License Agreement for Men's Apparel [United States] - Everlast World's Boxing Headquarters Corp. and Active Apparel Group Inc.
LICENSE AGREEMENT
between
EVERLAST WORLD'S BOXING HEADQUARTERS CORP.
and
ACTIVE APPAREL GROUP, INC.
LICENSEE
(Men's Apparel)
(United States)
Lesser & Harrison
Two West 45th Street
New York, New York 10036
<PAGE>
TABLE OF CONTENTS
-----------------
Section Title Page
------------------
1. Definitions 2
2. Grant of Rights 2
3. Term 5
4. Royalties 6
5. Payments 10
6. Books and Records 11
7. Manufacture of Licensed Products
Quality Control, Approvals 12
8. Samples for Everlast 14
9. Sales Promotion 14
10. Advertising 16
11. Default 17
12. Rights After Termination 18
13. Inventory of Licensed Products
On Termination 19
14. Trademarks 20
15. Copyright Ownership 25
16. Indemnity 25
17. Notices 27
18. Waiver 27
19. Bankruptcy 27
20. Assignment 28
21. Arbitration 28
22. Significance of Headings 29
23. Entire Agreement 30
24. Governing Law 30
25. No Joint Venture 30
26. Execution and Delivery Required 30
27. Force Majeure 31
28. No Representations 31
Licensed Marks Exhibit A
<PAGE>
TABLE OF CONTENTS
Paragraph Description Page
1. Definitions.................................. 2
1.1 Licensed Products................... 2
1.2 Contract Territory.................. 2
1.3 Net Sales........................... 2
2. Grant of Rights.............................. 2
2.1 Scope of Rights..................... 2
2.2 Export from the Territory........... 3
2.3 Sale of Licensed Products by
Everlast ........................... 3
2.4 Resolution of Conflicts............. 4
2.5 Extraterritorial Licenses........... 4
2.6 Vitamins and Nutritional
Supplements....................... 5
3. Term......................................... 6
3.1 Contract Period..................... 6
3.2 Options to Renew.................... 6
4. Royalties.................................... 7
4.1 Royalty Payments.................... 7
4.2 Initial Minimum Royalty............. 9
4.3 Minimums during Option Periods...... 9
4.4 Credits Against Royalty............. 9
4.5 Sales Requirement................... 10
4.6 Security Deposit.................... 10
4.7 Accountant's Statements............. 11
5. Payments..................................... 12
5.1 Interest............................ 12
5.2 Payments Medium..................... 12
5.3 Withholding Taxes................... 12
6. Books and Records............................ 12
7. Manufacture of Licensed Products;
Quality Control, Approvals................... 13
7.1 Licensor Approval of Designs,
Products, Packaging; Delivery
of Approval Samples................. 13
7.2 Inspection of production
Facilities.......................... 14
7.3 Use of Licensed marks; Approval
of All Printed Matter............... 14
8. Samples for Everlast......................... 15
9. Sales Promotion.............................. 15
9.1 Responsibility for Promotion........ 15
<PAGE>
9.2 Sales Representatives and
Trade Shows.......................... 16
9.3 Licensee's Marketing Programs........ 16
9.4 Catalogs and Price Lists............. 16
9.5 Sale of Licensed products to
Everlast............................. 17
10. Advertising................................... 17
10.1 Minimum Advertising Expenditures..... 17
10.2 Verification of Advertising
Expenditures......................... 18
10.3 Approval of Advertising.............. 18
11. Defaults...................................... 19
11.1 Licensee Defaults in Payments........ 19
11.2 Other Defaults....................... 19
11.3 Remedies Cumulative.................. 19
12. Rights After Termination...................... 20
13. Inventory of Licensed Products
on Termination................................ 20
13.1 Disposal of Inventory................ 20
13.2 Payment of Royalties................. 21
13.3 Everlast's Right to Purchase
Inventory............................ 21
14. Trademarks.................................... 21
14.1 Ownership of Licensed Marks.......... 21
14.2 Registration and Protection
of Licensed Marks.................... 22
14.3 Reservation of All Rights to
Licensed Marks by Everlast........... 22
14.4 Notification of Third Party
Infringement......................... 23
14.5 Legal Actions........................ 23
14.6 Defense of Adverse Claims............ 24
14.7 Licensee Cooperation................. 25
15. Copyright Ownership........................... 26
16. Indemnity..................................... 26
16.1 Licensee's Indemnity................. 26
16.2 Product Liability Insurance.......... 27
16.3 Primary and Umbrella Coverage........ 27
16.4 Insurance Adjustment................. 27
17. Notices....................................... 28
18. Waiver........................................ 29
19. Bankruptcy.................................... 29
20. Assignment.................................... 29
21. Arbitration................................... 30
21.1 American Arbitration Association..... 30
21.2 Arbitration in New York.............. 31
<PAGE>
21.3 Enforcement in New York.............. 31
21.4 Service of Notice.................... 31
22. Significance of Headings...................... 31
23. Entire Agreement.............................. 31
24. Governing Law................................. 31
25. No Joint Venture.............................. 32
26. Execution and Delivery Required............... 32
27. Force Majeure................................. 32
28. No Representations............................ 33
Licensed Marks................................ Exhibit A
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT made and entered into as of the 23rd day of October,
1998 by and between Everlast World's Boxing Headquarters, Corp., a New York
corporation of 750 East 132nd Street, Bronx, NY 10454 ("Everlast"), and Active
Apparel Group, Inc. a Delaware corporation having its principal place of
business at 1350 Broadway, Suite 2300, New York, New York ("Licensee").
W I T N E S S E T H
WHEREAS, Everlast is the sole owner of and has the right to license the
trademarks shown and described on Exhibit A hereto (hereinafter referred to as
"Licensed Marks"); and
WHEREAS, Licensee desires to obtain the right to use the Licensed Marks
in conjunction with the advertisement, promotion and sale of various articles to
be manufactured by Licensee hereunder; and
WHEREAS, Everlast is willing to grant such rights to Licensee.
NOW, THEREFORE, for and in consideration of the premises and
of the mutual promises and conditions herein contained, the parties
do hereby agree as follows:
<PAGE>
1. DEFINITIONS.
-----------
As used herein, the following terms shall be defined as set forth
below:
1.1 "Licensed Products" shall mean men's (a) outerwear, (b)
activewear/swimwear, (c) and casualwear, excluding rainwear, jeanswear, and
leather apparel, with or without genuine or simulated fur.
1.2 "Contract Territory" shall mean the United States, its territories
and possessions, including Puerto Rico.
1.3 "Net Sales" shall mean the gross sales price of all Licensed
Products shipped and invoiced by Licensee pursuant to this Agreement, less trade
discounts, shipping charges, returns and allowances, and sales taxes (or any
use, value-added or similar taxes, but in no event to include any income or
franchise taxes) included therein whether or not separately stated on the
invoice.
2. GRANT OF RIGHTS.
---------------
2.1 Everlast grants to Licensee the exclusive right and license to use
the Licensed Marks only within the Contract Territory during the Contract Period
as defined in Paragraph 3.1 below in connection with the manufacture,
advertisement, promotion, packaging, labeling, sale and distribution of Licensed
Products. Everlast represents that it has the right to grant said right and
license and further, that there is no previous license of similar import
presently in existence covering the Contract Territory. It is understood that
Everlast may use the Licensed Marks on the products other than the Licensed
Products within the Contract
2
<PAGE>
Territory and may also use the Licensed Marks outside the Contract Territory on
the same classification of products as the Licensed Products.
2.2 Licensee shall not export Licensed Products from the Contract
Territory or sell Licensed Products to any distributor which it knows intends to
export Licensed Products from the Contract Territory. In addition, if Licensee
learns that any of its customers or any sub-contractor has exported Licensed
Products from the Contract Territory, it shall cease selling Licensed Products
to such customer, or buying from such sub-contractor, unless such
customer/sub-contractor agrees not to export Licensed Products thereafter.
Nothing herein shall be deemed to preclude Licensee from having Licensed
Products manufactured for Licensee by subsidiaries, affiliates or
sub-contractors located outside of the Contract Territory for distribution
solely within the Contract Territory.
2.3 Notwithstanding the provisions of subparagraph 2.1 of this
Agreement, Everlast may sell and deliver to customers in the Contract Territory
any Licensed Products which are at the time listed or portrayed in any Everlast
Product Catalog or Everlast flyers. Everlast may fulfill any orders for any
products, including Licensed Products received from any customers within the
Contract Territory, provided that the Licensed Products specified in such orders
are listed or portrayed in any such Everlast Product Catalog or flyer. Everlast
shall not sell any such Licensed Products for less than the lowest price and
terms offered by
3
<PAGE>
Licensee to any person, firm or corporation, as reflected in Licensee's
quarterly reports.
2.4 Licensee hereby recognizes and acknowledges that Everlast is a
party to license agreements with other licensees for the manufacture and
distribution of various products in numerous categories, product classifications
and territories of the world and that evolving changes make it difficult to
define with absolute specificity the various products covered by different
licenses granted by Everlast. Everlast and Licensee agree to use their best
efforts to avoid any conflicts between Licensed Products and products covered by
other licenses granted by Everlast. In the event of conflict between this
Agreement and other license agreements to which Everlast is or becomes a party,
Everlast reserves the right to resolve such conflicts in its absolute
discretion, taking into account the intent of this Agreement with respect to the
license granted to Licensee for Licensed Products and the protection of the
Everlast trademarks. Everlast's decisions in resolving any conflicts shall be
final and binding.
2.5 In the performance of its obligations under this Agreement, and the
design, formulation, marketing, advertising, labeling, sale and distribution of
the Licensed Products, the Licensee shall at all times observe and satisfy
completely the requirements of all statutes, laws, ordinances, regulations and
the like of every national, state, provincial, or local government or
governmental agency having or claiming jurisdiction.
4
<PAGE>
3. TERM.
----
3.1 The initial term ("Contract Period") of this Agreement shall be
three (3) years months commencing January 1, 1999 and continuing through
December 31, 2001. The term "Contract Year" shall refer initially to the period
commencing January 1, 1999 and continuing through December 31, 1999, and
thereafter to each twelve (12) month period commencing on each January 1st
during the term of this Agreement, whether the same shall occur during the
Contract Period or during any Option Period as defined in Paragraph 3.2 below.
The term "Contract Year Quarter" shall refer initially to the period commencing
January 1, 1999 and continuing through March 31, 1999 and thereafter to each
successive calendar three month period during each Contract Year commencing
April 1, 1999 and thereafter.
3.2 Provided Licensee is not in default hereunder, Licensee shall have
the option to renew this Agreement for two (2) successive terms of five (5)
years each commencing on January 1, 2002 and January 1, 2007 respectively (each
an "Option Period") upon giving to Everlast written notice as provided in
Paragraph 17 of its intention to do so at least one hundred twenty (120) days
prior to the expiration of the then existing term hereof. The exercise of each
of said options shall be effective only if: (i) this Agreement shall be in full
force and effect at the time of exercise by Licensee of any of said options;
(ii) Licensee shall not be in default in the performance of any of its
obligations under this Agreement at the time of exercise of any of said
5
<PAGE>
options; and (iii) during the twelve month period ending September 30, 2001 in
the Third Contract Year Licensee's Net Sales of Licensed Products in the
Contract Territory shall amount to at least $6,500,000 for the exercise of the
first option granted herein and such Net Sales for the twelve month period
ending on September 30th in the last Contract Year of each Option Period after
the Contract Period shall amount to at least the annual guaranteed minimum
royalty for such Contract Year under subparagraph 4.3 divided by .06 with
respect to the exercise of the option for each successive Option Period. During
each Option Year the annual guaranteed minimum royalty shall be calculated and
paid in accordance with the provisions of subparagraph 4.3.
4. ROYALTIES.
---------
4.1 Within thirty (30) days following the conclusion of each Contract
Year Quarter, Licensee shall deliver to Everlast, in the same manner as required
for notices under Paragraph 17, an itemized statement setting forth the total
Net Sales of Licensed Products during said Contract Year Quarter and, at the
same time, shall pay to Everlast a royalty at the rate of six (6%) percent of
Net Sales of all Licensed Products. The itemized statement referred to above
shall contain two (2) separate tabulations: (i) a listing by style, number of
the total units and Net Sales thereof for the Contract Year Quarter for which
the statement is given; and (ii) a listing by customer showing the customer's
name, address and Net Sales for the Contract Year Quarter for which the
statement is submitted.
4.2 Licensee shall pay to Everlast a guaranteed minimum
6
<PAGE>
royalty for each Contract Year as follows:
Annual Guaranteed
Contract Year Minimum Royalty Minimum Sales
------------- --------------- -------------
First $180,000 $3,000,000
Second 300,000 5,000,000
Third 420,000 7,000,000
The annual guaranteed minimum royalty shall be paid in twelve (12) equal
installments on the first day of each month during each Contract Year, so that
the first payment of annual guaranteed minimum royalty amounting to $15,000
shall be paid on January 1, 1999.
4.3 If Licensee exercises the options granted to it in subparagraph 3.2
of this Agreement, the annual guaranteed minimum royalty for each Contract Year
of each Option Period shall be the greater of (i) seventy-five (75%) percent of
the actual royalties payable for the prior Contract Year (whether or not falling
within the Contract Period or an Option Period) or (ii) an amount equal to the
annual guaranteed minimum royalty for the prior Contract Year plus ten (10%)
percent thereof. The annual guaranteed minimum royalty shall be paid in twelve
(12) equal installments on the first day of each month during each Contract Year
of each Option Period.
4.4 The foregoing payments shall constitute a non-refundable annual
guaranteed minimum royalty for the then Contract Year and shall not be credited
towards royalties for succeeding Contract Years. Notwithstanding the foregoing,
during any Contract Year the total amounts actually paid during such Contract
Year to date (both
7
<PAGE>
guaranteed and overages) may be deducted from all installments of the annual
minimum guaranteed royalty due to date, and if the difference is less than the
annual guaranteed minimum royalty payment then becoming due, the amount payable
towards the annual guaranteed minimum royalty then due shall be such difference.
4.5 In the event that the total royalties payable to Everlast based
upon Net Sales for any Contract Year commencing on or after January 1, 2000
shall be less than the annual guaranteed minimum royalty payable under
subparagraph 4.2 or 4.3 above for such Contract Year, Everlast shall have the
right to terminate this Agreement by notice to Licensee given within one hundred
twenty (120) days from the end of such Contract Year. If Licensee fails to
submit its report of Net Sales for any Contract Quarter when due, Everlast may
terminate this Agreement within sixty (60) days after the end of such Contract
Quarter as though Licensee had failed to achieve the required royalty volume for
the current Contract Year, except that Licensee shall have the opportunity to
cure such default within thirty (30) days after receipt of notice from Everlast
that such Report of Net Sales has not been received.
4.6. In the event that the royalties actually earned with respect to
Net Sales of (a) men's outerwear, (b) men's activewear/swimwear or (c) men's
casualwear, each considered as a separate category, shall be equal to less than,
ten (10%) percent of the annual guaranteed minimum royalty as hereinbefore
provided during the second Contract Year, or twenty (20%) thereof during any
subsequent Contract Year, then Everlast may elect to terminate this
8
<PAGE>
License Agreement as to such category only, by written notice given no later
than ninety (90) days after Everlast has actually received from the Licensee the
statement referred to in subparagraph 4.1 for the final Contract Quarter of such
Contract Year. If Everlast shall make such an election, then (a) for each
subsequent Contract Year the guaranteed annual minimum royalty provided in
subparagraphs 4.2 and 4.3 as the case may be shall be reduced by twenty (20%)
percent thereof, and (b) the Licensee's inventory of Licensed Products in the
category which has been so terminated shall be subject to the provisions of
paragraph 13 hereof.
4.7 Simultaneously with the execution of this Agreement the Licensee
shall pay to Everlast with respect to the First Contract Year, and on or before
the first day of each subsequent Contract Year, an amount equal to three (3)
times the monthly annual guaranteed royalty to be paid pursuant to subparagraphs
4.2 and 4.3 of this Paragraph during the relevant Contract Year. The amount to
be paid upon the execution of this agreement shall be $45,000. Such amount shall
be held as security for the faithful performance of the obligations on the part
of the Licensee to be performed under this Agreement. The amount of the security
then held by Everlast and not otherwise previously applied will be carried over
to the next Contract Year and shall serve to reduce the payment required to be
made upon the first day of the next Contract Year pursuant to this subparagraph
4.6. Upon the expiration or other termination of this Agreement, the remaining
balance held by Everlast pursuant to this subparagraph 4.6 shall be repaid
without
9
<PAGE>
interest to the Licensee, provided that the Licensee has fully performed each of
the obligations on its part to be performed hereunder.
4.8 Within ninety (90) days after the close of each Contract Year,
Licensee will deliver to Everlast a financial statement of the Licensee prepared
by a Certified Public Accountant, containing a balance sheet as at the end of
the fiscal year of the Licensee ending during such Contract Year, an income
statement for such fiscal year and a source and application of funds analysis
for such fiscal year, together with such explanatory notes as may be
appropriate, all prepared in accordance with Generally Accepted Accounting
Principles consistently applied. Failure to provide such financial statement on
a timely basis shall be a material breach of this Agreement.
5. PAYMENTS.
--------
5.1 Past due payments hereunder shall bear interest at the rate of one
and one-half (1 1/2%) percent per month commencing fifteen (15) days after the
same shall fall due.
5.2 All payments by Licensee to Everlast under this Agreement shall be
made in United States Dollars by checks drawn on a United States bank to the
order of Everlast and delivered to Everlast in the manner set forth in Paragraph
17 hereof or (b) wire transfer to Chemical Bank, Bay Plaza Branch, 2100 Bartow
Avenue, Bronx, NY 10475 ABA no. 021000128, for the account of Everlast, a.c no.
616-00-1886, or to such other account as Everlast may designate from time to
time.
10
<PAGE>
5.3 Any withholding tax levied by any governmental agency in connection
with the payment of sales royalties or annual guaranteed minimum royalty to be
paid to Everlast under this Agreement shall be borne by Everlast, but only if
actually paid by Licensee to the appropriate taxing authority. Licensee shall
deduct any required withholding tax from the amount of such payments, and shall
send to Everlast without delay an appropriate certificate showing the payment of
such withholding tax. Failure to make such payment as due and to send such
certificate shall require immediate repayment to Everlast of any amounts so
deducted.
6. BOOKS AND RECORDS.
-----------------
Licensee agrees that it will keep accurate and complete records and
books of account showing all Licensed Products shipped by it and the price
thereof in accordance with Generally Accepted Accounting Principles. Everlast or
its independent Certified Public Accountant shall have the right at all
reasonable times during normal business hours and on reasonable notice to
Licensee (prior to the expiration of two (2) years after the termination of the
Contract Year) to inspect and make copies of the books and records of Licensee
insofar as they relate to the computation of royalties to be paid to Everlast
hereunder and the shipment of Licensed Products pursuant to this Agreement. If,
upon any such inspection, it shall appear that the royalty previously reported
for any Contract Year Quarter has been understated by five (5%) percent or more,
the expense of any such audit shall be borne by the Licensee.
11
<PAGE>
7. MANUFACTURE OF LICENSED PRODUCTS; QUALITY CONTROL, APPROVALS.
------------------------------------------------------------
7.1 Licensee recognizes that Everlast has a reputation for high quality
and that Licensee must, therefore, maintain such quality on all Licensed
Products. Licensee agrees that Everlast shall have the right to disapprove: (i)
the quality, style and design of all Licensed Products (including packaging);
(ii) the presentation or style of the Licensed Marks used in connection
therewith; and (iii) production samples of all Licensed Products (all such
samples being required to be submitted to Everlast, freight prepaid, prior to
sale). In connection with the foregoing, Licensee shall submit to Everlast
"story boards", fabric samples and sketches for initial approval and, when
prepared, prototype samples and not less than one (1) production sample of each
style of each of the Licensed Products (as provided in Paragraph 8). Any items
submitted for approval hereunder at Everlast's address set forth herein shall be
deemed to have been approved if same are not disapproved by notice to Licensee
in writing within ten (10) business days after receipt thereof by Everlast.
Everlast agrees that any item submitted will not be unreasonably disapproved
and, if it is disapproved, that Licensee will be advised in writing of the
specific grounds therefor.
7.2 Everlast shall have the right to inspect at all reasonable times
the production facilities of Licensee or its subcontractors and to receive from
the Licensee production samples of Licensed Products without charge and make
tests thereof so as to reasonably
12
<PAGE>
assure Everlast that the nature and quality of Licensed Products are in
accordance with the requirements of this Agreement. Any items submitted for
approval under this Article 7 at Everlast's address set forth herein shall be
deemed to have been approved if same are not disapproved by notice to Licensee
in writing within twenty working (20) days after receipt thereof by Everlast.
Everlast agrees that any item submitted will not be unreasonably disapproved
and, if it is disapproved, that Licensee will be advised in writing of the
specific grounds therefor. Licensee further agrees to: (i) sell Licensed
Products bearing the Licensed Marks only to retail stores of the type generally
offering products bearing the "Everlast" label in the U.S.A., or products of
comparable quality, and (ii) remove the Licensed Marks from "irregulars" to the
extent practicable or, where not practicable, to affix with a stamp the word
"Irregular" on the label.
7.3 Licensee will cause to appear on the Licensed Products' containers
and labels and the like, and on all advertising or promotional material used in
connection therewith, such legends, markings and notices as Everlast may
reasonably request, including without limitation the legend "LICENSED TRADEMARK
OF EVERLAST WORLD'S BOXING CORP." Such legend shall also appear on any other
printed matter in which the Everlast name or logo is used. Printed matter shall
include but not be limited to stationery, letterheads, invoices, envelopes,
credit memo, shipping labels and business cards. Before use, Licensee shall
submit copies thereof to Everlast for its approval. Everlast shall have the
absolute right
13
<PAGE>
to edit, alter or amend such material and the form and manner in which the
Licensed Marks are displayed.
8. SAMPLES FOR EVERLAST.
--------------------
During the Contract Period, Licensee shall supply to Everlast, at no
charge, freight prepaid two samples representative of each item of Licensed
Products for Everlast's use in connection with Everlast's museum collection.
Each sample shall be tagged with the style number and wholesale selling price.
During the first Contract Year Quarter of each Contract Year Licensee shall
furnish to Everlast without charge two production samples of each style of
Licensed Product then offered for sale by the Licensee. Each sample shall be
tagged with the style number and wholesale selling price.
9. SALES PROMOTION.
---------------
9.1 Licensee agrees that it will, during the Contract Period: (i) make
diligent effort to promote, develop, manufacture, advertise, sell and ship the
Licensed Products; (ii) continuously and diligently fill all accepted purchase
orders for Licensed Products (Licensee not being required to fill such orders
received from customers lacking financial capacity therefor); and (iii) procure
and maintain facilities and trained personnel sufficient and adequate to
accomplish the foregoing. A cessation of the above with respect to any category
listed in the definition of Licensed Products for a continuous period of ninety
(90) days shall be grounds for immediate termination of such category at any
time thereafter at Everlast's option.
14
<PAGE>
9.2 In fulfilling its obligations hereunder, Licensee shall engage such
sales representatives and other personnel and shall display the Licensed
Products at merchandise markets and trade shows (which can take place at
Licensee's showroom) as will maximize sales of Licensed Products.
9.3 Licensee agrees to provide Everlast with written descriptions of
its marketing programs in such detail as may be reasonably requested from time
to time by Everlast prior to their implementation and as they may be modified
from time to time. Licensee shall not proceed with its initial marketing
programs without the prior written approval of Everlast. Licensee shall not
proceed with any modification of its marketing programs if Everlast notifies
Licensee in writing that Everlast disapproves of such modification. The
marketing plan or any modifications thereof shall be deemed to have been
approved if same are not disapproved by notice to Licensee in writing within
twenty (20) working days after receipt thereof by Everlast. Everlast agrees that
any plan submitted will not be unreasonably disapproved and, if it is
disapproved, that licensee will be advised in writing of the specific grounds
therefor.
9.4 On February 1st and August 1st of each Contract Year Licensee shall
promptly submit to Everlast all current written or printed materials utilized
with respect to the Licensed Products showing an illustration of each Licensed
Product being sold by Licensee, the style number and a sales description thereof
together with Licensee's wholesale selling price therefor.
15
<PAGE>
9.5 Licensee agrees to sell to Everlast such quantities of Licensed
Products as Everlast may order for its own account for resale or distribution by
Everlast for promotional purposes only. The price of such Licensed Products
shall be no greater than the lowest price offered by Licensee to any person,
firm or corporation, less twenty-five (25%) percent of the selling price of such
Licensed Products with sales terms net 10 EOM. Such purchases shall not be
subject to royalty or advertising requirements. Everlast will not sell Licensed
Products below the lowest price offered by Licensee to any person, firm or
corporation as reflected in Licensee's quarterly reports.
10. ADVERTISING.
-----------
10.1 Licensee agrees to expend on advertising in each Contract Year, an
amount equal to not less than two and one-half (2.5%) percent of Net Sales. Such
advertising expenditures shall be exclusive of advertising production costs,
tags, packaging, point of sale displays, compensation to Licensee's employees,
or travel expenses. The minimum advertising expenditure for this Agreement shall
be not less than $75,000 during the First Contract Year, $125,000 during the
Second Contract Year, and $175,000 during the Third Contract Year. During each
Option Year such amount shall be equal to 41.67% of the annual guaranteed
minimum royalty payable pursuant to subparagraph 4.3. Together with each
quarterly statement submitted pursuant to Paragraph 4, Licensee shall submit to
Everlast a detailed schedule of such expenditures made during the said quarter
together with copies of invoices, tear sheets, and
16
<PAGE>
all other substantiating documents.
10.2 Licensee shall certify the amount actually expended for the above
advertising by a written statement certified to be correct by the President,
Chief Operating Officer, or Chief Financial Officer of the Licensee. If the
required amount has not been spent, the unspent balance shall be spent within
ninety (90) days after the close of such Contract Year and shall be deemed to be
an advertising expenditure for such Contract Year. This expenditure shall in no
way affect or be credited to the required amount to be spent for any subsequent
Contract Year. If the required expenditures shall not have been spent by the end
of such ninety (90) day period, the deficiency shall be paid to Everlast as
additional royalties hereunder.
10.3 Licensee agrees that no use of the Licensed Marks or of any item
used in connection therewith will be made unless and until the same has been
approved by Everlast. Everlast agrees that any material, advertising or
otherwise, submitted for approval hereunder at Everlast's address set forth
herein shall be deemed to have been approved if the same is not disapproved by
notice to Licensee in writing given within ten (10) working days after receipt
thereof by Everlast. Everlast agrees that any item submitted will not be
unreasonably disapproved, and, if it is disapproved, that Licensee will be
advised in writing of the specific grounds therefor.
11. DEFAULT.
-------
11.1 If Licensee at any time shall be in default of payment
17
<PAGE>
of sales royalties or any guaranteed minimum royalty payments and such default
is not cured within ten (10) days after receipt of written notice from Everlast
specifying such default and Licensee has failed to cure the default within ten
(10) days after receipt of such notice, Everlast may terminate this Agreement,
notice of which shall specify a termination date not sooner than ten (10) days
after the date such default should have been cured.
11.2 If Licensee at any time shall fail to perform any other material
undertaking or obligation hereunder and if such default is not cured within
thirty (30) days after Everlast shall have given Licensee written notice
specifying such default (provided, however, that in the event such default
cannot reasonably be cured within such thirty (30) days, and Licensee commences
to cure the default and continues diligently therewith until the default has
been cured, Licensee shall not be deemed during such period to be in default)
then in such event, Everlast may terminate this Agreement, notice of which shall
specify a termination date not earlier than thirty (30) days after the date of
the notice of termination.
11.3 The termination rights set forth in subparagraphs 11.1 and 11.2
shall not constitute the exclusive remedy of Everlast hereunder. Everlast may
resort to such other cumulative remedies as it would have been entitled to if
this Paragraph had been omitted from this Agreement, including the right to seek
damages.
12. RIGHTS AFTER TERMINATION.
------------------------
From and after the termination of this Agreement, all of the
rights of Licensee to the use of the Licensed Marks, except as
18
<PAGE>
hereinafter expressly provided in the Paragraph next following, shall cease
absolutely and Licensee shall not thereafter advertise, promote, distribute or
sell any item whatsoever bearing any Licensed Mark. As used in this Agreement,
"termination" shall include "expiration" of the Agreement. Before the
termination of this Agreement, licenses for the Licensed Marks may be granted by
Everlast to others in connection with the advertisement, promotion and sale of
the Licensed Products, the shipment of which is made after the termination of
this Agreement.
13. INVENTORY OF LICENSED PRODUCTS ON TERMINATION.
---------------------------------------------
13.1 Within ten (10) days after the notice of termination, Licensee
shall submit to Everlast a written statement (as of the termination date)
indicating:
(i) the quantity and description of each model or style number of
Licensed Products in inventory or on hand;
(ii) the quantity and description of each model or style number of
merchandise on order, incoming or in the process of being manufactured;
(iii) the quantity and description of all open orders from customers
together with the name of each such customer(s); and
(iv) within ten (10) days after the termination date, Licensee shall
meet with a representative of Everlast to work out a full payment schedule of
royalties payable to the date of termination which is acceptable to Everlast.
Only after all the terms and conditions of this subparagraph 13.1
have been satisfied will Everlast grant to Licensee the right
19
<PAGE>
to sell such inventory of Licensed Products within one-hundred and twenty (120)
days after the termination date.
13.2 Such sales are to be reported by Licensee in the same manner as
set forth in subparagraph 4 within ten (10) days after the end of each calendar
month and such statement shall be accompanied by a check in payment of royalties
for such sales.
13.3 In addition to Licensee's obligations in the event of the
expiration of this Agreement or the termination of this Agreement prior to the
expiration date of the Contract Period or any Option Period Everlast may, at its
option, purchase from Licensee any part of such inventory on hand on such
termination date for a purchase price of sixty (60%) percent of Licensee's
lowest actual selling price (excluding "seconds" or "irregulars"), and the
amount due to Licensee on any such purchase by Everlast may be applied against
any sum then owing to Everlast by the Licensee. Such purchase shall be packed
and shipped pursuant to Everlast's instructions, F.O.B. shipping point within
the United States.
14. TRADEMARKS.
----------
14.1 Licensee recognizes the proprietary interest of Everlast in the
names "Everlast" and "Choice of Champions" and in the logo style in which the
names are registered as a trademark in the United States and elsewhere. Licensee
will not make any use thereof nor authorize anyone else to do so within or
outside the Contract Territory except as specifically permitted by this
Agreement. Everlast represents that it is the sole owner of the Licensed Marks
and has full power and authority to grant the
20
<PAGE>
license covered by this Agreement.
14.2 Should Everlast, at any time or times during the Contract Period,
desire to register an additional trademark or trademarks (exclusive of product
names or designations utilized by Licensee) which would cover Licensed Products
and/or to register Licensee as a user thereof, Licensee shall without charge
execute any and all documents which Everlast reasonably believes to be necessary
or desirable for registration or protection of such trademark or trademarks in
the name of Everlast. Upon registration of any such trademark: (i) Everlast
shall grant to Licensee a license for the use of such registered trademark on or
in connection with the advertisement, promotion and sale of Licensed Products,
which license shall be coextensive and coterminous with the rights granted
hereunder with respect thereto and shall require no increase in the payments set
forth herein; and (ii) Licensee shall thereafter include on subsequent printing
or manufacture of materials bearing the Licensed Marks the appropriate trademark
notice. In the event that Everlast and the Licensee shall agree to the expansion
of the definition of Licensed Products pursuant to this Agreement, the Licensee
shall bear Everlast's costs of registering the Licensed Marks in all categories
which cover all products added to the definition of Licensed Products.
14.3 All use of any such trademark or trademarks by Licensee on or in
connection with Licensed Products produced hereunder shall inure to the benefit
of Everlast. All rights to such trademark or trademarks other than those
specifically granted hereunder are
21
<PAGE>
reserved by Everlast for its own use and benefit. Upon the expiration or other
termination of this Agreement for any reason whatsoever, all rights in the
Licensed Marks shall automatically revert to Everlast and Licensee shall not
thereafter use the Licensed Marks or any similar mark or name except as
specifically permitted by Paragraph 13. Licensee shall at any time whether
during or after the term of this Agreement execute any documents reasonably
required by Everlast to confirm Everlast's ownership of all such rights.
14.4 In the event that either party to this Agreement shall learn of
any use by any person of a trademark or trademarks confusingly similar to the
Licensed Marks in the Contract Territory, such party shall promptly notify the
other in writing of such use. In such event, if requested by Everlast, Licensee
shall join with Everlast, at Everlast's expense, in such action as Everlast in
its reasonable discretion may deem advisable for the protection of its rights in
and to the Licensed Marks.
14.5 In the event that any person other than Licensee or a customer
shall use the Licensed Mark in a manner which infringes upon the exclusive
license hereby granted, Everlast shall, following written notice thereof from
Licensee, initiate any action which it deems appropriate to restrain such
infringement with respect to the Licensed Products. In such event, if requested
by Everlast, Licensee shall join with Everlast, at Everlast's expense in such
action as Everlast in its reasonable discretion may deem advisable for the
protection of the respective rights of the
22
<PAGE>
Licensed Marks. If Everlast decides to take no action to protect the Licensed
Marks in a particular case of a use thereof by a third party in any part of the
Contract Territory and disapproving of any such action by Licensee, Everlast
shall so advise Licensee in writing. If there should be a disagreement between
the parties as to the reasonableness of such decision by Everlast to withhold
its approval of any action by Licensee, then no such action shall be taken by
Licensee, and Everlast shall compensate Licensee for losses actually sustained
as a result of the failure to take any such action if it is held that the
withholding of approval by Everlast was in fact unreasonable or, in the
alternative, Licensee shall have the right to terminate this Agreement on thirty
(30) days notice to Everlast without any liability on the part of Everlast.
Neither party shall, without the consent of the other, voluntarily settle any
claim or suit of the kind referred to in this Article 14 in a manner which might
in any way adversely affect or be in derogation of any rights of the other under
this Agreement. In the event of disagreement between the parties as to any such
settlement, the party thus denied the right to make such settlement shall have
the right, within thirty (30) days after receipt of notice of refusal to consent
by the other party, to terminate this Agreement and upon any such termination,
all rights and obligations of both parties hereunder shall terminate except for
any monies due from either party to the other.
14.6 Everlast shall, at its own cost and expense, defend and indemnify
Licensee, any third party claiming under it, and any
23
<PAGE>
direct or indirect customer of Licensee, from and against any and all claims,
loss, damage, expense, liability, suits, actions, proceedings and judgments and
any cost whatsoever including reasonable attorneys fees arising, sustained,
rendered or incurred, by reason of use of the Licensed Marks, or the exercise of
any other rights under this Agreement, whether based upon a claim of
infringement or any facts which constitute a breach or violation of any of
Everlast's representations in this Agreement, and whether such claims, suits,
actions or proceedings, are rightfully or wrongfully made, brought or filed;
provided that Licensee shall promptly advise Everlast of any such claim, suit,
action or proceeding and afford Everlast the opportunity to defend any such
claim or action through counsel of its own choosing and at its own expense. If
requested by Everlast, Licensee shall join with Everlast, at Everlast's expense,
in such defense. Licensee shall execute any papers necessary or desirable in
connection with any such suit and shall testify in any such suit whenever
required to do so by Everlast, all, however, at the expense of Everlast with
respect to travel expenses and similar out-of-pocket disbursements.
14.7 The Licensee agrees to execute, acknowledge and deliver, without
cost to Everlast, such additional documents as may be necessary in the opinion
of counsel for Everlast under the laws of each jurisdiction within the Contract
Territory to protect the Trademark rights of Everlast including, but not limited
to, Registered User Agreements.
24
<PAGE>
15. COPYRIGHT OWNERSHIP.
-------------------
Any and all copyrights which may exist, or come into being with respect
to any and all designs of or with the Licensed Marks for any of the Licensed
Products, labels, hang tags, advertising or promotional materials used pursuant
to this Agreement shall be the property of Everlast. However, notwithstanding
the foregoing exclusive designs and the like (and their respective copyrights)
created by and for Licensee which do not include or refer to the Licensed Marks,
are and shall remain the property of Licensee. Licensee shall place appropriate
copyright notices thereon. Licensee shall furnish Everlast with copies of all
copyright filings.
16. INDEMNITY.
----------
16.1 Licensee shall, at its own cost and expense, defend, indemnify and
save harmless Everlast from and against; (i) any and all claims, loss, damage,
expense, liability, suits, actions, proceedings and judgments, and any costs
whatsoever, including reasonable attorneys' fees, arising out of or in any way
connected with or sustained, rendered or incurred by reason of any claim or
action for property damage, personal injury, death or otherwise, involving or
related to alleged defects in Licensed Products or based on Licensee's
performance under this Agreement or that of Licensee's customers and whether
such claims, suits, actions or proceedings are rightfully or wrongfully made,
brought or filed; and (ii) the production, manufacture, sale, distribution,
promotion or advertisement of any Licensed Products by or for Licensee, its
25
<PAGE>
agents or employees in violation of any applicable law or regulation or the
rights of third parties, provided in each case that Licensee shall be given
prompt notice of any such action or claim. Licensee shall not voluntarily settle
any such claim or action in a manner which might in any way adversely affect or
be in derogation of any rights of Everlast in and to any Licensed Marks or
Licensed Products or which may constitute any adverse admission in respect
thereof.
16.2 Licensee agrees to provide, at its own expense, Product Liability
Insurance written by insurance carriers reasonably satisfactory to Licensee, in
amounts no less than two and one-half ($2,500,000) million dollars and within
thirty (30) days from the date hereof, Licensee shall submit to Everlast fully
paid policies or certificates of insurance naming Everlast as an insured party,
and requiring that the insurer shall not terminate or materially modify such
insurance without written notice to Everlast at least twenty (20) days in
advance thereof. Such insurance (which may be included as part of Licensee's
blanket insurance policy covering other divisions of Licensee) shall remain in
full force and effect during the entire Contract Period and any renewal or
extension thereof.
16.3 The insurance coverage required by Paragraph 16.2 may be provided
by one or more Product Liability Insurance Policies, provided that all primary
and umbrella coverage shall aggregate not less than two and one half million
($2,500,000) Dollars.
26
<PAGE>
17. NOTICES.
-------
All reports, approvals, requests, demands and notices required or
permitted by this Agreement to be given to a party shall be in writing and shall
be deemed to be duly given on the date: (i) personally delivered; ii) mailed by
certified or registered mail, return receipt requested; (iii) delivered by
Express Mail or courier service (such as Federal Express) which requires the
addressee to acknowledge, in writing, the receipt thereof; or (iv) sent by
telefax and confirmed by hard copy mailed by certified or registered mail,
return receipt requested or acknowledged by return telefax to the party
concerned at its address set forth on Page 1 above (or at such other address as
the party may specify by notice to the other). Copies of all notices to Everlast
shall be sent to Lesser & Harrison, Two West 45th Street, New York, New York
10036.
18. WAIVER.
------
The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions set forth
herein shall not be construed as a continuing waiver or relinquishment thereof
and each may at any time demand strict and complete performance by the other of
said terms, covenants and conditions.
19. BANKRUPTCY.
----------
If Licensee is adjudicated bankrupt or insolvent, or if its business
shall be placed in the hands of a Receiver, Assignee or Trustee, whether by
voluntary act or otherwise or if a committee (formal or informal) of creditors
shall be formed for the purpose
27
<PAGE>
of arranging settlement or payment of Licensee's debts and such condition
(except where voluntary) is not terminated within ninety (90) days, Everlast may
terminate this Agreement by written notice as provided in Paragraph 11.
20. ASSIGNMENT.
----------
This Agreement shall bind and inure to the benefit of Everlast, and the
successors and assigns of Everlast. The rights granted to Licensee hereunder
shall be exclusive to it and shall not, without the prior written consent of
Everlast, be transferred, sub-licensed, or assigned by it to any other person,
firm or corporation. Notwithstanding any such assignment, the Licensee shall
remain fully liable hereunder, and shall be responsible for the payment of all
royalties, advertising, and any other amounts which shall become due from the
assignee. In addition, the provisions hereof shall be deemed to preclude
assignment by operation of law and shall be deemed to restrict the
hypothecation, pledge, granting of a security interest or in any manner taking
steps or permitting the integrity of this Agreement between the parties to be
affected in any manner or form. Any assignment, transfer, or sublicense of any
of the rights granted to the Licensee hereunder which does not conform to the
requirements of this Agreement shall be null and void.
21. ARBITRATION.
-----------
21.1 Except as specifically set forth in this Agreement, any and all
disputes, controversies and claims arising out of or relating to this Agreement
or concerning the respective rights or
28
<PAGE>
obligations hereunder of the parties hereto, shall be settled and determined by
arbitration in New York, New York, before the American Arbitration Association
in accordance with and pursuant to its then obtaining Rules for Commercial
Arbitration. The arbitrators shall have the power to award specific performance
or injunctive relief and reasonable attorneys' fees and expenses to any party in
such arbitration. However, in any arbitration proceeding arising under this
Agreement, the arbitrators shall not have the power to change, modify or alter
any express condition, term or provision of this Agreement, and to that extent
the scope of their authority is limited. The arbitration award shall be final
and binding upon the parties.
21.2 The parties shall have such right to interim relief in any Court
sitting in the City of New York as may be provided by law.
21.3 Any action to enforce an arbitration award or for interim relief
hereunder may be brought only in a Court of general original jurisdiction
sitting in the City of New York and the parties do hereby submit to the
jurisdiction of each such Court.
21.4 The service of any notice, process, motion or other document in
connection with any arbitration under this Agreement or for interim relief or
the enforcement of any arbitration award hereunder may be effectuated in the
manner in which notices are to be given to a party pursuant to Paragraph 17
above.
22. SIGNIFICANCE OF HEADINGS.
------------------------
Paragraph headings contained herein are solely for the purpose
29
<PAGE>
of aiding in speedy location of subject matter and are not in any sense to be
given weight in the construction of this Agreement. Accordingly, in case of any
question with respect to the construction of this Agreement, it is to be
construed as though such Paragraph headings had been omitted.
23. ENTIRE AGREEMENT.
----------------
This writing constitutes the entire agreement between the parties
hereto and may not be changed or modified except by a writing signed by the
party or parties to be charged thereby.
24. GOVERNING LAW.
-------------
This Agreement shall be governed and construed according to the laws of
the State of New York, and Licensee shall in all cases be deemed to have agreed
to submit to the jurisdiction thereof and to venue therein.
25. NO JOINT VENTURE.
----------------
This Agreement does not constitute and shall not be construed as
constituting a partnership, joint venture or agency between Everlast and
Licensee. Neither party shall have any right to obligate or bind the other party
in any manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third party.
26. EXECUTION AND DELIVERY REQUIRED.
-------------------------------
This instrument shall not be considered to be an agreement or contract
nor shall it create any obligation whatsoever on the part of Everlast and
Licensee, or either of them, unless and until it has been signed on behalf of
both Everlast and Licensee and
30
<PAGE>
delivery has been made of a fully signed original.
27. FORCE MAJEURE.
-------------
Neither party shall be in default hereunder by reason of its delay in
the performance of or failure to perform any of its obligations under this
Agreement if such delay or failure is caused by strikes, act of God or the
public enemy, riots, incendiaries, interference by civil or military
authorities, compliance with governmental law, rules and regulations, delays in
transit or delivery or any default beyond its control or without its fault or
negligence.
28. NO REPRESENTATIONS.
------------------
The Licensee represents and acknowledges that neither Everlast nor any
of its representatives have made any warranties or representations of any nature
whatsoever to induce the Licensee to enter into this License Agreement, except
as expressly set forth herein. All prior discussions, understandings and
agreements between the parties have been merged into this License, it being
intended that this shall constitute the complete agreement between the parties.
This License Agreement may be modified or amended only by a writing duly
executed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
EVERLAST WORLD'S BOXING HEADQUARTERS CORP.,
By: /s/ Ben Nadorf, President
--------------------------------------------
Ben Nadorf, President
ACTIVE APPAREL GROUP, INC.
Licensee
By: /s/ George Q. Horowitz, President
--------------------------------------------
George Q. Horowitz, President
31