Exhibit 10.96
DEAL MEMORANDUM
February 12, 2003
The following sets forth the basic deal terms of an
agreement (this "Agreement") between Blondie Rockwell, Inc.,
a New York corporation ("Licensor") and Innovo Azteca
Apparel, Inc., a California corporation ("Licensee") with
respect to the licensing to Licensee of the rights to
utilize certain intellectual property owned by Licensor in
connection with the manufacture, distribution, advertising,
promotion and sale of certain products and merchandise
described below:
1. Licensed Products: Casual apparel for women and
Juniors sizes 0-14 (but excluding infants) including,
without limitation, non-excluded sportswear of every fit,
fabric and style including bottoms, tops, sweaters,
activewear, sportswear, jackets and outerwear, in all fabric
contents, including knits, wovens, leather and denim, and
(ii) accessories in the nature of all purpose sports and
athletic bags, backpacks, knapsacks, hand bags, purses,
hats, hair accessories (including headbands and scarves),
small accessories in the nature of wallets, billfolds, key
chains, coin purses, wristlets, notepadholders, change
purses, pencil cases, PDA cases and small journals cases
("Accessories"). Notwithstanding the foregoing, the
following categories are excluded: all swimwear, lingerie
and footwear. Notwithstanding anything to the contrary
herein, Licensor hereby reserves the right to manufacture,
distribute and sell tour merchandise (in the nature of T-
shirts, hats, sweatshirts, backpacks, bags, etc.) on tour
and at retail stores which sell tour merchandise.
The definition of Licensed Products shall be expanded
to include barrettes, hair pins, clasps and ponytail holders
at such time as Licensor notifies Licensee that such items
are cleared for exploitation in the Territory in connection
with the Licensed Mark.
2. Licensed Mark: `Fetish' and related marks.
3. Territory: United States. Licensee shall have a
right of first refusal for additional territories.
4. Licensed Channels of Distribution: Better department
and specialty stores.
5. Initial Term, Renewals and Guaranteed Minimums: Three
(3) years with the first year being 18 months. Guaranteed
Minimum Net Sales in year one $8,000,000; year two
$10,000,000; year three $12,000,000. Guaranteed Minimum
Royalty is 8% of Guaranteed Minimum Net Sales in each of the
first three years are payable as follows: year one $640,000
($100,000 of which is due on execution hereof and an
additional $100,000 shall be due 60 days from the execution
hereof) and three additional quarterly payments of
$146,666.66 each due and payable beginning with the start of
the first quarter following the first date that commercially
reasonable quantities of Licensed Products are shipped,
which date shall be no later than 6 months following
execution hereof; year two $800,000 payable $200,000 at the
start of each quarter in the second year of the Initial
Term; year three $960,000 payable $240,000 at the start of
each quarter in the third year of the Initial Term. The
foregoing advances are against the Guaranteed Minimum Net
Sales in each annual period of the Initial Term. Each year
thereafter, 25% of the Guaranteed Minimum Royalties for such
year shall be payable at the start of each quarter of such
year during the remainder of the term, in the event Licensee
exercises a Renewal Term Option in accordance with the terms
below. To the extent that actual sales are higher, Licensee
will make up the difference in each quarter. Licensee shall
be entitled to two Renewal Term Options of 3 years each (a
"Renewal Period") provided that the Renewal Term Option is
exercised no later than 6 months before the end of the
Initial Term or first Renewal Term (if applicable) further
provided Licensee is not in default and further provided
that the aggregate Net Sales in the Initial Term are
$30,000,000 for purposes of the first Renewal Option, and
aggregate Net Sales in the first Renewal Term are
$52,500,000 for purposes of the second Renewal Option,
unless Licensor waives the $30,000,000 aggregate Net Sales
figure requirement at the time the first Renewal Option is
exercisable, and if applicable, Licensor waives the
$52,500,000 aggregate Net Sales figure requirement at the
time the second Renewal Option is exercisable; provided,
however, that (i) in the event that Licensor is not in
default and has achieved at least $20,000,000 in aggregate
Net Sales during the Initial Term, Licensor shall have a
right of first refusal to renew the Agreement for the first
Renewal Term on material terms at least equal to a third
party offer received by Licensor, within fifteen (15) days
notice to Licensee of such offer; (ii) in the event that
Licensor is not in default and has achieved at least
$30,000,000 in aggregate Net Sales during the first Renewal
Term, Licensor shall have a right of first refusal to renew
the Agreement for the second Renewal Term on material terms
at least equal to a third party offer received by Licensor,
within fifteen (15) days notice to Licensee of such offer,
and (iii) in the event that Licensor is not in default and
has achieved at least $40,000,000 in aggregate Net Sales
during the second Renewal Term, Licensor shall have a right
of first refusal to renew the Agreement following the end of
the second Renewal Term on material terms at least equal to
a third party offer received by Licensor, within fifteen
(15) days notice to Licensee of such offer. The Guaranteed
Minimum Net Sales in the Renewal Terms are as follows: year
four $15,000,000; year five $17,500,000; year six
$20,000,000; year seven $25,000,000; year eight $25,000,000;
year nine $25,000,000. Royalties payable for any year
during the Initial Term which are in excess of the
Guaranteed Minimum Royalties for that year, may be applied
to reduce the Guaranteed Minimum Royalties for any
subsequent year during the Initial Term.
For example, in the event Licensee achieves Net Sales
in the aggregate amount of $30,000,000 during the first year
of the Initial Term, Licensee may apply such excess Net
Sales ($22,000,000) to reduce the Guaranteed Minimum Net
Sales to zero in the second and third years of the Initial
Term. Moreover, Licensee shall not be required to remit
Guaranteed Minimum Royalty payments to Licensee for the
balance of the Initial Term under the foregoing scenario,
but would be required to remit Royalties to Licensor based
on Net Sales in the second and third years of the Initial
Term. By way of further example, in the event Licensee
achieves Net Sales in the aggregate amount of $9,000,000
during the first year of the Initial Term, Licensee's
Guaranteed Minimum Net Sales would be reduced in the second
year of the Initial Term from $10,000,000 down to
$9,000,000, and Licensee's Guaranteed Minimum Royalty
Advance to Licensor in the second year of the Initial Term
would be reduced from $800,000 down to $720,000, payable in
equal quarterly installments. Under this scenario, the
third year of the Initial Term would be unaffected by the
surplus Net Sales in the first year of the Initial Term. In
no event will Royalties payable during the Initial Term
which are in excess of the Guaranteed Minimum Royalties for
the Initial Term be applied to reduce the Guaranteed Minimum
Royalties for any Renewal Period. Moreover, the formulation
described herein shall only be applicable to the Initial
Term and not to any Renewal Terms hereunder.
Notwithstanding anything to the contrary herein, the
Guaranteed Minimum Royalties payable for each year of the
Initial Term, including the Renewal Term if the term is
extended, will be due and payable in full whether or not
this Agreement is hereafter terminated before completion of
such year. In the event of termination of this Agreement by
Licensor on account of a breach of this Agreement by
Licensee, the entire unpaid amount of the Guaranteed Minimum
Royalties payable for the 12 month period following the date
of such termination will be due and payable on the date of
such termination of this Agreement, notwithstanding that
surplus Net Sales had been achieved in any prior year of the
Initial Term.
6. Royalty Rate: (a) Eight percent (8%) of all Net Sales;
one percent (1%) of which (including Advances on account of
Guaranteed Minimum Royalties) shall be paid directly to Xxxx
Xxxxxx as a Management Fee.
(b) Licensee shall be entitled to receive fifteen percent
(15%) of royalties received by Licensor from any other
licensee of Licensor of the Licensed Mark only if Licensee
first introduces such third party licensee to Licensor and
Xxxxxxxx enters into a license agreement with such third
party Licensee during the term of this Agreement.
7. Advertising Royalty Payment: Two percent (2%) of
all Net Sales (the
"Advertising Payment") with Guaranteed quarterly advances
against the Guaranteed Minimum Advertising Payment (defined
as 2% of Minimum Net Sales) which are 25% of the Guaranteed
Minimum Advertising Payment in each annual period of the
Initial Term. Fifty percent (50%) of the Advertising
Payment shall be paid directly to Licensor. Xxxxxxxx
agrees to spend the other fifty percent (50%) of the
Advertising Payment during each year of the Term hereof on
advertising and promoting the Licensed Products in the
Territory. All advertising and promotional materials shall
be subject to Licensor's approval in accordance with Section
13 hereunder.
9. Licensor's Promotional Commitment:
(i) in kind services in the nature of personal
appearances by the artist professionally known as Xxx.
Specifically:
(a) Licensor shall cause Eve to be available at
reasonable times for the purpose of appearing at trade
shows, photo shoots, openings or other special events to
endorse and promote the sale of Licensed Products, subject
to Xxx's professional or personal schedule and no more than
three (3) times per year. The parties hereto shall cooperate
with each other to arrange such personal appearances at
times and places reasonably acceptable to Xxx, provided Xxx
is in good health and provided further that Licensee shall
provide Licensor and Eve with at least twenty (20) days
prior written notice to request that Xxx make an appearance
in accordance with this Section.
(b) In such instances in which Licensee shall
request Eve to travel to a location outside of New York, or
to a location other than the location where he is located
immediately prior to her appearance, Licensee shall provide
Eve and at least one representative first class airfare,
meals, five-star hotel accommodations and local
transportation.
(c) Licensor shall use its commercially reasonable
efforts to cause Eve to wear the Licensed Products at
reasonably appropriate professional engagements and personal
appearances, subject to any limits placed upon her by any
third party. Licensor covenants on behalf of Eve that Xxx
shall not endorse or promote any other apparel brand.
Licensor shall not be in breach of this Agreement in the
event any sponsors of any events in which Eve participates,
including but not limited to tours, television programs,
special events, etc., are apparel brands or companies or in
the event Eve has a passive, de minimus interest in any
competitive brand or company.
(d) If (i) during the five (5) years following
execution of this Agreement, Xxx retires; or (ii) during the
Initial Term Eve is convicted of a felony which involves a
violent crime, the Licensee will have the right, for a
period of ninety (90) days after such conviction or
retirement, to terminate this Agreement, effective upon
fifteen (15) days advance written notice to the Licensor.
After the expiration of such ninety (90) day period,
Licensee shall no longer have the right to terminate this
Agreement pursuant to this Section. For purposes hereof,
Xxx shall be deemed to have "retired" (i) twelve (12)
consecutive months following Xxx's announcement to the
public of Xxx's intention to discontinue all future music
recordings and musical performances, during which twelve
(12) month period Xxx neither performs nor records music or
participates in first run television performances or feature
film performances or (ii) twelve (12) consecutive months
following the later of Xxx's last music recording or
musical, television or feature film performance, provided
such failure by Xxx to record or perform is not as a result
of her incapacity due to illness or similar considerations.
10. Advance: Licensee shall pay to Licensor an advance in
the amount of $100,000 upon execution of this Agreement
against the Guaranteed Minimum Royalty due in the first
annual period of the Initial Term, and a further advance of
$12,000 against the Guaranteed Advertising Payment due in
the first year of the Initial Term. In addition, Licensee
shall pay to Licensor 60 days following the execution of
this Agreement an advance in the amount of $100,000 against
the Guaranteed Minimum Royalty due in the first year of the
Initial Term, and a further advance of $12,000 against the
Guaranteed Minimum Advertising Payment due in the first year
of the Initial Term.
11. Net Sales: the gross invoice or contract price charged
for Licensed Products by Licensee, less only (1) refunds,
credits and allowances actually made or allowed to customers
for returns or in lieu of returns, and (2) customary trade
discounts (including co-op advertising, volume discounts or
other allowances), excluding anticipations afforded to and
actually taken by customers in payment for Licensed
Products; provided, however, that the aggregate deductions
for all of the aforesaid items as provided in subsections
(1) and (2) shall in no event exceed (a) seventeen and one
half (17.5%) percent of sales of Licensed Products in the
first year of the Initial Term, and (b) twelve and one half
(12.5%) percent during any year thereafter during the term .
In computing Net Sales, no costs incurred in manufacturing,
selling, advertising or distributing the Licensed Products
and no indirect expenses shall be deducted, nor shall there
be any deduction for uncollectible accounts.
12. MAGIC Show: Licensee to attend MAGIC Show at least once
per year and to pay for booth that is subject to Licensor
approval. Attendance at least one other major trade show,
to be mutually agreed upon by the parties hereto, and other
reasonably appropriate trade shows required as well.
Licensee's payment and expenses in connection with such
shows may not be applied to reduce any other payment due to
Licensor hereunder.
13. Quality Control: (a) Licensee shall submit to Licensor
and Licensor shall have the right to inspect and approve,
design concepts, pre-production and first-run production
samples of Licensed Products with respect to their design
and quality and all advertising and promotional materials in
connection therewith. Licensor shall approve or disapprove
any submitted item within five (5) business days after
receipt by Licensor. If Licensor has not notified Licensee
of its approval or disapproval within such five (5) business
day period, the item shall be deemed disapproved by
Licensor. In such event, however, following such five (5)
business day period, Licensee shall be entitled to provide
to Licensor a written reminder as to the Licensor's failure
to approve or disapprove such submitted item and in the
event that Licensor fails to notify Licensee of its approval
or disapproval of the submission referred to in such
reminder within three (3) business days of its receipt
thereof then such submission shall be deemed to be approved.
(b) Licensor shall have the right to approve of the
selection of the head designer
of the Licensed Products in its sole discretion.
14. Manufacture: All manufacture of Licensed Products
shall be in accordance with all applicable laws, rules and
regulations. Manufacture of Licensed Products may only be
undertaken directly by Licensee. No sublicensing permitted
without prior written approval of Licensor. Notwithstanding
the foregoing sentence, Licensee shall have the right to
sublicense the accessory category of Licensed Products to
Innovo, Inc., its affiliate subsidiary, provided: (1) that
such sublicensee shall be subject to all of the terms and
conditions of this Agreement and execute all documents
reasonably required by Licensor in connection therewith, (2)
Licensee covenants on behalf of such sublicensee that all
manufacture of Licensed Products shall be in accordance with
all applicable laws, rules and regulations, and (3) no
reduction in any amounts due and payable to Licensor shall
be reduced in any way due to such sublicense.
15. Insurance: The Licensee shall obtain, at its own
expense, product liability insurance from a recognized
insurance company, providing adequate protection with a
limit of liability (in addition to costs of defense) of not
less than Three Million ($3,000,000.00) Dollars per
occurrence, insuring, without limitation, against any
claims, suits, losses or damages arising out of any alleged
defects in the Licensed Products, including actions for
breach of warranty, negligence and strict liability in tort.
Licensee shall provide Licensor with a certificate
evidencing the paid policy naming the Licensor as an insured
party.
16. Books and Records: Licensee shall maintain separate and
appropriate books of account and records, in connection with
this Agreement all in accordance with generally accepted
accounting principles (including, without limitation, a
sales journal, sales return journal, cash receipt book,
general ledger, purchase orders, cutting tickets, and
inventory records) and shall make accurate entries
concerning all transactions relevant to this Agreement.
Licensee shall have the right to inspect such books and
records at reasonable times upon reasonable notice.
17. Trademark and Trademark Protection. Licensee
acknowledges that Licensor is the sole owner of the Licensed
Mark. Sales by Licensee hereunder shall be deemed to have
been made for purposes of trademark registration for the
benefit of Licensor, and all uses of the Licensed Mark by
Licensee shall inure to the benefit of Licensor, and
Licensee shall execute any documents, including registered
users agreements, reasonably required by Licensor to confirm
its ownership of all rights in and to the Licensed Mark in
the Territory and the respective rights of Licensor and
Licensee under this Agreement. Licensee assigns to Licensor
to the extent of its interests the entire copyright and all
other rights to all artwork, text, etc. in the materials
involving the Licensed Mark and Licensed Property created by
Licensee or its agents in connection with this Agreement.
18. Indemnification: Licensor shall indemnify Licensee for
trademark infringement as long as Licensed Mark is used in
the ordinary course and only in accordance with this
Agreement. Licensee shall indemnify Licensor for any
damages arising out of any alleged defects in the Licensed
Products, any unauthorized use in connection therewith or
the failure to comply with any of the terms hereof.
19. Termination: Licensor may terminate this Agreement
prior to the expiration of the Initial Term in the event
that Licensee fails to timely introduce the Licensed
Products into the Territory, cease manufacture for more than
six (6) months, or fails to comply with any of the material
terms and conditions hereof.
20. Governing Law: New York.
21. Assignment: This Agreement may not be assigned by
either party without the prior written consent of the other
party.
22. No Joint Venture: Nothing herein contained shall be
construed to have the effect of placing the parties hereto
in the relationship of partners or joint venturers, or
create any agency, or any other relationship other than that
of Licensor and Licensee. No party shall have the power to
obligate or bind any other party in any manner whatsoever
except as expressly provided for herein.
23. More Formal Agreement: The parties hereto intend
to enter into a more formal agreement incorporating the
terms and conditions hereof, as well as such other terms and
conditions customary to agreements of this type in the
apparel industry (the "Standard Terms"). Until such time,
if ever, as the parties enter into a more formal agreement,
the terms and conditions of this deal memorandum and the
Standard Terms (subject to good faith negotiation by the
parties) shall constitute a binding agreement between the
parties with respect to the terms set forth in this
memorandum.
24. Counterparts: This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original, but all of which shall together constitute one
instrument.
AGREED TO AND ACCEPTED:
Licensor: Licensee:
Blondie Rockwell, Inc. Innovo Azteca Apparel, Inc.
By: By: /s/ Xxxxxx X. Xxxxxx, Xx.
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Name: Name: Xxxxxx X. Xxxxxx, Xx.
Title: Title: CEO