================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the period from to
Commission File Number: 1-11812
STARTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
370 James Street, New Haven, CT
(Address of principal executive offices)
06-0872266
(I.R.S. Employer Identification No.)
06513
(Zip Code)
Registrant's telephone number, including area code: (203) 781-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. [x/] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x/]
As of March 20, 1997, the aggregate market value of Common Stock held by
nonaffiliates of the registrant was $60,738,695.
As of March 20, 1997, 27,849,902 shares of Common Stock were outstanding.
Documents Incorporated by Reference. Parts of Registrant's Proxy Statement for
the Annual Meeting of stockholders to be held on May 20, 1997 are incorporated
by reference into Part III of this Form 10-K.
================================================================================
<PAGE>
STARTER CORPORATION
ANNUAL REPORT
ON FORM 10-K
TABLE OF CONTENTS
Page
PART I..........................................................1
ITEM 1. Business....................................................... 1
ITEM 2. Properties............................................ . . . . 9
ITEM 3. Legal Proceedings...............................................9
ITEM 4. Submission of Matters to a Vote of Security Holders.............10
PART II.........................................................11
ITEM 5. Market for Registrant's Common Stock and Related Stockholder
Matters ........................................................11
ITEM 6. Selected Financial Data........................................ 11
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................13
ITEM 8. Consolidated Financial Statements and Supplementary Data........17
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................34
PART III....................................................... 35
ITEM 10. Directors and Executive Officers of the Registrant..............35
ITEM 11. Executive Compensation..........................................35
ITEM 12. Security Ownership of Certain Beneficial Owners and Management..35
ITEM 13. Certain Relationships and related Transactions..................35
PART IV........................................................ 36
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. ......................................................36
<PAGE>
PART I
ITEM 1. Business
General
Starter Corporation was incorporated in 1971 under the laws of the State of
Connecticut. In 1989 the Company reorganized and became a Delaware corporation.
As used herein, the terms "Starter" and the "Company" refer to Starter
Corporation and its predecessors, subsidiaries and affiliates, unless the
context indicates otherwise.
Starter is a leading designer and marketer of quality apparel associated with
sports, leisure and entertainment. Starter is currently a premier licensee of
apparel bearing the names, logos and insignia of sports teams and leagues under
licenses granted by the major North American professional sports leagues: Major
League Baseball ("MLB"), the National Basketball Association ("NBA"), the
National Football League ("NFL") and the National Hockey League ("NHL"). The
Company believes that the Starter brand name and the "S-and-Star" logo have
achieved wide recognition through their association with prominent professional
coaches, managers, athletes and entertainers. Starter also is an apparel
licensee for approximately 150 colleges and universities in North America.
The Company sells its products to approximately 4,000 retail accounts throughout
the United States, to retailers in Europe through its subsidiary Starter Europe,
B.V., and to independent distributors in Europe and the Pacific Rim. In addition
to the Company's wholesale business, the Company's subsidiary, Starter Outlet
Stores, Inc., ("Outlet Stores") operates 31 outlet stores throughout the United
States to provide for an organized distribution of excess and noncarryover
merchandise. Approximately 90% of the Company's products, the majority of which
are produced in the Far East, are manufactured by independent contractors. The
Company has not experienced any major interruptions in product deliveries during
the last three years and believes that these foreign manufacturers have not
experienced difficulties in obtaining sufficient supplies of raw material in the
past. The Company, through its subsidiary Starter Galt, Inc., maintains a
250,000 square foot facility for distribution and screen printing of t-shirts
and fleece in Cedar Rapids, Iowa. The Company believes it has good relations
with a number of suppliers of raw materials for its domestic manufacturing
operations; however, there can be no assurance that the adequacy of the supply
of material will continue.
The Company has benefited from the interest of consumers in buying and wearing
authentic and official sportswear. Thus, the Company's business is vulnerable to
a number of factors beyond its control which include, but are not limited to:
(1) player strikes, (2) owner lockouts, (3) work stoppages, (4) the granting of
additional licenses by the leagues, some of which licensees have greater
financial resources and manufacturing capabilities than the Company, and (5)
changes in consumer tastes and enthusiasm for spectator sports which could
affect the consumers' desire to buy team licensed products. The Company's
business may also be affected by other matters which impact the retail
marketplace, including increased credit and inventory exposure, consolidation
and resulting decline in the number of retailers, and other cyclical economic
factors. The Company seeks to minimize inventory exposure by encouraging
retailers to place orders five to six months in advance of the date products are
scheduled to be delivered. The Company believes certain of its competitors offer
similar arrangements.
1
<PAGE>
Historically, outerwear and activewear have accounted for a significant
percentage of the Company's annual net sales. As such, the Company's business is
seasonal with higher sales generally reported in the second half of the year due
to the higher price points of a significant portion of the Company's outerwear,
which is principally sold during the fall and holiday seasons. The seasonality
of the Company's business also affects borrowings under the Company's revolving
credit agreement. Such borrowings fluctuate as a result of seasonal demands for
the Company's products. Traditional quarterly fluctuations in the Company's
business may vary in the future depending upon, among other things, changes in
order cycles and product mix.
Products
The Company participates in the following areas of the apparel market:
outerwear, activewear, headwear, accessories, and printables. In each of these
areas, the Company offers authentic and official licensed products, and Starter
brand products. The Company introduces new selections, as well as traditional
products which are relatively unchanged year to year, during the spring, fall
and holiday selling seasons.
A significant portion of raw materials used to manufacture the majority of the
Company's outerwear and activewear as well as headwear and accessories
originates outside of the United States. To date, the Company's subcontractors
have not experienced difficulties in obtaining sufficient material to meet
customer demands; however, there can be no assurance that they will be able to
purchase sufficient quantities in the future.
The following table describes the product offerings and features in each of the
Company's four product categories:
Category Product Offerings Product Features
-------- ----------------- ----------------
Outerwear insulated and uninsulated appliqued or embroidered
jackets, windwear logos and designs
Activewear fleece pants and tops; polo appliqued or embroidered
shirts; shorts; warm-up suits, logos and designs
uniforms
Headwear and coaches caps; travel bags embroidered logos and
Accessories designs
Printables T-shirts; shorts; fleece, pants silk-screened logos and
and tops designs
Licensed Product
Authentic. Within its licensed products business, Starter markets both authentic
and official garments for professional sports teams, as well as for colleges and
universities. Starter is an original participant in each league's authentic
licensing program. These programs are: MLB's Diamond Collection, NBA Authentics,
NFL's Pro Line, and the NHL Center Ice Program. These programs enable the
Company to sell certain authentic garments which are virtually
2
<PAGE>
identical to those actually worn by players, coaches and managers during
competition and distinguishes the Company from many other manufacturers who sell
only official products.
The following chart describes the year in which the Company commenced its
relationship with each league, each league's authentic licensing program and the
authentic products offered by the Company:
Professional Year Started Authentic Authentic
League with League Program Products
- ------ ----------- ------- --------
MLB 1979 Diamond Collection Outerwear on the
field and in the
bullpen; team bags
NBA 1981 NBA Authentics Outerwear; polo
shirts; team bags;
activewear
NFL 1983 Pro Line Outerwear;
activewear; headwear;
accessories; printables
NHL 1980 Center Ice Exclusive outerwear;
headwear; polo shirts;
team bags
Official. The Company also sells official products which bear the names or logos
of teams, but are not worn during competition by professional teams, players,
coaches and managers. These products have been approved by each licensor to bear
the league or team name and logo. Official products for a particular league may
be similar to an authentic product for another league. Official products can
also be designed by Starter's creative department to meet the particular need of
the retailer and consumer.
Starter Brand Product
The remainder of the Company's products are branded apparel bearing only the
Starter name, "S-and-Star" logo or other design. The Company believes that
consumers will purchase Starter products as much for the quality and
authenticity associated with the Starter brand name and logo as for the team
names and logos appearing on the Company's traditional products. There can be no
assurances that the branded products will be successful at the retail level.
Creative and Merchandising
Starter's Creative and Merchandising Departments include approximately 70
full-time employees and emphasize creativity and responsiveness to consumer
preferences in the development of new products. The Creative and Merchandising
Departments evaluate the designs in the marketplace and apply these in product
development. The Company's design and marketing personnel frequently visit
domestic and foreign markets and conduct market research to identify developing
consumer trends and new product ideas. The Creative and Merchandising
Departments seek
3
<PAGE>
input from many sources in the creative design process, including Starter's key
customers and the Company's Sales and Marketing Departments as well as the
leagues, colleges and universities.
The majority of Starter's products feature the colors and logos of professional
and collegiate teams. Some products remain essentially unchanged from year to
year. In developing a new licensed product, a prototype is manufactured for
league review and approval. From time to time, the Company will also participate
with certain teams and leagues in the design, creation and selection of logos
and colors.
As part of product development, Starter encourages key customers to participate
in the creation of product designed for their stores. These products may then be
sold by that customer on an exclusive basis. Management believes the development
of distinct product styles for select retailers allows for greater product
differentiation among different stores in a given retail location.
License Agreements
Starter has agreements with the licensing agencies of all four of the major
North American professional sports leagues: MLB, the NBA, the NFL and the NHL.
The Company's licenses generally entitle it to use league and member team
colors, symbols and logos. The Company negotiates separate licenses with the
leagues for distribution of products internationally. In addition, the Company
has negotiated agreements covering apparel for approximately 150 colleges and
universities in North America as well as with the United States Olympic
Committee. The large majority of Starter's licensed products are sold under
non-exclusive licenses. Competition, in most cases, is limited by the number and
kinds of licenses granted. The leagues classify licenses by product category and
closely monitor the quality of each licensees' products.
All of the Company's licenses require a royalty to be paid based on a percentage
of net sales. Royalties vary by product, though the Company believes all
licensees in a product category pay the same royalty for that product to a
particular league. Each licensee negotiates minimum royalty payments, the length
of the contracts, and the terms of renewal options with each league. Starter's
current agreements include royalty rates ranging from 6% to 15% for United
States and foreign sales. These rates may be increased from time to time upon
prior notice. Minimum payments are applied against royalty fees either over the
term of a contract or annually, depending on the contract. In addition, the
licensing arrangements generally require payments by the Company to certain
promotional programs sponsored by the leagues.
The Company holds either a master license or several licenses with the exclusive
agents of the leagues, covering the breadth of Starter products for both the
United States market and abroad. Starter's existing licensing agreements with
the leagues, have terms ranging from two to five years and expire at various
times through July 31, 2001. The terms of renewal options are negotiated
separately, and historically the Company's material licenses have been renewed.
However, there can be no assurances that the Company will be able to renew its
licenses or enter into comparable licensing agreements in the future or that
additional large, well-financed companies will not enter or increase their
participation in the league licensed apparel business.
4
<PAGE>
As the Company seeks to increase market penetration, its success will depend, in
part, on its ability to maintain its market share as new competitors emerge as
well as to gain market share from established competitors. The Company believes
that new product introductions play an important role in its continuing ability
to compete. However, there can be no assurance that the Company will continue to
be successful in introducing new products. Certain of the Company's material
licensing arrangements are described below.
Major League Baseball. The Company entered into a contract for outerwear,
activewear and printables that extends through 1999. The Company also has a
contract for headwear through 1997. In addition, the Company is a member of the
MLB Authentic Diamond Collection. The Company's licensing agreement with MLB
began in 1979. The Company is the exclusive provider of on-the-field outerwear
to MLB through 1998.
National Basketball Association. In August 1994, Starter entered into a three
year licensing agreement with the NBA for the distribution of outerwear,
activewear, printables and headwear, including being a member of the NBA
Authentic line, expiring July 31, 1997. In January 1997 the Company entered two
license agreements with the NBA; the first of which commences on August 1, 1997
and provides for the distribution of outerwear, activewear, printables and
headwear as well as the NBA Authentic line, the second agreement grants the
Company exclusive rights to the NBA championship t-shirt and hat. Both of these
agreements expire on July 31, 2001.
National Football League. In April 1996, the Company entered into new licensing
agreements with the NFL for distribution of outerwear, activewear, printables
and headwear in the United States for a term expiring in 1999.
National Hockey League. In March 1993, Starter entered into license agreements
with the NHL for distribution of outerwear, activewear, printables and headwear
in the United States for terms expiring at various times through June 30, 1999,
including the right to continue to participate in the NHL Center Ice program.
Colleges and Universities. The majority of the colleges and universities are
licensed through the National Collegiate Athletic Association, the Licensing
Resource Group, Inc., and the Collegiate Licensing Company. The Company has a
number of licenses presently outstanding representing approximately 150 colleges
and universities in North America. The terms of these licenses vary.
Marketing
Starter's marketing strategy is to promote its products by associating the
Starter logo and designs with sports, leisure and entertainment lifestyles.
Management believes a key ingredient in the success of Starter's marketing
strategy is the Company's close promotional relationships with players, coaches,
managers and league officials in all of the leagues. Generally, the term of
these promotional relationships ranges from one to two years and the promotional
fees paid by the Company vary depending upon the length of the relationship and
the individual involved. Players, coaches and managers wearing Starter products
provide visibility and reinforce the product's authentic quality. In the case of
MLB, only Starter jackets, with the Company's logo featured prominently on the
left sleeve, may be worn by players, coaches and managers on the field and in
the bullpen. Examples of prominent athletes and coaches currently wearing
Starter
5
<PAGE>
products are Emmitt Smith (NFL MVP, All-Pro, Super Bowl MVP, three-time Super
Bowl Champion Dallas Cowboys), Cal Ripkin, Jr. (MLB MVP MLB All-Star Baltimore
Orioles), Mark Messier (NHL MVP, NHL All Star New York Rangers), Damon
Stoudamire (NBA Rookie of the Year Toronto Raptors) and Jaromir Jagr, (NHL
Scoring Champion, NHL All-Star, Pittsburgh Penguins).
The Company advertises its licensed and branded products in the national media,
including television, trade publications, newspapers and magazines, such as
Sports Illustrated, Sports Illustrated for Kids and VIBE. The Company's
advertising is seasonal in both the print and television media, with minimal
advertising in the summer. Starter also promotes its products through donations
to sports teams as well as through the use of point-of-sale promotional
materials. In addition, Starter is actively involved in community and
educational programs, such as the JC Penney/Starter Take A NFL Player to School,
various local football clinics and the school partnership program.
Starter also benefits from the many celebrities on television and in films
wearing Starter products. From hats to jackets, Starter apparel has appeared in
top-rated television programs such as Friends, ER, Seinfeld, The Drew Carey
Show, Dave's World, Suddenly Susan, and NYPD Blue, and in major motion pictures
such as Forget Paris (Billy Crystal), Sudden Impact (Jean-Claude Van Damme),
Dangerous Minds (Michelle Pfeiffer), Eddie (Whoopi Goldberg) and Jerry Maguire
(Tom Cruise).
Sales and Distribution
United States Distribution. Approximately 90% of Starter's net sales for the
fiscal years ended 1996, 1995 and 1994 were to approximately 400 accounts,
including sporting and licensed goods stores and selected department stores. The
Company also distributes its products through military PX stores and college
bookstores.
Net sales to JC Penney totalled 14%, 11% and 13% of net sales for the years
ended 1996, 1995 and 1994, respectively. In addition, the Kinney Group, which is
owned by F.W. Woolworth, and includes Foot Locker, Kids Foot Locker, Lady Foot
Locker, Foot Locker Europe, Going to the Game, Champs Sports and Athletic
X-Press, accounts for a significant portion of Starter's net sales (5%, 10% and
19% for the years ended 1996, 1995 and 1994, respectively). The Company does not
view the Kinney Group as a single account since each group of sport specialty
stores makes independent buying decisions, nevertheless, Kinney Group is the
single payor for sales to these stores. No other single customer accounted for
more than 10% of net sales in the years ended 1996, 1995 and 1994. The Company's
ten largest accounts represented approximately 33%, 33% and 44% of total net
sales for the years ended 1996, 1995 and 1994, respectively.
Starter sells its products in the United States primarily through 9 independent
sales representative organizations with approximately 70 domestic retail sales
representatives, with some direct sales for major accounts. The Company
maintains a regional sales manager for each geographic region of the United
States to monitor these sales representatives. Regional and national sales
meetings are held during the course of the year.
International Distribution. Approximately $25 million of Starter's 1996, 1995
and 1994 net sales was attributable to international sales as follows:
6
<PAGE>
1996 1995 1994
---- ---- ----
Western Europe $23,000,000 $21,200,000 $21,700,000
Other (Primarily Pacific
Rim and Australasia) $ 2,000,000 $ 3,800,000 $ 3,300,000
----------- ----------- -----------
$25,000,000 $25,000,000 $25,000,000
=========== =========== ===========
All international sales are denominated in U.S. dollars. The Company believes
that international markets may be a source of future growth due to the appeal of
popular American sports apparel and the increasing awareness of American
professional sports abroad. However, there can be no assurance that such growth
will be achieved.
The Company currently has exclusive distribution arrangements with one
distributor in Canada and thirteen distributors or licensees in Europe, the
Pacific Rim and Australasia, all of whom buy products directly from Starter or
from contractors approved by Starter. Starter requires its distributors or
licensees to purchase products only from Starter (or approved manufacturers) to
ensure that the Company's quality standards are maintained.
Foreign Operations
A substantial portion of the Company's products are manufactured by over 100
independent contractors located in foreign countries. In certain of the
countries, the Company deals through one or more independent agents. The Company
has an office in Hong Kong to help ensure quality control and to assist in the
sourcing and purchasing of the product. The Company's contracts require delivery
of products to the Company's international freight forwarder, who arranges for
shipment to the Company. The Company's import operations are subject to
constraints imposed by bilateral textile agreements. Bilateral textile
agreements, which are trade agreements between the United States and various
foreign nations, impose quotas on imported apparel products from such nations.
Although the Company does not regard these agreements as normally limiting the
size of the Company's operations, the Company may be adversely affected to
varying degrees in a specified period by the exhaustion, cut-back or
reallocation of any supplier country's quota relating to a category of goods. In
addition, the Company's operations may be adversely affected by political
instability resulting in the disruption of trade from foreign countries in which
the Company's contractors and suppliers are located, the imposition of
additional regulations relating to imports, or duties, taxes or other charges on
imports. The Company is unable to predict whether any additional regulations,
duties, taxes, quotas or other charges may be imposed on the importation of its
products. The imposition of any of these items could result in increases in the
cost of such imports and affect the sales or profitability of the Company. In
addition, the inability of a manufacturer to ship some or all of the Company's
orders in a timely manner could adversely affect the Company's ability to
deliver products to its customers on time. Delays in delivery could result in
missing certain retailing seasons with respect to some or all of the Company's
products or could otherwise adversely affect the Company. All of the Company's
products manufactured abroad are paid for in U.S. dollars. Accordingly, the
Company does not currently engage in any currency hedging transactions.
7
<PAGE>
Quality Control
Starter maintains a quality control and assurance program and utilizes internal
and independent sourcing agents as part thereof. These agents engage their own
quality control program staffs who monitor compliance with Starter product
specifications. Starter monitors quality through site visits by its own
personnel to the manufacturers from whom it sources products.
The independent sourcing agents retain responsibility for all products that do
not meet Starter's specifications. Prior to shipment, inspection certificates
are issued by the agents which indicate that the products have been inspected
and found to be in conformity with the order. Products which are manufactured in
foreign countries are tested to meet United States customs import requirements
by the foreign manufacturers prior to shipment, and the results of such tests,
along with samples of each product style, are sent to the Company. Upon arrival
in Starter's distribution centers, a sampling of the products is inspected by
Starter personnel prior to distribution and the cost of defective goods, if any,
may be charged back to the vendor.
Trademarks and Patents
Starter believes that an integral part of its strength is its ability to
capitalize on the "Starter" and "S-and-Star" trademarks, which are registered in
the United States and many foreign countries. Recognized in the United States,
these registered trademarks are important to the success of the Company's
products.
Environmental
Given the nature of the Company's operations (the manufacture and distribution
of finished clothing products), the Company's facilities are not subject to
extensive environmental regulation in comparison to other industries. The
Company's facilities have permits for the discharge of waste water as required
by the Clean Water Act. Other laws that could apply to the Company include
federal air, solid and hazardous waste reporting laws and regulations, including
the Resource Conversation and Recovery Act, 42 U.S.C. Section 6901 et seq., and
the Emergency Planning and Community Right-to-Know Act as well as related state
statutes. However, the Company's operations to date do not require the Company
to obtain permits under these or other environmental statutes.
Competition
The licensed apparel industry is competitive in the United States and on a
worldwide basis. The industry has experienced significant growth during the past
ten years, and such growth has been accompanied by an increase in competition.
The Company experiences substantial competition in most of its product
categories from a number of well established companies, some of which have
greater financial resources and manufacturing capabilities than the Company. The
Company's primary competitors vary among product lines and include Champion
Products, Fruit of the Loom, The Game, Logo 7, Nike Inc., Reebok International,
Ltd., Russell Corporation, Salem Sportswear, Sports Specialties and VF
Corporation. The Company has been advised by certain customers that certain
competitors have attempted to increase market share by selling products at lower
price points than those for which the Company's products are sold. In addition,
certain competitors have increased marketing
8
<PAGE>
efforts in an attempt to increase brand recognition. Starter differentiates
products on the basis of price, quality, style and distribution channels. The
quality of the Company's products and consumer recognition of the brand and logo
("S-and-Star") is important for the Company to remain a leading licensee of the
major professional sports leagues as well as many colleges and universities.
Increased competition by existing and future competitors could result in
reductions in sales and prices of Company products and could materially
adversely affect the Company's profitability.
Employees
The Company had approximately 1,100 employees at December 31, 1996. Management
considers its relationship with its employees to be good. None of the Company's
employees are represented by a union. The Company has never experienced a work
stoppage.
ITEM 2. Properties
Following is a summary of the principal properties owned or leased by the
Company. The Company's leases expire at various times through 2008.
Corporate Headquarters
New Haven, Connecticut (2 locations) - one owned (220,000
square feet) and one leased (30,000 square feet).
Manufacturing and Distribution Facilities
Pensacola, Florida - leased, 100,000 square feet (inactive)
Memphis, Tennessee - leased, 450,000 square feet
Century, Florida - owned, 40,000 square feet (inactive)
Cedar Rapids, Iowa - leased 250,000 square feet
ITEM 3. Legal Proceedings
On September 30, 1994, a consolidated and amended class action complaint
entitled In re: Starter Corporation Securities Litigation was filed in the
United States District Court for the Southern District of New York against the
Company, David A. Beckerman, John C. Warfel, Mark G. Sklarz, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear Stearns & Co. Inc., Donaldson, Lufkin
& Jenrette Securities Corporation and Shearson Lehman Brothers, Inc. purportedly
on behalf of those persons who purchased the Company's common stock during the
period from April 8, 1993 through January 26, 1994 (the "Class Period"). The
complaint, superseded and consolidated the putative class action lawsuits
entitled Richman v. Starter Corporation (filed on February 3, 1994 in the United
States District Court for the District of Connecticut), Kassover v. Starter
Corporation (filed on February 4, 1994 in the United States District Court for
the Southern District of New York) and Rutherford v. Starter Corporation (filed
on August 8, 1994 in the United States District Court for the Southern District
of New York), alleged, among other things, that the defendants violated Sections
11, 12(2) and 15 of the Securities Act of 1933, as amended, Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
thereunder. Specifically, the complaint alleged that the defendants artificially
inflated the market price of the Company's common stock during the Class
9
<PAGE>
Period by making material misrepresentations and failing to disclose material
adverse facts concerning the Company's anticipated financial results,
productivity and growth, its quota status, subcontractor production and
distribution, the level and nature of its inventories, its capabilities to meet
consumer and retailer demand for its products, and the Company's intended
acquisition of certain First Pick stores. The complaint seeks an unspecified
amount of monetary damages, including, among other things, prejudgment interest,
legal fees, expert fees and costs and disbursements. The Company's Motion to
Dismiss was granted by the District Court. On August 20, 1996, the plaintiffs
appealed this ruling. On March 17, 1997 the Court of Appeals dismissed the
appeal due to plaintiff's failure to adhere to the Court's scheduling order.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the 1996 fiscal year to a
vote of security holders, through the solicitation of proxies or otherwise.
10
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's common stock is listed on the New York Stock Exchange and trades
under the symbol STA. At March 20, 1997, there were 1,533 holders of record of
the Company's common stock.
The high and low sales price for each quarter during the last two years follows:
1996 1995
High Low High Low
--------------------------------------------
First Quarter $8 3/8 $5 3/8 $11 1/2 $7
Second Quarter 9 3/4 8 11 1/8 7 1/2
Third Quarter 8 7/8 5 5/8 8 1/4 6 5/8
Fourth Quarter 6 1/2 5 1/4 8 1/8 6 3/8
The Company has not paid dividends to stockholders since it completed its
initial public offering in April 1993 ("the IPO") and does not have any plans to
pay dividends in the foreseeable future.
ITEM 6. Selected Financial Data
The following information should be read in conjunction with the audited
consolidated financial statements and related notes included elsewhere herein
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Statement of Operations Data:
Year Ended December 31,
----------------------------------------------------
1996 1995 1994(1) 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $ 405,961 $ 363,412 $ 377,765 $ 359,854 $ 282,691
Income (loss)
from operations 8,333 7,243 (5,452) 43,651 34,865
Income (loss) before
income taxes and
extraordinary items 3,132 2,288 (9,731) 40,101 28,823
Income (loss) before
extraordinary items 1,877 1,223 (4,819) 28,568 25,202
Net income (loss) 1,877 1,223 (4,819) 25,255 25,202
Net income (loss)
per share(2) $ .07 $ .05 $ (.18)
11
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 73,183 $ 71,826 $ 71,716 $ 82,248 $ 54,621
Total assets 188,895 167,686 195,521 156,572 108,587
Long-term debt 5,852 7,828 9,582 11,463 31,003
Total liabilities 85,642 72,843 102,011 58,354 76,487
Stockholders' equity 103,253 94,843 93,510 98,218 32,100
Distributions (3) 38,424 9,846
</TABLE>
- ----------
(1) The net loss for the year is primarily the result of third and fourth
quarter write-downs related to inventory, as well as an accrual for
royalties and commissions. These write-downs were primarily due to
inventory purchases which did not result in sales, primarily due to the
suspension of play by Major League Baseball, the delay in the beginning of
the National Hockey League season and a warmer than normal winter.
(2) Earnings per share is not presented for 1993 and 1992 since such data is
not meaningful due to the Company's change in income tax status and new
capital structure during 1993, as a result of the termination of S
Corporation election for federal income tax purposes and the IPO.
(3) Distributions to stockholders are primarily the accumulated earnings during
the S Corporation period. The Company has not paid dividends to
stockholders since it completed the IPO and the Company does not have any
plans to pay dividends in the foreseeable future.
12
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's business is seasonal with higher sales reported in the second half
of the year due to the higher price points of a significant portion of the
Company's products which are sold during the fall and holiday seasons. The
seasonality of the Company's business also affects borrowings under the
Company's revolving credit agreement. The amount outstanding under the revolving
credit agreement fluctuates as a result of seasonal demands for the Company's
products. Traditional quarterly fluctuations in the Company's business may vary
in the future depending upon, among other things, changes in order cycles and
product mix.
The Company's business is vulnerable to a number of factors beyond its control.
These include: (1) player strikes, (2) owner lockouts, (3) work stoppages, (4)
the granting of additional licenses to competitors, some of which licensees have
greater financial resources and manufacturing capabilities than the Company, and
(5) changes in consumer tastes and enthusiasm for spectator sports. The
Company's business can also be affected by other matters which impact the retail
marketplace, including increased credit and inventory exposure, consolidation
and resulting decline in the number of retailers and other cyclical economic
factors. The Company seeks to minimize inventory exposure by encouraging
retailers to place orders five to six months in advance of the date products are
scheduled to be delivered. This provides the Company with better information to
purchase product for its reorder business.
A substantial portion of the Company's products are manufactured through
arrangements with independent contractors located in foreign countries. In
addition, the Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. The agreements impose quotas on the amount and type of goods which
can be imported into the United States from these countries. The Company's
operations may be adversely affected by political instability resulting in the
disruption of trade from foreign countries in which the Company's contractors
and suppliers are located, the imposition of additional regulations relating to
imports or duties, taxes, quotas and other charges on imports. The Company is
unable to predict whether any additional regulations, duties, taxes, quotas or
other charges may be imposed on the importation of its products. The assessment
of any of these items could result in increases in the cost of such imports and
affect the sales or profitability of the Company. In addition, the failure of
one or more manufacturers to ship some or all of the Company's orders could
impact the Company's ability to deliver products to its customers on time.
Delays in delivery could result in missing certain retailing seasons with
respect to some or all of the Company's products or could otherwise adversely
affect the Company.
RESULTS OF OPERATIONS
On August 9, 1996, Starter Galt, Inc., a wholly-owned subsidiary of the Company,
purchased substantially all of the assets and assumed all recorded liabilities
of Galt Sand Company and its subsidiaries ("Galt"). Galt is engaged in the
wholesale apparel business and operates 18 factory outlet stores. The discussion
below relates to the results of operations of the Company on a
13
<PAGE>
historical basis for the years ended December 31, 1996, 1995 and 1994 (including
the results of Galt's operations since August 9, 1996).
Year Ended December 31
1996 1995 1994
--------------------------
Net sales 100% 100% 100%
Cost of sales (68.6) (68.3) (70.2)
------ ------ ------
Gross profit 31.4 31.7 29.8
Royalty income .9 .8 1.1
Selling, general and
administrative expenses (30.0) (30.5) (32.3)
Restructuring charge (.2)
------ ------ ------
Income (loss) from
operations 2.1 2.0 (1.4)
Other income (expense) .1 .1 ----
Interest expense (1.4) (1.5) (1.1)
------ ------ ------
Income (loss) before
income taxes .8 .6 (2.5)
Income (taxes) benefit (.3) (.3) 1.3
------ ------ ------
Income (loss) .5% .3% (1.2)%
====== ====== ======
1996 Compared to 1995
Net sales increased 11.7% to $406.0 million in 1996 as compared to $363.4 in
1995. The increase is primarily related to Galt, which had sales of $28.0
million since August 9, 1996. Exclusive of Galt, net sales increased $14.5
million, or 4.0%, during 1996, primarily driven by increased STARTER Brand sales
of $7.7 million and increased licensed sales of $6.8 million. The increase in
net sales is due to increased volume, which is consistent throughout each
product category.
Gross profit for 1996 was $127.3 million, or 31.4% of net sales, as compared to
$115.2 million, or 31.7% of net sales, in 1995. The gross profit margin was
reduced by 2.7% and 2.9% in 1996 and 1995, respectively, by the disposition of
excess inventory at prices equal to or below
14
<PAGE>
cost. The gross margin in 1996 was also impacted by increased distribution costs
of .6% as a result of additional personnel needed at the Company's Memphis
distribution facility to handle the peak season requirements of retail
customers. The Company's ability to maintain and/or improve margins in the
future will depend, to a large extent, on the factors previously discussed.
Royalty income for 1996 was $3.4 million as compared to $3.1 million in 1995.
The increase is primarily related to increased domestic licensees offset by
reduced royalties from international distributors.
Selling, general and administrative expenses for 1996 were $121.7 million, or
30% of net sales, as compared to $111.0 million, or 30.5% of net sales, in 1995.
Galt's selling, general and administrative expenses since August 9, 1996 were
$4.9 million, or 1.2% of net sales.
Excluding the impact of Galt, selling, general and administrative expenses in
1996 were $116.8 million, or 30.9% of net sales. The increased selling, general
and administrative expenses are primarily related to higher royalties,
commissions and employee compensation. Royalties and commissions increased to
11.8% of net sales in 1996 as compared to 11% of net sales in 1995. The increase
as a percent of net sales is primarily related to the 1995 amounts having been
reduced by the utilization of reserves established for the sale of inventory
below cost. Salaries and wages increased to 4.3% of net sales in 1996 from 3.8%
of net sales in 1995 primarily as a result of the annualized effect related to
senior and middle management additions throughout 1995. The increased royalties,
commissions, salaries and wages were offset by decreased sales and marketing
costs.
Interest expense in 1996 increased to $5.6 million from $5.3 million in 1995,
primarily due to increased overall borrowings necessary to finance operations.
1995 compared to 1994
Net sales for 1995 were $363.4 million as compared to $377.8 million in 1994, a
3.8% decrease. Licensed product sales of $335.9 million decreased 5.5% in 1995,
while sales of STARTER branded products increased 23.8% to $27.5 million in
1995. The decrease in sales for 1995 was partially attributable to the carryover
effect of the various leagues' labor disputes, proposed and actual team moves,
coupled with a general slowdown and consolidation at the retail level.
By product category, the decrease in sales during 1995 was primarily
attributable to decreased sales of outerwear and accessories. These decreases
were substantially offset by improved volume and higher prices of activewear and
printables. During 1995, activewear sales increased 38.3% to $90.8 million
primarily as a result of the increasing popularity of the Company's jersey line.
Printable sales during 1995 increased 50% to $45.4 million primarily as a result
of increased sales associated with the resumption of play in Major League
Baseball. Outlet Store sales increased 72.2% to $15.5 million in 1995 as a
result of: (1) opening seven additional stores
15
<PAGE>
during 1995, (2) the full year effect of three stores opened in the prior year;
and (3) an increase in comparable stores' sales of 12.5%.
Gross profit for 1995 was $115.1 million, or 31.7% of net sales, as compared to
$112.4 million, or 29.8%, in 1994. Margins were impacted in 1995 and 1994
primarily as a result of writing down certain inventory in 1994 ($14 million, or
3.7% of net sales) and its subsequent disposition in 1995. Excluding these items
which were sold at depressed margins in 1995, the margins in 1995 and 1994 would
have been 34.6% and 33.5%, respectively, reflecting improved selling prices of
the activewear and printable product categories.
Royalty income for 1995 was $3.1 million as compared to $4.1 million in 1994.
The decrease in 1995 is primarily attributable to the termination of a footwear
license in the third quarter of 1994 ($.7 million) and reduced royalties from
the Company's distributor in Canada ($.3 million).
Selling, general and administrative expenses in 1995 were $111.0 million, or
30.5% of net sales, as compared to $121.9 million, or 32.2% of net sales, in
1994. The decrease is primarily attributable to decreased selling costs
(royalties and commissions) and professional fees, partially mitigated by
increased wages and Outlet Store expenses. Royalties and commissions decreased
to 11.0% of net sales in 1995 as compared to 13.0% of net sales in 1994. In 1994
the Company accrued royalties and commissions associated with the inventory
which was written down (1.6% of net sales), to fully reflect the reasonably
predictable costs associated with its disposal. Royalties paid to licensing
agencies and commissions would have been approximately 11.6% of net sales in
both years, excluding the effect of excess inventory. Salaries and wages
increased to 3.8% of net sales from 3.0% of net sales in 1994 primarily related
to the additions of senior and middle management personnel. Outlet Store
expenses increased to 1.5% of net sales in 1995 as compared to .8% of net sales
in 1994 primarily as a result of the increase in stores to 14 at December 31,
1995, from 7 at December 31, 1994. Professional fees decreased from 1.4% of net
sales in 1994 to .7% of net sales in 1995, due in part to the establishment of
an in-house legal department.
Interest expense increased to $5.3 million in 1995, from $4.2 million in 1994,
primarily related to the higher borrowings needed to finance operations during
the first eight months of 1995, as well as higher effective borrowing rates in
1995.
Liquidity and Capital Resources
The Company's working capital as of December 31, 1996 was $73.2 million as
compared to $71.8 million at December 31, 1995. Accounts receivable increased
approximately $11.3 million primarily as a result of a $34.2 million increase in
sales during the fourth quarter of 1996 as compared to the fourth quarter of
1995. Increased inventory levels of $15.5 million result from the Company's
acquisition of Galt and management's belief that the Company needs undecorated
inventories to fill "at once" customer orders. Increased notes and accounts
payable
16
<PAGE>
of $18.6 million were attributable to the financing of such increased inventory
levels as well as the assumption of debt assumed in connection with the Galt
acquisition.
Capital expenditures of $2.3 million in 1996 were primarily related to the
expansion of the Company's corporate facilities and the addition of 4 outlet
stores. The Company does not have any material commitments for capital
expenditures in the foreseeable future.
As discussed in note 5 to the consolidated financial statements, the Company has
received a commitment letter, subject to usual and customary conditions, from
its lending banks to change its existing credit facility. The Company believes
that it will comply with the conditions of the commitment letter and expects to
finalize the new agreement in the second quarter of 1997. Cash generated from
operations, together with the Company's existing and committed revolving credit
agreements, is expected, under current conditions, to be sufficient to finance
the Company's planned operations in 1997.
ITEM 8. Consolidated Financial Statements and Supplementary Data
17
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Starter Corporation
We have audited the accompanying consolidated balance sheets of Starter
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Starter
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Hartford, Connecticut
February 5, 1997, except as to the first paragraph of Note 5 as to which the
date is March 27, 1997.
18
<PAGE>
STARTER Corporation
Consolidated Balance Sheets
(in thousands, except share data)
December 31
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents $ 2,995 $ 4,506
Accounts receivable, trade, less allowance for
doubtful accounts of $3,800 55,910 44,564
Inventories 76,964 61,460
Prepaid expenses and other assets 8,539 16,682
Deferred income taxes 8,565 9,629
-------- --------
Total current assets 152,973 136,841
Property, plant and equipment, net
Land and buildings 14,003 12,835
Machinery and equipment 18,412 16,268
Leasehold improvements 3,619 3,376
-------- --------
36,034 32,479
Less accumulated depreciation 8,095 6,159
-------- --------
27,939 26,320
Other assets
Other assets 5,053 2,640
Deferred income taxes 1,568 523
Other investments 1,362 1,362
-------- --------
Total other assets 7,983 4,525
-------- --------
Total assets $188,895 $167,686
======== ========
19
<PAGE>
STARTER Corporation
Consolidated Balance Sheets (continued)
(in thousands, except share data)
December 31
1996 1995
---- ----
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks under revolving credit facility $ 34,666 $ 21,729
Accounts payable 14,218 8,585
Accrued licensing fees 6,166 7,517
Accrued expenses 15,508 17,743
Accrued advertising 7,381 7,692
Current portion of long-term debt 1,851 1,749
-------- --------
Total current liabilities 79,790 65,015
Long-term debt, less current portion 5,852 7,828
Stockholders' equity
Convertible preferred stock ($.01 par value) 5,000,000
authorized shares, 408,164 shares issued at
December 31, 1995 4
Common stock ($.01 par value) 50,000,000 shares
authorized; issued 27,708,146 at
December 31, 1996
and 26,425,643 at December 31, 1995 277 264
Additional paid-in capital 81,657 75,133
Retained earnings 21,319 19,442
-------- --------
Total stockholders' equity 103,253 94,843
-------- --------
Total liabilities and stockholders' equity $188,895 $167,686
======== ========
See accompanying notes.
20
<PAGE>
STARTER Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
Year Ended December 31
1996 1995 1994
---- ---- ----
Net sales $ 405,961 $ 363,412 $ 377,765
Cost of sales 278,651 248,290 265,370
--------- --------- ---------
127,310 115,122 112,395
Royalty income 3,449 3,122 4,065
Selling, general and
administrative expenses (121,686) (111,001) (121,912)
Restructuring costs (740)
--------- --------- ---------
Income (loss) from operations 8,333 7,243 (5,452)
Other income (expense) 446 304 (65)
Interest expense (5,647) (5,259) (4,214)
--------- --------- ---------
Income (loss) before income taxes 3,132 2,288 (9,731)
Income taxes (benefit) 1,255 1,065 (4,912)
--------- --------- ---------
Net income (loss) $ 1,877 $ 1,223 $ (4,819)
========= ========= =========
Common equivalent shares
outstanding 27,200 26,826 26,819
========= ========= =========
Income (loss) per share $ .07 $ .05 ($ .18)
========= ========= =========
See accompanying notes.
21
<PAGE>
STARTER Corporation
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Convertible Convertible Additional Total
Preferred Common Preferred Common Paid-In Retained Stockholders'
Shares Shares Stock Stock Capital Earnings Equity
------ ------ ----- ----- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 408,164 26,401,262 $4 $264 $74,912 $23,038 $98,218
Issuance of Common Stock 9,349 111 111
Net loss (4,819) (4,819)
------- ---------- -- ---- ------- ------- -------
Balance, December 31, 1994 408,164 26,410,611 4 264 75,023 18,219 93,510
Issuance of Common Stock 15,032 110 110
Net income 1,223 1,223
------- ---------- -- ---- ------- ------- -------
Balance, December 31, 1995 408,164 26,425,643 4 264 75,133 19,442 94,843
Issuance of Common Stock 874,339 9 6,524 6,533
Conversion of preferred stock (408,164) 408,164 (4) 4
Net income 1,877 1,877
------- ---------- -- ---- ------- ------- -------
Balance, December 31, 1996 0 27,708,146 $0 $277 $81,657 $21,319 $103,253
======= ========== == ==== ======= ======= =======
</TABLE>
See accompanying notes.
22
<PAGE>
STARTER Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,877 $ 1,223 $ (4,819)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 3,479 2,770 2,127
Provision for bad debts 2,200 1,037 1,264
Deferred income tax (benefit) 2,529 6,857 (11,043)
Changes in operating assets and liabilities:
Accounts receivable (11,074) 6,957 (4,441)
Inventories 408 15,743 (18,186)
Prepaid expenses and other assets 8,567 (3,665) (5,122)
Accounts payable and accrued expenses (5,550) (9,390) 16,735
-------- -------- --------
Net cash provided (used) by operating activities 2,436 21,532 (23,485)
Cash flows from investing activities
Purchase of property, plant and equipment (2,275) (2,147) (5,036)
Other, net (527) (690) (818)
-------- -------- --------
Net cash used by investing activities (2,802) (2,837) (5,854)
Cash flows from financing activities
Repayment of long-term borrowings (1,874) (1,849) (1,954)
Net borrowings (repayments) on credit
arrangements 596 (17,929) 28,947
Net proceeds from sale of common stock 133 110 33
-------- -------- --------
Net cash (used) provided by financing activities (1,145) (19,668) 27,026
-------- -------- --------
Net decrease in cash (1,511) (973) (2,313)
Cash and cash equivalents-beginning of year 4,506 5,479 7,792
-------- -------- --------
Cash and cash equivalents-end of year $ 2,995 $ 4,506 $ 5,479
======== ======== ========
Supplemental disclosures:
Income taxes paid $ 2,142 $ 767 $ 7,037
Interest paid $ 5,073 $ 5,597 $ 3,675
</TABLE>
See accompanying notes.
23
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The Company manufactures, imports and sells apparel to retailers (and to a
lesser extent distributors) primarily throughout the United States and various
other countries. A substantial portion of this apparel bears the names, logos
and insignias of sports teams and leagues under licenses granted by professional
sports leagues, colleges and universities in North America. The Company's
business is seasonal with higher sales generally reported in the second half of
the year due to the higher price points of the Company's insulated outerwear,
which is principally sold during the fall and holiday seasons. The Company's
business is vulnerable to a number of factors beyond its control. These include
(1) player strikes, (2) owner lockouts, (3) the grant of licenses to
competitors, some of which may be larger, and (4) changes in consumer tastes and
enthusiasm for spectator sports. The Company's business can also be affected by
other matters which impact the retail marketplace, including increased credit
and inventory exposure, consolidation and resulting decline in the number of
retailers and other cyclical economic factors. The Company seeks to minimize
inventory exposure by encouraging retailers to place orders five to six months
in advance of the date products are scheduled to be delivered.
A substantial portion of the Company's products are manufactured through
arrangements with independent contractors located in foreign countries. In
addition, the Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements impose quotas on the amount and type of goods which
can be imported into the United States from these countries. The Company's
operations may be adversely affected by political instability resulting in the
disruption of trade from foreign countries in which the Company's contractors
and suppliers are located, the imposition of additional regulations relating to
imports or duties, taxes, quotas and other charges on imports. The Company is
unable to predict whether any additional regulations, duties, taxes, quotas or
other charges may be imposed on the importation of its products. The assessment
of any of these items could result in increases in the cost of such imports and
affect sales and profitability. In addition, the failure of manufacturers to
ship some or all of the Company's orders on time could impact the Company's
ability to deliver products to its customers. Delays in delivery could result in
missing certain retailing seasons with respect to some or all of the Company's
products or could otherwise adversely affect the Company.
Basis of Presentation
The consolidated financial statements include the accounts of Starter
Corporation (the "Company") and its subsidiaries, all of which are wholly owned.
All intercompany accounts and transactions are eliminated in the consolidated
financial statements.
24
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
Basis of Presentation (continued)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
While management believes that the estimates and related assumptions used in the
preparation of these financial statements are appropriate, actual results could
differ from those estimates.
Cash and Cash Equivalents
Highly liquid investments with maturities of three months or less when purchased
are considered cash equivalents.
Inventories
In 1996, the Company changed to the first-in, first-out (FIFO) method of
accounting for inventories from the last-in, first-out (LIFO) method primarily
because the carrying costs of inventories had declined below the LIFO values and
are not expected to increase above LIFO values in the foreseeable future. The
change did not have an impact on results of operations in 1996. Inventory costs
did not differ significantly under the LIFO method when compared to the FIFO
method for the periods presented in the accompanying financial statements.
Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost. Depreciation is
computed using a combination of straight-line and accelerated methods for both
financial and tax reporting based on estimated useful lives. Depreciation
expense was $2,787,000, $2,278,000 and $1,584,000 for years ended December 31,
1996, 1995 and 1994, respectively.
Income Taxes
Deferred income taxes are provided for differences between the income tax and
financial reporting bases of assets and liabilities at the statutory tax rates
that are anticipated to be in effect when the differences are expected to
reverse.
Stock Based Compensation
The Company generally grants stock options for a fixed number of shares to key
employees and directors with an exercise price equal to the fair value of the
shares on the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants. The Financial Accounting Standards Board ("FASB") issued statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation
("FAS 123"), effective for years beginning after December 15, 1995. Under the
provisions of
25
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
Stock Based Compensation (continued)
this accounting standard, the Company is not required to change its method of
accounting for stock based compensation. Had the Company adopted FAS 123, the
impact on net income and income per share would not have been significant.
Earnings (loss) Per Share
Earnings (loss) per share amounts are based upon the weighted average number of
shares of common stock and common stock equivalents outstanding under the
treasury stock method.
Advertising and Promotion Expense
Production costs of future media advertising are deferred until the advertising
occurs. Total advertising and promotional expenses were $26,100,000, $29,200,000
and $32,100,000 for 1996, 1995 and 1994, respectively.
Reclassifications
Certain prior years amounts have been reclassified to conform to the current
year presentation.
2. Acquisition of Galt Sand Company and Subsidiaries
On August 9, 1996, Starter Galt, Inc., a wholly-owned subsidiary of the Company,
purchased substantially all of the assets and assumed all recorded liabilities
of Galt Sand Company and its wholly-owned subsidiaries, Galt Shop Company,
Danaggers Company and Galt Sand Canada, Inc. (collectively, "Galt"), for
approximately $8,000,000 subject to certain purchase price adjustments as
defined. Galt is engaged in the wholesale apparel business and operates 18
factory outlet stores. The Company accounted for the acquisition as a purchase
and, accordingly, the purchase price has been allocated to the acquired assets
and liabilities based on their fair values. The fair values of the acquired
assets and assumed liabilities were $23,496,000 and $19,627,000, respectively.
The excess of cost over fair value of net assets acquired is being amortized
over 15 years. The purchase price, which is subject to certain adjustments as
defined in the asset purchase and sale agreement, was paid through the issuance
of 1,066,666.67 shares of the Company's common stock, based upon the closing
price ($7.50) of the Company's stock on July 25, 1996. In accordance with the
asset purchase and sale agreement, 20% of the 1,066,666.67 shares issued are
being held in escrow pending the final settlement of the purchase price. The
consolidated financial statements have been prepared assuming the purchase price
was $6,400,000 which equals the value of shares (853,333.33) delivered to Galt
on the closing date. Additional shares which have a value (based upon the July
25, 1996 closing price) of $2,100,000 are issuable in 1997 if net worth
requirements, as defined, are met. The operating results of Galt from the date
of acquisition have been included in the consolidated statements of operations
from the date of acquisition. The following pro forma unaudited consolidated
26
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
2. Acquisition of Galt Sand Company and Subsidiaries (continued)
operating results of the Company and Galt have been prepared as if the
acquisition had been made at the beginning of the periods presented and include
pro forma adjustments to exclude costs associated with the elimination of
certain outlet stores and costs associated with the closure of a duplicate
facility. In addition, the pro forma information includes adjustments to reflect
amortization of goodwill and revised financing arrangements.
Year Ended
December 31
1996 1995
---- ----
(in thousands, except per share data)
Net sales $417,953 $416,375
Net loss (1,336) (697)
Net loss per share ($.05) ($.03)
These results are not necessarily indicative of the results of operations of the
combined companies had the acquisition occurred at the beginning of the periods
presented, nor are they necessarily indicative of future operating results.
3. Inventories
Inventories are as follows (in thousands):
December 31
1996 1995
---- ----
Raw materials $ 16,580 $ 12,073
Finished goods 60,384 49,387
-------- --------
$ 76,964 $ 61,460
======== ========
4. Benefit Plans
The Company maintains two defined contribution plans which cover substantially
all employees who have completed six months of service with the Company.
Participants may contribute to a 401(K) savings plan a percentage of
compensation up to the maximum allowed by the Internal Revenue Code. The plan
provides for a matching contribution by the Company. In addition, the Company
may make contributions to an employee profit sharing plan at the discretion of
the
27
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
4. Benefit Plans (continued)
Board of Directors. Company contributions to the plans were $668,000, $465,000
and $354,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
5. Credit Arrangements
The Company has a $145 million secured revolving credit facility (the "credit
facility") with banks which provides for seasonal overadvances up to an
additional $30 million from April 15 through October 15. Borrowings under the
credit facility are subject to various limitations based upon eligible
receivables and inventory, as defined. The credit facility, which expires on May
31, 1998, is secured by substantially all of the Company's assets. Amounts
outstanding on the credit facility accrue interest at either the banks' base
lending rate (8.25% at December 31, 1996) or a rate which can range from 1.0 to
2.25 percentage points per annum above the banks' LIBOR rate (7.6875% at
December 31, 1996) at the Company's option. The Company is required to pay an
annual fee which can range from .25 to .50 percentage points on the credit
facility. The credit facility contains provisions regarding maintenance of
working capital, net worth and interest coverage. The credit facility also
places restrictions on the payment of dividends, distributions, capital
expenditures, other financing obligations and acquisitions of other entities. On
March 27, 1997, the Company received a commitment letter from the banks, subject
to usual and customary conditions, agreeing to the Company's request to change
the credit facility including provisions, among others, for the reduction of the
facility to $125 million, increase in the seasonal overadvances to $35 million,
and relaxation of overly restrictive and not reasonably attainable financial
covenants.
At December 31, 1996, $34,666,000 is outstanding under this facility,
$20,647,000 has been committed for vendors' orders for which the Company will
become liable at the time these orders are shipped, and $39,447,000 is available
for additional borrowing.
The weighted average interest rate on short-term borrowings outstanding at
December 31, 1996 and 1995 was 7.73% and 7.66%, respectively.
A summary of long-term debt follows (in thousands):
December 31
1996 1995
---- ----
4.5% to 8.5% secured term loans,
due in varying monthly installments
through 2012 $ 703 $ 752
7.70% secured term loan, requiring annual
payments of $1,500 through 1998 3,000 4,625
28
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
5. Credit Arrangements (continued)
December 31
1996 1995
---- ----
Variable rate, 3.85% at December
31, 1996, industrial revenue
bond, requiring varying annual
payments through maturity in
2011, secured by irrevocable
letter of credit 4,000 4,200
----- -----
7,703 9,577
Less current portion 1,851 1,749
----- -----
$5,852 $7,828
====== ======
Maturities of long-term debt for the next five years are: 1997-$1,851,000;
1998-$1,755,000; 1999-$332,000; 2000-$230,000; 2001-$332,000. The fair value of
credit arrangements approximates their carrying value.
6. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the
following components (in thousands):
1996 1995 1994
---- ---- ----
United States ($ 2,281) ($ 3,793) ($17,399)
Foreign 5,413 6,081 7,668
-------- -------- --------
$ 3,132 $ 2,288 ($ 9,731)
======== ======== ========
The reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:
1996 1995 1994
---- ---- ----
U.S. federal statutory tax (benefit) 35% 35% (35%)
State income taxes, net of
federal benefit 8 10 (5)
Foreign (3) (13)
Other, net 2 3
---- ---- ----
Income tax expense (benefit) 40% 47% (50%)
==== === =====
29
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
Components of the income tax expense (benefit) are as follows (in thousands):
Current: 1996 1995 1994
---- ---- ----
State $ 108 $ 103 $ 861
Federal (328) (6,930) 3,695
Foreign (1,583) 1,035 1,575
Deferred:
State 417 528 (1,683)
Federal 2,641 6,329 (9,360)
------ ------ -------
Total income tax expense (benefit) $1,255 $1,065 $(4,912)
====== ====== ========
Components of the Company's deferred tax assets and liabilities at December 31
are as follows (in thousands):
Deferred tax assets: 1996 1995 1994
---- ---- ----
Allowance for doubtful accounts $ 2,373 $ 1,584 $ 1,785
Inventory 2,695 2,946 8,191
Accrued expenses 3,475 3,966 5,865
NOL carryforward:
Federal 868
State 880 946
Foreign tax credit carryforward 179 660
Property, plant and equipment 1,121
Other, net 352 50 47
-------- ------- ------
Total deferred tax assets 10,822 10,152 17,009
Deferred tax liabilities:
Foreign source income (584)
Property, plant and equipment (105)
--------
Total deferred tax liabilities (689)
-------- ------- ------
Net deferred tax assets $ 10,133 $ 10,152 $ 17,009
======== ======= ======
At December 31, 1996, the Company had state net operating loss and federal net
operating loss carryforwards for income tax purposes of $14,658,000 and
$2,481,000, respectively.
30
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The various state net operating loss carryforwards expire over the next five to
fifteen years, depending upon the state. The federal net operating loss
carryforwards expire in 2009 and are subject to certain tax limitations due to
the acquisition of Galt Sand Company by STARTER Galt, Inc. The Company has not
recorded a valuation allowance for deferred tax assets since it believes, based
on historical and anticipated income levels, that it is more likely than not
that the deferred tax assets will be realized.
7. Stock Purchase and Stock Option Plans
The Company sponsors an employee stock purchase plan under which eligible
employees may purchase shares of the Company's common stock through payroll
deductions at 90% of the fair market value on the day of purchase. The Company
has reserved a total of 600,000 shares (150,000 annually) through September 1998
for issuance under this plan. During 1996, 1995 and 1994, 21,006, 15,032 and
3,561 shares were purchased at prices ranging from $5.18 to $7.88, $6.07 to
$9.00 and $6.30 to $7.76, respectively.
The Company has a stock option plan to provide nonqualified and incentive stock
options of up to 2,000,000 shares of Common Stock to officers and key employees.
In addition, the Company has a nonqualified stock option plan for up to 250,000
shares of common stock to non-employee directors. Options are generally for a
ten year term and have an exercise price equal to market price of the Common
Stock on the date of grant. The following schedule summarizes stock option
activity for the three year period ended December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning
of year 938,000 $13.18 523,000 $17.90 569,500 $18.96
Granted 791,000 6.40 457,500 8.22 87,500 9.73
Cancelled (660,500) 15.51 (42,500) 17.65 (134,000) 17.07
--------- -------- --------
Outstanding
at End of Year 1,068,500 6.73 938,000 13.18 523,000 17.90
========= ===== ======== ====== ======== ======
Exercisable
at End of Year 59,500 $7.84 180,200 $18.67 155,100 $19.55
====== ===== ======= ====== ======= ======
</TABLE>
31
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
7. Stock Purchase and Stock Option Plans (continued)
In 1996, the Company cancelled 593,500 stock options with original exercise
prices ranging from $9 to $22.25 and replaced them with options having an
exercise price at $6.25. Exercise prices for options outstanding at December 31,
1996 ranged from $6.25 to 11.875. The weighted average remaining contractual
life of these options is 9.6 years.
At December 31, 1996, there were 1,177,000 options available for future
issuance.
In addition, warrants to purchase 282,682 shares of common stock at $16.78 per
share were outstanding at December 31, 1996 and expire on April 18, 2000. At
December 31, 1996, 2,795,182 shares were reserved for future issuance under the
above plans and for outstanding warrants.
8. Leases
The Company has a number of operating lease agreements primarily involving
property, plant and administrative facilities, and machinery and office
equipment, expiring on various dates through 2008.
Future minimum lease payments for the next five years and thereafter are: 1997 -
$6,940,000; 1998 - $4,807,000; 1999 - $3,733,000; 2000 - $2,498,000; 2001 -
$1,609,000 thereafter - $10,399,000. Lease expense for 1996, 1995, and 1994 was
$5,773,000, $4,475,000 and $4,050,000, respectively.
9. Commitments and Contingencies
The Company is a licensee under agreements expiring at various times through
July 31, 2001, with numerous professional sports league and collegiate
organizations for the manufacture and sale of various items of sports apparel.
The license fees range from 6.5% to 15% of the net sales of licensed items. Each
of the material agreements with the National Football League (NFL), National
Basketball Association (NBA), National Hockey League (NHL), and Major League
Baseball (MLB) requires that the Company pay a minimum guaranteed royalty.
Licensing fees for 1996, 1995 and 1994 were $33,836,000, $29,372,000 and
$36,676,000, respectively.
32
<PAGE>
STARTER Corporation
Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies (continued)
The Company is a party to various lawsuits incidental to its business which
management believes will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
10. Concentrations
In the normal course of business, the Company extends credit, on open account,
to its retail customers, after a credit analysis based on financial and other
relevant criteria. Sales to a group of customers under common ownership totaled
5%, 10% and 19% of 1996, 1995 and 1994 sales, respectively. In addition, sales
to another customer totaled 14%, 11% and 13% of 1996, 1995 and 1994 sales,
respectively. There were no other individual customers who accounted for more
than 10% of sales. The Company does not believe that its retail concentration of
sales and credit risks represents a material risk of loss with respect to its
financial position at December 31, 1996.
11. Restructuring Costs
In the fourth quarter of 1996, the Company recorded a restructuring charge of
$740,000 related to the closure of its domestic manufacturing facility in
Century, Florida. The restructuring charge consists primarily of severance costs
related to the elimination of 206 positions and the writeoff of certain assets.
Through December 31, 1996, approximately $656,000 of these costs had been paid
with the remaining amounts to be paid during 1997.
33
<PAGE>
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
34
<PAGE>
PART III
The information required by Items 10, 11, 12 and 13 of this Form 10-K is
incorporated by reference from those portions of the Company's Proxy Statement
for its Annual Meeting of Stockholders to be held on May 20, 1997 which contain
such information.
35
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following consolidated financial statements and schedule of the Company
are included in Item 8, as to the consolidated financial statements, and on
page S-1, as to the schedule, of this Form 10-K.
1. Financial Statements.
Consolidated balance sheets - December 31, 1996 and 1995
Consolidated statements of operations - Years ended December 31, 1996,
1995 and 1994
Consolidated statements of stockholders' equity - Years ended December
31, 1996, 1995 and 1994
Consolidated statements of cash flows - Years ended December 31, 1996,
1995 and 1994
Notes to consolidated financial statements - December 31, 1996
2. Financial Statement Schedule.
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(b) Reports on Form 8-K
None.
36
<PAGE>
(C) EXHIBITS
Exhibit Number Description
3.1 Form of Amended and Restated Certificate of Incorporation
(incorporated by reference from Exhibit 3.2 to Amendment No.
1 to the Registration Statement on Form S-1, filed March 10,
1993, File No. 33-58208)
3.2 Form of Amended and Restated By-laws (incorporated by
reference from Exhibit 3.4 to Amendment No. 1 to the
Registration Statement on Form S-1, filed March 10, 1993
File No. 33-58208)
10.1 Form of Employment Agreement by and between Starter and
David A. Beckerman (incorporated by reference from Exhibit
10.1 to Amendment No. 2 to the Registration Statement on
Form S-1, filed March 24, 1993, File No. 33-58208)
10.2* License Agreement by and between Major League Baseball
Properties, Inc. and Starter dated as of May 22, 1993
(incorporated by reference from Exhibit 10.2 to Amendment
No. 2 to the Registration Statement on Form S-1, filed March
24, 1993, File No. 33-58208)
10.3* License Agreement by and between Major League Baseball
Properties, Inc. and Starter dated as of May 22, 1992
(incorporated by reference to Exhibit 10.3 to Amendment No.
2 to the Registration Statement on Form S-1, filed March 24,
1993, File No. 33-58208)
10.4* License Agreement by and between National Football League
Properties, Inc. and Starter dated as of August 5, 1991
(incorporated by reference to Exhibit 10.4 to Amendment No.
2 to the Registration Statement on Form S-1, filed March 24,
1993, File No. 33-58208)
10.5* License Agreement by and between National Football League
Properties, Inc. and Starter dated as of August 5, 1991
(incorporated by reference to Exhibit 10.5 to Amendment No.
2 to the Registration Statement on Form S-1, filed March 24,
1993, File No. 33-58208)
10.6* License Agreement by and between National Football League
Properties, Inc. and Starter dated as of July 1, 1991
(incorporated by reference to Exhibit 10.6 to Amendment No.
2 to the Registration Statement on Form S-1, filed March 24,
1993, File No. 33-58208)
10.7* License Agreement by and between NBA Properties, Inc. and
Starter dated as of August 17, 1987 (incorporated by
reference to Exhibit 10.7 to Amendment No. 2 to the
Registration Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
37
<PAGE>
Exhibit Number Description
10.8* License Agreement by and between NHL Enterprises, Inc. and
Starter dated as of February 10, 1993 (incorporated by
reference to Exhibit 10.8 to Amendment No. 2 to the
Registration Statement on Form S-1, filed March 24, 1993,
File No. 33- 58208)
10.9* License Agreement by and among Starter, Collegiate Concepts,
Inc. and International Collegiate Enterprises, Inc. dated as
of March 1, 1992 (incorporated by reference to Exhibit 10.9
to Amendment No. 2 to the Registration Statement on Form
S-1, filed March 24, 1993, File No. 33-58208)
10.10* Starter Corporation 401(k) Profit Sharing Plan dated as of
April 1, 1989 (incorporated by reference to Exhibit 10.10 to
Amendment No. 2 to the Registration Statement on Form S-1,
filed March 24, 1993, File No. 33-58208)
10.11 Form of Starter Corporation 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.11 to Amendment No.
2 to the Registration Statement on Form S-1, filed March 24,
1993, File No. 33-58208)
10.12 Intentionally omitted.
10.13 Note Purchase Agreement dated March 9, 1993 among Starter
and the purchasers named therein relating to the 12 3/4%
Senior Subordinated Notes (incorporated by reference to
Exhibit 10.13 to Amendment No. 1 to the Registration
Statement on Form S-1, filed March 10, 1993, File No.
33-58208)
10.14 Note Purchase Agreement dated March 9, 1993 among Starter
and the purchasers named therein related to the 10 7/8%
Senior Notes (incorporated by reference to Exhibit 10.14 to
Amendment No. 1 to the Registration Statement on Form S-1,
filed March 10, 1993, File No. 33-58208)
10.15 Form of Warrant issued to purchasers of the 12 3/4% Senior
Subordinated Notes and 10 7/8% Senior Notes (incorporated by
reference to Exhibit 10.15 to Amendment No. 1 to the
Registration Statement on Form S-1, filed March 10, 1993,
File No. 33-58208)
10.16 Form of Warrant issued to purchasers of the 10 7/8% Senior
Notes (incorporated by reference to Exhibit 10.16 to
Amendment No. 1 to the Registration Statement on Form S-1,
filed March 10, 1993, File No. 33-58208)
38
<PAGE>
Exhibit Number Description
10.17* License Agreement by and between NHL Enterprises, Inc. and
Starter dated as of February 10, 1993 (incorporated by
reference to Amendment No. 2 to the Registration Statement
on Form S-1, filed March 24, 1993, File No. 33-58208)
10.18* License Agreement by and between NHL Enterprises, Inc. and
Starter dated as of February 10, 1993 (incorporated by
reference to Amendment No. 2 to the Registration Statement
on Form S-1, filed March 24, 1993, File No. 33-58208)
10.19* License Agreement by and between NHL Enterprises, Inc. and
Starter dated as of February 10, 1993 (incorporated by
reference to Amendment No. 2 to the Registration Statement
on Form S-1, filed March 24, 1993, File No. 33-58208)
10.20 Form of Real Property Purchase Agreement by and between
Starter and Acorn Realty, Inc. (incorporated by reference to
Exhibit 10.20 to Amendment No. 2 to the Registration
Statement on Form S-1, filed March 24, 1993, File No.
33-58208)
10.21 Form of Agreement Regarding Tax Distributions by and among
Starter and the Current Stockholders (incorporated by
reference to Exhibit 10.21 to Amendment No. 2 to the
Registration Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
10.22 Intentionally omitted.
10.23 Commercial Term Loan Agreement between Starter and Union
Trust Company (incorporated by reference to Exhibit 10.23 to
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, filed March 28, 1994, File No. 1-11812)
10.24* Retail Product License Agreement by and among Starter, NBA
Properties, Inc. dated January 18, 1995 (incorporated by
reference to Exhibit 10.24 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, filed March 31,
1995, File No. 1-11812)
10.25 Commercial Revolving Loan and Security Agreement among the
Company and Bank of Boston Connecticut; The Chase Manhattan
Bank, N.A., Fleet Bank, N.A., Natwest Bank N.A., People's
Bank dated March 30, 1995 (incorporated by reference to
Exhibit 10.25 to Amendment No. 2 to the Annual Report on
Form 10-K, filed May 12, 1995, File No. 1-11812)
10.26 First Amendment to Commercial Revolving Loan and Security
Agreement dated June 14, 1995 (incorporated by reference to
Exhibit 10.26 to the Quarterly Report on Form 10-Q, filed
August 14, 1995, File No. 1-11812)
39
<PAGE>
Exhibit Number Description
10.27 Second Amendment to Commercial Revolving Loan and Security
Agreement dated January 31, 1996 (incorporated by reference
to Exhibit 10.27 to the Annual Report on Form 10-K, filed
March 18, 1996, File No. 1-11812)
10.28 Starter Corporation Incentive Compensation Plan effective as
of January 1, 1995 (incorporated by reference to Exhibit
10.28 to the Quarterly Report on Form 10-Q, filed May 13,
1996, File No. 1-11812)
10.29 Form of Employment Agreement by and between Starter
Corporation and John M. Tucker dated as of January 1, 1996
(incorporated by reference to Exhibit 10.29 to the Quarterly
Report on Form 10-Q, filed May 13, 1996)
10.30 Third Amendment to Commercial Revolving Loan and Security
Agreement dated May 17, 1996 (incorporated by reference to
Exhibit 10.30 to the Quarterly Report on Form 10-Q, filed
August 14, 1996)
10.31 Letter dated July 24, 1996 regarding Amendment of Starter
Corporation's Commercial Revolving Loan and Security
Agreement dated March 30, 1995, as amended by a First
Amendment dated June 14, 1995, a Second Amendment dated
January 31, 1996, and a Third Amendment dated May 17, 1996
(incorporated by reference to Exhibit 10.30 to the Quarterly
Report on Form 10-Q, filed August 14, 1996)
10.32 1996 Amended and Restated Commercial Revolving Loan and
Security Agreement dated October 7, 1996 (incorporated by
reference to Exhibit 10.32 to the Quarterly Report on Form
10-Q, filed November 13, 1996)
18 Letter regarding change in accounting principles
(incorporated by reference to Exhibit 18 to the Quarterly
Report on Form 10-Q, filed August 14, 1996)
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
- ----------
*Confidential treatment requested as to certain portions
40
<PAGE>
Schedule II
Valuation and Qualifying Accounts (in thousands)
Starter Corporation
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at (1) Charged (2)Charged Balance at
Beginning to Costs to Other End of
Description of Period and Expenses Accounts Deductions Period
- ----------- --------- ------------ -------- ---------- ------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1996
Allowance for
Doubtful Accounts $3,800 $2,200 $2,200 (a) $3,800
Year Ended
December 31, 1995
Allowance for
Doubtful Accounts $3,800 $1,037 $1,037(a) $3,800
Year Ended
December 31, 1994
Allowance for
Doubtful Accounts $3,100 $1,264 $564 (a) $3,800
</TABLE>
- ----------
(a) Uncollectible accounts written off net of recoveries, net of recovery.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
STARTER CORPORATION
Date: March 25, 1997
By:/s/ David A. Beckerman
------------------------
David A. Beckerman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Principal Executive Officer and Director:
Date: March 25, 1997
By: /s/ David A. Beckerman
------------------------
David A. Beckerman
Chairman of the Board and
Chief Executive Officer
Date: March 25, 1997
By: /s/ John M. Tucker
------------------------
John M. Tucker
President, Chief Operating Officer and Director
Date: March 25, 1997
By: /s/ Lawrence C. Longo, Jr.
---------------------------
Lawrence C. Longo, Jr.
Chief Financial Officer and
Chief Accounting Officer
<PAGE>
DIRECTORS:
Date: March 24, 1997
By: /s/ Benjamin E. Cohen
------------------------
Benjamin E. Cohen
Director
Date: March 24, 1997
By: /s/ Carmen L. Cozza
------------------------
Carmen L. Cozza
Director
Date: March 24, 1997
By: /s/ Joseph P. Grant
------------------------
Joseph P. Grant
Director
Date: March 24, 1997
By: /s/ Richard H. Saletan
------------------------
Richard H. Saletan
Director
Date: March 24, 1997
By: /s/ Mark G. Sklarz
------------------------
Mark G. Sklarz
Director
<PAGE>
EXHIBITS
Exhibit Number Description Page No.
-------------- ----------- --------
3.1 Form of Amended and Restated Certificate of
Incorporation (incorporated by reference from
Exhibit 3.2 to Amendment No. 1 to the
Registration Statement on Form S-1, filed
March 10, 1993, File No. 33-58208)
3.2 Form of Amended and Restated By-laws
(incorporated by reference from Exhibit 3.4
to Amendment No. 1 to the Registration
Statement on Form S-1, filed March 10, 1993
File No. 33-58208)
10.1 Form of Employment Agreement by and between
Starter and David A. Beckerman (incorporated
by reference from Exhibit 10.1 to Amendment
No. 2 to the Registration Statement on Form
S-1, filed March 24, 1993, File No. 33-58208)
10.2* License Agreement by and between Major League
Baseball Properties, Inc. and Starter dated
as of May 22, 1993 (incorporated by reference
from Exhibit 10.2 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33-58208)
10.3* License Agreement by and between Major League
Baseball Properties, Inc. and Starter dated
as of May 22, 1992 (incorporated by reference
to Exhibit 10.3 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33-58208)
10.4* License Agreement by and between National
Football League, Inc. and Starter dated as of
August 5, 1991 (incorporated by reference
from Exhibit 10.4 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33-58208)
10.5* License Agreement by and between National
Football League Properties, Inc. and Starter
dated as of August 5, 1991 (incorporated by
reference to Exhibit 10.5 to Amendment No. 2
to the Registration Statement on Form S-1,
filed March 24, 1993, File No. 33-58208)
10.6* License Agreement by and between National
Football League Properties, Inc. and Starter
dated as of July 1, 1991 (incorporated by
reference to Exhibit 10.6 to Amendment No. 2
to the Registration Statement on Form S-1,
filed March 24, 1993, File No. 33-58208)
10.7* License Agreement by and between NBA
Properties, Inc. and Starter dated as of
August 17, 1987 (incorporated by reference to
Exhibit 10.7 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33- 58208)
10.8* License Agreement by and between NHL
Enterprises, Inc. and Starter dated as of
February 10, 1993 (incorporated by reference
to Exhibit 10.8 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33-58208)
10.9* License Agreement by and among Starter,
Collegiate Concepts, Inc. and International
Collegiate Enterprises, Inc. dated as of
March 1, 1992 (incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33-58208)
<PAGE>
Exhibit Number Description Page No.
-------------- ----------- --------
10.10* Starter Corporation 401(k) Profit Sharing
Plan dated as of April 1, 1989 (incorporated
by reference to Exhibit 10.10 to Amendment
No. 2 to the Registration Statement on Form
S-1, filed March 24, 1993, File No. 33-58208)
10.11 Form of Starter Corporation 1993 Stock Option
Plan (incorporated by reference to Exhibit
10.11 to Amendment No. 2 to the Registration
Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
10.12 Intentionally omitted.
10.13 Note Purchase Agreement dated March 9, 1993
among Starter and the purchasers named
therein relating to the 12 3/4% Senior
Subordinated Notes (incorporated by reference
to Exhibit 10.13 to Amendment No. 1 to the
Registration Statement on Form S-1, filed
March 10, 1993, File No. 33-58208)
10.14 Note Purchase Agreement dated March 9, 1993
among Starter and the purchasers named
therein related to the 10 7/8% Senior Notes
(incorporated by reference to Exhibit 10.14
to Amendment No. 1 to the Registration
Statement on Form S-1, filed March 10, 1993,
File No. 33-58208)
10.15 Form of Warrant issued to purchasers of the
12 3/4% Senior Subordinated Notes and 10 7/8%
Senior Notes (incorporated by reference to
Exhibit 10.15 to Amendment No. 1 to the
Registration Statement on Form S-1, filed
March 10, 1993, File No. 33-58208)
10.16 Form of Warrant issued to purchasers of the
10 7/8% Senior Notes (incorporated by
reference to Exhibit 10.16 to Amendment No. 1
to the Registration Statement on Form S-1,
filed March 10, 1993, File No. 33-58208)
10.17* License Agreement by and between NHL
Enterprises, Inc. and Starter dated as of
February 10, 1993 (incorporated by reference
to Amendment No. 2 to the Registration
Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
10.18* License Agreement by and between NHL
Enterprises, Inc. and Starter dated as of
February 10, 1993 (incorporated by reference
to Amendment No. 2 to the Registration
Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
10.19* License Agreement by and between NHL
Enterprises, Inc. and Starter dated as of
February 10, 1993 (incorporated by reference
to Amendment No. 2 to the Registration
Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
10.20 Form of Real Property Purchase Agreement by
and between Starter and Acorn Realty, Inc.
(incorporated by reference to Exhibit 10.20
to Amendment No. 2 to the Registration
Statement on Form S-1, filed March 24, 1993,
File No. 33-58208)
<PAGE>
Exhibit Number Description Page No.
-------------- ----------- --------
10.21 Form of Agreement Regarding Tax Distributions
by and among Starter and the Current
Stockholders (incorporated by reference to
Exhibit 10.21 to Amendment No. 2 to the
Registration Statement on Form S-1, filed
March 24, 1993, File No. 33- 58208)
10.22 Intentionally omitted.
10.23 Commercial Term Loan Agreement between
Starter and Union Trust Company (incorporated
by reference to Exhibit 10.23 to the Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993, filed March 28, 1994, File
No. 1-11812)
10.24* Retail Product License Agreement by and among
Starter, NBA Properties, Inc. dated January
18, 1995 (incorporated by reference to
Exhibit 10.24 to the Annual Report on Form
10-K for the fiscal year ended December 31,
1994, filed March 31, 1995, File No. 1-11812)
10.25 Commercial Revolving Loan and Security
Agreement among the Company and Bank of
Boston Connecticut; The Chase Manhattan Bank,
N.A., Fleet Bank, N.A., Natwest Bank N.A.,
People's Bank dated March 30, 1995
(incorporated by reference to Exhibit 10.25
to Amendment No. 2 to the Annual Report on
Form 10-K, filed May 12, 1995, File No.
1-11812)
10.26 First Amendment to Commercial Revolving Loan
and Security Agreement dated June 14, 1995
(incorporated by reference to Exhibit 10.26
to the Quarterly Report on Form 10-Q, filed
August 14, 1995, File No. 1-11812)
10.27 Second Amendment to Commercial Revolving Loan
and Security Agreement dated January 31, 1996
(incorporated by reference to Exhibit 10.27
to the Annual Report on Form 10-K, filed
March 18, 1996, File No. 1-11812)
<PAGE>
Exhibit Number Description Page No.
-------------- ----------- --------
10.28 Starter Corporation Incentive Compensation
Plan effective as of January 1, 1995
(incorporated by reference to Exhibit 10.28
to the Quarterly Report on Form 10-Q, filed
May 13, 1996, File No. 1-11812)
10.29 Form of Employment Agreement by and between
Starter Corporation and John M. Tucker dated
as of January 1, 1996 (incorporated by
reference to Exhibit 10.29 to the Quarterly
Report on Form 10-Q, filed May 13, 1996)
10.30 Third Amendment to Commercial Revolving Loan
and Security Agreement dated May 17, 1996
(incorporated by reference to Exhibit 10.30
to the Quarterly Report on Form 10-Q, filed
August 14, 1996)
10.31 Letter dated July 24, 1996 regarding
Amendment of Starter Corporation's Commercial
Revolving Loan and Security Agreement dated
March 30, 1995, as amended by a First
Amendment dated June 14, 1995, a Second
Amendment dated January 31, 1996, and a Third
Amendment dated May 17, 1996 (incorporated by
reference to Exhibit 10.31 to the Quarterly
Report on Form 10-Q, filed August 14, 1996)
10.32 1996 Amended and Restated Commercial
Revolving Loan and Security Agreement dated
October 7, 1996 (incorporated by reference to
Exhibit 10.32 to the Quarterly Report on Form
10- Q, filed November 13, 1996)
18 Letter regarding change in accounting
principles (incorporated by reference to
Exhibit 18 to the Quarterly Report on Form
10- Q, filed August 14, 1996)
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
- --------
*Confidential treatment requested as to certain portions
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-77072) pertaining to the Starter Corporation 401(k) Plan, the
Registration Statement (Form S-8 No. 33-77076) pertaining to the Starter
Corporation 1993 Stock Option Plan, the Registration Statement (Form S-8 No.
33-80976) pertaining to the Starter Corporation 1994 Stock Option Plan for
Non-Employee Directors, and the Registration Statement (Form S-8 No. 33-80978)
pertaining to the Starter Corporation Employee Stock Purchase Plan, of our
report dated February 5, 1997, except as to the first paragraph of Note 5 as to
which the date is March 27, 1997, with respect to the consolidated financial
statements and schedule of Starter Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1996.
Ernst & Young LLP
Hartford, Connecticut
March 27, 1997
FORM: NBAP
U.S./C-ApparelC
PR
LICENSEE: STARTER CORPORATION RETAIL PRODUCT LICENSE, MARKETING
ADDRESS: 370 James Street AND ADVERTISING AGREEMENT
New Haven, CT 06513
THIS RETAIL PRODUCT LICENSE, MARKETING AND ADVERTISING AGREEMENT is entered into
by NBA Properties, Inc. ("NBAP"), with its principal office at 645 Fifth Avenue,
New York, New York 10022, and the licensee listed above ("LICENSEE") with regard
to the commercial use of certain names, logos, symbols, emblems, designs and
uniforms and all identifications, designations, labels, insignia or indicia
thereof (the "Marks") of the National Basketball Association (the "NBA") and its
Member Teams (collectively, the "NBA Marks") alone and in combination with the
names, nicknames, photographs, portraits, likenesses, signatures or other
identifiable features of current NBA players ("Player Attributes"). Subject to
the terms and conditions of this Agreement (including the attached NBAP Standard
Terms and Conditions), NBAP hereby grants to LICENSEE, and LICENSEE hereby
accepts, the non-exclusive (except as otherwise expressly provided in this
Agreement) right and license to use during the Term (i) the Marks of the Member
Teams, the silhouetted dribbler logo (the 'NBA Logo"), the Marks of the NBA, NBA
All-Star Weekend and NBA Playoffs and Finals, the Marks of those NBAP Events and
Programs (as defined below) that LICENSEE sponsors in accordance with Paragraph
J.2 below and the appropriate designations reflecting LICENSEE's status as an
official uniform, warm-up and/or practicewear supplier to the NBA (collectively,
the "Licensed Marks"), and/or (ii) the Licensed Marks in combination with
certain Player Attributes (on a group bases and to the extent NBAP can convey
such rights in accordance with the Group License Agreement (as defined below) in
accordance with the terms of this Agreement (the "Licensed Attributes"), in
either case, solely in connection with the manufacture, distribution,
advertisement, promotion and sale in the Territory of the products described in
Paragraph A below that include one or more of the Licensed Marks ("Licensed
Products"). No license or right is granted for the use of NBA Marks or Player
Attributes for any purpose other than on the Licensed Products and in the
distribution, advertisement, promotion and sale of the Licensed Products in
accordance with this Agreement.
A. LICENSED PRODUCTS:
1. "On-Court Products": LICENSEE shall have the exclusive right (with
respect to the adult and youth sizes set forth in Paragraph A.3 below)
to manufacture, distribute and sell the following with respect to the
NBA Teams specified on Schedule A hereto ("Licensee's Teams") in
accordance with the terms and conditions of this Agreement:
(a) "Pro Cut" game jerseys with Licensed Attributes (player names) on
the back and game shorts (i.e., exact reproductions of the actual
NBA Team uniform jerseys and shorts worn by players in terms of
player size and all design and other elements).
(b) "Authentic" game jerseys with Licensed Attributes (player names)
on the back and game shorts (i.e., reproductions that incorporate
all of the design elements and characteristics as they appear on
the actual NBA Team uniform jerseys and shorts worn by players,
including sublimation (where appropriate), tackle twill,
lettering, embroidered patches and/or direct embroidery).
<PAGE>
(c) Authentic "shooting shirts" and/or "shooting jackets" (sometimes
referred to below collectively as "Shooting Shirts") and warm-ups
(tops and pants).
(d) Authentic "Practicewear" (i.e., reversible mesh tank top; mesh
short, t-shirts; sweatshirts; sweatpants; shorts; and sleeveless
t-shirts) incorporating the same graphic design approved by NBAP
for use in versions supplied to Licensee's Teams.
(e) Authentic "compression shorts" (i.e., athletic support
undershorts) incorporating the same graphic design approved by
NBAP for use in versions supplied to Licensee's Teams.
(f) Authentic "socks" bearing the NBA Logo in the same version
supplied to NBA Teams; provided, however, that LICENSEE's rights
with respect to socks bearing the NBA logo shall not be
exclusive.
(g) Other products that NBAP may from time to time designate as
"On-Court Products."
2. "Other" Products: LICENSEE shall have the non-exclusive right to
manufacture, distribute and sell the following with respect to all NBA
Teams in accordance with the terms and conditions of this Agreement:
(a) Under the "Starter" label for distribution to the traditional
retail accounts listed on Schedule B (as such schedule may be
amended from time to time):
(i) Headwear.
(ii) "Activewear" (e.g., t-shirts, tank tops, shorts,
sweatshirts, polos, sweatpants and warm-ups). (iii)
Outerwear (i.e., all fabrications of lightweight and
heavyweight outerwear).
(iii) Outerwear (e.g., all fabrications of lightweight and
heavyweight outerwear).
(iv) Athletic bags and soft luggage.
(b) Under the "Galt Sand" and "Sport One" labels for distribution to
certain department stores, LICENSEE shall have the right, subject
to NBAP's prior approval of a written business plan to be
submitted by LICENSEE (addressing, among other things, the
products to be distributed, the labels to be used and the retail
accounts to which such products are to be distributed), to
distribute certain Other Licensed Products in accordance with the
terms and conditions of this Agreement and such plan.
3. With respect to the categories of Licensed Products listed under
Paragraph A.1 and 2(a), all Licensed Products shall be manufactured,
distributed, advertised and sold under the "Starter" label. With
respect to any Licensed Product authorized by NBAP in accordance with
Paragraph A.2(b), such Licensed Product shall be manufactured,
distributed, advertised and sold under either the "Galt Sand" and/or
"Sport One" labels. All Licensed Products shall be made available only
in adult sizes S-XXXXXL and infant sizes (12-24 months), toddler sizes
(2T4T) and youth sizes (4-20); provided, however, that, in the event
that LICENSEE has not commenced the distribution to retail accounts of
any such Licensed Products in adult sizes XXXL, XXXXL or XXXXXL by
July 31, 1999 (the "size deadline"), NBAP shall have the right, at any
time following the size deadline, to withdraw LICENSEE's right to
manufacture, distribute, advertise and sell any such Licensed Product
in any such size (i.e., XXXL, XXXXL or XXXXXL) for which distribution
has not commenced by the size deadline and to thereafter license some
other company to
2
<PAGE>
manufacture, distribute, advertise and sell any such Licensed Product
in any such size for which LICENSEE's rights have been withdrawn.
4. Practicewear shall not include (i) any Player Attributes or (ii) any
stylings or graphics that, in NBAP's sole opinion, resemble Pro-Cut or
Authentic jerseys or shorts made by any other NBAP licensee.
Activewear shall not include (i) any Player Attributes or (ii) any
fabrication, stylings or graphics that, in NBAP's sole opinion,
resemble (x) any On-Court products made by LICENSEE or any other NBAP
licensee and (y) any "Replica" game jerseys or shorts made by any
other NBAP licensee. NBAP shall ensure that each of its licenses with
respect to the manufacture and sale of Pro-Cut and Authentic products
contains a provision that is not materially different from this
Paragraph A.4.
5. LICENSEE shall not place any brand identification (e.g., the Starter
logo) on any Pro-Cut and Authentic jersey or short supplied to a Team
or offered at retail other than on the jersey jock tag or on the
Authentic short produced for retail, in either case, on the front
plane of the product (if LICENSEE so elects) and in accordance with
NBAP's policies regarding logo size and placement. LICENSEE shall be
permitted to place the Starter logo on all other Licensed Products
supplied to a Team or offered at retail (i) on the front plane of the
product (in the case of reversible items, on both sides) in a location
approved by NBAP (consistent with NBAP's policies regarding logo size)
and (ii) in such other locations (e.g., jock tag) as may be permitted
under NBAP's policies regarding logo size and placement NBAP agrees
that such other locations include, (a) in the case of shooting shirts
and jackets, a jock tag on the front plane of the product, (b) in the
case of warm up tops, one sleeve or center back (near the neck), and
(c) in the case of practicewear t-shirts and sweatshirts, one sleeve.
LICENSEE shall also be permitted to place the Starter logo on the
"hang-tag" of any Licensed Product sold at retail. In the event that
(x) any NBA player who has entered into an endorsement agreement with
LICENSEE (an "Endorser") who is on a Team other than one of Licensee's
Teams frequently does not wear an On-Court product of such other Team
during Team games (including warm-up periods and going to and from the
locker room to the playing floor) or in Team practices, (y) NBAP
reasonably believes such behavior is the result of such Endorser's
loyalty to LICENSEE and (z) NBAP requests LICENSEE to encourage such
Endorser to wear such product, LICENSEE shall use its best efforts to
encourage such player to wear such product (by communicating promptly
with such player following receipt of such request for the purpose of
encouraging him to wear such product) and, if NBAP requests LICENSEE
to do so, LICENSEE shall advise NBAP as to who encouraged the player
and when such encouragement was provided. NBAP shall ensure that each
other company licensed by NBAP to manufacture Pro-Cut and Authentic
products shall have the same obligations in respect to its endorsers
as LICENSEE has pursuant to the preceding sentence.
6. (a) The On-Court Products shall be designed to the manufacturably
reasonable specifications of, and be of such physical
characteristics of construction as specified by, the NBA and/or
NBAP for each of Licensee's Teams for each NBA Season. The
On-Court Products shall be of the same or reasonably better
construction, fabrication and quality as those worn for the
1995-96 NBA Season. The NBA Logo shall be directly embroidered or
applied (in a manner acceptable to NBAP) to the On-Court Products
in the same manner as employed on such items used during the
1995-96 Season, unless otherwise approved by NBAP LICENSEE
acknowledges that the design, including, but not limited to,
drawings, artwork. designs, patterns and material composition,
employed or developed for the production (through CAD/CAM or
otherwise) of the foregoing items, and the codification,
recording and reproduction, thereof, however maintained,
organized or derived, including any computer tapes, hard copy or
machine readable copies (collectively, the "Specs'), are for the
benefit
3
<PAGE>
of NBAP and the Member Teams and that all proprietary interests
therein belong to NBAP. LICENSEE shall not, without NBAP's prior
written consent, divulge to any third party the substance of the
Specs except as may be required to fulfill the terms of this
Agreement. NBAP shall not authorize any of its licensees to use
any of the Specs, except that NBAP shall be entitled to so
authorize any of its licensees in connection with (i) the
manufacture, distribution, promotion and sale of On-Court
Products outside of the Territory, (ii) the manufacture,
distribution, promotion and sale of On-Court Products worldwide
in sizes that LICENSEE is not authorized to offer and (iii) a
change in Team assignments among NBAP licensees authorized to
manufacture On-Court Products involving one or more of Licensee's
Teams. NBAP shall ensure that it shall have the right to use the
designs of each other company licensed by NBAP to manufacture
On-Court Products to the same extent that it has the right to use
LICENSEE's designs pursuant to the preceding sentence.
(b) Prior to the September 1 of a Contract Year and at such other
times as NBAP may reasonably request, LICENSEE shall provide NBAP
with information with respect to the sizes and Specs of the
On-Court Products that LICENSEE supplies to each of Licensee's
Teams for such Contract Year. In addition, LICENSEE shall
participate in certain events (e.g., rookie combine physical
examination sessions) organized by NBAP (or the NBA) for the
purpose of, among other things, obtaining information with
respect to the sizes and measurements of basketball players.
B. TERM: The term ("Term") of this Agreement shall commence August 1, 1997 and
expire July 31, 2001.
C. TERRITORY: The Territory shall be, with respect to the distribution,
advertising and sale of Licensed Products, the 50 United States, the
District of Columbia and Canada ("North America"); provided, however, that
(1) NBAP acknowledges that LICENSEE, as of the date of the execution of
this Agreement, does not have the technological capability to restrict its
advertising over the Internet to North America and (2) LICENSEE shall not
be in breach of its obligations hereunder until and unless the
technological capability has been developed to so limit the distribution of
LICENSEE's advertising over the Internet.
D. TEAM PRODUCT SUPPLY COMMITMENT:
1. LICENSEE shall have the exclusive right and obligation to manufacture
and supply to Licensee's Teams On-Court Licensed Products and (subject
to Paragraph I.1 below) those Other Licensed Products supplied to a
Licensee Team for use by the Team's statisticians and ballpersons
during NBA games ("Ballperson Licensed Product"). LICENSEE shall have
the exclusive right to use appropriate designations with respect to
the supply of Licensed Products to Licensee's Teams, subject to the
approval of NBAP in accordance with the terms of this Agreement.
2. At least fourteen (14) days prior to the opening of training camp for
each Licensee's Teams, LICENSEE shall, at its cost, produce and
deliver to such places, at such times and of such sizes, as specified
by NBAP, the following for each such Team:
(a) two (2) sets of each home and two (2) sets of each away Pro-Cut
Uniform (i.e., jersey and shorts) and Authentic warm-up for each
of fifteen (15) players (i.e., 8 sets consisting of a top and a
bottom per player, 120 sets per team); one hundred forty-four
(144) pairs of Authentic compression shorts; four (4) Authentic
Shooting Shirts (it being understood that, until and unless NBAP
introduces home and away versions of Shooting Shirts, LICENSEE
shall provide NBAP with four (4) Shooting Shirts of the one
available style and that LICENSEE shall provide NBAP with two (2)
home
4
<PAGE>
Shooting Shirts and two (2) road Shooting Shirts in the event
that NBAP introduces home and away versions of such products)
each of fifteen (15) players;
(b) three (3) reversible mesh tank tops, three (3) t-shirts, two (2)
pairs of mesh shorts, two (2) fleece tops and two (2) fleece
pants for each of fifteen (15) players (i.e., 12 pieces per
player, 180 pieces per team); and
(c) 1,200 pairs of socks.
3. LICENSEE shall use its best efforts to accommodate the reasonable
requests of NBAP and of each of Licensee's Teams regarding the style
and weight of each of the products listed in subparagraph 2(a)-(c).
4. Each Season, upon NBAP's request, LICENSEE shall provide to NBAP two
(2) sets of each of the products listed under subparagraph 2(a)-(c)
above for each Licensee Team.
5. (a) During the Term, each of Licensee's Team may request changes in
the design of its On-Court Products in accordance with NBA
Uniform and Logo guidelines, as they may be amended from
time-to-time. LICENSEE shall, for each Contract Year and for each
Team, bear the full cost in connection with the creation (other
than design creatives) and manufacture to Specs of one (1)
prototype/sample redesigned product. The timely delivery of such
redesigned product is contingent upon adherence to the NBA's
guidelines.
(b) LICENSEE's timely performance of its obligations pursuant to this
Paragraph 5 and Paragraph 2 above are contingent upon LICENSEE's
receipt of an order from each of Licensee's Teams containing
information with respect to product sizes, styles, colors,
numbers, names and quantities by the times specified below in
order to effect shipment to the Team by the corresponding date:
Orders Shipped to Teams as Follows:
Complete Orders
Received by: Practicewear Other On-Court Products
------------ ------------ -----------------------
February 1 July 1 September 1
June 1 August 1 September 1
June 15 August 15 September 15
July 1 September 1 October 1
6. NBAP or any of Licensee's Teams may purchase On-Court merchandise for
official or player use (not for retail sale) at LICENSEE's most
favorable wholesale catalog prices less twenty percent (20%), except
that reasonable requests for customized items for "VIPs" or NBAP
product placement use shall be available at LICENSEE's manufacturing
cost.
7. LICENSEE shall maintain a staff dedicated to service each of
Licensee's Teams outfitting needs and to respond expeditiously and
appropriately to Team On-Court Licensed Product requests. Without
limiting the effect of the preceding sentence, LICENSEE (i) shall
maintain (in the United States and Canada) 120 pieces of each of the
products listed under subparagraph 2(a)-(c) above (excluding socks) in
blank inventory to accommodate immediate Team needs, and (ii)
acknowledges that LICENSEE's Teams may request OnCourt Products for
players acquired during the course of the NBA Season and agrees that
it shall use its best efforts to satisfy such requests within one (1)
business day of its receipt of such request at no cost to NBAP or the
requesting Team.
5
<PAGE>
E. RETAIL PRODUCT DISTRIBUTION:
1. (a) Except as expressly set forth herein and as NBAP and LICENSEE may
agree otherwise, LICENSEE shall the exclusive right and
obligation (with respect to the adult and youth sizes set forth
in Paragraph A.3 above) to offer, manufacture, distribute and
sell to retail accounts all styles of On-Court Licensed Products
for each of Licensee's Teams; provided, however, that, with
respect to each Contract Year, LICENSEE shall only be obligated
to:
(i) offer, manufacture, distribute and sell to retail accounts
at least one (1) style of a Pro-Cut jersey with respect to
at least fifteen (15) then-current players, to be determined
by NBAP by no later than the February 1 preceding the start
of such Contract Year from Licensee's Teams (it being
understood that at least one (1) player from each such Team
shall be included);
(ii) offer, manufacture, distribute and sell to retail accounts
at least one (1) style of an Authentic jersey with respect
to at least (x) two (2) then-current players, to be
determined by NBAP by no later than the February 1 preceding
the start of such Contract Year, from each of Licensee's
Teams and (y) three (3) then-current players, to be
determined by NBAP by no later than the February 1 preceding
the start of such Contract Year, from among all of
Licensee's Teams;
(iii) offer, manufacture, distribute and sell to retail accounts
at least each style of Shooting Shirt worn by each one (1)
of Licensee's Teams; provided, however, that in any Contract
Year in which NBAP determines that Shooting Shirts worn by
NBA players shall include player names, LICENSEE shall not
offer Shooting Shirts without player names and shall offer,
manufacture, distribute and sell player identified Shooting
Shirts on the same basis as for Authentic jerseys in
accordance with subparagraph (ii) above; and
(iv) offer, manufacture, distribute and sell to retail accounts
at least one (1) style of all other On-Court Licensed
Products.
(b) (i) LICENSEE shall offer to retail accounts at least four
(4) outerwear styles in adult styles for all NBA Teams
across a range of price points, and shall manufacture and
have available for distribution to retail accounts at least
two (2) such styles, with respect to each Fall selling
season covered by the Term. Licensee shall offer to retail
accounts at least three (3) outerwear styles in adult sizes
for all NBA Teams across a range of price points, and shall
manufacture and have available for distribution to retail
accounts at least one (1) such style, with respect to each
Spring selling season covered by the Term.
(ii) LICENSEE shall offer to retail accounts at least three (3)
outerwear styles in youth sizes for all NBA Teams across a
range of price points, and shall manufacture and have
available for distribution to retail accounts at least one
(1) such style, with respect to each Fall selling season
covered by the Term. LICENSEE shall offer to retail accounts
at least two (2) outerwear styles in youth sizes for all NBA
Teams across a range of price points, and shall manufacture
and have available for distribution to retail accounts at
least one (1) such style, with respect to each Spring
selling season covered by the Term.
(iii) Except as specified in subparagraphs (i) and (ii) above,
LICENSEE shall offer to retail accounts a representation of
Other Licensed Products (including various
6
<PAGE>
styles of t-shirts, fleece, polos and a minimum of four (4)
styles of headwear with respect to the Fall and Spring
selling seasons) for all NBA Teams.
(c) LICENSEE shall have the right, but not the obligation, to offer
to retail accounts Authentic jerseys bearing the names of NBA
players who retire from one of Licensee's Teams during the Term,
subject to the following conditions:
(i) any such jersey shall be deemed a Licensed Product under
this Agreement;
(ii) any such jersey may be offered for a period (to be
determined by NBAP) not to exceed three (3) years from the
conclusion of the last NBA season in which the retired
player played; and
(iii) the royalty rate applicable to the sale of any jersey of a
retired player shall equal the then-current royalty rate for
Authentic Licensed Products containing Licensed Attributes.
(d) In each instance in which LICENSEE is obligated only to offer a
style of a Licensed Product pursuant to Paragraph E.1(b), such
product shall be manufactured, distributed and sold if LICENSEE
receives aggregate orders for such style for a Contract Year from
retail accounts of at least 600 units.
2. Set forth on Schedule B (as such schedule may be amended from
time-to-time) are the traditional retail accounts that support the
high quality and image of NBA officially licensed products with
appropriate merchandising displays, promotion and/or customer service
and to which LICENSEE shall offer a full range of Licensed Products.
LICENSEE shall not offer any On-Court Licensed Product or Ballperson
Licensed Product exclusively to any retail account and shall offer
each style or version of each such product required by this Agreement
to all of the retail accounts listed on Schedule B (as such schedule
may be amended from time-to-time). All Licensed Products shall be
offered, or made available, to each outlet of a retail account (i.e.,
"chainwide") listed on Schedule B and only to the retail accounts
listed on such Schedule.
3. (a) LICENSEE acknowledges that it will receive a variety of tangible
and intangible benefits as a result of having merchandise
manufactured by LICENSEE displayed, sold and promoted at NBAP
and/or Team owned or controlled concessions or stores ("NBA and
Team Stores"). Therefore, LICENSEE shall, in addition to and in
consideration of the benefits it will receive from having
merchandise displayed, sold and promoted at NBA and Team Stores,
(i) upon the request of NBAP, perform contract manufacturing
services for NBAP in connection with the manufacture of products
for sale in an NBAP owned or controlled store on terms mutually
agreed upon by NBAP and LICENSEE, and (ii) except as NBAP and
LICENSEE may otherwise agree, give NBA and Team Stores the same
priority under LICENSEE's sales and distribution policies (in
terms of price discounts, product offering, allocation, priority
of delivery and cooperative or other advertising and promotional
allowances or other benefits) as LICENSEE affords to its most
preferred high-volume customers, regardless of any such Store's
volume. No concession or store owned or controlled by a
professional sports team or league (other than the NBA or an NBA
Team) or by a college or university shall be entitled to more
favorable price discounts or priority than that offered to NBAP
and/or Team concessions or stores.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, in the event that LICENSEE fails (or informs NBAP that
it is unable) to accommodate an order by NBAP for delivery of one
or more On-Court and/or Ballperson Licensed Products to
7
<PAGE>
an NBAP owned or controlled store by the time NBAP requests such
delivery be made, NBAP shall be entitled, on a "fill-in" basis,
to obtain the requested Licensed Products from any source.
4. LICENSEE shall have the exclusive right and obligation to offer,
manufacture, distribute and sell to retail accounts at least one (1)
style of a "celebratory" headwear product and at least one (1) style
of a "celebratory" t-shirt (each distributed under the "Starter"
label) with respect to any of Licensee's Teams "celebratory" events
(e.g., win an NBA Division or Conference championship), other than an
NBA Finals celebration, to be supplied to such Team for the Team's
locker room celebration. Any rights LICENSEE may have with respect to
"celebratory" products for an NBA Finals celebration shall result
from, and be governed by, a separate agreement with NBAP. In
connection with the rights granted in this subparagraph, LICENSEE
shall be given appropriate locker room access and designation rights
in accordance with the terms of this Agreement.
5. LICENSEE shall maintain sufficient personnel and stock of finished
products in facilities located in the United States and Canada to
accommodate promptly all orders and reorders from its retail accounts
for all On-Court and Ballperson Licensed Products.
F. COMBINED ROYALTY PAYMENTS:
Throughout the Term, LICENSEE shall pay monthly to NBAP in accordance with
Paragraph 4 of the Standard Terms and Conditions a combined royalty and
advertising and promotion payment equal to the percentage of "Met Sales"
(as defined in Paragraph 1 of the Standard Terms and Conditions) listed
below for each Licensed Product category set forth below for each Contract
Year:
Licensed Product Combined Royalty Payment
---------------- ------------------------
1. Pro-Cut Jerseys and Authentic Jerseys
Containing Licensed Attributes: 15%
2. All other On-Court and Other Licensed
Products (e.g., Pro-Cut and Authentic
Shorts, Warm-ups (tops and pants),
Authentic Shooting Shirts, Authentic
Practicewear, Authentic Compression
shorts, Authentic socks, Athletic Bags
and Soft Luggage, Outerwear, Activewear
and Headwear): 11%
G. MINIMUM GUARANTEES:
LICENSEE guarantees to make payments to NBAP (in accordance with Paragraph
3(a) and (b) of the Standard Terms and Conditions) with respect to all
Licensed Products (regardless of product sales) for each Contract Year of
not less than the amount listed below (in U.S. dollars) with respect to
both the United States and Canada:
Contract Year U.S. Minimum Canada Minimum
------------- ------------ --------------
1 $3,300,000 $250,000
2 $3,750,000 $350,000
3 $3,750,000 $350,000
4 $3,750,000 $350,000
8
<PAGE>
H. ADVERTISING AND PROMOTION:
1. Consistent with NBAP's past practice of creating, undertaking or
supporting advertising and promotion activities with respect to
NBAP-licensed products sold at retail NBAP shall be entitled to devote
up to two percent (2%) of LICENSEE's annual royalty payments to cover
the expenses incurred by NBAP in connection with such advertising and
promotion activities. Any amounts devoted by NBAP to cover such
expenses shall be spent on such advertising and promotion activities
as NBAP, in its sole discretion, shall determine.
2. LICENSEE shall exhibit, at its sole cost and expense, a fair and
representative selection of Licensed Products at the Super Show and
every other trade show where LICENSEE exhibits licensed products.
I. TEAM MARKETING SUPPORT:
1. With respect to each Contract Year, LICENSEE shall require each of
Licensee's Teams, at LICENSEE's option, to enter into one of the
following marketing and sponsorship arrangements with LICENSEE:
(a) the "Basic" arrangement - under this arrangement, LICENSEE shall
spend not less than $100,000 with the Team during each Contract
Year, have the obligation and exclusive right to outfit the
Team's statisticians and ballpersons during NBA games in Licensed
Product (subject, in each case, to NBAP's policies) and receive:
(i) the exclusive right to outfit the Team's trainer(s),
equipment manager(s) and other team game personnel (other
than coaches) in Licensed Product (subject, in each case, to
NBAP's policies), if such personnel choose to wear
logo-identified apparel, courtside during Team games and
practices (including warm up periods, going to and from the
locker room to the playing floor and pre- and post-game
media sessions);
(ii) a commitment from the Team that (u) none of its
statisticians, ballpersons, trainers, equipment managers or
other team game personnel (other than coaches) shall wear
any brand identified (other than LICENSEE brand identified)
athletic apparel or accessories during a Team game or a Team
practice, (v) such individuals shall be advised not to wear
any brand identified (other than LICENSEE brand identified)
athletic apparel or accessories during Team warm up periods,
going to and from the locker room and during pre- and
post-game media sessions, (w) none of such individuals shall
obscure, alter or replace any brand identification of
LICENSEE on any Licensed Products supplied by LICENSEE, (x)
the Team shall uses its best efforts to prevent any company
(other than LICENSEE) from providing athletic apparel or
accessories to people gathered at media sessions arranged by
the Team at a venue that the Team controls, (y) no
advertising (other than LICENSEE's brand identification)
that can be placed on any apparel worn by any of such
individuals (except for apparel worn by ballpersons) shall
be provided to any company and (z) no advertising (other
than LICENSEE's brand identification) that can be placed on
any apparel worn by ballpersons or on any courtside item
that "touches a player" (e.g., seatbacks, towels, athletic
bags, cups and coolers) shall be provided by the Team (not
NBAP) to a company in the athletic footwear and/or apparel
sponsor category other than LICENSEE; and
9
<PAGE>
(iii) a marketing and sponsorship package, to be agreed upon
the Team and LICENSEE, that includes at least $50,000 of
value in cash and/or product (other than product that
LICENSEE is obligated to provide to the Team under this
Agreement, including, but not limited to, the Licensed
Product worn by ballpersons) (e.g., media advertising,
signage, tickets, participation in community programs with
the Team or a third party) during each Contract Year; or
(b) the "Advanced" arrangement - under this arrangement, LICENSEE and
the Team shall have the same rights and obligations as under the
Basic arrangement plus:
(i) LICENSEE shall spend at least an additional $100,000 (for a
total minimum of $200,000) with the Team during each
Contract Year;
(ii) LICENSEE shall receive a commitment from the Team that (x)
no courtside signage (e.g., a rotation in AdTime), during
the Team's games, shall be provided by the Team to a company
in the athletic footwear and/or- apparel sponsor category
other than LICENSEE (provided that, notwithstanding the
foregoing, the Team shall be entitled to provide signage on
balicarts to NBAP's then-current ball licensee and, if such
licensee is Spalding, the Team shall be entiUed to provide
Spalding with courtside signage that refers to basketballs
or its official supplier status regarding basketballs and
that advertises no other Spalding product (e.g., such
courtside signage cannot have only the Spalding name and
logo)), (y) no LICENSEE-identified courtside signage
provided by the Team, during the Team's games, shall be
obscured, altered or replaced or added to in any Team
licensed telecast distributed within the Team's territory
(it being understood that such prohibition shall not apply
to NBAP's distribution of such game telecast outside the
Team's territory) and (z) apparel worn by ballpersons will
not contain any signage other than the brand identification
of LICENSEE (in accordance with NBAP's policies); and
(iii) LICENSEE's marketing and sponsorship package shall include
at least an additional $75,000 (a total of $125,000) in
value in cash and/or product (other than product that
LICENSEE is obligated to provide to the Team under this
Agreement, including, but not limited to, the Licensed
Product worn by ballpersons) during each Contract Year, to
be agreed upon by the Team and LICENSEE.
2. In addition to the amounts required under Paragraph I.1 above,
LICENSEE shall spend, at its sole discretion, each Contract Year, in
cash and/or product (other than product that LICENSEE is obligated to
provide to the Team under this Agreement, including, but not limited
to, the Licensed Product worn by ballpersons), on marketing and
sponsorship programs offered by one or more of Licensee's Teams, a
minimum of $900,000. Notwithstanding anything to the contrary
contained in this Agreement, LICENSEE shall spend, in the aggregate,
at least $2,250,000 each Contract Year, in satisfaction of its
obligations under Paragraph I.1 above and the preceding sentence.
3. Any amount that LICENSEE is obligated to spend with any NBA Team
during any Contract Year by reason of a marketing and/or sponsorship
relationship that LICENSEE has with such Team as of the date of this
Agreement shall not be included in determining whether LICENSEE has
satisfied its obligations under Paragraphs I.1 and/or 2 above.
4. Notwithstanding anything to the contrary contained in Paragraph I.1
above, LICENSEE shall not be required to spend on one of Licensee's
Team's Team Inventory in excess of fifty percent (50%) of the value of
the applicable Team marketing and sponsorship
10
<PAGE>
package for that Team determined in accordance with either Paragraph
I.1(a)(iii) or I.1(b)(iii). For purposes of this Paragraph I, "Team
Inventory" shall mean all team-owned or controlled media advertising
(e.g., television, radio, signage and print), tickets and suites.
5. For purposes of this Agreement (and any agreement LICENSEE enters into
with any of Licensee's Teams pursuant hereto, unless such Team and
LICENSEE agree otherwise), "athletic accessories" shall mean all
headwear, headbands, wristbands, bags, towels, and all other
accessories that an individual wears or uses while participating in
any athletic activity. For purposes of this Agreement (and any
agreement LICENSEE enters into with any of Licensee's Teams pursuant
hereto, unless such Team and LICENSEE agree otherwise), any company
shall be deemed to be in the "athletic footwear and/or apparel sponsor
category" if such company is listed on Schedule C or D.
J. MARKETING AND MEDIA SUPPORT:
1. For the right to be designated an "official supplier" of the NBA
throughout the Term, LICENSEE shall pay to NBAP an annual fee ("Annual
Fee") of (i) $500,000 for Contract Year 1, (ii) $550,000 for Contract
Year 2, (iii) $600,000 for Contract Year 3, and (iv) $650,000 for
Contract Year 4. The Annual Fee for a Contract Year shall be paid in
four (4)equal installments on August 1, November 1, February 1 and May
1 of such Year.
2. During each Contract Year, LICENSEE shall make not less than the
following expenditures on NBA media and events in the United States
and Canada:
(a) With respect to commercial inventory in national broadcast and
cable network (e.g., NBC and TNT) game telecasts in the United
States, LICENSEE shall purchase $2,000,000 (less advertising
agency commissions not to exceed 15%) with respect to each
Contract Year; provided, however, that in the event that LICENSEE
pays NBAP combined royalties of $5,000,000 or more with respect
to Licensed Products sold in the United States and Canada for any
Contract Year, LICENSEE shall purchase commercial inventory in
national broadcast and cable network game telecasts in the United
States of at least $2,500,000 (gross) with respect to each
subsequent Contract Year.
(b) With respect to commercial inventory in NBA-related programming
(including television, radio, Internet and print media) that NBAP
sells and Inside Stuff Magazine ("NBAP Controlled Media") in the
United States, LICENSEE shall purchase $500,000 (less advertising
agency commissions not to exceed 15%) with respect to each
Contract Year (including at least one (1) page of advertising in
each issue of Inside Stuff Magazine); provided, however, that in
the event that LICENSEE pays NBAP combined royalties of
$5,000,000 or more with respect to Licensed Products sold in the
United States and Canada for any Contract Year, LICENSEE shall
purchase NBAP Controlled Media in the United States of at least
$750,000 (net) with respect to each subsequent Contract Year
(including at least one (1) page of advertising in each issue of
Inside Stuff Magazine).
(c) With respect to events, ceremonies, activities, competitions or
programs conducted by NBAP in the United States and Canada (e.g.,
Jam Session, grass roots programs) ("NBAP Events and Programs")
(to be selected mutually by LICENSEE and NBAP), LICENSEE shall
provide NBAP in cash and/or product, in exchange for appropriate
recognition and exposure, with (i) $200,000 for Contract Year,
(ii) $250,000 for Contract Year 2, (iii) $300,000 for Contract
Year 3 and (iv) $350,000 for Contract Year 4.
11
<PAGE>
(d) On or before the June 15 prior to a Contract Year, NBAP shall
provide LICENSEE with a reasonable selection of inventory and/or
sponsorship opportunities with respect to NBA Controlled Media
and NBAP Events and Programs that are available to LICENSEE for
such Contract Year together with the corresponding prices and/or
fees for such inventory and/or sponsorship opportunities. If,
within thirty (30) business days of receipt by LICENSEE of such
list, LICENSEE does not provide NBAP with written confirmation of
its selection of NBAP Controlled Media and NBAP Events and
Programs in amounts sufficient to satisfy LICENSEE's obligations
under Paragraph J.2.(b) and (c), then (i) NBAP shall not be
obligated to reserve for LICENSEE for such Contract Year any
particular NBAP Controlled Media for NBAP Events and Programs
(other than the inventory and/or sponsorship opportunities
selected during such 30~ay period) and (ii) LICENSEE shall
satisfy its remaining obligations under Paragraph J.2(b) and (c)
with respect to NBA Controlled Media and NBAP Events and Programs
for such Contract Year from any inventory and/or sponsorship
opportunities made available to LICENSEE by NBAP for such
Contract Year.
(e) Without limiting the effect of any provision of this Paragraph J,
each Contract Year, LICENSEE shall support LICENSEE's
distribution and sale of Licensed Products with advertising and
marketing materials distributed within the Territory (e.g.,
purchased during NBA game telecasts or in NBAP Controlled Media)
worth not less than $2,000,000 (based on the actual cost incurred
by LICENSEE to create and distribute such advertising and
marketing materials). For purposes of this subparagraph,
"advertising and marketing materials" shall include television
commercials, print advertisements, outdoor boards, wall murals,
point-of-purchase displays and other forms of media advertising
or marketing. In order to be counted against LICENSEE's
obligation under this subparagraph (e), any such materials must
(i) advertise or promote one or more Licensed Marks (in equal or
greater prominence than the "Starter" brand), (ii) not indicate
or depict any brand other than "Starter" or any other sport or
trademark, and (iii) be approved by NBAP prior to execution by
LICENSEE.
K. MEDIA ADVERTISING RIGHTS:
1. LICENSEE shall not use any photograph or footage incorporating,
displaying or depicting a Licensed Mark ("NBA Photo or Footage") for
any purpose other than for advertising and promoting Licensed
Products.
2. Unless otherwise approved by NBAP, any game action NBA Photo or
Footage must be obtained from NBAP or NBA Entertainment, Inc.
("NBAE"). LICENSEE shall not be charged any fee (other than NBAE's
search and edit charges and other out-of-pocket expenses) for NBA
Photo or Footage obtained from NBAP or NBAE and used by LICENSEE in
connection with an advertisement or promotion for Licensed Products so
long as any such advertisement or promotion has been approved by NBAP.
L. TEAM ASSIGNMENTS:
1. Set forth on Schedule A hereto (as such Schedule may be amended from
time to time in accordance with this Paragraph L or as the parties may
otherwise agree) are Licensee's Teams with respect to each Contract
Year.
2. (a) During the Term, NBAP shall have the right to assign to LICENSEE
(with LICENSEE's consent) either a Team other than one of the
twenty-nine Teams in existence as of the execution date of this
Agreement (an "Expansion Team") or a
12
<PAGE>
Team assigned initially to another NBAP licensee with rights to
manufacture Pro-Cut and Authentic products (an "Available Team").
LICENSEE shall notify NBAP as to whether it consents to such
proposed assignment within fifteen (15) days of LICENSEE's
receipt of written notice from NBAP advising LICENSEE of the
availability of such Expansion Team and/or Available Team. In the
event of any such assignment, the following modifications shall
be made to LICENSEE's obligations hereunder for each Expansion
Team and/or Available Team that becomes one of Licensee's Teams,
commencing with the first Contract Year in which such Expansion
Team and/or Available Team becomes a Licensee Team and continuing
through the Term:
(i) LICENSEE shall make available the team marketing and
sponsorship arrangements described n Paragraph I.1 above to
each such Expansion Team and/or Available Team in accordance
with the terms set forth in such Paragraph;
(ii) LICENSEE shall (x) supply such Expansion Team and/or
Available Team with On-Court Licensed Products and
Ballperson Licensed Products in accordance with Paragraph D
and (y) offer, manufacture, distribute and/or sell (as the
case may be) to retail accounts On-Court Licensed Products
and Ballperson Licensed Products with respect to such
Expansion Team and/or Available Team in accordance with
Paragraph E; and
(iii) the applicable Annual Fees set forth in Paragraph J.1 shall
be increased by 10% per Expansion Team and/or Available Team
(e.g., if one Expansion Team and one Available Team become
Licensee Teams in Contract Year 2, the Annual Fee for
Contract Year 2 (and for all remaining Contract Years) will
be 120% of the amount set forth in Paragraph J.1).
(b) In the event that LICENSEE does not timely consent to a proposed
assignment by NBAP to LICENSEE of an Expansion Team and/or
Available Team in accordance with subparagraph (a), then NBAP
shall be free to assign such Expansion Team and/or Available Team
to another company.
M. MISCELLANEOUS:
1. (a) In the event that, during the Term, LICENSEE takes any
action, or causes any NBA player to take any action, that would
cause or induce any such player to "opt-out" of the Group License
Agreement between NBAP and the National Basketball Players
Association ("NBPA") (or its successor), or that would otherwise
cause or induce any such player to materially breach the
Collective Bargaining Agreement between the NBA and NBPA in
effect as of the date hereof, or any successor collective
bargaining agreement between the NBA and NBAP (or its successor),
or any NBA Uniform Player Contract, NBAP shall have the right to
terminate this Agreement upon written notice to LICENSEE. Such
termination shall be effective at the conclusion of the
then-current Contract Year, or at such earlier time as NBAP and
LICENSEE may agree. In the event that this Agreement is
terminated pursuant to this Paragraph, LICEMSEE shall (i) cease
from manufacturing, distributing and selling Licensed Products,
(ii) have no right to use the Licensed Marks or Licensed
Attributes in the Territory, and (iii) remain responsible to NBAP
for any royalties relating to Met Sales on Licensed Products.
Nothing contained in this Paragraph M.1(a) shall affect, or be
deemed to affect, (i) any right of any individual NBA player to
"opt-out" of the Group License Agreement, or any successor group
licensing agreement between NBAP or the NBA and the NBAP (or its
successor), in accordance with the terms of such Agreement or
successor agreement, or (ii) any rights NBAP, the NBA or an NBA
13
<PAGE>
team may have be contract or law against a player for breach of
contract or against LICENSEE for causing or inducing a breach of
contract.
(b) In the event that (x) LICENSEE knows or reasonably should know
that an NBA player who has entered into an endorsement agreement
with LICENSEE (an "Endorser") is considering "opting out" of the
Group License Agreement, or any successor group licensing
agreement between NBAP or the NBA and the NBPA (or its
successor), with respect to any product (other than footwear)
that LICENSEE, is supplying, distributing or selling, in
accordance with the terms of the Group License Agreement (or
successor agreement) or (y) NBAP requests LICEMSEE to encourage
an Endorser not to "opt-out" of such Group License Agreement (or
successor agreement) with respect to any such product, then
LICENSEE shall use its best efforts to encourage such Endorser
not to "opt-out" with respect to such product (by communicating
promptly with such Endorser for the purpose of encouraging him
not to "opt-out") and, if NBAP requests LICENSEE to do so
LICENSEE shall advise NBAP as to who encouraged such Endorser and
when such encouragement was provided.
(c) LICENSEE shall use its best efforts to encourage any Endorser who
has "opted-out" or who "opts-out" of the Group License Agreement
(or any successor group licensing agreement between NBAP or the
NBA and the NBAP (or its successor)) with respect to any product
(other than footwear) that LICENSEE is supplying, distributing or
selling, by reason of a provision contained in any agreement such
Endorser has entered into with LICENSEE, to participate in such
group licensing agreement with respect to such product (by
communicating with such Endorser for the purpose of encouraging
him to so participate) and, if NBAP requests LICENSEE to do so,
LICENSEE shall advise NBAP as to who encouraged such Endorser and
when such encouragement was provided. NBAP shall advise LICENSEE
as to which Endorsers have "opted-out" as of the date of this
Agreement with respect to any such product and LICENSEE shall
confirm that it will not object to the participation of such
Endorsers in the Group License Agreement, or any successor group
license agreement between NBAP or the NBA and the NBPA (or its
successor) in accordance with the terms of such Agreement or
successor agreement, with respect to any such product.
(d) LICENSEE shall not take any action to cause or induce any
Endorser or NBA player who plays for a Team that is not a
Licensee Team (i) to wear or use any apparel or accessory
products and/or (ii) not to wear any On-Court products
manufactured by an NBAP licensee other than LICENSEE, in either
case, during a Team game (including warm-up periods, going to and
from the locker room to the playing floor and pre- and post-game
media sessions) or a Team practice. LICENSEE shall not
intentionally obscure, alter or replace any brand identification
of any company on any On-Court product or intentionally add any
signage to any On-Court product depicted in any NBA Photo or
Footage used by LICENSEE in connection with any product or with
any advertising or promotional material (it being understood that
this provision shall not restrict LICENSEE from using NBA Photos
or Footage in which an entire player is obscured in accordance
with NBAP rules or in which such brand identification is not
visible because of the angle at which such NBA Photos or Footage
are taken).
(e) NBAP agrees that the obligations and covenants set forth in this
Paragraph M.1 shall be required of any other company licensed by
NBAP to manufacture On-Court and Authentic licensed products.
14
<PAGE>
2. (a) NBAP shall not authorize any company to provide any NBA
players on any of Licensee's Teams with any brand identified
(other than LICENSEE brand identified) athletic apparel for use
by such players during a Team game (including warm-up periods,
going to and from the locker room to the playing floor and pre-
and post-game media sessions) or a Team practice.
(b) NBAP shall not take any action to cause or induce any NBA player
who plays for one of Licensee's Team (i) not to wear any On-Court
Licensed Product or (ii) to obscure, alter or replace in any way
LICENSEE's brand identification on any On-Court Licensed Product
or to add signage to any On-Court Licensed Product.
(c) NBAP shall not authorize any NBAP sponsor or licensee to
intentionally obscure, alter or replace LICENSEE's brand
identification on any On-Court Licensed Product or intentionally
add any signage to any On-Court Licensed Product depicted in any
NBA Photo or Footage used by such sponsor or licensee in
connection with any product or with any advertising and
promotional material (it being understood that this provision
shall not restrict any such sponsor or licensee from using NBA
Photos or Footage in which an entire player is obscured in
accordance with NBAP rules or in which such brand identification
is not visible because of the angle at which such NBA Photos or
Footage are taken).
(d) NBAP shall not authorize any company (other than LICENSEE) to
provide apparel to people gathered at media sessions arranged by
one (1) of Licensee's Teams at a venue that the Team or NBAP
controls.
3. LICENSEE shall use its best efforts to secure the services of NBA
players as Endorsers and to use Endorsers to promote the sale of
Licensed Products.
4. NBAP shall, at no charge to LICENSEE, provide LICENSEE with twenty
(20) tickets per event to all major, public NBA-sponsored events
conducted during the NBA All-Star Weekend held each Contract Year for
use by trade or by LICENSEE's personnel, it being understood that no
such ticket may be used as a sweepstakes prize or for other
promotional purposes without NBAP's written consent.
AGREED TO AND ACCEPTED: AGREED TO AND ACCEPTED:
STARTER CORPORATION NBA PROPERTIES, INC.
By: /s/unrecognizable By: /s/unrecognizable
----------------------- --------------------------
Date: 1/22/97 Date: 1/23/97
--------------------- ------------------------
15
<PAGE>
NBAP STANDARD TERMS AND CONDITIONS
1. ADDITIONAL DEFINITIONS
For the purposes of this Agreement:
(a) "Contract Year" shall mean a twelve (12) month accounting period
commencing August 1,1997 and concluding July 31.
(b) "Counterfeit Goods" shall mean and include: (i) goods that bear any
NBA Mark that has been reproduced and/or affixed without authorization
from NBAP; (ii) goods that bear any NBA Mark produced by any source in
excess of an amount ordered by an NBAP licensee; and (iii) goods that
bear any NBA Mark that have been rejected by NBAP or an NBAP licensee
and nevertheless enter the stream of commerce.
(c) "Diverted Goods" shall mean and include any goods produced by someone
acting on behalf of an NBAP licensee, which goods are not delivered by
the producer to such licensee or to a person designated by such
licensee to receive such goods.
(d) "Net Sales" shall mean the amount of the gross sales of a Licensed
Product by LICENSEE, after deducting any bona-fide credit or
adjustment for returns actually made and volume discounts actually and
customarily given to the trade (such discounts may not exceed ten
percent (10%) of the gross sales for the applicable accounting
period). In computing Net Sales, no direct or indirect expenses or
costs incurred in connection with paying royalties due under this
Agreement (including transferring funds or royalties or converting
currency into U.S. dollars) or manufacturing, selling, distributing,
importing or advertising (including cooperative and other advertising
and promotion allowances) the Licensed Products shall be deducted, nor
shall any deduction be made for uncollectible accounts, cash
discounts, early payment discounts, discounts relating to advertising,
mark-down allowances or other allowances. Met Sales resulting from
sales to any party directly or indirectly related to or affiliated
with LICENSEE (a "Related Transaction") shall be computed based on
regular selling prices to the trade. If such related party or
affiliate is a reseller to the trade of the Licensed Products, the
sales price for purposes of determining Met Sales of a Related
Transaction shall be the higher of the sales price to the related or
affiliated party or the sales price charged to the trade by such
related or affiliated party. If a purchaser from LICENSEE purchases
FOB the manufacturing source or participates in other arrangements
which result in such purchaser paying less for the Licensed Products
than LICENSEE's regular selling prices to the trade, Met Sales with
respect to any such transaction shall be computed based on the regular
selling prices to the trade.
(e) "Parallel Goods" shall mean and include Licensed Products transferred
outside of the Territory or brought into the Territory in violation of
this Agreement.
(f) "Premium" shall mean anything given free or sold at substantially less
than its usual selling price (but does not include sales made pursuant
to periodic price reductions resulting from "specials," "sales," or
volume pricing discounts) for the purpose of increasing the sale of,
or publicizing, any product or service, or other giveaway or
promotional purpose. Other giveaway or promotional purposes include,
but are not limited to, self-liquidating offers, uses of Licensed
Products as sales force or trade incentives and sales of Licensed
Products through distribution schemes involving earned discounts or
"bonus" points based on the consumer's use of the offeror's product or
service.
(g) "Standard weight" means a garment weight of less than 5.5 oz. in the
case of non-fleece items and less than 10.5 oz. in the case of fleece
items.
2. TEAM REPRESENTATION; LIMITATIONS ON LICENSE
Except as provided herein or as otherwise approved in writing by NBAP, each
Licensed Product must be manufactured and offered for sale on LICENSEE's
standard terms in a version for each Member Team. LICENSEE acknowledges
that, unless the NBA Logo is specifically contained in the definition of
Licensed Marks above, no license is granted for
16
<PAGE>
the use of the NBA Logo except insofar as the NBA Logo is embodied in the
NBA "Official Licensed Product" logo. If LICENSEE is licensed to use the
NBA Logo under this Agreement and if this Agreement includes the right to
manufacture apparel products, the NBA Logo may, unless otherwise specified
on the first page of this Agreement, be used only on products sold under
LICENSEE's highest priced brand and must be embroidered on all apparel
products sold under LICENSEE's highest priced brand (other than
non-embroidered T-shirts and fleece). The NBA Logo may only be in
combination with the Marks of one (1) or more Member Teams (i.e., the NBA
Logo may not be used by itself), which must be shown with equal or greater
prominence than the NBA Logo. All designs of the Licensed Products using
the Licensed Marks, including any packages, containers or tags, shall be
subject to NBAP's prior written approval and shall be used solely in
furtherance of this Agreement, and such designs will not be used in any
other respect by LICENSEE nor will LICENSEE authorize any third party to
use such designs. Notwithstanding the foregoing, NBAP acknowledges that
LICENSEE may hold other licenses pursuant to which LICENSEE manufactures,
distributes or sells products similar in design to the Licensed Products
and nothing in this Agreement is intended to prohibit LICENSEE's
manufacture, distribution or sale of such products not bearing or relating
to the Licensed Marks.
3. STATEMENTS AND PAYMENTS; REPORTING
(a) Statement and Payments: By the fifteenth (15th) day following the end
of each month, LICENSEE shall furnish NBAP with a statement of
estimated total gross sales for the preceding month, and within thirty
(30) days following the end of each month shall furnish (on forms
provided by or approved by NBAP) full and accurate statements (on a
country-by-country and unit basis, if more than one country is
contained within the definition of the Territory), certified by an
officer of LICENSEE, showing all information relating to the
calculation of Met Sales for the preceding month. Simultaneously with
the submission of such full statement, LICENSEE shall make all
combined royalty and advertising and promotion payments required under
this Agreement for the applicable month. The minimum amount of each
monthly payment with respect to each Licensed Product category shall
be the amount which, when added to payments previously made for the
Contract Year with respect to such Licensed Product category, shall
equal one-twelfth (8.34%) of the Minimum Guarantee for such Licensed
Product category for such Contract Year required under Paragraph G
above, multiplied by the number of calendar months of such Contract
Year that have then elapsed. Aggregate royalties and any advertising
and promotion payments paid each Contract Year may exceed the Minimum
Guarantee for such Contract Year. Such monthly statements shall be
furnished and the required payments made by LICENSEE whether or not
there are any Met Sales for that month. LICENSEE shall not deduct or
withhold any amounts by reason of any tax (including any taxes imposed
on NBAP); any applicable tax on the distribution and sale of the
Licensed Products shall be borne, and paid directly, by LICENSEE. In
order to avoid the imposition of foreign withholding taxes on NBAP,
all payments shall be in U.S. dollars, from a U.S. source approved by
NBAP. All computations and payments shall be in U.S. dollars, at the
spot rate for the local currency as published in the Wall Street
Journal for the last business day of the preceding month. If LICENSEE
shall fail to timely pay any amount due under this Paragraph, LICENSEE
shall pay interest on such amount at a rate equal to the lesser of (i)
three percent (3%) per annum over the highest prime rate (announced by
Chase Bank, Mew York branch) prevailing during the period between the
date the payment first became due and the date such payment is
actually paid or (ii) the highest rate permitted by law during the
period between the date the payment first became due and the date such
payment is actually paid. The receipt or acceptance by NBAP of any of
the statements furnished or royalties paid by LICENSEE (including the
cashing of any royalty checks) shall not preclude NBAP from
questioning their accuracy at any time,
17
<PAGE>
auditing LICENSEE's books and records pursuant to Paragraph 12 or
claiming any shortfall in combined royalty and advertising and
promotion payments. In order to assist with NBAP's annual budget
process, by April 15 of each Contract Year, LICENSEE shall deliver a
statement detailing LICENSEE's projections for sales of each Licensed
Product for the following Contract Year, broken down on a quarterly
basis. If LICENSEE fails to comply with the reporting requirements
contained in this Paragraph, NBAP may charge LICENSEE, as liquidated
damages, two thousand U.S. dollars (USD 2,000) for each instance of
non-compliance with this Paragraph.
(b) Cross Collateralization: Any combined royalty payment for a unit of
Licensed Product sold shall only be applied against the Minimum
Guarantee for such Licensed Product for the Contract Year in which the
unit of such Licensed Product was sold (i.e., any shortfall in, or
payment in excess of, the Minimum Guarantee for a Contract Year may
not be offset or credited against the Minimum Guarantees for any other
Contract Year, against any other Licensed Product or against any other
NBA license held by LICENSEE). If Minimum Guarantees are stated
separately for different categories of Licensed Products (or for
different countries within the Territory), royalty payments resulting
from Met Sales of a category of Licensed Product (or from Met Sales of
a country) shall be applied only against the Minimum Guarantee for
such category of Licensed Product (or against the Minimum Guarantee
for such country).
4. NON-RESTRICTIVE GRANT; RIGHTS RESERVED
Nothing in this Agreement shall prevent NBAP from granting any other
licenses and rights. All rights not specifically granted in this Agreement
are expressly reserved by NBAP. No right of renewal or option to extend is
granted or implied and LICENSEE shall have no right to continue
manufacturing or selling Licensed Products or to continue holding itself
out as a licensee of NBAP after the expiration or termination of this
Agreement except as provided in Paragraph 14.
5. PREMIUMS
Licensed Products shall not be used as a Premium without the prior written
approval of NBAP in each instance and unless specifically authorized
pursuant to a separate agreement with NBAP. Nothing in this Agreement shall
prohibit LICENSEE from marketing Licensed Products using creative
techniques consistent with industry practice, including, but not limited
to, periodic "specials," "sales," or volume discount prices, so long as all
receipts are accounted for in Met Sales and in accordance with this
Agreement.
6. GOODWILL
LICENSEE recognizes that (i) a portion of the value of the NBA Marks is
attributable to goodwill, (ii) the goodwill attached to the NBA Marks
belongs exclusively to NBAP, the NBA and its Member Teams and (iii) such
NBA Marks have secondary meanings in the minds of the public. LICENSEE
shall not, during the Term or thereafter, challenge (y) the property rights
of the Member Teams, whether severally owned or held in association as the
NBA, or NBAP's property rights, in and to NBA Marks, or (z) the validity,
legality or enforceability of this Agreement.
7. PROTECTION OF RIGHTS
(a) Unauthorized Activities: LICENSEE shall promptly notify NBAP in
writing of any infringements of the Licensed Marks, Licensed
Attributes or the Licensed Products or the sale of any Licensed
Products outside the Territory (e.g., unauthorized
importation/exportation of goods) which may come to LICENSEE's
attention. NBAP shall have the sole right to determine whether or not
any action shall be taken on account of any such infringement or
unauthorized importation/exportation. LICENSEE agrees not to contact
any third party, not to make any demands for claims and not to
institute any suit or action on account of such infringement or
unauthorized importation/exportation without obtaining the express
prior written permission of NBAP in each instance.
(b) Assistance in Protecting Marks: LICENSEE shall cooperate to the
fullest extent necessary to assist NBAP in the protection of the
rights of NBAP. the NBA and the
18
<PAGE>
Member Teams in and to the Licensed Marks and Licensed Attributes.
NBAP shall reimburse LICENSEE for any reasonable out-of-pocket costs
actually incurred by LICENSEE in providing such cooperation and
assistance. LICENSEE shall cooperate with NBAP in its enforcement
efforts, including being named by NBAP as a complainant in any action
against an infringer. LICENSEE shall pay to NBAP, and waives all
claims to, all damages or other monetary relief recovered in any such
NBAP-initiated action by reason of a judgment or settlement (other
than for reasonable attorneys' fees and expenses incurred at NBAP's
request) whether or not such damages or any part of such damages
represent or are intended to represent injury sustained by LICENSEE.
(c) Ownership of Marks: LICENSEE acknowledges that, based on NBAP's
representations and warranties, NBAP and/or the Member Teams are the
exclusive owners of the Licensed Marks. Any intellectual property
rights in the Licensed Marks that may accrue to LICENSEE shall inure
to the benefit of NBAP and shall be assigned to NBAP upon its request.
Any copyright, trademark or service mark used or procured by LICENSEE
with respect to or involving the Licensed Marks, derivations or
adaptations of the Licensed Marks, or any word, symbol or design which
is similar to the Licensed Marks so as to suggest association with or
sponsorship by the NBA, one of its Member Teams or any of their
affiliates, shall be procured for the benefit of and in NBAP's name,
but at LICENSEE's expense, notwithstanding their creation by LICENSEE.
LICENSEE shall take all necessary steps to secure an assignment to
NBAP of the copyright from a creator of work that is not
work-for-hire. Any copyright, trademark or service mark affecting or
relating to the Licensed Marks already procured or applied for shall
be assigned to NBAP. Notwithstanding the foregoing, LICENSEE shall not
be prohibited from obtaining copyright protection, in its name, with
respect to graphic designs/background presentations that do not
specifically incorporate the Licensed Marks but are used in
combination with the Licensed Marks on the Licensed Products as well
as on merchandise produced under license from third parties (e.g. NFL,
MLB or NHL licensed product). LICENSEE shall supply NBAP with any
necessary supporting materials required to obtain copyright or
trademark registrations of any copyrights or trademarks required to be
assigned to NBAP under this Agreement.
(d) Notices, Labeling and Records: In every instance in which any Licensed
Mark is used, LICENSEE shall cause to appear on or within each
Licensed Product sold, by means of a tag, label, imprint or other
appropriate device, the notice "TM," "[registered mark],"
"[copyright]" or such other copyright, trademark or service mark
notices (including the form, location and content of such notices) as
NBAP may from time-to-time designate. In addition, the following
general notice (in the English language and the language of the
country where the Licensed Products will be sold) must be included on
a label, the packaging material or on a separate slip of paper packed
with or attached to the Licensed Product:
"The NBA and individual NBA member team identifications
reproduced on this product are trademarks and copyrighted
designs that are the exclusive property of NBA Properties,
Inc. and the respective NBA member teams and may not be
used without the written consent of NBA Properties, Inc."
LICENSEE shall: (i) cause all Licensed Products to bear the NBA
"Official Licensed Product" logo on either the article or its
packaging in such place, and in such prominence, as NBAP may designate
from time-to-time, (ii) faithfully comply with and adhere to NBAP's
mandatory hologram "Official Licensed Product" identification system
and Printables Policy (if applicable), or such other shipment
tracking, identification and anti-counterfeiting systems, tags and
labels that NBAP may establish from time-to-time, (iii) unless
approved in writing by NBAP, not cross-license or otherwise use other
licensed properties or other Marks with the Licensed Products or
Licensed Marks and (iv) keep appropriate records, and advise NBAP, of
the date when each of the Licensed Products is first placed on sale or
sold in each country of the Territory and the date of
19
<PAGE>
first use in each country of each different Licensed Mark on the
Licensed Products and any promotional or packaging materials.
(e) Recordation and Registered User Applications: With respect to those
countries in which LICENSEE may distribute and which require
applications to register LICENSEE as a permitted or registered user of
the Licensed Marks, or which require the recordation of this
Agreement, LICENSEE shall execute and deliver to NBAP such
applications, agreements or other documents as may be necessary. In
such event, this Agreement rather than such agreements will govern any
disputes between LICENSEE and NBAP, and when this Agreement expires or
is terminated, any such other agreement shall also be deemed expired
or terminated.
(f) LICENSEE Trade Names and Trademarks: LICENSEE shall permanently affix
labeling on each Licensed Product or its packaging, indicating its
name, trade name and address so that the public can identify the
supplier of the Licensed Product. Prior to any distribution or sale of
any Licensed Products, LICENSEE shall advise NBAP in writing of
LICENSEE's trade names or trademarks used on Licensed Products and the
proposed placement of such trade names and trademarks on the Licensed
Products. LICENSEE shall only sell Licensed Products under mutually
agreed upon trade names or trademarks and with approved copyrighted
designs, shall not incorporate the Licensed Marks into LICENSEE's
corporate or business name or trademark in any manner whatsoever and
shall place its trade names and trademarks on Licensed Products only
as approved by NBAP. All apparel products sold under this Agreement
must bear permanently affixed neck or other labels with one of
LICENSEE's NBA-approved trade names or trademarks. As requested by
NBAP, LICENSEE shall supply NBAP, in advance of shipping any Licensed
Products, with at least twelve (12) copies of each type of its hang
tags, labels and other markings of origin for use in identifying and
authenticating Licensed Products in the marketplace. LICENSEE shall
not use, whether during or after the Term, any Marks: (i) in
connection with the Licensed Marks without NBAP's authorization, (ii)
confusingly-similar to the Licensed Marks, or (iii) intended to relate
or refer to the Licensed Marks, the Member Teams or events involving
Member Teams.
8. INDEMNIFlCATIONS
(a) LICENSEE shall be solely responsible for, and shall defend, hold
harmless and indemnify NBAP, NBA Entertainment, Inc. ("NBAE"), the
NBA, its Member Teams and the NBPA, and their respective affiliates,
owners, directors, governors, officers, employees and agents
(collectively "NBA Parties") against, any claims, demands, causes of
action or damages, including attorneys' fees (collectively, "Claims"),
arising out of: (i) any act or omission of LICENSEE, (ii) any breach
of this Agreement by LICENSEE, (iii) any defect (whether obvious or
hidden and whether or not present in any sample approved by NBAP) in a
Licensed Product or any packaging or other materials (including
advertising materials), or arising from personal injury or any
infringement of any rights of any other person or entity by the
manufacture, sale, possession or use of Licensed Products or their
failure to comply with applicable laws, regulations and standards or
(iv) any claim that the use of any design or other graphic component
of any Licensed Product (other than the Licensed Marks) violates or
infringes upon the trademark, copyright or other intellectual property
rights (including trade dress) of a third party, provided LICENSEE is
given prompt written notice of and shall have the option to undertake
and conduct the defense of any such Claim using counsel of its choice.
If LICENSEE and NBAP agree to representation by counsel of NBAP's
choice, and is other than LICENSEE's first choice of counsel, NBAP
shall bear the sole cost of the difference between the billing rate of
LICENSEE's counsel of choice (of comparable experience, i.e., partner
rate to partner rate, senior associate rate to senior associate rate,
etc.) and that of NBAP's designated counsel. In any instance to which
the foregoing indemnities pertain, NBAP shall cooperate fully with and
assist LICENSEE in all respects in connection with any such defense.
LICENSEE shall
20
<PAGE>
reimburse NBAP for all reasonable out-of-pocket costs actually
incurred by NBAP in connection with such cooperation and assistance.
In any instance to which such indemnities pertain, LICENSEE shall not
enter into a settlement of such Claim or admit liability or fault
without NBAP's prior written approval. LICENSEE shall obtain and
maintain product liability insurance providing protection for the NBA
Parties against any Claims arising out of any alleged defects in the
Licensed Products or any use of the Licensed Products, in an amount
and providing coverage satisfactory to NBAP (including the amount of
the deductible). Such insurance shall be carried by an insurer with a
rating by A.M. Best & Co. of A-7 or other rating satisfactory to NBAP.
Such insurance policy shall also provide that NBAP receive written
notice within thirty (30) days prior to the effective date of the
cancellation, non-renewal or any material change in coverage. In the
event that LICENSEE fails to deliver to NBAP a certificate of such
insurance evidencing satisfactory coverage prior to NBAP's execution
of this Agreement, NBAP shall have the right to terminate this
Agreement at any time. Such insurance obligations shall not limit
LICENSEE's indemnity obligations, except to the extent that LICENSEE's
insurance company actually pays NBAP amounts which LICENSEE would
otherwise be obligated to pay NBAP.
(b) NBAP shall be solely responsible for, and shall defend, hold harmless
and indemnify LICENSEE, its directors, officers, employees and agents
against any Claims arising out of: (i) a claim that the use of the
Licensed Marks as authorized by this Agreement violates or infringes
upon the trademark, copyright or other intellectual property rights
(including trade dress) of a third party in or to the Licensed Marks
or (ii) any breach of this Agreement by NBAP, provided NBAP is given
prompt written notice of and shall have the option to undertake and
conduct the defense of any such Claim using counsel of its choice. In
any instance to which the foregoing indemnities pertain, LICENSEE
shall cooperate fully with and assist NBAP in all respects in
connection with any such defense. NBAP shall reimburse LICENSEE for
all reasonable out-of-pocket expenses actually incurred by LICENSEE in
connection with such cooperation and assistance. In any instance to
which such indemnities pertain, NBAP shall not enter into a settlement
of such Claim or admit liability or fault without LICENSEE's prior
written approval.
9. QUALITY; APPROVALS; SAMPLES
LICENSEE shall cause the Licensed Products to meet and conform to high
standards of style, quality and appearance. In order to assure NBAP that it
is meeting such standards and other provisions of this Agreement, LICENSEE
shall comply with the following:
(a) Pre-Production: Before commercial production and distribution of any
Licensed Product, LICENSEE shall submit to NBAP all preliminary and
proposed final artwork, three dimensional models (if any), prototypes,
mock-ups and pre-production samples of each Licensed Product,
including all styles, colors and variations, together with its labels,
tags, cartons and containers (including packaging and wrapping
materials). All LICENSEE submissions under this Paragraph shall be
accompanied by forms supplied by NBAP, using one (1) form for each
submission and filling in all necessary information. NBAP shall
approve or disapprove in writing all submissions, in its sole
discretion, before LICENSEE shall be entitled to distribute,
advertise, use, produce commercial quantities of or sell any item
relating to any such submission. Any article actually submitted and
not disapproved within sixty (60) days after receipt by NBAP shall be
deemed approved. Approval of an article which uses particular artwork
does not imply approval of such artwork with a different article or of
such article with different artwork. LICENSEE acknowledges that NBAP's
approval of an article does not imply approval of any non-NBA
controlled elements contained in any article. After a sample of an
article has been approved, LICENSEE shall not make any changes without
resubmitting the modified article for NBAP's written approval.
(b) Production Samples: Before selling or distributing any Licensed
Product, LICENSEE shall furnish NBAP with, at no charge, for its
permanent use, two (2) samples of the Licensed Product from the first
production run of each manufacturer of the Licensed
21
<PAGE>
Products, including all styles, colors and variations, together with
its labels, tags, cartons and containers (including packaging and
wrapping materials). If such samples do not conform to all aspects of
the Licensed Product as approved or if the quality of such sample does
not meet the requirements of this Paragraph 9, NBAP shall notify
LICENSEE and such article shall not be considered a Licensed Product,
be deemed unapproved and all such articles shall be promptly
destroyed. LICENSEE shall furnish to NBAP, free of charge, prior to
the start of each Contract Year, two (2) samples of all home and road
On-Court products to be made available for the season covered by such
Contract Year. LICENSEE shall also furnish NBAP, free of charge, with
any additional pieces of Licensed Product as may reasonably be
required by NBAP to promote the sale of Official Licensed Products
(e.g., for NBAP's display room, advertisements, catalogs, mailers,
product placement and trade shows) or for comparison with earlier
samples. In addition, LICENSEE shall provide NBAP with any additional
pieces of Licensed Product as may be required for the permanent use of
the Member Teams, not to exceed one (1) piece per Member Team. If NBAP
wishes to purchase Licensed Products for give-away purposes and not
for resale, LICENSEE shall sell the Licensed Products to NBAP at
LICENSEE's direct manufacturing cost for such Licensed Products and
LICENSEE shall not be required to pay royalties on such sales to NBAP
or incur any costs in shipping such merchandise to NBAP.
(c) Rejections and Non-Compliance: The rights granted under this Agreement
do not permit the sale of "seconds" or "irregulars" except that,
subject to NBAP's approval in each instance, LICENSEE shall be
permitted to sell limited quantities of such merchandise through
LICENSEE's outlet stores or other LICENSEE-controlled outlets (i.e.,
"First Pick" stores) provided that the merchandise is not an On-Court
product, that the defect or irregularity does not relate to any
Licensed Mark or Licensed Attribute, team colors or adversely affect
the goodwill of the NBA (e.g., merchandise with slight variation in
sizing or other slight imperfection) and that the merchandise is
otherwise saleable. All submissions or samples not approved by NBAP
shall promptly be destroyed by LICENSEE. LICENSEE shall advise NBAP
regarding the time and place of such destruction (in sufficient time
to arrange for an NBAP representative to witness such destruction, if
NBAP so desires) and such destruction shall be attested to in a
certificate signed by one of LICENSEE's officers and submitted to NBAP
within fifteen (15) days of the date on which the sample was not
approved. In the event of LICENSEE's unapproved or unauthorized
manufacture, distribution, use or sale of any products or materials
bearing the Licensed Marks or Licensed Attributes, including
promotional materials, or the failure of LICENSEE to comply with
Paragraphs 7(d), 7(f), 9 or 11(c), NBAP shall have the right to: (i)
immediately revoke LICENSEE's rights with respect to any Licensed
Product licensed under this Agreement, (ii) charge LICENSEE, as
liquidated damages, two thousand U.S. dollars (USD 2,000) for each
instance (e.g., per unit) of non-compliance with this Paragraph with
respect to any article, product or material and/or (iii) at LICENSEE's
expense, confiscate or order the destruction of such unapproved,
unauthorized or non-complying products. Such right(s) shall be without
prejudice to any other rights NBAP may have under this Agreement or
otherwise.
(d) Testing: Both before and after Licensed Products are put on the
market, LICENSEE shall follow reasonable and proper procedures for
testing the Licensed Products for compliance with laws, regulations,
standards and procedures, and shall permit NBAP (upon reasonable
notice) to inspect its and its authorized manufacturer's testing,
manufacturing and quality control records, procedures and facilities
and to test or sample Licensed Products for compliance with this
Paragraph and the other terms and conditions of this Agreement.
Licensed Products found by NBAP at any time not to comply with
applicable laws, regulations, standards and procedures shall be deemed
unapproved, even if previously approved by NBAP, and shall not be
shipped unless and until LICENSEE can demonstrate to NBAP's
satisfaction that such Licensed Products have been brought into full
compliance.
22
<PAGE>
(e) Revocation of Approval: In the event that: (i) the quality, appearance
or style of any Licensed Product ceases to be acceptable to NBAP, (ii)
LICENSEE uses the Licensed Marks or Licensed Attributes improperly or
violates any term of this Paragraph 9 or (iii) NBAP becomes aware of
an occurrence or factor connected with any such Licensed Product or
LICENSEE which, in the opinion of NBAP, reflects unfavorably upon the
professional, business or personal reputation of NBAP, the NBA or any
of its Member Teams, then, in any such event, NBAP shall have the
right, in its sole discretion, to withdraw its approval of such
Licensed Product. In the event of such withdrawal, NBAP shall provide
immediate written notice to LICENSEE and LICENSEE shall cease the use
of the Licensed Marks in connection with the sale, distribution,
advertisement or use of such Licensed Product and such Licensed
Product shall immediately be withdrawn from the market and destroyed;
provided, however, that in the event of a revocation of approval
pursuant to (i) above, NBAP and LICENSEE shall negotiate in good faith
to provide for a reasonable sell-off period for such Licensed Product
and an adjustment to the Minimum Guarantee for such Licensed Product.
Within ten (10) days after LICENSEE's receipt of such notice, LICENSEE
shall pay all combined royalty and advertising and promotion payments
and Minimum Guarantees due NBAP with respect to sold Licensed Product
for which approval has been revoked. If there are other Licensed
Products for which approval has not been withdrawn under this
subparagraph, then this Agreement shall remain in full force and
effect as to such other Licensed Products. LICENSEE shall notify NBAP
in writing of any Licensed Products deleted from its product lines.
10. PROMOTIONAL MATERIAL
LICENSEE shall not use the Licensed Marks or Licensed Attributes, or any
reproduction of the Licensed Marks or Licensed Attributes in any
advertising, promotion or display material or in any other manner
whatsoever without prior written approval from NBAP. Under no circumstance
will "lotteries," "games of chance" or any other type of promotion which
NBAP believes reflects unfavorably upon the NBA or its Member Teams be
appr6ved. All copy and material depicting or using the Licensed Marks or
Licensed Attributes (including display and promotional material, catalogs
and press releases) shall be submitted for approval well in advance of
production (but in no event less than ten (10) business days prior to the
start of commercial production) to allow adequate time for NBAP, in its
sole discretion to approve, disapprove or comment upon such materials and
for any required changes to be made. By way of example, no television or
cinema advertising containing any Licensed Mark may be used unless it has
been approved in all stages (i.e., storyboard, production "rough-cut" and
final version). Unless otherwise approved by NBAP, any NBA game action
photographs or footage that LICENSEE uses in connection with the Licensed
Products must be obtained from NBAE and shall be subject to NBAE's search
and edit charges and any applicable use fee. Any promotional material
submitted that is not approved or disapproved by NBAP within thirty (30)
days of its receipt by NBAP shall be deemed approved by NBAP.
11. DISTRIBUTION; COMPLIANCE
(a) LICENSEE shall use its best efforts to distribute and sell, within and
throughout the Territory, the Licensed Products in such manner as may
be required to meet competition by reputable manufacturers of similar
articles. In any ninety (90) day period in which LICENSEE fails to
sell or distribute Licensed Products in reasonable commercial
quantities, LICENSEE shall be deemed not to have used its best
efforts. LICENSEE shall make and maintain adequate arrangements for
the distribution and timely delivery of Licensed Products to retailers
within and throughout the Territory. In the event NBAP advises
LICENSEE that a special promotional effort is to take place in an
individual store or chain, LICENSEE shall use its best efforts to sell
the Licensed Products to said store or chain. In addition, LICENSEE
shall give the Licensed Products wide distribution and shall not, in
accordance with the selling practices set forth in this Agreement,
refrain for any reason from selling Licensed Products to any
23
<PAGE>
retail outlet within the Territory that may desire to purchase
Licensed Products and whose credit rating and marketing image warrants
such sale.
(b) If LICENSEE desires to have a third party manufacture any Licensed
Product, LICENSEE must first notify NBAP of the name and address of
such third party and of the Licensed Product LICENSEE desires such
third party to manufacture. Attached as Schedule E is a true and
complete list of all third party manufacturers currently authorized by
NBAP. NBAP shall have the right, in its sole discretion, to withhold
approval of any third party manufacturer NBAP believes to be engaged
in unauthorized distribution of merchandise or other unethical
business practices. If NBAP grants approval for such third party
manufacturer, it may grant such approval pursuant to an agreement (on
a form supplied by NBAP) to be entered into prior to such manufacture
among NBAP, LICENSEE and such manufacturer which will, among other
things, require that the third party manufacturer be subject to all of
the terms and conditions of this Agreement. If NBAP does not require
the third party to enter into a separate agreement, LICENSEE must
provide NBAP with a copy of its agreement with the third party, which
agreement must provide that it is subject to this Agreement. If any of
LICENSEE's authorized manufacturers uses the Licensed Marks or
Licensed Attributes for any unauthorized purpose, LICENSEE shall be
responsible for, and shall cooperate fully and use its best efforts in
stopping, such unauthorized use. Any change by LICENSEE from a third
party manufacturer previously approved by NBAP shall require approval
in accordance with this Paragraph.
(c) LICENSEE understands and acknowledges the meanings of "Counterfeit
Goods," "Diverted Goods" and "Parallel Goods" as set forth in
Paragraph 1 above and LICENSEE shall use all commercially reasonable
means to prevent the creation of any such goods by its employees,
agents, representatives or any others operating under its direction,
supervision or control and involving the NBA Marks. LICENSEE shall
stamp on all invoices a prominent legend that states: "NBA Official
Licensed Product may only be sold within the United States [or Canada]
and only direct to the consumer." LICENSEE shall periodically, and at
the request of NBAP, inquire of its authorized manufacturers, agents
and customers as to whether they are observing territorial limits and
shall periodically report in writing to NBAP the results of such
inquiries. LICENSEE shall notify NBAP of all orders from, or on behalf
of. a customer who LICENSEE knows (or has reason to know after having
made reasonable inquiry) is located outside the Territory or intends
to resell the Licensed Products outside the Territory. If LICENSEE
knows or has reason to know that any Licensed Product sold by LICENSEE
is resold outside the Territory, LICENSEE shall compensate NBAP for
the injury to its licensing and distribution program and shall pay all
costs and expenses, including attorney's fees, required to remove such
goods from the marketplace. Any such monetary damages shall be in
addition to, and not in lieu of, such other rights and relief
(including injunctive relief) as may be available to NBAP. LICENSEE
shall incorporate within its contracts of sale or sales orders a
provision similar in substance to this subparagraph and which provides
that the obligations set forth in this subparagraph shall be a
continuing obligation on the re-sale of the Licensed Products to
subsequent authorized wholesale purchasers and which makes NBAP a
third party beneficiary of such provision.
(d) In the event LICENSEE sells or distributes other licensed merchandise
of a similar grade or quality as the Licensed Products, but which do
not bear any of the Licensed Marks, LICENSEE will not discriminate, in
a manner which adversely impacts the Licensed Products, in the
granting of commissions and discounts to salesmen, dealers and
distributors between the Licensed Products and the licensed products
of any third party. LICENSEE may not package the Licensed Products in
combination with other products, whether similar or different, without
the prior written approval of NBAP. In the event that NBAP believes in
good faith, based upon review of LICENSEE's royalty statements or
records and generally accepted accounting principles within the
industry,
24
<PAGE>
that LICENSEE has employed selling or reporting methods designed to
circumvent or reduce the royalty or other payment or reporting
obligations contained in this Agreement, NBAP may, in addition to any
other rights and remedies it may have, at its option and upon fifteen
(15) days' prior written notice, adjust the minimum royalty per unit.
(e) LICENSEE shall at all times conduct all aspects of its business in a
fair and reasonable manner and in compliance with all shipment
tracking, identification and anti-counterfeiting systems and labels
that NBAP may establish from time to time and all applicable laws,
government rules and regulations, court and administrative decrees and
the highest standard of business ethics then prevailing in the
industry. LICENSEE shall use its commercially reasonable efforts to
ensure that all retailers and authorized distributors purchasing
Licensed Products comply with NBAP's anti-counterfeiting systems and
labels established from time-to-time.
(f) It shall be LICENSEE's sole responsibility, at its sole expense, to
obtain all approvals (including, but not limited to, approvals of
advertising materials) of all governmental authorities which may be
necessary in connection with LICENSEE's performance under this
Agreement.
12. RECORDS; AUDITS
LICENSEE shall keep accurate books of account and records covering all
transactions relating to the license granted in this Agreement (including,
but not limited to, sales of Licensed Products, purchases and uses of NBA
hologram hang tags and compliance with shipment tracking, identification
and anti-counterfeiting systems and labels that NBAP may establish from
time to time). NBAP and its authorized representatives shall have the
right, at all reasonable hours of the day and upon reasonable prior notice
(but not more frequently than twice per Contract Year), to examine and
audit such books of account and records and all other documents and
materials in LICENSEE's possession or under its control (including records
of LICENSEE's parents, subsidiaries, affiliates and third parties, if they
are involved in activities which relate to this Agreement) relating to this
Agreement. NBAP shall have free and full access for such purposes and for
the purpose of making extracts and copies (at its expense except as
provided below). Should an audit by NBAP establish a deficiency between the
amount found to be due NBAP and the amount LICENSEE actually paid or
reported, the LICENSEE shall pay the amount of such deficiency, plus
interest at the then current prime rate (as announced by Chase Bank, New
York branch) from the date such amount should have been paid until the date
of payment. Should such audit establish a deficiency of more than five
percent (5%), LICENSEE shall also pay for the cost of the audit. LICENSEE
shall pay such amount within thirty (30) days. All such books of account
and records shall be kept available for at least two (2) years after the
expiration or termination of this Agreement, or three (3) years after the
end of the Contract Year to which they relate, whichever is earlier. In
order to facilitate inspection of its books and records, LICENSEE shall
designate a symbol or number which will be used exclusively in connection
with the Licensed Products on which royalty payments are payable and shall
maintain for inspection as provided in this Agreement duplicates of all
billings to customers with respect to Licensed Products. LICENSEE shall,
within ten (10) business days of NBAP's request (which shall not be made
more than four (4) times per Contract Year), furnish NBAP with a list of
LICENSEE's top twenty-five (25) retail accounts for Licensed Products (on a
country by country basis) and their monthly purchases of Licensed Products
(broken down by unit sales and in dollar volume by retailer for youth
(0-20) and adult Licensed Products). LICENSEE shall, promptly upon
execution thereof, supply NBAP with true and complete copies of any
agreement it enters into with any Member Team or any NBA player. In
addition, LICENSEE shall, on a quarterly basis during the Term, provide
NBAP with copies of either (i) financial information furnished to the
United States Securities and Exchange Commission or (ii) with all financial
statements and other financial information prepared by LICENSEE for
distribution to its banks or other financial lending institutions to whom
it reports regularly. LICENSEE shall cooperate with NBAP in
25
<PAGE>
developing an electronic data interchange through which NBAP may access
LICENSEE's electronic database relating to the manufacture, distribution
and sale of Licensed Products (such as work-in-process, finished goods on
hand, orders received, deliveries made and any other on-line information
relating to the Licensed Products) or developing such other system as will
enable NBAP to obtain such information or facilitate NBAP's review of
LICENSEE's graphic designs for Licensed Products.
13. EARLY TERMINATION
Without prejudice to any other rights NBAP may have pursuant to this
Agreement or otherwise, NBAP shall have the right to terminate this
Agreement at any time if:
(a) Within three (3) months from the date that this Agreement is executed
on behalf of NBAP, LICENSEE shall not have begun the bona-fide
distribution and sale of each Licensed Product within and throughout
the Territory in accordance with this Agreement.
(b) After three (3) delinquent payments during the Term, LICENSEE shall
fail to timely remit a royalty payment when due and shall fail to cure
such non-payment within ten (10) days (ten (10) days for other
non-payment defaults as well) of its receipt of written notice from
NBAP.
(c) LICENSEE or any guarantor under this Agreement shall be unable to pay
its liabilities when due, or shall make any assignment for the benefit
of creditors, or under any applicable law admits in writing its
inability to meet its obligations when due or commit any other act of
bankruptcy, institute voluntary proceedings in bankruptcy or
insolvency or permit institution of such proceedings against it.
(d) LICENSEE shall exhibit a pattern of chronic failure to make timely
delivery of sufficient quantities of the Licensed Products to its
retail accounts: (i) resulting in the inability of retailers to meet
consumer demand, or (ii) adversely effecting the goodwill the NBA has
in its licensing program.
(e) LICENSEE shall fail to perform or shall be in breach of any other
material term or condition of this Agreement; provided, however, that
if such breach can be cured, termination shall take effect thirty (30)
days after written notice of such breach is sent by NBAP if such
breach has not been cured during such thirty (30) day period. However,
if the breach is curable within a time certain but has not been cured
within thirty (30) days despite LICENSEE's good faith due diligence,
NBAP shall in good faith consider extending the cure period for such
additional period as NBAP deems reasonable in its sole discretion.
(f) LICENSEE now or in the future holds a material license from NBAP
covering any other products or geographic area other than the
Territory and such license is terminated by NBAP.
(g) LICENSEE (i) delivers Licensed Products outside the Territory; (ii)
sells Licensed Products to a third party who LICENSEE knows, or has a
reasonable basis to believe, intends to deliver the Licensed Products
outside the Territory; or (iii) LICENSEE is in breach of Paragraph
11(c).
(h) LICENSEE sells to any third party that LICENSEE knows, or has a
reasonable basis to believe, is altering or modifying the Licensed
Products prior to sale to the ultimate consumer.
In addition to NBAP's other rights and remedies, upon termination of this
Agreement under this Paragraph LICENSEE shall pay NBAP (within thirty (30)
days of such termination) the Minimum Guarantees for each Licensed Product
through the end of the Agreement, less the combined royalties paid to NBAP
through the date of termination.
14. DISPOSAL OF STOCK
Sixty (60) days before the expiration of this Agreement and ten (10) days
after any termination under Paragraphs 9 or 13, LICENSEE will furnish to
NBAP a certificate showing the number and description of Licensed Products
on hand or in process of manufacture After expiration or termination of
this Agreement, LICENSEE shall have no further right to manufacture,
authorize any third party to manufacture, advertise, distribute, sell,
promote or
26
<PAGE>
otherwise deal in any Licensed Products or use the Licensed Marks except as
provided below. For a period of one hundred twenty (120) days following the
expiration (but not after the termination) of this Agreement, LICENSEE may
sell-off and deliver completed Licensed Products which are on hand at the
time of such expiration (the "Sell-Off Period"); provided, however that (i)
the total number of units of each Licensed Product sold during the Sell-Off
Period may not be greater than one hundred ten percent (110%) of the total
number of units of such Licensed Product on hand on the same date the
preceding Contract Year, (ii) such Licensed Products may only be sold in
accordance with this Agreement, or customary methods of disposal subject to
the prior approval of NBAP, (iii) all payments then due are first made to
NBAP and (iv) statements and payments with respect to the Sell-Off Period
are made in accordance with this Agreement. NBAP shall have the option to
conduct physical inventories before the expiration of this Agreement until
the end of the Sell-Off Period in order to verify such inventory and/or
statements. If LICENSEE refuses to permit such physical inventory,
LICENSEE shall forfeit its right to dispose of its inventory. After such
Sell-Off Period, all inventory on hand or in process (including all
promotional and packaging materials) will be destroyed.
15. EQUITABLE RELIEF
LICENSEE acknowledges that NBAP is entering into this Agreement not only in
consideration of the royalties to be paid, but also for the promotional
value and intrinsic benefit resulting from the manufacture, advertisement,
distribution, sale and promotion of the Licensed Products by LICENSEE in
the Territory. LICENSEE acknowledges that the Licensed Marks and Licensed
Attributes possess a special, unique and extraordinary character which
makes difficult the assessment of the monetary damage which NBAP would
sustain as a result of the unauthorized use of the Licensed Marks or
Licensed Attributes. LICENSEE further acknowledges that: (i) its failure to
manufacture, advertise, distribute, sell and promote the Licensed Products
in accordance with this Agreement, including LICENSEE's failure to satisfy
its obligation to maintain and not to detract from the value of the
Licensed Marks, and (ii) the unauthorized use of the Licensed Marks, will,
in either case, cause immediate and irreparable damage to NBAP for which
NBAP would not have an adequate remedy at law. Therefore, in the event of a
breach of this Agreement by LICENSEE, in addition to such other legal and
equitable rights and remedies as shall be available to NBAP, NBAP shall be
entitled to injunctive and other equitable relief, without the necessity of
proving damages or furnishing a bond or other security.
16. NOTICES
All notices and statements to be given and all payments to be made under
this Agreement shall be given or made at the respective address of the
parties as set forth above, unless notification of a change of address is
given in writing. Any notice of breach or default must be in writing and
sent by facsimile, overnight express delivery, or registered or certified
mail, return receipt requested, properly addressed and stamped. Any written
notice shall be deemed to have been given at the time it is sent.
17. NO JOINT VENTURE
Nothing in this Agreement shall be construed to place the parties in the
relationship of partners or joint venturers. Neither party shall have the
power to obligate or bind the other to a third party in any manner
whatsoever.
18. ARBITRATION OF CERTAIN MATTERS
Any dispute or disagreement between the parties relating solely to the
amount of royalty payments owing under this Agreement shall be settled by
arbitration in New York City under the rules then in effect of the American
Arbitration Association. Judgment upon the award may be entered in any
court having jurisdiction. No other dispute or disagreement between the
parties (including any claim by NBAP that LICENSEE is using the Licensed
Marks in a manner not authorized by this Agreement or is otherwise in
breach of this Agreement) shall be settled by arbitration. All decisions by
NBAP relating to disapproval of any Licensed Product or advertising,
promotion or display material shall be final and binding on LICENSEE and
shall not be subject to review in any proceeding.
27
<PAGE>
19. USE OF PLAYERS
LICENSEE acknowledges that this Agreement does not grant to LICENSEE any
licenses or rights with respect to the use of the names, likenesses or
other attributes of any NBA player (collectively, "Player Attributes")
except as expressly provided herein. The license granted under this
Agreement does not include, and shall not be used to imply, a testimonial
or endorsement of any Licensed Products by any NBA player. LICENSEE shall
not enter into any agreement with any NBA player which would require that
player to wear or use any Licensed Product at any NBA game (either
courtside or in any locker room). LICENSEE agrees that NBAP's grant of
rights relating to Licensed Attributes shall be subject to the terms of the
Group License Agreement (or any successor group licensing agreement between
NBAP and the NBPA (or its successor)).
20. WARRANTIES
Each party represents and warrants that it has the right and authority to
enter into and perform this Agreement and NBAP represents and warrants that
it has the right to grant the rights to use the Licensed Marks and Licensed
Attributes. LICENSEE represents and warrants that all advertising and
promotional materials shall comply with all applicable laws, regulations
and standards. NBAP's approval of such materials will not imply a
representation or belief that NBAP believes such materials are sufficient
to meet applicable laws, regulations and standards, nor shall it imply that
NBAP agrees with or supports any claims made by LICENSEE in any advertising
materials relating to the Licensed Products. LICENSEE further represents
and warrants that all advertising and promotional materials and all
graphics used on Licensed Products will not violate the intellectual
property rights of any third party.
21. SEVERABILITY
In the event any provision of this Agreement is found to be void, invalid
or unenforceable as a result of any judicial or administrative proceeding
or decree, this Agreement shall be construed and enforced as if such
provision were not contained in this Agreement.
22. MISCELLANEOUS
(a) Work Stoppage: In the event of a labor dispute between the NBA and the
National Basketball Players Association that causes the pre-emption of
the playing (a "Work Stoppage"), in whole or in part, of any NBA
Regular Season or Playoff game during the Term, all obligations of
LICENSEE shall continue, including all payment obligations under
Paragraphs E and G above, and when such Work Stoppage has ceased, if
such Work Stoppage has had a material adverse effect on LICENSEE's
Licensed Product sales, NBAP and LICENSEE shall in good faith confer
with each other to negotiate with respect to an equitable adjustment
to LICENSEE's obligations hereunder, including an appropriate
adjustment in combined royalty and advertising and promotion payments
and/or Minimum Guarantees or an appropriate adjustment to the Term.
(b) Assignment: This Agreement and any rights granted under this Agreement
are personal to LICENSEE and shall not be assigned, sublicensed,
subcontracted or encumbered, directly or indirectly, by law or by
contract, without NBAP's prior written consent, which consent may, in
NBAP's sole discretion, (i) be contingent upon a fee payable by
LICENSEE or the transferee, the amount of which shall be determined by
NBAP in its sole discretion, and/or (ii) impose other terms and
conditions upon the assignment, sublicense or transfer. Any transfer
of a controlling interest in LICENSEE or in any party which currently
controls LICENSEE, directly or indirectly, shall be deemed an
assignment prohibited by the preceding sentence; however, the
foregoing shall not apply to a change in controlling interest as a
consequence of an additional public offering that results in a
transfer of controlling interest to a party or an entity directly or
indirectly controlled by the current majority stockholder. Any
nonconsensual assignment, sublicense, subcontract or encumbrance of
this Agreement by LICENSEE shall be invalid and of no force or effect.
Upon any such nonconsensual assignment, sublicense or encumbrance,
this Agreement shall terminate and all rights granted under this
Agreement shall immediately revert to NBAP.
28
<PAGE>
(c) Waiver: None of the provisions of this Agreement can be waived or
modified except expressly by a writing signed by both parties. There
are no representations, promises, agreements, warranties, covenants or
undertakings by either party other than those contained in this
Agreement. No failure on the part of NBAP to exercise any right under
this Agreement shall operate as a waiver of such right; nor shall any
single or partial exercise of any right preclude any other or further
exercise or the exercise of any other rights.
(d) Survival: No expiration or termination of this Agreement shall relieve
LICENSEE of its obligation to pay NBAP any amounts due to NBAP at the
time of termination, regardless of whether these amounts are then or
thereafter payable. The provisions of Paragraphs 12 and 22(g) shall
survive the expiration or termination of this Agreement.
(e) Adjustments: NBAP shall have the option to increase the Royalty Rates
and any advertising and promotion commitment in the event that, at any
time during the Term, LICENSEE agrees to pay royalty rates and/or
advertising and promotion contributions with respect to any other
licensed sports property in excess of the Royalty Rate for any
Licensed Product or the advertising and promotion contribution
required under this Agreement and provided the adjustment of the
Royalty Rates and/or A&P Minimums is applied by NBAP uniformly against
all other licensees within the specific product categories and
channels of distribution for which LICENSEE has been granted rights
hereunder who have agreed to pay higher royalty rates and/or
advertising and promotion contributions to such other property.
(f) Governing Law and Jurisdiction: This Agreement shall be construed in
accordance with the laws of the State of Mew York, USA, without regard
to its principles of conflicts of laws. Any claim arising under this
Agreement (except as provided under Paragraph 18) shall be prosecuted
in a federal or state court of competent jurisdiction located within
the City of New York, USA and LICENSEE consents to the jurisdiction of
such court and to the service of process by mail.
(g) Confidentiality: Neither party shall (nor shall they permit or cause
their employees or agents to) divulge, disseminate or publicize
information relating to this Agreement or the financial or other terms
of this Agreement (including any information obtained as the result of
any audit, or on the specifications or methods of reproduction of the
Licensed Marks) to any third party (other than their respective
attorneys or accountants or, in the case of NBAP, the NBA Board of
Governors and the NBPA), except as may be required by law or to
fulfill the terms of this Agreement.
(h) Construction: This Agreement has been executed in a text using the
English language, which text shall be controlling. This Agreement,
together with any exhibits or attachments, constitutes the entire
agreement and understanding between the parties and cancels,
terminates and supersedes any prior agreement or understanding
relating to the subject matter of this Agreement between LICENSEE and
the NBA, any Member Team, NBAP or NBAE. The headings in this Agreement
are for reference purposes only and shall not affect the
interpretation of this Agreement. This Agreement shall not be binding
on NBAP until signed on its behalf by its president or an officer
designated by the president to sign.
29
<PAGE>
Schedule A
LICENSEE's TEAMS
Charlotte Hornets
Cleveland Cavaliers
Denver Nuggets
Golden State Warriors
Houston Rockets
Milwaukee Bucks
Minnesota Timberwolves
New York Knicks
Sacramento Kings
30
<PAGE>
Schedule B
STARTER RETAILERS
[To be supplied]
31
<PAGE>
Schedule C
FOOTWEAR COMPETITORS
Adidas
Airwalk
Asolo
Asics
Avia
British Knights
Brooks
Champion
Converse
Diadora
Etonic/Tretorn
Fila
Footjoy
Guess
Head
Hi-Tec
K-Swiss
Kaepa
Kangaroos
Keds
L.A. Gear
Lotto
Merrell
Mitre
Mizuno
New Balance
Nike
Patrick
Pony
Prince
Puma
Raichle
Reebok
Ryka
Saucony/Hyde
Spalding
Sportbuilt
Tacchini
Teva
Turntec
Umbro
Vans
Vasque
Wilson
32
<PAGE>
Schedule D
APPAREL COMPETITORS
Adidas Marx
And One Mitre
Ashworth Mizuno
Asics Nautica
Authentic Fitness Corporation New Balance
(Catalina, Cole, Edelweiss, Nike
Mountain Goat, Skiing No-Fear
Passport, Speedo, White Stag) Nordica
Avia North Face
B.U.M. Nutmeg
Callaway Patagonia
Champion Patrick
Columbia Sportswear Pony
Converse Prince
Danskin Pro-Player
Diadora Puma
Ellesse Quicksilver
Etonic Rawlings
Fila Reebok
First Down Riddell
Gilda Roces
Hyde Russell
K-2 Salem Screen
Kaepa Salomon
Karhu Spalding
L.A. Gear Tacchini
Le Coq Sportif The Game
Logo Athletic Timberland
MacGregor Tultex
Magic Johnson Tees Umbro
Mariba Wilson
33
<PAGE>
Schedule E
STARTER THIRD PARTY MANUFACTURERS
[To be supplied]
34
================================================================================
[Major League Baseball Logo]
Contract No. ML-2029B
MAJOR LEAGUE BASEBALL PROPERTIES, INC.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT by and between Major League Baseball Properties,
Inc., 350 Park Avenue, New York, NY 10022 (hereinafter referred to as
"Licensor"), as agent for the Major League Baseball Clubs (the "Clubs"), and
Starter Corporation, 370 James Street, New Haven, CT 06513 (hereinafter referred
to as "Licensee"). This Agreement is not effective until signed by the parties
hereto.
THIS WILL CONFIRM OUR AGREEMENT AS FOLLOWS:
1. GRANT OF LICENSE: Licensor grants to Licensee for the term of this
Agreement, subject to the terms and conditions hereinafter contained, the
non-exclusive license to utilize the names, characters, symbols, designs,
likenesses and visual representations described in Schedule A attached hereto
(herein such names, characters, symbols, designs, likenesses and visual
representations are collectively called "Logos"), to be used solely in
connection with the manufacture, distribution, promotion, advertisement and sale
of the article or articles specified in Schedule B attached hereto (herein such
article or articles are called "Licensed Product(s)"). This license does not
constitute and may not be used so as to imply the endorsement of the Licensed
Product(s) or any other product of Licensee by Licensor, the Office of the
Commissioner of Baseball, the American or National League of Professional
Baseball Clubs (hereinafter referred to as the "Leagues") or the Clubs. While
the Logos licensed herein may be used as trademarks subject to the terms of this
License Agreement, the Logos are not licensed herein for use as certification
marks or indications of a particular standard of quality. Any exclusivity
granted hereunder shall be subject to presently outstanding agreements granted
by the Clubs. Further, any exclusivity granted hereunder shall pertain only to
the extent of the items described and, if given, at the price set forth in
Schedule E. Licensor warrants and represents that as the agent for the Clubs,
pursuant to authority granted by the Clubs, it has the full authority to
license the Logos in connection with the manufacture, distribution, promotion,
advertisement and sale of the Licensed Product(s).
2. TERRITORY: Licensee shall be entitled to use the license granted
hereunder only in the territory described in Schedule C attached hereto (herein
such territory is called "Licensed Territory"). Licensee will not make use of or
authorize any use of this license or the Licensed Product(s) outside the
Licensed Territory or distribute or sell the Licensed Product(s) directly or
through others to retailers outside the Licensed Territory.
3. LICENSE PERIOD: The license granted hereunder shall be effective and
terminate as of the dates specified in Schedule D attached hereto, unless
sooner terminated or renewed in accordance with the terms and conditions hereof.
4. PAYMENT: A. Advance and Guaranteed Compensation: Licensee agrees to pay
Licensor the sums specified in Schedule E attached hereto, as advance minimum
compensation (herein called "Advance Compensation") and as guaranteed minimum
compensation (herein called "Guaranteed Compensation"). The Advance Compensation
shall be paid as set forth in Schedule E, and shall apply against Percentage
Compensation as defined below. The Guaranteed Compensation shall be paid as
provided in Schedule E except to the extent that paid Advance Compensation and
annual cumulative payments of Percentage Compensation shall theretofore have
offset all or a portion of the total of such Guaranteed Compensation.
Notwithstanding the foregoing, no part of Percentage Compensation which may be
attributable to premium sales (as defined hereunder) of the Licensed Product(s)
shall serve to offset any part of the Total Guaranteed Compensation specified in
Schedule E. No part of such Advance Compensation and no part of such Guaranteed
Compensation shall be repayable to Licensee in any event, except as is expressly
provided for herein.
B. Percentage Compensation: Licensee agrees to pay Licensor a sum equal to
the percentage specified in Schedule E (or Licensor's prevailing rate, if
greater) of all net sales (as defined below) by Licensee or any of its
affiliated, associated or subsidiary entities of the Licensed Product(s) covered
by this Agreement. (Such percentage of net sales is herein called "Percentage
Compensation.") Percentage Compensation shall be payable concurrently with the
periodic statements required in the following paragraph, except to the extent
offset by Guaranteed Compensation theretofore remitted. The term "net sales"
shall mean gross sales based on the wholesale price to the retail trade less
quantity discounts and actual returns, but no deduction shall be made for
uncollectible accounts, commissions, taxes, discounts other than quantity
discounts, such as cash discounts and discounts attributable to the issuance of
a letter of credit, or any other amount. No costs incurred in the manufacture,
sale, distribution, promotion or advertisement of the Licensed Product(s) shall
be deducted from any Percentage Compensation payable by Licensee. Said
Percentage Compensation shall also be paid by Licensee to Licensor on all
Licensed Product(s) (including, without limitation, any irregulars, seconds,
etc. distributed pursuant to the provisions of Paragraph 10 of this Agreement)
distributed by Licensee or any of its affiliated, associated or subsidiary
entities even if not billed or billed at less than usual net sales price for
such Licensed Product(s),
================================================================================
<PAGE>
================================================================================
2
and shall be based upon the usual net sale sprice for such Licensed Product(s)
sold to the trade by Licensee. Any late payments of Advance Compensation,
Guaranteed Compensation or Percentage Compensation shall require Licensee to pay
Licensor, in addition to the amounts due, interest at one percent (1%) per month
or the highest prime lending rate of Chemical Bank during the period such
amounts are delinquent, whichever is greater, on the amounts delinquent for the
period of the delinquency, without prejudice to any other rights of Licensor in
connection therewith.
C. Catalog Contribution: Licensee agrees that Licensor shall have the right
in its sole discretion and in a style and manner in which it chooses, to print
catalogs, sales sheets or brochures (hereinafter "catalogs") wherein
representative merchandise from licensees of Licensor shall be displayed. In
this regard, Licensee agrees it will purchase from Licensor, at prevailing
rates, but in no event more than $3,000 for each year during the license period,
a minimum of one page in every catalog published during the term of this
Agreement in order to promote the Licensed Product(s), unless Licensee's
purchase obligation is excused by Licensor in writing. Licensee shall promptly
pay all amounts due upon invoicing and shall timely furnish materials necessary
to the publication of the catalogs. All payments made by Licensee in connection
with the publication of the catalogs shall be in addition to all other payments,
and shall not be credited against Advance Compensation, Guaranteed Compensation
or Percentage Compensation otherwise required hereunder.
5. PERIODIC STATEMENTS: Within thirty (30) days after the first day of the
license period, and promptly on the 15th day of every calendar month thereafter,
Licensee shall furnish to Licensor complete and accurate statements, certified
to be accurate by Licensee, or if a corporation, by an officer of Licensee,
showing the sales volume of each Licensed Product (itemized by Club, for each
applicable Licensed Product), gross sales price, itemized deductions from gross
sales price, and net sales price of the Licensed Product(s) distributed and/or
sold by Licensee during the preceding calendar month, together with any returns
made during the preceding calendar month. Such statements shall be furnished to
Licensor whether or not any of the Licensed Product(s) have been sold, or any
payment is shown to be due Licensor, during the calendar months in which such
statements are due. Licensee shall furnish to Licensor sufficient background
information so as to make such statements intelligible to Licensor, and upon
request by Licensor, a complete list of Licensee's customers to whom Licensed
Product(s) have been sold. Licensor agrees that it will not by divulge said
customer list to any other licensee, to any other competitor licensing
organization, or to any competitor of Licensee. Receipt or acceptance by
Licensor of any of the statements furnished pursuant to this Agreement or of any
sums paid hereunder shall not preclude Licensor from questioning the correctness
thereof at any time, and in the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately be rectified
and the appropriate payments made by Licensee. Late payment penalties, if any,
shall be made pursuant to Paragraph 4.B. Upon demand of Licensor, Licensee shall
at its own expense, but not more than once in any twelve (12) month period,
furnish to Licensor a detailed statement certified by an independent certified
public accounting firm approved by Licensor showing the sales volume of each
Licensed Product (itemized by Club, for each applicable Licensed Product), gross
sales price, itemized deductions from gross sales price and net sales price of
the Licensed Product(s) covered by this Agreement distributed and/or sold by
Licensee to the date of the Licensor's demand. All amounts payable pursuant to
this Agreement shall be in U.S. dollars only.
6. BOOKS AND RECORDS: Licensee shall keep, maintain and preserve in its
principal place of business for at least two (2) years following termination or
expiration of this Agreement or any renewal thereof, complete and accurate
records and accounts covering all transactions relating to this Agreement and
pertaining to the various items required to be shown on the statements to be
submitted by Licensee, including, without limitation, invoices, correspondence
and banking, financial and other records in Licensee's possession or under its
control. Such records and accounts shall be available for inspection and audit
(and copying at Licensor's expense) at any time or times during or after the
term or terms of this Agreement during reasonable business hours and upon
reasonable notice by Licensor or its representatives. Licensee agrees not to
cause or permit any interference with Licensor or representatives of Licensor in
the performance of their duties of inspection and audit.
The exercise by Licensor, in whole or in part or at any time or times, of
the right to audit records and accounts or of any other right herein granted,
the acceptance by Licensor of any statement or statements or the receipt and
deposit by Licensor of any payment tendered by or on behalf of Licensee shall be
without prejudice to any rights or remedies of Licensor and shall not estop or
prevent Licensor from thereafter disputing the accuracy of any such statement or
payment.
If pursuant to its right hereunder to audit and inspect Licensor causes an
audit and inspection to be instituted which thereafter discloses a deficiency of
three percent (3%) or more between the amount found to be due to Licensor and
the amount actually paid or credited to Licensor, then Licensee shall be
responsible for payment of the entire deficiency, together with interest thereon
at the then current prime rate of Chemical Bank or its successor from the date
such amount became due until the date of payment, and the costs and expenses of
such audit and inspection. If the audit discloses a deficiency of less than
three percent (3%) between the amount found to be due to Licensor and the amount
actually paid or credited to Licensor, and if the amount actually paid or
credited to Licensor plus the deficiency exceeds the Guaranteed Compensation for
the period covered by the deficiency, then Licensee shall pay Licensor the
amount of the deficiency plus interest as calculated above.
7. INDEMNIFICATIONS AND PROTECTIONS: A. Licensor hereby agrees to
indemnify, defend and hold Licensee and its owners, shareholders, directors,
officers, employees, agents, representatives, successors and assigns harmless
from any claims, suits, damages or costs (including reasonable attorneys fees
and expenses) arising from (i) challenges to Licensor's authority as agent for
and pursuant to authority granted by the Clubs to license the Logos in
connection with the manufacture, distribution, promotion, advertisement and sale
of the Licensed
================================================================================
<PAGE>
================================================================================
3
Product(s) or (ii) assertions to any claim of right or interest in or to the
Logos as authorized and used on the Licensed Products, provided in each case
that Licensee shall give prompt written notice, cooperation and assistance to
Licensor relative to any such claim or suit, and provided further in each case
that Licensor shall have the option to undertake and conduct the defense of any
suit so brought and to engage in settlement thereof at its sole discretion. The
indemnifications hereunder shall survive the the termination or expiration of
this Agreement.
B. Licensee shall assist Licensor at Licensor's expense and to the extent
necessary, in the procurement of any protection or to protect any of Licensor's
rights to the Logos, and Licensor, if it so desires and in its sole discretion,
may commence or prosecute any claims or suits in its own name or in the name of
Licensee or join Licensee as a party thereto. Licensee shall notify Licensor in
writing of any infringements or imitations by others of the Logos of which it is
aware. Licensor shall have the sole right to determine whether or not any action
shall be taken on account of such infringements or imitations. Licensee shall
not institute any suit or take any action on account of any such infringements
or imitations without first obtaining the written consent of Licensor to do so.
Licensee agrees that it is not entitled to share in any proceeds received by
Licensor (by settlement or otherwise) in connection with any formal or informal
action brought by Licensor hereunder.
C. Licensee hereby agrees to indemnify, defend and hold Licensor, the
Clubs, the Leagues and the Office of the Commissioner of Baseball and their
respective owners, shareholders, directors, officers, employees, agents,
representatives, successors and assigns harmless from any claims, suits, damages
and costs (including reasonable attorneys' fees and expenses) arising out of (i)
any unauthorized use of or infringement of any trademark, service mark,
copyright, patent, process, method or device by Licensee in connection with the
Licensed Product(s) covered by this Agreement, (ii) alleged defects or
deficiencies in said Licensed Product(s) or the use thereof, or false
advertising, fraud, misrepresentation or other claims related to the Licensed
Product(s) not involving a claim of right to the Logos, (iii) the unauthorized
use of the Logos or any breach by Licensee of this Agreement, (iv) libel or
slander against, or invasion of the right of privacy, publicity or property of,
or violation or misappropriation of any other right of any third party, and/or
(v) agreements or alleged agreements made or entered into by Licensee to
effectuate the terms of this Agreement. Licensor shall give Licensee notice of
the making of any claim or the institution of any action hereunder and Licensor
may at its option participate in any action. The indemnifications hereunder
shall survive the expiration or termination of this Agreement.
8. INSURANCE: Licensee agrees to obtain, at its own cost and expense,
comprehensive general liability insurance including product liability insurance
from an insurance company acceptable to Licensor, providing adequate protection
for Licensor, the Clubs, the Leagues, the Office of the Commissioner of Baseball
and Licensee against any claims or suits arising out of any of the circumstances
described in Paragraph 7C above for which insurer is able to provide insurance,
in an amount no less than $5,000,000.00 (five million dollars) per incident or
occurrence, or Licensee's standard insurance policy limits, whichever is
greater, and with a reasonable deductible in relation thereto. Such insurance
shall remain in force at all times during the license period and for a period of
five years thereafter. Within thirty (30) days from the date hereof, Licensee
will submit to Licensor a fully paid policy or certificate of insurance naming
Licensor, the Leagues and the Office of the Commissioner of Baseball as
additional insured parties and requiring that the insurer shall not terminate or
materially modify such policy or certificate of insurance without written notice
to Licensor at least thirty (30) days in advance thereof.
9. COPYRIGHT AND TRADEMARK NOTICES AND REGISTRATIONS: Licensee further
agrees that in any instance wherein the Logos of the Clubs and/or the Leagues
are used, the following general notice shall be included (i.e., on the product,
on a label, on the packaging material or on a separate slip of paper attached to
the product): "The Major League Club insignias depicted on this product are
trademarks which are the exclusive property of the respective Major League Clubs
and may not be reproduced without their written consent." Further, all products
containing the Logos shall contain a hangtag and label with Licensee's name
stating "Genuine Merchandise" and containing the Major League Baseball
silhouetted batter logo and, where appropriate, the Major League Baseball
Cooperstown Collection logo or Major League Baseball Authentic Diamond
Collection logo. All Licensed Product(s) shall contain a permanently affixed
label that displays Licensee's name. All Licensed Product(s) components which
bear any of the Logos (embroidered emblems, cloth or paper labels, hangtags,
etc.) shall be manufactured in-house by Licensee or shall be obtained only from
one or more suppliers officially authorized by Licensor to produce those
components. All Licensee advertisements displaying the Logos, all retailer
advertisements featuring Licensed Product(s) and of which Licensee has knowledge
or any Licensed Product(s), shall contain the words "Genuine Merchandise" and
the silhouetted batter logo. Licensee shall require those to whom it sells
Licensed Product(s) directly or indirectly to display the words "Genuine
Merchandise" (or such other appropriate notice as directed by Licensor) and the
silhouetted batter logo in all advertisements. All uses of the Logos shall also
include any designations legally required or useful for enforcement of
copyright, trademark or service mark rights (e.g., "(C),""(R)" or "TM").
Licensee shall submit a copy of its specifications for all of the above notices
(including copies of its artwork, layouts or mold blueprints) to Licensor for
its review. Licensor shall have the right to revise the above notice
requirements and to require such other notices as shall be reasonably necessary
to protect the interests of Licensor, the Clubs and/or the Leagues in the
respective Logos. Licensee agrees to advise Licensor of the initial date of the
marketing of each Licensed Product, and upon request, to deliver to Licensor the
required number and type of specimen samples of the Licensed Product, labels or
the like upon which the Logos are used for use in procuring copyright, trademark
and/or service mark registrations in the name of and at the expense of the
person, firm, corporation or other legal entity owning the Logos, in compliance
with any laws relating to copyright, trademark and service mark registrations.
Except to the extent set forth in any schedules attached to this Agreement,
Licensor, the Clubs and/or the Leagues shall be solely responsible for taking
such action as it or they deem appropriate to obtain such copyright, trademark
or service mark registrations for its or their Logos. If it shall be necessary
for Licensee to be the applicant to effect any such registrations, Licensee
shall and hereby does assign all of its rights in each such application and any
resulting registration to Licensor or any other appropriate owner thereof, and
further
================================================================================
<PAGE>
================================================================================
4
agrees to execute all papers necessary to effectuate and/or confirm such
assignments. Licensee shall perform all acts necessary and execute all documents
necessary to effectuate its registration as a user of the Logos where such
registration is needed.
Licensee also agrees that, in any case where it employs the services of
photographers or artists in connection with the production, promotion, marketing
or distribution of the Licensed Product(s), it will require each such
photographer or artist to agree that the photographic or artistic works he or
she produces for Licensee shall be "works made for hire" for the purposes of the
copyright laws, and that to the extent such photographic or artistic works may
not qualify as "works made for hire," the copyright in each such work is
assigned to Licensee.
10. APPROVALS: Licensor shall have absolute approval of the Licensed
Product(s) and of all packaging, advertising and promotional material at all
stages of the development thereof. Licensee agrees to furnish in a timely manner
to Licensor, free of cost, for its written approval as to quality and style,
designs of each Licensed Product and samples of each Licensed Product before its
manufacture, sale, promotion, advertisement or distribution, whichever first
occurs, and samples of all advertising, point-of-sale displays, catalogs, sales
sheets and other items that display or picture the Logos, and no such Licensed
Product or other such materials shall be manufactured, sold, promoted,
advertised or distributed by Licensee without such prior written approval. In
particular, no use of any Logo or Logos shall be made on stationery of Licensee
(specifically including, without limitation, letterhead, envelopes, business
cards, shopping bags, invoices, statements, packing slips, etc.) without
Licensor's express written approval in advance of any such use. In addition, no
irregulars, seconds or other Licensed Products which do not conform in all
material respects to the approved samples may be distributed or sold without the
express written advance consent of Licensor. All such sales, if made, shall bear
Percentage Compensation as set forth in Paragraph 4.B. Subject, in each
instance, to the prior written approval of Licensor, Licensee or its agents may
use textual and/or pictorial matter pertaining to the Logos on such promotional
display and advertising material as may, in its judgment, promote the sale of
the Licensed Product(s). All promotional display and advertising material must
contain and prominently display the official logo of Licensor. Ten samples of
each Licensed Product shall be supplied free of cost to Licensor, and one to
each Club whose Logos are used on such Licensed Product(s). From time to time
subsequent to final approval, a reasonable number of production samples shall
periodically be sent to Licensor free of cost. Such samples shall also be sent
upon any change in design, style or quality, which shall necessitate subsequent
approvals by Licensor. Additional samples shall be supplied to Licensor upon
request at no more than cost. Licensor shall also have the right to inspect
Licensee's plants, warehouses or storage facilities at any reasonable time
without notice.
In the event that any item or matter submitted to Licensor under this
Agreement for approval or consent shall not have been approved or consented to,
disapproved or denied, or commented upon within twenty (20) Licensor business
days after receipt thereof by Licensor (both Licensing Director and Licensed
Product Compliance), and Licensor (both Licensing Director and Licensed Product
Compliance) shall have received notice from Licensee that comment is overdue by
telegram or other written communication, and Licensor shall not have commented
within five (5) additional Licensor business days of receipt of such notice, any
items or matters so submitted shall be deemed approved and consented to.
In any instance where any matter is required to be submitted to Licensor
for Licensor's approval, that approval shall be granted or withheld in
Licensor's sole discretion.
11. DISTRIBUTION: Licensee shall sell the Licensed Product(s) to jobbers,
wholesalers, distributors or retailers for sale or resale and distribution to
retail stores and merchants for their resale and distribution or directly to the
public. In the event Licensee sells or distributes a Licensed Product at a
special price directly or indirectly to itself, including, without limitation,
any subsidiary of Licensee, or to any other person, firm or corporation related
in any manner to Licensee or its officers, directors or major stockholders,
Licensee shall pay compensation with respect to such sales or distribution based
upon the price generally charged the trade by Licensee.
12. GOODWILL: Licensee recognizes the great value of the publicity and good
will associated with the Logos and, in such connection, acknowledges that such
good will belongs exclusively to Licensor, the Clubs, the Office of the
Commissioner of Baseball and/or the Leagues and that the Logos have acquired a
secondary meaning in the minds of the purchasing public.
13. SPECIFIC UNDERTAKINGS OF LICENSEE: During the license period, each
additional license period if any and thereafter, Licensee agrees that:
A. It will not acquire any rights in the Logos as a result of its use
thereof and all use of the Logos shall inure to Licensor's benefit;
B. It will not, directly or indirectly, attack the tide of Licensor, the
Clubs, the Office of the Commissioner of Baseball and/or the Leagues in and to
the Logos or any copyright, trademark or service mark pertaining thereto, nor
will it attack the validity of the license granted hereunder, nor will it use
the Logos in any manner other than as licensed hereunder;
C. It will not at any time apply for any registration of any copyright,
trademark, service mark or other designation which would affect the ownership of
the Logos, or file any document with any governmental authority or take any
action which would affect the ownership of the Logos or aid or abet anyone in
doing so;
================================================================================
<PAGE>
================================================================================
5
D. It will not harm, misuse or bring into disrepute the Logos;
E. It will manufacture, sell, promote, advertise and distribute the
Licensed Product(s) in a legal and ethical manner and in accordance with the
terms and intent of this Agreement;
F. It will not create any expenses chargeable to Licensor without the prior
written approval of Licensor;
G. It will protect to the best of its ability the right to manufacture,
sell and distribute the Licensed Product(s) hereunder;
H. It will not use the Licensed Product(s) for combination sales, as
self-liquidating or free giveaways or for any similar method of merchandising
without the prior written consent of Licensor and will exercise due care that
its customers likewise will refrain from making such use of the Licensed
Product(s);
I. It will not, without the prior written consent of Licensor, enter into
any sublicense or agency agreement for the manufacture, sale, promotion,
advertisement or distribution of the Licensed Product(s);
J. It will not engage in tying practices, illegal restraints of trade, or
selling practices that exclude any members of the retail trade for any reason
other than poor credit history, known lack of integrity or disregard for the
rights of Licensor or Major League Baseball. Nothing in the preceding sentence
shall be deemed to require Licensee to violate any other term of this Agreement;
K. It will not use, or knowingly permit the use of, the Licensed Product(s)
as a premium, except with the prior written consent of Licensor and the specific
negotiation of a higher royalty payment therefor. For purposes of this
subparagraph and Paragraph 19 below, the term "premium" shall be defined as
including, but not necessarily limited to, free or self-liquidating items
offered to the public in conjunction with the sale or promotion of a product or
service, including traffic building or continuity visits by the
consumer/customer, or any similar scheme or device, the prime intent of which is
to use the Licensed Product(s) in such a way as to promote, publicize and/or
sell the products, services or business image of the third party company or
manufacturer. "Premium" use shall also specifically include distribution of the
Licensed Product(s) for retail sale through distribution channels (including,
without limitation, catalogs) offering earned discounts or "bonus" points based
upon the extent of usage of the offeror's product or service;
L. It will comply with such guidelines and/or requirements as Licensor may
announce from time to time. It will comply with all laws, regulations and
standards relating or pertaining to the manufacture, sale, advertising or use of
the Licensed Product(s) and shall maintain the highest quality and standards,
and shall comply with the requirements of any regulatory agencies (including,
without limitation, the United States Consumer Safety Commission) which shall
have jurisdiction over the Licensed Product(s);
M. It guarantees that Licensor, Clubs, official Club and/or Licensor retail
stores, Club in-stadium concessionaires and the Clubs belonging to The National
Association of Professional Baseball Leagues ("NAPBL Clubs") will obtain the
Licensed Product(s) for retail sale at lowest possible wholesale prices and
shall receive prompt shipments and/or deliveries of the Licensed Product(s),
without regard to the relatively small volume their orders may represent.
Licensor, Clubs and NAPBL Clubs may obtain the Licensed Product(s) for their
use, but not resale, at the manufacturer's lowest possible price, which shall in
no event be greater than its lowest wholesale price;
N. It will furnish to Licensor, upon request of Licensor (which shall be
made only for reasonable cause and no more often than once per year), a list of
all its distributors, sales representatives and jobbers for the Licensed
Product(s), as well as a list of all its "trade names," said list to include the
company name, address, telephone number, territorial representation and key
contact name. Licensor agrees that it will not divulge any information provided
to it under this paragraph to any other competitor licensing organization;
0. Concurrently with its execution of this Agreement, it will provide
Licensor with the names, addresses, telephone numbers and names of principal
contacts of each party (hereinafter referred to as "Manufacturer"), both
domestic and foreign, that Licensee desires or intends to have produce one or
more of the Licensed Products in the event Licensee desires not to be the
manufacturer of such Licensed Product(s). This information shall be set out in
Schedule F of this Agreement and Licensee shall specify the Licensed Product(s)
Manufacturer will produce. In the event Licensee wishes to substitute a
Manufacturer for those listed in Schedule F or wishes to add to the number of
Manufacturers, Licensee shall first provide Licensor with the information set
out in Schedule F regarding the proposed new Manufacturers for Licensor's
written approval of such Manufacturers. Licensee's failure to do so may result
in termination of this Agreement and/or confiscation and seizure of the Licensed
Product(s). Licensee shall ensure that:
(a) Manufacturer produces no merchandise bearing the Logos other than
the Licensed Product(s) described in Schedule F of this Agreement unless
authorized by Licensor;
(b) Manufacturer produces the Licensed Product(s) only as and when
directed by Licensee and in accordance with the terms herein and in
compliance with all laws, regulations and governmental rules applicable to
the Licensed Product(s) and/or their manufacture;
================================================================================
<PAGE>
================================================================================
6
(c) Manufacturer does not supply the Licensed Product(s) to any
person, firm, corporation or business entity other than Licensee or to such
entities as may be authorized by Licensee and Licensor jointly; and
(d) Manufacturer does not delegate in any manner whatsoever its
obligations with respect to the Licensed Product(s).
Prior to the delivery of the Licensed Product(s) from Manufacturer to Licensee,
Licensee shall submit to Licensor, free of cost, for its written approval as to
quality and style, at least two samples of the Licensed Product(s) produced by
Manufacturer;
P. It will not manufacture or allow the manufacture, or accumulate
inventory, of the Licensed Product(s), at a rate greater than its average rate
during the license period as the end of the license period approaches;
Q. It will not sell the Licensed Product(s) to parties whom it knows or
reasonably should know will resell or distribute such Product(s) outside the
Licensed Territory;
R. It will not disclose any confidential, private, restricted or otherwise
nonpublic information concerning Major League Baseball which, it acknowledges,
it may become privy to during the term of this Agreement;
S. It will not grant to any third person or entity a security interest in
the Licensed Product(s) without Licensor's prior written approval;
T. It has not had and does not have an investment or interest in casinos,
any other form of legalized gambling enterprise, or any activity that Licensor
or any other Major League Baseball related entity has made unauthorized or which
is contrary to official policy of Major League Baseball; and
U. With respect to any Licensed Products manufactured outside the United
States, except as otherwise pre-approved in writing by Licensor, (i) it will
take receipt of goods at U.S. ports of entry, (ii) it will not allow any entity
in the United States, including but not limited to distributors, wholesalers and
retailers, to accept shipment of the Licensed Products from any non-U.S.
manufacturer of such Products, and (iii) it will distribute such Products to
third parties, including but not limited to distributors, wholesalers and
retailers, from Licensee's principal place of business only.
14. APPROVAL OF MANUFACTURER, ETC.: Nothing contained herein may be
construed so as to imply endorsement of Manufacturer by Licensor, the Office of
the Commissioner of Baseball, the Leagues or the Clubs. Licensee shall seek
Licensor's written approval of Manufacturer prior to Licensee's engagement of
Manufacturer. Any approval of Manufacturer granted by Licensor relates solely to
the manufacturing of the Licensed Product(s) and shall not constitute a grant of
any right, title or interest in or to the Logos, nor to any copyrights, service
marks, trademarks or other property rights associated therewith. Licensor hereby
reserves the right to terminate in its discretion the engagement of Manufacturer
at any time. Additionally, Licensor may confiscate goods or samples imported by
Licensee or shipped by Manufacturer that bear any of the Logos and that have not
been approved by Licensor as to quality.
15. ACKNOWLEDGEMENT OF RIGHTS: Licensee hereby acknowledges the proprietary
nature of all names and logos of the Major League Baseball Clubs, the Leagues,
the Office of the Commissioner of Baseball or Licensor and acknowledges that all
rights, title and interest to such names or logos belong to the individual
Clubs, the Leagues, the Office of the Commissioner of Baseball and/or Licensor,
as the case may be. Licensee represents that it has not made any unauthorized
use of names or logos of the Major League Baseball Clubs, the Leagues, the
Office of the Commissioner of Baseball or Licensor and agrees that it will make
no use of any such names or logos, other than as provided in this Agreement,
without the prior written consent of Licensor, the Office of the Commissioner of
Baseball or the appropriate individual League or Club. Any use Licensee has made
or will make of such names and logos has not conferred or will not confer, as
the case may be, any rights or benefits upon it whatsoever, and any rights
created by such use shall inure to the benefit of the individual Clubs, the
Leagues, the Office of the Commissioner of Baseball and/or Licensor, as the case
may be.
16. TERMINATION: A. Immediate Termination: Licensor shall have the right to
terminate this Agreement immediately upon the occurrence of any one or more of
the following events (herein called "defaults"):
(i) If Licensee fails to deliver to Licensor or to maintain in full force
and effect the insurance referred to in Paragraph 8 hereof; or
(ii) If any governmental agency or court of competent jurisdiction finds
that the Licensed Product(s) are defective in any way, manner or form; or
(iii) If Licensee shall breach any one of the following undertakings set
forth in Paragraph 13 hereof: 13A through F, H through J, Q, R or T; or
(iv) If Licensee shall undergo a change in majority or controlling
ownership.
================================================================================
<PAGE>
================================================================================
7
B. Termination With Cure Period: Licensor shall have the right to terminate
this Agreement upon the occurrence of any one or more of the following defaults,
and Licensee's failure to cure such default(s) completely within ten (10)
business days from Licensee's receipt of notice from Licensor:
(i) If Licensee fails to make any payment due hereunder on the date due, at
which time all monies which are owed during the current term or renewal referred
to in Schedule E of this Agreement shall become due and payable to Licensor; or
(ii) If Licensee fails to deliver any of the statements hereinabove
referred to or to give access to the premises and/or license records pursuant to
the provisions hereof to Licensor's authorized representatives for the purposes
permitted hereunder; or
(iii) If Licensee is unable to pay its debts when due, or makes any
assignment for the benefit of creditors or an arrangement pursuant to any
bankruptcy law, or files or has filed against it any petition under the
bankruptcy or insolvency laws of any jurisdiction, county or place, or shall
have or suffer a receiver or trustee to be appointed for its business or
property, or be adjudicated a bankrupt or an insolvent. In the event the license
granted hereunder is terminated pursuant to this Paragraph 16(B)(iii), neither
Licensee nor its receivers, representatives, trustees, agents, administrators,
successors and/or assigns shall have any right to sell, exploit or otherwise
deal with or in the Licensed Product(s) without the prior written consent of
Licensor; or
(iv) If Licensee does not commence in good faith to manufacture, distribute
and sell each Licensed Product throughout the Licensed Territory within any
twelve (12) month period, but such default and Licensor's resultant right of
termination shall apply only to the specific Licensed Product(s) and/or the
specific territory(ies) which or wherein Licensee fails to meet said
requirements; or
(v) If Licensee shall discontinue its business as it is now conducted; or
(vi) If Licensee shall breach any of the undertakings set forth in
Paragraph 13 hereof, except as otherwise provided in Paragraph 16(A)(iii) above;
or
(vii) If Licensee shall breach any of the terms of this Agreement; or
(viii) If, in the periodic statements furnished pursuant to Paragraph 5
hereof, the amounts owed to Licensor are significantly or consistently
understated.
Licensor's right to terminate this Agreement shall be without prejudice to
any other rights which it may have, whether under the provisions of this
Agreement, in law or in equity or otherwise. In the event any of these defaults
occurs and Licensor desires to exercise its right of termination under the terms
of this Paragraph 16, Licensor shall give notice of termination in writing to
Licensee. Any and all payments then or later due from Licensee hereunder
(including Advance Compensation) shall then become promptly due and payable in
full to Licensor and without set off of any kind; i.e., no portion of any prior
payments made to Licensor shall be repayable to Licensee. Until payment to
Licensor of any monies due it, Licensor shall have a lien on any units of the
Licensed Product(s) not then disposed of by Licensee and on any monies due
Licensee from any jobber, wholesaler, distributor, sublicensee or other third
parties with respect to sales of the Licensed Product(s). Upon termination or
expiration of the term hereof, all rights, licenses and privileges granted to
Licensee hereunder shall automatically revert to Licensor and Licensee shall
execute any and all documents evidencing such automatic reversion.
17. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Licensee shall deliver
to Licensor, as soon as practicable, following expiration or termination of this
Agreement, a statement indicating the number and description of the Licensed
Product(s) on hand. Following expiration or termination Licensee may manufacture
no more Licensed Product(s), but may continue to distribute its remaining
inventory for a period not to exceed ninety (90) days, subject to the terms of
Paragraph 13(P) hereof and payment of applicable royalties relative thereto;
provided, however, that such royalties shall not be applicable against Advance
Compensation or Guaranteed Compensation. Notwithstanding the foregoing, Licensee
shall not manufacture, sell or distribute any Licensed Product(s) after the
expiration or termination of this Agreement because of (a) the failure of
Licensee to cause the appropriate statutory notice of copyright, trademark,
service mark or user registration to appear wherever the Logos are used; (b) the
departure of Licensee from the quality and style approved by Licensor under the
terms of Paragraph 10 hereof; (c) the failure of Licensee to obtain the approval
of Licensor under the terms of Paragraph 10 hereof; or (d) the occurrence of an
event of default under the terms of Paragraph 16 hereof. Licensor shall have the
option to conduct physical inventories before termination and continuing until
the end of the 90-day sell-off period in order to ascertain or verify such
inventories and/or statement. Immediately upon expiration of the sell-off
period, Licensee shall furnish Licensor a detailed statement certified by an
officer of Licensee showing the number and description of Licensed Products on
hand in its inventory and shall dispose of such inventory at Licensor's
direction and at Licensee's expense. In the event Licensee refuses to permit
Licensor to conduct such physical inventory, Licensee shall forfeit its right
hereunder to dispose of such inventory. In addition to such forfeiture, Licensor
shall have recourse to all other remedies available to it.
18. INJUNCTION: Licensee acknowledges that its failure to perform any of
the terms or conditions of this Agreement, or its failure upon the expiration or
termination of this Agreement to cease the manufacture of the
================================================================================
<PAGE>
================================================================================
8
Licensed Product(s) and limit their distribution and sale as provided in
Paragraph 17 hereof, shall result in immediate and irreparable damage to
Licensor. Licensee also acknowledges that there may be no adequate remedy at law
for such failures and that in the event thereof Licensor shall be entitled to
equitable relief in the nature of an injunction and to all other available
relief, at law and/or in equity.
19. RESERVATION OF RIGHTS: Licensor retains all rights not expressly and
exclusively conveyed herein, and Licensor may license firms, individuals,
partnerships or corporations to use the Logos, artwork and textual matter in
connection with other products, including other products identical to the
Licensed Product(s) contemplated herein. Licensor reserves the right to use, or
license others to use and/or manufacture, identical items as premiums.
20. PAYMENTS AND NOTICES: All notices and statements provided for herein
shall be in writing, and all notices hereunder are to be sent to Major League
Baseball Properties, Inc., 350 Park Avenue, New York, New York 10022, Attention:
President. All statements and payments shall be made to Major League Baseball
Properties and sent to an address designated by Licensor.
21. WAIVER, MODIFICATION, ETC.: No waiver, modification or cancellation of
any term or condition of this Agreement shall be effective unless executed in
writing by the party charged therewith. No written waiver shall excuse the
performance of any act other than those specifically referred to therein. No
waiver by either party hereto of any breach of this Agreement shall be deemed to
be a waiver of any preceding or succeeding breach of the same or any other
provision hereof. The exercise of any right granted to either party hereunder
shall not operate as a waiver. The normal expiration of the term of this
Agreement shall not relieve either party of its respective obligations accruing
prior thereto, nor impair or prejudice the respective rights of either party
against the other, which rights by their nature survive such expiration.
Licensor makes no warranties or representations to Licensee except those
specifically expressed herein.
22. NO PARTNERSHIP, ETC.: This Agreement does not constitute and shall not
be construed as constituting an agency, partnership or joint venture
relationship between Licensee and Licensor and/or the Clubs. Licensee shall have
no right to obligate or bind Licensor in any manner whatsoever, and nothing
herein contained shall give or is intended to give any rights of any kind to any
third persons.
23. NON-ASSIGNABILITY: Licensee acknowledges and recognizes: (a) that it
has been granted the license described in Paragraph 1 because of its particular
expertise, knowledge, judgement, skill and ability; (b) that it has substantial
and direct responsibilities to perform this Agreement in accordance with all of
the terms contained herein; (c) that Licensor is relying on Licensee's unique
knowledge, experience and capabilities to perform this Agreement in a specific
manner consistent with the high standards of integrity and quality associated
with Major League Baseball as a national sport and with Major League Baseball
licensed merchandise; and (d) that the granting of the license under this
Agreement creates a relationship of confidence and trust between Licensee and
Licensor. This Agreement is personal to Licensee, and Licensee shall not
sublicense or franchise any of its rights hereunder, and neither this Agreement
nor any of the rights of Licensee hereunder shall be sold, transferred or
assigned by Licensee without Licensor's prior written approval and no rights
hereunder shall devolve by operation of law or otherwise upon any assignee,
receiver, liquidator, trustee or other party. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, their successors and assigns.
24. PARAGRAPH HEADINGS: Paragraph headings contained in this Agreement are
for convenience only and shall not be considered for any purpose in governing,
limiting, modifying, construing or affecting the provisions of this Agreement
and shall not otherwise be given any legal effect.
25. CONSTRUCTION: This Agreement shall be construed in accordance with the
laws of the State of New York, which shall be the sole jurisdiction for any
disputes.
26. SEVERABILITY: The determination that any provision of this Agreement is
invalid or unenforceable shall not invalidate this Agreement, and the remainder
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
27. TIME OF THE ESSENCE: Time is of the essence of all parts of this
Agreement.
28. ACCEPTANCE BY LICENSOR: This instrument, when signed by Licensee or a
duly authorized officer of Licensee if Licensee is a corporation, shall be
deemed an application for a license and not a binding agreement unless and until
signed by a duly authorized officer of Licensor. The receipt and/or deposit by
Licensor of any check or other consideration given by Licensee and/or the
delivery of any material by Licensor to Licensee shall not be deemed an
acceptance by Licensor of this application. The foregoing shall also apply to
any documents relating to renewals or modifications hereof.
29. INTEGRATION: This Agreement, when fully executed, shall represent the
entire understanding between the parties hereto with respect to the subject
matter hereof and supersedes all previous representations, understandings or
agreements, oral or written, between the parties with respect to the subject
matter hereof.
================================================================================
<PAGE>
================================================================================
9
30. SURVIVAL OF PROVISIONS: Paragraphs 2, 6, 7A, 7C, 8, 12, 13A, B, C, D,
F, H, I, K, Q and R, 15, 17, 18, 19, 21, 22, 24, 25, 26, 30 and 31 shall survive
any termination or expiration of this Agreement.
31. MISCELLANEOUS: By signing below, Licensee acknowledges that this
Agreement is for the term specified in Schedule D only and that neither the
existence of this Agreement nor anything contained herein shall impose on
Licensor any obligation to renew or otherwise extend this Agreement after
expiration of the license period.
<PAGE>
-10-
SCHEDULE A
LOGOS
The names, characters, symbols, designs, likenesses, visual representations
and such other similar or related identifications (but such similar or related
identifications must be approved in writing by Licensor in advance of use) of
the following noted organizations in connection with the marketing, promotion
and sale of that described in Schedule B hereof: (1) Major League Baseball
Properties, Inc., (2) the American League, (3) the National League, (4) the
following Clubs: Arizona Diamondbacks, Tampa Bay Devil Rays, Baltimore Orioles,
Boston Red Sox, California Angels, Chicago White Sox, Cleveland Indians, Detroit
Tigers, Kansas City Royals, Milwaukee Brewers, Minnesota Twins, New York
Yankees, Oakland Athletics, Seattle Mariners, Texas Rangers, Toronto Blue Jays,
Atlanta Braves, Chicago Cubs, Cincinnati Reds, Colorado Rockies, Florida
Marlins, Houston Astros, Los Angeles Dodgers, Montreal Expos, New York Mets,
Philadelphia Phillies, Pittsburg Pirates, St. Louis Cardinals, San Diego Padres
and San Francisco Giants, (5) All-Star Game, Division Series, League
Championship Series, World Series, other names given to such games or events and
other names given to other Major League Baseball playoff games and (6) Major
League Baseball Authentic Diamond Collection.
SCHEDULE B
LICENSED PRODUCT(S)
*** ALL LICENSED PRODUCTS SHALL CONFORM TO LICENSOR'S
THEN-CURRENT LABELING REQUIREMENTS. ***
1. Authentic jackets made of 100% insulated nylon fabric, featuring a
full zippered or a snap front and embroidered Logos, and marketed
under Licensor's Authentic Diamond Collection line of products, in
adult, youth and children's sizes as defined below.
2. Authentic jackets made of 100% nylon fabric, featuring a full zippered
or a snap front and embroidered Logos and marketed under Licensor's
Authentic Diamond Collection line of products, in adult, youth and
children's sizes as defined below.
3. Authentic jackets in a pullover style, made of 100% nylon fabric and
featuring a half or full-zippered front or half or full-snap front and
embroidered Logos and marketed under Licensor's Authentic Diamond
Collection line of products, in adult, youth and children's sizes as
defined below.
4. Authentic jackets made of an insulated wool blend fabric body and
leather sleeves featuring a full snap front and embroidered Logos and
marketed under Licensor's Authentic Diamond Collection line of
products, in adult, youth and children's sizes as defined below.
5. Authentic jackets made of insulated satin fabric, a full snap front
and embroidered Logos and marketed under Licensor's Authentic Diamond
Collection line of products, in adult, youth and children's sizes as
defined below.
6. Authentic jackets made of satin fabric and featuring a full snap front
and embroidered Logos and marketed under Licensor's Authentic Diamond
Collection line of products, in adult, youth and children's sizes as
defined below.
7. Authentic jackets made with a down fill, in waist or 3/4 length sizes
and featuring embroidered Logos and marketed under Licensor's
Authentic Diamond Collection line of products, in adult, youth and
children's sizes as defined below.
8. Authentic jackets in a stadium style, made with a polyester fill and
embroidered and/or appliqued Club Logos, and marketed under Licensor's
Authentic Diamond Collection line of products, in adult, youth and
children's sizes as defined below.
9. Jackets (other than authentic jackets) made of 100% insulated nylon
fabric, featuring a full zippered or a snap front and embroidered
and/or appliqued Club Logos, in adult, youth and children's sizes as
defined below.
10. Jackets (other than authentic jackets) made of 100% nylon fabric,
featuring a full zippered or snap front and embroidered and/or
appliqued Club Logos, in adult, youth and children's sizes as defined
below.
11. Jackets (other than authentic jackets) in a pullover style, made of
100% nylon fabric, featuring a half or full zippered front or a half
or full-snap front and embroidered and/or appliqued Club Logos, in
adult, youth and children's sizes as defined below.
12. Jackets (other than authentic jackets) in a pullover style, made of
100% insulated nylon fabric, featuring a half or full zippered front
or a half or full-snap front and embroidered and/or appliqued Club
Logos, in adult, youth and children's sizes as defined below.
13. Jackets (other than authentic jackets) made of insulated
polyester/nylon blend fabric, featuring a full zippered or a snap
front and embroidered and/or appliqued Club Logos, in adult, youth and
children's sizes as defined below.
<PAGE>
-11-
14. Jackets (other than authentic jackets) made of polyester/nylon blend
fabric, featuring a full zippered front and embroidered and/or
appliqued Club Logos, in adult, youth and children's sizes as defined
below.
15. Jackets (other than authentic jackets) in a pullover style, made of
insulated polyester/nylon blend fabric, featuring embroidered and/or
appliqued Club Logos, in adult, youth and children's sizes as defined
below.
16. Jackets (other than authentic jackets) in a pullover style, made of
polyester/nylon blend fabric, featuring embroidered and/or appliqued
Club Logos, in adult, youth and children's sizes as defined below.
17. Jackets (other than authentic jackets) in a pullover style, made with
an insulated wool blend body and leather or polyurethane sleeves,
featuring a full zippered or snap front and embroidered and/or
appliqued Club Logos, in adult, youth and children's sizes as defined
below.
18. Jackets (other than authentic jackets) in a parka style, made with
down filling, featuring embroidered and/or appliqued Club Logos, in
adult, youth and children's sizes as defined below.
19. Jackets (other than authentic jackets) made of 100% insulated cotton
fabric, featuring a full zippered or a snap front and embroidered
and/or appliqued Club Logos, in adult, youth and children's sizes as
defined below.
20. Jackets (other than authentic jackets) made of 100% cotton fabric,
featuring a full zippered front and embroidered and/or appliqued Club
Logos, in adult, youth and children's sizes as defined below.
21. Jackets (other than authentic jackets) made of satin or insulated
satin fabric, featuring a full snap front and embroidered and/or
appliqued Club Logos, in adult, youth and children's sizes as defined
below.
22. Jackets (other than authentic jackets) made of polar fleece-like
fabric, in pullover or full snap front styles and featuring
embroidered and/or appliqued Logos, in adult, youth and children's
sizes as defined below.
23. Jackets (other than authentic jackets) in a warm-up style, made of
100% nylon fabric and featuring embroidered Logos, in adult, youth
and children's sizes as defined below.
24. Jackets (other than authentic jackets) in a warm-up style, made of
polyester blend fabric and featuring embroidered Logos, in adult,
youth and children's sizes as defined below.
25. Tank tops made of 100% cotton or polyester/cotton blend fabric
featuring Club Logos on the front of the top and/or the name or
nickname of a current, active Major League Baseball player in block or
script lettering on the back of the top, in adult, youth and
children's sizes as defined below.
26. T-shirts made of 100% cotton or polyester/cotton blend fabric
featuring Club Logos on the front of the T-shirt and/or the name or
nickname of a current, active Major League Baseball player in block or
script lettering on the back of the T-shirt, in adult, youth and
children's sizes as defined below.
27. Pullover jackets made of fleece fabric featuring Club Logos on the
front of the jacket and/or the name or nickname of a current Major
League Baseball player in block or script lettering on the back of the
jacket, in adult, youth and children's sizes as defined below.
28. Turtlenecks (other than authentic turtlenecks) in long or short-sleeve
styles, made of 100% cotton jersey knit fabric and featuring
embroidered or screen printed Logos, in adult and youth sizes as
defined below.
29. Polo shirts made of cotton jersey, mesh knit or polyester/cotton blend
fabric and featuring a collar, a button placket, banded short sleeves
and embroidered or screen printed Logos, in adult and youth sizes as
defined below.
30. T-shirts made of midweight 100% cotton jersey fabric and featuring
ring necks in grey, heather, white and/or other colors to be
pre-approved in writing by Licensor, and embroidered or screen printed
Logos, in adult, youth and children's sizes as defined below.
31. Pants and shorts (other than those worn by coaches of the Clubs) in
designs and styles to be pre-approved in writing by Licensor in
adult, youth and children's sizes as defined below.
32. Pullover tops made of nylon or polyester/mesh, heavy or light weight
fleece or art fleece jersey fabric, featuring a zipper and/or a button
placket, with or without a hood and Logos applied in any combination
of the following: applique, embroidery, emblems and/or screen printed,
in youth and children's sizes as defined below.
33. Jackets (other than authentic jackets) made of 100% insulated nylon
fabric, featuring a full zippered or a snap front and embroidered
and/or appliqued Clubs Logos, and marketed under Licensee's "First
Pick" brand name, in adult, youth and children's sizes as defined
below.
34. Jackets (other than authentic jackets) made of 100% nylon fabric,
featuring a full zippered or a snap front and embroidered and/or
appliqued Club Logos, and marketed under Licensee's "First Pick" brand
name, in adult, youth and children's sizes as defined below.
<PAGE>
-12-
35. Jackets (other than authentic jackets) in a pullover style, made of
100% nylon fabric, featuring a half-zippered or a snap front and
direct embroidered and/or appliqued Club Logos, and marketed under
Licensee's "First Pick" brand name, in adult, youth and children's
sizes as defined below.
36. Jackets (other than authentic jackets) made of insulated nylon fabric,
in a pullover style, featuring a half-zippered or a snap front and
direct embroidered and/or appliqued Club Logos, and marketed under
Licensee's "First Pick" brand name, in adult, youth and children's
sizes as defined below.
37. Jackets (other than authentic jackets) made of insulated satin fabric,
featuring a full snap front and embroidered and/or appliqued Club
Logos, and marketed under Licensee's "First Pick" brand name, in
adult, youth and children's sizes as defined below.
38. Jackets (other than authentic jackets) made of satin fabric, featuring
a full snap front and embroidered or appliqued Club Logos, and
marketed under Licensee's "First Pick" brand name, in adult, youth and
children's sizes as defined below.
39. Jackets (other than authentic jackets) in a stadium style, made with
polyester fill and featuring embroidered or appliqued Club Logos, and
marketed under Licensee's "First Pick" brand name, in adult, youth and
children's sizes as defined below.
40. Jackets (other than authentic jackets) in a pullover style, made of
100% nylon fabric and featuring embroidered and/or appliqued Club
Logos, and marketed under Licensee's "First Pick" brand name, in
adult, youth and children's sizes as defined below.
41. Jackets (other than authentic jackets) made of an insulated
polyester/nylon blend fabric and featuring a full zippered or a full
snap front and embroidered or appliqued Club Logos, and marketed under
Licensee's "First Pick" brand name, in adult, youth and children's
sizes as defined below.
42. Jackets (other than authentic jackets) made of polyester/nylon blend
fabric and featuring a full zippered or a full snap front and
embroidered or appliqued Club Logos, and marketed under Licensee's
"First Pick" brand name, in adult, youth and children's sizes as
defined below.
43. Jackets (other than authentic jackets) in a pullover style, made of an
insulated polyester/nylon blend fabric and featuring embroidered or
appliqued Club Logos, and marketed under Licensee's "First Pick" brand
name, in adult, youth and children's sizes as defined below.
44. Jackets(other than authentic jackets) in a pullover style, made of
polyester/nylon blend fabric and featuring a full zippered or a full
snap front and embroidered or appliqued Club Logos, and marketed under
Licensee's "First Pick" brand name, in adult, youth and children's
sizes as defined below.
45. Jackets (other than authentic jackets) made of insulated cotton fabric
and featuring a full zippered or a full snap front and embroidered or
appliqued Club Logos, and marketed under Licensee's "First Pick" brand
name, in adult, youth and children's sizes as defined below.
46. Jackets (other than authentic jackets) made of cotton fabric and
featuring a full zippered or a full snap front and embroidered or
appliqued Club Logos, and marketed under Licensee's "First Pick" brand
name, in adult, youth and children's sizes as defined below.
47. Jackets (other than authentic jackets) in warm-up style, made of 100%
nylon fabric and featuring embroidered or appliqued Club Logos, and
marketed under Licensee's "First Pick" brand name, in adult, youth and
children's sizes as defined below.
48. Jackets (other than authentic jackets) with a down fill, in waist or
3/4 length sizes and featuring embroidered Logos, in adult, youth and
children's sizes as defined below.
49. Jackets (other than authentic jackets) in a stadium style, with a
polyester fill and featuring embroidered and/or appliqued Club Logos,
in adult, youth and children's sizes as defined below.
50. Non- replica baseball-style jerseys made of 100% cotton or 50/50
cotton-polyester blend fabric, featuring a full-button front and
embroidered and/or appliqued Club Logos, in adult, youth and
children's sizes as defined below.
For the purposes of this Agreement, except as specifically modified by the
descriptions for the Licensed Product Nos. 1-8, "authentic" jackets and
turtlenecks shall mean: jackets and turtlenecks identical in design (including,
but not limited to, style, silhouette, color and Logo placement) and fabrication
to jackets and turtlenecks worn on-field by Major League Baseball players,
coaches or managers, regardless of size or whether numbers are worn on field.
For purposes of this Agreement, except as specifically modified by the
description for the Licensed Product No. 50, "non-replica baseball-style
jerseys" shall mean: jerseys made of any fabrication, color, silhouette and
style and with any Logo placement and Logo application, and featuring one or
more Club Logos; provided that if the jerseys have the identical style and
silhouette (without regard to the existence or number of bands on item) as the
jerseys worn on-field by the Major League Baseball players, coaches or managers,
then such jerseys shall not contain the same Logo or Lettering, regardless of
whether home or road, as the on-field jerseys.
<PAGE>
-13-
Rights to utilize players' names and/or likenesses are not granted under
this Agreement. Licensee must present to Licensor written evidence of having
obtained the proper authorization to utilize any players' names and/or
likenesses in conjunction with the Licensed Products.
SIZES
ADULT:
S M L XL
34/36 38/40 42/44 46/48 (chest sizes)
28/30 32/34 36/38 40/42 (waist sizes)
YOUTH:
S M L XL
Boys: 8/10 12/14 16/18 20
Girls: 7/8 10/12 14
CHILDREN'S:
Newborn: 3/6 6/9 months
Infant: 12 18 24 months
Toddler: 2T 3T 4T
Boys: 4 5 6 7
Girls: 4 5 6 6X
SCHEDULE C
LICENSED TERRITORY
The fifty United States of America, the District of Columbia, Puerto Rico
and U.S. territories and possessions, including U.S. military bases worldwide.
SCHEDULE D
LICENSE PERIOD
January 1, 1995 - December 31, 1999
SCHEDULE E
COMPENSATION
TOTAL GUARANTEED COMPENSATION: $7,OOO,OOO.OO
PAYABLE AS:
(i) NON-RETURNABLE ADVANCE COMPENSATION due upon signing:
$1,000,000.00
(ii) REMAINDER OF GUARANTEED COMPENSATION due as follows:
<TABLE>
<S> <C> <C> <C>
April 1, 1996 ........... $500,000.00 April 1, 1997 ......... $500,000.00
July 1, 1996 ............ $500,000.00 July 1, 1997 .......... $500,000.00
November 1, 1996 ........ $500,000.00 November 1, l997 ...... $500,000.00
Total 1995-1996 Guarantee.. $2,500,000.00 Total 1997 Guarantee .. $1,500,000.00
April 1, 1998 ........... $500,000.00 April 1, 1999 ......... $500,000.00
July 1, 1998 ............ $500,000.00 July 1, 1999 .......... $500,000.00
November 1, 1998 ........ $500,000.00 November 1, 1999 ...... $500,000.00
Total 1998 Guarantee... $1,500,000.00 Total l999 Guarantee .. $1,500,000.00
</TABLE>
PERCENTAGE COMPENSATION:
For Licensed Products Nos. 1-8:
Ten percent (10%) of net sales as defined in Paragraph 4B.
<PAGE>
-14-
For Licensed Products Nos. 9-50:
Nine percent (9%) of net sales as defined in Paragraph 4B.
Percentage Compensation earned in either of calendar years 1995 or 1996 may
be applied against the Guaranteed Compensation payable in that two-year period;
otherwise, Percentage Compensation shall be applied against Guaranteed
Compensation payable in the same calendar year only, without carryover.
Percentage Compensation attributable to premium sales of the Licensed Products
shall not be applied against Total Guaranteed Compensation.
SCHEDULE F
MANUFACTURER:
Licensee agrees that at no time during the license or sell-off periods
shall it sell, directly or indirectly, to any of the Manufacturers listed
below, or to any individual or entity affiliated in any manner with any of
such Manufacturers, any Licensed Products for subsequent sale or
distribution, without prior written approval of Licensor.
1) Licensed Product(s): ______________________________
Name of Manufacturer: _____________________________
Address: __________________________________________
Telephone: _____________________________
Principal Contact: ________________________________
Approved by Major League Baseball
Properties, Inc.: _____________________________
Initials/Title
______________________________
Date
2) Licensed Product(s): ______________________________
Name of Manufacturer: _____________________________
Address: __________________________________________
Telephone: _____________________________
Principal Contact: ________________________________
Approved by Major League Baseball
Properties, Inc.: _____________________________
Initials/Title
______________________________
Date
3) Licensed Product(s): ______________________________
Name of Manufacturer: _____________________________
Address: __________________________________________
Telephone: _____________________________
Principal Contact: ________________________________
Approved by Major League Baseball
Properties, Inc.: _____________________________
Initials/Title
______________________________
Date
<PAGE>
-15-
SCHEDULE G
Product Credit:
1. Licensee shall provide to Licensor merchandise credit in the amount of
$15,000.00 (wholesale value) during each year of the license period. Licensee
shall ship at Licensor's direction such merchandise as Licensor shall request
from time to time under this merchandise credit.
2. In addition, Licensee shall provide to Licensor merchandise credit in
the amount of $25,000.00 (wholesale value) during each year of the license
period for use at the annual Major League Baseball All-Star FanFest ("FanFest")
event. Licensee shall ship at Licensor's direction such merchandise as Licensor
shall request from time to time under this merchandise credit.
3. Licensee shall also provide to Licensor merchandise credit in the amount
of $25,000.00 (wholesale value) during each year of the license period to use in
connection with Major League Baseball Youth Clinics/Market Development. Licensee
shall ship at Licensor's direction such merchandise as Licensor shall request
from time to time under this merchandise credit, and Licensor shall, in its sole
discretion, determine how to distribute such merchandise.
Advertising:
1. Licensee acknowledges that it is required to promote the Licensed
Products under this Agreement. Accordingly, during each year of the license
period, Licensee represents that it shall purchase at prevailing rates, and
produce, at no cost or expense to Licensor, (i) one full page, four-color
advertisement in all event publications produced by or on behalf of Licensor and
(ii) the back cover of every issue of Major League Baseball For Kids magazine
published by Licensor.
2. Licensee shall contribute the following amounts to participate in
Licensor's cooperative advertising program by May 1 of each of the following
years:
1996 .... $65,000.00
1997 .... $65,000.00
1998 .... $75,000.00
1999 .... $75,000.00
3. Licensee acknowledges that under this Agreement it is obligated to
promote the Licensed Products. Accordingly, Licensee has agreed to pay to
Licensor a minimum of $125,000.00 per year to participate in each FanFest event
and related clinics conducted during the license period and to execute
Licensor's standard FanFest Sponsorship agreements in connection therewith. The
extent of Licensee's participation at the FanFest events shall be mutually
agreed upon by Licensee and Licensor.
4. Licensee represents that during each year of the license period, it
shall spend a minimum of $20,000.00 per Club on promotional exposure (including,
without limitation, signage, print and broadcast advertising featuring
individual Club Logos) for each Club wearing the Licensed Products produced for
such Club by Licensee. The manner in which Licensee shall promote each such Club
shall be agreed to by Licensee and the applicable Club.
5. Licensee represents that it plans to spend no less than $500,000.00 in
1995 and no less than $l,000,000.00 in l996 on television advertising to promote
Major League Baseball or the Licensed Products, to be aired during telecasts of
Major League Baseball games broadcast by national over-the-air television
network rights holders designated by Licensor. Licensee further represents that
during each of calendar years 1997, 1998 and 1999, it plans to spend three (3%)
percent of its prior year's gross wholesale sales of all products under its
license agreements with Licensor, or $l,000,000.00, whichever is greater, to
purchase advertising time during telecasts of Major League Baseball games
broadcast by national over-the-air television network rights holders designated
by Licensor.
Strike Clause/Game Cancellations:
In the event of a players' strike or other labor-related dispute which
results in the cancellation of regular season games for more than 21 consecutive
days, Licensee shall have an opportunity to demonstrate that its sales of
Licensed Products suffered as a result thereof and that Licensee will not be
able to earn its minimum Guaranteed Compensation or meet its advertising
commitments identified in Schedule G, Advertising Nos. 1-5, above. Subject to
Licensee demonstrating such adverse effects on its sales of Licensed Products,
Licensor and Licensee will agree on a reduction of the minimum Guaranteed
Compensation and Licensee's advertising commitments hereunder by an amount to
reflect the damage suffered by Licensee.
Miscellaneous:
1. Licensee acknowledges that it shall provide free of cost, in an
expeditious manner and to each Club's satisfaction, the quantity of Licensed
Product requested by each Major League Baseball Club wearing the Licensed
Products produced for such Major League Baseball Club by Licensee.
2. Licensee acknowledges that it is obligated to provide products for the
Major League Baseball Umpire program for calendar year 1995. Licensor
acknowledges that all such products were received by the Major League Baseball
Umpire program.
<PAGE>
-16-
3. Notwithstanding any language to the contrary contained in Paragraph 1 of
this Agreement, but subject to the terms of this Paragraph 3, during calendar
years 1995 and 1996, Licensor shall not license any other entity to produce and
distribute Licensed Product Nos. 1-8 in the Licensed Territory. Thereafter,
Licensor represents and agrees that, except as otherwise approved by Licensee,
Licensor shaIl grant to no more than two (2) other entities during the term the
right to distribute Licensed Product Nos. 1-8 in the licensed Territory.
Licensor shall notify Licensee Licensor no later than March 31 of the year prior
to the affected year of the number of other entities, if any, to whom such
rights have been granted by Licensor.
4. Licensor shall have the option, exercisable by January 15, 1999, to
extend the license period for a three (3) year period, on terms and conditions
that are substantially similar to the terms and conditions contained in
Licensor's other license agreements with licensees producing items similar to
those identified in Schedule B herein. The factors that Licensor may consider in
determining whether to exercise such option include, without limitation, whether
(i) the Clubs are fully satisfied with the products and services provided to
them by Licensee pursuant to this Agreement; (ii) Licensee has earned the
Guaranteed Compensation under this Agreement in each of calendar years 1996,
1997 and 1998; and (iii) Licensee is not in default hereunder.
5. Notwithstanding anything to the contrary contained herein, Licensor
acknowledges and agrees that any Guaranteed Compensation in excess of that which
is payable by Licensee hereunder may be applied against guaranteed compensation
payable under License Agreement No. ML-2771A. In connection therewith,
Percentage Compensation earned hereunder in either of calendar years 1995 or
1996 in excess of Guaranteed Compensation payable for such two-year period may
be applied against guaranteed compensation payable under License Agreement No.
ML-2771A for the period of 1995-1996, only. Similarly, Percentage Compensation
earned hereunder in calendar year 1997 in excess of Guaranteed Compensation
payable for calendar year 1997 may be applied against guaranteed compensation
payable under License Agreement No. ML-2771A for calendar year 1997, only.
Percentage Compensation earned hereunder for any calendar year not specified in
this Paragraph may not be applied against guaranteed compensation due under
License Agreement No. ML-2771A for any period whatsoever.
6. Licensee acknowledges that Licensor may, in its sole discretion, change
the name and/or logo of its authentic line of products, and that upon the
implementation of such change, Licensee shall market the Products licensed
herein under such new name and/or logo.
7. Licensee shall have the right to purchase, at face value, twelve (12)
tickets to each All-Star Game and twenty-four (24) tickets to each Division
Series, League Championship Series and World Series game played during the
license period.
8. Notwithstanding anything to the contrary contained in Paragraph 13S of
this Agreement, Licensee may grant a security interest in the Licensed Products
to a credible financial institution which maintains at least an A- rating from a
nationally recognized credit rating agency (such as Moody's or Standard & Poors)
throughout the license period; provided that (i) no distribution of such
Products is made by such institution or its agents, representatives, affiliates,
successors, or assignees without the prior written consent of Licensor, and (ii)
such institution does not have an investment or interest in casinos or any other
form of legalized gambling enterprise and does not participate in any activity
that Licensor or any other Major League Baseball-related entity has made
unauthorized or which is contrary to official policy of Major League Baseball.
9. Concurrently with its execution of this Agreement, Licensee will list
below the brand names that Licensee desires or intends to use on the Licensed
Products.
Brand Names:
1) Licensed Product(s) Nos.: ____________________
Brand Name(s): _______________________________
Approved by Major League Baseball
Properties, Inc.: _______________________________________
Initials/Title
________________________________________
Date
2) Licensed Product(s) Nos.: ____________________
Brand Name(s): _______________________________
Approved by Major League Baseball
Properties, Inc.: _______________________________________
Initials/Title
________________________________________
Date
<PAGE>
-17-
3) Licensed Product(s) Nos.: ____________________
Brand Name(s): _______________________________
Approved by Major League Baseball
Properties, Inc.: _______________________________________
Initials/Title
________________________________________
Date
In the event Licensee wishes to substitute a brand name for those listed
above or wishes to add to the number of brand names, Licensee shall first obtain
Licensor's written approval of such brand names.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement:
MAJOR LEAGUE BASEBALL PROPERTIES, INC., as agent for the Clubs
BY: /s/ [Illegible] Sr. V. Pres
________________________________________________________________
Title
DATE: 5-14-96
LICENSEE: STARTER CORPORATION
BY: /s/ [Illegible] SVP
________________________________________________________________
Title
DATE: 4-19-96
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of STARTER Corporation for the year ended December
31, 1996, as set forth in its annual report on Form 10-K for such year,
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,995
<SECURITIES> 0
<RECEIVABLES> 59,710
<ALLOWANCES> 3,800
<INVENTORY> 76,964
<CURRENT-ASSETS> 152,973
<PP&E> 36,034
<DEPRECIATION> 8,095
<TOTAL-ASSETS> 188,895
<CURRENT-LIABILITIES> 79,790
<BONDS> 5,852
0
0
<COMMON> 277
<OTHER-SE> 102,976
<TOTAL-LIABILITY-AND-EQUITY> 188,895
<SALES> 405,961
<TOTAL-REVENUES> 3,895
<CGS> 278,651
<TOTAL-COSTS> 121,686
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 740
<INTEREST-EXPENSE> 5,647
<INCOME-PRETAX> 3,132
<INCOME-TAX> 1,255
<INCOME-CONTINUING> 1,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,877
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
