENSATION
TOTAL GUOMEM COMPENSATION: M.000.00 PAYABLE AS:
Q) NON-RETURNABLE ADVANCE COMPENSATION due upon signing:
S10,000.00
(ii) REMAINDER OF GUARANTEED COMPENSATION due as follows:
November 1, 1997 $5,000.00
Total 1997 Guarantee $15,000.00
January 1, 1998 $4,000.00
July 1, 1998 $4,000.00
November 1, 1998 $7,000.00
Total 1998 Guarantee . $15,000.00
PERCENTAGE COMPENSATION:
Nine percent (9%) of net sales as defined in Paragraph 4B.
Percentage
Compensation shall be applied against Guaranteed Compensation
payable in the
same calendar year only, without carryover. Percentage Compensation
attributable to premium sales of the Licensed Products shall not be
applied
against Total Guaranteed Compensation.
SCHEDULE F MANUFACTURER:
Licensee agrees that at no time during the license or sell-off
periods
shall it sell, directly or indirectly. to any of the Manufacturers
listed below. or to any individual or entity affiliated in any
manner
with any of such Manufacturers. any Licensed Products for subsequent
sale or distribution. without prior written approval of Licensor.
1) Licensed Product(s):all lunch totes
Name of Manufacturer: Hi-Performance
Address: 3/F Kaiser Estate Phase 3, Flat 0, 11 Hok Yuen St,
Hong Kong
Telephone: 011 852 2 774 0324
Principal Contact: Ron Sonneberg
Approved by Major League Baseball Properties, Inc.:
Corporate Secretary
Initials/Title
8-6-98
Date
2) Licensed Product(s):
Name of Manufacturer:
Address:
Telephone:
Principal Contact:
Approved by Major League Baseball Properties, Inc.:
Initials/Title
Date
3) Licensed Product(s):
Name of Manufacturer:
Address:
Telephone:
Principal Contact:
Approved by Major League Baseball Properties, Inc.:
Initials/Title
Date
SCHEDULE G Product Credit:
Licensee shall provide to Licensor merchandise credit in the amount
of
$2,500.00 (wholesale value) during each year of the license period.
Licensee
shall ship at Licensor's direction such merchandise as Licensor
shall
request from time to time under this merchandise credit.
Advertising. Marketing & Promotion
Licensee acknowledges that it is required to promote the Licensed
Products under this Agreement. Accordingly, to satisfy part of that
obligation, by March I of each year of the license period, Licensee
shall
pay Licensor the sum of two thousand, five hundred dollars
($2.500.00) for
Licensor's use in connection with Licensor-driven programs and/or
initiatives designed to promote Major League Baseball and Licensor's
licensed merchandise.
Brand Names:
Concurrently with its execution of this Agreement, Licensee will
list
below the brand names that Licensee desires or intends to use on the
Licensed Products.
1) Licensed Product(s) Nos.: All Products
Brand Name(s): Innovo
Approved by Major League Baseball Properties, Inc.:
Initials/Title
Date
2) Licensed Product(s) Nos.: Coolers/Lunch Totes only
Brand Name (s): Nasco
Approved by Major League Baseball Properties, 11c.:
Initials/Title
Date
3) Licensed Product(s) Nos.:
Brand Name(s):
Approved by Major League Baseball Properties, Inc.:
Initials/Title
Date
In the event Licensee wishes to substitute a brand name
for those listed above or wishes to add to the number of
brand names, Licensee shall first obtain Licensor's written
approval of such brand names.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement:
MAJOR LEAGUE BASEBALL PROPERTIES, INC., as agent for the
Clubs
CORPORATE SECRETARY
BY:
Title
DATE. 8-6-98
LICENSEE: INNOVO,GROUP, INC.
BY: /s/ Pat Anderson President
I
Title
EXHIBIT 10.65
Date: 12/05/97 7/01/98
AGREEMENT
made on April 17, 1998 between Licensor The Walt Disney Company
(Germany) GmbH,
with its
principal office located at Kolner Strasse 10, 65760
Eschborn,
- -hereinafter referred to as "we", "us, "our", etc.
-and
Licensee Nasco Products International, Inc., with its
principal office located at Springfield, TN 37172, U.S.A.,
27 North Main Street,
- - hereinafter referred to as "you", "your", etc. -
Preamble
WHEREAS, we have heretofore entered into an agreement with
Disney Enterprises, Inc., a corporation organized and
existing under the laws of the State of Delaware, United
States of America (hereinafter referred to as "Disney"),
pursuant to which, in the Territory hereinafter identified,
we have been granted the right to license third parties
to use certain materials and trademarks which are owned by
Disney in a number of merchandising activities and
endeavors; and
WHEREAS, you desire to obtain a license to use some of
those materials and trademarks on and/or in connection with
the Article or Articles of merchandise specified below and
we are willing to grant said license under the conditions,
provisions and limitations hereinafter set forth.
NOW, THEREFORE, it is mutually agreed between you and us as
follows:
Section I MEANING OF TERMS As used in this Agreement:
(a) Licensed Material means the representations of
the characters listed on the Schedule and designated
still scenes from the motion pictures and/or
television series identified in Subparagraph l(b)
hereafter.
(b) "Trademarks" means "Walt Disney", "Disney", the
representations of Licensed Material included in
Subparagraph l(a) above, and the logo(s) of the
motion pictures, television series and/or branded
programs specified on the Schedule in which Licensed
Material appears.
(c) "Articles" means the items listed on the Schedule on
or in connection with which the Licensed Material
and/or the Trademarks are reproduced or used.
(d)Minimum Per Article Royalty" means-the sum(s)
for each Article sold specified on the
Schedule.
(i) "Minimum Per Article Royalty Per Invoice" means
the sum per article sold specified on the
Schedule, being the minimum Royalty payable for
each Stock Keeping Unit ("SKU") of each Article
sold during each Royalty Payment Period, effective
from January 1, 1998.
(ii)Average Minimum Per Article Royalty means the
sum per article specified on the Schedule, being
the average minimum Royalty payable for all
quantities of each article sold in the Territory
or, if the Territory includes a country within the
European Economic Area, the European Economic Area
during each Royalty Payment Period or such longer
period as we may mutually agree upon, effective
from January 1, 1998.
(iii)Any conversion from the Ecu into another
currency to ensure compliance with (d) (i)
and (d) (h) shall he done at the exchange
rate reported on the first working day
which precedes the relevant Royalty Payment
Period, as published in the International
Herald Tribune.
2
(e)"Term" means the period specified on the Schedule.
(f) "Territory" means the area specified on the Schedule. If
the Territory includes a country within the European
Economic Area you may export Articles to other countries
within the European Economic Area which are not included
in the Territory. You may not export Articles outside
the European Economic Area unless such Articles are
destined for ultimate delivery in the Territory or in
the European Economic Area and may not sell or otherwise
distribute any of the Articles to any party if you know,
or in the exercise of prudent business judgment should
know, that such sale(s) ultimately with result in the
exporting of Articles outside of the European Economic
Area. Except as specifically provided herein, you shall
not export Articles outside the Territory without our
prior written consent.
(g)"Royalties" means a copyright royalty in an amount
equal to the greater of:
(i) The percentage specified on the Schedule Of Your Net
Invoiced Billings for Articles sold C.I.F. a location
in the Territory or in the European Economic Area
("In Sales") or, if Articles are sold to a customer
in the Territory or in the European Economic Area
F.O.B. a shipping point outside the Territory or the
European Economic Area for importation by the
customer into the Territory ("Out Sales'), the
percentage specified oil the Schedule of your Net
Invoiced Billings for such Articles. All sales of
Articles shipped to a customer outside the Territory
and outside the European Economic Area pursuant to a
distribution permission shall hear a Royalty at the
rate for Out Sales; or
(ii) the Minimum Per Article Royalty, if any has been
specified in Subparagraph I(d) above.
(h) "Net Invoiced Billings" shall mean actual invoiced
billings (i.e. sales quantity multiplied by the selling
price) for Articles sold less volume discounts and other
customary discounts separately identified by Article on
the sales invoice, Customary discounts shall not include
cash discounts granted as terms of payments, early
payment discounts, year end rebates and allowances or
discounts relating to advertising. Royalties are not due
on invoiced charges for transportation of Articles
within the Territory, value added taxes and takes on the
sale of Articles which are separately identified on the
sales invoices and have actually been paid. No costs
incurred in manufacturing, importing, selling or
advertising the Articles shall be deductible from the
actual invoiced billings for Articles sold, nor shall
any deduction be taken for freight costs included in the
selling price or for uncollectible accounts. No
royalties are payable for the mere manufacture of
Articles.
You agree that you will advise us, in writing, prior to
selling Articles to any person or entity which is a
parent, affiliate, subsidiary, joint venturer or partner
of yours or to any entity which is directly or
indirectly controlled by you or under common control
with you (collectively referred to as "affiliated
entities"). For purposes of this Agreement, an entity
shall be deemed to be controlled by you if you are the
actual or beneficial owner of 20% or more of the voting
corporate or partnership shares. If you are a
corporation with fewer than 20 shareholders, all entity
will also be deemed to be controlled by you if, in the
aggregate, 20% or more of the voting corporate or
partnership shares of such entity are owned or
controlled by relatives, attorneys or other agents of
yours or any of your shareholders. Royalties paid to us
on sales of Articles to your affiliated entities shall
not be less than the Royalties paid to us on sales of
such Articles to non-affiliated entities, regardless of
the Net Invoiced Billing amount charged by you to such
affiliated entities. Further, if such affiliated entity
is a reseller of the Articles, the sale such affiliated
entity shall not be counted as a sale for Royalty
calculation purposes but rather, the relevant sale for
Royalty calculation purposes shall be that of such
affiliated entity to its customers.
(i)"Royalty Payment Period" means each calendar quarter
period during the Term and during the sell-off period
(referenced in Paragraph 31), if granted.
(j)"Advance" means the sum(s) payable as an advance
on Royalties to accrue, in such amounts, at such
times and for the periods specified on the
Schedule. Royalties generated by sales outside the
Territory but within the European Economic Area,
Outside the European Economic Area, or made
pursuant to a distribution permission may not be
applied against the Advance.
(k)"Guarantee" means the sum(s) which you guarantee to pay
as minimum Royalties on your cumulative sales in the
Territory in the period(s) specified on the Schedule.
(l)"Samples" means the number of free copies from the first
production run of each supplier of each Article as
specified on the Schedule.
(m) "Promotion Commitment" means the amount specified on the
Schedule, which amount you agree to spend during each
Royalty Payment Period on consumer advertising and
promotion activities as detailed in Paragraph 17 hereof.
(n)"Common Marketing Fund Payment" (the "CMF Payment")
means an amount equal to such percentage of your III
Sales and Out Sales, respectively) , as specified on the
Schedule, for Articles sold to customers, which amount
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you agree to pay us concurrently with Royalties (but by
separate payment to such account as we may specify) due
each Royalty Payment Period as detailed in Subparagraph
22(a) hereof.
(o) "CMF Guarantee" means the sum(s), which you guarantee
to pay us as a minimum amount of the CMF Payment on
your cumulative sales within the Territory and in the
periods as specified on the Schedule.
(p) "CMF Advance" means the non-refundable installments of
the CMF Guarantee, due and payable on the dates
specified on the Schedule.
(q) "Marketing Date" means the date(s) by which the
Article(s) shall lie available for purchase and
immediate delivery, as specified on the Schedule.
(r) "Laws' means any and all applicable laws, rules, and
regulations, including but not limited to local and
national laws, rules and regulations, treaties,
voluntary industry standards, association laws, codes
or other obligations pertaining to any of your
activities under this Agreement, including but not
limited to those applicable to the manufacture,
pricing, sale and/or distribution of the Articles.
(s) "Manufacturer" means any of your third party
manufacturers and suppliers (and their
submanufacturers and suppliers) which reproduce or use
the Licensed Material and/or Trademarks on Articles or
components thereof and/or which assemble such
Articles.
(t) "Schedule" means the attachment appended hereto
immediately following the signature page of this
Agreement entitled "Schedule to License Agreement" the
terms of which are incorporated herein by reference
and made a part hereof as though fully set forth
herein.
Section 2 RIGHTS GRANTED
(a) In consideration for your promise to pay and actual
payment to us of all Royalties, Advances, Guarantees,
CMF Payments, CMF Guarantees and CMF Advances
specified herein and your performance of all of your
other obligations hereunder, during the Term , we
grant you the nonexclusive right under Disney's
various copyrights and Trademarks in the Territory,
to reproduce the Licensed Material only on or in
connection with the Articles, to use the Trademarks,
but only such Trademarks and uses thereof as may be
approved when the Articles are approved and only on or
in connection with the Articles, and to manufacture,
distribute for sale and sell (other than by direct
marketing methods, including but not limited to,
computer on-line selling, catalog sales, direct mail
and door-to-door solicitation) the Articles. You will
sell the Articles only to retailers for resale to the
public in the Territory or to wholesalers for resale
to such retailers; provided however, that you may not
sell the Articles to retailers that sell the Articles
on a duty-free basis nor may you sell the Articles to
wholesalers for resale to such retailers, unless such
retailer or wholesaler has a then-current license
agreement with us or an affiliate of ours permitting
it to make duty-free sales of the Articles.
(b) Unless we consent in writing, you shall not sell or
otherwise provide Articles for use as premiums
(including those in purchase-with-purchase
promotions), promotions, give-aways, fund-raisers or
entries in sweepstakes or to customers for resale by
direct mail or other direct marketing methods,
including but not limited to, home shopping television
programs, or to customers for inclusion in another
product. However, you may solicit orders by mail from
wholesalers or retailer., and you may sell to
retailers which sell predominantly at retail, but
which include the Articles in their mail order
catalogs or otherwise sell Articles by direct
marketing methods as well as at retail. If you wish to
sell the Articles to other customers for resale
through mail order catalogs, you must obtain written
consent in each instance.
(c) The prohibition of computer on-line selling referenced
in Subparagraph 2(a) includes, but is not limited to,
the display, promotion or offering of Articles in or
on any on-line venues, including but not limited to
any catalog company,, web sites", "home pages" or any
similar venues, except as specifically permitted in
the next two sentences. Articles approved by us may be
displayed and promoted on Disney-controlled Internet
services, only within the Territory. In addition,
Articles approved by us may be displayed, promoted and
sold on retailers web sites, home pages and any
similar venues; however, you must obtain our prior
written approval of all creative and editorial
elements of such uses, in accordance with the
provisions of Paragraph 8 of this Agreement.
(d) Unless we consent in writing, you shall not give away
or donate Articles to your accounts, employees or
other persons for the purpose of promoting sales of
Articles. except for minor quantities or samples which
are not for onward distribution.
(e) Nothing contained herein shall preclude you from
selling Articles to us, Disney or to any subsidiary of
ours or Disney's subject to the payment to us of
Royalties on such sales.
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(f) We further grant you the non-exclusive right to
reproduce the Licensed Material and to use the
Trademarks, only within the Territory, during the
Term, and, if the Territory includes a country in the
European Economic Area, the European Economic Area, on
containers, packaging, display material and in
advertising for the Articles.
(g) Nothing contained in this Agreement shall be deemed
to imply any restriction on your freedom and that of
your customers to sell the Articles at such prices as
you or they shall determine.
(h) You recognize and acknowledge the vital importance to
us of the characters and other proprietary material
we own and create and the association of the Disney
name with them. In order to prevent the denigration
of products bearing the Licensed Material and/or the
Trademarks and the value of their association with the
Disney name, and in order to ensure the dedication of
your best efforts to preserve and maintain that value,
you agree that during the Term . you will not
manufacture or distribute any merchandise embodying or
bearing any artwork or other representation which we
determine, in our reasonable discretion, is
confusingly similar to the Disney characters or other
proprietary material.
Section 3 ADVANCE
(a) You agree to pay us within fifteen (15) days of our
sending an invoice to you, the nonrefundable Advance
plus value-added taxes or other applicable taxes
thereon, if any, which shall be on account of
Royalties earned and payable only during the Term and
only with respect to sales in the Territory; provided,
however, that if any part of the Advance is specified
hereinabove as applying to any period less than the
Term, such part shall be on account of Royalties to
accrue during such lesser period only. If Royalties
earned during any period are less than the Advance, no
part of the Advance shall be refunded to you.
(b) Royalties accruing during any sell-off period or
extension of the Term shall not be offset against the
Advance unless otherwise agreed in writing. Royalties
accruing during any other period shall be offset only
against an advance paid with respect to such other
term.
(c) In no event shall Royalties accruing by reason of any
sales to us or a subsidiary of ours or by reason of
sales outside the Territory pursuant to a distribution
permission be offset against the Advance or any
subsequent advance.
(d) Notwithstanding anything hereinabove to the contrary,
upon your breach of this Agreement (which breach is
not cured in the period specified in Subparagraph
30(a) hereof) You agree that any and all Advances due
hereunder shall become immediately due and payable,
regardless of whether we also exercise our right
hereunder to terminate this Agreement because of such
breach.
Section 4 GUARANTEE
(a) With your statement for each Royalty Payment Period
ending on a date indicated in Subparagraph I(k) hereof
defining "Guarantee," you shall pay us the amount, if
any, by which cumulative Royalties paid with respect
to sales in the Territory during any period or periods
covered by the Guarantee provision or any Guarantee
provision contained in any agreement extending the
term hereof, fall short of the amount of the Guarantee
for such period.
(b) Advances applicable to Royalties due oil sales in the
period to which the Guarantee relates apply towards
meeting the Guarantee.
(c) In no event shall Royalties paid with respect to
sales to us or to any subsidiary or affiliate of ours
or with respect to sales outside the Territory or
outside the European Economic Area pursuant to a
distribution permission apply towards meeting the
Guarantee or any subsequent guarantee.
(d) Notwithstanding anything hereinabove to the contrary,
upon your breach of this Agreement (which breach is
not cured in the period specified in Subparagraph
30(a) hereof) you agree that any and all Guarantees
due hereunder shall become immediately due and
payable, regardless of whether we also exercise our
rights hereunder to terminate this Agreement because
of such breach.
Section 5 CMF ADVANCE AND CMF GUARANTEE
(a) You agree to pay in hill the CMF Advances plus value
added taxes or other applicable taxes thereon, if any,
oil account of the CMF Guarantee to accrue during the
Term, at such times and in such amounts as specified
in Subparagraph I (p) above. In addition, with your
statement for each Royalty Payment Period ending on a
date indicated hereinabove with respect to the CMF
Guarantee, you shall pay us, the amount if any, by
which
cumulative CMF payments made with respect to sales in
the Territory during any period or periods covered by
such provision fall short of the amount of the CMF
Guarantee specified for that period.
(b) In no event shall CMF Payments accruing or paid with
respect to sales to us or to any subsidiary or
affiliate of ours or with respect to sales outside the
Territory or outside the European Economic Area
pursuant to a distribution permission be offset
against the CMF Advances or apply towards meeting the
CMF Guarantee.
(c) Notwithstanding anything hereinabove to the contrary,
upon your breach of this Agreement (which breach is
not cured within 15 days of our written notice thereof
to you), you agree that any and all CMF Advances and
CMF Guarantees due hereunder shall become immediately
due and payable, regardless of whether we also
exercise our right hereunder to terminate this
Agreement because of such breach.
Section 6 PRE-PRODUCTION APPROVALS
(a) As early as possible and in any case before commercial
production of any Article you shall submit to us for
our review and written approval (to utilize such
materials in preparing a pre-production sample) all
concepts, all preliminary and proposed final artwork
and all three-dimensional models which are to appear
on or in the Article. Thereafter, you shall submit to
us for our written approval a pre-production sample of
each Article. We shall endeavor to respond to such
requests within a reasonable time, but such approvals
should be sought as early as possible in case, of
delays. In addition to the foregoing, as early as
possible, and in any case no later than sixty (60)
days following written conceptual approval, you shall
supply to us for our use for internal purposes, a
mock-up, prototype or pre-production sample of each
style of each Article on or in connection with which
the Licensed Material is used. You acknowledge that we
may not approve concepts or artwork near the end of
the Principal Term. Any pre-production approval we may
give will not constitute or imply a representation or
belief by its that such materials comply with any
applicable Laws.
(b) Articles must lie in compliance with all applicable
Laws and the minimum quality standards set-forth in
Exhibit A hereto. Approval or disapproval of Articles
shall lie solely in our discretion, and any Article
not so approved in writing shall be deemed unlicensed
and shall not lie manufactured or sold. If any
unapproved Article is sold, or any Article that is not
in compliance with Laws or the minimum quality
standards, we may, together with other remedies
available to us (including, but not limited to
immediate termination of this Agreement), by written
notice require such Article to be immediately
withdrawn from the market. Any modification of an
Article, including, but not limited to, change of
materials, color, design or size of the representation
of Licensed Material must be submitted in advance for
our written approval as if it were a new Article.
Approval of an Article which uses particular artwork
does not imply approval of such artwork for use with a
different Article. The fact that artwork has been
taken from a Disney publication or a previously
approved Article does not mean that its use will
necessarily be approved in connection with an Article
licensed hereunder.
(c) If you submit for approval artwork from ail article or
book manufactured or published by another licensee of
ours or Disney's of any subsidiary of ours or
Disney's, you must advise us in writing of the source
of such artwork. If you fail to do so, any approval
which we may give for use by you of such artwork may
be withdrawn by giving you written notice thereof, and
you may be required by us not to sell Articles using
such artwork.
(d) If we have supplied you with forms for use in
applying for approval of artwork, models,
pre-production and production samples of Articles, you
hall use such forms when submitting anything for our
approval.
SECTION 7 APPROVAL OF PRODUCTION SAMPLES
(a) Before shipping an Article to any customer, you agree
to furnish to us, for our approval of all aspects of
the Article in question, from the first production run
of each supplier of each of the Articles the number of
Samples, with packaging, set forth in Subparagraph 1
(1) which shall conform to the approved artwork,
threedimensional models, pre-production sample,
applicable Laws and minimum quality standards.
Approval or disapproval of the artwork as it appears,
oil the Article as well as of the quality of the
Article shall lie in our sole discretion and may inter
alia be based on unacceptable quality of the artwork
or of the Article as manufactured. Any Article not so
approved shall be -deemed unlicensed, shall not be
sold and unless otherwise agreed by us in writing,
shall be destroyed. Such destruction shall be attested
to in a certificate signed by an officer of yours.
Production samples of Articles for which we have
approved a pre-production sample shall be deemed
approved, unless within 20 days of our receipt of such
production sample we notify you to the contrary, Any
approval of a production sample attributable to us
will not constitute or imply a representation or
belief by us that such production sample complies with
any applicable Laws.
(b) You agree to make available at to charge such
additional samples of each Article as we may from time to
time reasonably request for the purpose of comparison
with earlier samples, or to test for compliance with
applicable Laws, and you agree to maintain consistent
quality and to permit us upon reasonable request to
inspect your inspect your manufacturing operations and
testing records
those of your third party manufacturers) for the
Articles.
(c) It is specifically understood that we may disapprove
an Article or a production run of an Article because
the quality is unacceptable to us, and, accordingly, we
recommend that you submit production samples to us for
approval before committing to a large original
production run or to purchase a large shipment from a
new supplier.
(d) No modification of an approved production sample shall
be made without our further prior written approval.
Articles being sold must conform in all respects to
the approved production sample. It is understood that
if in our reasonable judgment the quality of an
Article originally approved has deteriorated in later
production runs, or if the Article has otherwise been
altered, we may, in addition to other remedies
available to us. by written notice require such Article
to be immediately withdrawn from the market.
(e) The rights granted hereunder do not permit the sale of
"seconds' or "irregulars". All Articles not meeting the
standard of approved samples shall be destroyed or all
Licensed Material and Trademarks shall be removed or
obliterated therefrom.
(f) You are responsible for the consistent quality and
safety of the Articles and their compliance with
applicable Laws and the minimum quality standards set
forth on Exhibit A. We will not unreasonably object to
any change in the design of an Article or in the
materials used in the manufacture of the Article or in
the process of manufacturing the Articles which you
advise us in writing is intended to make the Article
safer or more durable.
(g) We shall have the right, by written notice to you, to
require modification of any Article approved by us
under any previous agreement between us pertaining to
the Licensed Material. Likewise, if the Principal Term
of this Agreement is extended by mutual agreement, we
shall have the right, by written notice to you, to
require modification of any Article approved by us
under this Agreement. It is understood that there is no
obligation upon either party to extend the Agreement.
(h) If we notify you of required modification., under
Subparagraph 7(g) with respect to a particular Article,
such notification shall advise you (if the nature of
the changes required and you shall not accept any order
for any such Article until the Article has been
resubmitted to us with such changes and you have
received our written approval of the Article as
modified. However, you may continue to distribute your
inventory of the previously approved Articles until
such inventory is exhausted (unless such Articles are
dangerously defective, as determined by us).
(i)Upon our request, you agree to give us written
notice of the first ship date for each Article.
(j)If we have inadvertently approved a concept,
pre-production sample, or production sample of a
product which is not included in the Articles
under this Agreement, or if we have
inadvertently approved an Article using artwork
and/or trademarks not included in this
Agreement, such approval may be revoked at any
time without any obligation whatsoever on our
part to you. Any Such product as to which our
approval is revoked shall be deemed unauthorized
and shall not be distributed or sold by or for
you.
Section 8 APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL
AND ADVERTISING
(a) All containers, packaging, display material,
promotional material, catalogs and all advertising,
including but not limited to television advertising and
press releases, for Articles must be submitted to us
for our written approval before use. To avoid
unnecessary expense if changes are required, our
approval thereof should be procured when such is still
in rough or storyboard format. We shall endeavor to
respond to requests for approval within a reasonable
time. Approval or disapproval shall lie in our sole
discretion, and the use of unapproved containers,
packaging, display material, promotional material,
catalogs or advertising is prohibited. Our approval of
any containers, packaging, display material,
promotional material, catalogs or advertising under
this A2reement will not constitute or imply a
representation or belief by us that such materials
comply with any applicable Laws. Whenever you shall
prepare catalog sheets or other printed matter
containing illustrations of Articles, You will furnish
to us Five (5) copies thereof when they are published.
(b) If we have supplied you with forms for use in applying
for approval of materials referenced in this Paragraph
8, you shall use such forms when submitting anything
for our approval.
(c) We have designed character artwork and/or a brand name
logo(s) as set forth in subparagraph l(b) to be used by
all licensees in connection with the packaging of all
merchandise using the Licensed Material and, if
applicable, on hang tags and garment labels for such
merchandise. We will supply you with reproduction
artwork thereof, and you agree to use such artwork
and/or logo(s) on the packaging of the Articles, and,
if applicable, on hang tags and garment labels which
you will have printed and attached to each Article at
your cost. We recommend that You source the hang tags
and garment labels from our authorized manufacturer (if
any) of pre-approved hang tags and garment labels. the
mime of which we will provide you on request.
However, you may use another manufacturer for the
required hang tags and garment labels if the hang
tags and garment labels manufactured are of
equivalent quality and are approved by us in
accordance with our usual approval process.
Section 9 ARTWORK
On or before the due date for payment of our invoice,
you shall pay us for artwork done at your request by us
or Disney or third parties under contract to us or
Disney in the development and creation of Articles,
display, packaging or promotional material (including
any artwork which in our opinion is necessary to modify
necessary artwork initially prepared by you and
submitted to us for approval) at our or Disney's then
prevailing commercial art rates. Estimates of artwork
charges are available upon request, While you are not
obligated to use our or Disney's inhouse creative
services, you are encouraged to do so in order to
minimize delays which may occur if outside artists
prepare renditions of Licensed Material which we cannot
approve and to maximize the attractiveness of the
Articles.
Section 10 PRINT, RADIO OR TV ADVERTISING
You shall submit to us for our authorization and
approval in advance all plans and materials relating to
print, radio, television and cinema advertising and
promotional activities relating to the Articles. We may
approve or reject any such advertising or promotional
activity in our sole discretion, including without
limitation, for reasons of overexposure of the Licensed
Material and. further, have the right to prohibit you
from advertising the Articles by means of television
and/or billboards. You shall obtain all third party
consents and approvals necessary in connection with
advertising and promotional activities which we do
authorize. You represent and warrant that all
advertising and promotional materials shall comply with
all applicable Laws. Our approval of copy or storyboards
for such advertising will not constitute or imply a
representation or belief by us that such copy or
storyboards comply with any applicable Laws. This
Agreement does not grant you any rights to use the
Licensed Material in animation.
Section 11 LICENSEE NAME AND ADDRESS ON ARTICLES
(a) Your name, trade name (or a trademark of yours which
you have advised us in writing that you are using)
your address (at least city and country) and the
country, of manufacture (if different from your
address) will appear on permanently affixed labeling
on each Article or, if the Article is sold to the
public in packaging or container, printed on such
packaging or container so that the public can
identify the supplier of the Article. On soft goods
"permanently affixed" shall mean sewn on.
(b) You shall advise us in writing of all trade names or
trademarks you are using on Articles if such names or
marks differ from your corporate name, its indicated
herein.
Section 12 COMPLIANCE WITH APPROVED SAMPLES AND
APPLICABLE LAWS AND STANDARDS
(a) You covenant that each Article and component thereof
distributed hereundershall be of good quality and
free of defects in design, materials and workmanship,
and shall comply with all applicable Laws, and such
specifications, if any, as may have been specified in
connection with this Agreement, and shall conform to
the sample thereof approved by us. You covenant that
you will comply with all applicable Laws in
performing this Agreement, including but not limited
to, those pertaining to the manufacture, pricing,
sale and distribution of the Articles.
(b) Without limiting the foregoing, you covenant on
behalf of your own manufacturing facilities, and
agree to require all Manufacturers to covenant by
signing the Consent/Manufactures Agreement
(referenced in paragraph 26), as follows:
(i) You and the Manufacturers agree not to use child
labor in the manufacturing, packaging or
distribution of Disney merchandise. The term
"child" refers to a person younger than the local
legal minimum age for employment or the age for
completing compulsory education, but in no case
shall any child younger than fifteen (15) years of
age (or fourteen (14) years of age where local law
allows) be employed in the manufacturing,
packaging or distribution of Disney merchandise.
Licensee and the Manufacturers employing young
persons who do not fall within the definition of
"children" agree also to comply with any Laws
applicable to such persons.
(ii)You and the Manufacturers agree only to employ
persons whose presence is voluntary. You and the
Manufacturers agree not to use any forced or
involuntary labor, whether prison, bonded,
indentured or otherwise.
8
(iii)You and the Manufacturers agree to treat each
employee with dignity and respect, and not to use
corporal punishment, threats of violence, or other
forms of physical, sexual, psychological or verbal
harassment or abuse.
(iv)You and the Manufacturers agree not to discriminate
in hiring and employment practices, including salary,
benefits, advancement, discipline, termination, or
retirement, on the basis of race, religion, age,
nationality, social or ethnic origin, sexual
orientation, gender, political opinion or disability.
(v) You and the Manufacturers recognize that wages are
essential to meeting employees' basic needs. You and
the Manufacturers agree to comply, at a minimum, with
all applicable wage and hour Laws, including minimum
wage, overtime, maximum hours, piece rates and other
elements of compensation, and to provide legally
mandated benefits. If local Laws do not provide for
overtime pay, you and Manufacturers agree to pay at
least regular wages for overtime work. Except in
extraordinary business circumstances, you and the
Manufacturers will not require employees to work more
than the lesser of (a) 48 hours per week and 12 hours
overtime or (b) the limits on regular and overtime
hours allowed by local law, or, where local law does
not limit the hours of work, the regular work week in
such country plus 12 hours overtime. In addition,
except in extraordinary business circumstances,
employees will be entitled to at least one day off in
every seven-day period. You and the Manufacturers
agree that, where local industry standards are higher
than applicable legal requirements, they will meet the
higher standards.
(vi)You and the Manufacturers agree to provide employees
with a safe and healthy workplace in compliance with
all applicable Laws, ensuring, at a minimum,
reasonable access to potable water and sanitary
facilities, fire safety, and adequate lighting and
ventilation. You and the Manufacturers also agree to
ensure that the same standards of health and safety
are applied in any housing they provide for employees.
You and the Manufacturers agree to provide us with all
information we may request about manufacturing,
packaging and distribution facilities for the
Articles.
(vii)You and the Manufacturers agree to respect the
rights of employees to associate, organize and bargain
collectively in a lawful and peaceful manner, without
penalty or interference, in accordance with applicable
Laws.
(viii) You and the Manufacturers agree to comply
with all applicable environmental Laws.
(ix)You and the Manufacturers agree to comply with all
applicable Laws, including those pertaining to
consumer protection and the manufacture, pricing,
sale and distribution of the Articles.
(x) You and the Manufacturers agree that we and our
designated agents (including third parties) may engage
in monitoring activities to confirm compliance with
this Paragraph 12, including unannounced on-site
inspections of manufacturing, packaging and
distribution facilities. and employer-provided
housing, such inspections to include reviews of books
and records relating to employment matters and private
interviews with employees. You and the Manufacturers
agree to maintain on site all documentation necessary
to demonstrate compliance with this Paragraph 12. You
agree to promptly reimburse us for the actual costs of
inspections performed pursuant to this Paragraph 12
when any of your manufacturing facilities or those of
any Manufacturer do not pass the inspection(s).
(xi)You and the Manufacturers agree to take appropriate
steps to ensure that the provisions of the Code of
Conduct are communicated to employees, including the
prominent posting of a copy of the Code of Conduct for
Manufacturers (copy attached) in the local language
and in a place readily accessible to employees at all
times.
(c) You agree to take appropriate steps, in consultation
with its, to develop, implement and maintain procedures
to evaluate and monitor the Manufacturers you use to
manufacture the Articles or components thereof, and to
ensure compliance with Subparagraph 12 (b), including
but not limited to, unannounced on-site inspections of
manufacturing, packaging and distribution facilities and
employer-provided housing, reviews of books and records
relating to employment matters and private interviews
with employees.
(d) Both before and after You put Articles on the market,
you shall follow reasonable and proper procedures for
testing that Articles comply with all applicable product
safety Laws and the minimum quality standards set forth
on Exhibit A, and shall permit our designees to inspect
testing, manufacturing and quality control records and
procedures and to test the Articles for compliance with
product safety and other applicable Laws. You agree to
promptly reimburse us for the reasonable costs of such
testing when any Article so tested fails to comply with
such Laws. You shall also give due consideration to any
recommendations by us that Articles exceed the
requirements of applicable Laws. Articles not
manufactured, packaged or distributed in accordance with
applicable Laws shall be deemed unapproved, even if
previously approved by us, and shall not be shipped
unless and until they have been brought into full
compliance therewith.
Section 13 DISNEY OWNERSHIP OF ALL PIGHTS IN LICENSED
MATERIAL
(a) You acknowledge that the copyrights and all other
proprietary rights in and to Licensed Material are
exclusively owned by and reserved to Disney. You
shall neither acquire nor assert copyright ownership
or any other proprietary rights in Licensed Material
or in any derivation, adaptation, variation or name
thereof. Without limiting the foregoing, you hereby
assign to Disney all your worldwide right, title and
interest in the Licensed Material and in any material
objects consisting of or incorporating drawings,
paintings, animation cels, or sculptures of the
Licensed Material, or other derivations, adaptations,
compilations, collective works, variations or names of
Licensed Material heretofore or hereafter created by
or for you or any parent, subsidiary, affiliate, joint
venturer or partner of yours. All such new materials
shall be included in the definition of "Licensed
Material" under this Agreement.
(b) In the case of the creation of such new materials by
or for you or any parent, subsidiary, affiliate, joint
venturer or partner of yours or if any third party
makes or has made any contributions to the creation of
new materials, you shall ensure that the owner of such
copyright grants you the worldwide exclusive license
thereto which you in turn shall grant to Disney.
Disney shall grant you a non-exclusive right to such
licenses to the extent expressed in this Agreement.
(c) You acknowledge the right on Disney's part to license
such materials outside the Territory during the term
of this Agreement and anywhere thereafter and to
demand delivery of such materials (delivery costs to
be borne by us) when they are no longer needed by you
for the manufacture, sale or promotion of the
Articles.
(d) The obtaining of the exclusive licenses described in
subparagraph (b) herein forthwith upon the creation of
the new materials is an essential term of this
Agreement. The foregoing shall not include that
portion of your displays, catalogs or promotional
(material not containing Licensed Material or the
physical items constituting the Articles, unless such
items are in the shape of the Licensed Material;
provided however, such assignment shall include any
and all design elements incorporated into the Articles
which convey the spirit and theme of the Licensed
Material, and which were developed for the first time
by or for you for use with the Articles.
Section 14 COPYRIGHT NOTICE
As a condition to the grant of rights hereunder, each
Article and any other matter containing Licensed
Material shall bear a properly located permanently
affixed copyright notice in our name (e.g. "Disney")
or such other notice as we may notify to you in
writing. You will comply with such instructions as to
form, location and content of the notice as we or Disney
may give from time to time. You will not, without our
prior written consent, affix to any Article or any other
matter containing Licensed Material a copyright notice
in any other name. If through inadvertence or otherwise
a copyright notice on any Article or other such matter
should appear in your name or the name of a third party,
you hereby agree to assign to Disney the copyright
represented by any such copyright notice in your name
and, upon request, cause the execution and delivery to
us of whatever documents are necessary to convey to
Disney that copyright represented by any such copyright
notice in another party's name. If by inadvertence a
proper copyright notice in Disney's name is omitted
front any Article or other matter containing Licensed
Material, you agree at your expense to use all
reasonable efforts to correct the omission on all such
Articles or other matter in process of manufacture or in
distribution. You agree to advise us promptly and in
writing of the steps being taken to correct any such
omission and to make the corrections on existing
Articles which can be located.
Section 15 NON-ASSOCIATION OF OTHER FANCIFUL
CHARACTERS WITH LICENSED MATERIAL
To preserve Disney's identification with its characters
and to avoid confusion of the public, you agree not to
associate other characters or licensed properties with
the Licensed Material or the Trademarks either on the
Articles or in their packaging or, without our written
permission, on advertising, promotional or display
materials. Any use by you of a character which
constitutes your trademark on the Articles or their
packaging, or otherwise in connection with the Articles
shall lie subject to our prior written permission in our
sole discretion.
Section 16 ACTIVE MARKETING OF ARTICLES
You agree to manufacture (or have manufactured for you)
and offer for sale all the Articles and to exercise the
rights granted herein. You agree that not later than by
the Marketing Date applicable to a particular Article
or, in the absence of such a date being specified in
Subparagraph I(q), by six (6) months from the
commencement of the Principal Term, shipments to
customers of Articles will have taken place and that
Articles shall be available for purchase and prompt
delivery to customers. In any case in which such sales
have not taken place or when the Article is not then and
thereafter available for purchase by the public, we may
either invoke our remedies under Paragraph 30, or
withdraw such Article from the list of Articles licensed
in this Agreement without obligation to You other than
to give you written notice thereof.
Section 17 PROMOTION COMMITMENT
(a) You shall carry out the Promotion Commitment as
defined in Subparagraph I (m). The advertising and
promotion activities required thereunder to promote
the sale of the Articles shall include one or more of
the following activities:
- -point of purchase displays (not including
packaging or other individual product costs)
- -media advertising
- -measurable public relations programs
- -sampling
- -contests and games approved in advance in
writing by Disney
- -trade shows, catalogue trade activities, fashion
shows
- -participation in group promotions organized by
Disney
- -other activities as agreed in advance in writing
with Disney
All promotional material is subject to the approval
provisions of Paragraph 7 hereof.
(b) For purposes of determining your satisfaction of the
Promotion Commitment, all consumer advertising and
merchandising costs associated with the above-listed
activities for the Articles, but not including
packaging or other individual product costs, will be
counted toward the requirement; provided, however,
that any advertising discounts given in connection
with cooperative advertising may not be included in
the calculation.
(c) Concurrently with your submitting to its a statement
following each Royalty Payment Period as specified
herein (or in the case where the Royalty Payment
Period is monthly. then every third Royalty Payment
Period), you also shall provide us with a statement
describing the funds theretofore spent and consumer
exposure provided as required in this paragraph,
together with a description of the manner in which
such funds were spent, all in such detail as we may
specify from time to time. Amounts spent in excess of
the Promotion Commitment during any Royalty Payment
Period may be credited against the Promotion
Commitment for any other Royalty Payment Period
occurring in the same annual twelve month period
during the term. If in any Royalty Payment Period you
have not satisfied the Promotion Commitment, you (1)
may carry forward such shortfall into the next
succeeding Royalty Payment Period (other than in the
case of a shortfall in the final Royalty Payment
Period hereunder, in which case no carryforwards shall
be permitted) or (2) shall pay us the amount of such
shortfall as liquidated damages; provided, however, no
shortfall (or fraction thereof) may be carried forward
more than twelve months. You acknowledge that your
expenditure of the Promotion Commitment as provided
for herein increases the value of the business from
which we benefit as licensor. You and we agree that it
is impracticable and extremely difficult to fix the
actual damages which may proximately result from your
failure to fulfill your obligation as provided for
herein, and your liability for failure to do so shall,
for each Royalty Payment Period, be limited to and
fixed at the sum of an amount equal to the shortfall
between the amount you actually spend on the Promotion
Commitment during such Royalty Payment Period as
theretofore reported to us and the amount required to
he expended hereunder. Such cumulative amount shall be
considered liquidated damages and not a penalty.
Section 18 COMMON MARKETING FUND
The Common Marketing Fund Payment as defined in
Subparagraph l(n) shall be placed in a general fund for
use in promoting the Disney Characters, Disney's
copyrights and trademarks (which may include the Licensed
Material and the Trademarks) and licensee activities
generally, all as we deem appropriate in our discretion.
Such funds shall be expended by us and our designees (but
not paid to our own employees for services they render)
in the amounts and in the manner we deem most appropriate
in order to provide national, territorial, regional or
local advertising, marketing and promotion, and marketing
research related thereto, of the Licensed Material and
the Trademarks licensed hereunder or other Disney
properties in the same property classification. However,
we do not ensure that you or any other particular
licensee will benefit directly or pro-rata from the
operation of the Common Marketing Fund. We will apprise
you of the operations and proposed expenditures of the
Common Marketing Fund from time to time and seek your
advice on how best the Common Marketing Fund monies
relating to the Licensed Material and Trademarks can be
spent. The Common Marketing Fund Payment is payable to us
simultaneously with quarterly Royalties as provided in
Subparagraph 22(a) hereof. You shall not be entitled to
any audit rights with regard to the Common Marketing
Fund.
Section 19 TRADEMARK RIGHTS AND OBLIGATIONS
(a) All uses of the Trademarks by you hereunder shall
inure to Disney's benefit. You acknowledge that Disney
is the exclusive owner of all the Trademarks and of
any trademark incorporating all or any part of a
Trademark or any Licensed Material and the trademark
rights created by such uses. Without limiting the
foregoing, you hereby assign to Disney all the
Trademarks and any trademark incorporating all or any
part of a Trademark or any Licensed Material and the
trademark rights created by such uses together with
the goodwill attaching to that part of the business in
connection with which such Trademarks or trademarks
are used. You agree to execute and deliver to Disney
such documents as Disney may require to register you
as a registered user or permitted user of the
Trademarks or such trademarks and to follow Disney's
or our instructions for proper use thereof in order
that protection and/or registrations for the
Trademarks and such trademarks may be obtained or
maintained. We acknowledge that you retain all rights
of ownership in and to your trademarks, trade names,
trade dress and all other indicia used on or in
association with the Articles that do not incorporate
Disney related elements.
(b) You agree not to use any Licensed Material or
Trademarks or any trademark incorporating all or any
part of a Trademark or any Licensed Material on any
business sign, business cards, stationery or forms
(except as licensed herein) or to use any Licensed
Material or Trademark as the name of your business or
any division thereof, unless otherwise agreed by
Disney in writing.
(c) Nothing contained herein shall prohibit you from
using your own trademarks on the Articles or your
copyright notice on the Articles when the Articles
contain independent material which is your property.
Further, nothing contained herein is intended to give
us any rights to, and we shall not use, any
trademark, copyright or patent used by you in
connection with the Articles which is not derived or
adapted from Licensed Material, Trademarks or other
materials owned by us or by Disney.
Section 20 REGISTRATIONS
Except with Disney's written consent, neither you, your
parent or any subsidiary, affiliate, joint venturer or
partner of yours will register or attempt in any country
to register copyrights in, or register as a trademark,
service mark, design patent or industrial design, or
business designation, any of the Licensed Material,
Trademarks or derivations or adaptations thereof, or any
word, symbol or design which is so similar thereto as to
suggest association with or sponsorship by us or Disney
or any subsidiary of ours or Disney's. In the event of
breach of the foregoing, you agree, at your expense and
at out request. immediately to terminate the
unauthorized registration activity and promptly to
execute and deliver, or cause to be delivered, to Disney
such assignments and other documents as Disney may
require to transfer to Disney all rights to the
registrations, Patents or applications involved.
Section 21 UNLICENSED USE OF LICENSED MATERIALS
(a) You agree that you will not use the Licensed Material
or the Trademarks or any other material the copyright
to which is owned by Disney in any way other than as
herein authorized (or as is authorized in such other
written contract signed by both of us as may be in
effect between us). In addition to any other remedy
we may have, you agree that the net revenues (that
is, gross revenues less only the cost of manufacture
and distribution of such products) from any use
thereof on products other than the Articles (unless
authorized by us in writing), and all net revenues
from the use of any other copyrighted material of
Disney's without written authorization, shall be
immediately payable to us as damages.
(b) You agree to give us prompt written notice of any
unlicensed use by third parties of Licensed Material
or Trademarks and that you will not, without our
written consent, bring or cause to be brought any
criminal prosecution, lawsuit or administrative
action for infringement, interference with or
violation of any rights to Licensed Material or
Trademarks. You agree to cooperate with us, and, if
necessary, to be named by us as a sole complainant or
co-complainant in any action against an infringer of
the Licensed Material or Trademarks and you agree to
pay to us all or any part of damages or other
monetary relief recovered in such action other than
for reasonable expenses incurred at our request.
Section 22 STATEMENTS AND PAYMENTS OF ROYALTIES
(a) (i)You agree to furnish to us by the 15th day after
each Royalty Payment Period a full and accurate
statement showing by Article, with stock number
and name, any corresponding Disney assigned
product number, product approval number and retail
destination reference number, invoice quantities
and prices, the Royalties payable, quantities,
country of sale, Net Invoiced Billings and
applicable Royalty rate(s) of Articles invoiced
during the preceding Royalty- Payment Period
reported in the currency invoiced to customer.,
and the quantities and invoice value of defective
Articles returned for credit or refund in such
period. A statement is due even if no sales
occurred during the period covered by the
statement. We then shall submit to you an invoice
for all Royalties due on billings shown by such
statement, plus value added taxes, if any, and
other applicable taxes due thereon ("Royalty
invoice"). You agree to pay us all amounts
indicated on such Royalty invoices on or by the
earlier of thirty (30) days after the end of the
Royalty Payment Period, or the fifteenth (15th)
day after we send such invoice to you. You shall
bear any costs associated with the transfer of
such payments to us. To the extent that any
Royalties or CMF Payments are not paid, you
authorize us to offset Royalties due against any
sums which we or any affiliate of ours may owe to
you or any parent or subsidiary or affiliate of
yours. No deduction or
withholding from CMF Payments. CMF Guarantees or CMF
Advances payable to us shall be made by reason of any
tax and, except as provided in Subparagraph 22(b)
hereof, no deduction or withholding from Royalties
payable to us shall be made by reason of any tax. Any
applicable tax on the manufacture, distribution and
sale of the Articles shall be borne by you.
(ii)If you fail to furnish to us a royalty statement in
such detail and by such day as required hereunder, we
may nevertheless submit a Royalty invoice to You,
prepared based on the average amount invoiced during
the immediately preceding three periods, together
with interest thereon, the amount of which invoice
shall be immediately payable. In the event that there
are fewer than three preceding periods on which to
calculate an average, then such calculation shall be
based on such lesser period or, if the failure to
furnish a royalty statement occurs with respect to
the initial reporting period, then the Royalty
invoice submitted to you shall reflect the difference
between the amount theretofore invoiced, and the
Guarantee. We will make any necessary adjustments to
such invoice amount on the Royalty invoice next
prepared after we receive accurate reporting
information from you. Our submission of a Royalty
invoice to you due to your failure to timely furnish
the statement required hereunder, shall not
constitute a waiver on our part of your breach of
your reporting obligations.
(b)In those countries of the Territory where a withholding
tax is imposed on the payment of Royalties, you shall be
permitted to deduct from Such payment the appropriate
amount of withholding taxes so imposed, provided:
(i) contemporaneously with any payment of Royalties, you
shall provide to us all withholding tax receipts or
other government certifications evidencing all taxes
withheld from payments due under this Agreement;
(ii)you cooperate with us and provide us with any other
information or documentation reasonably requested by
us from time to time to enable us to adequately
support any foreign tax credit we claim which is
attributable to taxes withheld by you front payments
due to us;
(iii)you agree that the Licensed Material constitutes
"artistic works" as such term is used in the relevant
income tax treaties;
(iv)in addition to any and all legal and equitable
rights and remedies available to us, you shall
indemnify us for any disallowed foreign tax credits,
including any interest and penalties associated with
such disallowed foreign tax credits, attributable to
your failure to timely provide the documentation
required hereunder and otherwise comply with the
provisions of this Subparagraph; and
(v) your obligation, under the provisions of this
Subparagraph shall survive termination, cancellation
or expiration of this Agreement.
Notwithstanding the foregoing, no deductions for
withholding taxes or any other amounts shall be made
from the advertising and marketing funds represented
by the CMF Payments, CMF Guarantees and CMF Advances.
(c) If we at any time so request, your statements shall be
made on statement forms which we provide or in a form
or delivery medium as we require (including for example,
electronic transmission). Should any investment to
implement electronic reporting he required, such
investment shall be borne entirely by you. You will
fully comply with the instructions supplied by us for
completing such forms or adhering to any such format.
Apparel Articles Shall he reported separately by size
range (e.g. "boys", "girls'", "men's", etc.). Your
statements shall identify for each Article the character
or other Licensed Material used on each such Article.
(d)Your statement shall with respect to all
Articles report separately:
(i)In Sales;
(ii)Out Sales;
(iii)sales of Articles outside the Territory
pursuant to a distribution permission
(indicating the country involved);
(iv)your sale, of Article, to any of our licensees and
the licensees of any of our affiliates that are
licensed to sell the Articles and who are reselling
such Articles and paying us or such Disney affiliate
royalties on such resales;
(v) sales of Articles to us, Disney or anny subsidiary
(if ours or Disney's (identifying in each case the
entity involved); and
(vi)sales of Articles under any brand or program, motion
picture or television series identified in
Subparagraph l(b) and;
(vii)sales of Articles to or for distribution through
any mail order catalog approved hereunder or to a
Disney licensed retail operator.
(e) Sales of items licensed under contracts with us other
than this Agreement shall not be reported on the same
statement as sales of Articles under this Agreement.
(f)Your statements and payments shall be delivered
to us at the address indicated on page I of this
Agreement.
(g) You shall take all necessary steps to ensure that your
information systems, including without limitation, all
your proprietary and all third party hardware and
software, process dates correctly prior to, during and
after the calendar year 2000 ("Year 2000 Compliance").
Year 2000 Compliance shall include, without
limitation, correct century recognition, calculations
that property accommodate same century and
multi-century formulas and date values, and interface
values that reflect the appropriate century. Necessary
steps to ensure Year 2000 Compliance shall include,
without limitation, analysis Of all components of your
information systems and, as necessary, development,
installation and testing of software fixes, patches
and/or updates. In a timely manner, but no later than
by December 31, 1999, you shall certify to us in
writing that your information systems are Year 2000
Compliant. Such certification is a material term of
this Agreement. Upon a breach by you of your
obligation under this paragraph, we shall be entitled
to terminate this Agreement in accordance with the
provisions for termination set forth herein.
Section 23 ARTICLES RETURNED FOR CREDIT OR REFUND
Royalties reported oil sales of defective Articles which
have been returned to you for credit or refund and on
which a refund has been made or credit memo issued may be
credited against Royalties due at the same Royalty rate
as applied in the original sales report submitted. The
credit shall be taken in the Royalty Payment Period in
which the refund is given or credit memo issued. Unused
credits may be carried forward, but in no event shall you
be entitled to a refund of Royalties.
Section 24 INTEREST
Royalties, Advances Guarantees, CMF Payments, CMF
Guarantees or CMF Advances received after the date due
shall bear interest at tile rate of three percent (3%)
per annum above the rate for discounts of the Federal
Bank from the date due plus value added tax.
Section 25 AUDITS AND MAINTAINING RECORDS
(a) You agree to keep accurate records of all transactions
relating to this Agreement and any prior agreement
with us regarding the Licensed Material including
without limitation, records of shipments to you of
Articles and components thereof, production/inventory
records, records of sales and shipments by you and
records of returns, and to preserve such records for
the lesser of seven (7) years or three (3) years after
the expiration or termination of this Agreement.
(b) We, or our representatives, shall have the right from
time to time, during normal business hours, but only
for the purpose of confirming the accuracy of your
statements and/or your performance hereunder, to audit
and make copies of all such records, including the
general ledger, books of account, all invoices
(whether or not they relate to tile Articles) and any
other records which we reasonably deem appropriate to
verify the accuracy of your statements or your
performance hereunder, including records of your
parent, subsidiary and affiliate companies if they are
involved in activities that are the subject of this
Agreement. In particular your invoices shall identify
the Articles separately from goods which are not
licensed hereunder. Additionally, we shall have the
right to confirm purchases from vendors and sales to
customers and, in connection therewith, you agree to
sign a letter in a form prescribed by us instructing
your vendors and customers to furnish us with
information relating to such purchases and sales. You
acknowledge that we may furnish you with an audit
questionnaire, and you agree to fully and accurately
complete such questionnaire and return it to us within
the designated time. Our use of an audit questionnaire
shall not limit our ability to conduct any on-site
audit(s) as provided herein.
(c) If in all audit of your records it is determined that
there is a shortfall in Royalties or CMF Payments
reported for any Royalty Payment Period you shall,
upon request by us, pay such shortfall and, if the
shortfall is 5 % or more in Royalties or CMF Payments
reported for such period, you also shall reimburse us
for the full out-of-pocket costs of the audit,
including the costs of employee auditors calculated at
US$150 per hour per person for travel time during
normal working hours and actual working time. The
obligation to maintain records and to grant us and our
representatives access to such records shall survive
the expiration or earlier termination of this
Agreement.
(d) If you fail to keep adequate records for one (1) or
more Royalty Payment Periods, we will assume that the
Royalties owed to us for such Royalty Payment
Period(s) are equal to a reasonable amount, determined
in our absolute discretion based on the record you
have kept, if any, and other reasonable assumptions we
deem appropriate.
Section 26 MANUFACTURE OF ARTICLES BY THIRD PARTY
MANUFACTURERS
(a) You agree to supply us with the names and addresses of
all your own manufacturing facilities for the
Articles. If you at any time desire to have Articles
or components thereof containing Licensed Material
and/or Trademarks manufactured by a third party, you
must, as a condition to the continuation of this
Agreement, notify us of the accurate name and complete
address of such Manufacturer and the Articles or
components involved and obtain our prior written
permission to do so. If we are prepared to grant
permission, we will do so if you and each of your
Manufacturers sign a Consent/Manufacturer's Agreement
in the form attached hereto and we receive such
agreements properly signed.
(b) It is not our policy to reveal the names of your
Manufacturers to third parties or to any division of
ours involved with buying products except as may he
necessary to enforce our contract rights or protect
our trademarks and copyrights.
(c) If any such Manufacturer utilizes Licensed Material or
Trademarks for any unauthorized purpose, you shall
cooperate fully in bringing such utilization to all im
mediate halt. If, by reason of your not having
supplied the above mentioned agreements to us or not
having given us the name of any Manufacturer, we make
any representation or take any action and are thereby
Subjected to any penalty, loss, damage or expense, you
will fully compensate us for any cost or loss we
Sustain (in addition to any other legal or equitable
remedies available to us).
(d) If any Manufacturer fails to pass a compliance
inspection as referenced in Paragraph 12, and
thereafter fails to remedy the cited failure(s) within
the time designated by us, or if the Manufacturer
otherwise breaches the Consent/Manufacturer's
Agreement, the Consent/Manufacturer's Agreement for
such Manufacturer may be terminated immediately by us
and you %hall not thereafter use such Manufacturer to
manufacture Articles or components thereof.
Section 27 INDEMNITY
(a) You shall indemnify its and Disney and our and their
related companies during and after the term
hereofagainst all claims, demands, suits, judgments,
losses, liabilities (including settlements entered
into in good faith with your consent, not to be
unreasonably withheld) and expenses of any nature
(including reasonable legal fees) arising out of your
activities hereunder including but not limited to, any
actual or alleged: (1) negligent acts or omissions on
your part, (2) defect (whether obvious or hidden and
whether or not present in any sample approved by us)
in any Article, (3) personal injury, (4) infringement
of any rights of any other person by the manufacture,
sale, possession or use of Articles, (5) breach on
your part of any covenant, representation or warranty
contained in this Agreement. or (6) failure of the
Articles or your failure to comply with applicable
Laws. The parties indemnified hereunder shall include
Disney Enterprises, Inc. and its parent, subsidiaries
and their officers, directors, employees and agents.
This agreement to indemnify shall survive the
expiration or earlier termination of this Agreement.
The indemnity shall not apply to any claim or
liability relating to any infringement of the
copyright of a third party caused by your utilization
of the Licensed Material and the Trademarks in
accordance with provisions hereof, unless such claim
or liability arises out of your failure to obtain the
full assignment of rights referenced in Paragraph 13.
(b) We shall indemnify you during and after the term
hereofagainst all claims, demands. suits, judgments,
losses, liabilities (including settlements entered
into in good faith with our consent, not to be
unreasonably withheld) and expenses of any nature
(including reasonable legal fees) arising out of any
claim that your use of any representation of the
Licensed Material or the Trademarks approved in
accordance with the provisions of this agreement
infringes the copyright of any third party or
infringes any right granted by us or Disney to such
third party, except for claims arising out of your
failure to obtain the full assignment of rights
referenced in Paragraph 13. You shall not, in any
case, be entitled to recover for lost profits.
(c) Additionally, if by reason of any claims referred to
in Subparagraph 27(b) you are precluded from selling
any stock of Articles or utilizing any materials in
your possession or which come into your possession by
reason of any required recall, we shall be obligated
to purchase such Articles and materials from you at
their out-of-pocket cost to you, excluding overhead,
but we shall have no other responsibility or liability
with respect to Such Articles or materials.
(d) We give no warranty or indemnity with respect to any
liability or expense arising from any claim that use
of the Licensed Material or the Trademarks oil or
in-connection with the Articles hereunder or any
packaging, advertising or promotional material
infringes on any trademark right of any third party or
otherwise constitutes unfair competition by reason of
any prior rights acquired by such third party other
than rights acquired from Disney. It is expressly
agreed that it is your responsibility to carry out
such investigations as you may deem appropriate to
establish that Articles, packaging, and promotional
and advertising material which are manufactured or
created hereunder. including any use made of the
Licensed Material and the Trademarks therewith, do not
infringe such right of any third party and neither we
nor Disney shall be liable to you if such infringement
occurs.
(e) You and we agree to give each other prompt written
notice of any claim or suit which may arise under the
indemnity provisions set forth above. Without limiting
the foregoing. you agree to give us written notice of
any product liability claim made with respect to any
Article, any investigations or directives regarding
the Articles issued by any consumer safety agency and
any notices sent by you to, or received by you from,
any consumer safety agency regarding the Articles,
within seven (7) days of your receipt or promulgation
of the claim, suit, investigation, directive, or
notice.
Section 28 INSURANCE
You shall maintain at your cost in full force and effect
at all times while this Agreement is in effect and for
three years thereafter commercial general liability
insurance on a per occurrence form, including
contractual and products liability coverage waiving
subrogation with limits of no less than the equivalent
of two million United States Dollars (US$ 2,000,000) per
occurrence and naming as additional insured those
indemnified in Paragraph 27 hereof. You shall deliver to
us a certificate or certificates of insurance evidencing
satisfactory coverage and indicating that we shall
receive written notification of cancellation,
non-renewal or of any material change in coverage at
least 30 days prior to the effective date thereof.
Compliance herewith in no way limits your indemnity
obligations, except to the extent that your insurance
company actually pays us amounts which you would
otherwise be obligated to pay us.
Section 29 WITHDRAWAL OF LICENSED MATERIAL
You agree that we may, without obligation to you other
than to give you written notice thereof, withdraw from
the scope of this Agreement any Licensed Material which
by the Marketing Date or, in the absence of such a date
being specified in Subparagraph I (q), by six (6) months
from the commencement of the Principal Term, is not
being used on or in connection with Articles. We may
also withdraw any Licensed Material or Articles the use
or sale of which under this Agreement would infringe or
reasonably be claimed to infringe the rights, other than
rights granted by us, of a third party, in which case
our obligations to you shall be limited to the purchase
at cost of Articles and other materials utilizing such
withdrawn Licensed Material which cannot be sold or
used.
Section 30 TERMINATION
Without prejudice to any other right or remedy available
to us:
(a) We shall have the right at any time to terminate this
Agreement as of right without any formality other
than by giving you written notice thereof. if you
fail to manufacture, sell and distribute the Articles
in accordance with this Agreement, or fail to furnish
statements or to pay Royalty invoices as herein
provided, or fail to notify us of the accurate name
and complete address of your own manufacturing
facilities or of any Manufacturer of the Articles, or
fail to have any such Manufacturer execute the
Consent/Manufacturer's Agreement, or if you otherwise
breach the terms of this Agreement, and if any such
failure is not corrected within 15 days after we %end
you written notice thereof(or, in the event of a
breach which cannot be corrected within 15 days, if
you fail to commence such correction within 15 days
and thereafter diligently prosecute it to
completion).
(b) Notwithstanding the provisions Of Subparagraph 30(a)
above, we shall have the right at any time to
terminate this Agreement immediately as of right
without any formality other than by giving you
written notice thereof:
(i) if YOU deliver to any customer without our
written authorization merchandise containing
representations
of Licensed Material or other material the
copyright or other proprietary rights to which
are owned by
Disney other than Articles listed herein and
approved in accordance with the provisions
hereof; or
(ii)if you deliver Articles outside the European
Economic Area or knowingly sell Articles to a
third party for delivery Outside the European
Economic Area (except when such Articles are
destined for immediate re-importation into the
European Economic Area), unless pursuant to a
written distribution permission or separate
written license agreement with us or any
affiliate of ours;
(iii)if a breach occurs which is of the same nature,
and which violates the same provision of this
Agreement, as a breach of which we have
previously given you written notice;
(iv)if you breach any material term of any other
license agreement between you and us, or between
you or any affiliate of yours and u., or any
company affiliated with us, and such agreement is
terminated for cause;
(v) if you make any assignment for the benefit of
creditors, or file a petition in bankruptcy, or
are adjudged bankrupt, or become insolvent, or
are placed in the hands of a receiver, or if the
equivalent of any such proceedings or acts occurs
though known by some other name or term;
(vi)if you are not permitted or are unable to Operate
your business in the usual manner, or are not
permitted or are unable to provide us with
assurance satisfactory to us that you will so
operate your business, as debtor in possession or
its equivalent, or are not permitted, or are
unable to otherwise meet your obligations under
this Agreement or to provide us with assurance
satisfactory to us that you will meet such
obligations;
(vii) if you breach any covenant set forth in
Paragraph 12 of this Agreement; and/or
(viii)If more than three Consent/Manufacturer's
Agreements are terminated in any twelve month
period by us for the Manufacturers' failure to pay
past compliance inspections as referenced in
Paragraphs 12 and 26.
(c) If we terminate this Agreement pursuant to this
Paragraph 30, you shall not be permitted to seek
injunctive relief to contest our determination that a
termination event has occurred or to otherwise affect
our full and absolute control of the Licensed Material
and the Trademarks-, provided however, you may bring
an action for damages but prior to and during any such
action we shall have full and absolute control over
the Licensed Material and the Trademarks.
Section 31 RIGHTS AND OBLIGATIONS UPON EXPIRATION OR
TERMINATION
(a) Upon the expiration or termination of this Agreement
all rights herein granted to you shall revert to us,
any unpaid portion of the Guarantee shall be
immediately due and payable, and we shall be entitled
to retain as our property all Royalties and other
things of value paid or delivered to us. You agree
that from the expiration or termination of this
Agreement you shall neither manufacture nor have
manufactured for you any Articles, that you will
deliver to us any and all artwork (including Style
Guides, animation cels and drawings) which may have
been provided to you or used or created by you in
connection with this Agreement, that you will at our
option either sell to us at a price to be negotiated
in good faith between us (reflecting the residual
economic value but at a rate not exceeding cost to
you) or destroy or efface any molds, plates and other
items used to reproduce Licensed Material or
Trademarks and that. Subject as hereinafter provided,
you will cease selling Articles. Any unauthorized
distribution of Articles after the expiration or
termination of this Agreement shall constitute
copyright infringement.
(b) If you have any unsold Articles in inventory on the
expiration or termination of this Agreement, you shall
provide us with a full statement similar to the
statement required under Subparagraph 22(a) regarding
such unsold Articles. If such statement has been
provided to its and if you have fully complied with
the terms of this Agreement including the payment of
all Royalties due and the Guarantee, upon notice from
us you shall have the right for a limited period of
ninety (90) days from such expiration or earlier
termination date to sell off and deliver such Articles
as authorized under Paragraph 2. You shall furnish us
statements covering such sales and pay us Royalties in
respect of such sales. Such Royalties shall not be
applied against the Advance or towards meeting the
Guarantee.
(c) In recognition of our interest in maintaining a
stable and viable market for the Articles during and
after the selloff period, you agree to refrain from
"dumping" the Articles in the Territory or in the
European Economic Area during the sell-off period. For
purposes of this paragraph 31, "dumping" shall mean
the distribution of product at volume levels
significantly above your prior sales practices with
respect to the Articles and at price levels
significantly below your prior sales practices with
respect to the Articles, provided that nothing
contained herein shall be deemed to restrict your
ability to set product prices at your discretion.
(d) Except as otherwise agreed by us in writing, any
inventory of Articles in your possession or control
after the expiration or termination hereof and of any
sell-off period granted hereunder shall be destroyed
(and such destruction shall be attested to in a
certificate signed by an officer of yours) or all
Licensed Material and Trademarks removed or
obliterated therefrom or, if we so elect at our
option, shall be sold to us at cost.
(e) If we supply you with forms regarding compliance with
this paragraph, you agree to complete, execute and
return such forms to its expeditiously.
(f) Notwithstanding anything to the contrary in this
Agreement, you expressly agree that you will not be
entitled to any lost profits or business revenues or
any other damages including, but not limited to,
indirect, incidental, special or consequential damages
arising from termination of this Agreement.
Section 32 WAIVERS
A waiver by either of us at any time of a breach of any
provision of this Agreement shall not apply to any
breach of any other provision of this Agreement or imply
that a breach of the saint provision at any other time
has been or will be waived or that this Agreement has
been in any way amended, nor shall any failure by either
party to object to conduct of the other be deemed to
waive such party's right to claim that a repetition of
such conduct is a breach hereof.
Section 33 PURCHASE OF ARTICLES BY US OR DISNEY
If we or Disney wish to purchase Articles, you agree to
sell such Articles to us or Disney or any subsidiary of
ours or theirs at as low a price as you charge for
similar quantities sold to your regular customers and to
pay us Royalties on any such sales.
Section 34 NON-ASSIGNABILITY
(a)You shall not voluntarily or by operation of law
Transfer all or any part of your interest in this
Agreement without our prior written consent, to be
granted or withheld in our absolute discretion. Any
attempted Transfer without such consent shall be void
and shall constitute a material default and breach of
this Agreement. "Transfer" within the meaning of
this Paragraph 34 shall mean any assignment,
sublicense, transfer, encumbrance or any disposition
of all or any part of your interest in this Agreement
(including but not limited to, any encumbrance of the
Articles), or any reorganization, merger
consolidation involving your company, its majority
shareholder or its ultimate controlling entity, any
sale or transfer of all or substantially all of your
parent company's or your ultimate controlling
entity's assets and any transaction or series of
related transactions resulting in the transfer of
thirty-three and one-third percent (33-1/3 %) or more
of the voting stock of your company, its majority
shareholder or its ultimate controlling entity or, if
your company is a partnership, thirty-three and
one-third percent (33-1/3%) or more of the profit and
loss participation in your company or the occurrence.
of any of the foregoing with respect to any general
partner of your company.
(b)You agree to provide us with at least two (2) months
prior written notice of any desired Transfer of this
Agreement as defined in Subparagraph 34(a). At the
time you give us such notice, you shall provide us
with the information and documentation necessary to
evaluate the contemplated transaction. Under no
circumstances shall our failure to respond or any
delay in responding to such written notice constitute
or be understood as or be deemed to be consent to
such proposed Transfer. Our consent (if given) to any
Transfer shall be subject to such terms and
conditions as we deem Appropriate, including but not
limited to payment of a transfer fee. The Amount of
the transfer fee shall be determined by us based upon
the circumstances of the particular transfer, taking
into account such factors As the estimated value of
the license involved in the Transfer; the risk of
business interruption or loss of quality, production
or control we may suffer as a result of the Transfer;
the identity, reputation, creditworthiness, financial
condition and business capabilities of the proposed
transferee; and our internal costs related to the
Transfer; provided however, in no event shall the
transfer fee be less than all amount equal to the
Actual Royalties earned hereunder in the twelve (12)
month period immediately preceding the notice of
proposed assignment or, if such figures are
unavailable, then an amount equal to the Guarantee
for the first year of this Agreement. The foregoing
transfer fee shall not apply if this Agreement is
assigned to one or more of your affiliates as part of
a corporate reorganization exclusively among some or
all of the entities existing in your corporate
structure when this Agreement is signed; provided
however, that you must give us at least two (2)
weeks' prior written notice of such transfer and a
description of the reorganization. If you have more
than one merchandise license agreement with us for
the Territory, and an event occurs which would
trigger the transfer fee provisions of this Paragraph
34, you need only pay to us one transfer fee,
determined by us as set forth above. The provisions
of this Subparagraph 34 (b) shall supersede any
conflicting provisions on this subject in any
merchandise license agreement previously entered into
between you and us for the Territory or any portion
thereof, if comprised of more than one country.
(c)Notwithstanding Subparagraphs 34(a) and (1)), you
may, upon written notice to us, unless we have
objected within thirty (30) days of receipt of such
notice, sublicense your rights hereunder to your
affiliates. You hereby irrevocably and
unconditionally guarantee that they will observe and
perform all of your obligations hereunder, including
without limitation, the provisions governing
approvals, and compliance with approved samples,
Applicable Laws and all other provisions hereof, and
that they will otherwise adhere strictly to all of
the terms hereof, and act in accordance with your
obligations hereunder. Any involvement of an
affiliate in the activities which are the subject of
this Agreement shall be deemed carried on pursuant to
such a sublicense and thus covered by such guarantee;
provided however, such involvement may be treated by
us as a breach of this Agreement, unless you have
notified us of your intent to sublicense an affiliate
in each instance, and we have failed to object within
thirty (30) days of receipt of such notice.
Section 35 RELATIONSHIP
This Agreement does not provide for a joint venture,
Partnership, Agency or employment relationship between
us or any relationship other than that of licensor and
Licensee.
Section 36 CHOICE OF LAW AND VENUE
This Agreement shall be governed by And construed in
accordance with the laws of Germany. Any legal actions
pertaining to this Agreement shall be commenced within
the court, of Frankfurt am Main, however, each party has
the right to assert claims vis-a-vis the other at its
general place of jurisdiction.
Section 37 CONSTRUCTION
The language of all parts of this Agreement shall in all
cases be construed as a whole, according to its fair
meaning and not strictly for or against either party.
Notwithstanding the foregoing, the invalidity or
unenforceability of any provision or portion of this
Agreement shall not affect the validity or
enforceability of any other provision or portion of this
Agreement. Headings of paragraphs herein are for
convenience of reference only and are without
substantive significance.
Section 38 MODIFICATIONS OR EXTENSIONS OF THIS
AGREEMENT
A modification or extension of this Agreement shall be
valid and binding only if it is in writing and signed by
both parties indicating their agreement to such
modification or extensions, provided however, that
modifications shall be effective if signed by the party
to be charged and the same is communicated to the other
party. A renewal of this Agreement may be effectuated
only upon the entering into and execution of a new
agreement between you and us. The execution of this
Agreement or any other agreement between you and us
shall not under any circumstances imply that this
Agreement will be renewed or create an expectation that
we or you will be obligated to enter into negotiations
for a new agreement nor will any such expectation or
obligation be implied by any representation or conduct
of the parties.
Section 39 NOTICES
All notices which either party is required or may desire
to serve upon the other party shall be in writing,
addressed to the party to be served at the address set
forth on page I of this Agreement, and may be served
personally, sent by an internationally recognized
courier service, by postage prepaid registered or
certified mail, addressed as herein provided (unless and
until otherwise notified) or by facsimile transmission
confirmed by a transmission report. Such notice shall be
deemed served upon personal delivery, on the date it is
recorded as delivered by receipt of courier service or
mailing receipt, or upon the date shown on the facsimile
transmission report; provided, however, that service of
a request for approval of materials under this Agreement
will be effective only upon our actual receipt of the
request and of any required accompanying materials.
Section 40 MUSIC
Music is not licensed hereunder. Any charges, fees or
royalties payable for music rights or any other rights
not covered by this Agreement shall be in addition to
the Royalties and covered by separate agreement.
Section 41 PREVIOUS AGREEMENTS
This Agreement ,and any confidentiality agreement you
may have signed pertaining to any of the Licensed
Material, contains the entire agreement between us
concerning the subject matter hereof, and supersedes any
pre-existing agreement and any oral or written
communications between us concerning the subject matter
hereof. Further, if any pre-existing agreement(s) allow
you to sell or distribute Articles outside the Territory
or to manufacture any Articles outside the Territory,
such agreement(s) shall be deemed to remain in effect to
the extent that they relate to Licensed Material and
Articles licensed hereunder.
Section 42 CONFIDENTIALITY
You represent and warrant that you did not disclose to
any third party the prospect of a license from us, and
that you did not trade on a prospect of a license from
us prior to full execution of this Agreement. You agree
to keep the terms and conditions of this Agreement
confidential, and you shall not disclose any such terms
and conditions to any third party without obtaining our
prior written consent, provided, however, that this
Agreement may be disclosed on a need-to-know basis to
your attorneys and accountants who agree to be bound by
this confidentiality provision. In addition, you may
have access to information concerning our and/or our
affiliates' business and operations and/or information
concerning works in progress, artwork, plots, characters
or other matters relating to our and/or our affiliates'
artistic creations, which information may not be
accessible or known to the general public. You agree not
to use or disclose such information to any third party
without obtaining our prior written consent.
Section 43 GOODWILL
You acknowledge that the right, and powers retained by
us hereunder are necessary to protect our copyrights and
property right, and, specifically, to conserve the
goodwill and good name of our products and company, and
the mime "Disney". and therefore You agree that you will
not allow the same to become involved in matters which
will or could, detract from or impungn the public
acceptance and popularity thereof of impair their legal
status.
1
9
Section 44 POWER TO SIGN
The parties warrant and represent that their respective
representatives signing this Agreement have full power
and authority to sign this Agreement and to bind the
parties.
Section 45 SURVIVAL OF OBLIGATIONS
The respective obligations of the parties to this
Agreement, which by their nature would continue beyond
the termination, cancellation or expiration hereof,
including but not limited to indemnification, insurance,
payment of Royalties and Guarantees, and Paragraph 3l,
shall survive termination, cancellation or expiration of
this Agreement.
When signed by both parties this shall constitute an
agreement between us.
Eschborn, this April 17, 1998
. . .................... .
The Walt Disney Company Nasco Products
(Germany) GmbH International, Inc.
SCHEDULE TO LICENSE AGREEMENT
No. 3746 dated April 17, 1998 between
The Walt Disney Company (Germany) GmbH
and Nasco Products International, Inc.
Section I (a) Licensed Material
Mickey for Kids (2-12 years, according
to MFK-Gui delines):
Mickey Mouse, Minnie Mouse, Donald
Duck, Daisy Duck, Goofy, Pluto,
Scrooge McDuck, Huey, Dewey, Louie.
Mickey Unlimited (up from 12 years,
according to MU Guidelines):
Mickey Mouse, Minnie Mouse, Donald
Duck, Daisy Duck, Goofy, Pluto,
Scrooge McDuck, Huey, Dewey, Louie.
Section I (b) Trademarks
"Trademarks' means 'Walt Disney",
"Disney", the representations of
Licensed Material included in
Subparagraph I (a) above and the
logo(s) of the motion picture,
television series and/or
branded program in which Licensed
Material appears: Mickey for Kids,
Mickey Unlimited.
Section I (c) Articles
Fashion Accessories Children:
Travel Bags: Hard Luggage Art.-No. 5 3050 1001
Soft Luggage Art.-No. 5 3050 1002
Leisure Bags: Beach Bags Art.-No. 530502001
Shopping Bags: Art.-No. 530502002
Totebags Art.
-No. 5 3050 2003
Schoolbags: Backpacks Art.-No. 530505001
Wallets: Wallets/coin purses
Art.-No. 5 306022001
Teen/Adult:
Travel Bags: Hard Luggage Art.-No. 531602001
Soft Luggage Art.-No. 5 31602002
Leisure Bags: Beach Bags Art.-No. 531603001
Shopping Bags Art.-No. 531603002
Totebags Art.-No. 531603003
Fashion Bags: Fashion Backpacks Art.-No. 531604002
Wallets: Wallets/coin purses Art.-No.
531702001
Sport Toys: Sport Bag Art.-No. 5 11203001
Section I (e) Term : 01/Sept/1998 -
30/June/1999
Section I (f) Territory : Germany, Austria,
Switzerland
Section I (d) Minimum Per Article Royalty: N/A
Section I (g) Royalties 12 %, FOB 17 %, based on
wholesale price in Germany
Section I (i) Royalty Payment Period Each calendar quarter
Secion I (j) Advance DM 50.000,00:
DM 25.000,00 on 15/June/1998
DM 25.000,00 on 15/September/1998
Section I (k) Guarantee DM 10O.W0,100
Section I (1) Samples 3 per article and motif
Section I (m) Promotion Commitment 2 % of Net Invoiced
Billings
for articles sold to customers
Section I (n) CMF Payment I %, FOB 1,4 %
Section I (o) CMF Guarantee DM 8.400,00
Section I (p) CMF Advance DM 4.200,00:
DM 2. 100 00 payable on 15/June/1998
DM 2.100:00 payable on
15/September/1999
Section I (q) Marketing Date N/A
Section 31 (b) Sell-Off Period 30/September/1999
CONSENT/MANUFACTURER'S AGREEMENT
DISNEY CHARACTER MERCHANDISE
Licensee: XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX
Reference is made to the License Agreement dated______
between __________("Disney') and
____________________("Licensee"), expiring
on_________________Disney hereby consents to the
manufacture of the "Authorized Articles" referenced below,
for the account of Licensee. upon the condition that the
Manufacturer shall sign and fully comply in all respects
with this Manufacturer's Agreement ("Agreement'). Failure
of said condition shall entitle Disney to terminate the
Agreement forthwith and require that that portion of all
copies and molds or other devices used to manufacture the
"Authorized Articles" in possession of the Licensee or the
Manufacturer be immediately delivered to Disney or be
destroyed to Disney's satisfaction.
NAME AND ADDRESS OF MANUFACTURER: XXXXXXXXXXXX
XXXXXXXXXXXX XXXXXXXXXXXX
TERRITORY OF MANUFACTURE: XXXXXXXXXXXX
EXPIRATION OF THIS AGREEMENT:
(Unless sooner termninored or extended)
AUTHORIZED ARTICLES: (or components thereof)
XXXXXXXXXXXX XXXXXXXXXXXX
DISNEY PROPERTIES: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
The Manufacturer signing below covenants and agrees that
(except as may be authorized under a separate Disney
Manufacturer's Agreement or license):
1. The Manufacturer will not manufacture the Authorized
Articles to the order of any one but the Licensee, will
invoice only the Licensee, will not ship to anyone other
than the Licensee or Licensee's designees and will not
ship after the expiration date of the License.
2. The Manufacturer will not subcontract production of the
Authorized Articles or components which contain the
Disney Properties without Disney's, written consent.
3. The Manufacturer will not (without Disney's written
consent) manufacture merchandise utilizing any of the
Disney Properties listed above or any other properties
the copyright or trademark to which is owned by Disney,
other than the Authorized Articles in accordance with
this Agreement.
4. From time to time. the Manufacturer will permit Disney's
authorized representative to inspect its activities and
premises, accounting books and invoices relevant to its
manufacture and Supply of Authorized Articles.
5. The Manufacturer will not publish or cause the
publication of pictures of the Authorized Articles in
any publication or promotional material nor advertise
the fact that it is permitted to manufacture Authorized
Articles, nor use the name "Disney" or any variant
thereof without Disney's prior written consent.
6. In manufacturing the Authorized Articles, the
Manufacturer will comply with all applicable local and
national laws and regulations, treaties, voluntary
industry standards, codes or other obligations
(collectively, "Laws"), including but not limited to,
applicable health and safety standards and labor laws
for manufacturing operations. Specifically, the
Manufacturer covenant, that:
(a) The Manufacturer will not use child labor in the
manufacturing, packaging or distribution of Disney
merchandise. The term "child" refers to a person
younger than the local legal minimum age for
employment or the age for completing compulsory
education, but in no case shall any child younger
than fifteen (15) years Of age (or fourteen (14)
years of age where local law allows) be employed in
the manufacturing, packaging or merchandise. The
Manufacturer employing young persons who do not fall
within the definition of "children" agrees also to
comply with any Laws applicable to such persons.
(b) The Manufacturer agrees only to employ persons whose
presence is voluntary. The Manufacturer agrees not to
use any forced or involuntary labor, whether prison,
bonded, indentured or otherwise.
(c) The Manufacturer agrees to treat each employee with
dignity and respect, and not to use corporal
punishment, threats of violence, or other forms of
physical, sexual, psychological or verbal harassment
or abuse.
(d) The Manufacturer agrees not to discriminate in hiring
and employment practices, including salary, benefits,
advancement, discipline, termination, or retirement,
on the basis of race, religion, age, nationality,
social or ethnic origin, sexual orientation, gender,
political opinion or disability.
(e) The Manufacturer recognizes that wages are essential
to meeting employees' basic needs. The Manufacturer
agrees to comply, at a minimum, with all applicable
wage and hour Laws, including minimum wage, overtime,
maximum hours, piece rates and other elements of
compensation, and to provide legally mandated
benefits. If local Laws do not provide for overtime
pay, the Manufacturer agrees to pay at least regular
wages for overtime work. Except in extraordinary
business circumstances, the Manufacturer will not
require employees to work more than the lesser of (1)
49 hours per week and 12 hours overtime or (2) the
limits on regular and overtime hours allowed by local
law, or, where local law does not limit the hours of
work, the regular work week in such country plus 12
hours overtime. In addition, except in extraordinary
business circumstances, employees will be entitled to
at least one day off in every seven-day period. The
Manufacturer agrees that, where local industry
standards are higher than applicable legal
requirements, it will meet the higher standards.
(f) The Manufacturer agrees to provide employees with a
safe and healthy workplace in compliance with all
applicable Laws, ensuring, at a minimum, reasonable
access to potable water and sanitary facilities, fire
safety, and adequate lighting and ventilation. The
Manufacturer also agrees to ensure that the same
standards of health and safety are applied in any
housing it provides for employees. The Manufacturer
agrees to provide Disney with all information Disney
may request about manufacturing, packaging and
distribution facilities for the Articles.
(g) The Manufacturer agrees, to respect the rights of
employees to associate, organize and bargain
collectively in a lawful and peaceful manner, without
penalty or interference, in accordance with applicable
Laws.
(h) The Manufacturer agrees to comply with all applicable
Laws, including those pertaining to the manufacture,
pricing, sale and distribL16011 of the Articles.
(i) The Manufacturer agrees to comply with all applicable
environmental Laws.
(j) The Manufacturer agrees that Disney and its
designated agents (including third parties) may engage in
monitoring activities to confirm compliance with this
Agreement, including unannounced on-site inspections of
manufacturing, packaging and distribution facilities, and
employer-provided housing, such inspections to include
reviews of books and records relating to employment matters
and private interviews with employees. The Manufacturer
agrees to maintain on site all documentation necessary to
demonstrate compliance with this Agreement.
(k) The Manufacturer agrees to take appropriate steps to
ensure that the provisions of this Paragraph 6 are
communicated to employees, including the prominent
posting of a copy of Disney's Code of Conduct for
Manufacturers in the local language and in a place
readily accessible to employees at all times.
7. Upon expiration or termination of the License Agreement,
or upon notification by Disney or Licensee, the
Manufacturer will (a) immediately cease manufacturing the
Authorized Articles and deliver to Disney or its
authorized representative that portion of any and all
molds, plates, engravings or other devices used to
reproduce the Disney Properties, or (b) provide Disney
with satisfactory evidence that the Disney Properties
have been erased or eradicated and are no longer
reproducible.
LICENSOR:
THE, WALT DISNEY COMPANY (GERMANY) GmbH
By:XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Title: Vice President & Managing Director
LICENSEE: MANUFACTURER:
By:XXXXXXXXXXXXXXXXXXXX By:XXXXXXXXXXXXXXXXXXXX
Title: Title:
Code of Conduct for Licensees
At The Walt Disney Company, we are committed to:
a standard of excellence in every aspect of our
business and in every comer of the world;
ethical and responsible conduct in all of our
operations;
respect for the rights of all individuals; and
respect for the environment.
We expect these same commitments to be shared by all Disney
Licensees and the manufacturers with which they work in the
production of Disney merchandise. At a minimum, we require
that all Disney licensees meet the following standards:
Conduct of Manufacturing
Licensees that engage directly in the manufacturing of
Disney merchandise will comply with all of the
standards set forth in Disney's Code of Conduct for
Manufacturers, a copy of which is attached.
Licensees will ensure that each manufacturer other than the
licensee also enters into a written
commitment with Disney to comply with the standards set
forth in Disney's Code of Conduct for Manufacturers.
Licensees will prohibit manufacturers from subcontracting
the manufacture of Disney
merchandise or components thereof without Disney's express
written consent, and only after the
subcontractor has entered into a written commitment with
Disney to comply with Disney's Code of Conduct
for Manufacturers.
Monitoring and Compliance
Licensees will take appropriate steps, in consultation with
Disney, to develop, implement and
maintain procedures to evaluate and monitor manufacturers
of Disney merchandise and ensure
compliance with Disney's Code of Conduct for Manufacturers,
including unannounced on
site inspections of manufacturing facilities and
employer-provided housing; review of books
and records relating-to employment matters; and private
interviews with employees.
Licensees will authorize Disney and its designated agents
(including third parties) to engage
in similar monitoring activities to confirm Licensees
compliance with this Code of Conduct.
Licensee will maintain on site all documentation that may
be needed to demonstrate such compliance.
Attached: Code of Conduct for Manufacturers
At The Walt Disney Company, we are committed to:
a standard of excellence in every aspect of our business and in
every comer of the world;
ethical and responsible conduct in all of our operations;
respect for the rights of all individuals; and
respect for the environment
We expect these same commitments to be shared by all manufacturers
of
Disney merchandise. At a minimum, we
require that all manufacturers of Disney merchandise meet the
following
standards:
Child Labor
Manufacturers will not use child labor
The term "child" refers to a person younger than 15 (or 14
where local law
allows) or, if higher, the local legal minimum age for employment or
age
for completing compulsory education.
Manufacturers employing young persons who do not fall within
the definition
of "children" will also comply with any laws and regulations
applicable to
such persons.
Involuntary Labor
Manufacturers will not use any forced or involuntary labor.
whether prison,
bonded, indentured or otherwise.
Coercion and Harassment
Manufacturers will treat each employee with dignity and respect, and
will
not use corporal punishment,
threats of violence or other forms of physical, sexual,
psychological or
verbal harassment or abuse.
Nondiscrimination
Manufacturers will not discriminate in hiring and employment
practices,
including salary, benefits,
advancement, discipline, termination or retirement, on the basis of
race,
religion, age nationality, social or ethnic origin, sexual
orientation,
gender, political opinion or disability.
Association
Manufacturers will respect the rights of employees to associate,
organize
and bargain collectively in a lawful and peaceful manner, without
penalty
or interference.
Health and Safety
Manufacturers will provide employees with a safe and healthy
workplace in
compliance with all applicable
laws and regulations, ensuring at a minimum, reasonable access to
potable
water and sanitary
facilities, fire safety, and adequate lighting and ventilation.
Manufacturers will also ensure that the same standards of
health and safety
are applied in
any housing that they provide for employees.
Compensation
We expect manufacturer, to recognize that wages are essential to
meeting
employees' basic needs.
Manufacturers will, at a minimum, comply with all applicable wage
and hour
laws and regulations,
including, those relating to minimum wages, overtime, maximum hours,
piece
rates and other elements of
compensation, and provide legally mandated benefits. If local laws
do not
provide for overtime pay, manufacturers will pay at least regular
wages
for overtime work. Except in extraordinary business
circumstances,
manufacturers will not require employees to work more than the
lesser of
(a) 48 hours per week and 12 hours overtime or (b) the
limit,, on regular and overtime hours allowed by local law or, where
local
law does not limit the hours, of work, the regular work week, in
such
country plus 12 hours overtime. In addition, except in extraordinary
business circumstances, employees will be entitled to at least one
day off
in every seven-day period.
Where local industry standards are higher than applicable legal
requirements. we expect manufacturers to meet the higher standards.
Protection of the Environment
Manufacturers will comply with all applicable environmental laws and
regulations.
Other Laws
Manufacturers will comply with all applicable laws and regulations,
including those pertaining to the manufacture, pricing, sale and
distribution of merchandise.
All references to "applicable laws and regulations" in this Code of
Conduct
include local and
national codes, rules and regulations as well as applicable treaties
and
voluntary industry
standards.
Subcontracting
Manufacturers will not use subcontractors for the manufacture of
Disney
merchandise or components thereof without Disney's express written
consent,
and only after the subcontractor has entered into a
written commitment with Disney to comply with this Code of Conduct.
Monitoring and Compliance
Manufacturer, will authorize Disney and its designated agents
(including
third parties) to
engage in monitoring activities to confirm compliance with this Code
of
Conduct, including
unannounced on-site inspections of manufacturing facilities and
employer-provided housing;
reviews of book,; and records relating to employment matters; and
private
interviews with employees.
Manufacturers will maintain on site all documentation that may be
needed to
demonstrate compliance with this Code of Conduct.
Publication
Manufacturers will take appropriate steps to ensure that the
provisions of
this Code of Conduct are
communicated to employees, including the prominent posting of a copy
of
this Code of Conduct, in the local language and in a place readily
accessible to employees, at all times.
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
INNOVO GROUP INC.
Knoxville, Tennessee
We hereby consent to the incorporation by reference of our report
dated
February 10, 1999 relating to the consolidated financial statements
of
Innovo Group Inc. included in the Company's Annual report on Form
10-K
as of November 30, 1998 and 1997, and for each of the three years in
the
period ended November 30, 1998, in the Registration Statement on
Form
S-8 pertaining to the Sims Moss Kline & Davis LLP Consulting
Agreement and
the Zummo & Perry, LLP Consulting Agreement.
BDO Seidman, LLP
Atlanta, Georgia
March 15, 1999
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] NOV-30-1998 NOV-30-1998
<PERIOD END> NOV-30-1998 NOV-30-1998
[CASH] 1078 469
[SECURITIES] 0 0
[RECEIVABLES] 775 1018
[ALLOWANCES] (67) (123)
[INVENTORY] 1101 1582
[CURRENT-ASSETS] 3154 3344
[PP&E] 6119 6843
[DEPRECIATION] (2082) (1772)
[TOTAL-ASSETS] 7232 9168
<CURRENT-LIABILITES> 3229 3523
[BONDS] 2234 1854
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[COMMON] 538 446
[OTHER-SE] 1184 3345
[TOTAL-LIABILITY-AND-EQUITY] 7232 9168
[SALES] 6790 7901
[TOTAL-REVENUES] 6790 7901
[CGS] 4493 5303
[TOTAL-COSTS] 8696 9310
[OTHER-EXPENSES] (142) (337)
[LOSS-PROVISION] 58 26
[INTEREST-EXPENSE] 503 657
[INCOME-PRETAX] (2267) (1729)
[INCOME-TAX] 0 0
[INCOME-CONTINUING] (267) (1729)
[DISCONTINUED] (1747) (110)
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
<NET-INCOME) (4014) (1315)
[EPS-PRIMARY] (0.49) (0.50)
[EPS-DILUTED] (0.49) (0.50)
</TABLE>
