EXHIBIT 10.33
DESIGN SERVICES AGREEMENT
THIS DESIGN SERVICES
AGREEMENT (this
"AGREEMENT") is made and entered
into on the 27th day of February, 2008, to be effective as of
November 15, 2007
(the "EFFECTIVE
DATE"), by and between (i) WILLIAM RAST SOURCING, LLC, a
California limited liability company, located at 150 West Jefferson
Boulevard,
Los Angeles, CA 90007 (the "COMPANY"), and (ii) PARIS68 LLC, a New York
limited
liability company
("DESIGNER"), JOHAN
LINDEBERG ("JL") and MARCELLA LINDEBERG
"(ML"), each located
at 510 LaGuardia
Place, New York, NY
10002. The Company,
Designer, JL
and ML are sometimes referred to herein as a "PARTY" and
collectively, as the "PARTIES."
RECITALS
A. The
Company licenses
rights to the
trademark "William
Rast"
and is in the business of designing, sourcing the manufacture
of, and selling William Rast(TM) branded apparel.
B.
Designer, in part by utilizing the personal services of JL and
ML, provides
design, sourcing, sampling, and marketing
services for apparel products.
C. The
Company desires to engage Designer, and obtain the
personal services
of JL and ML,
to develop a full line of
men's and women's William Rast(TM) branded apparel.
AGREEMENT
NOW, THEREFORE,
in consideration of
the mutual covenants contained in
this Agreement, and
for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Parties agree as
follows:
1.
DEFINITIONS. As used
in this Agreement,
the following terms
have the
following meanings:
1.1 "CONTRACT
YEAR" means any of
Contract Year 1, Contract Year 2
and Contract Year 3, where "CONTRACT YEAR 1" means the
period
commencing on January 1, 2008 and continuing until December
31, 2008; "CONTRACT
YEAR 2" means the
period commencing
on
January 1, 2009 and
continuing until
December 31, 2009;
and
"CONTRACT YEAR 3"
means the period
commencing on January
1,
2010 and continuing until December 31, 2010.
1.2 "OFF-PRICE
TRANSACTIONS"
shall mean bona fide sales by the
Company of
Products to unaffiliated third parties at a
discount of at least 40% off the Company's initial list price
for such Products.
1.3 "NET
SALES" shall mean, for the applicable Royalty Period, (i)
100% of the gross sales price of the Products invoiced by the
Company during the Royalty Period in transactions other than
Off-Price Transactions, plus (ii) 70% of the gross sales price
of the Products
invoiced by the
Company during the Royalty
Period in Off-Price Transactions, LESS (iii) price allowances
and customary
and usual trade discounts granted, returns
actually credited and
freight separately
charged during the
Royalty Period, LESS
(iv) Uncollectable
Amounts recognized
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during the Royalty
Period. Taxes on Net Sales such as
value
added taxes or its equivalent shall be deducted and separately
listed. Any Uncollectable Amounts deducted in calculating
Net
Sales for any Royalty Period and subsequently collected by the
Company shall be included in the calculation of Net Sales for
the Royalty Period
during which the Company collects such
amount.
Notwithstanding the
foregoing, in
calculating
Net
Sales, no deduction from the gross sales price for the
Products shall be
taken for costs
incurred by the Company in
connection with the
manufacture
(i.e., costs of goods) or
sales, marketing or
distribution
(including
internal sales
commissions) of the Products.
1.4 "PERSON"
means any individual, partnership, joint venture,
corporation, limited
liability company, trust, estate or
unincorporated organization.
1.5 "PRODUCT
CATEGORIES"
means, for each Season, a men's and
women's collection of
apparel products comprised of styles in
one or more product categories (e.g., shirts, pants, skirts)
identified in
writing by the Company in advance of such
Season.
1.6 "PRODUCTS"
means men's and women's apparel products in the
Product Categories bearing the Trademark.
1.7 "SEASON"
means one of the major
divisions of the year
when a
new collection of apparel products is first marketed for
sale
to apparel wholesalers
and retailers. The Seasons for each
Contract Year are identified on Exhibit A attached hereto.
1.8 "SERVICES"
means the design, sourcing, sampling, and marketing
services for
the Products in the Product Categories, as
further described in
Exhibit B attached hereto. The Services
include the
delivery by Designer to the Company for each
Season of the
deliverables
identified
on Exhibit A at the
times identified on Exhibit A.
1.9
"TRADEMARK" means the trademark William Rast(TM).
1.10
"UNCOLLECTABLE
AMOUNTS" means,
with respect to sales
of the
Product, those sales
invoiced to an unaffiliated third party
and unpaid by such third party and, thereafter, classified as
"bad debt"
or "uncollectable amounts" on the Company's
financial statements;
PROVIDED, that in no case shall any
unpaid amounts
on any invoice be deemed an Uncollectable
Amount unless and
until such amount is
more than ninety (90)
days outstanding.
2.
PROVISION OF SERVICES; EXCLUSIVITY.
2.1 SERVICES.
Effective as of the Effective Date, the Company
hereby retains
Designer to perform
the Services
for and on
behalf of the Company,
and Designer hereby
agrees to perform
the Services. Designer
agrees that
substantially all of
the
Services performed by
Designer hereunder
shall be performed,
directed or managed by
JL and ML, each of
whom shall devote
such time,
effort and skill as is
necessary for the proper
delivery of the Services and compliance with this Agreement.
Designer, JL and ML
will undertake
commercially
reasonable
efforts to ensure that all deadlines in respect of the
design
and completion of each Season are met.
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2.2 APPROVALS.
All Services will be performed subject to the
Company's
reasonable approvals
and controls (which such
approvals and controls
shall not be
unreasonably
withheld,
conditioned or
delayed), including
with respect to category,
design, style,
fabric, and pricing for each Season, and
Designer's performance will be measured against its delivering
Products that
meet the Company's reasonable approved
specifications as
communicated
to Designer in writing
from
time to time.
2.3
PROMOTIONAL SERVICES.
As requested in
writing by the Company
on reasonable advance notice, JL shall make public appearances
and perform other reasonable in-person services on up to ten
(10) calendar
days (each day limited to six (6) hours in
duration, exclusive of
travel time) per
Contract Year at
no
additional cost
to the Company, other than prompt
reimbursement for
reasonable
third-party
costs such as for
transportation and accommodations; PROVIDED, that all travel,
transportation and
accommodations shall
be at business class
or the equivalent
standard or, if business class is not
available, at first class or the equivalent standard.
2.4 EXCLUSIVE
TO THE COMPANY. Except as set forth herein,
Designer, JL and ML shall provide the Services exclusively for
the Company
solely with respect to apparel in the
Product
Categories, and shall
not provide any
Services for any other
brand or Person solely
with respect to apparel in the Product
Categories, except
for:
2.4.1 (i)
J.Lindeberg(TM)
branded
apparel
and any
derivative thereof,
and (ii) one or more yet to be
launched brands of
apparel with retail
price-points
substantially
different than the retail price-points
for the Products;
2.4.2 any
Person manufacturing or designing apparel sold in
distribution channels
other than the distribution
channels through
which
the Products are sold
(including,
without
limitation, Wal-Mart, or
departments within department stores that do not sell
brands similar to the Products at retail price-points
comparable to those at
which the Products are sold);
and
2.4.3 any
Person manufacturing
or designing in the Product
Categories, with price-points substantially different
than the price-points for the Products, and not
using, utilizing, associated or otherwise distributed
in connection with the name Bologna68, Paris68, Johan
Lindeberg or Marcella Lindeberg.
Notwithstanding the
foregoing,
the Company acknowledges and agrees that
Designer, JL and ML
may perform Services
for other apparel and non-apparel
clients for: (a) apparel in categories not included in the Product
Categories,
such as men's and women's tailoring, women's eveningwear,
lingerie, underwear,
socks, swimwear, active sportswear, golfwear, skiwear, accessories
or shoes, and
(b) high-end designer fashion, mass-market apparel, and lower-end price point
apparel, even if such
apparel includes
apparel in categories
included in the
Product Categories.
2.5
NON-EXCLUSIVE TO
DESIGNER. The Company shall have no
obligation to
use Designer, JL or ML exclusively in the
performance of the
Services, and may perform the Services
directly or engage a
third party to
perform the Services.
Notwithstanding the foregoing, upon the direct performance by
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the Company of the Services or the engagement of a third party
to perform the Services, the Company shall continue to fulfill
all of its obligations
set forth under this
Agreement.
All
apparel that is the
subject of such direct or third party
services pursuant to
this SECTION
2.5 shall not
constitute
Products under the Agreement.
2.6 PRODUCTION
OBLIGATIONS BY THE
COMPANY. With the
exception of
one (1) set of the
prototype samples per
Season per Contract
Year, the production of which constitute part of the
Services
to be provided by Designer hereunder, the Company will sample,
manufacture and distribute, at its sole cost and expense,
all
of the Products derived from Designer's Services. The Company
shall bear
all of the costs and expenses incurred in
connection with the manufacture and production of the Products
including,
without
limitation, the
duplicate sampling,
manufacture and production of all trims, piece goods and other
materials used for the Products produced under this Agreement.
2.7 COMPLIANCE
WITH LAW. The Company
shall comply with all
laws,
statutes,
ordinances,
orders,
constitutions,
charters,
treaties, rules or
regulations relating
to the
manufacture,
production, marketing,
advertising
and distribution of the
Products ("APPLICABLE LAW"), and will promptly notify Designer
if the
Company has received notice of any alleged violation of
or claim under any Applicable Law. The Company shall indemnify
and hold harmless Designer, JL and ML from any Claim (as
defined below)
that any such
Party may suffer or
incur as a
result of the
Company's failure to
comply with or breach
of
any Applicable Law.
3.
COMPENSATION; AUDIT.
3.1 DESIGN
FEES. For the Services, including, without limitation,
the delivery by
Designer to the
Company of the
deliverables
identified on
EXHIBIT A at the times
set forth on EXHIBIT A,
the Company has paid
Designer an aggregate of $400,000 in
design fees for the period from the Effective Date to the date
immediately preceding
the date of this
Agreement, shall
pay
Designer design
fees of $190,909.09 concurrently with the
execution and
delivery of this Agreement, and shall pay
Designer the
following design fees in the amounts set
forth
below (collectively, the "DESIGN FEES"):
DATE (FOR THE PERIOD OF:)
AMOUNT
-------------------------
------
March 1, 2008 - December 31, 2008
$1,909,090.90 ($190,909.09 per month)
January 1, 2009 - December 31, 2009
$2,000,000.00 ($166,666.67 per month)
January 1, 2010 - December 31, 2010
$2,000,000.00 ($166,666.67 per month)
All Design Fees are non-refundable and, to the extent not
heretofore paid, shall
be due and payable in
the monthly
amounts set forth above on the fifteenth
(15th) day of the month in the periods set forth herein; PROVIDED,
that Designer
has performed all of Designer's material obligations under this Agreement
as of
the date such payment is scheduled to be made, including, without limitation,
the delivery by
Designer of all
deliverables that
Designer is
scheduled to
deliver to the Company as set forth on EXHIBIT A prior to such
payment date. If
as of any payment date, Designer has not delivered all deliverables
scheduled to
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be delivered
by Designer as of such
payment date, the Company may withhold
payment of all
Design Fees until such deliverables have been delivered by
Designer in accordance with this Agreement.
3.2 ROYALTY.
For the Services, and
in addition to the Design Fees
payable as provided
in SECTION
3.1 above,
with respect to
Contract Year 2 and
Contract Year 3 only,
the Company shall
pay to Designer a royalty (the "ROYALTY") equal to the
Applicable Percentage of Net Sales of the Products, calculated
with respect
to Contract Year 2 and Contract Year 3, as
follows:
NET SALES
APPLICABLE PERCENTAGE
---------
---------------------
First $7.5 million
No Royalty
$7.5 million to $20 million
7.0%
Over $20 million
5.0%
The Royalty, if any,
owed Designer shall be calculated on a quarterly calendar
basis (the "ROYALTY
PERIOD") and shall be payable no later than forty-five (45)
days following the end of the applicable Royalty Period. An obligation by the
Company to pay a
Royalty to
Designer shall accrue when Products are sold
regardless of the time of collection by the Company; PROVIDED, that the amount
of Royalty shall be calculated only with respect to amounts
actually collected
by the Company.
Products shall be
considered "sold" upon
the date of billing,
invoicing, shipping or
payment, whichever
event occurs first. For each Royalty
Period, the Company
shall provide Designer
with a written royalty
statement,
which statement shall provide a reasonably detailed calculation of
the Net Sales
for the applicable
Royalty Period and computation of the amount of Royalty,
if
any, payable hereunder. For purposes of clarity, the Company's
obligation to pay
Designer a Royalty
shall apply only with respect to Net Sales that occur during
Contract Year 2 and
Contract Year 3,
notwithstanding that
Net Sales may occur
during Contract Year 1 or after Contract Year 3.
Notwithstanding this
SECTION 3.2 to the
contrary, the Company shall have no
obligation to pay any portion of a Royalty if, immediately after the payment
of
such Royalty, the
cumulative
amount of Design Fees
and Royalties paid by
the
Company to Designer from the inception of this Agreement exceeds an
amount equal
to thirty-three
percent (33%) of the
cumulative
amount of Net Sales
from the
inception of this
Agreement (the "ROYALTY CAP"). The Royalty Cap shall be
determined at
the end of the Term (whether upon expiration or earlier
termination), and any Royalties paid by the Company to Designer in
excess of the
Royalty Cap shall be refunded by Designer to the Company within
thirty (30) days
following expiration
or earlier termination
of the Term.
3.3 AUDIT.
Designer
and/or
its designated representative
(including its
counsel and/or accountants) shall have the
right, upon at least
five (5) days written notice and no more
than two (2) times per calendar year, to inspect the Company's
books and records and all other documents and material in the
possession of or under the control of the Company with respect
to the calculation of the Royalty, if any, payable to Designer
hereunder, at the
place or places
where such records are
normally retained by the Company. If such inspection reveals a
discrepancy in the
amount of Royalty owed
Designer from what
was actually paid, the Company shall pay such discrepancy.
If
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such discrepancy
is in excess of five percent (5%) of the
amount of the Royalty
that should have been paid to Designer,
the Company shall also reimburse Designer for the cost of such
inspection
including any
attorneys'
fees
incurred in
connection therewith.
All books and
records related to the
Company's obligations
hereunder shall be
maintained and kept
accessible and available to Designer (and its representatives
and agents) for
inspection
for at least two (2)
years after
termination of this Agreement.
3.4 PROCEDURE
FOR RESOLVING DISAGREEMENTS. If the Company and
Designer cannot agree
with respect to the
calculation of any
Royalty paid
pursuant to SECTION 3.2 following an audit
conducted in
accordance with
SECTION 3.3, then they shall
negotiate in good
faith for a period of thirty (30) days from
the date Designer
first notifies the Company of any such
disputed Royalty payment (the "RESOLUTION PERIOD") to resolve
any disagreement
as to such Royalty. If the Company and
Designer are unable to resolve all disagreements with respect
to such Royalty
during the Resolution Period, then such
disagreements
shall be submitted for final and binding
resolution to a neutral nationally-recognized accounting firm
to resolve such disagreements (the "ACCOUNTING ARBITRATOR").
The Accounting
Arbitrator
shall
be selected by mutual
agreement of the
Company and
Designer; provided, that if,
within thirty (30) calendar days after the termination of the
Resolution Period,
the parties are unable to agree on a
neutral accounting firm to act as Accounting Arbitrator,
then
the American
Arbitration
Association ("AAA") in Los Angeles,
California shall select the Accounting Arbitrator, who shall
make a determination as to the matters set forth in the notice
of disagreement in accordance with the Commercial Arbitration
Rules of the AAA. All
AAA proceedings
shall be conducted
in
Los Angeles,
California. The
determination of the Accounting
Arbitrator shall be final and binding. The fees, expenses and
costs of the Accounting Arbitrator shall be paid by the
party
whose final calculation of such disputed Royalty was different
by the greater amount from that of the Accounting Arbitrator.
3.5 EXPENSE
REIMBURSEMENT.
The Company shall
reimburse Designer
for pre-approved
(in writing), third party, out-of-pocket
expenses incurred by
Designer in connection
with Designer's
provision of
Services
hereunder
(including,
without
limitation, travel, samples, seamstress,
prototype
development, pattern
making and any design related services),
of up to $200,000
per Contract Year; provided, that any
expenses incurred by
JL in performing
the obligations set
forth under
SECTION 2.3 shall not
be deemed to be part of or
calculated under such cap on reimbursements. Unless otherwise
agreed to by the Company or as set forth herein, all expenses
incurred by Designer
in performing
Services excess of such
amount per Contract Year shall be paid by Designer.
4. TERM
AND TERMINATION.
4.1 TERM. The
term (the "TERM") of this Agreement shall commence
as of the Effective
Date and continue for
an initial period
expiring on December
31, 2010 unless
earlier terminated
as
provided herein.
The Term may be extended for one or more
additional periods
only upon the
written agreement of the
Company and Designer.
4.2
TERMINATION FOR CONVENIENCE. The Company shall have the right,
exercisable by delivery of written notice to Designer no later
than September
30 of the then-current Contract Year, to
terminate this
Agreement at December
31 of the
then-current
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Contract Year.
Designer shall have the right, exercisable by
delivery of
written notice to the Company no later than
September 30, 2009, to
terminate this
Agreement at
December
31, 2009. If either the Company or Designer exercises its
right to terminate this agreement
