Exhibit 10.4
LETTER OF INTENT
This Letter of Intent ("LOI") is entered into this 19th day
of May 2003, between Joe's Jeans Inc. and Joe's
Jeans Japan Inc., (hereinafter together referred to as
"JOE'S"); and Itochu Corporation, a Japan corporation,
(hereinafter referred to as "ITOCHU"), and collectively
hereinafter shall be referred to as the "Parties".
1. NATURE OF INTENT
JOE'S is the owner of certain marks "Joe's" and
"Joe's Jeans" (the "Marks"). ITOCHU
has approached JOE'S and made an informal proposal
in respect of the use of the Marks in certain
product categories in Japan. The Parties state
their intention to enter into discussions and/or
negotiations with a view to a possible master
distribution and licensing agreement (the "Master
Agreement") mutually beneficial to each party, on
terms and conditions as yet undetermined in
detail.
2. PURPOSE
The purpose of a Master Agreement shall be the
following :
A. The importation, distribution and sale of certain
products (the "Imported Products") under the "Marks"
as stated in Section 3 below.
B. The manufacture, distribution and sale of certain
products (the "Licensed Products") envisaged in an
agreement.
3. SCOPE OF PRODUCTS
3.i. Imported Products
a. Mens apparel bottoms including jeans, other denim
products, twill pants, and lightweight cotton pants using
the Joe's and Joe's Jeans Marks.
b. Womens apparel bottoms including jeans, other denim
products, twill pants, and lightweight cotton pants using
the Joe's and Joe's Jeans Marks.
3.ii. Licensed Products
a. Mens casual apparel : tops and bottoms including
jeans, other denim products, twill pants, and lightweight
cotton pants, knitted and woven tops using the Joe's and
Joe's Jeans Marks. This category excludes accessories.
b. Womens casual apparel : tops and bottoms including
jeans, other denim products, twill pants, and lightweight
cotton pants, knitted and woven tops using the Joe's and
Joe's Jeans Marks. This category excludes accessories.
The above shall collectively be referred to as the
"Products".
4. TERRITORY
This LOI pertains to the non-exclusive manufacture
of the Licensed Products in the country of Japan
or anywhere in the world, and pertains to the
exclusive distribution in the country of Japan of
the Imported Products and Licensed Products
specifically mentioned in Section 3 of this LOI.
5. SALES AND ROYALTIES
Projected sales, minimum sales, minimum royalties,
minimum purchases, are to be negotiated. The
Parties envisage that in the event that
a three (3) year Master Agreement is agreed upon,
the minimum royalty rate on the Licensed Products
as specified in Section 3.ii.a. and 3.ii.b above
will be as follows :
5.i. The royalty rate for Licensed Products which
are bottoms, will be six percent (6%).
5.ii. The royalty rate for Licensed Products
which are tops, will be five percent (5%).
6. GUARANTEED MINIMUM IMPORTED AMOUNTS
ITOCHU agrees to import no less than the hereunder
written amounts of the Imported Products at FOB
USA value :
Year 1 (18 months) : 1.5 Million USD
Year 2 (12 months) : 2 Million USD
Year 3 (12 months) : 2.25 Million USD
7. LICENSED PRODUCTS
ITOCHU agrees that it and/or its sub-licensee (as
may be approved by JOE'S), shall not in any
contract year, manufacture or sell and distribute
a unit quantity of Licensed Products exceeding the
unit quantity of Imported Products purchased from
Joe's Jeans Inc.
ITOCHU agrees that it and/or its sub-licensee
shall commence the sale and distribution of that
portion of Licensed Products which is knitted and
woven tops, by no later than June 30, 2004.
8. TERM
The term of a possible agreement would be a period
of three (3) years, or otherwise, as may be agreed
upon.
9. ADVERTISING
ITOCHU agrees that an amount equivalent to a
minimum of three percent (3%) of annual wholesale
sales shall be spent each year for advertising the
brand.
10. INVENTORY
ITOCHU and/or its sub-licensee will purchase the
inventory from JOE'S, within the hereunder
mentioned considerations :
a. Inventory which is in JOE'S current line of products
being sold shall be purchased by ITOCHU at Joe's Jeans Inc.
USA wholesale price minus twenty-five percent (25%).
b. Defective goods/damaged goods returned by customers or
otherwise; will not be purchased.
c. All other inventory shall be purchased at Joe's Jeans
Inc. "cost", plus duty and freight to Tokyo warehouse.
Such "cost" shall be mutually agreed upon between the
Parties.
d. Inventory purchases will be a cash transaction.
Any inventory transacted in accordance with this
Section 10, shall have no bearing on any
considerations mentioned in Section 6 and Section
7 hereof.
11. ACCOUNTS RECEIVABLE OF JOE'S JEANS JAPAN INC.
This receivable will be collected by JOE'S in due
course and ITOCHU has no obligation related
thereto.
12. EMPLOYEES OF JOE'S JEANS JAPAN INC.
ITOCHU will make its best efforts to employ,
either itself or together with any approved sub-
licensee, as many employees as possible. The
following circumstances will create an exclusion
from the undertaking :
a. Agency or outside contract employees
b. Employees who decline to be interviewed or unilaterally
decided not be hired
Except for those exclusions mentioned, the
employees not hired will be subject to a severance
consideration to be managed by JOE'S but mutually
agreed upon with ITOCHU. The cost of such
severance consideration will be equally shared by
JOE'S and ITOCHU.
13. DISCOUNT AND PAYMENT TERMS ON IMPORTED PRODUCTS
Imported Products shall be paid for via letter of
credit at sight, or via wire transfer within ten
(10) days of FOB ship date, whichever payment
method may be elected by Joe's Jeans Inc. from
time to time. In the event that wire transfer is
elected as method of payment, Joe's Jeans Inc.
will submit a pro-forma invoice and an accurate
packing list related to all shipments of the
Imported Products to ITOCHU, no less than three
(3) days prior to the anticipated FOB ship date.
Joe's Jeans Inc. undertakes to grant ITOCHU a
discount of twenty-five percent (25%) off the USA
wholesale price of imported products.
14. PRICING STRUCTURE AND IMAGE
The Parties agree that the Products are a premium
xxxx and prestige product sold under the JOE'S
brand. A discount of twenty-five percent (25%) is
granted on Imported Products, in order to insure
that ITOCHU will maintain the same prestige retail
marketing strategy as previously established by
Joe's Jeans Japan Inc. The standard of retail
distribution and appropriateness shall follow
those currently maintained by JOE'S in Japan.
ITOCHU acknowledges the high standard and prestige
market positioning of the JOE'S brand in Japan.
15. DURATION OF THE LOI
The Parties shall exercise every effort to
complete the discussions and execute formal
agreements contemplated by this LOI as soon as is
practical. If no formal agreements have been
executed by June 20, 2003, this LOI shall
automatically terminate unless extended in
writing, prior to that date, by mutual agreement.
16. CONFIDENTIALITY
Each party and its directors, employees and
representatives shall keep confidential the
content of any discussions or negotiations between
the Parties under this LOI and pertaining to a
possible license agreement.
17. COSTS
ITOCHU and JOE'S each will bear its own costs
pertaining to the signing of this LOI and in
connection with the activities contemplated by
this LOI for the negotiation and finalization of
any formal agreements.
18. NON-BINDING AND ESSENTIAL CONDITIONS
This LOI is merely indicative of the intentions of
the Parties hereto and is in no way to be
considered as a legally binding instrument. The
Parties shall only become bound after the
negotiation and execution of a separate agreement
which will reflect the overall terms and
conditions related to the intentions contained
herein and if and when such definite separate
definitive agreement is prepared, executed and
delivered by and between them and the transactions
contemplated thereby are approved by their
respective Board of Directors and their designees.
The Parties intend that only the provisions of
Section 16, 17 and 20 shall constitute a binding
agreement between the Parties beyond the expiry of
this LOI.
19. EXCLUSIVITY OF NEGOTIATIONS
Until such time as a party notifies the other in
writing that it does not wish to proceed further
with the execution of an Agreement as contemplated
by this LOI, or until the expiry of this LOI,
neither party shall engage in discussions
concerning or otherwise supporting a similar
Distribution or Licensing Agreement.
20. GOVERNING LAW
The laws of the State of California, without
regard to its principles of conflict of law, shall
govern the interpretation of this LOI.
This LETTER OF INTENT is executed in the State of California
on the 19th day of May 2003.
/s/ Xxxxxx Xxxxxx Xxxxxx, Xx.
by : Xxxxxx Xxxxxx Xxxxxx, Xx.
title/capacity : CEO
for : JOE'S JEANS INC.
/s/ Xxxxxx X. Xxxxxxx
by : Xxxxxx X. Xxxxxxx
title/capacity : President
for : JOE'S JEANS JAPAN INC.
/s/ Takeshi Kuhekawa
by : Takeshi Kuhekawa
title/capacity : Chief Operating Officer
for : ITOCHU CORPORATION
