Exhibit 10.23
Confidential Treatment Requested
RETAIL STORE LICENSE AGREEMENT
This retail store license agreement (this "Agreement") is dated January 9,
2002, and is between CANDIE'S, INC., a Delaware corporation ("Candies"), and
DESIGNS, INC., a Delaware corporation ("Designs").
Within the U.S., Candies is engaged primarily in the design, marketing,
and distribution of footwear to department, specialty, chain, and company-owned
stores. Designs is a retailer selling Levi Xxxxxxx & Co. branded apparel and
accessories.
Designs wishes to open and operate in the Territory stores that sell
Products and are identified by display of one or more of the Marks.
The parties therefor agree as follows:
Article 1
DEFINITIONS
When used in this Agreement, the following terms have the following
meanings:
"Affiliate" means, with respect to any given Person, any other Person at
the time directly or indirectly controlling, controlled by or under common
control with that Person, or (2) any director, officer or employee of that
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person through ownership of voting securities.
"Average Retail Net Sales Volume" means, with respect to any given Stores
for any given period of time, the aggregate Retail Net Sales Volumes for all
those Stores during that period of time, divided by the number of those Stores,
the parties acknowledging that if the Average Retail Net Sales Volume for any
given Stores for any given period of time is a given dollar amount, it is
probable that the Retail Net Sales Volume of some or all of those Stores for
that period of time will be either less than or in excess of that dollar amount.
"Bankruptcy Event" means with respect to any Person any of the following:
(1) the institution by that Person of bankruptcy or insolvency proceedings;
(2) the consent of that Person to the institution of bankruptcy or insolvency
proceedings against that Person;
(3) the filing by that Person of a petition seeking reorganization or release
under applicable law, or the consent by that Person to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of that Person or of any
substantial part of the property of that Person;
(4) the making by that Person of an assignment for the benefit of creditors;
and
(5) the entry of an Order by a court having jurisdiction adjudging that Person
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of or in respect
of that Person under applicable law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of that
Person, or of any substantial part of the property of that Person, or
ordering the winding up or liquidation of the affairs of that Person, and
(A) that Person consents to that decree or order or (B) that decree or
order remains unstayed and in effect for more than 60 consecutive days.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday, or Friday
that is not a day on which banking institutions in the State of New York are
authorized by law, regulation or executive order to close.
"Confidential Information" of either party means any confidential or
proprietary information of that party, and includes but is not limited to
information relating to the Products, the Marks, current or anticipated
products, processes, know-how, customers, sales, business affairs, contractual
arrangements, the identity of Representatives, but does not include the
following:
(1) information that is or becomes generally available to the public other
than as a result of a breach of this Agreement by the receiving party or
its Representatives;
(2) information that was within the receiving party's possession or knowledge
prior to its being furnished to the receiving party by or on behalf of the
disclosing party, on condition that the source of that information was not
known by the receiving party to be bound by a confidentiality agreement
with or other contractual, legal or fiduciary obligation of
confidentiality to the disclosing party;
(3) information that is or becomes available to the receiving party on a
non-confidential basis from a source other than the disclosing party or
any of its Representatives, on condition that that source was not known
after reasonable inquiry by the receiving party to be bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the disclosing party or any other party
with respect to that information; or
(4) information that is independently developed by the receiving party without
use of Evaluation Material and otherwise in a manner not consistent with
this Agreement.
Without limiting the generality of the foregoing, information is
considered Confidential Information if the delivering party so informs the
receiving party or if the receiving party knew or reasonably should have known
that the information was confidential or proprietary.
"Consent" means any approval, consent, ratification, filing, declaration,
registration, waiver, or other authorization (including any Permit).
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* Material omitted pursuant to a request for confidential treatment. The
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Commission.
"Contract" means any written or unwritten agreement, contract, obligation,
promise, arrangement, or undertaking that is legally binding, including any
amendment or supplement thereto.
"Contract Year" means twelve-month period during the term of this
Agreement commencing at midnight at the beginning of February 1 and ending at
midnight at the end of the following January 31, except that Contract Year 1
begins on the date of this Agreement and ends on January 31, 2003, and the last
Contract Year ends on the date this Agreement terminates.
"First Cost" refers to any Product purchased by Designs outside the
Territory and means the price paid to the manufacturer for that Product and does
not include any other costs, including without limitation shipping, handling, or
insurance costs or any taxes, duties, or customs charges.
"GAAP" means generally accepted United States accounting principles,
consistently applied.
"Governmental Authority" means any (1) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (2) federal, state,
local, municipal, foreign, or other government, (3) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal,
including an arbitral tribunal), (4) multi-national organization or body, and
(5) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"Hash Lot" means any lot of Products consisting of cases of footwear of
mixed styles, colors, or sizes from Candies' warehouse and/or returns from
Candies' concept stores.
"Indemnifiable Losses" means all losses, liabilities, damages,
deficiencies, obligations, fines, expenses, claims, demands, actions, suits,
proceedings, judgments or settlements, whether or not resulting from Third-Party
Claims, incurred or suffered by an Indemnified Party, including interest and
penalties with respect thereto and out-of-pocket expenses and reasonable
attorneys' and accountants' fees and expenses incurred in the investigation or
defense of any of the same or in asserting, preserving or enforcing any of the
Indemnity's rights hereunder, net of any amounts recovered or recoverable under
any insurance policy.
"In-line Product" means any item in the entire line of in-season footwear
Products that Candies offers to full-price retailers for resale.
"In-stock Product" means any In-line Product that Candies warehouses at
its facilities for purposes of customer replenishment.
"Landed Cost" refers to any Product purchased by Designs within the
Territory and means the price paid to any seller (other than Candies) for that
Product and does not include any shipping, handling, or insurance costs incurred
in shipping that Product to Designs from that seller.
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"Law" means any federal, state, local, municipal, foreign, international,
multinational, or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty.
"Licensed Product" means any Product manufactured or supplied by any
Person under license from Candies.
"Lien" means any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Marks" means those trademarks and service marks listed on Schedule C.
"Order" means any award, decision, injunction, judgment, order, ruling,
consent decree, subpoena, or verdict entered, issued, made, or rendered by any
court, arbitral tribunal, administrative agency, or other Governmental Body.
"Outlet Center" means a mall or shopping center composed primarily of
outlet stores.
"Outlet Store" means any outlet store for Retail Sale of Products that is
operated by Designs or any Affiliate and is located in an Outlet Center.
"Permit" means any approval, consent, license, permit, waiver, or other
authorization issued, granted, given, or otherwise made available by or under
the authority of any Governmental Authority or pursuant to any Law.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, Governmental
Authority or other entity.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Authority.
"Product" means any item of merchandise bearing one or more of the Marks
or any of the trademarks or service marks listed on Schedule D.
"Quarter" means any of (1) the period commencing the date of this
Agreement and ending on January 31, 2002, (2) any subsequent 3-month period
commencing February 1, May 1, August 1, or November 1, and (3) the period (A)
beginning the day after the 3-month period commencing February 1, May 1, August
1, or November 1, as applicable, immediately preceding the date this Agreement
terminates and (B) ending on the date this Agreement terminates.
"Representative" means, with respect to any Person, any director, officer,
employee, agent, consultant, advisor, or other representative of that Person,
including legal counsel, accountants, and financial advisors.
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"Retail Net Sales Volume" means for any period the aggregate price to the
consumer of all Products sold in a Retail Sale during that period.
"Retail Sale" means a sale made at retail price to a consumer.
"Store" means any Outlet Store, Value Power Store, or Warehouse Store.
"Territory" means the continental United States, Hawaii, and Puerto Rico.
"Value Power Center" means any non-enclosed shopping center the tenants of
which include two or more specialty apparel or footwear stores such as Old Navy,
Xxxxxxxx'x, X.X. Maxx, Ross, Famous Footwear, or Designer Shoe Warehouse stores.
"Value Power Store" means any outlet store for Retail Sale of Products
that is operated by Designs or any Affiliate and is located in a Value Power
Center.
"Warehouse Store" means any temporary warehouse or clearance store being
used by Designs or any Affiliate to sell Hash Lots or to liquidate Products.
Article 2
GRANT OF LICENSE
2.1 Grant and Territory. Subject to the other terms of this Agreement,
Candies hereby grants to Designs an exclusive license to use the Marks in the
Territory in connection with the operation of Stores and Retail Sale of Products
in Stores (that license, the "License"), and during the term of this Agreement
Candies may not operate or grant to any of its Affiliates or any other Person
the right to operate any store, or a department in any store, selling Products
if that store is located in an Outlet Center or Value Power Center, except that
Candies or any of its Affiliates may continue to operate those stores selling
Products that it currently operates that are located in Outlet Centers or Value
Power Centers.
2.2 Relationship of Parties. 1. The relationship between Candies and
Designs is that of licensor and licensee of intellectual property rights and
supplier and retailer of merchandise. In its capacity as licensee and retailer,
Designs will be acting only as independent contractor and not as partner,
co-venturer, or Representative of Candies. Neither party has any authority,
either express or implied, to make any commitment or representation on behalf of
the other party or incur any debt or obligation on behalf of the other party.
(b) Designs will be purchasing Products from Candies for its own
account and for resale in the Territory, and not under consignment or
representation. Designs is not a commercial agent of Candies, and this Agreement
does not constitute a franchise and does not create a fiduciary relationship
between the parties.
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Article 3
OUTLET STORES
3.1 Exclusivity Through Contract Year 5. (a) With respect to Designs'
operation of Outlet Stores and Retail Sale of Products in Outlet Stores, and
subject to Sections 3.1(b) through 3.1(e), the License is exclusive through
Contract Year 5, on condition that Designs open Outlet Stores (excluding any
Outlet Stores that Designs purchases from Candies) according to the following
schedule:
Contract Year 1 10 stores
Contract Year 2 15 stores
Contract Year 3 15 stores
Contract Year 4 17 stores
Contract Year 5 18 stores
(b) Subject to Section 3.1(e), if during any Contract Year of
Contract Years 1 through 4 Designs opens a number of Outlet Stores that is less
than 75% of the number of Outlet Stores specified for that Contract Year in
Section 3.1(a), Designs' exclusivity with respect to Outlet Stores will
automatically terminate at the end of that Contract Year.
(c) If during any Contract Year of Contract Years 1 through 4
Designs opens a number of Outlet Stores that is less than 100% but is 75% or
more of the number of Outlet Stores specified for that Contract Year in Section
3.1(a), Candies' grant of exclusivity with respect to Outlet Stores will not end
at the end of that Contract Year, and Designs will be deemed to have satisfied
the requirements of Section 3.1(a) if by the end of the following Contract Year
Designs has opened a sufficient number of Outlet Stores such that the aggregate
number of Outlet Stores opened during that following Contract Year and the
preceding Contract Year equals the aggregate of the number of Outlet Store
specified in Section 3.1(a) for those Contract Years. Subject to Section 3.1(e),
if Designs fails to do so, Designs' exclusivity with respect to Outlet Stores
will automatically terminate at the end of that following Contract Year.
(d) Subject to Section 3.1(e), if during Contract Year 5 Designs
opens a number of Outlet Stores that is less than the number of Outlet Stores
specified for that Contract Year in Section 3.1(a), Designs' exclusivity with
respect to Outlet Stores will automatically terminate at the end of that
Contract Year.
(e) Designs' exclusivity with respect to Outlet Stores will not
automatically terminate as provided in Section 3.1(b), 3.1(c), or 3.1(d) if at
the end of the Contract Year in question Designs has opened a number of Outlet
Stores equal to or greater than the aggregate number of Outlet Stores specified
in Section 3.1(a) for that Contract Year and each preceding Contract Year. The
parties acknowledge that the effect of this Section 3.1(e) is that if Designs
opens 75 or more Outlet Stores any time prior to the end of Contract Year 5,
Designs will retain through the end of Contract Year 5 its exclusivity with
respect to Outlet Stores.
3.2 Exclusivity After Contract Year 5. (a) With respect to Designs'
operation of Outlet Stores and Retail Sale of Products in Outlet Stores,
Candies' grant of the License will
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remain exclusive after Contract Year 5 on condition that for any Contract Year
after Contract Year 5, both of the following apply:
(1) the Average Retail Net Sales Volume of the Outlet Stores for that Contract
Year on an annualized basis is at least $500,000; and
(2) Designs has by the end of that Contract Year opened a sufficient number of
Outlet Stores such that the following calculation yields a result that is
equal to or greater than five:
(A) the total of (i) the number of Outlet Stores operating in that
Contract Year plus (ii) the number of Outlet Stores operating in
each preceding Contract Year that is subsequent to Contract Year 5
plus (iii) the number of Outlet Stores, if any, in excess of 75 that
were operating by the end of Contract Year 5 divided by
(B) the number of Contract Years subsequent to Contract Year 5, up to
and including that Contract Year.
(b) If Designs fails to satisfy one or other of the conditions
specified in Section 3.2(a), Designs' exclusivity with respect to Outlet Stores
will automatically terminate at the end of the applicable Contract Year.
3.3 Consequences of Ending of Exclusivity. (a) Upon termination of
Designs' exclusivity with respect to Outlet Stores, Designs will be entitled to
open and operate Outlet Stores on a nonexclusive basis, and the only other
Persons entitled to open and operate stores, or departments in stores, in Outlet
Centers selling Products will be Candies and its Affiliates, on the basis
specified in this Section 3.3.
(b) If Designs' exclusivity with respect to Outlet Stores ends at
the end of Contract Year 5 or anytime sooner, Candies will thereafter be
entitled to open anywhere within the Territory stores, or departments in stores,
in Outlet Centers selling Products, on condition (1) that none of those stores
is within a 60-mile radius of any Outlet Store then operated by Designs and (2)
that whenever Candies wishes to open a store, or a department in any store,
selling Products at any location listed on Schedule A, it shall, by sending
Designs an Outlet Store Option Notice in the form attached as Exhibit A, notify
Designs and give Designs the option to open an Outlet Store at that location.
(c) If Designs' exclusivity with respect to Outlet Stores ends
anytime after the end of Contract Year 5, Candies will thereafter be entitled to
open anywhere within the Territory stores in Outlet Centers selling Products, on
condition (1) that none of those stores is within a 60-mile radius of any Outlet
Store then operated by Designs and (2) that whenever Candies wishes to open a
store at any location it shall, by sending Designs an Outlet Store Option Notice
in the form attached as Exhibit A, notify Designs and give Designs the option to
open an Outlet Store at that location.
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omitted material had been filed with the Securities and Exchange
Commission.
(d) If (1) Designs fails to notify Candies within 30 days after its
receipt of an Outlet Store Option Notice whether or not it wishes to open an
Outlet Store at the location specified in that Outlet Store Option Notice, or
(2) Designs notifies Candies that it elects to open an Outlet Store at that
location but fails to make commercially reasonable efforts to negotiate a lease
for an Outlet Store at that location within four months of its receipt of the
Outlet Store Option Notice, Designs will be deemed to have not exercised its
option to open an Outlet Store at that location.
(e) If Designs does not exercise, or is deemed to have not
exercised, its option to open an Outlet Store at a location specified in an
Outlet Store Option Notice and (1) within nine months of Designs' receipt of
that Outlet Store Option Notice Candies is not making commercially reasonable
efforts to negotiate a lease for a store selling Products at that location or
(2) within one year thereof Candies has not executed such a lease, Candies may
not thereafter open a store selling Products at that location without delivering
to Designs another Outlet Store Option Notice pursuant to Section 3.3(b) or
3.3(c), as applicable.
Article 4
VALUE POWER STORES
4.1 Test Stores. Designs may open two test Value Power Stores. If the
Average Retail Net Sales Volume of these Value Power Stores on an annualized
basis for the 90-day period after each of these Value Power Stores opens is at
least $650,000, Designs may open additional Value Power Stores in accordance
with this Agreement.
4.2 Tradename. At its option, Candies may require that Designs use the
tradename "Candie's Factory Store" for any one or more Value Power Stores, on
condition that the landlord of any given Value Power Store permits Designs to
use that tradename for that Value Power Store. If Candies elects to require
Designs to use the tradename "Candie's Factory Store" for a given Value Power
Store but the landlord does not permit Designs to use that tradename, Designs
shall use the name that Candies, Designs, and the landlord agree upon.
4.3 Exclusivity. (a) With respect to Designs' operation of Value Power
Stores and Retail Sale of Products in Value Power Stores, Candies' grant of the
License is exclusive on condition that (1) by the end of Contract Year 2 Designs
has opened at least ten Value Power Stores and (2) for any Contract Year after
Contract Year 2, Designs has by the end of that Contract Year opened a
sufficient number of Value Power Stores such that the total number of Value
Power Stores opened by the end of that Contract Year divided by the total number
of Contract Years up to and including that Contact Year is equal to or greater
than five.
(b) If Designs fails to satisfy one or other of the conditions
specified in Section 4.3(a), Designs' exclusivity with respect to Value Power
Stores will automatically terminate at the end of the applicable Contract Year.
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omitted material had been filed with the Securities and Exchange
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(c) The parties acknowledge that the effect of Section 4.3(a) is
that if Designs opens 25 or more Value Power Stores any time prior to the end of
Contract Year 5, Designs will retain through the end of Contract Year 5 its
exclusivity with respect to Value Power Stores.
4.4 Consequences of Ending of Exclusivity. (a) Upon termination of
Designs' exclusivity with respect to Value Power Stores, Designs will be
entitled to open and operate Value Power Stores on a nonexclusive basis, and the
only other Person entitled to open and operate stores, or departments in stores,
in Value Power Centers selling Products will be Candies and its Affiliates, on
the basis specified in this Section 4.4.
(b) If Designs' exclusivity with respect to Value Power Stores ends
at the end of Contract Year 5 or anytime sooner, Candies will thereafter be
entitled to open anywhere within the Territory stores, or departments in stores,
in Value Power Centers selling Products, on condition that none of those stores
is within a 5-mile radius of any Value Power Store then operated by Designs.
(c) If Designs' exclusivity with respect to Value Power Stores ends
anytime after the end of Contract Year 5, Candies will thereafter be entitled to
open anywhere within the Territory stores, or departments in stores, in Value
Power Centers selling Products, on condition (1) that none of those stores is
within a 5-mile radius of any Value Power Store then operated by Designs and (2)
that whenever Candies wishes to open a store, or a department in any store,
selling Products at any location listed on Schedule B, it shall, by sending
Designs a Value Power Store Option Notice in the form attached as Exhibit B,
notify Designs and give Designs the option to open a Value Power Store at that
location.
(d) If (1) Designs fails to notify Candies within 30 days after its
receipt of a Value Power Store Option Notice whether or not it wishes to open a
Value Power Store at the location specified in that Value Power Store Option
Notice, or (2) Designs notifies Candies that it elects to open a Value Power
Store at that location but fails to make commercially reasonable efforts to
negotiate a lease for a Value Power Store at that location within four months of
its receipt of the Value Power Store Option Notice, Designs will be deemed to
have not exercised its option to open a Value Power Store at that location.
(e) If Designs does not exercise, or is deemed to have not
exercised, its option to open a Value Power Store at a location specified in a
Value Power Store Option Notice and (1) within nine months of Designs' receipt
of that Value Power Store Option Notice Candies is not making commercially
reasonable efforts to negotiate a lease for a store selling Products at that
location or (2) within one year thereof has not executed such a lease, Candies
may not thereafter open a store selling Products at that location without
delivering to Designs another Value Power Store Option Notice pursuant to
Section 4.4(b) or 4.3(c), as applicable.
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
Article 5
APPROVAL OF STORES
5.1 Store Location. Before establishing any Store, Designs shall submit to
Candies a Store Location Approval Form in the form attached as Exhibit C.
Candies has final approval of the mall or shopping center where any Store is
located, other than any Outlet Store that Designs opens at a location listed on
Schedule A, any Value Power Store that Designs opens at a location listed on
Schedule B, or any Warehouse Store that is located in an Outlet Center where an
Outlet Store is already operating or in a Value Power Center where a Value Power
Store is already operating. Candies may not unreasonably withhold, condition, or
delay its approval, and Candies will be deemed to have approved a location if it
does not notify Designs of its disapproval within 30 days of Candies receipt of
a Store Location Approval Form with respect to that location.
5.2 Prototypes. As soon as reasonably practicable, Designs shall submit to
Candies for its approval plans for a prototype Outlet Store design and a
prototype Value Power Store design. Personnel of Candies and Designs shall
confer regarding the prototype design plans. Designs may not open either any
Outlet Store or any Value Power Store until Candies has approved the applicable
prototype design, and Candies may not unreasonably withhold, condition, or delay
its approval (a prototype design so approved, a "Prototype"). Designs and
Candies shall endeavor to have each Prototype be based on a build-out cost of
not more than $50.00 per square foot. Designs is not required to submit to
Candies plans for Warehouse Stores. Designs may work with its own vendors to
design, fixture and build all Stores, on condition that all such work is
consistent with a Prototype.
5.3 Store Leases. Designs may either lease or own the premises of any
Store. Designs is responsible for negotiating the terms of any lease for Store
premises, and shall use commercially reasonable efforts to cause any landlord to
include in each such lease a provision permitting Designs to assign the lease to
Candies without a penalty of any kind, including without limitation an increase
in rent. Designs shall promptly notify Candies any time it signs a lease for any
Store that does not include such a provision. Designs may elect to enter into
any lease for any Store through an Affiliate. Execution by Designs or an
Affiliate of Designs of a lease for any Store will not, for purposes of this
Agreement, constitute the opening of that Store.
5.4 Display of Products. The visual presentation of Products on the
selling floor of the Stores must comply with reasonable guidelines and
directions, if any, provided to Designs by Candies.
Article 6
SUPPLY OF PRODUCTS
6.1 Offer of In-line Products. Candies shall offer each In-line Product
for sale to Designs at the same time as Candies offers that In-line Product for
sale to full-price retailers for resale.
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6.2 Information Regarding Other Products. Candies shall as soon as
available provide Designs with up-to-date descriptions of all In-line Products
(including the identity of the manufacturers of all In-line Products that are
not In-stock Products), all Products that are manufactured or supplied by
Candies licensees (including information regarding the licensees), and all other
merchandise being offered for sale in stores operated by Candies.
6.3 Purchase of In-Stock Products, Close-Out Products, and Hash Lots. (a)
Designs may purchase from Candies any In-stock Products (in accordance with this
Section 6.3), close-out Products (in accordance with Section 6.4), and Hash Lots
(in accordance with Section 6.5).
(b) The cost to Designs of In-stock Products supplied to Designs by
Candies is the published wholesale price that Candies offers to full-price
retailers less *%.
(c) Candies shall ship to any destination in the Territory that
Designs specifies any Products that Candies sells to Designs under this Section
6.3, and Designs shall pay all shipping, handling, and insurance costs that are
attributable to shipment of those Products from any Candies warehouse in the
Territory to the destination specified by Designs. Shipment will be FOB the
Candies warehouse from which Products are shipped.
(d) During the 12 months following the date of this Agreement or any
shorter period that Designs elects at its sole discretion, Candies shall cause
to be manufactured and shall sell to Designs as if they were In-stock Products
all Products (other than close-out Products or Hash Lots) ordered by Designs
through Candies under this Article 6, except that the cost for all such Products
will be the Landed Cost plus a royalty equal to that specified in Section
6.6(d).
6.4 Purchase of Close-Out Products. (a) If Candies wishes to sell, other
than in any store that Candies operates, any close-out Products at a price
greater than 70% of the published wholesale price that Candies offers to
full-price retailers for those Products, Candies shall also offer those
close-out Products to Designs at that price on or about the same time.
(b) If Candies wishes to sell any close-out Products at a price
equal to or less than 70% of the published wholesale price that Candies offers
to full-price retailers for those Products, Candies shall first offer those
close-out Products to Designs at that price. Designs will have three Business
Days to accept or decline that offer; Designs will be deemed to have declined
the offer if it fails to timely respond. If Designs declines the offer, it may
at the same time make a counteroffer to Candies, for all or part of those
close-out Products, at a lower price (that price, the "Designs Lower Close-out
Price") and Candies will be entitled to offer those close-out Products to any
other Person, on condition that any such offer to any other Person is, with
respect to any close-out Products for which Designs has made a counteroffer
specifying a Designs Lower Close-out Price, (1) at a price that exceeds any
Designs Lower Close-out Price and (2) on terms (other than price) that are
identical to, or more favorable to Candies than, the initial offer to Designs.
Each counteroffer that Designs makes specifying a Designs Lower Close-out Price
will remain open until the earlier of (A) any expiration date stated on the
counteroffer and (B) the date Designs withdraws the counteroffer by notice to
Candies.
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omitted material had been filed with the Securities and Exchange
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(c) Designs shall purchase a reasonable quantity of close-out
Products offered by Candies, except that Designs is not required to purchase any
given lot of close-out Products once six months has elapsed since Candies
offered those Products to retailers at the published wholesale price.
6.5 Purchase of Hash Lots. The price of Hash Lots will be negotiated by
Candies and Designs on a case-by-case basis. Candies shall first offer each Hash
Lot to Designs. If within three Business Days of Designs' receipt of that offer
Candies and Designs are unable to agree on the price of that Hash Lot, Candies
will be entitled to sell that Hash Lot to any other Person, on condition that
any such offer to any other Person is on terms that are as or more favorable to
Candies than Candies' original offer to Designs. Designs shall within a
reasonable time purchase a reasonable quantity of Hash Lots offered by Candies
consistent with the number of Stores that Designs is able to operate for sale of
Hash Lots, except that Designs is not required to purchase any given Hash Lot
once the salability of the Products in that Hash Lot has been materially
adversely affected by the time that has elapsed since Candies offered those
Products to retailers at the published wholesale price.
6.6 Purchase of Other Products from Candies. (a) Subject to Section 6.3(d)
and Section 6.6(b), in order to purchase any Products other than In-stock
Products, close-out Products, Hash Lots, or Licensed Products, Designs shall
submit to Candies or an Affiliate of Candies (as directed by Candies) purchase
orders for those Products. Candies shall promptly submit or cause its Affiliate
to submit (as applicable) any such purchase order to the one or more
manufacturers that Candies selects to manufacture the Products referenced in
that purchase order, except that whenever commercially feasible, Candies shall
select to manufacture any such Product a manufacturer that has manufactured that
Product for full-price retailers.
(b) Purchases under Section 6.6(a) must take into account Designs'
reasonable planning and buying and the purchasing of a reasonable amount of
close-out Products and Hash Lots. With respect to any given Contract Year,
Designs may not purchase additional In-line Products under Section 6.6(a) once
the invoiced amount of all In-line Products that Designs purchases under Section
6.6(a) in that Contract Year exceeds 50% of the invoiced amount of all footwear
Products purchased by Designs in that Contact Year.
(c) The price charged to Designs for Products that Designs purchases
under Section 6.6(a) (excluding any royalty payable under Section 6.6(d)) may
not exceed the price that Candies pays its Affiliate or the manufacturer, as
applicable, for those Products.
(d) Upon purchase of In-line Products in accordance with this
Section 6.6, Designs shall pay Candies a royalty equal to *% of First Cost (for
orders placed during Contract Years 1 and 2) and *% of First Cost (for orders
placed after Contract Year 2). Upon purchase in accordance with this Section 6.6
of Products other than In-line Products, Designs shall pay Candies a royalty
equal to *% of First Cost or *% of Landed Cost, as applicable (in the case of
apparel), or *% of First Cost or *% of Landed Cost, as applicable (in the case
of all other merchandise).
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
6.7 Purchases from Licensees. If Designs wishes to purchase a Product that
falls within the scope of a license that Candies has granted to any Person
giving that Person the right to manufacture or sell Products of that type,
Designs shall purchase that Product from that Candies licensee. Notwithstanding
anything herein to the contrary, Designs is not required to pay Candies any
royalties on purchases of any Product directly from any Candies licensee that
manufactures or supplies that Product (other than Gadzooks). Designs is not
required to pay Candies any royalties with respect to merchandise that Designs
purchases from Gadzooks if Gadzooks is required to pay Candies royalties with
respect thereto.
6.8 Candies' Efforts Regarding Suppliers. Candies shall use commercially
reasonable efforts to (1) cause any supplier or manufacturer of Products
(whether or not a Candies licensee) to sell Products to Designs at the best
possible prices for those Products and fill in a timely manner any orders for
Products placed by Designs with that supplier or manufacturer, and (2) allow
Designs to take advantage of Candies' discounts from suppliers or manufacturers
of Products (whether or not Candies licensees).
6.9 Other Orders. (a) If Designs wishes to sell in Stores as a Product any
item that was not previously a Product (including any item that is substantially
similar to any Product except that Designs seeks to modify one or more
characteristics of that Product), Designs shall, prior to purchasing that item,
notify Candies of the item, the quantity that Designs seeks to purchase, and the
delivery date, and shall provide Candies with either a sample of that item or a
reasonably complete description of that item.
(b) Designs may not sell any such item in Stores as a Product
without Candies' prior written consent, unless it is an item that Candies has at
any time during the previous 12 months sold at any of the stores that Candies
operates.
(c) If, upon receipt from Designs of a notice of the sort specified
in Section 6.9(a), Candies determines that it wishes to sell to Designs the
specified quantity of the specified item for delivery by the specified delivery
date, Candies must notify Designs no later than 10 days after receipt by Candies
of that notice, and that sale must be in accordance with Section 6.6.
(d) If Candies does not wish to sell to Designs the specified
quantity of the specified item in accordance with Section 6.9(c), Designs may
seek an alternative manufacturer, except that if that item falls within the
scope of any license granted by Candies to any Person to manufacture, sell, or
distribute Products, Designs may only have that item manufactured by or through
that Person. If the manufacturer is other than a Candies licensee, Designs must
notify Candies of the identity of the manufacturer and must obtain Candies'
prior written consent to its selection of manufacturer, which Candies may not
unreasonably withhold, condition, or delay.
(e) Upon purchase by Designs of any items under Section 6.9(d),
Designs shall pay Candies a royalty equal to *% of First Cost or *% of Landed
Cost, as applicable (in the case of apparel), or *% of First Cost or *% of
Landed Cost, as applicable (in the case of all other merchandise), unless those
items were purchased from any Person (other than Gadzooks) to which Candies has
granted a license to manufacture, sell, or distribute a category of Products
that
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
encompasses those items, in which case Designs will not be required to pay
Candies any royalty. Designs is not required to pay Candies any royalties with
respect to items that Designs purchases from Gadzooks under Section 6.9(d) if
Gadzooks is required to pay Candies royalties with respect thereto.
6.10 Payment of Royalties. Designs shall pay within 15 days after the end
of each Quarter all royalties payable under this Article 6 with respect to
orders placed in that Quarter, except in the event of a good-faith dispute.
6.11 Key Items. Each season, Candies and Designs shall in good faith
address sensitive distribution issues with respect to agreed-upon key new
Products for that season.
6.12 Wholesale. Without Candies' consent, which Candies may not
unreasonably withhold, condition, or delay, Designs may not resell any Products
at wholesale to any Person for further resale by that Person.
6.13 Sale of Merchandise Other Than Products. If Designs wishes to sell at
any Store any item of merchandise that does not constitute a Product, Designs
shall, prior to purchasing that item, notify Candies of the item, the quantity
that Designs seeks to purchase, and the identity of the manufacturer, and shall
provide Candies with either a sample of that item or a reasonably complete
description of that item. Designs may not sell any such item in Stores without
Candies' prior written consent. Designs must also obtain Candies prior written
consent to Designs' choice of manufacturer, which Candies may not unreasonably
withhold, condition, or delay.
6.14 Quality Assurance. (a) If Candies at any time notifies Designs that
it is objects to the quality of any Product or other item that Designs has had
manufactured under Section 6.9(d) or Section 6.13 and Candies is unsatisfied
with any explanations or assurances subsequently offered by Designs or the
manufacturer and notifies Designs of its dissatisfaction, Designs shall not
place any future orders with that manufacturer for that Product or other item
until such time as Candies notifies Designs that it may resume using that
manufacturer.
6.15 Timely Filling of Orders. Candies shall use its best efforts to
timely fill with non-defective and non-irregular Products any orders for
Products that Designs places with Candies under this Article 6. Candies'
performance of its obligations under this Section 6.15 is essential to
successful operation of the Stores.
6.16 Defective or Irregular Products. Designs may, in accordance with
Candies' warehouse procedures, return for full credit all defective or irregular
Products purchased from Candies under this Article 6.
6.17 Payment. Except, in each case, in the event of a good-faith dispute,
within 90 days of shipment (in the case of any initial shipment to a new Store)
or 60 days of shipment (in the case of any other shipment) from any Candies
warehouse in the continental U.S., Designs shall pay the invoiced amount of any
shipment of Products purchased by Designs from Candies under this Article 6. In
addition to any other remedies it has under this Agreement or by Law,
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
Candies may at any time suspend any shipments of Products purchased by Designs
from Candies under this Article 6 if there are then outstanding invoices that
Designs has failed to timely pay as provided in this Section 6.17.
6.18 Interest. Any amount due under this Agreement that is not timely paid
and is not the subject of a good-faith dispute will accrue interest from the
date when due at an annual rate equal to the prime lending rate of Fleet Bank
N.A. as in effect from time to time.
Article 7
USE OF THE MARKS
7.1 Ownership; Use. (a) Designs acknowledges that nothing contained in
this Agreement gives Designs any interest in the Marks other than the License.
Designs may only use the Marks as contemplated by this Agreement. Except as
permitted by this Agreement, Designs may not use any of the Marks (including any
colorable imitations thereof). Any authorized or unauthorized use will inure
solely to the benefit of Candies, and authorized or unauthorized use of the
Marks by Designs will not confer on Designs any interest in the Marks except as
granted in Section 2.1.
(b) Designs shall use and display the Marks only in such form and
manner as has been previously approved by Candies. Designs shall cause to appear
on all items that Designs uses in connection with Products or any materials in
which Products are packaged (including without limitation tags, labels, boxes,
and bags) such legends, markings, and notices as are required by law or by any
guidelines that Candies supplies to Designs. In determining whether it is
complying with any such legal requirements, Designs may rely exclusively on
guidelines that Candies supplies to Designs and is not required to make or cause
to be made any independent investigation into those legal requirements. Designs
shall not sell any Products bearing the Marks in combination with any other
trade name or trademark.
7.2 Registration. Without Candies' prior written consent, Designs shall
not seek or obtain any registration of the Marks (including any colorable
imitations thereof).
7.3 No Challenge. During the term of this Agreement and after termination
of this Agreement, Designs shall not, directly or indirectly, take any action
challenging, questioning, or opposing the validity of the Marks.
7.4 Infringement Suits. Candies shall use its best efforts to protect and
preserve its rights in the Marks and the right of Designs to use the Marks in
accordance with this Agreement, shall be vigilant in detecting any possible
infringements, claims, or actions in derogation of any Xxxx by any Person, and
shall promptly inform Designs of any such infringement, claim, or action that
could reasonably be expected to have a material adverse effect on Candies or
have an adverse effect on Designs' rights under this Agreement. Candies has the
sole right to determine whether to take any action on account of any such
infringement, claim, or action, and Designs shall not take any action on account
of such infringement, claim, or action without the prior written consent of
Candies. If Candies initiates any Proceedings on account of any such
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
infringement, claim, or action, it shall do so at its sole expense, and Designs
shall, at Candies' expense, cooperate with and assist Candies to the extent
reasonably necessary to protect the Marks, including without limitation by
providing witnesses and sworn affidavits.
7.5 Disclaimer and Waiver of Rights. Other than those rights it has under
this Agreement, Designs hereby waives any right it has or may acquire with
respect to the Marks, including without limitation any interest Designs acquire
through unauthorized use of the Marks.
Article 8
OTHER OBLIGATIONS
8.1 Competing Stores. Designs shall obtain Candies' written consent prior
to operating, or agreeing to operate, at any location in the Territory any
single-brand footwear store that competes materially with footwear Products,
except that nothing in this Section 8.1 in any way restricts Designs from
selling products bearing any brand owned or used by Levi Xxxxxxx & Co. or any of
its Affiliates.
8.2 Mass Merchandising Stores. Candies shall not sell any In-line Products
through mass merchandising stores, including without limitation Wal-Mart,
K-Mart, and Target stores.
8.3 Stock of Products. Throughout the term of this Agreement, Designs
shall use commercially reasonable efforts to offer at each of the Stores an
assortment of Product categories reasonably comparable to the assortment of
Product categories then offered by Candies in its concept stores.
8.4 Lease Restrictions. (a) Without Designs' consent, Candies shall not,
and shall cause its Affiliates to not, enter into any lease for a store selling
Products, or enter into an amendment to any currently existing or future such
lease, that contains a provision that has an adverse effect (by means of
financial penalties or otherwise) on Designs' right to establish and operate any
Store.
(b) Without Candies' consent, Designs shall not, and shall cause its
Affiliates to not, enter into any lease for an Outlet Store or Value Power
Store, or enter into an amendment to any such lease, that contains a provision
that has an adverse effect (by means of financial penalties or otherwise) on
Candies' right to establish and operate any store.
Article 9
REPRESENTATIONS
9.1 Representations of Designs. Designs represents to Candies as follows:
(a) Designs is a corporation validly existing and in good standing
under the law of the State of Delaware.
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omitted material had been filed with the Securities and Exchange
Commission.
(b) Designs' board of directors has duly authorized Designs to
execute and deliver this Agreement and perform its obligations under this
Agreement, and no other corporate proceedings of Designs are necessary with
respect thereto.
(c) This Agreement constitutes the valid and binding obligation of
Designs, enforceable in accordance with its terms, except as enforceability is
limited by (A) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally, or (B) general principles
of equity, whether considered in a proceeding in equity or at law.
(d) Execution and delivery of this Agreement by Designs and
performance by Designs of its obligations under this Agreement do not violate
any provision of its articles of incorporation or bylaws as currently in effect.
(e) Designs is not required to obtain the Consent of any Person,
including the Consent of any party to any Contract to which Designs is a party,
in connection with execution and delivery of this Agreement and performance of
its obligations hereunder
9.2 Representations of Candies. Candies represents to Designs as follows:
(a) Candies is a corporation validly existing and in good standing
under the law of the State of Delaware.
(b) Candies' board of directors has duly authorized Candies to
execute and deliver this Agreement and perform its obligations under this
Agreement, and no other corporate proceedings of Candies are necessary with
respect thereto.
(c) This Agreement constitutes the valid and binding obligation of
Candies, enforceable in accordance with its terms, except as enforceability is
limited by (A) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally, or (B) general principles
of equity, whether considered in a proceeding in equity or at law.
(d) Execution and delivery of this Agreement by Candies and
performance by Candies of its obligations under this Agreement do not (A)
violate any provision of its articles of incorporation or bylaws as currently in
effect, or (B) result in the creation of any Lien upon any of the Marks.
(e) Candies is not required to obtain the Consent of any Person,
including the Consent of any party to any Contract to which Candies is a party,
in connection with execution and delivery of this Agreement and performance of
its obligations hereunder.
(f) Candies is the sole owner of the Marks, has good and marketable
title to each of the Marks, free and clear of any Liens, and is authorized to
use the Marks in connection with operation of the Stores and Retail Sale of
Products in the Territory and to license the Marks to Designs for that use; no
other Person has the right to use the Marks in the Territory in connection with
the operation of stores, or departments in stores, or Retail Sale of Products in
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
stores, or departments in stores; use of the Marks as contemplated in this
Agreement will not infringe on any rights of any Person; and there are no
pending or, to Candies' knowledge, threatened Proceedings in the Territory
challenging the validity, effectiveness, or ownership of the Marks or any
outstanding Order relating to any of the Marks.
Article 10
INDEMNIFICATION
10.1 Indemnification. (a) Designs hereby indemnifies Candies, each
Affiliate of Candies, each Representative of Candies, and the heirs, executors,
successors, and assigns of any of the foregoing, against the following
Indemnifiable Losses:
(1) Indemnifiable Losses arising out of breach by Designs of any of its
obligations under this Agreement;
(2) Indemnifiable Losses arising out of any inaccuracy in any representations
of Designs contained in this Agreement;
(b) Candies shall indemnify Designs, each Affiliate of Designs, each
Representative of Designs, and the heirs, executors, successors, and assigns of
any of the foregoing, against the following Indemnifiable Losses:
(1) Indemnifiable Losses arising out of breach by Candies of any of its
obligations under this Agreement;
(2) Indemnifiable Losses arising out of any inaccuracy in any representations
of Candies contained in this Agreement;
(3) Indemnifiable Losses arising out of (A) any Proceedings challenging the
validity, effectiveness, or ownership of the Marks or claiming that the
Marks infringe on any rights of any Person or (B) any Order relating to
any of the Marks; and
(4) Indemnifiable Losses arising out of any defect in any Products sold to
Designs by Candies or any of its licensees, unless those Indemnifiable
Losses are due to breach by Designs of any of its obligations under this
Agreement or the negligence or willful misconduct of Designs or its
Representatives.
10.2 Procedures Relating to Third-Party Claims. (a) In order to be
entitled to indemnification under this Article 10 in connection with a claim
made by any Person against any other Person with respect to which that other
Person (an "Indemnified Party") is entitled to indemnification pursuant to this
Article 10 (any such claim, a "Third-Party Claim"), that Indemnified Party must
do the following:
(1) notify the Person or Persons obligated to indemnify it (the "Indemnifying
Party") in writing, and in reasonable detail, of that Third-Party Claim as
soon as possible but in any event within 20 Business Days after receipt of
notice of that Third-Party Claim, except
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
that any failure to give any such notification will only affect the
Indemnifying Party's obligation to indemnify the Indemnified Party if the
Indemnifying Party has been prejudiced as a result of that failure; and
(2) deliver to the Indemnifying Party as soon as possible but in any event
within 20 Business Days after the Indemnified Party receives them a copy
of all notices and documents (including court papers) delivered to that
Indemnified Party relating to that Third-Party Claim.
(b) In the event of a Third-Party Claim against one or more
Indemnified Parties, the Indemnifying Party may participate in the defense of
that Third-Party Claim and, if it so chooses, assume at its expense the defense
of that Third-Party Claim with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. If the Indemnifying Party so
elects to assume the defense of a Third-Party Claim, the Indemnifying Party will
not be liable to the Indemnified Party for any legal expenses subsequently
incurred by the Indemnified Party in connection with the defense of that
Third-Party Claim, except that if, under applicable standards of professional
conduct, there exists a conflict on any significant issue between the
Indemnified Party and the Indemnifying Party in connection with that Third-Party
Claim, the Indemnifying Party shall pay the reasonable fees and expenses of one
additional counsel to act with respect to that issue to the extent necessary to
resolve that conflict.
(c) If the Indemnifying Party assumes defense of any Third-Party
Claim, the Indemnified Party will be entitled to participate in the defense of
that Third-Party Claim and to employ counsel, at its own expense, separate from
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party will be entitled to control that defense. The Indemnifying
Party will be liable for the fees and expenses of counsel employed by the
Indemnified Party for any period during which the Indemnifying Party did not
assume the defense of any Third-Party Claim (other than during any period in
which the Indemnified Party failed to give notice of the Third-Party Claim as
provided above and a reasonable period after such notice).
(d) If the Indemnifying Party chooses to defend or prosecute a
Third-Party Claim, all the parties shall cooperate in the defense or prosecution
of that Third-Party Claim, including by retaining and providing to the
Indemnifying Party records and information reasonably relevant to that
Third-Party Claim, and making employees available on a reasonably convenient
basis.
(e) If the Indemnifying Party chooses to defend or prosecute any
Third-Party Claim, the Indemnified Party will agree to any settlement,
compromise or discharge of that Third-Party Claim that the Indemnifying Party
recommends, except that the Indemnifying Party may not without the Indemnified
Party's prior written consent agree to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term that
each claimant or plaintiff give to the Indemnified Party a release from all
liability with respect to that Third-Party Claim. Whether or not the
Indemnifying Party has assumed the defense of a Third-Party Claim,
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
the Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, that Third-Party Claim without the Indemnifying Party's
prior written consent.
10.3 Procedures Relating to Other Claims. In order for any Indemnified
Party to be entitled to any indemnification under this Agreement in respect of a
claim that does not involve a Third-Party Claim (a "Claim"), the Indemnified
Party must reasonably promptly notify the Indemnifying Party of that Claim, and
describe in reasonable detail the basis for that Claim, except that any failure
to give any such notification will only affect the Indemnifying Party's
obligation to indemnify the Indemnified Party if the Indemnifying Party has been
prejudiced as a result of that failure. If the Indemnifying Party does not
dispute that the Indemnified Party is entitled to indemnification with respect
to that Claim by notice to the Indemnified Party prior to the expiration of a
30-Business-Day period following receipt by the Indemnifying Party of notice of
that Claim from the Indemnified Party, that Claim will be conclusively deemed a
liability of the Indemnifying Party and the Indemnifying Party shall pay the
amount of that liability to the Indemnified Party on demand or, in the case of
any notice in which the amount of the Claim (or any portion thereof) is
estimated, on such later date as the amount of the Claim (or any portion
thereof) becomes finally determined. If the Indemnifying Party has timely
disputed its liability with respect to the Claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of the
Claim and, if the Claim is not resolved through negotiations within 60 Business
Days following receipt by the Indemnifying Party of notice of that Claim from
the Indemnified Party, the Indemnified Party may seek legal remedies by bringing
a Proceeding as provided in Section 13.6.
Article 11
OPTION TO PURCHASE
11.1 Outlet Store Option Trigger. (a) Upon occurrence of an Outlet Store
Option Trigger, Candies will be entitled to purchase all, and not less than all,
the assets of any one or more Outlet Stores, including but not limited to the
furniture, fixtures, equipment, inventory, and contract rights (including but
not limited to rights under any real property lease), on condition that Candies
also assumes the obligations (including but not limited to obligations under any
real property lease) of Designs relating to any Outlet Stores, the assets of
which Candies purchases under this Section 11.1(a). The purchase price for any
Outlet Store will be its book value, determined according to GAAP. If the
landlord's consent is necessary in order for Candies to be able to assume the
rights and obligations under the lease to any given Outlet Store, Designs shall
use commercially reasonable efforts to assist Candies in obtaining that consent.
Candies may not without Designs' prior written consent assume the lease to any
given Outlet Store unless the landlord releases Designs from all liability with
respect thereto.
(b) If either (A) Candies elects not to exercise the right provided
for in Section 11.1(a) with respect to any given Outlet Store or (B) the
landlord's consent is necessary in order for Candies to be able to assume
Designs' rights and obligations under the lease to that Outlet Store and the
landlord does not give its consent, Designs shall, with respect to that Outlet
Store, at Designs' discretion either (1) cease operating that Outlet Store and
liquidate any of that Outlet Store's inventory within six months after Candies'
exercise of the right provided for in
20
Section 11.1(a) or transfer any of that Outlet Store's inventory to another
Store, in which event Designs may thereafter operate or use the premises of that
Outlet Store for any other purpose, or (2) continue to operate that Outlet Store
for Retail Sale of the Products in accordance with the terms of this Agreement
for the remainder of the then-current term of the lease.
(c) An "Outlet Store Option Trigger" will be deemed to have occurred
if the following happens:
(1) for any Contract Year, the Average Retail Net Sales Volume of the Outlet
Stores for that Contract Year on an annualized basis is less than
$500,000;
(2) Designs has failed to open 15 Outlet Stores by the end of Contract Year 2;
or
(3) Designs has failed to open at least 20 Outlet Stores during either of the
two-year periods consisting of (A) Contract Year 3 and Contract Year 4 and
(B) Contract Year 4 and Contract Year 5.
(d) If Designs opens a number of Outlet Stores sufficient to more
than satisfy the requirements of Section 11.1(c)(2) or clause (A) of Section
11.1(c)(3), Designs may carry forward the excess in any manner that best serves
to satisfy the requirements of Section 11.1(c).
(e) Once Designs has opened 75 Outlet Stores, occurrence of any of
the events specified in Section 11.1(c)(2) and 11.1(c)(3) will no longer
constitute an Outlet Store Option Trigger.
11.2 Value Power Store Option Trigger. (a) Upon occurrence of a Value
Power Store Option Trigger, Candies will be entitled to purchase all, and not
less than all, the assets of any one or more Value Power Stores, including but
not limited to the furniture, fixtures, equipment, inventory, and contract
rights (including but not limited to rights under any real property lease), on
condition that Candies also assumes the obligations (including but not limited
to obligations under any real property lease) of Designs relating to any Value
Power Stores, the assets of which Candies purchases under this Section 11.2(a).
The purchase price for any Value Power Store will be its book value, determined
according to GAAP. If the landlord's consent is necessary in order for Candies
to be able to assume the rights and obligations under the lease to any given
Value Power Store, Designs shall use commercially reasonable efforts to assist
Candies in obtaining that consent. Candies may not without Designs' prior
written consent assume the lease to any given Value Power Store unless the
landlord releases Designs from all liability with respect thereto.
(b) If either (A) Candies elects not to exercise the right provided
for in Section 11.2(a) with respect to any given Value Power Store or (B) the
landlord's consent is necessary in order for Candies to be able to assume
Designs' rights and obligations under the lease to that Value Power Store and
the landlord does not give its consent, Designs shall, with respect to that
Value Power Store, at Designs' discretion either (1) cease operating that Value
Power Store and liquidate any of that Value Power Store's inventory within six
months after Candies' exercise of the right provided for in Section 11.2(a) or
transfer any of that Value Power
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
Store's inventory to another Store, in which event Designs may thereafter
operate or use the premises of that Value Power Store for any other purpose, or
(2) continue to operate that Value Power Store for Retail Sale of the Products
in accordance with the terms of this Agreement for the remainder of the
then-current term of the lease.
(c) A "Value Power Store Option Trigger" will be deemed to have
occurred if the following happens:
(1) for any Contract Year, the Average Retail Net Sales Volume of the Value
Power Stores for that Contract Year on an annualized basis is less than
$600,000;
(2) Designs has failed to open five Value Power Stores by the end of Contract
Year 2; or
(3) Designs has failed to open at least five Value Power Stores during either
of the two-year periods consisting of (A) Contract Year 3 and Contract
Year 4 and (B) Contract Year 4 and Contract Year 5.
(d) If Designs opens a number of Value Power Stores sufficient to
more than satisfy the requirements of Section 11.2(c)(2) or clause (A) of
Section 11.2(c)(3), Designs may carry forward the excess in any manner that best
serves to satisfy the requirements of Section 11.1(c).
(e) Once Designs has opened 25 Value Power Stores, occurrence of any
of the events specified in Section 11.2(c)(2) and 11.2(c)(3) will no longer
constitute a Value Power Store Option Trigger.
Article 12
TERMINATION
12.1 Termination. (a) This Agreement may be terminated as follows:
(1) by Candies upon 15 days' written notice to Designs if any representation
made in this Agreement by Designs was materially inaccurate when made and
that inaccuracy has contributed to Candies' incurring Indemnifiable
Losses;
(2) by Designs upon 15 days' written notice to Candies if any representation
made in this Agreement by Candies was materially inaccurate when made and
that inaccuracy has contributed to Designs' incurring Indemnifiable
Losses;
(3) by Candies immediately if Designs has materially breached any of its
obligations under this Agreement and either of the following applies:
(A) that breach can reasonably be cured within a 30-day period from the
date Candies notifies Designs of that breach and Designs has not
cured that breach prior to expiration of that 30-day period; or
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omitted material had been filed with the Securities and Exchange
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(B) that breach cannot reasonably be cured within that 30-day period and
Designs does not commence curing that breach within that 30-day
period and proceed diligently toward completing that cure, which
cure must in any event be completed prior to expiration of a 90-day
period from the date Candies notifies Designs of that breach;
(4) by Designs immediately if Candies has materially breached any of its
obligations under this Agreement and either of the following applies:
(A) that breach can reasonably be cured within a 30-day period from the
date Designs notifies Candies of that breach and Candies has not
cured that breach prior to expiration of that 30-day period; or
(B) that breach cannot reasonably be cured within that 30-day period and
Candies does not commence curing that breach within that 30-day
period and proceed diligently toward completing that cure, which
cure must in any event be completed prior to expiration of a 90-day
period from the date Designs notifies Candies of that breach;
(5) by Candies immediately if there occurs a Bankruptcy Event with respect to
Designs;
(6) by Designs immediately if there occurs a Bankruptcy Event with respect to
Candies; and
(7) by Designs immediately if any Person other than Designs or, pursuant to
Section 3.3(a) or 4.4(a), Candies uses the Marks in the Territory in
connection with the operation of, or Retail Sale of Products in, stores,
or departments in stores, in any Outlet Centers or Value Power Centers and
(1) Candies consents to that use, (2) Candies fails to use best efforts to
cause, by means of Proceedings against that Person or otherwise, that
Person to terminate that use, or (3) that use continues for six months or
more after Candies became aware of that use.
(b) Designs may for any reason other than one of those specified in
Section 12.1(a) unilaterally terminate this Agreement at any time upon three
months' notice to Candies, and the parties may terminate this Agreement at any
time by written agreement.
12.2 Liability After Termination. Termination of this Agreement for any
reason will not, unless otherwise expressly provided in this Agreement, affect
either party's obligations accrued prior to the effective date of termination or
any obligations that, either expressly or from the context of this Agreement are
intended to survive termination of this Agreement, including without limitation
those contained in Article 10.
12.3 Effects of Termination. (a) Upon any termination of this Agreement
pursuant to Section 12.1(a)(1), 12.1(a)(3), 12.1(a)(5), or 12.1(b), Candies will
be entitled to purchase all, and not less than all, the assets of any one or
more Stores, including but not limited to the furniture, fixtures, equipment,
inventory, and contract rights (including but not limited to rights under any
real property lease). The purchase price for any Store will be its book value,
determined
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according to GAAP. If the landlord's consent is necessary in order for Candies
to be able to assume the lease to any given Store, Designs shall use
commercially reasonable efforts to assist Candies in obtaining that consent.
(b) If Candies elects not to exercise the right provided for in
Section 12.3(a) with respect to any given Store, Designs shall, with respect to
that Store, cease operating that Store and liquidate that Store's inventory
within six months after the date of termination, and Designs may thereafter
operate or use the premises of that Store for any other purpose. During any such
liquidation, the License will continue in effect and Designs will continue to be
bound by the terms of Article 7.
(c) Upon any termination of this Agreement pursuant to Section
12.1(a)(2), 12.1(a)(4), 12.1(a)(6), or 12.1(a)(7) (excluding clause (3)
thereof), Candies shall purchase the assets of all Stores, including but not
limited to the furniture, fixtures, equipment, inventory, and contract rights
(including but not limited to rights under any real property lease) and shall
assume the obligations of all Stores (including but not limited to obligations
under any real property lease). The purchase price for the assets of each Store
will be eight times the aggregate cashflows from that Store; for purposes of
this Section 12.3(c), a Store's cashflow means its gross margin generated from
retail sales (after considering among other things, markdowns and inventory
shrinkage), less Store expenses, including occupancy expenses, payroll costs and
other direct operating expenses of the store. If the landlord's consent is
necessary in order for Candies to be able to assume Designs' rights and
obligations under the lease to any given Store, Designs shall use commercially
reasonable efforts to assist Candies in obtaining that consent. If the landlord
does not permit Candies to assume Designs' rights and obligations under the
lease to any given Store, Candies shall sublease the Store premises from Designs
and shall indemnify Designs from any liabilities (including liabilities under
the lease) arising from breach by Candies of the terms of the sublease. If the
landlord does not permit Candies to either assume Designs rights and obligations
under the lease to any given Store or sublease the Store premises from Designs,
Candies shall reimburse Designs, on a monthly basis, for all rental payments and
any other costs whatsoever that Designs incurs under the lease for that Store
(excluding any costs arising from damages to the Store premises caused by
willful misconduct of Designs), less any revenues that Designs derives from
subleasing those Store premises. Candies may not without Designs' prior written
consent assume the lease to any given Store under this Section 12.3(c) unless
the landlord releases Designs from all liability with respect thereto.
(d) The following will also apply upon termination:
(1) neither party will be liable to the other for either compensation or
damages of any kind on account of consequential damages, including without
limitation loss by the other party of present or prospective profits on
present or prospective sales, investments, or goodwill;
(2) within 20 days after termination each party shall either return to the
other party or destroy or otherwise dispose of, as other party elects, any
materials containing Confidential Information of the other party that are
in that party's possession, except that Designs may retain during any
liquidation provided for in Section 12.3(b) any Confidential Information
of Candies that Designs reasonably needs during that liquidation; and
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omitted material had been filed with the Securities and Exchange
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(3) Designs will be entitled to any security deposit reimbursed by the
landlord of any leased Store.
12.4 Exclusive Remedy. Upon termination of this Agreement pursuant to any
of clauses (1) through (4) of Section 12.1(a), Sections 12.3(a) and 12.3(c) will
provide the exclusive remedy for breach of any obligation under, or inaccuracy
of any representation made in, this Agreement and neither party may bring a
claim, under Article 10 or otherwise, for damages as a result of any such breach
or inaccuracy.
Article 13
MISCELLANEOUS
13.1 Approval of Materials. Designs acknowledges that Candies' policy is
to create and maintain a uniform concept and image for Products. Designs shall
obtain Candies' written consent, which Candies may not unreasonably withhold,
condition, or delay, to any Designs advertising, marketing, signage, and
point-of-purchase materials relating to Products before Designs uses those
materials.
13.2 Books and Records; Audits. (a) Designs shall maintain, and shall
retain for at least two years following termination of this Agreement or as long
as is required by tax Laws, whichever period is shorter (that shorter period,
the "Retention Period"), complete and accurate books of account and records
relating to its purchase and sale of Products and payment of any royalties
thereon. During the Retention Period, Designs shall permit authorized
Representatives of Candies to examine or audit those books of account and
records, except that any such examination or audit may be conducted no more than
once in any year (beginning January 1st) during normal business hours and after
at least 20 days' advance notice stating clearly the period of time that is the
subject of that examination or audit.
(b) If, as a result of any examination or audit of Designs' books
and records or otherwise it is determined that with respect to any year
(beginning January 1st) Designs paid Candies in the aggregate 3% less than the
amount it was required to pay Candies under this Agreement during that year,
Designs shall no later than 30 days after that determination pay Candies that
shortfall and reimburse Candies all reasonable out-of-pocket costs incurred by
Candies in connection with any examinations or audits made in connection with
that determination.
13.3 Governing Law. This Agreement is governed by the laws of the State of
New York, without giving effect to principles of conflict of laws.
13.4 Consent of Candies. (a) For purposes of this Agreement, any reference
to Candies granting consent to Designs refers to the consent of the chief
executive officer of Candies.
(b) If under this Agreement Designs is required to obtain Candies'
prior written consent, Candies will be deemed to have given its consent if in
the five Business Days
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omitted material had been filed with the Securities and Exchange
Commission.
after Designs seeks its consent Candies fails to notify Designs whether it is
granting or withholding its consent.
13.5 Confidential Information. During the term of this Agreement, either
party may come into possession of Confidential Information of the other party.
During the term of this Agreement and for three years afterwards, each party
shall maintain in strict confidence and shall not publish, use (except as
permitted under this Agreement), or disclose to Person, except to those of its
Representatives who must have access to it in order for that party to exercise
its rights under this Agreement, or as expressly permitted by any written
agreement between Designs and Candies, or as required by Law, any Confidential
Information. Designs accepts that during that time Confidential Information of
Candies must be kept confidential and separate from any other business Designs
owns. Each party shall take every reasonable precaution to protect the
confidentiality of the Confidential Information, consistent with the higher of
(1) the standard of care that that party exercises with respect to its own
confidential information and (2) the standard of care that an ordinarily prudent
business would exercise to protect its own confidential information.
13.6 Jurisdiction; Service of Process. Any Proceeding seeking to enforce
any provision of, or based on any right arising out of, this Agreement must be
brought against any of the parties in the courts of the State of New York,
County of New York, or, if it has or can acquire jurisdiction, in the United
States District Court for the Southern District of New York, and each of the
parties consents to the jurisdiction of those courts (and of the appropriate
appellate courts) in any such Proceeding and waives any objection to venue laid
therein. Process in any such Proceeding may be served by sending or delivering a
copy of the process to the party to be served at the address and in the manner
provided for the giving of notices in Section 13.7. Nothing in this Section
13.6, however, affects the right of any party to serve legal process in any
other manner permitted by law.
13.7 Notices. Every notice or other communication required or contemplated
by this Agreement must be in writing and sent by one of the following methods:
(1) personal delivery, in which case delivery is deemed to occur the day of
delivery; (2) certified or registered mail, postage prepaid, return receipt
requested, in which case delivery is deemed to occur the day it is officially
recorded by the U.S. Postal Service as delivered to the intended recipient; (3)
next-day delivery to a U.S. address by recognized overnight delivery service
such as Federal Express, in which case delivery is deemed to occur upon receipt;
or (4) facsimile transmission, with written confirmation from the recipient of
receipt of the transmission, in which case delivery is deemed to occur on the
day of transmission (if transmitted by 5:00 p.m. New York time on a Business
Day) or the next Business Day (if transmitted any other time). In each case, a
notice or other communication sent to a party must be directed to the address
for that party set forth below, or to another address designated by that party
by written notice:
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omitted material had been filed with the Securities and Exchange
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If to Candies, to:
Candie's, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
If to Designs, to:
Designs, Inc.
00 X Xxxxxx
Xxxxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
13.8 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
13.9 Amendment; Waiver. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties. No waiver
by any party of any breach by any party of any of its obligations under this
Agreement or any inaccuracy in any representation by any party in this Agreement
will be deemed to extend to any other breach or inaccuracy or affect in any way
any rights arising by virtue of any other breach or inaccuracy.
13.10 Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement between the parties
pertaining to the subject matter of this Agreement and supersede all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, of the parties, including without limitation the term sheet executed on
or about November 19, 2001, by Candies and Designs.
13.11 Counterparts. This Agreement may be executed in several
counterparts, each of which is an original and all of which together constitute
one and the same instrument.
13.12 Assignment. (a) No party may assign any of its rights and
obligations under this Agreement without the prior consent of the other parties,
except as follows:
(1) Designs may at any time assign to any Affiliate of Designs any of its
rights and obligations under this Agreement, on condition that
concurrently with that assignment Candies, Designs, and that Affiliate
enter into an amendment to this Agreement that (A) makes that Affiliate a
party to this Agreement, (B) provides that Designs guarantees performance
by that Affiliate of the assigned obligations, and (C) incorporates any
changes reasonably required to reflect that assignment; and
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Commission.
(2) Candies may at any time assign to any Affiliate of Candies any of its
rights and obligations under this Agreement, on condition that
concurrently with that assignment Designs, Candies, and that Affiliate
enter into an amendment to this Agreement that (A) makes that Affiliate a
party to this Agreement, (B) provides that Candies guarantees performance
by that Affiliate of the assigned obligations, and (C) incorporates any
changes reasonably required to reflect that assignment.
(b) This Agreement is binding in all respects upon, and inures to
the benefit of, the successors and permitted assigns of the parties.
The undersigned are executing this Agreement on the date stated in the
introductory clause.
CANDIE'S, INC.
By: /s/ XXXX XXXX
--------------------------------------------
Name: Xxxx Xxxx
Title: President
DESIGNS, INC.
By: /s/ XXXXX X. XXXXX
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Name: Xxxxx X. Xxxxx
Title: President
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* Material omitted pursuant to a request for confidential treatment. The
omitted material had been filed with the Securities and Exchange
Commission.
