<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 3, 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 1-11752
ST. JOHN KNITS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA 95-2245070
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification Number)
Organization)
17422 DERIAN AVENUE, IRVINE, CALIFORNIA 92614
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (714) 863-1171
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of outstanding shares of registrant's Common Stock, no par value, was
16,629,398 shares as of September 4, 1997.
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ST. JOHN KNITS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 3, NOVEMBER 3,
1997 1996
-------------------------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 14,308,788 $ 6,186,057
Investments........................................................... 2,326,519 4,222,516
Accounts receivable, net.............................................. 28,059,903 28,093,606
Inventories........................................................... 28,323,200 23,619,054
Deferred income tax benefit........................................... 5,493,961 5,493,961
Other................................................................. 1,706,157 1,269,382
------------ ------------
Total current assets............................................... 80,218,528 68,884,576
------------ ------------
Property and equipment:
Machinery and equipment............................................... 32,697,800 29,930,228
Leasehold improvements................................................ 24,426,532 22,636,537
Buildings............................................................. 11,679,417 --
Furniture and fixtures................................................ 5,314,462 4,427,249
Land.................................................................. 3,461,103 3,461,103
Construction in progress.............................................. 313,647 6,797,018
------------ ------------
77,892,961 67,252,135
Less--Accumulated depreciation and amortization....................... 26,909,267 23,351,904
------------ ------------
50,983,694 43,900,231
------------ ------------
Other assets............................................................ 3,896,935 3,709,316
------------ ------------
$135,099,157 $116,494,123
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable...................................................... $ 5,310,618 $ 5,404,401
Accrued expenses...................................................... 9,312,312 11,508,469
Income taxes payable.................................................. 306,899 2,344,000
------------ ------------
Total current liabilities.......................................... 14,929,829 19,256,870
------------ ------------
Deferred income tax liability......................................... 143,941 143,941
------------ ------------
Shareholders' equity:
Preferred Stock, no par value: Authorized--2,000,000 shares, issued
and outstanding--none............................................... -- --
Common Stock, no par value: Authorized--40,000,000 shares, issued 502,799 502,799
and outstanding--16,629,398 and 16,599,064 shares, respectively.....
Additional paid-in capital............................................ 18,805,093 18,085,151
Retained earnings..................................................... 100,717,495 78,505,362
------------ ------------
120,025,387 97,093,312
------------ ------------
$135,099,157 $116,494,123
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- ---------------------------------
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
----------- ----------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales......................... $54,810,646 $46,524,557 $170,548,472 $141,811,752
Cost of sales..................... 22,647,956 20,039,702 70,759,344 63,109,305
----------- ----------- ------------ ------------
Gross profit...................... 32,162,690 26,484,855 99,789,128 78,702,447
Selling, general and
administrative expenses.......... 20,125,485 16,344,693 60,570,472 47,853,311
----------- ----------- ------------ ------------
Operating income.................. 12,037,205 10,140,162 39,218,656 30,849,136
Other income...................... 204,539 255,651 659,250 1,100,971
----------- ----------- ------------ ------------
Income before income taxes........ 12,241,744 10,395,813 39,877,906 31,950,107
Income taxes...................... 5,040,539 4,381,162 16,419,728 13,464,893
----------- ----------- ------------ ------------
Net income........................ $ 7,201,205 $ 6,014,651 $ 23,458,178 $ 18,485,214
=========== =========== ============ ============
Net income per share.............. $ 0.42 $ 0.35 $ 1.37 $ 1.09
=========== =========== ============ ============
Dividends per share............... $ 0.025 $ 0.025 $ 0.075 $ 0.075
=========== =========== ============ ============
Weighted average shares
outstanding...................... 17,136,718 17,061,690 17,129,964 16,983,950
=========== =========== ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-------------------------------
August 3, 1997 July 28, 1996
-------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 23,458,178 $ 18,485,214
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 6,516,819 5,107,923
Deferred income tax benefit................................ -- (320,000)
(Gain) loss on sale of property and equipment.............. (4,603) 14,765
Partnership losses......................................... 263,578 69,398
Decrease in accounts receivable............................ 33,703 1,860,826
Increase in inventories.................................... (4,704,146) (6,807,000)
Increase in other current assets........................... (436,775) (469,793)
Increase in other assets................................... (688,015) (176,761)
Decrease in accounts payable............................... (93,783) (199,445)
Increase (decrease) in accrued expenses.................... (1,781,181) 638,747
Decrease in income taxes payable........................... (2,037,101) (2,090,855)
------------ ------------
Net cash provided by operating activities............... 20,526,674 16,113,019
------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment............... 222,932 60,294
Purchase of property and equipment......................... (13,564,230) (14,200,369)
Net sale (purchase) of short-term investments.............. 1,895,997 (290,636)
Net capital contributions to partnership................... (17,562) (614,848)
------------ ------------
Net cash used in investing activities................... (11,462,863) (15,045,559)
------------ ------------
Cash flows from financing activities:
Issuance of common stock................................... 719,942 1,961,004
Dividends paid............................................. (1,661,022) (1,235,578)
------------ ------------
Net cash provided by (used in) financing activities..... (941,080) 725,426
------------ ------------
Net increase in cash and cash equivalents...................... 8,122,731 1,792,886
Beginning balance, cash and cash equivalents................... 6,186,057 8,711,613
------------ ------------
Ending balance, cash and cash equivalents...................... $ 14,308,788 $ 10,504,499
============ ============
Supplemental disclosures of cash flow information:
Cash received during the thirty-nine weeks for interest
income................................................. $ 723,936 $ 580,459
============ ============
Cash paid during the thirty-nine weeks for:
Interest expense........................................ $ 9,454 $ --
============ ============
Income taxes............................................ $ 17,995,223 $ 14,875,994
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of St. John
Knits, Inc. and its subsidiaries (collectively referred to herein as "the
Company") reflect all adjustments (which include only normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented.
It is suggested that the accompanying unaudited consolidated financial
statements and footnotes thereto be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended November 3, 1996 as filed with the Securities and Exchange
Commission on January 31, 1997.
The results of operations for the periods presented are not necessarily
indicative of the operating results that may be expected for the year ending
November 2, 1997.
2. SUMMARY OF ACCOUNTING POLICIES
A. COMPANY OPERATIONS
The Company is a leading designer, manufacturer and marketer of women's
clothing and accessories. The Company's products are distributed primarily
through specialty retailers and Company owned retail boutiques. All
intercompany and interdivisional transactions and accounts have been eliminated.
B. DEFINITION OF FISCAL YEAR
The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends
on the Sunday nearest to October 31. The quarters also end on the Sunday
nearest the end of the quarter, which accordingly were August 3, 1997 and July
28, 1996.
3. CHANGE IN ACCOUNTING METHOD
The Company elected to change its method of valuing its inventory from the
last-in,first-out (LIFO) method to the first-in, first-out (FIFO) method. The
effect of this change in accounting method was to increase net income and
earnings per share for the third quarter and nine months ended August 3, 1997 by
$213,000 and $0.01, respectively.
4. EARNINGS PER SHARE
Earnings per share for the thirteen and thirty-nine week periods ended
August 3, 1997 and July 28, 1996 were calculated based on the weighted average
number of common and equivalent shares outstanding during the periods.
Equivalent shares were determined by using the treasury stock method, which
assumes that all dilutive securities were exercised and that the proceeds
received were applied to repurchase outstanding shares at the average market
price during the period.
5
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted by the Company on
November 3, 1998. At that time, the Company will be required to change the
method used to compute earnings per share and to restate all prior periods
presented. Under the new requirements, primary earnings per share will be
replaced with basic earnings per share. Basic earnings per share excludes the
dilutive effect of common stock equivalents, including stock options. Had
earnings per share been calculated under the provisions of the new standard,
basic earnings per share would have increased to $0.43 and $1.41 for the
thirteen and thirty-nine week periods ended August 3, 1997, respectively, and to
$0.36 and $1.11 for the thirteen and thirty-nine week periods ended July 28,
1996, respectively. Diluted earnings per share would remain the same as net
income per share as reflected in the accompanying Consolidated Statements of
Income.
5. DIVIDENDS
The Company declared a quarterly dividend of $0.025 per share on June 2,
1997 for all shareholders of record on June 30, 1997. The dividend was paid on
July 29, 1997. On September 8, 1997, the Company declared another quarterly cash
dividend of $0.025 per share to be paid on November 6, 1997 to shareholders of
record on October 8, 1997.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements
of Income and sets forth, for the periods indicated, the results of operations
as a percentage of net sales:
<TABLE>
<CAPTION>
Percent of Net Sales
--------------------
Thirteen Weeks Ended Thirty-Nine Weeks Ended
("Third Quarter") ("Nine Months")
-------------------- ---------------------
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 41.3 43.1 41.5 44.5
----- ----- ----- ------
Gross profit................................... 58.7 56.9 58.5 55.5
Selling, general and administrative expenses... 36.7 35.1 35.5 33.7
----- ----- ----- ------
Operating income............................... 22.0 21.8 23.0 21.8
Other income................................... 0.4 0.5 0.4 0.8
----- ----- ----- ------
Income before income taxes..................... 22.4 22.3 23.4 22.6
Income taxes................................... 9.2 9.4 9.6 9.5
----- ----- ----- ------
Net income..................................... 13.2% 12.9% 13.8% 13.1%
===== ===== ===== ======
</TABLE>
7
<PAGE>
THIRD QUARTER FISCAL 1997 COMPARED TO THIRD QUARTER FISCAL 1996
Net sales for the third quarter of fiscal 1997 increased by $8,286,000, or
17.8% over the third quarter of fiscal 1996. This increase was principally
attributable to (i) an increase in sales to existing domestic retail customers
of approximately $3,258,000, (ii) an increase in sales by Company owned retail
stores of approximately $3,074,000, due in part to the expansion of the New York
boutique, which was completed in October 1996, and the addition of two retail
outlet stores during fiscal 1997 and (iii) an increase in sales to international
retail customers of $1,954,000. Net sales increased primarily as a result of
increased unit sales of various products lines.
Gross profit for the third quarter of fiscal 1997 increased by $5,678,000,
or 21.4% over the third quarter of fiscal 1996, and increased as a percentage of
net sales to 58.7% from 56.9%. This increase in the gross profit margin was due
to an increase in the number of garments being produced and sold without a
corresponding increase in the production costs and the Company's decision to
change the method of accounting for its inventory from LIFO to FIFO, which
increased the gross profit by $363,000.
Selling, general and administrative expenses for the third quarter of
fiscal 1997 increased by $3,781,000, or 23.1% over the third quarter of fiscal
1996, and increased as a percentage of net sales to 36.7% from 35.1%. This
increase was primarily due to an increase in promotion and advertising expenses
related to an expansion of the Company's advertising program and an increase in
salaries due to the Company's continued effort to build its sales and marketing
team.
Operating income for the third quarter of fiscal 1997 increased by
$1,897,000 or 18.7% over the third quarter of fiscal 1996. Operating income as
percentage of net sales increased to 22.0% from 21.8% during the same period.
This increase in operating income as a percentage of net sales was due to the
increase in the gross profit margin, which was partially offset by the increase
in selling, general and administrative expenses as a percentage of net sales.
FIRST NINE MONTHS FISCAL 1997 COMPARED TO FIRST NINE MONTHS FISCAL 1996
Net sales for the first nine months of fiscal 1997 increased by
$28,737,000, or 20.3% over the first nine months of fiscal 1996. This increase
was principally attributable to (i) an increase in sales to existing domestic
retail customers of approximately $15,722,000, (ii) an increase in sales by
Company owned retail stores of approximately $10,070,000, due in part to the
expansion of the New York boutique, which was completed in October 1996, and the
addition of one retail boutique and three retail outlet stores since the
beginning of fiscal 1996 and (iii) an increase in sales to international retail
customers of $2,945,000. Net sales increased primarily as a result of increased
unit sales of various product lines.
Gross profit for the first nine months of fiscal 1997 increased by
$21,087,000, or 26.8% as compared with the first nine months of fiscal 1996, and
increased as a percentage of net sales to 58.5% from 55.5%. This increase in
the gross profit margin was due to an increase in the number of garments being
produced and sold without a corresponding increase in the production costs and
the Company's decision to change the method of accounting for its inventory from
LIFO to FIFO, which increased the gross profit by $363,000.
Selling, general and administrative expenses for the first nine months of
fiscal 1997 increased by $12,717,000, or 26.6% over the first nine months of
fiscal 1996, and increased as a percentage of net sales to 35.5% from 33.7%.
This increase was primarily due to (i) an increase in salaries due to the
Company's continued effort to build its sales and marketing team, (ii) an
increase in sample expenses incurred due to the extension of the Company's
product lines, (iii) an increase in costs associated with the lease of the new
airplane, (iv) an increase in corporate legal expense related to the protection
of the Company's trademarks, and (v) an increase in expenses for the Retail
Division related to the expansion of the New York boutique.
8
<PAGE>
Operating income for the first nine months of fiscal 1997 increased by
$8,370,000, or 27.1% over the first nine months of fiscal 1996. Operating
income as percentage of net sales increased to 23.0% from 21.8% during the same
period. This increase in operating income as a percentage of net sales was due
to the increase in the gross profit margin, which was partially offset by the
increase in selling, general and administrative expenses as a percentage of net
sales.
Other income for the first nine months of fiscal 1997 decreased by $442,000
as compared with the first nine months of fiscal 1996. This decrease was
primarily due to the receipt of a workers' compensation insurance dividend of
$316,000 during the first quarter of fiscal 1996, which related to the policy
period ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, and for the purchase
of property and equipment. During the first nine months of fiscal 1997, cash
provided by operating activities was $20,527,000. Cash provided by operating
activities was primarily generated by net income, while cashed used in operating
activities was primarily used to fund the increase in inventories and the
decreases in accrued expenses and income taxes payable. Cash used in investing
activities was $11,463,000 during the same period. The principal use of cash in
investing activities was for the construction of the new design center, the
purchase of 15 computerized knitting machines, the construction of improvements
for the new manufacturing facility in Los Angeles, and the construction of
leasehold improvements for a new boutique location in Dallas.
The Company anticipates purchasing property and equipment of approximately
$5,000,000 during the remainder of fiscal 1997. The estimated $5,000,000 will
be used principally for the purchase of computerized knitting machines, the
construction of a building and the related improvements for a new manufacturing
facility in San Diego, California, and the construction of leasehold
improvements for a new boutique location in Palm Beach. In addition, the
Company is the majority owner in a new entity operating under the name of Amen
Wardy Home Stores, LLC. The new entity will operate a number of home furnishing
boutiques. The Company will invest $500,000 in the new entity and has agreed to
loan an additional $1.5 million as working capital during the fourth quarter of
fiscal 1997.
As of August 3, 1997, the Company had approximately $65,289,000 in working
capital and $16,635,000 in cash and marketable securities. The Company's
principal source of liquidity is internally generated funds. The Company also
has a $25,000,000 bank line of credit ("Line of Credit") which expires on March
1, 1999. The Line of Credit is unsecured and borrowings thereunder bear
interest at the Company's choice of the bank's reference rate or an offshore
rate plus 1.5%. As of August 3, 1997, no amounts were outstanding under the
Line of Credit. The Company invests its excess funds primarily in a money
market fund investment grade commercial paper, adjustable rate tax deferred
municipal obligations collateralized by letters of credit issued by financial
institutions and tax exempt municipal bonds.
The Company believes it will be able to finance its working capital and
capital expenditure requirements on both a short-term and long-term basis with
internally generated funds.
The Company declared a quarterly cash dividend of $0.025 per share on June
2, 1997 which was paid on July 29, 1997 to all shareholders of record on June
30, 1997. On September 8, 1997, the Company declared another quarterly cash
dividend of $0.025 per outstanding share to be paid on November 6, 1997 to
shareholders of record on October 8, 1997. Future dividends by the Company
remain subject to limitations under applicable law and other factors the Board
of Directors deems relevant, including results of operations, financial
condition and capital requirements.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
See "Exhibit Index."
(b) Reports on Form 8-K.
None.
10
<PAGE>
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.
September 12, 1997 ST. JOHN KNITS, INC.
By: /s/ Robert E. Gray
-------------------------------------
Robert E. Gray
Chairman of the Board and
Chief Executive Officer
By: /s/ Roger G. Ruppert
-------------------------------------
Roger G. Ruppert
Senior Vice President - Finance,
Chief Financial Officer
(Principal Financial Officer)
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------- ---------------------- -------------
<S> <C> <C>
10.1 Distribution Agreement dated June 11, 1997
by and between the Company and Gary Farn, Ltd.
10.2 Joint Venture Agreement dated July 17, 1997
between the Company and Commercial Development
Co., Ltd.
10.3 License and Distribution Agreement dated as of
August 1, 1997 between the Company and
St. John Co., Ltd.
10.4 Limited Liability Company Agreement for Amen
Wardy Home Stores, LLC dated August 5, 1997,
among the Company, AWH Direct, LLC, Amen Wardy, Sr.,
Amen Wardy, Jr., Amen Wardy Home, Inc.,
Bob Hightower and Amen Wardy Home Stores, LLC
10.5 Product Design and Development Agreement dated
August 5, 1997 among the Company, Amen Wardy, Sr.
and Amen Wardy, Jr.
27.1 Financial Data Schedule
</TABLE>
12
<PAGE>
EXHIBIT 10.1
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made this 11th day of June, 1997 by and
between ST. JOHN KNITS, INC., a corporation duly organized under the laws of the
State of California (hereinafter "SUPPLIER"), and GARY FARN, LTD., a corporation
duly organized under the laws of the State of Connecticut (hereinafter
"DISTRIBUTOR").
WHEREAS, Supplier designs, manufactures and distributes women's
apparel as well as jewelry and accessories;
WHEREAS, Supplier manufactures and markets certain perfume products
and desires to increase the sales of such products;
WHEREAS, Distributor has represented that it possesses the necessary
expertise and marketing organization to promote and sell such perfume products;
and
WHEREAS, Supplier is willing to appoint Distributor, and Distributor
is willing to accept such appointment, as distributor of Supplier's perfume
products in the United States;
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the parties agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following words, terms and
phrases, where written with an initial capital letter, shall have the meanings
assigned to them in this Article 1 unless the context otherwise requires:
1.1 CONTRACT YEAR: shall mean the period from August 1 though July 31
of the following year.
1.2 DISTRIBUTOR NET SALES: shall mean all amounts invoiced by
Distributor to its customers for the sale of the Products.
1.3 DISTRIBUTOR PRICE: shall mean the Suggested Wholesale Price less
seventy percent (70%).
1.4 PRODUCTS: shall mean those products described in Schedule I
hereto as that Schedule may be amended by Supplier, at its sole discretion, from
time to time.
<PAGE>
1.5 QUOTA: shall mean the minimum quantities of Products that
Distributor shall be expected to purchase from Supplier during a Contract Year
under this Agreement.
1.6 SUPPLIER INFORMATION: shall mean all information, other than
information in published form or expressly designated by Supplier as non-
confidential, which is directly or indirectly disclosed to Distributor or
embodied in Products provided hereunder, regardless of the form in which it is
disclosed, relating in any way to Supplier's markets, customers, products,
patents, inventions, procedures, methods, designs, strategies, plans, assets,
liabilities, costs, revenues, profits, organization, employees, agents,
distributors or business in general.
1.7 SUGGESTED RETAIL PRICE: shall mean the suggested retail price for
a Product then being listed by Supplier.
1.8 SUGGESTED WHOLESALE PRICE: shall mean the Suggested Retail Price
less forty percent (40%).
1.9 SUPPLIER NET SALES: shall mean all amounts invoiced by Supplier
to Distributor for the sale of the Products.
1.10 TERRITORY: shall mean department and specialty stores and fine
parfumeries that carry Supplier's apparel line and that currently carry the
Products located in the United States.
ARTICLE 2
APPOINTMENT
2.1 SCOPE. Supplier hereby appoints Distributor, and Distributor
hereby accepts appointment, as Supplier's exclusive distributor during the term
of this Agreement with the right to sell or otherwise distribute Products in the
Territory, under Supplier's name, logotypes and trademarks, subject to all the
terms and conditions of this Agreement. Distributor shall not advertise,
promote, solicit customers for, sell or distribute Products outside the
Territory nor establish any office through which orders are solicited or any
depot at which inventories of Products are stored outside the United States.
2.2 SUBDISTRIBUTORS. Distributor shall not without the prior written
approval of Supplier, which approval may be withheld in Supplier's absolute and
sole discretion, appoint any subdistributors or agents to promote and/or
distribute Products.
2
<PAGE>
Further, notwithstanding any such appointments, or Supplier's approval thereof,
Distributor shall at all times remain fully liable for the performance of its
subdistributors and/or agents and Distributor hereby agrees to indemnify and
hold harmless Supplier from all damages, losses, costs or expenses arising in
any manner from any act or omission on the part of its subdistributors or
agents.
2.3 SALES IN TERRITORY. Distributor shall not without the prior
written approval of Supplier, which approval may be withheld in Supplier's
absolute and sole discretion, sell to any customers other than department and
specialty stores that carry Supplier's apparel line and that currently carry the
Products.
2.4 SALES TO BOUTIQUES. Supplier's retail outlets located in the
United States, including its boutique and outlet stores, shall be included in
the Territory; provided that Supplier may sell the Products directly to its
outlet stores; and further provided that Distributor agrees that it shall charge
Supplier's retail outlets the Suggested Retail Price less sixty percent (60%).
2.5 RESERVED SALES RIGHTS. Notwithstanding any other provision of
this Agreement, Supplier reserves the right to sell Products under the
Supplier's name, logotypes and trademarks outside the United States.
ARTICLE 3
GENERAL OBLIGATIONS OF DISTRIBUTOR
3.1 MARKETING. Distributor shall have the following obligations with
respect to the marketing and distribution of the Products:
(a) To use its best efforts to further the promotion, marketing,
sale and other distribution of Products in the United States;
(b) To insure that the promotion, marketing and sale of the
Products is consistent with the Supplier's image and reputation;
(c) To maintain an adequate and balanced inventory of Products;
(d) To diligently investigate all leads with respect to potential
customers referred to it by Supplier;
(e) To permit Supplier on reasonable notice to visit
Distributor's customers and to visit Distributor's place of business and
inspect its inventories, service records and other relevant documents;
3
<PAGE>
(f) To maintain throughout the United States an adequate sales
force dedicated on a full-time basis to the sale of Products and to
maintain adequate coverages in major markets; Supplier's recommended
minimum coverages are specified in Schedule II;
(g) To participate actively in sales or merchandising programs
planned by Supplier; to participate in all fairs and exhibitions in the
United States where such participant will, in the judgment of Supplier,
promote the Products, including participation in Supplier's trunk shows and
personal appearances of Marie Gray or Kelly Gray; and Distributor shall
insure that a model or representative for the Products (wearing Supplier's
apparel) shall be present at each of Supplier's trunk shows and personal
appearances by Marie Gray or Kelly Gray;
(h) To develop and implement sales programs for the promotion of
the Products;
(i) To provide Supplier contemporaneously with the execution of
this Agreement with a comprehensive one (1) year promotion and sales plan
in form and detail reasonably requested by Supplier, and to update such
business plan each year within ninety (90) days prior to the commencement
of each subsequent Contract Year; and
(j) To provide Supplier within fifteen (15) days of the end of
each month a report of its sales (by retail customer) for that month
compares to its forecasted sales for such month, which report shall be in
such form and in such detail as Supplier may reasonably require; and to
provide Supplier within ninety (90) days of the end of each Contract Year
with a report of its activities with respect to the Products in the United
States during such year, which report shall be in such form and in such
detail as Supplier may reasonably require.
3.2 EXPENSES. Distributor assumes full responsibility for all costs
and expenses that it incurs in carrying out its obligations under this
Agreement, including but not limited to all rentals, salaries, commissions,
advertising, demonstration, travel and accommodation expenses without the right
to reimbursement for any portion thereof from Supplier.
3.3 COMPETITIVE PRODUCTS. Supplier acknowledges that Distributor
markets and distributes products that compete with the Products; and Distributor
expressly agrees that it is bound by Article 7 hereof and shall not disclose any
Supplier Information to any competitors of the Supplier.
4
<PAGE>
ARTICLE 4
PRICES AND PAYMENTS
4.1 PRICES. The prices to be paid by Distributor for Products
purchased pursuant to this Agreement shall be the Distributor Prices in effect
at the time of acceptance of the relevant purchase order. All Distributor
Prices are f.o.b. at or near Distributor's manufacturing or warehouse facility,
or at Distributor's designated shipping point, and include packing in accordance
with Supplier's standard commercial practices in effect at the time of shipment.
Special packing or handling shall be at the sole expense of Distributor. All
payments to be made by Distributor to Supplier pursuant to this Agreement
represent net amounts Supplier is entitled to receive and shall not be subject
to any deductions for any reason whatsoever; provided that Supplier shall also
provide Distributor with the packaging material described in Section 4.4 and the
additional promotional items described in Article 7.
4.2 PRICE INCREASES, DECREASES. Supplier may, at any time during the
term of this Agreement, increase its prices for the Products by providing
Distributor with at least sixty (60) days prior written notice. Increased prices
for all Products shall not apply to purchase orders accepted prior to the
effective date of the price increase. Price decreases with respect to all
Products shall be effective immediately upon written notice to the Distributor
on all such Products not yet delivered.
4.3 PAYMENT TERMS. All payments hereunder shall be due net ninety
(90) days from the date of shipment of the Products. In the event of any
dispute arising over any part of an invoice or the total amount due under an
invoice, all undisputed amounts shall be promptly paid by Distributor. So long
as any amount due remains unpaid by Distributor, (i) Supplier shall have the
right, in its sole discretion, to require payment for additional shipments of
Products either by cash in advance or supported by a letter of credit, (ii)
Distributor will owe and will pay interest on the amount overdue at the rate
equal to the lessor of: (a) the prime rate being charged by Bank of America plus
three percent (3%); or (b) the maximum rate allowed by applicable law and (iii)
Supplier may exercise any of its rights and remedies for such breach under this
Agreement and applicable law.
4.4 REFURBISHING. Supplier shall provide Distributor packaging
material for refurbishing returned Products of an amount sufficient to refurbish
five percent (5%) of the quantity of units purchased during a Contract Year.
Any additional packaging material requested by Distributor shall be provided by
Supplier on the terms specified by Supplier.
4.5 RESALE PRICES. Supplier will provide Distributor with a list of
suggested wholesale and retail prices for the Products.
5
<PAGE>
ARTICLE 5
ORDERS FOR PRODUCTS
5.1 PURCHASE ORDERS. Distributor shall submit purchase orders for
the Products to Supplier in writing sent by mail, overnight delivery or
facsimile. The purchase order shall specify the desired delivery dates and
shipping instructions and shipping address. Distributor shall ensure that its
purchase orders are received by Supplier at least (x) one-hundred and twenty
(120) days prior to the requested delivery dates of any promotional or seasonal
items and (ii) ninety (90) days prior to the requested delivery dates for all
other items. Without the written consent of the Supplier, Distribution shall
not be entitled to order quantities of items in excess of 110% of Distributor's
forecast during any six month period.
5.2 ACCEPTANCE OF ORDERS. All purchase orders from Distributor are
subject to reasonable acceptance in writing by Supplier at its principal offices
in Irvine, California, which acceptance shall be delivered by mail, overnight
delivery or facsimile. Each purchase order shall be deemed to be an offer by
Distributor to purchase the Products pursuant to the terms of this Agreement
and, when accepted in writing by Supplier shall give rise to a contract under
the terms set forth herein to the exclusion of any additional or contrary terms
set forth in the purchase order.
5.3 DELIVERY TERMS.
(a) All deliveries of the Products shall be f.o.b. at or near
Supplier's manufacturing or warehouse facility, or at Supplier's designated
shipping point. Unless otherwise provided in this Agreement, "f.o.b."
shall be construed in accordance with California law.
(b) Distributor shall insure each shipment of Products with a
reputable insurer for the full invoice of such shipment. Such insurance
shall provide for full coverage from the time the Products are delivered at
the f.o.b. delivery point until Distributor shall have paid Supplier for
such Products in full. Supplier reserves all rights with respect to
delivered Products permitted by law, including without limitation, the
rights of recession, repossession, resale, and stoppage in transit until
the full amount due from Distributor in respect of all delivered Products
has been paid.
(c) Supplier shall use reasonable commercial efforts to deliver
accepted orders in accordance with requested delivery dates, but Supplier
shall not be responsible for any loss or liabilities caused by delayed
shipment of any orders for any reason whatsoever; provided that if delivery
of the Products is not made
6
<PAGE>
within fifteen (15) days of the requested delivery date, Distributor may
cancel the purchase order by written notice to Supplier.
5.4 MODIFICATION OF ORDERS. No accepted purchase order shall be
modified or cancelled except upon the written agreement of both parties.
Distributor's purchase orders or mutually agreed change orders shall be subject
to all provisions of this Agreement, whether or not the purchase order or change
order so states.
5.5 ACCEPTANCE OF PRODUCTS. In the event of any shortage, damage or
discrepancy in or to a shipment of Products, Distributor shall promptly report
the same to Supplier and furnish such written evidence or other documentation as
Supplier may deem appropriate. Supplier shall not be liable for any such
shortage, damage or discrepancy unless Supplier has received notice and
substantiating evidence thereof from Distributor within thirty (30) days of
arrival of the Products at Distributor's shipping address. Upon receipt of
satisfactory substantiating evidence, Supplier shall promptly deliver additional
or substitute Products to Distributor in accordance with the delivery procedures
set forth herein; provided that in no event shall Supplier be liable for any
additional costs, expenses or damages incurred by Distributor directly or
indirectly as a result of such shortage, damage or discrepancy in or to a
shipment.
5.6 PRODUCT CHANGES. Supplier reserves the right, in its sole
discretion and without incurring any liability to Distributor, to alter the
specifications for any Product; discontinue the manufacture of any Product;
discontinue the development of any new product, whether or not such product has
been announced publicly; or commence the manufacture and sale of new products
having features that make any Product wholly or partially obsolete, whether or
not Distributor is granted any distribution rights in respect of such new
products. Notwithstanding the foregoing, Supplier shall use its best efforts to
provide Distributor with prompt written notice of such decisions and to fill all
accepted purchase orders from Distributor.
5.7 FORECASTS. Distributor agrees to provide Supplier with a rolling
twelve (12) month forecast of orders on a monthly basis indicating Distributor's
intended purchases of Products. Such forecast shall be updated by Distributor
on a rolling basis on the fifteen of each month. Such rolling forecasts shall
be used to the purposes of facilitating Supplier's manufacturing and lead times
but shall not constitute or amend the Quota for any period. Distributor's
initial forecast is attached hereto as Schedule III.
ARTICLE 6
MINIMUM PURCHASE REQUIREMENT
6.1 GENERAL REQUIREMENT. Distributor understands and agrees that the
establishment and achievement of the Quota is the essence of this Agreement, and
that
7
<PAGE>
failure by Distributor to satisfy its obligation under this Article 6 shall
constitute a failure of consideration on the basis of which Supplier shall be
entitled to terminate this Agreement.
6.2 DETERMINATION OF QUOTA. For the initial Contract Year, the Quota
shall be $1.5 million of Supplier Net Sales. For each subsequent Contract Year,
unless otherwise mutually agreed upon by Distributor and Supplier in writing,
the Quota shall be fifteen percent (15%) greater than the greater of (a) the
Quota for the previous Contract Year or (b) the actual Supplier Net Sales for
the previous Contract Year.
ARTICLE 7
ADVERTISING AND PROMOTION
7.1 PROMOTION OF PRODUCTS. Distributor shall diligently undertake to
advertise the Products in the United States. Distributor shall consult and
coordinate with Supplier regarding all promotion and advertising for the
Products, and all marketing, advertising and sales promotions for the Products
shall be subject to Supplier's final approval. Distributor agrees to spend an
amount equal to 40% of Distributor Net Sales for advertising and promotion of
the Products during each Contract Year. To facilitate the sale and promotion of
the Products, each Contract Year, Supplier shall furnish Distributor with the
following items, of an aggregate value of ten percent (10%) of Supplier's Net
Sales during that Contract Year: (i) photographs and artistic work for all
promotional activity, including displays, advertising and brochures; and (ii)
testers, samples, blotters displays and other non-retail store items. In
addition, Supplier shall provide Distributor with fragrance oil for magazine and
catalogue strips as reasonably required for promotion and advertising approved
by Supplier. All other expenses incurred by Distributor with respect to creating
advertising materials and advertising the Products shall be borne by
Distributor.
7.2 SUPPLIER'S APPAREL. Supplier shall sell its apparel products to
Distributor for models and representatives for the Products at Supplier's
wholesale price less ten percent (10%).
ARTICLE 8
LIMITATION OF WARRANTIES AND REMEDIES
DISTRIBUTOR UNDERSTANDS AND AGREES AS FOLLOWS:
8
<PAGE>
8.1 NO WARRANTIES, EXPRESS OR IMPLIED. Supplier HEREBY EXPRESSLY
DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FOR A PARTICULAR PURPOSE, AND ALL OBLIGATIONS OR
LIABILITIES ON THE PART OF SUPPLIER FOR DAMAGES ARISING OUT OF OR IN CONNECTION
WITH THE USE OR PERFORMANCE OF THE PRODUCTS.
8.2 CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL SUPPLIER'S LIABILITY OF
ANY KIND INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES, EVEN IF SUPPLIER SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
LOSS OR DAMAGE.
ARTICLE 9
TRADEMARKS AND TRADE NAMES
9.1 TRADEMARKS AND TRADE NAMES.
(a) Supplier represents and warrants that it has the sole and
exclusive right to the trademarks and tradenames used in connection with
the Products.
(b) Distributor recognizes the validity of Supplier's trademarks
and trade names, and acknowledges that such trademarks and trade names are
the sole property of Supplier. Distributor gains no license or proprietary
rights in such trademarks or trade names hereunder, and shall not infringe
upon, dilute or harm Supplier's rights in its trademarks and trade names.
Distributor hereby assigns to Supplier any and all good will resulting from
Distributor use of Supplier's trademarks and trade names.
(c) Upon termination of this Agreement, Distributor agrees to
discontinue immediately all use of Supplier's trademarks and trade names
and to destroy or deliver to Supplier (at Supplier's election) all
advertisements, brochures, displays, designs, posters and other promotional
matter then in Distributor's possession or control.
(d) Distributor shall promptly inform Supplier in writing of any
infringement of Supplier's trademarks or trade names, or of any claim or
allegation that Supplier's trademarks or trade names infringe any rights of
any other person. Distributor agrees that it will assist and cooperate in
the protection of Supplier's trademarks and tradenames as requested by
Supplier, and Supplier agrees to reimburse Distributor for any out-of-
pocket costs incurred in connection with such
9
<PAGE>
assistance; provided that if any action is brought against Distributor
involving Supplier's trademarks or tradenames, Supplier shall assume
control of the defense of such action and shall pay all expenses incurred
in such defense.
(e) Distributor acknowledges that Supplier shall control the
quality of the Product and Distributor shall not alter the Products in any
manner.
(f) Distributor shall not use any trademarks or trade names other
than those expressly authorized by Supplier in this Agreement or in writing
from time to time. Distributor shall not use Supplier's trademarks or
trade names in any manner (including advertising) without submitting such
proposed use to Supplier and obtaining prior written approval therefore
from Supplier.
ARTICLE 10
CONFIDENTIALITY
Distributor acknowledges and agrees that all Supplier Information is
confidential and proprietary to Supplier. Distributor agrees not to use any of
such Supplier Information during the term of this Agreement and for a period of
five (5) years thereafter for any purpose other than as permitted or required
for performance by Distributor hereunder. Distributor further agrees not to
disclose the terms of this Agreement or provide any of such Supplier Information
to any third party and to take all necessary measures to prevent any such
disclosure by its employees, agents, contractors or consultants during the term
hereof and for a period of five (5) years thereafter. Nothing herein shall
prevent Distributor from using, disclosing or authorizing the disclosure of any
Supplier Information which is, or hereafter becomes, part of the public domain
through no fault of Distributor.
ARTICLE 11
TERM AND TERMINATION
11.1 TERM. This Agreement shall take effect as of August 1, 1997 and
shall continue in force for the initial period of five (5) years. Six (6)
months prior to the expiration of the initial period and each subsequent period,
the parties shall determine whether to extend the Agreement for an additional
Contract Year. If not extended by mutual agreement after the initial period or
any subsequent period, this Agreement shall terminate.
11.2 TERMINATION. Notwithstanding the provisions of Section 11.1
above, this Agreement may be terminated in accordance with the following
provisions:
10
<PAGE>
(a) Either party hereto may terminate this Agreement at any time
by giving notice in writing to the other party, if the other party becomes
the subject of bankruptcy or insolvency proceedings, makes an assignment
for the benefit of creditors, go into liquidation or receivership, or
otherwise loses legal control of its business;
(b) Either party may terminate this Agreement by giving notice in
writing to the other party should an event of Force Majeure (as defined in
Section 12.1 below) continue for more than six (6) months; or
(c) Either party may terminate this Agreement by giving notice in
writing to the other party if the other party is in material breach of this
Agreement and, if the breach is curable, shall have failed to cure such
breach within thirty (30) days of receipt of written notice thereof from
the first party.
11.3 AGREEMENT TO DISCUSS MUTUAL TERMINATION. If either party
determines in its business judgment that a termination of the Agreement prior to
its expiration is desirable, it shall notify the other party and both parties
agree to discuss in good faith a mutually agreeable termination of the
Agreement.
11.4 RIGHTS AND OBLIGATIONS ON TERMINATION. In the event of
termination of this Agreement for any reason, the parties shall have the
following rights and obligations:
(a) Termination of this Agreement shall not release either party
from the obligation to make payment of all amounts then or thereafter due
and payable;
(b) Upon termination, Supplier shall have the right, at its
option, to (i) cancel any or all accepted purchase orders that provide for
delivery after the effective date of termination, and/or (ii) repurchase
any part or all of Distributor's inventory of Products in Distributor's
possession as of the termination date at Supplier's invoiced price to
Distributor for such products, plus freight to the original f.o.b. shipping
point. Supplier shall exercise its option under this subsection by
notifying Distributor in writing no later than thirty days (30) days of
receipt from Distributor of a detailed statement of its unsold inventories,
which Distributor shall provided to Supplier within seven (7) days of the
effective termination date. If (i) Supplier fails to timely provide
Supplier with the detailed inventory or (ii) if Supplier determines to
repurchase all of Distributor's inventory, Supplier shall immediately cease
distributing the Products; otherwise the Supplier may continue to
distribute the Products until the date that is six months after the
termination of the Agreement. Regardless of the basis for termination, in
no event shall
11
<PAGE>
Distributor have the right to sell the Products except to the Supplier or
to customers approved under Section 2.3 of this Agreement;
(c) Distributor's obligations pursuant to Articles 9 and 10
hereof shall survive termination of this Agreement; and
(d) Within thirty (30) days of the effective date of termination
of this Agreement, Distributor shall furnish Supplier with a list of all
Distributor's customers and the place of destination of all Products sold
within the last year. In addition, Distributor agrees to furnish Supplier
with complete information as to the status of any negotiations for the sale
of the Products.
11.5 NO COMPENSATION. In the event either party terminates this
Agreement for any reason in accordance with the terms hereof, the parties hereby
agree that, without prejudice to any other remedies which either party may have
in respect of any breach of this Agreement, neither party shall be entitled to
any compensation or like payment from the other as a result of such termination.
ARTICLE 12
FORCE MAJEURE
12.1 DEFINITION. Force Majeure shall mean any event or condition, not
existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, that prevents whole or in material part the performance by one of the
parties of its obligations hereunder or that renders the performance of such
obligations so difficult or costly as to make such performance commercially
unreasonable. Without limiting the foregoing, the following shall constitute
events or conditions of Force Majeure: acts of State or governmental action,
riots, disturbance, war, strikes, lockouts, slowdowns, prolonged shortage of
energy supplies, epidemics, fire, flood, hurricane, typhoon, earthquake,
lightning and explosion.
12.2 NOTICE. Upon giving notice to the other party, a party affected
by an event of Force Majeure shall be released without any liability on its part
from the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the Force Majeure. Such notice shall include a description of the nature of the
Force Majeure, and its cause and possible consequences. The party claiming Force
Majeure shall promptly notify the other party of the termination of such event.
12.3 CONFIRMATION. The party invoking Force Majeure shall provide to
the other party confirmation of the existence of the circumstances constituting
Force
12
<PAGE>
Majeure. Such evidence may consist of a statement or certificate of an
appropriate governmental department or agency where available, or a statement
describing in detail the facts claimed to constitute Force Majeure.
12.4 SUSPENSION OF PERFORMANCE. During the period that the
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder to
the extent that such suspension is commercially reasonable.
ARTICLE 13
MISCELLANEOUS
13.1 RELATIONSHIP. This Agreement does not make either party the
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party. In fulfilling its obligations pursuant to this Agreement each
party shall be acting as an independent contractor.
13.2 ASSIGNMENT. Distributor agrees that Supplier is entering into
this Agreement in reliance on Distributor's skill, experience and reputation for
the promoting and distributing fragrance products and that this Agreement is an
agreement for personal services under Section 365 of the Bankruptcy Code.
Neither party shall have the right to assign or transfer its rights and
obligations under this Agreement except with the prior written consent of the
other party, which consent may be withheld at that party's sole discretion for
any reason whatsoever, or for no reason at all; provided, however, Supplier
shall be entitled to assign any or all of its rights and obligations hereunder
to any of its subsidiaries. If Gary Farn and members of his immediate family
cease to own at least 51% of the outstanding shares of the Distributor's common
stock or other voting stock, such an event shall be deemed a violative
assignment of this Agreement. Any prohibited assignment shall be null and void.
13.3 NOTICES. Notices permitted or required to be given hereunder
shall be deemed sufficient if given by registered or certified air mail, postage
prepaid, return receipt requested, overnight courier, or facsimile (with a copy
mailed by first class mail), addressed to the respective addresses of the
parties as set forth below or at such other addresses as the respective parties
may designate by like notice from time to time. Each such notice shall be
effective (i) if given by mail, three days after deposit in the mails, with
first class postage prepaid, or (ii) if given by overnight courier, one day
after
13
<PAGE>
dispatch, or (iii) if given by facsimile when transmitted to the applicable
number specified below and an appropriate answer is received.
If to Supplier, addressed to:
ST. JOHN KNITS, INC.
17422 Derian Avenue
Irvine, California 92614
Attention:
Facsimile: (714) 223-3272
With a copy to:
O'MELVENY & MYERS LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile: (714) 669-6994
If to Distributor, addressed to:
GARY FARN, LTD.
249 Pepe's Farm Road
Milford, Connecticut 06460
Attention: Gary Farn
Facsimile: (203) 877-9443
With a copy to:
PARSON-BROWN
666 Third Avenue
New York, New York
Attention: Albert Byers
Facsimile: (212) 682-9112
13.4 GOVERNING LAW. This Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of the State of
California.
13.5 JURISDICTION. The sole jurisdiction and venue for any legal
action arising out of this Agreement shall be a federal or state court located
in Orange County, California. Each of Distributor and Supplier hereby
irrevocably submits to the jurisdiction of any of said courts and hereby waives
any claim or defense of inconvenient forum.
14
<PAGE>
13.6 ENTIRE AGREEMENT. THIS AGREEMENT, INCLUDING SCHEDULES I THROUGH
III ATTACHED HERETO AND INCORPORATED AS AN INTEGRAL PART OF THIS AGREEMENT,
CONSTITUTES THE ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF, AND SUPERSEDES ALL PREVIOUS ORAL OR WRITTEN AGREEMENTS BY AND
BETWEEN SUPPLIER AND DISTRIBUTOR AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN, AND
ALL NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD BETWEEN THE
PARTIES RELATED TO THIS AGREEMENT.
13.7 AMENDMENT. This Agreement shall not be deemed or construed to
be modified, amended, rescinded, cancelled or waived, in whole or in part,
except by written amendment signed by the parties hereto.
13.8 PUBLICITY. This Agreement is confidential and no party shall
issue press releases or engage in other types of publicity of any nature dealing
with the commercial and legal details of this Agreement without the other
party's prior written approval.
13.9 SEVERABILITY. If any of the terms of this Agreement is
determined by a court of competent jurisdiction to be unenforceable, such terms
shall be deemed stricken from this Agreement, except that to the extent striking
such provisions deprives either party of the benefit of its bargain, in which
event either the parties will renegotiate new provisions acceptable to them or
the Agreement shall terminate.
13.10 COUNTERPARTS. This Agreement can be executed in counterparts
and each such counterpart shall be deemed an original hereof.
13.11 NON-WAIVER. The waiver, express or implied, by any of the
parties hereto of any right hereunder or of any failure to perform or breach
hereof by the other party shall not constitute or be deemed a waiver of any
other right hereunder or of any other failure to perform or breach hereof by
such other party, whether of a similar of dissimilar nature thereto.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
ST. JOHN KNITS, INC.,
A CALIFORNIA CORPORATION
By: /s/ David Frankel
------------------------------------------
Name: David Frankel
----------------------------------------
Title:
---------------------------------------
GARY FARN, LTD.,
A CONNECTICUT CORPORATION
By: /s/ Gary Farn
------------------------------------------
Name: Gary Farn
----------------------------------------
Title:
---------------------------------------
16
<PAGE>
SCHEDULE I
PRODUCTS
--------
<TABLE>
<CAPTION>
Product WHOLESALE SUGGESTED RETAIL
------- --------- ----------------
<S> <C> <C>
SJ Perfume Spray 1 oz. $150 $250
SJ Perfume .40 oz. $ 60 $100
SJ EDP Spray 3.0 oz. $ 51 $ 85
SJ EDP Spray 1.7 oz. $ 36 $ 60
SJ EDP Spray 1 oz. $ 27 $ 45
SJ Body Creme 6.5 oz. $ 39 $ 65
SJ Body Lotion 3.0 oz. $ 27 $ 45
SJ Polishing Scrub 8.0 oz. $ 15 $ 25
SJ Shower Gel 8.0 oz. $ 15 $ 25
SJ Perfume Bath Salts 11.0 oz. $ 15 $ 25
SJ 3.0 oz. Body Mist $ 27 $ 46
SJ Sets & Promo Items
</TABLE>
New Fragrance Line - planning 2 EDP sizes, 2 perfume sizes, Body Lotion, Body
Cream, other ancillaries and Promotional Sets.
S-I-1
<PAGE>
SCHEDULE II
MARKET COVERAGE
---------------
<TABLE>
<CAPTION>
Market Coverage
<S> <C>
New York NY AE, Rotator, Full Time Sales Emp., Full Time
Emp. (share w/ L&T)
New Jersey NY AE, Rotator, Show Coverage
New York Suburbs NY AE, Show Coverage
Philadelphia Rotator, AE out of D.C.
Boston NY AE, Rotator, Show Coverage
Wash. D.C. AE, Rotator, Modeling, Show Coverage
Atlanta AE, Rotator (10 hrs per wk in Saks & NM's)
Florida Goldcoast AE, Rotator
Florida Westcoast AE
Chicago/Mich Ave AE, Rotator
Chicago Suburbs Chicago AE, Rotator, Show Coverage
Detroit & Suburbs Chicago AE, Rotator
St. Louis AE
Kansas City AE, Promo Modeling
Indianapolis AE
Minneapolis AE
Dallas AE, Rotator, Promo Modeling, Show Coverage
Houston AE, Rotator, Promo Modeling, Show Coverage
Las Vegas AE, Rotator (25 hrs), Promo Coverage
Denver AE, Promo Coverage
Phoenix AE, Rotator, Promo & Show Coverage
Seattle-Tacoma AE, Rotator, Promo & Show Coverage
San Francisco AE, Rotator, Promo & Show Coverage
</TABLE>
S-II-1
<PAGE>
<TABLE>
<S> <C>
San Fran - East Bay Promo and Show Coverage
San Fran - West Bay AE, Promo & Show Coverage
Beverly Hills AE, Rotator, Promo & Show Coverage
Valley AE
South Bay AE
Pasadena-Glendale AE
South Coast AE, Rotator, Promo & Show Modeling
Fashion Island AE, Promo & Show Coverage
Palm Springs AE, Promo & Show Coverage
San Diego AE, Promo & Show Coverage
</TABLE>
AE = Account Executive
S-II-2
<PAGE>
SCHEDULE III
FORECAST OF INTENDED PURCHASES
------------------------------
S-III-1
<PAGE>
EXHIBIT 10.2
JOINT VENTURE AGREEMENT
BETWEEN
ST. JOHN KNITS, INC.
AND
COMMERCIAL DEVELOPMENT CO., LTD.
JULY 17, 1997
<PAGE>
INDEX
-----
<TABLE>
<S> <C>
SECTION 1. DEFINITIONS....................... 1
SECTION 2. REPORTS TO THE JAPANESE GOVERNMENT 3
SECTION 3. FORMATION OF NEWCO................ 4
SECTION 4. CORPORATE PURPOSES OF NEWCO....... 6
SECTION 5. ASSOCIATED AGREEMENTS............. 6
SECTION 6. SHAREHOLDERS...................... 7
SECTION 7. MANAGEMENT OF NEWCO............... 8
SECTION 8. FINANCING......................... 12
SECTION 9. TRANSFERS OF SHARES............... 14
SECTION 10. PERFORMANCE OF THIS AGREEMENT AND
ASSOCIATED AGREEMENTS............. 14
SECTION 11. DIVIDENDS......................... 15
SECTION 12. TAXES............................. 15
SECTION 13. CONFIDENTIALITY OF INFORMATION.... 15
SECTION 14. TERM AND TERMINATION.............. 17
SECTION 15. JURISDICTION; ATTORNEY'S FEES..... 19
SECTION 16. INTERPRETATION.................... 20
SECTION 17. MISCELLANEOUS..................... 21
</TABLE>
Exhibit I Articles of Incorporation of NEWCO
Exhibit II License and Distribution Agreement
Exhibit III Transition Services Agreement
Exhibit IV CDC License Agreement
Exhibit V CDC Distribution Agreement
Exhibit VI Trademark Transfer Agreement
i
<PAGE>
JOINT VENTURE AGREEMENT
-----------------------
THIS AGREEMENT entered into this 17th day of July, 1997 by and between ST.
JOHN KNITS, INC., a corporation organized and existing under the laws of the
State of California, United States of America, with its head office at 17422
Derian Avenue, Irvine, California, 92614, United States of America (hereinafter
referred to as "ST. JOHN"), and COMMERCIAL DEVELOPMENT CO., LTD., a company
organized and existing under the laws of Japan, with its head office at Imperial
Tower 9F, 1-1-1 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter
referred to as "CDC").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS ST. JOHN and its Affiliates (as defined below) manufacture,
distribute and sell fashion apparel, accessories, footwear and fragrances;
WHEREAS CDC, through its business division known as Best International, is
engaged in the distribution and sale of fashion apparel and accessories,
including the distribution and sale of certain ST. JOHN products in Japan;
WHEREAS ST. JOHN and CDC wish to establish a Japanese limited liability
stock company, to be called St. John Kabushiki Kaisha, and in English
translation St. John Co., Ltd. (hereinafter referred to as "NEWCO"), to engage
in the importing, marketing, selling and distributing of certain ST. JOHN
products in Japan in the manner set forth and as limited hereinbelow;
WHEREAS CDC and ST. JOHN have agreed upon a budget and business plan for
NEWCO for the initial period of its operation; and
WHEREAS the parties hereto wish to participate in the ownership and
operation of NEWCO in accordance with the terms and conditions of this
Agreement.
NOW THEREFORE, CDC and ST. JOHN hereby set forth their agreement as
follows:
SECTION 1. DEFINITIONS
For the purposes of this Agreement, the following words and expressions
shall, unless the context requires otherwise, have the meanings set out below:
1.1 "Affiliate"
---------
Any Person which, directly or indirectly, owns, is owned by, or is under
the common ownership with any other Person to the extent of greater than fifty
percent
<PAGE>
(50%) of the stock or other equity interest or securities entitled to vote
(regardless of whether or not conversion or any other act is necessary) or
otherwise directs the affairs of such Person. For the purpose of this
definition, ownership shall refer to either legal or beneficial ownership.
1.2 "Affiliate Group Member"
----------------------
Any Person who, during the term hereof, (i) wholly owns or is wholly owned
by, directly or indirectly, ST. JOHN or CDC, or (ii) succeeds, by merger or
other transaction, to all or substantially all of the assets of ST. JOHN or CDC.
1.3 "Associated Agreements"
---------------------
Those agreements related to this Agreement which are to be entered into
between any two or more of NEWCO, CDC or ST. JOHN, as more fully described in
Section 5 hereof.
1.4 "Board of Directors"
------------------
The board of directors of NEWCO.
1.5 "Change of Control"
-----------------
The acquisition of a majority of the voting securities or assets of a Party
by a Person (other than the Parties) or group of such Persons joined together
for the purpose of such acquisition.
1.6 "Effective Date"
--------------
The date upon which this Agreement is executed.
1.7 "License and Distribution Agreement"
----------------------------------
That license and distribution agreement between NEWCO and ST. JOHN as more
specifically defined in Section 5.1(a) hereof.
1.8 "NEWCO"
-----
The limited liability stock company (kabushiki kaisha) to be incorporated
----------------
under the laws of Japan by the Parties in the manner provided in Section 3
hereof and to be named "St. John Kabushiki Kaisha," and in English translation
"St. John Co., Ltd.," upon formation.
2
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1.9 "NEWCO Products"
--------------
NEWCO Products shall be those products defined in Section 1.3 of the
License and Distribution Agreement.
1.10 "Ownership Percentage"
--------------------
For each Party, the percentage of all Shares which are owned by that Party
as of a particular date.
1.11 "Party"
-----
As used singly or plurally shall mean either or both of the parties to this
Agreement, as the context may require, including any successors and assigns.
1.12 "Person"
------
Any corporation, other juridical entity, partnership or other business
enterprise, including, without limitation, CDC, ST. JOHN and their Affiliates.
1.13 "Shares"
------
Those shares of Common Stock which are to be issued by NEWCO to the Parties
in exchange for their respective contributions which are to be made pursuant to
Section 3 hereof, as well as any additional shares of the capital stock of NEWCO
which may be issued from time to time.
SECTION 2. REPORTS TO THE JAPANESE GOVERNMENT
2.1 Report on the Acquisition of Shares by ST. JOHN
-----------------------------------------------
Within fifteen (15) days after its acquisition of Shares, ST. JOHN shall,
if so required, file with the appropriate authorities of the government of Japan
a report under the Foreign Exchange and Foreign Trade Control Law (Law No. 228
of 1949, as amended) on the acquisition by ST. JOHN of Shares, or take such
other actions as may be required under such law.
2.2 "AML" Report
------------
CDC shall, if so required, file a report pertaining to this Agreement with
the Fair Trade Commission of Japan under the Law Concerning the Prohibition of
Private Monopoly and the Preservation of Fair Trade (Law No. 54 of 1947, as
amended).
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SECTION 3. FORMATION OF NEWCO
3.1 Organization and Registration
-----------------------------
CDC and ST. JOHN shall cause NEWCO to be organized and registered under the
laws of Japan, and the date upon which NEWCO shall actually be registered and
become legally incorporated shall hereinafter be referred to as the
"Incorporation Date." The registered head office of NEWCO shall be located in
Tokyo, Japan. The Parties shall closely cooperate and consult with each other
with respect to the procedures and particulars of the organization and
registration of NEWCO, with CDC actually carrying out the necessary procedures.
3.2 Initial Articles of Incorporation of NEWCO
------------------------------------------
The Parties shall cause NEWCO to adopt Articles of Incorporation
(hereinafter referred to as the "Articles of Incorporation") under the
applicable laws of Japan substantially in the form annexed hereto and marked
Exhibit I.
3.3 Certain Actions in Connection with the Formation of NEWCO
---------------------------------------------------------
ST. JOHN shall designate the date upon which NEWCO will commence business
(the "Commencement Date"), which date shall be as soon as practicable following
the Incorporation Date. ST. JOHN and CDC agree to consummate the following
transactions in order to facilitate the formation of NEWCO:
(a) CDC shall use its best efforts to assist St. John to effect the
registration in Japan of the Marie Gray trademark listed in Schedule A
to the License and Distribution Agreement prior to, or as soon as
practicable following, the Commencement Date, for the benefit of and
in the name of ST. JOHN, and ST. JOHN and CDC shall bear equally any
costs and expenses related thereto.
(b) On the Commencement Date, CDC shall transfer to NEWCO all unsold
inventory in CDC's possession consisting of ST. JOHN products on
consignment to department store concession boutiques. The Parties
agree that (i) Arthur Andersen & Co. shall perform an audit of such
inventory, or (ii) such other method of verification of such inventory
as is acceptable to ST. JOHN shall be conducted, in either case as
soon as practicable following the Commencement Date. Upon completion
of such audit or other method of verification, NEWCO shall pay to CDC
as the purchase price for such inventory fifty percent (50%) of CDC's
original purchase price thereof, as determined by said audit or other
method of verification. The Parties acknowledge that this Section
3.3(b) does not apply to any ST. JOHN products held in or for CDC's
retail stores in the Imperial Hotel
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and the Hotel New Otani in Tokyo (the "CDC Stores"), and that CDC
shall be free to sell such products for its own account following the
Commencement Date. The Parties agree that the cost of such audit or
other method of verification shall be borne be NEWCO.
(c) On the Commencement Date, the Parties agree to cause NEWCO to purchase
from ST. JOHN its initial inventory under the terms of the License and
Distribution Agreement.
(d) CDC shall transfer to NEWCO certain incidental office equipment as
shall be mutually agreed to by the Parties.
3.4 Initial Total Paid-In Capital of NEWCO
--------------------------------------
At the time of the organization and registration of NEWCO pursuant to
Section 3.1 hereof, NEWCO shall have an initial paid-in capital of one hundred
fifteen million Japanese Yen ((Yen)115,000,000) represented by two thousand
three hundred (2,300) common voting shares with a par value of fifty thousand
Japanese Yen ((Yen)50,000) each ("Common Stock").
3.5 Capital Contributions by CDC and ST. JOHN
-----------------------------------------
(a) Of the initial paid-in capital of NEWCO, CDC shall contribute in cash
the sum of fifty-six million three hundred fifty thousand Japanese Yen
((Yen)56,350,000) in exchange for the issuance by NEWCO of one
thousand one hundred twenty-seven (1,127) Shares of Common Stock of
NEWCO.
(b) Of the initial paid-in capital of NEWCO, ST. JOHN shall contribute in
cash the sum of fifty-eight million six hundred fifty thousand
Japanese Yen ((Yen)58,650,000) in exchange for the issuance by NEWCO
of one thousand one hundred seventy-three (1,173) Shares of Common
Stock of NEWCO.
(c) The Ownership Percentage of each Party as of the Incorporation Date
shall be as follows:
CDC: 49.0%
ST. JOHN: 51.0%
(d) The Shares shall bear the following legend:
"The transfer of these shares shall be subject to the approval of the
Board of Directors of the Company."
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3.6 Formation Costs and Business Preparation Expenses
-------------------------------------------------
All costs and expenses of the formation of NEWCO shall, to the extent the
same are not incurred or assumed by NEWCO, be borne by ST. JOHN and CDC in
proportion to each Party's respective Ownership Percentage, provided, however,
that all attorney's fees incurred by either Party with respect to their
respective counsel pursuant to such formation shall be borne by such Party.
3.7 No Other Assets/Liabilities
---------------------------
(a) Except as specifically provided herein, NEWCO shall not acquire,
assume or succeed to any assets (including accounts receivable),
liabilities, obligations or commitments of CDC arising in connection
with the distribution by CDC of ST. JOHN products in the Territory
prior to the Commencement Date;
(b) ST. JOHN shall have no rights with respect to the accounts receivable
described in (a) above; and
(c) CDC shall indemnify and hold NEWCO and ST. JOHN harmless from and
against any and all liabilities, obligations and commitments described
in (a) above.
SECTION 4. CORPORATE PURPOSES OF NEWCO
The corporate purposes of NEWCO shall be substantially (i) to import,
market, sell and distribute the NEWCO Products, subject to the License and
Distribution Agreement, and (ii) to carry out such other business listed in
Article 2 (Corporate Purposes) of the Articles of Incorporation.
SECTION 5. ASSOCIATED AGREEMENTS
5.1 Associated Agreements
---------------------
On the Commencement Date, the Parties shall execute, and shall cause NEWCO
to execute, the following agreements:
(a) a license and distribution agreement between ST. JOHN and NEWCO (the
"License and Distribution Agreement"), substantially in the form of
Exhibit II hereto.
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(b) a transition services agreement among NEWCO, ST. JOHN and CDC (the
"Transition Services Agreement"), substantially in the form of Exhibit
III hereto.
(c) a license agreement among NEWCO, ST. JOHN and CDC, substantially in
the form of Exhibit IV hereto.
(d) a distribution agreement between NEWCO and CDC (the "CDC Distribution
Agreement"), substantially in the form of Exhibit V hereto.
(e) a trademark transfer agreement between ST. JOHN and CDC substantially
in the form of Exhibit VI hereto.
SECTION 6. SHAREHOLDERS
6.1 Meetings of the Shareholders
----------------------------
General meetings of shareholders of NEWCO shall be convened in accordance
with the Articles of Incorporation.
6.2 Voting
------
Each shareholder shall be entitled to one vote for each share in NEWCO held
by such shareholder. Unless otherwise provided for by law or the Articles of
Incorporation, all decisions of the shareholders shall require the majority vote
of the shares cast at a duly called meeting at which a quorum is present.
6.3 Minutes of Shareholders Meetings
--------------------------------
The minutes of the shareholders meetings shall be recorded and administered
as provided in the Articles of Incorporation.
6.4 Actions to be Determined by ST. JOHN
------------------------------------
CDC agrees to vote its Shares in concurrence with the vote of ST. JOHN
concerning any matter for which a resolution of the shareholders of NEWCO is
required and for which applicable law requires that such resolution be adopted
by more than a simple majority vote; provided, however, that
(i) in the event of the dissolution of, or the sale of all or substantially
all of the business of NEWCO, ST. JOHN shall enter into appropriate
distribution and licensing arrangements with CDC to permit CDC to continue
to purchase ST. JOHN products for sale under the "Marie Gray" name at the
CDC Stores at the Distributor Price (as defined in Section 1.3 of the CDC
Distribution Agreement)
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<PAGE>
and otherwise on substantially the same terms and conditions as may be in
effect on the date of such dissolution or sale, for a period of two years
from the date of such dissolution or sale;
(ii) in the event of the dissolution of NEWCO, notwithstanding anything to
the contrary contained herein or in the Associated Agreements, the assets
of NEWCO at the time of dissolution shall reflect the fair market value of
NEWCO's rights under the Associated Agreements for the remainder of the
terms thereof, assuming no renewals; and
(iii) ST. JOHN shall obtain CDC's consent, which consent shall not be
unreasonably withheld, with respect to any vote to approve (x) the
indemnification by NEWCO of any of its directors or officers; (y) the
issuance by NEWCO of any equity securities at less than fair market value;
and (z) any decrease of the capital (shihonkin) of NEWCO.
6.5 Affiliate Transactions
----------------------
ST. JOHN and CDC shall discuss in good faith the contemplated execution or
amendment of any contract, agreement or arrangement between NEWCO and either
Party, any Affiliate of a Party, or any director, officer or employee thereof.
Such execution or amendment shall be with the consent of both Parties, such
consent not to be unreasonably withheld.
SECTION 7. MANAGEMENT OF NEWCO
7.1 The Board of Directors of NEWCO
-------------------------------
Except as otherwise required by mandatory provisions of law or as provided
for in the Articles of Incorporation, responsibility for the management,
direction and control of NEWCO shall be vested in the Board of Directors. The
Articles of Incorporation shall provide initially for the election of seven (7)
directors of NEWCO.
7.2 Election of Directors
---------------------
(a) The following individuals shall be elected as the initial Directors of
NEWCO: Katsuyuki Masuda, Shin-ichi Masuda, Kiyoshi Yamashita, Robert
E. Gray, Roger G. Ruppert, David Frankel and Christopher Scharff.
(b) The initial Board of Directors of NEWCO shall consist of seven (7)
members. So long as each Party's respective Ownership Percentage
remains the same as that stipulated in Section 3.5 hereof, ST. JOHN
shall nominate four (4) directors and CDC shall nominate three (3)
directors from time to time pursuant to the Articles of Incorporation,
and the Parties
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<PAGE>
covenant and agree to vote their shares of NEWCO to effectuate such
purpose; provided, however, that should the Ownership Percentage of
one or both Parties change from that listed in Section 3.5 hereto,
including the case of a sale pursuant to Section 14.2, the number of
members of the Board of Directors to be nominated by each Party, to
the extent practicable, shall be decided in proportion to each Party's
then existing Ownership Percentage, observing normal rules of rounding
for any fraction thereof.
(c) In the case of the death, resignation, or other removal of a director
prior to the end of his term, then, as soon as is practicable, an
extraordinary general meeting of shareholders shall be held for the
purpose of filling such vacancy. The Party who appointed such
director as was removed by reason of death, resignation, or otherwise,
shall have the right to nominate the successor of such removed
director, and the Parties covenant and agree to vote their respective
Shares for and cause to be elected any director so nominated.
7.3 Representative Directors
------------------------
NEWCO shall have two (2) representative directors, one of whom shall be a
director nominated by CDC and the other whom shall be a director nominated by
ST. JOHN. At least one (1) representative director shall be a resident of
Japan. The initial representative directors shall be Katsuyuki Masuda and David
Frankel. The Parties agree to, and agree to cause NEWCO to, require that the
representative directors of NEWCO act jointly in authorizing any contract,
agreement, obligation, commitment or any other matter by which NEWCO would be
bound either directly or indirectly, and the Parties shall ensure that notice of
such restriction is included in the Commercial Registry for NEWCO.
7.4 Statutory Auditors
------------------
NEWCO shall have two (2) statutory auditors (kansayaku), one each of whom
---------
shall be nominated by CDC and ST. JOHN respectively. The initial statutory
auditors shall be Chikara Yoshida and Randy Thompson.
7.5 Meetings of the Board of Directors of NEWCO
-------------------------------------------
Meetings of the Board of Directors shall be convened and conducted in the
manner provided in the Articles of Incorporation; provided, however, that each
of the Parties agrees to cause the President of NEWCO or such other director as
may be designated by the Board of Directors as aforesaid to convene a Board of
Directors meeting at any time that ST. JOHN or CDC indicates that, in its
opinion, there is an important reason for holding such a meeting.
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7.6 Resolutions of Meeting of Board of Directors
--------------------------------------------
Resolutions of the Board of Directors shall be adopted in accordance with
the provisions of the Articles of Incorporation, and NEWCO shall undertake no
business or undertaking other than in the ordinary course of business without a
resolution of the Board of Directors authorizing such action. Notwithstanding
the foregoing, in addition to those actions for which approval of the Board of
Directors is required by law, the Parties agree that the following actions shall
be subject to approval of the Board, and that such action shall be so specified
in the Regulations of the Board of Directors:
(a) termination, amendment or failure to renew any insurance coverage;
(b) any action to sell, transfer, mortgage, encumber or otherwise dispose
of any assets or any liabilities of NEWCO, except (i) for dispositions
of property (other than inventory) not greater than ten thousand U.S.
Dollars ($10,000) in the aggregate, (ii) in the ordinary course of
business, or (iii) in connection with a Change of Control of NEWCO;
(c) termination or failure to renew or preserve any government permits;
(d) the formulation from time to time of the budget and/or business plan
for NEWCO, or any material deviation from or amendment or modification
to such budget and/or business plan;
(e) incurrence or agreement to incur any bank debt or other obligation or
liability (absolute or contingent), other than letters of credit
opened in favor of ST. JOHN, that individually calls for payment by
NEWCO of more than ten thousand U.S. Dollars ($10,000) in any specific
case or twenty thousand U.S. Dollars ($20,000) in the aggregate;
(f) any hiring of, or any change in the compensation of any employee;
(g) any capital investment that individually calls for payment by NEWCO of
more than ten thousand U.S. Dollars ($10,000) in any specific case or
twenty thousand U.S. Dollars ($20,000) in the aggregate;
(h) any loan, guaranty or other extension of credit, or any commitment to
make any loan, guaranty or other extension of credit, other than
accounts receivable in the ordinary course of business;
(i) special or extraordinary payments to any Person outside of the
ordinary course of business;
(j) the filing of any lawsuit or taking of any other action in connection
with any legal proceeding; or
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(k) any tax election or any change in any method or period of accounting or
in any accounting policy, practice or significant procedure.
7.7 Remuneration to Directors and Auditors of NEWCO
-----------------------------------------------
Remuneration to directors and statutory auditors of NEWCO shall be
determined by resolution of the general meeting of its shareholders. Unless
otherwise determined by the Board of Directors, NEWCO shall maintain directors'
and officers' liability insurance with a major Japanese insurance company to the
extent permitted by applicable law.
7.8 President
---------
The President shall serve as the chief executive of NEWCO and, subject to
the authority of the Board of Directors, shall carry out the daily business of
NEWCO and shall preside at meetings of the Board of Directors. The Parties
agree to cause Katsuyuki Masuda to be appointed as the initial President of
NEWCO.
7.9 Expenses
--------
All expenses incurred by the directors and auditors in attending meetings
of the Board of Directors shall be borne by NEWCO.
7.10 Accounting Period
-----------------
The accounting period of NEWCO shall commence on November 1 of each year
and end on October 31 of the following year; provided, however, that the first
accounting period of NEWCO shall commence as of the Incorporation Date and end
on the next following October 31.
7.11 Books of Account; Independent Public Accountants
------------------------------------------------
The Parties shall cause Newco to keep accurate books of account and
financial and related records in accordance with generally accepted accounting
principles applied at the time in Japan. The books of account and records of
NEWCO shall be audited, at the expense of NEWCO, by an independent firm of
certified public accountants of international reputation designated by ST. JOHN.
Such firm of independent public accountants shall prepare and supply to CDC and
ST. JOHN certified financial reports suitable for use by each of the Parties in
connection with their respective financial and tax reports, and in the case of
such reports supplied to ST. JOHN, prepared in accordance with generally
accepted accounting principles applied at the time in the United States.
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7.12 Reporting and Inspection of NEWCO Records
-----------------------------------------
Within twenty (20) days after the close of each month, the Parties shall
cause NEWCO to submit to each of the Parties in the Japanese and English
languages appropriate financial statements of NEWCO in respect of such period
(the contents of which will be discussed in good faith by the Parties);
provided, however, that the Parties shall cause NEWCO to furnish to ST. JOHN and
CDC at their request at other times such financial, tax and related records as
the Parties require to conform with their respective accounting requirements.
Further, the Parties shall cause NEWCO to make available at its principal place
of business to each of the Parties, or to the designated representative(s) of
each of the Parties, its books of account and record, and shall transmit to each
Party written summaries thereof, in English and Japanese as appropriate, if and
when either Party shall so request.
7.13 Budget and Business Plan
------------------------
ST. JOHN shall submit to NEWCO from time to time, but in any case no more
frequently than on a monthly basis, an operating budget and business plan for
the operation of NEWCO for the subsequent period of such budget and business
plan. The Parties agree to cause NEWCO to operate in conformity with and to
otherwise comply with all terms and conditions of any such budget and business
plan for the period thereof.
7.14 Employees
---------
The Parties shall cause NEWCO to extend employment offers to certain of
CDC's current employees on such terms and conditions, and to such employees, as
to be determined by ST. JOHN in its sole discretion. CDC shall bear sole
responsibility for any obligations to such employees, including retirement
benefits, applicable to any periods of employment prior to the Commencement
Date. As of the Commencement Date, NEWCO shall hire such employees provided
that such employees have (i) agreed to be employed by NEWCO and (ii) executed
letters acknowledging that NEWCO shall bear no obligations for any retirement
benefits applicable to any periods of employment prior to the Commencement Date.
SECTION 8. FINANCING
8.1 Working Capital
---------------
It is the intention of the Parties that NEWCO will obtain its working
capital needs in excess of its initial share capital primarily from ST. JOHN, or
by commercial borrowing in Japan or such other manner agreed upon by the
Parties. Where required, ST. JOHN agrees to consider in good faith providing
guarantees of the obligations of NEWCO in order to assist NEWCO in obtaining
appropriate financing.
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8.2 Manner of Providing Additional Equity Capital
---------------------------------------------
(a) Subject to subsections (b) and (c) below, in the event it is
determined that additional equity capital is required, and additional
Shares or securities redeemable into Shares in NEWCO such as
convertible bonds or bonds with warrants are to be issued, (i) each of
CDC and ST. JOHN shall have the right to acquire that number of such
additional Shares or securities in proportion to such Party's
Ownership Percentage, and (ii) in the event that either Party elects
not to exercise such right, the other Party shall have the right to
purchase all Shares or securities so offered.
(b) Notwithstanding the foregoing, the Parties shall ensure that NEWCO
shall not seek additional equity capital (i) in excess of four million
U.S. Dollars ($4,000,000) in the aggregate during the initial three
years following the Commencement Date, or (ii) in excess of six
million U.S. Dollars ($6,000,000) in the aggregate during the fourth,
fifth and sixth years following the Commencement Date, without the
consent of CDC, which consent shall not be unreasonably withheld.
(c) The Parties acknowledge that under applicable laws or regulations in
force at the time, ST. JOHN may not be able to provide additional
equity capital without governmental validations, authorizations,
licenses or other approvals. Should ST. JOHN fail to obtain such
approvals and therefore be unable to provide additional equity
capital, CDC shall not have the right to provide any additional equity
capital without the express written consent of ST. JOHN.
8.3 No Legal Obligation
-------------------
Nothing herein shall be construed to require ST. JOHN to provide any
guarantee, loan or additional equity capital, or otherwise continue to provide
financing for NEWCO.
8.4 Bank Account
------------
Any bank account established and maintained by or for NEWCO shall require
the signatures or seals of at least two representatives of NEWCO for any check,
transfer or other withdrawal from such account in each instance in excess of two
hundred thousand Japanese Yen ((Yen)200,000). Said representatives shall be
appointed from time to time by St. John in its sole discretion.
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SECTION 9. TRANSFERS OF SHARES
9.1 General Restriction on Transfers
--------------------------------
Except as set forth in Section 9.2, CDC and ST. JOHN mutually covenant and
agree not to sell, assign (by operation of law or otherwise), pledge, encumber,
or otherwise transfer title or rights to, any of the Shares, preemptive rights
to new Shares or securities redeemable into Shares held by or allotted to them
(any of such events referred to herein as a "Transfer"), or to take any action
leading to or likely to result in any such Transfer; provided, that this shall
not be construed as prohibiting a general charge or pledge created upon the
whole or the major portion of the assets of CDC or ST. JOHN.
9.2 Permitted Transfers
-------------------
(a) Section 9.1 shall not apply to any Transfer by either Party
("Transferor") to any Affiliate Group Members provided that (i) the
Transferor obtains the prior approval of the non-transferring Party,
which approval shall not be unreasonably withheld, (ii) any such
Affiliate Group Members shall submit to the Parties a signed
confirmation in form and substance satisfactory to each Party, whereby
such Affiliate Group Members acknowledge and agree to be bound by the
provisions of the Agreement, and (iii) the Transferor shall require
the Affiliate Group Members to convey such shares back to the
Transferor if, for any reason, the Affiliate Group Members no longer
fall within the definition of that term.
(b) Neither Section 9.1 nor Section 9.2(a) shall apply to any Transfer by
ST. JOHN in connection with a Change of Control of ST. JOHN.
SECTION 10. PERFORMANCE OF THIS AGREEMENT AND ASSOCIATED AGREEMENTS
The Parties shall do or cause to be done any and all acts and things
necessary or desirable for the implementation of the undertakings of the Parties
set forth herein, including but not limited to casting their votes as
shareholders of NEWCO and causing their nominees to the Board of Directors to
implement such undertakings. The Parties also agree to exercise their
reasonable efforts to cause the full, timely, and faithful performance by NEWCO,
its directors and employees of all the terms and conditions of this Agreement,
where applicable, and of the Associated Agreements and any amendments to any of
them.
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SECTION 11. DIVIDENDS
11.1 General Rule
------------
Dividends may be paid to the shareholders and pledgees of record as of the
last day of each business year of NEWCO for which dividends are declared
(subject to the resolution of the shareholders at the general meeting of
shareholders of NEWCO) within the scope of such sum as is legally permitted
under applicable laws.
11.2 Interim Dividends
-----------------
NEWCO may, by a resolution of its Board of Directors, declare an interim
dividend under Article 293-5 of the Commercial Code of Japan to the shareholders
and pledgees of record as of the 30th day of April of each year.
SECTION 12. TAXES
12.1 Tax Receipts
------------
To the extent not otherwise accounted for in the Associated Agreements for
payments to ST. JOHN thereunder, the Parties agree to cause NEWCO to furnish to
ST. JOHN official tax receipts or other evidence issued by the Japanese tax
authorities sufficient to enable ST. JOHN to support a claim for United States
income tax credit in respect of any sum required under Japanese tax laws to be
withheld by NEWCO for the account of ST. JOHN or paid by NEWCO for its own
account.
12.2 Tax Returns
-----------
NEWCO shall, or shall cause its designated representatives, to prepare and
timely file all tax returns and informational reporting and to pay when due all
taxes required under Japanese laws and regulations.
SECTION 13. CONFIDENTIALITY OF INFORMATION
13.1 Duty of Secrecy and Confidentiality
-----------------------------------
Except to the extent that disclosures to NEWCO may be permitted by any of
the Associated Agreements, each Party agrees to keep strictly secret and
confidential all information obtained from the other Party or NEWCO which is
considered to be confidential by said other Party or NEWCO, as the case may be,
whether marked confidential or otherwise (the "Confidential Information");
provided, however, that confidential information disclosed orally which is not
identified as such shall be deemed Confidential Information only if the nature
or content of the information is set forth in a
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written notice identifying the same as Confidential Information sent to the non-
disclosing Party within ten (10) business days after disclosure thereof.
13.2 Restriction on Use
------------------
The Parties agree that they shall not use any Confidential Information for
any purpose whatsoever except in the manner expressly provided for, and subject
to the limitations and conditions set forth herein and in the Associated
Agreements.
13.3 Limitations and Survival of Obligations
---------------------------------------
The obligations undertaken by the Parties pursuant to this Section 13 shall
not apply to any information:
(a) obtained from the other Party or from NEWCO which is or becomes
through no fault of the obtaining Party generally available to the
public, or
(b) obtained independently from other sources, other than as a consequence
of the willful or negligent act or omission of either of the Parties
or NEWCO or any of their or its employees, or
(c) which is, at the time of disclosure, in the possession of the Party to
which such information is furnished, as evidenced by its written
records, or
(d) which is required to be disclosed by ST. JOHN under applicable
securities laws, or
(e) which is required to be disclosed by any other law or governmental
agency, provided prior written notice is given to the appropriate
Party for any such disclosure, or
(f) which is required to be disclosed in connection with the enforcement
of this Agreement.
Either Party may disclose Confidential Information to any Affiliate Group
Members provided the same agree to be bound by the terms of this Section 13 and
such Confidential Information shall be used by said Affiliate Group Members only
for the purpose to advance the business of NEWCO. The obligations set forth in
this Section 13, as so limited, shall survive termination of this Agreement and
shall remain in effect and be binding on the Parties.
16
<PAGE>
SECTION 14. TERM AND TERMINATION
14.1 Term
----
The term of this Agreement shall run concurrently with the term of the
License and Distribution Agreement, including any extension or renewal thereof,
and shall terminate upon termination of the License and Distribution Agreement
for any reason, unless this Agreement is sooner terminated pursuant to the
provisions of this Section 14.
(a) Mutual Agreement of the Parties. This Agreement may be terminated
-------------------------------
upon the mutual agreement of the Parties.
(b) Incorporation Date Has Not Occurred Before August 15, 1997. If the
----------------------------------------------------------
Incorporation Date has not occurred on or before August 15, 1997,
then, at the written election of either Party, this Agreement shall
terminate. If this Agreement is so terminated, then the Parties shall
determine the aggregate expenditures made by each in undertaking the
negotiations and preparatory work to establish and commence the
operations of NEWCO. The Parties agree that each Party shall be
obligated to pay only that portion of said aggregate expenses
proportional to their respective Ownership Percentage, and the Parties
further agree that they shall make payments between themselves to
effect this purpose.
(c) Bankruptcy, Etc., of a Party or NEWCO. Either Party (the "First
-------------------------------------
Party") may terminate this Agreement by written notice to the other
Party (the "Second Party") and this Agreement shall terminate as of
the date of such written notice, in the event that the Second Party
shall:
(i) be declared insolvent or bankrupt, or make an assignment or other
arrangement for the benefit of its creditors;
(ii) have all or any substantial portion of its capital stock or
assets expropriated by any government; or
(iii) be dissolved or liquidated, except in consequence of a merger,
amalgamation or other corporate reorganization to which it may be
a party;
If any of the events in subparagraphs (i) through (iii) shall occur,
the Second Party shall notify the First Party of the occurrence of
such event. Either Party may terminate this Agreement by written
notice to the other if any of the events mentioned in subparagraphs
(i) through (iii) hereof are applicable to NEWCO.
17
<PAGE>
(d) Breach. In the event of a material breach of this Agreement, this
------
Agreement shall terminate immediately if and at such time as, within
thirty (30) days after written notice is given by the non-breaching
Party to the breaching Party complaining of such breach, the breach as
aforesaid shall not have been corrected. During said thirty (30) day
period the Parties shall negotiate in good faith in an attempt to
reach mutual agreement on a method to avoid such termination. The
said notice shall specifically state the breach which the Party giving
the notice believes is material.
14.2 Mandatory Sale of Shares
------------------------
(a) ST. JOHN, upon the delivery of written notice to CDC, shall have the
right, at any time after the occurrence of (i) a Change of Control of
CDC, (ii) an event described in Section 14.1(c), or (iii) a material
breach by CDC described in Section 14.1(d), to require CDC to sell all
of CDC's Shares to ST. JOHN at a price equal to the fair market value
of such Shares, as valued at the time of such sale in good faith by
written agreement of the Parties. CDC, upon the delivery of written
notice to ST. JOHN, shall have the right, at any time after the
occurrence of a material breach by ST. JOHN described in Section
14.1(d), to require ST. JOHN to sell all of ST. JOHN's Shares to CDC
at a price equal to the fair market value of such Shares as valued at
the time of such sale in good faith by written agreement. For
purposes of this Section 14.2, the Party exercising its right to cause
the sale of such Shares shall be referred to as the "Purchasing
Party", the selling shareholder shall be referred to as the "Selling
Party", the Shares being sold are referred to as the "Sale Shares",
and the price of such Sale Shares in referred to as the "Sale Price."
Should the Parties fail to mutually agree upon the Sale Price within
thirty (30) days of the receipt of such written notice by the Selling
Party, then the Sale Price shall be the average of the two lowest
figures to be calculated by three independent third-party appraisers,
one appraiser to be selected by ST. JOHN, one appraiser to be selected
by CDC and the third appraiser to be selected by mutual agreement of
the first two appraisers. All appraisers shall be selected from
internationally known and reputable investment banks or accounting
firms. The Parties shall take all action as may be necessary and
shall use their best efforts to complete such appraisal within sixty
(60) days after the receipt of such aforesaid initial written notice
by the Selling Party. For purposes of this Section 14.2, if the
Associated Agreements have not been terminated at the time of
valuation, fair market value shall include all rights, obligations and
commitments under the Associated Agreements for the remainder of the
current terms thereof, assuming no renewals. The Selling Party shall
consummate the sale to the Purchasing Party of the Sale Shares at the
Sale Price within thirty (30) days from the date of final
determination of the Sale Price, and this Agreement
18
<PAGE>
shall terminate, pursuant to Section 14.2(b), upon the consummation of
such sale.
(b) In the event of a sale of Shares in accordance with Section 14.2(a)
above, this Agreement shall be terminated, and:
(i) upon the written request of the Purchasing Party, the Selling
Party shall cause all officers and directors of NEWCO nominated
by the Selling Party or a nominee of the Selling Party and named
in such written request to resign their respective positions with
NEWCO within thirty (30) days of the Selling Party's receipt of
such written request; and
(ii) the Parties shall take any and all actions necessary to terminate
the Transition Services Agreement between them and NEWCO within
thirty (30) days of consummation of a sale pursuant to Section
14.2(a), and shall use their best efforts to amicably settle any
accounts, including any debts or other obligations, which may
exist between the Parties.
(c) The Purchasing Party's rights under this Section 14.2 shall be in
addition to any other rights or remedies that the Purchasing Party may
have under applicable laws in the event of a breach by the Selling
Party of any of its representations, covenants or obligations
contained herein.
14.3 Survival of Rights, Duties and Obligations
------------------------------------------
Termination of this Agreement for any reason shall not release any Party
from any liability that at the time of termination has already accrued to the
other Party or which thereafter may accrue in respect of any act or omission
prior to such termination, nor shall any such termination hereof affect in any
way the survival of any right, duty, or obligation of any Party which is
expressly stated elsewhere in this Agreement to survive termination hereof.
SECTION 15. JURISDICTION; ATTORNEY'S FEES.
(a) The sole jurisdiction and venue for any court action or proceeding
arising out of or relating to this Agreement shall be an appropriate
federal or state court in Orange County, California. Each of ST. JOHN
and CDC hereby irrevocably submits to the jurisdiction of any of said
courts in any court action and hereby waives any claim or defense of
inconvenient forum. Each of ST. JOHN and CDC represents and warrants
that it is not entitled to immunity from judicial proceedings and
agrees that, should the other
19
<PAGE>
bring any court action, it will not claim any immunity from such
proceedings for itself or with respect to its property.
(b) In the event that a court in Orange County, California refuses to
exercise jurisdiction in connection with a dispute arising out of or
relating to this Agreement, the Parties agree that such dispute shall
be determined by arbitration in accordance with the Rules of the
American Arbitration Association. The place of arbitration shall be
Orange County, California, and the language of the arbitration shall
be English. The arbitral tribunal shall consist of three arbitrators,
one selected by CDC, one selected by ST. JOHN, and the third selected
by the two arbitrators selected by the Parties. Judgment upon the
award of the arbitrators may be entered in any court having
jurisdiction thereof.
(c) In the event of any action for the breach of this Agreement or other
cause by any Party under subsections (a) or (b) above, the prevailing
Party shall be entitled to reasonable attorney's fees, costs and
expenses incurred in such action.
SECTION 16. INTERPRETATION
16.1 Applicable Law
--------------
The validity, construction and performance of this Agreement shall be
governed by and interpreted in accordance with the laws of Japan.
16.2 Governing Language
------------------
This Agreement is executed in the English language which shall be the
controlling language and no translation or restatement of the terms and
conditions hereof in any other language will have any effect in the
interpretation or application thereof.
16.3 Effect of Headings
------------------
The headings to Sections of this Agreement, excepting those in Section 1
hereof, are to facilitate reference only, do not form a part of this Agreement,
and shall not in any way affect the interpretation hereof.
16.4 Non-Waiver
----------
The waiver, express or implied, by any of the Parties of any right
hereunder or of any failure to perform or breach hereof by the other Party(s)
hereto shall not constitute or be deemed a waiver of any other right hereunder
or of any other failure to perform or breach hereof by such other Party(s),
whether of a similar or dissimilar nature thereto.
20
<PAGE>
SECTION 17. MISCELLANEOUS
17.1 Assignment
----------
(a) This Agreement, and all rights and obligations hereunder, shall not be
assigned by either of the Parties to any third party, by operation of law or
otherwise, without the prior written consent thereto by the other Party except
in connection with a Transfer permitted under Section 9.2 hereof.
(b) Any permitted assignment shall be subject to and conditioned on the
issuance of any governmental validations, authorizations, licenses or rulings
then required under applicable law in connection with such assignment.
17.2 Notices
-------
Except as otherwise provided in this Agreement, all notices required or
permitted to be given hereunder shall be in writing and shall be valid and
sufficient if dispatched by registered airmail, postage prepaid, in any post
office in the United States of America or in Japan, as the case may be, or by
facsimile transmission, as follows:
If to ST. JOHN: ST. JOHN KNITS, INC.
17422 Derian Avenue
Irvine, California 92614
U.S.A.
Attention: Mr. Roger G. Ruppert
Facsimile No.: 1-714-223-3390
If to CDC: COMMERCIAL DEVELOPMENT CO., LTD
Imperial Tower 9F
1-1-1 Uchisaiwai-cho
Chiyoda-ku, Tokyo 100 Japan
Attention: Mr. Katsuyuki Masuda
Facsimile No.: 81-3-3503-1390
Any Party may change its address by a notice given to the other Party in
the manner set forth above. Notices given as herein provided shall be
considered to have been given fifteen (15) days after the mailing thereof, or if
by facsimile transmission, the next business day of the country in which the
recipient is located.
21
<PAGE>
17.3 Relationship of Parties
-----------------------
Nothing herein shall constitute an agency relationship or partnership
between ST. JOHN and CDC. No Party shall have any authority to bind or commit
the other in any manner whatsoever.
17.4 Modification Etc. of Agreement
------------------------------
This Agreement embodies the entire agreement of the Parties with respect to
the subject matter hereof as of the date of execution hereof and supersedes and
cancels any and all prior understandings or agreements, verbal or otherwise, in
relation hereto, which may exist between the Parties. No oral explanation or
oral information by either of the Parties shall alter the meaning or
interpretation of this Agreement. No amendment or change hereof or addition
hereto shall be effective or binding on any of the Parties unless reduced to
writing and executed by the respective duly authorized representatives of each
of the Parties.
* * * * * * *
22
<PAGE>
IN WITNESS WHEREOF, and having been approved by the board of directors of each
of the Parties, the Parties have caused this Agreement to be executed by their
duly authorized representatives on the day and year first set forth above.
ST. JOHN KNITS, INC.
By: /s/ Bob Gray
-------------------------------------------
Bob Gray, Chairman
COMMERCIAL DEVELOPMENT CO., LTD.
By: /s/ Katsuyuki Masuda
----------------------------------------
Katsuyuki Masuda
Title:
23
<PAGE>
EXHIBIT I
ARTICLES OF INCORPORATION
OF
ST. JOHN CO., LTD.
CHAPTER I.
GENERAL PROVISIONS
Article 1. (Corporate Name)
- ----------
The name of the company shall be St John Kabushiki Kaisha, and in English
translation, St. John Co., Ltd.
Article 2. (Purpose)
- ----------
The purpose of the company shall be to engage in the following business:
a. Import and sale of women's outerwear, knit wear and other apparel;
b. Import and sale of footwear, leather products, jewelry and other
women's accessories; and
c. All matters related to the conduct of the business stated in the
preceding items.
Article 3. (Location of Head Office)
- ----------
The head office of the company shall be located in Chiyoda-ku, Tokyo.
Article 4. (Method by which Public Notice is made)
- ----------
Public notices of the company shall be displayed in the Official Gazette.
CHAPTER II.
Article 5. (Total Number of Shares)
- ----------
The total number of shares authorized to be issued by the company shall be
nine thousand two hundred (9,200) shares.
I-1
<PAGE>
Article 6. (Par Value Shares)
- ----------
The par value of each par value share issued by the company shall be fifty
thousand yen ((Yen)50,000).
Article 7. (Preemptive Rights to New Shares)
- ----------
The shareholders of the company shall have preemptive rights to subscribe
to new shares and convertible debentures.
Article 8. (Approval of Board of Directors for Transfer of Shares)
- ----------
In order for a shareholder to transfer shares of the company, the approval
of the board of directors must be obtained.
Article 9. (Notification by Shareholders, et al., of Name, Residence, and Seal
- ----------
Impression)
Each shareholder and registered pledgee shall provide the company with
his/her name, residential address and seal impression in the form prescribed by
the company.
A foreigner who is accustomed to signing his/her name may submit a specimen
of his/her signature in lieu of the seal impression referred to in the preceding
paragraph.
A shareholder or registered pledgee having no residence in Japan may
designate a temporary residence or attorney in Japan and so notify the company.
In case of any change in matters covered by the preceding three (3)
paragraphs, the company shall be notified.
The company shall send all required notices to all shareholders and
registered pledgees at their residences as notified in accordance with the first
paragraph above.
CHAPTER III.
MEETINGS OF SHAREHOLDERS
Article 10. (Holding of Meetings)
- -----------
An ordinary meeting of shareholders shall be called within three (3) months
from the day immediately following the last day of each fiscal period, and
extraordinary meetings of shareholders may be called whenever necessary.
A meeting of shareholders shall be held at the location provided in Article
3 or in an area adjacent thereto, or at a place agreed upon for the holding of
the meeting by all the shareholders holding voting rights at the meeting.
I-2
<PAGE>
Article 11. (Calling of Meetings)
- -----------
Meetings of shareholders shall be called by one of the representative
directors in accordance with a resolution of the board of directors.
When the representative directors are unable to act, one of the other
directors who shall be designated in accordance with an order determined
beforehand by the board of directors shall call the meeting.
Article 12. (Chain of Meetings)
- -----------
One of the representative directors shall act as chairman at meetings of
shareholders.
When the representative directors are unable to act, one of the other
directors who shall be designated in accordance with an order determined
beforehand by the board of directors or any other person who is nominated by a
majority vote of the shareholders present shall act as chairman.
Article 13. (Resolutions)
- -----------
Unless otherwise provided by law or by these Articles of Incorporation, all
resolutions of a meeting of shareholders shall be adopted by a majority vote of
shareholders present at the meeting at which shareholders present hold shares
representing in the aggregate more than one-half (1/2) of the total number of
the issued and outstanding shares.
Each shareholder shall have one (1) vote for each share.
Article 14. (Voting by Proxy)
- -----------
A shareholder may exercise his/her vote through a proxy. In such case, the
proxy must file with the company a document evidencing his/her authority.
Article 15. (Minutes of Meetings)
- -----------
The substance of proceedings at a meeting of shareholders and the results
thereof shall be recorded in the minutes of the meeting which shall bear the
signatures or the names and seals of the chairman and of the directors present
at the meeting and shall be preserved by the company.
I-3
<PAGE>
CHAPTER IV.
DIRECTORS AND STATUTORY AUDITORS
Article 16. (Number of Directors and Statutory Auditors)
- -----------
There shall be three (3) or more directors of the company and there
shall be one (1) or more statutory auditors.
Article 17. (Election)
- -----------
Directors and statutory auditors shall be elected at a meeting of
shareholders; provided, however, that cumulative voting shall not be used for
the election of directors.
Article 18. (Terms of Office)
- -----------
The terms of office of directors shall expire at the conclusion of the
ordinary meeting of shareholders held to settle accounts for the fiscal period
last ending within two (2) years from their assumption of office.
The terms of office of statutory auditors shall expire at the
conclusion of the ordinary meeting of shareholders held to settle accounts for
the fiscal period last ending within three (3) years from their assumption of
office.
The term of office of any director or statutory auditor elected to
fill a vacancy shall be the same as the remainder of the term of office of
his/her predecessor. The term of office of any director elected because of an
increase in number shall be the same as the remainder of the term of office of
the other directors then serving.
Article 19. (Election of Representative Directors and Directors with Specific
- -----------
Powers)
The board of directors shall select one (1) or more directors from among
its members to be representative directors of the company.
Representative directors shall severally represent the company.
The board of directors may select from among its members one (1) president
and one (1) or more vice presidents, senior managing directors (senmu) and
managing directors (jomu).
Article 20. (Remuneration and Retirement Allowances)
- -----------
The remuneration and retirement allowances for directors and statutory
auditors shall be separately determined by resolution of a meeting of
shareholders.
I-4
<PAGE>
CHAPTER V.
BOARD OF DIRECTORS
Article 21. (Calling of Meetings)
- -----------
Meetings of the board of directors shall be called by one of the
representative directors.
When the representative directors are unable to act, one of the other
directors who shall be designated in accordance with an order determined
beforehand by the board of directors shall call the meeting.
Article 22. (Notice of Meetings)
- -----------
Notice of a meeting of the board of directors shall be given to each
director and statutory auditor at least one (1) week prior to the date set for
such meeting; provided, that, in case of urgency, the above period may be
shortened.
No notice shall be required for the convocation of a meeting at which
all the directors and statutory auditors are present at the meeting or for which
all the directors and statutory auditors have waived notice.
Article 23. (Chairman)
- -----------
One of the representative directors shall act as chairman at meetings
of the board of directors.
When the representative directors are unable to act, one of the other
directors who shall be designated in accordance with an order determined
beforehand by the board of directors shall act as chairman.
Article 24. (Resolutions)
- -----------
Resolutions at a meeting of the board of directors shall be adopted by
an affirmative vote of a majority of the directors present which directors
present shall constitute a majority of all directors.
Article 25. (Minutes of Meetings)
- -----------
The substance of proceedings at a meeting of the board of directors
and the results thereof shall be recorded in the minutes of the meeting, which
shall bear the signatures or the names and seals of the directors and statutory
auditors present at the meeting, and shall be preserved by the company.
I-5
<PAGE>
CHAPTER VI.
ACCOUNTS
Article 26. (Fiscal Period)
- -----------
The fiscal period of the company shall commence on the first day of
November and end on the 31st day of October of the following year, and the
accounts of the company shall be closed on the 31st day of October each year.
Article 27. (Dividends and Cash Distributions)
- -----------
Dividends shall be paid to the shareholders or registered pledgees
appearing on the register of shareholders as of the closing of accounts for each
fiscal period.
A cash distribution may be made to shareholders or registered pledgees
appearing on the register of shareholders as of the 30th day of April each year
by resolution of the board of directors in accordance with the provisions of
Article 293-5 of the Commercial Code.
Dividends and cash distributions to shareholders shall bear no
interest.
The company shall be exempted from the obligation to pay dividends and
cash distributions after three (3) years have elapsed from the date on which the
dividends or cash distributions were tendered for payment.
CHAPTER VII.
SUPPLEMENTARY PROVISIONS
Article 28. (Shares Issued at the Time of Incorporation)
- -----------
The number of shares issued by the company at the time of
incorporation shall be two thousand three hundred (2,300) par value shares of
common stock and the issuing price shall be fifty thousand yen ((Yen)50,000) per
share.
Article 29. (Number and Terms of Office of the First Directors and Statutory
- -----------
Auditors)
The number of the first directors shall be seven (7), and the number of the
first statutory auditors shall be two (2).
Notwithstanding the provisions of the first and second paragraphs of
Article 18, the terms of office of the first directors and statutory auditors
shall expire at the conclusion of the ordinary meeting of shareholders held to
settle accounts for the fiscal period last ending within one (1) year from their
assumption of office.
I-6
<PAGE>
Article 30. (First Fiscal Period)
- -----------
The first fiscal period of the company shall be from the day of its
incorporation until the 31st day of October 1997.
Article 31. (Name and Address of Promoter, and Number of Shares subscribed for
- -----------
by the Promoter)
The name and address of the promoter, and the number of shares he/she has
subscribed for are as follows:
Number of Shares Name and Address of Promoter
---------------- ----------------------------
1,121 par value shares Commercial Development Co., Ltd.
of common stock 1-1, 1-Chome, Uchisaiwaicho,
Chiyoda-ku, Tokyo
The promoter for the purpose of incorporation of St. John Kabushiki Kaisha
has made these Articles of Incorporation in accordance with the provisions of
the Commercial Code and has hereunto affixed his name and seal, and his address,
this day of July 16, 1997.
Promoter: Katsuyuki Masuda (seal)
Representative Director
Commercial Development Co., Ltd.
1-1, 1-Chome, Uchisaiwaicho,
Chiyoda-ku, Tokyo
I-7
<PAGE>
EXHIBIT II
----------
LICENSE AND DISTRIBUTION AGREEMENT
----------------------------------
dated as of July ___, 1997
between
ST. JOHN KNITS, INC.
and
ST. JOHN CO., LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS......................... 1
1.1 Distributor List Price.................................... 1
-------------------------
1.2 Licensed Trademarks....................................... 2
1.3 Products.................................................. 2
1.4 SJ JAPAN Information...................................... 2
1.5 ST. JOHN Information...................................... 2
1.6 Territory................................................. 2
ARTICLE 2
APPOINTMENT......................... 2
2.1 Scope..................................................... 2
2.2 Subdistributors........................................... 3
2.3 Sales Outside the Territory............................... 3
2.4 Third-Party Importation................................... 3
ARTICLE 3
GENERAL OBLIGATIONS OF SJ JAPAN............... 3
3.1 Marketing................................................. 3
3.2 Use of Licensed Trademarks................................ 4
3.3 Manufacture or Distribution of Competitive Goods.......... 5
3.4 Customer Complaints....................................... 5
3.5 Quality Control........................................... 5
3.6 Design Services........................................... 6
3.7 Expenses.................................................. 6
ARTICLE 4
INDEMNITY; INFRINGEMENT; INSURANCE.............. 7
4.1 SJ JAPAN Indemnity........................................ 7
4.2 ST. JOHN Indemnity........................................ 7
4.4 Infringement Claims of Third Parties...................... 8
4.5 Insurance................................................. 8
ARTICLE 5
ORDERS FOR PRODUCTS..................... 8
5.1 Master Purchase Orders.................................... 8
5.2 Other Purchase Orders..................................... 8
5.3 Terms of Purchase Orders.................................. 9
5.4 Acceptance of Orders...................................... 9
5.5 Modification of Orders.................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.6 Delivery Terms........................................... 9
5.7 Product Changes.......................................... 10
ARTICLE 6
PRICES AND PAYMENT..................... 10
6.1 Prices................................................... 10
6.2 Price Increases, Decreases............................... 11
6.3 Payment Terms............................................ 11
6.4 Resale Prices............................................ 11
6.5 Overdue Payments......................................... 11
ARTICLE 7
ACCEPTANCE AND WARRANTY.................. 12
7.1 Acceptance of Products................................... 12
7.2 Product Warranty......................................... 12
7.3 Excluded Claims.......................................... 12
7.4 Limited Warranty......................................... 13
ARTICLE 8
LIMITATION OF REMEDIES................... 13
8.1 Delay.................................................... 13
8.2 Sole Remedies............................................ 13
8.3 Consequential Damages.................................... 13
ARTICLE 9
CONFIDENTIALITY...................... 14
ARTICLE 10
TRADEMARKS; COPYRIGHT................... 14
10.1 Exploitation of Rights................................... 14
10.2 Disputes Among Licensees................................. 14
10.3 Exclusive License........................................ 15
10.4 Ownership................................................ 15
10.5 Use of Name.............................................. 15
10.6 Compliance With Law; Markings............................ 16
10.7 Copyright................................................ 16
ARTICLE 11
TAXES; IMPORT OF PRODUCTS................. 16
11.1 Taxes.................................................... 16
11.2 Import Documentation..................................... 16
ARTICLE 12
TERM AND TERMINATION.................... 17
12.1 Term..................................................... 17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
12.2 Termination.................................. 17
12.3 Rights and Obligations on Termination........ 17
12.4 No Compensation.............................. 18
12.5 Injunctive Relief............................ 18
12.6 Reversion of Rights; Return of Materials..... 19
ARTICLE 13
FORCE MAJEURE............ 19
13.1 Definition................................... 19
13.2 Notice....................................... 19
13.3 Confirmation................................. 20
13.4 Suspension of Performance.................... 20
13.5 Termination.................................. 20
ARTICLE 14
REPRESENTATIONS AND WARRANTIES.... 20
14.1 ST. JOHN..................................... 20
14.2 SJ JAPAN..................................... 20
ARTICLE 15
JURISDICTION; INTERPRETATION..... 20
15.1 Disputes..................................... 20
15.2 Governing Law................................ 21
15.3 Governing Language........................... 21
15.4 Effect of Headings........................... 21
15.5 Non-Waiver................................... 21
ARTICLE 16
MISCELLANEOUS............ 22
16.1 Assignment................................... 22
16.2 Relationship................................. 22
16.3 Notices...................................... 22
16.4 ENTIRE AGREEMENT............................. 22
16.5 Amendment.................................... 23
16.6 Publicity.................................... 23
16.7 Severability................................. 23
16.8 Counterparts................................. 23
</TABLE>
Schedule A Licensed Trademarks
Schedule B U.S. Wholesale Price List
iii
<PAGE>
EXHIBIT II
License and Distribution Agreement
----------------------------------
THIS AGREEMENT, made this ___th day of July, 1997 by and between ST.
JOHN KNITS, INC., a corporation duly organized under the laws of the State of
California and having its principal place of business at 17422 Derian Avenue,
Irvine, California 92614 (hereinafter "ST. JOHN"), and ST. JOHN CO., LTD., a
corporation duly organized and existing under the laws of Japan and having its
principal place of business at Imperial Tower 9F, 1-1-1 Uchisaiwai-cho, Chiyoda-
ku, Tokyo 100 Japan (hereinafter "SJ JAPAN").
WHEREAS, ST. JOHN manufactures and markets certain products and
desires to increase the sales of such products;
WHEREAS, ST. JOHN is the owner of certain valuable trademarks under
which such products are sold;
WHEREAS, SJ JAPAN has represented that it possesses the necessary
expertise and marketing organization to promote and sell such products in the
territory defined herein; and
WHEREAS, ST. JOHN is willing to appoint SJ JAPAN as distributor of ST.
JOHN's products, with the right and license to use certain ST. JOHN trademarks,
in the territory, and SJ JAPAN is willing to accept such appointment;
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the parties agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For purposes of this Agreement, the following words, terms and
phrases, where written with an initial capital letter, shall have the meanings
assigned to them in this Article 1 unless the context otherwise requires:
1.1 Distributor List Price. "Distributor List Price" shall mean ST.
----------------------
JOHN's published United States wholesale price for a given Product in effect at
the time of acceptance by ST. JOHN of SJ JAPAN's order, less eighteen percent
(18%); provided, that for accessories (which shall specifically exclude any
knitwear and other textile products), the Distributor List Price shall mean ST.
JOHN's published United States wholesale price for a given Product in effect at
the time of acceptance by ST. JOHN of SJ JAPAN's order, less twenty percent
(20%). A copy of ST. JOHN's current published United States wholesale price
list is attached hereto as Schedule B. ST. JOHN reserves
----------
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<PAGE>
the right to change its United States wholesale list prices at any time and from
time to time after execution of this Agreement.
1.2 Licensed Trademarks. "Licensed Trademarks" shall mean the
-------------------
trademarks set forth in Schedule A hereto and all related logos, emblems and
----------
symbols, and all combinations, form and derivations thereof as are currently or
hereafter used by ST. JOHN in connection with the Products (as defined below).
1.3 Products. "Products" shall mean all women's apparel and women's
--------
accessories which are both manufactured and distributed by ST. JOHN for retail
sale in the United States of America.
1.4 SJ JAPAN Information. "SJ JAPAN Information" shall mean all
--------------------
information, other than information in publicly-available published form or
expressly designated by SJ JAPAN as non-confidential, which is directly or
indirectly disclosed to ST. JOHN, regardless of the form in which it is
disclosed, relating in any way to SJ JAPAN's markets, customers, products,
patents, inventions, procedures, methods, designs, strategies, plans, assets,
liabilities, costs, revenues, profits, organization, employees, agents,
subdistributors, sublicensees or business in general.
1.5 ST. JOHN Information. "ST. JOHN Information" shall mean all
--------------------
information, other than information in publicly-available published form or
expressly designated by ST. JOHN as non-confidential, which is directly or
indirectly disclosed to SJ JAPAN or embodied in Products provided hereunder,
regardless of the form in which it is disclosed, relating in any way to ST.
JOHN's markets, customers, products, patents, inventions, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors, licensees or business in general.
1.6 Territory. "Territory" shall mean Japan.
---------
ARTICLE 2
---------
APPOINTMENT; GRANT OF RIGHT
---------------------------
2.1 Scope of Appointment and License. ST. JOHN hereby (i) appoints
--------------------------------
SJ JAPAN, and SJ JAPAN hereby accepts appointment, as ST. JOHN's exclusive
distributor during the term of this Agreement of the Products in the Territory,
and (ii) grants SJ JAPAN a non-transferable license for the term of this
Agreement to use the Licensed Trademarks solely in connection with the
distribution and sale of the Products within the Territory to the extent
permitted herein, in any case subject to all terms and conditions of this
Agreement.
2.2 Subdistributors. SJ JAPAN shall not, without the prior written
---------------
approval of ST. JOHN, which approval shall not be unreasonably withheld, (i)
appoint
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any subdistributors or agents to promote and/or distribute Products in the
Territory, or (ii) sublicense any of its rights hereunder to use the Licensed
Trademarks. Further, notwithstanding any such appointment or sublicense, or ST.
JOHN's approval thereof, SJ JAPAN shall at all times remain fully liable for the
performance of its subdistributors, sublicensees and/or agents and SJ JAPAN
hereby agrees to indemnify and hold harmless ST. JOHN from all damages, losses,
costs or expenses arising in any manner from any act or omission on the part of
its subdistributors, sublicensees or agents. The parties acknowledge that ST.
JOHN has approved the sublicense to Commercial Development Co., Ltd. pursuant to
that certain CDC License Agreement, dated as of July ___, 1997, between SJ JAPAN
and Commercial Development Co., Ltd.
2.3 Sales Outside the Territory. SJ JAPAN shall not advertise,
---------------------------
promote, solicit customers for, sell or distribute Products outside the
Territory nor establish any office through which orders are solicited or any
depot at which inventories of Products are stored outside the Territory.
2.4 Third-Party Importation. In no event shall ST. JOHN bear any
-----------------------
liability to SJ JAPAN for the importation of Products into the Territory by
third parties without the approval or authorization of ST. JOHN.
ARTICLE 3
---------
GENERAL OBLIGATIONS OF SJ JAPAN
-------------------------------
3.1 Marketing. SJ JAPAN shall have the following obligations with
---------
respect to the marketing and distribution of the Products:
(a) To use its best efforts to further the promotion, marketing, sale and
other distribution of Products in the Territory;
(b) To maintain an adequate and balanced inventory of Products;
(c) To promptly respond to all inquiries from customers, including
complaints, process all orders, and effect all shipments of Products;
(d) To diligently investigate all leads with respect to potential
customers referred to it by ST. JOHN;
(e) To permit ST. JOHN, upon reasonable notice, to visit SJ JAPAN's
customers and to visit SJ JAPAN's place of business and inspect its
inventories, records, and other relevant documents;
(f) To maintain throughout the Territory an adequate sales force dedicated
on both a full and part-time basis, as the case may be, to the sale of
Products; and
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(g) To participate, at its own expense, in sales or merchandising programs
prepared by ST. JOHN, in all shows, fairs and exhibitions in the
Territory where such participation will, in the reasonable judgment of
ST. JOHN, promote the Products, and develop and implement sales
programs for the promotion of the Products.
3.2 Use of Licensed Trademarks. SJ JAPAN shall have the following
--------------------------
obligations in its use of the Licensed Trademarks:
(a) SJ JAPAN shall diligently undertake to advertise the Products in the
Territory. ST. JOHN shall furnish SJ JAPAN with a reasonable quantity
of ST. JOHN's brochures and other appropriate advertising materials,
in the English language, for use by SJ JAPAN in preparing its own
advertising materials. SJ JAPAN shall submit to ST. JOHN copies of
all proposed advertising or promotional materials prepared by or for
SJ JAPAN utilizing the Licensed Trademarks prior to the use of such
materials. ST. JOHN may approve or disapprove any and all advertising
and promotional materials submitted as aforesaid and shall discuss
with SJ JAPAN any modifications or alterations thereof. SJ JAPAN
shall not use any such advertising or promotional materials without
first obtaining the prior express written consent of ST. JOHN. All
expenses incurred by SJ JAPAN with respect to creating advertising
materials and advertising the Products shall be borne by SJ JAPAN.
(b) SJ JAPAN shall submit to ST. JOHN all proposed tags, labels, packaging
and other similar materials from which ST. JOHN may select those, if
any, which ST. JOHN approves for use in connection with Products. ST.
JOHN may approve or disapprove the tags, labels, packaging and other
similar materials submitted as aforesaid and shall discuss with SJ
JAPAN any modifications or alterations thereof. SJ JAPAN shall not
use any such tags, labels, packaging or other similar materials
without first obtaining the prior express written consent of ST. JOHN.
(c) SJ JAPAN shall submit to ST. JOHN samples of all proposed business
cards, invoices, order forms, stationery and other similar printed
materials from which ST. JOHN may select those, if any, which ST. JOHN
approves for use in connection with Products. ST. JOHN may approve or
disapprove the business cards, invoices, order forms, stationery and
other similar printed materials submitted as aforesaid and shall
discuss with SJ JAPAN any modifications or alterations thereof. SJ
JAPAN shall not use any such business cards, invoices, order forms,
stationery or other similar printed materials without first obtaining
the prior express written consent of ST. JOHN.
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<PAGE>
(d) It is specifically understood and agreed that ST. JOHN's approval
pursuant to subsections (a), (b) and (c) above shall not be
unreasonably withheld. Any sample, copy, artwork or other material
submitted to ST. JOHN for its approval which is not disapproved within
twenty (20) business days after ST. JOHN's receipt thereof shall be
deemed approved for use hereunder, but only for the use for which
approval was sought. After any sample, copy, artwork or other
material has been approved, SJ JAPAN shall not depart therefrom in any
substantial respect without the prior written ap proval of ST. JOHN.
If ST. JOHN should disapprove any material pursuant to this Section
3.2, SJ JAPAN shall neither use nor permit the same to be used in any
manner.
(e) Insofar as any packaging and advertising material to be used in
connection with the Products or otherwise utilizing the Licensed
Trademarks is created for SJ JAPAN by a third party, SJ JAPAN shall
execute such assignments of copyright as ST. JOHN shall require.
Notwithstanding the foregoing sentence, SJ JAPAN's existing
copyrights, trademarks and other proprietary rights incorporated into
such artwork shall remain the property of SJ JAPAN and shall not be
assigned to ST. JOHN and shall not be subject to ST. JOHN's use,
without SJ JAPAN's prior written consent.
3.3 Manufacture or Distribution of Competitive Goods. SJ JAPAN shall
------------------------------------------------
not manufacture or distribute any products which are directly or indirectly
competitive with the Products.
3.4 Customer Complaints. SJ JAPAN agrees to cooperate with ST. JOHN
-------------------
in dealing with any customer complaints concerning the Products and to take any
action requested by ST. JOHN to resolve such complaints.
3.5 Quality Control. In order to protect the goodwill and reputation
---------------
associated with the Licensed Trademarks, SJ JAPAN covenants and agrees as
follows:
(a) The Products shall be distributed and sold with packaging and sales
promo tion materials appropriate for highest quality Products and
shall meet all specifications and standards therefor which ST. JOHN
may provide to SJ JAPAN from time to time.
(b) In order to maintain the reputation, image and prestige of the
Licensed Trademarks, SJ JAPAN's distribution patterns shall consist of
those retail outlets whose location, merchandising and overall
operations are consistent with the high quality of Products and the
reputation, image and prestige of the Licensed Trademarks.
(c) SJ JAPAN may not use a personality or celebrity to endorse or promote
any Products unless and until ST. JOHN has given SJ JAPAN its specific
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<PAGE>
written approval for such personality or celebrity to endorse or
promote such Products.
(d) SJ JAPAN's policy of sale, distribution and exploitation of the
Products shall be of high standard and shall in no manner reflect
adversely upon the good name of ST. JOHN or its other licensees or
upon the goodwill and reputation associated with the Licensed
Trademarks.
3.6 Design Services. From time to time, ST. JOHN may prepare and
---------------
deliver to SJ JAPAN ideas, sketches and other materials utilizing the Licensed
Trademarks for use in connection with the Products ("ST. JOHN Ideas"). ST. JOHN
Ideas shall be used by SJ JAPAN on a non-exclusive basis, solely in connection
with the distribution and sale of Products pursuant to this Agreement. If SJ
JAPAN chooses not to use such ST. JOHN Ideas within thirty (30) days of SJ
JAPAN's receipt thereof, SJ JAPAN shall return them to ST. JOHN, at SJ JAPAN's
expense, and may not use them or permit their use thereafter. Whether or not SJ
JAPAN chooses to use any ST. JOHN Ideas, ST. JOHN may use and permit others to
use them in any manner it desires. ST. JOHN shall at all times retain ownership
of any and all intellectual property rights related to ST. JOHN Ideas and SJ
JAPAN shall keep all information related to the ST. JOHN Ideas confidential and
shall not disclose such information to any party without the prior written
consent of ST. JOHN in each instance; provided, that nothing herein shall
prevent SJ JAPAN from using, disclosing or authorizing the disclosure of any
such information which is disclosed orally and is not identified as confidential
information either at the time of disclosure or by written notice sent to SJ
JAPAN within ten (10) business days after disclosure thereof.
3.7 Expenses. Except as specifically stated otherwise, SJ JAPAN
--------
assumes full responsibility for all costs and expenses which it incurs in
carrying out its obligations under this Agreement, including but not limited to
all rentals, salaries, commissions, advertising, demonstration, travel and
accommodation expenses without the right to reimbursement for any portion
thereof from ST. JOHN.
ARTICLE 4
---------
INDEMNITY; INFRINGEMENT; INSURANCE
----------------------------------
4.1 SJ JAPAN Indemnity. SJ JAPAN hereby indemnifies, saves and holds
------------------
ST. JOHN harmless from and against any and all liabilities, losses, damages and
expenses (including reasonable attorneys' fees and expenses) arising out of or
resulting from: (i) any act or omission that may be committed or suffered by SJ
JAPAN or any of its servants, agents or employees in connection with SJ JAPAN's
performance of this Agreement, (ii) any actual or alleged infringement or
violation of any patents, copyrights, trademarks or other rights, including
trade secrets and rights of privacy and publicity, in
II-6
<PAGE>
connection with the distribution, sale, use, advertisement or promotion of any
of the Products (other than those arising from the design or manufacture of
Products or other similar matters not within the control of SJ JAPAN or from the
use by SJ JAPAN of the Licensed Trademarks as permitted hereunder), (iii) SJ
JAPAN's false or misleading advertising in connection with any of the Products,
(iv) any violation of any applicable law or regulation in connection with the
marketing, distribution, sale, advertisement or promotion of any of the
Products, (v) any use of any of the Licensed Trademarks in a manner not
authorized by this Agreement, or (vi) any breach of this Agreement by SJ JAPAN.
SJ JAPAN shall promptly notify ST. JOHN of any claim which may be made against
SJ JAPAN arising out of SJ JAPAN's use of the Licensed Trademarks. The
provisions of this Section 4.1 and SJ JAPAN's indemnity obligations hereunder
shall sur vive the expiration or termination of this Agreement.
4.2 ST. JOHN Indemnity. ST. JOHN hereby indemnifies, saves and holds
------------------
SJ JAPAN harmless from and against any and all liabilities, losses, damages and
expenses (including reasonable attorneys' fees and expenses) arising out of or
resulting from any infringement suit or claim of the nature specified in
Sections 4.3 and 4.4 below to the extent, and only to the extent, that SJ JAPAN
has complied with the provisions of such sections.
4.3 Third Party Infringement. In the event that SJ JAPAN learns of
------------------------
any infringement, act of unfair competition by third parties or imitation of the
Licensed Trademarks or of any use by any person of a trademark similar to any
Licensed Trademark, it shall promptly notify ST. JOHN thereof. ST. JOHN
thereupon may take such action as it deems advisable for the protection of its
rights in and to the Licensed Trademarks and, if requested to do so by ST. JOHN,
SJ JAPAN shall cooperate with ST. JOHN in all respects at ST. JOHN's sole
expense, including without limitation by being a plaintiff or co-plaintiff and
by causing its officers to execute pleadings and other necessary documents and
to causing its officers and employees to devote appropriate time to litigation
and/or disposition of all matters within the purview of this Section 4.3; it is
understood that SJ JAPAN's officers and employees will not be compensated for
their time and effort. In no event, however, shall ST. JOHN be required to take
any action if it deems it inadvisable to do so and SJ JAPAN shall have no right
to take any action with respect to the Licensed Trademarks without ST. JOHN's
prior written approval. ST. JOHN shall have full control over any action taken,
including without limitation, the right to select counsel, to settle on any
terms it deems advisable in its discretion, to appeal any adverse decision
rendered in any court, to discontinue any action taken by it, and otherwise to
make any decision in respect thereto as it in its discretion deems advisable.
If SJ JAPAN desires to retain its own counsel, it shall do so at its own
expense. Any recovery as a result of such action shall belong solely to ST.
JOHN.
4.4 Infringement Claims of Third Parties. In the event that any
------------------------------------
infringement suit or any claim of infringement involving the Licensed Trademarks
in connection with the sale or distribution of the Products in the Territory
pursuant to and
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<PAGE>
in accordance with the terms of this Agreement is instituted by a third party
against SJ JAPAN, SJ JAPAN shall give immediate notice of such suit or claim to
ST. JOHN and ST. JOHN shall defend or settle such suit or claim at its own
expense and SJ JAPAN shall offer reasonable cooperation to ST. JOHN in all
aspects of any such suit or claim. ST. JOHN reserves the right to control the
defense of any such suit or claim, including, without limitation, the right to
choose counsel and to settle and dispose of any such suit or claim as it deems
appropriate in its sole discretion.
4.5 Insurance. Before selling or shipping any Products, SJ JAPAN
---------
shall procure and maintain at its own expense in full force and effect at all
times during which Products are being sold, with a reputable insurance carrier
acceptable to ST. JOHN, a liability insurance policy sufficient in the opinion
of ST. JOHN to protect and insure ST. JOHN and SJ JAPAN against any claims or
liabilities with which it or they may be charged because of personal or property
damage or injuries suffered by any person or entity, resulting from the Products
or the use or sale thereof, whether during the term of this Agreement or
thereafter including, without limitation, product liability coverage with
respect to Products.
ARTICLE 5
---------
ORDERS FOR PRODUCTS
-------------------
5.1 Master Purchase Orders. SJ JAPAN shall submit master purchase
----------------------
orders for Products to ST. JOHN twice each calendar year, prior to the Fall
Season and prior to the Spring Cruise Season. SJ JAPAN shall ensure that its
master purchase orders are received by ST. JOHN no later than thirty (30) days
after SJ JAPAN's receipt from ST. JOHN of samples of Products for such Fall
Season or Spring Cruise Season, as the case may be.
5.2 Other Purchase Orders. SJ JAPAN may also submit individual
---------------------
purchase orders for Products to ST. JOHN from time to time. SJ JAPAN shall
ensure that such individual purchase orders are received by ST. JOHN at least
sixty (60) days prior to the delivery dates requested in the order.
5.3 Terms of Purchase Orders. Each purchase order submitted by SJ
------------------------
JAPAN under Sections 5.1 and 5.2 above shall be in writing sent by mail,
facsimile, telex, telegram or cable, which shall set forth the information
specified below, as well as such other information as ST. JOHN may reasonably
request in the format specified by ST. JOHN from time to time:
(a) An identification of the Products ordered, including line name and
product numbers,
(b) Quantity,
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<PAGE>
(c) Delivery schedule, identifying desired delivery dates, and
(d) Shipping instructions and shipping addresses.
5.4 Acceptance of Orders. All purchase orders are subject to
--------------------
acceptance in writing by ST. JOHN at its principal offices in Irvine,
California, which acceptance shall be delivered by mail to a regularly
established post office, by facsimile, or by telex, telegram or cable through a
regularly established agency of a commercial telex, telegram or cable company.
Each such purchase order shall be deemed to be an offer by SJ JAPAN to purchase
the Products pursuant to the terms of this Agreement and, when accepted by ST.
JOHN as hereinabove provided, shall give rise to a contract under the terms set
forth herein to the exclusion of any additional or contrary terms set forth in
such purchase order. ST. JOHN shall deliver to SJ JAPAN its acceptance, if
forthcoming, of any purchase order within two (2) weeks of ST. JOHN's receipt of
such purchase order.
5.5 Modification of Orders. No accepted purchase order shall be
----------------------
modified or cancelled except upon the written agreement of both parties. SJ
JAPAN's purchase orders or mutually agreed change orders shall be subject to all
provisions of this Agreement, whether or not the purchase order or change order
so states.
5.6 Delivery Terms. (a) All deliveries of the Products shall be
--------------
Free Carrier at or near ST. JOHN's manufacturing or warehouse facility. Unless
otherwise provided in this Agreement, "Free Carrier" shall be construed in
accordance with INCOTERMS 1990 of the International Chamber of Commerce. All
risk of damage to or loss or delay of the Products shall pass to SJ JAPAN upon
their delivery at the Free Carrier delivery point to (a) a common carrier or (b)
an agent or any other person specified by SJ JAPAN acting on behalf of SJ JAPAN.
(b) SJ JAPAN shall insure each shipment of Products with a reputable
insurer for the full invoice of such shipment. Such insurance shall provide for
full coverage from the time the Products are delivered at the Free Carrier point
until SJ JAPAN shall have paid ST. JOHN for such Products in full. ST. JOHN
reserves all rights with respect to delivered Products permitted by law
including, without limitation, the rights of rescission, repossession, resale,
and stoppage in transit until the full amount due from SJ JAPAN in respect of
all delivered Products has been paid.
(c) ST. JOHN shall use reasonable commercial efforts to deliver
accepted orders in accordance with requested delivery dates.
5.7 Product Changes. ST. JOHN reserves the right, in its sole
---------------
discretion and without incurring any liability to SJ JAPAN, to:
(a) Alter any Product;
II-9
<PAGE>
(b) Discontinue or cancel the manufacture of any Product, whether or
not such Product has been announced publicly; or
(c) Commence the development, manufacture, marketing or sale of new
products having features which make any Product wholly or
partially obsolete.
Notwithstanding the above, ST. JOHN shall use its best efforts to provide SJ
JAPAN with prompt written notice of such decisions and shall use reasonable
commercial efforts to fill all accepted purchase orders from SJ JAPAN for any
altered or discontinued Products of which manufacturing and commercial
deliveries have commenced.
ARTICLE 6
---------
PRICES AND PAYMENTS
-------------------
6.1 Prices. The prices to be paid by SJ JAPAN for Products purchased
------
pursuant to this Agreement shall be the Distributor List Prices in effect at the
time of acceptance of the relevant purchase order submitted by SJ JAPAN, except
as provided in Section 6.2 below. The difference between the Distributor List
Prices and the prices SJ JAPAN sells Products to its customers shall be SJ
JAPAN's sole remuneration for distribution of the Products. All Distributor
List Prices are Free Carrier ST. JOHN's manufacturing or warehouse facility and
include packing in accordance with ST. JOHN's standard commercial export
practices in effect at the time of shipment. Special packing or handling shall
be at the sole expense of SJ JAPAN.
6.2 Price Increases, Decreases. ST. JOHN may, at any time during the
--------------------------
term of this Agreement, increase its prices for the Products by providing SJ
JAPAN with at least sixty (60) days prior written notice. Increased prices for
all Products shall not apply to purchase orders accepted prior to the effective
date of the price increase unless such orders provide for delivery, and delivery
is in fact made, more than one-hundred and eighty (180) days after the date of
acceptance of the order. Price decreases with respect to all Products shall be
effective immediately upon written notice to SJ JAPAN on all such Products not
yet delivered.
6.3 Payment Terms. All payments hereunder shall be due net ninety
-------------
(90) days from the date of shipment of the Products, payable to the bank or
banks specified by ST. JOHN in writing from time to time. All payments
hereunder shall be made in U.S. dollars or such other currency as may be
mutually agreed upon. ST. JOHN shall not be obligated to ship Products against
accepted orders in the event ST. JOHN's outstanding accounts receivable from SJ
JAPAN then exceed or would after any such shipment exceed two million dollars
($2,000,000) or such other amount as may be mutually agreed upon from time to
time by ST. JOHN and SJ JAPAN. In the event of any dispute arising over any
part of an invoice or the total amount due under an invoice, all undisputed
amounts shall be promptly paid by SJ JAPAN in accordance with this
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<PAGE>
Section 6.3. ST. JOHN shall have the right at any time to require SJ JAPAN to
make any payments hereunder by irrevocable, transferrable and divisible letter
of credit opened at SJ JAPAN's expense, issued or confirmed by a bank specified
by, or acceptable to, ST. JOHN, cash in advance, or such other method of secured
payment as ST. JOHN shall prescribe.
6.4 Resale Prices. SJ JAPAN may resell Products at such prices as SJ
-------------
JAPAN, in its sole discretion, shall determine. For purposes of providing ST.
JOHN with relevant market information, SJ JAPAN shall provide ST. JOHN with a
list of its initial sales prices for the Products to be charged to its customers
and SJ JAPAN shall keep ST. JOHN fully informed by providing ST. JOHN with any
new list sales prices within ten (10) days of any change in such sales prices.
Nothing in this Agreement shall be deemed to obligate SJ JAPAN to control and SJ
JAPAN shall not undertake to control the price at which its customers may sell
the Products.
6.5 Overdue Payments. If and for so long as any payment from SJ
----------------
JAPAN to ST. JOHN under this Agreement shall be overdue, interest shall accrue
on such payment at the rate equal to the lesser of: (i) the prime rate being
charged in Los Angeles, California by Bank of America National Trust & Savings
Association as of the close of business on the date the payment first becomes
due plus one and one-half percent (1.5%), or (ii) the maximum rate permitted by
applicable law.
ARTICLE 7
---------
ACCEPTANCE AND WARRANTY
-----------------------
7.1 Acceptance of Products. In the event of any shortage, damage or
----------------------
discrepancy in or to a shipment of Products, SJ JAPAN shall promptly report the
same to ST. JOHN and furnish such written evidence or other documentation as ST.
JOHN may deem appropriate. ST. JOHN shall not be liable for any such shortage,
damage or discrepancy unless ST. JOHN has received notice and substantiating
evidence thereof from SJ JAPAN within thirty (30) days of arrival of the
Products at SJ JAPAN's shipping address in the Territory. If the substantiating
evidence delivered by SJ JAPAN demonstrates to ST. JOHN's satisfaction that ST.
JOHN is responsible for such shortage, damage or discrepancy, ST. JOHN shall
promptly deliver additional or substitute Products or parts of Products, as ST.
JOHN may deem sufficient, to SJ JAPAN in accordance with the delivery procedures
set forth herein, and ST. JOHN shall bear any reasonable shipping costs incurred
in the return of any such Products as ST. JOHN directs SJ JAPAN to return and in
ST. JOHN's shipment of such additional or substitute Products; provided that in
no event shall ST. JOHN be liable for any additional costs, expenses or damages
incurred by SJ JAPAN directly or indirectly as a result of such shortage, damage
or discrepancy in or to a shipment.
7.2 Product Warranty. ST. JOHN warrants for a period of sixty (60)
----------------
days after the date of delivery in accordance with Section 5.6 hereof that the
Products
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shall be free from defects in material and workmanship. SJ JAPAN and ST. JOHN
shall discuss in good faith whether any defective Products should be repaired
for resale in the Territory, and any related costs of repair shall be borne by
ST. JOHN. ST. JOHN's sole obligation in the event of a breach of such warranty
shall be to provide at no charge to SJ JAPAN replacement Products for those
defective Products, and only those defective Products, which the parties
mutually agree shall not be repaired. All costs of shipment of the replacement
Products to SJ JAPAN shall be borne by ST. JOHN. SJ JAPAN shall retain all
replaced Products subject to the foregoing warranty for ST. JOHN's inspection
for a period of six (6) months after their replacement. All such replaced
Products shall become the property of ST. JOHN upon their replacement and SJ
JAPAN shall (i) if so directed by ST. JOHN and upon the terms dictated by ST.
JOHN in its sole discretion, sell all or any portion of such replaced Products
in the Territory as "second" or as "irregular" items, and (ii) return or destroy
any such replaced Products as ST. JOHN shall so request, provided, that ST. JOHN
shall bear any related shipping costs for the return of such Products. In any
event, SJ JAPAN shall not affix any Licensed Trademark to any Product if it is
to be sold as a "second" or as an "irregular" and shall remove the Licensed
Trademarks from any Product to be sold as a "second" or as an "irregular."
7.3 Excluded Claims. ST. JOHN shall have no obligation under Section
---------------
7.2 above in the event that replacement of Products shall have been necessitated
in whole or in part by Force Majeure as defined in Section 13.1 hereof, or by
the fault or negligence of SJ JAPAN.
7.4 Limited Warranty. THE WARRANTIES SET FORTH IN THIS ARTICLE 7 ARE
----------------
INTENDED SOLELY FOR THE BENEFIT OF SJ JAPAN. ALL CLAIMS HEREUNDER SHALL BE MADE
BY SJ JAPAN AND MAY NOT BE MADE BY SJ JAPAN'S CUSTOMERS. THE WARRANTIES SET
FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE
HEREBY DISCLAIMED AND EXCLUDED BY ST. JOHN, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ALL
OBLIGATIONS OR LIABILITIES ON THE PART OF ST. JOHN FOR DAMAGES ARISING OUT OF OR
IN CONNECTION WITH THE USE OF THE PRODUCTS.
ARTICLE 8
---------
LIMITATION OF REMEDIES
----------------------
SJ JAPAN UNDERSTANDS AND AGREES AS FOLLOWS:
8.1 Delay. ST. JOHN SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE
-----
CAUSED BY DELAY IN FURNISHING PRODUCTS AND SERVICES OR ANY OTHER PERFORMANCE
UNDER OR PURSUANT TO THIS AGREEMENT.
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<PAGE>
8.2 Sole Remedies. EXCEPT AS SPECIFICALLY STATED OTHERWISE HEREIN,
-------------
THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF ANY AND ALL WARRANTIES AND THE
SOLE REMEDIES FOR ST. JOHN's LIABILITY OF ANY KIND (INCLUDING LIABILITY FOR
NEGLIGENCE) WITH RESPECT TO THE PRODUCTS AND SERVICES COVERED BY THIS AGREEMENT
AND ALL OTHER PERFORMANCE BY ST. JOHN UNDER OR PURSUANT TO THIS AGREEMENT SHALL
BE LIMITED TO THE REMEDIES PROVIDED IN SECTION 7.2, PRODUCT WARRANTY.
8.3 Consequential Damages. IN NO EVENT SHALL ST. JOHN's LIABILITY OF
---------------------
ANY KIND INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES, EVEN IF ST. JOHN SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
POTENTIAL LOSS OR DAMAGE.
ARTICLE 9
---------
CONFIDENTIALITY
---------------
SJ JAPAN acknowledges and agrees that all ST. JOHN Information is
confidential and proprietary to ST. JOHN. SJ JAPAN agrees not to use any of
such ST. JOHN Information during the term of this Agreement and for a period of
five (5) years thereafter for any purpose other than as permitted or required
for performance by SJ JAPAN hereunder. SJ JAPAN further agrees not to disclose
or provide any of such ST. JOHN Information to any third party and to take all
necessary measures to prevent any such disclosure by its employees, agents,
contractors or consultants during the term hereof and for a period of five (5)
years thereafter. Nothing herein shall prevent SJ JAPAN from using, disclosing
or authorizing the disclosure of any ST. JOHN Information which (i) is, or
hereafter becomes, through no fault of SJ JAPAN, part of the public domain, (ii)
is disclosed orally and is not identified as confidential information either at
the time of disclosure or by written notice sent to SJ JAPAN within ten (10)
business days after disclosure thereof, or (iii) is required to be disclosed by
any governmental authority or otherwise under applicable law.
ST. JOHN acknowledges and agrees that all SJ JAPAN Information is
confidential and proprietary to SJ JAPAN. ST. JOHN agrees not to use any of
such SJ JAPAN Information during the term of this Agreement for any purpose
other than as permitted or required for performance by ST. JOHN hereunder. ST.
JOHN further agrees not to disclose or provide any of such SJ JAPAN Information
to any third party and to take all necessary measures to prevent any such
disclosure by its employees, agents, contractors or consultants during the term
hereof. Nothing herein shall prevent ST. JOHN from using, disclosing or
authorizing the disclosure of any SJ JAPAN Information which (i) is, or
hereafter becomes, through no fault of ST. JOHN, part of the public domain, (ii)
is disclosed orally and is not identified as confidential information either at
the time of disclosure or by written notice sent to ST. JOHN within ten (10)
II-13
<PAGE>
business days after disclosure thereof, or (iii) is required to be disclosed by
any governmental authority or otherwise under applicable law.
ARTICLE 10
----------
TRADEMARKS; COPYRIGHT
---------------------
10.1 Exploitation of Rights. SJ JAPAN shall use its best efforts to
----------------------
exploit the rights herein granted throughout the Territory consistent with the
high standards and prestige represented by the Licensed Trademarks.
10.2 Disputes Among Licensees. Any dispute between SJ JAPAN and any
------------------------
other licensee of ST. JOHN with respect to the scope of the license rights
covered by their respective license agreements shall be resolved by ST. JOHN and
ST. JOHN's resolution of such dispute shall be final and binding.
10.3 Exclusive License. ST. JOHN hereby covenants not to grant to any
-----------------
person or entity other than SJ JAPAN a license to use the Licensed Trademarks in
the Territory in connection with the distribution and sale of women's apparel or
women's accessories which are both manufactured and distributed by ST. JOHN for
retail sale in the United States of America. ST. JOHN shall indemnify, save and
hold harmless SJ JAPAN for any losses or damages incurred by SJ JAPAN (including
reasonable attorney's fees) as a result of such breach; provided, that in no
event shall ST. JOHN bear any liability to SJ JAPAN for the use of the Licensed
Trademarks in connection with the importation of Products into the Territory by
third parties without the approval or authorization of ST. JOHN.
10.4 Ownership. SJ JAPAN acknowledges and agrees that SJ JAPAN shall
---------
acquire no ownership rights to any of the Licensed Trademarks by virtue of this
Agreement or otherwise and that all uses by SJ JAPAN of the Licensed Trademarks
and any and all goodwill related thereto shall inure to the benefit of ST. JOHN.
SJ JAPAN shall not, at any time, do or suffer to be done any act or thing which
may in any way adversely affect the validity of any Licensed Trademark, any
rights of ST. JOHN in and to any Licensed Trademark or any registrations thereof
or which, directly or indirectly, may reduce the value of the Licensed Trademark
or detract from its reputation. SJ JAPAN shall not, during the term of this
Agreement or at any time thereafter, directly or indirectly, contest or aid
others in contesting the ownership of the Licensed Trademarks or the validity of
said trademarks, including registering or applying to register any of the
Licensed Trademarks or any trademarks or logos similar thereto anywhere in the
world. At ST. JOHN's request during the term or thereafter, SJ JAPAN shall
execute any and all documents reasonably required by ST. JOHN to confirm ST.
JOHN's ownership of all rights in and to the Licensed Trademarks and the
respective rights of ST. JOHN and SJ JAPAN pursuant to this Agreement. SJ JAPAN
shall cooperate with ST. JOHN in connection with the filing and prosecution by
ST. JOHN of applications in ST. JOHN's name to register the Licensed Trademarks
for Products and
II-14
<PAGE>
the maintenance and renewal of such registrations as may issue. SJ JAPAN hereby
irrevocably appoints ST. JOHN as its attorney-in-fact for the purpose of
executing any and all such documents referred to in this Section 10.4.
10.5 Use of Name. Except as otherwise permitted by ST. JOHN, SJ JAPAN
-----------
shall not use the Licensed Trademarks, in whole or in part, as a corporate name
or trade name. Except as otherwise permitted by ST. JOHN, SJ JAPAN shall not
join any name or names with the Licensed Trademarks so as to form a new mark or
for any other purpose or use. SJ JAPAN shall not use any name or names in
connection with the Licensed Trademarks in advertising, publicity, labeling,
packaging or printed matter of any kind utilized by SJ JAPAN in connection with
Products, unless and until ST. JOHN consents thereto in writing.
10.6 Compliance With Law; Markings. SJ JAPAN shall use the Licensed
-----------------------------
Trademarks in the Territory strictly in compliance with the legal requirements
obtaining therein and shall use such markings in connection therewith as may be
required by applicable legal provisions. SJ JAPAN shall use and display the
Licensed Trademarks only in such form and manner as are specifically approved in
writing by ST. JOHN. SJ JAPAN shall cause to appear such legends, markings and
notices as ST. JOHN may request, including, without limitation, the appropriate
trademark or service mark notice, either "TM", "SM", or (R) as may be reasonably
necessary in order to give appropriate notice of any trademark, service mark or
other rights therein or pertaining thereto.
10.7 Copyright. Any copyright which may be created in any materials
---------
provided by ST. JOHN hereunder including, without limitation, any sketch,
design, packaging, label, tag or the like designed or approved by ST. JOHN shall
be the property of ST. JOHN. SJ JAPAN shall not, at any time, do or suffer to
be done any act or thing which may adversely affect any rights of ST. JOHN in
such sketches, designs, packaging, labels, tags and the like, including, without
limitation, disclosing such information or filing any application in SJ JAPAN's
name to record any claims to copyrights in Products, and SJ JAPAN shall do all
things reasonably required by ST. JOHN to preserve and protect said rights,
including, without limitation, placing the copyright notice on all Products and
the packaging, labels and tags therefor.
ARTICLE 11
----------
TAXES; IMPORT OF PRODUCTS
-------------------------
11.1 Taxes. All payments to be made by SJ JAPAN to ST. JOHN pursuant
-----
to this Agreement represent net amounts ST. JOHN is entitled to receive, shall
not be subject to any deductions for any reason whatsoever, and are net of taxes
(including Japanese withholding tax) and customs duties. In the event any of
said payments become subject to taxes (including without limitation, sales,
Japanese withholding, value-added and similar taxes), duties, assessments or
fees of whatever kind
II-15
<PAGE>
or nature levied outside the United States, said payments shall be increased to
such an extent as to allow ST. JOHN to receive the net amounts due under this
Agreement.
11.2 Import Documentation. SJ JAPAN shall be responsible for
--------------------
obtaining all licenses and permits and for satisfying all formalities as may be
required to import Products into the Territory in accordance with then
prevailing law or regulations.
ARTICLE 12
----------
TERM AND TERMINATION
--------------------
12.1 Term. This Agreement shall take effect as of the date first
----
above written and shall continue in force for a period of ten (10) years.
Thereafter, this Agreement shall terminate unless renewed by mutual agreement of
the parties hereto.
12.2 Termination. Notwithstanding the provisions of Section 12.1
-----------
above, this Agreement may be terminated in accordance with the following
provisions:
(a) Either party hereto may terminate this Agreement at any time by giving
notice in writing to the other party, which notice shall be effective
upon dispatch, should the other party file a petition of any type as
to its bankruptcy, be declared bankrupt, become insolvent, make an
assignment or other arrangement for the benefit of its creditors, have
all or a substantial portion of its capital stock or assets
expropriated by any government, be dissolved or liquidated, except in
consequence of a merger, amalgamation or other corporate
reorganization to which it may be a party.
(b) Either party may terminate this Agreement by giving notice in writing
to the other party should an event of Force Majeure continue for more
than ninety (90) days as provided in Section 13.5 below.
(c) Either party may terminate this Agreement by giving notice in writing
to the other party in the event the other party is in material breach
of this Agreement and shall have failed to cure such breach within
thirty (30) days of receipt of written notice thereof from the first
party. During said thirty (30) day period, the parties shall
negotiate in good faith in an attempt to reach mutual agreement on a
method to avoid such termination. The said notice shall specifically
state the breach which the party giving the notice believes is
material.
(d) Either party may terminate this Agreement upon giving notice in
writing to the other party in the event of termination of that certain
Joint Venture Agreement, dated July 17, 1997, between ST. JOHN and
Commercial Development Co., Ltd.
II-16
<PAGE>
12.3 Rights and Obligations on Termination. In the event of
-------------------------------------
termination of this Agreement for any reason, the parties shall have the
following rights and obligations;
(a) Termination of this Agreement shall not release either party from the
obligation to make payment of all amounts then or thereafter due and
payable.
(b) ST. JOHN shall have the right, at its option, to (i) cancel any
accepted purchase order which provides for delivery after the
effective date of termination, and/or (ii) repurchase all or any part
of SJ JAPAN's inventory of Products in SJ JAPAN's possession as of the
termination date at ST. JOHN's invoiced price to SJ JAPAN for such
Products, less depreciation calculated on a thirty-six (36) month,
straight-line basis and less any appropriate amount for excessive wear
and tear, plus freight to the original Free Carrier shipping point.
ST. JOHN shall exercise its option under this subsection by notifying
SJ JAPAN in writing no later than thirty (30) days after the effective
termination date.
(c) SJ JAPAN's obligations pursuant to Article 9 hereof shall survive
termination of this Agreement.
(d) Within thirty (30) days of the effective date of termination of this
Agreement, SJ JAPAN shall furnish ST. JOHN with a list of all SJ
JAPAN's customers and the place of destination of all Products sold
which are still covered by a ST. JOHN warranty. In addition, SJ JAPAN
agrees to furnish ST. JOHN with complete information as to calls or
the status of any negotiations for the sale of the Products.
12.4 No Compensation. In the event either party terminates this
---------------
Agreement for any reason in accordance with the terms hereof, the parties hereby
agree that, subject to the provisions of Section 12.3(a) hereof and without
prejudice to any other remedies which either party may have in respect of any
breach of this Agreement, neither party shall be entitled to any compensation or
like payment from the other as a result of such termination.
12.5 Injunctive Relief. Notwithstanding any expiration or termination
-----------------
in accordance with Sections 12.1 or 12.2 above, ST. JOHN shall have and hereby
reserves all rights and remedies which it has, or which are granted to it by
operation of law or in equity, to enjoin the unlawful or unauthorized use of the
Licensed Trademarks (any of which injunctive relief may be sought in the courts,
and also may be sought, prior to or in lieu of termination) and to be
compensated for damages for breach of this Agreement. In addition, nothing
herein shall be deemed to prevent a party from bringing an action for damages
either prior to or in lieu of termination if a default in performance by the
other party occurs and is not cured timely in accordance with the provisions of
Section
II-17
<PAGE>
12.2 above. The parties acknowledge that SJ JAPAN's unauthorized use of the
Licensed Trademarks will give rise to irreparable injury to ST. JOHN,
inadequately compensable in damages. Accordingly, in addition to any other
remedies which may be available to ST. JOHN at law or in equity, ST. JOHN shall
be entitled to preliminary and permanent injunctive relief against such breach
or threatened breach without the necessity of proving actual damages or that
monetary damages would be inadequate.
12.6 Reversion of Rights; Return of Materials. On the expiration or
----------------------------------------
termination of this Agreement, all of the rights of SJ JAPAN under this
Agreement shall terminate forthwith and shall revert immediately to ST. JOHN and
SJ JAPAN shall discontinue forthwith all use of the Licensed Trademarks, no
longer shall have the right to use the Licensed Trademarks or any variation or
simulation thereof and promptly shall transfer to ST. JOHN, free of charge, all
registrations, filings and rights with regard to the Licensed Trademarks which
it may have possessed at any time. In addition, SJ JAPAN thereupon shall
deliver to ST. JOHN, free of charge, all sketches and other material in its
possession which were designed or approved by ST. JOHN or any other materials or
copies of materials obtained by SJ JAPAN from ST. JOHN and all labels, tags and
other material in its possession with any Licensed Trademark thereon. After the
expiration or termination of this Agreement, SJ JAPAN shall not use or permit
others to use any of said sketches and other material, or any variations or
simulations thereof, in connection with Products or any other merchandise.
ARTICLE 13
----------
FORCE MAJEURE
-------------
13.1 Definition. Force Majeure shall mean any event or condition, not
----------
existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, which prevents in whole or in material part the performance by one of the
parties of its obligations hereunder or which renders the performance of such
obligations so difficult or costly as to make such performance commercially
unreasonable. Without limiting the foregoing, the following shall constitute
events or conditions of Force Majeure: acts of State or governmental action,
riots, disturbance, war, strikes, lockouts, slowdowns, prolonged shortage of
energy suppliers, epidemics, fire, flood, hurricane, typhoon, earthquake,
lightning and explosion. It is in particular expressly agreed that any refusal
or failure of any governmental authority to grant any export license legally
required for the fulfillment by ST. JOHN of its obligations hereunder shall
constitute an event of Force Majeure.
13.2 Notice. Upon giving notice to the other party, a party affected
------
by an event of Force Majeure shall be released without any liability on its part
from the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the event of Force Majeure. Such notice shall include a description of the
nature of the event of Force Majeure, and its
II-18
<PAGE>
cause and possible consequences. The party claiming Force Majeure shall
promptly notify the other party of the termination of such event.
13.3 Confirmation. The party invoking Force Majeure shall provide to
------------
the other party confirmation of the existence of the circumstances constituting
Force Majeure. Such evidence may consist of a statement or certificate of an
appropriate governmental department or agency where available, or a statement
describing in detail the facts claimed to constitute Force Majeure.
13.4 Suspension of Performance. During the period that the
-------------------------
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder to
the extent that such suspension is commercially reasonable.
13.5 Termination. Should the period of Force Majeure continue for
-----------
more than ninety (90) consecutive days, either party may terminate this
Agreement without liability to the other party, except for payments due to such
date, upon giving written notice to the other party.
ARTICLE 14
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
14.1 ST. JOHN. ST. JOHN represents and warrants (i) that it has full
--------
right, power and authority to enter into this Agreement and to perform all of
its obligations hereunder, and (ii) that to its knowledge utilization of the
Licensed Trademarks pursuant to and consistent with the terms of this Agreement
will not constitute an infringement of the rights of any third party. The
foregoing warranty and Section 7.2 constitute the entire warranty of ST. JOHN
and ST. JOHN makes no other warranty of any kind, either express or implied.
14.2 SJ JAPAN. SJ JAPAN represents and warrants that it has full
--------
right, power and authority to enter into this Agreement and to perform all of
its obligations hereunder.
ARTICLE 15
----------
JURISDICTION; INTERPRETATION
----------------------------
15.1 Disputes. The sole jurisdiction and venue for any court action
--------
arising out of this Agreement shall be an appropriate federal or state court in
Orange County, California. Each of ST. JOHN and SJ JAPAN hereby irrevocably
submits to the jurisdiction of any of said courts in any court action and hereby
waives any claim or defense of inconvenient forum. Each of ST. JOHN and SJ
JAPAN represents and warrants that it is not entitled to immunity from judicial
proceedings and agrees that,
II-19
<PAGE>
should the other bring any court action, it will not claim any immunity from
such proceedings for itself or with respect to its property. Notwithstanding
the foregoing, the parties acknowledge and agree that ST. JOHN shall have the
right, at any time, to seek injunctive relief in any court in the Territory to
enjoin any unlawful or unauthorized use of the Licensed Trademarks by SJ JAPAN.
In the event of any action for the breach of this Agreement or other cause
by any Party, the prevailing Party shall be entitled to reasonable attorney's
fees, costs and expenses incurred in such action.
15.2 Governing Law. The validity, construction and performance of
-------------
this Agreement shall be governed by and interpreted in accordance with the laws
of California, excluding its choice of law provisions.
15.3 Governing Language. This Agreement is executed in the English
------------------
language which shall be the controlling language and no translation or
restatement of the terms and conditions hereof in any other language will have
any effect in the interpretation or application thereof. In case of any
conflict between the English version and any translated version of this
Agreement, the English version shall govern.
15.4 Effect of Headings. The headings to Articles and Sections of
------------------
this Agreement, excepting those in Article 1 hereof, are to facilitate reference
only, do not form a part of this Agreement, and shall not in any way affect the
interpretation hereof.
15.5 Non-Waiver. The waiver, express or implied, by any of the
----------
parties hereto of any right hereunder or of any failure to perform or breach
hereof by the other party shall not constitute or be deemed a waiver of any
other right hereunder or of any other failure to perform or breach hereof by
such other party(s), whether of a similar or dissimilar nature thereto.
II-20
<PAGE>
ARTICLE 16
----------
MISCELLANEOUS
-------------
16.1 Assignment. Subject to Section 2.2 above, neither party shall
----------
have the right to assign or otherwise transfer its rights and obligations under
this Agreement, except with the prior written consent of the other party;
provided, however, ST. JOHN shall be entitled to assign any or all of its rights
and obligations hereunder to any of its subsidiaries, provided that ST. JOHN
shall remain fully liable for the performance of all its obligations hereunder;
provided further, that a successor in interest by merger, by operation of law,
assignment, purchase or otherwise of the entire business of either party shall
acquire all rights and obligations of such party hereunder. Any prohibited
assignment shall be null and void. Any permitted assignment shall be subject to
and conditioned on the issuance of any governmental validations, authorizations,
licenses or rulings then required under applicable law in connection with such
assignment.
16.2 Relationship. This Agreement does not make either party the
------------
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party. In fulfilling its obligations pursuant to this Agreement each
party shall be acting as an independent contractor.
16.3 Notices. All reports, approvals, requests, demands and notices
-------
required or permitted by this Agreement to be given to a party shall be valid
and sufficient if dispatched by registered mail, postage prepaid, in any post
office in the United States or Japan, as the case may be, or by facsimile
transmission, to the addresses first above written or such other addresses or
facsimile numbers as the respective parties may designate by like notice from
time to time. Any notice given as herein provided shall be considered to have
been received fifteen (15) days after the mailing thereof, or if by facsimile
transmission, the next business day of the country in which the recipient is
located.
16.4 ENTIRE AGREEMENT. THIS AGREEMENT, INCLUDING THE SCHEDULES
----------------
HERETO AND INCORPORATED AS AN INTEGRAL PART OF THIS AGREEMENT, CONSTITUTES THE
ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND
SUPERSEDES ALL PREVIOUS LICENSE AND/OR DISTRIBUTORSHIP AGREEMENTS BY AND BETWEEN
ST. JOHN AND SJ JAPAN AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN, AND ALL
NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD BETWEEN THE PARTIES
RELATED TO THIS AGREEMENT. SJ JAPAN ACKNOWLEDGES THAT IT HAS NOT BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY ANY REPRESENTATIONS OR STATEMENTS, ORAL OR
WRITTEN, NOT EXPRESSLY CONTAINED HEREIN.
II-21
<PAGE>
16.5 Amendment. This Agreement shall not be deemed or construed to
---------
be modified, amended, rescinded, cancelled or waived, in whole or in part,
except by written amendment signed by the parties hereto.
16.6 Publicity. This Agreement is confidential and no party shall
---------
issue press releases or engage in other types of publicity of any nature dealing
with the commercial and legal details of this Agreement without the other
party's prior written approval, which approval shall not be unreasonably
withheld. However, approval of such disclosure shall be deemed to be given to
the extent such disclosure is required to comply with governmental rules,
regulations or other governmental requirements. In such event, the publishing
party shall furnish a copy of such disclosure to the other party.
16.7 Severability. In the event that any of the terms of this
------------
Agreement are in conflict with any rule of law or statutory provision or are
otherwise unenforceable under the laws or regulations of any government or
subdivision thereof, such terms shall be deemed stricken from this Agreement,
but such invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement and this Agreement shall continue in force, unless the
invalidity or unenforceability of any such provisions hereof does substantial
violence to, or where the invalid or unenforceable provisions comprise an
integral part of, or are otherwise inseparable from, the remainder of this
Agreement.
16.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
* * * * * * *
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<PAGE>
IN WITNESS WHEREOF, The parties have caused this Agreement to be executed on
the date first above written.
ST. JOHN KNITS, INC. ST. JOHN CO., LTD.
By:________________________ By:________________________
Name: Name:
Title: Title:
II-23
<PAGE>
SCHEDULE A
----------
LICENSED TRADEMARKS
Marie Gray(R) and Marie Gray by St. John(R), each a registered trademark of
St. John Knits, Inc.
A-1
<PAGE>
SCHEDULE B
----------
U.S. WHOLESALE PRICE LIST
B-1
<PAGE>
EXHIBIT III
-----------
TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT, dated as of July ___, 1997, is by
and among COMMERCIAL DEVELOPMENT CO., LTD., a corporation organized and existing
under the laws of Japan ("CDC"), ST. JOHN CO., LTD., a corporation organized and
existing under the laws of Japan ("SJ Japan"), and ST. JOHN KNITS, INC., a
California corporation ("ST. JOHN").
BACKGROUND
----------
(a) CDC and ST. JOHN have entered into a Joint Venture Agreement dated
as of July 17, 1997 (the "Joint Venture Agreement") pursuant to which, among
other matters, ST. JOHN and CDC agreed to jointly form SJ Japan.
(b) Pursuant to the Joint Venture Agreement, ST. JOHN and SJ Japan
have entered into that certain License and Distribution Agreement, dated as of
July ___, 1997 (the "License and Distribution Agreement"), whereby ST. JOHN has
licensed and appointed SJ Japan to distribute and sell certain Products (as
defined in the License and Distribution Agreement) of ST. JOHN in the Territory
(as defined in the License and Distribution Agreement).
(c) Prior to the formation of SJ Japan, CDC was engaged in the
distribution and sale of certain ST. JOHN products in Japan, and CDC, SJ Japan
and ST. JOHN recognize that it is advisable for CDC to provide certain
administrative and other services to SJ Japan for a transitional period,
including the uniform transfer of certain sales accounts to SJ Japan and the
sharing of certain property and services.
(d) The execution of this Agreement is a condition to the consummation
of the transactions contemplated by the Joint Venture Agreement.
AGREEMENT
---------
In consideration of the mutual covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Services. During the term of this Agreement, CDC shall provide
--------
SJ Japan with certain services of the nature generally described in Schedule A
----------
hereto. Services that CDC is required to provide to SJ Japan pursuant to this
Agreement are referred to herein as "Services."
III-1
<PAGE>
2. Product Services. (a) As part of the Services, during the term
----------------
of this Agreement CDC shall provide the following Services (as more particularly
referred to herein as the "Product Services") to SJ Japan, in each case provided
that the provision of such Product Services is legal under all applicable laws
and regulations: (i) at SJ Japan's request, import Products for SJ Japan's
account and generally prepare the necessary statutory documents required for the
importation and storage of the Products; (ii) use reasonable efforts to maintain
the facilities and qualified personnel needed to ensure the performance of the
Product Services in full compliance with applicable laws and regulations, (iii)
at SJ Japan's request, use reasonable efforts to secure additional sales
accounts and in-store concessions for the Products for SJ Japan's account; (iv)
at SJ Japan's request, ship the Products to customers in accordance with SJ
Japan's instructions; (v) assist SJ Japan to obtain any licenses, permits or
approvals necessary for SJ Japan to import, sell or distribute Products; and
(vi) provide any other similar services as SJ Japan may reasonably request.
(b) In consideration of CDC's provision of the Product Services, SJ
Japan agrees to: (i) take all necessary steps to assume, within the shortest
practicable time, responsibility for providing the Product Services (including
obtaining licenses necessary to import, store and distribute Products and to
establish sales accounts and in-store concessions for Products, in each case, in
SJ Japan's own name and for its own account); (ii) be fully responsible for the
sale of the Products, including to the extent appropriate the determination of
resale prices and terms of payment; (iii) be fully responsible for the
collection of accounts receivable for the sale of Products; and (iv) order
Products from suppliers (including without limitation ST. JOHN).
(c) CDC and SJ Japan agree to cooperate and use all reasonable efforts
to assign from CDC to SJ Japan those sales accounts and in-store concessions
listed in Schedule B hereto (collectively the "Accounts," and each individual
----------
listing therein an "Account"), and to take all necessary steps and sign all
necessary documents to insure the effective assignment of the Accounts under
applicable laws and regulations. Such cooperation shall include, without
limitation, conducting joint visits with other parties to the Accounts to insure
the effective assignment thereof and the sharing of any and all customer files
related to the Accounts in the possession of CDC. Until each Account is
effectively assigned to SJ Japan, SJ Japan and CDC shall use all reasonable
efforts to ensure that the Accounts continue to be performed.
3. Term of Services. (a) With respect to Services other than
----------------
Product Services, CDC shall provide each of the Services for a term commencing
on the date hereof and ending no later than the second anniversary of the date
hereof or, if earlier, (i) thirty (30) days after SJ Japan notifies CDC that it
no longer wishes to receive such Service, or (ii) the termination of this
Agreement as set forth in Section 6 hereof.
(b) The obligations of the parties contained in Sections 2(a) and (b)
shall continue until the earlier to occur of (i) the termination of this
Agreement pursuant to Section 6 hereof, (ii) the second anniversary of the date
hereof, and (iii) the date on
III-2
<PAGE>
which SJ Japan is legally able to assume full responsibility for providing the
Product Services; provided that in the case of clause (iii) above, CDC shall not
-------- ----
unreasonably refuse to extend such term for an additional ninety (90) days if
requested to do so by SJ Japan. The obligations of the parties contained in
Section 2(c) shall continue until the earlier to occur of (x) the termination of
this Agreement pursuant to Section 6 hereof, (y) the second anniversary of the
date hereof, and (z) the date on which all Accounts covered thereby have been
effectively assigned to SJ Japan or expired in accordance with their terms.
(c) CDC and its affiliates may suspend the performance of any one or
more of the Services in accordance with Section 4(b). Upon the termination of a
Service for which the consideration is not separately specified in Schedule A
----------
hereto, CDC and SJ Japan shall in good faith negotiate the consideration to be
paid for the remaining Services on the basis set forth in Section 4 hereto.
4. Payment for Services. (a) As compensation for the provision of
--------------------
the Services identified in Schedule A hereto, SJ Japan shall pay to CDC the
----------
costs specified or determined in accordance with Schedule A, subject to the
----------
limitations contained in Section 4(c). The parties agree that the sole
consideration for CDC's agreement to provide the Product Services under this
Agreement shall be the consideration described in Section 2(b) of this
Agreement.
(b) CDC shall periodically, but not more frequently than monthly,
submit to SJ Japan for payment statements of amounts due under this Agreement.
The statements shall specify the nature of the Services provided hereto, the
section of such Schedule A pursuant to which such Service was provided, and
----------
shall contain or be followed by such other supporting detail as SJ Japan may
from time to time reasonably request. Payment of any such statements in whole
or in part shall be conditioned upon the prior approval of ST. JOHN (the
"Approved Amounts" or "Disapproved Amounts," as the case may be), which approval
shall not be unreasonably withheld. SJ Japan shall pay all Approved Amounts due
pursuant to this Agreement within thirty (30) days after receipt of each such
statement hereunder. If any Approved Amounts due have not been received by CDC
within such thirty day period, such overdue Approved Amounts shall bear interest
from the date of issuance of such statement until the date paid at the rate of
1.5% over the rate publicly announced by The Sakura Bank, Limited from time to
time in Tokyo, Japan as its "base" or "prime" rate. In addition to any other
rights available to it at law or in equity, CDC may suspend the provision of any
Services for which any Approved Amounts have not been satisfied within ninety
(90) days of its issuance until such statement has been satisfied. The parties
hereto agree to negotiate the payment, if any, of any Disapproved Amounts in
good faith and in a timely manner.
(c) Upon no less than five (5) business days advance written notice
from SJ Japan, CDC shall make its books and records showing amounts charged for
Services available to any firm of certified public accountants selected by SJ
Japan for the purpose of verifying the fees charged by CDC for Services provided
to SJ Japan, it being
III-3
<PAGE>
understood and agreed that CDC and SJ Japan shall each instruct such firm of
certified public accountants that it is not authorized to reveal any information
learned in such audit to SJ Japan or ST. JOHN or any affiliates thereof other
than the amount it believes SJ Japan should have been charged for any Service
for which such accounting firm believes SJ Japan was overcharged in accordance
with this Section 4.
5. Confidentiality (a) Each of CDC and SJ Japan shall use
---------------
reasonable efforts, consistent with its standard policies with respect to the
preservation and disclosure of confidential information concerning itself and
its affiliates, to keep confidential and, without the prior written consent of
the party to whom the information relates, not to disclose to any person, nor
exploit commercially for its own purposes, any information obtained relating to
the subject matter or performance of this Agreement; provided, however, that CDC
-------- -------
and SJ Japan may each disclose such information (i) to their affiliates for any
purpose reasonably incidental to the purposes of this Agreement and (ii) as is
required to be disclosed by law, legal process or requirements of any stock
exchange.
(b) Anything to the contrary contained in the foregoing
notwithstanding, the provisions of Section 5(a) shall not apply to information:
(i) acquired from a third party who is not bound by an
obligation of confidentiality with the disclosing party;
(ii) which, prior to or after the date of this Agreement, CDC and
SJ Japan jointly decide to disclose; or
(iii) which is or comes within the public domain otherwise than
through the fault of the recipient party.
(c) The obligations of the parties hereto pursuant to this Section 5
shall survive termination or expiration of this Agreement.
6. Duration and Termination. This Agreement shall become effective
------------------------
as of the date first above written and shall continue until terminated in
accordance with this Section 6 or until the provision of all Services hereunder
has been terminated pursuant to Section 3 hereto.
(a) Any party hereto may terminate this Agreement at any time by
giving notice in writing to the other parties, which notice shall be effective
upon dispatch, should another party file a petition of any type as to its
bankruptcy, be declared bankrupt, become insolvent, make an assignment or other
arrangement for the benefit of its creditors, have all or a substantial portion
of its capital stock or assets expropriated by any government, be dissolved or
liquidated, except in consequence of a merger, amalgamation or other corporate
reorganization to which it may be a party.
III-4
<PAGE>
(b) Any party hereto may terminate this Agreement by giving notice in
writing to the other parties in the event another party is in material breach of
this Agreement and shall have failed to cure such breach within thirty (30) days
of receipt of written notice thereof from the first party. During said thirty
day period, the parties shall negotiate in good faith in an attempt to reach
mutual agreement on a method to avoid such termination. The said notice shall
specifically state the breach which the party giving the notice believes is
material.
(c) Any party may terminate this Agreement upon giving notice in
writing to the other parties in the event of (i) termination of the Joint
Venture Agreement or (ii) termination of the License and Distribution Agreement.
Upon such termination, CDC shall cease to have any obligation to provide any
Services, and each party shall promptly deliver to each other party all data,
programs, software materials, and other properties (including any copies
thereof) owned by the other and held by it in connection with the performance of
this Agreement. Each party shall assist the other at such other party's request
and expense in effecting an orderly termination of this Agreement.
7. Non-Exclusivity. Nothing in this Agreement shall preclude SJ
---------------
Japan or any affiliate thereof from obtaining the Services, in whole or in part,
from sources other than CDC at any time.
8. Assignment. This Agreement, and all rights and obligations
----------
hereunder, shall not be assigned by any of the parties hereto to any third
party, by operation of law or otherwise, without the prior written consent
thereto by the other parties hereto. Any permitted assignment shall be subject
to and conditioned on the issuance of any governmental validations,
authorizations, licenses or rulings then required under applicable law in
connection with such assignment.
9. Notices. All notices required or permitted by this Agreement to
-------
be given to a party shall be valid and sufficient if dispatched in person to an
officer or director of the other party, or by registered mail, postage prepaid,
in any post office in Japan or by facsimile transmission to such address or
facsimile number as each respective party may designate by like notice from time
to time. Any notice given as herein provided shall be considered to have been
received fifteen (15) days after the mailing thereof, or if by facsimile
transmission or personal delivery thereof, the next business day.
10. Miscellaneous. (a) This Agreement, including the exhibits
-------------
hereto and incorporated as an integral part of this agreement, constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all previous agreements by and between CDC and SJ Japan as well as
all proposals, oral or
III-5
<PAGE>
written, and all negotiations, conversations or discussions heretofore had
between the parties related to this Agreement.
(b) The validity, construction and performance of this Agreement shall
be governed by and interpreted in accordance with the laws of Japan, without
regard to principles of conflict of laws.
(c) This Agreement is executed in the English language which shall be
the controlling language and no translation or restatement of the terms and
conditions hereof in any other language shall have any effect in the
interpretation or application thereof. In case of any conflict between the
English version and any translated version of this Agreement, the English
version shall govern.
(d) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by written
amendment signed by the parties hereto.
(e) The waiver, express or implied, by any of the parties hereto of
any right hereunder or of any failure to perform or breach hereof by the other
party shall not constitute or be deemed a waiver of any other right hereunder or
of any other failure to perform or breach hereof by such other party(s), whether
of a similar or dissimilar nature thereto.
(f) The headings to sections of this Agreement are to facilitate
reference only, do not form a part of this Agreement, and shall not in any way
affect the interpretation hereof.
(g) This Agreement does not make any party the employee, agent or
legal representative of the other for any purpose whatsoever. No party hereto
is granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name any other party.
In fulfilling its obligations pursuant to this Agreement each party shall be
acting as an independent contractor.
(h) In the event that any of the terms of this Agreement are in
conflict with any rule of law or statutory provision or are otherwise
unenforceable under the laws or regulations of any government or subdivision
thereof, such terms shall be deemed stricken from this Agreement, but such
invalidity or unenforceability shall not invalidate any of the other terms of
this Agreement and this Agreement shall continue in force, unless the invalidity
or unenforceability of any such provisions hereof does substantial violence to,
or where the invalid or unenforceable provisions comprise an integral part of,
or are otherwise inseparable from, the remainder of this Agreement.
(i) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but which together shall constitute one and the
same instrument.
III-6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
COMMERCIAL DEVELOPMENT CO., LTD.
By: ________________________________
Name:
Title:
ST. JOHN CO., LTD.
By:_________________________________
Name:
Title:
ST. JOHN KNITS, INC.
By:_________________________________
Name:
Title:
III-7
<PAGE>
SCHEDULE A
----------
SERVICES
1. Office Spaces
-------------
a. TOKYO OFFICE. CDC shall make available for use by SJ Japan 50% of
CDC's office space located at Imperial Tower 9F, 1-1-1 Uchisaiwai-cho,
Chiyoda-ku, Tokyo 100 Japan, including but not limited to the existing
phone system, copy machines and related office services, equipment and
utilities.
b. OSAKA OFFICE. CDC shall make available for use by SJ Japan 50% of
CDC's office space located at Fukaki Kawaramachi Building 4F, 3-4-9
Kawara-machi, Chuo-ku, Osaka 541 Japan, including but not limited to
the existing phone system, copy machines and related office services,
equipment and utilities.
c. COST. SJ Japan shall reimburse CDC for half of all documented
reasonable rents, taxes and utility and other service charges incurred
in conjunction with the continuing use and operation of the office
spaces; provided, that SJ Japan shall provide its own insurance, if
any, as SJ Japan deems appropriate.
2. Computer System
---------------
a. EQUIPMENT/SERVICES. CDC shall make available to SJ Japan the use of
all of CDC's computer hardware and software located in the office
spaces described above, as well as allow SJ Japan access to any and
all related services.
b. COST. SJ Japan shall pay to CDC an all-inclusive fee for the use of
such computer hardware and software at a rate of forty-six thousand
dollars ($46,000) per year (to be pro rated for any partial annual
period), which fee the parties agree to be sufficient to cover any
costs and expenses related to the use, maintenance and support of the
computer hardware and software, including the cost of technical
services, maintenance and incidental supplies. SJ Japan shall bear no
obligation to reimburse CDC for any material purchases of additional
hardware or software without its prior written consent to such
purchase.
III-A-1
<PAGE>
SCHEDULE B
----------
ACCOUNTS
[Account Listing from Business Plan]
III-B-1
<PAGE>
EXHIBIT IV
----------
CDC LICENSE AGREEMENT
---------------------
among
COMMERCIAL DEVELOPMENT CO., LTD.,
ST. JOHN CO., LTD.
and
ST. JOHN KNITS, INC.
<PAGE>
CDC LICENSE AGREEMENT
---------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page No
- ------- -------
<S> <C>
1. Grant of License................................ 1
----------------
2. Term and Term Renewal........................... 1
---------------------
3. General Obligations of Licensee................. 2
-------------------------------
4. Inspection...................................... 2
----------
5. Store Design.................................... 2
------------
6. Quality Control................................. 2
---------------
7. Use of Licensed Trademarks...................... 3
--------------------------
8. Approvals....................................... 3
---------
9. The Licensed Trademarks......................... 3
-----------------------
10. Copyright....................................... 5
---------
11. Indemnity; Insurance............................ 6
--------------------
12. Default and Termination......................... 6
-----------------------
13. Rights on Expiration or Termination............. 7
-----------------------------------
14. Representations and Warranties.................. 7
------------------------------
15. Assignability; Binding Effect................... 8
-----------------------------
16. Jurisdiction; Attorney's Fees................... 8
-----------------------------
17. Miscellaneous................................... 9
-------------
</TABLE>
Schedule A
i
<PAGE>
This CDC LICENSE AGREEMENT ("Agreement") made as of the ___th day of July,
1997, by and among ST. JOHN CO., LTD., a corporation duly organized and existing
under the laws of Japan and having its principal place of business at Imperial
Tower 9F, 1-1-1 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter "SJ
Japan"), COMMERCIAL DEVELOPMENT CO., LTD., a corporation duly organized and
existing under the laws of Japan and having its principal place of business at
Imperial Tower 9F, 1-1-1 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan
(hereinafter "Licensee"), and ST. JOHN KNITS, INC., a corporation duly organized
and existing under the laws of the State of California, U.S.A. and having its
principal place of business at 17422 Derian Avenue, Irvine, California 92614
U.S.A. (hereinafter "St. John").
WITNESSETH:
In consideration of the mutual covenants hereinafter set forth, St. John,
SJ Japan and Licensee do hereby respectively grant, covenant and agree as
follows:
3. Grant of License
----------------
3.1 Subject to the terms and conditions set forth in this Agreement, SJ
Japan hereby grants to Licensee, and Licensee hereby accepts, a non-transferable
license for the Term (as defined below) to use Licensed Trademarks (as defined
below) solely in connection with the operation of Licensee's retail stores in
the Imperial Hotel Tokyo and the Hotel New Otani Tokyo (collectively, the
"Stores"), which operation specifically includes the distribution and sale of
the Products (as defined in that certain CDC Distribution Agreement, dated as of
July ___, 1997, between SJ Japan and Licensee (the "CDC Distribution
Agreement")). "Licensed Trademarks" means the trademarks set forth in Schedule
A hereto and all related logos, emblems and symbols, and all combinations, form
and derivations thereof as are currently or hereafter used by SJ Japan in
connection with the Products.
3.2 Licensee shall use its best efforts to exploit the rights herein
granted in its operation of the Stores consistent with the high standards and
prestige represented by the Licensed Trademarks.
4. Term and Term Renewal
---------------------
The term ("Term") of this Agreement shall run from the effective date
hereof and terminate upon the expiration or termination of that certain License
and Distribution Agreement, dated as of July ___, 1997, between St. John and SJ
Japan (the "License and Distribution Agreement"), including any renewal thereof,
unless this Agreement is sooner terminated pursuant to the provisions of Section
12 hereof.
IV-1
<PAGE>
5. General Obligations of Licensee
-------------------------------
In consideration of the license granted by SJ Japan hereunder, and as a
condition to the use of the Licensed Trademarks, in addition to Licensee's
obligations in Section 5 below, Licensee shall not sell in the Stores any
products other than Products after January 14, 1998.
6. Inspection
----------
Licensee hereby agrees to permit representatives of SJ Japan to visit the
Stores and other places of business and inspect Licensee's inventories, records,
and other relevant documents during normal business hours; provided, that
Licensee shall be given reasonable advance notice of any such intended visit or
inspection.
7. Store Design
------------
7.1 Licensee hereby agrees to remodel its store in the Imperial Hotel
Tokyo by January 31, 1998 in accordance with specifications to be determined and
submitted to Licensee by St. John in St. John's sole discretion. Any and all
costs and expenses of such remodeling shall be borne by Licensee.
7.2 By January 31, 1998, Licensee shall alter or replace its signs and any
other fixed displays both inside and outside of the Hotel New Otani Tokyo store
in accordance with specifications to be determined and submitted to Licensee by
St. John in St. John's sole discretion. Licensee agrees, and shall confer with
St. John to ensure, that any such signs and other displays shall at all times be
consistent with the high standards and prestige represented by the Licensed
Trademarks and that such signs and other displays comply with any applicable
restrictions or limitations contained in said store's retail space lease. Any
and all costs and expenses of such alterations and/or replacements shall be
borne by Licensee.
8. Quality Control
---------------
In order to protect the goodwill and reputation associated with the
Licensed Trademarks, Licensee covenants and agrees as follows:
8.1 All packaging and sales promotion materials used in connection with
the Stores shall meet all specifications and standards therefor which SJ Japan
may provide Licensee from time to time.
8.2 Licensee may not use a personality or celebrity to endorse or promote
any Products or otherwise in connection with the Stores unless and until SJ
Japan has given Licensee its specific written approval for such celebrity's
endorsement or promotion.
8.3 Licensee's policy of sale, distribution and exploitation of the
Products and other operations of the Stores shall be of high standard and shall
in no manner reflect
IV-2
<PAGE>
adversely upon the good name of St. John or SJ Japan or upon the goodwill and
reputation associated with the Licensed Trademarks.
9. Use of Licensed Trademarks
--------------------------
9.1 Licensee shall submit to SJ Japan copies of all proposed advertising
or promotional materials prepared by or for Licensee utilizing the Licensed
Trademarks prior to the use of such materials. SJ Japan may approve or
disapprove any and all advertising and promotional materials submitted as
aforesaid and shall discuss with Licensee any modifications or alterations
thereof. Licensee shall not use any such advertising or promotional materials
without first obtaining the prior express written consent of SJ Japan.
9.2 Licensee shall submit to SJ Japan all proposed tags, labels, packaging
and other similar materials from which SJ Japan may select those, if any, which
SJ Japan approves for use in connection with Stores. SJ Japan may approve or
disapprove the tags, labels, packaging and other similar materials submitted as
aforesaid and shall discuss with Licensee any modifications or alterations
thereof. Licensee shall not use any such tags, labels, packaging or other
similar materials without first obtaining the prior express written consent of
SJ Japan.
9.3 Licensee shall submit to SJ Japan samples of all proposed business
cards, invoices, order forms, stationery and other similar printed materials
from which SJ Japan may select those, if any, which SJ Japan approves for use in
connection with Stores. SJ Japan may approve or disapprove the business cards,
invoices, order forms, stationery and other similar printed materials submitted
as aforesaid and shall discuss with Licensee any modifications or alterations
thereof. Licensee shall not use any such business cards, invoices, order forms,
stationery or other similar printed materials without first obtaining the prior
express written consent of SJ Japan.
10. Approvals
---------
It is specifically understood and agreed that SJ Japan's approval pursuant
to Section 7 of this Agreement shall not be unreasonably withheld. Any sample,
copy, artwork or other material submitted to SJ Japan for its approval which is
not disapproved within twenty (20) business days after SJ Japan's receipt
thereof shall be deemed approved for use hereunder, but only for the use for
which approval was sought. After any sample, copy, artwork or other material
has been approved, Licensee shall not depart therefrom in any substantial
respect without the prior written approval of SJ Japan. If SJ Japan should
disapprove any material pursuant to Section 7, Licensee shall neither use nor
permit the same to be used in any manner.
11. The Licensed Trademarks
-----------------------
11.1 Licensee acknowledges and agrees that Licensee shall acquire no
ownership rights to any of the Licensed Trademarks by virtue of this Agreement
or otherwise and that
IV-3
<PAGE>
all uses by Licensee of the Licensed Trademarks and any and all goodwill related
thereto shall, subject to the rights of St. John thereto, inure to the benefit
of SJ Japan. Licensee shall not, at any time, do or suffer to be done any act
or thing which may in any way adversely affect the validity of any Licensed
Trademark, any rights of SJ Japan or St. John in and to any Licensed Trademark
or any registrations thereof or which, directly or indirectly, may reduce the
value of the Licensed Trademark or detract from its reputation.
11.2 Except as otherwise permitted by SJ Japan, Licensee shall not use the
Licensed Trademarks, in whole or in part, as a corporate name or trade name.
Further, except as otherwise permitted by SJ Japan, Licensee shall not join any
name or names with the Licensed Trademarks so as to form a new mark or for any
other purpose or use. Licensee shall not use any name or names in connection
with the Licensed Trademarks in advertising, publicity, labeling, packaging or
printed matter of any kind utilized by Licensee in connection with Stores,
unless and until SJ Japan consents thereto in writing.
11.3 At SJ Japan's request, Licensee shall execute any and all documents
reasonably required by SJ Japan to confirm St. John's or SJ Japan's rights in
and to the Licensed Trademarks and the respective rights of St. John, SJ Japan
and Licensee pursuant to this Agreement.
11.4 Licensee shall use the Licensed Trademarks strictly in compliance with
the legal requirements obtaining therein and shall use such markings in
connection therewith as may be required by applicable legal provisions.
Licensee shall use and display the Licensed Trademarks only in such form and
manner as are specifically approved in writing by SJ Japan. Licensee shall
cause to appear such legends, markings and notices as SJ Japan may request,
including, without limitation, the appropriate trademark or service mark notice,
either "TM", "SM", or (R) as may be reasonably necessary in order to give
appropriate notice of any trademark, service mark or other rights therein or
pertaining thereto.
11.5 Licensee shall not, during the Term or at any time thereafter,
directly or indirectly, contest or aid others in contesting St. John's or SJ
Japan's ownership of or rights in and to the Licensed Trademarks or the validity
of said trademarks.
11.6 In the event that Licensee learns of any infringement, act of unfair
competition by third parties or imitation of the Licensed Trademarks or of any
use by any person of a trademark similar to any Licensed Trademark, it shall
promptly notify SJ Japan thereof. St. John, or SJ Japan upon the direction of
St. John, thereupon may take such action as St. John deems advisable for the
protection of St. John's and SJ Japan's respective rights in and to the Licensed
Trademarks and, if requested to do so by St. John, or SJ Japan at the direction
of St. John, Licensee shall cooperate with St. John and SJ Japan in all respects
at St. John's sole expense, including without limitation by being a plaintiff or
co-plaintiff and by causing its officers to execute pleadings and other
necessary documents and to causing its officers and employees to devote
appropriate time to litigation and/or disposition of all matters within the
purview of this Section 9.6; it is understood that Licensee's officers and
employees will not be compensated for their time and effort. In no event,
however, shall
IV-4
<PAGE>
St. John or SJ Japan be required to take any action if either deems it
inadvisable to do so and Licensee shall have no right to take any action with
respect to the Licensed Trademarks without either St. John's or SJ Japan's prior
written approval. Licensee hereby waives any right to control any action taken,
including without limitation, the right to select counsel, to settle on any
terms, to appeal any adverse decision rendered in any court, to discontinue any
action taken, or otherwise to make any decision in respect thereto. If Licensee
desires to retain its own counsel, it shall do so at its own expense. Licensee
agrees that any recovery as a result of such action shall belong solely to St.
John.
11.7 In the event that any infringement suit or any claim of infringement
involving the Licensed Trademarks in connection with the operation of the Stores
pursuant to and in accordance with the terms of this Agreement and the CDC
Distribution Agreement is instituted by a third party against Licensee, Licensee
shall give immediate notice of such suit or claim to SJ Japan. Licensee hereby
waives all right to control the defense of any such suit or claim, including,
without limitation, the right to choose counsel and to settle and dispose of any
such suit or claim, and Licensee shall offer reasonable cooperation to St. John
and SJ Japan in all aspects of any such suit or claim.
11.8 Licensee agrees that it shall not, during the Term or thereafter,
register or apply to register any of the Licensed Trademarks or any trademarks
or logos similar thereto anywhere in the world. Without limiting the foregoing,
upon and after the expiration or termination of this Agreement, Licensee, upon
St. John's or SJ Japan's request, shall execute such documents as may be
necessary to further confirm St. John's and SJ Japan's rights in the Licensed
Trademarks. Licensee hereby irrevocably appoints each of St. John and SJ Japan
as its attorney-in-fact for the purpose of executing such documents.
11.9 Insofar as any packaging and advertising material to be used in
connection with the Stores utilizing the Licensed Trademarks is created for
Licensee by a third party, Licensee shall execute such assignments of copyright
as SJ Japan shall require. Notwithstanding the foregoing sentence, Licensee's
existing copyrights, trademarks and other proprietary rights incorporated into
such artwork shall remain the property of Licensee and shall not be assigned to
SJ Japan and shall not be subject to SJ Japan's use without Licensee's prior
written consent.
12. Copyright
---------
Any copyright which may be created in any materials provided by SJ Japan
hereunder, including, without limitation, any sketch, design, packaging, label,
tag or the like designed or approved by SJ Japan shall, as between SJ Japan and
Licensee, be the property of SJ Japan. Licensee shall not, at any time, do or
suffer to be done any act or thing which may adversely affect any rights of SJ
Japan in such sketches, designs, packaging, labels, tags and the like,
including, without limitation, disclosing such information or filing any
application in Licensee's name to record any claims to copyrights in such
materials, and Licensee shall do all things reasonably required by SJ Japan to
preserve and protect said
IV-5
<PAGE>
rights, including, without limitation, placing the copyright notice on all
advertisements, displays and other materials used in connection with the Stores.
13. Indemnity; Insurance
--------------------
13.1 Licensee hereby indemnifies, saves and holds St. John and SJ Japan
harmless from and against any and all liabilities, losses, damages and expenses
(including reasonable attorneys' fees and expenses) arising out of or resulting
from: (i) any act or omission that may be committed or suffered by Licensee or
any of its servants, agents or employees in connection with Licensee's
performance of this Agreement, (ii) any actual or alleged infringement or
violation of any patents, copyrights, trademarks or other rights, including
trade secrets and rights of privacy and publicity, in connection with the
operation of the Stores (other than those arising from the design or manufacture
of Products or other similar matters not within the control of Licensee or from
the use by Licensee of the Licensed Trademarks as otherwise permitted
hereunder), (iii) Licensee's false or misleading advertising in connection with
any of the Stores, (iv) any violation of any applicable law or regulation in
connection with the Stores, (v) any use of any of the Licensed Trademarks in a
manner not authorized by this Agreement, or (vi) any breach of this Agreement by
Licensee. Licensee shall promptly notify St. John or SJ Japan of any claim
which may be made against Licensee arising out of Licensee's use of the Licensed
Trademarks. The provisions of this Section 11.1 and Licensee's indemnity
obligations hereunder shall survive the expiration or termination of this
Agreement.
13.2 SJ Japan hereby indemnifies, saves and holds Licensee harmless from
and against any and all liabilities, losses, damages and expenses (including
reasonable attorneys' fees and expenses) arising out of or resulting from any
infringement suit or claim of the nature specified in Section 9.7 to the extent,
and only to the extent, that Licensee has complied with the provisions of
Section 9.7.
13.3 Licensee shall procure and maintain at its own expense, in full force
and effect at all times during which Stores are operated pursuant to this
Agreement, with a reputable insurance carrier acceptable to SJ Japan, liability
insurance of such types and amounts as are customary for similar retail stores
in Tokyo and subject at all times to the approval of SJ Japan, which approval
shall not be unreasonably withheld.
14. Default and Termination
-----------------------
14.1 Any party hereto may terminate this Agreement at any time by giving
notice in writing to the other parties, which notice shall be effective upon
dispatch, should any other party hereto file a petition of any type as to its
bankruptcy, be declared bankrupt, become insolvent, make an assignment for the
benefit of creditors, or go into liquidation or receivership.
IV-6
<PAGE>
14.2 Any party hereto may terminate this Agreement by giving notice in
writing to the other parties in the event any other party hereto is in material
breach of this Agreement and shall have failed to cure such breach within thirty
(30) days of receipt of written notice thereof from the first party.
14.3 Any party hereto may terminate this Agreement upon giving notice in
writing to the other parties in the event of termination of the CDC Distribution
Agreement.
15. Rights on Expiration or Termination
-----------------------------------
15.1 Notwithstanding any expiration or termination in accordance with
Sections 2 or 12 above, each of St. John and SJ Japan shall have and hereby
reserves all rights and remedies which it has, or which are granted to it by
operation of law or in equity, to enjoin the unlawful or unauthorized use of the
Licensed Trademarks (any of which injunctive relief may be sought in the courts,
and also may be sought, prior to or in lieu of termination) and to be
compensated for damages for breach of this Agreement. In addition, nothing
herein shall be deemed to prevent a party from bringing an action for damages
either prior to or in lieu of termination if a default in performance by the
other party occurs and is not cured timely in accordance with the provisions of
Section 12 above. The parties acknowledge that Licensee's unauthorized use of
the Licensed Trademarks will give rise to irreparable injury to both St. John
and SJ Japan, inadequately compensable in damages. Accordingly, in addition to
any other remedies which may be available to St. John or SJ Japan at law or in
equity, each shall be entitled to preliminary and permanent injunctive relief
against such breach or threatened breach without the necessity of proving actual
damages or that monetary damages would be inadequate.
15.2 On the expiration or termination of this Agreement, all of the rights
of Licensee under this Agreement shall terminate forthwith and shall revert
immediately to SJ Japan and Licensee shall discontinue forthwith all use of the
Licensed Trademarks, no longer shall have the right to use the Licensed
Trademarks or any variation or simulation thereof and promptly shall transfer to
SJ Japan, free of charge, all registrations, filings and rights with regard to
the Licensed Trademarks which it may have possessed at any time. In addition,
Licensee thereupon shall deliver to SJ Japan, free of charge, all sketches and
other material in its possession which were designed or approved by SJ Japan or
any other materials or copies of materials obtained by Licensee from SJ Japan
and all labels, tags and other material in its possession with any Licensed
Trademark thereon. After the expiration or termination of this Agreement,
Licensee shall not use or permit others to use any of said sketches and other
material, or any variations or simulations thereof for any purpose whatsoever.
16. Representations and Warranties
------------------------------
16.1 SJ Japan represents and warrants (i) that it has full right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder, and (ii) that
IV-7
<PAGE>
to its knowledge utilization of the Licensed Trademarks pursuant to and
consistent with the terms of this Agreement will not constitute an infringement
of the rights of any third party. The foregoing warranty is the entire warranty
of SJ Japan and SJ Japan makes no other warranty of any kind, either express or
implied.
16.2 Licensee represents and warrants that it has full right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder.
16.3 St. John represents and warrants that it has full right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder.
17. Assignability; Binding Effect
-----------------------------
17.1 No party shall have the right to assign or otherwise transfer its
rights and obligations under this Agreement, except with the prior written
consent of the other parties hereto; provided, however, St. John and SJ Japan
shall each be entitled to assign any or all of its rights and obligations
hereunder to any of its subsidiaries provided that it shall remain fully liable
for the performance of all its obligations hereunder; provided further, that a
successor in interest by merger, by operation of law, assignment, purchase or
otherwise of the entire business of either St. John or SJ Japan shall acquire
all rights and obligations of such party hereunder. Any prohibited assignment
shall be null and void.
17.2 Any permitted assignment shall be subject to and conditioned on the
issuance of any governmental validations, authorizations, licenses or rulings
then required under applicable law in connection with such assignment.
18. Jurisdiction; Attorney's Fees
-----------------------------
18.1 Except as specifically provided in subsection (c) below, the sole
jurisdiction and venue for any court action arising out of this Agreement shall
be an appropriate federal or state court in Orange County, California, U.S.A.
Each of St. John, SJ Japan and Licensee hereby irrevocably submits to the
jurisdiction of any of said courts in any court action and hereby waives any
claim or defense of inconvenient forum.
(a) Each of St. John, SJ Japan and Licensee represents and warrants
that it is not entitled to immunity from judicial proceedings and agrees that,
should another party hereto bring any court action, it will not claim any
immunity from such proceedings for itself or with respect to its property.
(b) Notwithstanding the foregoing, the parties acknowledge and agree
that St. John and SJ Japan shall each have the right, at any time, to seek
injunctive relief in any court in the Territory to enjoin any unlawful or
unauthorized use of the Licensed Trademarks by Licensee.
IV-8
<PAGE>
18.2 In the event of any action for the breach of this Agreement or other
cause by any party hereto, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such action.
19. Miscellaneous
-------------
19.1 The validity, construction and performance of this Agreement shall be
construed and interpreted in accordance with the laws of the State of
California, U.S.A., without regard to principles of conflicts of laws.
19.2 This Agreement is executed in the English language which shall be the
controlling language and no translation or restatement of the terms and
conditions hereof in any other language will have any effect in the
interpretation or application thereof. In case of any conflict between the
English version and any translated version of this Agreement, the English
version shall govern.
19.3 This Agreement along with Schedule A attached hereto, which is
incorporated herein by this reference, contain the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior oral or written understandings and agreements relating
thereto and no provision hereof may be waived, modified, discharged or
terminated, except in a writing executed by a duly authorized officer of both
parties.
19.4 Nothing herein contained shall be construed to constitute the parties
hereto as partners or as joint venturers, or any as agent of the others, and
Licensee shall have no power to obligate or bind St. John or SJ Japan in any
manner whatsoever.
19.5 A failure of any party hereto to exercise any right provided for
herein shall not be deemed to be a waiver of any right hereunder. No waiver by
any party hereto, whether express or implied, of any provision of this
Agreement, or of any breach or default thereof, shall constitute a continuing
waiver of such provision or of any other provision of this Agreement.
Acceptance of payments by SJ Japan shall not be deemed a waiver by SJ Japan of
any violation of or default under any of the provisions of this Agreement by
Licensee.
19.6 If any provision or any portion of any provision of this Agreement
shall be held to be void or unenforceable, the remaining provisions of this
Agreement and the remaining portion of any provision held void or unenforceable
in part shall continue in full force and effect.
19.7 All reports, approvals, requests, demands and notices required or
permitted by this Agreement to be given to a party shall be valid and sufficient
if dispatched by registered mail, postage prepaid, in any post office, or by
facsimile transmission, to the addresses first above written or such other
addresses or facsimile numbers as the respective parties may designate by like
notice from time to time. Any notice given as herein provided
IV-9
<PAGE>
shall be considered to have been received fifteen (4) days after the mailing
thereof, or if by facsimile transmission, the next business day.
19.8 This Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party causing this Agreement to be
drafted. If any words or phrases in this Agreement shall have been stricken out
or otherwise eliminated, whether or not any other words or phrases have been
added, this Agreement shall be con strued as if those words or phrases were
never included in this Agreement, and no implication or inference shall be drawn
from the fact that the words or phrases were so stricken out or otherwise
eliminated.
19.9 UNDER NO CIRCUMSTANCES SHALL ST. JOHN, SJ JAPAN, OR THEIR EMPLOYEES,
AFFILIATES OR AGENTS BE LIABLE FOR ANY DAMAGES, INCLUDING ANY DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES THAT RESULT FROM LICENSEE'S USE OF
OR INABILITY TO USE THE LICENSED TRADEMARKS, AND LICENSEE HEREBY WAIVES ANY
CLAIMS WITH RESPECT THERETO, WHETHER BASED ON CONTRACT, TORT OR OTHER GROUNDS,
EVEN IF ST. JOHN AND/OR SJ JAPAN HAVE BEEN ADVISED OF THE POSSIBILITY OF
DAMAGES.
19.10 This Agreement may be executed in any number of counterparts, each
of which shall be an original and all of which shall constitute one and the same
instrument. This Agreement may be executed and delivered via facsimile and such
execution and delivery by facsimile shall have the same force and effect as a
hand delivered executed original.
* * * * * * *
IV-10
<PAGE>
IN WITNESS WHEREOF, the parties hereto each acting under due and proper
authority, have duly executed this Agreement as of the day and year first above
written.
ST. JOHN CO., LTD. COMMERCIAL DEVELOPMENT CO., LTD.
- --------------------------- --------------------------------------------
By: By:
------------------------ -----------------------------------------
Its: Its:
----------------------- ----------------------------------------
ST. JOHN KNITS, INC.
- ---------------------------
By:
-----------------------
Its:
----------------------
IV-11
<PAGE>
Schedule A
----------
Licensed Trademarks:
-------------------
Marie Gray(R) and Marie Gray by St. John(R), each a registered trademark of
St. John Knits, Inc. under license to St. John Co., Ltd.
Appendix A
Page 1
<PAGE>
EXHIBIT V
---------
CDC DISTRIBUTION AGREEMENT
--------------------------
dated as of July ___, 1997
between
COMMERCIAL DEVELOPMENT CO., LTD.
and
ST. JOHN CO., LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS...................... 1
1.1 Products............................................ 1
--------
1.2 Stores.............................................. 1
------
1.3 Distributor Price................................... 1
-----------------
1.4 CDC Information..................................... 1
---------------
1.5 SJ JAPAN Information................................ 2
--------------------
ARTICLE 2
APPOINTMENT...................... 2
2.1 Scope............................................... 2
-----
2.2 Subdistributors..................................... 2
---------------
2.3 Sales Outside the Territory......................... 2
---------------------------
ARTICLE 3
GENERAL OBLIGATIONS OF CDC.............. 2
3.1 Marketing........................................... 2
---------
3.2 Sale or Distribution of Other Goods................. 3
-----------------------------------
3.3 Customer Complaints................................. 3
-------------------
3.4 Expenses............................................ 3
--------
3.5 Indemnity........................................... 3
---------
ARTICLE 4
ORDERS FOR PRODUCTS.................. 3
4.1 Master Purchase Orders.............................. 3
----------------------
4.2 Other Purchase Orders............................... 3
---------------------
4.3 Terms of Purchase Orders............................ 4
------------------------
4.4 Acceptance of Orders................................ 4
--------------------
4.5 Modification of Orders.............................. 4
----------------------
4.6 Delivery Terms...................................... 4
--------------
ARTICLE 5
PRICES AND PAYMENT................... 4
5.1 Prices.............................................. 4
------
5.2 Price Increases, Decreases.......................... 5
--------------------------
5.3 Payment Terms....................................... 5
-------------
5.4 Retail Prices....................................... 6
-------------
5.5 Overdue Payments.................................... 6
----------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6
ACCEPTANCE AND WARRANTY................ 6
6.1 Acceptance of Products.............................. 6
----------------------
6.2 Product Warranty.................................... 6
----------------
6.3 Excluded Claims..................................... 7
---------------
6.4 Limited Warranty.................................... 7
----------------
ARTICLE 7
LIMITATION OF REMEDIES................. 7
7.1 Delay............................................... 7
-----
7.2 Sole Remedies....................................... 7
-------------
7.3 Consequential Damages............................... 7
---------------------
ARTICLE 8
CONFIDENTIALITY.................... 8
ARTICLE 9
TRADEMARKS...................... 8
ARTICLE 10
TAXES.......................... 9
ARTICLE 11
TERM AND TERMINATION................. 9
11.1 Term................................................ 9
----
11.2 Termination......................................... 9
-----------
11.3 Rights and Obligations on Termination............... 9
-------------------------------------
11.4 No Compensation..................................... 10
---------------
11.5 Attorneys' Fees..................................... 10
---------------
ARTICLE 12
FORCE MAJEURE...................... 10
12.1 Definition.......................................... 10
----------
12.2 Notice.............................................. 10
------
12.3 Confirmation........................................ 11
------------
12.4 Suspension of Performance........................... 11
-------------------------
12.5 Termination......................................... 11
-----------
ARTICLE 13
DISPUTES; INTERPRETATION................. 11
13.1 Disputes............................................ 11
--------
13.2 Governing Law....................................... 11
-------------
13.3 Governing Language.................................. 12
------------------
13.4 Effect of Headings.................................. 12
------------------
13.5 Non-Waiver.......................................... 12
----------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 14
MISCELLANEOUS...................... 12
14.1 Relationship........................................ 12
------------
14.2 Assignment.......................................... 12
----------
14.3 Notices............................................. 12
-------
14.4 ENTIRE AGREEMENT.................................... 13
----------------
14.5 Amendment........................................... 13
---------
14.6 Severability........................................ 13
------------
14.7 Counterparts........................................ 13
------------
14.8 Waiver.............................................. 13
------
</TABLE>
iii
<PAGE>
CDC Distribution Agreement
--------------------------
THIS AGREEMENT, made this ___th day of July, 1997 by and between ST.
JOHN CO., LTD., a corporation duly organized and existing under the laws of
Japan and having its principal place of business at Imperial Tower 9F, 1-1-1
Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter "SJ JAPAN"), and
COMMERCIAL DEVELOPMENT CO., LTD., a corporation duly organized and existing
under the laws of Japan and having its principal place of business at Imperial
Tower 9F, 1-1-1 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter "CDC").
WHEREAS, SJ JAPAN markets certain products of St. John Knits, Inc.
("ST. JOHN") pursuant to that certain License and Distribution Agreement, dated
as of July ___, 1997, between ST. JOHN and SJ JAPAN (the "License and
Distribution Agreement"), and SJ JAPAN desires to increase the sales of such
products; and
WHEREAS, CDC desires to sell such products in its retail stores in the
Hotel New Otani and the Imperial Hotel in Tokyo, Japan.
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the parties agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For purposes of this Agreement, the following words, terms and
phrases, where written with an initial capital letter, shall have the meanings
assigned to them in this Article 1 unless the context otherwise requires:
1.1 Products. "Products" shall mean those products as defined
--------
in Section 1.3 of the License and Distribution Agreement.
1.2 Stores. "Stores" shall mean two retail stores operated by
------
CDC, one in the Imperial Hotel, Tokyo, Japan and the other in the Hotel New
Otani, Tokyo, Japan.
1.3 Distributor Price. "Distributor Price" shall mean SJ
-----------------
JAPAN's published suggested retail price for a given Product in effect at the
time of acceptance by SJ JAPAN of CDC's order, less fifty-five (55%).
1.4 CDC Information. "CDC Information" shall mean all
---------------
information, other than information in publicly-available published form or
expressly designated by CDC as non-confidential, which is directly or indirectly
disclosed to SJ
V-1
<PAGE>
JAPAN, regardless of the form in which it is disclosed, relating in any way to
CDC's markets, customers, products, patents, inventions, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors or business in general.
1.5 SJ JAPAN Information. "SJ JAPAN Information" shall mean all
--------------------
information, other than information in publicly-available published form or
expressly designated by SJ JAPAN as non-confidential, which is directly or
indirectly disclosed to CDC or embodied in Products provided hereunder,
regardless of the form in which it is disclosed, relating in any way to SJ
JAPAN's markets, customers, products, patents, inventions, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, subdistributors or business in general.
ARTICLE 2
---------
APPOINTMENT
-----------
2.1 Scope. SJ JAPAN hereby appoints CDC, and CDC hereby accepts
-----
appointment, as SJ JAPAN's distributor during the term of this Agreement with
the non-exclusive right to sell or otherwise distribute Products solely in the
Stores.
2.2 Subdistributors. CDC shall not appoint any subdistributors
---------------
or agents with respect to the Products.
2.3 Sales Outside the Territory. CDC shall not sell or
---------------------------
distribute Products outside the Stores without the express prior written consent
of SJ JAPAN.
ARTICLE 3
---------
GENERAL OBLIGATIONS OF CDC
--------------------------
3.1 Marketing. CDC shall have the following obligations with
---------
respect to the marketing of SJ JAPAN Products:
(a) To use its best efforts to further the promotion, marketing and
sale of Products in the Stores;
(b) To maintain an adequate and balanced inventory of Products;
(c) To promptly respond to all inquiries from customers, including
complaints, process all orders, and effect all sales of Products;
(d) To diligently investigate all leads with respect to potential
customers referred to it by SJ JAPAN;
V-2
<PAGE>
(e) To permit SJ JAPAN to visit the Stores and other places of
business and inspect its inventories, records, and other relevant
documents, upon reasonable advance notice; and
(f) To maintain an adequate sales force dedicated on both a full and
part-time basis, as the case may be, to the sale of Products;
3.2 Sale or Distribution of Other Goods. From and after January
-----------------------------------
7, 1998, CDC shall not sell or distribute any products in the Stores other than
the Products.
3.3 Customer Complaints. CDC agrees to cooperate with SJ JAPAN
-------------------
in dealing with any customer complaints concerning the Products and to take any
action requested by SJ JAPAN to resolve such complaints.
3.4 Expenses. CDC assumes full responsibility for all costs and
--------
expenses which it incurs in carrying out its obligations under this Agreement,
including but not limited to all rentals, salaries, commissions, advertising,
demonstration, travel and accommodation expenses without the right to
reimbursement for any portion thereof from SJ JAPAN.
3.5 Indemnity. CDC hereby indemnifies, saves and holds SJ JAPAN
---------
harmless from and against any and all liabilities, losses, damages and expenses
(including reasonable attorneys' fees and expenses) arising out of or resulting
from: (i) any act or omission that may be committed or suffered by CDC or any of
its servants, agents or employees in connection with CDC's performance of this
Agreement, (ii) any violation of any applicable law or regulation in connection
with the marketing, distribution, sale, advertisement or promotion of any of the
Products, or (iii) any breach of this Agreement by CDC. The provisions of this
Section 3.5 and CDC's obligations hereunder shall survive the expiration or
termination of this Agreement.
ARTICLE 4
---------
ORDERS FOR PRODUCTS
-------------------
4.1 Master Purchase Orders. CDC shall submit master purchase
----------------------
orders for Products to SJ JAPAN twice each calendar year, prior to the Fall
Season and prior to the Spring Cruise Season. CDC shall ensure that its master
purchase orders are received by SJ JAPAN no later than ninety (90) days prior to
the commencement of such Fall Season or Spring Cruise Season, as the case may
be.
4.2 Other Purchase Orders. CDC may also submit individual
---------------------
purchase orders for Products to SJ JAPAN from time to time. CDC shall ensure
that such individual purchase orders are received by SJ JAPAN at least sixty
(60) days prior to the delivery dates requested in the order.
V-3
<PAGE>
4.3 Terms of Purchase Orders. Each purchase order submitted by CDC
------------------------
under Sections 4.1 and 4.2 above shall be in writing sent by mail, facsimile,
telex, telegram or cable, which shall set forth the information specified below,
as well as such other information as SJ JAPAN may reasonably request in the
format specified by SJ JAPAN from time to time:
(a) An identification of the Products ordered, including line name and
product numbers,
(b) Quantity,
(c) Delivery schedule, identifying desired delivery dates, and
(d) Delivery instructions and addresses.
4.4 Acceptance of Orders. All purchase orders are subject to
--------------------
acceptance in writing by SJ JAPAN at its principal offices in Tokyo. Each such
purchase order shall be deemed to be an offer by CDC to purchase the Products
pursuant to the terms of this Agreement and, when accepted by SJ JAPAN as
hereinabove provided, shall give rise to a contract under the terms set forth
herein to the exclusion of any additional or contrary terms set forth in such
purchase order. SJ JAPAN shall deliver to CDC its acceptance, if forthcoming,
of any purchase order within two (2) weeks of SJ JAPAN's receipt of such
purchase order.
4.5 Modification of Orders. No accepted purchase order shall be
----------------------
modified or cancelled except upon the written agreement of both parties. CDC's
purchase orders or mutually agreed change orders shall be subject to all
provisions of this Agreement, whether or not the purchase order or change order
so states.
4.6 Delivery Terms. (a) All risk of damage to or loss or delay
--------------
of the Products shall pass to CDC upon delivery to a common carrier or an agent
or any other person specified by CDC acting on behalf of CDC.
(b) SJ JAPAN shall use reasonable commercial efforts to deliver
accepted orders in accordance with requested delivery dates.
ARTICLE 5
---------
PRICES AND PAYMENTS
-------------------
5.1 Prices. The prices to be paid by CDC for Products purchased
------
pursuant to this Agreement shall be the Distributor Prices in effect at the time
of acceptance of the relevant purchase order submitted by CDC, except as
provided in Section 5.2 below. The difference between the Distributor Prices
and the prices CDC sells Products to its customers shall be CDC's sole
remuneration for distribution of the
V-4
<PAGE>
Products. All Distributor Prices include packing in accordance with SJ JAPAN's
standard commercial shipping practices in effect at the time of shipment.
Special packing or handling shall be at the sole expense of CDC.
5.2 Price Increases, Decreases. SJ JAPAN may, at any time
--------------------------
during the term of this Agreement, increase its prices for the Products by
providing CDC with at least forty-five (45) days prior written notice.
Increased prices for all Products shall not apply to purchase orders accepted
prior to the effective date of the price increase unless such orders provide for
delivery, and delivery is in fact made, more than one-hundred and twenty (120)
days after the date of acceptance of the order. Price decreases with respect to
all Products shall be effective immediately upon written notice to the CDC on
all such Products not yet delivered.
5.3 Payment Terms. All payments hereunder shall be made
-------------
pursuant to the following terms and conditions:
(a) to the extent that CDC has executed and maintains in effect a
standby letter of credit in favor of SJ JAPAN for the then current
Fall Season or Spring Cruise Season, as the case may be, in an
amount at least equal to two-thirds (2/3) of the aggregate
purchase price of SJ JAPAN's master purchase order and any
individual purchase orders for such season and upon such other
terms and conditions reasonably acceptable to SJ JAPAN, payments
for shipments under such purchase orders shall be due net one
hundred twenty (120) days from the date of shipment of the
Products, or from the date of invoice for such charges as taxes,
duties, interest or like special charges, payable to the bank or
banks specified by SJ JAPAN in writing from time to time; and
(b) to the extent that no such letter of credit has been maintained,
shipments shall be subject to payment by CDC prior to the
scheduled delivery date for the Products, either (i) in cash to
the bank or banks specified by SJ JAPAN in writing from time to
time, or (ii) if and only to such extent as permitted by ST. JOHN,
by use of a 120-day promissory note (yakusoku tegata) or other
form of security for payment acceptable to ST. JOHN in its sole
discretion; it being understood that SJ JAPAN shall not deliver
shipments of Products subject to this subsection (b) for which SJ
JAPAN has not received either full payment or acceptable security
in advance.
All letters of credits and all payments hereunder shall be in Japanese Yen or
such other currency as may be mutually agreed upon. In the event of any dispute
arising over any part of an invoice or the total amount due under an invoice
pursuant to subsection (a) above, all undisputed amounts shall be promptly paid
by CDC in accordance with this Section 5.3.
V-5
<PAGE>
5.4 Retail Prices. CDC may sell Products at such prices as CDC, in
-------------
its sole discretion, shall determine. CDC shall, however, provide SJ JAPAN with
a list of its initial retail prices for the Products to be charged to its
customers and shall keep SJ JAPAN fully informed by providing SJ JAPAN with any
new list retail prices within ten (10) days of any change in such retail prices.
5.5 Overdue Payments. If and for so long as any payment from
----------------
CDC to SJ JAPAN under this Agreement shall be overdue:
(a) Interest at the rate equal to the lesser of: (i) the prime rate
being charged in Tokyo by The Sakura Bank, Limited as of the close
of business on the date the payment first becomes due plus one and
one-half percent (1.5%), or (ii) the maximum rate permitted by
applicable law; and
(b) SJ JAPAN shall have the right, in its sole discretion, to require
payment for additional shipments of Products either by cash in
advance or by an irrevocable, transferrable, divisible letter of
credit confirmed by a bank specified by SJ JAPAN, instead of by
open account as provided above.
ARTICLE 6
---------
ACCEPTANCE AND WARRANTY
-----------------------
6.1 Acceptance of Products. In the event of any shortage,
----------------------
damage or discrepancy in or to a shipment of Products, CDC shall promptly report
the same to SJ JAPAN and furnish such written evidence or other documentation as
SJ JAPAN may deem appropriate. SJ JAPAN shall not be liable for any such
shortage, damage or discrepancy unless SJ JAPAN has received notice and
substantiating evidence thereof from CDC within thirty (30) days of arrival of
the Products at CDC's shipping address. If the substantiating evidence
delivered by CDC demonstrates to SJ JAPAN's satisfaction that SJ JAPAN is
responsible for such shortage, damage or discrepancy, SJ JAPAN shall promptly
deliver additional or substitute Products or parts of Products, as SJ JAPAN may
deem sufficient, to CDC in accordance with the delivery procedures set forth
herein; provided, that in no event shall SJ JAPAN be liable for any additional
costs, expenses or damages incurred by CDC directly or indirectly as a result of
such shortage, damage or discrepancy in or to a shipment.
6.2 Product Warranty. SJ JAPAN warrants for a period of forty-
----------------
five (45) days after the date of delivery in accordance with Section 4.4 hereof
that the Products shall be free from defects in material and workmanship. SJ
JAPAN's sole obligation in the event of a breach of such warranty shall be to
provide at no charge to CDC replacement Products for all defective Products. In
no event shall SJ JAPAN have any responsibility or bear any liability for the
cost of labor for the repair of any defective
V-6
<PAGE>
Products. All costs of shipment of the replacement Products to CDC shall be
borne by CDC. CDC shall retain all replaced Products subject to the foregoing
warranty for SJ JAPAN's inspection for a period of three (3) months after their
replacement. All such replaced Products shall become the property of SJ JAPAN
upon their replacement and CDC shall return or destroy any such replaced
Products as SJ JAPAN shall so request, provided, that SJ JAPAN shall bear any
related shipping costs for the return of such Products.
6.3 Excluded Claims. SJ JAPAN shall have no obligation under
---------------
Section 6.2 above in the event that replacement of Products shall have been
necessitated in whole or in part by force majeure as defined in Section 12.1
hereof, or by the fault or negligence of CDC.
6.4 Limited Warranty. THE WARRANTIES SET FORTH IN THIS ARTICLE
----------------
6 ARE INTENDED SOLELY FOR THE BENEFIT OF CDC. ALL CLAIMS HEREUNDER SHALL BE
MADE BY CDC AND MAY NOT BE MADE BY CDC'S CUSTOMERS. THE WARRANTIES SET FORTH
ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY
DISCLAIMED AND EXCLUDED BY SJ JAPAN, INCLUDING WITHOUT LIMITATION ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ALL
OBLIGATIONS OR LIABILITIES ON THE PART OF SJ JAPAN FOR DAMAGES ARISING OUT OF OR
IN CONNECTION WITH THE USE OF THE PRODUCTS.
ARTICLE 7
---------
LIMITATION OF REMEDIES
----------------------
CDC UNDERSTANDS AND AGREES AS FOLLOWS:
7.1 Delay. SJ JAPAN SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE
-----
CAUSED BY DELAY IN FURNISHING PRODUCTS AND SERVICES OR ANY OTHER PERFORMANCE
UNDER OR PURSUANT TO THIS AGREEMENT.
7.2 Sole Remedies. THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH
-------------
OF ANY AND ALL WARRANTIES AND THE SOLE REMEDIES FOR SJ JAPAN's LIABILITY OF ANY
KIND (INCLUDING LIABILITY FOR NEGLIGENCE) WITH RESPECT TO THE PRODUCTS AND
SERVICES COVERED BY THIS AGREEMENT AND ALL OTHER PERFORMANCE BY SJ JAPAN UNDER
OR PURSUANT TO THIS AGREEMENT SHALL BE LIMITED TO THE REMEDIES PROVIDED IN
SECTION 6.2, PRODUCT WARRANTY.
7.3 Consequential Damages. IN NO EVENT SHALL SJ JAPAN's
---------------------
LIABILITY OF ANY KIND INCLUDE ANY SPECIAL, INDIRECT,
V-7
<PAGE>
INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SJ JAPAN SHALL HAVE BEEN
ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.
ARTICLE 8
---------
CONFIDENTIALITY
---------------
CDC acknowledges and agrees that all SJ JAPAN Information is
confidential and proprietary to SJ JAPAN. CDC agrees not to use any of such SJ
JAPAN Information during the term of this Agreement and for a period of five (5)
years thereafter for any purpose other than as permitted or required for
performance by CDC hereunder. CDC further agrees not to disclose or provide any
of such SJ JAPAN Information to any third party and to take all necessary
measures to prevent any such disclosure by its employees, agents, contractors or
consultants during the term hereof and for a period of five (5) years
thereafter. Nothing herein shall prevent CDC from using, disclosing or
authorizing the disclosure of any SJ JAPAN Information which (i) is, or
hereafter becomes, through no fault of CDC, part of the public domain, (ii) is
disclosed orally and is not identified as confidential information either at the
time of disclosure or by written notice sent to CDC within ten (10) business
days after disclosure thereof, or (iii) is required to be disclosed by any
governmental authority or otherwise under applicable law.
SJ JAPAN acknowledges and agrees that all CDC Information is
confidential and proprietary to CDC. SJ JAPAN agrees not to use any of such CDC
Information during the term of this Agreement for any purpose other than as
permitted or required for performance by SJ JAPAN hereunder. SJ JAPAN further
agrees not to disclose or provide any of such CDC Information to any third party
and to take all necessary measures to prevent any such disclosure by its
employees, agents, contractors or consultants during the term hereof. Nothing
herein shall prevent SJ JAPAN from using, disclosing or authorizing the
disclosure of any CDC Information which (i) is, or hereafter becomes, through no
fault of SJ JAPAN, part of the public domain, (ii) is disclosed orally and is
not identified as confidential information either at the time of disclosure or
by written notice sent to SJ JAPAN within ten (10) business days after
disclosure thereof, or (iii) is required to be disclosed by any governmental
authority or otherwise under applicable law.
ARTICLE 9
---------
TRADEMARKS
----------
SJ JAPAN has granted to CDC a right and license to use the trademarks
specified in the CDC License Agreement, and the nature and terms of such right
and license shall be as set forth in the CDC License Agreement.
V-8
<PAGE>
ARTICLE 10
----------
TAXES
-----
All payments to be made by CDC to SJ JAPAN pursuant to this Agreement
represent net amounts SJ JAPAN is entitled to receive, shall not be subject to
any deductions for any reason whatsoever, and are net of taxes. In the event
any of said payments become subject to taxes (including without limitation,
sales, value-added and similar taxes), duties, assessments or fees of whatever
kind or nature, said payments shall be increased to such an extent as to allow
SJ JAPAN to receive the net amounts due under this Agreement.
ARTICLE 11
----------
TERM AND TERMINATION
--------------------
11.1 Term. The term ("Term") of this Agreement shall run from
----
the effective date hereof and terminate upon the termination of the License and
Distribution Agreement, including any renewal thereof, unless this Agreement is
sooner terminated pursuant to the provisions of Section 11.2 hereof.
11.2 Termination. Notwithstanding the provisions of Section 11.1
-----------
above, this Agreement may be terminated in accordance with the following
provisions:
(a) Either party hereto may terminate this Agreement at any time by
giving notice in writing to the other party, which notice shall be
effective upon dispatch, should the other party file a petition of
any type as to its bankruptcy, be declared bankrupt, become
insolvent, make an assignment for the benefit of creditors, or go
into liquidation or receivership.
(b) Either party may terminate this Agreement by giving notice in
writing to the other party should an event of Force Majeure
continue for more than ninety (90) days as provided in Section
12.5 below.
(c) Either party may terminate this Agreement by giving notice in
writing to the other party in the event the other party is in
material breach of this Agreement and shall have failed to cure
such breach within thirty (30) days of receipt of written notice
thereof from the first party.
(d) Either party may terminate this Agreement upon giving notice in
writing to the other party in the event of early termination of
the CDC License Agreement.
V-9
<PAGE>
11.3 Rights and Obligations on Termination. In the event of
-------------------------------------
expiration or termination of this Agreement for any reason, the parties shall
have the following rights and obligations;
(a) Termination of this Agreement shall not release either party from
the obligation to make payment of all amounts then or thereafter
due and payable;
(b) SJ JAPAN shall have the right, at its option, to (i) cancel any or
all accepted purchase orders which provide for delivery after the
effective date of termination, and/or (ii) repurchase all or any
part of CDC's inventory of Products in CDC's possession as of the
termination date at SJ JAPAN's invoiced price to CDC for such
products, less depreciation calculated on a thirty-six (36) month,
straight-line basis and less any appropriate amount for excessive
wear and tear, plus freight to the original Free Carrier shipping
point. SJ JAPAN shall exercise its option under this subsection
by notifying CDC in writing no later than thirty (30) days after
the effective termination date.
(c) CDC's obligations pursuant to Article 8 shall survive termination
of this Agreement.
11.4 No Compensation. In the event either party terminates this
---------------
Agreement for any reason in accordance with the terms hereof, the parties hereby
agree that, subject to the provisions of Section 11.3(a) hereof and without
prejudice to any other remedies which either party may have in respect of any
breach of this Agreement, neither party shall be entitled to any compensation or
like payment from the other as a result of such termination.
11.5 Attorneys' Fees. In the event of any action for the breach
---------------
of this Agreement or other cause by any party hereto, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and expenses incurred in such
action.
ARTICLE 12
----------
FORCE MAJEURE
-------------
12.1 Definition. Force Majeure shall mean any event or
----------
condition, not existing as of the date of signature of this Agreement, not
reasonably foreseeable as of such date and not reasonably within the control of
either party, which prevents in whole or in material part the performance by one
of the parties of its obligations hereunder or which renders the performance of
such obligations so difficult or costly as to make such performance commercially
unreasonable. Without limiting the foregoing, the following shall constitute
events or conditions of Force Majeure: acts of
V-10
<PAGE>
State or governmental action, riots, disturbance, war, strikes, lockouts,
slowdowns, prolonged shortage of energy suppliers, epidemics, fire, flood,
hurricane, typhoon, earthquake, lightning and explosion.
12.2 Notice. Upon giving notice to the other party, a party
------
affected by an event of Force Majeure shall be released without any liability on
its part from the performance of its obligations under this Agreement, except
for the obligation to pay any amounts due and owing hereunder, but only to the
extent and only for the period that its performance of such obligations is
prevented by the event of Force Majeure. Such notice shall include a
description of the nature of the event of Force Majeure, and its cause and
possible consequences. The party claiming Force Majeure shall promptly notify
the other party of the termination of such event.
12.3 Confirmation. The party invoking Force Majeure shall
------------
provide to the other party confirmation of the existence of the circumstances
constituting Force Majeure. Such evidence may consist of a statement or
certificate of an appropriate governmental department or agency where available,
or a statement describing in detail the facts claimed to constitute Force
Majeure.
12.4 Suspension of Performance. During the period that the
-------------------------
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder to
the extent that such suspension is commercially reasonable.
12.5 Termination. Should the period of Force Majeure continue
-----------
for more than ninety (90) consecutive days, either party may terminate this
Agreement without liability to the other party, except for payments due to such
date, upon giving written notice to the other party.
ARTICLE 13
----------
DISPUTES; INTERPRETATION
------------------------
13.1 Disputes. The sole jurisdiction and venue for any court
--------
action arising out of this Agreement shall be an appropriate federal or state
court in Orange County, California, U.S.A. Each of SJ JAPAN and CDC hereby
irrevocably submits to the jurisdiction of any of said courts in any court
action and hereby waives any claim or defense of inconvenient forum. Each of SJ
JAPAN and CDC represents and warrants that it is not entitled to immunity from
judicial proceedings and agrees that, should the other bring any court action,
it will not claim any immunity from such proceedings for itself or with respect
to its property.
In the event of any action for the breach of this Agreement or other cause
by any Party, the prevailing Party shall be entitled to reasonable attorney's
fees, costs and expenses incurred in such action.
V-11
<PAGE>
13.2 Governing Law. The validity, construction and performance of
-------------
this Agreement shall be governed by and interpreted in accordance with the laws
of the State of California, U.S.A., excluding its choice of law provisions.
13.3 Governing Language. This Agreement is executed in the
------------------
English language which shall be the controlling language and no translation or
restatement of the terms and conditions hereof in any other language will have
any effect in the interpretation or application thereof.
13.4 Effect of Headings. The headings to Sections of this
------------------
Agreement, excepting those in Section 1 hereof, are to facilitate reference
only, do not form a part of this Agreement, and shall not in any way affect the
interpretation hereof.
13.5 Non-Waiver. The waiver, express or implied, by any of the
----------
parties hereto of any right hereunder or of any failure to perform or breach
hereof by the other party shall not constitute or be deemed a waiver of any
other right hereunder or of any other failure to perform or breach hereof by
such other party(s), whether of a similar or dissimilar nature thereto.
Acceptance of payments by SJ JAPAN shall not be deemed a waiver by SJ JAPAN of
any violation of or default under any of the provisions of this Agreement by
CDC.
ARTICLE 14
----------
MISCELLANEOUS
-------------
14.1 Relationship. This Agreement does not make either party the
------------
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party. In fulfilling its obligations pursuant to this Agreement each
party shall be acting as an independent contractor.
14.2 Assignment. (a) Neither party shall have the right to
----------
assign or otherwise transfer its rights and obligations under this Agreement
except with the prior written consent of the other party; provided, however, SJ
JAPAN shall be entitled to assign any or all of its rights and obligations
hereunder to any affiliate of SJ JAPAN, provided that SJ JAPAN shall remain
fully liable for the performance of all its obligations hereunder; provided
further, that a successor in interest by merger, by operation of law,
assignment, purchase or otherwise of the entire business of either party shall
acquire all rights and obligations of such party hereunder. Any prohibited
assignment shall be null and void.
(b) Any permitted assignment shall be subject to and conditioned on
the issuance of any governmental validations, authorizations, licenses or
rulings then required under applicable law in connection with such assignment.
V-12
<PAGE>
14.3 Notices. Notices permitted or required to be given hereunder
-------
shall be deemed sufficient if dispatched by registered mail, postage prepaid, in
any post office, by facsimile transmission, or by personal delivery to the
addresses first above written or such other addresses or facsimile numbers as
the respective parties may designate by like notice from time to time. Any
notice given as herein provided shall be considered to have been received
immediately upon personal delivery thereof, four (4) days after the mailing
thereof, or if by facsimile transmission the next business day.
14.4 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
----------------
AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND
SUPERSEDES ALL PREVIOUS DISTRIBUTORSHIP AGREEMENTS BY AND BETWEEN SJ JAPAN AND
CDC AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN, AND ALL NEGOTIATIONS,
CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD BETWEEN THE PARTIES RELATED TO THIS
AGREEMENT. CDC ACKNOWLEDGES THAT IT HAS NOT BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY ANY REPRESENTATIONS OR STATEMENTS, ORAL OR WRITTEN, NOT EXPRESSLY
CONTAINED HEREIN.
14.5 Amendment. This Agreement shall not be deemed or construed
---------
to be modified, amended, rescinded, cancelled or waived, in whole or in part,
except by written amendment signed by the parties hereto.
14.6 Severability. In the event that any of the terms of this
------------
Agreement are in conflict with any rule of law or statutory provision or are
otherwise unenforceable under the laws or regulations of any government or
subdivision thereof, such terms shall be deemed stricken from this Agreement,
but such invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement and this Agreement shall continue in force, unless the
invalidity or unenforceability of any such provisions hereof does substantial
violence to, or where the invalid or unenforceable provisions comprise an
integral part of, or are otherwise inseparable from, the remainder of this
Agreement.
14.7 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument. This Agreement may be executed and
delivered via facsimile and such execution and delivery by facsimile shall have
the same force and effect as a hand delivered executed original.
14.8 Waiver. No failure by either party to take any action or
------
assert any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to such
right.
* * * * * * *
V-13
<PAGE>
IN WITNESS WHEREOF, The parties have caused this Agreement to be
executed on the date first above written.
COMMERCIAL DEVELOPMENT CO., LTD. ST. JOHN CO., LTD.
By:________________________ By:________________________
Name: Name:
Title: Title:
Acknowledged and approved:
ST. JOHN KNITS, INC.
By:________________________
Name:
Title:
V-14
<PAGE>
EXHIBIT 10.3
LICENSE AND DISTRIBUTION AGREEMENT
----------------------------------
dated as of August 1, 1997
between
ST. JOHN KNITS, INC.
and
ST. JOHN CO., LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS...................... 1
1.1 Distributor List Price.............................. 1
1.2 Licensed Trademarks................................. 2
1.3 Products............................................ 2
1.4 SJ JAPAN Information................................ 2
1.5 ST. JOHN Information................................ 2
1.6 Territory........................................... 2
ARTICLE 2
APPOINTMENT...................... 2
2.1 Scope............................................... 2
2.2 Subdistributors..................................... 3
2.3 Sales Outside the Territory......................... 3
2.4 Third-Party Importation............................. 3
ARTICLE 3
GENERAL OBLIGATIONS OF SJ JAPAN............ 3
3.1 Marketing........................................... 3
3.2 Use of Licensed Trademarks.......................... 4
3.3 Manufacture or Distribution of Competitive Goods.... 5
3.4 Customer Complaints................................. 5
3.5 Quality Control..................................... 5
3.6 Design Services..................................... 6
3.7 Expenses............................................ 6
ARTICLE 4
INDEMNITY; INFRINGEMENT; INSURANCE.......... 7
4.1 SJ JAPAN Indemnity.................................. 7
4.2 ST. JOHN Indemnity.................................. 7
4.4 Infringement Claims of Third Parties................ 8
4.5 Insurance........................................... 8
ARTICLE 5
ORDERS FOR PRODUCTS.................. 8
5.1 Master Purchase Orders.............................. 8
5.2 Other Purchase Orders............................... 8
5.3 Terms of Purchase Orders............................ 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.4 Acceptance of Orders................................ 9
5.5 Modification of Orders.............................. 9
5.6 Delivery Terms...................................... 9
5.7 Product Changes..................................... 10
ARTICLE 6
PRICES AND PAYMENT.................. 10
6.1 Prices.............................................. 10
6.2 Price Increases, Decreases.......................... 11
6.3 Payment Terms....................................... 11
6.4 Resale Prices....................................... 11
6.5 Overdue Payments.................................... 11
ARTICLE 7
ACCEPTANCE AND WARRANTY................. 12
7.1 Acceptance of Products.............................. 12
7.2 Product Warranty.................................... 12
7.3 Excluded Claims..................................... 12
7.4 Limited Warranty.................................... 13
ARTICLE 8
LIMITATION OF REMEDIES................. 13
8.1 Delay............................................... 13
8.2 Sole Remedies....................................... 13
8.3 Consequential Damages............................... 13
ARTICLE 9
CONFIDENTIALITY.................... 14
ARTICLE 10
TRADEMARKS; COPYRIGHT................ 14
10.1 Exploitation of Rights............................. 14
10.2 Disputes Among Licensees........................... 14
10.3 Exclusive License.................................. 15
10.4 Ownership.......................................... 15
10.5 Use of Name........................................ 15
10.6 Compliance With Law; Markings...................... 16
10.7 Copyright.......................................... 16
ARTICLE 11
TAXES; IMPORT OF PRODUCTS............... 16
11.1 Taxes............................................... 16
11.2 Import Documentation................................ 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 12
TERM AND TERMINATION.................. 17
12.1 Term............................................... 17
12.2 Termination........................................ 17
12.3 Rights and Obligations on Termination.............. 17
12.4 No Compensation.................................... 18
12.5 Injunctive Relief.................................. 18
12.6 Reversion of Rights; Return of Materials........... 19
ARTICLE 13
FORCE MAJEURE.................... 19
13.1 Definition......................................... 19
13.2 Notice............................................. 19
13.3 Confirmation....................................... 20
13.4 Suspension of Performance.......................... 20
13.5 Termination........................................ 20
ARTICLE 14
REPRESENTATIONS AND WARRANTIES........... 20
14.1 ST. JOHN............................................ 20
14.2 SJ JAPAN............................................ 20
ARTICLE 15
JURISDICTION; INTERPRETATION............ 20
15.1 Disputes........................................... 20
15.2 Governing Law...................................... 21
15.3 Governing Language................................. 21
15.4 Effect of Headings................................. 21
15.5 Non-Waiver......................................... 21
ARTICLE 16
MISCELLANEOUS.................... 21
16.1 Assignment......................................... 21
16.2 Relationship....................................... 22
16.3 Notices............................................ 22
16.4 ENTIRE AGREEMENT................................... 22
16.5 Amendment.......................................... 22
16.6 Publicity.......................................... 22
16.7 Severability....................................... 23
16.8 Counterparts....................................... 23
Schedule A Licensed Trademarks
Schedule B U.S. Wholesale Price List
</TABLE>
iii
<PAGE>
EXHIBIT 10.3
License and Distribution Agreement
----------------------------------
THIS AGREEMENT, made as of this 1st day of August, 1997 by and between
ST. JOHN KNITS, INC., a corporation duly organized under the laws of the State
of California and having its principal place of business at 17422 Derian Avenue,
Irvine, California 92614 U.S.A. (hereinafter "ST. JOHN"), and ST. JOHN CO.,
LTD., a corporation duly organized and existing under the laws of Japan and
having its principal place of business at Imperial Tower 9F, 1-1-1 Uchisaiwai-
cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter "SJ JAPAN").
WHEREAS, ST. JOHN manufactures and markets certain products and
desires to increase the sales of such products;
WHEREAS, ST. JOHN is the owner of certain valuable trademarks under
which such products are sold;
WHEREAS, SJ JAPAN has represented that it possesses the necessary
expertise and marketing organization to promote and sell such products in the
territory defined herein; and
WHEREAS, ST. JOHN is willing to appoint SJ JAPAN as distributor of ST.
JOHN's products, with the right and license to use certain ST. JOHN trademarks,
in the territory, and SJ JAPAN is willing to accept such appointment;
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the parties agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For purposes of this Agreement, the following words, terms and
phrases, where written with an initial capital letter, shall have the meanings
assigned to them in this Article 1 unless the context otherwise requires:
1.1 Distributor List Price. "Distributor List Price" shall mean ST.
----------------------
JOHN's published United States wholesale price for a given Product in effect at
the time of acceptance by ST. JOHN of SJ JAPAN's order, less eighteen percent
(18%); provided, that for accessories (which shall specifically exclude any
knitwear and other textile products), the Distributor List Price shall mean ST.
JOHN's published United States wholesale price for a given Product in effect at
the time of acceptance by ST. JOHN of SJ JAPAN's order, less twenty percent
(20%). A copy of ST. JOHN's current published
<PAGE>
United States wholesale price list is attached hereto as Schedule B. ST. JOHN
----------
reserves the right to change its United States wholesale list prices at any time
and from time to time after execution of this Agreement.
1.2 Licensed Trademarks. "Licensed Trademarks" shall mean the
-------------------
trademarks set forth in Schedule A hereto and all related logos, emblems and
----------
symbols, and all combinations, form and derivations thereof as are currently or
hereafter used by ST. JOHN in connection with the Products (as defined below).
1.3 Products. "Products" shall mean all women's apparel and women's
--------
accessories which are both manufactured and distributed by ST. JOHN for retail
sale in the United States of America.
1.4 SJ JAPAN Information. "SJ JAPAN Information" shall mean all
--------------------
information, other than information in publicly-available published form or
expressly designated by SJ JAPAN as non-confidential, which is directly or
indirectly disclosed to ST. JOHN, regardless of the form in which it is
disclosed, relating in any way to SJ JAPAN's markets, customers, products,
patents, inventions, procedures, methods, designs, strategies, plans, assets,
liabilities, costs, revenues, profits, organization, employees, agents,
subdistributors, sublicensees or business in general.
1.5 ST. JOHN Information. "ST. JOHN Information" shall mean all
--------------------
information, other than information in publicly-available published form or
expressly designated by ST. JOHN as non-confidential, which is directly or
indirectly disclosed to SJ JAPAN or embodied in Products provided hereunder,
regardless of the form in which it is disclosed, relating in any way to ST.
JOHN's markets, customers, products, patents, inventions, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors, licensees or business in general.
1.6 Territory. "Territory" shall mean Japan.
---------
ARTICLE 2
---------
APPOINTMENT; GRANT OF RIGHT
---------------------------
2.1 Scope of Appointment and License. ST. JOHN hereby (i) appoints
--------------------------------
SJ JAPAN, and SJ JAPAN hereby accepts appointment, as ST. JOHN's exclusive
distributor during the term of this Agreement of the Products in the Territory,
and (ii) grants SJ JAPAN a non-transferable license for the term of this
Agreement to use the Licensed Trademarks solely in connection with the
distribution and sale of the Products within the Territory to the extent
permitted herein, in any case subject to all terms and conditions of this
Agreement.
2
<PAGE>
2.2 Subdistributors. SJ JAPAN shall not, without the prior written
---------------
approval of ST. JOHN, which approval shall not be unreasonably withheld, (i)
appoint any subdistributors or agents to promote and/or distribute Products in
the Territory, or (ii) sublicense any of its rights hereunder to use the
Licensed Trademarks. Further, notwithstanding any such appointment or
sublicense, or ST. JOHN's approval thereof, SJ JAPAN shall at all times remain
fully liable for the performance of its subdistributors, sublicensees and/or
agents and SJ JAPAN hereby agrees to indemnify and hold harmless ST. JOHN from
all damages, losses, costs or expenses arising in any manner from any act or
omission on the part of its subdistributors, sublicensees or agents. The
parties acknowledge that ST. JOHN has approved the sublicense to Commercial
Development Co., Ltd. pursuant to that certain CDC License Agreement, dated as
of the date hereof, between SJ JAPAN and Commercial Development Co., Ltd.
2.3 Sales Outside the Territory. SJ JAPAN shall not advertise,
---------------------------
promote, solicit customers for, sell or distribute Products outside the
Territory nor establish any office through which orders are solicited or any
depot at which inventories of Products are stored outside the Territory.
2.4 Third-Party Importation. In no event shall ST. JOHN bear any
-----------------------
liability to SJ JAPAN for the importation of Products into the Territory by
third parties without the approval or authorization of ST. JOHN.
ARTICLE 3
---------
GENERAL OBLIGATIONS OF SJ JAPAN
-------------------------------
3.1 Marketing. SJ JAPAN shall have the following obligations with
---------
respect to the marketing and distribution of the Products:
(a) To use its best efforts to further the promotion, marketing, sale and
other distribution of Products in the Territory;
(b) To maintain an adequate and balanced inventory of Products;
(c) To promptly respond to all inquiries from customers, including
complaints, process all orders, and effect all shipments of Products;
(d) To diligently investigate all leads with respect to potential
customers referred to it by ST. JOHN;
(e) To permit ST. JOHN, upon reasonable notice, to visit SJ JAPAN's
customers and to visit SJ JAPAN's place of business and inspect its
inventories, records, and other relevant documents;
3
<PAGE>
(f) To maintain throughout the Territory an adequate sales force dedicated
on both a full and part-time basis, as the case may be, to the sale of Products;
and
(g) To participate, at its own expense, in sales or merchandising programs
prepared by ST. JOHN, in all shows, fairs and exhibitions in the
Territory where such participation will, in the reasonable judgment of
ST. JOHN, promote the Products, and develop and implement sales
programs for the promotion of the Products.
3.2 Use of Licensed Trademarks. SJ JAPAN shall have the following
--------------------------
obligations in its use of the Licensed Trademarks:
(a) SJ JAPAN shall diligently undertake to advertise the Products in the
Territory. ST. JOHN shall furnish SJ JAPAN with a reasonable quantity
of ST. JOHN's brochures and other appropriate advertising materials,
in the English language, for use by SJ JAPAN in preparing its own
advertising materials. SJ JAPAN shall submit to ST. JOHN copies of
all proposed advertising or promotional materials prepared by or for
SJ JAPAN utilizing the Licensed Trademarks prior to the use of such
materials. ST. JOHN may approve or disapprove any and all advertising
and promotional materials submitted as aforesaid and shall discuss
with SJ JAPAN any modifications or alterations thereof. SJ JAPAN
shall not use any such advertising or promotional materials without
first obtaining the prior express written consent of ST. JOHN. All
expenses incurred by SJ JAPAN with respect to creating advertising
materials and advertising the Products shall be borne by SJ JAPAN.
(b) SJ JAPAN shall submit to ST. JOHN all proposed tags, labels, packaging
and other similar materials from which ST. JOHN may select those, if
any, which ST. JOHN approves for use in connection with Products. ST.
JOHN may approve or disapprove the tags, labels, packaging and other
similar materials submitted as aforesaid and shall discuss with SJ
JAPAN any modifications or alterations thereof. SJ JAPAN shall not
use any such tags, labels, packaging or other similar materials
without first obtaining the prior express written consent of ST. JOHN.
(c) SJ JAPAN shall submit to ST. JOHN samples of all proposed business
cards, invoices, order forms, stationery and other similar printed
materials from which ST. JOHN may select those, if any, which ST. JOHN
approves for use in connection with Products. ST. JOHN may approve or
disapprove the business cards, invoices, order forms, stationery and
other similar printed materials submitted as aforesaid and shall
discuss with SJ
4
<PAGE>
JAPAN any modifications or alterations thereof. SJ JAPAN shall not
use any such business cards, invoices, order forms, stationery or
other similar printed materials without first obtaining the prior
express written consent of ST. JOHN.
(d) It is specifically understood and agreed that ST. JOHN's approval
pursuant to subsections (a), (b) and (c) above shall not be
unreasonably withheld. Any sample, copy, artwork or other material
submitted to ST. JOHN for its approval which is not disapproved within
twenty (20) business days after ST. JOHN's receipt thereof shall be
deemed approved for use hereunder, but only for the use for which
approval was sought. After any sample, copy, artwork or other
material has been approved, SJ JAPAN shall not depart therefrom in any
substantial respect without the prior written ap proval of ST. JOHN.
If ST. JOHN should disapprove any material pursuant to this Section
3.2, SJ JAPAN shall neither use nor permit the same to be used in any
manner.
(e) Insofar as any packaging and advertising material to be used in
connection with the Products or otherwise utilizing the Licensed
Trademarks is created for SJ JAPAN by a third party, SJ JAPAN shall
execute such assignments of copyright as ST. JOHN shall require.
Notwithstanding the foregoing sentence, SJ JAPAN's existing
copyrights, trademarks and other proprietary rights incorporated into
such artwork shall remain the property of SJ JAPAN and shall not be
assigned to ST. JOHN and shall not be subject to ST. JOHN's use,
without SJ JAPAN's prior written consent.
3.3 Manufacture or Distribution of Competitive Goods. SJ JAPAN shall
------------------------------------------------
not manufacture or distribute any products which are directly or indirectly
competitive with the Products.
3.4 Customer Complaints. SJ JAPAN agrees to cooperate with ST. JOHN
-------------------
in dealing with any customer complaints concerning the Products and to take any
action requested by ST. JOHN to resolve such complaints.
3.5 Quality Control. In order to protect the goodwill and reputation
---------------
associated with the Licensed Trademarks, SJ JAPAN covenants and agrees as
follows:
(a) The Products shall be distributed and sold with packaging and sales
promo tion materials appropriate for highest quality Products and
shall meet all specifications and standards therefor which ST. JOHN
may provide to SJ JAPAN from time to time.
5
<PAGE>
(b) In order to maintain the reputation, image and prestige of the
Licensed Trademarks, SJ JAPAN's distribution patterns shall consist of
those retail outlets whose location, merchandising and overall
operations are consistent with the high quality of Products and the
reputation, image and prestige of the Licensed Trademarks.
(c) SJ JAPAN may not use a personality or celebrity to endorse or promote
any Products unless and until ST. JOHN has given SJ JAPAN its specific
written approval for such personality or celebrity to endorse or
promote such Products.
(d) SJ JAPAN's policy of sale, distribution and exploitation of the
Products shall be of high standard and shall in no manner reflect
adversely upon the good name of ST. JOHN or its other licensees or
upon the goodwill and reputation associated with the Licensed
Trademarks.
3.6 Design Services. From time to time, ST. JOHN may prepare and
---------------
deliver to SJ JAPAN ideas, sketches and other materials utilizing the Licensed
Trademarks for use in connection with the Products ("ST. JOHN Ideas"). ST. JOHN
Ideas shall be used by SJ JAPAN on a non-exclusive basis, solely in connection
with the distribution and sale of Products pursuant to this Agreement. If SJ
JAPAN chooses not to use such ST. JOHN Ideas within thirty (30) days of SJ
JAPAN's receipt thereof, SJ JAPAN shall return them to ST. JOHN, at SJ JAPAN's
expense, and may not use them or permit their use thereafter. Whether or not SJ
JAPAN chooses to use any ST. JOHN Ideas, ST. JOHN may use and permit others to
use them in any manner it desires. ST. JOHN shall at all times retain ownership
of any and all intellectual property rights related to ST. JOHN Ideas and SJ
JAPAN shall keep all information related to the ST. JOHN Ideas confidential and
shall not disclose such information to any party without the prior written
consent of ST. JOHN in each instance; provided, that nothing herein shall
prevent SJ JAPAN from using, disclosing or authorizing the disclosure of any
such information which is disclosed orally and is not identified as confidential
information either at the time of disclosure or by written notice sent to SJ
JAPAN within ten (10) business days after disclosure thereof.
3.7 Expenses. Except as specifically stated otherwise, SJ JAPAN
--------
assumes full responsibility for all costs and expenses which it incurs in
carrying out its obligations under this Agreement, including but not limited to
all rentals, salaries, commissions, advertising, demonstration, travel and
accommodation expenses without the right to reimbursement for any portion
thereof from ST. JOHN.
6
<PAGE>
ARTICLE 4
---------
INDEMNITY; INFRINGEMENT; INSURANCE
----------------------------------
4.1 SJ JAPAN Indemnity. SJ JAPAN hereby indemnifies, saves and holds
------------------
ST. JOHN harmless from and against any and all liabilities, losses, damages and
expenses (including reasonable attorneys' fees and expenses) arising out of or
resulting from: (i) any act or omission that may be committed or suffered by SJ
JAPAN or any of its servants, agents or employees in connection with SJ JAPAN's
performance of this Agreement, (ii) any actual or alleged infringement or
violation of any patents, copyrights, trademarks or other rights, including
trade secrets and rights of privacy and publicity, in connection with the
distribution, sale, use, advertisement or promotion of any of the Products
(other than those arising from the design or manufacture of Products or other
similar matters not within the control of SJ JAPAN or from the use by SJ JAPAN
of the Licensed Trademarks as permitted hereunder), (iii) SJ JAPAN's false or
misleading advertising in connection with any of the Products, (iv) any
violation of any applicable law or regulation in connection with the marketing,
distribution, sale, advertisement or promotion of any of the Products, (v) any
use of any of the Licensed Trademarks in a manner not authorized by this
Agreement, or (vi) any breach of this Agreement by SJ JAPAN. SJ JAPAN shall
promptly notify ST. JOHN of any claim which may be made against SJ JAPAN arising
out of SJ JAPAN's use of the Licensed Trademarks. The provisions of this
Section 4.1 and SJ JAPAN's indemnity obligations hereunder shall sur vive the
expiration or termination of this Agreement.
4.2 ST. JOHN Indemnity. ST. JOHN hereby indemnifies, saves and holds
------------------
SJ JAPAN harmless from and against any and all liabilities, losses, damages and
expenses (including reasonable attorneys' fees and expenses) arising out of or
resulting from any infringement suit or claim of the nature specified in
Sections 4.3 and 4.4 below to the extent, and only to the extent, that SJ JAPAN
has complied with the provisions of such sections.
4.3 Third Party Infringement. In the event that SJ JAPAN learns of
------------------------
any infringement, act of unfair competition by third parties or imitation of the
Licensed Trademarks or of any use by any person of a trademark similar to any
Licensed Trademark, it shall promptly notify ST. JOHN thereof. ST. JOHN
thereupon may take such action as it deems advisable for the protection of its
rights in and to the Licensed Trademarks and, if requested to do so by ST. JOHN,
SJ JAPAN shall cooperate with ST. JOHN in all respects at ST. JOHN's sole
expense, including without limitation by being a plaintiff or co-plaintiff and
by causing its officers to execute pleadings and other necessary documents and
to causing its officers and employees to devote appropriate time to litigation
and/or disposition of all matters within the purview of this Section 4.3; it is
understood that SJ JAPAN's officers and employees will not be compensated for
their time and effort. In no event, however, shall ST. JOHN be required to take
any action if it deems it inadvisable to do so and SJ JAPAN shall have no right
to take any
7
<PAGE>
action with respect to the Licensed Trademarks without ST. JOHN's prior written
approval. ST. JOHN shall have full control over any action taken, including
without limitation, the right to select counsel, to settle on any terms it deems
advisable in its discretion, to appeal any adverse decision rendered in any
court, to discontinue any action taken by it, and otherwise to make any decision
in respect thereto as it in its discretion deems advisable. If SJ JAPAN desires
to retain its own counsel, it shall do so at its own expense. Any recovery as a
result of such action shall belong solely to ST. JOHN.
4.4 Infringement Claims of Third Parties. In the event that any
------------------------------------
infringement suit or any claim of infringement involving the Licensed Trademarks
in connection with the sale or distribution of the Products in the Territory
pursuant to and in accordance with the terms of this Agreement is instituted by
a third party against SJ JAPAN, SJ JAPAN shall give immediate notice of such
suit or claim to ST. JOHN and ST. JOHN shall defend or settle such suit or claim
at its own expense and SJ JAPAN shall offer reasonable cooperation to ST. JOHN
in all aspects of any such suit or claim. ST. JOHN reserves the right to
control the defense of any such suit or claim, including, without limitation,
the right to choose counsel and to settle and dispose of any such suit or claim
as it deems appropriate in its sole discretion.
4.5 Insurance. Before selling or shipping any Products, SJ JAPAN
---------
shall procure and maintain at its own expense in full force and effect at all
times during which Products are being sold, with a reputable insurance carrier
acceptable to ST. JOHN, a liability insurance policy sufficient in the opinion
of ST. JOHN to protect and insure ST. JOHN and SJ JAPAN against any claims or
liabilities with which it or they may be charged because of personal or property
damage or injuries suffered by any person or entity, resulting from the Products
or the use or sale thereof, whether during the term of this Agreement or
thereafter including, without limitation, product liability coverage with
respect to Products.
ARTICLE 5
---------
ORDERS FOR PRODUCTS
-------------------
5.1 Master Purchase Orders. SJ JAPAN shall submit master purchase
----------------------
orders for Products to ST. JOHN twice each calendar year, prior to the Fall
Season and prior to the Spring Cruise Season. SJ JAPAN shall ensure that its
master purchase orders are received by ST. JOHN no later than thirty (30) days
after SJ JAPAN's receipt from ST. JOHN of samples of Products for such Fall
Season or Spring Cruise Season, as the case may be.
5.2 Other Purchase Orders. SJ JAPAN may also submit individual
---------------------
purchase orders for Products to ST. JOHN from time to time. SJ JAPAN shall
ensure
8
<PAGE>
that such individual purchase orders are received by ST. JOHN at least sixty
(60) days prior to the delivery dates requested in the order.
5.3 Terms of Purchase Orders. Each purchase order submitted by SJ
------------------------
JAPAN under Sections 5.1 and 5.2 above shall be in writing sent by mail,
facsimile, telex, telegram or cable, which shall set forth the information
specified below, as well as such other information as ST. JOHN may reasonably
request in the format specified by ST. JOHN from time to time:
(a) An identification of the Products ordered, including line name and
product numbers;
(b) Quantity;
(c) Delivery schedule, identifying desired delivery dates; and
(d) Shipping instructions and shipping addresses.
5.4 Acceptance of Orders. All purchase orders are subject to
--------------------
acceptance in writing by ST. JOHN at its principal offices in Irvine,
California, which acceptance shall be delivered by mail to a regularly
established post office, by facsimile, or by telex, telegram or cable through a
regularly established agency of a commercial telex, telegram or cable company.
Each such purchase order shall be deemed to be an offer by SJ JAPAN to purchase
the Products pursuant to the terms of this Agreement and, when accepted by ST.
JOHN as hereinabove provided, shall give rise to a contract under the terms set
forth herein to the exclusion of any additional or contrary terms set forth in
such purchase order. ST. JOHN shall deliver to SJ JAPAN its acceptance, if
forthcoming, of any purchase order within two (2) weeks of ST. JOHN's receipt of
such purchase order.
5.5 Modification of Orders. Subject to Sections 5.7 and 6.2, no
----------------------
accepted purchase order shall be modified or cancelled except upon the written
agreement of both parties. SJ JAPAN's purchase orders or mutually agreed change
orders shall be subject to all provisions of this Agreement, whether or not the
purchase order or change order so states.
5.6 Delivery Terms. (a) All deliveries of the Products shall be
--------------
Free Carrier at or near ST. JOHN's manufacturing or warehouse facility. Unless
otherwise provided in this Agreement, "Free Carrier" shall be construed in
accordance with INCOTERMS 1990 of the International Chamber of Commerce. All
risk of damage to or loss or delay of the Products shall pass to SJ JAPAN upon
their delivery at the Free Carrier delivery point to (i) a common carrier or
(ii) an agent or any other person specified by SJ JAPAN acting on behalf of SJ
JAPAN.
9
<PAGE>
(b) SJ JAPAN shall insure each shipment of Products with a reputable
insurer for the full invoice of such shipment. Such insurance shall provide for
full coverage from the time the Products are delivered at the Free Carrier point
until SJ JAPAN shall have paid ST. JOHN for such Products in full. ST. JOHN
reserves all rights with respect to delivered Products permitted by law
including, without limitation, the rights of rescission, repossession, resale,
and stoppage in transit until the full amount due from SJ JAPAN in respect of
all delivered Products has been paid.
(c) ST. JOHN shall use reasonable commercial efforts to deliver
accepted orders in accordance with requested delivery dates.
5.7 Product Changes. ST. JOHN reserves the right, in its sole
---------------
discretion and without incurring any liability to SJ JAPAN, to:
(a) Alter any Product;
(b) Discontinue or cancel the manufacture of any Product, whether or
not such Product has been announced publicly; or
(c) Commence the development, manufacture, marketing or sale of new
products having features which make any Product wholly or
partially obsolete.
Notwithstanding the above, ST. JOHN shall use its best efforts to provide SJ
JAPAN with prompt written notice of such decisions and shall use reasonable
commercial efforts to fill all accepted purchase orders from SJ JAPAN for any
altered or discontinued Products of which manufacturing and commercial
deliveries have commenced.
ARTICLE 6
---------
PRICES AND PAYMENTS
-------------------
6.1 Prices. The prices to be paid by SJ JAPAN for Products purchased
------
pursuant to this Agreement shall be the Distributor List Prices in effect at the
time of acceptance of the relevant purchase order submitted by SJ JAPAN, except
as provided in Section 6.2 below. The difference between the Distributor List
Prices and the prices SJ JAPAN sells Products to its customers shall be SJ
JAPAN's sole remuneration for distribution of the Products. All Distributor
List Prices are Free Carrier ST. JOHN's manufacturing or warehouse facility and
include packing in accordance with ST. JOHN's standard commercial export
practices in effect at the time of shipment. Special packing or handling shall
be at the sole expense of SJ JAPAN.
10
<PAGE>
6.2 Price Increases, Decreases. ST. JOHN may, at any time during the
--------------------------
term of this Agreement, increase its prices for the Products by providing SJ
JAPAN with at least sixty (60) days prior written notice. Increased prices for
all Products shall not apply to purchase orders accepted prior to the effective
date of the price increase unless such orders provide for delivery, and delivery
is in fact made, more than one-hundred and eighty (180) days after the date of
acceptance of the order. Price decreases with respect to all Products shall be
effective immediately upon written notice to SJ JAPAN on all such Products not
yet delivered.
6.3 Payment Terms. All payments hereunder shall be due net ninety
-------------
(90) days from the date of shipment of the Products, payable to the bank or
banks specified by ST. JOHN in writing from time to time. All payments
hereunder shall be made in U.S. dollars or such other currency as may be
mutually agreed upon. ST. JOHN shall not be obligated to ship Products against
accepted orders in the event ST. JOHN's outstanding accounts receivable from SJ
JAPAN then exceed or would after any such shipment exceed two million dollars
($2,000,000) or such other amount as may be mutually agreed upon from time to
time by ST. JOHN and SJ JAPAN. In the event of any dispute arising over any
part of an invoice or the total amount due under an invoice, all undisputed
amounts shall be promptly paid by SJ JAPAN in accordance with this Section 6.3.
ST. JOHN shall have the right at any time to require SJ JAPAN to make any
payments hereunder by irrevocable, transferrable and divisible letter of credit
opened at SJ JAPAN's expense, issued or confirmed by a bank specified by, or
acceptable to, ST. JOHN, cash in advance, or such other method of secured
payment as ST. JOHN shall prescribe.
6.4 Resale Prices. SJ JAPAN may resell Products at such prices as SJ
-------------
JAPAN, in its sole discretion, shall determine. For purposes of providing ST.
JOHN with relevant market information, SJ JAPAN shall provide ST. JOHN with a
list of its initial sales prices for the Products to be charged to its customers
and SJ JAPAN shall keep ST. JOHN fully informed by providing ST. JOHN with any
new list sales prices within ten (10) days of any change in such sales prices.
Nothing in this Agreement shall be deemed to obligate SJ JAPAN to control and SJ
JAPAN shall not undertake to control the price at which its customers may sell
the Products.
6.5 Overdue Payments. If and for so long as any payment from SJ
----------------
JAPAN to ST. JOHN under this Agreement shall be overdue, interest shall accrue
on such payment at the rate equal to the lesser of: (i) the prime rate being
charged in Los Angeles, California by Bank of America National Trust & Savings
Association as of the close of business on the date the payment first becomes
due plus one and one-half percent (1.5%), or (ii) the maximum rate permitted by
applicable law.
11
<PAGE>
ARTICLE 7
---------
ACCEPTANCE AND WARRANTY
-----------------------
7.1 Acceptance of Products. In the event of any shortage, damage or
----------------------
discrepancy in or to a shipment of Products, SJ JAPAN shall promptly report the
same to ST. JOHN and furnish such written evidence or other documentation as ST.
JOHN may deem appropriate. ST. JOHN shall not be liable for any such shortage,
damage or discrepancy unless ST. JOHN has received notice and substantiating
evidence thereof from SJ JAPAN within thirty (30) days of arrival of the
Products at SJ JAPAN's shipping address in the Territory. If the substantiating
evidence delivered by SJ JAPAN demonstrates to ST. JOHN's satisfaction that ST.
JOHN is responsible for such shortage, damage or discrepancy, ST. JOHN shall
promptly deliver additional or substitute Products or parts of Products, as ST.
JOHN may deem sufficient, to SJ JAPAN in accordance with the delivery procedures
set forth herein, and ST. JOHN shall bear any reasonable shipping costs incurred
in the return of any such Products as ST. JOHN directs SJ JAPAN to return and in
ST. JOHN's shipment of such additional or substitute Products; provided that in
no event shall ST. JOHN be liable for any additional costs, expenses or damages
incurred by SJ JAPAN directly or indirectly as a result of such shortage, damage
or discrepancy in or to a shipment.
7.2 Product Warranty. ST. JOHN warrants for a period of sixty (60)
----------------
days after the date of delivery in accordance with Section 5.6 hereof that the
Products shall be free from defects in material and workmanship. SJ JAPAN and
ST. JOHN shall discuss in good faith whether any defective Products should be
repaired for resale in the Territory, and any related costs of repair shall be
borne by ST. JOHN. ST. JOHN's sole obligation in the event of a breach of such
warranty shall be to provide at no charge to SJ JAPAN replacement Products for
those defective Products, and only those defective Products, which the parties
mutually agree shall not be repaired. All costs of shipment of the replacement
Products to SJ JAPAN shall be borne by ST. JOHN. SJ JAPAN shall retain all
replaced Products subject to the foregoing warranty for ST. JOHN's inspection
for a period of six (6) months after their replacement. All such replaced
Products shall become the property of ST. JOHN upon their replacement and SJ
JAPAN shall (i) if so directed by ST. JOHN and upon the terms dictated by ST.
JOHN in its sole discretion, sell all or any portion of such replaced Products
in the Territory as "second" or as "irregular" items, and (ii) return or destroy
any such replaced Products as ST. JOHN shall so request, provided, that ST. JOHN
shall bear any related shipping costs for the return of such Products. In any
event, SJ JAPAN shall not affix any Licensed Trademark to any Product if it is
to be sold as a "second" or as an "irregular" and shall remove the Licensed
Trademarks from any Product to be sold as a "second" or as an "irregular."
7.3 Excluded Claims. ST. JOHN shall have no obligation under Section
---------------
7.2 above in the event that replacement of Products shall have been necessitated
in
12
<PAGE>
whole or in part by Force Majeure as defined in Section 13.1 hereof, or by the
fault or negligence of SJ JAPAN.
7.4 Limited Warranty. THE WARRANTIES SET FORTH IN THIS ARTICLE 7 ARE
----------------
INTENDED SOLELY FOR THE BENEFIT OF SJ JAPAN. ALL CLAIMS HEREUNDER SHALL BE MADE
BY SJ JAPAN AND MAY NOT BE MADE BY SJ JAPAN'S CUSTOMERS. THE WARRANTIES SET
FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE
HEREBY DISCLAIMED AND EXCLUDED BY ST. JOHN, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ALL
OBLIGATIONS OR LIABILITIES ON THE PART OF ST. JOHN FOR DAMAGES ARISING OUT OF OR
IN CONNECTION WITH THE USE OF THE PRODUCTS.
ARTICLE 8
---------
LIMITATION OF REMEDIES
----------------------
SJ JAPAN UNDERSTANDS AND AGREES AS FOLLOWS:
8.1 Delay. ST. JOHN SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE
-----
CAUSED BY DELAY IN FURNISHING PRODUCTS AND SERVICES OR ANY OTHER PERFORMANCE
UNDER OR PURSUANT TO THIS AGREEMENT.
8.2 Sole Remedies. EXCEPT AS SPECIFICALLY STATED OTHERWISE HEREIN,
-------------
THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF ANY AND ALL WARRANTIES AND THE
SOLE REMEDIES FOR ST. JOHN'S LIABILITY OF ANY KIND (INCLUDING LIABILITY FOR
NEGLIGENCE) WITH RESPECT TO THE PRODUCTS AND SERVICES COVERED BY THIS AGREEMENT
AND ALL OTHER PERFORMANCE BY ST. JOHN UNDER OR PURSUANT TO THIS AGREEMENT SHALL
BE LIMITED TO THE REMEDIES PROVIDED IN SECTION 7.2, PRODUCT WARRANTY.
8.3 Consequential Damages. IN NO EVENT SHALL ST. JOHN'S LIABILITY OF
---------------------
ANY KIND INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES, EVEN IF ST. JOHN SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
POTENTIAL LOSS OR DAMAGE.
13
<PAGE>
ARTICLE 9
---------
CONFIDENTIALITY
---------------
SJ JAPAN acknowledges and agrees that all ST. JOHN Information is
confidential and proprietary to ST. JOHN. SJ JAPAN agrees not to use any of
such ST. JOHN Information during the term of this Agreement and for a period of
five (5) years thereafter for any purpose other than as permitted or required
for performance by SJ JAPAN hereunder. SJ JAPAN further agrees not to disclose
or provide any of such ST. JOHN Information to any third party and to take all
necessary measures to prevent any such disclosure by its employees, agents,
contractors or consultants during the term hereof and for a period of five (5)
years thereafter. Nothing herein shall prevent SJ JAPAN from using, disclosing
or authorizing the disclosure of any ST. JOHN Information which (i) is, or
hereafter becomes, through no fault of SJ JAPAN, part of the public domain, (ii)
is disclosed orally and is not identified as confidential information either at
the time of disclosure or by written notice sent to SJ JAPAN within ten (10)
business days after disclosure thereof, or (iii) is required to be disclosed by
any governmental authority or otherwise under applicable law.
ST. JOHN acknowledges and agrees that all SJ JAPAN Information is
confidential and proprietary to SJ JAPAN. ST. JOHN agrees not to use any of
such SJ JAPAN Information during the term of this Agreement for any purpose
other than as permitted or required for performance by ST. JOHN hereunder. ST.
JOHN further agrees not to disclose or provide any of such SJ JAPAN Information
to any third party and to take all necessary measures to prevent any such
disclosure by its employees, agents, contractors or consultants during the term
hereof. Nothing herein shall prevent ST. JOHN from using, disclosing or
authorizing the disclosure of any SJ JAPAN Information which (i) is, or
hereafter becomes, through no fault of ST. JOHN, part of the public domain, (ii)
is disclosed orally and is not identified as confidential information either at
the time of disclosure or by written notice sent to ST. JOHN within ten (10)
business days after disclosure thereof, or (iii) is required to be disclosed by
any governmental authority or otherwise under applicable law.
ARTICLE 10
----------
TRADEMARKS; COPYRIGHT
---------------------
10.1 Exploitation of Rights. SJ JAPAN shall use its best efforts to
----------------------
exploit the rights herein granted throughout the Territory consistent with the
high standards and prestige represented by the Licensed Trademarks.
10.2 Disputes Among Licensees. Any dispute between SJ JAPAN and any
------------------------
other licensee of ST. JOHN with respect to the scope of the license rights
covered
14
<PAGE>
by their respective license agreements shall be resolved by ST. JOHN and ST.
JOHN's resolution of such dispute shall be final and binding.
10.3 Exclusive License. ST. JOHN hereby covenants not to grant to
-----------------
any person or entity other than SJ JAPAN a license to use the Licensed
Trademarks in the Territory in connection with the distribution and sale of
women's apparel or women's accessories which are both manufactured and
distributed by ST. JOHN for retail sale in the United States of America. ST.
JOHN shall indemnify, save and hold harmless SJ JAPAN for any losses or damages
incurred by SJ JAPAN (including reasonable attorney's fees) as a result of such
breach; provided, that in no event shall ST. JOHN bear any liability to SJ JAPAN
for the use of the Licensed Trademarks in connection with the importation of
Products into the Territory by third parties without the approval or
authorization of ST. JOHN.
10.4 Ownership. SJ JAPAN acknowledges and agrees that SJ JAPAN shall
---------
acquire no ownership rights to any of the Licensed Trademarks by virtue of this
Agreement or otherwise and that all uses by SJ JAPAN of the Licensed Trademarks
and any and all goodwill related thereto shall inure to the benefit of ST. JOHN.
SJ JAPAN shall not, at any time, do or suffer to be done any act or thing which
may in any way adversely affect the validity of any Licensed Trademark, any
rights of ST. JOHN in and to any Licensed Trademark or any registrations thereof
or which, directly or indirectly, may reduce the value of the Licensed Trademark
or detract from its reputation. SJ JAPAN shall not, during the term of this
Agreement or at any time thereafter, directly or indirectly, contest or aid
others in contesting the ownership of the Licensed Trademarks or the validity of
said trademarks, including registering or applying to register any of the
Licensed Trademarks or any trademarks or logos similar thereto anywhere in the
world. At ST. JOHN's request during the term of this Agreement or thereafter,
SJ JAPAN shall execute any and all documents reasonably required by ST. JOHN to
confirm ST. JOHN's ownership of all rights in and to the Licensed Trademarks and
the respective rights of ST. JOHN and SJ JAPAN pursuant to this Agreement. SJ
JAPAN shall cooperate with ST. JOHN in connection with the filing and
prosecution by ST. JOHN of applications in ST. JOHN's name to register the
Licensed Trademarks for Products and the maintenance and renewal of such
registrations as may issue. SJ JAPAN hereby irrevocably appoints ST. JOHN as
its attorney-in-fact for the purpose of executing any and all such documents
referred to in this Section 10.4.
10.5 Use of Name. Except as otherwise permitted by ST. JOHN, SJ
-----------
JAPAN shall not use the Licensed Trademarks, in whole or in part, as a corporate
name or trade name. Except as otherwise permitted by ST. JOHN, SJ JAPAN shall
not join any name or names with the Licensed Trademarks so as to form a new mark
or for any other purpose or use. SJ JAPAN shall not use any name or names in
connection with the Licensed Trademarks in advertising, publicity, labeling,
packaging or printed matter
15
<PAGE>
of any kind utilized by SJ JAPAN in connection with Products, unless and until
ST. JOHN consents thereto in writing.
10.6 Compliance With Law; Markings. SJ JAPAN shall use the Licensed
-----------------------------
Trademarks in the Territory strictly in compliance with the legal requirements
obtaining therein and shall use such markings in connection therewith as may be
required by applicable legal provisions. SJ JAPAN shall use and display the
Licensed Trademarks only in such form and manner as are specifically approved in
writing by ST. JOHN. SJ JAPAN shall cause to appear such legends, markings and
notices as ST. JOHN may request, including, without limitation, the appropriate
trademark or service mark notice, either "TM", "SM", or (R) as may be reasonably
necessary in order to give appropriate notice of any trademark, service mark or
other rights therein or pertaining thereto.
10.7 Copyright. Any copyright which may be created in any materials
---------
provided by ST. JOHN hereunder including, without limitation, any sketch,
design, packaging, label, tag or the like designed or approved by ST. JOHN shall
be the property of ST. JOHN. SJ JAPAN shall not, at any time, do or suffer to
be done any act or thing which may adversely affect any rights of ST. JOHN in
such sketches, designs, packaging, labels, tags and the like, including, without
limitation, disclosing such information or filing any application in SJ JAPAN's
name to record any claims to copyrights in Products, and SJ JAPAN shall do all
things reasonably required by ST. JOHN to preserve and protect said rights,
including, without limitation, placing the copyright notice on all Products and
the packaging, labels and tags therefor.
ARTICLE 11
----------
TAXES; IMPORT OF PRODUCTS
-------------------------
11.1 Taxes. All payments to be made by SJ JAPAN to ST. JOHN pursuant
-----
to this Agreement represent net amounts ST. JOHN is entitled to receive, shall
not be subject to any deductions for any reason whatsoever, and are net of taxes
(including Japanese withholding tax) and customs duties. In the event any of
said payments become subject to taxes (including without limitation, sales,
Japanese withholding, value-added and similar taxes), duties, assessments or
fees of whatever kind or nature levied outside the United States, said payments
shall be increased to such an extent as to allow ST. JOHN to receive the net
amounts due under this Agreement.
11.2 Import Documentation. SJ JAPAN shall be responsible for
--------------------
obtaining all licenses and permits and for satisfying all formalities as may be
required to import Products into the Territory in accordance with then
prevailing law or regulations.
16
<PAGE>
ARTICLE 12
----------
TERM AND TERMINATION
--------------------
12.1 Term. This Agreement shall take effect as of the date first
----
above written and shall continue in force for a period of ten (10) years.
Thereafter, this Agreement shall terminate unless renewed by mutual agreement of
the parties hereto.
12.2 Termination. Notwithstanding the provisions of Section 12.1
-----------
above, this Agreement may be terminated in accordance with the following
provisions:
(a) Either party hereto may terminate this Agreement at any time by giving
notice in writing to the other party, which notice shall be effective
upon dispatch, should the other party file a petition of any type as
to its bankruptcy, be declared bankrupt, become insolvent, make an
assignment or other arrangement for the benefit of its creditors, have
all or a substantial portion of its capital stock or assets
expropriated by any government, be dissolved or liquidated, except in
consequence of a merger, amalgamation or other corporate
reorganization to which it may be a party.
(b) Either party may terminate this Agreement by giving notice in writing
to the other party should an event of Force Majeure continue for more
than ninety (90) days as provided in Section 13.5 below.
(c) Either party may terminate this Agreement by giving notice in writing
to the other party in the event the other party is in material breach
of this Agreement and shall have failed to cure such breach within
thirty (30) days of receipt of written notice thereof from the first
party. During said thirty (30) day period, the parties shall
negotiate in good faith in an attempt to reach mutual agreement on a
method to avoid such termination. The said notice shall specifically
state the breach which the party giving the notice believes is
material.
(d) Either party may terminate this Agreement upon giving notice in
writing to the other party in the event of termination of that certain
Joint Venture Agreement, dated July 17, 1997, between ST. JOHN and
Commercial Development Co., Ltd.
12.3 Rights and Obligations on Termination. In the event of
-------------------------------------
termination of this Agreement for any reason, the parties shall have the
following rights and obligations;
17
<PAGE>
(a) Termination of this Agreement shall not release either party from the
obligation to make payment of all amounts then or thereafter due and
payable.
(b) ST. JOHN shall have the right, at its option, to (i) cancel any
accepted purchase order which provides for delivery after the
effective date of termination, and/or (ii) repurchase all or any part
of SJ JAPAN's inventory of Products in SJ JAPAN's possession as of the
termination date at ST. JOHN's invoiced price to SJ JAPAN for such
Products, less depreciation calculated on a thirty-six (36) month,
straight-line basis and less any appropriate amount for excessive wear
and tear, plus freight to the original Free Carrier shipping point.
ST. JOHN shall exercise its option under this subsection by notifying
SJ JAPAN in writing no later than thirty (30) days after the effective
termination date.
(c) SJ JAPAN's obligations pursuant to Article 9 hereof shall survive
termination of this Agreement.
(d) Within thirty (30) days of the effective date of termination of this
Agreement, SJ JAPAN shall furnish ST. JOHN with a list of all SJ
JAPAN's customers and the place of destination of all Products sold
which are still covered by a ST. JOHN warranty. In addition, SJ JAPAN
agrees to furnish ST. JOHN with complete information as to calls or
the status of any negotiations for the sale of the Products.
12.4 No Compensation. In the event either party terminates this
---------------
Agreement for any reason in accordance with the terms hereof, the parties hereby
agree that, subject to the provisions of Section 12.3(a) hereof and without
prejudice to any other remedies which either party may have in respect of any
breach of this Agreement, neither party shall be entitled to any compensation or
like payment from the other as a result of such termination.
12.5 Injunctive Relief. Notwithstanding any expiration or termination
-----------------
in accordance with Sections 12.1 or 12.2 above, ST. JOHN shall have and hereby
reserves all rights and remedies which it has, or which are granted to it by
operation of law or in equity, to enjoin the unlawful or unauthorized use of the
Licensed Trademarks (any of which injunctive relief may be sought in the courts,
and also may be sought, prior to or in lieu of termination) and to be
compensated for damages for breach of this Agreement. In addition, nothing
herein shall be deemed to prevent a party from bringing an action for damages
either prior to or in lieu of termination if a default in performance by the
other party occurs and is not cured timely in accordance with the provisions of
Section 12.2 above. The parties acknowledge that SJ JAPAN's unauthorized use of
the Licensed Trademarks will give rise to irreparable injury to ST. JOHN,
inadequately compensable
18
<PAGE>
in damages. Accordingly, in addition to any other remedies which may be
available to ST. JOHN at law or in equity, ST. JOHN shall be entitled to
preliminary and permanent injunctive relief against such breach or threatened
breach without the necessity of proving actual damages or that monetary damages
would be inadequate.
12.6 Reversion of Rights; Return of Materials. On the expiration or
----------------------------------------
termination of this Agreement, all of the rights of SJ JAPAN under this
Agreement shall terminate forthwith and shall revert immediately to ST. JOHN and
SJ JAPAN shall discontinue forthwith all use of the Licensed Trademarks, no
longer shall have the right to use the Licensed Trademarks or any variation or
simulation thereof and promptly shall transfer to ST. JOHN, free of charge, all
registrations, filings and rights with regard to the Licensed Trademarks which
it may have possessed at any time. In addition, SJ JAPAN thereupon shall
deliver to ST. JOHN, free of charge, all sketches and other material in its
possession which were designed or approved by ST. JOHN or any other materials or
copies of materials obtained by SJ JAPAN from ST. JOHN and all labels, tags and
other material in its possession with any Licensed Trademark thereon. After the
expiration or termination of this Agreement, SJ JAPAN shall not use or permit
others to use any of said labels, tags, sketches and other materials, or any
variations or simulations thereof, in connection with Products or any other
merchandise.
ARTICLE 13
----------
FORCE MAJEURE
-------------
13.1 Definition. Force Majeure shall mean any event or condition, not
----------
existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, which prevents in whole or in material part the performance by one of the
parties of its obligations hereunder or which renders the performance of such
obligations so difficult or costly as to make such performance commercially
unreasonable. Without limiting the foregoing, the following shall constitute
events or conditions of Force Majeure: acts of State or governmental action,
riots, disturbance, war, strikes, lockouts, slowdowns, prolonged shortage of
energy suppliers, epidemics, fire, flood, hurricane, typhoon, earthquake,
lightning and explosion. It is in particular expressly agreed that any refusal
or failure of any governmental authority to grant any export license legally
required for the fulfillment by ST. JOHN of its obligations hereunder shall
constitute an event of Force Majeure.
13.2 Notice. Upon giving notice to the other party, a party affected
------
by an event of Force Majeure shall be released without any liability on its part
from the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the event of Force Majeure. Such notice shall include a description of the
nature of the event of Force Majeure, and its
19
<PAGE>
cause and possible consequences. The party claiming Force Majeure shall
promptly notify the other party of the termination of such event.
13.3 Confirmation. The party invoking Force Majeure shall provide to
------------
the other party confirmation of the existence of the circumstances constituting
Force Majeure. Such evidence may consist of a statement or certificate of an
appropriate governmental department or agency where available, or a statement
describing in detail the facts claimed to constitute Force Majeure.
13.4 Suspension of Performance. During the period that the
-------------------------
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder to
the extent that such suspension is commercially reasonable.
13.5 Termination. Should the period of Force Majeure continue for
-----------
more than ninety (90) consecutive days, either party may terminate this
Agreement without liability to the other party, except for payments due to such
date, upon giving written notice to the other party.
ARTICLE 14
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
14.1 ST. JOHN. ST. JOHN represents and warrants (i) that it has full
--------
right, power and authority to enter into this Agreement and to perform all of
its obligations hereunder, and (ii) that to its knowledge utilization of the
Licensed Trademarks pursuant to and consistent with the terms of this Agreement
will not constitute an infringement of the rights of any third party. The
foregoing warranty and Section 7.2 constitute the entire warranty of ST. JOHN
and ST. JOHN makes no other warranty of any kind, either express or implied.
14.2 SJ JAPAN. SJ JAPAN represents and warrants that it has full
--------
right, power and authority to enter into this Agreement and to perform all of
its obligations hereunder.
ARTICLE 15
----------
JURISDICTION; INTERPRETATION
----------------------------
15.1 Disputes. The sole jurisdiction and venue for any court action
--------
arising out of this Agreement shall be an appropriate federal or state court in
Orange County, California. Each of ST. JOHN and SJ JAPAN hereby irrevocably
submits to the jurisdiction of any of said courts in any court action and hereby
waives any claim or
20
<PAGE>
defense of inconvenient forum. Each of ST. JOHN and SJ JAPAN represents and
warrants that it is not entitled to immunity from judicial proceedings and
agrees that, should the other bring any court action, it will not claim any
immunity from such proceedings for itself or with respect to its property.
Notwithstanding the foregoing, the parties acknowledge and agree that ST. JOHN
shall have the right, at any time, to seek injunctive relief in any court in the
Territory to enjoin any unlawful or unauthorized use of the Licensed Trademarks
by SJ JAPAN.
In the event of any action for the breach of this Agreement or other cause
by any Party, the prevailing Party shall be entitled to reasonable attorney's
fees, costs and expenses incurred in such action.
15.2 Governing Law. The validity, construction and performance of
-------------
this Agreement shall be governed by and interpreted in accordance with the laws
of California, excluding its choice of law provisions.
15.3 Governing Language. This Agreement is executed in the English
------------------
language which shall be the controlling language and no translation or
restatement of the terms and conditions hereof in any other language will have
any effect in the interpretation or application thereof. In case of any
conflict between the English version and any translated version of this
Agreement, the English version shall govern.
15.4 Effect of Headings. The headings to Articles and Sections of
------------------
this Agreement, excepting those in Article 1 hereof, are to facilitate reference
only, do not form a part of this Agreement, and shall not in any way affect the
interpretation hereof.
15.5 Non-Waiver. The waiver, express or implied, by any of the
----------
parties hereto of any right hereunder or of any failure to perform or breach
hereof by the other party shall not constitute or be deemed a waiver of any
other right hereunder or of any other failure to perform or breach hereof by
such other party(s), whether of a similar or dissimilar nature thereto.
ARTICLE 16
----------
MISCELLANEOUS
-------------
16.1 Assignment. Subject to Section 2.2 above, neither party shall
----------
have the right to assign or otherwise transfer its rights and obligations under
this Agreement, except with the prior written consent of the other party;
provided, however, ST. JOHN shall be entitled to assign any or all of its rights
and obligations hereunder to any of its subsidiaries, provided that ST. JOHN
shall remain fully liable for the performance of all its obligations hereunder;
provided further, that a successor in interest by merger, by
21
<PAGE>
operation of law, assignment, purchase or otherwise of the entire business of
either party shall acquire all rights and obligations of such party hereunder.
Any prohibited assignment shall be null and void. Any permitted assignment
shall be subject to and conditioned on the issuance of any governmental
validations, authorizations, licenses or rulings then required under applicable
law in connection with such assignment.
16.2 Relationship. This Agreement does not make either party the
------------
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party. In fulfilling its obligations pursuant to this Agreement each
party shall be acting as an independent contractor.
16.3 Notices. All reports, approvals, requests, demands and notices
-------
required or permitted by this Agreement to be given to a party shall be valid
and sufficient if dispatched by registered mail, postage prepaid, in any post
office in the United States or Japan, as the case may be, or by facsimile
transmission, to the addresses first above written or such other addresses or
facsimile numbers as the respective parties may designate by like notice from
time to time. Any notice given as herein provided shall be considered to have
been received fifteen (15) days after the mailing thereof, or if by facsimile
transmission, the next business day of the country in which the recipient is
located.
16.4 ENTIRE AGREEMENT. THIS AGREEMENT, INCLUDING THE SCHEDULES HERETO
----------------
AND INCORPORATED AS AN INTEGRAL PART OF THIS AGREEMENT, CONSTITUTES THE ENTIRE
AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND
SUPERSEDES ALL PREVIOUS LICENSE AND/OR DISTRIBUTORSHIP AGREEMENTS BY AND BETWEEN
ST. JOHN AND SJ JAPAN AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN, AND ALL
NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD BETWEEN THE PARTIES
RELATED TO THIS AGREEMENT. SJ JAPAN ACKNOWLEDGES THAT IT HAS NOT BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY ANY REPRESENTATIONS OR STATEMENTS, ORAL OR
WRITTEN, NOT EXPRESSLY CONTAINED HEREIN.
16.5 Amendment. This Agreement shall not be deemed or construed to be
---------
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by written amendment signed by the parties hereto.
16.6 Publicity. This Agreement is confidential and no party shall
---------
issue press releases or engage in other types of publicity of any nature dealing
with the commercial and legal details of this Agreement without the other
party's prior written
22
<PAGE>
approval, which approval shall not be unreasonably withheld. However, approval
of such disclosure shall be deemed to be given to the extent such disclosure is
required to comply with governmental rules, regulations or other governmental
requirements. In such event, the publishing party shall furnish a copy of such
disclosure to the other party.
16.7 Severability. In the event that any of the terms of this
------------
Agreement are in conflict with any rule of law or statutory provision or are
otherwise unenforceable under the laws or regulations of any government or
subdivision thereof, such terms shall be deemed stricken from this Agreement,
but such invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement and this Agreement shall continue in force, unless the
invalidity or unenforceability of any such provisions hereof does substantial
violence to, or where the invalid or unenforceable provisions comprise an
integral part of, or are otherwise inseparable from, the remainder of this
Agreement.
16.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
* * * * * * *
23
<PAGE>
IN WITNESS WHEREOF, The parties have caused this Agreement to be executed on
the date first above written.
ST. JOHN KNITS, INC.
By: /s/ Bob Gray
-------------------------------------------
Bob Gray
Chairman
ST. JOHN CO., LTD.
By: /s/ Katsuyuki Masuda
---------------------------------------
Katsuyuki Masuda
Representative Director
By: /s/ David Frankel
-----------------------------------------
David Frankel
Representative Director
24
<PAGE>
SCHEDULE A
----------
LICENSED TRADEMARKS
Marie Gray(R) and Marie Gray by St. John(R), each a registered trademark of
St. John Knits, Inc.
A-1
<PAGE>
SCHEDULE B
----------
U.S. WHOLESALE PRICE LIST
B-1
<PAGE>
EXHIBIT 10.4
LIMITED LIABILITY COMPANY AGREEMENT
FOR
AMEN WARDY HOME STORES, LLC
THIS OPERATING AGREEMENT (this "Agreement") is made and entered into
this 5th day of August, 1997, among ST. JOHN KNITS, INC., a California
corporation ("St. John"), AWH DIRECT, LLC, a Colorado limited liability company
("Amen Wardy LLC") (St. John and Amen Wardy LLC are hereinafter collectively
referred to as the "Founding Members"), AMEN WARDY, SR., AMEN WARDY, JR., AMEN
WARDY HOME, INC., a Colorado corporation ("Amen Wardy Inc."), BOB HIGHTOWER
(Amen Wardy, Jr., Amen Wardy, Sr. and Bob Hightower are parties only to Sections
8.1, 8.2, 12.1, 12.2, 13.1, 13.2, 13.3, 13.5 and 13.14 hereof and Amen Wardy
Inc. is a party only to Sections 12.1, 12.2, 13.1, 13.5 and 13.14 hereof) and
AMEN WARDY HOME STORES, LLC (the "Company").
R E C I T A L S
---------------
WHEREAS, the Founding Members have caused the Company to be formed
subject to the provisions of the Delaware Limited Liability Act (the "Act") for
the purpose of forming a business venture among the Founding Members; and
WHEREAS, the Founding Members and the Company desire to enter into
this Agreement, which sets forth certain agreements with respect to the conduct
of the affairs of the Company and the Members' respective rights and obligations
with regard to their Interests in the Company;
A G R E E M E N T
-----------------
In consideration of the mutual promises contained herein and intending
to be legally bound, the parties hereto agree and certify as follows:
<PAGE>
ARTICLE I
ORGANIZATION OF
THE LIMITED LIABILITY COMPANY
1.1 Formation. The Company has been formed as a limited liability
---------
company subject to the provisions of the Act upon the terms, provisions and
conditions set forth in this Agreement.
1.2 Filing. In connection with the execution of this Agreement, a
------
Certificate of Formation that complies with the requirements of the Act has been
properly filed with the Delaware Secretary of State. The Members shall execute
such further documents (including amendments to the Certificate of Formation)
and take such further action as is appropriate to comply with the requirements
of law for the formation or operation of a limited liability company in Delaware
and in all states and counties where the Company may conduct its business.
1.3 Name. The name of the Company is "Amen Wardy Home Stores, LLC".
----
1.4 Registered Office, Registered Agent. The name and business
-----------------------------------
address of the registered agent for service of process on the Company in the
State of Delaware are Paracorp Incorporated, 15 East North Street, Dover,
Delaware, 19901, or such other qualified person as the Board may designate from
time to time and its business address.
1.5 Registered Office in Delaware. The location of the registered
-----------------------------
office of the Company in the State of Delaware shall be Paracorp Incorporated,
15 East North Street, Dover, Delaware, 19901, or at such other place as the
Board from time to time may select.
1.6 Business Purpose. The Company may carry on any lawful business,
----------------
purpose or activity with the exception of the business of granting policies of
insurance, or assuming insurance risks or banking.
1.7 Term. The term of the Company shall continue until the
----
bankruptcy or dissolution of a Member or the occurrence of any other event
identified in Article X hereof which terminates the continued membership of a
---------
Member in the Company (unless the business of the Company is continued by the
unanimous consent of the remaining Members within 90 days following the
occurrence of any such event). The Company shall be dissolved and its affairs
wound up in accordance with Article X hereof.
---------
1.8 Intent. It is the intent of the Members that the Company be
------
operated in a manner consistent with its treatment as a "partnership" for
federal and state income tax purposes. It is also the intent of the Members
that the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the Federal Bankruptcy Code. Neither the
2
<PAGE>
Company nor any Member shall take any action inconsistent with the express
intent of the parties hereto as set forth in this Section 1.8.
-----------
1.9 Definitions. Capitalized terms used in this Agreement that are
-----------
not otherwise defined herein shall have, if applicable, (i) the meanings
ascribed to such terms in Exhibit A attached hereto with respect to general
terms used herein or (ii) the meanings ascribed to such terms in Exhibit B
attached hereto with respect to tax terms used herein.
ARTICLE II
OWNERSHIP AND CAPITAL CONTRIBUTIONS;
CAPITAL ACCOUNTS; FINANCINGS
2.1 Membership and Percentage Interests. The names, addresses, and
-----------------------------------
Percentage Interests of the Members are as follows:
Name and Address Percentage Interest
---------------- -------------------
St. John Knits, Inc. 51%
17422 Derian Avenue
Irvine, California 92713
Amen Wardy LLC 49%
405 East Cooper Avenue
Aspen, Colorado 81611
2.2 Capital Contributions. On the date of this Agreement, St. John
---------------------
shall contribute $500,000 to the Company. As of the date of this Agreement,
Amen Wardy LLC has not made and shall have no obligation to make any Capital
Contributions to the Company. The Founding Members may, from time to time,
agree to increase the level of Capital Contributions required of each Member;
provided, however, that any additional Capital Contributions made by any Member
of the Company shall not change the Percentage Interests of the Members as set
forth in Section 2.1 hereof. Except as otherwise provided herein, no Founding
Member shall be obligated to make any additional Capital Contributions to the
Company.
2.3 Loans to the Company. On the date of this Agreement, St. John
--------------------
shall make a loan to the Company in the amount of $1.5 million (the "St. John
Loan"), which shall be evidenced by a promissory note from the Company to St.
John (the "St. John Note"). In the event that the Board determines that further
funds are required by the Company, St. John shall make additional loans to the
Company; provided, however, that in no event shall St. John be obligated to make
additional loans to the Company if St. John has made loans and/or Capital
Contributions to the Company which in the aggregate amount to
3
<PAGE>
$5 million. All loans made by St. John to the Company shall be evidenced by a
promissory note from the Company to St. John in the form of Exhibit C attached
hereto (the "Form of Promissory Note"). The approval of four-fifths (4/5) of
all Managing Directors of the Company is required for the Company to change the
terms and conditions of the Form of Promissory Note. St. John may make
additional loans to the Company from time to time. Any loan, including, but not
limited to, the St. John Loan, made by St. John or any other Member of the
Company shall not (i) be treated as a Capital Contribution but shall be a debt
due from the Company, unless otherwise agreed by the Members, and (ii) change
the Percentage Interests of the Members as set forth in Section 2.1 hereto.
Except as otherwise provided herein, no Member shall be obligated to make any
loan or advance to the Company.
2.4 Capital Accounts.
----------------
(a) A capital account ("Capital Account") shall be maintained for
each Member. The Capital Account of each Member shall be credited with the
amount of their respective Capital Contributions. Thereafter, each Member's
Capital Account shall be (a) credited with such Member's share of Profits, any
individual items of income and gain allocated to such Member pursuant to the
provisions of Article III hereof, and the amount of additional cash, or the
-----------
value of any asset (net of any liabilities assumed by the Company and
liabilities to which the asset is subject) contributed to the Company by such
Member, and (b) debited with the Member's share of Losses, any individual items
of deduction and loss allocated to such Member pursuant to the provisions of
Article III hereof, the amount of any cash distributed to such Member and the
- -----------
value of any asset distributed to such Member (net of any liabilities assumed by
the Member and liabilities to which the asset is subject).
(b) No Member shall be personally liable for or be required to
restore any deficit Capital Account balance.
2.5 Other Matters.
-------------
(a) Except as otherwise provided in or contemplated by this
Agreement, no Member shall demand or receive a return of or interest on its
Capital Contributions or withdraw from the Company without the consent of all
Members. Under circumstances requiring a return of any Capital Contributions,
no Member shall have the right to receive property other than cash except as may
be specifically provided herein.
(b) No Member shall receive any interest, salary, compensation, draw
or reimbursement with respect to its Capital Contributions or its Capital
Account, or for services rendered or expenses incurred on behalf of the Company
or otherwise in its capacity as a Member, except as otherwise provided in or
contemplated by this Agreement or as may otherwise be authorized by the Board.
4
<PAGE>
ARTICLE III
ALLOCATIONS OF PROFITS AND LOSSES
3.1 Profits. After giving effect to the allocations set forth in
-------
Sections 3.3 through 3.5 hereof, Profits for any Fiscal Year (as defined in
- ------------------------
Exhibit A attached hereto) shall be allocated among the Members in proportion to
their Percentage Interests.
3.2 Losses. After giving effect to the allocations set forth in
------
Sections 3.3 through 3.5 hereof, Losses for any Fiscal Year shall be allocated
- ------------------------
first to St. John to the extent of its Capital Contributions, and then among the
Members in proportion to their Percentage Interests.
3.3 Allocation In the Event of Section 754 Election. To the extent
-----------------------------------------------
an adjustment to the adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of that adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis of the asset), and such gain or
loss shall be specially allocated to the Members in the manner consistent with
the manner in which their Capital Accounts are required to be adjusted pursuant
to that Treasury Regulation.
3.4 Regulatory and Curative Allocations.
-----------------------------------
(a) Company Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(f) of the Treasury Regulations, notwithstanding any other
provision of this Agreement, if there is a net decrease in Company Minimum Gain
during any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in an amount equal to the portion of that Member's share of the
net decrease in Company Minimum Gain during such year that is allocable to the
disposition of any Company assets subject to one or more Nonrecourse Liabilities
of the Company. Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Treasury Regulation Section 1.704-2(j)(2)(i). Any Member's
share of any net decrease in Company Minimum Gain shall be determined in
accordance with Treasury Regulation Section 1.704-2(g). This section is
intended to comply with the minimum gain chargeback requirement in the Treasury
Regulations and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Notwithstanding any other
provision of this Agreement except Section 3.4(a), if there is a net decrease in
--------------
Member Minimum Gain attributable to Member Nonrecourse Debt during any Fiscal
Year, each Member who has a share of the Member Minimum Gain attributable to
such Member Nonrecourse Debt shall be specially allocated items of Company
income and gain for such
5
<PAGE>
year (and, if necessary, subsequent years) in an amount equal to the portion of
such Member's share of the net decrease of Member Minimum Gain. Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with Treasury Regulation
Section 1.704-2(j)(2)(ii). Any Member's share of the net decrease in Member
Minimum Gain shall be determined in accordance with Treasury Regulation Section
1.704-2(i)(5). This section is intended to comply with the minimum gain
chargeback requirements in the Treasury Regulations and shall be interpreted
consistently therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulation paragraph (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d), items of
Company income and gain shall be specially allocated to the Members in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of that Member as quickly as
possible.
(d) Gross Income Allocation. In the event that any Member has a
deficit Capital Account at the end of any Company Fiscal Year that is in excess
of the sum of (i) the amount that such Member is obligated to restore and (ii)
the amount that the Member is deemed to be obligated to restore pursuant to the
penultimate sentence of Treasury Regulation Sections 1.704-2(g)(1) and (i)(5),
that Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 3.4(d) shall be made only if and to the extent that
--------------
such Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Article III have been made as if Section
-------
3.4(c) and 3.4(d) were not in the Agreement.
- -----------------
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
Year shall be specially allocated to the Members in accordance with their
Percentage Interests. The amount of Nonrecourse Deductions for a Fiscal Year
shall equal the excess, if any, of the net increase, if any, in the amount of
Company Minimum Gain during that Fiscal Year over the aggregate amount of any
distributions during that Fiscal Year of proceeds of a Nonrecourse Liability (as
that term is defined in Treasury Regulation Section 1.704-2(b)(3)) that are
allocable to an increase in Company Minimum Gain, determined according to the
provisions of Treasury Regulation Section 1.704-2(d).
(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
for any Fiscal Year shall be specially allocated to the Member who bears
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Treasury
Regulation Section 1.704-2(i). The amount of Member Nonrecourse Deductions with
respect to a Member Nonrecourse Debt for a Fiscal Year equals the excess, if
any, of the net increase, if any, in the amount of Member Minimum Gain
attributable to such Member Nonrecourse Debt during that Fiscal Year over the
aggregate amount of any distributions during that Fiscal Year to the
6
<PAGE>
Member that bears the economic risk of loss for such Member Nonrecourse Debt to
the extent such distributions are from the proceeds of such Member Nonrecourse
Debt and are allocable to an increase in Member Minimum Gain attributable to
such Member Nonrecourse Debt, determined in accordance with Treasury Regulation
Section 1.704-2(i)(1).
(g) Curative Allocations. The allocations set forth in Sections
--------
3.4(a)-(f) (the "Regulatory Allocations") are intended to comply with certain
- ----------
requirements of Treasury Regulation Sections 1.704-1(b) and 1.704-2.
Notwithstanding any other provision of this Article III (other than the
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Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating other items of income, gain, loss and deduction among the Members
so that, to the extent possible, the net amount of such allocation of other
items and the Regulatory Allocations to each Member should be equal to the net
amount that would have been allocated to each such Member if the Regulatory
Allocations had not occurred. This Section 3.4(g) is intended to minimize to
--------------
the extent possible and to the extent necessary any economic distortions which
may result from application of the Regulatory Allocations and shall be
interpreted in a manner consistent therewith.
3.5 Allocations for Tax Purposes.
----------------------------
(a) Contributed Property. In accordance with Code Section 704(c) and
the Treasury Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the Company shall, solely for tax
purposes, be allocated among the Members so that a contributing Member, to the
maximum extent possible, recognizes the variation, if any, between the Adjusted
Basis and the initial Gross Asset Value of the property contributed by that
Member. Unless the Members otherwise agree, allocations pursuant to this
Section 3.5(a) shall use the "remedial allocation method" as set forth in
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Treasury Regulation Section 1.704-3(d) or any successor provision thereto.
(b) Adjusted Property. In the event the Gross Asset Value of any
Company asset is adjusted pursuant to subsection (ii) of the definition of Gross
Asset Value, subsequent allocations of income, gain, loss and deduction with
respect to that asset shall take into account any variation between the Gross
Asset Value of that asset before such adjustment and its Gross Asset Value after
such adjustment in the same manner as the variation between Adjusted Basis and
Gross Asset Value is taken into account under Section 3.5(a) hereof with respect
--------------
to contributed property, and such variation shall be allocated in accordance
with the principles of Treasury Regulation Section 1.704-1(b)(2)(iv)(f).
(c) Recapture of Deductions and Credits. If any "recapture" of
deductions or credits previously claimed by the Company is required under the
Code upon the sale or other taxable disposition of any Company property, those
recaptured deductions or credits shall, to the extent possible, be allocated to
the Members pro rata in the same manner that the deductions and credits giving
rise to the recapture items were originally allocated using the "first-in,
first-out" method of accounting; provided, however, that this Section 3.5(c)
--------------
shall only affect the characterization of income allocated among the Members for
tax purposes.
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(d) Limited Application. Allocations pursuant to this Section 3.5
-----------
are solely for purposes of federal, state and local taxes and shall not affect
or in any way be taken into account in computing any Member's Capital Account or
share of Profits, Losses, other items or distributions pursuant to any provision
of this Agreement.
(e) Allocation of Excess Nonrecourse Liabilities. All "excess
nonrecourse liabilities," as such term is defined in Treasury Regulation Section
1.752-3(a)(3), shall be allocated to the Members in accordance with their
Percentage Interests.
3.6 Other Allocation Rules.
----------------------
(a) The Members are aware of the income tax consequences of the
allocations made by this Article III and the economic impact of the allocations
-----------
on the amounts receivable by them under the Agreement. The Members hereby agree
to be bound by the provisions of this Article III in reporting their share of
-----------
Company income and loss for income tax purposes.
(b) For purposes of determining the Profits, Losses, or any other
items allocable to any period, Profits, Losses, and any such other items shall
be determined on a daily, monthly or other basis, as determined by the Board
using any permissible method under Code Section 706 and the Treasury Regulations
thereunder.
ARTICLE IV
DISTRIBUTIONS
4.1 Distributions of Distributable Cash. The Board shall from time
-----------------------------------
to time determine to what extent, if any, Company funds shall be available for
distribution to the Members. Such funds, if any, shall be payable from time to
time at the discretion of the Board. The Members acknowledge and agree that
Company funds may be retained in the Company for the purpose of payment of all
expenditures in connection with the business of the Company, including, but not
limited to, the principal and interest on all loans, payment of all expenses of
operation, and the maintenance of reserves for managerial, promotional, all
other operational expenses relating to the Company and for minimization of
future Company borrowings. Whether or not there exist Company funds in excess
of amounts needed to pay such expenditures shall be a matter to be decided
solely by the Board, and no Member may at any time demand that the Company make
distributions to such Member. When the Board determines that cash on hand or in
bank accounts of the Company that is attributable to operating revenues (the
"Distributable Cash") is to be distributed to the Members, such Distributable
Cash shall be distributed in proportion to their Percentage Interests; provided,
however, that no distributions of Distributable Cash shall be made to any Member
of the Company until and unless all payments and other obligations of the
Company now or hereafter existing under the St. John Loan and any other loan
made by St. John to
8
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the Company pursuant to Section 2.3 hereof, whether for principal, interest,
-----------
fees, expenses, or otherwise, shall be satisfied in full by the Company.
4.2 Mandatory Tax Distributions. Notwithstanding anything to the
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contrary above, and as advances to distributions otherwise made pursuant to
Section 4.1, in order to allow Members to pay taxes on their allocable share of
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taxable income of the Company, the Board shall cause the Company to distribute,
not later than March 31 of each year, an amount equal to the excess, if any, of
(i) the product of the taxable income of the Company, determined on a cumulative
basis for all years (through and including the immediately preceding tax year)
of the Company multiplied by the maximum effective combined federal and state
rate over (ii) all amounts previously distributed pursuant to this Section 4.2.
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The percentage referred to in clause (i) above shall be increased or decreased
from time to time by the increase or decrease in the maximum tax rate imposed on
individual taxpayers on ordinary income under the Code.
4.3 Amounts Withheld. All amounts (if any) withheld pursuant to the
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Code or any provision of any state or local tax law with respect to any payment,
distribution or allocation to the Company or the Members shall be treated as
amounts distributed to the Members pursuant to this Article IV for all purposes
under this Agreement. The Company shall withhold from distributions, or with
respect to allocations, to the Members and to pay over to any federal, state, or
local government any amounts required to be so withheld pursuant to the Code or
any provisions of any other federal, state or local law and shall allocate such
amounts to the Members with respect to which such amount was withheld.
4.4 Exculpation. Each Member shall look solely to the assets of the
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Company for all distributions with respect to the Company, for the repayment of
any loans to the Company and for the return of its Capital Contributions thereto
and its share of Profits or Losses thereof, and shall have no recourse therefor
(upon dissolution or otherwise) against any Member.
ARTICLE V
MANAGEMENT
5.1 Board of Managing Directors. The Company shall at all times have
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a Board of Managing Directors (the "Board") composed of individuals selected by
the Members as provided herein. The management of the Company shall be vested
solely in the Board of Managing Directors and officers ("Officers") of the
Company. The business and affairs of the Company shall be managed by or under
the direction of the Board. Each Member shall cause its designees on the Board
to comply with the terms of this Agreement to be performed by such persons in
such capacities.
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(a) Number of Managing Directors. The Board shall consist of
five (5) managing directors (individually, a "Managing Director" and
collectively, "Managing Directors").
(b) Designation of Managing Directors. As of the date hereof and
subject to Section 5.1(c) hereof, the Managing Directors shall consist of
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Robert Gray, Marie Gray and Kelly Gray, as St. John Managing Directors, and
Amen Wardy, Sr. and Amen Wardy, Jr., as Amen Wardy LLC Managing Directors.
Thereafter, as long as St. John or an Affiliate (as defined in Exhibit A)
of St. John (a "St. John Affiliate") is a Member of the Company, St. John
or such St. John Affiliate shall be entitled to designate three (3)
Managing Directors to the Board, and, as long as Amen Wardy LLC or an
Affiliate (as defined in Exhibit A) of Amen Wardy LLC (an "Amen Wardy LLC
Affiliate") is a Member of the Company, Amen Wardy LLC or such Amen Wardy
LLC Affiliate shall be entitled to designate two (2) Managing Directors to
the Board; provided, however, that if the Percentage Interest of Amen Wardy
LLC or an Amen Wardy LLC Affiliate exceeds fifty percent (50%) of the
Company, Amen Wardy LLC or such Amen Wardy LLC Affiliate shall have the
right to designate three (3) Managing Directors to the Board and St. John
or such St. John Affiliate shall have the right to designate two (2)
Managing Directors to the Board. St. John Managing Directors shall be
executives, officers or directors of St. John. Each Managing Director
shall serve for a term of one year and until his or her successor is
designated. Managing Directors shall be eligible to serve successive
terms. If at any time a Founding Member ceases to be a Member of the
Company, unless by virtue of a Permitted Transfer (as defined in Exhibit A)
to an Affiliate of such Founding Member, (i) the Managing Directors who had
been designated by such Founding Member shall thereupon cease to be
Managing Directors of the Company unless subsequently designated pursuant
to the terms of this Agreement and (ii) the remaining Founding Member shall
thereafter have the right to designate all Managing Directors to the Board.
(c) Removal of Managing Directors; Vacancies. A Founding Member
may at any time remove any Managing Director designated by such Founding
Member (a "Founders Director"), with or without cause. In the event a
vacancy occurs on the Board as a result of the retirement, removal,
resignation or death of a Founders Director, such vacancy shall be filled
by a person designated by the Founding Member the retirement, removal,
resignation or death of whose designee created the vacancy.
(d) Meetings of Managing Directors (i) Regular meetings of the
Board shall be held on such basis as the Board may determine. Special
meetings of the Board may be called by any two (2) Managing Directors
acting together upon not less than five (5) days written notice delivered
to each of the Managing Directors and specifying the nature of any business
to be transacted at such meeting. The presence of four (4) Managing
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board; provided, however, that if St. John or a St.
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John Affiliate is a Member of the Company, there must be present at such
meeting at least two (2) St. John Managing Directors.
(e) The Board may make use of telephones and other electronic
devices to hold meetings, provided that each Managing Director
simultaneously participates with all of the other Managing Directors with
respect to all discussions and votes of the Board. The Board may act
without a meeting if the action taken is reduced to writing and approved
and signed in advance by four-fifths (4/5) of the Managing Directors of the
Company. Written minutes shall be taken at each meeting of the Board.
However, any action taken or matter agreed upon by the Board shall be
deemed final, whether or not written minutes are ever prepared or
finalized.
(f) Vote Required for Action; Authority. Except as otherwise
provided in this Agreement, each Managing Director shall be entitled to
vote on all matters brought before the Board for action, and the vote of a
majority of the Managing Directors present at a meeting at which a quorum
is present shall be the act of the Board. Acts of the Board shall be
binding upon the Company; provided, however, that Managing Directors shall
have no authority to bind the Company except through acts of the Board.
(g) Supermajority Voting Provisions. The approval of four-fifths
(4/5) of all of the Managing Directors of the Company is required for the
Company to (i) carry on any business other than the Business Activities, or
(ii) change the name of the Company.
(h) Additional Supermajority Voting Provisions. If (x) neither
Robert Gray, Marie Gray nor Kelly Gray are directors or executive officers
of St. John and (y) the Percentage Interest of Amen Wardy LLC together with
all Amen Wardy LLC Affiliates is less than 50% of the Company, then the
approval of four-fifths (4/5) of all of the Managing Directors of the
Company is required for the Company to (i) carry on any business other than
the Business Activities, (ii) change the name of the Company, (iii) develop
new product lines for the Company, (iv) appoint or remove Officers, (v)
enter into any transaction with Affiliates of the Company, (vi) enter into
leases for new retail stores, (vii) enter into material agreements with
vendors or customers of the Company or materially amend such agreements,
(viii) agree to sell, exchange or otherwise transfer all or any material
portion of the Company's assets, (ix) to merge, reorganize or consolidate,
(x) to enter into any agreement to permit the use of the Amen Wardy Name
(as defined in Section 13.1 hereof), (xi) encumber all or substantially all
------------
of the assets of the Company, and (xii) make a distribution of
Distributable Cash pursuant to Section 4.1 hereof.
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5.2 Officers. The day-to-day management of the Company shall be
--------
vested in the Officers, who shall be appointed by the Board. Officers shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board. Except as determined by the Board, Officers shall not have
the authority to bind the Company.
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(a) The Board shall appoint the Chief Executive Officer of the
Company, who shall serve at the pleasure of the Board. As of the date
hereof and until his death, removal, resignation or inability to serve, the
Chief Executive Officer of the Company shall be Amen Wardy, Jr. As of the
date hereof and until or unless the Board determines otherwise, Amen Wardy,
Jr. shall receive for his services as the Chief Executive Officer of the
Company an annual salary of $100,000.
(b) The Board shall appoint the Chief Financial Officer of the
Company, who shall serve at the pleasure of the Board. As of the date
hereof and until his death, removal, resignation or inability to serve, the
Chief Financial Officer of the Company shall be Roger Ruppert.
(c) The Board may appoint such other Officers at any time,
including, but not limited to, a President, Secretary and Treasurer. Any
individual may hold any number of offices. The Board shall have the power
to remove, with or without cause, any Officer appointed by it, including,
but not limited to, the Chief Executive Officer and Chief Financial
Officer. Any Officer may resign at any time by giving written notice to
the Company and the resignation shall take effect on the giving of the
notice or at any later time specified in the notice. Each Officer shall
serve until his resignation, removal, death or inability to serve. A
vacancy in any office shall be filled by the Board. Officers shall serve
at the pleasure of the Board, subject to all rights, if any, of an Officer
under any contract of employment. Officers of the Company shall perform
their duties in good faith, in a manner they reasonably believe to be in
the best interest of the Company, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances. A
person who so performs his or her duties shall not have any liability by
reason of being or having been an Officer of the Company.
5.3 Warranted Reliance by Managing Directors and Officers on Others.
---------------------------------------------------------------
In exercising their authority and performing their duties under this Agreement,
the Managing Directors and the Officers shall be entitled to rely on
information, opinions, reports, or statements of the following persons or groups
unless they have actual knowledge concerning the matter in question that would
cause such reliance to be unwarranted:
(a) one or more employees or other agents of the Company or in
subordinates whom the Managing Director or Officer reasonably believes to
be reliable and competent in the matters presented; and
(b) any attorney, public accountant, or other person as to
matters which the Managing Director or Officer reasonably believes to be
within such person's professional or expert competence.
12
<PAGE>
ARTICLE VI
THE MEMBERS
6.1 Authority. Except as otherwise provided in this Agreement,
---------
Members shall not have the authority to bind the Company.
6.2 Rights and Obligations of Members.
---------------------------------
(a) Limitation of Liability. Each Member's liability for the debts
and obligations of the Company shall be limited as set forth in the Act.
Without limiting the generality of the foregoing, as to any third party, a
deficit Capital Account balance of a Member shall not be deemed to be a
liability of such Member nor an asset or property of the Company.
(b) Duties. The duties and obligations of each Member as a Member of
the Company to the Company and to the other Members shall be limited to those
set forth in this Agreement. The Company and the Members disclaim all other
duties and obligations as may be owed to one another (whether at law or in
equity), and no Member shall be liable to the Company or to the other Members
for monetary damages on account of any breach or alleged breach of such other
duties or obligations.
ARTICLE VII
TRANSFERS OF INTERESTS
7.1 Prohibited Transfers.
--------------------
(a) No Member shall directly or indirectly sell, exchange, assign,
dispose of, encumber, pledge, mortgage, hypothecate or otherwise transfer in any
way its Interest (or any portion thereof) in the Company or its interest in this
Agreement, or enter into any agreement or commitment to do any of the same,
without the prior written approval and consent of all of the other Members or
pursuant to Section 7.2(a) of this Agreement, and any attempt to do so shall be
null and void. Notwithstanding any other provision contained in this Agreement,
no Member shall enter into or give its approval or consent to any of the
aforementioned transactions unless the proposed transferee of the subject
Interest enters into an agreement with the Company and each continuing Member
whereby such proposed transferee shall be made a party to and be bound by the
terms of this Agreement (with appropriate modifications as required by the
identity of the transferee to give full effect to the provisions of this
Agreement).
(b) Notwithstanding any other provisions contained in this Agreement,
no Member may directly or indirectly sell, exchange, assign, dispose of,
encumber, pledge, mortgage, hypothecate or otherwise transfer in any way its
Interest in the Company if:
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(i) as a result thereof, the Company or any non-selling Founding
Member may, without its prior approval, become subject to any governmental
controls or regulations that may materially restrict the business
operations of the Company or such Member and to which it was not subject
prior to any proposed sale, exchange, assignment, pledge, mortgage,
hypothecation or other transfer;
(ii) as a result thereof, the Company or any non-selling Founding
Member may, without its prior approval, become subject to any additional
material tax liability to which it was not theretofore subject; or
(iii) the transaction is not permitted by any law or term of any
mortgage, agreement or document to which the Company or the selling Member
is a party or by which it is bound, unless any permit, approval, consent or
waiver required has been obtained and is in effect, or if acceleration of
any debt of the Company (including, without limitation, any mortgage on any
property owned by the Company) will occur as a result of any such
transaction;
and any transaction which would cause such result shall be null and void.
(c) Notwithstanding Sections 7.1(a) and (b) of this Agreement,
changes in the stock ownership of St. John shall not be deemed a prohibited
transfer hereunder.
7.2 Permitted Transfers.
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(a) Transfers to Affiliates. St. John may transfer all or part of its
Interest in the Company to any Affiliate of St. John and Amen Wardy LLC may
transfer all or part of its Interest in the Company to any Affiliate of Amen
Wardy LLC; provided, however, that contemporaneously with such transfer by St.
John or Amen Wardy LLC:
(i) the transferee shall enter into an agreement with the remaining
Members and the Company containing terms substantially similar to the terms
hereof (with appropriate modifications as required by the identity of the
transferee to give full effect of the provisions of this Agreement) or
whereby such transferee shall be made a party to and be bound by the terms
of this Agreement; and
(ii) the transferee and the transferring Member shall agree in writing
with the Company and the remaining Members that they will remain Affiliates
as contemplated in this Section for so long as the transferee is a Member.
(b) Admission of Permitted Transferee as a Member. Notwithstanding
the provisions of Section 7.2(a), a Permitted Transferee of an Interest shall be
admitted as a Member in the Company only upon a majority vote of the Members,
excluding for this purpose, however, the transferring Member. The rights of a
Permitted Transferee who is not admitted as a Member shall be limited to the
right to receive allocations and distributions from the Company with respect to
the Interest transferred, as provided by this Agreement.
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The transferee of such Interest shall not be a Member with respect to such
Interest, and, without limiting the foregoing, shall not have the right to
designate Managing Directors, inspect the Company's books or otherwise exercise
the rights of a Member hereunder or under the Act unless and until it is
admitted as a Member in accordance with this Agreement and the Act. The
provisions in this Section 7.2(b) shall be in effect only for so long as the
--------------
states in which the Company is currently doing business or anticipates doing
business require such provisions in order for the Company to receive partnership
tax treatment under the laws of such states.
(c) Effect of Permitted Transfer on Company. The Members intend that
the Permitted Transfer of an Interest in the Company shall not cause the
dissolution of the Company.
(d) Distribution Among Members. Upon the occurrence of a Permitted
Transfer of an Interest pursuant to Section 7.2(a) during any Fiscal Year,
--------------
Profits, Losses, each item thereof, and all other items attributable to such
Interest for such Fiscal Year shall be divided and allocated between the
transferor and the transferee by taking into account their varying interests
during the Fiscal Year in accordance with Code Section 706(d), using any
conventions permitted by law and selected by the Board. All distributions on or
before the date of a Permitted Transfer shall be made to the transferor, and all
distributions thereafter shall be made to the transferee. Solely for purposes
of making such allocations and distributions, the Company shall recognize a
Permitted Transfer upon the Board's receipt of written notice stating the date
such Interest was transferred and such other information as the Board may
reasonably require. The Board and the Company shall incur no liability for
making allocations and distributions in accordance with the provisions of this
paragraph, whether or not the Board or the Company has knowledge of any transfer
of ownership of any Interest in the Company.
(e) Special Basis Adjustment. In connection with any Permitted
Transfer of a Company Interest, the Board shall cause the Company, at the
written request of the transferor or the transferee, on behalf of the Company
and at the time and in the manner provided in Treasury Regulations Section
1.754-1(b), to make an election to adjust the basis of the Company's property in
the manner provided in Sections 734(b) and 743(b) of the Code, and such
transferee shall pay all costs incurred by the Company in connection therewith,
including, without limitation, reasonable attorneys' and accountants' fees.
ARTICLE VIII
PROPRIETARY INFORMATION; RELATED ACTIVITIES
8.1 Proprietary Information. Except to the extent disclosure is
-----------------------
required by law, legal process or formal demand of a governmental entity or to
the extent such information becomes lawfully and without breach of this
Agreement within the public
15
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domain, the Members and all signatories hereto shall not use or disclose to any
person any trade secrets, technical information, processes, know-how, financial
or business data or other proprietary information relating to or in the
possession of the Company (collectively, "Proprietary Information") for any
purpose which does not relate to the Company and its efforts to engage in the
Business Activities; provided, however, that Proprietary Information does not
include any trade secrets, technical information, processes, know-how, financial
or business data relating to (i) the Amen Wardy home furnishing store as
currently operated in all material respects in Aspen, Colorado (the "Aspen
Store"), (ii) that certain Product Design and Development Agreement, dated as of
the date hereof, among St. John, Amen Wardy, Sr. and Amen Wardy, Jr., and (iii)
that certain Consulting Agreement, dated the date hereof, between St. John and
Amen Wardy, Jr.
8.2 Related Activities.
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(a) For so long as Amen Wardy LLC (together with all Amen Wardy LLC
Affiliates) is a Member of the Company, Amen Wardy LLC and each Amen Wardy
Affiliate shall not (other than through the Company), directly or indirectly
through any Amen Wardy LLC Affiliate, engage or otherwise participate in any
material respect in any Business Activities (as defined in Exhibit A), unless
(i) Amen Wardy LLC shall have fully disclosed to the Board the nature
and location of the proposed Business Activities, including all interests
(financial or otherwise) of Amen Wardy LLC and other parties therein; and
(ii) Amen Wardy LLC shall have received approval to engage or
otherwise participate in the Business Activities from a majority of the
Board, excluding for this purpose, however, any Managing Directors which
may have been designated by Amen Wardy LLC.
Notwithstanding the foregoing, nothing in this Section 8.2(a) shall apply to or
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prevent Amen Wardy LLC or any Amen Wardy LLC Affiliate from (i) operating the
Aspen Store as currently operated in all material respects in Aspen, Colorado,
(ii) performing their duties under that certain Product Design and Development
Agreement, dated as of the date hereof, among St. John, Amen Wardy, Sr. and Amen
Wardy, Jr. or (iii) performing their duties under that certain Consulting
Agreement, dated the date hereof, between St. John and Amen Wardy, Jr.
(b) For so long as St. John (together with all St. John Affiliates)
is a Member of the Company, St. John shall not (other than through the Company),
directly or indirectly through any St. John Affiliate, engage or otherwise
participate in any material respect in any Business Activities, unless
(i) St. John shall have, to the extent permitted by law, fully
disclosed to the Board the nature and location of the proposed Business
Activities, including all interests (financial or otherwise) of St. John
and the other parties therein; and
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(ii) St. John shall have received approval to engage or otherwise
participate in the Business Activities from a majority of the Board,
excluding for this purpose, however, any Managing Directors which may have
been designated or nominated by St. John.
Notwithstanding the foregoing, nothing in this Section 8.2(b) shall apply to or
--------------
prevent St. John or any St. John Affiliate from developing, marketing and
distributing its own line of home furnishing products and gifts and performing
other related tasks as contemplated by that certain Product Design and
Development Agreement, dated as of the date hereof, among St. John, Amen Wardy,
Sr. and Amen Wardy, Jr. and that certain Consulting Agreement, dated the date
hereof, between St. John and Amen Wardy, Jr.
(c) Notwithstanding the provisions of Sections 8.2(a) and 8.2(b), no
--------------------------
Member shall be required to comply with such provisions with respect to any
investment of up to five percent (5%) of the securities of any corporation,
limited liability company or limited partnership which is registered on a
national or international securities exchange or admitted to trading privileges
thereon or actively traded in a generally-recognized over-the-counter market,
provided that such Member does not exercise control over or direct, through such
equity interest or otherwise, the management and policies of such corporation or
partnership.
ARTICLE IX
ACCOUNTING
9.1 Books of Account; Audits.
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(a) The books of account of the Company shall be kept and maintained
at all times at the Company's principal executive offices located in Orange
County, California. Such books of account shall be maintained on an accrual
basis in accordance with GAAP, consistently applied, employing standards,
procedures and forms conforming to established practice in the United States.
(b) At the end of each accounting period, the books and records of
the Company shall be audited by a firm of independent accountants at the
Company's expense.
9.2 Fiscal Year. The Fiscal Year of the Company shall be a 52-53
-----------
week fiscal year whereby the fiscal year ends on the Sunday nearest to October
31.
9.3 Tax Returns; Information. The Chief Financial Officer shall
------------------------
arrange for the preparation and timely filing of all income and other tax and
informational returns of the Company. As soon as practicable (but in no event
more than 90 days) after the end of each Fiscal Year, the Chief Financial
Officer shall cause the Company's accountants to prepare and submit to the Board
for its review and approval the Company's tax returns. The
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Chief Financial Officer shall furnish to each Member a copy of each approved
return, together with any schedules or other information which each Member may
require in connection with such Member's own tax affairs.
9.4 Tax Matters Member. St. John is specially authorized and
------------------
appointed to act as the "Tax Matters Member" under the Code and in any similar
capacity under state or local law. The Tax Matters Member agrees to promptly
notify the other Members upon the receipt of any correspondence from any
federal, state or local tax authorities, or making any elections under the tax
laws, relating to any examination of the Company's affairs. The Tax Matters
Member shall be prohibited from entering into any settlement or arrangement on
behalf of the Company with respect to any federal, state or local tax
authorities without the express written approval of the Members, which approval
shall not be unreasonably withheld. The Tax Matters Member may retain, at the
Company's expense, such outside counsel, accountants and other professional
consultants as it may reasonably deem necessary in the course of fulfilling its
obligations as Tax Matters Member.
ARTICLE X
DISSOLUTION AND TERMINATION
10.1 Liquidating Events. The Company shall dissolve and commence
------------------
winding up and liquidating upon the first to occur of the following
("Liquidating Events"):
(a) The sale of all or substantially all of the assets of the
Company;
(b) The unanimous written agreement of all Members to dissolve, wind
up, and liquidate the Company;
(c) The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event which terminates a
Member's continued membership in the Company, unless the business of the Company
is continued by the unanimous written consent of the remaining Members within 90
days of the occurrence of any such event;
(d) The happening of any other event that makes it unlawful or
impossible to carry on the business of the Company; and
(e) January 1, 2043.
The Members hereby agree that the Company shall not dissolve prior to
the occurrence of a Liquidating Event. If it is determined, by a court of
competent jurisdiction, that the Company has dissolved prior to the occurrence
of a Liquidating Event, the Members hereby agree to continue the business of the
Company without a winding up or liquidation.
18
<PAGE>
10.2 Bankruptcy. For purposes of this Agreement, the "bankruptcy" of
----------
a Member shall mean the occurrence of any of the following: (a) any
governmental authority, or any court at the instance thereof, shall take
possession of any substantial part of the property of that Member or shall
assume control over, the affairs or operations thereof, or a receiver or trustee
shall be appointed, or a writ, order, attachment or garnishment shall be issued
with respect to any substantial part thereof, and such possession, assumption of
control, appointment, writ or order shall continue for a period of 90
consecutive days; or (b) a Member shall admit in writing of its inability to pay
its debts when due for purposes of Section 303 of the Bankruptcy Code, or make
an assignment for the benefit of creditors; or apply for or consent to the
appointment of any receiver, trustee or similar officer or for all or any
substantial part of its property; or shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debts, dissolution, liquidation, or similar
proceeding under the laws of any jurisdiction; or (c) a receiver, trustee or
similar officer shall be appointed for such Member or with respect to all or any
substantial part of its property without the application or consent of that
Member, and such appointment shall continue undischarged or unstayed for a
period of 90 consecutive days or any bankruptcy, insolvency, reorganization,
arrangements, readjustment of debt, dissolution, liquidation or similar
proceedings shall be instituted (by petition, application or otherwise) against
that Member and shall remain undismissed for a period of 90 consecutive days.
10.3 Procedure.
---------
(a) In the event of the dissolution of the Company for any reason,
the Members shall commence to wind up the affairs of the Company and to
liquidate the Company's investments; provided that if a Member is in bankruptcy
or dissolved, the other Member ("Winding-Up Member") shall commence to wind up
the affairs of the Company and such Winding-Up Member shall have full right and
unlimited discretion to determine in good faith the time, manner and terms of
any sale or sales of the property or other assets pursuant to such liquidation
having due regard to the activity and condition of the relevant market and
general financial and economic conditions. The Members shall continue to share
profits, losses and distributions during the period of liquidation in the same
manner and proportion as though the Company had not dissolved.
(b) Following the payment of all expenses of liquidation, and
subject to the right of the Members or the Winding-Up Member, as the case may
be, to set up such cash reserves as and for so long as they or it may deem
reasonably necessary in good faith for any contingent or unforeseen liabilities
or obligations of the Company, the proceeds of the liquidation and any other
funds of the Company shall be distributed in the following order of priority:
(i) First, to the payment and discharge of all of the Company's
debts and liabilities to creditors, in the order of priority as provided by
law, including unpaid principal and interest under the St. John Loan and
any other loans or advances made
19
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by Members to the Company, except to those to the Members in respect of
their Capital Accounts;
(ii) Second, 100% to St. John until it has received an amount which
equals its capital contribution to the Company previously made pursuant to
Section 2.2 hereof but not returned to St. John; and
-----------
(iii) Thereafter, to the Members, in proportion to their Percentage
Interests.
(c) No Member shall have any right to demand or receive property
other than cash upon dissolution and termination of the Company.
(d) Upon the completion of the liquidation of the Company and the
distribution of all Company funds, the Company shall terminate and the Members
or the Winding-Up Member, as the case may be, shall have the authority to
execute and record a certificate of cancellation of the Company, as well as any
and all other documents required to effectuate the dissolution and termination
of the Company.
10.4 Deemed Distribution and Recontribution. Notwithstanding any
--------------------------------------
other provisions of this Article X, in the event the Company is liquidated
---------
within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but no
Liquidating Event has occurred, the Property shall not be liquidated, the
Company's liabilities shall not be paid or discharged, and the Company's affairs
shall not be wound up. Instead, the Company shall be deemed to have distributed
the Property in kind to the Members, who shall be deemed to have assumed and
taken subject to all Company liabilities, all in accordance with their
respective Capital Accounts. Immediately thereafter, the Members shall be
deemed to have recontributed the Property in kind to the Company, which shall be
deemed to have assumed and taken subject to all such liabilities.
10.5 Rights of Members. Except as otherwise provided in this
-----------------
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of its Capital Contributions, and (b) no Member shall have priority
over any other Member as to the return of its Capital Contributions,
distributions, or allocations as a Member.
10.6 Notices of Dissolution. In the event a Liquidating Event
----------------------
occurs or an event occurs that would, but for provisions of Section 10.1 hereof,
------------
result in a dissolution of the Company, the Chief Executive Officer shall,
within 30 days thereafter, (a) provide written notice thereof to each of the
Members and to all other parties with whom the Company regularly conducts
business (as determined in the discretion of the Chief Executive Officer), and
(b) comply, in a timely manner, with all filing and notice requirements under
the Act or any other applicable law.
10.7 Reasonable Time for Winding Up. A reasonable time shall be
------------------------------
allowed for the orderly winding up of the business and affairs of the Company
and the liquidation of its assets in order to minimize any losses that might
otherwise result from such winding up.
20
<PAGE>
10.8 Covenant Not to Withdraw or Dissolve. Except as otherwise
------------------------------------
expressly required or permitted hereby, each Member hereby covenants and agrees
not to (a) take any action to file a certificate of dissolution or its
equivalent with respect to itself, (b) take any action that would cause a
bankruptcy of such Member, (c) withdraw or attempt to withdraw from the Company,
(d) exercise any power under the Act to dissolve the Company, (e) transfer all
or any portion of its Interest in the Company (other than to a Permitted
Transferee), (f) petition for judicial dissolution of the Company or subject the
Company or the Property to the authority or jurisdiction of any court of
bankruptcy, insolvency, receivership or other similar proceeding, (g) demand a
return of such Member's Capital Contributions or Profits (or a bond or other
security for the return of such Capital Contributions or Profits) without the
unanimous consent of the Members or (h) pledge, encumber or hypothecate its
Interest in the Company.
10.9 No Deficit Restoration. No Member shall be personally liable
----------------------
for a deficit Capital Account balance of that Member, it being expressly
understood that the distribution of liquidation proceeds shall be made solely
from existing Company assets.
ARTICLE XI
INDEMNIFICATION
11.1 Mandatory Indemnification. The Company shall, to the extent of
-------------------------
its existing capital, its assets and, if insured for such purposes, its
insurance coverage for such purposes, indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a Managing
Director, Member, Officer, employee or agent of the Company, or by reason of the
fact that such person at the request of the Company is or was serving as a
manager, director, officer, employee or agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise,
against all expenses, including, without limitation, attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding (the "Indemnified
Costs"), if such person, in relation to the facts, events and circumstances on
which such action, suit or proceeding is based, acted in good faith and in a
manner that such person reasonably believed to be in or not opposed to the best
interests of the Company. Notwithstanding anything to the contrary provided in
this Section 11.1, the Company shall not indemnify any person for any
------------
Indemnified Costs (i) for which payment is actually made to such person under a
valid and collectible insurance policy, except for any excess beyond the amount
of payment under the policy, (ii) resulting from the person's conduct which is
finally adjudged by a court of competent jurisdiction to have been willful
misconduct, knowingly fraudulent or deliberately dishonest, or (iii) if a court
of competent jurisdiction shall finally determine that such payment is unlawful.
21
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11.2 Indemnification: Authorization and Scope. The expenses
-----------------------------------------
incurred by the indemnified person in connection with any threatened, pending or
completed action, suit or proceeding shall be paid promptly by the Company in
advance of the final disposition of the matter at the written request of the
indemnified person; provided, however, that such person shall have first
delivered to the Company a written undertaking to repay promptly any such
advances if it is determined by a court of competent jurisdiction that such
person is not entitled to indemnification from the Company under this Agreement
or otherwise. Notwithstanding anything to the contrary provided in this
Agreement, the Company's indemnity obligations hereunder shall be limited to the
Company's capital and assets and insurance existing as of the date on which the
Company receives a demand for indemnity. In furtherance of such indemnity
obligations, no Member shall be required to contribute any additional capital to
the Company or otherwise to fund the Company's indemnity obligations under this
Article XII.
- -----------
11.3 Maintenance of Insurance or Other Financial Arrangements. In
--------------------------------------------------------
compliance with applicable law, the Company (acting with the approval of its
Board) may purchase and maintain insurance or make other financial arrangements
on behalf of any person who is or was a Managing Director, Member, Officer,
employee or agent of the Company, or at the request of the Company is or was
serving as a manager, director, officer, employee or agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise, for any liability asserted against such person and liability and
expenses incurred by such person in such person's capacity as a Managing
Director, Member, Officer, employee or agent, or arising out of such person's
status as such, whether or not the Company has the authority to indemnify such
person against such liability and expenses.
11.4 Rights Non-Exclusive. The indemnification rights set forth in
--------------------
this Section shall be in addition to, and shall not be exclusive of, any other
rights to which such persons may be entitled by contract or otherwise under
applicable law.
ARTICLE XII
SALE OF CATALOG BUSINESS
12.1 Sale of Catalog Business. Amen Wardy Inc., Amen Wardy, Sr., Bob
------------------------
Hightower, and Amen Wardy, Jr. each hereby immediately and irrevocably sells,
assigns and conveys to the Company all rights with respect to the catalog
business operated in connection with the Aspen Store (the "Catalog Business")
along with certain other assets related to the Catalog Business, including, but
not limited to, good will, manufacturing sources and information, customer lists
and other know-how. Amen Wardy, Jr. shall implement the Catalog Business for
the Company. St. John shall set the margins and prices of products sold through
the Catalog Business and use its reasonable and prudent efforts to support the
Catalog Business for the Company.
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<PAGE>
12.2 Catalog Sales Fee.
-----------------
(a) In consideration for the sale and assignment of the Catalog
Business and the implementation of the Catalog Business for the Company, the
Company shall pay to Amen Wardy Inc. and Amen Wardy, Jr. a sales fee of two
percent (2%) of the Net Catalog Sales (the "Catalog Sales Fee"). Net Catalog
Sales means the price charged to customers for the products sold through the
Catalog Business, less customary trade discounts, return rebates and federal
excise taxes.
(b) The Catalog Sales Fee shall commence on the first commercial
catalog sale by the Company under the Catalog Business and shall continue for so
long as Amen Wardy, Jr. is an Officer of the Company and the Company makes
commercial catalog sales. If Amen Wardy, Jr. is no longer an Officer of the
Company, (i) the payment of the Catalog Sales Fee to Amen Wardy, Jr. and Amen
Wardy Inc. shall terminate upon the earlier of (a) five years from the date Amen
Wardy, Jr. ceases to be an Officer of the Company and (b) the date after the
date Amen Wardy, Jr. ceases to be an Officer of the Company when the period of
time measured by Amen Wardy, Jr.'s tenure as an Officer of the Company elapses,
and (ii) the Catalog Sales Fee payable by the Company to Amen Wardy, Jr. and
Amen Wardy Inc. after the date Amen Wardy, Jr. is no longer an Officer of the
Company shall not exceed (x) $1 million in any fiscal year, and (y) $5 million
in the aggregate. In the event the Catalog Sales Fee exceeds $1 million in any
fiscal year after the date Amen Wardy, Jr. is no longer an Officer of the
Company, neither Amen Wardy, Jr. nor Amen Wardy Inc. shall be entitled to
receive any of such excess amounts in any subsequent fiscal year.
(c) The Company shall keep complete and accurate records in
accordance with GAAP on Net Catalog Sales by the Company. On or before the
sixtieth (60th) day after the end of each fiscal quarter of the Company in which
a commercial catalog sale by the Company occurs, the Company shall furnish Amen
Wardy Inc. and Amen Wardy, Jr. with a written report setting forth the Net
Catalog Sales during such fiscal quarter, together with a calculation of the
Catalog Sales Fee due on reported catalog sales. Such report shall be
accompanied by any Catalog Sales Fee payment shown thereon to be due. The
Company shall provide Amen Wardy Inc. and Amen Wardy, Jr. such records as Amen
Wardy Inc. and Amen Wardy, Jr. shall reasonably request to enable them to review
the calculation of Net Catalog Sales.
(d) If Amen Wardy, Jr. or Amen Wardy Inc. fails to notify the
Company in writing, within (30) business days following the delivery of the
written report setting forth the calculation of the Catalog Sales Fee due, of
any objections to such calculation, their failure to so timely object shall
constitute approval of such calculation. If Amen Wardy, Jr. and/or Amen Wardy
Inc. timely objects, Amen Wardy, Jr. and/or Amen Wardy Inc. and the Company
shall use their best efforts to resolve any differences with respect to such
calculations. In the event the Company and Amen Wardy, Jr. and/or Amen Wardy
Inc. are unable to reach an agreement and Amen Wardy, Jr. is no longer an
Officer of the Company, Amen Wardy Jr. and/or Amen Wardy Inc. shall have the
right to cause an independent accounting firm mutually acceptable to both
parties (the "Reviewer") to perform a review
23
<PAGE>
(the "Review") of the calculations to resolve such dispute. Amen Wardy, Jr.
and/or Amen Wardy Inc. may cause only one Review in each of the Company's fiscal
years during the term of the payment of the Catalog Sales Fee; provided, however
that any one such Review may address the calculations of the Catalog Sales Fee
(i) which have been set forth in the written reports delivered by the Company to
Amen Wardy, Jr. and Amen Wardy Inc. during the twelve months preceding the date
of such Review and (ii) which have not been subject to a prior Review. Such
firm shall act as arbitrator, and its conclusions shall be conclusive hereunder,
absent fraud or manifest error. Any upward adjustment to the Catalog Sales Fee
due pursuant to this Section 12.2 shall be paid promptly by the Company to Amen
------------
Wardy, Jr. and Amen Wardy Inc. and any downward adjustment to such fee shall be
paid promptly by Amen Wardy, Jr. and Amen Wardy Inc. to the Company. Amen
Wardy, Jr. and Amen Wardy Inc. shall pay all of the fees and expenses in
connection with the Review, unless the Catalog Sales Fee due to Amen Wardy, Jr.
and Amen Wardy Inc. is adjusted upward by at least 5% as a result of the Review,
in which case the Company shall pay all such fees and expenses.
ARTICLE XIII
MISCELLANEOUS
13.1 Intellectual Property of the Company. The name "Amen Wardy Home
------------------------------------
Stores" shall be the sole property of the Company. Except as provided in
Section 5.1(h)(x) hereof, any agreement including, without limitation, any
- -----------------
rights under trademark (including, but not limited to, the name "Amen Wardy Home
Stores"), copyright, patent, trade secrets, know-how or other proprietary
rights, to permit the use of any intellectual property of the Company by
assignment, license or otherwise shall be made by a vote of the majority of the
Board of Managing Directors. Amen Wardy, Sr., Amen Wardy, Jr. and Amen Wardy
Inc. each hereby immediately and irrevocably sells, assigns and conveys to the
Company manufacturing sources and information, customer lists and other know-how
related to the Aspen Store and certain trademarks; provided, however that Amen
Wardy, Sr., Amen Wardy, Jr. and Amen Wardy, Inc. reserve the right to use such
manufacturing sources and customer lists in connection with the Aspen Store as
currently operated in all material respects. In connection with such
assignment, and with the sale and assignment of the Catalog Business as set
forth in Article XII hereto, Amen Wardy, Sr., Amen Wardy, Jr. and Amen Wardy
Inc. each hereby immediately and irrevocably sells, assigns and conveys to the
Company (i) all right and title worldwide to the trademark "Amen Wardy" and the
right to use the name "Amen Wardy", "Amen", "A. Wardy", "Wardy", "A. Wardy Jr.",
"A. Wardy Sr." or any combination of such names and/or initials (the "Amen Wardy
Name") in association with home furnishing products or gifts and (ii) the right
to register as a trademark in any and all jurisdictions the Amen Wardy Name in
association with home furnishing products or gifts each in accordance with the
Assignments and/or Consents attached hereto as Exhibits D-1, E-1, E-2, F-1 and
F-2. Amen Wardy, Sr., Amen Wardy, Jr. and Amen Wardy Inc. each agree that
neither Amen Wardy, Sr., Amen Wardy, Jr. nor Amen Wardy Inc. shall use the Amen
Wardy Name for any purpose related to home furnishing products and gifts as
further described in Schedule 13 hereto; provided, however, that Amen Wardy,
24
<PAGE>
Sr., Amen Wardy, Jr. and Amen Wardy Inc. may use the Amen Wardy Name only in
Aspen, Colorado and then only in connection with the Aspen Store as currently
operated in all material respects. If the Aspen Store is sold by Amen Wardy
Inc. as a going concern, upon the written request of Amen Wardy Inc., the
Company shall license the purchaser of the Aspen Store to use the trademark
"Amen Wardy" within the geographic area of Aspen, Colorado and solely in
connection with the Aspen Store as currently operated in all material respects,
royalty free and under usual and customary terms as mutually agreed upon by the
parties.
13.2 Right of First Refusal. The parties understand and agree that
----------------------
St. John is entering into this Agreement in order to do business solely with
Amen Wardy, Sr., Amen Wardy, Jr. and Bob Hightower. The parties further
understand and agree that it is their intent that the Interest of Amen Wardy LLC
or any Amen Wardy LLC Affiliate in the Company shall at all times be owned and
controlled, directly or indirectly, by one or more of Amen Wardy, Sr., Amen
Wardy, Jr. and/or Bob Hightower. To these ends, Amen Wardy, Sr., Bob Hightower
and Amen Wardy, Jr. shall not transfer their ownership interests in Amen Wardy
LLC except pursuant to this Section 13.2.
------------
(a) In the event (i) Amen Wardy LLC, any member of Amen Wardy LLC,
any entity which has been admitted as a Permitted Transferee of Amen Wardy LLC
pursuant to Section 7.2 hereof, or any owner of such Permitted Transferee (the
-----------
"Amen Wardy Offerees") receives a bona fide offer from a third party and agrees
to enter a transaction with such third party which would likely result in an
Amen Wardy Change of Control Event (as defined in Exhibit A) or (ii) any of such
Amen Wardy Offerees desires to enter into a transaction with a third party which
may result in an Amen Wardy Change of Control Event (collectively, the "Offered
Transactions" and individually, an "Offered Transaction"), then such Amen Wardy
Offeree shall, within three business days thereof, deliver to St. John written
notice (the "Option Notice") setting forth in detail the circumstances of such
transaction. Within 30 days after receipt of the Option Notice by St. John, St.
John may elect to enter into the Offered Transaction upon economic terms and
conditions similar in all material respects to such terms and conditions
provided in the Option Notice. If St. John does not elect to enter into the
Offered Transaction within the 30-day period, the Amen Wardy Offeree may, within
90 days after the expiration of such 30-day period, consummate the Offered
Transaction with the third party, but only upon the terms and conditions
described in the Option Notice and only if such third party shall agree in
writing to be subject to restrictions similar to those restrictions contained in
Sections 7.1, 7.2 and 13.2 hereof (with appropriate modifications as required by
- --------------------------
the identity of the third party to give effect to the provisions of this
Agreement). If the Offered Transaction is not consummated by the Amen Wardy
Offeree during such 90-day period, then such transaction shall again become
subject to this Section 13.2.
------------
(b) In the event of (i) an involuntary transfer, bequest, devise or
gift of (x) Amen Wardy, Jr.'s, Amen Wardy, Sr.'s or Bob Hightower's ownership
interests in Amen Wardy LLC, or (y) any Amen Wardy LLC Affiliate's ownership
interest in any other Amen Wardy LLC Affiliate that owns, either directly or
indirectly, an Interest in the Company, or
25
<PAGE>
(ii) the appointment of a trustee, conservator, guardian or other similar
official to manage the affairs of Amen Wardy, Sr., Amen Wardy, Jr., Bob
Hightower, or any other Amen Wardy LLC Affiliate if such Amen Wardy LLC
Affiliate owns, either directly or indirectly, an Interest in the Company and
such trustee, conservator, guardian or similar official is not dismissed or
discharged within sixty (60) days of such appointment (collectively, the
"Transfer Events" and individually, a "Transfer Event"), then Amen Wardy LLC,
within three business days thereof, shall deliver to St. John written notice
(the "Transfer Event Notice") setting forth in detail the circumstances of such
Transfer Event. Within 45 days after receipt of the Transfer Event Notice by
St. John, St. John may elect to purchase the entire Interest of Amen Wardy LLC
and any Amen Wardy LLC Affiliate in the Company at the then fair market value of
such Interest, without regard to minority, transferability or other discount, as
determined in writing by a neutral third party mutually acceptable to St. John
and Amen Wardy LLC (the "Appraiser"). If St. John makes an election to purchase
the Interest of Amen Wardy LLC or any Amen Wardy LLC Affiliate within such 45-
day period, St. John shall purchase such Interest within ten business days of
the written determination of fair market value of such Interest by the
Appraiser. Notwithstanding the foregoing, St. John shall not have the right to
purchase the Interest of Amen Wardy LLC or any Amen Wardy LLC Affiliate under
this Section 13.2(b) in the event of an involuntary transfer, bequest, devise or
---------------
gift as described in Section 13.2(b)(i) herein if (a) such transfer, bequest,
devise or gift is made solely to an Amen Wardy LLC Affiliate, (b) after such
transfer, bequest, devise or gift, Amen Wardy, Jr., Amen Wardy, Sr. and/or Bob
Hightower own, either individually or collectively and either directly or
indirectly, at least 80% of the Interest of Amen Wardy LLC or any Amen Wardy LLC
affiliate in the Company, and (c) such transferee, legatee, devisee or donee, as
the case may be, shall agree in writing to be subject to restrictions similar to
those contained in Sections 7.1, 7.2 and 13.2 hereof (with appropriate
--------------------------
modifications as required by the identity of the transferee to give effect to
the provisions of this Agreement).
(c) The rights of first refusal contained in this Section 13.2 shall
------------
terminate upon the closing of the first underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as amended
covering the offering and sale of securities of the Company.
13.3 Ownership of Amen Wardy LLC. As of the date hereof, Amen Wardy,
---------------------------
Jr., Amen Wardy, Sr. and Bob Hightower each jointly and severally represent,
warrant, covenant and agree that Amen Wardy, Jr. owns a 50% membership interest
and Amen Wardy, Sr. and Bob Hightower own a 50% membership interest in Amen
Wardy LLC.
13.4 Services by St. John. St. John hereby agrees that any service
--------------------
St. John performs for the Company while St. John is a Member of the Company
shall be at St. John's direct cost, unless otherwise agreed to by all of the
Members. Nothing contained in this Section 13.4 shall obligate St. John to
------------
perform services for the Company.
26
<PAGE>
13.5 Amendments; Waivers. This Agreement and any Exhibit attached
-------------------
hereto may be amended only by an agreement in writing of all Members; provided,
however that the written consent of Amen Wardy, Sr., Amen Wardy, Jr. and Bob
Hightower is required to amend Sections 8.1, 8.2, 12.1, 12.2, 13.1, 13.2, 13.3,
13.5 and 13.14 hereof and the written consent of Amen Wardy Inc. is required to
amend Sections 12.1, 12.2, 13.1, 13.5 and 13.14 hereof. No waiver of any
provision or default under, nor consent to any exception to, the terms of this
Agreement or any agreement contemplated hereby shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
13.6 Further Assurances. Each party agrees that it will from time
------------------
to time, upon the reasonable request of another party, execute such documents
and instruments and take such further action as may be required to accomplish
the purposes of this Agreement consistent with the terms hereof.
13.7 Successors and Assigns. All of the terms and provisions of
----------------------
this Agreement shall be binding upon the Members and their respective successors
and assigns, but shall inure to the benefit of and be enforceable by the
successors and assigns of any Member only to the extent that they are permitted
successors and assigns (including Permitted Transferees) pursuant to the terms
hereof. No party may assign its rights hereunder except as herein expressly
permitted.
13.8 Entire Agreement. This Agreement, together with all exhibits
----------------
and schedules hereto, constitutes the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as specifically set forth herein and therein.
13.9 Rights of Members Independent. The rights available to the
-----------------------------
Members under this Agreement and at law shall be deemed to be several and not
dependent on each other and each such right accordingly shall be construed as
complete in itself and not by reference to any other such right. Any one or
more and/or any combination of such rights may be exercised by a Member and/or
the Company from time to time and no such exercise shall exhaust the rights or
preclude another Member from exercising any one or more of such rights or
combination thereof from time to time thereafter or simultaneously.
13.10 Governing Law. This Agreement, and the legal relations between
-------------
the parties, shall be governed by and construed in accordance with the laws of
the State of California and any court action arising out of this Agreement shall
be brought in any court of competent jurisdiction within the State of
California, County of Orange.
13.11 Headings. The descriptive headings of the Articles, Sections
--------
and subsections of this Agreement are for convenience only and do not constitute
a part of this Agreement.
27
<PAGE>
13.12 Counterparts. This Agreement and any amendment hereto or any
------------
other agreement (or document) delivered pursuant hereto may be executed in one
or more counterparts and by different parties in separate counterparts. All of
such counterparts shall constitute one and the same agreement (or other
document) and shall become effective (unless otherwise provided therein) when
one or more counterparts have been signed by each party and delivered to the
other party.
13.13 Notices. Any notice or other communication hereunder must be
-------
given in writing and (a) delivered in person, (b) transmitted by telex, telefax
or telecommunications mechanism, provided that any notice so given is also
mailed as provided in clause (c), or (c) mailed by certified or registered mail,
postage prepaid, receipt requested as follows:
IF ST. JOHN, ADDRESSED TO:
St. John Knits, Inc.
17422 Derian Avenue
Irvine, California 92713
Telecopy: (714) 223-3272
Attn: Mr. Robert Gray
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660-6429
Telecopy: (714) 669-6994
Attn: David A. Krinsky, Esq.
IF TO THE COMPANY, ADDRESSED TO:
Amen Wardy Home Stores, LLC
17422 Derian Avenue
Irvine, California 92713
Telecopy: (714) 223-3272
Attn: Chief Executive Officer
IF TO AMEN WARDY LLC, AMEN WARDY, SR., BOB HIGHTOWER OR AMEN WARDY
INC., ADDRESSED TO:
AWH Direct, LLC, Amen Wardy Sr., Bob Hightower
or Amen Wardy Home, Inc.
210 South Galena
Aspen, Colorado 81611
Telecopy: (970) 920-9163
Attn: Amen Wardy, Sr.
28
<PAGE>
WITH COPIES TO:
The Busch Firm
2532 Dupont Drive
Irvine, California 92612-1254
Telecopy: (714) 474-7732
Attn: George Mulcaire, Esq.
IF TO AMEN WARDY, JR., ADDRESSED TO:
Amen Wardy, Jr.
290 Magnolia Street
Costa Mesa, California 92627
Telecopy: (714) 631-6699
WITH COPIES TO:
The Busch Firm
2532 Dupont Drive
Irvine, California 92612-1254
Telecopy: (714) 474-7732
Attn: George Mulcaire, Esq.
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 3.13 and an appropriate answerback is received or, if transmitted after
- ------------
4:00 p.m. local time on a business day in the jurisdiction to which such notice
is sent or at any time on a day that is not a business day in the jurisdiction
to which such notice is sent, then on the immediately following business day,
(ii) if given by mail, on the first business day in the jurisdiction to which
such notice is sent following the date three days after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, on the business day when actually received
at such address or, if not received on a business day, on the business day
immediately following such actual receipt.
13.14 Representation By Counsel; Interpretation. The Members and all
-----------------------------------------
signatories hereto acknowledge that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of law, including but not
limited to Section 1654 of the California Civil Code, or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived.
29
<PAGE>
13.15 Severability. If any provision of this Agreement is determined
------------
to be invalid, illegal or unenforceable by any governmental entity, the
remaining provisions of this Agreement, to the extent permitted by law shall
remain in full force and effect provided that the essential terms and conditions
of this Agreement for all parties remain valid, binding and enforceable.
13.16 Meaning of Certain Terms. The phrase "as currently operated in
------------------------
all material respects" as used in this Agreement to describe the Aspen Store is
intended by the parties to prohibit the Aspen Store from competing (to the
extent provided herein) with the Company through the marketing, sale, exchange
or distribution of home furnishing products and gifts (as defined in Schedule 13
hereto) in any location in the world, and to third parties located anywhere in
the world, other than in Aspen, Colorado; provided, however, that the Aspen
Store may ship goods to customers outside of Aspen, Colorado provided such
customers purchased such goods in the Aspen Store in Aspen, Colorado. The
parties do not intend that such phrase restrict Amen Wardy in the day-to-day
operations of the Aspen Store, including the determination of the products sold
in the Aspen Store, the location of the Aspen Store in Aspen, Colorado, the
design of the Aspen Store, the business hours of the Aspen Store and the persons
employed by the Aspen Store, unless such day-to-day operations allow the Aspen
Store to compete with the Company anywhere in the world other than in Aspen,
Colorado.
[Signatures on Next Page]
30
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and
year first above written.
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ Robert E. Gray
----------------------------------
Robert E. Gray
Chairman of the Board and Chief
Executive Officer
AWH DIRECT, LLC,
a Colorado limited liability company
By: /s/ Amen Wardy, Jr.
----------------------------------
Amen Wardy, Jr.
Its:
AMEN WARDY HOME STORES, LLC,
a Delaware limited liability company
By: /s/ Amen Wardy, Jr.
----------------------------------
Amen Wardy, Jr.
Chief Executive Officer
/s/ Amen Wardy, Sr.
-----------------------------------------
Amen Wardy, Sr.
/s/ Amen Wardy, Jr.
-----------------------------------------
Amen Wardy, Jr.
[Signatures continue on the next page]
S-1
<PAGE>
/s/ Bob Hightower
-----------------------------------------
Bob Hightower
AMEN WARDY HOME, INC.,
a Colorado corporation
By: /s/ Amen Wardy, Sr.
----------------------------------
Amen Wardy, Sr.
Its:
S-2
<PAGE>
EXHIBIT A
---------
GENERAL DEFINITIONS
As used in this Agreement and the Exhibits attached to this Agreement,
the following definitions shall apply.
"Act" means the Delaware Limited Liability Act as in effect on the
date hereof and as may be amended from time to time.
"Affiliate" means an individual, corporation, partnership, limited
liability company, trust or other entity or organization (a "Person") that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, a specified Person, subject to
the last sentence of this paragraph. For purposes of this definition,
"controls," "is controlled by," or "is under common control with" shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person or entity, whether through the ownership
of voting securities, by contract or otherwise. For purposes of this Agreement,
the following individuals and entities are deemed to be the only Affiliates of
Amen Wardy LLC: (i) Amen Wardy, Sr., (ii) Amen Wardy, Jr., (iii) Bob Hightower
or (iv) any corporation, partnership, limited liability company or other entity
of which 80% or more of the total voting power of such entity is directly or
indirectly owned by any one or a combination of Amen Wardy, Sr., Amen Wardy, Jr.
and Bob Hightower.
An "Amen Wardy Change of Control Event" means (i) a transaction or
series of transactions which result in one or more "persons" (as that term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than an Amen Wardy LLC Affiliate, becoming
in the aggregate after the date hereof the "beneficial owner" or "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of Amen Wardy LLC, any entity which has been admitted
as a Permitted Transferee of Amen Wardy LLC pursuant to Section 7.2 hereof or
-----------
any transferee under Section 13 hereof (collectively, the "Amen Wardy Entities"
----------
and individually, an "Amen Wardy Entity") representing 20% or more of the total
voting power represented by such Amen Wardy Entity's then outstanding voting
securities, (ii) a merger, reorganization or consolidation or other business
combination or similar transaction involving an Amen Wardy Entity and any other
limited liability company, corporation or other entity, other than a merger,
reorganization, consolidation or other business combination or similar
transaction which would result in the voting securities of such Amen Wardy
Entity outstanding immediately prior to such transaction continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least 80% of the total voting power represented by the
voting securities of such Amen Wardy Entity or the surviving entity, as the case
may be, outstanding immediately after such transaction, (iii) the liquidation or
dissolution of an Amen Wardy Entity, unless 80% or more of the assets of such
entity are distributed solely to an Amen Wardy Affiliate or Amen Wardy
Affiliates, (iv) the sale or disposition by an Amen Wardy Entity (in one
transaction or
A-1
<PAGE>
a series of transactions) of all or substantially all of such Amen Wardy
Entity's assets or (v) any transaction or series of transactions that result in
Amen Wardy, Sr., Amen Wardy, Jr. and/or Bob Hightower owning, either directly or
indirectly, less than 80% of the Interest of Amen Wardy LLC or any Amen Wardy
LLC Affiliate in the Company. Notwithstanding the foregoing, an Amen Wardy
Change of Control Event shall not include the sale of the Aspen Store as a going
concern or a Permitted Transfer to an Amen Wardy LLC Affiliate pursuant to
Section 7.2 hereof.
- -----------
"Amen Wardy LLC Managing Directors" means the Managing Directors
designated by Amen Wardy in accordance with Sections 5.1(b) and (c) hereof.
-----------------------
"Business Activities" means the development, design, operation or
management of retail home furnishing stores. Business Activities shall not
include the operation or management of the Aspen Store as currently operated in
all material respects.
"Capital Contributions" means, with respect to any Member, the amount
of money and the initial Gross Asset Value of any property (other than money),
net of liabilities assumed or taken subject to by the Company, contributed to
the Company with respect to the Interest held by such Member pursuant to the
terms of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of succeeding law.)
"Fiscal Year" means (i) the period commencing on the effective date of
this Agreement and ending on November 2, 1997 (ii) any subsequent 52-53 week
fiscal year ending on the Sunday nearest to October 31, or (iii) any portion of
the period described in clause (ii) for which the Company is required to
allocate Profits, Losses and other items of Company income, gain, loss or
deduction pursuant to Article III hereof.
-----------
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"Interest" shall mean the entire interest of a Member in the Company,
including all of such Member's rights, powers and privileges under this
Agreement and the Act.
"Member" means any Person that executes this Agreement as a Member,
and any other Person admitted to the Company as an additional or substituted
Member, that has not made a disposition of such Person's entire Interest.
"Percentage Interest" means, with respect to any Member, the
Percentage Interest set forth opposite such Member's name in Section 2.1. In
-----------
the event any Interest in the Company is transferred in accordance with the
provisions of Section 7.2(a) of this Agreement, the Permitted Transferee of
--------------
such Interest shall succeed to the Percentage Interest of the transferor to the
extent it relates to the transferred Interest.
A-2
<PAGE>
"Permitted Transfer" means a transfer of an Interest in accordance
with Section 7.2(a) hereof.
---------------------
"St. John Managing Directors" means the Managing Directors designated
by St. John in accordance with Section 5.1(b) and (c) hereof.
----------------------
A-3
<PAGE>
EXHIBIT B
---------
TAX DEFINITIONS
"Adjusted Basis" shall have the meaning given such term in Section
1011 of the Code.
"Adjusted Capital Account Deficit" means the deficit balance, if any,
in such Member's Capital Account at the end of any Fiscal Year, with the
following adjustments:
(i) credit to such Capital Account any amount that such Member is
obligated to restore under Treasury Regulations Section 1.704-
1(b)(2)(ii)(c), as well as any addition thereto pursuant to the next to
last sentences of the Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) after taking into account thereunder any changes during such
year in Company Minimum Gain and in the minimum gain attributable to any
Member Nonrecourse Debt; and
(ii) debit to such Capital Account the items described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
This definition of Adjusted Capital Account Deficit is intended to comply with
the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and
shall be interpreted consistently therewith.
"Capital Account" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with Section 2.4 of this
Agreement.
"Capital Contributions" means, with respect to any Member, the amount
of money and the initial Gross Asset Value of any property (other than money),
net of liabilities assumed or taken subject to by the Company, contributed to
the Company with respect to the Interest held by such Member pursuant to the
terms of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of succeeding law.)
"Company Minimum Gain" has the meaning of "partnership minimum gain"
set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). It is
further understood that Company Minimum Gain shall be determined in a manner
consistent with the rules of Regulations Section 1.702-2(b)(2) including,
without limitation, the requirement that if the adjusted Gross Asset Value of
property subject to one or more Nonrecourse Liabilities differs from its
adjusted tax basis, Company Minimum Gain shall be determined with reference to
such Gross Asset Value.
B-1
<PAGE>
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its Adjusted Basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning Adjusted Basis; provided, however, that if the
Adjusted Basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Chief Financial Officer.
"Economic Risk of Loss" means the determination of whether a Member
bears the economic risk of loss with respect to any partnership liability made
in accordance with Treasury Regulations Section 1.752-2 (without regard to
whether that Section otherwise applies to such liability).
"Gross Asset Value" means, with respect to any asset, the asset's
Adjusted Basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset,
as determined by the Members;
(ii) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Chief Financial Officer, as of the following times: (a) the acquisition of
an additional interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (b) the
----------
distribution by the Company to a Member of more than a de minimis amount of
----------
Property as consideration for an interest in the Company; and (c) the
liquidation of the Company within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant
-
to clauses (a) and (b) above shall be made only if the Chief Financial
Officer reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members in
the Company;
(iii) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal the gross fair market value of such asset
on the date of distribution as determined by the distributee and the Chief
Financial Officer, provided that if the Chief Financial Officer is an
employee or an Affiliate of the distributee, the determination of the fair
market value of the distributed asset shall require the consent of a
majority of the other Members; and
B-2
<PAGE>
(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and
subsection (vi) in the definition of "Profits" and "Losses" below and
Section 3.3 hereof; provided, however, that Gross Asset Values shall not be
adjusted pursuant to this subsection to the extent the Chief Financial
Officer determines that an adjustment pursuant to subsection (ii) of this
definition is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this subsection
(iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsections(i), (ii) or (iv) of this definition of Gross Asset
Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing Profits
and Losses.
"Member Minimum Gain" has the meaning of "partner nonrecourse debt
minimum gain" set forth in Treasury Regulations Section 1.704-2(i). It is
further understood that the determination of Member Minimum Gain and the net
increase or decrease in Member Minimum Gain shall be made in the same manner as
required for such determination of Company Minimum Gain under Treasury
Regulations Sections 1.704-2(d) and -2(g)(3).
"Member Nonrecourse Debt" has the meaning of "partner nonrecourse
debt" set forth in Section 1.704-2(b)(4) of the Treasury Regulations.
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.
"Member Nonrecourse Deductions" has the meaning of "partner
nonrecourse deductions" set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Treasury Regulations.
"Nonrecourse Debt" means any Company liability that is considered to
be nonrecourse for purposes of Treasury Regulation Section 1.1001-1 (without
regard to whether such liability is a recourse liability under Treasury
Regulations Section 1.752-2, and any Company liability for which the creditor's
right to repayment is limited to one or more assets of the Company.
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-
2(b)(1) of the Treasury Regulations.
B-3
<PAGE>
"Nonrecourse Liability" has the meaning set forth in Section 1.704-
2(b)(3) of the Treasury Regulations.
"Profits" and "Losses" mean, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) any depreciation, amortization and/or cost recovery deductions
with respect to any asset shall be deemed to be equal to the Depreciation
available with respect to such asset;
(ii) any income or gain of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or loss;
(iii) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses, shall be subtracted from
such taxable income or loss;
(iv) in the event the Gross Asset Value of any Company asset is
adjusted pursuant to subsection (ii) or (iii) or the definition of Gross
Asset Value above, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Profits or Losses;
(v) gain or loss resulting from any disposition of Company assets
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed with reference to the Gross Asset Value of the
asset disposed of, notwithstanding that the adjusted tax basis of such
asset differs from its Gross Asset Value;
(vi) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4)
- -
to be taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's interest in the
Company, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Profits or
Losses; and
B-4
<PAGE>
(vii) any items of income, gain, loss or deduction which are
individually allocated pursuant to the provisions of Article III hereof
shall not be taken into account in computing Profits and Losses for any
taxable year.
"Section 704(c) Property" means (1) each item of Company property
which is contributed to the Company and to which section 704(c) of the Code or
Section 1.704-3(a)(3) of the Regulations applies, and (2) each item of Company
property which, as contemplated by Section 1.704-1(b)(4)(i) and other analogous
provisions of the Regulations, is governed by the principles of Section 704(c)
of the Code (or principles analogous to the principles contained in section
704(c) of the Code).
"Tax Depreciation" means depreciation, accelerated cost recovery, or
modified cost recovery, and any other amortization, deductions allowed or
allowable with respect to any Company Property for federal income tax purposes.
"Tax Matters Member" means the "tax matters member" as defined in
Section 9.4 and in Code Section 6231(a)(7).
- -----------
"United States Taxable Income" means taxable income for United States
federal income tax purposes as shown on Form K-1 for any tax year.
B-5
<PAGE>
EXHIBIT C
---------
FORM OF PROMISSORY NOTE
$___________ Irvine, California
________________, _____
FOR VALUE RECEIVED, Amen Wardy Home Stores, LLC, a Delaware limited
liability company (the "BORROWER"), promises to pay to St. John Knits, Inc., a
California corporation ("HOLDER"), at its place of business located at 17422
Derian Avenue, Irvine, California 92713 or such other place as may be designated
in writing by Holder, the principal amount of _______________________________
($_________) with interest on the principal amount at the rate of 8.5% per annum
(the "NOTE"). Principal and interest shall be due and payable three (3) years
from the date hereof.
Interest only payments under this Note shall be payable every six (6)
months, beginning on the date hereof and continuing semiannually thereafter
through __________, ______, on which date the principal, any unpaid interest and
all other sums due hereunder this Note shall be paid in full.
Borrower may prepay without penalty this Note in full at any time
together with any interest due up to the date of payment. Borrower shall be in
default of this Note if any payment of principal or interest is not made within
10 days after receipt of written notice by such Borrower that such payment is
due. Upon the occurrence of a default, all principal, interest, and any other
sums due in accordance with the terms of this Note shall, at Holder's option, be
immediately due and payable.
This Note shall be binding on Borrower, its representatives and
successors and shall inure to the benefit of and shall be enforceable by Holder,
its successors and assigns. This Note may not be changed, modified, amended, or
terminated orally, but the foregoing may be done in writing by authorized
representatives of the parties. If Holder shall institute legal action to
enforce payment hereof, Borrower agrees, in addition to any other payments
required hereunder, to pay all reasonable expenses of collection, including
attorneys' fees. This Note shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS THEREOF, Borrower has caused this Note to be executed and
delivered as of the date first above written.
AMEN WARDY HOME STORES, LLC,
a Delaware limited liability company
By: _______________________________
Name: _____________________________
Title: ____________________________
C-1
<PAGE>
EXHIBIT D-1
-----------
TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
WHEREAS, pursuant to that certain Operating Agreement, dated concurrently
herewith, by and between Amen Wardy Home, Inc., a Colorado corporation
("Assignor"), Amen Wardy Home Stores, LLC ("Assignee") and certain other
parties, Assignor has assigned, sold and conveyed certain assets related to its
Aspen store and catalog business including the good will related thereto and its
manufacturing sources and information, customer lists and other know-how related
thereto;
WHEREAS, Assignor has adopted, used, is using and is the owner of the
trademarks and corresponding U.S. Trademark Registrations listed in Attachment A
hereto (the "Marks");
WHEREAS, Assignee desires to acquire the trademarks and the registrations
thereof;
WHEREAS, Assignee desires to obtain the worldwide right to use and register
the name and likeness of Assignor in connection with the advertisement,
promotion and sale of all products and services generally described in
Attachment B hereto (the "Products and Services"); and
WHEREAS, Assignor has the authority to grant the worldwide right to use and
register Assignor's name, likeness, and endorsement to Assignee in connection
with the advertisement, promotion and sale of the Products and Services and
desires to do so;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor hereby sells, assigns and transfers to Assignee, its successors
and assigns, absolutely and forever, the entire worldwide right, title and
interest, whether statutory or at common law, in and to the Marks, together with
the goodwill of the business symbolized by the Marks and all registrations
therefor, in the United States of America, its territories and possessions and
all other countries in which the Marks are or may be used, together with all
causes of action for any and all previously occurring infringements of the
rights being assigned and the right to receive and retain the proceeds relating
to those infringements.
Assignor shall execute, without incurring any material cost to such
Assignor, any further documents and do such other acts as may be reasonably
necessary and proper to vest full title in and to the Marks in Assignee in any
jurisdiction Assignee may desire.
D-1
<PAGE>
Assignor hereby consents to the use and registration by Assignee of
Assignor's name, in whole or in part, as a trademark or service mark for the
Products and Services.
Assignor shall execute any further documents and do such other acts as may
be necessary and proper to: (i) register Assignor's name, in whole or in part,
as a trademark or service mark for the Products and Services in any jurisdiction
Assignee may desire ("Name Marks"), and (ii) vest full title in and to the Name
Marks in Assignee.
D-2
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
STATE OF TEXAS )
COUNTY OF _________________ )
Before me, _______________________, a Notary Public, on this day personally
appeared _______________, known to me (or proved to me on the oath of
____________) to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he/she executed the same for the purposes
and consideration therein expressed.
Given under my hand and seal of office this ___ day of ____________, 1997.
_______________________________ (Seal)
(Notary Public Signature)
D-3
<PAGE>
ATTACHMENT A TO TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
U.S. REGISTERED TRADEMARKS/COMMON LAW TRADEMARKS
<TABLE>
<CAPTION>
Trademark Serial No. Registration Date
- ------------- ---------- -----------------
<S> <C> <C>
Amen Wardy 73-561,727 June 17, 1986
Amen Wardy 73-561,940 July 15, 1986
</TABLE>
D-4
<PAGE>
ATTACHMENT B TO TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
D-5
<PAGE>
EXHIBIT E-1
-----------
TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
WHEREAS, Amen Wardy, Sr. ("Assignor") has the authority to grant the
worldwide right to use and register Assignor's name, likeness, and endorsement
to Assignee in connection with the advertisement, promotion and sale of all
products and services generally described in Attachment A hereto (the "Products
and Services");
WHEREAS, Amen Wardy Home Stores, LLC, a Delaware limited liability company
("Assignee") desires to obtain the worldwide right to use and register the name
and likeness of Assignor in connection with the advertisement, promotion and
sale of the Products and Services and desires to do so; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor hereby grants to Assignee, its successors and assigns, absolutely
and forever, the worldwide right to use Assignor's name, in whole or in part, in
connection with the advertisement, promotion and sale of the Products and
Services in the United States of America, its territories and possessions and
all other countries in which the trademarks may be used.
Assignor shall execute any further documents and do such other acts as may
be necessary and proper to give effect to the foregoing.
Assignor hereby consents to the use and registration by Assignee of
Assignor's name, in whole or in part, as a trademark or service mark for the
Products and Services.
Assignor shall execute, without incurring any material cost to such
Assignor, any further documents and do such other acts as may be reasonably
necessary and proper to: (i) register Assignor's name, in whole or in part, as a
trademark or service mark for the Products and Services in any jurisdiction
Assignee may desire ("Name Marks"), and (ii) vest full title in and to the Name
Marks in Assignee.
E-1-1
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
STATE OF TEXAS )
COUNTY OF _________________ )
Before me, _______________________, a Notary Public, on this day
personally appeared _______________, known to me (or proved to me on the oath of
____________) to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he/she executed the same for the purposes
and consideration therein expressed.
Given under my hand and seal of office this ___ day of ____________,
1997.
_______________________________ (Seal)
(Notary Public Signature)
E-1-2
<PAGE>
ATTACHMENT A TO TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
E-1-3
<PAGE>
EXHIBIT E-2
-----------
GRANT OF RIGHT OF PUBLICITY
WHEREAS, Amen Wardy, Sr., ("Assignor") has the authority to grant the
worldwide right to use Assignor's name, likeness, and endorsement to Assignee in
connection with the advertisement, promotion and sale of all products and
services generally described in Attachment A hereto (the "Products and
Services") and desires to do so;
WHEREAS, Amen Wardy Home Stores, LLC, a Delaware limited liability company
("Assignee") desires to obtain the worldwide right to use the name, likeness and
endorsement of Assignor in connection with the advertisement, promotion and sale
of the Products and Services; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor, hereby grants to Assignee the exclusive, worldwide and perpetual
right to use Assignor's name, likeness, and endorsements on and in connection
with the distribution, advertisement, promotion and sale of the Products and
Services in any marketing area in which Assignee now and hereafter does
business.
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
E-2-1
<PAGE>
STATE OF TEXAS )
COUNTY OF _________________ )
Before me, _______________________, a Notary Public, on this day
personally appeared _______________, known to me (or proved to me on the oath of
____________) to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he/she executed the same for the purposes
and consideration therein expressed.
Given under my hand and seal of office this ___ day of ____________,
1997.
_______________________________ (Seal)
(Notary Public Signature)
E-2-2
<PAGE>
ATTACHMENT A TO GRANT OF RIGHT OF PUBLICITY
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
E-2-3
<PAGE>
EXHIBIT F-1
-----------
TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
WHEREAS, Amen Wardy, Jr. ("Assignor") has the authority to grant the
worldwide right to use and register Assignor's name, likeness, and endorsement
to Assignee in connection with the advertisement, promotion and sale of all
products and services generally described in Attachment A hereto (the "Products
and Services");
WHEREAS, Amen Wardy Home Stores, LLC, a Delaware limited liability company
("Assignee") desires to obtain the worldwide right to use and register the name
and likeness of Assignor in connection with the advertisement, promotion and
sale of the Products and Services and desires to do so; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor hereby grants to Assignee, its successors and assigns, absolutely
and forever, the worldwide right to use Assignor's name, in whole or in part, in
connection with the advertisement, promotion and sale of the Products and
Services in the United States of America, its territories and possessions and
all other countries in which the trademarks may be used.
Assignor shall execute any further documents and do such other acts as may
be necessary and proper to give effect to the foregoing.
Assignor hereby consents to the use and registration by Assignee of
Assignor's name, in whole or in part, as a trademark or service mark for the
Products and Services.
Assignor shall execute, without incurring any material cost to such
Assignor, any further documents and do such other acts as may be reasonably
necessary and proper to: (i) register Assignor's name, in whole or in part, as a
trademark or service mark for the Products and Services in any jurisdiction
Assignee may desire ("Name Marks"), and (ii) vest full title in and to the Name
Marks in Assignee.
F-1-1
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
STATE OF CALIFORNIA )
COUNTY OF __________________ )
On ___________, 19___, before me, ____________________, a Notary
Public in and for said State, personally appeared
_______________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
F-1-2
<PAGE>
ATTACHMENT A TO TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
F-1-3
<PAGE>
EXHIBIT F-2
-----------
GRANT OF RIGHT OF PUBLICITY
WHEREAS, Amen Wardy, Jr., ("Assignor") has the authority to grant the
worldwide right to use Assignor's name, likeness, and endorsement to Assignee in
connection with the advertisement, promotion and sale of all products and
services generally described in Attachment A hereto (the "Products and
Services") and desires to do so;
WHEREAS, Amen Wardy Home Stores, LLC, a Delaware limited liability company
("Assignee") desires to obtain the worldwide right to use the name, likeness and
endorsement of Assignor in connection with the advertisement, promotion and sale
of the Products and Services; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor, hereby grants to Assignee the exclusive, worldwide and perpetual
right to use Assignor's name, likeness, and endorsements on and in connection
with the distribution, advertisement, promotion and sale of the Products and
Services in any marketing area in which Assignee now and hereafter does
business.
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
F-2-1
<PAGE>
STATE OF CALIFORNIA )
COUNTY OF _________________ )
On ___________, 19___, before me, ____________________, a Notary
Public in and for said State, personally appeared
_______________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
F-2-2
<PAGE>
ATTACHMENT A TO GRANT OF RIGHT OF PUBLICITY
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
F-2-3
<PAGE>
SCHEDULE 13
HOME FURNISHING PRODUCTS AND GIFTS
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
Schedule 13-1
<PAGE>
EXHIBIT 10.5
PRODUCT DESIGN AND DEVELOPMENT AGREEMENT
THIS PRODUCT DESIGN AND DEVELOPMENT AGREEMENT (this "Agreement") is entered
into effective the 5th day of August, 1997 among the following parties: ST. JOHN
KNITS, INC., a California corporation ("St. John"), AMEN WARDY, SR., an
individual ("Amen Wardy") and AMEN WARDY, JR., an individual (For purposes of
Sections 6.1, 6.2, 6.3, 6.4, 6.5, 7.1, 7.2, 7.3 and 7.4 hereof the term "Amen
Wardy" shall refer to Amen Wardy, Sr. and Amen Wardy, Jr. Amen Wardy, Jr. is a
party only to Sections 6.1, 6.2, 6.3, 6.4, 6.5, 7.1, 7.2, 7.3 and 7.4 hereof).
RECITALS
A. St. John designs, manufactures and distributes a high fashion line of
women's clothing and accessories.
B. Amen Wardy is an individual who owns and operates a high-end home
furnishing retail store in Aspen, Colorado.
C. St. John desires to develop, market and distribute its own line of
home furnishing products and gifts as more fully defined in Schedule C attached
hereto ("Home Furnishing Products and Gifts") under the name "St. John Home by
Amen Wardy."
D. St. John and Amen Wardy each desire that Amen Wardy provide to St.
John certain design and development services relating to the development of a
line of Home Furnishing Products and Gifts and assign and consent to St. John
the right to use the name "Amen Wardy" on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, with reference to the foregoing Recitals, and in exchange
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto covenant and agree as follows:
1. DESIGN AND DEVELOPMENT PROGRAM
1.1 Amen Wardy's Responsibilities. During the term of this Agreement, Amen
-----------------------------
Wardy agrees to perform the functions necessary to design and develop a line of
Home Furnishing Products and Gifts (such Home Furnishing Products and Gifts
designed and/or developed by Amen Wardy or sold by St. John under the Product
Trademark (as defined in Section 6.1 hereof) pursuant to Section 8.5 hereof
shall be referred to in this Agreement as the "Products"), including, without
limitation, the activities set forth in the subparts of this Section 1.1 (the
"Work"):
1.1.1 Prepare and recommend a schedule and plan for the development
of Products;
<PAGE>
1.1.2 Obtain and/or design and/or develop samples of Products and
make presentations of such samples to St. John at its offices in Irvine,
California;
1.1.3 Design and create packaging for the Products;
1.1.4 If applicable, purchase Products from third parties;
1.1.5 Make personal appearances on behalf of St. John and the
Products as St. John may reasonably request from time to time; and
1.1.6 Perform any other services from time to time in connection with
the Products as St. John reasonably requests.
1.2 St. John Approval. All matters relating to the development of the
-----------------
Products, including, but not limited to, the designs, samples, budgets, plans
and schedules prepared by Amen Wardy pursuant to this Agreement, are subject to
St. John's express written prior approval. After any matter has been approved
by St. John, Amen Wardy shall not depart therefrom in any material respect
without the express prior approval of St. John.
1.3 Negotiation of Contracts. All contracts to be negotiated hereunder by
------------------------
Amen Wardy on behalf of St. John are subject to St. John's prior written
approval and execution. Amen Wardy shall have no authority to enter into any
agreements on behalf of St. John nor shall Amen Wardy approve on behalf of St.
John plans and designs, change orders, budgets, revisions to budgets, or similar
matters contemplated hereby, except with St. John's prior authorization. As
soon as practicable from the date of this Agreement, Amen Wardy shall submit his
initial purchasing request setting forth requested expenditures for his initial
purchasing trip. Such expenditures shall be subject to the prior approval of
St. John. Prior to any subsequent purchasing trips, Amen Wardy shall submit
similar purchasing requests for St. John's approval.
1.4 Best Efforts. Amen Wardy shall devote his best efforts and business
------------
judgment to serving St. John as the designer and developer of the Products, and
shall perform his duties hereunder in a diligent and careful manner so as to
develop the Products in accordance with the plans, schedules and budgets
approved by St. John. St. John shall devote its best efforts to market and
distribute the Products.
1.5 Exclusivity. St. John agrees that Amen Wardy will be the exclusive
-----------
designer and developer of the St. John line of Home Furnishing Products and
Gifts during the term of this Agreement. Amen Wardy agrees that he shall design
and develop Home Furnishing Products and Gifts exclusively for St. John during
the term of this Agreement; provided, however that Amen Wardy may design and
develop Home Furnishing Products and Gifts (i) for Amen Wardy Home Stores, LLC,
a Delaware limited liability company ("Amen Wardy Home Stores"), and (ii) for
sale solely in Aspen, Colorado and then only in the Amen Wardy home furnishing
store as currently operated in all material respects in Aspen, Colorado (the
"Aspen Store").
2
<PAGE>
1.6 Books and Records. Amen Wardy agrees to keep accurate books of account
-----------------
and records, covering all transactions relating to this Agreement, and St. John
and its duly authorized representatives shall have the right, upon five (5) days
prior written notice and during regular business hours, to examine the books of
account and records and all other documents and material in the possession or
under the control of Amen Wardy that relate to the design and development of the
Products.
2. DESIGN FEE PROVISIONS.
2.1 Design Fee Payable to Amen Wardy. In consideration of Amen Wardy's
--------------------------------
design and development efforts in connection with this Agreement, St. John shall
pay to Amen Wardy a design fee of two percent (2%) of the Net Sales of the
Products sold by St. John. The design fee shall commence on the first
commercial sale of the Products. Except as set forth in Section 8.5 hereof, the
obligation to pay the design fee shall terminate for all purposes upon the
termination of this Agreement, except that St. John shall pay any unpaid design
fee on Products sold by St. John prior to the termination of this Agreement.
Net Sales means the price charged to its customers for the Products, less
customary trade discounts, return rebates and federal excise taxes.
2.2 Payments and Records. St. John shall keep complete and accurate
--------------------
records in accordance with generally accepted accounting principles on sales of
the Products by St. John. On or before the sixtieth (60th) day after the end of
each fiscal quarter of St. John in which a commercial sale of the Products by
St. John occurs, St. John shall furnish Amen Wardy with a written report setting
forth the Net Sales of the Products during such fiscal quarter, together with a
calculation of the design fee due on reported sales. Such report shall be
accompanied by any design fee payment shown thereon to be due. St. John shall
provide Amen Wardy such records as Amen Wardy shall reasonably request to enable
him to review the calculation of Net Sales.
2.3 Right to Audit. If Amen Wardy fails to notify St. John in writing,
--------------
within thirty (30) business days following the delivery of the written report
setting forth the calculation of the design fee due, of any objections to such
calculation, Amen Wardy's failure to so object shall constitute approval of such
calculations. If Amen Wardy timely objects, Amen Wardy and St. John shall use
their best efforts to resolve any differences with respect to such calculations.
In the event St. John and Amen Wardy are unable to reach an agreement, Amen
Wardy shall have the right to cause an independent accounting firm mutually
acceptable to both parties (the "Reviewer") to perform a review (the "Review")
of the calculations and resolve such dispute. Amen Wardy may cause only one
Review in each of St. John's fiscal years during the term of this Agreement;
provided, however that any one such Review may address the calculations of the
design fee (i) which have been set forth in the written reports delivered by St.
John to Amen Wardy during the twelve months preceding the date of such Review
and (ii) which have not been subject to a prior Review. Such firm shall act as
arbitrator, and its conclusions shall be conclusive hereunder, absent fraud or
manifest error. Any upward adjustment to the design fee due pursuant to this
Section 2.3 shall be paid promptly by St. John to Amen Wardy and any downward
adjustment to such
3
<PAGE>
design fee shall be paid promptly by Amen Wardy to St. John. Amen Wardy shall
pay all of the fees and expenses in connection with the Review, unless the
design fee due to Amen Wardy is adjusted upward by at least 5% as a result of
the Review, in which case St. John shall pay all such fees and expenses.
2.4 Reimbursement of Reasonable Expenses. St. John shall reimburse Amen
------------------------------------
Wardy for all reasonable out-of-pocket costs, charges, fees and expenses paid by
Amen Wardy in the performance of his duties hereunder.
3. Indemnification
Amen Wardy will defend, indemnify and hold St. John harmless from and
against all losses, damages, liabilities, expenses and costs, including
reasonable attorney's fees, rising out of: (i) willful or intentional
misconduct, knowingly fraudulent or deliberately dishonest acts or omissions, or
the negligent acts or omissions of Amen Wardy, Amen Wardy's employees, agents or
independent contractors and (ii) any action or claim alleging infringement of
any third party rights including without limitation rights under copyright,
trademark, patent, trade secret or any other proprietary right. This
indemnification shall survive the expiration or termination of the Agreement.
Notwithstanding the foregoing, no payments pursuant to this Section 3 shall be
made by Amen Wardy to indemnify St. John for any losses, damages, liabilities,
expenses and costs, including reasonable attorney's fees, rising out of the
negligent acts or omissions of Amen Wardy, Amen Wardy's employees, agents or
independent contractors to the extent payment is actually made to and received
by St. John for such losses, damages, liabilities, expenses and costs under a
valid and collectible insurance policy and St. John hereby waives and
relinquishes any and all rights which it may have against Amen Wardy pursuant to
this Section 3 on account of such losses, damages, liabilities, expenses and
costs suffered by it rising out of the negligent acts or omissions of Amen
Wardy, Amen Wardy's employees, agents or independent contractors to the extent
such losses, damages, liabilities, expenses and costs are covered by a valid and
collectible insurance policy and as to which St. John is fully reimbursed by an
insurer. St. John hereby agrees to maintain reasonable and customary liability
insurance coverage, as St. John shall determine in its sole discretion, during
the term of this Agreement.
4. Confidentiality.
4.1 Confidential Information. Amen Wardy acknowledges that Amen Wardy
------------------------
shall have access to, and that there shall be disclosed to Amen Wardy,
information of a confidential nature that has value to St. John ("Confidential
Information"), including, without limitation, information, ideas, concepts,
know-how, methods, techniques, material and data relating to the business,
financial condition, work-in-progress, designs and artistic creations of St.
John, whether or not such information is patentable or copyrightable. St. John
acknowledges that, except for Amen Wardy's engagement by St. John, Amen Wardy
would not otherwise have access to such information. During the term of this
Agreement or any time thereafter, Amen Wardy shall keep all Confidential
Information in confidence and shall not directly disclose any Confidential
Information to any person, except (i) to Amen Wardy's
4
<PAGE>
employees who agree in writing to be bound by this Agreement (the "Permitted
Employees"), (ii) to St. John's personnel on a "need-to-know" basis and to other
persons as designated in writing by St. John, (iii) if and to the extent such
Confidential Information hereafter becomes lawfully and without breach of this
Agreement within the public domain, or (iv) to the extent such duty as to
confidentiality is waived in writing by St. John. Without the express consent of
St. John, Amen Wardy and his Permitted Employees shall not use or permit to be
used any Confidential Information for the gain or benefit of any party other
than St. John or for personal gain or benefit outside the scope of Amen Wardy's
engagement by St. John.
4.2 Remedies. Amen Wardy acknowledges that such Confidential Information
--------
constitutes trade secrets, disclosure of which would cause irreparable harm to
St. John; therefore, St. John is entitled to injunctive relief in a court of
law to prevent the disclosure of any Confidential Information or trade secrets,
or to seek damages resulting therefrom, and shall not be required to resolve any
such dispute through arbitration.
5. Right to Products, Designs, Ideas and Inventions.
5.1 Products. The Products, together with the combinations of designs,
--------
colors and ornamentations that make up the Products, shall be the sole property
of St. John and any use thereof shall be controlled by St. John in its sole
discretion.
5.2 Ideas and Inventions. Amen Wardy agrees to promptly disclose and
--------------------
assign to St. John all of Amen Wardy's ideas, concepts, know-how, techniques,
processes, methods, inventions, discoveries, developments, innovations and
improvements ("Inventions") conceived or made by Amen Wardy, whether alone or
with others, during the term of this Agreement, and which either: (a) involve or
are reasonably related to St. John's actual or demonstrably anticipated research
or development; or (b) incorporate or are based on, in whole or in part, any of
the Confidential Information. Amen Wardy agrees to provide all assistance
reasonably requested by St. John in the preservation of its interests in the
Inventions, such as by executing documents, testifying, and all similar
activity, such assistance to be provided at St. John's expense but without any
additional compensation to Amen Wardy. Amen Wardy shall, at the expense of St.
John, assist St. John or its nominees to obtain patents for such Inventions in
any countries throughout the world. Such Inventions shall be the property of St.
John or its nominees, whether patented or not. Amen Wardy hereby irrevocably
appoints St. John, and its duly authorized officers and agents, as Amen Wardy's
agent and attorney-in-fact to act for and in behalf of Amen Wardy in filing all
patent applications, applications for copyright protection and registration
amendments, renewals, and all other appropriate documents in any way related to
the Inventions. For the purposes of this Agreement, an Invention is deemed to
have been made during the term of Amen Wardy's engagement to perform the Work if
the Invention was conceived or first actually reduced to practice during the
term of such engagement, and Amen Wardy agrees that any disclosures of an
Invention or any patent application made within one (1) year after termination
of Amen Wardy's engagement shall be presumed to relate to an Invention which
5
<PAGE>
was made during the term of Amen Wardy's engagement unless Amen Wardy provides
satisfactory and compelling evidence to the contrary.
5.3 Copyrights. Amen Wardy agrees that any Work prepared by Amen Wardy for
----------
St. John which is eligible for copyright protection in the United States or
elsewhere shall be a work made for hire. If any such Work is deemed for any
reason not to be a work made for hire, Amen Wardy assigns all right, title and
interest in the copyright in such Work, and all extensions and renewals thereof,
to the St. John, and agrees to provide all assistance reasonably requested by
St. John in the establishment, preservation and enforcement of its copyright in
such Work, such assistance to be provided at St. John's expense but without any
additional compensation to Amen Wardy. Amen Wardy agrees to waive all moral
rights relating to the Work developed or produced, including, without
limitation, any and all rights of identification of authorship and any and all
rights of approval, restriction or limitation on use or subsequent
modifications.
5.4 Conflicting Obligations And Rights. Prior to commencing any Work for
----------------------------------
St. John, Amen Wardy shall inform St. John in writing of any apparent or
potential conflict between Amen Wardy's Work for St. John and (a) any
obligations Amen Wardy may have to preserve the confidentiality of the
proprietary information or materials of any other party, or (b) any rights Amen
Wardy claims to any patents, copyrights, trade secrets, or other discoveries,
inventions, ideas, know-how, techniques, methods, processes or other proprietary
information or materials relating to Home Furnishing Products and Gifts.
Otherwise, St. John may conclude that no such conflict exists and Amen Wardy
agrees thereafter to make no such claim against St. John. St. John shall receive
such disclosures in confidence.
5.5 Assistance of Amen Wardy. Amen Wardy agrees to provide all assistance
------------------------
reasonably requested by St. John in the preservation of St. John's interests in
the Inventions, such assistance to be provided without any additional
compensation to Amen Wardy; provided, however that Amen Wardy shall not incur
any material cost in providing such assistance.
6. PRODUCT TRADEMARK.
6.1 Name of Products. St. John shall market and distribute the Products
----------------
under the trademark "St. John Home by Amen Wardy," or such other trademarks that
include the words "Amen", "Wardy", both, or any combination of such names, with
or without initials, that also include the words "St. John" as St. John shall
determine in its sole discretion (the "Product Trademark").
6.2 No Ownership Rights. Amen Wardy acknowledges and agrees that Amen
-------------------
Wardy shall acquire no ownership rights to the Product Trademark by virtue of
this Agreement or otherwise and that all uses by Amen Wardy of the Product
Trademark and any and all goodwill related thereto shall inure to the benefit of
St. John. Amen Wardy shall not, at any time, do or suffer to be done any act or
thing which may in any way adversely affect the
6
<PAGE>
validity of the Product Trademark, any rights of St. John in and to the Product
Trademark or any registrations thereof or which, directly or indirectly, may
reduce the value of the Product Trademark or detract from its reputation.
6.3 Consent to Use Name. Subject to (i) the rights of Amen Wardy Home
-------------------
Stores pursuant to that certain Limited Liability Company Agreement, dated the
date hereof, by and among Amen Wardy, Amen Wardy Home Stores, St. John and
certain others and (ii) the provisions of Section 8.5 hereof, Amen Wardy hereby
(x) immediately and irrevocably sells, assigns, conveys and grants to St. John
all the right and title to the use of the name "Amen Wardy", "Amen", "A. Wardy",
"Wardy", "A. Wardy, Jr.", "A. Wardy, Sr." or any combination of such name and/or
initials (the "Amen Wardy Name") as part of the Product Trademark and (y)
consents to the registration of the Amen Wardy Name as part of the Product
Trademark in accordance with the Assignments and/or Consents attached hereto as
Exhibits A-1, A-2, B-1 and B-2. Amen Wardy agrees that Amen Wardy shall not use
the Amen Wardy Name for any purpose related to Home Furnishing Products and
Gifts; provided, however, that Amen Wardy may use the Amen Wardy Name only in
Aspen, Colorado and then only in connection with the Aspen Store as currently
operated in all material respects.
6.4 Agreement to Cooperate.
----------------------
6.4.1 Amen Wardy shall not, during the term of this Agreement or any
time thereafter, directly or indirectly, contest or aid others in contesting the
ownership of the Product Trademark. Amen Wardy shall not use the Product
Trademark, in whole or in part, as a corporate name or trade name. Amen Wardy
shall not join any name or names with the Product Trademark so as to form a new
mark or for any other purpose or use.
6.4.2 At St. John's request, Amen Wardy shall execute any and all
documents reasonably required by St. John to confirm St. John's ownership of all
rights in and to the Product Trademark and the respective rights of St. John and
Amen Wardy pursuant to this Agreement. Amen Wardy shall cooperate with St. John
in connection with the filing and prosecution by St. John of applications in St.
John's name to register the Product Trademark for the Products and the
maintenance and renewal of such registrations as may issue.
6.4.3 In the event that Amen Wardy learns of any infringement, act of
unfair competition by third parties or imitation of the Product Trademark or of
any use by any person of a trademark similar to any Product Trademark, he shall
promptly notify St. John thereof. St. John thereupon may take such action as it
deems advisable for the protection of its rights in and to the Product Trademark
and, if requested to do so by St. John, Amen Wardy shall cooperate with St. John
in all respects. In no event, however, shall St. John be required to take any
action if it deems it inadvisable to do so and Amen Wardy shall have no right to
take any action with respect to the Product Trademark without St. John's prior
written approval. St. John shall have full control over any action taken,
including without limitation, the right to select counsel, to settle on any
terms it deems advisable in its
7
<PAGE>
discretion, to appeal any adverse decision rendered in any court, to discontinue
any action taken by it, and otherwise to make any decision in respect thereto as
it in its discretion deems advisable. If Amen Wardy desires to retain his own
counsel, he shall do so at his own expense. Any recovery as a result of such
action shall belong solely to St. John.
6.4.4 Subject to (i) the rights of Amen Wardy Home Stores pursuant to
that certain Limited Liability Company Agreement, dated the date hereof, by and
among Amen Wardy, Amen Wardy Home Stores, St. John and certain others and (ii)
the provisions of Section 8.5 hereof, Amen Wardy agrees that he shall not,
during the term of this Agreement or thereafter, use, register or apply to
register the Product Trademark or any trademarks or logos similar thereto or
using the words "Amen," "Wardy," or any permutation thereof in connection with
Home Furnishing Products and Gifts anywhere in the world. Without limiting the
foregoing, upon and after the expiration or termination of this Agreement, Amen
Wardy, upon St. John's request, shall execute such documents as may be necessary
to further confirm St. John's rights in the Product Trademark.
6.5 Remedies. St. John is entitled to injunctive relief in a court of law
--------
to prevent, and to seek any damages that result from, any infringement or misuse
by Amen Wardy of any St. John trademark, including, but not limited to, the
Product Trademark, and shall not be required to resolve any such dispute through
arbitration.
7. COVENANT NOT TO COMPETE.
7.1 Non-Competition and Non-Solicitation. Except as St. John may otherwise
------------------------------------
consent in writing, during the term of this Agreement and for the period
immediately thereafter measured by the length of time of the actual term of the
Agreement, but which period shall in no event exceed three (3) years, Amen Wardy
shall not, directly or indirectly: (i) own, manage, operate, control or
otherwise be in any manner affiliated or connected with, or engage or
participate in the ownership, management, operation or control of (as principal,
agent, proprietor, partner, member, shareholder, trustee, administrator,
consultant, independent contractor, or otherwise), any business or entity which
as one of its business activities competes, directly or indirectly, with St.
John in the sale of Home Furnishing Products and Gifts within the general
geographic vicinity of any location from which St. John sells or distributes
Home Furnishing Products and Gifts, except that Amen Wardy may engage or
participate in the ownership, management or operation of (a) Amen Wardy Home
Stores and (b) the Aspen Store, but only as currently operated in all material
respects and then only in Aspen, Colorado; (ii) attempt to solicit, sell, offer,
or provide Home Furnishing Products and Gifts or related products to any person
or entity which is a customer of St. John except that Amen Wardy may attempt to
solicit, sell, offer or provide Home Furnishing Products and Gifts to customers
of St. John in connection with the Aspen Store, but only as currently operated
in all material respects and then only in Aspen, Colorado; (iii) lend money,
guarantee loans, make gifts of money or other property, or otherwise lend
financial or other assistance in any form to any person, firm, association,
partnership, venture, corporation, limited liability company or other business
entity who engaged in or will within the period described above engage in any of
the activities prohibited by (i) or (ii) of this
8
<PAGE>
Section 7.1; or (iv) solicit any of St. John's key employees, including, without
limitation, supervisory personnel, executives and senior management, for
employment or engagement with a person or entity involved in marketing products
or services competitive with St. John.
7.2 Additional Restrictions on the Use of Confidential Information. Amen
--------------------------------------------------------------
Wardy agrees and covenants that because of the confidential and sensitive nature
of the Confidential Information and because the use of, or even the appearance
of the use of, the Confidential Information in certain circumstances may cause
irreparable damage to St. John and its reputation, or to clients of St. John:
7.2.1 Use of Information. Amen Wardy shall not at any time directly
------------------
or indirectly, through any corporation or association in any business,
enterprise or employment, develop, apply, invent, or use the Confidential
Information in any research, commercial or other enterprises or manufacture or
otherwise derive or distribute from the Confidential Information a corresponding
product of any kind, including, without limitation, a corresponding product that
is in any way similar to the products described in the Confidential Information
or that could in any way compete with the products described in the Confidential
Information in the marketplace.
7.2.2 Geographic Scope. St. John and Amen Wardy agree and acknowledge
----------------
that the marketplace for the products described in the Confidential Information
and the geographic scope of St. John's use of the Confidential Information are
and shall be nationwide and therefore the covenants restricting Amen Wardy's
activities as provided in this Section 7.2 shall apply to all cities and
counties in which St. John is doing business nationwide.
7.3 Remedies for Violation of Covenant Not To Compete. Amen Wardy
-------------------------------------------------
acknowledges that any violation by him of any provision of this Section 7 will
cause irreparable harm to St. John, that damages for such harm will be incapable
of precise measurement and that, as a result, St. John will not have an adequate
remedy at law to redress the harm caused by such violations. Therefore, in the
event of Amen Wardy's violation of any provisions of Section 7, Amen Wardy
agrees that, in addition to its other remedies, St. John shall be entitled to
injunctive relief, including, but not limited to temporary restraining orders
and/or preliminary or permanent injunctions to restrain or enjoin any violation
of Section 7 by Amen Wardy. In addition to other relief to which it shall be
entitled, St. John shall be entitled to recover from Amen Wardy the costs and
reasonable attorney's fees incurred by St. John in seeking (i) enforcement of
Section 7 and (ii) relief from Amen Wardy's violation of any restriction
contained in Section 7.
7.4 Saving Provision. St. John and Amen Wardy agree and stipulate that the
----------------
agreements and covenants contained in Section 7 are fair and reasonable in light
of all of the facts and circumstances of the relationship between St. John and
Amen Wardy; however, St. John and Amen Wardy are aware that in certain
circumstances courts have refused to enforce certain restrictions of this type.
Therefore, in furtherance of and not in derogation of the provisions of Section
7, St. John and Amen Wardy agree that in the event a court should
9
<PAGE>
decline to enforce any of the provisions of Section 7, then that Section 7 shall
be deemed to be modified to restrict Amen Wardy's competition with St. John to
the maximum extent, in both time and geography, which the court shall find
enforceable.
8. TERM AND TERMINATION RIGHTS
8.1 Term. The term of this Agreement shall be five years from the date
----
first noted above, unless terminated prior to that time in accordance with the
terms hereof.
8.2 Termination Upon Death or Disability. This Agreement shall
------------------------------------
automatically terminate (i) upon the death of Amen Wardy or (ii) if, in St.
John's discretion, St. John determines Amen Wardy is no longer able to perform
his duties under this Agreement as a result of a disability. In such event, St.
John shall be obligated to pay Amen Wardy's estate or Amen Wardy, as the case
may be, only the accrued but unpaid fees and expenses (including any unpaid
design fee on Products sold prior to such termination) due under this Agreement
as of the date of termination.
8.3 Termination by Notice. This Agreement is terminable by either of the
---------------------
parties in their sole discretion upon six (6) months written notice. If St. John
exercises its right to terminate the Agreement, any obligation it may otherwise
have under this Agreement shall cease immediately upon termination of the
Agreement, except that St. John shall be obligated to pay the accrued but unpaid
fees and expenses due under this Agreement as of the date of termination.
8.4 Events of Default. Either party ("Terminating Party") may terminate
-----------------
this Agreement with the other party ("Non-Terminating Party") upon the
occurrence of any of the following:
8.4.1 Breach of Agreement. If the Non-Terminating party breaches any
-------------------
term or condition of this Agreement and after receiving written notice of such
breach from the Terminating Party, fails to cure such breach within ten (10)
days' after receipt of such notice. Should the breaching party cure such breach
and perform its obligation during the notice period, the Agreement shall
continue in full force and effect.
8.4.2 Insolvency/Dissolution. If at any time the Non-Terminating
----------------------
Party shall generally not pay the Non-Terminating Party's debts as they become
due or shall admit in writing the Non-Terminating Party's inability to pay the
Non-Terminating Party's debts, or shall make a general assignment for the
benefit of creditors; or if the Non-Terminating Party shall commence any case,
proceeding or other actions seeking to have an order for relief entered on the
Non-Terminating Party's behalf as debtor or to adjudicate the Non-Terminating
Party as bankrupt or insolvent, or seeking the reorganization, arrangement,
adjustment, liquidation, dissolution or composition of the Non-Terminating Party
or the Non-Terminating Party's debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, custodian or other similar official for the Non-Terminating
Party or for all or a substantial part of the Non-Terminating
10
<PAGE>
Party's assets; or if any such case, proceeding, or other action shall be
commenced against the Non-Terminating Party, and such case, proceeding or other
action (i) results in the entry of an order for relief against the Non-
Terminating Party which is not fully stayed within thirty (30) business days
after entry thereof, or (ii) shall remain undismissed for a period of ninety
(90) calendar days.
8.5 Extension Fee.
-------------
(a) Upon the expiration of the term of this Agreement or its earlier
termination as provided herein, St. John shall have the right to continue to use
the Amen Wardy Name and the Product Trademark pursuant to the provisions of
Sections 6.1, 6.2, 6.3, 6.4, and 6.5 herein, provided that such rights shall
continue only if St. John elects to pay a fee (the "Extension Fee") of one
percent (1%) of Net Sales (as defined in Section 2.1 hereof) of Products sold by
St. John from and after the termination or expiration of this Agreement and such
Extension Fee is not less than $50,000 for any fiscal year. If St. John wishes
to exercise its right to continue to use the Amen Wardy Name and the rights to
the Product Trademark as provided herein, St. John shall notify Amen Wardy or
his successors or heirs in writing within sixty (60) days from the date of the
termination or expiration of this Agreement (the "Extension Notice Period") that
St. John has elected, in its sole discretion, to continue its use of the Amen
Wardy Name and Product Trademark in exchange for payment of the Extension Fee.
If St. John fails to deliver notice of its exercise of its rights within the
Extension Notice Period, then St. John (i) shall be under no obligation to pay
the Extension Fee and the provisions of Section 6 of this Agreement shall
immediately terminate and (ii) shall thereafter have no rights to: (x) use, and
shall desist from using, the Amen Wardy Name or (y) sell, market, license or
distribute any Home Furnishing Products or Gifts under the Product Trademark.
St. John acknowledges that if it has not elected to exercise its right to use
the Amen Wardy Name and the Product Trademark pursuant to this Section 8.5(a),
its use of the Amen Wardy Name or the Product Trademark after the expiration of
the Extension Notice Period in violation of Section 8.5(a) will cause
irreparable harm to Amen Wardy, that damages for such harm will be incapable of
precise measurement and that, as a result, Amen Wardy will not have an adequate
remedy at law to redress the harm caused by such violation. Therefore, in the
event St. John has not elected to use the Amen Wardy Name and the Product
Trademark and St. John uses the Amen Wardy Name or Product Trademark after the
expiration of the Extension Notice Period in violation of this Section 8.5(a),
St. John agrees that, in addition to his other remedies, Amen Wardy shall be
entitled to injunctive relief, including, but not limited to temporary
restraining orders and/or preliminary or permanent injunctions to restrain or
enjoin such violation by St. John.
(b) If St. John elects to continue its use of the Amen Wardy Name and
Product Trademark in exchange for payment of the Extension Fee, the Extension
Fee shall be paid as provided in Section 2.2 and 2.3 hereof. Thereafter, St.
John may elect at any time, in its sole discretion, to terminate payment of the
Extension Fee upon sixty (60) days prior written notice to Amen Wardy (the
"Termination Notice Period"). Upon the expiration of the Termination Notice
Period, any obligation St. John may have under this Agreement
11
<PAGE>
shall cease immediately, except that St. John shall pay any accrued but unpaid
Extension Fee due prior to the expiration of the Termination Notice Period. Upon
the expiration of the Termination Notice Period, St. John (i) shall be under no
obligation to pay the Extension Fee and the provisions of Section 6 of this
Agreement shall immediately terminate and (ii) shall thereafter have no rights
to: (x) use, and shall desist from using, the Amen Wardy Name or, (y) to sell,
market, license or distribute Home Furnishing Products and Gifts under the
Product Trademark. St. John acknowledges that its use of the Amen Wardy Name or
the Product Trademark after the expiration of the Termination Notice Period in
violation of this Section 8.5(b) will cause irreparable harm to Amen Wardy, that
damages for such harm will be incapable of precise measurement and that, as a
result, Amen Wardy will not have an adequate remedy at law to redress the harm
caused by such violation. Therefore, in the event of St. John's use of the Amen
Wardy Name or Product Trademark after the expiration of the Termination Notice
Period in violation of this Section 8.5(b), St. John agrees that, in addition to
his other remedies, Amen Wardy shall be entitled to injunctive relief,
including, but not limited to temporary restraining orders and/or preliminary or
permanent injunctions to restrain or enjoin such violation by St. John.
9. Miscellaneous
9.1 Meaning of Certain Terms. The phrase "as currently operated in all
------------------------
material respects" as used in this Agreement to describe the Aspen Store is
intended by the parties to prohibit the Aspen Store from competing (to the
extent provided herein) with St. John through the marketing, sale, exchange or
distribution of Home Furnishing Products and Gifts in any location in the world,
and to third parties located anywhere in the world, other than in Aspen,
Colorado; provided, however, that the Aspen Store may ship goods to customers
outside Aspen, Colorado provided such customers purchased such goods in the
Aspen Store in Aspen, Colorado. The parties do not intend that such phrase
restrict Amen Wardy in the day-to-day operations of the Aspen Store, including
the determination of the products sold in the Aspen Store, the location of the
Aspen Store in Aspen, Colorado, the artistic design of the Aspen Store, the
business hours of the Aspen Store and the persons employed by the Aspen Store,
unless such day-to-day operations allow the Aspen Store to compete with St.
John's Home Furnishing Products and Gifts business anywhere in the world other
than in Aspen, Colorado.
9.2 No Waiver. No failure or delay on the part of St. John to exercise any
---------
right, power or privilege under this Agreement and no course of dealing between
Amen Wardy and St. John shall impair such right, power or privilege or operate
as a waiver of any default or an acquiescence therein, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies expressly provided in this Agreement are cumulative to,
and not exclusive of, any rights or remedies that St. John would otherwise have.
No notice to or demand on Amen Wardy in any case shall entitle Amen Wardy to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of
12
<PAGE>
the right of St. John to any other or further action in any circumstances
without notice or demand.
9.3 No Agency. This Agreement does not constitute an agency, partnership
---------
or joint venture between the parties, and any action by Amen Wardy pursuant to
this Agreement shall be in Amen Wardy's capacity as an independent contractor.
9.4 Notices. Any notice or other communication hereunder must be given in
-------
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism, provided that any notice so given is also mailed
as provided in clause (c), or (c) mailed by certified or registered mail,
postage prepaid, receipt requested as follows:
IF TO ST. JOHN, ADDRESSED TO:
St. John Knits, Inc.
17422 Derian Avenue
Irvine, California 92713
Telecopy: (714) 223-3272
Attn: Mr. Robert Gray
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660-6429
Telecopy: (714) 669-6994
Attn: David A. Krinsky, Esq.
IF TO AMEN WARDY, ADDRESSED TO:
Amen Wardy Home, Inc.
210 South Galena
Aspen, Colorado 81611
Telecopy: (970) 920-9163
Attn: Amen Wardy, Sr.
WITH COPIES TO:
The Busch Firm
2532 Dupont Drive
Irvine, California 92612-1254
Telecopy: (714) 474-7732
Attn: George Mulcaire, Esq.
13
<PAGE>
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 9.3 and an appropriate answerback is received or, if transmitted after
4:00 p.m. local time on a business day in the jurisdiction to which such notice
is sent or at any time on a day that is not a business day in the jurisdiction
to which such notice is sent, then on the immediately following business day,
(ii) if given by mail, on the first business day in the jurisdiction to which
such notice is sent following the date three days after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, on the business day when actually received
at such address or, if not received on a business day, on the business day
immediately following such actual receipt.
9.5 Headings. Section and paragraph headings contained in this Agreement
--------
are for convenience and shall not be considered for any purpose in construing
this Agreement.
9.6 Assignment. The parties acknowledge that (i) St. John is relying on
----------
the skill and reputation of Amen Wardy in the design and development of the
Products in entering into this Agreement, and (ii) this Agreement constitutes an
Agreement for personal services under Section 365 of the Bankruptcy Code.
Neither party may assign or transfer this Agreement or any interest therein,
except St. John may assign all rights and obligations to a wholly-owned
subsidiary or other affiliate after written notice to Amen Wardy.
9.7 Successors and Assigns. All of the terms and provisions of this
----------------------
Agreement shall be binding upon the parties and their respective successors and
assigns, but shall inure to the benefit of and be enforceable by the successors
and assigns of any party only to the extent that they are permitted successors
and assigns pursuant to the terms hereof. No party may assign its rights
hereunder except as herein expressly permitted.
9.8 Amendments. This Agreement may be amended, modified, canceled, or
----------
waived only by written instrument executed by each of the parties.
9.9 Neutral Construction. The parties acknowledge that each party has been
--------------------
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of law, including but not
limited to Section 1654 of the California Civil Code, or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived.
9.10 Integration. This Agreement constitutes the complete agreement of the
-----------
parties hereto with respect to the subject matter hereof and supersedes all
prior or contemporaneous negotiations, promises, covenants, agreements, or
representations.
9.11 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be an original, but all of which shall constitute one and the same
agreement.
14
<PAGE>
9.12 Governing Law. This Agreement, and the legal relations between the
-------------
parties, shall be governed by and construed in accordance with the laws of the
State of California and any court action arising out of this Agreement shall be
brought in any court of competent jurisdiction within the State of California,
County of Orange.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by its authorized officer as of the day and year first written
above.
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ Robert E. Gray
--------------------------------------------
Robert E. Gray
Chairman of the Board and Chief Executive
Officer
/s/ Amen Wardy, Sr.
-------------------------------------------------
Amen Wardy, Sr.
/s/ Amen Wardy, Jr.
-------------------------------------------------
Amen Wardy, Jr.
16
<PAGE>
Exhibit A-1
-----------
TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
WHEREAS, Amen Wardy, Sr. ("Assignor") has the authority to grant the
worldwide right to use and register Assignor's name, likeness, and endorsement
to Assignee in connection with the advertisement, promotion and sale of all
products and services generally described in Attachment A hereto (the "Products
and Services");
WHEREAS, St. John Knits, a California corporation ("Assignee") desires to
obtain the worldwide right to use and register the name and likeness of Assignor
in connection with the advertisement, promotion and sale of the Products and
Services and desires to do so; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor hereby grants to Assignee, its successors and assigns, absolutely
and forever, the worldwide right to use Assignor's name, in whole or in part, in
connection with the advertisement, promotion and sale of the Products and
Services in the United States of America, its territories and possessions and
all other countries in which the trademarks may be used so long as Assignor's
name is combined with the words "St. John" in connection with any such use.
Assignor shall execute any further documents and do such other acts as may
be necessary and proper to give effect to the foregoing.
Assignor hereby consents to the use and registration by Assignee of
Assignor's name, in whole or in part, as a trademark or service mark for the
Products and Services.
Assignor shall execute, without any material cost to such Assignor, any
further documents and do such other acts as may be reasonably necessary and
proper to: (i) register Assignor's name, in whole or in part, as a trademark or
service mark for the Products and Services in any jurisdiction Assignee may
desire as set forth herein ("Name Marks"), and (ii) vest full title in and to
the Name Marks in Assignee.
A-1-1
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
STATE OF TEXAS )
COUNTY OF ______________ )
Before me, _______________________, a Notary Public, on this day
personally appeared _______________, known to me (or proved to me on the oath of
____________) to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he/she executed the same for the purposes
and consideration therein expressed.
Given under my hand and seal of office this ___ day of ____________, 1997.
_______________________________ (Seal)
(Notary Public Signature)
A-1-2
<PAGE>
ATTACHMENT A TO TRADEMARK ASSIGNMENT AND CONSENT TO
REGISTRATION
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
A-1-3
<PAGE>
Exhibit A-2
-----------
GRANT OF RIGHT OF PUBLICITY
WHEREAS, Amen Wardy, Sr., ("Assignor") has the authority to grant the
worldwide right to use Assignor's name, likeness, and endorsement to Assignee in
connection with the advertisement, promotion and sale of all products and
services generally described in Attachment A hereto (the "Products and
Services") and desires to do so;
WHEREAS, St. John Knits, Inc., a California corporation ("Assignee")
desires to obtain the worldwide right to use the name, likeness and endorsement
of Assignor in connection with the advertisement, promotion and sale of the
Products and Services; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor, hereby grants to Assignee the exclusive, worldwide and perpetual
right to use Assignor's name, likeness, and endorsements on and in connection
with the distribution, advertisement, promotion and sale of the Products and
Services in any marketing area in which Assignee now and hereafter does business
so long as Assignor's name is combined with the words "St. John" in connection
with any such use.
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
A-2-1
<PAGE>
STATE OF TEXAS )
COUNTY OF _______________ )
Before me, _______________________, a Notary Public, on this day
personally appeared _______________, known to me (or proved to me on the oath of
____________) to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he/she executed the same for the purposes
and consideration therein expressed.
Given under my hand and seal of office this ___ day of ____________, 1997.
_______________________________ (Seal)
(Notary Public Signature)
A-2-2
<PAGE>
ATTACHMENT A TO GRANT OF RIGHT OF PUBLICITY
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
A-2-3
<PAGE>
Exhibit B-1
-----------
TRADEMARK ASSIGNMENT AND CONSENT TO REGISTRATION
WHEREAS, Amen Wardy, Jr. ("Assignor") has the authority to grant the
worldwide right to use and register Assignor's name, likeness, and endorsement
to Assignee in connection with the advertisement, promotion and sale of all
products and services generally described in Attachment A hereto (the "Products
and Services");
WHEREAS, St. John Knits, a California corporation ("Assignee") desires to
obtain the worldwide right to use and register the name and likeness of Assignor
in connection with the advertisement, promotion and sale of the Products and
Services and desires to do so; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor hereby grants to Assignee, its successors and assigns, absolutely
and forever, the worldwide right to use Assignor's name, in whole or in part, in
connection with the advertisement, promotion and sale of the Products and
Services in the United States of America, its territories and possessions and
all other countries in which the trademarks may be used so long as Assignor's
name is combined with the words "St. John" in connection with any such use.
Assignor shall execute any further documents and do such other acts as may
be necessary and proper to give effect to the foregoing.
Assignor hereby consents to the use and registration by Assignee of
Assignor's name, in whole or in part, as a trademark or service mark for the
Products and Services.
Assignor shall execute, without any material cost to such Assignor, any
further documents and do such other acts as may be reasonably necessary and
proper to: (i) register Assignor's name, in whole or in part, as a trademark or
service mark for the Products and Services in any jurisdiction Assignee may
desire as set forth herein ("Name Marks"), and (ii) vest full title in and to
the Name Marks in Assignee.
B-1-1
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
STATE OF CALIFORNIA )
COUNTY OF __________________ )
On ___________, 19___, before me, ____________________, a Notary Public in
and for said State, personally appeared
___________________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
B-1-2
<PAGE>
ATTACHMENT A TO TRADEMARK ASSIGNMENT AND CONSENT TO
REGISTRATION
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
B-1-3
<PAGE>
Exhibit B-2
-----------
GRANT OF RIGHT OF PUBLICITY
WHEREAS, Amen Wardy, Jr., ("Assignor") has the authority to grant the
worldwide right to use Assignor's name, likeness, and endorsement to Assignee in
connection with the advertisement, promotion and sale of all products and
services generally described in Attachment A hereto (the "Products and
Services") and desires to do so;
WHEREAS, St. John Knits, Inc., a California corporation ("Assignee")
desires to obtain the worldwide right to use the name, likeness and endorsement
of Assignor in connection with the advertisement, promotion and sale of the
Products and Services; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
Assignor, hereby grants to Assignee the exclusive, worldwide and perpetual
right to use Assignor's name, likeness, and endorsements on and in connection
with the distribution, advertisement, promotion and sale of the Products and
Services in any marketing area in which Assignee now and hereafter does business
so long as Assignor's name is combined with the words "St. John" in connection
with any such use.
IN WITNESS WHEREOF, Assignor has caused this assignment, consent and grant
to be duly executed in a manner appropriate thereto as of the ____ day of
__________, 1997.
________________________________
Name:
________________________________
Title:
________________________________
B-2-1
<PAGE>
STATE OF CALIFORNIA )
COUNTY OF __________________ )
On ___________, 19___, before me, ____________________, a Notary Public in
and for said State, personally appeared
___________________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
B-2-2
<PAGE>
ATTACHMENT A TO GRANT OF RIGHT OF PUBLICITY
PRODUCTS AND SERVICES
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
B-2-3
<PAGE>
Schedule C
----------
HOME FURNISHING PRODUCTS AND GIFTS
----------------------------------
Any and all home furnishing products and services, including, without
limitation, all types of window coverings, wall coverings, paints, floor
coverings, furniture, linens, art objects, accent pieces, architectural
treatments, china, dishware, flatware, stemware, cookware, bed and bath items
and home accessories.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> NOV-04-1996
<PERIOD-END> AUG-03-1997
<CASH> 14,309
<SECURITIES> 2,327
<RECEIVABLES> 28,060
<ALLOWANCES> 0
<INVENTORY> 28,323
<CURRENT-ASSETS> 80,219
<PP&E> 77,893
<DEPRECIATION> 26,909
<TOTAL-ASSETS> 135,099
<CURRENT-LIABILITIES> 14,930
<BONDS> 0
0
0
<COMMON> 503
<OTHER-SE> 119,523
<TOTAL-LIABILITY-AND-EQUITY> 135,099
<SALES> 170,548
<TOTAL-REVENUES> 170,548
<CGS> 70,759
<TOTAL-COSTS> 70,759
<OTHER-EXPENSES> 60,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,878
<INCOME-TAX> 16,420
<INCOME-CONTINUING> 23,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,458
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 0
</TABLE>
