EXHIBIT 10.14
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RETAIL ALLIANCE AGREEMENT
BY AND BETWEEN
SEPHORA USA, LLC
AND
ADVANCED AESTHETICS, LLC AND ADVANCED AESTHETICS, INC.
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TABLE OF CONTENTS
Page
1.
DEFINED
TERMS.........................................................1
1.1
Definitions..................................................1
2.
GRANT OF EXCLUSIVE
RIGHTS.............................................5
2.1
Grant........................................................5
2.2 Rights
Reserved by AAI.......................................6
3.
TERM..................................................................6
3.1 Initial
Term.................................................6
3.2 Additional
Term..............................................6
3.3 Early
Termination............................................6
3.4
Consequences of Termination..................................7
4.
CONSIDERATION; PAYMENT
PROCEDURES.....................................8
4.1
Consideration................................................8
4.2 No Other
Consideration.......................................9
4.3 Payment
Procedures...........................................9
5. EARN
BACK OF PERFORMANCE
DEPOSIT......................................9
5.1 Earn Back
Right..............................................9
6.
PRODUCTS AND
EQUIPMENT...............................................10
6.1 Definition
of Products......................................10
6.2 Product
Specifications......................................10
6.3 Supply of
Products to Sephora...............................10
6.4 Product
Recalls.............................................11
6.5 Supply of
AAI Equipment to Sephora; Software
Interface Development.......................................11
7. AAI
CENTERS..........................................................12
7.1
Designation of Sephora Host Stores and Test Centers.........12
7.2
Construction of AAI Centers.................................12
7.3 Operation
of AAI Centers....................................12
7.4 Qualified
Sephora Cast Members..............................13
8.
ADJACENT AAI
FACILITIES..............................................13
8.1 Timing;
Construction........................................13
8.2
Operation...................................................14
8.3 Adjacent
AAI Facility Service Revenue; Monthly
Reconciliation..............................................14
9.
SEPHORA ALLIANCE
STORES..............................................14
9.1 Timing;
Construction........................................14
9.2
Operations; Costs...........................................14
10.
PROMOTIONAL
CAMPAIGN.................................................15
10.1
Ownership...................................................15
10.2
Provision of Materials......................................15
10.3
AAI Promotions or Advertising...............................15
11.
INTELLECTUAL
PROPERTY................................................15
11.1
Grant of License to AAI Intellectual Property...............15
11.2
Grant of License to Sephora Intellectual Property...........15
11.3
Goodwill....................................................16
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TABLE OF CONTENTS
(Continued)
Page
12.
REPRESENTATIONS AND
WARRANTIES.......................................16
12.1
Representations and Warranties of AAI and Parent............16
12.2
Representations and Warranties of Sephora...................18
13. ADDITIONAL
COVENANTS.................................................19
13.1
Prestige Operations.........................................19
13.2
Deliveries by AAI...........................................19
13.3
Accounting Audit Rights.....................................19
13.4
Ownership of Customer Information...........................19
13.5
Parent Guaranty.............................................20
13.6
Notification of Events......................................21
14.
CONFIDENTIALITY;
NON-COMPETITION.....................................21
14.1
Confidentiality.............................................21
14.2
Non-Competition.............................................22
15.
INSURANCE............................................................22
15.1
AAI Insurance Obligations...................................22
15.2
Sephora Insurance Obligations...............................23
15.3
Policy Information..........................................23
16.
INDEMNIFICATION......................................................23
16.1
Indemnification Obligation..................................23
16.2
Procedure...................................................24
16.3
Limitation on Liability.....................................24
16.4
Survival....................................................24
17.
MISCELLANEOUS........................................................25
17.1
Notices.....................................................25
17.2
Dispute Resolution..........................................26
17.3
Relationship Among Parties..................................27
17.4
Amendments; Waivers.........................................27
17.5
Entire Agreement............................................27
17.6
Severability................................................28
17.7
No Assignment; No Third Party Beneficiaries.................28
17.8
Survival....................................................28
17.9
Governing Law; Submission to Jurisdiction...................28
17.10
Expenses....................................................28
17.11
Force Majeure...............................................28
17.12
Counterparts Facsimile Signatures...........................28
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RETAIL ALLIANCE AGREEMENT
This RETAIL ALLIANCE AGREEMENT (this "Agreement"), dated effective as
of , 2004, is made and entered into by and
between SEPHORA USA,
LLC, a Delaware
limited liability company ("Sephora"),
and ADVANCED
AESTHETICS, LLC, a Delaware
limited liability company doing business as Advanced Aesthetics Institute
("AAI") and ADVANCED AESTHETICS, INC., a
Delaware corporation ("Parent").
RECITALS
A. Sephora is a
leading retailer
with an excellent reputation for
selling a wide variety of prestige and
innovative
beauty products, including
skin care products, in the United States and Canada
(the "Territory")
through
retail stores and through the internet,
including on its website www.sephora.com
B. AAI is the owner
and operator of a fully integrated aesthetics
resource center that brings together medical and non-medical aesthetic
practitioners to create and deliver
optimized client appearance.
C. AAI desires to expand its existing diagnostic and treatment
platform
by developing a line of skin care products
with scientifically
proven efficacy,
as more specifically described herein, and Sephora desires to become the
exclusive retailer of such products in the
Territory.
D. To further
the parties' mutual interest as set forth in these
premises, Sephora and AAI desire to engage
in a strategic retail alliance on the
terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements
set forth herein and for other good and
valuable consideration
the receipt and
adequacy of which are hereby acknowledged,
the parties hereby agree as follows:
1. DEFINED TERMS
1.1 Definitions. Capitalized terms used herein will have the
respective
meanings set forth below:
"AAI" has the meaning set forth in the Preamble.
"AAI Center" has the
meaning set forth in Section 2.1.2 hereof. The
phrase "AAI Centers" includes the Test Centers unless otherwise expressly
indicated.
"AAI Equipment"
means the proprietary equipment of AAI necessary to
provide the AAI Services. The operation of the AAI Equipment is
dependent, in
part, on the use of third party operating
software that will be furnished by AAI
with the AAI Equipment. The initial AAI Equipment to be provided by AAI
hereunder is listed on Schedule 1 attached
hereto and
incorporated
herein by
this reference.
"AAI Host Store" has the meaning set forth in Section 9.1
hereof.
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"AAI Intellectual
Property" has the
meaning set forth in Section 11.1
hereof.
"AAI Methods" means,
collectively, AAI
methodologies
regarding skin
biology and skin care actives; the
diagnostic techniques and methods used by AAI
to identify and define skin care issues;
and the proper use of the AAI Equipment
and the Products.
"AAI Salon" means the aesthetic facial salons owned and operated by
AAI
in the Territory whether under the brand
"Georgette Klinger," or otherwise.
"AAI Services" means
the services listed on Schedule 2 attached hereto
and incorporated herein by this reference that will be provided (i) at AAI
Centers by Qualified Sephora Cast Members and/or (ii) at Adjacent AAI
Facilities. All AAI Services incorporate the AAI Methods,
involve the sale
of
the Products, and utilize the AAI Equipment. If necessary to obtain a
lease,
permits or otherwise comply with Applicable Law at an
AAI Center, Sephora
Host
Store, or Adjacent AAI Facility, Sephora
and AAI may agree to limit the types of
AAI Services offered at any particular AAI
Center or Adjacent AAI Facility.
"Adjacent AAI
Facility" has the meaning set forth in Section 2.1.3
hereof.
"Adjacent AAI Facility
Product Revenue" has the meaning set forth
in
Section 8.3 hereof.
"Adjacent AAI Facility
Service Revenue" has the meaning set forth
in
Section 8.3 hereof.
"Affiliate" means,
with respect to any
Person (including any
party),
any other Person that directly or indirectly
controls, is controlled by or is
under common control with that Person,
or which that Person
beneficially
owns
more than fifty percent (50%) of the equity interests therein (provided,
however, that with respect to the parties,
no individual or
entity as to which
the ultimate parent entity of a party does not
directly or indirectly
control
the operations or management
thereof will be deemed
to be an Affiliate of such
party for purposes of this Agreement).
"Agreement" has the meaning set forth in the Preamble.
"Applicable Law"
means, as applicable in the context so used, any law,
ordinance, rule, regulation, order, license, permit and other
requirement, now
or hereafter in effect, of any Governmental Body of competent jurisdiction
(including, without limitation, regulations promulgated by the U.S. Food
and
Drug Administration and the Occupational Safety and Health Administration
regarding health and safety) which is applicable to the operation of the AM
Centers, Adjacent AM Facilities,
Sephora Host Stores,
Sephora Alliance
Stores
and/or the AAI Salons, the manufacture and sale of the Products,
the design,
manufacture and use of the AM Equipment, the use of the AM Methods, the
provision of the AAI Services, or the
business and operations of Sephora.
"Capital Expenditures"
means the aggregate expenditures by Sephora for
the construction of the AAI Centers, the
Adjacent AAI Facilities and the Sephora
Alliance Stores including, without limitation, expenditures for leasehold
improvements, furniture, fixtures and
equipment (including AAI Equipment).
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"Change of Control" has the meaning given in Section 3.3.2
hereof.
"Claim" means any
claim, action or
proceeding
instituted
against a
party by a third Person, including, without
limitation, any Governmental Body.
"Confidential
Information" has the
meaning given in Section 14.1
hereof.
"CRM Application" has the meaning given in Section 6.5.2
hereof.
"Customer Information" means information collected, owned and managed
by Sephora, in accordance with Applicable Law, from Sephora's clients and
customers as a result of providing
the AAI Services, or selling the Products,
whether or not such information is
integrated into the Software Interface or the
CRM Application.
"Disclosing Party" has the meaning set forth in Section 14.1
hereof
"Dispute" has the meaning set forth in Section 17.2.1 hereof
"Escrow" has the meaning set forth in Section 4.1.1.
"FDA" means the U.S. Food and Drug Administration.
"Force Majeure" has the meaning set forth in Section 17.11
hereof
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory
body.
"Incapacitated" means,
with respect to AAI or Sephora, (i) such party
becomes insolvent because of its inability
to pay its debts as they become due;
(ii) such party makes a general
assignment
for the benefit of its creditors;
(iii) a voluntary petition in bankruptcy is filed by such party, or an
involuntary petition is filed against such party and is not
opposed within 90
days of such filing; (iv) such party is
adjudicated a bankrupt or insolvent; (v)
such party consents to the appointment of a
receiver or other custodian for such
party's business or assets, or a receiver or other
custodian of such party's
assets or property, or any substantial part thereof,
is appointed by any
court
of competent jurisdiction; (vi) a final judgment in an amount in excess of
$500,000 rendered against such party remains
unsatisfied
or of record for
90
days or longer; (vii) such party is dissolved; or (viii) execution is levied
against a substantial portion of such
party's business or property.
"Indemnified Party"
has the meaning set
forth in Section 16.1
hereof
"Indemnifying Party" has the meaning set forth
in Section 16.1 hereof
"Initial
Term" has the meaning set forth in Section 3.1 hereof
"Johns Hopkins" means
Johns Hopkins Medicine, acting through The Johns Hopkins Health System
Corporation, a Maryland corporation, and The Johns Hopkins University, a
Maryland corporation.
"Johns Hopkins Agreement" means the Services and Licensing
Agreement to
be entered into by and between Johns
Hopkins, Advanced Aesthetics, Inc., and AAI
regarding Johns Hopkins' development of
skin testing methodologies and skin care
product efficacy testing protocols, the scientific testing on Third Party
Products and the Products, and the use
of
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the Johns Hopkins Certification,
including,
without limitation, a
grant to AAI
and Sephora to use the Johns Hopkins Certification in connection with the
Products, the AAI Equipment and the AAI
Services. The latest draft of the Johns
Hopkins Agreement is attached hereto as
Exhibit C.
"Johns Hopkins
Certification" means the branded validation authorized
by the Johns Hopkins Agreement signifying
the results of specific testing of the
AAI Products and the validation of the AAI
Equipment and the AAI Services.
"Liability" means any debt, obligation, duty or liability of any
nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt,
obligation,
duty or liability would be required to be disclosed
on a balance sheet prepared
in accordance with GAAP and regardless of
whether such debt, obligation, duty or
liability is immediately due and
payable.
"Material Adverse
Effect" with respect to a party hereto, means a
material adverse effect on the business, financial condition or results of
operations of such party.
"Net Revenue"
means gross sales revenue from (i) the sale of the
Products by Sephora, (ii) the provision of the AAI Services from the AAJ
Centers, and (iii) the operation of the
Sephora Alliance Stores and the Adjacent
AAI Facilities, less customary allowances,
discounts, and
returns; gross sales
revenue does not include sales tax or other
taxes collected
from customers for
payment to a governmental authority.
"Parent" has the meaning given in the Preamble hereof.
"Performance Deposit"
has the meaning set forth in Section 4.1.1
hereof.
"Performance Deposit
Balance" means that portion of the
Performance
Deposit not yet earned back by Sephora
pursuant to Section 5 hereof.
"Person" means any individual, corporation, partnership, joint
venture,
limited liability company, association, joint-stock
company,
trust,
unincorporated organization or Governmental
Body.
"Product Availability
Date" means the date on which both (1) the
Products are first available for purchase
by Sephora and (2) Sephora is prepared
to sell the Products in Sephora
Retail Stores or on the Website. The parties
anticipate that the Product Availability
Date will be in July 2005.
"Products" has the meaning set forth in Section 6.1 hereof.
"Promotional Campaign"
has the meaning set forth in Section 10.1
hereof.
"Purchase Order"
means a purchase
order issued by
Sephora to AAI for
any Product substantially in the form attached
hereto as Exhibit A. I the event
of any conflict between the provisions of a
Purchase Order and the provisions of
this Agreement, the provisions of this
Agreement will control.
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"Qualified Sephora
Cast Member" has the meaning set forth
in Section
7.3 hereof. "Receiving Party" has the meaning
set forth in Section 14.1 hereof.
"Renewal Term" has the meaning set forth in
Section 3.2 hereof.
"Sephora" has
the meaning set forth in the Preamble.
"Sephora Host Store" has the meaning set forth
in Section 7.1 hereof.
"Sephora Intellectual Property" has the meaning set forth in Section 11.2
hereof. "Sephora Alliance Store" has the meaning set forth in Section 9.1
hereof. "Sephora Alliance Store Costs" has
the meaning set forth in Section 9.2
hereof.
"Sephora Retail Stores" means the retail stores now and hereafter
owned
and operated by Sephora in the
Territory.
As of December
31, 2004, Sephora
expects to own and operate approximately
ninety-five (95) Sephora Retail Stores.
"Software Interface"
has the meaning
given in Section
6.5.2 hereof
"Term" means the Initial Term or the
Renewal Term, as applicable.
"Termination Date"
means the date on which the Term of this Agreement
terminates either because the Initial Term or any Renewal Term has
expired or
because this Agreement has been sooner
terminated in accordance with Section 3.3
hereof.
"Territory" has the meaning set forth in Recital A.
"Test Centers' has the meaning set forth in Section 7.1.1
hereof
"Third Party Products"
means an assortment of cosmetic products or
cosmeceuticals sold by Sephora, from time to time, from the Sephora Retail
Stores (including the Sephora Host Stores and the
Website). An assortment of
Third Party Products may be incorporated by
AAI into the AAI Services performed
by the Qualified Sephora Cast Members at the AAI Centers
and may be utilized,
featured and promoted by AAI in AAI Salons and
Adjacent AAI Facilities to
enhance the professional credibility and awareness of Third Party
Products,
subject to any limitations imposed by the
vendors of the Third Party Products.
"Website" means any
point of presence
maintained
by Sephora on the
Internet or on any other public or private
data network including
that certain
website which is identified by the URL www.sephora.com With respect to any
Website maintained by Sephora on the World
Wide Web or any successor public data
network, such Website includes all HTML pages (or
similar unit of
information
presented in any relevant data protocol) that either (a) are identified by
the
same second-level domain (such as http://www.sephora.com)
or by the same
equivalent level identifier in any relevant address scheme, or (b) contain
branding, graphics, navigation or other characteristics such that a user
reasonably would conclude that the pages are
part of an integrated
information
or service offering.
2. GRANT OF EXCLUSIVE RIGHTS
2.1 Grant. Subject to
the limited exceptions
set forth in Section 2.2
below, AAI grants to Sephora for the Term
of this Agreement the exclusive right
throughout the Territory (but only in the
Territory) to:
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2.1.1 Sell the
Products in Sephora
Retail Stores, through the
Website and through any other retail channel of distribution anywhere in the
Territory and promote the sale of the
Products through the Promotional Campaign
and any other means reasonably identified by Sephora including television or
radio advertising and catalogues;
2.1.2 Utilize the AAI Intellectual Property and AAI Methods to
own
and operate defined retail sales and
consultation centers
as more
particularly
described in Section 7 within the four
walls of Sephora Retail Stores (each, an
"AAI Center").
2.1.3 Develop
retail space for the operation of an AAI Salon
adjacent to a Sephora Retail Store which is designed to permit the free
pass-through of customers from the AAJ Salon space to the
Sephora Retail Store
as more particularly described in Section 8 hereof
(each such adjacent
retail
space to be referred to as an "Adjacent AAI
Facility"); and
2.1.4 Sublease
retail
space from AAI for the purpose of
constructing and operating a Sephora Alliance Store, as more particularly
described in Section 9 hereof.
2.2 Rights Reserved by AAI. Notwithstanding the exclusive rights granted to
Sephora under Section 2.1 hereof, AAI reserves all rights to use the AAI
Intellectual Property and the AAI Methods,
and to sell the Products: (i) in AAI
Salons, excluding an Adjacent AAI
Facility; (ii) in offices of licensed medical
or dental doctors including medical spas; (iii) on cruise ships; and (iv)
subject to Sephora's consent, which consent may be granted or withheld in
Sephora's sole discretion, through any other retail
distribution
channel that
will not have a Material Adverse Effect on Sephora's rights under this
Agreement.
3. TERM
3.1 Initial Term.
The initial term of
this Agreement
(the "Initial
Term") will commence on the date first written
above and expire on December 31,
2010 (the "Initial Expiration Date") unless
sooner terminated in accordance with
the terms of this Agreement.
3.2 Additional
Term Upon the
expiration
of the Initial
Term, this
Agreement may be , extended for one additional term of three (3) years (a
"Removal Term") by mutual agreement of
Sephora and AM.
3.3 Early Termination.
This Agreement will terminate prior to the
expiration of the Initial Term or the
Renewal Term, as applicable, in the manner
and on the earliest date on which any of
the following occurs:
3.3.1 upon execution of a written termination agreement by
Sephora
and AAI;
3.3.2 by Sephora, in
its sole discretion,
thirty (30) days after
Sephora receives notice of a transaction by AAI or by any Person which has
a
direct or indirect ownership interest in AAI that results in
fifty percent (5
0%) or more of the constituent ownership interests in AAI being
sold, assigned,
transferred, shared, divided, conveyed or
otherwise disposed of to a person not
a beneficial owner of AAI on the date of
this Agreement (or a current Affiliate
thereof), or which otherwise results in a
change in control of AAI a "Change of
Control" provided, that (i) any sale,
assignment, transfer
or disposal to AAI's
current beneficial owners or any of
their
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current Affiliates and (ii) an initial public offering of AAI, shall not
constitute a Change of Control; provided, further, that if Sephora does not
elect to terminate this Agreement
following a Change of
Control, by delivery of
a written notice of termination to AAI within thirty (30) days of Sephora's
receipt of notice of a Change of Control,
then this Agreement will continue in
full force and effect and will be binding
on AAI's successor-in-interest;
3.3.3 by Sephora in its sole discretion within one hundred eighty
(180) days after Sephora discovers that the Johns Hopkins Agreement has been
terminated;
3.3.4 automatically,
by either AAI or Sephora, if the other party
hereto becomes Incapacitated;
3.3.5 by Sephora in
its sole discretion
if Richard R.
Rakowski
stops serving as Chairman of AAI at any time prior to December 31, 2007;
provided, however, that the death or permanent physical disability of Mr.
Rakowski will not trigger a termination
right in favor of Sephora so long as AAI
identifies a qualified replacement within
ninety (90) days following the date of
such death or disability; and
3.3.6 by either AAI or Sephora in its sole discretion within one
hundred eighty (180) days after receipt of
a written report
indicating that Net
Revenue for any trailing twelve (12) month period (from and
after December 31,
2006) is less than Five Million Dollars
($5,000,000).
3.4 Consequences of Termination. Except as expressly provided herein,
such expiration or termination will not relieve any party of any
obligations or
prejudice any rights of any other party
existing at the time
of expiration or
termination or terminate those rights or obligations which by their nature
survive the expiration or termination of this Agreement. On the Termination
Date, the following will occur:
3.4.1 Sephora's
exclusive
rights
under Section 2.1 will
automatically terminate and be of no
further force and effect.
3.4.2 AAI will be
obligated to sell
Products to Sephora on a
non-exclusive basis to the extent necessary to fulfill Purchase Orders
outstanding on the Termination Date if
fulfillment is so elected by Sephora, and
to permit Sephora to exercise its rights
under Section 3.4.4 below.
3.4.3 AAI will be permitted to sell its Products, utilize the AAI
Methods and the AAI Intellectual Property and provide any AAI Services as it
deems, in its sole discretion, appropriate including, but not limited to (i)
selling its Products to Persons other than
Sephora, (ii)
promoting the sale
of
the Products through promotional campaigns and any other means reasonably
identified by AAI, including television or
radio advertising and catalogues, and
(iii) providing the AAI Services and
utilizing the AAI Intellectual Property and
the AAI Methods to own and/or operate
retail sales and
consultation centers
in
cooperation with other Persons.
3.4.4 Sephora, in sole discretion, will have the right to elect
to
continue to operate any or all of the AAI
Centers and Sephora
Alliance Stores,
in operation immediately prior to the
Termination Date, in the same maimer that
such AAI Centers and/or Sephora
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Alliance Stores were operated immediately prior to such termination and in
connection therewith, sell the Products, use the AAI Intellectual Property
and
utilize the AAI Methods. Such continued operations shall be on a
non-exclusive
basis for up to twelve (12) months
following the
termination
of the Agreement
(the " Period") The Tail Period can be
extended by mutual
written agreement
of
Sephora and AAI. During the Tail Period, Sephora will pay AAI an annual
licensing fee on December 31 of each year
(pro-rated
for any partial
calendar
year) equal to (i) the sum of $50,000
multiplied
by the number of AAI
Centers
and the Sephora Alliance Stores operated during
the preceding calendar
year up
to a maximum aggregate licensing fee of
$500,000. No additional license fee will
be payable to AAI during the Tail Period
for Products sold by Sephora.
3.4.5 If Sephora has terminated the Agreement under Section 3.3.3
or 3.3.5, then by the thirtieth ( day
following the Termination Date, AAI shall
return to Sephora 100% of the Performance
Deposit Balance.
If either party
has
terminated the Agreement under Section 3.3.6, then by the thirtieth ( day
following the Termination Date, AAI shall return to Sephora
an amount equal to
50% of the Performance Deposit Balance.
3.4.6 If Sephora has
not elected to
continue to operate
the AAI
Centers and the Sephora Alliance Stores under Section
3.4.4, then Sephora
will
have a period of six (6) months from the Termination Date to close the AAI
Centers and Sephora Alliance Stores in an
orderly manner.
3.4.7 AAI will remain liable for the remaining term of any
sublease for Adjacent AAI Facilities, it being expressly understood that the
termination of this Agreement will not
terminate such sublease.
3.4.8 If Sephora has not elected to continue to sell the
Products
under Section 3.4.4, then Sephora will have a period of
six (6) months from the
Termination Date to sell off Product carried
by Sephora and AAI must repurchase
all remaining inventories of the Product (at
Sephora's original
cost) that are
carried by Sephora within twelve (12) months from the end of such sell-off
period as designated by Sephora for repurchase, with payment for all of the
repurchased inventory to be made, at AAI's
election, in either
one lump sum or
in equal monthly installments over a period not to exceed six
(6) months from
the end of such sell-off period.
4. CONSJDERATION; PAYMENT PROCEDURES
4.1 Consideration.
In consideration of the grant of
exclusive rights
from AAI to Sephora under Section 2.1
hereof, Sephora will
provide AAI with the
consideration set forth in this Section
4.1.
4.1.1 Upon the execution and delivery of this Agreement by
Sephora
and AAI, Sephora will deposit the sum of
Five Million Dollars
($5,000,000) (the
"Performance Deposit") in an interest bearing account with an escrow agent
jointly selected by AAI and Sephora (the
"Escrow"). The
Performance Deposit
is
intended to secure Sephora's performance of
its obligations under this Agreement
and may be earned back by Sephora upon
completion of certain
milestones as set
forth in Section 5 hereof. The Performance Deposit, with interest accrued
thereon, will be released to AAI on the date on which
AAI (i) delivers the
fully-executed Johns Hopkins Agreement to Sephora that does not materially
differ from the draft version
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attached as Exhibit C and (ii) provides
Sephora with a certificate of an officer
of AAI certifying that there is no default under the
Johns Hopkins
Agreement,
and an opinion of counsel in the form
attached hereto as Exhibit B-2. If AAI
does not deliver the fully executed Johns Hopkins Agreement to Sephora within
one hundred eighty (1 80) days following the execution of this Agreement,
Sephora will have the right, but not the obligation, to terminate this
Agreement. If Sephora so elects to terminate,
the entire Performance
Deposit,
plus all interest accrued thereon, will be
immediately released to Sephora.
4.1.2 For the period commencing with the Product Availability
Date
and ending on the Termination Date,
Sephora will offer the
Products for sale at
the Sephora Retail Stores and, when ready, the AAI Centers and through
the
Website pursuant to the terms of this
Agreement.
AAI may provide
Sephora with
suggested prices at which the Products may
be sold in the Sephora Retail Stores
and through the Website, but Sephora will retain sole control over
pricing of
the Products. Sephora will make payments to AAJ with respect to
any Products
purchased by Sephora, within thirty (30) days of delivery of
such Products to
Sephora. AAI, in its sole discretion, may
offer discounts for earlier payment of
invoices.
4.1.3 Subject to the
terms provided
in Section 9,
Sephora may
construct and operate Sephora Alliance Stores within the AAI Host Stores
(excluding any Sephora Alliance Store in
New York, NY or Beverly Hills, CA), and
pay AAI fifty percent (50%) of the net
profit from all Sephora Alliance Stores
on a monthly basis, after accounting for Sephora
Alliance Store Costs. The
calculation of net profit will be based on
the methodology set forth in Schedule
4 attached hereto and incorporated herein
by this reference.
4.2 No Other Consideration. Except as specifically provided in
Section
4.1 or elsewhere in this Agreement,
Sephora will not have
any obligation to pay
or provide any other consideration to AAI
or any other Person including, without
limitation Johns Hopkins. AAI will indemnify, defend and protect Sephora
from
and against any claim by Johns Hopkins for royalty payments under the Johns
Hopkins Agreement.
4.3 Payment
Procedures.
With
the exception of payment of the
Performance Deposit, any amounts due from Sephora hereunder will be paid by
company check. The Performance Deposit will be paid by wire transfer of
immediately available funds. AAI will provide wire instructions to Sephora
concurrently with the execution of this Agreement. With the exception of the
Performance Deposit Balance, all amounts due from AAI hereunder
will be paid by
company check. The Performance Deposit Balance will be paid, if
at all, by wire
transfer of immediately available funds. Sephora will
provide wire instructions
to AAI concurrently with the execution of
this Agreement.
5. EARN BACK OF PERFORMANCE DEPOSIT
5.1 Earn Back Right. AAII will return fifty percent (50%) of
the
Performance Deposit to Sephora within
thirty (30) days of the date on which the
parties have determined that, based on
monthly sales reports
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generated by Sephora and furnished to AM, the total of the
cumulative
Net
Revenues plus Capital Expenditures equals
Thirty Million Dollars
($30,000,000).
AAI will return the remaining Performance Deposit to Sephora
within thirty (30)
days of the date on which the parties
have determined that, based on monthly
sales reports generated by Sephora and furnished to AAI, the total of the
cumulative Net Revenues plus Capital Expenditures equals or exceeds Sixty
Million Dollars ($60,000,000).
6. PRODUCTS AND EQUIPMENT
6.1 Definition of Products. For purposes of this Agreement, the term
"Products" will mean the entire
assortment of skin
care products
developed and
manufactured by AAI and its representatives during the Term pursuant to the
specifications set forth in Section 6.2 below, as the same may be changed,
improved and further developed from time to time throughout the Term of this
Agreement.
6.2 Product
Specifications.
----------------------
6.2.1 Product
Assortment and Lines.
The Products will consist of
an assortment of cosmetic skin treatments,
including but not limited to lotions,
creams and gels, for the treatment and management
of the skin issues of clients
which may be identified by a Qualified Sephora Cast Member using the AAI
Equipment and the AAI Methods.
6.2.2 Product
Warranty. Without
limiting AAI's
indemnification
obligations under Section 16.1 hereof, AAI's warranty with respect to the
Products sold to Sephora hereunder will be enclosed with the Products
and will
extend to any purchaser of the
Products.
6.2.3 Branding and Packaging. The packaging for each Product
will
be designed by AAI at its sole cost and
expense. The packaging for every Product
will, in any event, prominently feature the AAI name
and registered
trademark,
or any other recognized mark of AAI which
invokes the goodwill
associated with
the AAI name, business and services,
and the Johns Hopkins
Certification.
All
Products will be delivered to Sephora
conforming to the
requirements
of this
Section 6.2.3 and Sephora will use only
the packaging
provided by AAI,
other
than external packaging materials.
Products will be
delivered to Sephora "ready
to sell" with no further action by Sephora
required.
6.3 Supply of Products
to Sephora.
-----------------------------
6.3.1 Generally.
AAI will supply the Products to Sephora for
re-sale by Sephora at the Sephora
Retail Stores and the AAI Centers,
and from
the Website in quantities, and pursuant to the terms and
conditions,
specified
in the Purchase Orders which Sephora will issue to AAI from time to time
throughout the Term. AAI will not supply the
Products to Sephora at
wholesale
prices greater than those charged by AAI to any third Person to whom AAI is
entitled to supply Products under Section
2.2. Sephora will not
alter, modify,
add to, or in any way change the
Products or the packaging. Sephora may not
knowingly sell the Products to dealers, catalogue houses, resellers or
distributors without the prior written
consent of AAI,
which will be in
AAI's
sole discretion.
6.3.2 Customer Returns. AAI will reimburse Sephora for
customers'
returns of Products in accordance with
normal cosmetics industry practice.
6.3.3 Product Obsolescence. In the event that AAI discontinues
production of any Product supplied to
Sephora, or if Products purchased by
Sephora are not sold prior to such
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Products' expiration date as specified by AAI on the Product packaging or by
Applicable Law, then AAI will reimburse
Sephora for the
original purchase price
of that unsold Product in accordance with
normal cosmetics industry practice.
6.3.4 Testers. AAI will supply testers of the Products at its
sole
cost and expense in sufficient quantities for certain Products carried by
Sephora, in accordance with normal
cosmetics industry practice. If, in Sephora's
reasonable opinion, sufficient quantities of testers are not provided to
Sephora, then Sephora may provide testers
out of Product
previously
purchased
from AAI, and AAI agrees to reimburse
Sephora for the
original purchase cost of
such Product.
6.4 Product Recalls. In the event that AAI initiates a recall of a Product,
whether voluntarily or in response to a
request from the FDA or any other state
or federal regulatory authority, AAI will be solely responsible for
all costs
incurred in connection with such recall including, without limitation,
developing contingency plans for a recall, advertising the recall, making
follow-up checks to ensure that the recall
has been successful,
and complying
with any requests from the FDA or any other state or federal regulatory
authority. AAI must also repurchase all recalled
Products from Sephora
at the
original cost to Sephora within sixty (60)
days of initiating the recall.
6.5 Supply of AAI
Equipment to Sephora; Software Interface
Development.
------------------------------------------------------------------
6.5.1 AAI will supply,
at Sephora's
cost and expense, all AAI
Equipment required to properly furnish AAI Centers. The AAI Equipment will be
standard third party equipment inclusive of third party software
that is also
customized by the equipment manufacturer with AAI's own software
including,
without limitation, the Software Interface
described in Section 6.5.2 below. AAI
will evaluate and test the AAI
Equipment at least
quarterly and will provide
software functionality upgrades
concurrently with any upgrades of AAI Equipment
used in AAI Salons. The cost of software
functionality
upgrades will be
shared
equally by Sephora and AAI provided
that AAI submits a
budget for such upgrades
to Sephora in advance and obtains
Sephora's consent to such upgrades. In the
event of any mechanical failure of the AAI Equipment, Sephora will seek
replacement, repair or other remedy from the
equipment manufacturer. If Sephora
purchases the AAI Equipment from AAI (as opposed to direct from the
manufacturer), AAI will transfer all manufacturer
warranties to Sephora. In the
event of a software failure within the AAI Equipment, Sephora will seek
replacement, repair or other remedy from the
equipment manufacturer
first and
then, if no manufacturer solution is
available, from AM.
6.5.2 AAI and Sephora are jointly developing both (i) an
integrated diagnostic software platform and user interface to be utilized in
performing the AAI Services (the "Software Interface") and (ii) a client
relationship management application (the "CRM Application") pursuant to a
mutually agreed work plan. The entire development cost for the Software
Interface and the CRM Application, as
mutually agreed in advance, will be shared
jointly by Sephora and AAI. Sephora and AAI will jointly own any and all
intellectual property, source code, object code, and
trade secrets
associated
with the Software Interface and the CRM Application and, subject only to any
limitations in this Agreement, will have the right to use such intellectual
property, source code, object code and trade secrets
without restriction or
limitation or any compensation to the other
party. Each of Sephora
and AAI will
have the right to retain a
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complete copy of the source code and object
code, as modified and
updated from
time to time. Sephora will be the sole owner of all Customer Information
collected through the Software Interface or the CRM Application
as well as the
sole owner of any Sephora Intellectual Property captured by or embedded in
either the Software Interface or the CRM
Application. AAI will be the sole owner
of any AAI Intellectual Property and AAI Methods embedded
in the AAI Equipment,
the Software Interface or the CRM
Application. AAI and Sephora will enter into a
separate agreement regarding the hosting of the CRM
Application
on mutually
agreeable terms, although it is expected that AAI
will initially
provide the
hosting for the CRM Application until the
parties agree that the CRM Application
is stable, and then the hosting will be transferred to Sephora or its third
party hosting services provider.
7. AAI CENTERS
7.1 Designation
of Sephora Host Stores
and Test Centers.
Pursuant to
its exclusive grant under Section 2.1 hereof, Sephora will construct and
operate, at its sole cost and expense,
AAI Centers in those
present and future
Sephora Retail Stores which Sephora
selects for such
purpose (the "Sephora Host
Stores"). In all instances, the selection of a Sephora Host Store will be
dependent on Sephora securing the consent of its
lessor, if required,
to the
proposed use of the AAI Center.
7.1.1 Test Centers. Following the execution of this Agreement,
AAI
and Sephora will use commercially
reasonable efforts to (i) identify, construct
and open eight (8) test centers (the "Test Centers") on a schedule mutually
agreeable to the parties (which will include at least two (2)
Adjacent AAI
Facilities). The Test Centers will be
constructed and
operated in all respects
as AAI Centers arid Adjacent AAI Facilities as set forth in Sections 7 and
8
hereof. The location of the Test
Centers will be
mutually selected by
Sephora
and AAI but in any event will be
representative
of all of the
Sephora Retail
Stores in terms of location, size, sales
volume, and revenue. If the parties are
unable to agree on the designation of the
Test Centers, Sephora
will have final
authority over such designation (subject to
lessor approval as noted above).
7.2 Construction of AAI Centers. The precise location of any AAI
Center
within each Sephora Host Store will be
determined by Sephora and is subject, in
all instances, to the approval of Sephora's
lessor. The design and appearance of
the AAI Centers, including layout, signage,
furniture and fixtures, will utilize
the AAI Intellectual Property and the AAJ Equipment, and will be designed by
Sephora in consultation with AAI.
Notwithstanding such
consultation, the
final
decision on the design and appearance of the AAI Centers will be made by
Sephora. All furnishings, fixtures and equipment (including
the AAI Equipment)
incorporated in the construction of the AAI
Centers will be the sole property of
Sephora. The construction costs of the AAI Centers as well as the costs
associated with supplying each AAI Center with the
AAI Equipment will be borne
solely by Sephora. All costs of occupancy
and operation of the AAI Centers shall
be borne solely by Sephora.
7.3 Operation
of AAI Centers. The AAI Centers will be operated
as a
"store within a store" inside the
four-walls of the Sephora Host Store. Each AAI
Center will be staffed by one or more
Sephora employees
who will be trained
by
AAI to use the AAI Methods and to provide
the AAI Services
pursuant to
Section
7.4 (each, a "Qualified Sephora Cast Member").
Qualified Sephora Cast Members
will use the AAI Methods and the AAJ
Equipment to provide the AAI Services
and
to sell the Products. All sales of Products
(whether from the AAI Center or from
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the Sephora Host Store) will be processed at
the cash wrap for the Sephora Host
Store. Each AAI Center will provide AAI
Services only when a Qualified Sephora
Cast Member is available.
7.4 Qualified Sephora
Cast Members.
------------------------------
7.4.1 Employment.
All Qualified Sephora Cast Members will be
employed by Sephora, at its sole cost and expense, and will be subject to
Sephora's employment policies and procedures. All hiring and termination
decisions with respect to Qualified
Sephora Cast Members
will be made solely by
Sephora. Notwithstanding the foregoing, AAI will provide Sephora with its
recruiting guidelines to assist Sephora in hiring Qualified Sephora Cast
Members. It is anticipated that Qualified
Sephora Cast Members
will be able to
work interchangeably in the AM Centers and
the Sephora Host Stores.
7.4.2 Training. Each Qualified Sephora Cast Member will be
trained
by AAI, at AAI's sole cost and expense,
to serve as a skin
care consultant
and
salesperson at the AAI Centers and to
provide the AAJ Services. The training of
the Qualified Sephora Cast Members will be commensurate with the training
received by the skin care consultants that service AAJ Salons. To the extent
required by Applicable Law, AAI will also pay for and ensure that every
Qualified Sephora Cast Member is certified
and/or licensed by the appropriate
Governmental Body with jurisdiction over the services to be provided by the
Qualified Sephora Cast Member at a
particular AAI Center.
AAI will also provide
such additional, continuing training arid
certification of the Qualified Sephora
Cast Members as is necessary in keeping with AAI's highest standards for
concierges at the AAI Salons, as well as such additional training or
certification required by Applicable Law.
AAI shall have the right, from time to
time, to review and inspect the quality of
the operations of the
AAI Centers by
Sephora and the Qualified Sephora Cast Members providing AAI
Services to ensure
compliance with AAI standards. If re training of the Qualified Sephora Cast
Members is required as a result of such
compliance review, AAI will provide such
training at AAI' s sole cost and expense. Travel costs for training for
Sephora's personnel will be the
responsibility of Sephora. Travel costs for AAI
personnel to train within a Sephora Retail
Store will be the
responsibility of
AAI.
8. ADJACENT AAI FACILITIES
8.1 Timing;
Construction. Sephora
and AAI will mutually
agree on the
timing, placement and quantity of Adjacent
AAI Facilities to be constructed and
retrofitted, as applicable, adjacent to the designated
Sephora Retail
Stores.
The parties agree that at least two (2) of
the Adjacent AAI
Facilities will be
adjacent to Sephora Host Stores with Test Centers. In furtherance of this
objective, Sephora and AAI agree to diligently pursue retail leasing
opportunities that would permit the side-by-side
operation of a Sephora
Retail
Store and the Adjacent AAI Facility under
separate direct leases for each of the
Sephora Retail Store and the Adjacent AAI
Facility, if possible. If a single
lease for both the Sephora Retail Store and the Adjacent AAI Facility is
required, Sephora and AAI will mutually
agree as to who the tenant will be under
any such lease. The cost of construction or modification to any space for
an
Adjacent AAI Facility will be charged to AM as provided
in Section 8.3 below;
provided, however, that any costs
specifically associated with constructing the
free pass-through for customers between the Sephora Retail Store and the
Adjacent AAI Facility will be shared
equally by Sephora and
AAI. At the request
of AAI, Sephora may provide construction
services
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to AAI, at AAI' s cost and expense, if the construction of the Adjacent AAI
Facility is coordinated with the
construction of the AAI Center.
8.2 Operation.
Sephora and AAI will
mutually agree on the specific
method of operation for each Adjacent AAI
Facility following
execution of this
Agreement; provided, however, that it is expected that
AAI will bear all costs
associated with the operation of the Adjacent
AAI Facility
including, without
limitation, (i) the costs of both the
trained staff performing salon services at
the Adjacent AAT Facilities and any
administrative staff, such as salaries, the
cost of regulatory compliance or certifications, (ii) leasing and occupancy
costs and all other costs of operating the Adjacent AAI Facilities, (iii)
inventory and shipping costs, (iv) taxes, and (v) the cost of state and
local
building code compliance.
8.3 Adjacent AAI
Facility Service
Revenue; Monthly Reconciliation.
There will be a separate monthly
accounting for (i)
gross revenue from sales of
Products and Third Party Products at the Adjacent AAI
Facility ("Adjacent
AAI
Facility Product Revenue") and (ii) gross revenue
from sales of salon services
for each Adjacent AAI Facility ("Adjacent AAI Facility Service Revenue") AAI
will be entitled to all Adjacent AAI Facility Service Revenue. Sephora will
retain all Adjacent AAI Facility Product
Revenue. Settlement of
amounts due and
owing will be made within thirty (30) days of the end of each
month. Without
limiting the foregoing, AAI will have the right to sell
(and retain the entire
gross revenue from) certain unique
products at the
Adjacent AAI Facilities that
are specific to or directly
associated
with the AAI
Services offered at the
Adjacent AAI Facilities and that do not overlap or compete with either the
Products or any Third Party Products
carried by Sephora;
provided that AAI must
submit a listing of such unique products to Sephora in advance of any
sales
thereof and obtain Sephora's prior approval, which approval will not be
unreasonably withheld.
9. SEPHORA ALLIANCE STORES
9.1 Timing;
Construction. Based on
the success of the retail alliance
contemplated by this Agreement, the parties
will consider the appropriateness of
constructing a store (a "Sephora
Alliance Store") within two (2) AAI Salons
to
be selected by mutual agreement of the parties
(each, an "AAI Host Store") in
addition to any Sephora Alliance Store that the parties to choose
to construct
within AAI Host Stores located in New York, NY and Beverly Hills, CA.
Development of the Sephora Alliance Stores is subject in each instance
to the
approval of AAI's lessor. The size of each Sephora Alliance Store and the
assortment to be carried within the Sephora Alliance Store will be mutually
agreed by Sephora and AAI. Sephora and AAI
may mutually agree on the development
and location of additional Sephora Alliance Stores beyond the two (2)
Sephora
Alliance Stores contemplated by this Section 9.1.
Although the placement of the
Sephora Alliance Store within the AAI Host
Store will be determined by AAI, the
appearance and design of each Sephora Alliance Store will be within the sole
direction and control of Sephora.
9.2 Operations;
Costs. Each Sephora Alliance Store will be
operated
exclusively by Sephora under the direction of Sephora employees and will have
its own point-of-sale system and cash wrap. At each AAI
Host Store, AAI will be
solely responsible for leasing and
occupancy costs (such as rent, utilities and
insurance) and state and- local building code
compliance;
and Sephora will
be
responsible for costs associated with Sephora's
operations
within the Sephora
Alliance Store including, without
limitation, employee payroll, taxes,
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inventory costs, construction costs and all in
store merchandising
costs (the
"Sephora Alliance Store Costs"). If Sephora must sublease the space for the
Sephora Alliance Store from AAI, such sublease will be in such form as the
parties may mutually agree; provided, however, that Sephora will not be
obligated to pay AAI for any occupancy
costs.
10. PROMOTIONAL CAMPAIGN
10.1 Ownership.
When the first Test Center is ready to open for
business to the public, Sephora and AAI
will jointly launch a marketing campaign
to announce the retail alliance between Sephora and AAI and to advertise
the
Products and the AAJ Centers. The look, content and other creative
elements of
such promotions will be mutually agreed to by Sephora and AAI (any such
individual element, or all of such elements combined,
to be referred to as
the
"Promotional Campaign"). Notwithstanding the foregoing, Sephora may commence
promotion of the Products separate and apart from the Promotional Campaign.
During and after the Term, Sephora will be the sole owner of the Promotional
Campaign and any intellectual property or proprietary design or copy used in
such Promotional Campaign will constitute
Sephora Intellectual Property.
10.2 Provision of Materials. Upon the written request of
Sephora, AAI
will provide Sephora (at no cost to Sephora) with existing AAI-approved
advertising and promotional materials and designs, transfers, negatives,
camera-ready artwork or similar material
depicting the AAI Intellectual Property
used by AAI in the advertisement of its business and services in
the Territory
for use by Sephora in the Promotional Campaign and in any other marketing or
advertising promotions deemed necessary by Sephora to sell the
Products. All
such advertising and promotional materials furnished by AAI must comply
with
Applicable Laws.
10.3 AAI Promotions
or Advertising. If AAI desires to use Sephora
Intellectual Property in promotions,
on its website or in
its AAI Salons,
AAI
must obtain Sephora's prior written approval, such approval not to be
unreasonably withheld or delayed.
11. INTELLECTUAL PROPERTY
11.1 Grant of License to AAI Intellectual Property. Consistent with
grant of exclusive rights under Section 2.1, AAI hereby grants to Sephora a
royalty-free, non-exclusive, right and license in the United
States and Canada
irrevocable during the Term to: (a) use, reproduce, perform, display and
distribute the AAI logo, associated
trademarks and the copyrights in any artwork
supplied by AAI to Sephora in connection
with this Agreement and the AAI Methods
(collectively, the "AAI Intellectual Property")
for use by Sephora in marketing
materials and other communications
promoting the AAI Centers, in the Promotional
Campaign, at the AAI Centers, the Sephora Retail Stores or Sephora Alliance
Stores, and in the sale of the Products;
and (b) subject to
AAI's prior written
consent, adapt, modify, re-format and create derivative works of any AAI
Intellectual Property for use solely as provided in
clause (a) above.
Sephora
may specifically use the AAI
Intellectual
Property as a source
identifier to
indicate that AAI is the source and origin
of the Products and the AAI Services.
11.2 Grant of License to Sephora Intellectual Property.
Sephora hereby
grants to AAI a royalty-free, non-exclusive, right and license in the United
States and Canada irrevocable during the Term to (a)
use, reproduce,
perform,
display and distribute the Sephora
logo,
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associated trademarks and the copyrights in
any artwork supplied
by Sephora to
AAI in connection with this Agreement
(collectively,
the "Sephora
Intellectual
Property") for use in marketing materials
and other communications promoting the
Products, the AAI Centers and the Adjacent
AAI Facilities;
and (b) subject to
Sephora's prior written consent,
adapt, modify, re
format and create derivative
works of any Sephora Intellectual
Property for use
solely as provided in clause
(a) above. AAI may not use the Sephora Intellectual Property as a source
identifier to indicate the Sephora is the source or
origin of the Products
or
the AAI Services.
11.3 Goodwill. AAI
acknowledges that any and all goodwill arising from
Sephora's use of the AAI Intellectual Property as permitted under
Section 11.1
will inure solely and exclusively to the
benefit of Sephora, and upon expiration
or termination of this Agreement, no monetary amount will be assigned as
attributable to any goodwill associated with Sephora's use of the AAI
Intellectual Property. Sephora acknowledges that any and all
goodwill arising
from AAI's use of the Sephora Intellectual Property as permitted under
Section
11.2 will inure solely and exclusively to the benefit of AAI, and upon
expiration or termination of this
Agreement, no monetary amount will be assigned
as attributable to any goodwill associated with AAI's use of the Sephora
Intellectual Property.
12. REPRESENTATIONS AND WARRANTIES
12.1 Representations and Warranties of AAI and Parent. As an
inducement
to Sephora to enter into this Agreement and to consummate the transactions
contemplated in this Agreement and in
recognition
of the unique
relationship
between Sephora and AAI created by this
Agreement, AAI and
Parent, jointly
and
severally, make the representations and
warranties to Sephora set forth in this
Section 12.1; provided, however, that the
representation and warranty in Section
12.1.9 will be made if and when AAI
delivers the officer's
certificate required
by Section 4.1.1 hereof.
12.1.1 Organization and Authority; Beneficial Ownership. AAI is a
limited liability company duly organized
and existing in good standing under the
laws of the State of Delaware. Parent is a corporation duly organized and
existing in good standing under the laws of the State of
Delaware. AAI has
the
requisite limited liability company power and
authority, to own its
properties
and assets and to carry on its business as now conducted. AAI has the limited
liability company power to execute,
deliver and perform
this Agreement.
Parent
has the requisite corporate power and
authority to own its properties and assets
and to carry on its business as now
conducted. Parent has the corporate power to
execute, deliver and perform this
Agreement. This Agreement and the transactions
contemplated hereby have been duly
authorized by all necessary limited liability
company action on the part of AAT and all
necessary corporate action on the part
of Parent. This Agreement constitutes the valid and legally
binding obligation
of AAI and Parent, enforceable against AAI and Parent in
accordance
with its
terms. Attached hereto as Schedule 3 is a listing of all of the current
beneficial owners of AAI and their
respective Affiliates.
12.1.2 No Violations.
Neither the execution
nor delivery of this
Agreement, the consummation of the
transactions
contemplated hereby,
nor the
performance of AAI's or Parent's obligations hereunder, (i) will violate or
conflict with the articles of organization
or operating agreement of AAI, or the
articles or organization or bylaws of
Parent, (ii) will
result in any breach of
or default under any provision of any material
contract or agreement
to which
AAI or Parent is a party or by which
AAI or Parent is bound, or (iii) will
result in a violation of any Applicable
Laws.
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12.1.3 No Consents.
Except for such
consents as may be
required
from the lessors of the space occupied by AAI Host Stores and
the obligation to
deliver the executed Johns Hopkins
Agreement,
no consent,
approval, order or
authorization of, or registration,
declaration or filing with, or notice to, any
Governmental Body or any other Person is required by or with
respect to AAI or
Parent in connection with the execution and delivery of this
Agreement by AAI
and Parent or the consummation by AAI and Parent of the transactions
contemplated hereunder.
12.1.4 Litigation. There is no litigation, proceeding (arbitral
or
otherwise), claim or investigation of any nature pending or, to the actual
knowledge of AAI and Parent, threatened, against AAI or Parent that
reasonably
could be expected to materially
adversely affect the ability of AAI and
Parent
to perform in accordance with the terms of
this Agreement.
12.1.5 Compliance
with Applicable Law.
Each of AAI and Parent is
in material compliance with all Applicable
Laws relating to its
business, the
Products and the AAI Equipment and neither AAI nor Parent has
received any
written notice from any Person asserting non-compliance with Applicable Laws.
AAI specifically confirms that the Products will be
cosmetic products and
will
be compliant with the rules and
regulations of the FDA
and consumer
protection
and labeling requirements in the United
States and Canada. AAI also specifically
confirms that the Products do not
constitute a "drug" under The Food, Drug, and
Cosmetic Act because the Products do not cure, treat, mitigate or prevent
disease and do not affect the structure or
function of the human body.
12.1.6 No Medical
Advice. Neither
the AAI Methods nor the AAI
Services constitute medical advice to clients or customers of Sephora. The
Qualified Sephora Cast Members will not be
required or trained by AAI to provide
any such medical advice.
12.1.7 Intellectual
Property. AAI owns, or uses under valid
and
fully paid licenses, all AAI Intellectual Property. There are no claims or
demands, and to AAI's actual knowledge,
no reasonable basis
for any such claim
or demand, that any of the AAI Intellectual
Property infringes or
conflicts in
any way with any copyright, patent, trademark, service mark, trade name,
trade
secret, license, application or other
proprietary right or intellectual property
of any Person, or makes unauthorized use of
any secret process, formula, method,
information, know-how of any other Person. With the exception of royalty
payments due to Johns Hopkins, AAI is not under any obligation to pay any
royalty or other compensation to any Person as a result of, or to obtain
approval or consent for, the grant of
exclusive rights to Sephora hereunder.
12.1.8 No Other Existing Rights. AAI has not granted licenses
or
other rights in the AAI Intellectual
Property, the Products, the AAII
Methods,
the AAI Equipment or the AAI Services to any other Person
except as
permitted
under Section 2.2, and, to AAI's knowledge, none of the AAI Intellectual
Property, the Products, the AAT Methods, the AAI Equipment
or the AAI Services
is being used by any other Person.
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12.1.9 Johns Hopkins Agreement. The Johns Hopkins Agreement is
a
legally valid and enforceable agreement and
is in full force and effect. AAI is
not in default under the Johns Hopkins
Agreement.
12.1.10 Product
Warranty. The Products are manufactured in
accordance with industry standards and are intended for
application
to human
skin in accordance with the stated instructions. All statements made or
information provided by AAI regarding the Products are true
and correct in all
material respects, including without limitation, statements or information
regarding safety, efficacy or ingredients, regardless of where any such
statement or information is contained or published (including, without
limitation, on the packaging for the Products, in promotional materials or
advertising content published or prepared
by AAI, in Product descriptions, or in
ingredient lists). None of the Products, or
the formulations
thereof, infringe
or conflict in any way with any copyright,
patent, trademark service mark, trade
name, trade secret, license, application or other proprietary right or
intellectual property of any Person or make unauthorized use of any secret
process, formula, method, information, or
know-how of any other Person.
12.2 Representations and Warranties of Sephora. As an inducement to
AAI
to enter into this Agreement and to
consummate the transactions contemplated in
this Agreement, Sephora represents and
warrants to AAI as follows:
12.2.1 Organization and Authority. Sephora is a limited liability
company duly organized and existing in good
standing under the laws of the State
of Delaware. Sephora has the requisite limited liability company power and
authority, to own its properties and assets
and to carry on its business as now
conducted. Sephora has the limited liability
company power to execute, deliver
and perform this Agreement. This Agreement and the
transactions
contemplated
hereby have been duly authorized by all necessary limited liability company
action on the part of Sephora. This Agreement constitutes the
valid and legally
binding obligation of Sephora,
enforceable
against Sephora in
accordance with
its terms.
12.2.2 No Violations.
Neither the execution
nor delivery of this
Agreement, the consummation of the
transactions
contemplated hereby,
nor the
performance of Sephora's obligations hereunder, (i) will violate or conflict
with the articles of organization or
operating agreement of
Sephora, (ii) will
result in any breach of or default under
any provision of any material contract
or agreement to which Sephora is a party or
by which Sephora is bound, or (iii)
will result in a violation of any
Applicable Laws.
12.2.3 No Consents.
Except for such
consents as may be
required
from the lessors of the space occupied by Sephora Host Stores, no consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental
Body or any other
Person is required by or
with respect to Sephora in connection with the execution and delivery of this
Agreement by Sephora or the consummation by Sephora of the transactions
contemplated hereunder.
12.2.4 Litigation. There is no litigation, proceeding (arbitral
or
otherwise), claim or investigation of any
nature pending or, to Sephora's actual
knowledge, threatened, against Sephora that reasonably could be expected to
materially adversely affect Sephora's ability
to perform in accordance with the
terms of this Agreement.
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12.2.5 Compliance
with Applicable Law. Sephora is in material
compliance with all material Applicable Laws relating to
Sephora's business and
Sephora has not received any written notice from any Person asserting
non-compliance with Applicable Laws.
12.2.6 Intellectual
Property. Sephora owns, or uses under
valid
and fully paid licenses, all Sephora
Intellectual Property.
There are no claims
or demands, and to Sephora's actual
knowledge, no
reasonable basis for any such
claim or demand, that any of the Sephora
Intellectual
Property infringes or
conflicts in any way with any copyright,
patent, trademark,
service mark, trade
name, trade secret, license, application or other proprietary right or
intellectual property of any Person,
or makes unauthorized use of any secret
process, formula, method, information,
know-bow of any other
Person. Sephora is
not under any obligation to pay any royalty
or other compensation
to any Person
as a result of, or to obtain approval or
consent for, the grant of rights to AAI
hereunder.
13. ADDITIONAL COVENANTS
13.1 Prestige Operations. To preserve the goodwill
associated with the
Sephora Intellectual Property and the AAI Intellectual
Property, at all times
throughout the Term of this Agreement, AAI and Sephora, as applicable, will
operate the Sephora Retail Stores,
the Sephora Host
Stores, the AAI Center, the
Sephora Alliance Stores, the Adjacent AAI
Facilities, and the AAI Host Stores in
a "first-class" manner consistent with the overall
prestige image, design
and
decor of each type of retail or service
outlet.
13.2 Deliveries
by AAI. Concurrently with its execution of this
Agreement, AAI will deliver to Sephora (i)
evidence that AAI is in good standing
in the State of Delaware, (ii) wire instructions for the Performance
Deposit,
and (iii) a legal opinion from counsel to
AAI containing the
opinions set forth
in Exhibit B-i attached hereto and
incorporated herein by this reference.
13.3 Accounting Audit Rights. Within fifteen (15) days after the
end of
each month during the Term of this
Agreement, Sephora will issue a report to AAI
that details for the prior month (and
cumulatively year-to-date) the calculation
of Net Revenue, Capital Expenditures, Adjacent AAI Facility Product Revenue,
Adjacent AAI Facility Service Revenue, and net profit from Sephora
Alliance
Stores calculated in accordance with
Schedule 4 attached hereto and incorporated
herein by this reference. AAI (and its professional advisors, if applicable)
will be entitled to examine the
accounting
books and records of
Sephora during
normal business hours that pertain specifically to these calculations and
Sephora will provide sufficient access to enable AAI to verify the
accuracy of
the calculated amounts. AAI will be responsible for the costs of such
examination; provided, however, that (i) if AAI discovers an
underpayment by
Sephora of amounts owed under this Agreement that exceeds 10% of the amount
actually owed, the costs of the audit will be
paid by Sephora, and
(ii) if AAI
thereafter discovers a second underpayment
by Sephora of amounts owed under this
Agreement that exceeds 5% of the amount
actually owed, Sephora will bear the
cost of that audit and all subsequent
audits by AAI.
13.4 Ownership of
Customer Information
As provided in Section
6.5.2
above, Customer Information will be owned solely by Sephora,
both during the
Term and following the Termination
Date. Sephora may use Customer
Information
for any commercial purpose, so long as such
use is in accordance with Applicable
Law. From time to time during the Term,
Sephora
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will agree to share Customer Information with AAI for the following limited
purposes: (a) AAI may use aggregate
Customer Information collected from the
Software Interface or CRM Application that reflects summary or aggregate
condition and treatment information for
client populations to further refine and
develop the AAI Methods, the AAI Equipment
and the Products; and (b) AAI may use
Customer Information that contains personally identifiable information for
individual clients but only to the extent reasonably necessary for AAI to
provide services to that specific
client at an Adjacent
AAI Facility.
On the
Termination Date, AM must return to Sephora
all copies (whether in electronic or
paper format) of Customer Information and must immediately cease all use of
Customer Information. Sephora will hold AAI harmless
from, and indemnify AAI
against, any Claim arising from any use of
Customer Information in violation of
Applicable Law.
13.5 Parent Guaranty.
As an additional
inducement to Sephora to enter
into this Agreement, Parent hereby unconditionally and irrevocably
guarantees
the performance by AAI of its obligations
hereunder including, if applicable,
the payment of the Performance Deposit
Balance. The
obligations of Parent under
this guaranty will automatically terminate on the date on which AAI's
obligations under this Agreement have been performed and satisfied in full.
Parent agrees that, without the consent of Parent and
without affecting any
of
the obligations of Parent under this
guaranty: (a) AAI and Sephora may amend,
compromise, release or otherwise alter any
term, covenant or
condition of this
Agreement, and Parent guarantees and promises
to perform all obligations of AAI
under this Agreement as so modified,
amended, compromised,
released or altered;
(b) Sephora may exercise, not exercise, impair, modify, limit, destroy or
suspend any right or remedy under this
Agreement;
and (c) Sephora or any
other
person acting on Sephora's behalf may deal in any manner with
AAI. This is a
continuing guaranty and Parent waives the
benefit of the
provisions of section
2815 of the California Civil Code. Parent waives and agrees not to assert
or
take advantage of: (x) any right to
require Sephora to
proceed against AAI
or
any other person or to pursue any other
remedy before proceeding against Parent;
(y) any right or defense that may arise by reason of AAI
being
Incapacitated;
and (z) any right or defense arising by reason of the absence, impairment,
modification, limitation, destruction or cessation (in bankruptcy, by an
election of remedies, or otherwise) of the liability of
AAI, of the subrogation
rights of Parent, or of the right of Parent to proceed against AAI for
reimbursement. Without limiting
