Biscayne Apparel: 10-Q for Quarter to 9/30/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended SEPTEMBER 30, 1997 -------------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _____________________ Commission file number 1-9635 ------ BISCAYNE APPAREL, INC. (Exact name of registrant as specified in its charter) FLORIDA 65-0200397 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1373 BROAD STREET, CLIFTON, NEW JERSEY 07013 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (973) 473-3240 --------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At October 31, 1997, there were 10,770,213 outstanding shares of the registrant's Common Stock, $0.01 par value. ================================================================================ BISCAYNE APPAREL, INC. INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION Consolidated Balance Sheets September 30, 1997 and December 31, 1996....................................................... 2 Consolidated Statements of Operations Nine Months Ended September 30, 1997 and 1996.................................................. 3 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996.................................................. 4 Notes to Consolidated Financial Statements..................................................... 5-7 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 7-11 PART II. OTHER INFORMATION Item 1 - Legal Proceedings..................................................................... 12 Item 6 - Exhibits and Reports on Form 8-K...................................................... 12 Signatures..................................................................................... 13 1 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net sales $ 41,798 $ 46,054 $ 69,492 $ 75,183 Operating costs and expenses: Cost of goods sold 30,116 33,753 50,977 56,359 Selling, general and administrative 6,662 6,869 16,400 17,511 Restructuring charges -- 45 -- 347 ------------ ------------ ------------ ------------ Operating income 5,020 5,387 2,115 966 Other income and (expenses): Interest and other expenses (1,075) (1,046) (2,337) (2,677) Interest and other income 93 293 114 456 Gain on sale and equity in net income of investee -- -- -- 123 ------------ ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes 4,038 4,634 (108) (1,132) Provision (benefit) for income taxes 1,534 1,804 (44) (368) ------------ ------------ ------------ ------------ Net income (loss) $ 2,504 $ 2,830 $ (64) $ (764) ============ ============ ============ ============ Net income (loss) per common share $ 0.23 $ 0.26 $ (0.01) $ (0.07) ============ ============ ============ ============ Shares used in computing net income (loss) per common share 10,793,639 10,743,535 10,761,288 10,741,540 ============ ============ ============ ============ See accompanying notes. 2 BISCAYNE APPAREL, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (Unaudited) Assets Current assets: Cash and cash equivalents $ 442 $ 327 Trade accounts receivable, less allowances of $2,619 in 1997 and $2,018 in 1996 31,013 14,374 Inventories 22,098 14,554 Federal income tax receivable -- 1,455 Prepaid expenses and other 2,454 2,261 -------- -------- Total current assets 56,007 32,971 Property, plant and equipment, less accumulated depreciation of $2,333 in 1997 and $1,912 in 1996 2,648 2,864 Other assets, net 266 275 -------- -------- $ 58,921 $ 36,110 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,371 $ 4,024 Accrued liabilities 5,986 6,184 Notes payable to banks 24,054 1,473 Current portion of long-term debt 2,000 1,750 -------- -------- Total current liabilities 38,411 13,431 Subordinated notes 6,444 6,444 Long-term debt 2,500 4,500 Other liabilities 124 557 Commitments and contingencies -- -- Stockholders' Equity: Common stock, $0.01 par value; 25,000,000 shares authorized; 10,770,213 issued and outstanding in 1997 and 10,741,748 in 1996 107 107 Additional paid-in capital 26,602 26,311 Unearned stock award (17) (68) Accumulated deficit (15,250) (15,172) -------- -------- Total stockholders' equity 11,442 11,178 -------- -------- $ 58,921 $ 36,110 ======== ======== See accompanying notes. 3 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1997 1996 -------- -------- Operating activities: Net loss $ (64) $ (764) Adjustments to reconcile net loss to net cash used in operating activities: Gain on sale of assets 3 (11) Gain on sale of equity investee -- (123) Amortization of unearned stock award compensation 51 51 Amortization of debt issuance costs 155 -- Depreciation expense 433 447 Amortization expense 3 228 Provision for losses and sales allowances on receivables 3,198 4,343 (Increase) decrease in operating assets: Trade accounts receivable (19,837) (20,915) Inventories (7,544) 3,368 Prepaid expenses and other (193) (319) Federal income tax receivable 1,455 824 Other assets 110 971 Increase (decrease) in operating liabilities: Accounts payable 2,347 2,457 Accrued liabilities (195) 310 Other liabilities (372) -- -------- -------- Net cash used in operating activities (20,450) (9,133) Investing activities: Net sale of assets -- 11 Capital expenditures (220) (227) Proceeds on sale of equity investee -- 1,750 -------- -------- Net cash (used in) provided by investing activities (220) 1,534 Financing activities: Payments under notes payable to banks (16,127) (45,211) Borrowings under notes payable to banks 38,708 54,637 Proceeds from term loan -- -- Principal payments under term loan (1,750) (1,250) Principal payments of capital leases (64) (64) Proceeds from exercise of employee stock options 18 -- -------- -------- Net cash provided by financing activities 20,785 8,112 Net increase in cash and cash equivalents 115 513 Cash and cash equivalents at beginning of year 327 312 -------- -------- Cash and cash equivalents at end of year $ 442 $ 825 ======== ======== Supplemental disclosure information: Interest expense paid $ 1,883 $ 2,363 Income taxes paid $ 1 $ 61 See accompanying notes. 4 BISCAYNE APPAREL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements, which are for an interim period, do not include all disclosures provided in the annual consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the footnotes with respect thereto, contained in the Biscayne Apparel, Inc., ("Company") 1996 Annual Report on Form 10-K. The consolidated financial statements of the Company include the accounts of the parent company, and its wholly-owned subsidiaries, Biscayne Apparel International, Inc. ("BAII"), and M&L International, Inc. ("M&L"), which was acquired in November 1994, and its wholly-owned subsidiaries, Unidex Garments (Philippines), Inc., Watersports Garment Manufacturing, Inc., Teri Outerwear Manufacturing, Inc., GES Sportswear Manufacturing Corp. and M&L International (H.K.) Limited. As of March 1, 1996, Unidex, Watersports, Teri, and GES ceased operations due to operating losses caused by labor increases and production inefficiencies. BAII operates through two divisions, Andy Johns Fashions International ("Andy Johns") and Varon, and its wholly-owned subsidiaries, Mackintosh of New England Co., Mackintosh (U.K.) Limited, and Amy Industries De Honduras, S.A. de C.V., which was organized during 1995. All material intercompany balances and transactions have been eliminated. Certain amounts included in prior period financial statements have been reclassified to conform with the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to sales allowances, inventory reserves, and recoverability of assets. Actual results could differ from those estimates. 2. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the financial statements. 3. The results of operations for the nine month periods ended September 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 5 4. Effective for the year ending December 31, 1997 and thereafter, earnings per share will be computed in accordance with Statement of Financial Accounting Standards No. 128" "Earnings Per Share" ("FAS No. 128"). Earlier adoption for interim periods during 1997 is prohibited. However, pro forma application of FAS. No. 128 would not result in a difference to earnings per share as currently computed under APB No. 15. FAS No. 128 establishes the standards for computing basic earnings per share (excluding dilution) and diluted earnings per share (reflecting the dilutive effect if securities or other contracts to issue common stock were exercised or converted), and applies to entities with publicly held common stock. This standard simplifies the computation of earnings per share as required under Accounting Principles Board Opinion No. 15, Earnings Per Share, and makes them comparable to international earnings per share standards. The application of FAS. No. 128 would not result in a difference to earnings per share as currently computed under APB No. 15. 5. Inventories at September 30, 1997 and December 31, 1996 are comprised of the following: SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------ ----------------- Raw materials $ 6,787,000 $ 3,684,000 Work-in-process 2,747,000 785,000 Finished goods 12,564,000 10,085,000 ----------- ----------- $22,098,000 $14,554,000 =========== =========== 6. Included in accounts payable at September 30, 1997 and September 30, 1996 are the Company's obligations under outstanding letters of credit of $1,854,000 and $2,232,000, respectively. 7. On March 24, 1997 Biscayne amended its Loan Agreement to reduce the Revolver Agreement to $45,000,000; adjust the interest rate for Revolver Agreement borrowings to prime plus 1.0%, or prime plus 1.75% for approved collateral overadvances; require additional fees of $325,000; and waive violations of certain covenants during the 1996 period. 8. During 1996, the Company issued various warrants to its banks, Trivest, Inc., an affiliate of the Companuy, and certain officers of the Company. These warrants were valued at approximately $294,000 and have been reflected in the Company's financial statements. The amortization of these costs are included in current year selling, general and administrative expense and interest expense. 6 9. In June 1997, Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise and Related Information" were issued, effective for the fiscal year ending December 31, 1998. Earlier adoption for interim periods is not required, and the Company is currently evaluating the financial statement impact. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1997 VERSUS QUARTER ENDED SEPTEMBER 30, 1996: Net sales for the third quarter of 1997 were $41,798,000, versus the third quarter 1996 sales of $46,054,000. Increased sales at M&L were offset by decreased sales in the Andy Johns, Varon, and Mackintosh divisions. Cost of goods sold, as a percentage of net sales, was 72% versus 73% for the quarters ended September 30, 1997 and 1996, respectively. The slight decrease is attributable to Andy Johns realizing lower costs of production, offset by higher costs of production at Varon. Selling, general and administrative expenses ("S,G&A") as a percentage of net sales increased to 16% in 1997 from 15% in 1996. This slight increase is a result of decreased sales in the third quarter of 1997 versus 1996. Actual S,G&A expenses were lower during the 1997 third quarter at $6,662,000, compared to $6,869,000 incurred in 1996. Additionally, the Company incurred $45,000 of restructuring charges in the 1996 third quarter, with none in the comparable 1997 period. OTHER Interest and other expenses for the quarter ended September 30, 1997 increased slightly to $1,075,000 from $1,046,000 for the comparable quarter of 1996. Interest and other income declined to $93,000 during the third quarter of 1997 from $293,000 for the comparable 1996 quarter. This decrease is primarily due to greater direct letter of credit revenue earned by Andy Johns during the third quarter of 1996. 7 NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1996 Net sales for the nine months ended September 30, 1997 decreased to $69,492,000 from $75,183,000 for 1996. This 8% decrease is mainly attributable to lower sales at the Andy Johns and Varon divisions. Consolidated backlog at October 31, 1997 decreased to $21,578,000 from $24,431,000 at October 31, 1996. The decrease is largely due to decreased sales backlog at Varon and Andy Johns, offset by increases at M&L and Mackintosh. Cost of goods sold as a percentage of net sales decreased to 73% for the first nine months of 1997, from 75% for the comparable period of 1996. This decline is a result of Andy Johns and M&L realizing lower production costs, offset by higher Varon production costs. Selling, general and administrative expenses ("S,G&A") as a percentage of net sales increased to 24% for the period ended September 30, 1997 versus 23% for the period ending September 30, 1996. However, actual S,G&A expenses for the 1997 nine months were lower at $16,400,000, compared to the $17,511,000 incurred in 1996. Additionally, the Company incurred $347,000 of restructuring charges in the first nine months of 1996, with none in the comparable 1997 period. During the fourth quarter of 1996, the Consumer Product Safety Commission ("CPSC") issued 1998 rules for the manufacturing of all cotton thermal and long underwear products. These rules would have had two effects: i) sleepwear manufacturers would now be able to produce their products in cotton, and ii) such cotton sleepwear products would now have to be "tight fitting". As a result of these regulations, the Company expects there may be significant changes in Varon's competitive environment related to such products. In the 1997 second quarter, the CPSC announced that the March 1998 implementation date for the above changes would be extended to June 1998. However, the specter of such implementation has caused delays in 1997 orders of, and/or reductions of orders for, some of Varon's cotton thermal and long underwear products. The impact on Varon's market position once implementation occurs is unknown. Varon could face the following: i) a decrease in market share due to increased competition from sleepwear manufacturers, and ii) a potential market shift, from customers who previously purchased sleepwear when it was not required to be "tight fitting", now purchasing other products. Alternatively, Varon may gain market share of newly-approved cotton sleepwear, due to its current expertise in manufacturing, if it can take away market share from heretofore non-cotton sleepwear product sales. These regulations could impact up to one-third of Varon's revenues. 8 OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter of 1997 that it will not renew its outerwear license with M&L after May 31, 1998. As part of a strategy adopted over the last several years, OshKosh will sell its outerwear directly to retailers. For the nine months ended September 30, 1997 and 1996, M&L's sales of OshKosh outerwear were $16,653,000 and $12,831,000, respectively. For the years ended December 31, 1996 and 1995, M&L's sales of OshKosh outerwear were $17,063,000 and $13,678,000, respectively. M&L's strategy is to replace the OshKosh brand sales of outerwear with several well-known brand name children's outerwear and activewear licenses. In July, 1997 M&L announced the signing of a licensing agreement with the Starter Corporation to manufacture girls' activewear, swimwear, and outerwear in sizes 4-6X and 7-16. Initial shipments of Starter girls' activewear and outerwear are targeted for delivery in Fall 1998. Additionally, in August, 1997, M&L announced the signing of a letter of intent with Healthtex, a division of VF Corporation, to manufacture a new collection of children's outerwear under the Healthtex brand name in sizes newborn through 16 for girls and newborn through 7X for boys. Initial shipments are targeted for delivery in Fall 1998. In September, 1997, Biscayne Apparel, Inc. announced the signing of a licensing agreement with Lola, Inc., the parent company of XOXO, to manufacture a line of junior/women's outerwear. The XOXO outerwear line will focus on the upscale contemporary junior customer for distribution through major department and better specialty stores. Initial shipments are slated for delivery in Fall 1998. OTHER Interest and other expenses for the nine months ended September 30, 1997 decreased to $2,337,000 versus $2,677,000 for the nine months ended September 30, 1996. The decline is primarily due to decreased bank borrowings during 1997. Interest and other income decreased to $114,000 for the first nine months of 1997 from $456,000 for the comparable period of 1996, primarily due to greater direct letter of credit revenue earned by Andy Johns during the first nine months of 1996. On March 27, 1996, the Company sold its 20% interest in Hartwell Sports, Inc. for $1,750,000. Proceeds were used to reduce notes payable to banks. The sale resulted in a gain during 1996 of $123,000. 9 INCOME TAXES For the quarters and nine months ended September 30, 1997 and 1996, the income tax provisions (benefits) were greater than the provisions (benefits) which would have been derived upon application of the Federal statutory rate, primarily because of state income tax benefits. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $442,000 and $327,000 at September 30, 1997 and December 31, 1996, respectively. At September 30, 1997, the Company's working capital was $17,596,000, representing a current ratio of 1.46 to 1. This compares to working capital of $19,540,000 and a current ratio of 2.45 to 1 at December 31, 1996. These changes are due to seasonal increases in current assets, particularly inventory and accounts receivable offset by seasonal increased bank debt. As presented in the Consolidated Statements of Cash Flows for the nine months ended September 30, 1997, the increase of accounts receivable of $19,837,000, inventories of $7,544,000 and accounts payable of $2,347,000 are due to the seasonality of the Company's operations. On March 31, 1997 the Company repaid $1,750,000 of its long-term debt. Capital expenditures for the nine months ended September 30, 1997 remained relatively constant at $220,000 versus $227,000 in 1996. The Company expects that cash on hand, cash from operations, and borrowings under its revolving credit agreement will be sufficient to fund current operations and to enable the Company to meet its obligations as they become due. EFFECT OF INFLATION AND SEASONALITY The Company believes that inflation will not significantly effect its profit margins, or have a material effect on the prices of other goods and services used in its business operations. Further, in connection with increases in domestic wool and cotton costs over the last several years, the Company has increased offshore production in an effort to lower costs. The apparel industry is subject to substantial cyclical variation, with purchases of apparel and related goods tending to decline during recessionary periods when disposable income is low. This could have a material adverse effect on the Company's business. Sales of women's and children's outerwear and thermal underwear are seasonal. Historically, Andy Johns, Mackintosh, M&L, and Varon have significantly higher revenues in the third and fourth quarters than in the first and second quarters. Therefore, the results of any interim period are not necessarily indicative of the results which might be expected during a full year. Additionally, there is 10 a risk inherently related to the Outerwear industry, resulting from consumer reactions to weather patterns, which have had a material effect on the Company's sales and profitability in the past. Certain information included herein contains forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from these forward- looking statements. These risks include, but are not limited to, raw material costs and the ability to pass price increases to customers in a timely fashion, product acceptance and availability, changes in the level of consumer demand and/or spending, fashion trends, weather patterns, further governmental regulations, etc. All forward-looking statements should be considered in light of these risks and uncertainties. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is, from time to time, involved in routine litigation. None of such litigation in which the Company is presently involved is material to its financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10.1 License Agreement dated as of June 30, 1997 among the Registrant, Starter Corporation and Soundview Licensing, Inc. 10.2 License Agreement dated as of August 26, 1997 among the Registrant and Lola Inc. 11 Computation of Per Share Earnings 27 Financial Data Schedule b) Reports on Form 8-K: During the quarter for which this Quarterly Report on Form 10-Q is filed, the Registrant did not file any Current Reports on Form 8-K. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: BISCAYNE APPAREL, INC. Date: November 13, 1997 By: /s/ EARL W. POWELL ------------------- Earl W. Powell Chairman of the Board, President and Chief Executive Officer Date: November 13, 1997 By: /s/ PETER VANDENBERG, JR. -------------------------- Peter Vandenberg, Jr. Executive Vice President, Treasurer and Chief Financial Officer 13 Exhibit 10.1 LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement") dated as of the ____ day of_____________, 1997 among STARTER CORPORATION ("Licensor"), a Delaware corporation with its principal offices at 370 James Street, New Haven, Connecticut 06513, M&L International Inc. ("Licensee"), an Illinois corporation with its principal offices at 1333 North Kingsbury Street, Suite 401, Chicago, IL 60622 and Licensor's Agent, SOUNDVIEW LICENSING, INC. ("SVL"), a Connecticut corporation with its principal offices at Harbour Square, 700 Canal Street, Stamford, Connecticut 06902. WHEREAS, Licensor warrants that it is the owner of the marks "STARTER", "S and STAR" and "STARTER in conjunction with S and STAR", each used as a registered or unregistered trademark or service mark, corporate title, or trading style (collectively and individually referred to herein as the "Marks") and to the best of its knowledge has the exclusive right to use the Marks with Authorized Products in the Territory; and WHEREAS, Licensee believes that various commercial advantages could result from use of the Marks in the operation of the Licensee's business and consequently seeks the permission of Licensor to use the Marks in connection with the manufacturing, advertising, sale, or distribution of Authorized Products (set forth in Schedule A attached hereto and made a part hereof) strictly in accord with the terms and conditions contained herein; and 1 WHEREAS, it is the mutual desire of the parties to formally set forth the terms and conditions under which Licensee would be permitted to use the Marks in connection with the manufacturing, advertising, sale, or distribution of Authorized Products. NOW, THEREFORE, in consideration of the premises and agreements contained herein, and other good and valuable consideration, Licensor and Licensee agree as follows: 1. TERRITORY. The "Territory" shall mean the United States, its territories and possessions and U. S. Military Post Exchanges worldwide. 2. GRANT OF LICENSE. 2.1 Licensor hereby grants to Licensee, subject to the terms and conditions of this Agreement, and Licensee hereby accepts, an exclusive license to use the Marks in connection with the manufacture, advertising and sale of Authorized Products by Licensee throughout the Territory. 2.2 Nothing contained in this Agreement shall in any manner limit or affect the right of Licensor to use, or permit another entity to use, the Marks for any purpose, but Licensor agrees that, during the Initial Term hereof or any extensions thereof, it will neither retain rights to, or grant any other license for, use of the Marks, or any variations of the Marks, in the Territory in connection with the manufacture, advertising, distribution, and sale of Authorized Products. Notwithstanding the foregoing, Licensor hereby reserves the right to sell-off its own inventory of Authorized Products bearing the Marks which may be on hand or in process at the time of the signing of this Agreement. 2.3 Subject to the provisions of this Section, Licensee shall not export Authorized Products bearing the Marks outside the Territory or ship such Authorized Products to any third 2 party which the Licensee has reasonable ground to believe intends to ship Authorized Products to any destination outside of the Territory without the prior written consent of Licensor. 3. TERM. 3.1 This Agreement shall commence on the date first written above and extend until May 31, 2001 (the "Initial Term"). The period beginning from the date first written above and ending on May 31, 1999 and each consecutive twelve (12) month period thereafter during the Initial Term or any Extended Term (as defined herein) is referred to herein as a "Contract Year." Each three-month period ending on August 31, November 30, February 28, and May 31 , is referred to herein as a "Contract Quarter." 3.2 This Agreement may be renewed by Licensee for one additional two (2) year term commencing on June 1, 2001 and expiring on May 31, 2003 ("Extended Term") subject to the following conditions: (i) Licensee notifies Licensor not less than ninety (90) days prior to the termination of the Initial Term of its desire for an Extended Term; (ii) Licensee is not in breach of any part of this Agreement; (iii) Licensee's Sales of Authorized Products in the Initial Term exceed the amount required to generate at least the minimum royalties guaranteed for the Initial Term in Section 5.2 hereinbelow plus twenty five (25) percent. 4. USE OF THE MARKS. Licensee shall use the Marks only in connection with the manufacture, advertising, sale and distribution of the Authorized Products, and shall cause such standards set forth herein and as may be prescribed by Licensor to be maintained in the operations of the business in which the Marks are used. 3 5. TERMS OF PAYMENT. 5.1 Royalty Rate. Licensee agrees to pay to Licensor a royalty of eight (8%) percent ("Percentage Royalties") on all Net Sales (as defined herein) during each of the Initial Term or Extended Term, if any, by Licensee or any of its affiliated, associated or subsidiary companies of the Authorized Products bearing the Marks. The term "Net Sales" shall mean the dollar amount of gross sales of the Authorized Products bearing the Marks less trade quantity discounts, returns actually made and allowances actually given in lieu of returns without deduction for other discounts of any kind or nature, costs, or uncollectible accounts. Licensee warrants that it shall not make so called "consignment sales" of Authorized Products bearing the Marks or make any allowances to its customers in lieu of "consignment sales" of Authorized Products bearing the Marks. No costs incurred in the manufacture, preparation, delivery, sale, distribution, advertising or promotion (including without limitation, any so-called "Co-op" advertising costs or payments) of the Authorized Products shall be deducted from gross sales or from any royalty payable by Licensee. It is understood that credit against Net Sales will be allowed only for actual returns and that no credit against Net Sales will be allowed on the basis of any accrual or reserve system. Minimum Guarantees and Advance Payments (all as defined herein) may be referred to herein individually or collectively as "Royalties", or "Royalty" as appropriate. 5.2 Terms of Payment: Initial Term. Licensee agrees to pay to Licensor, during the Initial Term, a Minimum Guarantee (amount payable to Licensor without regard to the amount of sales of Authorized Products bearing Marks) against Royalties and an Advance Payment applicable to said Minimum Guarantee are as follows: MINIMUM ADVANCE BALANCE OF GUARANTEE PAYMENT GUARANTEE --------- ------- ---------- $750,000 $187,500 $562,500 4 The Advance Payment in the Initial Term shall be payable on signing of this Agreement. The Balance of the Minimum Guarantee in the Initial Term, if not previously earned in Percentage Royalties, shall be payable in ten (10) equal consecutive calendar quarter installments of $56,250 commencing with the initial payment due on December 1, 1998 and the last due on March 1, 2001 No part of such Minimum Guarantee shall in any event be repayable to Licensee. Percentage Royalties shall be paid monthly by Licensee to Licensor. 5.3 Terms of Payment: Extended Term. During the Extended Term, if any, Licensee agrees to pay Licensor a Minimum Guarantee against Royalties and as an Advance Payment applicable to said Minimum Guarantee the following amounts: MINIMUM ADVANCE BALANCE OF GUARANTEE PAYMENT GUARANTEE --------- ------- ---------- $700,000 $87,500 $612,500 The Advance Payment in the Extended Term shall be payable on or before May 31, 2001. The Balance of the Minimum Guarantee, if not previously earned in Percentage Royalties, shall be payable in seven (7) equal consecutive calender quarter installments of $87,500 commencing with the first payment due on September 1, 2001 and the last due on March 1, 2003. No part of such Minimum Guarantee shall in any event be repayable to Licensee. Percentage Royalties shall be paid monthly by Licensee to Licensor. 5 5.4 Monthly Statements. Except as set forth in the last sentence of this Section, promptly on the twentieth (20th) day of each month during the Initial or Extended Term hereof, Licensee shall furnish complete and accurate statements certified to be accurate by Licensee showing the number, description and gross sales price, itemized deductions from gross sales price of each and every product or service covered by this Agreement distributed and/or sold by Licensee, together with any Licensee accepted returns made during the prior month, addressed to the Licensor with a copy mailed to Licensor's Agent, SVL, in accordance with Section 25. For this purpose, Licensee shall use the statement form attached hereto, copies of which form may be obtained by Licensee from SVL, or a similar mutually acceptable form. Such statements shall be furnished to Licensor and SVL whether or not any of the Authorized Products bearing Marks have been sold during said prior month. All information shall be shown separately for each country within the Territory. Licensee agrees that royalty reports will indicate clearly which of the Marks were used in association with the Authorized Products sold and that the report will be given in such a manner and in sufficient detail to enable Licensor to separate royalties Mark by Mark. The first such statement due hereunder shall cover results for the period from the inception of the Initial Term to March 31, 1998. 5.5 Royalty Payments. Royalty payments due hereunder are payable to Licensor and shall be paid on the twentieth (20th) day of the month following the month in which earned (copy of check to be mailed to SVL), and payment shall accompany the statements furnished as required above at such time the statement commences. It is understood that Percentage Royalty payments which exceed the Initial Term's Minimum Guarantee shall not be credited toward the Extended Term's Minimum Guarantee, if applicable. The receipt or acceptance by Licensor of 6 any of the statements furnished pursuant to this Agreement or of any Percentage Royalties, Minimum Guarantee or Advance Payment paid hereunder (or the cashing of any checks paid hereunder) shall not preclude Licensor from questioning the correctness thereof at any time. In the event that any inconsistencies or mistakes are discovered in such statements or payments in favor of the Licensee, they shall immediately be rectified and the appropriate payments made by Licensee to Licensor, together with interest at the lesser of the so called "prime rate as reported in the WALL STREET JOURNAL plus two (2%) percent per annum or the highest interest rate allowable by law from the date such unpaid amounts were originally due until the date received. Payment shall be in U. S. funds. Licensee's taxes, if any, including but not limited to sales, use, inventory, income and value added taxes on sales of Authorized Products bearing Marks, shall be solely payable in the licensed Territory, shall be solely payable by Licensee and shall not be deducted from Licensor's Royalties. 6. GOOD WILL. Licensee recognizes the great value of the good will associated with the Marks and acknowledges that the Marks and all rights therein and good will pertaining thereto belong exclusively to Licensor. Licensee recognizes that the Marks have a secondary meaning in the minds of the public. 7. DISTRIBUTION. 7.1 Licensee agrees that it shall sell Authorized Products bearing Marks only to those stores listed in Schedule C attached hereto and made a part hereof. First quality Authorized Products bearing Marks that are closeouts as well as Second Quality Authorized Products bearing 7 Marks (as hereafter defined) shall be exclusively sold to those stores listed in Schedule D attached hereto and made a part hereof. In any Contract Year Second quality Authorized Products bearing Marks shall never exceed ten percent (10%) of the sales of Authorized Products bearing Marks by Licensee. Sales to other outlets or stores not listed in Schedules C and D shall require the express prior written consent of Licensor which consent may be granted or withheld in Licensor's sole discretion. Third quality Authorized Products bearing Marks (as hereafter defined) shall not be sold or distributed and must be destroyed. Second quality Authorized Products bearing Marks shall mean, for purposes of this Agreement, Authorized Products bearing Marks that do not conform in all material respects to every specification of Licensor and Licensee for such products but are considered salable in the trade and where the sale or distribution of such products would not adversely affect the reputation of the Licensor as a manufacturer of premium quality products. Third quality Authorized Products bearing Marks shall mean , for purposes of this Agreement, Authorized Products bearing Marks that do not conform in all material respects to every specification of Licensor and Licensee for such products, and are not considered salable in the trade or where the sale or distribution of such products would adversely affect the reputation of the Licensor as a manufacturer of premium quality products. 7.2 Licensee agrees that, during the term of this license, it will commence distributing activewear licensed herein bearing Marks to its customers by June 1, 1998 or earlier and outerwear licensed herein bearing Marks by June 1, 1998 and thereafter it will diligently and continuously, distribute, advertise and promote Authorized Products bearing the Marks. In addition to all other remedies available to them hereunder, Licensor and Agent may remove from this Agreement any Authorized Product listed in Schedule A attached hereto or any Authorized 8 Product or class or category of Authorized Products which is not diligently and continuously used by Licensee in the manufacture, preparation, delivery, sale, distribution, advertising and promotion of such Authorized Products bearing the Marks for a seasonally appropriate period of three (3) consecutive months by giving thirty (30) days written notice to Licensee. 7.3 Licensee agrees that it will sell and distribute the Authorized Products bearing the Marks only to retail stores and merchants which will sell such Authorized Products directly to the public. Licensee shall not, without prior written consent of Licensor, which consent may be granted or withheld in Licensor's discretion, sell or distribute such Authorized Products to retail stores, merchants, or others whose sales or distribution of such Authorized Products are or will be made for publicity or promotional tie-in purposes, combination sales, premiums, giveaways or similar methods of merchandising. It shall not be deemed a breach of this Agreement if Licensee sells Authorized Products bearing the Marks to retail stores or merchants for such purposes unless Licensee knew or had reason to know that such retail stores or merchants would use the Authorized Products bearing the Marks for such purposes. In the event any sale of Authorized Products bearing the Marks is made at a special price to any of Licensee's subsidiaries or to any other person, firm, corporation or entity related in any manner to Licensee or its officers, directors or major stockholders, there shall be a Percentage Royalty paid on such sales based upon the price generally charged the trade by Licensee. 7.4 Licensee shall at all times conduct all aspects of its business in a manner consistent with the prestigious image of the Marks and in a manner that will protect and maintain the 9 positive image and reputation of the Marks and Licensor in a fair and reasonable manner and in compliance with all applicable laws, government rules and regulations, court and administrative decrees and the highest standards of business ethics then prevailing in the industry. This shall include, without limitation, compliance with any and all applicable laws dealing with child or prison labor. 7.5 Licensee agrees to sell to Licensor and Agent such quantities of the Authorized Products bearing the Marks as either of them shall request at as low a rate and on as good terms as Licensee sells similar quantities of the Authorized Products to the general trade. 8. MAINTAINING THE IMAGE AND DISTINCTIVENESS OF THE MARKS. 8.1 Licensee shall maintain the validity and distinctiveness of the Marks and the high standards of quality with which the Marks have been heretofore associated. To that end, Licensee shall establish and adhere to a written policy and merchandising plan for the sale and distribution of Authorized Products bearing Marks which policy and plan shall be submitted for approval by Licensor in the same manner, to the same extent and for the same inspection period, as set forth for approval of Licensed Product quality in Section 9 of this Agreement, which approval shall not be unreasonably withheld. Such policy shall require that the Authorized Products bearing Marks are aggressively advertised, sold and distributed in a manner that will support the high prestige of the Marks and shall not in any manner reflect adversely upon the reputation of Licensor, Licensor's licensees, or any of their activities, or the Marks. Such merchandising plan shall be presented by Licensee to Licensor not later than sixty (60) days prior to each Contract Year excepting the initial Contract Year, plans for which have already been submitted to Licensor. 10 8.2 Licensee shall, within thirty (30) days after the expiration of each Contract Year, notify the Licensor in writing of the corporate name and trade name, if any, and location of each customer to whom Licensee sold Authorized bearing the Marks in the just concluded Contract Year. If Licensor notifies Licensee of its disapproval of a particular customer account, Licensee shall cease to accept new orders of such Authorized Products for such accounts. 9. QUALITY CONTROL. 9.1 The style, quality, material, workmanship and image of Authorized Products bearing the Marks shall be subject to the discretionary approval of the Licensor, which approval shall be obtained in accordance with the procedure set forth in this Section 9. 9.2 Prior to manufacturing, advertising, offering for sale, selling, or shipping any style of Authorized Products bearing Marks, Licensee will, at Licensee's expense, submit representative samples of each style of goods comprising such Authorized Products to Licensor for inspection. Licensee shall have the option of submitting designs, fabric samples, color palette and findings (Representative Materials) to Licensor for approval in lieu of finished product samples. Licensee agrees that no Authorized Product bearing the Marks will be manufactured, advertised, offered for sale, sold, shipped, or otherwise distributed, if the style, quality, material, or workmanship thereof has been objected to by Licensor. Such approval shall be solely within the discretion of Licensor. In the event of disapproval, Licensor shall provide Licensee with a reasonably detailed explanation as to why the style or styles of goods were disapproved. Licensee shall also have the right to request that the Senior Vice President Licensing of Licensor review such disapproval. 11 Provided the approval of Licensor has been obtained as provided herein for samples of Authorized Products or Representative Material, Licensee shall not depart therefrom in any material respect without again obtaining prior written approval from Licensor as aforesaid. Upon Licensor's request at any time during the term of this Agreement Licensee shall furnish to Licensor, at Licensee's expense but without any royalty payment thereon, a reasonable number of units of such approved Authorized Products bearing Marks being marketed by Licensee hereunder, in order to enable Licensor to determine that such Authorized Products do not depart in any material respect from samples or Representative Material thereof previously approved by Licensor pursuant to this Section 9.2. 9.3 Licensee agrees, upon reasonable written notice, to permit or arrange for the access of Licensor or of representatives of Licensor to inspect any facilities used in the production, marketing, distribution, merchandising and/or sales of the Authorized Products bearing Marks, it being understood that such inspections are to be undertaken in a manner that will not unreasonably interfere with or hamper the normal business operations at the locations being inspected. Licensee agrees to make provision consistent herewith with any subcontractors that Licensee may employ to manufacture, distribute or merchandise any item of Licensor approved Authorized Products bearing Marks. Notwithstanding the foregoing all such subcontractors must be approved by Licensor prior to their use as subcontractors for such Authorized Products, which approval shall not be unreasonably withheld, and must agree to abide by the requirements of this Agreement. Licensor reserves the right to withdraw such approval at any time if such subcontractor does not adhere to the specifications, requirements and limitations set forth in this Agreement or operates outside the bounds of behavior prescribed in Section 7.4 hereof and upon 12 such withdrawal of approval Licensee shall immediately cease dealing in such Authorized Products with such subcontractors. 9.4 Licensee agrees to and have its contractors and subcontractors comply with all applicable laws, regulations, orders and rulings of any governmental agency, authority, or court having jurisdiction over the design, manufacture, labeling, advertising, sale, or use of the Authorized Products bearing Marks. Licensee shall provide timely notification to Licensor of any law, regulation, or ruling of any governmental authority within the Territory which, to its knowledge, would invalidate all, or any part of this Agreement, or would require the registration or approval of this Agreement by any governmental authority, within the Territory. 9.5 Licensor shall advise Licensee in writing of its approvals or disapprovals pursuant to this Section 9, within seven (7) business days of receipt of an approval request and, in the event of disapproval, the reasons therefore provided, however, that if not approved within said seven (7) day period, any such request shall be deemed approved. Notwithstanding prior approvals in conformity with this Section, Licensor could subsequently become aware of facts that make such approval inadvisable. For example, after an approval as to its use, Licensor could become aware that a subcontractor is or has been involved in the counterfeiting of trademarks. Therefore, Licensor reserves the right to withdraw any such approval. A withdrawal of approval shall only be done if circumstances are such that such action is commercially reasonable and if such action is taken, Licensor shall use commercially reasonable efforts to provide a period of time for Licensee to dispose of previously approved materials. 13 10. ARTWORK, DESIGN, PROMOTIONAL MATERIALS, LABELING. 10.1 The form and content of all artwork, designs, promotional material and labels (collectively, "Art") to be used by Licensee displaying the Marks whether in association with Authorized Products or otherwise shall (i) conform to good trademark practice; (ii) have such indications of registration or trademark usage as may be required or permitted by the laws of the Territory (for example, "(R)" or "TM"); and (iii) be provided to Licensor for inspection and approval prior to any use, which approval may be granted or withheld at Licensor's discretion. Such approval shall be obtained in the same manner, to the same extent and for the same inspection period as for the approval of samples or Representative Material of Authorized Products, pursuant to Sections 9.2 and 9.5 hereof. Licensee agrees that no such Art bearing the Marks shall be used by Licensee or its customers if such Art has been objected to by Licensor. In the event of disapproval, Licensor shall provide Licensee with a reasonably detailed explanationas to why such disapproval occurred. Licensee shall also have the right to request that the Senior Vice President Licensing of Licensor review such disapproval. After the approval of Licensor has been obtained for Art encompassing the Marks, neither Licensee nor its customers shall depart therefrom in any material respect without again obtaining prior written approval from Licensor as aforesaid. Notwithstanding prior approval of artwork, designs, promotional material and labels in conformity with this Section, Licensor reserves the right to withdraw any such approval. A withdrawal of approval shall only be done if circumstances are such that such action is commercially reasonable and if such action is taken, Licensor shall use commercially reasonable efforts to provide a period of time for Licensee to dispose of previously approved materials. 14 10.2 All advertising and promotional and other printed materials bearing the Marks shall conform to good trademark practice and shall be in form and substance reasonably satisfactory to Licensor. Without limiting the generality of the foregoing, Licensee agrees that whenever the Marks appear on tags, tickets, pamphlets, folders, advertising, or promotional materials, of whatever kind or nature used by or prepared at the direction of Licensee, such Marks shall be in a form identical, or substantially identical, to that set forth in Schedules B hereto. Representative samples of all advertising and promotional and other printed materials bearing the Marks, intended to be used by Licensee, shall be submitted to Licensor at Licensee's expense, for Licensor's written approval prior to use thereof. Such approval shall be obtained in the same manner, to the same extent and for the same inspection period as for samples or Representative Material of Authorized Products bearing Marks pursuant to Sections 9.2 and 9.5. Provided the approval of Licensor has been obtained for advertising and promotional and other printed materials bearing the Marks, Licensee shall not depart therefrom, in any material respect, without again obtaining prior written approval from Licensor as aforesaid. 10.3 Licensee shall not permit any of its advertising or promotional material to contain any trademark, service mark, name, or mark which creates a likelihood of confusion with the Marks. 10.4 Licensee shall use reasonable efforts to require its customers to advertise, display and promote the Marks in a manner consistent with the terms and conditions of this Agreement and to monitor such use of the Marks by Licensee's customers. 15 10.5 All artwork and designs used in conjunction with Authorized Products bearing Marks shall not be used in conjunction with other products not associated with the Marks, whether such use be previous, contemporaneous, or subsequent to use in connection with Authorized Products, without the prior written consent of Licensor, which consent may be granted or withheld in Licensor's sole discretion. 10.6 Licensee shall expend a sum at least equal to the Minimum Promotional Investment (as hereinafter defined) within the Territory, with respect to each Contract Year, to advertise and otherwise promote the sales of Authorized Products bearing Marks, including television and print advertising, promotional material, and other expenditures made exclusively to promote directly the sales of Authorized Products bearing Marks with retailers (excluding, however, expenditures with respect to sales force materials or trade shows). The Minimum Promotional Investment with respect to each Contract Year shall be a documentable amount equal to two (2%) percent of Net Sales of Authorized Products bearing Marks for any Contract Year. Any inadvertent deficiency in the amount expended by Licensee as a Minimum Promotional Investment with respect to any Contract Year, except the final Contract Year shall be added to the Minimum Promotional Investment for the next Contract Year. In the event that such deficiency occurs, or is discovered in the final Contract Year, including any Extended Term final Contract Year, or after the termination or expiration of this Agreement, then such funds shall be immediately remitted to Licensor by Licensee upon notice to Licensee to such effect and may by used by Licensor to advertise or otherwise promote any products associated with the Marks. This Section 10.6 shall survive the termination or expiration of the Agreement. 16 11. INFRINGEMENT. Licensee agrees to notify Licensor promptly of any infringement or use by any entity of a name, mark, or trademark similar to the Marks which comes to the attention of Licensee. Licensor shall take such action as it deems advisable for the protection of Licensor's Marks and Licensee shall fully cooperate with Licensor, if requested to do so, at Licensor's sole expense. In no event, however, shall Licensor be required to take any action if it deems it inadvisable to do so and Licensee shall have no right to take any action with respect to the Marks without Licensor's prior written approval which Licensor may grant or withhold at its discretion. All damages recovered in any action or proceeding commenced or defended by Licensor, shall belong solely and exclusively to Licensor. 12. MAINTENANCE OF BOOKS AND RECORDS; AUDITS. 12.1 Licensee shall prepare and maintain separate, complete and accurate books of account and records (specifically, including, without limitation, the originals or copies of documents supporting entries in the books of account) covering all transactions arising out of or relating to this Agreement, in accordance with generally accepted accounting standards. Licensor or its duly authorized representatives shall have the right on reasonable written notice, during regular business hours, for two (2) years following each year of the Initial Term, or any Extended Term, to audit Licensee's books of account and records relating to this Agreement and examine all other documents and material in the possession or under the control of Licensee with respect to the subject matter and the terms of this Agreement including, without limitation, invoices, credits and shipping documents. All such books of account, records, and documents shall be kept 17 available by Licensee for inspection for two (2) years after the end of each year of the Initial Term or Extended Term as applicable. 12.2 If any audit of Licensee's books and records discloses that Licensee's payments to Licensor were less than the amount which should have been paid, Licensee shall make all payments required to be made to eliminate any discrepancy revealed by such audit within ten (10) business days after Licensor's demand therefor. If any such audit discloses that Licensee's payments to Licensor were two (2%) percent or more below the amount which should have been paid with respect to Net Sales occurring during the period in question, Licensee shall make all payments required to be made to eliminate any discrepancy revealed by such audit within ten (10) business days after Licensor's demand therefor, together with the cost of such audit. When payments are made by Licensee to eliminate discrepancies revealed by Licensor's audit they shall be made together with interest from the original due date to the payment date at the lesser of the so called "prime rate" as published in the Wall Street Journal plus two (2%) percent per annum, or the highest rate of interest allowed by law. 13. INDEMNIFICATION BY LICENSEE, PRODUCT LIABILITY INSURANCE AND RECIPROCITY. 13.1 Licensee hereby indemnifies Licensor and SVL and undertakes to defend Licensee, Licensor and SVL against and hold Licensor and SVL harmless from any claims, suits, losses, liabilities, damages, costs and expenses (including attorneys' fees and expenses) arising out of (i) any allegedly unauthorized use of any patent, design, mark, process, idea, method or device by Licensee in connection with the Authorized Products bearing Marks covered by this Agreement, or (ii) any other alleged action or omission by Licensee including breaches of the covenants contained in this agreement or (iii) alleged manufacturing or other defects in the Authorized 18 Products bearing Marks or (iv) any damage or personal injury resulting from the licensed Authorized Products bearing Marks. 13.2 Licensor hereby indemnifies Licensee and undertakes to defend Licensee against and hold Licensee harmless from any claims, suits, losses, liabilities, damages, costs and expenses (including attorneys' fees and expenses) arising out of claims by third parties that Licensor does not have the right to enter into this Agreement. 13.3 Sections 13.1 and 13.2 shall survive the expiration or termination of this Agreement. 13.4 Licensee agrees that it will obtain, at its own expense, product liability and/or completed operations insurance from a recognized insurance company which is qualified to do business in the State of Connecticut providing adequate protection (at least in the amount of $1,000,000 for each occurrence and $3,000,000 in the aggregate) for Licensor and SVL (as well for Licensee) against any claims, suits, loss or damage arising out of any alleged defects in Authorized Products bearing Marks or services. As proof of such insurance, a fully paid certificate of insurance naming Licensor and SVL as additional insured parties will be submitted to Licensor and SVL by Licensee for prior approval before any Authorized Product bearing Marks is distributed or sold, and at the latest within thirty (30) days after the date first written above. Any proposed change in such insurance coverage shall be submitted to Licensor and SVL for their prior written approval. Subsequent to any modification of insurance coverage Licensor and SVL shall be provided with a copy of the then prevailing Certificate of Insurance by 19 Licensee. Such policy of insurance shall provide for at least thirty (30) days written notice to Licensor and SVL prior to modification or cancellation. As used in the first two sentences of this Section 13.4 "Licensor" and "SVL" shall also include the officers, directors, and employees of the Licensor and SVL, their parent organization, if any, or any of their or their parents' subsidiaries or affiliates, and any person(s) the use of whose name may be licensed hereunder. 14. FINANCIAL STATEMENTS. Within sixty (60) days after the end of each fiscal year of Licensee, during the Initial Term or Extended Term of this Agreement as applicable, Licensee shall furnish to Licensor a consolidated balance sheet of Licensee as of the end of such fiscal year and the related consolidated statement of income, changes in shareholders' equity and cash flow statements of Licensee for such fiscal year then ended, together with supporting notes thereto, as prepared by the Licensee's independent auditors of nationally recognized, good repute. 15. RECOGNITION OF OWNERSHIP 15.1 Licensee recognizes Licensor's title to the Marks and shall not do or cause to be done any act or thing which will in any way impair the rights of Licensor in and to the Marks. It is understood that Licensee, and/or its parent or subsidiaries shall not acquire and shall not claim any title to the Marks adverse to Licensor by virtue of the license granted hereunder or use of the Marks, it being the intention of the parties that all use of the Marks by Licensee and the good will attendant thereto shall at all times inure to the benefit of Licensor. 15.2 Nothing herein shall require Licensor to obtain, maintain or renew any registrations of the Marks or any other trademarks or service marks used in connection with the sale of Authorized Products of Licensor. 20 16. RECORDING. Licensee shall, at its own expense, comply with all applicable laws governing corporate and business names and registration thereof in connection with its Business. 17. ASSIGNMENT. Neither this Agreement nor any of the rights or obligations of Licensee hereunder may be directly or indirectly assigned or transferred by Licensee, in whole or in part, nor may Licensee grant any sublicense hereunder to any person, firm or corporation without the prior written consent of Licensor which may be granted or withheld in Licensor's discretion except that in the event that Licensee is selling its entire business operation, or substantially all of its entire business operation, or all, or substantially all of its assets and this Agreement is proposed to be included as part of the assets so transferred, then Licensor's consent shall not be unreasonably withheld. Any attempted assignment by Licensee of this Agreement or any rights or obligations of Licensee hereunder, without the prior written consent of Licensor, shall be null and void. Nothing herein or done pursuant to this Agreement shall be construed as making Licensor or Licensee an agent of the other. For purposes of this Section an assignment shall include, but not be limited to, a direct or indirect sale, or transfer of fifty (50) percent or more of the capital stock or other equity ownership interests of Licensee, and shall include assignments pursuant to mergers, consolidations, or other forms of legal reorganizations, or to a transferee of all, or substantially all, of the assets of Licensee unless such successor or transferee is more than fifty (50) percent owned by the owners of the equity ownership of Licensee. 21 18. TERMINATION. 18.1 If Licensee violates or fails to perform any of its obligations hereunder, Licensor shall have the right to terminate this Agreement upon notice as set forth in Section 25.1. In addition, this Agreement will terminate automatically, without any notice or action being required of Licensor, if Licensee files a petition in bankruptcy or is adjudicated a bankrupt or insolvent, makes any assignment for the benefit of creditors or any arrangement pursuant to any bankruptcy law, or discontinues its business, or if a receiver is appointed for Licensee or for Licensee's business. 18.2 Upon termination of this Agreement, pursuant to Section 18.1, Licensee's rights with respect to use of the Marks shall be as if this Agreement had not been entered into, and Licensee shall cease using the Marks immediately. Licensee shall promptly thereupon destroy any and all signage, stationery, business cards, bill head and other items bearing the Marks. 18.3 Termination or expiration of the license under the provisions of Sections 18 and 25.1 shall be without prejudice to any cause of action or other remedy which Licensor and Agent may have against Licensee. Upon the termination or expiration of this license, notwithstanding anything to the contrary herein, all Percentage Royalties on Net Sales theretofore made shall become immediately due and payable, no Minimum Guarantees shall be repayable, and all unpaid Minimum Guarantees for the Initial or Extended Terms hereof, as applicable, shall be immediately due and payable. 19. FINAL STATEMENT UPON TERMINATION OR EXPIRATION. Ninety (90) days before the expiration of this license and, in the event of its termination, ten (10) days after receipt of notice of termination, or the happening of an event which terminates this Agreement where no notice is required, a final statement showing the number and description of Authorized Products bearing 22 Marks in inventory or in process shall be furnished by Licensee to Licensor and Agent. Either Licensor and Agent or their authorized representatives shall have the right to take a physical inventory to ascertain or verify such inventory and statement and refusal by Licensee to submit to or obtain access to the venues required or desirable for such physical inventory shall forfeit Licensee's right to dispose of such inventory as of the date of such refusal. Failure by Licensee to render the final statement as and when required by this provision shall result in a forfeiture by Licensee of Licensee's right to dispose of its stock (as provided by the next Section hereof as of the date of such failure). 20. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION. After termination or expiration of the license under the provisions hereof, Licensee, except as otherwise provided in this Agreement, may dispose of Authorized Products bearing Marks covered by this Agreement which are in inventory or in process at the time notice of termination is received or upon the expiration date, whatever the case may be, for the greater of a period of one hundred twenty (120) days thereafter, or through the next selling season for the Authorized Products, on a non-exclusive basis, provided advance and Percentage Royalty payments are up-to-date for the current period and statements are furnished for that period in accordance with Section 5.4 and provided further that such items are disposed of only in the regular course of business and in accord with this Agreement as if it were not terminated or expired. After such sell-off 23 period, all Authorized Products shall be, at Licensor's election, sold to Licensor at manufacturer's cost or destroyed. All applicable Percentage Royalties shall be paid on Authorized Products sold during the sell-off period within twenty five (25) days following the expiration of said disposal period. For purposes of this Section "Manufacturer's cost shall be equal to Licensee's manufacturing or acquisition cost thereof, but not including any general, administrative, selling or distribution costs. This Section shall survive the termination or expiration of this Agreement. 21. EFFECT OF TERMINATION OR EXPIRATION. Upon the expiration or termination of this license, all rights granted to Licensee hereunder except as specifically provided to the contrary shall forthwith revert to Licensor, who shall be free to license others to use the Marks in connection with the manufacture, preparation, delivery, sale, distribution, advertising, and promotion of the Authorized Products bearing Marks, and Licensee will refrain from further use of the Marks or any further direct or indirect reference to it, except as provided in Section 20. It shall not be a violation of any right of Licensee if Licensor or Agent should at any time during the term hereof enter into negotiations with a third party to license use of the Marks in respect of the Authorized Products described in Schedule A within the Territory, provided that it is contemplated that such prospective third party's license shall commence after termination or expiration of this license. 22. INJUNCTIVE RELIEF. Licensee acknowledges that its breach of this Agreement will result in immediate and irreparable damage to Licensor, and that money damages alone would be inadequate to compensate Licensor. Therefore, in the event of a breach or threatened breach of any provision of this Agreement by Licensee, Licensor, may, in addition to all other remedies, immediately obtain and enforce injunctive relief prohibiting such breach or compelling specific performance. 24 23. FORCE MAJEURE. Licensee and Licensor shall be released from their obligations hereunder and this license shall terminate in the event that governmental regulations or other causes arising out of a state of national emergency or war or causes beyond the control of the parties render performance of this Agreement impossible and one party so informs the other in writing of such causes and its desire to be so released. In such events, all Percentage Royalties on sales theretofore made shall become immediately due and payable and no Minimum Guarantees shall be repayable. 24. NO JOINT VENTURE. Nothing herein contained shall be construed to place the parties in the relationship of partners or joint venturers, and all parties shall have no power to obligate or bind the other parties in any manner whatsoever except as stated in this Agreement. 25. CURE PERIODS AND NOTICES. 25.1 Alleged breaches by Licensee relating to payments to Licensor, copyright or trademark notices, and/or required reports or product quality concerns representing actual or potential danger to consumers or a violation of law or of Section 7.4, must be cured within five (5) days of receipt of notice from Licensor to Licensee of such breach, to the satisfaction of Licensor. For all other breaches of this Agreement, each party agrees to provide the other with a cure period of thirty (30) days from receipt of a notice of breach to correct any alleged breach by the other.. It is expressly agreed that a breach of the terms of this Section 25.1 shall be adequate grounds for termination of this license, which termination shall be effective upon receipt by the receiving party. 25 25.2 All notices that are required or permitted to be given under this Agreement shall be in writing, duly signed by the party giving such notice, and shall be deemed to have been validly served, given, received, or delivered (i) upon receipt thereof if sent by mail; (ii) upon delivery thereof if delivered by hand to the party to be notified; or (iii) upon acknowledgment of receipt thereof if transmitted to a valid telefacsimile number for the party to be notified. In each case notice shall be sent to the address of the party to be notified as follows: (a) if to Licensor: Starter Corporation, 370 James Street, New Haven, CT 06513, Attention Frank Lipiro , Senior Vice President, with a copy to Theodore Voss, General Counsel; fax: (203) 821-5950 (b) if to Licensee: M&L International, Inc. 1333 North Kingsbury Street, Suite 401, Chicago, IL 60622, Attention Gene Weiner, Executive Vice President or Kurt Gutfreund, President; fax: (312) 944-3895 (c) if to SVL: SoundView Licensing, Inc., Harbour Square, 700 Canal Street, Stamford, CT 06902, Attention Donald E. Stapleton, President; fax: (203) 328-3772, or (d) to such other address or addresses as Licensor, Licensee or SVL may from time to time designate by notice as provided herein. 26. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Connecticut and waiving all rights to the contrary all parties agree that either the federal or state courts located in the state of Connecticut shall have exclusive subject matter and personal jurisdiction over any actions involving this Agreement. 27. SEVERABILITY. If in any judicial proceeding a court shall refuse to enforce all provisions of this Agreement, any unenforceable provision shall be deemed eliminated from the 26 Agreement as is necessary to permit the remainder of the Agreement to be enforced in such proceeding. 28. ENTIRE AGREEMENT; AMENDMENT. 28.1 This Agreement sets forth the entire agreement and understanding of the parties in respect of the matters contemplated hereby and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by any party which is not embodied in this Agreement or the documents referred to herein, and no party shall be bound by or be liable for any alleged representation, promise, inducement or statement of intention not so set forth. 28.2 This Agreement may only be modified or amended in a writing signed by both Licensor and Licensee. 29. HEADINGS. The headings of the sections of this Agreement have been inserted solely for convenience of reference and shall in no way restrict or modify any of the terms or provisions hereof. 30. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement has been executed and entered into by the parties on the date first hereinabove mentioned. 27 STARTER CORPORATION M&L INTERNATIONAL, INC. SOUNDVIEW LICENSING By:______________________ By:______________________ By:______________________ Frank Lipiro KURT C. GUTFREUND DONALD E. STAPLETON SENIOR VICE PRESIDENT PRESIDENT PRESIDENT 28 Exhibit 10.2 TRADEMARK LICENSE This Trademark License ("License") is made and entered into this __, day of August, 1997 by and between , LOLA, INC., a California corporation, hereinafter referred to as "Licensor", and BISCAYNE APPAREL INTERNATIONAL, Inc., a Delaware corporation, hereinafter referred to as "Licensee", with reference to the following: RECITALS A. Licensee is in the business of manufacturing, selling and distributing certain outerwear (the "Licensed Products"), as more particularly set forth on Schedule "A"; B. Licensee desires to obtain from Licensor an exclusive license to manufacture, market, sell, distribute and advertise the Licensed Products in the territories set forth on Schedule "A", (the "Licensed Territory") and to use the Trademarks, as hereinafter defined, on or in association with the Licensed Products; C. Licensor is the owner of the Trademarks and other related original works of art as stylized, collectively referred to herein as the "Trademarks", as more fully set forth on Schedule "A", attached hereto and incorporated by this reference. Licensor has obtained a trademark registration for the mark "XOXO", Registration Number 2,009,243 for goods in International Class 25 for men's, women's and children's clothing and "XOXO IN AMERICA AND ABROAD", Registration Number 2,043,508, for goods in International Class 25 for women's and children's clothing. D. Licensee represents that it has the ability to manufacture, market, sell, distribute and advertise the Licensed Products in the territories set forth on Schedule "A" hereto (the "Licensed Territory") and to use the Trademarks on or in association with the Licensed Products; Now, Therefore, in consideration of their respective promises and agreements made herein, Licensor and Licensee agree as follows: 1. LICENSE 1.1 GRANT OF LICENSE.Subject to the terms and conditions of this License, Licensor hereby grants to Licensee the exclusive right to use the Trademarks in the Licensed Territory (as defined below), solely to manufacture, market, sell, distribute and advertise the Licensed Products set forth on Schedule "A", during the Term of this Agreement. The License created hereby only allows the Licensee to -1- market, sell, distribute and advertise the Licensed Products for sale at wholesale and does not permit Licensee to engage in the retail sale and/or retail marketing of the Licensed Products. The License granted herein does not extend to any other product or service. Licensor shall not grant to anyone the license to manufacture Licensed Products for sale at retail. 1.1.1 Licensor additionally grants the Licensee the exclusive license, subject to the terms and conditions of this Agreement, to use the Trademarks on or in association with the Licensed Products in the Licensed Territory on packaging, promotional and advertising material associated therewith. 1.2 DETERMINATION OF LICENSED PRODUCTS. Licensee agrees that Licensor shall be entitled to reasonably determine whether a particular style or design of a Licensed Product may be offered for sale by Licensee in accordance with Paragraph 8 herein. Licensee agrees that it will not manufacture, market, sell, distribute and advertise, either directly or indirectly, any style, design or product which Licensor in its reasonable discretion disapproves. 1.3 APPROVAL REGARDING OTHER PRODUCTS ETC. Licensee acknowledges that Licensor may grant additional licenses in the future for territories, products and categories not presently licensed and not within the scope of this License. Permission of Licensor for Licensee to manufacture a particular style, design or product, or to distribute the Licensed Products within an area, which is not, in the opinion of the Licensor, within the scope of the License, shall not constitute a continuing approval or a waiver of the right of Licensor to later disapprove any style, design, product, or distribution area. 1.4 USE/OWNERSHIP OF TRADEMARKS. Other than as expressly set forth in this License, Licensee has absolutely no right, title or interest in or to the Trademarks or the use thereof. Licensee acknowledges that it is only acquiring the right to use the Trademarks in connection with (i) the manufacture of the Licensed Products, and (ii) the marketing, advertising, distribution and sale of the Licensed Products in the Licensed Territory, for the Term set forth in this Agreement and subject to the terms hereof. Upon termination of the License, Licensee shall cease all use of the Trademarks except as provided in Paragraph 18. Licensee shall not apply anywhere in the world, to register any copyright, trademark or trade name that in any way mentions or uses the Trademarks or any trademark or trade name that is confusingly similar to the Trademarks or trade names licensed hereunder, without the express prior written consent of the Licensor. 1.5 OWNERSHIP OF TRADEMARKS. Licensor is the sole owner of the Trademarks in the Licensed Territory and all applications and/or registrations for the Trademarks in the Licensed Territory; and Licensor is and will be, to the best of its knowledge, the exclusive owner of all designs, images, art work, logos, drawings, -2- illustrations, trade names, and the like, which it may provide to Licensee from time to time pursuant to this Agreement. Licensee acknowledges that it is often difficult, particularly in foreign countries, to obtain clear, registered title to trademarks and other intellectual property rights. Accordingly, subject to the provisions of Paragraph 13, Licensee agrees that the rights granted herein exist only to the extent that Licensor has such rights, and no warranty, express or implied, is made with respect thereto or with respect to the rights of any third parties that may conflict with the rights granted herein. Licensee agrees that the Trademarks and all rights, registrations and entitlement thereto, together with all applications, registrations and filings are and shall remain the sole and exclusive property of Licensor. 1.6 USE OF NAMES. Except as authorized pursuant to this License, and only to that extent, Licensee shall not use the Trademarks and/or name "XOXO", "XOXO In America and Abroad" or "LOLA" or any confusingly similar or substantially similar word or names in its business name or otherwise in any other manner, without the prior written consent of Licensor. 1.7 BEST EFFORTS. Licensee shall use its best efforts to manufacture, market, sell, distribute and advertise the Licensed Products in order to meet the demand for the Licensed Products in the Licensed Territory and to uphold, protect and defend the image and reputation of the Licensed Products and the integrity of the Trademarks. Licensee further agrees to use its best efforts to manufacture and ship not less than eighty-five percent (85%) of all approved, confirmed orders for Licensed Products within a reasonable time of the delivery date specified in such orders. 2. LICENSED TERRITORY. 2.1 The Licensed products shall only be sold, marketed, distributed or delivered exclusively by Licensee, either directly or indirectly, in the Licensed Territory. 2.2 Licensee shall not, directly or indirectly, sell, market, distribute or deliver, the Licensed Products outside of the Licensed Territory without prior written consent of Licensor, which consent may be withheld in the sole and absolute discretion of the Licensor. Licensee shall not knowingly, directly or indirectly, sell, distribute or otherwise deliver or cause to be sold, distributed or delivered, the Licensed Products to any individual or entity who intends to, or is likely to, or to whom Licensee reasonably believes might, sell the Licensed Products outside the Licensed Territory. 2.3 Nothing contained herein shall in any way restrict or prohibit Licensor from licensing, marketing, manufacturing, selling or distributing the Licensed Products outside the Licensed Territory and Licensee shall have no rights therein. 3. TERM. 3.1 INITIAL TERM. The initial term of this License is three (3) Years -3- commencing August 1, 1997 and terminating on June 30, 2001 ("Initial Term"), unless sooner terminated as provided herein. Each period during the Initial Term shall be as follows: First Year August 1, 1997 through June 30, 1999 Second Year July 1, 1999 through June 30, 2000 Third Year July 1, 2000 through June 30, 2001 3.2 RENEWAL. Licensee has the option to extend the term of this License for an additional period of five (5) Years ("Option Period"). Each Year of the Option Period shall be for a period of twelve months commencing upon the expiration of the immediately preceding Year. Said option must be exercised by providing written notice to Licensor at least six (6) months and no more than nine (9) months, prior to the end of the Initial Term. Said option may only be exercised if Licensee is in full compliance with its obligations under this Agreement as of the time of exercise of the option and as of the date of commencement of the Option Period. In the event of any extension or renewal of this Agreement as provided herein, all terms and conditions of this Agreement shall remain in full force and effect, except as otherwise set forth in this Agreement. Should Licensor, at any time, exercise its right under this Agreement to terminate the rights of Licensee hereunder, thereafter Licensee shall not have any option to extend the term of this Agreement. 4. ROYALTY PAYMENTS. In consideration for the license granted pursuant to this Agreement, the Licensee shall pay to Licensor, each month, an amount equal to seven (7%) percent of the Net Sales of the Licensed Products, ("Royalty"). 4.1 ADVANCE PAYMENT OF ROYALTY. Concurrently with the execution of this Agreement, the Licensee shall pay to Licensor a NON-REFUNDABLE advance in the amount of seventy-five thousand U.S. Dollars (US $75,000.00), which payment shall be credited against the Guaranteed Minimum Royalty Payment due for the first Year ONLY of the Initial Term, pursuant to Paragraph 4.4 below. 4.2 NET SALES. As used herein, "Net Sales" shall mean Licensee's gross sales (as determined by the gross invoice amount billed to customers) of the Licensed Products, whether or not actually paid for, less actual returns, freight, bona fide trade discounts and bona fide charge backs. No deduction shall be made for cash or other discounts, or reserves for charge backs or sales discounts. No costs incurred in the manufacturing, selling, advertising and/or distribution of the Licensed Products or in the payment by Licensee of any taxes of any nature whatsoever shall be deducted from the gross sales amounts or from any royalty payable to Licensor, except in the event of a withholding tax on royalties due to Licensor, nor shall any deduction be allowed for any -4- uncollectible accounts or allowances. 4.3 GUARANTEED MINIMUM NET SALES. During the Initial Term of this Agreement Licensee guarantees that its Net Sales shall be in the amount set forth on Schedule "A" during each Year. 4.4 GUARANTEED MINIMUM ROYALTY PAYMENT. Regardless of whether or not Licensee achieves the required Guaranteed Minimum Net Sales determined pursuant to Paragraph 4.3 hereof, Licensee shall pay to Licensor a Guaranteed Minimum Royalty Payment for each Year during the term hereof, in accordance with the terms of Schedule "A" attached hereto (the "Guaranteed Minimum Royalty"). [For purposes of this Agreement, the "Royalty Payment", whether Guaranteed or Minimum, shall include the "Royalty" (7%) as defined above, and the amount due Licensor for "Advertising" (2%) as set forth in paragraph 5 below, for a total Royalty Payment of 9%.] If at the end of any Year during the term hereof, Licensee has not paid to Licensor Royalty Payments equaling or exceeding the Guaranteed Minimum Royalty Payment for that Year, Licensee shall pay to Licensor the balance due within thirty (30) days of the end of the applicable period. 4.5 MANNER OF PAYMENT; MONTHLY STATEMENTS. The Royalties due Licensor shall be calculated and paid within 20 calendar days of the end of each calendar month during the term hereof, for Net Sales invoiced and delivered during the immediately preceding calendar month, (the "Royalty Period) . Concurrently with the payment of each Royalty Payment, Licensee shall deliver to Licensor a written monthly statement of accounting showing any pre-payment of royalties made by Licensee to Licensor and all of the Licensed Products sold and delivered during the applicable period covered by the Royalty Payment. Said statement shall be in the form and shall contain the information as Licensor may from time to time direct. Such royalty statement shall be certified as accurate by a duly authorized officer of Licensee, reciting on a territory by territory basis, the stock number, item, units sold, description, quantity shipped, gross invoice, amount billed customers less discounts, allowances, returns and reportable sales for each Licensed Product. Such statements shall be furnished to Licensor whether or not any Licensed Products were sold during the Royalty Period. Time is of the essence with respect to all payments herein and if payment is not timely made, an interest charge of prime (as determined by Bank of America when said payment was due) plus one (1%) percent, per annum, or the maximum legal rate, whichever is less, shall be added to the unpaid balance until said balance, plus accrued interest is paid in full. -5- 4.5.1 Licensee's obligation to pay Licensor the Royalty Payment shall accrue upon the sale of the Licensed Products regardless of the time of collection by Licensee. For purposes of this Agreement, a Licensed Product shall be considered "sold" upon the date when such Licensed Product is billed, invoiced, shipped or paid for, whichever event occurs first. 4.5.2 If Licensee sells any Licensed Products to any party affiliated with Licensee, or in any way directly or indirectly related to or under the common control with Licensee, at a price less that the regular price charged to other parties, the Royalty Payment payable to Licensor shall be computed on the basis of the regular price charged to the other parties. 4.6 Upon termination of this Agreement by Licensor, other than pursuant to Section 17.1.1 hereof, all Royalty Payments, due Licensor, including any unpaid portions of the Guaranteed Minimum Royalty Payment, shall be accelerated and shall immediately become due and payable discounted to present value at the rate of ten percent per annum. Upon termination of this Agreement by Licensor pursuant to Section 17.1.1 hereof, no Guaranteed Minimum Royalty Payment shall become due for any period subsequent to the end of the Year in which the Licensee failed to achieve the Minimum Net Sales. Licensee's obligations to pay any Royalty Payment or Guaranteed Minimum Royalty Payment which accrued prior to expiration or termination of this Agreement shall survive such expiration or termination. 4.7 CURRENCY. All payments made pursuant to this License and all calculations of amounts under this License shall be in U.S. dollars, with all checks drawn on a U.S. bank, except as otherwise specifically provided in writing between the parties. 4.8 BOOKS, RECORDS AND REPORTS. Licensee shall keep true and accurate books of accounts and records in accordance with generally accepted accounting principles of all transactions with respect to the Licensed Products. 4.9 ANNUAL REPORTS OF SALES. For each Year during the term hereof, Licensee shall submit to Licensor a statement as well a year end statement for the period ending December 31. The year end statement shall be submitted by March 20th of each year for the previous calendar year and the statement for the full Year period shall be due 90 days after the end of such period. Each statement shall include a detailed and cumulative account of all transactions of the Licensed Products, including, without limitation, all sales, all returns, all bona fide trade discounts, all royalties paid and payable, all Licensed Products returned as substandard, and all orders canceled for non-delivery and such other information as Licensor may from time to time reasonably request. This report shall be certified to be correct by the Chief Executive Officer or the Chief Financial Officer of Licensee. 4.10 MULTIPLE LICENSE. In the event Licensee is or becomes a party to -6- more than one (1) license with Licensor, separate reports and records shall be maintained and generated as required by Paragraphs 4.5, 4.8 and 4.9 for each License. Failure to comply with the provisions hereof may constitute an event of default under the terms of this License, which could cause Licensor to terminate same or take such other actions as Licensor deems appropriate in its sole and absolute discretion subject to Paragraph 17 of this Agreement. 5. ADVERTISING. As payment for advertising, Licensee shall pay to Licensor an amount equal to two (2%) percent of Licensee's Net Sales or Guaranteed Minimum Net Sales, whichever is greater. The payment for advertising is in addition to any retail co-op advertising that Licensee may do on its own. Licensee shall spend at least $35,000 for advertising and/or public relations to "launch" the Licensed Products during 1998. All advertising used by Licensee must be approved in writing by Licensor by either Licensor's Chief Executive Officer or Director of Advertising or any other designee of Licensor, prior to any use of same in any manner by Licensee. Such advertising shall at all times be subject to the approval by Licensor, in its sole and absolute discretion, prior to its publication, exhibition or other use. All advertising shall be placed through the Advertising Department of Licensor, (if one exists), or as otherwise designated by Licensor through an advertising agency of Licensor's choice. Payment for advertising is in addition to all other payments required hereunder and shall be paid monthly concurrently with the Royalty Payments set forth above. 6. AUDIT. Licensee shall keep complete and accurate books and records at its principal place of business covering all transactions relating to this Agreement. Licensor and/or its duly authorized representatives shall have the right, at reasonable business hours and upon reasonable notice, at the place where such records are normally maintained, to inspect, audit, examine and make copies of such books and records and all other documents and material in Licensee's possession or control regarding any transactions relating to this Agreement. 6.1 All books and records of Licensee relating to this Agreement shall be retained for at least three (3) years following termination of this Agreement. 6.2 The receipt or acceptance by Licensor of any of the statements furnished or any payments made by Licensee pursuant to this Agreement, shall not preclude Licensor from reviewing the books and records or from questioning the accuracy thereof. Licensor shall have the right from time to time, and at any reasonable time, to audit Licensee's books to determine the correctness of payments/amounts due Licensor hereunder during a period of three (3) years from the end of each Year of the Agreement. The cost of said audit shall be borne by Licensor. However, if any audit reveals an underpayment by Licensee of five percent (5%) or more, Licensee shall pay forthwith (and in no event later than five (5) days after completion of said audit), the cost of the audit, and all payments found to be due, with interest thereon, at the rate of prime (as determined by Bank of America when said payment was due) plus one (1%) -7- percent, per annum, or the maximum legal rate, whichever is less, computed from the date said unpaid payments/amounts would have been due had they been properly accounted for until the date they are actually paid. 6.3 In the event that an audit or investigation of Licensee's books and records is made, certain confidential and proprietary information of Licensee may necessarily be made available to the person(s) conducting such audit or investigation. It is agreed that such confidential and proprietary information shall be retained in confidence by Licensor, and shall not be used by Licensor or disclosed to any third party without the prior written consent of Licensee, unless otherwise required by law. Notwithstanding the foregoing, such information may be used in any proceeding based on Licensee's failure to pay its actual Royalty Payments or other obligations to Licensor. 7. ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. Not later than one hundred twenty (120) days after Licensee's fiscal year-end,(or calendar year-end as the case may be), Licensee shall furnish Licensor with an audited annual financial statement which shall include an income statement and a balance sheet of the Licensee prepared in accordance with generally accepted accounting principles consistently applied. In addition, within sixty (60) days of the end of each calendar quarter during the term of this License, Licensee shall furnish Licensor with quarterly financial statements prepared in accordance with generally accepted accounting principles. In the event an audited statement is not prepared by Licensee, Licensee shall nevertheless furnish Licensor with its unaudited financial statements, certified to be correct by the Chief Executive Officer or Chief Financial Officer of Licensee. 8. PRODUCT STANDARDS. Licensee shall not sell, distribute or otherwise market the Licensed Products unless they are of the highest standards and quality and unless each product has received the prior written approval of Licensor prior to distribution thereof, subject to the terms and conditions of this Paragraph 8. 8.1 APPROVAL OF DESIGN CONCEPT. As soon as Licensee has developed a design for a Licensed Product that it desires to produce, sell and market, Licensee shall submit three (3) design samples or drawings thereof if samples are not available, at no cost to Licensor, of said product, along with color and fabric samples, if applicable, to Licensor for approval, along with one (1) complete set of all promotional and advertising material associated therewith. 8.1.1 Within five (5) working days following the receipt of any design sample, Licensor shall either approve or disapprove the product or indicate changes to be made. Failure by Licensor to so note approval, disapproval or changes within said five (5) working days shall be deemed approval. In the event changes are required, Licensee shall be required to resubmit the revised design sample or drawings thereof if samples were not originally submitted, for approval with the recommended -8- changes. Subsequent re-submissions shall occur until Licensor either approves or rejects the design in question. All approvals shall be within Licensor's reasonable discretion. However, in the event that a dispute arises as to the determination of same, Licensor shall have the final decision with respect thereto. Licensee shall not produce a Licensed Product for manufacturing, marketing, sale, distribution, advertising or otherwise, which has not received the approval of the Licensor as set forth herein. Once the design samples have been approved by the Licensor, Licensee shall not materially depart therefrom without Licensor's prior written consent. 8.2 APPROVAL OF PRODUCTION SAMPLES TO SALES FORCE. As soon as Licensee has produced its samples for sale of any proposed Licensed Product which has received design approval as set forth above, Licensee shall submit one (1) production sample to Licensor for approval, ("Production Sample"). All submissions of Production Samples for approval by Licensor shall be at the sole expense of the Licensee. Licensee shall use such sample approval forms and supply Licensor with such information in connection therewith as Licensor shall from time to time reasonably direct. Within five (5) working days following receipt, Licensor shall either approve, disapprove or indicate changes to be made in the Production Sample. Failure by Licensor to so note approval, disapproval or changes within said five (5) working days shall be deemed approval. In the event changes are required, the approval form shall be resubmitted for approval with the recommended changes. Subsequent re-submissions shall occur until Licensor either approves or rejects the sample in question. All approvals shall be at Licensor's reasonable discretion. An approved Production Sample of each Licensed Product shall be provided to Licensor for its historical sample line at Licensee's cost. The approved Production Samples shall be the standard by which future production quality shall be judged. The Licensed Products produced for sale and/or delivery to any customer of Licensee or anyone else, shall be of at least the same or better quality than that which was approved by Licensor as a Production Sample hereunder. 8.2.1 Licensee, at its expense, may also submit to Licensor a pre-production sample ("Pre-Production Sample") of any proposed Licensed Product which has received design approval. Within five (5) working days following receipt, Licensor shall either approve, disapprove, or indicate changes to be made in the Pre-Production Sample. Failure by Licensor to so note approval, disapproval or changes within said five (5) working days shall be deemed approval. All approvals shall be at Licensor's reasonable discretion. An approved Pre-Production Sample shall be the standard by which future Production Samples and production quality shall be judged. -9- 8.3 APPROVAL PRIOR TO DELIVERY. No Licensed Product shall be delivered by Licensee to a customer unless it has received the design and sample approvals required by paragraphs 8.1 and 8.2 above. 8.4 PRODUCT DISTRIBUTION.Licensee acknowledges the importance of the marketing techniques and retailing standards of Licensor with respect to all products marketed under the Trademarks and agrees to maintain these standards to protect the value of the Trademarks and the image of the Licensed Products. Licensee shall therefore maintain the same or higher standards for the selection of retail, wholesale and other outlets as those maintained by Licensor during the term of this License. Licensee shall submit to Licensor no later than February 15th of each year during the term of this License, and concurrently with the execution of this Agreement, a Distribution Plan ("Plan") for approval. This Plan shall state the names of accounts proposed to be sold Licensed Products by Licensee during the year. Licensor shall have ten (10) working days from the date of receipt of the Plan to approve or disapprove any proposed purchasers of Licensed Products identified by Licensee. Licensor shall be reasonable in the event it disapproves any proposed purchaser and advise Licensee of its reasons for such disapproval. Failure of Licensor to respond to such Plan within ten (10) working days shall be deemed a waiver of any objection thereto. In the event the parties fail to agree on a Plan for any year, then Licensee shall have the option to terminate this License by providing Licensor with written notice of termination and the effective date thereof, which shall be at least ninety (90) days from the date Licensor receives the notice of termination. In the event Licensee fails to so notify Licensor of its desire to terminate this Agreement, then Licensee shall be required to conform to the Plan as determined by Licensor. Unless prior written approval is obtained from Licensor, Licensee is specifically prohibited from the sale and disposition of the Licensed Products through parking lot sales, swap meets, flea markets and similar sale or disposal techniques. Licensor hereby approves the Plan submitted concurrently herewith for the first Year. 8.5 APPROVALS. Any approvals required herein may only be granted by Gregg Fiene, President or such other person or persons whom he designates in writing. 9. QUALITY CONTROL. Licensor has the right to make on site inspections at any reasonable time and on reasonable notice at manufacturing and distribution facilities of Licensee to ensure the ongoing quality of the Licensed Products. If, at any time, Licensor determines in its sole and absolute discretion, that a Licensed Product is of lesser quality than the Production Sample or the Pre-Production Sample approved pursuant to Paragraph 8.2 or 8.2.1 hereof, Licensor shall give Licensee written notice thereof. Licensee shall take immediate steps to restore the quality of and cure the defects upon receipt of said notice and cease production and distribution of that -10- Licensed Product until its quality is improved to the satisfaction of Licensor. 10. LABELING. All Licensed Products and all promotional and advertising material shall contain all appropriate notices, whether copyright, trademark or otherwise as required by Licensor and as may be required by law. The labels and hang tags may be acquired only from approved sources, designated in writing by Licensor, provided that the prices and other terms and conditions of sale for sameare competitive with the prices, terms and conditions which Licensee could acquire elsewhere, and the quality is substantially similar. On all labels and hang tags, and Licensed Products the circle (R) or (TM) as appropriate shall appear denoting United States Trademark registration or pending registration, and where applicable, and subject to the direction of Licensor, all items subject to copyright protection shall bear a proper and complete circle (C) copyright notice as specified by law. Licensor shall have the right from time to time to designate the exact symbols or language to be used by Licensee to denote ownership by Licensor of any intellectual property, be it Trademarks, copyrights or other property. Licensee understands the importance of maintaining the security and integrity of all trademarked labeling used on the Licensed Products and agrees to obtain said labels only from the sources designated by Licensor.. Licensee further agrees to maintain a strict, accurate, and current inventory of all labels throughout the manufacturing process of the Licensed products so as to preclude any diversion of the labels to other than authorized licensees. No additional labels, hang tags or identification shall appear on the Licensed Products unless prior written approval of Licensor is obtained, however, Licensee may include a separate label of its sole choice for care, content, size and country of origin. 10.1 LABEL INVENTORY. In each annual or year-end statement, Licensee shall furnish to Licensor a current inventory of all labels designated in Paragraph 10. 11. TRADEMARKS & COPYRIGHTS. Licensor may seek, in its own name and at its own expense, appropriate patent, trademark or copyright protection for the Licensed Products. 11.1 In the event that Licensee requests that Licensor obtain patent or trademark protection for a particular item or in a particular country where Licensor had not, heretofore, obtained such protection, Licensor agrees to take such reasonable steps to obtain such protection, provided, however, that Licensee shall be obligated to reimburse Licensor for the cost of filing, prosecuting, and maintaining same. 11.2 Subject to Paragraph 11.6 below, it is understood and agreed that Licensor shall retain all right, title and interest in the Trademarks and copyrights and designs of the Licensed Products, as well as any modifications or improvements made thereto by Licensee, (excluding standard or generic/basic designs). Upon termination or expiration of this Agreement, Licensor shall be permitted to make use of same for -11- any purpose whatsoever. 11.3 The parties agree to execute any documents reasonably requested by the other to effect any of the above provisions. 11.4 Licensee acknowledges Licensor's exclusive rights in the Trademarks and further acknowledges that the Trademarks are unique and original to Licensor and that Licensor is the owner thereof. Licensee shall not, at any time during or after the effective Term of the Agreement dispute or contest, directly or indirectly, Licensor's exclusive right and title to the Trademarks or the validity thereof. 11.5 Licensee acknowledges that the Trademarks have acquired secondary meaning. 11.6 Licensee agrees that its use of the designs of the Licensed Products and/or the Trademarks inures to the benefit of Licensor and that the Licensee shall not acquire any rights in the designs (except for standard or generic/basic designs) and/or the Trademarks except as set forth in this Agreement. Notwithstanding the foregoing, with respect to the designs of the Licensed Products only, Licensee shall be permitted to utilize similar designs of the Licensed Products for its other divisions and subsidiaries provided that, (1) the colors, fabrication and hardware are not the same as the Licensed Products, (2) the product can only be offered for sale as part of Licensee's other divisions or subsidiaries after six (6) months from the date the product is first shipped for sale at retail or the first selling season of the Licensed Products, whichever is longer, and (3) such products are to be sold in different "channels of trade" than the Licensed Products. A different channel of trade is any customer who is not included on Schedule A of the then current Distribution Plan. 11.7 The parties acknowledge that the faithful representation of the Trademarks, as they appear in the applications and registration of the Office of the Patent and Trademark Office of the United States and in applications and registration in the Licensed Territory, is mandatory on the part of Licensee with respect to any reproduction used by Licensee, whether it appears on the Licensed Products or in print or is otherwise displayed in the media. Licensee further agrees that the Trademarks will always be faithfully and exactly reproduced, unless prior written authorization for modification thereof is received from Licensor. 11.7.1 Each first use of the Trademarks by Licensee shall be submitted to Licensor for approval as set forth in this License. All goods manufactured, marketed, sold, distributed or advertised hereunder shall have a notice on the label which states "Trademarks owned and licensed by LOLA, INC." or such language as Licensor may designate from time to time. 11.8 COPYRIGHT OR TRADEMARK INFRINGEMENT OR MISUSE & LITIGATION. If Licensee becomes aware of any fraudulent use, misuse, or infringement of Licensor's -12- copyrights or Trademarks or if Licensee becomes aware of any marks confusingly or substantially similar to the Trademarks, Licensee shall immediately notify Licensor thereof. 11.8.1 Licensor shall have the first option in its discretion, to institute and prosecute lawsuits against third persons for infringement of the rights licensed in this Agreement. Licensor shall not be required to institute legal action if, in its sole and absolute discretion, the probability of success therein or results of successful litigation do not justify the time and expense thereof. In the event that Licensor determines in its sole and absolute discretion not to prosecute any such litigation, then in such event Licensee shall have the right, in its discretion, to institute and prosecute lawsuits against third persons for infringement of the rights licensed in this Agreement. The cost and expense of any lawsuit shall be borne by the party bringing suit. Any recovery, whether by judgment, settlement, or otherwise, shall be retained by the party bringing suit. Licensee shall cooperate fully with Licensor in any proceeding to protect the Trademarks and copyrights and other intellectual property rights granted herein. 11.9 OTHER TRADEMARKS OF LICENSOR. Licensee shall have no right whatsoever to any trademark or other intellectual property that may be developed by Licensor or its affiliates that is not, in the sole opinion of Licensor, part of the Licensee's brand line and directly related to the Licensed Products. Notwithstanding the foregoing, Licensee shall not be permitted to use Licensor's trademark "Lola" or anything substantially similar thereto with respect to this License Agreement. 12. WARRANTIES & OBLIGATIONS. 12.1 Licensor represents and warrants that; (a) it has the right and power to grant the licenses herein; and (b) that there are no other agreements with any other party in conflict herewith. 12.2 To the best of Licensor's knowledge, it has no actual knowledge that the Property and/or Trademarks infringe any valid right of any third party. 12.3 Licensee shall be solely responsible for the manufacture, production, sale and distribution of the Licensed Products and will bear all related costs associated therewith. 12.4 Licensee represents and warrants that it will use its best efforts to promote, market, sell and distribute the Licensed Products as provided in this Agreement. 12.5 Licensee represents and warrants that it has the right and power to enter into this Agreement and that there are no other agreements with any other party in conflict herewith. -13- 12.6 Subject to its rights under Paragraph 11.6 above, Licensee represents and warrants that during the term of this Agreement it will not enter into an agreement with anyone to copy or "knock-off", or directly or indirectly copy or "knock-off", or cause to be copied or "knocked-off" any of the Licensed Products for itself or anyone else or any other products manufactured or licensed by Licensor. 13. INDEMNITY. 13.1 Licensor shall indemnify, defend and hold Licensee, its officers, directors, employees, and agents harmless from any liability, attorney's fees, costs and expenses arising from any claims asserted against Licensee or Licensor arising from Licensee's use of the Trademarks, designs, images, artwork, logos, drawings, illustrations, trade names, and the like, which Licensor may provide to Licensee from time to time pursuant to this Agreement and which Licensee utilized ONLY in accordance with the terms of this Agreement. This indemnity does not cover any modifications or changes made to the Trademarks by Licensee, without Licensor's prior consent. Licensor shall be entitled, at its option to provide legal counsel to represent Licensee at Licensor's cost. Licensor shall not be required to pay for Licensee's independent legal counsel, if Licensor provides legal counsel to represent Licensee with respect to any claim. Nothing herein is intended to nor shall it relieve Licensee from liability for its own acts, omissions, or negligence. 13.2 Licensee shall defend and indemnify Licensor, its officers, directors, agents, and employees against all costs, expenses and losses (including reasonable attorney fees and costs) incurred through claims of third parties against Licensor or Licensee based on the manufacture, marketing, sale, advertising, distribution of the Licensed Products designed by Licensee including, but not limited to, actions founded on product liability on all products manufactured by Licensee. 13.3 Each party will promptly notify the other of any claims or actions to which the foregoing indemnification may apply. 14. GOODWILL. Licensee recognizes the great value of the publicity and goodwill associated with the Trademarks, Copyrights and designs of the Licensed Products , and agrees that the value of the goodwill exclusively belongs to Licensor. 15. COPYRIGHT NOTICE. Licensee shall place a legally sufficient copyright notice which protects the rights of Licensor on each and every design, style, garment, creation or writing which is capable of protection pursuant to the copyright laws of the United States of America and the Licensed Territory at the reasonable direction of Licensor. Any public distribution of goods bearing copyrightable works of Licensor by Licensee without a copyright notice as required above, is unauthorized and a violation -14- of this Agreement. 16. INSURANCE. Licensee shall, throughout the Term of this Agreement and any extension or renewal hereof, obtain and maintain at its sole cost and expense, from a qualified insurance company, reasonably acceptable to Licensor, and, Product Liability Insurance naming Licensor and its President Gregg Fiene, as additional insured thereon. Such policy shall provide protection against any and all claims, demands and causes of action arising out of any defects or failure to perform, alleged or otherwise, of the Licensed Products or any material used in connection therewith or any use thereof. The amount of the coverage shall be at least Two Million ($2,000,000) Dollars. The policy shall provide for ten (10) days notice to Licensor from the insurer by registered or certified mail, return receipt requested, in the event of any modification, cancellation or termination thereof. Licensee shall furnish Licensor a certificate of insurance evidencing such coverage upon execution of this Agreement, and in no event shall Licensee manufacture, distribute or sell the Licensed Products prior to receipt by Licensor of such evidence of insurance. 17. TERMINATION. The following termination rights are in addition to the termination rights provided elsewhere in this Agreement and unless otherwise provided in this Paragraph 17, are subject to the cure provision set forth in Paragraph 17.7 below. 17.1 IMMEDIATE RIGHT OF TERMINATION. Licensor shall have the right to immediately terminate this Agreement by giving written notice to Licensee in the event that Licensee does any of the following: 17.1.1 Licensee fails to achieve 70% of the required Guaranteed Minimum Net Sales in any Contract Year during the Initial Term or the Option Period as set forth on Schedule "A" hereto. 17.1.2 Licensee files a petition in bankruptcy or is adjudicated a bankrupt or insolvent, or makes an assignment for the benefit of creditors, or an arrangement pursuant any bankruptcy law, or if the Licensee discontinues its business or a receiver is appointed for the Licensee or for the Licensee's business and such receiver is not discharged within ninety (90) days; -15- 17.2 TERMINATION AFTER NOTICE. Subject to the provisions contained in Paragraph 17.7 below, Licensor shall have the right to terminate this Agreement upon the occurrence of the following events: 17.2.1 Licensee fails to meet the Initial Shipment Date as specified in Schedule "A" hereto; 17.2.2 Licensee fails to make timely payment of Royalties or other monies due Licensor two or more times during any twelve month period; 17.2.3 Licensee breaches any provision of this Agreement, (except as specifically noted in Paragraph 17.1 above) including, but not limited to, the unauthorized assertion of rights in the Trademarks; 17.2.4 Licensee fails to obtain or maintain product liability insurance in the amount and of the type provided for herein; 17.2.5 Licensee fails to promptly discontinue the distribution or sale of the Licensed Products, Trademarks or Copyrights or the use of any packaging or promotional material which does not contain the requisite notices or labels; 17.2.6 Licensee has not taken steps to restore the quality of and cure the defects with respect to the Licensed Products in accordance with Paragraph 9 of this Agreement. 17.3 ACCELERATED PAYMENTS ON DEFAULT. In the event of a default and the rights of Licensee under this Agreement are terminated, all payments required hereunder shall be accelerated and shall be due and payable to Licensor immediately, in full, plus interest at prime (as determined by Bank of America when due) plus one(1%) percent, per annum from the date due or the date of default, whichever shall first occur; 17.4 This Agreement may be terminated by the mutual consent of the parties in writing. 17.5 DEFAULT. Subject to the provisions of Paragraph 17.7, in addition to the foregoing rights of Licensor, either party may terminate this Agreement and the rights of the other party if either party is in default or has materially breached any of the terms of this Agreement, or any additional or supplemental agreements that may be entered into between the parties. 17.6 ACTS DETRIMENTAL TO THE BRAND. Licensee acknowledges that it is only one of multiple licensees of the Trademark; that its actions and omissions can greatly impact the business of Licensor, the business of other licensees of Licensor and the value of the Trademark(s); and that the quality of Licensee's production, timely delivery of approved orders, and conduct of its business can greatly impact the business of other licensees of Licensor and the value of the Trademarks. As a result, in the event that the Licensee takes any action which is, in the reasonable opinion of -16- Licensor, materially harmful to the Trademarks or the business of Licensor, Licensor's other licensees, or the Trademarks, then Licensor shall have the right to terminate all rights of Licensee under this Agreement. 17.7 CURE PERIOD. Before Licensor terminates the rights of Licensee under this Agreement, (except with respect to the provisions contained in Paragraph 17.1 which are grounds for immediate termination), Licensor shall give Licensee written notice, setting forth the basis for such termination, default or failure to perform. Licensee shall have thirty (30) days from and after mailing of such written notice to cure such default, breach or failure to perform. In the event that such breach, default or failure to perform is not cured within said thirty (30) days, then Licensor may forthwith terminate all of Licensee's rights hereunder. 17.8 Licensee shall have the right to terminate this Agreement by giving written notice to Licensor in the event that: 17.8.1 Gregg Fiene is no longer the chief operating officer or chief executive officer of Licensor; or 17.8.2 If Licensor files a petition in bankruptcy and is adjudicated bankrupt or insolvent, or makes an assignment for the benefit of creditors, or an arrangement pursuant to any bankruptcy law, or if Licensor discontinues its business. 17.9 Notice of a party's election to terminate this Agreement must be given, if at all, within sixty days after the occurrence of the event giving rise to the right to terminate. 18. POST TERMINATION RIGHTS. All of the following rights and duties shall be applicable upon any termination of Licensee's rights under this Agreement, whether by expiration of the term hereof or by earlier termination pursuant to the provisions hereof. 18.1 Not less than thirty (30) days prior to the expiration of this Agreement, or immediately upon earlier termination thereof, Licensee shall provide Licensor with a complete inventory of all inventory of the Licensed Products then on-hand and all piece goods for same (the "Inventory"). 18.2 DELETION OF TRADEMARK. Immediately upon expiration or earlier termination of this Agreement, Licensee shall take all steps necessary to change its name if it incorporates any of the Trademarks or similar words in its business name and delete any references to the Trademarks and similar words from any signs, business names, or any use in advertising, print or otherwise. Subject to Paragraph 18.4, this change of name shall be completed within ninety (90) days after expiration or earlier termination of this Agreement. Notwithstanding the foregoing, in the event that this -17- Agreement is terminated for cause as provided in Paragraphs 17.1 and 17.2 above, then Licensee shall remove all references to the Trademarks or similar words in its business name and delete any references to the Trademarks and similar words anywhere same is used within thirty (30) days from and after the date of such termination. 18.3 DISPOSITION OF SAMPLES, PATTERNS, MARKERS, LABELS AND FASTENERS ON TERMINATION. Any samples, patterns, markers and labels or fasteners (snaps, buttons, etc.) on which the Trademarks appear, which are not affixed to a finished Licensed Product, shall be delivered to Licensor by Licensee within thirty (30) days of the expiration or termination of this Agreement, except as provided in Paragraph 18.4 below. An inventory of such items on hand upon expiration or termination of this Agreement shall be delivered to Licensor within twenty (20) days of the expiration or termination. All such items of inventory shall be used in accordance with this provision and no other disposition of these items shall occur. Licensor shall pay Licensee for all such material at a price equal to Licensee's cost thereof, including freight; such payment to be made within thirty (30) days after delivery. 18.4 LIQUIDATION OF GOODS. Immediately upon the expiration or termination of Licensee's rights under this Agreement, Licensee shall have the right to complete all work in process, and to complete bona fide purchase orders. Licensee shall have the right to use the items of inventory listed in Paragraph 18.3 above, for completion of work in process. Licensee shall no longer have the right to use the Trademarks in any form or in any manner, except for the purpose of selling off the existing inventory of the Licensed Products. Licensee shall have one hundred fifty (150) days from the date of expiration or termination of this Agreement to dispose of its inventory of the Licensed Products. If any of the Licensed Products remain unsold after the expiration of one hundred fifty (150) days, Licensee shall then remove the Licensed Products from its inventory and return such unsold inventory to Licensor at no cost to Licensor, other than freight. All sales of the remaining inventory shall be sold in accordance with the terms of this Agreement, and the accounting and payment shall be made within thirty (30) days after the close of the one hundred fifty (150) day sell off period. 18.5 Except as provided above, upon expiration or earlier termination of this Agreement, all of the rights of Licensee under this Agreement shall forthwith terminate and immediately revert to Licensor and Licensee shall immediately discontinue all use of the Trademarks at no cost whatsoever to Licensor. 18.6 Licensee hereby agrees that, at the expiration or earlier termination of this Agreement for any reason, Licensee will be deemed automatically to have assigned, transferred and conveyed to Licensor any and all rights, goodwill or other right, title or interest in and to the Trademarks, trade dress, copyrights, or any other intellectual property rights which may have been obtained by Licensee as a result of -18- this License. Licensee will execute, and hereby irrevocably appoints, Licensor its attorney in fact (acknowledging that such power is coupled with an interest) to execute, if Licensee fails or refuses to do so, any instrument requested by Licensor to accomplish or confirm the foregoing. 19. MUTUAL EXCLUSIVITY. Licensor shall provide Licensee with substantial design input for the Licensed Products, and it is and will be impossible to determine which design features are not the property of Licensor. Licensee further agrees that all existing and future graphic designs and designs of the Licensed Products are and shall remain the sole and exclusive property of Licensor. Subject to its rights under Paragraph 11.6 above, Licensee agrees that it shall not manufacture, sell or distribute products using the graphic designs of the Licensed Products or substantially similar designs under any other name or label other than the Trademarks. 20. NON-ASSIGNABILITY. Neither this Agreement nor any of the Licensee's rights hereunder are assignable by Licensee, without the prior written consent of Licensor. Such consent may be withheld in the sole and absolute discretion of Licensor. The transfer of more that fifty (50%) percent in the aggregate of the shares of beneficial ownership of Licensee will be deemed an assignment. Notwithstanding the foregoing, Licensor's consent shall not be unreasonably withheld in the event of a sale of all or substantially all of the assets of Licensee or in the event of a transfer of more than fifty percent in the aggregate of the shares of beneficial ownership of Licensee Licensor may assign its rights under this Agreement or the payments to be made by Licensee to Licensor hereunder. 20.1 SUBLICENSE-SUBCONTRACT. Licensee may not sublicense its rights under this Agreement without the prior written consent of Licensor, which approval or disapproval shall be subject to the sole and absolute discretion of Licensor. Any sublicense or attempted sublicensing by Licensee without the prior written consent of Licensor shall constitute a breach of this Agreement. Any sublicense consented to by Licensor must provide that the sublicensee shall be bound by all of the terms and conditions of this Agreement. Approval by Licensor to one sublicense shall not relieve the Licensee of any of its obligations under this Agreement, including, without limitation, its obligations set forth on Schedule "A". 20.1.1 Licensee shall have the right to subcontract the actual manufacture of the Licensed Products, provided that all such subcontractors agree to be bound by the terms and conditions of any sub-contractor Agreement heretofore provided by Licensor to Licensee specifically for use by Licensee's sub-contractors. Licensee must provide Licensor with the appropriate acknowledgment of the terms of such sub-contractor Agreement from such subcontractor prior to using such subcontractor. 20.2 NO HYPOTHECATION. Licensee shall not pledge, hypothecate, -19- mortgage, grant liens in or upon, grant security interests in, or use as collateral any of Licensee's rights under this Agreement without the prior written consent of Licensor, which consent may be withheld in the sole and absolute discretion of Licensor. Any such action without the prior written consent of Licensor shall be void and of no force and effect and shall entitle Licensor to forthwith terminate Licensee's rights under this Agreement. 21. SALE OF LICENSED PRODUCTS TO XOXO RETAIL STORES OR XOXO OUTLET STORES. As additional consideration for Licensor entering into this Agreement, with respect to any XOXO Retail Stores owned or controlled by Licensor, any affiliate of Licensor, 8-3 Retailing, Inc., or any company subsequently established by Licensor, or any of the principals of Licensor, individually or collectively, for the express purpose of operating XOXO Retail Stores, (hereinafter collectively referred to as "Retail Stores"), Licensee shall sell to Licensor on a "CONSIGNMENT" basis, to no more than five (5) of such Retail Stores as or when opened, any Licensed Products manufactured by Licensee pursuant to this Agreement and ordered by such Retail Store in reasonable quantities, and at the Licensee's lowest wholesale selling price to anyone and same shall be delivered to such Retail Stores in accordance with the terms of such order(s). All Licensed Products so ordered by shall be paid by such Retail Store to Licensee within forty-five (45) days of the end of the month in which the Licensed Products are received, if not returned as provided below. Any such Retail Store shall have the right to return any unsold Licensed Products ordered from Licensee anytime within sixty (60) days after the receipt of same by such Retail Store(s) without any obligation for the payment of same to Licensee. Licensee shall provide any such retail store referenced above with a Return Authorization for such merchandise on demand, prior to the return of such merchandise to Licensee. 21.1 During the Term of this Agreement, with respect to any Licensed Products that are either not sold by Licensee during the normal course of business, seconds, overruns, damaged, off-priced, discontinued or otherwise Licensed Products that are not sold during the selling season for same (hereinafter referred to as "Off-Priced Goods"), Licensor shall have the first right to purchase same from Licensee for its XOXO Outlet Stores at such reasonable price as the parties agree, prior to offering such Off-Priced Goods to anyone else. Licensee shall notify Licensor or its buyer for the XOXO Outlet Stores of any Off-Priced Goods subject to the within provision. Licensor or its buyer for the XOXO Outlet Stores shall have 5 business days from and after receipt of same within which to purchase any quantity of the Off-Priced Goods offered for sale herein. In the event that Licensor or its buyer for the XOXO Outlet Sores does not notify Licensee of its intention to buy all or any portion of the Off-Priced Goods offered for sale, then Licensee shall be entitled to dispose of that portion of such Off-Priced Goods which Licensor or its buyer for the XOXO Outlet Stores does not purchase. Licensor shall be provided payment terms for same of not less than 45 days from the end of the month in which the Licensed Products are received. In the event -20- that Licensor declines to purchase such Off-Priced Goods, then Licensee shall be permitted to sell same to any third-party listed in Schedule B of the then current Distribution Plan, provided that the price and terms are no more favorable to such third party as that offered to Licensor. 22. GENERAL PROVISIONS. 22.1 Payments. All payments due hereunder shall be payable to Licensor. 22.2 NOTICES. Any notice required to be given hereunder shall be in writing and delivered personally to the other designated party at the address set forth below or mailed by certified or registered mail, return receipt requested or delivered by a recognized national overnight courier service, in a sealed envelope, with postage thereon fully paid and addressed as follows: If to Licensor: Mr. Gregg Fiene Lola, Inc. d.b.a. XOXO 6000 Sheila Street Commerce, CA 90040 Fax: (213) 277-1750 With copies to: Mr. Jeffrey F. Gersh, Esq. Zimmerman, Rosenfeld, Gersh & Leeds LLP 9107 Wilshire Boulevard Suite 300 Beverly Hills, CA 90210 Fax: (310) 273-5602 and Mr. Glenn Rutherford President/CEO Logan James, Ltd. 3072 Evergreen Parkway Evergreen, CO. 80439 Fax: (303) 670-3005 -21- If to Licensee: Biscayne Apparel International, Inc. 1373 Broad Street Clifton, NJ 07013 Attn: President Fax: (973) 473-5401 With copies to: Law Offices of Abrams & Chapman Attn: Sherwin D. Abrams Suite 1200 321 South Plymouth Court Chicago, Illinois 60604-3990 Fax: (312) 360-9212 Either party may change the address to which notice or payment is to be sent by written notice to the other in accordance with the provisions of this Paragraph. 22.3 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior negotiations, dealings, agreements and understandings of the parties in connection therewith and is intended as a final expression of their Agreement. 22.4 SEVERABILITY. The invalidity or unenforceability of any provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 22.5 AMENDMENT. No amendment, modification or alteration of this Agreement shall be valid unless it is in writing and signed by all parties hereto. 22.6 NO AGENCY OR JOINT VENTURE. This Agreement does not constitute and shall not be construed as constituting an agency, partnership or joint venture between the parties. Licensee shall have no right to obligate or bind Licensor in any manner whatsoever, and nothing herein contained shall give, or is intended to give, any rights of any kind to any third persons. 22.7 GOVERNING LAW. This Agreement shall be deemed to have been made in, and shall be construed in accordance with the laws of the State of California, and its validity, construction, interpretation and legal effect shall be governed by the laws of the State of California applicable to contracts entered into and performed entirely therein. It is further agreed that this Agreement is deemed to have been consummated in the State of California and as such, in the event of a dispute between the parties, the parties consent to in personam jurisdiction in either the Federal or State Court in the county of Los Angeles, State of California to hear any dispute with respect to same. As a result the parties hereby agree to waive any jurisdictional or venue -22- defenses otherwise available to it. 22.8 ATTORNEY FEES AND COSTS. If either party to this Agreement shall bring any action against the other, declaratory or otherwise, arising out of this Agreement, the losing party shall pay to the prevailing party a reasonable sum for attorney fees incurred in bringing or defending such suit and/or enforcing any judgment granted therein, all of which shall be deemed to have accrued upon the commencement of such action and shall be paid whether or not such action is prosecuted to judgment. Any judgment or order entered in such action shall contain a specific provision providing for the recovery of attorney fees and costs incurred in enforcing such judgment. For the purposes of this section, attorney fees shall include, without limitation, fees incurred in the following: (1) post judgment motions; (2) contempt proceedings; (3) garnishment, levy, and debtor and third party examinations; (4) discovery; and (5) bankruptcy litigation. 22.9 INTERPRETATION. The parties hereto are sophisticated and have been represented by lawyers throughout this transaction, who have carefully negotiated the provisions hereof. As a consequence, the parties do not believe that the presumptions of CIVIL CODE Section 1654 relating to the interpretation of contracts against the drafter of any particular clause should be applied in this case and therefore waive its effects. 22.10 RECITALS. The recitals set forth on the first page of this Agreement are incorporated herein by this reference as though fully set forth herein. 22.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of Licensee and its successors and assigns and shall also be binding upon and shall inure to the benefit of Licensor and its successors and assigns. 22.12 HEADINGS. The subject headings of the Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any term or provisions hereof. 22.13 PARTIES BENEFITTED. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provisions give any third persons any right of subrogation or action against any party to this Agreement. 22.14 CONFIDENTIALITY. The parties hereto agree that the terms of this Agreement shall be kept confidential and not disclosed to any third party except in the ordinary course of business or if required by law, without the prior written consent of the other party hereto. Licensee acknowledges that prior to and/or during the term of -23- this Agreement that it may be given access to or become acquainted with "Confidential Information" (as such term is defined below), which is of great value to Licensor. Licensee further acknowledges that maintaining the confidentiality of all such Confidential Information is critically important to Licensor. As a result of the foregoing Licensee shall not either during or after the term of this Agreement, use or disclose, directly or indirectly, to anyone other than representatives of Licensor or other persons designated by Licensor any information, data, documents, customer list(s), designs and styles, manufacturing procedures, company policies, or other materials of any kind or nature in any way related to Licensor, its business affairs or operations, even if acquired by Licensee in the course of the performance of Licensee's obligations hereunder and even if provided to Licensee by Licensor ("Confidential Information"). Licensee acknowledges that a breach of the provisions of this paragraph will cause Licensor irreparable harm for which there is no adequate remedy at law, and therefore, in addition to any and all other rights or remedies available to Licensor, Licensor shall be entitled to injunctive relief and all other remedies provided by law or equity. Such remedies shall include, without limitation, the right to prevent dissemination of any Confidential Information. 22.15 FURTHER ACTION. Each party hereto agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions hereof. 22.16 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, which shall be deemed to constitute one and the same instrument. 22.17 NO IMPLIED WAIVERS. The failure of either party at any time to require performance by the other party of any provision hereof shall not affect in any way the full right to require such performance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be construed or held to be a waiver of the provision itself. 22.18 TIME. Time is of the essence of the Agreement. 22.19 PROTECTION OF TRADEMARKS. Neither Licensor or Licensee shall, at any time, do or suffer to be done any act or thing which will in any way impair the rights of the Licensor in and to the Trademarks or the rights of the Licensee in and to its rights under this Agreement or which affects the validity of the Trademarks or which depreciates the values thereof or which tends to bring the Trademarks into disrepute. -24- 23. SHOWROOM FOR LICENSED PRODUCTS Licensee acknowledges the importance of providing customers with the ability to view all of the Licensee's Licensed Products in one location and in close proximity to Licensor's showrooms so that Licensor can introduce its customers to the Licensed Products. Licensor may, in its discretion, provide a showroom for all Licensees in close proximity to Licensor's showrooms or as part of Licensor's showrooms in Los Angeles and New York, as Licensor shall reasonably determine. At the Licensor's request, the Licensee shall provide a current sample line of its Licensed Products in each showroom. Licensor shall provide a sales person in each showroom to show Licensee's line to customers and prospective customers and to refer such customers or prospective customers to Licensee. With respect to Licensee's own showroom, Licensee shall provide, display and maintain complete current sample lines of its Licensed Products. The Licensed Products shall be completely separated from other products sold or manufactured by Licensee. Licensee shall be required to maintain a booth at no more than two (2) trade shows per Year as determined by Licensor and Licensee and where Licensor's products are exhibited or offered for sale, at Licensee's sole cost and expense and exhibit therein the Licensed Products manufactured by Licensee pursuant to this Agreement. Licensee's booth shall be maintained as part of or in connection with Licensor's booths at such trade shows. IN WITNESS WHEREOF, the parties hereto, have entered into this Agreement effective on the day and year set forth above. LICENSOR: LOLA, INC. By: ---------------------------------- Gregg Fiene, President Date: _____________, 1997 LICENSEE: Biscayne Apparel International, Inc. By: ---------------------------------- Peter Vandenberg, Jr., President Date: __________, 1997 25 EXHIBIT 11 Biscayne Apparel, Inc. Computation of Per Share Earnings (Dollars in Thousands, Except Per Share Amounts) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ------------ Net earnings (loss) $ 2,504 $ 2,830 $ (64) $ (764) =========== =========== =========== =========== PRIMARY: Common and common equivalent shares: Weighted average common shares outstanding 10,770,213 10,741,540 10,761,288 10,741,540 Potential dilution upon exercise of stock options and warrants 23,426 1,995 - - ----------- ----------- ----------- ----------- Shares used in computing net earnings (loss) per common share 10,793,639 10,743,535 10,761,288 10,741,540 =========== =========== =========== =========== PER SHARE AMOUNTS: Net earnings (loss) per share $ 0.23 $ 0.26 $ (0.01) $ (0.07) =========== =========== =========== =========== FULLY DILUTED: Common and common equivalent shares: Weighted average common shares outstanding 10,770,213 10,741,540 10,761,288 10,741,540 Potential dilution upon exercise of stock options and warrants 18,954 1,995 - - ----------- ----------- ----------- ----------- Shares used in computing net earnings (loss) per common share 10,789,167 10,743,535 10,761,288 10,741,540 =========== =========== =========== =========== PER SHARE AMOUNTS: Net earnings (loss) per share $ 0.23 $ 0.26 $ (0.01) $ (0.07) =========== =========== =========== =========== END