[Xxxxx Xxxxxxx Letterhead]
January 7, 2004
Xx. Xxxx Xxxx
Blue Concepts, LLC
0000 X. Xxxxxxx Xxx.
Commerce, CA 90040
Dear Xx. Xxxx:
Based upon the previous discussions between you and Xxxxxxx Xxxxx, this
letter details the terms and conditions of the new license between X.X. Xxxxx,
Inc., a New York corporation with its principal place of business located at 000
Xxxxxxx Xxxxxx, 00xx Xxxxx Xxx Xxxx, XX 00000 ("Licensor") ad Blue Concepts, LLC
a California limited liability company with its principal place of business
located at 0000 X. Xxxxxxx Xxxxxx, Xxxxxxxx, XX 00000 (Licensee").
1. The term of the license will be four years, with the initial year
comprising eighteen months to allow for initial development and launch (the
"Initial Term"). Year one shall commence on January 7, 2004 and shall end on
June 30, 2005. Each subsequent year shall commence immediately upon the
expiration of the prior year. Years two through four will be twelve-month years.
The first shipping season will be for Fall 2004 merchandise.
Should both Licensor and Licensee be satisfied with the relationship,
this agreement will be renewed for an additional three-year term (the "Renewal
Term"). The parties agree to negotiate in good faith the minimum guarantied
royalties and minimum net sales for the Renewal Term beginning 120 days prior to
the expiration of the Initial Term.
2. The approved categories are women's jeans and coordination jeans
related separates, such as t-shirts and tops. The Licensee will have exclusive
distribution and selling rights for the approved categories during the Initial
Term and any Renewal Term of the agreement.
3. The approved territory is the United States of America (U.S.), U.S.
territories such as Puerto Rico and the Virgin Islands, and Canada (the
"Territory"). Additional territories may be added to this agreement from time to
time, as specifically requested by Licensee and approved by Licensor.
4. The approved account distribution is limited to those better
department and specialty stores that are consistent with the brand image of
Xxxxx Xxxxxxx. A specific account distribution list must be submitted by the
Licensee to the Licensor for approval and inclusion in this agreement, and shall
be attached as an addendum. Any additions to this list must be approved in
advance in writing by the Licensor. Any discounters to whom licensee wishes to
sell must also be designated on this list.
5. Final approval of preliminary conception of collection, initial
design, pre-production samples, production samples, labels, hangtags,
promotional materials, and all items bearing the Xxxxx Xxxxxxx trademark, logo,
or images rest exclusively with the Licensor.
For each item that requires an approval, the Licensee will provide the
Licensor with two samples along with a written request for approval. Licensor
will respond within 7 business days of receipt of any such request. Approvals
will not be unreasonably withheld and denials or requests for changes will be
made in a good faith, cooperative manner.
6. The Licensee is required to pay minimum guaranteed royalties ("MGR")
based upon the following schedule:
Upon signing of this agreement: $50,000
December 31, 2004 $50,000
March 31, 2005 $50,000
June 30, 2005 $50,000
September 30, 2005 $70,000
December 31, 2005 $70,000
March 31, 2006 $70,000
June 30, 2006 $70,000
September 30, 2006 $90,000
December 31, 2006 $90,000
March 31, 2007 $90,000
June 30, 2007 $90,000
September 30, 2007 $110,000
December 31, 2007 $110,000
March 31, 2008 $110,000
June 30, 2008 $110,000
MGR's are based upon the payment of an eight percent (8%) royalty on
Net Sales. The term "Net Sales" shall mean gross sales less trade discounts
actually extended, merchandise returns actually credited, sales taxes or VAT
taxes, and shipping or freight charges invoiced by Licensee. The "Minimum Net
Sales" requirements are set forth below:
July 1, 2004-June 30, 2005 $2,500,000
July 1, 2005-June 30, 2006 $3,500,000
July 1, 2006-June 30, 2007 $4,500,000
July 1, 2007-June 30, 2008 $5,500,000
7. The royalty rate for Net Sales that fall between $10,000,000 and
$15,000,000 in a twelve month contract period will be calculated at seven (7%).
The royalty rate for Net Sales in excess of $15,000,000 in a twelve month
contract period will be calculated at six (6%).
8. Licensee is required to spend 2% annually of the Minimum Net Sales
on advertising and promotion. On an annual basis, Licensee must submit to
Licensor for Licensor's review an advertising and promotion budget.
9. Licensee will be required to submit to the Licensor on a quarterly
basis reports that detail Net Sales (the "Quarterly Report"). These Quarterly
Reports must also include invoice number, sku number, product description, and
customer name.
10. The Licensee will be required to submit and annual reconciliation
of all Net Sales based upon the information provided in the Quarterly Reports no
later than July 31st of each year of the agreement (the "Annual Report").
Any royalties that are due as a result of sales exceeding the Minimum
Net Sales shall be paid according to the appropriate royalty rate concurrent
with submissions of the Annual Report.
11. Sales to the discounters approved in accordance with Paragraph 4
above shall be capped at a maximum of 22% of total Net Sales on an annual basis.
A "discount" or "off-price sale" is defined as a sale priced greater than or
equal to 25% off the wholesale list price.
Discounted sales shall be added to non-discounted sales to determine
total Net Sales. However, discounted sales that exceed the 22% maximum will be,
for the purpose of calculating the amount of royalties due to Licensor, "grossed
up" to full wholesale value.
12. Licensor is allowed to purchase licensed products from Licensee for
distribution in its own retail boutiques at a price of 40% off of published
wholesale line price for such items. No royalties will be due on purchase made
directly by Licensor and the totals of such sales shall not be added the Net
Sales for the purpose of determining Minimum Net Sales.
13. The Licensee is required to hire personnel of a sufficiently high
caliber in the design, merchandising, and sales area to execute the terms and
conditions of this agreement.
14. Licensee shall establish a separate showroom reflecting the status
and brand image of the Licensor for the promotion and sale of the licensed
products. Licensor shall have final approval of the design and conception of the
showroom.
15. As an inducement to enter into this agreement, Xxxx Xxxx shall
provide a personal guaranty for the contractually obligated royalty payment set
forth above.
In conclusion, we look forward to working with you and your
organization to build what I am confident will be a strong partnership and a
mutually beneficial relationship. Towards that end, please indicate your
agreement with the terms and conditions as outlined above by signing in the
appropriate place.
Please do not hesitate to contact me or Xxxxxxx Xxxxx with any questions of
comments. I may be reached at (000) 000-0000 or at xxxxxx@xxxxxxxxxxxxx.xxx.
Sincerely,
/s/ Xxxxx Xxxxx
Xxxxx Xxxxx
Chief Financial Officer
I have read the terms and conditions above and hereby agree to them:
For the Licensor: For the Licensee:
/s/ Xxxxxxx Xxxxx /s/ Xxxx Xxxx
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Xxxxxxx Xxxxx Xxxx Xxxx
Vice President / Owner Manager and Member
X.X. Xxxxx, Inc. Blue Concept, LLC
January 8, 2004 January 8, 2004
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Date Date
