Exhibit 10.7
DISTRIBUTION
AGREEMENT
This DISTRIBUTION AGREEMENT (the
“Agreement”) is made and entered into this 31
st
day of July, 2005 (the
“ Effective Date ”), by and between Cygne
Designs, Inc., a Delaware corporation (“ Cygne
”), with its principal executive office at 11 West 42
nd
Street, New York, New
York 10036), and Commerce Clothing Company, LLC, a California
limited liability company (“ Commerce ”)
with its principal executive office at 5804 East Slauson Avenue,
Commerce, California 90040.
WITNESSETH:
WHEREAS , Cygne is, among other things, a seller of
apparel products; and
WHEREAS , the parties have entered into a separate Asset
Purchase Agreement dated the same date as this Agreement, pursuant
to which Cygne has acquired from Commerce certain assets and
properties formerly used by Commerce in the operation of its
business of selling and distributing branded and private label
denim-related products; and
WHEREAS, the parties now desire to enter into this
exclusive Agreement whereby Commerce will provide certain Services
(as defined herein) for Cygne under the terms and conditions set
forth in this Agreement.
NOW THEREFORE
, in consideration of the mutual
promises, covenants, representations and good and valuable
consideration hereinafter set forth, the adequacy of which is
hereby acknowledged, the parties hereto agree as
follows:
1. Term .
(a) Initial Term . The term
of this Agreement shall commence as of the Effective Date and shall
continue until the earlier of (i) two (2) years after the Effective
Date and (ii) the date this Agreement is otherwise terminated in
accordance with the provisions hereof (such period referred to
herein as the “ Initial Term
”).
(b) Renewal Term . This
Agreement will automatically renew for consecutive one (1) year
terms under the same terms and conditions set forth herein (each a
“ Renewal Term ”) unless terminated by
either party upon delivering written notice to the other party at
least ninety (90) days but not more than one hundred twenty (120)
days prior to the end of the then existing term. The Renewal
Term(s), if any, and the Initial Term are collectively referred to
herein as the “ Term .”
2. Warehouse Facilities . The
Services, defined below, will be rendered by Commerce at the
following facilities:
5804 E. Slauson Avenue
Commerce, California
90040
ITC
309 Nafta Boulevard
Loredo, Texas 78045
3. Services and Performance .
In accordance with the terms of this Agreement, during the Term of
this Agreement, Commerce shall, upon Cygne’s request, provide
services, as described in Annex A attached hereto and incorporated
into this Agreement, to Cygne with respect to Cygne’s apparel
products (the “ Services ”). Commerce
shall be the sole and exclusive provider of Services to Cygne and
Cygne agrees that, during the Term of this Agreement, it shall not
utilize any third party to provide such Services to Cygne without
the prior written consent of Commerce.
4. Consideration .
(a) Distribution and Operations
Services . As consideration for the Services provided
hereunder, Cygne will pay Commerce a fixed rate per apparel unit of
Fifty Cents ($0.50) (the “ Unit Rate
”).
(b) On an annual basis, Commerce may
increase the Unit Rate based upon economic factors. Any requests
for increases in the Unit Rate that Commerce submits to Cygne shall
be accompanied by supporting documentation and shall be determined
upon the mutual agreement of the parties; provided, that in no
event shall the Unit Rate be increased by more than the lesser of
five percent (5%) per annum or the annual increase in the Consumer
Price Index (CPI) for the corresponding year. In the event that the
parties, after good faith negotiation, are unable to agree upon the
increase to the Unit Rate, the matter shall be submitted to
arbitration. The arbitration award shall be final and binding upon
the parties and shall be enforceable in accordance with its terms.
Pending the final decision of the arbitrator, this Agreement shall
stay in full force and effect.
5. Auditing Procedures
.
(a) During the Term, Cygne’s
personnel and/or its agents and representatives, shall have the
right to inspect Commerce’s records relating to this
Agreement and the Services provided herein, and perform inventory
audits with respect to the inventory held by Commerce on behalf of
Cygne, upon at least ten (10) days prior written notice to
Commerce, during regular business hours, and not more frequently
than once per each of Cygne’s fiscal quarters. Commerce shall
provide reasonable assistance and access to its facilities,
personnel and materials for such purposes. Without limiting the
foregoing, Cygne shall, at the end of each of the second and fourth
quarters, take an accounting of the inventory held by Commerce on
behalf of Cygne. Overages and shortages will be balanced to a net
result at the end of each fiscal year of Cygne during the
Term.
(b) If there is a net shortage of
units after the overages and shortages have been balanced to a net
result, then, within 10 tens after the parties’ mutual
agreement on the determination of the net shortage determination,
Commerce shall pay to Cygne an amount equal to the direct and
invoiced manufacturing costs actually incurred by Cygne in
connection with the units included in such net shortage (the
“ Shortage Payment ”).
(c) In the event there is a net
shortage of units pursuant to subsection (b) above and any of the
units included in such shortage are subsequently located causing a
net overage of units after the overages and shortages have been
balanced to a net result at the end of any fiscal year pursuant to
subsection (a) above, then Cygne shall reimburse Commerce for that
portion of the Shortage Payment made to Cygne by Commerce
applicable to the units included in such net overage, with
reasonable deductions for the aging of the units.
-2-
6. Fees, Expenses and Payment
Conditions .
(a) Services Fees . The fees
for Services will be invoiced on a monthly basis and will be
computed based on the actual number of units processed for that
month multiplied by the Unit Rate.
(b) Packaging Costs .
Purchases of packaging and shipping materials shall be invoiced
monthly and paid by Cygne based on the actual cost of materials
purchased that month.
(c) Other Costs . Purchases
of all other items associated with the provision of the Services
contemplated herein, including, but not limited to freight, office
supplies, and postage, shall be invoiced monthly and paid by Cygne
based on the actual cost of any such items purchased that
month.
(d) Special Handling Fees .
Special activities such as quality control, annual inventory,
customized repairs, customized finishing, labeling, tagging or
packaging, and specialized administrative and management projects
shall be performed by Commerce only after receipt of a written
authorization from Cygne containing mutually agreed upon fixed
hourly rates for such special activities. These activities will be
invoiced monthly, based on the actual number of hours
worked.
(e) Payment Conditions .
Cygne shall pay each invoice net 30 (thirty) days from the date of
the invoice, by either cash or letter of credit, provided however,
that Cygne may, in its discretion, make such payments prior to the
end of such 30-day period to the extent sufficient funds are
available therefore. Invoices shall be sent by mail or by courier
within five (5) days after the invoice date.
7. Insurance and
Indemnification .
(a) All of Cygne’s products
which are subject to the Services provided for herein (the “
Products ”) shall be insured by Cygne while in
the custody and under the control of Commerce, for the benefit of
both Cygne and Commerce. Commerce represents that it is insured for
professional and third party liabilities on standard business
conditions. Commerce shall be liable for property damage and/or
loss caused during the performance of Services due to its proven
gross negligence or willful misconduct.
(b) Each party to this Agreement
shall defend and indemnify the other and hold it harmless from and
against any and all liability, damages, costs and expenses
(including attorneys’ fees), arising from any willful
misconduct or gross negligence of the indemnifying party, or any of
its officers, contractors, licensees, agents, servants or
employees.
(c) Each party shall, upon the
request of the other party, furnish such other party with copies of
all insurance policies concerning its standard business liability
coverage. Each party shall ensure that premiums due with respect to
such insurance policies are made when due and ful
