| Acquisitions, Joint Ventures and Investments | 3. Acquisitions, Joint Ventures and Investments
Consolidated Entities
The following entities and joint ventures are consolidated with the
Company:
Iconix China
In September 2008, the Company and Novel Fashions Brands Limited
(“Novel”) formed a joint venture (“Iconix
China”) to develop and market the Company’s brands in
the People’s Republic of China, Hong Kong, Macau and Taiwan
(the “China Territory”). Pursuant to the terms of this
transaction, the Company contributed to Iconix China substantially
all rights to its brands in the China Territory and committed to
contribute $5.0 million, and Novel committed to contribute $20
million to Iconix China. Upon closing of the transaction, the
Company contributed $2.0 million and Novel contributed $8.0
million. In September 2009, the parties amended the terms of
the transaction to eliminate the obligation of the Company to make
any additional contributions and to reduce Novel’s remaining
contribution commitment to $9.0 million, $4.0 million of which was
contributed in July 2010, $3.0 million of which was contributed in
May 2011, and $2.0 million of which was contributed in June
2012.
In March 2015, the Company purchased from Novel Fashion Brands
Limited its 50% interest in Iconix China for $56.1 million, of
which $40.4 million was paid in cash and $15.7 million was paid in
the Company’s common stock (the “2015 Buy-out”),
thereby taking 100% of the equity interests in Iconix China. The
following is a reconciliation of consideration paid to Novel
Fashion Brands Limited:
Cash paid to Novel Fashion Brand Limited $ 40,400
Shares issued to the seller 15,703
Offset of accounts receivable 1,269
Fair value of 50% interest in Iconix China $ 57,372
As a result of the 2015 Buy-out, Iconix China is subject to
consolidation and is included in the Company’s unaudited
condensed consolidated financial statements at March 31,
2015.
The estimated fair value of the assets acquired, less liabilities
assumed (which is preliminary and is subject to change), is
allocated as follows:
Fair value of 50% interest in Iconix China $ 57,372
Book value of Company equity investment prior to 2015 Buy-out 10,006
Gain on re-measurement of initial equity investment 47,365
$ 114,743
Trademarks 40,500
Investments in private companies 42,659
Cash 20,184
Other assets 5,997
Accrued expenses (447 )
Goodwill 5,850
$ 114,743
Other assets consist primarily of securities of a company publicly
traded on the Hong Kong Exchange.
The Iconix China trademarks have been determined by management to
have an indefinite useful life and accordingly no amortization is
being recorded in the Company’s unaudited condensed
consolidated income statements. The goodwill and trademarks are
subject to a test for impairment on an annual basis. The $5.9
million of goodwill resulting from the 2015 Buy-out is deductible
for income tax purposes.
For the Current Quarter, there was no impact of consolidating
Iconix China on the Company’s unaudited condensed
consolidated income statement.
As part of this transaction, the Company also acquired, through its
ownership of 100% of Iconix China, equity interests in the
following private companies with an aggregate fair value of
approximately $42.7 million: Candies Shanghai Fashion Co. Ltd.
(which can be put by Iconix China to Shanghai La Chappelle Fashion
Co., Ltd. for cash based on a pre-determined formula); Mark Ecko
China Ltd.; Ningbo Material Girl Fashion Co., Ltd.; Tangli
International Holdings Ltd.; Ecko Industry (Shanghai) Co., Ltd; and
Joe Boxer China Ltd. See section entitled “Investments in
Iconix China” for further detail on such investments.
Strawberry Shortcake
In March 2015, the Company completed its acquisition from American
Greetings Corporation and its wholly-owned subsidiary, Those
Characters From Cleveland, Inc. (collectively, “AG” or
the “Seller”), of all of AG’s intellectual
property rights and licenses and certain other related assets
relating to the Strawberry Shortcake brand pursuant to an asset
purchase agreement entered into in February 2015.
In accordance with the terms of the asset purchase agreement, at
the closing, the Company paid the Seller $105.0 million in
cash.
The cash paid to the Sellers and the estimated fair value of the
assets acquired (which is preliminary and is subject to change), is
allocated as follows:
Cash paid to sellers by the Company $ 105,000
Trademarks $ 91,007
License agreements 800
Note receivable 9,470
Accounts Receivable 3,223
Goodwill 500
$ 105,000
The Note receivable represents amounts due from AG in respect of
non-compete payments pursuant to a License Agreement entered into
with AG simultaneously with the closing of the transaction. The
Note is in the principal amount of $10.0 million and is paid in
equal quarterly installments over a two year period.
For the Current Quarter, post-acquisition, the Company recognized
approximately $1.4 million in revenue from such assets. The $0.5
million of goodwill resulting from the 2015 acquisition is
deductible for income tax purposes.
PONY
In February 2015, the Company, through its newly-formed subsidiary,
US Pony Holdings, LLC, (“Pony Holdings”) acquired the
North American rights to the PONY brand. These rights include the
rights in the US obtained from Pony, Inc. and Pony International,
LLC (collectively, “US Pony Seller”), and the rights in
Mexico and Canada obtained from Super Jumbo Holdings Limited
(“Non-US Pony Seller” and, together with US Pony
Seller, the “Pony Sellers”). The purchase price paid by
the Company was $37.0 million. Pony Holdings is owned 75% by the
Company and 25% by its partner Anthony L&S Athletics, LLC
(“ALS”). ALS contributed to Pony Holdings its perpetual
license agreement in respect of the U.S. and Canadian territories
for a 25% interest in Pony Holdings. Additionally, the Company
received an option to purchase, until February 28, 2015, from
the Pony Sellers and their affiliates certain intellectual
property-related assets and trademarks related to the Pony brand in
Europe, the Middle East and Africa and was assigned by ALS the
right to purchase from Pony Sellers and their affiliates certain
intellectual property-related assets and trademarks related to the
Pony brand in Latin America, which expired May 1, 2015. The
Company did not exercise either of such rights.
The following table is a reconciliation of cash paid to Pony
Sellers and the fair value of ALS’s non-controlling interest
(which is preliminary and is subject to change):
Cash paid to Pony Sellers $ 37,000
Fair value of 25% non-controlling interest to ALS 12,333
Fair value of PONY $ 49,333
The estimated fair value of the assets acquired is allocated as
follows:
Trademarks $ 46,750
License agreements 250
Accounts receivable 2,000
Goodwill 333
Fair value of PONY $ 49,333
Accounting Standards Codification (“ASC”) 810-
“Consolidations” (“ASC 810”) affirms that
consolidation is appropriate when one entity has a controlling
financial interest in another entity. The Company owns a 75%
membership interest in Pony Holdings compared to the minority
owner’s 25% membership interest. Further, the Company
believes that the voting and veto rights of the minority
shareholder are merely protective in nature and do not provide them
with substantive participating rights in Pony Holdings. As such,
Pony Holdings is subject to consolidation with the Company, which
is reflected in the unaudited condensed consolidated financial
statements.
For the Current Quarter, post-acquisition, the Company recognized
approximately $0.4 million in revenue from Pony Holdings. The $0.3
million of goodwill resulting from the 2015 acquisition is
deductible for income tax purposes.
Unaudited Pro Forma Information
Unaudited pro forma information for the transactions completed in
the Current Quarter is not presented because the effects of such
transactions, individually and in the aggregate, are considered
immaterial to the Company.
Iconix Latin America
In December 2008, the Company formed a joint venture partnership,
(“Iconix Latin America”), with New Brands, an affiliate
of the Falic Group, to develop, exploit, market and license the
Latin American territory comprising of Mexico, Central America,
South America and the Caribbean. In February 2014, the Company
purchased from New Brands its 50% interest in Iconix Latin America
for $42.0 million, giving the Company a 100% interest in Iconix
Latin America.
Iconix Europe
In December 2009, the Company contributed substantially all
rights to its wholly-owned brands in all member states and
candidate states of the European Union, and certain other European
countries, to Iconix Europe, a then newly formed wholly-owned
subsidiary of the Company. Shortly thereafter, an investment
group led by Albion Equity Partners LLC, purchased a 50% interest
in Iconix Europe for $4 million through Brand Investments Vehicle
Group 3 Limited (“BIV”). Also, as part of this
transaction, Iconix Europe entered into a multi-year brand
management and services agreement with The Licensing Company
to assist in developing, exploiting, marketing and licensing
the contributed brands in the European territory.
In January 2014, the Company consented to the purchase of
BIV’s 50% ownership interest in Iconix Europe by LF Asia
Limited (“LF Asia”), an affiliate of Li & Fung
Limited, in exchange for $1.5 million from LF Asia. In addition,
the Company acquired an additional 1% equity interest in Iconix
Europe from LF Asia thereby increasing the Company’s
ownership in Iconix Europe to a controlling 51% interest.
Hydraulic IP Holdings, LLC
In December 2014, the Company formed a joint venture with Top On
International Group Limited (“Top On”). The name of the
joint venture is Hydraulic IP Holdings, LLC (“Hydraulic
IPH”), a Delaware limited liability company. The Company paid
$6.0 million, which was funded entirely from cash on hand, in
exchange for a 51% controlling ownership of Hydraulic IPH. Top On
owns the remaining 49% interest in Hydraulic IPH. Hydraulic IPH
owns the IP rights, licenses and other assets relating principally
to the Hydraulic brand. Concurrently, Hydraulic IPH and iBrands
International, LLC (“iBrands”) entered into a license
agreement pursuant to which Hydraulic IPH licensed the Hydraulic
brand to iBrands as licensee in certain categories and geographies.
Additionally, the Company and Top On entered into a limited
liability company agreement with respect to their ownership of
Hydraulic IPH.
NGX, LLC
In October 2014, the Company formed a joint venture with NGO, LLC
(“NGO”). The name of the joint venture is NGX, LLC
(“NGX”), a Delaware limited liability company. The
Company paid $6.0 million, which was funded entirely from cash on
hand; in exchange for a 51% controlling ownership of NGX. NGO owns
the remaining 49% interest in NGX. NGX owns the IP rights, licenses
and other assets relating principally to the Nick Graham brand.
Concurrently, NGX and NGL, LLC (“NGL”) entered into a
license agreement pursuant to which NGX licensed the Nick Graham
brand to NGL as licensee in certain categories and geographies.
Additionally, the Company and NGO entered into a limited liability
company operating agreement with respect to their ownership of
NGX.
Buffalo Brand Joint Venture
In February 2013, Iconix CA Holdings, LLC (“ICA
Holdings”), a Delaware limited liability company and a
wholly-owned subsidiary of the Company, formed a joint venture with
Buffalo International ULC (“BII”). The name of the
joint venture is 1724982 Alberta ULC (“Alberta ULC”),
an Alberta, Canada unlimited liability company. The Company,
through ICA Holdings, paid $76.5 million, which was funded entirely
from cash on hand, in exchange for a 51% controlling ownership of
Alberta ULC which consists of a combination of equity and a
promissory note. BII owns the remaining 49% interest in Alberta
ULC. Alberta ULC owns the IP rights, licenses and other assets
relating principally to the Buffalo David Bitton brand (the
“Buffalo brand”). Concurrently, Alberta ULC and BII
entered into a license agreement pursuant to which Alberta ULC
licensed the Buffalo brand to BII as licensee in certain categories
and geographies. Additionally, ICA Holdings and BII entered into a
shareholder agreement with respect to their ownership of Alberta
ULC.
Icon Modern Amusement
In December 2012, the Company entered into an interest purchase and
management agreement with Dirty Bird Productions, Inc., a
California corporation, in which the Company effectively purchased
a 51% interest in the Modern Amusement trademarks and related
assets for $5.0 million, which was funded entirely from cash on the
balance sheet. To acquire its 51% interest in the trademark, the
Company formed a new joint venture company, Icon Modern Amusement
LLC (“Icon MA”), a Delaware limited liability
company.
Peanuts Holdings
On June 3, 2010 (the “Peanuts Closing Date”), the
Company consummated an interest purchase agreement with United
Feature Syndicate, Inc. (“UFS”) and The E.W. Scripps
Company (the “Parent”) (Parent and UFS, collectively,
the “Sellers”), pursuant to which it purchased all of
the issued and outstanding interests (“Interests”) of
Peanuts Worldwide, a then newly formed Delaware limited liability
company, to which, prior to the closing of this acquisition,
copyrights and trademarks associated with the Peanuts characters
and certain other assets were contributed by UFS. On the Peanuts
Closing Date, the Company assigned its right to buy all of the
Interests to Peanuts Holdings, a newly formed Delaware limited
liability company and joint venture owned 80% by Icon Entertainment
LLC (“IE”), a wholly-owned subsidiary of the Company,
and 20% by Beagle Scouts LLC, a Delaware limited liability company
(“Beagle”) owned by certain Schulz family trusts.
Further, on the Closing Date, IE and Beagle entered into an
operating agreement with respect to Peanuts Holdings (the
“Peanuts Operating Agreement”). Pursuant to the Peanuts
Operating Agreement, the Company, through IE, and Beagle made
capital contributions of $141.0 million and $34.0 million,
respectively, in connection with the acquisition of Peanuts
Worldwide. The Interests were then purchased for $172.1 million in
cash, as adjusted for acquired working capital.
In connection with the Peanuts Operating Agreement, the Company
through IE, loaned $17.5 million to Beagle (the “Beagle
Note”), the proceeds of which were used to fund
Beagle’s capital contribution to Peanuts Holdings in
connection with the acquisition of Peanuts Worldwide. The Beagle
Note bore interest at 6% per annum, with minimum principal
payable in equal annual installments of approximately $2.2 million
on each anniversary of June 3 2010, with any remaining unpaid
principal balance and accrued interest to be due on June 3,
2015, the Beagle Note maturity date. Principal was prepayable at
any time. The Beagle Note was secured by the membership interest in
Peanuts Holdings owned by Beagle. In the Current Quarter the
remaining amount due on the Beagle Note was paid in full.
Hardy Way
In May 2009, the Company acquired a 50% interest in Hardy Way, the
owner of the Ed Hardy brands and trademarks, for $17.0 million,
comprised of $9.0 million in cash and 588,688 shares of the
Company’s common stock valued at $8.0 million as of the
closing. In addition, the sellers of the 50% interest received an
additional $1.0 million in shares of the Company’s common
stock pursuant to an earn-out based on royalties received by Hardy
Way for 2009.
On April 26, 2011, Hardy Way acquired substantially all of the
licensing rights to the Ed Hardy brands and trademarks from its
licensee, Nervous Tattoo, Inc. (“NT”) pursuant to an
asset purchase agreement by and among Hardy Way, NT and Audigier
Brand Management Group, LLC (“ABMG,” and together with
NT, the “Sellers”). Immediately prior to the closing of
the transactions contemplated by the asset purchase agreement, the
Company contributed $62.0 million to Hardy Way, thereby increasing
the Company’s ownership interests in Hardy Way from 50% to
85% of the outstanding membership interests.
Scion
Scion is a brand management and licensing company formed by the
Company with Shawn “Jay-Z” Carter in March 2007 to buy,
create and develop brands across a spectrum of consumer product
categories. On November 7, 2007, Scion, through its
wholly-owned subsidiary Artful Holdings LLC, purchased Artful
Dodger, an urban apparel brand for a purchase price of $15.0
million.
In March 2009, the Company, through its investment in Scion,
effectively acquired a 16.6% interest in one of its licensees, Roc
Apparel Group LLC (“RAG”) for $1. The Company has
determined that this entity is a variable interest entity as
defined by ASC 810. However, the Company is not the primary
beneficiary of this entity. The investment in this entity is
accounted for under the cost method of accounting. Subsequent to
March 2009, this investment in RAG was assigned from Scion to the
Company. From March 2009 through January 2014, the Company and its
partner contributed approximately $11.8 million to Scion, which was
deposited as cash collateral under the terms of RAG’s
financing agreements. In June 2010, $3.3 million was released from
collateral and distributed to the Scion members equally. In July
2014, the lender under such financing arrangement made a cash
collateral call, reducing the Company’s restricted cash by
$8.5 million. In FY 2014, the Company recorded a $2.7 million
charge to reduce this receivable to $5.8 million. This amount will
be paid pursuant to a binding term sheet entered into in April 2015
by the Company and the managing member of RAG.
In May 2012, Scion, through a newly formed subsidiary, Scion BBC
LLC, purchased a 50% interest in BBC Ice Cream LLC, owner of the
Billionaire Boys Club and Ice Cream brands for approximately $3.5
million.
In April 2015, the Company entered into a binding term sheet to
purchase the remaining 50% interest in Scion, which the Company has
consolidated since inception, from Shawn “Jay-Z” Carter
for $6.0 million increasing the Company’s ownership to 100%,
also effectively increasing its interest in BBC Ice Cream LLC to
50%.
Joint Ventures/Equity Method Investees
The following joint ventures are recorded using the equity method
of accounting:
Iconix Middle East Joint Venture
In December 2014, the Company formed Iconix MENA (“Iconix
Middle East”) a wholly owned subsidiary of the Company and
contributed substantially all rights to its wholly-owned and
controlled brands in the United Arab Emirates, Qatar, Kuwait,
Bahrain, Saudi Arabia, Oman, Jordan, Egypt, Pakistan, Uganda,
Yemen, Iraq, Azerbaijan, Kyrgyzstan, Uzbekistan, Lebanon, Tunisia,
Libya, Algeria, Morocco, Cameroon, Gabon, Mauritania, Ivory Coast,
Nigeria and Senegal (the “Middle East Territory”).
Shortly thereafter, Global Brands Group Asia Limited
(“GBG”), purchased a 50% interest in Iconix Middle East
for approximately $18.8 million. GBG paid $6.3 million in cash upon
the closing of the transaction and committed to pay an additional
$12.5 million over the 24-month period following closing. As a
result of this transaction, the Company recorded a gain of $7.2
million in FY 2014 for the difference between the consideration
(cash and notes receivable) received by the Company less $3.1
million of expenses related to its diligence and market analysis in
the Iconix Middle East Territory incurred by the Company as part of
this transaction which were deducted from the gain due to lack of
evidence of fair value of such expenses, and the book value of the
brands contributed to the joint venture. As of March 31, 2015,
of the $12.5 million remaining due to the Company from GBG,
approximately $6.2 million is included in other
assets—current and $6.3 million is included in other assets
on the unaudited condensed consolidated balance sheet.
Pursuant to the joint venture agreement entered into in connection
with the formation of Iconix Middle East, each of GBG and the
Company holds specified put and call rights, respectively, relating
to GBG’s ownership interest in the joint venture.
Company Two-Year Call Option: At any time during the six month
period commencing December 19, 2016, the Company has the right
to call up to 5% of the total equity in Iconix Middle East from GBG
for an amount in cash equal to $1.8 million.
Five-Year and Eight-Year Put/Call Options: At any time during the
six month period commencing December 19, 2019, and again at
any time during the six month period commencing December 19,
2022, GBG may deliver a put notice to the Company, and the Company
may deliver a call notice to GBG, in each case, for the
Company’s purchase of all equity in the joint venture held by
GBG. In the event of the exercise of such put or call rights, the
purchase price for GBG’s equity in Iconix Middle East is an
amount equal to (x) the Agreed Value (in the event of GBG put)
or (y) 120% of Agreed Value (in the event of an Iconix
call). The purchase price is payable in cash.
Agreed Value—Five-Year Put/Call: (i) Percentage of
Iconix Middle East owned by GBG, multiplied by (ii) 5.5,
multiplied by (iii) aggregate royalty generated by Iconix
Middle East for the year ending December 31, 2019; provided,
however, that such Agreed Value cannot be less than
$12,000,000.
Agreed Value—Eight-Year Put/Call: (i) Percentage of
Iconix Middle East owned by GBG, multiplied by (b) 5.5,
multiplied by (iii) aggregate royalty generated by Iconix
Middle East for the year ending December 31,
2022; provided, however, that the Agreed Value cannot be less
than $12,000,000.
The Company serves as Iconix Middle East’s administrative
manager, responsible for arranging for or providing back-offices
services, including legal maintenance of trademarks (e.g. renewal
of trademark registrations) for the brands in respect of Iconix
Middle East Territory. Further Iconix Middle East has access to
general brand marketing materials prepared and owned by the Company
to refit for use by the joint venture in marketing brands in the
Middle East Territory. GBG serves as Iconix Middle East’s
local manager, responsible for providing market experience in
respect of the applicable territory, managing the joint venture on
a day-to-day basis (other than back-office services), identifying
potential licensees and assisting the Company in enforcement of
license agreements in respect of the applicable territory. The
Company receives a monthly fee in connection with the performance
of its services as administrative manager in an amount equal to 5%
of Iconix Middle East’s gross revenue collected in the prior
month (other than in respect of the Umbro and Lee Cooper brands).
GBG receives a monthly fee in connection with the performance of
its services as local manager in an amount equal to 15% of Iconix
Middle East’s gross revenue collected in the prior month
(other than in respect of the Umbro and Lee Cooper brands). In
addition, following the closing of GBG’s purchase of 50% of
Iconix Middle East, GBG received from the Company $3.1 million for
expenses related to its diligence and market analysis in the Iconix
Middle East Territory, which was deducted from the gain included in
other revenue in the unaudited consolidated income statement for
the year ended December 31, 2014.
At inception, the Company determined, in accordance with ASC 810,
based on the corporate structure, voting rights and contributions
of the Company and GBG, that Iconix Middle East is not a variable
interest entity and not subject to consolidation. The Company has
recorded its investment under the equity method of accounting.
LC Partners U.S.
In March 2014, the Company formed LC Partners US, LLC
(“LCP”), a wholly-owned subsidiary of the Company, and
contributed substantially all its rights to the Lee Cooper brand in
the US through an agreement with LCP. Shortly thereafter, Rise
Partners, LLC (“Rise Partners”), purchased a 50%
interest in LCP for $4.0 million, of which $0.8 million in cash was
received during FY 2014, with the remaining $3.2 million to be paid
in four equal annual installments on the first through the fourth
anniversaries of the closing date. As of March 31, 2015, of
the $2.4 million remaining due to the Company, approximately $0.8
million is included in other assets—current and $1.6 million
is included in other assets on the unaudited condensed consolidated
balance sheet.
As a result of this transaction, the Company recorded a $4.0
million gain in FY 2014 for the difference between the
consideration (cash and notes receivable) received by the Company
and the book value of the brands contributed to the joint venture
(see Note 4).
Pursuant to the operating agreement entered into in connection with
the formation of LCP, Rise Partners holds specified put rights,
relating to its ownership interest in the joint venture.
Put Option: For the 30 day period following (x) a change of
control of the Company occurring prior to December 31, 2019;
and (y) December 31, 2019, if Rise Partners has paid the
purchase price for its interest in LCP in full, Rise Partners may
deliver a put notice to the Company for the Company’s
purchase of all the equity in LCP held by Rise Partners at a
purchase price in cash equal to the greater of: (i) $4.0 and
(ii) an amount equal to (x) 5, multiplied by (y) the
product of (1) 0.10 and (2) the amount of net wholesale
sales of applicable Lee Cooper branded product in the US for the
annual period ended December 31, 2019.
The Company serves as LCP’s administrative manager,
responsible for arranging for or providing back-office services,
including legal maintenance of trademarks (e.g. renewal of
trademark registrations) in respect of the Lee Cooper brand in the
US. Further LCP has access to general brand marketing materials
prepared and owned by the Company to refit for use by LCP in
marketing the Lee Cooper brand in the US.
At inception, the Company determined, in accordance with ASC 810,
based on the corporate structure, voting rights and contributions
of the Company and Rise Partners, that LCP is not a variable
interest entity and not subject to consolidation. The Company has
recorded its investment under the equity method of accounting.
Iconix Southeast Asia Joint Venture
In October 2013, the Company formed Iconix SE Asia Limited
(“Iconix SE Asia”), a wholly owned subsidiary of the
Company, and contributed substantially all rights to its
wholly-owned and controlled brands in Indonesia, Thailand,
Malaysia, Philippines, Singapore, Vietnam, Cambodia, Laos, Brunei,
Myanmar, and East Timor (the “South East Asia
Territory”). Shortly thereafter, GBG (f/k/a Li + Fung Asia
Limited) purchased a 50% interest in Iconix SE Asia for
approximately $12.0 million. GBG paid $7.5 million in cash upon the
closing of the transaction and committed to pay an additional $4.5
million over the 24-month period following closing. As a result of
this transaction, the Company recorded a gain of $2.7 million for
the year ended December 31, 2013 (“FY 2013”) for the
difference between the consideration (cash and notes receivable)
received by the Company, $2.0 million of consulting costs incurred
by the Company as part of this transaction which were deducted from
the gain due to lack of evidence of fair value of such consulting
costs, and the book value of the brands contributed to the joint
venture.
In June 2014, the Company contributed substantially all rights to
its wholly-owned and controlled brands in the Republic of Korea,
and its Ecko, Zoo York, Ed Hardy and Sharper Image Brands in the
European Union, and Turkey, in each case, to Iconix SE Asia. In
return, GBG agreed to pay the Company $15.9 million, of which $4.0
million was paid in cash at closing. The Company guaranteed minimum
distributions of $2.5 million in the aggregate through FY 2015 to
GBG from the exploitation in the European Union and Turkey of the
brands contributed to Iconix SE Asia as part of this transaction.
As a result of this transaction, the Company recorded a $8.2
million gain in FY 2014 for the difference between the
consideration (cash and notes receivable) received by the Company,
$5.4 million of marketing costs incurred by the company as part of
this transaction which were deducted from the gain due to lack of
evidence of fair value of such marketing costs, and the book value
of the brands contributed to the joint venture.
In September 2014, the Company’s subsidiaries contributed
substantially all rights to their Lee Cooper and Umbro brands in
the People’s Republic of China, Hong Kong, Macau and Taiwan
(together, the “Greater China Territory”), to Iconix SE
Asia. In return, GBG agreed to pay the Company $21.5 million, of
which $4.3 million was paid at closing. The Company guaranteed
minimum distributions of $5.1 million in the aggregate through FY
2017 to GBG from the exploitation in the Greater China Territory of
the brands contributed to Iconix SE Asia as part of this
transaction. As a result of this transaction the Company recorded
an $18.7 million gain in FY 2014 for the difference between the
consideration (cash and notes receivable) received by the Company
and the book value of the brands contributed to the joint
venture.
As of March 31, 2015, of the aggregate $28.8 million remaining
due to the Company from GBG for the above transactions, $11.5
million is included in other assets—current and $17.3 million
is included in other assets on the unaudited condensed consolidated
balance sheet.
Pursuant to the operating agreement entered into in connection with
the formation of Iconix SE Asia, as amended, each of GBG and the
Company holds specified put and call rights, respectively, relating
to GBG’s ownership interest in the joint venture.
Company Two-Year Call Option: At any time during the six month
period commencing October 1, 2015, the Company has the right
to call up to 5% of the total equity in Iconix SE Asia from GBG for
an amount in cash equal to (x) .10, multiplied by
(y) 1.15, multiplied by (z) $38.4 million.
Five-Year and Eight-Year Put/Call Options on South East Asia
Territory Rights, Europe/Turkey Rights and Korea Rights: At any
time during the six month period commencing October 1, 2018,
and again at any time during the six month period commencing
October 1, 2021, GBG may deliver a put notice to the Company,
and the Company may deliver a call notice to GBG, in each case, for
the Company’s purchase of the Europe/Turkey Rights, South
East Asia Territory Rights and/or Korea Rights. In the event of the
exercise of such put or call rights, the purchase price for such
rights is an amount equal to (x) the Agreed Value (in event of
a GBG put) or (y) 120% of Agreed Value (in event of a Company
call). The purchase price is payable in cash.
Agreed Value – Five-Year Put/Call: (i) Percentage of
Iconix SE Asia owned by GBG, multiplied by (ii) 5.5,
multiplied by (iii) the greater of the aggregate royalty
generated by Iconix SE Asia in respect of the Europe/Turkey Rights,
South East Asia Territory Rights and/or Korea Rights (as
applicable) for the year ended December 31, 2015 and the year
ended December 31, 2018; provided, that the Agreed Value
attributable to the Europe/Turkey Rights shall not be less than
$7.6 million, plus (iv) in the case of a Full Exercise (i.e.,
and exercise of all of the Europe/Turkey Rights, South East Asia
Territory Rights and Korea Rights), the amount of cash in Iconix SE
Asia at such time.
Agreed Value – Eight-Year Put/Call: (i) Percentage of
Iconix SE Asia owned by GBG, multiplied by (ii) 5.5,
multiplied by (iii) the greater of the aggregate royalty
generated by Iconix SE Asia in respect of the Europe/Turkey Rights,
South East Asia Territory Rights and/or Korea Rights (as
applicable) for the year ended December 31, 2018 and the year
ended December 31, 2021; provided, that the Agreed Value
attributable to the Europe/Turkey Rights shall not be less than
$7.6 million, plus (iv) in the case of a Full Exercise (i.e.,
and exercise of all of the Europe/Turkey Rights, South East Asia
Territory Rights and Korea Rights), the amount of cash in Iconix SE
Asia at such time.
Five-Year and Eight-Year Put/Call Options on Greater China
Territory Rights: At any time during the six month period
commencing September 17, 2019, and again at any time during
the six month period commencing September 17, 2022, GBG may
deliver a put notice to the Company, and the Company may deliver a
call notice to GBG, in each case, for the Company’s purchase
of the Greater China Territory Rights. In the event of the exercise
of such Greater China Territory put or call rights, the purchase
price for such rights is an amount equal to (x) the Agreed
Value (in event of a GBG put) or (y) 120% of the Agreed Value
(in event of a C |
