UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10746
JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-0935166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
(Address of principal (Zip Code)
executive offices)
(215) 785-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at November 6, 1998
$.01 par value 104,859,946
<PAGE>
JONES APPAREL GROUP, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
--------
Financial Statements:
Consolidated Balance Sheets
September 27, 1998 and December 31, 1997............ 3
Consolidated Statements of Income
Thirteen and Thirty-nine Weeks ended September 27,
1998 and September 28, 1998....................... 4
Consolidated Statement of Stockholders' Equity
Thirty-nine Weeks ended September 27, 1998.......... 5
Consolidated Statements of Cash Flows
Thirty-nine Weeks ended September 27, 1998 and
September 28, 1997................................ 6
Notes to Consolidated Financial Statements................. 7 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10 - 15
PART II. OTHER INFORMATION...................................... 16 - 17
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<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 27, December 31,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents............................................................. $ 14,956 $ 40,134
Accounts receivable, net of allowance of $3,337 and $2,767 for doubtful accounts...... 255,978 91,747
Inventories........................................................................... 226,971 255,055
Receivable from and advances to contractors........................................... 17,571 7,833
Prepaid and refundable income taxes................................................... - 5,993
Deferred taxes........................................................................ 25,304 26,269
Prepaid expenses and other current assets............................................. 11,142 13,740
------- -------
TOTAL CURRENT ASSETS................................................................ 551,922 440,771
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $47,009 and $44,189.................................. 129,646 81,934
CASH RESTRICTED FOR CAPITAL ADDITIONS................................................... - 11,193
INTANGIBLES, less accumulated amortization of $8,618 and $7,687......................... 29,006 30,604
OTHER ASSETS............................................................................ 25,495 16,265
------- -------
$736,069 $580,767
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................................................. $ 37,929 $ -
Current portion of long-term debt and capital lease obligations....................... 5,825 4,199
Accounts payable...................................................................... 81,881 90,429
Taxes payable......................................................................... 30,329 -
Accrued expenses and other current liabilities........................................ 25,132 15,574
------- -------
TOTAL CURRENT LIABILITIES........................................................... 181,096 110,202
------- -------
NONCURRENT LIABILITIES:
Obligations under capital leases...................................................... 35,851 18,457
Long-term debt........................................................................ 12,338 8,833
Other................................................................................. 6,107 6,107
------- -------
TOTAL NONCURRENT LIABILITIES........................................................ 54,296 33,397
------- -------
TOTAL LIABILITIES................................................................... 235,392 143,599
------- -------
EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 154 1,536
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - -
Common stock, $.01 par value - shares authorized 200,000;
issued 109,963 and 108,955........................................................... 1,100 545
Additional paid in capital............................................................ 136,956 122,582
Retained earnings..................................................................... 561,663 438,917
Accumulated other comprehensive income................................................ (2,059) (1,524)
------- -------
697,660 560,520
Less treasury stock, 10,037 and 6,767 shares, at cost................................. (197,137) (124,888)
------- -------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 500,523 435,632
------- -------
$736,069 $580,767
======= =======
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
</TABLE>
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<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------------- --------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales............................................... $495,727 $445,972 $1,181,240 $1,026,950
Licensing income........................................ 4,590 4,536 11,406 11,302
------- ------- --------- ---------
Total revenues.......................................... 500,317 450,508 1,192,646 1,038,252
Cost of goods sold...................................... 324,724 303,308 778,372 696,733
------- ------- --------- ---------
Gross profit............................................ 175,593 147,200 414,274 341,519
Selling, general and administrative expenses............ 78,342 67,818 211,942 183,547
------- ------- --------- ---------
Operating income........................................ 97,251 79,382 202,332 157,972
Net interest expense.................................... 1,156 1,081 2,745 1,710
------- ------- --------- ---------
Income before provision for income taxes................ 96,095 78,301 199,587 156,262
Provision for income taxes.............................. 36,997 29,363 76,841 58,504
------- ------- --------- ---------
Net income.............................................. $59,098 $48,938 $122,746 $97,758
======= ======= ========= =========
Earnings per share
Basic................................................. $0.59 $0.47 $1.22 $0.94
Diluted............................................... $0.57 $0.45 $1.17 $0.90
Weighted average common shares and
share equivalents outstanding
Basic................................................. 100,886 104,372 100,821 104,124
Diluted............................................... 104,426 108,634 104,613 108,184
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
</TABLE>
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<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Accumulated
Total Additional other
stockholders' Common paid-in Retained comprehensive Treasury
equity stock capital earnings income stock
------------- ------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997...................... $435,632 $545 $122,582 $438,917 ($1,524) ($124,888)
Thirty-nine weeks ended September 27, 1998:
Comprehensive income
Net income.................................... 122,746 - - 122,746 - -
Foreign currency translation adjustments...... (535) - - - (535) -
-------------
Total comprehensive income.................. 122,211
-------------
Amortization of deferred compensation in
connection with executive stock options........ 158 - 158 - - -
Exercise of stock options....................... 8,986 6 9,080 - - (100)
Tax benefit derived from exercise of
stock options................................... 5,685 - 5,685 - - -
Effect of 2-for-1 stock split................... - 549 (549) - - -
Treasury stock acquired......................... (72,149) - - - - (72,149)
------------- ------- ----------- -------- ------------- ---------
Balance, September 27, 1998..................... $500,523 $1,100 $136,956 $561,663 ($2,059) ($197,137)
============= ======= =========== ======== ============= =========
<FN>
All amounts in thousands
See notes to consolidated financial statements
</TABLE>
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<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Thirty-nine weeks ended
------------------------------
September 27, September 28,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $122,746 $97,758
-------- -------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................. 11,254 11,494
Provision for losses on accounts receivable............................................... 825 2,009
Deferred taxes............................................................................ (3,174) (14,676)
Other..................................................................................... 362 154
(Increase) decrease in:
Trade receivables....................................................................... (165,353) (100,454)
Inventories............................................................................. 27,638 (62,623)
Prepaid expenses and other current assets............................................... (7,293) 2,691
Other assets............................................................................ (5,828) (4,780)
Increase (decrease) in:
Accounts payable........................................................................ (8,473) 21,064
Taxes payable........................................................................... 42,761 20,253
Accrued expenses and other current liabilities.......................................... 9,850 5,045
------- -------
Total adjustments..................................................................... (97,431) (119,823)
------- -------
Net cash provided by (used in) operating activities......................................... 25,315 (22,065)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (37,546) (21,743)
Decrease (increase) in cash restricted for capital additions.............................. 11,193 (6,022)
Other..................................................................................... (116) -
------- -------
Net cash used in investing activities....................................................... (26,469) (27,765)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings......................................................... 37,929 45,104
Proceeds from capital lease............................................................... - 10,000
Repayment of capital leases and long-term debt............................................ (3,785) (2,738)
Increase in long-term debt................................................................ 5,000 -
Acquisition of treasury stock............................................................. (72,149) (30,636)
Proceeds from exercise of stock options................................................... 8,986 10,291
------- -------
Net cash provided by (used in) financing activities......................................... (24,019) 32,021
------- -------
EFFECT OF EXCHANGE RATES ON CASH............................................................ (5) 39
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................................... (25,178) (17,770)
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 40,134 30,085
------- -------
CASH AND CASH EQUIVALENTS, end of period.................................................... $14,956 $12,315
======= =======
<FN>
All amounts in thousands
See notes to consolidated financial statements
</TABLE>
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JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
The financial statements have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") for interim financial information and
in accordance with the requirements of Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. The consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements and
the footnotes therein included within the Company's Annual Report on Form 10-K.
In the opinion of management, the information presented reflects all
adjustments necessary for a fair statement of interim results. All such
adjustments are of a normal and recurring nature. The foregoing interim
results are not necessarily indicative of the results of operations for the
full year ending December 31, 1998. The Company reports interim results in
13 week quarters; however, the annual reporting period is the calendar year.
Certain reclassifications have been made to conform prior period data with
the current presentation.
2. Inventories
Inventories are summarized as follows (amounts in thousands):
September 27, December 31,
1998 1997
------------ -----------
Raw materials..................... $22,286 $27,045
Work in process................... 28,854 41,294
Finished goods.................... 175,831 186,716
-------- --------
$226,971 $255,055
======== ========
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JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Statement of Cash Flows
Cash payments made for interest for the thirty-nine weeks ended September 27,
1998 and September 28, 1997 were $4,039,000 and $2,892,000, respectively.
Cash payments made for income taxes for the thirty-nine weeks ended September
27, 1998 and September 28, 1997 were $49,518,000 and $52,892,000, respectively.
Property and equipment acquired through capital lease financing during the
thirty-nine weeks ended September 27, 1998 and September 28, 1997 amounted to
$21,310,000 and $220,000, respectively.
Reduction in income tax payments resulting from the exercise of employee stock
options during the thirty-nine weeks ended September 27, 1998 and September 28,
1997 were $5,685,000 and $6,389,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the thirty-nine weeks ended September 27, 1998
exchanged 3,826 shares of the Company's Common Stock (valued at $100,000) for
8,332 newly issued shares and during the thirty-nine weeks ended September 28,
1997 exchanged 4,244 shares of the Company's Common Stock (valued at $100,000)
for 17,926 newly issued shares.
4. New Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise" and establishes new standards
for the way that public enterprises report information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by management in deciding how to allocate
resources and in assessing performance.
SFAS No. 131 is effective for financial statement periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. The adoption of this standard is not expected to have a material
effect on the Company's financial position or results of operations. The
Company is currently reviewing SFAS No. 131 and has of yet been unable to fully
evaluate the impact, if any, it may have on future financial statement
disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which requires entities to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal years
beginning after June 15, 1999. The Company does not expect results of
operations and financial position to be affected by implementation of this
new standard.
- 8 -
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JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Capital Stock
On May 6, 1998, the Company's Board of Directors authorized a two-for-one
stock split of the Company's Common Stock in the form of a 100% stock dividend
for shareholders of record as of June 4, 1998, with stock certificates issued
on June 25, 1998. In connection with the Common Stock split, the Board of
Directors approved an increase in the number of shares authorized to
200,000,000. On June 25, 1998, a total of 50,497,911 shares of Common Stock
were issued in connection with the split. The stated par value of each share
was not changed from $0.01. All share and per share amounts have been restated
to retroactively reflect the stock split.
6. Subsequent Events
On September 10, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") to acquire 100% of the equity of Sun Apparel,
Inc. of El Paso, Texas ("Sun"). The acquisition was completed on October 2,
1998. Sun designs, manufactures and distributes jeanswear, sportswear and
related apparel for men, women and children. Sun markets its products under
the Polo Jeans Company brand, licensed from Polo Ralph Lauren, as well as other
owned, licensed and private label brands.
The Company purchased the equity of Sun for $216.6 million, comprised of
$137.8 million in cash and 4.4 million shares of common stock. For accounting
purposes, the common stock was valued at $18.00 per share (the closing price
on September 10, 1998, the date the Merger Agreement was signed and announced).
The Company also assumed Sun debt of $228.5 million, which was refinanced in
conjunction with the closing of the transaction. The Merger Agreement also
provides for potential additional future payments based on Sun's operating
performance. The acquisition will be accounted for using the purchase method
of accounting and the results of Sun will be included in the Company's
financial records from the date of acquisition.
Concurrently, the Company announced the issuance of $265 million of Senior
Notes due 2001, and a new $550 million bank credit facility to finance the
acquisition and the Company's working capital, general corporate and trade
letter of credit requirements.
- 9 -
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JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
General
The following discussion provides information and analysis of the Company's
results of operations for the thirteen and thirty-nine week periods ended
September 27, 1998 and September 28, 1997, respectively, and its liquidity and
capital resources. The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements included
elsewhere herein.
Results of Operations
Statements of Income Expressed as a Percentage of Total Revenues
Thirteen weeks ended Thirty-nine weeks ended
-------------------------- --------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
-------- -------- -------- --------
Net sales 99.1% 99.0% 99.0% 98.9%
Licensing income 0.9% 1.0% 1.0% 1.1%
-------- -------- -------- --------
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 64.9% 67.3% 65.3% 67.1%
-------- -------- -------- --------
Gross profit 35.1% 32.7% 34.7% 32.9%
Selling, general and
administrative expenses 15.7% 15.1% 17.8% 17.7%
-------- -------- -------- --------
Operating income 19.4% 17.6% 17.0% 15.2%
Net interest expense 0.2% 0.2% 0.2% 0.2%
-------- -------- -------- --------
Income before provision
for income taxes 19.2% 17.4% 16.7% 15.1%
Provision for income taxes 7.4% 6.5% 6.4% 5.6%
-------- -------- -------- --------
Net income 11.8% 10.9% 10.3% 9.4%
======== ======== ======== ========
Totals may not agree due to rounding.
Quarter Ended September 27, 1998 Compared to Quarter Ended September 28, 1997
Net Sales. Net sales in the thirteen weeks ended September 27, 1998
(hereinafter referred to as the "third quarter of 1998") increased 11.1%, or
$49.7 million, to $495.7 million, compared to $446.0 million in the thirteen
weeks ended September 28, 1997 (hereinafter referred to as the "third quarter
of 1997"). The increase was due primarily to an increase in the number of
units shipped, as well as the impact of a higher average price per unit
resulting from the mix of products shipped. The breakdown of net sales by
category for both periods is as follows:
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JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Third Third
Quarter Quarter Increase/ Percent
(In millions) of 1998 of 1997 (Decrease) Change
------- ------- -------- -------
Career sportswear $197.3 $196.1 $1.2 0.6%
Casual sportswear 108.5 108.1 0.4 0.4%
Lifestyle collection 153.8 100.8 53.0 52.6%
Men's collection 6.9 0.0 6.9 N/A
Suits, dress, and other 29.2 41.0 (11.8) (28.8%)
------- ------- -------- -------
Net sales $495.7 $446.0 $49.7 11.1%
======= ======= ======== =======
The increase in Lifestyle collection was primarily due to a large increase
in shipments under the Lauren by Ralph Lauren label. The Jones New York Men's
collection was introduced with initial shipments beginning during the third
quarter of 1998. The decrease in suits, dress, and other was mainly the result
of a repositioning of the Saville Suit label.
Licensing Income. Licensing income increased $0.1 million to $4.6 million
in the third quarter of 1998 compared to $4.5 million in the third quarter
of 1997. Income from licenses under the Jones New York label increased $0.5
million, while income from licenses under the Evan-Picone label decreased
$0.4 million.
Gross Profit. The gross profit margin was 35.1% in the third quarter of 1998
compared to 32.7% in the third quarter of 1997. The gross profit improvement
was attributable to the significant increase in sales of the Lifestyle
collection, which carries higher margins than the corporate average and lower
overseas production costs due to the favorable impact of currency devaluations
in Asia.
SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses)
of $78.3 million in the third quarter of 1998 represented an increase of $10.5
million over the third quarter of 1997. As a percentage of total revenues, SG&A
expenses increased to 15.7% in the third quarter of 1998 from 15.1% for the
comparable period in 1997. While royalties and operating expenses added
significant expenses during the quarter, the effect was offset by the
proportionately larger increase in sales and gross profit. Retail store
operating expenses increased $2.6 million, reflecting the added cost of 18 more
stores in operation at the end of the third quarter of 1998 compared to the end
of the third quarter of 1997.
Operating Income. The resulting third quarter of 1998 operating income of
$97.3 million increased 22.5%, or $17.9 million, compared to $79.4 million
during the third quarter of 1997. The operating margin increased to 19.4%
for the third quarter of 1998 from the 17.6% achieved during the third quarter
of 1997.
Net Interest Expense. Net interest expense was $1.2 million in the third
quarter of 1998 compared to $1.1 million in the comparable period of 1997.
Provision for Income Taxes. The effective income tax rate was 38.5% for the
third quarter of 1998 compared to 37.5% for the third quarter of 1997. The
increase was primarily due to higher state income tax provisions for the third
quarter of 1998.
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JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net Income. Net income increased 20.8% to $59.1 million in the third quarter
of 1998, an increase of $10.2 million over the net income of $48.9 million
earned in the third quarter of 1997. Net income as a percentage of total
revenues was 11.8% in the third quarter of 1998 and 10.9% in the third quarter
of 1997.
Nine months Ended September 27, 1998 Compared to Nine months Ended
September 28, 1997
Net Sales. Net sales in the thirty-nine weeks ended September 27, 1998
(hereinafter referred to as the "first nine months of 1998") increased 15.0%,
or $0.2 billion, to $1.2 billion, compared to $1.0 billion in the thirty-nine
weeks ended September 28, 1997 (hereinafter referred to as the "first nine
months of 1997"). The increase was due primarily to an increase in the number
of units shipped, as well as the impact of a higher average price per unit
resulting from the mix of products shipped. The breakdown of net sales by
category for both periods is as follows:
First First
Nine Months Nine Months Increase/ Percent
(In millions) of 1998 of 1997 (Decrease) Change
---------- ---------- --------- -------
Career sportswear $505.3 $474.4 $30.9 6.5%
Casual sportswear 261.9 247.1 14.8 6.0%
Lifestyle collection 314.9 192.8 122.1 63.3%
Men's collection 6.9 0.0 6.9 N/A
Suits, dress, and other 92.2 112.7 (20.5) (18.2%)
---------- ---------- --------- -------
Net sales $1,181.2 $1,027.0 $154.2 15.0%
========== ========== ========= =======
The increase in Lifestyle collection was primarily due to a large increase in
shipments under the Lauren by Ralph Lauren label. The Jones New York Men's
collection was introduced with initial shipments beginning during the third
quarter of 1998. The decrease in suits, dress, and other was the result of the
termination of the Christian Dior suit license and a repositioning of the
Saville Suit label.
Licensing Income. Licensing income increased $0.1 million to $11.4 million
in the first nine months of 1998 compared to $11.3 million in the first nine
months of 1997. Income from licenses under the Jones New York label increased
$0.8 million while income from licenses under the Evan-Picone label decreased
$0.7 million.
Gross Profit. The gross profit margin was 34.7% in the first nine months of
1998 compared to 32.9% in the first nine months of 1997. The gross profit
improvement was attributable to the significant increase in sales of the
Lifestyle collection, which carries higher margins than the corporate average
and lower overseas production costs due to the favorable impact of currency
devaluations in Asia.
SG&A Expenses. Selling, general and administrative expenses of $211.9 million
in the first nine months of 1998 represented an increase of $28.4 million over
the first nine months of 1997. As a percentage of total revenues, SG&A expenses
increased to 17.8% in the first nine months of 1998 from 17.7% for the
comparable period in 1997. While advertising, royalties and operating
expenses added significant expenses during the quarter, the effect was offset
by the proportionately larger increase in sales and gross profit. Retail store
operating expenses increased $7.3 million, reflecting the added cost of 18 more
stores in operation at the end of the first nine months of 1998 compared to the
end of the first nine months of 1997.
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<PAGE>
JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Operating Income. The resulting first nine months of 1998 operating income of
$202.3 million increased 28.1%, or $44.3 million, compared to $158.0 million
during the first nine months of 1997. The operating margin increased to 17.0%
for the first nine months of 1998 from the 15.2% achieved during the first nine
months of 1997.
Net Interest Expense. Net interest expense was $2.7 million in the first nine
months of 1998 compared to $1.7 million in the comparable period of 1997. The
change primarily reflects an increase in capital lease obligations and long-
term debt associated with the construction of warehouse facilities.
Provision for Income Taxes. The effective income tax rate was 38.5% for the
first nine months of 1998 compared to 37.4% for the first nine months of 1997.
The increase was primarily due to higher state income tax provisions for the
first nine months of 1998.
Net Income. Net income increased 25.6% to $122.7 million in the first nine
months of 1998, an increase of $24.9 million over the net income of $97.8
million earned in the first nine months of 1997. Net income as a percentage
of total revenues was 10.3% in the first nine months of 1998 and 9.4% in the
first nine months of 1997.
Liquidity and Capital Resources
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and to repurchase the Company's Common Stock on the
open market. The Company has historically relied primarily on internally
generated funds, trade credit and bank borrowings to finance its operations
and expansion.
Net cash provided by operations was $25.3 million in the first nine months of
1998, compared to net cash used in operations of $22.1 million in the first nine
months of 1997. The change primarily reflects the effect of higher net income
for the first nine months of 1998 and a $27.6 million decrease in inventories
compared to a $62.6 increase in inventories in 1997. These amounts were offset
by a larger increase in accounts receivables of $165.4 million in 1998 compared
to $100.5 million in 1997.
Net cash used in investing activities was $1.3 million lower in the first nine
months of 1998 than in the first nine months of 1997, as additional capital
improvements and replacements were offset by a decrease in restricted cash.
Expenditures for capital improvements, replacements and property under capital
leases for the full year 1998 are expected to approximate $55.0 million, of
which $17 million represents the cost of completing an additional warehouse
facility.
Net cash used in financing activities was $24.0 million in the first nine
months of 1998 compared to net cash provided by financing activities of $32.0
million in the first nine months of 1997. The principal reasons for the change
were a smaller increase in the amounts of short-term borrowings to fund working
capital requirements, the net decrease in proceeds from capital lease and long-
term debt and transactions involving the Company's Common Stock. The Company
repurchased $72.1 million and $30.6 million of its Common Stock on the open
market for the nine months ended September 27, 1998 and September 28, 1997,
respectively, under announced programs to acquire up to $200.0 million
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JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
of such shares. On September 16, 1998, the Board of Directors authorized an
additional $100.0 million stock repurchase plan. The Company had repurchased
$196.2 million of its shares as of September 27, 1998, since first announcing
a stock repurchase program in December 1995. The Company may authorize
additional share repurchases in the future depending on, among other things,
market conditions and the Company's financial condition. Proceeds from the
issuance of common stock to employees exercising stock options amounted to
$9.1 million in the first nine months of 1998 compared to $10.3 million in
the first nine months of 1997.
Under the Company's credit agreements in place at the end of the third quarter
of 1998, $124.8 million was utilized for letters of credit and $37.9 million of
short-term borrowings were outstanding on September 27, 1998. In connection
with the acquisition of Sun Apparel, Inc. ("Sun") on October 2, 1998, the
Company replaced its existing credit agreements with $265.0 million of 6.25%
three-year Senior Notes and entered into an agreement with First Union National
Bank, as administrative agent, and other lending institutions to borrow an
aggregate principal amount of up to $550.0 million under Senior Credit
Facilities. These facilities consist of (i) a $150.0 million Three-Year
Revolving Credit Facility, (ii) a $300.0 million 364-Day Revolving Credit
Facility, the entire amount of which will be available for trade letters of
credit or cash borrowings, and (iii) a $100.0 million Term Loan Facility.
Upon the closing of the Sun acquisition, the Company drew down the Term
Loan Facility in its entirety and the Three-Year Revolving Credit Facility in
the amount of $125.0 million to finance a portion of the acquisition, the
refinancing of Sun's debt, related transactions and for its short-term
working capital needs. Upon the closing of the acquisition, approximately
$141.8 million was outstanding under the 364-Day Revolving Credit Facility,
which was comprised of both Sun's and the Company's letters of credit
outstanding on that date. Borrowings under the Senior Credit Facilities
may also be used for working capital and other general corporate purposes,
including permitted acquisitions and stock repurchases. The Senior Credit
Facilities are unsecured and require the Company to satisfy an earnings
before interest, taxes, depreciation, amortization and rent to interest expense
plus rents coverage ratio and a net worth maintenance covenant as well as other
restrictions, including (subject to exceptions) limiting the Company's ability
to incur additional indebtedness, prepay subordinated indebtedness, make
acquisitions, enter into mergers, and pay dividends.
The Company believes that funds generated by operations, the Senior Notes and
the new Senior Credit Facilities will provide the financial resources sufficient
to meet its foreseeable working capital, letter of credit, capital expenditure
and stock repurchase requirements and its ongoing obligations to the former Sun
shareholders.
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JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000
The Company uses various types of technology in the operations of its
business. Some of this technology incorporates date identification functions;
however, many of these date identification functions were developed to use only
two digits to identify a year. These date identification functions, if not
corrected, could cause their related technologies to fail or create erroneous
results on or before January 1, 2000.
The Company is continuing to assess, with both internal and external
resources, the impact of Year 2000 issues on its information and non-information
technology systems. As part of this process, the Company retained the services
of an independent consultant that specializes in Year 2000 evaluation and
remediation work. In addition, the Company has developed a plan with respect to
the Year 2000 readiness of its internal technology systems. This plan involves
(i) creating awareness inside the Company of Year 2000 issues, (ii) analyzing
the Company's Year 2000 state of readiness, (iii) testing, correcting and
updating systems and computer software as needed, and (iv) incorporating the
corrected or updated systems and software into the Company's business. The
Company is currently finalizing the assessment phase of this plan, and has moved
into the testing and correcting phase with respect to those technology systems
that have been identified as having Year 2000 issues. The Company anticipates
substantially completing the implementation of this plan by early 1999; however,
it may revise the estimated date of completion of this plan based upon any
unforeseen delays or costs in implementing such plan.
In a continuing effort to become more productive and competitive, the Company
replaces portions of its software and hardware when warranted by significant
business and/or technology changes. While these replacements are not
specifically intended to resolve the Year 2000 issue, the new software and
hardware is designed to function properly with respect to dates related to
the Year 2000 and beyond. The Company also has initiated discussions with its
significant suppliers, customers and financial institutions to ensure that
those parties have appropriate plans to remediate Year 2000 issues when their
systems interface with the Company's systems or may otherwise impact operations.
The Company anticipates substantially completing the implementation of this plan
by early 1999; however, there can be no assurances that such plan will be
completed by the estimated date or that the systems and products of other
companies on which the Company relies will not have an adverse effect on its
business, operations or financial condition.
As of September 27, 1998, the Company had incurred approximately $150,000 in
costs related to the Year 2000 issue. The Company believes that additional
costs related to the Year 2000 issue will not be material to its business,
operations or financial condition. However, estimates of Year 2000 related
costs are based on numerous assumptions and there is no certainty that estimates
will be achieved and actual costs could be materially greater than anticipated.
The Company anticipates that it will fund its additional Year 2000 costs from
current working capital.
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<PAGE>
JONES APPAREL GROUP, INC.
OTHER INFORMATION
Part II.
Item 5. Other information
Statement Regarding Forward-looking Disclosure
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines, and
financial difficulties encountered by customers. All statements, other than
statements of historical facts included in this Quarterly Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in this Report. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.53 License Agreement dated as of August 1, 1995 by and between
PRL USA, Inc., as assignee of Polo Ralph Lauren Corporation,
successor to Polo Ralph Lauren, L.P., and Sun Apparel, Inc.,
as amended to date
Exhibit 10.54 Design Services Agreement dated as of August 1, 1995 by and
between Polo Ralph Lauren Corporation, successor to Polo Ralph
Lauren, L.P., and Sun Apparel, Inc., as amended to date
Exhibit 11 Computation of earnings per share
Exhibit 27 Financial data schedule dated September 27, 1998
(b) Reports on Form 8-K
During the quarter ended September 27, 1998, a Current Report on Form 8-K,
dated September 24, 1998, was filed with the Commission by the Company
announcing the acquisition of Sun Apparel, Inc.
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<PAGE>
JONES APPAREL GROUP, INC.
OTHER INFORMATION (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JONES APPAREL GROUP, INC.
(Registrant)
Date: November 10, 1998 By /s/ Sidney Kimmel
----------------------------
SIDNEY KIMMEL
Chief Executive Officer
By /s/ Wesley R. Card
----------------------------
WESLEY R. CARD
Chief Financial Officer
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Exhibit 10.53.
(Polo Jeans Company - License)
LICENSE AGREEMENT, dated as of August 1, 1995 by and between Polo Ralph
Lauren, L.P. ("Licensor") , a Delaware limited partnership with a place of
business at 650 Madison Avenue, New York, New York 10022, and Sun Apparel,
Inc. ("Licensee"), a Texas corporation with a place of business at 11201
Armour Drive, El Paso, Texas 79935.
WHEREAS, Licensor is engaged in the business of manufacturing, selling and
promoting, and licensing others the right to manufacture, sell and promote,
high quality apparel and related merchandise under certain Polo/Ralph Lauren
trademarks and trade names; and
WHEREAS, Licensee desires to obtain, and Licensor is willing to grant, a
license pursuant to which Licensee shall have the right to use certain Polo/
Ralph Lauren trademarks in the United States on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. As used herein, the term:
1.1. "License" shall mean the exclusive, non-assignable right to use the
Trademark in connection with the manufacture and/or importation and sale of
Licensed Products in the Territory.
1.2. "Licensed Products" shall mean those items set forth on Schedule A
attached hereto and made a part hereof, and all bearing the Trademark. From
time to time Licensor may authorize Licensee to manufacture and distribute
products bearing the Trademark not expressly listed in Schedule A hereto.
Absent an agreement with respect to such products signed by Licensor and
Licensee, all such products shall be deemed Licensed Products for all purposes
hereunder; provided, however, that Licensee's rights with respect to such
products (i) shall be non-exclusive and (ii) may be terminated by Licensor
upon 90 days written notice.
1.3. "Licensor" shall mean Polo Ralph Lauren, L.P., a limited partnership
organized under the laws of the State of Delaware.
1.4. "Licensee" shall mean Sun Apparel, Inc., a corporation organized under
the laws of Texas.
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<PAGE>
1.5. "Net Sales Price" shall have the meaning set forth in paragraph 6.2
hereof.
1.6. "Territory" shall mean the United States of America, its territories
and possessions. From time to time Licensor may authorize Licensee to sell
certain Licensed Products to specific purchasers outside the Territory.
Absent an agreement with respect to such sales signed by Licensor and Licensee,
all such sales shall be made on all of the terms and conditions set forth in
this Agreement; provided, however, that Licensee's right to make such sales
shall be non-exclusive and may be terminated by Licensor immediately upon
written notice to Licensee. Any such termination shall not apply to orders
already taken by Licensee in accordance with Licensor's prior authorization.
1.7. "Trademark" shall mean the trademarks set forth on Schedule B hereto,
and no other trademarks, regardless of whether such trademark is or includes
"POLO" or "RALPH LAUREN", except as may be expressly authorized by Licensor in
writing. Licensor shall have the sole right to determine the manner and use of
the Trademark in connection with each particular Licensed Product. Each
particular form or logo selected by Licensor to be used as part of or in
connection with the Trademark shall be deemed within the definition of
"Trademark" hereunder, and such particular forms already approved are annexed
hereto as Schedule B.
2. Grant of License.
2.1. Subject to the terms and provisions hereof, Licensor hereby grants
Licensee and Licensee hereby accepts the License. Licensor shall neither use
nor authorize third parties to use the Trademark in connection with the
manufacture, sale and/or importation of Licensed Products in the Territory
during the term of this Agreement without Licensee's prior approval. To the
extent it is legally permissible to do so, no license is granted hereunder
for the manufacture, sale or distribution of Licensed Products to be used for
publicity purposes, other than publicity of Licensed Products, in combination
sales, as premiums or giveaways, or to be disposed of under or in connection
with similar methods of merchandising.
2.2. It is understood and agreed that the License applies solely to the use
of the Trademark on the Licensed Products, and that no rights are granted by
Licensor hereunder with respect to the use of: (i) any trademark of Licensor
or of any of Licensor's affiliates (including any trademark that uses "Polo"
or the name "Ralph Lauren") other than the Trademark, on or in connection with
any product (including, without limitation, jeanswear), or (ii) the use of the
Trademark on any products other than Licensed Products.
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<PAGE>
Licensor reserves the right to use, and to grant to any other licensee the
right to use, the Trademark, whether within or outside the Territory, in
connection with any and all products and services, other than Licensed
Products within the Territory. Notwithstanding the foregoing, Licensor
shall not itself use or license the right to use any "Polo" or "Ralph Lauren"
trademark, other than its "CHAPS" trademarks and derivatives thereof, in
connection with men's denim jean pants or shorts or women's denim jean pants
or shorts ("Denim Bottoms"); provided, however, that (i) Licensor or its
affiliates (but not an unaffiliated, licensed third party) shall be entitled
to include Denim Bottoms within Licensor's various "Polo" and "Ralph Lauren"
lines so long as the wholesale prices of such Denim Bottoms are at least
[OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION]
higher than the wholesale prices of the Denim Bottoms generally applied to the
most comparable Licensed Products and (ii) Licensor and its affiliates shall
also be entitled to continue to develop its "cutup" program of Denim Bottoms
for Polo/Ralph Lauren outlet stores. Licensor shall be entitled to continue
to include Denim Bottoms within Licensor's "RRL" line of products at the
suggested retail price structure (or higher) at which such Denim Bottoms are
currently offered. In the event that Licensor, during the term hereof, opens
directly or indirectly one or more "Vertical RRL Stores" (as hereinafter
defined) and desires to offer at such Vertical RRL Stores Denim Bottoms
bearing the RRL mark at suggested retail prices below the prices at which
such Denim Bottoms were generally offered prior to the effective date of this
Agreement ("RRL Denim Bottoms"), Licensee shall have the right to act, during
the term hereof, as the exclusive licensee of the RRL mark in connection with
RRL Denim Bottoms for the purpose of supplying RRL Denim Bottoms, at wholesale,
to such RRL Vertical Stores; provided, however, that (a) Licensee shall
manufacture such RRL Denim Bottoms in accordance with all of Licensor's design
and construction specifications and on commercially competitive wholesale
prices and terms, which prices shall be no less than the wholesale prices of,
and which terms shall be no less favorable than the terms for, any comparable
Licensed Products,(b) the suggested retail price of such RRL Denim Bottoms
shall be at least [OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND
EXCHANGE COMMISSION] above the suggested retail price of the most comparable
Licensed Products, (c) all sales of such RRL Denim Bottoms shall fall within
the definition of Net Sales Price for the purpose of calculating Licensor's
royalties on such sales pursuant to paragraph 6.2; provided, however, that the
royalty rate applicable to sales of RRL Denim Bottoms shall be 7% of the Net
Sales Price thereof, which amount shall be paid, in accordance with the terms
hereof, to Licensor or such other entity or entities as Licensor may designate
and (d) sales of RRL Denim Bottoms shall not be included within the definition
of Net Sales Price with respect to the calculations to be performed under
paragraph 4.6 hereof or paragraph 2 of Schedule C hereof. The term "Vertical
RRL Stores" shall mean any stores or shops doing business under a service mark
or tradename incorporating the RRL trademark,
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<PAGE>
the principal focus of which is the sale of
products bearing the RRL trademark, and in which Licensor or any of its
affiliates owns, directly or indirectly, an equity interest in excess of 25%.
Licensee understands and agrees that Licensor may itself manufacture or
authorize third parties to manufacture in the Territory, Licensed Products
but solely for ultimate sale outside of the Territory. Subject to the terms of
paragraph 17.4 hereof, Licensee may manufacture or cause to be manufactured the
Licensed Products outside of the Territory, but solely for purposes of sale
within the Territory pursuant to the terms of this Agreement.
2.3. Licensee shall not have the right to use Licensee's name on or in
connection with the Licensed Products, except with the prior approval by
Licensor of the use and placement of Licensee's name. Licensee shall, at the
option of Licensor, include on its business materials and/or the Licensed
Products an indication of the relationship of the parties hereto in a form
approved by Licensor.
2.4. Licensee shall not use or permit or authorize another person or entity
in its control to use the words "Polo" or "Ralph Lauren" as part of a
corporate name or tradename without the express written consent of Licensor
and Licensee shall not permit or authorize use of the Trademark in such a way
so as to give the impression that the name "Ralph Lauren," or the Trademark,
or any modifications thereof, are the property of Licensee.
2.5. Licensee (and its affiliates) shall not, directly or indirectly, by
license or otherwise, sell, advertise or promote the sale of during the term
of this Agreement any items which are comparable and/or competitive with
Licensed Products and which bear the name of any fashion apparel designer
other than Todd Oldham or Robert Stock. The foregoing shall not restrict
Licensee's right to act solely as the manufacturer, contractor or supplier of
or for merchandise comparable and/or competitive with Licensed Products to or
for any third party; provided, however, that Licensee shall not during the
term hereof, directly or indirectly, act as a manufacturer, contractor or
supplier of or for merchandise comparable or competitive with Licensed
Products bearing or associated with the following names: Tommy Hilfiger,
Nautica, Calvin Klein, Donna Karan or Armani.
2.6. Licensor represents and warrants that it has full right, power and
authority to enter into this Agreement, to perform all of its obligations
hereunder, and to consummate all of the transactions contemplated herein and
further that it is not aware of any claim or proceedings which would prevent
it from performing its obligations hereunder. In the event that Licensee or
Licensor is charged with infringement on account of Licensee's use of the
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<PAGE>
Trademark and, as a result, Licensor determines that the use by Licensee of
the Trademark should be discontinued upon reasonable written notice to
Licensee, this license under the Trademark shall be converted to a license
under another "Ralph Lauren" trademark or label; in such event Licensee shall
have the right to (i) accept the exclusive license to use such "Ralph Lauren"
trademark in connection with the manufacture and sale of Licensed Products in
the Territory subject to all other terms of this Agreement or (ii) terminate
this Agreement. In either such event, Licensee shall immediately advise
Licensor of its inventory of Licensed Products labelled with the Trademark
and of its stock of business materials bearing the Trademark and Licensor
shall, in its sole discretion and judgment, determine whether and to what
extent such inventory and materials of Licensee may continue to be used by
Licensee.
2.7. Licensee shall not purport to grant any right, permission or license
hereunder to any third party, whether at common law or otherwise. Licensee
shall not without Licensor's prior written approval sell any Licensed Products
bearing the Trademark to any third party which Licensee knows or should have
reason to know, directly or indirectly, sells or proposes to sell such
Licensed Products outside the Territory. Licensee shall use its commercially
reasonable efforts to prevent any such resale outside the Territory and shall,
immediately upon learning or receiving notice from Licensor that a customer is
selling Licensed Products outside the Territory, cease all sales and
deliveries to such customer.
2.8. Each of Licensee and Licensor recognizes that there are many
uncertainties in the business contemplated by this Agreement. Each of
Licensee and Licensor agrees and acknowledges that other than those
representations, warranties and guaranties explicitly contained in this
Agreement, if any, no representations, warranties or guarantees of any kind
have been made to either party by the other party, or by such other party's
affiliates, or by anyone acting on their behalf. Without limitation, no
representations concerning the value of the Licensed Products or the
prospects for the level of their sales or prof its have been made and each of
Licensee and Licensor has made its own independent business evaluation in
deciding to enter into this License Agreement and conduct the business
contemplated herein.
2.9. Licensee represents and warrants that it has full right, power and
authority to enter this Agreement, to perform all of its obligations
hereunder, and to consummate all of the transactions contemplated herein and
further that it is not aware of any claim or proceeding which would prevent
it from performing its obligations hereunder.
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<PAGE>
2.10. In the event during the term hereof Licensor acquires the right and
desires to license a third party to use the Trademark in the Territory in
connection with the manufacture or sale of women's denim pants (and such
related products as Licensor, in its sole discretion, may designate),
Licensor shall, provided that Licensee is not in default of any of its
obligations hereunder and this Agreement is in full force and effect, give
Licensee notice of the terms upon which it proposes to grant a license with
respect to the Trademark for such products. Upon receipt of such notice,
Licensee shall have thirty (30) days during which it may propose modified
terms to Licensor, and the terms initially proposed by Licensor, together
with such modifications proposed by Licensee as Licensor may, in its sole
discretion, agree to during such thirty-day period, shall, upon the expiration
of such thirty-day period, be deemed the "Final Offer Terms". Licensee shall
have a period of fifteen (15) days after the expiration such thirty-day period
to accept or reject the Final Offer Terms in writing. If Licensee rejects the
Final Offer Terms or if Licensee initially accepts the Final offer Terms but
thereafter is unable to satisfy the Final offer Terms, then Licensor shall be
free to make a substantially similar offer to any third party and, if such
offer is accepted within twelve (12) months after the fifteen (15) day period
set forth above ("Timely Third Party Acceptance"), Licensee shall have no
further rights pursuant to this paragraph 2.10. If, prior to any Timely Third
Party Acceptance, Licensor shall substantially change the Final Offer Terms,
or if Licensor does not receive a Timely Third Party Acceptance, then, during
the term hereof, Licensee's rights as provided hereinabove shall apply to such
changed terms or any subsequent proposed grant of rights by Licensor pursuant
to this paragraph 2.10.
3. Design Standards and Prestige of Licensed Products.
3.1. Licensee acknowledges that it has entered into a design services
agreement ("Design Agreement"), of even date herewith, with Polo Ralph
Lauren Enterprises, L.P. (the "Design Partnership"), which provides for the
furnishing to Licensee by the Design Partnership of design concepts and other
professional services so as to enable Licensee to manufacture or cause to be
manufactured the Licensed Products in conformity with the established prestige
and goodwill of the Trademark. Licensee shall manufacture, or cause to be
manufactured, and sell only such Licensed Products as are made in accordance
with the design and other information approved under, and in all other
respects in strict conformity with the terms of, the Design Agreement.
3.2. Licensee acknowledges that the Ralph Lauren trademarks have
established prestige and goodwill and are well recognized in the minds
of the public, and that it is of great importance to each
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<PAGE>
party that in the manufacture and sale of various lines of Licensor's products,
including the Licensed Products, the high standards and reputation that
Licensor and Ralph Lauren have established be maintained. Accordingly, all
items of Licensed Products manufactured or caused to be manufactured by
Licensee hereunder shall be of high quality workmanship with strict adherence
to all details and characteristics embodied in the designs furnished pursuant
to the Design Agreement. Licensee shall supply Licensor with samples of the
Licensed Products (including, if Licensor so requests, samples of labeling and
packaging used in connection therewith) prior to production and from time to
time during production, and shall, at all times during the term hereof, upon
Licensor's request, make its manufacturing facilities available to Licensor,
and shall use its commercially reasonable efforts to make available each
subcontractor's manufacturing facilities for inspection by Licensor's
representatives during usual working hours, which efforts shall include,
without limitation, not placing future orders for Licensed Products with
any subcontractor who fails to make such facilities available for inspection
by Licensor's representatives.
3.3. In the event that any Licensed Product is, in the reasonable judgment
of Licensor, not being manufactured, distributed or sold with first quality
workmanship or in strict adherence to all details and characteristics
furnished pursuant to the Design Agreement, Licensor shall notify Licensee
thereof in writing and Licensee shall promptly repair or change such Licensed
Product to conform thereto. If a Licensed Product as repaired or changed does
not strictly conform after Licensor's request and such strict conformity
cannot be obtained after at least one (1) resubmission, or if Licensee
determines that a Licensed Product does not strictly conform, the Trademark
shall be promptly removed from the item, at the option of Licensor, in which
event the item may be sold by Licensee, provided (a) such miscut or damaged
item does not contain any labels or other identification bearing the Trademark
without Licensor's prior approval and (b) further provided that Licensor agrees
Licensee will be permitted to sell Licensed Products as irregulars and seconds
bearing the Trademark, so long as such products are clearly labelled as such
in a manner reasonably approved by Licensor, are distributed in channels and
to outlets approved by Licensor, and are produced only as by-products of the
manufacture of first quality goods and only in reasonable quantities.
Notwithstanding anything in this paragraph 3.3 to the contrary, Licensee's
sales of all products of Licensor's or the Design Partnership's design,
whether or not bearing the Trademark, shall nonetheless be subject to
royalty payments pursuant to paragraph 6 hereof.
3.4. At the request of Licensor, Licensee shall cause to be
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<PAGE>
placed on all Licensed Products appropriate notice in accordance with
applicable law designating Licensor or the Design Partnership as the copyright
or design patent owner thereof, as the case may be. The manner of
presentation of said notices shall be determined by Licensor.
3.5. Licensee agrees to maintain sound and ethical business practices and
to promptly pay in accordance with the purchase terms therefor all amounts
due for any Licensed Products or materials, trim, fabrics, packaging or
services relating to Licensed Products purchased by Licensee from Licensor
or any agent or licensee of Licensor or any other supplier of such items,
all subject to good faith errors or disputes.
4. Marketing.
4.1. Except as set forth in paragraph 4.11 hereof, the distribution of
the Licensed Products in the Territory shall be performed by Licensee
exclusively. The Licensed Products shall be sold by Licensee only to
those specialty shops, department stores and other retail outlets which
deal in products similar in quality and prestige to products bearing Ralph
Lauren trademarks other than the Trademark, whose operations are consistent
with the quality and prestige of such trademarks and only to those customers
expressly approved by Licensor. Whenever Licensee wishes to sell Licensed
Products to a customer not previously approved by Licensor, Licensee shall
submit a written list of its proposed customers to Licensor for Licensor's
approval, which shall be given or withheld in Licensor's discretion based on
whether the proposed customer shall enhance or not be inconsistent with the
quality and prestige of the Trademark and the distribution channels therefor.
Licensor shall have the right to withdraw its approval of a customer based on
its evaluation of the criteria set forth in the preceding sentence, subject
to orders for Licensed Products already accepted by Licensee. Licensee shall
take such steps as may be reasonably necessary, including the implementation
of an inventory marking system, to avoid any negative impact on the
reputation and desirability of Licensor's products as a result of the
unauthorized resale of Licensed Products through unauthorized distribution
channels. Licensee shall not market or promote or seek customers for the
Licensed Products outside of the Territory and Licensee shall not establish
a branch, wholly owned subsidiary, distribution or warehouse with inventories
of Licensed Products outside of the Territory; provided that upon prior
written notice to Licensor, Licensee may directly or through a controlled
affiliate own and operate a warehouse in Mexico for the purpose of storing
and/or shipping Licensed Products to be distributed in the Territory.
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<PAGE>
4.2. Licensee acknowledges that in order to preserve the good will attached
to the Trademark, the Licensed Products are to be sold at prices and terms
reflecting the prestigious nature of the Trademark, it being understood,
however, that Licensor is not empowered to fix or regulate the prices at
which the Licensed Products are to be sold, either at the wholesale or
retail level.
4.3. Licensee shall maintain the high standards of the Trademark and the
Licensed Products, in all advertising, packaging and promotion of the
Licensed Products. Licensee shall not employ or otherwise release any of
such advertising or packaging or other business materials relating to any
Licensed Products or bearing the Trademark, unless and until Licensee shall
have made a request, in writing, for approval by Licensor. As promptly as
practicable, Licensor may, with respect to any advertising, packaging or
business materials submitted by Licensee, make such suggestions as Licensor
deems necessary or appropriate, or disapprove, in either event by notice to
Licensee. Any approval granted hereunder shall be limited to use during the
seasonal collection of Licensed Products to which such advertising relates
and shall be further limited to the use (e.g. TV or print) for which approval
by Licensor was granted. Licensee shall, at the option of Licensor, include
on its business materials an indication of the relationship of the parties
hereto in a form approved by Licensor.
4.4. Licensee shall use its commercially reasonable efforts to assure
that all cooperative advertising, whereby Licensee provides a customer with
a contribution toward the cost of an advertisement for Licensed Products,
whether Licensee's contribution be in the form of an actual monetary
contribution, a credit or otherwise, shall be subject to prior approval of
Licensor under the same terms and conditions as apply to advertising and
promotional materials prepared by or to be used by Licensee pursuant to
paragraph 4.3 hereof; provided, however, that in the event that Licensee is
not as a matter of practice given an opportunity to review the cooperative
advertising due to time constraints, then Licensee shall notify Licensor,
in advance, of those customers with whom it does cooperative Licensed Product
advertising and/or promotion, and Licensee at Licensor's request shall notify
the named customer of the terms of this Agreement which pertain to the said
advertising or promotional materials.
4.5. Licensee, in connection with the conduct of its business hereunder,
shall exercise its best efforts to safeguard the established prestige and
goodwill of the names "Polo" and "Ralph Lauren," and the Ralph Lauren image,
at the same level of prestige and goodwill as heretofore maintained.
"Image" as used herein refers primarily to quality and style of packaging,
advertising and promotion, creation and introduction of new products, type of
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outlets with reference to quality of service provided by retail outlets and
quality of presentation of Licensed Products in retail outlets. Licensee
shall take all necessary steps, and all steps reasonably requested by
Licensor, to prevent or avoid any misuse of the Trademark by any of its
customers, contractors or other resources.
4.6. During each year of this Agreement, Licensee shall expend for the
production and placement of national institutional and media advertising of
Licensed Products ("Institutional Advertising"), an amount that is not less
than the "Annual Advertising obligation", as hereinafter defined, for such
year. Licensor shall consult in advance with Licensee regarding the creation,
production and placement of Institutional Advertising, but all final decisions
with respect thereto shall be made by Licensor in its sole discretion. The
"Annual Advertising obligation" for each year during the term hereof shall be
[OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION]
of the aggregate Net Sales Price of Licensed Products sold during such year,
but the Annual Advertising Obligation for the period from the date hereof to
December 31, 1997 shall be not less than [OMITTED; MATERIAL FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION], of which approximately [OMITTED;
MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION] is
intended to be spent during calendar year 1996. Licensee shall deliver to
Licensor within sixty (60) days after the end of each year hereof an
accounting statement in respect of amounts expended by Licensee on
Institutional Advertising for the prior year. Each such accounting statement
shall be signed, and certified as correct, by a duly authorized officer of
Licensee. Prior to each year hereof, Licensee shall submit Licensee's
advertising budget for the upcoming year, based on the aggregate Net Sales
Price of Licensed Products during the year then ending and on sales projected
for the upcoming year. Only actual advertising costs and expenses charged to
Licensee or Licensor in connection with the advertising of Licensed Products
under the Trademark shall be charged to Licensee's advertising budget
hereunder, and Licensor shall make available to Licensee or credit to
Licensee's budget any volume discounts for the advertising of Licensed
Products Licensor is able to achieve as a result of the advertising of
Licensed Products and other advertising placed by or for Licensor and/or
its other licensees. The Annual Advertising Obligation for such upcoming
year will initially be calculated and expended based upon such budget. If in
any year during the term hereof an amount less than the Annual Advertising
Obligation is expended on Institutional Advertising for any reason whatsoever
(including an underestimate of the actual Net Sales Price for such year or
because the actual cost of Institutional Advertising, if any, produced and
placed during such year is less than the Annual Advertising Obligation), the
entire amount not expended shall be added to the Annual Advertising
obligation for the following year.
4.7. During the term of this Agreement, Licensee shall, in
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consultation with Licensor, provide a budget for the design, construction,
re-fits and seasonal changeovers of in-store shops and fixtures to be used
exclusively for the presentation of Licensed Products, the design of which
shall be subject to Licensor's prior approval. Licensee's budget for such
purposes shall be adequate to present Licensed Products in a manner consistent
with the high quality and prestige associated with Licensor's trademarks and
the price structure of the Licensed Products.
4.8. To the extent permitted by applicable law Licensor may from time to
time, and in writing, promulgate reasonable and nondiscriminatory rules and
regulations to Licensee relating to the manner of use of the Trademark.
Licensee shall comply with such rules and regulations. Any such rules or
regulations shall not be inconsistent with or derogate from Licensee's
rights under this Agreement.
4.9. Licensee agrees to make available for purchase and to sell on its
customary price, credit and payment terms (subject to paragraph 4.11 hereof)
all lines and styles of Licensed Products to retail stores in the Territory
bearing a trademark of Licensor or its affiliates which are authorized to sell
the Licensed Products within such retail stores. Notwithstanding anything to
the contrary contained herein, to the extent that any such Licensed Products
are not so made available by Licensee to such stores, such Licensed Products
may be made available to such stores by Licensor (or its affiliates or other
licensees).
4.10. In consideration of the License granted herein, in the event Licensor
elects to offer Licensed Products for sale in mailorder catalogs or "vertical
retail stores of Licensor or its affiliates" (as hereinafter defined),
Licensee shall sell and timely ship Licensed Products to Licensor or its
affiliate for such purposes at a price equal to [OMITTED; MATERIAL FILED
SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION] less than the regular
wholesale price therefor. All such sales shall be separately reported by
Licensee in its accounting statements pursuant to paragraph 6.2 hereof, and
such sales shall not be subject to the royalty or advertising obligations set
forth herein, or to the compensation obligations set forth in the Design
Agreement, but such sales shall be included within the definition of Net
Sales Price for all purposes under paragraph 2 of Schedule C to this Agreement.
The term "vertical retail stores of Licensor or its affiliates" shall mean a
store or shop doing business under a service mark or tradename substantially
similar to the Trademark, the principal focus of which is the sale of products
bearing the Trademark, and in which Licensor or any of its affiliates owns,
directly or indirectly, an equity interest in excess of 25%.
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4.11. Licensor shall respond to any requests for approvals or consents from
Licensee hereunder as promptly as reasonably practicable consistent with the
level of review required.
5. Trademark Protection.
5.1. All uses of the Trademark by Licensee, including, without limitation,
use in any business documents, invoices, stationery, advertising, promotions,
labels, packaging and otherwise shall require Licensor's prior written consent
in accordance with paragraph 4 hereof.
5.2. All uses of the Trademark by Licensee in advertising, promotions,
labels and packaging shall include, at Licensor's option, a notice to the
effect that the Trademark is used by Licensee for the account and benefit
of Licensor or that Licensee is a registered user thereof or both such
statements. The use of the Trademark pursuant to this Agreement shall be for
the benefit of Licensor and shall not vest in Licensee any title to or right
or presumptive right to continue such use. For the purposes of trademark
registration, sales by Licensee shall be deemed to have been made by Licensor.
5.3. Licensee shall cooperate fully and in good faith with Licensor for the
purpose of securing and preserving Licensor's rights in and to the Trademark.
Nothing contained in this Agreement shall be construed as an assignment or
grant to Licensee of any right, title or interest in or to the Trademark, or
any of Licensor's other trademarks, it being understood that all rights
relating thereto are reserved by Licensor, except for the License hereunder
to Licensee of the right to use the Trademark only as specifically and
expressly provided herein. Licensee shall not file or prosecute a trademark
or service mark application or applications to register the Trademark, for
Licensed Products or otherwise.
5.4. Licensee shall not, during the term of this Agreement or thereafter,
(a) attack Licensor's title or rights in or to any Ralph Lauren trademarks
in any jurisdiction or attack the validity of this License or the Ralph Lauren
trademarks or (b) contest the fact that Licensee's rights under this Agreement
(i) are solely those of a licensee, manufacturer and distributor and (ii)
subject to the provisions of paragraph 10 hereof, cease upon termination
of this Agreement. The provisions of this paragraph 5.4 shall survive the
termination of this Agreement.
5.5. Subject to the provisions of paragraph 2.7 of the Design
Agreement, all right, title and interest in and to all samples,
patterns, sketches, designs, artwork, logos and other materials
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furnished by or to Licensor or the Design Partnership, whether
created by Licensor, the Design Partnership or Licensee, are hereby
assigned in perpetuity to, and shall be the sole property of, Licensor and/or
the Design Partnership, as the case may be. Licensee shall assist Licensor to
the extent necessary in the protection of or the procurement of any protection
of Licensor's rights to the Trademark, designs, design patents and copyrights
furnished hereunder and Licensor, if Licensor so desires, may commence or
prosecute any claims or suits in Licensor's own name or in the name of
Licensee or join Licensee as a party thereto. Licensee shall promptly notify
Licensor in writing of any uses which may be infringements or imitations by
others of the Trademark on articles similar to those covered by this Agreement
which may come to Licensee's attention. Licensor shall have the sole right to
determine whether or not any action shall be taken on account of any such
infringements or imitations. Licensor shall bear one hundred percent (100%)
of the costs of all actions or proceedings it undertakes, and shall be
entitled to all recoveries in such actions. If Licensor declines to take
action with respect to a particular infringer Licensee is not obligated to but
may, with Licensor's prior written consent, undertake such action at
Licensee's expense, and all recoveries in such actions shall first be applied
to reimbursement of Licensee's actual legal and investigative fees, and then
divided equally between Licensor and Licensee.
6. Royalties.
6.1. Commencing with the First Renewal Term (as hereinafter defined in
Schedule C), if the term hereof is extended beyond the Initial Term (as
hereinafter defined in paragraph 8), Licensee shall thereafter pay to
Licensor minimum royalties for each year during the term of this Agreement
as compensation for the License granted hereunder for the use of the Trademark
in the manufacture and sale, and/or importation and sale, of Licensed Products
in the Territory. The minimum royalty for each year commencing with the First
Renewal Term shall be an amount equal to [OMITTED; MATERIAL FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION] of the actual earned royalties due
for the immediately preceding year; provided, however, that the minimum
royalty obligation for each year of the First Renewal Term shall in no event
be less than [OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE
COMMISSION]; for each year of the Second Renewal Term no less than [OMITTED;
MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION]; for each
year of the Third -Renewal Term no less than [OMITTED; MATERIAL FILED
SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION]; for each year of the
Forth Renewal Term no less than [OMITTED; MATERIAL FILED SEPARATELY WITH
SECURITIES AND EXCHANGE COMMISSION]; for each year of the Fifth Renewal Term
no less than [OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE
COMMISSION]; and for each year of the Sixth Renewal Term no less than
[OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION]
(each such Term as defined in Schedule C). Minimum royalties for each year
shall be paid on a quarterly basis, within thirty (30) days after the end
of each quarter during the term hereof, commencing with the first quarter
of the First Renewal Term. No
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credit shall be permitted against minimum royalties payable for any year on
account of actual or minimum royalties paid for any other year, and minimum
royalties shall not be returnable. For the purposes of this Agreement, the
term "year" shall mean a period of twelve (12) months commencing on each
January 1 during the term of this Agreement; provided, however, that the
term "first year" shall mean the 17-month period commencing
on August 1, 1995 and ending on December 31, 1996.
6.2. Licensee shall pay to Licensor earned royalties based on the Net Sales
Price of all Licensed Products manufactured or imported and sold by Licensee
hereunder. Earned royalties shall [OMITTED; MATERIAL FILED SEPARATELY WITH
SECURITIES AND EXCHANGE COMMISSION] of the Net Sales Price of all Licensed
Products sold under this Agreement, including, without limitation, any sales
made pursuant to the terms of paragraphs 3.2, 3.3 and 10.2 hereof. Licensee
shall prepare or cause to be prepared statements containing the information
set forth in paragraph 7.1 hereof for the period commencing on the date
hereof and ending on March 31, 1996 and for each quarter ending the last day
of March, June, September and December in each year hereof, which shall be
furnished to Licensor together with the earned royalties due for each such
quarter (less minimum royalties, when applicable, paid for such quarter)
within thirty (30) days after the end of each such quarter. The term "Net
Sales Price" shall mean the gross sales price to retailers of all Licensed
Products sold under this Agreement or, with respect to Licensed Products that
are not sold directly or indirectly to retailers, other ultimate consumers (as
in the case of accommodation sales by Licensee to its employees or sales by
Licensee in its own shops), less trade discounts, merchandise returns, sales
tax (if separately identified and charged) and markdowns and/or chargebacks
which, in accordance with generally accepted accounting principles, would
normally be treated as deductions from gross sales, and which, in any event,
do not include any chargebacks or the like for advertising, fixture or retail
shop costs or contributions. Notwithstanding the foregoing, Licensor hereby
waives its right to (i) receive royalties hereunder for, or (ii) include
within the calculation of Net Sales Price for the purpose of calculating the
Annual Advertising Obligation as set forth in paragraph 4.6 hereof, sales of
units of Licensed Products sold at a discount of [OMITTED; MATERIAL FILED
SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION] or more off the regular
wholesale price ("Discounted Units"), provided that such waiver shall only
apply to the extent that the aggregate Net Sales Price of Discounted Units
for any year does not exceed [OMITTED; MATERIAL FILED SEPARATELY WITH
SECURITIES AND EXCHANGE COMMISSION] of the Net Sales Price of all units of
Licensed Products other than Discounted Units sold in such year. No other
deductions shall be taken. Any merchandise returns shall be credited in
the quarter in which the returns are actually made. For purposes of this
Agreement, affiliates of Licensee shall mean all persons and business
entities, whether corporations, partnerships, joint ventures or otherwise,
which now or hereafter
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control, or are owned or controlled, directly or indirectly by Licensee, or
are under common control with Licensee. It is the intention of the parties
that royalties will be based on the bona fide wholesale prices at which
Licensee sells Licensed Products to independent retailers in arms' length
transactions. In the event Licensee shall sell Licensed Products to its
affiliates, royalties shall be calculated on the basis of such a bona fide
wholesale price irrespective of Licensee's internal accounting treatment of
such sale unless such products are sold by its affiliates directly to the
end-user consumer, in which case royalties shall be calculated on the basis
of the price paid by the end-user consumer, less applicable taxes. Licensee
shall identify separately in the statements provided to Licensor pursuant to
paragraph 7 hereof, all sales to affiliates. At least once annually and no
later than 90 days after the close of Licensee's fiscal year, Licensee shall
furnish to Licensor a statement of the Net Sales Price of all Licensed
Products sold during the year just ended, which shall be certified by the
independent auditor for Licensee as correct and in accordance with the terms
of this Agreement.
6.3. If the payment of any installment of royalties is delayed for any
reason, interest shall accrue on the unpaid principal amount of such
installment from and after the date which is 10 days after the date the
same became due pursuant to paragraphs 6.1 or 6.2 hereof at the lower of
the highest rate permitted by law in New York and 2% per annum above the
prime rate of interest in effect from time to time at Chemical Bank, New
York, New York or any successor bank.
6.4. The obligation of Licensee to pay royalties hereunder shall be
absolute notwithstanding any claim which Licensee may assert against
Licensor or the Design Partnership. Licensee shall not have the right
to set-off, compensate itself or any third party, or make any deduction
from such royalty payments for any reason whatsoever.
7. Accounting.
7.1. Licensee shall at all times keep an accurate account of all
operations within the scope of this Agreement. Licensee shall render a
full statement in writing to Licensor in accordance with paragraph 6.2
hereof, which shall account separately for each different product category
and shall include all aggregate gross sales, trade discounts, merchandise
returns, sales tax, markdowns, chargebacks, unit sales, sales of Discounted
Units, sales of miscuts and damaged merchandise and net sales price of all
sales for the previous quarter. Such statements shall be in sufficient
detail to be audited from the books of Licensee. Once annually, which may
be in connection with the regular annual audit of
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Licensee's books, Licensee shall furnish an annual statement of the aggregate
gross sales, trade discounts, merchandise returns and Net Sales Price of all
Licensed Products made or sold by Licensee certified by Licensee's independent
accountant. Each quarterly statement furnished by Licensee shall be certified
by the chief financial officer of Licensee.
7.2. Licensor and its duly authorized representatives, on reasonable notice,
shall have the right, no more than once in each year during regular business
hours, for the duration of the term of this Agreement and for three (3) years
thereafter, to examine the books of account and records and all other
documents, materials and inventory in the possession or under the control of
Licensee and its successors with respect to the statements required, and
Licensee's obligations, hereunder. All such books of account, records and
documents shall be maintained and kept available by Licensee for at least the
duration of this Agreement and for three (3) years thereafter. Licensor shall
have free and full access thereto in the manner set forth above and shall
have the right to make copies and/or extracts therefrom. If as a result of
any examination of Licensee's books and records it is shown that Licensee's
payments to Licensor hereunder with respect to any twelve (12) month period
were less than or greater than the amount which should have been paid to
Licensor by an amount equal to two percent (2%) of the amount which should
have been paid during such twelve (12) month period, Licensee will, in
addition to reimbursement of any underpayment, with interest from the date
on which each payment was due at the rate set forth in paragraph 6.3 hereof,
promptly reimburse Licensor for the cost of such examination. Licensor shall
reimburse Licensee for any overpayment of royalties it discovers during such
examination, after deducting from the amount of such overpayment all costs and
expenses incurred in connection with such examination.
7.3. With respect to each notice Licensee may give to Licensor that it is
exercising an option for a Renewal Term pursuant to paragraph 2 of Schedule
C to this Agreement, Licensee shall provide to Licensor, simultaneously with
such notice, a profit and loss statement, statement of cash flows and
balance sheet covering Licensee's most recent fiscal year ("Financial
Statement"), each of which shall be certified by the independent auditor
for Licensee. In addition, if the term hereof remains in effect on April 1,
2010, Licensee shall provide Licensor on such date with Financial Statements
covering Licensee's last three fiscal years, and thereafter with such updated
and additional information and documentation as Licensor may reasonably
request in considering whether to exercise the Buyout Option set forth in
paragraph 4 of Schedule C to this Agreement. All Financial Statements
required to be furnished herein shall be prepared in
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accordance with generally accepted accounting principles and any officer's
certificate relative thereto shall state that such statements are true,
complete and correct in all material respects and present fairly the financial
position of Licensee as of the respective date of the balance sheets and the
results of operations for the respective periods covered.
8. Term.
The initial term of this Agreement shall commence as of the date hereof and
shall terminate on December 31, 2000 (the "Initial Term"). In addition,
Licensee and Licensor shall have the respective option rights relating to the
term set forth in Schedule C to this Agreement. It is expressly understood
that only the company (which may be Licensee) whose licensed term covers the
period subsequent to the expiration of this Agreement shall be entitled to
receive designs for Licensed Products intended to be sold after the expiration
of this Agreement, and to make presentations of such Licensed Products during
the market presentation weeks that relate to such subsequent period, even if
such market presentation occurs prior to the termination of this Agreement.
Without limiting the generality of the foregoing, in the event the term
hereof is not renewed or extended, the last season for which Licensee shall
be entitled to receive designs and, during the term hereof, to manufacture
and sell Licensed Products shall be the Cruise/Holiday season of the final
year of either the Initial Term or the relevant Renewal Term (the "Final
Season"), and Licensor shall be entitled to undertake, directly or through
a successor licensee, all activities associated with the design, manufacture
and sale Licensed Products commencing with the season immediately following
the Final Season.
9. Default; Change of Control.
9.1. Each of the following shall constitute an event of default ("Event of
Default") hereunder:
(i) Any installment of royalty payments is not paid when due and such
default continues for more than fifteen (15) days after written notice
thereof to Licensee;
(ii) Licensee shall fail to timely present for sale to the trade a
broadly representative and fair collection of each seasonal collection of
Licensed Products designed by the Design Partnership under the Design
Agreement or Licensee shall fail to timely ship to its customers a material
portion of the orders of Licensed Products it has accepted, and in either
case such failure results in material injury to Licensee's or Licensor's
reputation or causes reasonable
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uncertainty regarding Licensee's ability to timely fulfill its obligations
in the future;
(iii) Licensee defaults in performing any of the other terms of this
Agreement and continues in such default for a period of thirty (30) days
after written notice thereof (unless the default cannot be cured within
such thirty (30) day period and Licensee shall have in good faith advised
Licensor that it has commenced to cure the default and thereafter diligently
cures such default within an additional forty-five (45) day period);
(iv) If Licensee shall knowingly use the Trademark in an unauthorized or
improper manner and/or if Licensee shall knowingly make an unauthorized
disclosure of confidential information or materials given or loaned to
Licensee by Licensor and/or the Design Partnership;
(v) Licensee institutes proceedings seeking relief under a bankruptcy
act or any similar law, or consents to entry of any order for relief against
it in any bankruptcy or insolvency proceeding or similar proceeding, or
files a petition for or consent or answer consenting to reorganization or
other relief under any bankruptcy act or other similar law, or consents to
the filing against it of any petition for the appointment of a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of it or of any substantial part of its property, or a proceeding
seeking such an appointment shall have been commenced without Licensee's
consent and shall continue undismissed for sixty (60) days or an order
providing for such an appointment shall have been entered, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due or fails to pay its debts as they become
due, or takes any action in furtherance of the foregoing;
(vi) Licensee transfers or agrees to transfer substantially all of its
property (other than as permitted in paragraph 17.4 hereof);
(vii) The voluntary calling of a meeting of creditors, or the voluntary
or involuntary appointment of a committee of creditors or liquidating agents,
or offering a composition or extension to creditors by, for or of Licensee;
(viii) There shall be a change in control of Licensee other than as
permitted in paragraph 17.4 hereof or Licensee shall dissolve liquidate or
wind-up its business;
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(ix) An event of default occurs under the Design, or any other license
agreement entered into between Licensor and Licensee or design agreement
between Licensee and the Design Partnership;
(x) Licensee shall fail to timely comply with the terms of paragraph 4
of Schedule C to this Agreement.
9.2. If any Event of Default described in paragraphs 9.1(i),(ii),(iii),(iv),
(viii),(ix), or (x) shall occur, Licensor shall have the right, exercisable
in its sole discretion, to terminate this Agreement and the License upon ten
(10) days' written notice to Licensee of its intention to do so, and upon the
expiration of such ten (10) day period, this Agreement and the License shall
terminate and come to an end. If the Event of Default described in paragraphs
9.1 (v),(vi) or (vii) shall occur, this Agreement and the License shall
thereupon forthwith terminate and come to an end without any need for notice
to Licensee. This Agreement will terminate automatically upon the expiration
or termination for any reason whatsoever of the Design Agreement. Any
termination of this Agreement shall be without prejudice to any remedy of
Licensor for the recovery of any monies then due it under this Agreement or in
respect to any antecedent breach of this Agreement, and without prejudice to
any other right of Licensor including, without limitation, damages for breach
to the extent that the same may be recoverable and Licensee agrees to
reimburse Licensor for any reasonable costs and expenses (including attorneys'
fees) incurred by Licensor in enforcing its rights hereunder. No assignee
for the benefit of creditors, receiver, liquidator, sequestrator, trustee in
bankruptcy, sheriff or any other officer of the court or official charged
with taking over custody of Licensee's assets or business shall have any
right to continue the performance of this Agreement.
10. Disposal of Stock Upon Termination or Expiration.
10.1. Within ten (10) days following the termination of this Agreement for
any reason whatsoever including the expiration of the term hereof, and on the
last day of each month during the disposal period set forth in paragraph 10.2
hereof, Licensee shall furnish to Licensor a certificate of Licensee listing
its inventories of Licensed Products (which defined term for purposes of this
paragraph 10.1 shall include finished Licensed Products and all fabrics, trim,
and packaging used in the manufacture and marketing of Licensed Products and
bearing the Trademark) on hand or in process wherever situated. Licensor shall
have the right to conduct a physical inventory of Licensed Products in
Licensee's possession or under Licensee's control. Licensor or Licensor's
designee shall have the option to purchase from Licensee all or any part of
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Licensee's then existing inventory of Licensed Products; provided, however,
that if (i) Licensee has exercised its option for a Third Renewal Term but
has not exercised its Extension Option (all as set forth in Schedule C
hereto) I and (ii) upon the expiration of the Third Renewal Term Licensor
does not offer Licensee the right to extend the term of this Agreement, then
Licensor shall have the obligation to purchase all of Licensee's then existing
inventories of Licensed Products upon the expiration of the Third Renewal Term.
Any purchase by Licensor of Licensee's inventory of Licensed Products
pursuant to this paragraph 10 shall be upon the following terms and
conditions:
(i) If the purchase is taking place at Licensor's option, Licensor shall
notify Licensee of its or its designee's intention to exercise the foregoing
option within thirty (30) days of delivery of the certificate referred to
above and shall specify the items of Licensed Products to be purchased.
Prior to and during such period of thirty (30) days Licensee shall be entitled
to continue distribution in the ordinary course subject to paragraph 10.2
hereof;
(ii) The price for Licensed Products manufactured by or on behalf of
Licensee on hand or in process shall be the lower of: (a) the fair market
value of the inventory to be purchased or (b) Licensee's standard cost
(the actual manufacturing cost) for each such Licensed Product. The "cost"
for all Licensed Products which are not manufactured by Licensee shall be
Licensee's landed costs therefor. Landed costs for the purposes hereof
means the F.O.B. price of the Licensed Products together with customs,
duties, brokerage charges, freight and insurance.
(iii) Licensee shall ship the Licensed Products to be purchased by
Licensor in "as is" condition within fifteen (15) days of receipt of the
notice referred to in clause (i) above (other than those products sold and
shipped between the date Licensee delivered the certificate of its
inventories and the date it received such notice from Licensor). Payment
of the purchase price for the Licensed Products so purchased by and shipped
to Licensor or its designee shall be payable upon shipment thereof; provided,
that Licensor shall be entitled to deduct from such purchase price any amounts
owed by Licensee to Licensor, the Design Partnership or their respective
affiliates (and/or to direct payment of any part of such merchandise to any
supplier of Licensed Products in order to reduce an outstanding balance due
to such supplier from Licensee). Licensor shall be responsible for the cost
of freight for shipment of the products to Licensor from Licensee's warehouse
facility in the United States of America.
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10.2. In the event that Licensee, pursuant to paragraph 10.1 hereof,
Licensee timely provides the certificate of inventory and Licensor chooses
not to exercise its option with respect to all or any portion of Licensed
Products, for a period of ninety (90) days after termination of this
Agreement for any reason whatsoever, except on account of breach of the
provisions of paragraph 3, 4 or 6 hereof, Licensee may dispose of Licensed
Products which are on hand or in the process of being manufactured at the
time of termination of this Agreement, provided that (i) Licensee fully
complies with the provisions of this Agreement, including specifically those
contained in paragraphs 3, 4 and 6 hereof in connection with such disposal,
and (ii) said disposal with respect to each shipment of Licensed Products
received by Licensee takes place within sixty (60) days after such shipment
is received; provided, however, that Licensee shall have no disposal rights
with respect to any Licensed Products it may receive more than 120 days
after the expiration or termination of this Agreement.
10.3. Notwithstanding anything to the contrary contained herein, in the
event that upon the expiration or termination of the term hereof for any
reason Licensee has not rendered to Licensor all accounting statements
then due, and paid (i) all royalties and other amounts then due to Licensor,
(ii) all compensation then due to the Design Partnership under the Design
Agreement and (iii) all amounts then due to any affiliate of or supplier to
Licensor or its affiliates (collectively, "Payments"), Licensee shall have
no right whatsoever to dispose of any inventory of Licensed Products in any
manner. In addition, if during any disposal period Licensee fails timely to
render any accounting statements, or certificates of inventory required
pursuant to paragraph 10.1 hereof, or to make all Payments when due,
Licensee's disposal rights hereunder shall immediately terminate without
notice.
11. Effect of Termination.
11.1. It is understood and agreed that except for the License to use the
Trademark only as specifically provided for in this Agreement, Licensee
shall have no right, title or interest in or to the Trademark. Upon and
after the termination of this License, all rights granted to Licensee
hereunder, together with any interest in and to the Trademark which
Licensee may acquire, shall forthwith and without further act or instrument
be assigned to and revert to Licensor. In addition, Licensee will execute
any instruments requested by Licensor which are necessary to accomplish or
confirm the foregoing. Any such assignment, transfer or conveyance shall
be without consideration other than the mutual agreements contained herein.
Licensor shall thereafter be free to license to others the right to use the
Trademark in connection with the manufacture and sale of the Licensed
Products covered hereby, and Licensee will
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refrain from further use of the Trademark or any further reference to them,
direct or indirect, or any other trademark, trade name or logo that is
confusingly similar to the Trademark, or associated with the Trademark in
any way, in connection with the manufacture, sale or distribution of
Licensee's products, except as specifically provided in paragraph 10 hereof.
It is expressly understood that under no circumstances shall Licensee be
entitled, directly or indirectly, to any form of compensation or indemnity
from Licensor, the Design Partnership or their affiliates, as a consequence
to the termination of this Agreement, whether as a result of the passage of
time, or as the result of any other cause of termination referred to in this
Agreement. Without limiting the generality of the foregoing, by its
execution of the present Agreement, Licensee hereby waives any claim which
it has or which it may have in the future against Licensor, the Design
Partnership or their affiliates, arising from any alleged goodwill created by
Licensee for the benefit of any or all of the said parties or from the alleged
creation or increase of a market for Licensed Products.
11.2. Licensee acknowledges and admits that there would be no adequate
remedy at law for its failure (except as otherwise provided in paragraph 10
hereof) to cease the manufacture or sale of the Licensed Products covered by
this Agreement at the termination of the License, and Licensee agrees that in
the event of such failure Licensor shall be entitled to equitable relief by
the way of temporary and permanent injunction and such other and further
relief as any court with jurisdiction may deem just and proper.
12. Showroom.
Licensee agrees to establish a separate showroom for the presentation and
sale of the Licensed Products and to maintain, operate, decorate and staff
the showroom in a manner consistent with that of the showrooms established
for the presentation and sale of Licensor's other products and with the price
structure of the Licensed Products. Licensor shall have a right of approval
with respect to the location, design, layout and decoration of the showroom
and all expenses incurred with respect to the design, construction, operation
and maintenance of such showroom shall be borne by Licensee. Licensor and
Licensee shall mutually agree to a budget for the construction of such
showroom. Licensee shall admit Licensor's employees to its showroom and
shall sell to such employees for their personal use (and not for resale)
such Licensed Products as any such employee may reasonably request, at
prices equal to the regular wholesale price less a discount equal to not
less than thirty percent (30%) of such regular wholesale price.
13. Indemnity.
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13.1. Licensor shall indemnify and hold harmless Licensee and its
affiliates, permitted assignees, directors, officers, agents and employees,
from and against any and all liability, claims, causes of action, suits,
damages and expenses (including reasonable attorneys' fees and expenses in
actions involving third parties or between the parties hereto) ("Claims")
which Licensee is or becomes liable for, or may incur solely by reason of
its use within the Territory, in strict accordance with the terms and
conditions of this Agreement and the Design Agreement, of the Trademark or
the designs furnished to Licensee by Licensor or the Design Partnership, to
the extent that any such Claims arise through infringement of another's
design patent, trademark, copyright or other proprietary rights; provided,
however, that Licensee gives Licensor prompt notice of, and full cooperation
in the defense against, all such Claims. If any action or proceeding shall be
brought or asserted against Licensee in respect of which indemnity may be
sought from Licensor under this paragraph 13.1, Licensee shall promptly
notify Licensor thereof in writing, and Licensor shall assume and direct
the defense thereof. Licensee may thereafter, at its own expense, be
represented by its own counsel in such action or proceeding.
13.2. To the extent not inconsistent with paragraph 13.1 hereof, Licensee
shall indemnify and save and hold Licensor, the Design Partnership, Polo
Ralph Lauren Corporation and Ralph Lauren, individually, and their assignees,
directors, officers, agents and employees, harmless from and against any and
all liability, claims, causes of action, suits, damages and expenses
(including reasonable attorneys' fees and expenses in actions involving
third parties or between the parties hereto), which they, or any of them,
are or become liable for, or may incur, or be compelled to pay by reason of
any acts, whether of omission or commission, that may be committed or suffered
by Licensee or any of its servants, agents or employees in connection with
Licensee's performance of this Agreement, including Licensee's use of
Licensee's own designs, in connection with Licensed Products manufactured
by or on behalf of Licensee or otherwise in connection with Licensee's
business. If any action or proceeding shall be brought or asserted against
Licensor in respect of which indemnity may be sought from Licensee under this
paragraph 13.2, Licensor shall promptly notify Licensee thereof in writing,
and Licensee shall assume and direct the defense thereof. Licensor may
thereafter, at its own expense, be represented by its own counsel in such
action or proceeding.
14. Insurance.
Licensee shall carry product liability insurance with limits of
liability in the minimum amount, in addition to defense costs, of
$3,000,000 per occurrence and $3,000,000 per person and
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Licensor, the Design Partnership, Polo Ralph Lauren Corporation and Ralph
Lauren, individually, shall be named therein as insureds, as their interests
may appear. The maximum deductible with respect to such insurance shall be
$100,000. Licensee shall, promptly after the signing of this Agreement,
deliver to Licensor a certificate of such insurance from the insurance
carrier, setting forth the scope of coverage and the limits of liability
and providing that the policy may not be canceled or amended without at
least thirty (30) days prior written notice to Licensor, the Design
Partnership, Polo Ralph Lauren Corporation and Ralph Lauren, individually.
15. Disclosure.
15.1. Licensor and Licensee, and their affiliates, employees, attorneys,
accountants and bankers shall hold in confidence and not use or disclose,
except as permitted by this Agreement, (i) confidential information of the
other or (ii) the terms of this Agreement, except upon consent of the other
or pursuant to, or as may be required by law, or in connection with regulatory
or administrative proceedings and only then with reasonable advance notice of
such disclosure to the other. Each of Licensee and Licensor shall take all
reasonable precautions to protect the secrecy of the material used pursuant
to this Agreement prior to the commercial distribution or the showing of
samples for sale, and Licensee shall not sell any merchandise employing or
adapted from any of said designs sketches, artwork, logos, and other
materials or their use except under the Trademark.
15.2. Licensee agrees that all press releases and other public announcements
related to Licensee's operations hereunder, shall be subject to approval by
Licensor, and that each request for a statement, release or other inquiry
shall be sent in writing to the advertising/publicity director of Licensor
for response.
16. Key Personnel.
16.1. At all times during the term hereof, Licensee shall employ a
divisional President, approved in advance by Licensor, whose sole
responsibility shall be to manage all of Licensee's operations pursuant
to this Agreement. Such individual shall report to the President of Licensee.
16.2. At all times during the term hereof, Licensee shall employ a Design
Director, approved in advance by Licensor, those sole responsibility shall be
to work with Licensor and the Design Partnership on the creation and
implementation of designs for the Licensed Products and related activities
under this Agreement.
17. Miscellaneous.
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17.1. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been properly given or sent
(i) on the date when such notice, request, consent or communication is
personally delivered or (ii) five (5) days after the same was sent, if sent
by certified or registered mail, return receipt requested, or (iii) two (2)
days after the same was sent, if sent by overnight courier delivery or
confirmed telecopier, as follows:
(a) if to Licensee, addressed as follows:
Sun Apparel, Inc.
11201 Armour Drive
El Paso, Texas 79935
Attention: Mr. Miles Rubin
Telecopier: 915.592.1343
with a copy to:
Sun Apparel, Inc.
111 West 40th Street
New York, New York 10018
Attention: Mr. Eric Rothfeld
Telecopier: 212.391.2780
(b) if to Licensor, addressed as follows:
Polo Ralph Lauren, L.P.
650 Madison Avenue
New York, New York 10022
Attention: Vice Chairman
Telecopier: 212.318.7186
with a copy to:
Victor Cohen, Esq.
Eighth Floor
650 Madison Avenue
New York, New York 10022
Telecopier: 212.318.7183
Anyone entitled to notice hereunder may change the address to which notices
or other communications are to be sent to it by notice given in the manner
contemplated hereby.
17.2. Nothing herein contained shall be construed to place the parties
in the relationship of partners or joint venturers, and no party hereto
shall have any power to obligate or bind any other party hereto in any
manner whatsoever, except as otherwise provided
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for herein.
17.3. None of the terms hereof can be waived or modified except by an
express agreement in writing signed by the party to be charged or, in the
case of the Licensee, its chairman or president. The failure of any party
hereto to enforce, or the delay by any party in enforcing, any of its rights
hereunder shall not be deemed a continuing waiver or a modification thereof
and any party may, within the time provided by applicable law, commence
appropriate legal proceedings to enforce any and all of such rights. All
rights and remedies provided for herein shall be cumulative and in addition
to any other rights or remedies such parties may have at law or in equity.
Any party hereto may employ any of the remedies available to it with respect
to any of its rights hereunder without prejudice to the use by it in the
future of any other remedy with respect to any of such rights. No person,
firm or corporation, other than the parties hereto and the Design Partnership
(and, to the extent set forth in paragraphs 13.1 and 13.2 hereof, Polo Ralph
Lauren Corporation and Ralph Lauren, individually), shall be deemed to have
acquired any rights by reason of anything contained in this Agreement.
17.4. (a) This Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties hereto. Licensor may
assign all or any portion of the royalties payable to Licensor hereunder, as
designated by Licensor, and in addition, Licensor may assign all of its
rights, duties and obligations hereunder to any entity to which the
Trademark, or the right to use the Trademark, has been transferred, or to an
affiliate of any such entity. The rights granted to Licensee hereunder are
unique and personal in nature, and neither this Agreement nor the License
may be assigned by Licensee without Licensor's prior written consent, which
may be withheld in Licensor's sole discretion. Notwithstanding anything to
the contrary contained in the prior sentence, Licensee may assign all of its
rights, duties, and obligations hereunder to any affiliated entity, provided
(i) such entity shall agree to be bound by the terms and provisions hereof,
including, without limitation, the right of Licensor to approve or reject
any successor to the individuals appointed by Licensee and approved by
Licensor pursuant to paragraphs 16.1 and 16.2 hereof; (ii)[intentionally
left blank](iii) such entity shall have the financial capacity to perform
the obligations of Licensee hereunder and the assignment shall not be
effectuated to avoid any provision of this Agreement; and (iv) such
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assignment shall not relieve Licensee of its duties and obligations
hereunder. Licensee shall reimburse Licensor for all reasonable costs and
expenses (including attorney's fees) incurred by Licensor in connection with
such assignment and Licensee shall give reasonable prior written notice to
Licensor of its intent to make such an assignment, setting forth in its
notice the name and address of such assignee, a description of its
capitalization, and the names and addresses of its stockholders, directors,
and officers, partners, and/or managers, as the case may be. Any event or
change of control of Licensee such that clause (ii) of this paragraph 17.4(a)
is no longer true with respect to Licensee (or any entity to which this
Agreement is assigned) shall be considered an assignment in violation of this
Agreement; provided, however, that a "change in control of the Licensee"
shall be deemed not to have occurred as aforesaid if an applicable change in
ownership is the result of (x) public offerings or sales to underwriters of
capital stock in anticipation thereof by Licensee or any successor thereto
or (y) any acquisition of Licensee through merger, purchase of assets or
otherwise effected in whole or in part by issuance or reissuance of shares
of capital stock, if clause (ii) of this paragraph 17.4(a) is true with
respect to the surviving or controlling entity. Licensee agrees that it
will not effectuate an initial public offering of its securities without
Licensor's prior consent if Licensee's primary business (i.e., more than
fifty (50%) percent of Licensee's sales or more than sixty-five (65%) percent
of Licensee's net profits before taxes, in each case determined by Licensee's
independent auditors for the latest fiscal year of Licensee preceding such
offering) relates to Licensee's operations pursuant to this Agreement. Except
as expressly permitted pursuant to this paragraph 17.4(a), any attempt by
Licensee to transfer any of its rights or obligations under this Agreement,
whether by assignment, sublicense or otherwise, without having received the
prior written consent of Licensor, shall constitute an Event of Default, but
shall otherwise be null and void.
(b) Licensee may employ subcontractors with the prior approval of
Licensor for the manufacture of the Licensed Products. Prior to each
season Licensee shall advise Licensor of the names and addresses of the
subcontractors it intends to use and the products each such subcontractor
will be manufacturing. Licensor shall promptly advise Licensee if it
withholds its approval to the use of any such subcontractor by Licensee
but, irrespective of the grant of approval by Licensor, (i) the supervision
of production of Licensed Products shall remain under the control of
Licensee, (ii) Licensee shall maintain appropriate quality controls, (iii)
such subcontractors shall comply with the quality and other requirements of
Licensor consistent with the terms of this Agreement, including, but not
limited to, the execution by subcontractor of the Trademark and Design
Protection Agreement attached hereto as Schedule D and
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made a part hereof.
17.5. Licensee shall comply with all laws, rules, regulations and
requirements of any governmental body which may be applicable to the
operations of Licensee contemplated hereby, including, without limitation,
as they relate to the manufacture, distribution, sale or promotion of Licensed
Products, notwithstanding the fact that Licensor may have approved such item
or conduct. Licensee shall advise Licensor in the event any Final Prototype
(as defined in the Design Agreement) does not comply with any such law, rule,
regulation or requirement.
17.6. This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, applicable to contracts made and to be
wholly performed therein without regard to its conflicts of law rules.
17.7. The parties hereby consent to the jurisdiction of the United States
District Court for the Southern District of New York and of any of the courts
of the Southern District of New York and of any of the courts of the State of
New York located within the Southern District in any dispute arising under
this Agreement and agree further that service of process or notice in any such
action, suit or proceeding shall be effective if in writing and delivered as
provided in paragraph 17.1 hereof. Notwithstanding anything to the contrary
set forth herein, neither Polo Ralph Lauren Corporation nor any other general
or limited partner of Licensor shall be liable for any claim based on, arising
out of, or otherwise in respect of, this Agreement, and Licensee shall not
have nor claim to have any recourse for any such claim against any general
or limited partner of Licensor.
17.8. In the event either party hereto is delayed or hindered in or
prevented from the performance of any act required hereunder by reason of war,
revolution, insurrection, civil disorder, fire, flood, accident, explosion,
strikes, embargo, prohibition or substantial limitation on import or export
of (or unavailability from any source of) product or raw materials,
governmental orders or regulations or any other similar cause which is beyond
the control of such party hereto, the performance of such act shall be excused
for the period during which the cause of failure of performance exists
provided (i) such period shall in any event not extend beyond six (6) months
and shall not affect the running of the term of this Agreement; (ii) that no
such event shall excuse performance of a payment or other financial obligation
hereunder; and (iii) the excused party shall promptly notify the other in
writing advising of the cause for delay.
17.9. The provisions hereof are severable, and if any
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provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
provision, or part thereof in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction, or any other provision in
this Agreement in any jurisdiction. To the extent legally permissible, an
arrangement which reflects the original intent of the parties shall be
substituted for such invalid or unenforceable provision.
17.10. The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Each party acknowledges and represents to the other that this
Agreement has been reviewed by its counsel and the provisions hereof shall be
construed without regard to which party prepared this Agreement.
17.11. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused the same to be executed by a duly authorized officer as of the day and
year first above written.
POLO RALPH LAUREN, L.P.
By: Polo Ralph Lauren Corporation,
General Partner
By: /s/ Michael Newman
SUN APPAREL, INC.
By: /s/ Eric Rothfeld
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Schedule A
LICENSED PRODUCTS
The term "Licensed Products" shall mean a men's jeans collection comprised of
the following products: (i) jean pants, jean jackets, jean shorts and jean
vests, (ii) coordinated outerwear, casual pants and shorts, t-shirts, woven
and knit shirts, sweaters, and hats and caps and (iii) such additional men's
products as may be designated by written agreement of Licensor and Licensee,
in all cases bearing the Trademark.
A women's jeans collection comprised of the following products: (i) jean pants,
jean jackets, jean shorts and jean vests, (ii) coordinated outerwear, casual
pants and shorts, t-shirts, woven and knit shirts, sweaters, hats and caps,
denim dresses and skirts, and solid chanbray dresses and skirts, and (iii)
such additional women's products as may be designated by written agreement of
Licensor and Licensee, in all cases (a) bearing the Trademark and (b) offered
as part of a women's jeans collection and not as individual or groups of items
of "better" or "bridge" apparel. Without limiting the generality of the
foregoing, not less than fifty percent (50%) of the SKUs of Licensed Products
offered each season shall be made substantially of denim, and Licensee shall
strive to achieve a retail presentation which is focused predominantly on the
denim portion of the line.
Schedule B
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TRADEMARK
POLO JEANS COMPANY BY RALPH LAUREN
POLO JEANS CO. BY RALPH LAUREN
POLO JEANS COMPANY RALPH LAUREN
POLO JEANS CO. RALPH LAUREN
Logos associated with the Trademark shall be added to this Schedule B as
approved by Licensor.
Licensor will apply to register the Trademark in at least one of the forms
in which it is finally adopted.
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Schedule C
LICENSOR AND LICENSEE OPTIONS
RELATING TO THE TERM OF THIS LICENSE AGREEMENT
As set forth in paragraph 8 of this Agreement, this Schedule C to this
Agreement sets forth the respective rights and obligations of Licensor and
Licensee with respect to the extension of the term of this Agreement beyond
the Initial Term.
1. Additional Definitions. The following words and phrases, unless the
context otherwise requires shall have the following meanings:
"Business" shall mean the entire business and assets which shall be owned
and operated by Licensee with respect to the design, manufacture, advertising,
promotion and sale of Licensed Products pursuant to the terms of this
Agreement, including but not limited to the following:
(a) All of the rights which Licensee has under this Agreement, including
but not limited to the License;
(b) Accounts receivable;
(c) Inventory;
(d) Furniture, fixtures, tools and equipment;
(e) Expendables, including but not limited to office supplies, sales
slips and other sales materials, bags and packaging materials,
brochures, fliers and other advertising and promotional materials
and copy;
(f) Prepaid fees, dues or subscriptions and prepaid compensation;
(g) All other assets relating to the design, manufacture, advertising,
promotion and sale of Licensed Products pursuant to the terms of this
Agreement, including without limitation all customer, mailing,
telephone and marketing lists, vendor warranties and other business
records;
(h) Goodwill and other intangible rights, whether acquired from
Licensor or from others (but excluding any value for the License
in excess of the present value of the projected sales, earnings
and cash flow relevant to the Going Concern value of the Business
assuming the continuation of the License through December
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31, 2030).
The Business shall also include all of the debts, liabilities, obligations or
claims owed by or due from Licensee incurred in the ordinary course and which
are necessary in connection with the Business, existing on the Closing Date
(as hereinafter defined) or arising thereafter with respect to events
occurring prior to the Closing Date, including but not limited to the
following:
(a) Trade and other accounts payable;
(b) Accrued expenses, including but not limited to accrued rent., accrued
compensation, pension plan liability, bonuses, retirement pay and
other fees and costs;
Liabilities included in the Business shall not include indebtedness to
individuals, banks or financial institutions (whether long- or short-term)
incurred other than in the ordinary course of Licensee's business hereunder,
guarantees of third-party obligations incurred other than in the ordinary
course of Licensee's business hereunder, any taxes owing or accrued prior to
the Closing Date incurred other than in the ordinary course of Licensee's
business hereunder or litigation claims. All of the liabilities included in
the Business and disclosed in writing to Licensor (but not those not so
included and disclosed) are hereinafter referred to as the "Liabilities."
Licensee will be required to supply Licensor with a schedule of Liabilities
within ten (10) days of receipt of a notice from Licensor that it is
exercising the Buyout Option.
"Purchase Price" shall mean an amount equal to eighty percent (80%) of the
fair value of the Business as a going concern as it exists on the Closing
Date ("Going Concern"), determined as set forth below.
The fair value of the Business as a Going Concern shall be determined in
the following manner:
(a) Each of Licensor and Licensee shall, within ten (10) days after
Licensor gives notice that it intends to exercise the Buyout Option,
select a reputable investment banker having a national reputation and
experienced in evaluating businesses as going concerns in connection
with public and private financings, mergers and acquisitions and in
representing companies engaged in national apparel manufacturing and
sales businesses in such transactions;
(b) Each such investment banker shall evaluate the Business as a going
concern, assuming the License is to continue
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("Going Concern") taking into account all factors which it considers
relevant to such an evaluation, including but not limited to the
following:
(i) Historical and projected sales and earnings;
(ii) Historical and projected cash flow;
(iii) The book value of the assets of the Business;
(iv) The value of the assets of the Business on a Going Concern basis;
(v) Multiples of sales and/or earnings used in evaluating companies
engaged in similar businesses for purposes of public or private
financings or for sale, acquisition or merger;
(vi) Relevant financial ratios, including but not limited to debt-
equity ratios, current ratios and return on investment;
(vii) Known business and economic risks and contingencies.
(viii) Liabilities to be assumed or not to be assumed.
In evaluating the Business the investment bankers shall not ascribe any
value over and above the Going Concern value of the Business to the License
assuming the continuation of the License through December 31, 2030. No
evaluation by an investment banker shall occur until Licensor shall have
received from Licensee a schedule of Liabilities and shall have confirmed
its undertaking to proceed with the purchase of the Business.
(c) Such investment bankers shall, within sixty (60) days after their
selection, attempt to agree as to the fair value of the Business as a Going
Concern on the Closing Date. Licensee shall make its books, records,
facilities and such other materials as may be necessary or desirable in
connection with such evaluation available to such investment bankers for
such purposes. In conducting their evaluation, such investment bankers shall
exercise such reasonable judgment and apply such standards as are customary
in the investment banking profession, recognizing that it is the desire of the
parties hereto to reach an accommodation with the least cost, effort and time
necessary.
(d) If such investment bankers are unable to so agree
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within such sixty (60) day period, then they shall, within fifteen (15) days
after the expiration of such sixty (60) day period, mutually appoint a third
investment banker of comparable stature and experience and each shall submit
to such third investment banker their respective analysis and conclusions as
to the fair value of the Business as a Going Concern. Within 30 days after
such third investment banker is provided with such material, such third
investment banker shall, based upon its own evaluation (following the
standards set forth herein) as well as the analysis and conclusions of the
other investment bankers, select one or the other of their evaluations, which
evaluation shall thereafter be deemed to be the fair value of the Business as
a Going Concern. Each of Licensor and Licensee shall be responsible for the
costs associated with the evaluation by the investment banker it selects, and
Licensor and Licensee shall share equally the costs associated with the
evaluation of a third investment banker, if necessary.
Eighty Percent (80%) of the fair value of the Business as a Going Concern
as determined pursuant to clauses (c) or (d) of this definition on the Closing
Date shall constitute the Purchase Price and shall be final and binding on the
parties hereto for the purposes of this Agreement.
2. Licensee Renewal Options.
a. Provided no Event of Default shall have occurred which is not timely
cured or waived, and Licensee has achieved the First Minimum Renewal Volume
(hereinafter defined) for the period January 1, 1999 to December 31, 1999,
Licensee shall have the option, upon providing notice to Licensor on or before
March 31, 2000, to renew this Agreement for an additional five (5) year period
(the "First Renewal Term") so as to expire on December 31, 2005, on the terms
and conditions set forth herein. The minimum aggregate Net Sales Price which
Licensee must achieve in connection with sales of Licensed Products during the
period from January 1, 1999 to December 31, 1999 (the "First Minimum Renewal
Volume") in order to be entitled to renew this Agreement for the First Renewal
Term as hereinabove provided shall be [OMITTED; MATERIAL FILED SEPARATELY WITH
SECURITIES AND EXCHANGE COMMISSION].
b. Provided no Event of Default shall have occurred which is not timely
cured or waived, and Licensee has achieved the Second Minimum Renewal Volume
(hereinafter defined) for the period January 1, 2004 to December 31, 2004,
Licensee shall have the option, upon providing notice to Licensor on or
before March 31, 2005, to renew this Agreement for an additional five (5)
year period (the "Second Renewal Term") so as to expire on December 31, 2010,
on the terms and conditions set forth herein. The minimum aggregate Net
Sales Price which Licensee must achieve in connection with sales of
Licensed Products during the period from January 1, 2004 to
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December 31, 2004 (the "Second Minimum Renewal Volume") in order to be
entitled to renew this Agreement for the Second Renewal Term as hereinabove
provided shall be [OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND
EXCHANGE COMMISSION].
c. Subject to Licensor's Buyout Option as set forth in paragraph 4 of this
Schedule C, provided (i) no Event of Default shall have occurred which is not
timely cured or waived and (ii) Licensee has achieved the Third Minimum Renewal
Volume (hereinafter defined) for the period January 1, 2009 to December 31,
2009, Licensee shall have the option (in addition to the Extension option set
forth in paragraph 3 of this Schedule C), upon providing notice to Licensor on
or before March 31, 2010, to renew this Agreement for an additional five (5)
year period (the "Third Renewal Term") so as to expire on December 31, 2015,
on the terms and conditions set forth herein; provided, however, that if
Licensee does not exercise the Extension Option, Licensee shall have no right
to renew the term of this Agreement beyond the Third Renewal Term. The minimum
aggregate Net Sales Price which Licensee must achieve in connection with sales
of Licensed Products during the period from January 1, 2009 to December 31,
2009 (the "Third Minimum Renewal Volume") in order to be entitled to renew
this Agreement for the Third Renewal Term as hereinabove provided shall be
[OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION].
d. Provided (i) no Event of Default shall have occurred which is not
timely cured or waived, (ii) Licensee timely exercised its Extension Option
as set forth in paragraph 3 of this Schedule C, and (iii) Licensee has
achieved the Fourth Minimum Renewal Volume (hereinafter defined) for the
period January 1, 2014 to December 31, 2014, Licensee shall have the option,
upon providing notice to Licensor on or before March 31, 2015, to renew this
Agreement for an additional five (5) year period (the "Fourth Renewal Term")
so as to expire on December 31, 2020, on the terms and conditions set forth
herein. The minimum aggregate Net Sales Price which Licensee must achieve in
connection with sales of Licensed Products during the period from January 1,
2014 to December 31, 2014 (the "Fourth Minimum Renewal Volume") in order to
be entitled to renew this Agreement for the Fourth Renewal Term as hereinabove
provided shall be [OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND
EXCHANGE COMMISSION].
e. Provided (i) no Event of Default shall have occurred which is not
timely cured or waived, (ii) Licensee timely exercised its Extension Option
and (iii) Licensee -has achieved the Fifth Minimum Renewal Volume (hereinafter
defined) for the period January 1, 2019 to December 31, 2019, Licensee shall
have the option, upon providing notice to Licensor on or before March 31,
2020, to renew this Agreement for an additional five (5) year period (the
"Fifth Renewal Term") so as to expire on December 31, 2025, on the terms
and conditions set forth herein. The minimum aggregate Net Sales
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<PAGE>
Price which Licensee must achieve in connection with sales of Licensed
Products during the period from January 1, 2019 to December 31, 2019 (the
"Fifth Minimum Renewal Volume") in order to be entitled to renew this
Agreement for the Fifth Renewal Term as hereinabove provided shall be
[OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION].
f. Provided (i) no Event of Default shall have occurred which is not
timely cured or waived, (ii) Licensee timely exercised its Extension Option
and (iii) Licensee has achieved the Sixth Minimum Renewal Volume (hereinafter
defined) for the period January 1, 2024 to December 31, 2024, Licensee shall
have the option, upon providing notice to Licensor on or before March 31, 2025,
to renew this Agreement for an additional five (5) year period (the "Sixth
Renewal Term") so as to expire on December 31, 2030, on the terms and
conditions set forth herein, except that Licensee shall have no further right
of renewal. The minimum aggregate Net Sales Price which Licensee must achieve
in connection with sales of Licensed Products during the period from January 1,
2024 to December 31, 2024 (the "Fifth Minimum Renewal Volume") in order to be
entitled to renew this Agreement for the Sixth Renewal Term as hereinabove
provided shall be [OMITTED; MATERIAL FILED SEPARATELY WITH SECURITIES AND
EXCHANGE COMMISSION].
g. As a condition to Licensee"s right to exercise each renewal option
under this paragraph 2, Licensee must, in each notice to Licensor that any
renewal option is being exercised, certify to Licensor that Licensee is not
in material default under its loan agreements with its principal lender(s).
3. Licensee's Extension Option. Subject to Licensor's Buyout Option as set
forth in paragraph 4 of this Schedule C, if (i) no Event of Default shall have
occurred and not been cured or waived and (ii) Licensee has achieved the Third
Minimum Renewal Volume, Licensee shall have the option to acquire the options
set forth in paragraphs 2(d) through 2(f) of this Schedule C (the "Extension
Option"). Licensee must give Licensor notice that it is exercising the
Extension Option in the same notice by which it gives Licensor notice that
Licensee is exercising its option to extend this Agreement f or the Third
Renewal Term, which notice must be given on or before March 31, 2010. If
Licensee does not, on or before March 31, 2010, give Licensor notice that is
exercising its option to extend this Agreement for the Third Renewal Term,
with or without exercising the Extension Option, the term of this Agreement
and the Design Agreement shall expire on December 31, 2010, and the provisions
of paragraphs 10 and 11 of this Agreement shall apply. If Licensee does
exercise the Extension Option, in consideration of the additional rights it
acquires thereby Licensee shall pay Licensor the Extension Option Price, as
hereinafter defined, on December 31, 2010 (the "Closing Date"). At Licensee's
option subject to the last sentence of clause (b) below, the "Extension
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<PAGE>
Option Price" shall be either:
a. Twenty-Five Million Dollars ($25,000,000), payable by wire transfer,
certified or bank check on the Closing Date; or
b. A twenty percent (20%) equity interest in the Business. The term
"twenty percent (20%) equity interest in the Business" shall mean, if at
the time the Extension Option is exercised the Business is conducted in the
form of a corporation engaged solely in the conduct of the Business, twenty
percent (20%) of the issued and outstanding equity and voting shares of such
corporation, on a fully-diluted basis. In such event, Licensee shall deliver
to Licensor on the Closing Date stock certificates representing such shares,
free and clear of all liens and encumbrances, with all necessary stock
transfer tax stamps attached, accompanied by stock powers duly executed in
blank, and otherwise in form acceptable for transfer on the books of such
corporation. If at the time the Extension Option is exercised the Business
is conducted in any form other than as a corporation engaged solely in the
conduct of the Business, the term "twenty percent (20%) equity interest in
the Business" shall mean, and Licensee shall deliver in a form reasonably
acceptable to Licensor on the Closing Date, such other consideration (by way
of example, shares of a parent corporation, shares of a limited partnership,
etc.) ("Alternate Equity Interest") as the parties may mutually agree, within
thirty (30) days after Licensee gives notice that it is exercising the
Extension Option and intends to convey a twenty percent (20%) equity interest
in the Business, as represents the equivalent of twenty percent (20%) of the
issued and outstanding voting shares of a corporation engaged solely in the
conduct of the Business. If the parties do not timely agree on an Alternate
Equity Interest, the Extension Option Price shall be the amount set forth in
clause (a) of this paragraph 3.
4. Licensor's Buyout Option. Notwithstanding anything to the contrary
contained herein, Licensor shall have the option, by giving written notice
to Licensee on or before June 1, 2010 and regardless of whether Licensee has
given notice that it intends to exercise the Extension Option or the option
to renew for the Third Renewal Term, to purchase the Business from Licensee
(the "Buyout Option"). If Licensor exercises the Buyout Option, Licensee
shall have no further rights or obligations with respect to the Extension
Option. The Buyout Option shall be in addition to and shall not alter or
affect Licensor's rights to terminate this Agreement as a result of any Event
of Default, as otherwise provided in this Agreement. If Licensor gives notice
that it will exercise the Buyout Option, Licensor (or its designee) shall
purchase and Licensee shall sell the Business for the Purchase Price including
assumption of the Liabilities. The closing date for the purchase
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<PAGE>
and sale of the Business shall be December 31, 2010 (or the last business
day of the year 2010 if prior thereto) (the "Closing Date"), it being mutually
agreed by Licensor and Licensee that time shall be of the essence. On the
Closing Date, Licensor shall deliver the Purchase Price to Licensee by wire
transfer or a certified or bank cashier's check, together with such
instruments of assumption of the Liabilities as counsel to the parties shall
mutually agree are appropriate to cause the Liabilities to be assumed by
Licensor (or its designee), and Licensee shall deliver to Licensor such
instruments of transfer as counsel to the parties shall mutually agree are
appropriate to effect the purchase and sale of the Business and to give
Licensor (or its designee) good title to all of the assets of the Business,
free and clear of all liens and encumbrances.
5. Good Faith Obligation; Dispute Resolution; Indemnification. Licensor and
Licensee shall act in good faith to consummate the transactions contemplated
by either the Extension Option or the Buyout Option, if either such option is
exercised, while minimizing any negative tax implications to either party. Any
dispute arising out of either party's exercise of such option shall be
submitted to binding arbitration pursuant to the rules of the American
Arbitration Association. If the Buyout Option is exercised, Licensee shall
indemnify and save and hold Licensor, the Design Partnership, Polo Ralph
Lauren Corporation and Ralph Lauren, individually, and their assignees,
directors, officers, servants, agents and employees, harmless from and against
any and all liability, claims, causes of action, suits, damages and expenses
(including reasonable attorneys' fees and expenses) arising out of or relating
to the conduct of the Business up to and including the Closing Date (other
than with respect to the disclosed Liabilities assumed), and Licensor shall
indemnify and save and hold Licensee and its assignees, directors, officers,
servants, agents and employees, harmless from and against any and all
liability, claims, causes of action, suits, damages and expenses (including
reasonable attorneys' fees) arising out of the conduct of the Business after
the Closing Date.
6. Closing Procedures. In the event Licensee exercises the Extension Option
and is conveying a twenty percent (20%) equity interest in the Business
pursuant to paragraph 3(b) of this Schedule C, or in the event Licensor
exercises the Buyout Option, at the closing on the Closing Date Licensee
shall deliver to Licensor an absolute assignment of the relevant instruments
of transfer and shall represent and warrant that as of the closing Date:
(a) that the shares of Licensee or the Alternate Equity
Interest is owned by the Licensee free and clear
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<PAGE>
of all pledges, security interests, liens, charges, encumbrances and
claims of any nature whatsoever, except any encumbrances otherwise
agreed to in writing by Licensor;
(b) that Licensee has the full and complete right, power and authority
to make the assignment and that such assignment does not violate any
agreement or government order;
(c) that no litigation exists or threat of litigation has been made with
respect to the Business that has not been disclosed in writing to
Licensor; and
(d) that all financial information and materials delivered by Licensee
in connection with any calculation of the Purchase Price or the
Alternate Equity Interest were true and correct as of the date made.
Licensee shall further deliver a letter from seller's counsel reasonably
satisfactory to Licensor which contains such legal opinions as are customarily
given in connection with the sale of a business such as the Business and
subject to standard limitations and qualifications thereto.
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Exhibit 10.54.
(Polo Jeans Company - Design)
DESIGN SERVICES AGREEMENT dated as of August 1, 1995, by and between Polo
Ralph Lauren Enterprises, L.P. (the "Design Partnership"), a Delaware
limited partnership with a place of business at 650 Madison Avenue, New York,
New York 10022 and Sun Apparel, Inc. (the "Company") a Texas corporation with
a place of business at 11201 Armour Drive, El Paso, Texas 79935.
Ralph Lauren ("Lauren") is an internationally famous designer who has been
twice inducted into the Coty Hall of Fame for his design of men's and women's
fashions, is the recipient of the CFDA Lifetime Achievement Award, and is a
creator of original designs for cosmetics, jewelry, home furnishings and
other products.
Polo Ralph Lauren, L.P., a Delaware limited partnership ("Polo"), holds the
right and interest in and to certain trademarks and trade names, as same may
be used in connection with the manufacture and sale of Licensed Products, as
hereinafter defined, and on even date herewith, the Company has obtained the
right to use certain trademarks (the "Trademark") in connection with the
Licensed Products, pursuant to a license agreement ("License Agreement")
of even date herewith by and between the Company and Polo.
The value of the Trademark is largely derived from the reputation, skill
and design talents of Lauren, and Lauren, directly and through his designees,
provides design services through the Design Partnership.
The company desires to obtain the services of the Design Partnership in
connection with the creation and design of the Licensed Products.
The Company desires, in order to exploit the rights granted to it under the
License Agreement, to engage and retain the Design Partnership to create and
provide to the Company the designs for its line of Licensed Products. The
Design Partnership is willing to furnish such designs and render such services
on the basis hereinafter set forth. As used herein, the term "Licensed
Products" shall have the meaning set forth in the License Agreement.
In consideration of the foregoing premises and of the mutual promises and
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
<PAGE>
1. Designs; Assistance.
1.1 The parties understand and agree that the Company will be principally
responsible for the development and presentation to the Design Partnership
of designs for Licensed Products, which, designs will be reviewed by the
Design Partnership and which the Design Partnership may approve, disapprove
or modify in its sole discretion, in accordance with the terms and conditions
set forth herein.
1.2 The Design Partnership shall provide the Company with a program of
suggested, broad design themes and concepts with respect to the design of
the Licensed Products ("Design Concepts") which shall be embodied in oral
and/or written descriptions of design themes and concepts and such other
detailed designs and sketches therefor, as the Design Partnership deems
appropriate. The Design Partnership shall have full discretion with respect
to the manner in which the Design Concepts shall be formulated and presented
by the Design Partnership to the Company. The Company and the Design
Partnership shall confer on Design Concepts and shall make such modifications
as are required to meet the Design Partnership's approval.
1.3 The Design Partnership may, at its sole expense, engage such employees,
agents, and consultants operating under the Design Partnership's creative
supervision and control as it may deem necessary and appropriate.
1.4 From time to time while this Agreement is in effect, the Design
Partnership may (a) develop or modify and implement designs from the Design
Concepts or other designs furnished by the Design Partnership or (b) develop
and implement new designs.
1.5 The Company shall prepare and present designs to the Design
Partnership based on the Design Concepts.
1.6 The company understands that all or portions of the Design Concepts
may be furnished to the Company through or in cooperation with other entities
to which the Design Partnership has provided design services. The Company
upon its prior written authorization shall pay all costs, including shipping
and handling charges, for fabric swatches or mill chips, sketches,
specifications, paper sample patterns and product samples furnished to the
Company by the Design Partnership or such other entities.
1.7 Subject to paragraph 2.7 hereof, all patents and
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copyrights on designs of the Licensed Products shall be Owned exclusively,
and applied for, by the Design Partnership or its designee, at the Design
Partnership's discretion and expense, and shall designate the Design
Partnership or its designee as the patent or copyright owner, as the case may
be, therefor.
1.8 The Company acknowledges that the Licensed Products contain elements
which in concept, execution and/or presentation are unique. The Company
agrees that it will not, during the term of the Agreement, use any designs
used in the Licensed Products or any designs submitted or modified by the
Design Partnership or any designs which are comparable and/or competitive
with Licensed Products and which may be identified as Design Partnership
designs.
2. Design Legends; Copyright Notice and License.
2.1 All designs, patterns, sketches, artwork, logos and other materials
of Licensed Products and the use of such designs, artwork, sketches, logos
and other materials created by the Design Partnership, or, subject to
paragraph 2.7 hereof, created by or for the Company and reviewed and approved
by the Design Partnership, or developed by or for the Company from Design
Concepts or subsequent design concepts furnished or approved by the Design
Partnership (all of which shall hereinafter constitute Design Concepts), shall
be the property of the Design Partnership and shall be subject to the
provisions of this paragraph 2.
2.2 All right, title and interest in and to the samples, sketches, design,
artwork, logos and other materials furnished by or to Company or submitted to
the Design Partnership, whether created by the Design Partnership or the
Company, are hereby assigned to and shall be the sole property of the Design
Partnership. The Company shall cause to be placed on all Licensed Products
appropriate notice in accordance with applicable law designating the Design
Partnership as the copyright or design patent owner thereof, as the case may
be. The manner of presentation of said notices shall be reviewed and approved
by the Design Partnership prior to use thereof by the Company.
2.3 The Design Partnership hereby grants to the Company the exclusive
right, license and privilege ("License") to use the designs furnished
hereunder and all copyrights, if any, and patents, if any therein; provided,
however, that the License is limited to use in connection with Licensed
Products manufactured and sold, or imported and sold, pursuant to the License
Agreement, subject, however, to paragraph 3.2 hereof. All other rights in
and to the designs furnished hereunder, including
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<PAGE>
without limitation all rights to use such designs in connection with products
other than Licensed Products (as defined in the License Agreement) and in
territories other than the Territory (as defined in the License Agreement)
are expressly reserved by the Design Partnership. The License shall continue
only for such period as this Agreement shall be effective. The Design
Partnership shall execute and deliver to the Company all documents and
instruments necessary to perfect or evidence the License. Upon termination
of this Agreement, for any reason whatsoever, any and all of the Company's
right, title and interest in and to the License shall forthwith and without
further act or, instrument be assigned to, revert to and be the sole and
exclusive property of the Design Partnership, and the Company shall have no
further or continuing right or interest therein, except the limited right to
complete the manufacture of and sell Licensed Products during any Disposal
Period, as set forth in paragraph 6.3 hereof. In addition, the company shall
thereupon (i) execute and deliver to the Design Partnership all documents and
instruments necessary to perfect or evidence such reversion, (ii) refrain from
further use of any of the Design Concepts and (iii) refrain from manufacturing,
selling or distributing any products (whether or not they bear the Trademark)
which are confusingly similar to or derived from the Licensed Products or
Design Concepts.
2.4 Except as expressly permitted under paragraph 17.4 of the License
Agreement, the Company shall not sublicense any of the rights granted
hereunder without first obtaining the Design Partnership's prior written
consent in connection therewith, which consent may be withheld by the Design
Partnership in its sole discretion.
2.5 The Design Partnership represents and warrants to the Company that it
has full right, power and authority to enter into this Agreement, to perform
all of its obligations hereunder and to consummate all of the transactions
contemplated herein.
2.6 The Company represents and warrants to the Design Partnership that
the Company has full right, power and authority to enter into this Agreement,
to perform all of its obligations hereunder and to consummate all the
transactions contemplated herein.
2.7 Notwithstanding any provision to the contrary contained herein, each
party recognizes that a distinction is drawn between (i) the appearance,
packaging and marketing presentation of the Licensed Products, and (ii) the
technology (including washes and finishing treatments) used in the making of
denim Licensed Products. The term "Technology" as used herein shall mean the
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<PAGE>
chemistry, formulas, production processes and method and other technology
actually used for making denim Licensed Products. "Technology" includes, but
is not limited to, all information, samples, sketches, blueprints, plans and
other data relating to the chemistry, formulas, processes or methods of
production, technology, physical properties, or other inherent characteristics
of Licensed Products, as well as design elements with respect to which
Licensee gives Licensor written notice in advance that such design elements
are original and proprietary to Licensee and need not be used by Licensee
exclusively for Licensed Products. The parties agree that unless developed
by the Design Partnership or at the direction of the Design Partnership, the
Technology used by the Company to make denim Licensed Products shall not
belong to the Design Partnership and may be used by the Company both during
and after the term of this Agreement except as follows: even when developed
by the Company, if a Technology has been used first for or introduced as an
innovation for Licensed Products, then Company will not use such Technology
for its other lines of products unless and until such Technology has become
used in a commercially significant manner by its competitors for their
products without violation of a proprietary right of the Company or the
Design Partnership. The Design Partnership agrees to cooperate fully with
the Company, at Company's expense, in the filing, prosecution, maintenance
or protection of any patent applications which Company may wish to file on
its Technology. Upon termination or expiration of this Agreement, should it
so desire, the Design Partnership shall be entitled to produce or have third
parties produce previously marketed products which might otherwise infringe
upon the Company's Technology provided that such products are marketed solely
under the Trademark and Company covenants not to make any claim against any
party for manufacturing, advertising, promoting or selling such products under
the Design Partnership's authority; provided, however, that if the Design
Partnership does market products previously marketed by the Company which
would in fact violate valid proprietary rights of the Company, the Design
Partnership shall compensate the Company for the use of such Technology on
commercially reasonable terms, and in any event on terms no less favorable
than the terms on which the Company licenses the use of such Technology to
any unrelated Third Party. Fabrics, finishes and silhouettes used in
connection with Licensed Products may also be used by Licensee in connection
with other products, if such fabrics, finishes and silhouettes do not violate
proprietary rights of Licensor or its affiliates and are generally available
in the marketplace.
3. Licensed Products.
3.1 The Company shall obtain the written approval of the
5
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Design Partnership of all Licensed Products to be manufactured or caused to
be manufactured by the Company, by submitting a Prototype, as hereinafter
defined, of each different design or model of a Licensed Product, including,
but not limited to, the type and quality of materials, colors and workmanship
to be used in connection therewith, prior to any commercial production
thereof. In the event that the Design Partnership rejects a particular
Prototype or Prototypes, the Design Partnership shall so notify the Company
and shall in certain cases where the Design Partnership desires to include
the Prototype in the collection, provide the company with suggestions for
modifying the particular Prototype or Prototypes which the Design Partnership
is rejecting. The Company shall promptly correct said Prototype or
prototypes, resubmit said Prototype or Prototypes to the Design Partnership
and seek the Design Partnership's approval under- the same terms and
conditions as set forth herein with respect to the first submission of
Prototypes. As used herein, the term "Prototype" shall mean any and all
models, or actual samples, of Products; and the term "Final Prototype" shall
mean the actual final sample of a Licensed Product from which the first
commercial production thereof will be made and which has been approved by
the Design Partnership prior to the first commercial production thereof
pursuant to this paragraph 3.
3.2 The written approval of the Design Partnership of the Prototypes for
each seasonal collection shall be evidenced by a written list, signed on
behalf of the Design Partnership setting forth those Prototypes which have
been approved for inclusion in such collection. Prototypes so approved
shall be deemed Final Prototypes in respect of such collection. Approval of
any and all Prototypes as Final Prototypes shall be in the sole discretion of
the Design Partnership. The Company shall present for sale, through the
showing of each seasonal collection to the trade, all Final Prototypes so
approved in respect of such collection. Approved Final Prototypes for Denim
Bottoms (as defined in paragraph 2.2 of the License Agreement) may run from
season-to-season without additional approval from the Design Partnership,
but the Design Partnership, in consultation with the Company shall be
entitled to withdraw such approval upon written notice given reasonably in
advance of any season and, upon receipt of such notice, the Company shall
not place any additional orders for such products, but may sell any such
products previously approved and ordered.
3.3 The Licensed Products thereafter manufactured and sold by the
company shall strictly adhere, in all respects, including, without
limitation, with respect to materials, color, workmanship, designs,
dimensions, styling, detail and quality, to the Final Prototypes
approved by the Design Partnership, subject
6
<PAGE>
however, in the case of denim products to minor variations which
arise in the ordinary course from wash and other finishing treatments.
3.4 In the event that any Licensed Product is, in the reasonable
judgment of the Design Partnership, not being manufactured or sold in
strict adherence to the materials, color, workmanship, designs, dimensions,
styling detail and quality, embodied in the Final Prototypes, or is otherwise
not in accordance with the Final Prototypes, the Design Partnership shall
notify the Company thereof in writing and the Company shall promptly repair
or change such Licensed Product to conform strictly thereto. If an item of
Licensed Product as repaired or changed does not strictly conform to the
Final Prototypes and such strict conformity cannot be obtained after at
least one (1) resubmission, or if the Company determines that a Licensed
Product does not strictly conform, the Trademark shall be promptly removed
from the item, at the option of the Design Partnership, in which event the
item may be sold by the Company, provided (a) it is in no way identified as
a Licensed Product and (b) further provided that the Company and the Design
Partnership agree that the Company will be permitted to sell Licensed
Products bearing the Trademark so long as such products are clearly labelled
as such in a manner approved by the Design Partnership or Polo, are
distributed in channels and outlets approved by Polo, and are produced only
as by-products of the manufacture of first quality goods and only in
reasonable quantities. Notwithstanding anything in this paragraph 3.4 to the
contrary, sales of all products using the Design Concepts, whether or not
bearing the Trademark, shall be subject to compensation payments pursuant to
paragraph 4 hereof.
3.5 The Design Partnership and its duly authorized representative shall
have the right, at its expense upon reasonable notice during normal business
hours, to inspect all facilities utilized by the Company (and its contractors
and suppliers) in connection with the preparation of Prototypes and the
manufacture, sale, storage or distribution of Licensed Products pursuant
hereto and to examine Licensed Products in process of manufacture and when
offered for sale within the company's operations. The Company hereby consents
to the Design Partnership's examination of Licensed Products held by its
customers for resale provided the Company has such right of examination. The
company shall take all necessary steps, and all steps reasonably requested by
the Design Partnership, to prevent or avoid any misuse of the licensed designs
by any of its customers, contractors or other resources.
3.6 Intentionally omitted.
7
<PAGE>
3.7 The Company shall upon request make its personnel available, and shall
use its commercially reasonable efforts to make the personnel of any of its
contractors, suppliers and other resources available at their facilities, for
consultation with the Design Partnership by appointment during normal business
hours. The Company shall make available to the Design Partnership, upon
reasonable notice, marketing plans, reports and information which the Company
may have with respect to Licensed Products.
3.8 The Company may employ subcontractors for the manufacture of Licensed
Products solely on the terms set forth in paragraph 17.4 of the License
Agreement.
3.9 The Company shall include within each seasonal collection of Licensed
Products a fully representative assortment of designs therefor designated by
the Design Partnership for inclusion therein. Notwithstanding anything to
the contrary contained herein or in the License Agreement, in the event the
Company chooses not to or is unable to include within a seasonal collection
of Licensed Products a particular Licensed Product which the Design
Partnership has designed or designated for inclusion in such collection, the
Design Partnership shall be entitled to authorize third parties to manufacture
such Licensed Product(s) on behalf of the Company and the Company shall, at
the Design Partnership's option, display, present and sell such Licensed
Product(s) in the manner in which all other Licensed Products are displayed,
presented and sold hereunder.
3.10 The Design Partnership shall respond to any requests for approvals or
consents from the Company hereunder as promptly as reasonably practicable
consistent with the level of review required and the timing of the
collections to be presented each season.
4. Compensation: Accounting.
4.1 Commencing with the First Renewal Term (as defined in Schedule C to
the License Agreement), if the term hereof is extended beyond the Initial
Term (as defined in paragraph 8 of the License Agreement), Company shall pay
to the Design Partnership minimum compensation for each year during the term
of this Agreement. The minimum compensation for each year commencing with
the First Renewal Term shall be an amount equal to [Omitted; Material Filed
Separately With The Securities And Exchange Commission]% of the actual earned
compensation due for the immediately preceding year; provided, however, that
the minimum compensation obligation for each year of the First Renewal Term
shall in no event be less than [Omitted; Material Filed Separately With The
Securities And Exchange Commission]; for each year of the Second Renewal Term
no less than [Omitted; Material Filed Separately With The Securities And
Exchange Commission]; for each year of the Third
8
<PAGE>
Renewal Term no less than [Omitted; Material Filed Separately With The
Securities And Exchange Commission]; for each year of the Fourth Renewal
Term no less than [Omitted; Material Filed Separately With The Securities
And Exchange Commission]; for each year of the Fifth Renewal Term no less
than [Omitted; Material Filed Separately With The Securities And Exchange
Commission]; and for each year of the Sixth Renewal Term no less than
[Omitted; Material Filed Separately With The Securities And Exchange
Commission](each such term as defined in Schedule C to the License Agreement).
Minimum compensation for each year shall be paid on a quarterly basis within
thirty (30) days after the end of each quarter during the term hereof,
commencing with the-first quarter of the First Renewal Term. No credit shall
be permitted against minimum compensation payable for any year on account of
actual or mini compensation paid for any other year, and minimum compensation
shall not be returnable. For the purposes of this Agreement, the term "Year"
shall mean a period of twelve (12) months commencing on each January 1 during
the term of this Agreement; provided, however, that the term "first year"
shall mean the 17-month period commencing on August 1, 1995 and ending on
December 31, 1996.
4.2 The company shall pay to the Design Partnership earned compensation
based on the Net Sales Price of Licensed Products manufactured or imported
and sold by the Company hereunder. Earned compensation shall equal [Omitted;
Material Filed Separately With The Securities And Exchange Commission] percent
of the Net Sales Price of all Licensed Products sold under this Agreement,
including, without limitation, sales made pursuant to paragraphs 3.4 and 6.3
hereof. The company shall prepare or cause to be prepared statements
containing the information set forth in paragraph 4.5 hereof for the period
commencing on the date hereof and ending on March 31, 1996 and for each three
(3) month period ended the last day of March, June, September and December in
each year hereof, which shall be furnished to the Design Partnership together
with earned compensation due for each such period within thirty (30) days
after the end of each such period. Any excess of earned compensation
determined under this paragraph 4.2 over the minimum compensation provided in
paragraph 4.1 hereof, shall be remitted to the Design Partnership within
thirty (30) days after the end of each such three (3) month period. The term
"Net Sales Price" shall mean the gross sales price of all Licensed Products
sold under this Agreement to retailers or, with respect to Licensed Products
that are not sold directly or indirectly to retailers, other ultimate
consumers (as in the case of accommodation sales by Company to its employees
or sales by company in its own stores), less trade discounts, merchandise
returns, sales tax (if separately identified and charged) and markdowns and/or
chargebacks which, in accordance with generally accepted accounting principles,
would normally be treated as deductions from gross sales, and which, in any
event, do not include any chargebacks or the like for advertising, fixture or
retail shop costs or contributions. Notwithstanding the foregoing, the
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Design Partnership hereby waives its right to receive compensation hereunder
with respect to units of Licensed Products sold at a discount of 40% or more
off the regular wholesale price ("Discounted Units"), provided that such
waiver shall only apply to the extent that the aggregate Net Sales Price of
Discounted Units for any year does not exceed 10% of the Net Sales Price of
all units of Licensed Products other than Discounted Units sold in such year.
No other deductions shall be taken. Any merchandise returns shall be credited
in the three (3) month period in which the returns are actually made. For
purposes of this Agreement, affiliates of the Company shall mean all persons
and business entities, whether corporations, partnerships, joint ventures or
otherwise, which now or hereafter control, or are owned or controlled,
directly or indirectly by the Company, or, are under common control with the
Company. It is the intention of the parties that compensation payments will
be based on bona fide wholesale prices at which the Company sells Licensed
Products to independent retailers in arms' length transactions. In the event
the Company shall sell Licensed Products to its affiliates, compensation
payments shall be calculated on the basis of such a bona fide wholesale price
irrespective of the Company's internal accounting treatment of such sale,
unless such products are sold by its affiliates directly to the end-user
consumer, in which case royalties shall be calculated on the basis of the
price paid by the end-user consumer, less applicable taxes. The Company
shall identify separately in the statements provided to the Design Partnership
pursuant to paragraph 4.5 hereof, all sales to its affiliates. At least once
annually and no later than 90 days after the close of Company's fiscal year,
Company shall furnish to the Design Partnership a statement of the Net Sales
Price of all Licensed Products sold during the year just ended, which shall be
certified by the independent auditor for Company as correct and in accordance
with the terms of this Agreement.
4.3 The Company shall reimburse the Design Partnership for any travel and
promotion expenses incurred by the Design Partnership or Polo in the
performance of the Design Partnership's duties under this Agreement with the
prior written approval of Licensee. Such amounts shall include first class
travel and hotel accommodations. Amounts payable to the Design Partnership
pursuant to this paragraph shall become due and payable monthly within thirty
(30) days after the date of mailing of the invoices, accompanied by
corresponding receipts, for such costs incurred during the preceding month.
4.4 If the payment of any installment of compensation is delayed for any
reason, interest shall accrue on the unpaid principal amount of such
installment from and after the date
10
<PAGE>
which is 10 days after the date on which the same became due pursuant to
paragraphs 4.1 or 4.2 hereof at the lower of the highest rate permitted by
law in New York and two percent (2%) per annum above the prime rate of
interest in effect from time to time at Chemical Bank, New York, New York
or its successor.
4.5 The Company shall at all times keep an accurate account of all
operations within the scope of this Agreement. The Company shall render
a full statement in writing to the Design Partnership in accordance with
paragraph 4.1 hereof, which shall account separately for each different
product category and shall include all aggregate gross sales, trade
discounts, merchandise returns, sales tax, markdowns, chargebacks, unit
sales, sales of Discounted Units, sales of miscuts and damaged merchandise
and net sales price of all sales for the preceding three (3) month period.
Such statements shall be in sufficient detail to be audited from the books
of the Company. Once annually, which may be in connection with the regular
annual audit of the Company's books, the Company shall furnish an annual
statement of the aggregate gross sales, trade and prompt payment discounts,
merchandise returns and Net Sales Price of all Licensed Products made or sold
by the Company, certified by Company's independent accountant. Each quarterly
statement furnished by Company shall be certified by the chief financial
officer of the Company or a certified public accountant who may be in the
employ of the Company. The Design Partnership and its duly authorized
representatives, on reasonable notice, shall have the right, no more than
once in each year during regular business hours, for the duration of the term
of this Agreement and for three (3) years thereafter, to examine the books of
account and records and all other documents, materials and inventory in the
possession or under the control of Licensee and its successors with respect
to the statements required, and Licensee's obligations, hereunder. All such
books of account, records and documents shall be maintained and kept available
by the Company for at least the duration of this Agreement and for three (3)
years thereafter. The Design Partnership shall have free and full access
thereto in the manner set forth above and shall have the right to make copies
and/or extracts therefrom. If as a result of any examination of the Company's
books and records it is shown that the Company's payments to the Design
Partnership hereunder with respect to any twelve (12) month period were less
than or greater than the amount which should have been paid to the Design
Partnership by an amount equal to two percent (2%) of the amount which should
have been paid during such twelve (12) month period, the Company will, in
addition to reimbursement of any underpayment, with interest from the date
on which each payment was due at the rate set forth in paragraph 4.4 hereof,
promptly reimburse the Design Partnership for the cost of such
11
<PAGE>
examination. The Design Partnership shall reimburse the Company for any
overpayment of compensation it discovers during such examination, after
deducting from the amount of such overpayment all costs and expenses
incurred in connection with such examination.
4.6 The obligation of the Company to pay compensation hereunder shall
be absolute notwithstanding any claim which the Company may assert against
Polo or the Design Partnership. The Company shall not have the right to
set-off, compensate itself or any third party, or make any deduction from
such compensation payments for any reason whatsoever.
5. Death or Incapacity of Lauren.
The Design Partnership shall perform its obligations hereunder
notwithstanding any death or incapacity of Lauren and the Company shall
accept the services of the Design Partnership.
6. Term and Termination.
6.1 Unless sooner terminated in accordance with the terms and provisions
hereof, this Agreement shall continue in effect f or so long as the License
Agreement is in effect and shall terminate upon the expiration or termination
of the License Agreement.
6.2 Each of the following shall constitute an event of default ("Event of
Default") hereunder: (i) any compensation is not paid when due and such
default continues for more than fifteen (15) days after written notice to
the Company thereof; (ii) the Company defaults in performing any of the other
terms of this Agreement and continues in such default for a period of thirty
(30) days after written notice thereof to the Company (unless the default
cannot be cured within such thirty (30) day period and the Company shall have
in good faith advised the Design Partnership that it has commenced to cure the
default and thereafter diligently cures such default within an additional
forty-five (45) day period); (iii) an Event of Default (as defined in the
License Agreement) shall occur under the License Agreement or any other design
agreement entered into between the Company and the Design Partnership or
license agreement between the Company and Polo; or (iv) the License Agreement
shall be terminated as a result of an Event of Default thereunder. If any
Event of Default other than that described in paragraph 6.2(iv) shall occur,
the Design Partnership shall have the right, exercisable in its sole
discretion, to terminate this Agreement upon ten (10) days' written notice
to the Company of its intention to do so. Upon the expiration of such ten
(10) day
12
<PAGE>
period, this Agreement shall terminate and come to an end and, subject to
paragraph 6.3 hereof, all rights of the Company in and to the designs
furnished or used hereunder and all copyrights and designs patents therein
and their contemplated use shall terminate. If the Event of Default described
in paragraph 6.2(iv) shall occur, this Agreement and the License shall
thereupon forthwith terminate and come to an end without any need for notice
to the Company. Termination of this Agreement shall be without prejudice to
any remedy of the Design Partnership for the recovery of any monies then due
to it under this Agreement or in respect of any antecedent breach of this
Agreement, and without prejudice to any other right of the Design Partnership,
including without limitation, damages for breach to the extent that the same
may be recoverable.
6.3 In the event Polo chooses not to exercise the option referred to in
paragraph 10 of the License Agreement with respect to all or any portion of
the Licensed Products (as therein defined), the Company may dispose of
Licensed Products, to the extent permitted by and in the manner set forth
in paragraph 10.2 of the License Agreement. Such sales shall be subject to
the payment of earned compensation pursuant to paragraph 4.2 hereof. Upon
the conclusion of the disposal period all rights and interests in and to the
designs furnished or used hereunder and design patents therein and all
copyrights licensed hereby shall belong to and be the property of the Design
Partnership and the Company shall have no further or continuing right or
interest therein.
6.4 The company acknowledges and admits that there would be no adequate
remedy at law for its failure to cease the manufacture or sale of Licensed
Products at the termination of this Agreement, by expiration or otherwise,
and the Company agrees that in the event of such failure, the Design
Partnership shall be entitled to relief by way of temporary or permanent
injunction and such other and further relief as any court with jurisdiction
may deem proper.
6.5 It is expressly understood that under no circumstances shall the
Company be entitled, directly or indirectly, to any form of compensation
or indemnity from the Design Partnership, Lauren, Polo or their affiliates
as a consequence to the termination of this Agreement, whether as a result
of the passage of time, or as the result of any other cause of termination
referred to in this Agreement; provided, however, that nothing herein
contained shall modify the Company's rights with respect to Polo under the
License Agreement. Without limiting the generality of the foregoing, by its
execution of the present Agreement, the Company hereby waives any claim which
it has or
13
<PAGE>
which it may have in the future against the Design Partnership, Lauren, Polo,
Polo Ralph Lauren Corporation or their affiliates, arising from any alleged
goodwill created by the Company for the benefit of any or all of the said
parties or from the alleged creation or increase of a market for Licensed
Products.
7. Indemnity.
7.1 The Company shall indemnify and save and hold the Design Partnership,
Lauren, Polo and Polo Ralph Lauren Corporation, and their assignees,
directors, officers, agents and employees, harmless from and against any
and all liability, claims, causes of action, suits, damages and expenses
(including reasonable attorney's fees and expenses in actions involving third
parties or between the parties hereto) , which they, or any of them, are or
become liable for, or may incur, or be compelled to pay by reason of any acts,
whether of omission or commission, that may be committed or suffered by the
company or any of its directors, officers, servants, agents or employees in
connection with the Company's performance of this Agreement, in connection
with Licensed Products manufactured by or on behalf of the Company or
otherwise in connection with the Company's business; provided, however, that
the Company shall not be responsible for any liability, claims, causes of
action, suits, damages or expenses incurred or suffered by the Design
Partnership, Lauren, Polo or Polo Ralph Lauren corporation, or their
assignees, directors, officers, agents and employees in connection with any
suit or proceeding for infringement of another's design patent, trademark,
copyright or other proprietary rights brought against them as a result of the
Company's use of the Trademark, or the Design Concepts furnished by the Design
Partnership hereunder, in strict accordance with the terms and conditions of
this Agreement and the License Agreement.
8. Disclosure.
The Design Partnership and the Company, and their affiliates, employees,
attorneys, bankers and accountants, shall hold in confidence and not use or
disclose, except as permitted by this Agreement, (i) confidential information
of the other or (ii) the terms of this Agreement, except upon consent of the
other or pursuant to, or as may be required by law, or in connection with
regulatory or administrative proceedings and only then with reasonable advance
notice of such disclosure to the other. Each of Licensee and Licensor shall
take all reasonable precautions to protect the secrecy of the materials,
samples, sketches, designs, artwork, logos and other materials used pursuant
to this Agreement prior to the commercial distribution or the showing or
samples for sale, and Licensee shall not sell
14
<PAGE>
any merchandise employing or adapted from any of said designs, sketches,
artwork, logos, and other materials or their use except under the Trademark.
9. Miscellaneous.
9.1 All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been properly given or sent
(i) on the date when such notice, request, consent or communication is
personally delivered, or (ii) five (5) days after the same was sent, if sent
by certified or registered mail, return receipt requested, or (iii) two (2)
days after the same was sent, if sent by overnight courier delivery or
confirmed telecopier, as follows:
(a) if to the Company, addressed as follows:
Sun Apparel, Inc.
11201 Armour Drive
El Paso, Texas 79935
Attention: Mr. Miles Rubin
Telecopier: 915.592.1343
with a copy to:
Sun Apparel, Inc.
111 West 40th Street
New York, New York 10018
Attention: Mr. Eric Rothfeld
Telecopier: 212.391.2780
(b) if to the Design Partnership addressed as follows:
Polo Ralph Lauren Enterprises, L.P.
650 Madison Avenue
New York, New York 10022
Attention: President
Telecopier: 212-318.7186
with a copy to:
Victor Cohen, Esq.
Eighth Floor
650 Madison Avenue
New York, New York 10022
Telecopier: 212.318.7183
Anyone entitled to notice hereunder may change the address to
15
<PAGE>
which notices or other communications are to be sent to it by notice given
in the manner contemplated hereby.
9.2 Nothing herein contained shall be construed to place the parties in
the relationship of partners or joint venturers, and neither the Design
Partnership nor the Company shall have any power to obligate or bind the
other in any manner whatsoever, except as otherwise provided for herein.
9.3 None of the terms hereof can be waived or modified except by an
express agreement in writing signed by the party to be charged or, in the
case of the Company, its chairman or president. The failure of any party
hereto to enforce, or the delay by any party in enforcing, any of its rights
hereunder shall not be deemed a continuing waiver or a modification thereof
and any party may, within the time provided by applicable law, commence
appropriate legal proceedings to enforce any and all of such rights. All
rights and remedies provided for herein shall be cumulative and in addition
to any other rights or remedies such parries may have at Law or in equity.
Any party hereto may employ any of the remedies available to it with respect
to any of its rights hereunder without prejudice to the use by it in the
future of any other remedy with respect to any of such rights. No person,
firm or corporation, other than the parties hereto and Polo, shall be deemed
to have acquired any rights by reason of anything contained in this Agreement.
9.4 The Design Partnership may assign its right to receive all or any
portion of its compensation under this Agreement and, in addition, this
Agreement and all of the Design Partnership's rights, duties and obligations
hereunder may be assigned by the Design Partnership to any entity to which
the right to own or use the Trademark has been assigned, or to an affiliate
of any such entity. The Company may only assign its rights and obligations
hereunder under the same circumstances and on the same terms and conditions
as set forth with respect to assignments of Licensee's rights and obligations
under the License Agreement, and only to an entity to which Licensee is
rightfully and simultaneously assigning its rights and obligations under
the License Agreement.
9.5 The Company will comply with all laws, rules, regulations and
requirements of any governmental body which may be applicable to the
operations of the Company contemplated hereby, including, without limitation,
as they relate to the manufacture, distribution, sale or promotion of Licensed
Products, notwithstanding the fact that the Design Partnership may have
approved such item or conduct. The Company shall advise the Design
Partnership to the extent any Final Prototype does not comply with any such
law, rule, regulation or requirement.
16
<PAGE>
9.6 This Agreement shall be binding upon and inure to the benefit it of
the successors, heirs and permitted assigns of tile parties hereto.
9.7 This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, applicable to contracts made and to be
wholly performed therein without regard to its conflicts of law rules.
9.8 If any dispute between the parties leads to litigation, the parties
agree that the courts of the State of New York in the City of New York, or
the federal courts in that City, shall have the exclusive jurisdiction and
venue over such litigation. All parties consent to personal jurisdiction in
the State of New York, and agree to accept service of process outside of the
State of New York as if service had been made in that state. Notwithstanding
anything to the contrary set forth herein, neither Polo Ralph Lauren
corporation nor any other general or limited partner of the Design Partnership
shall be liable for any claim based on, arising out of, or otherwise in
respect of, this Agreement, and the Company shall not have nor claim to have
any recourse for any such claim against any general or limited partner of the
Design Partnership.
9.9 In the event of a breach or threatened breach of this Agreement by the
Company, the Design Partnership shall have the right, without the necessity of
proving any actual damages, to obtain temporary or permanent injunctive or
mandatory relief in a court of competent jurisdiction, it being the intention
of the parties that this Agreement be specifically enforced to the maximum
extent permitted by law.
9.10 In the event either party hereto is delayed or hindered in or
prevented from the performance of any act required hereunder by reason of war,
revolution, insurrection, civil disorder, fire, flood, accident, explosion,
strikes, embargo, prohibition or substantial limitation on import or export of
(or unavailability from any source of) product or raw materials, governmental
orders or regulations or any other similar cause which is beyond the control
of such party hereto, the performance of such act shall be excused for the
period during which the cause of failure of performance exists provided (i)
such period shall in any event not extend beyond six (6) months and shall not
affect the running of the term of this Agreement; (ii) that no such event
shall excuse performance of a payment or other financial obligation hereunder;
and (iii) the excused party shall promptly notify the other in writing
advising of the cause for delay.
9.11 Provisions of this Agreement are severable, and if any
17
<PAGE>
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
provision, or part thereof, in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction, or any other provision in
this Agreement in any jurisdiction. To the extent legally permissible, an
arrangement which reflects the original intent of the parties shall be
substituted for such invalid or unenforceable provision.
9.12 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect: in any way the, meaning or interpretation
of this Agreement. Each party acknowledges and represents to the other that
this Agreement has been reviewed by its counsel and the provisions hereof
shall be construed without regard to which party prepared this Agreement.
9.13 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused the same to be executed by a duly authorized officer as of the day
and year first above written.
POLO RALPH LAUREN ENTERPRISES, L.P.
By: Polo Ralph Lauren Corporation,
General Partner
By: /s/ Michael Newman
SUN APPAREL INC.
By: /s/ Eric Rothfeld
18
EXHIBIT 11
JONES APPAREL GROUP, INC.
Computation of Basic and Diluted Earnings per Share
(In thousands except per share amounts)
For the Quarter Ended For the Nine Months Ended
-------------------------- --------------------------
September 27, September 28, September 27, September 28,
1998 1997<F1> 1998 1997<F1>
------------ ------------ ------------ ------------
Basic Earnings per Share:
- -------------------------
Net income................ $59,098 $48,938 $122,746 $97,758
======== ======= ======== =======
Weighted average number of
shares outstanding........ 100,886 104,372 100,821 104,124
======== ======= ======= =======
Basic earnings per share.. $0.59 $0.47 $1.22 $0.94
======== ======= ======= =======
Diluted Earnings per Share:
- ---------------------------
Net income................ $59,098 $48,938 $122,746 $97,758
======== ======= ======== =======
Weighted average number of
shares outstanding........ 100,886 104,372 100,821 104,124
Assumed issuances under
exercise of stock options. 3,540 4,262 3,792 4,060
-------- ------- ------- -------
104,426 108,634 104,613 108,184
======== ======= ======= =======
Diluted earnings per share $0.57 $0.45 $1.17 $0.90
======== ======= ======= =======
<F1> Adjusted for 2-for-1 stock split effective June 28, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-27-1998
<CASH> 14,956
<SECURITIES> 0
<RECEIVABLES> 259,315
<ALLOWANCES> 3,337
<INVENTORY> 226,971
<CURRENT-ASSETS> 551,922
<PP&E> 176,655
<DEPRECIATION> 47,009
<TOTAL-ASSETS> 736,069
<CURRENT-LIABILITIES> 181,096
<BONDS> 0
0
0
<COMMON> 1,100
<OTHER-SE> 499,423
<TOTAL-LIABILITY-AND-EQUITY> 736,069
<SALES> 1,181,240
<TOTAL-REVENUES> 1,192,646
<CGS> 778,372
<TOTAL-COSTS> 778,372
<OTHER-EXPENSES> 211,942
<LOSS-PROVISION> 825
<INTEREST-EXPENSE> 3,762
<INCOME-PRETAX> 199,587
<INCOME-TAX> 76,841
<INCOME-CONTINUING> 122,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,746
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.17
</TABLE>
