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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 quarter ended SEPTEMBER 30, 1997
--------------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-9635
------
BISCAYNE APPAREL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0200397
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1373 BROAD STREET, CLIFTON, NEW JERSEY 07013
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 473-3240
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the
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 [ ]
At October 31, 1997, there were 10,770,213 outstanding shares of the
registrant's Common Stock, $0.01 par value.
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BISCAYNE APPAREL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996....................................................... 2
Consolidated Statements of Operations
Nine Months Ended September 30, 1997 and 1996.................................................. 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996.................................................. 4
Notes to Consolidated Financial Statements..................................................... 5-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................. 7-11
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings..................................................................... 12
Item 6 - Exhibits and Reports on Form 8-K...................................................... 12
Signatures..................................................................................... 13
</TABLE>
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BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 41,798 $ 46,054 $ 69,492 $ 75,183
Operating costs and expenses:
Cost of goods sold 30,116 33,753 50,977 56,359
Selling, general and administrative 6,662 6,869 16,400 17,511
Restructuring charges -- 45 -- 347
------------ ------------ ------------ ------------
Operating income 5,020 5,387 2,115 966
Other income and (expenses):
Interest and other expenses (1,075) (1,046) (2,337) (2,677)
Interest and other income 93 293 114 456
Gain on sale and equity in net
income of investee -- -- -- 123
------------ ------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes 4,038 4,634 (108) (1,132)
Provision (benefit) for
income taxes 1,534 1,804 (44) (368)
------------ ------------ ------------ ------------
Net income (loss) $ 2,504 $ 2,830 $ (64) $ (764)
============ ============ ============ ============
Net income (loss) per common share $ 0.23 $ 0.26 $ (0.01) $ (0.07)
============ ============ ============ ============
Shares used in computing net
income (loss) per common share 10,793,639 10,743,535 10,761,288 10,741,540
============ ============ ============ ============
</TABLE>
See accompanying notes.
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BISCAYNE APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 442 $ 327
Trade accounts receivable, less allowances
of $2,619 in 1997 and $2,018 in 1996 31,013 14,374
Inventories 22,098 14,554
Federal income tax receivable -- 1,455
Prepaid expenses and other 2,454 2,261
-------- --------
Total current assets 56,007 32,971
Property, plant and equipment, less
accumulated depreciation of $2,333 in 1997
and $1,912 in 1996 2,648 2,864
Other assets, net 266 275
-------- --------
$ 58,921 $ 36,110
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,371 $ 4,024
Accrued liabilities 5,986 6,184
Notes payable to banks 24,054 1,473
Current portion of long-term debt 2,000 1,750
-------- --------
Total current liabilities 38,411 13,431
Subordinated notes 6,444 6,444
Long-term debt 2,500 4,500
Other liabilities 124 557
Commitments and contingencies -- --
Stockholders' Equity:
Common stock, $0.01 par value; 25,000,000 shares
authorized; 10,770,213 issued and outstanding
in 1997 and 10,741,748 in 1996 107 107
Additional paid-in capital 26,602 26,311
Unearned stock award (17) (68)
Accumulated deficit (15,250) (15,172)
-------- --------
Total stockholders' equity 11,442 11,178
-------- --------
$ 58,921 $ 36,110
======== ========
</TABLE>
See accompanying notes.
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BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net loss $ (64) $ (764)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of assets 3 (11)
Gain on sale of equity investee -- (123)
Amortization of unearned stock award compensation 51 51
Amortization of debt issuance costs 155 --
Depreciation expense 433 447
Amortization expense 3 228
Provision for losses and sales allowances on receivables 3,198 4,343
(Increase) decrease in operating assets:
Trade accounts receivable (19,837) (20,915)
Inventories (7,544) 3,368
Prepaid expenses and other (193) (319)
Federal income tax receivable 1,455 824
Other assets 110 971
Increase (decrease) in operating liabilities:
Accounts payable 2,347 2,457
Accrued liabilities (195) 310
Other liabilities (372) --
-------- --------
Net cash used in operating activities (20,450) (9,133)
Investing activities:
Net sale of assets -- 11
Capital expenditures (220) (227)
Proceeds on sale of equity investee -- 1,750
-------- --------
Net cash (used in) provided by investing activities (220) 1,534
Financing activities:
Payments under notes payable to banks (16,127) (45,211)
Borrowings under notes payable to banks 38,708 54,637
Proceeds from term loan -- --
Principal payments under term loan (1,750) (1,250)
Principal payments of capital leases (64) (64)
Proceeds from exercise of employee stock options 18 --
-------- --------
Net cash provided by financing activities 20,785 8,112
Net increase in cash and cash equivalents 115 513
Cash and cash equivalents at beginning of year 327 312
-------- --------
Cash and cash equivalents at end of year $ 442 $ 825
======== ========
Supplemental disclosure information:
Interest expense paid $ 1,883 $ 2,363
Income taxes paid $ 1 $ 61
</TABLE>
See accompanying notes.
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BISCAYNE APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements, which are
for an interim period, do not include all disclosures provided in the
annual consolidated financial statements. These unaudited consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the footnotes with respect
thereto, contained in the Biscayne Apparel, Inc., ("Company") 1996
Annual Report on Form 10-K.
The consolidated financial statements of the Company include the
accounts of the parent company, and its wholly-owned subsidiaries,
Biscayne Apparel International, Inc. ("BAII"), and M&L International,
Inc. ("M&L"), which was acquired in November 1994, and its wholly-owned
subsidiaries, Unidex Garments (Philippines), Inc., Watersports Garment
Manufacturing, Inc., Teri Outerwear Manufacturing, Inc., GES Sportswear
Manufacturing Corp. and M&L International (H.K.) Limited. As of March
1, 1996, Unidex, Watersports, Teri, and GES ceased operations due to
operating losses caused by labor increases and production
inefficiencies. BAII operates through two divisions, Andy Johns
Fashions International ("Andy Johns") and Varon, and its wholly-owned
subsidiaries, Mackintosh of New England Co., Mackintosh (U.K.) Limited,
and Amy Industries De Honduras, S.A. de C.V., which was organized
during 1995. All material intercompany balances and transactions have
been eliminated. Certain amounts included in prior period financial
statements have been reclassified to conform with the 1997
presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The most significant
assumptions and estimates relate to sales allowances, inventory
reserves, and recoverability of assets. Actual results could differ
from those estimates.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
statements.
3. The results of operations for the nine month periods ended September
30, 1997 and 1996 are not necessarily indicative of the results to be
expected for the full year.
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4. Effective for the year ending December 31, 1997 and thereafter,
earnings per share will be computed in accordance with Statement of
Financial Accounting Standards No. 128" "Earnings Per Share" ("FAS No.
128"). Earlier adoption for interim periods during 1997 is prohibited.
However, pro forma application of FAS. No. 128 would not result in a
difference to earnings per share as currently computed under APB No.
15.
FAS No. 128 establishes the standards for computing basic earnings per
share (excluding dilution) and diluted earnings per share (reflecting
the dilutive effect if securities or other contracts to issue common
stock were exercised or converted), and applies to entities with
publicly held common stock. This standard simplifies the computation of
earnings per share as required under Accounting Principles Board
Opinion No. 15, Earnings Per Share, and makes them comparable to
international earnings per share standards. The application of FAS. No.
128 would not result in a difference to earnings per share as currently
computed under APB No. 15.
5. Inventories at September 30, 1997 and December 31, 1996 are comprised
of the following:
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
Raw materials $ 6,787,000 $ 3,684,000
Work-in-process 2,747,000 785,000
Finished goods 12,564,000 10,085,000
----------- -----------
$22,098,000 $14,554,000
=========== ===========
6. Included in accounts payable at September 30, 1997 and September 30,
1996 are the Company's obligations under outstanding letters of credit
of $1,854,000 and $2,232,000, respectively.
7. On March 24, 1997 Biscayne amended its Loan Agreement to reduce the
Revolver Agreement to $45,000,000; adjust the interest rate for
Revolver Agreement borrowings to prime plus 1.0%, or prime plus 1.75%
for approved collateral overadvances; require additional fees of
$325,000; and waive violations of certain covenants during the 1996
period.
8. During 1996, the Company issued various warrants to its banks, Trivest,
Inc., an affiliate of the Companuy, and certain officers of the
Company. These warrants were valued at approximately $294,000 and have
been reflected in the Company's financial statements. The amortization
of these costs are included in current year selling, general and
administrative expense and interest expense.
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9. In June 1997, Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" and No. 131 "Disclosures
about Segments of an Enterprise and Related Information" were
issued, effective for the fiscal year ending December 31,
1998. Earlier adoption for interim periods is not required,
and the Company is currently evaluating the financial
statement impact.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1997 VERSUS QUARTER ENDED SEPTEMBER 30,
1996:
Net sales for the third quarter of 1997 were $41,798,000, versus the third
quarter 1996 sales of $46,054,000. Increased sales at M&L were offset by
decreased sales in the Andy Johns, Varon, and Mackintosh divisions.
Cost of goods sold, as a percentage of net sales, was 72% versus 73% for the
quarters ended September 30, 1997 and 1996, respectively. The slight decrease is
attributable to Andy Johns realizing lower costs of production, offset by higher
costs of production at Varon.
Selling, general and administrative expenses ("S,G&A") as a percentage of net
sales increased to 16% in 1997 from 15% in 1996. This slight increase is a
result of decreased sales in the third quarter of 1997 versus 1996. Actual S,G&A
expenses were lower during the 1997 third quarter at $6,662,000, compared to
$6,869,000 incurred in 1996. Additionally, the Company incurred $45,000 of
restructuring charges in the 1996 third quarter, with none in the comparable
1997 period.
OTHER
Interest and other expenses for the quarter ended September 30, 1997 increased
slightly to $1,075,000 from $1,046,000 for the comparable quarter of 1996.
Interest and other income declined to $93,000 during the third quarter of 1997
from $293,000 for the comparable 1996 quarter. This decrease is primarily due to
greater direct letter of credit revenue earned by Andy Johns during the third
quarter of 1996.
7
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NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1997 decreased to $69,492,000
from $75,183,000 for 1996. This 8% decrease is mainly attributable to lower
sales at the Andy Johns and Varon divisions.
Consolidated backlog at October 31, 1997 decreased to $21,578,000 from
$24,431,000 at October 31, 1996. The decrease is largely due to decreased sales
backlog at Varon and Andy Johns, offset by increases at M&L and Mackintosh.
Cost of goods sold as a percentage of net sales decreased to 73% for the first
nine months of 1997, from 75% for the comparable period of 1996. This decline is
a result of Andy Johns and M&L realizing lower production costs, offset by
higher Varon production costs.
Selling, general and administrative expenses ("S,G&A") as a percentage of net
sales increased to 24% for the period ended September 30, 1997 versus 23% for
the period ending September 30, 1996. However, actual S,G&A expenses for the
1997 nine months were lower at $16,400,000, compared to the $17,511,000 incurred
in 1996. Additionally, the Company incurred $347,000 of restructuring charges in
the first nine months of 1996, with none in the comparable 1997 period.
During the fourth quarter of 1996, the Consumer Product Safety Commission
("CPSC") issued 1998 rules for the manufacturing of all cotton thermal and long
underwear products. These rules would have had two effects: i) sleepwear
manufacturers would now be able to produce their products in cotton, and ii)
such cotton sleepwear products would now have to be "tight fitting". As a result
of these regulations, the Company expects there may be significant changes in
Varon's competitive environment related to such products. In the 1997 second
quarter, the CPSC announced that the March 1998 implementation date for the
above changes would be extended to June 1998. However, the specter of such
implementation has caused delays in 1997 orders of, and/or reductions of orders
for, some of Varon's cotton thermal and long underwear products.
The impact on Varon's market position once implementation occurs is unknown.
Varon could face the following: i) a decrease in market share due to increased
competition from sleepwear manufacturers, and ii) a potential market shift, from
customers who previously purchased sleepwear when it was not required to be
"tight fitting", now purchasing other products. Alternatively, Varon may gain
market share of newly-approved cotton sleepwear, due to its current expertise in
manufacturing, if it can take away market share from heretofore non-cotton
sleepwear product sales. These regulations could impact up to one-third of
Varon's revenues.
8
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OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter of 1997
that it will not renew its outerwear license with M&L after May 31, 1998. As
part of a strategy adopted over the last several years, OshKosh will sell its
outerwear directly to retailers. For the nine months ended September 30, 1997
and 1996, M&L's sales of OshKosh outerwear were $16,653,000 and $12,831,000,
respectively. For the years ended December 31, 1996 and 1995, M&L's sales of
OshKosh outerwear were $17,063,000 and $13,678,000, respectively. M&L's strategy
is to replace the OshKosh brand sales of outerwear with several well-known brand
name children's outerwear and activewear licenses.
In July, 1997 M&L announced the signing of a licensing agreement with the
Starter Corporation to manufacture girls' activewear, swimwear, and outerwear in
sizes 4-6X and 7-16. Initial shipments of Starter girls' activewear and
outerwear are targeted for delivery in Fall 1998.
Additionally, in August, 1997, M&L announced the signing of a letter of intent
with Healthtex, a division of VF Corporation, to manufacture a new collection of
children's outerwear under the Healthtex brand name in sizes newborn through 16
for girls and newborn through 7X for boys. Initial shipments are targeted for
delivery in Fall 1998.
In September, 1997, Biscayne Apparel, Inc. announced the signing of a licensing
agreement with Lola, Inc., the parent company of XOXO, to manufacture a line of
junior/women's outerwear. The XOXO outerwear line will focus on the upscale
contemporary junior customer for distribution through major department and
better specialty stores. Initial shipments are slated for delivery in Fall 1998.
OTHER
Interest and other expenses for the nine months ended September 30, 1997
decreased to $2,337,000 versus $2,677,000 for the nine months ended September
30, 1996. The decline is primarily due to decreased bank borrowings during 1997.
Interest and other income decreased to $114,000 for the first nine months of
1997 from $456,000 for the comparable period of 1996, primarily due to greater
direct letter of credit revenue earned by Andy Johns during the first nine
months of 1996.
On March 27, 1996, the Company sold its 20% interest in Hartwell Sports, Inc.
for $1,750,000. Proceeds were used to reduce notes payable to banks. The sale
resulted in a gain during 1996 of $123,000.
9
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INCOME TAXES
For the quarters and nine months ended September 30, 1997 and 1996, the income
tax provisions (benefits) were greater than the provisions (benefits) which
would have been derived upon application of the Federal statutory rate,
primarily because of state income tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $442,000 and $327,000 at September 30, 1997 and
December 31, 1996, respectively. At September 30, 1997, the Company's working
capital was $17,596,000, representing a current ratio of 1.46 to 1. This
compares to working capital of $19,540,000 and a current ratio of 2.45 to 1 at
December 31, 1996. These changes are due to seasonal increases in current
assets, particularly inventory and accounts receivable offset by seasonal
increased bank debt.
As presented in the Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997, the increase of accounts receivable of $19,837,000,
inventories of $7,544,000 and accounts payable of $2,347,000 are due to the
seasonality of the Company's operations. On March 31, 1997 the Company repaid
$1,750,000 of its long-term debt.
Capital expenditures for the nine months ended September 30, 1997 remained
relatively constant at $220,000 versus $227,000 in 1996.
The Company expects that cash on hand, cash from operations, and borrowings
under its revolving credit agreement will be sufficient to fund current
operations and to enable the Company to meet its obligations as they become due.
EFFECT OF INFLATION AND SEASONALITY
The Company believes that inflation will not significantly effect its profit
margins, or have a material effect on the prices of other goods and services
used in its business operations. Further, in connection with increases in
domestic wool and cotton costs over the last several years, the Company has
increased offshore production in an effort to lower costs.
The apparel industry is subject to substantial cyclical variation, with
purchases of apparel and related goods tending to decline during recessionary
periods when disposable income is low. This could have a material adverse effect
on the Company's business.
Sales of women's and children's outerwear and thermal underwear are seasonal.
Historically, Andy Johns, Mackintosh, M&L, and Varon have significantly higher
revenues in the third and fourth quarters than in the first and second quarters.
Therefore, the results of any interim period are not necessarily indicative of
the results which might be expected during a full year. Additionally, there is
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a risk inherently related to the Outerwear industry, resulting from consumer
reactions to weather patterns, which have had a material effect on the Company's
sales and profitability in the past.
Certain information included herein contains forward-looking statements which
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from
these forward- looking statements. These risks include, but are not limited to,
raw material costs and the ability to pass price increases to customers in a
timely fashion, product acceptance and availability, changes in the level of
consumer demand and/or spending, fashion trends, weather patterns, further
governmental regulations, etc. All forward-looking statements should be
considered in light of these risks and uncertainties.
11
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, involved in routine litigation. None
of such litigation in which the Company is presently involved is material to its
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.1 License Agreement dated as of June 30, 1997 among the
Registrant, Starter Corporation and Soundview
Licensing, Inc.
10.2 License Agreement dated as of August 26, 1997 among
the Registrant and Lola Inc.
11 Computation of Per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K:
During the quarter for which this Quarterly Report on Form
10-Q is filed, the Registrant did not file any Current Reports
on Form 8-K.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
BISCAYNE APPAREL, INC.
Date: November 13, 1997 By: /s/ EARL W. POWELL
-------------------
Earl W. Powell
Chairman of the Board, President
and Chief Executive Officer
Date: November 13, 1997 By: /s/ PETER VANDENBERG, JR.
--------------------------
Peter Vandenberg, Jr.
Executive Vice President,
Treasurer and
Chief Financial Officer
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Exhibit 10.1
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") dated as of the ____ day
of_____________, 1997 among STARTER CORPORATION ("Licensor"), a Delaware
corporation with its principal offices at 370 James Street, New Haven,
Connecticut 06513, M&L International Inc. ("Licensee"), an Illinois corporation
with its principal offices at 1333 North Kingsbury Street, Suite 401, Chicago,
IL 60622 and Licensor's Agent, SOUNDVIEW LICENSING, INC. ("SVL"), a Connecticut
corporation with its principal offices at Harbour Square, 700 Canal Street,
Stamford, Connecticut 06902.
WHEREAS, Licensor warrants that it is the owner of the marks "STARTER",
"S and STAR" and "STARTER in conjunction with S and STAR", each used as a
registered or unregistered trademark or service mark, corporate title, or
trading style (collectively and individually referred to herein as the "Marks")
and to the best of its knowledge has the exclusive right to use the Marks with
Authorized Products in the Territory; and
WHEREAS, Licensee believes that various commercial advantages could
result from use of the Marks in the operation of the Licensee's business and
consequently seeks the permission of Licensor to use the Marks in connection
with the manufacturing, advertising, sale, or distribution of Authorized
Products (set forth in Schedule A attached hereto and made a part hereof)
strictly in accord with the terms and conditions contained herein; and
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WHEREAS, it is the mutual desire of the parties to formally set forth
the terms and conditions under which Licensee would be permitted to use the
Marks in connection with the manufacturing, advertising, sale, or distribution
of Authorized Products.
NOW, THEREFORE, in consideration of the premises and agreements
contained herein, and other good and valuable consideration, Licensor and
Licensee agree as follows:
1. TERRITORY. The "Territory" shall mean the United States, its
territories and possessions and U. S. Military Post Exchanges worldwide.
2. GRANT OF LICENSE.
2.1 Licensor hereby grants to Licensee, subject to the terms and
conditions of this Agreement, and Licensee hereby accepts, an exclusive license
to use the Marks in connection with the manufacture, advertising and sale of
Authorized Products by Licensee throughout the Territory.
2.2 Nothing contained in this Agreement shall in any manner limit or
affect the right of Licensor to use, or permit another entity to use, the Marks
for any purpose, but Licensor agrees that, during the Initial Term hereof or any
extensions thereof, it will neither retain rights to, or grant any other license
for, use of the Marks, or any variations of the Marks, in the Territory in
connection with the manufacture, advertising, distribution, and sale of
Authorized Products. Notwithstanding the foregoing, Licensor hereby reserves the
right to sell-off its own inventory of Authorized Products bearing the Marks
which may be on hand or in process at the time of the signing of this Agreement.
2.3 Subject to the provisions of this Section, Licensee shall not
export Authorized Products bearing the Marks outside the Territory or ship such
Authorized Products to any third
2
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party which the Licensee has reasonable ground to believe intends to ship
Authorized Products to any destination outside of the Territory without the
prior written consent of Licensor.
3. TERM.
3.1 This Agreement shall commence on the date first written above and
extend until May 31, 2001 (the "Initial Term"). The period beginning from the
date first written above and ending on May 31, 1999 and each consecutive twelve
(12) month period thereafter during the Initial Term or any Extended Term (as
defined herein) is referred to herein as a "Contract Year." Each three-month
period ending on August 31, November 30, February 28, and May 31 , is referred
to herein as a "Contract Quarter."
3.2 This Agreement may be renewed by Licensee for one additional two
(2) year term commencing on June 1, 2001 and expiring on May 31, 2003 ("Extended
Term") subject to the following conditions: (i) Licensee notifies Licensor not
less than ninety (90) days prior to the termination of the Initial Term of its
desire for an Extended Term; (ii) Licensee is not in breach of any part of this
Agreement; (iii) Licensee's Sales of Authorized Products in the Initial Term
exceed the amount required to generate at least the minimum royalties guaranteed
for the Initial Term in Section 5.2 hereinbelow plus twenty five (25) percent.
4. USE OF THE MARKS. Licensee shall use the Marks only in connection
with the manufacture, advertising, sale and distribution of the Authorized
Products, and shall cause such standards set forth herein and as may be
prescribed by Licensor to be maintained in the operations of the business in
which the Marks are used.
3
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5. TERMS OF PAYMENT.
5.1 Royalty Rate. Licensee agrees to pay to Licensor a royalty of eight
(8%) percent ("Percentage Royalties") on all Net Sales (as defined herein)
during each of the Initial Term or Extended Term, if any, by Licensee or any of
its affiliated, associated or subsidiary companies of the Authorized Products
bearing the Marks. The term "Net Sales" shall mean the dollar amount of gross
sales of the Authorized Products bearing the Marks less trade quantity
discounts, returns actually made and allowances actually given in lieu of
returns without deduction for other discounts of any kind or nature, costs, or
uncollectible accounts. Licensee warrants that it shall not make so called
"consignment sales" of Authorized Products bearing the Marks or make any
allowances to its customers in lieu of "consignment sales" of Authorized
Products bearing the Marks. No costs incurred in the manufacture, preparation,
delivery, sale, distribution, advertising or promotion (including without
limitation, any so-called "Co-op" advertising costs or payments) of the
Authorized Products shall be deducted from gross sales or from any royalty
payable by Licensee. It is understood that credit against Net Sales will be
allowed only for actual returns and that no credit against Net Sales will be
allowed on the basis of any accrual or reserve system. Minimum Guarantees and
Advance Payments (all as defined herein) may be referred to herein individually
or collectively as "Royalties", or "Royalty" as appropriate.
5.2 Terms of Payment: Initial Term. Licensee agrees to pay to Licensor,
during the Initial Term, a Minimum Guarantee (amount payable to Licensor without
regard to the amount of sales of Authorized Products bearing Marks) against
Royalties and an Advance Payment applicable to said Minimum Guarantee are as
follows:
MINIMUM ADVANCE BALANCE OF
GUARANTEE PAYMENT GUARANTEE
--------- ------- ----------
$750,000 $187,500 $562,500
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The Advance Payment in the Initial Term shall be payable on signing of
this Agreement. The Balance of the Minimum Guarantee in the Initial Term, if not
previously earned in Percentage Royalties, shall be payable in ten (10) equal
consecutive calendar quarter installments of $56,250 commencing with the initial
payment due on December 1, 1998 and the last due on March 1, 2001 No part of
such Minimum Guarantee shall in any event be repayable to Licensee. Percentage
Royalties shall be paid monthly by Licensee to Licensor.
5.3 Terms of Payment: Extended Term. During the Extended Term, if any,
Licensee agrees to pay Licensor a Minimum Guarantee against Royalties and as an
Advance Payment applicable to said Minimum Guarantee the following amounts:
MINIMUM ADVANCE BALANCE OF
GUARANTEE PAYMENT GUARANTEE
--------- ------- ----------
$700,000 $87,500 $612,500
The Advance Payment in the Extended Term shall be payable on or before May 31,
2001. The Balance of the Minimum Guarantee, if not previously earned in
Percentage Royalties, shall be payable in seven (7) equal consecutive calender
quarter installments of $87,500 commencing with the first payment due on
September 1, 2001 and the last due on March 1, 2003. No part of such Minimum
Guarantee shall in any event be repayable to Licensee. Percentage Royalties
shall be paid monthly by Licensee to Licensor.
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<PAGE> 6
5.4 Monthly Statements. Except as set forth in the last sentence of
this Section, promptly on the twentieth (20th) day of each month during the
Initial or Extended Term hereof, Licensee shall furnish complete and accurate
statements certified to be accurate by Licensee showing the number, description
and gross sales price, itemized deductions from gross sales price of each and
every product or service covered by this Agreement distributed and/or sold by
Licensee, together with any Licensee accepted returns made during the prior
month, addressed to the Licensor with a copy mailed to Licensor's Agent, SVL, in
accordance with Section 25. For this purpose, Licensee shall use the statement
form attached hereto, copies of which form may be obtained by Licensee from SVL,
or a similar mutually acceptable form. Such statements shall be furnished to
Licensor and SVL whether or not any of the Authorized Products bearing Marks
have been sold during said prior month. All information shall be shown
separately for each country within the Territory. Licensee agrees that royalty
reports will indicate clearly which of the Marks were used in association with
the Authorized Products sold and that the report will be given in such a manner
and in sufficient detail to enable Licensor to separate royalties Mark by Mark.
The first such statement due hereunder shall cover results for the period from
the inception of the Initial Term to March 31, 1998.
5.5 Royalty Payments. Royalty payments due hereunder are payable to
Licensor and shall be paid on the twentieth (20th) day of the month following
the month in which earned (copy of check to be mailed to SVL), and payment shall
accompany the statements furnished as required above at such time the statement
commences. It is understood that Percentage Royalty payments which exceed the
Initial Term's Minimum Guarantee shall not be credited toward the Extended
Term's Minimum Guarantee, if applicable. The receipt or acceptance by Licensor
of
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<PAGE> 7
any of the statements furnished pursuant to this Agreement or of any Percentage
Royalties, Minimum Guarantee or Advance Payment paid hereunder (or the cashing
of any checks paid hereunder) shall not preclude Licensor from questioning the
correctness thereof at any time. In the event that any inconsistencies or
mistakes are discovered in such statements or payments in favor of the Licensee,
they shall immediately be rectified and the appropriate payments made by
Licensee to Licensor, together with interest at the lesser of the so called
"prime rate as reported in the WALL STREET JOURNAL plus two (2%) percent per
annum or the highest interest rate allowable by law from the date such unpaid
amounts were originally due until the date received. Payment shall be in U. S.
funds. Licensee's taxes, if any, including but not limited to sales, use,
inventory, income and value added taxes on sales of Authorized Products bearing
Marks, shall be solely payable in the licensed Territory, shall be solely
payable by Licensee and shall not be deducted from Licensor's Royalties.
6. GOOD WILL. Licensee recognizes the great value of the good will
associated with the Marks and acknowledges that the Marks and all rights therein
and good will pertaining thereto belong exclusively to Licensor. Licensee
recognizes that the Marks have a secondary meaning in the minds of the public.
7. DISTRIBUTION.
7.1 Licensee agrees that it shall sell Authorized Products bearing
Marks only to those stores listed in Schedule C attached hereto and made a part
hereof. First quality Authorized Products bearing Marks that are closeouts as
well as Second Quality Authorized Products bearing
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<PAGE> 8
Marks (as hereafter defined) shall be exclusively sold to those stores listed in
Schedule D attached hereto and made a part hereof. In any Contract Year Second
quality Authorized Products bearing Marks shall never exceed ten percent (10%)
of the sales of Authorized Products bearing Marks by Licensee. Sales to other
outlets or stores not listed in Schedules C and D shall require the express
prior written consent of Licensor which consent may be granted or withheld in
Licensor's sole discretion. Third quality Authorized Products bearing Marks (as
hereafter defined) shall not be sold or distributed and must be destroyed.
Second quality Authorized Products bearing Marks shall mean, for purposes of
this Agreement, Authorized Products bearing Marks that do not conform in all
material respects to every specification of Licensor and Licensee for such
products but are considered salable in the trade and where the sale or
distribution of such products would not adversely affect the reputation of the
Licensor as a manufacturer of premium quality products. Third quality Authorized
Products bearing Marks shall mean , for purposes of this Agreement, Authorized
Products bearing Marks that do not conform in all material respects to every
specification of Licensor and Licensee for such products, and are not considered
salable in the trade or where the sale or distribution of such products would
adversely affect the reputation of the Licensor as a manufacturer of premium
quality products.
7.2 Licensee agrees that, during the term of this license, it will
commence distributing activewear licensed herein bearing Marks to its customers
by June 1, 1998 or earlier and outerwear licensed herein bearing Marks by June
1, 1998 and thereafter it will diligently and continuously, distribute,
advertise and promote Authorized Products bearing the Marks. In addition to all
other remedies available to them hereunder, Licensor and Agent may remove from
this Agreement any Authorized Product listed in Schedule A attached hereto or
any Authorized
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<PAGE> 9
Product or class or category of Authorized Products which is not diligently and
continuously used by Licensee in the manufacture, preparation, delivery, sale,
distribution, advertising and promotion of such Authorized Products bearing the
Marks for a seasonally appropriate period of three (3) consecutive months by
giving thirty (30) days written notice to Licensee.
7.3 Licensee agrees that it will sell and distribute the Authorized
Products bearing the Marks only to retail stores and merchants which will sell
such Authorized Products directly to the public. Licensee shall not, without
prior written consent of Licensor, which consent may be granted or withheld in
Licensor's discretion, sell or distribute such Authorized Products to retail
stores, merchants, or others whose sales or distribution of such Authorized
Products are or will be made for publicity or promotional tie-in purposes,
combination sales, premiums, giveaways or similar methods of merchandising. It
shall not be deemed a breach of this Agreement if Licensee sells Authorized
Products bearing the Marks to retail stores or merchants for such purposes
unless Licensee knew or had reason to know that such retail stores or merchants
would use the Authorized Products bearing the Marks for such purposes. In the
event any sale of Authorized Products bearing the Marks is made at a special
price to any of Licensee's subsidiaries or to any other person, firm,
corporation or entity related in any manner to Licensee or its officers,
directors or major stockholders, there shall be a Percentage Royalty paid on
such sales based upon the price generally charged the trade by Licensee.
7.4 Licensee shall at all times conduct all aspects of its business in
a manner consistent with the prestigious image of the Marks and in a manner that
will protect and maintain the
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<PAGE> 10
positive image and reputation of the Marks and Licensor in a fair and reasonable
manner and in compliance with all applicable laws, government rules and
regulations, court and administrative decrees and the highest standards of
business ethics then prevailing in the industry. This shall include, without
limitation, compliance with any and all applicable laws dealing with child or
prison labor.
7.5 Licensee agrees to sell to Licensor and Agent such quantities of
the Authorized Products bearing the Marks as either of them shall request at as
low a rate and on as good terms as Licensee sells similar quantities of the
Authorized Products to the general trade.
8. MAINTAINING THE IMAGE AND DISTINCTIVENESS OF THE MARKS.
8.1 Licensee shall maintain the validity and distinctiveness of the
Marks and the high standards of quality with which the Marks have been
heretofore associated. To that end, Licensee shall establish and adhere to a
written policy and merchandising plan for the sale and distribution of
Authorized Products bearing Marks which policy and plan shall be submitted for
approval by Licensor in the same manner, to the same extent and for the same
inspection period, as set forth for approval of Licensed Product quality in
Section 9 of this Agreement, which approval shall not be unreasonably withheld.
Such policy shall require that the Authorized Products bearing Marks are
aggressively advertised, sold and distributed in a manner that will support the
high prestige of the Marks and shall not in any manner reflect adversely upon
the reputation of Licensor, Licensor's licensees, or any of their activities, or
the Marks. Such merchandising plan shall be presented by Licensee to Licensor
not later than sixty (60) days prior to each Contract Year excepting the initial
Contract Year, plans for which have already been submitted to Licensor.
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<PAGE> 11
8.2 Licensee shall, within thirty (30) days after the expiration of
each Contract Year, notify the Licensor in writing of the corporate name and
trade name, if any, and location of each customer to whom Licensee sold
Authorized bearing the Marks in the just concluded Contract Year. If Licensor
notifies Licensee of its disapproval of a particular customer account, Licensee
shall cease to accept new orders of such Authorized Products for such accounts.
9. QUALITY CONTROL.
9.1 The style, quality, material, workmanship and image of Authorized
Products bearing the Marks shall be subject to the discretionary approval of the
Licensor, which approval shall be obtained in accordance with the procedure set
forth in this Section 9.
9.2 Prior to manufacturing, advertising, offering for sale, selling, or
shipping any style of Authorized Products bearing Marks, Licensee will, at
Licensee's expense, submit representative samples of each style of goods
comprising such Authorized Products to Licensor for inspection. Licensee shall
have the option of submitting designs, fabric samples, color palette and
findings (Representative Materials) to Licensor for approval in lieu of finished
product samples. Licensee agrees that no Authorized Product bearing the Marks
will be manufactured, advertised, offered for sale, sold, shipped, or otherwise
distributed, if the style, quality, material, or workmanship thereof has been
objected to by Licensor. Such approval shall be solely within the discretion of
Licensor. In the event of disapproval, Licensor shall provide Licensee with a
reasonably detailed explanation as to why the style or styles of goods were
disapproved. Licensee shall also have the right to request that the Senior Vice
President Licensing of Licensor review such disapproval.
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<PAGE> 12
Provided the approval of Licensor has been obtained as provided herein for
samples of Authorized Products or Representative Material, Licensee shall not
depart therefrom in any material respect without again obtaining prior written
approval from Licensor as aforesaid.
Upon Licensor's request at any time during the term of this Agreement
Licensee shall furnish to Licensor, at Licensee's expense but without any
royalty payment thereon, a reasonable number of units of such approved
Authorized Products bearing Marks being marketed by Licensee hereunder, in order
to enable Licensor to determine that such Authorized Products do not depart in
any material respect from samples or Representative Material thereof previously
approved by Licensor pursuant to this Section 9.2.
9.3 Licensee agrees, upon reasonable written notice, to permit or
arrange for the access of Licensor or of representatives of Licensor to inspect
any facilities used in the production, marketing, distribution, merchandising
and/or sales of the Authorized Products bearing Marks, it being understood that
such inspections are to be undertaken in a manner that will not unreasonably
interfere with or hamper the normal business operations at the locations being
inspected. Licensee agrees to make provision consistent herewith with any
subcontractors that Licensee may employ to manufacture, distribute or
merchandise any item of Licensor approved Authorized Products bearing Marks.
Notwithstanding the foregoing all such subcontractors must be approved by
Licensor prior to their use as subcontractors for such Authorized Products,
which approval shall not be unreasonably withheld, and must agree to abide by
the requirements of this Agreement. Licensor reserves the right to withdraw such
approval at any time if such subcontractor does not adhere to the
specifications, requirements and limitations set forth in this Agreement or
operates outside the bounds of behavior prescribed in Section 7.4 hereof and
upon
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<PAGE> 13
such withdrawal of approval Licensee shall immediately cease dealing in such
Authorized Products with such subcontractors.
9.4 Licensee agrees to and have its contractors and subcontractors
comply with all applicable laws, regulations, orders and rulings of any
governmental agency, authority, or court having jurisdiction over the design,
manufacture, labeling, advertising, sale, or use of the Authorized Products
bearing Marks. Licensee shall provide timely notification to Licensor of any
law, regulation, or ruling of any governmental authority within the Territory
which, to its knowledge, would invalidate all, or any part of this Agreement, or
would require the registration or approval of this Agreement by any governmental
authority, within the Territory.
9.5 Licensor shall advise Licensee in writing of its approvals or
disapprovals pursuant to this Section 9, within seven (7) business days of
receipt of an approval request and, in the event of disapproval, the reasons
therefore provided, however, that if not approved within said seven (7) day
period, any such request shall be deemed approved. Notwithstanding prior
approvals in conformity with this Section, Licensor could subsequently become
aware of facts that make such approval inadvisable. For example, after an
approval as to its use, Licensor could become aware that a subcontractor is or
has been involved in the counterfeiting of trademarks. Therefore, Licensor
reserves the right to withdraw any such approval. A withdrawal of approval shall
only be done if circumstances are such that such action is commercially
reasonable and if such action is taken, Licensor shall use commercially
reasonable efforts to provide a period of time for Licensee to dispose of
previously approved materials.
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<PAGE> 14
10. ARTWORK, DESIGN, PROMOTIONAL MATERIALS, LABELING.
10.1 The form and content of all artwork, designs, promotional material
and labels (collectively, "Art") to be used by Licensee displaying the Marks
whether in association with Authorized Products or otherwise shall (i) conform
to good trademark practice; (ii) have such indications of registration or
trademark usage as may be required or permitted by the laws of the Territory
(for example, "(R)" or "TM"); and (iii) be provided to Licensor for inspection
and approval prior to any use, which approval may be granted or withheld at
Licensor's discretion. Such approval shall be obtained in the same manner, to
the same extent and for the same inspection period as for the approval of
samples or Representative Material of Authorized Products, pursuant to Sections
9.2 and 9.5 hereof. Licensee agrees that no such Art bearing the Marks shall be
used by Licensee or its customers if such Art has been objected to by Licensor.
In the event of disapproval, Licensor shall provide Licensee with a reasonably
detailed explanationas to why such disapproval occurred. Licensee shall also
have the right to request that the Senior Vice President Licensing of Licensor
review such disapproval. After the approval of Licensor has been obtained for
Art encompassing the Marks, neither Licensee nor its customers shall depart
therefrom in any material respect without again obtaining prior written approval
from Licensor as aforesaid. Notwithstanding prior approval of artwork, designs,
promotional material and labels in conformity with this Section, Licensor
reserves the right to withdraw any such approval. A withdrawal of approval shall
only be done if circumstances are such that such action is commercially
reasonable and if such action is taken, Licensor shall use commercially
reasonable efforts to provide a period of time for Licensee to dispose of
previously approved materials.
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<PAGE> 15
10.2 All advertising and promotional and other printed materials
bearing the Marks shall conform to good trademark practice and shall be in form
and substance reasonably satisfactory to Licensor. Without limiting the
generality of the foregoing, Licensee agrees that whenever the Marks appear on
tags, tickets, pamphlets, folders, advertising, or promotional materials, of
whatever kind or nature used by or prepared at the direction of Licensee, such
Marks shall be in a form identical, or substantially identical, to that set
forth in Schedules B hereto. Representative samples of all advertising and
promotional and other printed materials bearing the Marks, intended to be used
by Licensee, shall be submitted to Licensor at Licensee's expense, for
Licensor's written approval prior to use thereof. Such approval shall be
obtained in the same manner, to the same extent and for the same inspection
period as for samples or Representative Material of Authorized Products bearing
Marks pursuant to Sections 9.2 and 9.5. Provided the approval of Licensor has
been obtained for advertising and promotional and other printed materials
bearing the Marks, Licensee shall not depart therefrom, in any material respect,
without again obtaining prior written approval from Licensor as aforesaid.
10.3 Licensee shall not permit any of its advertising or promotional
material to contain any trademark, service mark, name, or mark which creates a
likelihood of confusion with the Marks.
10.4 Licensee shall use reasonable efforts to require its customers to
advertise, display and promote the Marks in a manner consistent with the terms
and conditions of this Agreement and to monitor such use of the Marks by
Licensee's customers.
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10.5 All artwork and designs used in conjunction with Authorized
Products bearing Marks shall not be used in conjunction with other products not
associated with the Marks, whether such use be previous, contemporaneous, or
subsequent to use in connection with Authorized Products, without the prior
written consent of Licensor, which consent may be granted or withheld in
Licensor's sole discretion.
10.6 Licensee shall expend a sum at least equal to the Minimum
Promotional Investment (as hereinafter defined) within the Territory, with
respect to each Contract Year, to advertise and otherwise promote the sales of
Authorized Products bearing Marks, including television and print advertising,
promotional material, and other expenditures made exclusively to promote
directly the sales of Authorized Products bearing Marks with retailers
(excluding, however, expenditures with respect to sales force materials or trade
shows). The Minimum Promotional Investment with respect to each Contract Year
shall be a documentable amount equal to two (2%) percent of Net Sales of
Authorized Products bearing Marks for any Contract Year. Any inadvertent
deficiency in the amount expended by Licensee as a Minimum Promotional
Investment with respect to any Contract Year, except the final Contract Year
shall be added to the Minimum Promotional Investment for the next Contract Year.
In the event that such deficiency occurs, or is discovered in the final Contract
Year, including any Extended Term final Contract Year, or after the termination
or expiration of this Agreement, then such funds shall be immediately remitted
to Licensor by Licensee upon notice to Licensee to such effect and may by used
by Licensor to advertise or otherwise promote any products associated with the
Marks. This Section 10.6 shall survive the termination or expiration of the
Agreement.
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11. INFRINGEMENT. Licensee agrees to notify Licensor promptly of any
infringement or use by any entity of a name, mark, or trademark similar to the
Marks which comes to the attention of Licensee. Licensor shall take such action
as it deems advisable for the protection of Licensor's Marks and Licensee shall
fully cooperate with Licensor, if requested to do so, at Licensor's sole
expense. In no event, however, shall Licensor be required to take any action if
it deems it inadvisable to do so and Licensee shall have no right to take any
action with respect to the Marks without Licensor's prior written approval which
Licensor may grant or withhold at its discretion. All damages recovered in any
action or proceeding commenced or defended by Licensor, shall belong solely and
exclusively to Licensor.
12. MAINTENANCE OF BOOKS AND RECORDS; AUDITS.
12.1 Licensee shall prepare and maintain separate, complete and
accurate books of account and records (specifically, including, without
limitation, the originals or copies of documents supporting entries in the books
of account) covering all transactions arising out of or relating to this
Agreement, in accordance with generally accepted accounting standards. Licensor
or its duly authorized representatives shall have the right on reasonable
written notice, during regular business hours, for two (2) years following each
year of the Initial Term, or any Extended Term, to audit Licensee's books of
account and records relating to this Agreement and examine all other documents
and material in the possession or under the control of Licensee with respect to
the subject matter and the terms of this Agreement including, without
limitation, invoices, credits and shipping documents. All such books of account,
records, and documents shall be kept
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available by Licensee for inspection for two (2) years after the end of each
year of the Initial Term or Extended Term as applicable.
12.2 If any audit of Licensee's books and records discloses that
Licensee's payments to Licensor were less than the amount which should have been
paid, Licensee shall make all payments required to be made to eliminate any
discrepancy revealed by such audit within ten (10) business days after
Licensor's demand therefor. If any such audit discloses that Licensee's payments
to Licensor were two (2%) percent or more below the amount which should have
been paid with respect to Net Sales occurring during the period in question,
Licensee shall make all payments required to be made to eliminate any
discrepancy revealed by such audit within ten (10) business days after
Licensor's demand therefor, together with the cost of such audit. When payments
are made by Licensee to eliminate discrepancies revealed by Licensor's audit
they shall be made together with interest from the original due date to the
payment date at the lesser of the so called "prime rate" as published in the
Wall Street Journal plus two (2%) percent per annum, or the highest rate of
interest allowed by law.
13. INDEMNIFICATION BY LICENSEE, PRODUCT LIABILITY INSURANCE AND
RECIPROCITY.
13.1 Licensee hereby indemnifies Licensor and SVL and undertakes to
defend Licensee, Licensor and SVL against and hold Licensor and SVL harmless
from any claims, suits, losses, liabilities, damages, costs and expenses
(including attorneys' fees and expenses) arising out of (i) any allegedly
unauthorized use of any patent, design, mark, process, idea, method or device by
Licensee in connection with the Authorized Products bearing Marks covered by
this Agreement, or (ii) any other alleged action or omission by Licensee
including breaches of the covenants contained in this agreement or (iii) alleged
manufacturing or other defects in the Authorized
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<PAGE> 19
Products bearing Marks or (iv) any damage or personal injury resulting from the
licensed Authorized Products bearing Marks.
13.2 Licensor hereby indemnifies Licensee and undertakes to defend
Licensee against and hold Licensee harmless from any claims, suits, losses,
liabilities, damages, costs and expenses (including attorneys' fees and
expenses) arising out of claims by third parties that Licensor does not have the
right to enter into this Agreement.
13.3 Sections 13.1 and 13.2 shall survive the expiration or termination
of this Agreement.
13.4 Licensee agrees that it will obtain, at its own expense, product
liability and/or completed operations insurance from a recognized insurance
company which is qualified to do business in the State of Connecticut providing
adequate protection (at least in the amount of $1,000,000 for each occurrence
and $3,000,000 in the aggregate) for Licensor and SVL (as well for Licensee)
against any claims, suits, loss or damage arising out of any alleged defects in
Authorized Products bearing Marks or services. As proof of such insurance, a
fully paid certificate of insurance naming Licensor and SVL as additional
insured parties will be submitted to Licensor and SVL by Licensee for prior
approval before any Authorized Product bearing Marks is distributed or sold, and
at the latest within thirty (30) days after the date first written above. Any
proposed change in such insurance coverage shall be submitted to Licensor and
SVL for their prior written approval. Subsequent to any modification of
insurance coverage Licensor and SVL shall be provided with a copy of the then
prevailing Certificate of Insurance by
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Licensee. Such policy of insurance shall provide for at least thirty (30) days
written notice to Licensor and SVL prior to modification or cancellation. As
used in the first two sentences of this Section 13.4 "Licensor" and "SVL" shall
also include the officers, directors, and employees of the Licensor and SVL,
their parent organization, if any, or any of their or their parents'
subsidiaries or affiliates, and any person(s) the use of whose name may be
licensed hereunder.
14. FINANCIAL STATEMENTS. Within sixty (60) days after the end of each
fiscal year of Licensee, during the Initial Term or Extended Term of this
Agreement as applicable, Licensee shall furnish to Licensor a consolidated
balance sheet of Licensee as of the end of such fiscal year and the related
consolidated statement of income, changes in shareholders' equity and cash flow
statements of Licensee for such fiscal year then ended, together with supporting
notes thereto, as prepared by the Licensee's independent auditors of nationally
recognized, good repute.
15. RECOGNITION OF OWNERSHIP
15.1 Licensee recognizes Licensor's title to the Marks and shall not do
or cause to be done any act or thing which will in any way impair the rights of
Licensor in and to the Marks. It is understood that Licensee, and/or its parent
or subsidiaries shall not acquire and shall not claim any title to the Marks
adverse to Licensor by virtue of the license granted hereunder or use of the
Marks, it being the intention of the parties that all use of the Marks by
Licensee and the good will attendant thereto shall at all times inure to the
benefit of Licensor.
15.2 Nothing herein shall require Licensor to obtain, maintain or renew
any registrations of the Marks or any other trademarks or service marks used in
connection with the sale of Authorized Products of Licensor.
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16. RECORDING. Licensee shall, at its own expense, comply with all
applicable laws governing corporate and business names and registration thereof
in connection with its Business.
17. ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations of Licensee hereunder may be directly or indirectly assigned or
transferred by Licensee, in whole or in part, nor may Licensee grant any
sublicense hereunder to any person, firm or corporation without the prior
written consent of Licensor which may be granted or withheld in Licensor's
discretion except that in the event that Licensee is selling its entire business
operation, or substantially all of its entire business operation, or all, or
substantially all of its assets and this Agreement is proposed to be included as
part of the assets so transferred, then Licensor's consent shall not be
unreasonably withheld. Any attempted assignment by Licensee of this Agreement or
any rights or obligations of Licensee hereunder, without the prior written
consent of Licensor, shall be null and void. Nothing herein or done pursuant to
this Agreement shall be construed as making Licensor or Licensee an agent of the
other. For purposes of this Section an assignment shall include, but not be
limited to, a direct or indirect sale, or transfer of fifty (50) percent or more
of the capital stock or other equity ownership interests of Licensee, and shall
include assignments pursuant to mergers, consolidations, or other forms of legal
reorganizations, or to a transferee of all, or substantially all, of the assets
of Licensee unless such successor or transferee is more than fifty (50) percent
owned by the owners of the equity ownership of Licensee.
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18. TERMINATION.
18.1 If Licensee violates or fails to perform any of its obligations
hereunder, Licensor shall have the right to terminate this Agreement upon notice
as set forth in Section 25.1. In addition, this Agreement will terminate
automatically, without any notice or action being required of Licensor, if
Licensee files a petition in bankruptcy or is adjudicated a bankrupt or
insolvent, makes any assignment for the benefit of creditors or any arrangement
pursuant to any bankruptcy law, or discontinues its business, or if a receiver
is appointed for Licensee or for Licensee's business.
18.2 Upon termination of this Agreement, pursuant to Section 18.1,
Licensee's rights with respect to use of the Marks shall be as if this Agreement
had not been entered into, and Licensee shall cease using the Marks immediately.
Licensee shall promptly thereupon destroy any and all signage, stationery,
business cards, bill head and other items bearing the Marks.
18.3 Termination or expiration of the license under the provisions of
Sections 18 and 25.1 shall be without prejudice to any cause of action or other
remedy which Licensor and Agent may have against Licensee. Upon the termination
or expiration of this license, notwithstanding anything to the contrary herein,
all Percentage Royalties on Net Sales theretofore made shall become immediately
due and payable, no Minimum Guarantees shall be repayable, and all unpaid
Minimum Guarantees for the Initial or Extended Terms hereof, as applicable,
shall be immediately due and payable.
19. FINAL STATEMENT UPON TERMINATION OR EXPIRATION. Ninety (90) days
before the expiration of this license and, in the event of its termination, ten
(10) days after receipt of notice of termination, or the happening of an event
which terminates this Agreement where no notice is required, a final statement
showing the number and description of Authorized Products bearing
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Marks in inventory or in process shall be furnished by Licensee to Licensor and
Agent. Either Licensor and Agent or their authorized representatives shall have
the right to take a physical inventory to ascertain or verify such inventory and
statement and refusal by Licensee to submit to or obtain access to the venues
required or desirable for such physical inventory shall forfeit Licensee's right
to dispose of such inventory as of the date of such refusal. Failure by Licensee
to render the final statement as and when required by this provision shall
result in a forfeiture by Licensee of Licensee's right to dispose of its stock
(as provided by the next Section hereof as of the date of such failure).
20. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION. After termination
or expiration of the license under the provisions hereof, Licensee, except as
otherwise provided in this Agreement, may dispose of Authorized Products bearing
Marks covered by this Agreement which are in inventory or in process at the time
notice of termination is received or upon the expiration date, whatever the case
may be, for the greater of a period of one hundred twenty (120) days thereafter,
or through the next selling season for the Authorized Products, on a
non-exclusive basis, provided advance and Percentage Royalty payments are
up-to-date for the current period and statements are furnished for that period
in accordance with Section 5.4 and provided further that such items are disposed
of only in the regular course of business and in accord with this Agreement as
if it were not terminated or expired. After such sell-off
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period, all Authorized Products shall be, at Licensor's election, sold to
Licensor at manufacturer's cost or destroyed. All applicable Percentage
Royalties shall be paid on Authorized Products sold during the sell-off period
within twenty five (25) days following the expiration of said disposal period.
For purposes of this Section "Manufacturer's cost shall be equal to Licensee's
manufacturing or acquisition cost thereof, but not including any general,
administrative, selling or distribution costs. This Section shall survive the
termination or expiration of this Agreement.
21. EFFECT OF TERMINATION OR EXPIRATION. Upon the expiration or
termination of this license, all rights granted to Licensee hereunder except as
specifically provided to the contrary shall forthwith revert to Licensor, who
shall be free to license others to use the Marks in connection with the
manufacture, preparation, delivery, sale, distribution, advertising, and
promotion of the Authorized Products bearing Marks, and Licensee will refrain
from further use of the Marks or any further direct or indirect reference to it,
except as provided in Section 20. It shall not be a violation of any right of
Licensee if Licensor or Agent should at any time during the term hereof enter
into negotiations with a third party to license use of the Marks in respect of
the Authorized Products described in Schedule A within the Territory, provided
that it is contemplated that such prospective third party's license shall
commence after termination or expiration of this license.
22. INJUNCTIVE RELIEF. Licensee acknowledges that its breach of this
Agreement will result in immediate and irreparable damage to Licensor, and that
money damages alone would be inadequate to compensate Licensor. Therefore, in
the event of a breach or threatened breach of any provision of this Agreement by
Licensee, Licensor, may, in addition to all other remedies, immediately obtain
and enforce injunctive relief prohibiting such breach or compelling specific
performance.
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23. FORCE MAJEURE. Licensee and Licensor shall be released from their
obligations hereunder and this license shall terminate in the event that
governmental regulations or other causes arising out of a state of national
emergency or war or causes beyond the control of the parties render performance
of this Agreement impossible and one party so informs the other in writing of
such causes and its desire to be so released. In such events, all Percentage
Royalties on sales theretofore made shall become immediately due and payable and
no Minimum Guarantees shall be repayable.
24. NO JOINT VENTURE. Nothing herein contained shall be construed to
place the parties in the relationship of partners or joint venturers, and all
parties shall have no power to obligate or bind the other parties in any manner
whatsoever except as stated in this Agreement.
25. CURE PERIODS AND NOTICES.
25.1 Alleged breaches by Licensee relating to payments to Licensor,
copyright or trademark notices, and/or required reports or product quality
concerns representing actual or potential danger to consumers or a violation of
law or of Section 7.4, must be cured within five (5) days of receipt of notice
from Licensor to Licensee of such breach, to the satisfaction of Licensor. For
all other breaches of this Agreement, each party agrees to provide the other
with a cure period of thirty (30) days from receipt of a notice of breach to
correct any alleged breach by the other.. It is expressly agreed that a breach
of the terms of this Section 25.1 shall be adequate grounds for termination of
this license, which termination shall be effective upon receipt by the receiving
party.
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25.2 All notices that are required or permitted to be given under this
Agreement shall be in writing, duly signed by the party giving such notice, and
shall be deemed to have been validly served, given, received, or delivered (i)
upon receipt thereof if sent by mail; (ii) upon delivery thereof if delivered by
hand to the party to be notified; or (iii) upon acknowledgment of receipt
thereof if transmitted to a valid telefacsimile number for the party to be
notified. In each case notice shall be sent to the address of the party to be
notified as follows:
(a) if to Licensor: Starter Corporation, 370 James Street, New
Haven, CT 06513, Attention Frank Lipiro , Senior Vice President, with a copy to
Theodore Voss, General Counsel; fax: (203) 821-5950
(b) if to Licensee: M&L International, Inc. 1333 North Kingsbury
Street, Suite 401, Chicago, IL 60622, Attention Gene Weiner, Executive Vice
President or Kurt Gutfreund, President; fax: (312) 944-3895
(c) if to SVL: SoundView Licensing, Inc., Harbour Square, 700 Canal
Street, Stamford, CT 06902, Attention Donald E. Stapleton, President; fax: (203)
328-3772, or
(d) to such other address or addresses as Licensor, Licensee or SVL
may from time to time designate by notice as provided herein.
26. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Connecticut and waiving all rights
to the contrary all parties agree that either the federal or state courts
located in the state of Connecticut shall have exclusive subject matter and
personal jurisdiction over any actions involving this Agreement.
27. SEVERABILITY. If in any judicial proceeding a court shall refuse to
enforce all provisions of this Agreement, any unenforceable provision shall be
deemed eliminated from the
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Agreement as is necessary to permit the remainder of the Agreement to be
enforced in such proceeding.
28. ENTIRE AGREEMENT; AMENDMENT.
28.1 This Agreement sets forth the entire agreement and understanding
of the parties in respect of the matters contemplated hereby and supersedes all
prior agreements, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by any party which is not embodied in this Agreement or the documents
referred to herein, and no party shall be bound by or be liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
28.2 This Agreement may only be modified or amended in a writing signed
by both Licensor and Licensee.
29. HEADINGS. The headings of the sections of this Agreement have been
inserted solely for convenience of reference and shall in no way restrict or
modify any of the terms or provisions hereof.
30. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and entered into
by the parties on the date first hereinabove mentioned.
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<TABLE>
<S> <C> <C>
STARTER CORPORATION M&L INTERNATIONAL, INC. SOUNDVIEW LICENSING
By:______________________ By:______________________ By:______________________
Frank Lipiro KURT C. GUTFREUND DONALD E. STAPLETON
SENIOR VICE PRESIDENT PRESIDENT PRESIDENT
</TABLE>
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<PAGE> 1
Exhibit 10.2
TRADEMARK LICENSE
This Trademark License ("License") is made and entered into this __, day of
August, 1997 by and between , LOLA, INC., a California corporation, hereinafter
referred to as "Licensor", and BISCAYNE APPAREL INTERNATIONAL, Inc., a Delaware
corporation, hereinafter referred to as "Licensee", with reference to the
following:
RECITALS
A. Licensee is in the business of manufacturing, selling and
distributing certain outerwear (the "Licensed Products"), as more particularly
set forth on Schedule "A";
B. Licensee desires to obtain from Licensor an exclusive license to
manufacture, market, sell, distribute and advertise the Licensed Products in the
territories set forth on Schedule "A", (the "Licensed Territory") and to use the
Trademarks, as hereinafter defined, on or in association with the Licensed
Products;
C. Licensor is the owner of the Trademarks and other related original
works of art as stylized, collectively referred to herein as the "Trademarks",
as more fully set forth on Schedule "A", attached hereto and incorporated by
this reference. Licensor has obtained a trademark registration for the mark
"XOXO", Registration Number 2,009,243 for goods in International Class 25 for
men's, women's and children's clothing and "XOXO IN AMERICA AND ABROAD",
Registration Number 2,043,508, for goods in International Class 25 for women's
and children's clothing.
D. Licensee represents that it has the ability to manufacture, market,
sell, distribute and advertise the Licensed Products in the territories set
forth on Schedule "A" hereto (the "Licensed Territory") and to use the
Trademarks on or in association with the Licensed Products;
Now, Therefore, in consideration of their respective promises and
agreements made herein, Licensor and Licensee agree as follows:
1. LICENSE
1.1 GRANT OF LICENSE.Subject to the terms and conditions of
this License, Licensor hereby grants to Licensee the exclusive right to use the
Trademarks in the Licensed Territory (as defined below), solely to manufacture,
market, sell, distribute and advertise the Licensed Products set forth on
Schedule "A", during the Term of this Agreement. The License created hereby only
allows the Licensee to
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market, sell, distribute and advertise the Licensed Products for sale at
wholesale and does not permit Licensee to engage in the retail sale and/or
retail marketing of the Licensed Products. The License granted herein does not
extend to any other product or service. Licensor shall not grant to anyone the
license to manufacture Licensed Products for sale at retail.
1.1.1 Licensor additionally grants the Licensee the
exclusive license, subject to the terms and conditions of this Agreement, to use
the Trademarks on or in association with the Licensed Products in the Licensed
Territory on packaging, promotional and advertising material associated
therewith.
1.2 DETERMINATION OF LICENSED PRODUCTS. Licensee agrees that
Licensor shall be entitled to reasonably determine whether a particular style or
design of a Licensed Product may be offered for sale by Licensee in accordance
with Paragraph 8 herein. Licensee agrees that it will not manufacture, market,
sell, distribute and advertise, either directly or indirectly, any style, design
or product which Licensor in its reasonable discretion disapproves.
1.3 APPROVAL REGARDING OTHER PRODUCTS ETC. Licensee
acknowledges that Licensor may grant additional licenses in the future for
territories, products and categories not presently licensed and not within the
scope of this License. Permission of Licensor for Licensee to manufacture a
particular style, design or product, or to distribute the Licensed Products
within an area, which is not, in the opinion of the Licensor, within the scope
of the License, shall not constitute a continuing approval or a waiver of the
right of Licensor to later disapprove any style, design, product, or
distribution area.
1.4 USE/OWNERSHIP OF TRADEMARKS. Other than as expressly set
forth in this License, Licensee has absolutely no right, title or interest in or
to the Trademarks or the use thereof. Licensee acknowledges that it is only
acquiring the right to use the Trademarks in connection with (i) the manufacture
of the Licensed Products, and (ii) the marketing, advertising, distribution and
sale of the Licensed Products in the Licensed Territory, for the Term set forth
in this Agreement and subject to the terms hereof. Upon termination of the
License, Licensee shall cease all use of the Trademarks except as provided in
Paragraph 18. Licensee shall not apply anywhere in the world, to register any
copyright, trademark or trade name that in any way mentions or uses the
Trademarks or any trademark or trade name that is confusingly similar to the
Trademarks or trade names licensed hereunder, without the express prior written
consent of the Licensor.
1.5 OWNERSHIP OF TRADEMARKS. Licensor is the sole owner of the
Trademarks in the Licensed Territory and all applications and/or registrations
for the Trademarks in the Licensed Territory; and Licensor is and will be, to
the best of its knowledge, the exclusive owner of all designs, images, art work,
logos, drawings,
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illustrations, trade names, and the like, which it may provide to Licensee from
time to time pursuant to this Agreement. Licensee acknowledges that it is often
difficult, particularly in foreign countries, to obtain clear, registered title
to trademarks and other intellectual property rights. Accordingly, subject to
the provisions of Paragraph 13, Licensee agrees that the rights granted herein
exist only to the extent that Licensor has such rights, and no warranty, express
or implied, is made with respect thereto or with respect to the rights of any
third parties that may conflict with the rights granted herein. Licensee agrees
that the Trademarks and all rights, registrations and entitlement thereto,
together with all applications, registrations and filings are and shall remain
the sole and exclusive property of Licensor.
1.6 USE OF NAMES. Except as authorized pursuant to this
License, and only to that extent, Licensee shall not use the Trademarks and/or
name "XOXO", "XOXO In America and Abroad" or "LOLA" or any confusingly similar
or substantially similar word or names in its business name or otherwise in any
other manner, without the prior written consent of Licensor.
1.7 BEST EFFORTS. Licensee shall use its best efforts to
manufacture, market, sell, distribute and advertise the Licensed Products in
order to meet the demand for the Licensed Products in the Licensed Territory and
to uphold, protect and defend the image and reputation of the Licensed Products
and the integrity of the Trademarks. Licensee further agrees to use its best
efforts to manufacture and ship not less than eighty-five percent (85%) of all
approved, confirmed orders for Licensed Products within a reasonable time of the
delivery date specified in such orders.
2. LICENSED TERRITORY.
2.1 The Licensed products shall only be sold, marketed,
distributed or delivered exclusively by Licensee, either directly or indirectly,
in the Licensed Territory.
2.2 Licensee shall not, directly or indirectly, sell, market,
distribute or deliver, the Licensed Products outside of the Licensed Territory
without prior written consent of Licensor, which consent may be withheld in the
sole and absolute discretion of the Licensor. Licensee shall not knowingly,
directly or indirectly, sell, distribute or otherwise deliver or cause to be
sold, distributed or delivered, the Licensed Products to any individual or
entity who intends to, or is likely to, or to whom Licensee reasonably believes
might, sell the Licensed Products outside the Licensed Territory.
2.3 Nothing contained herein shall in any way restrict or
prohibit Licensor from licensing, marketing, manufacturing, selling or
distributing the Licensed Products outside the Licensed Territory and Licensee
shall have no rights therein.
3. TERM.
3.1 INITIAL TERM. The initial term of this License is three
(3) Years
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commencing August 1, 1997 and terminating on June 30, 2001 ("Initial Term"),
unless sooner terminated as provided herein. Each period during the Initial Term
shall be as follows:
First Year August 1, 1997 through June 30, 1999
Second Year July 1, 1999 through June 30, 2000
Third Year July 1, 2000 through June 30, 2001
3.2 RENEWAL. Licensee has the option to extend the term of
this License for an additional period of five (5) Years ("Option Period"). Each
Year of the Option Period shall be for a period of twelve months commencing upon
the expiration of the immediately preceding Year. Said option must be exercised
by providing written notice to Licensor at least six (6) months and no more than
nine (9) months, prior to the end of the Initial Term. Said option may only be
exercised if Licensee is in full compliance with its obligations under this
Agreement as of the time of exercise of the option and as of the date of
commencement of the Option Period. In the event of any extension or renewal of
this Agreement as provided herein, all terms and conditions of this Agreement
shall remain in full force and effect, except as otherwise set forth in this
Agreement. Should Licensor, at any time, exercise its right under this Agreement
to terminate the rights of Licensee hereunder, thereafter Licensee shall not
have any option to extend the term of this Agreement.
4. ROYALTY PAYMENTS. In consideration for the license granted pursuant
to this Agreement, the Licensee shall pay to Licensor, each month, an amount
equal to seven (7%) percent of the Net Sales of the Licensed Products,
("Royalty").
4.1 ADVANCE PAYMENT OF ROYALTY. Concurrently with the
execution of this Agreement, the Licensee shall pay to Licensor a NON-REFUNDABLE
advance in the amount of seventy-five thousand U.S. Dollars (US $75,000.00),
which payment shall be credited against the Guaranteed Minimum Royalty Payment
due for the first Year ONLY of the Initial Term, pursuant to Paragraph 4.4
below.
4.2 NET SALES. As used herein, "Net Sales" shall mean
Licensee's gross sales (as determined by the gross invoice amount billed to
customers) of the Licensed Products, whether or not actually paid for, less
actual returns, freight, bona fide trade discounts and bona fide charge backs.
No deduction shall be made for cash or other discounts, or reserves for charge
backs or sales discounts. No costs incurred in the manufacturing, selling,
advertising and/or distribution of the Licensed Products or in the payment by
Licensee of any taxes of any nature whatsoever shall be deducted from the gross
sales amounts or from any royalty payable to Licensor, except in the event of a
withholding tax on royalties due to Licensor, nor shall any deduction be allowed
for any
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uncollectible accounts or allowances.
4.3 GUARANTEED MINIMUM NET SALES. During the Initial Term of
this Agreement Licensee guarantees that its Net Sales shall be in the amount set
forth on Schedule "A" during each Year.
4.4 GUARANTEED MINIMUM ROYALTY PAYMENT. Regardless of whether
or not Licensee achieves the required Guaranteed Minimum Net Sales determined
pursuant to Paragraph 4.3 hereof, Licensee shall pay to Licensor a Guaranteed
Minimum Royalty Payment for each Year during the term hereof, in accordance with
the terms of Schedule "A" attached hereto (the "Guaranteed Minimum Royalty").
[For purposes of this Agreement, the "Royalty Payment", whether Guaranteed or
Minimum, shall include the "Royalty" (7%) as defined above, and the amount due
Licensor for "Advertising" (2%) as set forth in paragraph 5 below, for a total
Royalty Payment of 9%.] If at the end of any Year during the term hereof,
Licensee has not paid to Licensor Royalty Payments equaling or exceeding the
Guaranteed Minimum Royalty Payment for that Year, Licensee shall pay to Licensor
the balance due within thirty (30) days of the end of the applicable period.
4.5 MANNER OF PAYMENT; MONTHLY STATEMENTS. The Royalties due
Licensor shall be calculated and paid within 20 calendar days of the end of each
calendar month during the term hereof, for Net Sales invoiced and delivered
during the immediately preceding calendar month, (the "Royalty Period) .
Concurrently with the payment of each Royalty Payment, Licensee shall deliver to
Licensor a written monthly statement of accounting showing any pre-payment of
royalties made by Licensee to Licensor and all of the Licensed Products sold and
delivered during the applicable period covered by the Royalty Payment. Said
statement shall be in the form and shall contain the information as Licensor may
from time to time direct. Such royalty statement shall be certified as accurate
by a duly authorized officer of Licensee, reciting on a territory by territory
basis, the stock number, item, units sold, description, quantity shipped, gross
invoice, amount billed customers less discounts, allowances, returns and
reportable sales for each Licensed Product. Such statements shall be furnished
to Licensor whether or not any Licensed Products were sold during the Royalty
Period. Time is of the essence with respect to all payments herein and if
payment is not timely made, an interest charge of prime (as determined by Bank
of America when said payment was due) plus one (1%) percent, per annum, or the
maximum legal rate, whichever is less, shall be added to the unpaid balance
until said balance, plus accrued interest is paid in full.
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4.5.1 Licensee's obligation to pay Licensor the Royalty
Payment shall accrue upon the sale of the Licensed Products regardless of the
time of collection by Licensee. For purposes of this Agreement, a Licensed
Product shall be considered "sold" upon the date when such Licensed Product is
billed, invoiced, shipped or paid for, whichever event occurs first.
4.5.2 If Licensee sells any Licensed Products to any
party affiliated with Licensee, or in any way directly or indirectly related to
or under the common control with Licensee, at a price less that the regular
price charged to other parties, the Royalty Payment payable to Licensor shall be
computed on the basis of the regular price charged to the other parties.
4.6 Upon termination of this Agreement by Licensor, other than
pursuant to Section 17.1.1 hereof, all Royalty Payments, due Licensor, including
any unpaid portions of the Guaranteed Minimum Royalty Payment, shall be
accelerated and shall immediately become due and payable discounted to present
value at the rate of ten percent per annum. Upon termination of this Agreement
by Licensor pursuant to Section 17.1.1 hereof, no Guaranteed Minimum Royalty
Payment shall become due for any period subsequent to the end of the Year in
which the Licensee failed to achieve the Minimum Net Sales. Licensee's
obligations to pay any Royalty Payment or Guaranteed Minimum Royalty Payment
which accrued prior to expiration or termination of this Agreement shall survive
such expiration or termination.
4.7 CURRENCY. All payments made pursuant to this License and
all calculations of amounts under this License shall be in U.S. dollars, with
all checks drawn on a U.S. bank, except as otherwise specifically provided in
writing between the parties.
4.8 BOOKS, RECORDS AND REPORTS. Licensee shall keep true and
accurate books of accounts and records in accordance with generally accepted
accounting principles of all transactions with respect to the Licensed Products.
4.9 ANNUAL REPORTS OF SALES. For each Year during the term
hereof, Licensee shall submit to Licensor a statement as well a year end
statement for the period ending December 31. The year end statement shall be
submitted by March 20th of each year for the previous calendar year and the
statement for the full Year period shall be due 90 days after the end of such
period. Each statement shall include a detailed and cumulative account of all
transactions of the Licensed Products, including, without limitation, all sales,
all returns, all bona fide trade discounts, all royalties paid and payable, all
Licensed Products returned as substandard, and all orders canceled for
non-delivery and such other information as Licensor may from time to time
reasonably request. This report shall be certified to be correct by the Chief
Executive Officer or the Chief Financial Officer of Licensee.
4.10 MULTIPLE LICENSE. In the event Licensee is or becomes a
party to
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more than one (1) license with Licensor, separate reports and records
shall be maintained and generated as required by Paragraphs 4.5, 4.8 and 4.9 for
each License. Failure to comply with the provisions hereof may constitute an
event of default under the terms of this License, which could cause Licensor to
terminate same or take such other actions as Licensor deems appropriate in its
sole and absolute discretion subject to Paragraph 17 of this Agreement.
5. ADVERTISING. As payment for advertising, Licensee shall pay to
Licensor an amount equal to two (2%) percent of Licensee's Net Sales or
Guaranteed Minimum Net Sales, whichever is greater. The payment for advertising
is in addition to any retail co-op advertising that Licensee may do on its own.
Licensee shall spend at least $35,000 for advertising and/or public relations to
"launch" the Licensed Products during 1998. All advertising used by Licensee
must be approved in writing by Licensor by either Licensor's Chief Executive
Officer or Director of Advertising or any other designee of Licensor, prior to
any use of same in any manner by Licensee. Such advertising shall at all times
be subject to the approval by Licensor, in its sole and absolute discretion,
prior to its publication, exhibition or other use. All advertising shall be
placed through the Advertising Department of Licensor, (if one exists), or as
otherwise designated by Licensor through an advertising agency of Licensor's
choice. Payment for advertising is in addition to all other payments required
hereunder and shall be paid monthly concurrently with the Royalty Payments set
forth above.
6. AUDIT. Licensee shall keep complete and accurate books and records
at its principal place of business covering all transactions relating to this
Agreement. Licensor and/or its duly authorized representatives shall have the
right, at reasonable business hours and upon reasonable notice, at the place
where such records are normally maintained, to inspect, audit, examine and make
copies of such books and records and all other documents and material in
Licensee's possession or control regarding any transactions relating to this
Agreement.
6.1 All books and records of Licensee relating to this
Agreement shall be retained for at least three (3) years following termination
of this Agreement.
6.2 The receipt or acceptance by Licensor of any of the
statements furnished or any payments made by Licensee pursuant to this
Agreement, shall not preclude Licensor from reviewing the books and records or
from questioning the accuracy thereof. Licensor shall have the right from time
to time, and at any reasonable time, to audit Licensee's books to determine the
correctness of payments/amounts due Licensor hereunder during a period of three
(3) years from the end of each Year of the Agreement. The cost of said audit
shall be borne by Licensor. However, if any audit reveals an underpayment by
Licensee of five percent (5%) or more, Licensee shall pay forthwith (and in no
event later than five (5) days after completion of said audit), the cost of the
audit, and all payments found to be due, with interest thereon, at the rate of
prime (as determined by Bank of America when said payment was due) plus one (1%)
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percent, per annum, or the maximum legal rate, whichever is less, computed from
the date said unpaid payments/amounts would have been due had they been properly
accounted for until the date they are actually paid.
6.3 In the event that an audit or investigation of Licensee's
books and records is made, certain confidential and proprietary information of
Licensee may necessarily be made available to the person(s) conducting such
audit or investigation. It is agreed that such confidential and proprietary
information shall be retained in confidence by Licensor, and shall not be used
by Licensor or disclosed to any third party without the prior written consent of
Licensee, unless otherwise required by law. Notwithstanding the foregoing, such
information may be used in any proceeding based on Licensee's failure to pay its
actual Royalty Payments or other obligations to Licensor.
7. ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. Not later than one
hundred twenty (120) days after Licensee's fiscal year-end,(or calendar year-end
as the case may be), Licensee shall furnish Licensor with an audited annual
financial statement which shall include an income statement and a balance sheet
of the Licensee prepared in accordance with generally accepted accounting
principles consistently applied. In addition, within sixty (60) days of the end
of each calendar quarter during the term of this License, Licensee shall furnish
Licensor with quarterly financial statements prepared in accordance with
generally accepted accounting principles. In the event an audited statement is
not prepared by Licensee, Licensee shall nevertheless furnish Licensor with its
unaudited financial statements, certified to be correct by the Chief Executive
Officer or Chief Financial Officer of Licensee.
8. PRODUCT STANDARDS. Licensee shall not sell, distribute or otherwise
market the Licensed Products unless they are of the highest standards and
quality and unless each product has received the prior written approval of
Licensor prior to distribution thereof, subject to the terms and conditions of
this Paragraph 8.
8.1 APPROVAL OF DESIGN CONCEPT. As soon as Licensee has
developed a design for a Licensed Product that it desires to produce, sell and
market, Licensee shall submit three (3) design samples or drawings thereof if
samples are not available, at no cost to Licensor, of said product, along with
color and fabric samples, if applicable, to Licensor for approval, along with
one (1) complete set of all promotional and advertising material associated
therewith.
8.1.1 Within five (5) working days following the receipt
of any design sample, Licensor shall either approve or disapprove the product or
indicate changes to be made. Failure by Licensor to so note approval,
disapproval or changes within said five (5) working days shall be deemed
approval. In the event changes are required, Licensee shall be required to
resubmit the revised design sample or drawings thereof if samples were not
originally submitted, for approval with the recommended
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changes. Subsequent re-submissions shall occur until Licensor either approves or
rejects the design in question. All approvals shall be within Licensor's
reasonable discretion. However, in the event that a dispute arises as to the
determination of same, Licensor shall have the final decision with respect
thereto. Licensee shall not produce a Licensed Product for manufacturing,
marketing, sale, distribution, advertising or otherwise, which has not received
the approval of the Licensor as set forth herein. Once the design samples have
been approved by the Licensor, Licensee shall not materially depart therefrom
without Licensor's prior written consent.
8.2 APPROVAL OF PRODUCTION SAMPLES TO SALES FORCE. As soon as
Licensee has produced its samples for sale of any proposed Licensed Product
which has received design approval as set forth above, Licensee shall submit one
(1) production sample to Licensor for approval, ("Production Sample"). All
submissions of Production Samples for approval by Licensor shall be at the sole
expense of the Licensee. Licensee shall use such sample approval forms and
supply Licensor with such information in connection therewith as Licensor shall
from time to time reasonably direct. Within five (5) working days following
receipt, Licensor shall either approve, disapprove or indicate changes to be
made in the Production Sample. Failure by Licensor to so note approval,
disapproval or changes within said five (5) working days shall be deemed
approval. In the event changes are required, the approval form shall be
resubmitted for approval with the recommended changes. Subsequent re-submissions
shall occur until Licensor either approves or rejects the sample in question.
All approvals shall be at Licensor's reasonable discretion. An approved
Production Sample of each Licensed Product shall be provided to Licensor for its
historical sample line at Licensee's cost. The approved Production Samples shall
be the standard by which future production quality shall be judged. The Licensed
Products produced for sale and/or delivery to any customer of Licensee or anyone
else, shall be of at least the same or better quality than that which was
approved by Licensor as a Production Sample hereunder.
8.2.1 Licensee, at its expense, may also submit to
Licensor a pre-production sample ("Pre-Production Sample") of any proposed
Licensed Product which has received design approval. Within five (5) working
days following receipt, Licensor shall either approve, disapprove, or indicate
changes to be made in the Pre-Production Sample. Failure by Licensor to so note
approval, disapproval or changes within said five (5) working days shall be
deemed approval. All approvals shall be at Licensor's reasonable discretion. An
approved Pre-Production Sample shall be the standard by which future Production
Samples and production quality shall be judged.
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8.3 APPROVAL PRIOR TO DELIVERY. No Licensed Product shall be
delivered by Licensee to a customer unless it has received the design and sample
approvals required by paragraphs 8.1 and 8.2 above.
8.4 PRODUCT DISTRIBUTION.Licensee acknowledges the importance
of the marketing techniques and retailing standards of Licensor with respect to
all products marketed under the Trademarks and agrees to maintain these
standards to protect the value of the Trademarks and the image of the Licensed
Products. Licensee shall therefore maintain the same or higher standards for the
selection of retail, wholesale and other outlets as those maintained by Licensor
during the term of this License. Licensee shall submit to Licensor no later than
February 15th of each year during the term of this License, and concurrently
with the execution of this Agreement, a Distribution Plan ("Plan") for approval.
This Plan shall state the names of accounts proposed to be sold Licensed
Products by Licensee during the year. Licensor shall have ten (10) working days
from the date of receipt of the Plan to approve or disapprove any proposed
purchasers of Licensed Products identified by Licensee. Licensor shall be
reasonable in the event it disapproves any proposed purchaser and advise
Licensee of its reasons for such disapproval. Failure of Licensor to respond to
such Plan within ten (10) working days shall be deemed a waiver of any objection
thereto. In the event the parties fail to agree on a Plan for any year, then
Licensee shall have the option to terminate this License by providing Licensor
with written notice of termination and the effective date thereof, which shall
be at least ninety (90) days from the date Licensor receives the notice of
termination. In the event Licensee fails to so notify Licensor of its desire to
terminate this Agreement, then Licensee shall be required to conform to the Plan
as determined by Licensor. Unless prior written approval is obtained from
Licensor, Licensee is specifically prohibited from the sale and disposition of
the Licensed Products through parking lot sales, swap meets, flea markets and
similar sale or disposal techniques.
Licensor hereby approves the Plan submitted concurrently
herewith for the first Year.
8.5 APPROVALS. Any approvals required herein may only be
granted by Gregg Fiene, President or such other person or persons whom he
designates in writing.
9. QUALITY CONTROL. Licensor has the right to make on site inspections
at any reasonable time and on reasonable notice at manufacturing and
distribution facilities of Licensee to ensure the ongoing quality of the
Licensed Products. If, at any time, Licensor determines in its sole and absolute
discretion, that a Licensed Product is of lesser quality than the Production
Sample or the Pre-Production Sample approved pursuant to Paragraph 8.2 or 8.2.1
hereof, Licensor shall give Licensee written notice thereof. Licensee shall take
immediate steps to restore the quality of and cure the defects upon receipt of
said notice and cease production and distribution of that
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Licensed Product until its quality is improved to the satisfaction of Licensor.
10. LABELING. All Licensed Products and all promotional and advertising
material shall contain all appropriate notices, whether copyright, trademark or
otherwise as required by Licensor and as may be required by law. The labels and
hang tags may be acquired only from approved sources, designated in writing by
Licensor, provided that the prices and other terms and conditions of sale for
sameare competitive with the prices, terms and conditions which Licensee could
acquire elsewhere, and the quality is substantially similar. On all labels and
hang tags, and Licensed Products the circle (R) or (TM) as appropriate shall
appear denoting United States Trademark registration or pending registration,
and where applicable, and subject to the direction of Licensor, all items
subject to copyright protection shall bear a proper and complete circle (C)
copyright notice as specified by law. Licensor shall have the right from time to
time to designate the exact symbols or language to be used by Licensee to denote
ownership by Licensor of any intellectual property, be it Trademarks, copyrights
or other property. Licensee understands the importance of maintaining the
security and integrity of all trademarked labeling used on the Licensed Products
and agrees to obtain said labels only from the sources designated by Licensor..
Licensee further agrees to maintain a strict, accurate, and current inventory of
all labels throughout the manufacturing process of the Licensed products so as
to preclude any diversion of the labels to other than authorized licensees. No
additional labels, hang tags or identification shall appear on the Licensed
Products unless prior written approval of Licensor is obtained, however,
Licensee may include a separate label of its sole choice for care, content, size
and country of origin.
10.1 LABEL INVENTORY. In each annual or year-end statement,
Licensee shall furnish to Licensor a current inventory of all labels designated
in Paragraph 10.
11. TRADEMARKS & COPYRIGHTS. Licensor may seek, in its own name and at
its own expense, appropriate patent, trademark or copyright protection for the
Licensed Products.
11.1 In the event that Licensee requests that Licensor obtain
patent or trademark protection for a particular item or in a particular country
where Licensor had not, heretofore, obtained such protection, Licensor agrees to
take such reasonable steps to obtain such protection, provided, however, that
Licensee shall be obligated to reimburse Licensor for the cost of filing,
prosecuting, and maintaining same.
11.2 Subject to Paragraph 11.6 below, it is understood and
agreed that Licensor shall retain all right, title and interest in the
Trademarks and copyrights and designs of the Licensed Products, as well as any
modifications or improvements made thereto by Licensee, (excluding standard or
generic/basic designs). Upon termination or expiration of this Agreement,
Licensor shall be permitted to make use of same for
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any purpose whatsoever.
11.3 The parties agree to execute any documents reasonably
requested by the other to effect any of the above provisions.
11.4 Licensee acknowledges Licensor's exclusive rights in the
Trademarks and further acknowledges that the Trademarks are unique and original
to Licensor and that Licensor is the owner thereof. Licensee shall not, at any
time during or after the effective Term of the Agreement dispute or contest,
directly or indirectly, Licensor's exclusive right and title to the Trademarks
or the validity thereof.
11.5 Licensee acknowledges that the Trademarks have acquired
secondary meaning.
11.6 Licensee agrees that its use of the designs of the
Licensed Products and/or the Trademarks inures to the benefit of Licensor and
that the Licensee shall not acquire any rights in the designs (except for
standard or generic/basic designs) and/or the Trademarks except as set forth in
this Agreement. Notwithstanding the foregoing, with respect to the designs of
the Licensed Products only, Licensee shall be permitted to utilize similar
designs of the Licensed Products for its other divisions and subsidiaries
provided that, (1) the colors, fabrication and hardware are not the same as the
Licensed Products, (2) the product can only be offered for sale as part of
Licensee's other divisions or subsidiaries after six (6) months from the date
the product is first shipped for sale at retail or the first selling season of
the Licensed Products, whichever is longer, and (3) such products are to be sold
in different "channels of trade" than the Licensed Products. A different channel
of trade is any customer who is not included on Schedule A of the then current
Distribution Plan.
11.7 The parties acknowledge that the faithful representation
of the Trademarks, as they appear in the applications and registration of the
Office of the Patent and Trademark Office of the United States and in
applications and registration in the Licensed Territory, is mandatory on the
part of Licensee with respect to any reproduction used by Licensee, whether it
appears on the Licensed Products or in print or is otherwise displayed in the
media. Licensee further agrees that the Trademarks will always be faithfully and
exactly reproduced, unless prior written authorization for modification thereof
is received from Licensor.
11.7.1 Each first use of the Trademarks by Licensee
shall be submitted to Licensor for approval as set forth in this License. All
goods manufactured, marketed, sold, distributed or advertised hereunder shall
have a notice on the label which states "Trademarks owned and licensed by LOLA,
INC." or such language as Licensor may designate from time to time.
11.8 COPYRIGHT OR TRADEMARK INFRINGEMENT OR MISUSE &
LITIGATION. If Licensee becomes aware of any fraudulent use, misuse, or
infringement of Licensor's
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copyrights or Trademarks or if Licensee becomes aware of any marks confusingly
or substantially similar to the Trademarks, Licensee shall immediately notify
Licensor thereof.
11.8.1 Licensor shall have the first option in its
discretion, to institute and prosecute lawsuits against third persons for
infringement of the rights licensed in this Agreement. Licensor shall not be
required to institute legal action if, in its sole and absolute discretion, the
probability of success therein or results of successful litigation do not
justify the time and expense thereof. In the event that Licensor determines in
its sole and absolute discretion not to prosecute any such litigation, then in
such event Licensee shall have the right, in its discretion, to institute and
prosecute lawsuits against third persons for infringement of the rights licensed
in this Agreement. The cost and expense of any lawsuit shall be borne by the
party bringing suit. Any recovery, whether by judgment, settlement, or
otherwise, shall be retained by the party bringing suit. Licensee shall
cooperate fully with Licensor in any proceeding to protect the Trademarks and
copyrights and other intellectual property rights granted herein.
11.9 OTHER TRADEMARKS OF LICENSOR. Licensee shall have no
right whatsoever to any trademark or other intellectual property that may be
developed by Licensor or its affiliates that is not, in the sole opinion of
Licensor, part of the Licensee's brand line and directly related to the Licensed
Products. Notwithstanding the foregoing, Licensee shall not be permitted to use
Licensor's trademark "Lola" or anything substantially similar thereto with
respect to this License Agreement.
12. WARRANTIES & OBLIGATIONS.
12.1 Licensor represents and warrants that; (a) it has the
right and power to grant the licenses herein; and (b) that there are no other
agreements with any other party in conflict herewith.
12.2 To the best of Licensor's knowledge, it has no actual
knowledge that the Property and/or Trademarks infringe any valid right of any
third party.
12.3 Licensee shall be solely responsible for the manufacture,
production, sale and distribution of the Licensed Products and will bear all
related costs associated therewith.
12.4 Licensee represents and warrants that it will use its
best efforts to promote, market, sell and distribute the Licensed Products as
provided in this Agreement.
12.5 Licensee represents and warrants that it has the right
and power to enter into this Agreement and that there are no other agreements
with any other party in conflict herewith.
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12.6 Subject to its rights under Paragraph 11.6 above,
Licensee represents and warrants that during the term of this Agreement it will
not enter into an agreement with anyone to copy or "knock-off", or directly or
indirectly copy or "knock-off", or cause to be copied or "knocked-off" any of
the Licensed Products for itself or anyone else or any other products
manufactured or licensed by Licensor.
13. INDEMNITY.
13.1 Licensor shall indemnify, defend and hold Licensee, its
officers, directors, employees, and agents harmless from any liability,
attorney's fees, costs and expenses arising from any claims asserted against
Licensee or Licensor arising from Licensee's use of the Trademarks, designs,
images, artwork, logos, drawings, illustrations, trade names, and the like,
which Licensor may provide to Licensee from time to time pursuant to this
Agreement and which Licensee utilized ONLY in accordance with the terms of this
Agreement. This indemnity does not cover any modifications or changes made to
the Trademarks by Licensee, without Licensor's prior consent. Licensor shall be
entitled, at its option to provide legal counsel to represent Licensee at
Licensor's cost. Licensor shall not be required to pay for Licensee's
independent legal counsel, if Licensor provides legal counsel to represent
Licensee with respect to any claim. Nothing herein is intended to nor shall it
relieve Licensee from liability for its own acts, omissions, or negligence.
13.2 Licensee shall defend and indemnify Licensor, its
officers, directors, agents, and employees against all costs, expenses and
losses (including reasonable attorney fees and costs) incurred through claims of
third parties against Licensor or Licensee based on the manufacture, marketing,
sale, advertising, distribution of the Licensed Products designed by Licensee
including, but not limited to, actions founded on product liability on all
products manufactured by Licensee.
13.3 Each party will promptly notify the other of any claims
or actions to which the foregoing indemnification may apply.
14. GOODWILL. Licensee recognizes the great value of the publicity and
goodwill associated with the Trademarks, Copyrights and designs of the Licensed
Products , and agrees that the value of the goodwill exclusively belongs to
Licensor.
15. COPYRIGHT NOTICE. Licensee shall place a legally sufficient
copyright notice which protects the rights of Licensor on each and every design,
style, garment, creation or writing which is capable of protection pursuant to
the copyright laws of the United States of America and the Licensed Territory at
the reasonable direction of Licensor. Any public distribution of goods bearing
copyrightable works of Licensor by Licensee without a copyright notice as
required above, is unauthorized and a violation
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of this Agreement.
16. INSURANCE. Licensee shall, throughout the Term of this Agreement
and any extension or renewal hereof, obtain and maintain at its sole cost and
expense, from a qualified insurance company, reasonably acceptable to Licensor,
and, Product Liability Insurance naming Licensor and its President Gregg Fiene,
as additional insured thereon. Such policy shall provide protection against any
and all claims, demands and causes of action arising out of any defects or
failure to perform, alleged or otherwise, of the Licensed Products or any
material used in connection therewith or any use thereof. The amount of the
coverage shall be at least Two Million ($2,000,000) Dollars. The policy shall
provide for ten (10) days notice to Licensor from the insurer by registered or
certified mail, return receipt requested, in the event of any modification,
cancellation or termination thereof. Licensee shall furnish Licensor a
certificate of insurance evidencing such coverage upon execution of this
Agreement, and in no event shall Licensee manufacture, distribute or sell the
Licensed Products prior to receipt by Licensor of such evidence of insurance.
17. TERMINATION. The following termination rights are in addition to
the termination rights provided elsewhere in this Agreement and unless otherwise
provided in this Paragraph 17, are subject to the cure provision set forth in
Paragraph 17.7 below.
17.1 IMMEDIATE RIGHT OF TERMINATION. Licensor shall have the
right to immediately terminate this Agreement by giving written notice to
Licensee in the event that Licensee does any of the following:
17.1.1 Licensee fails to achieve 70% of the required
Guaranteed Minimum Net Sales in any Contract Year during the Initial Term or the
Option Period as set forth on Schedule "A" hereto.
17.1.2 Licensee files a petition in bankruptcy or is
adjudicated a bankrupt or insolvent, or makes an assignment for the benefit of
creditors, or an arrangement pursuant any bankruptcy law, or if the Licensee
discontinues its business or a receiver is appointed for the Licensee or for the
Licensee's business and such receiver is not discharged within ninety (90) days;
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17.2 TERMINATION AFTER NOTICE. Subject to the provisions contained in
Paragraph 17.7 below, Licensor shall have the right to terminate this Agreement
upon the occurrence of the following events:
17.2.1 Licensee fails to meet the Initial Shipment Date
as specified in Schedule "A" hereto;
17.2.2 Licensee fails to make timely payment of
Royalties or other monies due Licensor two or more times during any twelve month
period;
17.2.3 Licensee breaches any provision of this
Agreement, (except as specifically noted in Paragraph 17.1 above) including, but
not limited to, the unauthorized assertion of rights in the Trademarks;
17.2.4 Licensee fails to obtain or maintain product
liability insurance in the amount and of the type provided for herein;
17.2.5 Licensee fails to promptly discontinue the
distribution or sale of the Licensed Products, Trademarks or Copyrights or the
use of any packaging or promotional material which does not contain the
requisite notices or labels;
17.2.6 Licensee has not taken steps to restore the
quality of and cure the defects with respect to the Licensed Products in
accordance with Paragraph 9 of this Agreement.
17.3 ACCELERATED PAYMENTS ON DEFAULT. In the event of a
default and the rights of Licensee under this Agreement are terminated, all
payments required hereunder shall be accelerated and shall be due and payable to
Licensor immediately, in full, plus interest at prime (as determined by Bank of
America when due) plus one(1%) percent, per annum from the date due or the date
of default, whichever shall first occur;
17.4 This Agreement may be terminated by the mutual consent of
the parties in writing.
17.5 DEFAULT. Subject to the provisions of Paragraph 17.7, in
addition to the foregoing rights of Licensor, either party may terminate this
Agreement and the rights of the other party if either party is in default or has
materially breached any of the terms of this Agreement, or any additional or
supplemental agreements that may be entered into between the parties.
17.6 ACTS DETRIMENTAL TO THE BRAND. Licensee acknowledges that
it is only one of multiple licensees of the Trademark; that its actions and
omissions can greatly impact the business of Licensor, the business of other
licensees of Licensor and the value of the Trademark(s); and that the quality of
Licensee's production, timely delivery of approved orders, and conduct of its
business can greatly impact the business of other licensees of Licensor and the
value of the Trademarks. As a result, in the event that the Licensee takes any
action which is, in the reasonable opinion of
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Licensor, materially harmful to the Trademarks or the business of Licensor,
Licensor's other licensees, or the Trademarks, then Licensor shall have the
right to terminate all rights of Licensee under this Agreement.
17.7 CURE PERIOD. Before Licensor terminates the rights of
Licensee under this Agreement, (except with respect to the provisions contained
in Paragraph 17.1 which are grounds for immediate termination), Licensor shall
give Licensee written notice, setting forth the basis for such termination,
default or failure to perform. Licensee shall have thirty (30) days from and
after mailing of such written notice to cure such default, breach or failure to
perform. In the event that such breach, default or failure to perform is not
cured within said thirty (30) days, then Licensor may forthwith terminate all of
Licensee's rights hereunder.
17.8 Licensee shall have the right to terminate this Agreement
by giving written notice to Licensor in the event that:
17.8.1 Gregg Fiene is no longer the chief operating
officer or chief executive officer of Licensor; or
17.8.2 If Licensor files a petition in bankruptcy and is
adjudicated bankrupt or insolvent, or makes an assignment for the benefit of
creditors, or an arrangement pursuant to any bankruptcy law, or if Licensor
discontinues its business.
17.9 Notice of a party's election to terminate this Agreement
must be given, if at all, within sixty days after the occurrence of the event
giving rise to the right to terminate.
18. POST TERMINATION RIGHTS. All of the following rights and duties
shall be applicable upon any termination of Licensee's rights under this
Agreement, whether by expiration of the term hereof or by earlier termination
pursuant to the provisions hereof.
18.1 Not less than thirty (30) days prior to the expiration of
this Agreement, or immediately upon earlier termination thereof, Licensee shall
provide Licensor with a complete inventory of all inventory of the Licensed
Products then on-hand and all piece goods for same (the "Inventory").
18.2 DELETION OF TRADEMARK. Immediately upon expiration or
earlier termination of this Agreement, Licensee shall take all steps necessary
to change its name if it incorporates any of the Trademarks or similar words in
its business name and delete any references to the Trademarks and similar words
from any signs, business names, or any use in advertising, print or otherwise.
Subject to Paragraph 18.4, this change of name shall be completed within ninety
(90) days after expiration or earlier termination of this Agreement.
Notwithstanding the foregoing, in the event that this
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Agreement is terminated for cause as provided in Paragraphs 17.1 and 17.2 above,
then Licensee shall remove all references to the Trademarks or similar words in
its business name and delete any references to the Trademarks and similar words
anywhere same is used within thirty (30) days from and after the date of such
termination.
18.3 DISPOSITION OF SAMPLES, PATTERNS, MARKERS, LABELS AND
FASTENERS ON TERMINATION. Any samples, patterns, markers and labels or fasteners
(snaps, buttons, etc.) on which the Trademarks appear, which are not affixed to
a finished Licensed Product, shall be delivered to Licensor by Licensee within
thirty (30) days of the expiration or termination of this Agreement, except as
provided in Paragraph 18.4 below. An inventory of such items on hand upon
expiration or termination of this Agreement shall be delivered to Licensor
within twenty (20) days of the expiration or termination. All such items of
inventory shall be used in accordance with this provision and no other
disposition of these items shall occur. Licensor shall pay Licensee for all such
material at a price equal to Licensee's cost thereof, including freight; such
payment to be made within thirty (30) days after delivery.
18.4 LIQUIDATION OF GOODS. Immediately upon the expiration or
termination of Licensee's rights under this Agreement, Licensee shall have the
right to complete all work in process, and to complete bona fide purchase
orders. Licensee shall have the right to use the items of inventory listed in
Paragraph 18.3 above, for completion of work in process. Licensee shall no
longer have the right to use the Trademarks in any form or in any manner, except
for the purpose of selling off the existing inventory of the Licensed Products.
Licensee shall have one hundred fifty (150) days from the date of expiration or
termination of this Agreement to dispose of its inventory of the Licensed
Products. If any of the Licensed Products remain unsold after the expiration of
one hundred fifty (150) days, Licensee shall then remove the Licensed Products
from its inventory and return such unsold inventory to Licensor at no cost to
Licensor, other than freight. All sales of the remaining inventory shall be sold
in accordance with the terms of this Agreement, and the accounting and payment
shall be made within thirty (30) days after the close of the one hundred fifty
(150) day sell off period.
18.5 Except as provided above, upon expiration or earlier
termination of this Agreement, all of the rights of Licensee under this
Agreement shall forthwith terminate and immediately revert to Licensor and
Licensee shall immediately discontinue all use of the Trademarks at no cost
whatsoever to Licensor.
18.6 Licensee hereby agrees that, at the expiration or earlier
termination of this Agreement for any reason, Licensee will be deemed
automatically to have assigned, transferred and conveyed to Licensor any and all
rights, goodwill or other right, title or interest in and to the Trademarks,
trade dress, copyrights, or any other intellectual property rights which may
have been obtained by Licensee as a result of
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this License. Licensee will execute, and hereby irrevocably appoints, Licensor
its attorney in fact (acknowledging that such power is coupled with an interest)
to execute, if Licensee fails or refuses to do so, any instrument requested by
Licensor to accomplish or confirm the foregoing.
19. MUTUAL EXCLUSIVITY. Licensor shall provide Licensee with
substantial design input for the Licensed Products, and it is and will be
impossible to determine which design features are not the property of Licensor.
Licensee further agrees that all existing and future graphic designs and designs
of the Licensed Products are and shall remain the sole and exclusive property of
Licensor. Subject to its rights under Paragraph 11.6 above, Licensee agrees that
it shall not manufacture, sell or distribute products using the graphic designs
of the Licensed Products or substantially similar designs under any other name
or label other than the Trademarks.
20. NON-ASSIGNABILITY. Neither this Agreement nor any of the Licensee's
rights hereunder are assignable by Licensee, without the prior written consent
of Licensor. Such consent may be withheld in the sole and absolute discretion of
Licensor. The transfer of more that fifty (50%) percent in the aggregate of the
shares of beneficial ownership of Licensee will be deemed an assignment.
Notwithstanding the foregoing, Licensor's consent shall not be unreasonably
withheld in the event of a sale of all or substantially all of the assets of
Licensee or in the event of a transfer of more than fifty percent in the
aggregate of the shares of beneficial ownership of Licensee Licensor may assign
its rights under this Agreement or the payments to be made by Licensee to
Licensor hereunder.
20.1 SUBLICENSE-SUBCONTRACT. Licensee may not sublicense its
rights under this Agreement without the prior written consent of Licensor, which
approval or disapproval shall be subject to the sole and absolute discretion of
Licensor. Any sublicense or attempted sublicensing by Licensee without the prior
written consent of Licensor shall constitute a breach of this Agreement. Any
sublicense consented to by Licensor must provide that the sublicensee shall be
bound by all of the terms and conditions of this Agreement. Approval by Licensor
to one sublicense shall not relieve the Licensee of any of its obligations under
this Agreement, including, without limitation, its obligations set forth on
Schedule "A".
20.1.1 Licensee shall have the right to subcontract the
actual manufacture of the Licensed Products, provided that all such
subcontractors agree to be bound by the terms and conditions of any
sub-contractor Agreement heretofore provided by Licensor to Licensee
specifically for use by Licensee's sub-contractors. Licensee must provide
Licensor with the appropriate acknowledgment of the terms of such sub-contractor
Agreement from such subcontractor prior to using such subcontractor.
20.2 NO HYPOTHECATION. Licensee shall not pledge, hypothecate,
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mortgage, grant liens in or upon, grant security interests in, or use as
collateral any of Licensee's rights under this Agreement without the prior
written consent of Licensor, which consent may be withheld in the sole and
absolute discretion of Licensor. Any such action without the prior written
consent of Licensor shall be void and of no force and effect and shall entitle
Licensor to forthwith terminate Licensee's rights under this Agreement.
21. SALE OF LICENSED PRODUCTS TO XOXO RETAIL STORES OR XOXO OUTLET
STORES. As additional consideration for Licensor entering into this Agreement,
with respect to any XOXO Retail Stores owned or controlled by Licensor, any
affiliate of Licensor, 8-3 Retailing, Inc., or any company subsequently
established by Licensor, or any of the principals of Licensor, individually or
collectively, for the express purpose of operating XOXO Retail Stores,
(hereinafter collectively referred to as "Retail Stores"), Licensee shall sell
to Licensor on a "CONSIGNMENT" basis, to no more than five (5) of such Retail
Stores as or when opened, any Licensed Products manufactured by Licensee
pursuant to this Agreement and ordered by such Retail Store in reasonable
quantities, and at the Licensee's lowest wholesale selling price to anyone and
same shall be delivered to such Retail Stores in accordance with the terms of
such order(s). All Licensed Products so ordered by shall be paid by such Retail
Store to Licensee within forty-five (45) days of the end of the month in which
the Licensed Products are received, if not returned as provided below. Any such
Retail Store shall have the right to return any unsold Licensed Products ordered
from Licensee anytime within sixty (60) days after the receipt of same by such
Retail Store(s) without any obligation for the payment of same to Licensee.
Licensee shall provide any such retail store referenced above with a Return
Authorization for such merchandise on demand, prior to the return of such
merchandise to Licensee.
21.1 During the Term of this Agreement, with respect to any
Licensed Products that are either not sold by Licensee during the normal course
of business, seconds, overruns, damaged, off-priced, discontinued or otherwise
Licensed Products that are not sold during the selling season for same
(hereinafter referred to as "Off-Priced Goods"), Licensor shall have the first
right to purchase same from Licensee for its XOXO Outlet Stores at such
reasonable price as the parties agree, prior to offering such Off-Priced Goods
to anyone else. Licensee shall notify Licensor or its buyer for the XOXO Outlet
Stores of any Off-Priced Goods subject to the within provision. Licensor or its
buyer for the XOXO Outlet Stores shall have 5 business days from and after
receipt of same within which to purchase any quantity of the Off-Priced Goods
offered for sale herein. In the event that Licensor or its buyer for the XOXO
Outlet Sores does not notify Licensee of its intention to buy all or any portion
of the Off-Priced Goods offered for sale, then Licensee shall be entitled to
dispose of that portion of such Off-Priced Goods which Licensor or its buyer for
the XOXO Outlet Stores does not purchase. Licensor shall be provided payment
terms for same of not less than 45 days from the end of the month in which the
Licensed Products are received. In the event
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that Licensor declines to purchase such Off-Priced Goods, then Licensee shall be
permitted to sell same to any third-party listed in Schedule B of the then
current Distribution Plan, provided that the price and terms are no more
favorable to such third party as that offered to Licensor.
22. GENERAL PROVISIONS.
22.1 Payments. All payments due hereunder shall be payable to
Licensor.
22.2 NOTICES. Any notice required to be given hereunder shall
be in writing and delivered personally to the other designated party at the
address set forth below or mailed by certified or registered mail, return
receipt requested or delivered by a recognized national overnight courier
service, in a sealed envelope, with postage thereon fully paid and addressed as
follows:
If to Licensor: Mr. Gregg Fiene
Lola, Inc. d.b.a. XOXO
6000 Sheila Street
Commerce, CA 90040
Fax: (213) 277-1750
With copies to: Mr. Jeffrey F. Gersh, Esq.
Zimmerman, Rosenfeld, Gersh & Leeds LLP
9107 Wilshire Boulevard
Suite 300
Beverly Hills, CA 90210
Fax: (310) 273-5602
and
Mr. Glenn Rutherford
President/CEO
Logan James, Ltd.
3072 Evergreen Parkway
Evergreen, CO. 80439
Fax: (303) 670-3005
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If to Licensee: Biscayne Apparel International, Inc.
1373 Broad Street
Clifton, NJ 07013
Attn: President
Fax: (973) 473-5401
With copies to: Law Offices of Abrams & Chapman
Attn: Sherwin D. Abrams
Suite 1200
321 South Plymouth Court
Chicago, Illinois 60604-3990
Fax: (312) 360-9212
Either party may change the address to which notice or payment is to be
sent by written notice to the other in accordance with the provisions of this
Paragraph.
22.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior negotiations, dealings, agreements and understandings of
the parties in connection therewith and is intended as a final expression of
their Agreement.
22.4 SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
22.5 AMENDMENT. No amendment, modification or alteration of
this Agreement shall be valid unless it is in writing and signed by all parties
hereto.
22.6 NO AGENCY OR JOINT VENTURE. This Agreement does not
constitute and shall not be construed as constituting an agency, partnership or
joint venture between the parties. Licensee shall have no right to obligate or
bind Licensor in any manner whatsoever, and nothing herein contained shall give,
or is intended to give, any rights of any kind to any third persons.
22.7 GOVERNING LAW. This Agreement shall be deemed to have
been made in, and shall be construed in accordance with the laws of the State of
California, and its validity, construction, interpretation and legal effect
shall be governed by the laws of the State of California applicable to contracts
entered into and performed entirely therein. It is further agreed that this
Agreement is deemed to have been consummated in the State of California and as
such, in the event of a dispute between the parties, the parties consent to in
personam jurisdiction in either the Federal or State Court in the county of Los
Angeles, State of California to hear any dispute with respect to same. As a
result the parties hereby agree to waive any jurisdictional or venue
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<PAGE> 23
defenses otherwise available to it.
22.8 ATTORNEY FEES AND COSTS. If either party to this
Agreement shall bring any action against the other, declaratory or otherwise,
arising out of this Agreement, the losing party shall pay to the prevailing
party a reasonable sum for attorney fees incurred in bringing or defending such
suit and/or enforcing any judgment granted therein, all of which shall be deemed
to have accrued upon the commencement of such action and shall be paid whether
or not such action is prosecuted to judgment. Any judgment or order entered in
such action shall contain a specific provision providing for the recovery of
attorney fees and costs incurred in enforcing such judgment. For the purposes of
this section, attorney fees shall include, without limitation, fees incurred in
the following: (1) post judgment motions; (2) contempt proceedings; (3)
garnishment, levy, and debtor and third party examinations; (4) discovery; and
(5) bankruptcy litigation.
22.9 INTERPRETATION. The parties hereto are sophisticated and
have been represented by lawyers throughout this transaction, who have carefully
negotiated the provisions hereof. As a consequence, the parties do not believe
that the presumptions of CIVIL CODE Section 1654 relating to the interpretation
of contracts against the drafter of any particular clause should be applied in
this case and therefore waive its effects.
22.10 RECITALS. The recitals set forth on the first page of
this Agreement are incorporated herein by this reference as though fully set
forth herein.
22.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of Licensee and its successors and assigns
and shall also be binding upon and shall inure to the benefit of Licensor and
its successors and assigns.
22.12 HEADINGS. The subject headings of the Sections of this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any term or provisions hereof.
22.13 PARTIES BENEFITTED. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provisions give any third persons any
right of subrogation or action against any party to this Agreement.
22.14 CONFIDENTIALITY. The parties hereto agree that the terms
of this Agreement shall be kept confidential and not disclosed to any third
party except in the ordinary course of business or if required by law, without
the prior written consent of the other party hereto. Licensee acknowledges that
prior to and/or during the term of
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<PAGE> 24
this Agreement that it may be given access to or become acquainted with
"Confidential Information" (as such term is defined below), which is of great
value to Licensor. Licensee further acknowledges that maintaining the
confidentiality of all such Confidential Information is critically important to
Licensor. As a result of the foregoing Licensee shall not either during or after
the term of this Agreement, use or disclose, directly or indirectly, to anyone
other than representatives of Licensor or other persons designated by Licensor
any information, data, documents, customer list(s), designs and styles,
manufacturing procedures, company policies, or other materials of any kind or
nature in any way related to Licensor, its business affairs or operations, even
if acquired by Licensee in the course of the performance of Licensee's
obligations hereunder and even if provided to Licensee by Licensor
("Confidential Information"). Licensee acknowledges that a breach of the
provisions of this paragraph will cause Licensor irreparable harm for which
there is no adequate remedy at law, and therefore, in addition to any and all
other rights or remedies available to Licensor, Licensor shall be entitled to
injunctive relief and all other remedies provided by law or equity. Such
remedies shall include, without limitation, the right to prevent dissemination
of any Confidential Information.
22.15 FURTHER ACTION. Each party hereto agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions hereof.
22.16 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, which shall be
deemed to constitute one and the same instrument.
22.17 NO IMPLIED WAIVERS. The failure of either party at any
time to require performance by the other party of any provision hereof shall not
affect in any way the full right to require such performance at any time
thereafter. The waiver by either party of a breach of any provision hereof shall
not be construed or held to be a waiver of the provision itself.
22.18 TIME. Time is of the essence of the Agreement.
22.19 PROTECTION OF TRADEMARKS. Neither Licensor or Licensee
shall, at any time, do or suffer to be done any act or thing which will in any
way impair the rights of the Licensor in and to the Trademarks or the rights of
the Licensee in and to its rights under this Agreement or which affects the
validity of the Trademarks or which depreciates the values thereof or which
tends to bring the Trademarks into disrepute.
-24-
<PAGE> 25
23. SHOWROOM FOR LICENSED PRODUCTS
Licensee acknowledges the importance of providing customers with the
ability to view all of the Licensee's Licensed Products in one location and in
close proximity to Licensor's showrooms so that Licensor can introduce its
customers to the Licensed Products. Licensor may, in its discretion, provide a
showroom for all Licensees in close proximity to Licensor's showrooms or as part
of Licensor's showrooms in Los Angeles and New York, as Licensor shall
reasonably determine. At the Licensor's request, the Licensee shall provide a
current sample line of its Licensed Products in each showroom. Licensor shall
provide a sales person in each showroom to show Licensee's line to customers and
prospective customers and to refer such customers or prospective customers to
Licensee. With respect to Licensee's own showroom, Licensee shall provide,
display and maintain complete current sample lines of its Licensed Products. The
Licensed Products shall be completely separated from other products sold or
manufactured by Licensee.
Licensee shall be required to maintain a booth at no more than two (2)
trade shows per Year as determined by Licensor and Licensee and where Licensor's
products are exhibited or offered for sale, at Licensee's sole cost and expense
and exhibit therein the Licensed Products manufactured by Licensee pursuant to
this Agreement. Licensee's booth shall be maintained as part of or in connection
with Licensor's booths at such trade shows.
IN WITNESS WHEREOF, the parties hereto, have entered into this
Agreement effective on the day and year set forth above.
LICENSOR:
LOLA, INC.
By:
----------------------------------
Gregg Fiene, President
Date: _____________, 1997
LICENSEE:
Biscayne Apparel International, Inc.
By:
----------------------------------
Peter Vandenberg, Jr., President
Date: __________, 1997
25
<PAGE> 1
EXHIBIT 11
Biscayne Apparel, Inc.
Computation of Per Share Earnings
(Dollars in Thousands, Except
Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 2,504 $ 2,830 $ (64) $ (764)
=========== =========== =========== ===========
PRIMARY:
Common and common equivalent shares:
Weighted average common shares
outstanding 10,770,213 10,741,540 10,761,288 10,741,540
Potential dilution upon exercise
of stock options and warrants 23,426 1,995 - -
----------- ----------- ----------- -----------
Shares used in computing net
earnings (loss) per common share 10,793,639 10,743,535 10,761,288 10,741,540
=========== =========== =========== ===========
PER SHARE AMOUNTS:
Net earnings (loss) per share $ 0.23 $ 0.26 $ (0.01) $ (0.07)
=========== =========== =========== ===========
FULLY DILUTED:
Common and common equivalent shares:
Weighted average common shares
outstanding 10,770,213 10,741,540 10,761,288 10,741,540
Potential dilution upon
exercise of stock options
and warrants 18,954 1,995 - -
----------- ----------- ----------- -----------
Shares used in computing
net earnings (loss) per
common share 10,789,167 10,743,535 10,761,288 10,741,540
=========== =========== =========== ===========
PER SHARE AMOUNTS:
Net earnings (loss) per share $ 0.23 $ 0.26 $ (0.01) $ (0.07)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 442
<SECURITIES> 0
<RECEIVABLES> 33,632
<ALLOWANCES> (2,619)
<INVENTORY> 22,098
<CURRENT-ASSETS> 56,007
<PP&E> 4,981
<DEPRECIATION> (2,333)
<TOTAL-ASSETS> 58,921
<CURRENT-LIABILITIES> 38,411
<BONDS> 0
107
0
<COMMON> 0
<OTHER-SE> 11,335
<TOTAL-LIABILITY-AND-EQUITY> 58,921
<SALES> 69,492
<TOTAL-REVENUES> 69,492
<CGS> 50,977
<TOTAL-COSTS> 50,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,337
<INCOME-PRETAX> (108)
<INCOME-TAX> (44)
<INCOME-CONTINUING> (64)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
