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
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on
Accounting and
Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
SIGNATURES
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". 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 United States;
Association laundry bags; stadium European Union
seat cushions. ("EU")
Coolers, garment bags, United Kingdom
backpacks, ("UK")
sportbags and waistpacks.
Major League Baseball Tote, lunch, shoe and United States; UK;
laundry bags, stadium EU
seat cushions.
Sport bags and backpacks.
National Football League Tote, lunch, shoe and United States; UK;
laundry bags, stadium EU
seat cushions.
Sports bags and backpacks.
National Hockey League Tote, lunch, shoe and United States; UK;
laundry bags, stadium EU
seat cushions.
Sports bags and backpacks.
Colleges/logos of Tote, lunch, shoe and United States; UK;
approximately 130 colleges laundry bags; stadium EU
seat cushions;
sports bags and backpacks.
Walt Disney/Walt Tote, sport, gym and EU
Disney characters other bags; backpacks;
waistpacks; wallets and
other stationary bags
Warner Bros Tote, sport, gym and EU; Middle East
other bags; backpacks;
Waistpacks.
Fan Fueler Seat cushions; soft lunch United States; EU
bags and 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 ("Common
Stock") 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 Note 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 ("Sunwaki") 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 ("Nasdaq") 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 aggregate 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
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)
Loss Before Income
Taxes (2,267) (1,729) (2,983) (67) (4,226)
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
Stockholders' 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 invoice 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 receivable
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 result of recent efforts with vendors, the Company believes
it has made progress in reestablishing normalized trade relationships.
In 1998, the Company entered into an arrangement 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 had 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 extending 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 the 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 connection 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 sale of this note receivable would be used to
repay an existing note 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 any additional capital, to the
extend needed, could 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 constrict 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 the 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, 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.
ITEM 8. FINANCIAL STATEMENTS
Innovo Group Inc.
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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
INNOVO GROUP INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000's except for share data)
<TABLE>
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 right 400,000 40 1,085 (1,125) --
Conversion of convertible
notes 210,000 21 383 404
Exercise of warrants 76,500 8 135 143
Debt settlement 7,500 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 98 100
Issuance for debt service 8,550 1 53 54
Exercise of warrants and
options 3,500 9 9
Costs of issuance (16) (16)
Net loss (4,014) (4,014)
Balance, November 30, 1998 5,387,113 $ 538 $ -- $30,282 $(25,969) $ (703) $(2,426) $ 1,722
</TABLE>
See accompanying notes to consolidated financial statements
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 346 110 105
Stock issuances for services and
compensation 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) (1,339) (2,716)
Cash (used in) provided by operating
activities of discontinued operations (202) 92 (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 International, 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
disclosure 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.
(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.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(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.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
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.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3 PROPERTY, PLANT & EQUIPMENT (continued)
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.
In 1998, management determined that, based on current market
conditions and an analysis of projected undiscounted future cash flows
calculated in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, the carrying amount of certain
long-lived assets may not be recoverable. The resultant impairment of
long-lived assets necessitated a write-down of the Florida property in
the amount of $300,000. The estimated fair value of this property was
determined by calculating the present value of estimated expected future
cash flows using a discount rate commensurate with the risks involved.
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
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - OTHER ASSETS (continued)
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.
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.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
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.
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - LONG-TERM DEBT (continued)
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 for 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.
During April 1998, an option to purchase 25,000 shares of Common
Stock was granted to an employee of Commerce Capital as additional
collateral for the $650,000 loan to the Company. This option expires in
2003.
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 by 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 517,500 $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
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
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 extends for five years at a lease rate of $2 per square foot for
78,900 square feet.
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.
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 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
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 reverse on the grounds that the claim was released in
bankruptcy.
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, In 1998, 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 to 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 note
receivable from an officer. No assurances can be made that these 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. ("Confident Colors"). 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
-------- --------
Acconts 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.
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 approximates 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.
In 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)
10.20 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
Innovo Group, Inc. 10.56
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 Products International
10.62
10.63 License Agreement with Major League Baseball and Nasco Products
International 10.63
10.64 License Agreement with Major League Baseball and Innovo Group, 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/ Patricia 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 Schedule
Board of Directors
Innovo Group Inc.
The audits referred to in our report to Innovo Group Inc. and
subsidiaries, dated February 10, 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
INNOVO GROUP INC AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
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 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, 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 e,
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's 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 aut5horizations 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 to 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 terns 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 AAAP 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 section 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
?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 ?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 ?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 @ $2.75/stake; small stakes @
$2.25/stake); parcel signs
@ $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 $ @ 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 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 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
by___________________________________________
(423) 546-3206
Title________________________________________
by______________________________
by___________________________________________
Title_____________________________
Title________________________________________
EXHIBIT 10.55
DATE THIS AGREEMENT, made the 6th day of October ,
19 98
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 @ $2.75/stake; small stakes
@ $2.25/stake); parcel signs
@ $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 $ @ 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
by___________________________________________
(423) 546-3206
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 500.97ft;
East by Pembroke Steel Company a distance of 717.26ft; South by West
Industrial Blvd. a distance of 500.00ft; and West by South
Industrial Blvd. a distance of 717.00ft.
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
BY AND BETWEEN
FURROW-HOLROB DEVELOPMENT II, LLC
a Tennessee limited liability company
AND
INNOVO GROUP, INC.
DATED: October 7, 1998
TABLE OF CONTENTS
1. Premises 2
2. Term 2
3. Minimum Rent 2
4. Pro-rata Share of Real Estate Taxes, Insurance Premiums and
Maintenance Expenses 2
5. Estimation of Taxes, Insurance and Maintenance Charges 3
6. Triple Net Lease 3
7. Tenant's Use and Operation 3
8. Utilities 3
9. Landlord's Duty to Repair 3
10. Tenant's Duty to Repair; Alterations 3
11. Hazardous Substances 3
12. Surrender of Leased Premises 4
13. Property of Tenant 4
14. Waiver of Subrogation 4
15. Partial Destruction 4
16. Substantial Destruction 4
17. Right of Termination 4
18. Eminent Domain 5
19. Rights of Landlord's Lender 5
20. Quiet Enjoyment 5
21. Subordination 5
22. Indemnity 5
23. Attorney's Fees and Expenses 5
24. Tenant Assignment and Subletting 5
25. Events of Default 5
26. Notices 6
27. Successors 7
28. Governing Law 7
29. Landlord's Exculpatory Clause 7
30. Guaranty 7
31. Entire and Binding Agreement 7
32. Addenda 7
EXHIBITS
A. Site Plan 8
B. Legal Description 9
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 attached site plan and two separate office buildings totaling
approximately 9,000 square feet and located adjacent to such
warehouse space) formerly owned by Levi Strauss & Company (such
complex, including the two office buildings, is referred to
hereinafter collectively as the "Warehouse"). The location of
the Warehouse is on North Cherry Street in Knoxville, Tennessee
and the legal description of the land upon which the Warehouse
is located is attached hereto as Exhibit B (such land referred
to hereinafter as the "Land"). The Land and the Warehouse are
referred to collectively hereinafter as the "Project." A certain
portion of the Project is deemed common area (the "Common Area"),
such Common Area to include but not be limited to parking areas,
driveways, entrances and exits thereto, service roads, loading
facilities, sidewalks, ramps, landscaped areas, exterior
stairways, restroom facilities, and all other uses in common by
the Tenant and all the Tenants in the Project.
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 Leased Premises for business. In the event the expiration
of the thirty (30) day period does not occur on the first day of
the month or Tenant shall have opened the Leased Premises for
business on a day other than the first day of the month, then the
term shall commence on the first day of the month next
succeeding; provided, however, the Tenant shall pay rent for the
fractional month on a per diem basis (calculated on the basis of
a thirty day month) until the first day of the month when the
term commences, and thereafter the rent shall be paid in equal
monthly installments in advance on the first day of each month
during the term of this Lease. Tenant shall pay any rental
payment for a fractional month on the first (1st) day of the
month succeeding such fractional month. Notwithstanding the
foregoing, if the Tenant has complied with all the terms and
provisions of this Lease and is not in default in any respect
hereunder, Tenant shall have an option (the "Option") to lease
the Leased Premises after the termination of the Base Term for
two (2) additional five (5) year periods upon the same terms and
conditions set forth herein (each such five year period referred
to hereinafter individually as an "Option Terms" or collectively
as the "Option Term"); provided, however, Minimum Rent during any
Option Term shall be based upon market rents but in no event
shall the Minimum Rent paid during the Option Terms be less than
the Minimum Rent paid during the Base Term. The Tenant shall
exercise the Option by giving notice to the Landlord in writing
by certified mail, return receipt requested, not less than one
hundred twenty (120) days before the expiration of the Base Term
and thereafter, not less than one hundred twenty (120 days prior
to the expiration of any Option Term. During the first sixty
(60) days of such one hundred twenty (120) day period, Landlord
and Tenant shall negotiate in good faith to determine the rent
to be paid during the Option Term. In the event Landlord and
Tenant cannot agree during such sixty day period upon the amount
of rent to be paid, Landlord shall have no obligation to provide
the Option Term to the Tenant, and the Lease will terminate at
the end of such one hundred twenty (120) day period.
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 shall be the total number of square feet in
the Warehouse, the Tenant acknowledging and agreeing that the
area leased by other tenants may be separately assessed for tax
purposes, or such other tenants may obtain their own insurance
or maintain their own common areas. Tenant shall pay its Pro-
Rata Share of the above expenses within twenty (20) days after
receipt of a bill therefor as provided hereinafter in Section 6
of this Agreement.
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 administrative 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 includes 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 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 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.
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 specifically 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 the destruction;
provided, Landlord shall not be obligated to expend any 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 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 Areas of the Project are damaged (whether or
not the Leased Premises are damaged) to such an extent that, in
the sole judgment 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 obligations 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 the 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 as Landlord may have incurred in entering,
dispossessing, reletting, repairing or altering the Leased
Premises and then to the fulfillment of the covenants of Tenant
herein, including but not limited to, the rental payments
required hereunder, retaining any balances until the date the
term of this Lease would otherwise have expired as security for
the payment of all obligations of Tenant which may arise and be
unpaid during such period. If Landlord, after such re-entry,
shall be unable to obtain sufficient rent from the Leased
Premises to pay the amount of 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 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-payment of rent, or for
any other default on the part of Tenant. In addition to all of
the remedies granted 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 not 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 remedy 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 A
SITE PLAN
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,
technical service expertise, employees, lists 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, operating 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 possess 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
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
4
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.
EXHIBIT 10.60
FORM: NBA Europe
Int'l./E/Non-Fr
NPR
Non-Apparel
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:
Title:
By:
Title
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 anticounterfeiting
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
Date: 12/05/97 7/01/98
EXHIBIT 10.65
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 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.
(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.
611280
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
EXHIBIT 27
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] NOV-30-1998 NOV-30-1997
[PERIOD-END] NOV-30-1998 NOV-30-1997
[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-LIABILITIES] 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] (2267) (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>
