EXHIBIT 10.68
TAG-IT PACIFIC, INC.
21900 BURBANK BLVD, SUITE 270
WOODLAND HILLS, CA 91367
CONFIDENTIAL
July 12, 2002
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, CA 94111
Re: EXCLUSIVE *** COMPONENT SUPPLY AGREEMENT
Ladies and Gentlemen:
This letter agreement (this "AGREEMENT") constitutes the
binding agreement of Tag-It Pacific, Inc., a Delaware corporation ("TPI") and
Levi Strauss & Co., a Delaware corporation ("LS&CO."), under which TPI shall
supply to LS&CO. components and equipment for the manufacture of ***using a
***process and trade secrets (the "***TECHNOLOGY") licensed to TPI by
***("***").
For good and valuable consideration, receipt of which is
hereby acknowledged, TPI and LS&CO. agree as follows:
1. SUPPLY RELATIONSHIP
TPI shall sell waist band components to LS&CO. on an exclusive
basis in the Territory for certain product categories and provide to LS&CO. and
its contract manufacturers equipment and training for manufacturing *** using
the ***Technology on the terms and conditions described in this Agreement.
2. PRODUCTS AND EQUIPMENT
(a) PRODUCTS. "Products" shall mean: (i) ***(b), ***group of
bottoms (the "***BOTTOMS") manufactured in accordance with the Specifications
and ***to be sewed into ***Bottoms (the "*** PRODUCTS"); and (ii) ***components
for other LS&CO. products ("ADDITIONAL PROGRAM PRODUCTS") as may be mutually
agreed by the parties.
(b) INITIAL EXECUTION OF *** BOTTOMS. As of the date of this
Agreement, LS&CO. is evaluating four different ***constructions for the
***Bottoms: the "Original," the "3A," the "3AA" and the "4A" constructions.
LS&CO. has completed evaluation and testing of the Original construction and, in
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
conjunction with TPI, is testing the other three constructions, certain of which
LS&CO. currently prefer to the Original construction. LS&CO. shall complete
testing, make a selection of the desired construction and provide specifications
to TPI no later than one week after receipt from TPI of acceptable samples of
the 3A, 3AA and 4A construction. If LS&CO. fails to make a selection by that
date, then LS&CO. shall be deemed to have selected the Original construction,
and the ***Products shall reflect that construction. TPI shall then supply such
***Products on the terms described in this Agreement.
(c) SPECIFICATIONS. Final specifications (the
"SPECIFICATIONS") for *** Products for the Original construction are included in
EXHIBIT A. Preliminary specifications for *** Products for the other two
constructions under evaluation are included in EXHIBIT A. Final Specifications
for the constructions selected through the process described in Section 2 (b)
and for Additional Program Products as shall be mutually agreed from time to
time if and as LS&CO. develops products for which it wishes to incorporate
Additional Program Products. Data regarding current production and processing
requirements for the *** Bottoms, which data are or will be reflected in the
Specifications, are attached as EXHIBIT B.
(d) EQUIPMENT. "EQUIPMENT" means the ***machine and a ***,
each as described on EXHIBIT C. References in this Agreement to provision of
Equipment at a Facility (as defined below) mean one production unit consisting
of two ***machines and ***.
3. EQUIPMENT
(a) EQUIPMENT. TPI has delivered a set of Equipment to
LS&CO.'s Powell, Tennessee facility for evaluation purposes. Such Equipment
shall be moved at the expense and risk of TPI to LS&CO.'s design or other
facility in San Francisco, or to a production or other facility designated by
LS&CO. by August 15, 2002. TPI shall have access to the machinery at all times
during reasonable business hours or otherwise upon reasonable advance notice to
LS&CO. TPI at its expense shall install and cause Equipment to be installed,
integrated into manufacturing operations and operational in each of three
facilities (the "INITIAL FACILITIES") by September 1, 2002, and then up to an
additional ***production units, each of which shall have the capacity of
approximately ***units per week (based on the selected construction) on single
shift, as needed by LS&CO., with two of such installations completed by October
1, 2002 and the third by October 31, 2002 (with the Initial Facilities and
others that may be added in the future, the "FACILITIES"). Going forward, TPI
shall at its expense and upon a normal Equipment procurement and delivery
schedule (approximately 60 days), provide additional Equipment to LS&CO. and its
contractors in an amount sufficient to meet LS&CO.'s demand for Products. TPI
shall not be responsible for delays resulting from force majeure events (as
contemplated by Section 19 (d)), the contractors' inability to receive the
Equipment or provide the access, space and environment necessary for the
Equipment to operate (as specified in Section 3(b)) or for delays caused by
negotiation of leases for the applicable equipment as required by Section 3(e).
(b) INITIAL FACILITIES. LS&CO. shall ensure that the
Initial Facilities are prepared for installation of the Equipment, with all
necessary hook-ups, assembly line engineering and an industrial surge protector
in place and completed no later than July 31, 2002.
(c) BACK-UP EQUIPMENT. TPI shall maintain a back-up set of
Equipment and spare parts to ensure repair or replacement of Equipment at any
Facility within twenty-four hours. TPI, at its expense, shall provide spare
parts and maintenance for the Equipment. TPI shall be responsible only for
normal wear and tear. Repair of any damage resulting from misuse of the
Equipment or failure to maintain the operating environment shall be the
responsibility of the operator of the Equipment. TPI shall be responsible for
obtaining at its expense liability insurance for all Equipment.
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(d) TRAINING. TPI shall at its expense at the relevant
Facility train operators from each Initial Facility and later-added Facilities
to operate the Equipment. TPI shall provide such on-site training on a
reasonable periodic basis in order to address changes in operator composition
due to attrition or other factors.
(e) EQUIPMENT LEASE. LS&CO. shall cause its contractors to
enter into ***equipment leases on standard forms to be provided by TPI and to
pay TPI a $1.00 start-up fee. Under the lease, contractors shall be required to
use the Equipment exclusively for the manufacture of ***incorporating Products,
to permit removal of the Equipment upon breach of the equipment lease or
cessation of manufacturing at the Facility of garments incorporating Products,
to permit maintenance, access and monitoring by TPI, to prohibit reverse
engineering, to protect TPI and ***trade secrets, and to ensure that the
Equipment remains the unencumbered property of TPI. The lease shall require that
operators use processes in accordance with training provided by TPI. The lease
shall require the contractor to indemnify TPI against damage to the Equipment
and liability to third-parties arising from misuse of the Equipment and shall
contain other commercially reasonable provisions customarily found in major
equipment leases. LS&CO. shall cooperate with TPI in requiring LS&CO.'s
contractors to comply with the requirements of this Agreement applicable to such
contractors. LS&CO. shall cooperate with TPI in causing the prompt return of
Equipment by a contractor from a Facility following any decision by LS&CO. to
stop manufacturing garments incorporating Products at such Facility.
(f) NO LS&CO. RESPONSIBILITY. It is understood and agreed
that LS&CO. is not a guarantor of, and has no responsibility to TPI relating to,
any contractor's compliance with the equipment lease or license or otherwise in
respect of use of the Equipment and Products. LS&CO. and TPI recognize their
common interest in the proper and limited use by contractors of the Equipment
and Product and in the potential impact on LS&CO.'s production and TPI's
business arising from contractor-level problems. As such, LS&CO. and TPI shall
consult and cooperate with one another regarding any concerns about such
contractor use, and TPI shall not terminate an equipment lease or license, or
remove or make unusable any Equipment, without first notifying and consulting
with LS&CO., it being understood that TPI shall have no responsibility for
production interruptions resulting from the termination by TPI of a lease in
accordance with its terms following such consultation with LS&CO.
(g) FACILITY COSTS AND PERSONNEL. All power, water,
environmental and other costs of operating the Equipment shall be born by LS&CO.
with respect to Equipment installed in LS&CO.-owned Facilities and by
contractors with respect to contractor-owned Facilities. Operators in
LS&CO.-owned Facilities shall be employed by LS&CO. and operators in contractor
Facilities shall be employed by the contractors at no cost in either case to
TPI. TPI shall have no responsibility or liability for production interruptions
caused by lack of power or operator labor or from damage to Equipment caused by
operators.
(h) IMPROVEMENTS. Any improvements made to the Equipment
or the Products in the Facilities or the process of application in the
Facilities shall become the property of TPI, subject to a continuing
royalty-free right in LS&CO. and its contractors to use any such improvements
during such time as they are authorized to use the Equipment.
4. COMPENSATION AND PAYMENT
(a) DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings given below:
"CUMULATIVE APPLICABLE PAYMENTS" means the sum of (x) payments
in respect of Cumulative Product and Applicable Trim Purchases and (y)
Make-Whole Payments as of the relevant date of determination.
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
"CUMULATIVE APPLICABLE TRIM PURCHASES" means cumulative Trim
purchases by LS&CO. as of the relevant date of determination up to $2 million.
"CUMULATIVE PAYMENTS" means the sum of (x) payments in respect
of Cumulative Product and Trim Purchases and (y) Make-Whole Payments as of the
relevant date of determination.
"CUMULATIVE PRODUCT PURCHASES" means cumulative Product
purchases by LS&CO. as of the relevant date of determination.
"CUMULATIVE PRODUCT AND APPLICABLE TRIM PURCHASES" means the
sum of: (x) Cumulative Product Purchases and (y) Cumulative Applicable Trim
Purchases as of the relevant date of determination.
"CUMULATIVE PRODUCT AND TRIM PURCHASES" means the sum of: (x)
Cumulative Product Purchases and (y) Cumulative Trim Purchases as of the
relevant date of determination.
"CUMULATIVE TRIM PURCHASES" means cumulative Trim purchases by
LS&CO. as of the relevant date of determination.
"INITIAL PAYMENT" means a payment of $1.25 million by LS&CO.
to TPI upon the execution of this Agreement.
"MAKE-WHOLE AMOUNT" means the difference between: (x) the
Minimum Guaranteed Quarterly Amount and (y) the Quarterly Applicable Total
Purchase Amount in respect of any contract quarter.
"MAKE-WHOLE CREDIT" means cumulative Make-Whole Amounts as of
the relevant date of determination.
"MAKE-WHOLE REPORT" means a report generated by TPI and
provided to LS&CO. after the end of a contract quarter showing the Quarterly
Applicable Trim Purchase Amount, Quarterly Product Purchase Amount and any
required Make-Whole Amount for such quarter, in form and content reasonably
satisfactory to LS&CO.
"MINIMUM GUARANTEED PURCHASE AMOUNT" means $10 million.
"MINIMUM GUARANTEED QUARTERLY AMOUNT" means $1.25 million.
"QUARTERLY APPLICABLE TRIM PURCHASE AMOUNT" means actual Trim
purchases by LS&CO. up to $250,000 in respect of any contract quarter.
"QUARTERLY PRODUCT PURCHASE AMOUNT" means actual Product
purchases by LS&CO. in respect of any contract quarter.
"QUARTERLY APPLICABLE TOTAL PURCHASE AMOUNT" means the sum of:
(x) the Quarterly Product Purchase Amount and (y) the Quarterly Applicable Trim
Purchase Amount in respect of any contract quarter.
"TRIM" means thread, zippers, labels, buttons, rivets,
polybags, packing cartons, hang-tags, pocket flashers, waistband tickets, size
stickers and other trim products for garments sold by TPI.
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(b) INVOICES. TPI shall issue invoices upon shipment for
Products and Trim containing all information requested by LS&CO. including
invoice number, product codes, number of units and cartons shipped and any other
relevant information as may be reasonably specified by LS&CO. TPI shall issue
Make-Whole Reports after the end of each contract quarter.
(c) PAYMENT. All payments required to be made by LS&CO
shall be made in U.S. Dollars unless otherwise agreed. All such payments shall
be made via bank wire transfer to TPI's bank or via bank check to TPI and,
unless a date for payment is otherwise specified in this Agreement, shall be
paid on a net 30 days basis. TPI may charge interest on any undisputed past due
amount at the rate of one percent (1%) per month compounded and calculated from
the time the undisputed amount became past due until paid, or, if lower, the
maximum rate permitted by law.
(d) MINIMUM GUARANTEED PURCHASE AMOUNT. TPI shall be
entitled to receive from LS&CO. in respect of the Initial Term at least the
Minimum Guaranteed Purchase Amount on the basis and through the provisions of
this Section 4, it being understood that such provisions provide that Trim
purchases in excess of $2 million are not "counted" in determining purchases
satisfying the Minimum Guaranteed Purchase Amount requirement.
(e) CONTRACT QUARTERS. TPI shall be entitled to receive
from LS&CO. in respect of each contract quarter at least the Minimum Guaranteed
Quarterly Amount. If the Quarterly Applicable Total Purchase Amount is less than
the Minimum Guaranteed Quarterly Amount for any contract quarter, then LS&CO.
shall pay TPI the Make-Whole Amount.
(f) ACHIEVEMENT OF MINIMUM. If at any time during the
Initial Term TPI has received from LS&CO. Cumulative Applicable Payments equal
to or exceeding the Minimum Guaranteed Purchase Amount, then LS&CO. shall be
deemed to have discharged its obligations to pay the Minimum Guaranteed Purchase
Amount and Minimum Guaranteed Quarterly Amounts, and the quarterly
guarantee/Make-Whole Amount arrangement shall stop.
(g) CREDIT. From and after the time LS&CO. has discharged
its obligations to pay the Minimum Guaranteed Purchase Amount and the Minimum
Guaranteed Quarterly Amounts as provided in Section 5 (e), then LS&CO. shall be
obligated to pay only for its actual purchases of Products and Trim taking into
account and applying the Make-Whole Credit. The Make-Whole Credit shall
thereafter be applied to reduce amounts payable for Product purchases and Trim
purchases during the balance of the Initial Term in a manner such that
Cumulative Payments as of the end of the Initial Term do not exceed Cumulative
Product and Trim Purchases in respect of the Initial Term. TPI shall not have
any obligation at the end of the Initial Term to refund Make-Whole Amounts or
provide credit in respect of unused Make-Whole Amounts if Cumulative Product and
Trim Purchases over the Initial Term amounted to less than the Minimum
Guaranteed Purchase Amount.
(h) INITIAL PAYMENT. LS&CO. shall make the Initial Payment
of $1.25 million to TPI upon execution of this Agreement. Payment of the Initial
Payment shall discharge LS&CO.'s obligation in respect of the Minimum Guaranteed
Quarterly Amount for the first contract quarter. The Initial Payment shall be
applied to purchases of Product and to purchases of Trim up to the Quarterly
Applicable Trim Purchase Amount to be shipped in the first contract quarter, and
to the extent not so applied to be treated as a paid Make-Whole Amount.
(i) PAYMENTS AFTER INITIAL PAYMENTS. As provided in
Section 4(c), LS&CO. shall after the Initial Payment is fully applied pay for
Product and Trim purchases on a net 30 day basis.
(j) PAYMENT OF MAKE-WHOLE AMOUNTS. LS&CO. shall pay Make-
Whole Amounts, if any, within 30 days after receipt of the Make-Whole Report.
LS&CO. shall make any such payments through wire transfer or check as provided
in Section 4 (c).
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(k) TRIM PURCHASE PRICE AND TERMS. TPI shall offer its
entire Trim product line to LS&CO. with pricing on a most-favored-customer basis
for similar quantities to similarly situated customers. Trim purchases, if any,
shall otherwise be on the terms set out in this Agreement.
(l) PRICE FOR *** PRODUCTS. The price for the initial
*** Products is $*** per unit for the Original construction, $*** per unit for
the 4A construction, $*** per unit for the 3AA construction and $*** per unit
for the 3A construction. Such amount for the *** Product selected shall be TPI's
entire compensation for the *** Products. Pricing for Additional Program
Products shall be as mutually agreed from time to time prior to incorporation of
such Products into LS&CO. products. It, and other prices as may be agreed for
Additional Program Products, shall be binding without regard to changes in
exchange rates, local inflation, monetary system developments or other factors
that may affect TPI's costs, profits or otherwise. Going forward, TPI shall use
commercially reasonable efforts to reduce the cost of Products and to provide
LS&CO. with price reductions if achieved by TPI after consideration of all cost
increases otherwise absorbed by TPI, it being understood that TPI is not making
any guaranty that future prices will be lower and that TPI shall not be required
to purchase components from any vendor not acceptable to TPI in its sole
discretion or to accept lower margins or absolute profitability on the Products.
(m) EXAMPLES. Examples of the computation of TPI's
compensation are attached as EXHIBIT D. The examples are not intended as an
independent source of legal obligation but rather as a convenient reference tool
given the number of variables involved in the computation of TPI's compensation
under this Agreement.
5. COMMERCIAL TERMS
(a) START-UP. TPI shall be prepared to accept orders and
ship on time all initial orders of *** Products by LS&CO. in line with a
September 1, 2002 production start, subject to timely satisfaction by LS&CO and
its contractors of all installation prerequisites and conclusion of the
specifications as provided in this Agreement, and, going forward, to ship all
orders on time and complete. LS&CO. expects that its initial order shall require
delivery to the appropriate Facilities of approximately ***units before
September 1, 2002. LS&CO.'s initial order shall require TPI to deliver by
September 1, 2002 to the Facilities Products ready for the manufacture of ***and
to deliver by September 10, 2002 to the Facilities Products ready for the
manufacture of ***. LS&CO. expects that its subsequent orders shall require TPI
to deliver Products to the Facilities ready for the manufacture of ***by each of
October 1, 2002, ***by October 10, 2002, ***by November 1, 2002 and ***by
November 10, 2002. TPI shall not be responsible for late delivery of logo tape
if artwork is not complete by July 15, 2002, and any airfreight charges as a
result of late delivery of artwork shall be paid by LS&CO.
(b) FREIGHT AND RISK OF LOSS. TPI shall supply Products
C&F at the Facilities.
(c) ORDERING. LS&CO. shall order Products by issuing
purchase orders in paper or electronic form as it may determine with TPI. LS&CO.
shall provide a separate purchase order for Products that LS&CO. intends to hold
as owned-inventory.
(d) INVENTORY. By November 15, 2002, TPI shall build and
thereafter maintain a ***inventory of Products based on the LS&CO. forecasts
referred to in Section 6(a). TPI shall maintain ***of such inventory in-country
in each country where there is a Facility as appropriate to that Facility and
the other ***of inventory in Miami, another U.S. facility or a country where
there is a facility chosen by TPI. If TPI for any reason shall be unable to meet
all of its orders from customers for ***components, TPI shall give LS&CO. first
priority before fulfilling other orders.
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(e) ON-SCHEDULE DELIVERIES. TPI shall deliver all Products
to LS&CO. by the dates and at the locations specified by LS&CO. in the
applicable purchase order so long as the amounts ordered are equal to or less
than that reflected in the most recent applicable forecast. To the extent orders
are for amounts in excess of the forecast amount, TPI shall use commercially
reasonable efforts (which in any case does not include air freight) to ship all
such excess orders for delivery at the time specified by LS&CO. in the
applicable purchase order, and in any case shall deliver those Products no later
than sixty (60) days after the delivery date stated in such purchase order.
LS&CO. shall give to TPI shipping destinations for Products no later than 45
days before the required delivery date. TPI shall ship all Products in
accordance with those instructions. TPI shall pay all freight, insurance and
delivery charges for returned rejected Products only if TPI requests return of
such rejected Products. If TPI experiences delays for which it is responsible in
supplying Products such that it may not meet the required delivery date for the
Products, TPI shall, at its own expense and without right of reimbursement from
LS&CO., take appropriate shipping measures (for example, air freight) in
consultation with LS&CO. to order to meet the required delivery date.
(f) INSPECTION; REJECTION. The provisions of Division 2 of
the California Uniform Commercial Code shall govern matters relating to
inspection, acceptance, rejection and revocation of acceptance of Products by
LS&CO. It is understood that LS&CO. contractors may perform and act on the
inspection as agents for LS&CO. and that TPI and LS&CO. expect in the ordinary
course to develop and implement quality control, problem resolution and related
procedures.
(g) LIMITED WARRANTY. TPI warrants that all Products: (i)
shall when delivered be free from defects in materials, workmanship and
fabrication; (ii) shall when delivered be of quality, size, description and
dimension specified in the applicable Specifications; (iii) to the best
knowledge of TPI, shall not infringe any patent, trade secret, trademark or
other intellectual property right of any third party; (iv) shall be made and
sold in compliance with applicable laws and this Agreement; and (viii) shall be
conveyed free and clear of all liens and adverse claims. All warranties shall
survive any inspection, delivery, acceptance or payment by LS&CO. and for two
years after the cut ticket number of the garment into which the Product is
incorporated. Notwithstanding the provisions of this Section 5 (g), the
warranties contained in Sections 5 (g) (i) and (ii) shall not survive beyond
incorporation into garments to the extent a product defect or failure to meet
Specifications following garment processing, manufacturing or washing using
methods not approved by TPI as of the date of this Agreement or otherwise
approved under Section 6 (c) is reasonably demonstrated by LS&CO. not to result
from such unapproved processing, manufacturing or washing. EXCEPT AS PROVIDED IN
THIS AGREEMENT, TPI MAKES NO OTHER REPRESENTATIONS OR WARRANTIES ABOUT THE
PRODUCTS. TPI DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, WARRANTIES AS TO MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
(h) PRODUCTION RISK. As provided in Section 5(d), TPI
shall build and maintain a ***inventory of Products. If such inventory at any
time after November 15, 2002 falls below thirty (30) days, LS&CO. may in its
discretion and following notice to TPI deal directly with and purchase Products
from TPI's suppliers. LS&CO. shall give advance notice of its intended initial
communications with TPI's suppliers and give TPI a reasonable opportunity to
participate in such discussions. TPI shall cooperate with such suppliers and
LS&CO. (including by facilitating and participating in such discussions) in an
effort to timely produce and ship Products to LS&CO. in order to eliminate any
risk to production of garments by LS&CO. Such actions may include, without
limitation, granting contractual waivers and sublicenses and facilitating direct
interaction between LS&CO. and ***and other suppliers to TPI. LS&CO. may engage
in such activities until TPI rebuilds its inventory to the required three-month
amount and otherwise provides assurances satisfactory to LS&CO. of TPI's ability
reliably to supply Products to LS&CO. and maintain inventories in accordance
with this Agreement.
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(i) SUPPLIER PROTOCOLS AND REPORTS. No later than five (5)
days after the execution of this Agreement, TPI shall provide LS&CO. with the
names, locations and contact persons for each of TPI's suppliers of Products.
Going forward, TPI shall promptly provide LS&CO. with the same information for
new suppliers and shall advise LS&CO. if TPI no longer is using a particular
supplier. LS&CO. shall use such information for purposes of this Agreement only
and, other than in connection with ongoing purchasing activities under Section 5
(h), shall not directly or indirectly contact or visit the suppliers without
first notifying TPI and unless TPI participates in the interaction. All
information received from TPI suppliers by LS&CO. regarding TPI shall be subject
to the NDA. LS&CO. may specify and TPI will be subject to quality control and
other requirements and arrangements generally applicable to and satisfied by
LS&CO. raw materials suppliers. LS&CO. may reasonably specify reports, shipping
documents and other information it requires from TPI in either paper or
electronic form. Such reports may include, without limitation, reports about
inventory composition and position, incoming shipments, production status,
quality, shipping times and other matters reasonably related to the performance
by TPI of its obligations under this Agreement. TPI shall deliver those reports
and other information reasonably requested by LS&CO. by the dates specified by
LS&CO. Notwithstanding any provision of this Agreement to the contrary, TPI
shall not be required to provide to LS&CO any information relating to other
customers of TPI or any cost related information.
(j) TPI RESPONSIBILITY. TPI shall, at its sole expense,
furnish all facilities, machinery, equipment, maintenance, labor, travel and
other resources TPI needs and uses to perform TPI's obligations under this
Agreement. TPI shall be responsible for procuring, monitoring and paying any
suppliers (including, without limitation, ***) and subcontractors it may use in
connection with designing, manufacturing and shipping Products and otherwise
performing its obligations under this Agreement. TPI understands that LS&CO.
shall not be responsible for any capital improvements or other expenditures TPI
may make in preparation for, expectation of performance under or performance of
this Agreement.
6. LS&CO.'S RESPONSIBILITIES CONCERNING PRODUCTION
(a) FORECASTS. LS&CO. shall provide to TPI a non-binding
rolling twelve-month forecast, updated monthly (with the first such forecast
provided no later than July 22, 2002), showing LS&CO.'s good faith anticipated
monthly requirements for Products by Facility and Product-type based on and
consistent with current production plans. It is understood that such non-binding
forecasts may reflect considerable variability due to market conditions, customs
matters, production constraints and other factors. TPI if it chooses may take
these forecasts into account in planning its activities (including accepting and
fulfilling orders from other customers and sourcing raw materials) over the
relevant period. TPI and LS&CO. understand, however, that such forecasts are
always of a non-binding nature, that they do not create a binding commitment on
either of them to buy or sell Products and that each works at its own risk in
relying on these forecasts.
(b) STOPPAGE OF USE. If LS&CO. decides to stop using a
Product for a particular garment, LS&CO. shall provide advance notice to TPI and
work with TPI in reducing TPI's inventory of the applicable Product to zero as
the garment production run is concluded. Inventory shall be applied on a FIFO
basis, and all inventory of any SKU for which there have been no purchases at
all for at least 180 days for a bona fide manufacturing run shall be purchased
by LS&CO., it being understood that purchases for any such Products shall count
against the Minimum Guaranteed Purchase Amount and following purchase may be
used only for the manufacture of ***using the technology provided by TPI.
(c) GARMENT PROCESSING. LS&CO. shall launder garments
incorporating Products only within the tolerances and using only the wash
chemicals defined in or incorporated into the Specifications for each Product.
LS&CO. shall provide and update 60 days before any change all of the following
information (together with a flow chart showing the order of each processes
listed): (i) percentage of shrinkage of fabric; (ii) chemicals used on fabric to
achieve ***application; (iii) chemicals
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*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
used in the wash; (iv) duration of wash; (v) temperature of wash; (vi)
temperature of presses to be applied to ***; (vii) number of pressing cycles;
(viii) duration of pressing, by temperature; (ix)***; (x) ***; and (xi) all
fiber content information for the fabric used. TPI shall not be responsible for
product failures resulting from changes from processes approved by TPI.
7. EXCLUSIVITY
(a) GENERAL. EXHIBIT E sets forth multiple types of
apparel in market segments/age categories (the "PRODUCT CATEGORIES"). TPI shall
supply ***components and make Equipment available to LS&CO. on an exclusive
basis in the Territory during the Initial Term for use in all Product Categories
identified in EXHIBIT E except as described in Section 7(b). Unless otherwise
agreed by TPI, LS&CO. may use the Products only for Product Categories which are
exclusive to LS&CO. under this Agreement.
(b) ***. The Product Categories include (i) ***and
***market segments; (ii) ***and ***including ***and ***segments; (iii) ***and
***age categories; (iv) ***and ***age categories; and (v) ***and
***(collectively, the "***PRODUCT CATEGORIES"). TPI shall supply ***components
and make Equipment available on an exclusive-from-TPI basis in the Territory for
use in all such ***Product Categories. However, if TPI and LS&CO. have not
reached agreement as of February 28, 2003 on pricing, minimum guaranteed volumes
and specifications for a ***Product Category to be marketed under LS&CO.'s
***(R) Brand (it being understood that such terms shall be reasonable and on a
similarly-situated most-favored-customer basis), then TPI shall no longer be
obligated to supply ***components to LS&CO. on an exclusive basis for such
***Product Category for which there is no such agreement (a "NON-AGREED
***CATEGORY"). TPI in that case shall make such components and Equipment
available to LS&CO. on a non-exclusive basis for ***(R) brand garments in the
***Product Categories on the terms otherwise provided in this Agreement for
Additional Program Products for other Product Categories.
(c) LICENSEES. TPI understands that LS&CO. has licensed
to or may license to third parties the right to make certain products included
in the Product Categories under the Dockers(R), Slates(R) and Levi's(R) brands.
LS&CO. and TPI shall cooperate in providing, and TPI shall in good faith
provide, such licensees with a 90-day first right of refusal to exclusive use of
***components in and Equipment for those licensed products for a period equal to
the Initial Term. (For clarity, TPI shall provide such first refusal rights to
licensees under licenses relating to the Dockers(R) and Slates(R) brands
established after the date of this Agreement.) The first such right of refusal
relates to***, the licensee of the ***(R) trademark for ***. The 90-day period
for ***shall commence upon the date of this Agreement and end 90 days thereafter
if TPI and ***have not reached agreement on reasonable pricing, minimum
guaranteed volumes and specifications for ***. With respect to each category not
covered by an agreement with TPI at such time, TPI shall no longer be obligated
to supply ***components to LS&CO or its licensees on an exclusive basis for such
category for which there is no such agreement but may elect, in its sole
discretion, to make components and Equipment available to LS&CO.'s licensees on
a non-exclusive basis.
(d) ***BRANDS. *** TPI shall at LS&CO.'s request
communicate to ***LS&CO.'s concerns about imports into the U.S. of products
incorporating ***and take commercially reasonably actions in respect of ***to
minimize the impact of such exclusion in the ***on LS&CO.'s exclusivity in the
United States and related purchases of Products from TPI.
(e) TERRITORY. For purposes of this Agreement, the term
"Territory" means the United States, its territories and possessions, and the
phrase "***components and make Equipment available on an exclusive basis in the
Territory" means that TPI shall not sell, license, market, offer or make
available the ***Technology or any ***or components or Equipment for the
manufacture of *** using the ***Technology to any person (including, without
limitation, any apparel manufacturer, marketer or brand owner or any retailer
offering private label or branded products) for the manufacture, marketing or
sale of
9
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
garments in the Product Categories which are at such time exclusive to LS&CO. in
the Territory. In addition, as contemplated by the definition of "USA Market" in
the ***, LS&CO. shall have the non-exclusive right to sell garments
incorporating the Products in countries outside the United States.
8. OPTION TO REPLACE PRODUCT PURCHASES WITH TRIM PURCHASES
For purposes of this Agreement, the term "REMAINING PRODUCTS
PURCHASE AMOUNT" means the difference between the Minimum Guaranteed Purchase
Amount and Cumulative Product and Applicable Trim Purchases as of the date of
the Trim Option Notice referred to in this Section 8. No later than July 31,
2003, LS&CO. shall have the right to pay the Remaining Products Purchase Amount
and discharge its obligation to pay the Minimum Guaranteed Purchase Amount and
Minimum Guaranteed Quarterly Amounts in lieu of purchasing Products on the basis
described in this Section 8. LS&CO. may do so by providing written notice to
TPI, no later than July 31, 2003, advising TPI of LS&CO.'s exercise of its
option under this Section 8 (the "TRIM OPTION NOTICE"). Upon giving such notice,
LS&CO. shall be obligated to purchase Trim, during the period beginning on July
31, 2003 and ending on the third anniversary of the execution of this Agreement
and in a manner during the Initial Term consistent with the Minimum Guaranteed
Quarterly Amount and Make-Whole Amount scheme provided in Section 4, in an
amount equal to two times the Remaining Products Purchase Amount. Purchases of
Trim as contemplated by Section 4 shall not count for purposes of this
provision; this Section 8 requires Trim purchases over and above the $2 million
in Trim purchases contemplated by the definition of Cumulative Applicable Trim
Purchases in Section 4. However, to the extent LS&CO. has not fully purchased
the $2 million in Trim provided for in Section 4, the Remaining Products
Purchase Amount shall be reduced by subsequent Trim purchases made prior to the
end of the eighth contract quarter up to the $2 million cap. Upon the date of
the Trim Option Notice, LS&CO. shall no longer have exclusive rights to supply
as provided in Section 7 and the provisions of Section 14 (d) shall be
applicable apply insofar as they relate to the wind-down of production and sale
of garments incorporating Products.
9. MARKETING
(a) PRODUCT LABEL. Subject to Section 10 (d), in all
LS&CO. products incorporating Products in the Territory, a "TAG-IT," "TEKFIT" or
other TPI trademark shall appear on the front of the interior care label, in a
manner to be mutually agreed upon and not to exceed the logo size of the
"***(R)" logo or other branding as it appears on such label. The expected forms
of such TAG-IT and TEKFIT trademarks are attached as EXHIBIT F.
(b) LS&CO. MARKETING. Subject to Section 10 (a), LS&CO.
shall have complete freedom to decide whether and how to market, label,
distribute and advertise products that incorporate the Products. However, for so
long as LS&CO. purchases and uses Products in its products and markets those
products under a trademark or tagline that describes specifically the stretch
feature of the waist band, LS&CO. shall not use the trademark or tagline on or
for garments that do not incorporate Products. One (but not exclusive) principle
for applying the preceding rule: a trademark or tagline registered on the United
States Patent and Trademark Office (the "PTO") Principal Register shall not be
deemed "descriptive" for this purpose. LS&CO. shall retain ownership of any such
trademarks or taglines and associated goodwill, and TPI shall not acquire any
rights or interest in the trademarks or taglines.
(c) RESOURCES. LS&CO. shall have complete freedom in
deciding how to use Products and how much effort and how many resources to
devote to designing, sourcing, marketing and selling products incorporating the
Products and, except for its obligation to pay the Minimum Guaranteed Purchase
Amount, shall have no affirmative obligation to TPI to exploit LS&CO.'s rights
under this Agreement, create demand or otherwise.
10
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(d) PRODUCT CLAIMS. In view of legal and advertising
requirements relating to product claims and claims substantiation, TPI shall
consult and cooperate with LS&CO. in developing and making claims about LS&CO.
products incorporating ***manufactured using the ***Technology. TPI shall be
responsible for all claims it makes about ***manufactured using the
***Technology and about the ***Technology.
(e) TPI PUBLICITY. TPI may reference the inclusion of the
Products in LS&CO. products in trade advertising and press releases subject to
the prior written approval of LS&CO., which approval shall not be unreasonably
withheld or delayed. TPI shall give LS&CO. drafts, proposed copy or the like for
any such press release or trade advertisement at least five days before the
intended date of release or cut-off for publication and shall not release or
publish until it makes affirmative contact with LS&CO. and obtains LS&CO.'s
approval unless advised by counsel that release is required in order for TPI to
comply with its disclosure obligations under applicable securities law and stock
exchange regulations.
10. INTELLECTUAL PROPERTY RIGHTS
(a) ***LICENSE. A copy of the license agreement between
TPI and ***, which reflects TPI's rights received from ***and ***rights in the
United States (the "***") and those other countries in which patents have been
issued, together with a related letter from ***, is attached as EXHIBIT G (the
"***LICENSE"). A copy of the ***, together with a letter from the inventor
confirming ***'s ownership of the ***is attached as EXHIBIT H. TPI shall provide
LS&CO. with a copy of the formal assignment document filed with the PTO promptly
after its filing. TPI agrees that LS&CO may, and shall in applicable equipment
leases provide that LS&CO.'s contractors may, on a non-exclusive basis, use the
Equipment to assemble the Products into ***and for other uses that may be
permitted by TPI in the exercise of its sole discretion. TPI shall comply with
the ***License and not enter into any modification of the ***License in any
manner that limits or otherwise adversely affects the exclusivity established in
favor of LS&CO. under this Agreement. TPI shall promptly advise LS&CO. of any
event or development (including, without limitation, any notice of breach of the
***License given by ***to TPI or any bona fide claims of infringement by TPI or
***of a third party's intellectual property rights) of which TPI's officers
become aware that reasonably could result in termination or material adverse
modification of the ***License or cancellation, invalidation or limitation of
the claims of the ***Patent, it being understood, however, that TPI shall have
no liability for any delay in providing such notice if LS&CO. if not materially
prejudiced by such delay. Nothing in this Agreement requires TPI to provide to
LS&CO. rights in the ***Technology greater than those provided to TPI by
***under the ***License.
(b) OTHER TECHNOLOGIES. LS&CO. may develop, acquire and
use other *** technologies and products, incorporate in any products and market
and sell those products as it sees fit, subject to TPI's patent and trademark
rights, the NDA and the provisions of Section 9 (b). TPI's patent, trademark and
know-how rights and confidential information are not licensed to LS&CO. other
than for the manufacture and sale of garments incorporating the Products and
LS&CO. shall not infringe or misappropriate them.
(c) REVERSE ENGINEERING. LS&CO. shall not reverse engineer
or attempt to duplicate TPI's know-how, the Equipment or the process for
manufacturing Products, it being understood, however, that that nothing in this
Section 10 (c) shall limit LS&CO.'s ability to engage in its ordinary production
evaluation, product performance, manufacturability, occupational health and
safety, maintenance and repair, risk management analysis and other ordinary
procedures. LS&CO.'s ability to engage in such activities does not limit the
applicability of the NDA to such activities or imply that any license is granted
by TPI.
11
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(d) TPI TRADEMARK. As provided in Section 9 (a), LS&CO.
shall include on care labels in products incorporating Products a TPI trademark
(the "TPI TRADEMARK"). The initial TPI Trademark is expected to be "*** by
Tag-It" in the form shown on EXHIBIT F. TPI has filed U.S. Application Serial
No. 76/374,373 for a "TEKFIT" trademark (the "TEKFIT APPLICATION") with the
United States Patent and Trademark Office ("PTO") on an intent to use basis. A
copy of TPI's application for the TEKFIT trademark is attached as EXHIBIT I.
Should TPI decide it wishes to replace the TAG-IT trademark with the TEKFIT
trademark or other TPI Trademark, LS&CO. shall make the transition once LS&CO.
is satisfied in its reasonable judgment that there are no third party trademarks
in the Territory that would conflict with its use of the TEKFIT or other
trademark, but in no event shall LS&CO. transition to the TEKFIT trademark prior
to the issuance of a Notice of Allowance for the TEKFIT Application by the PTO.
TPI at LS&CO.'s request shall provide LS&CO. with copies of any search reports
that it has obtained for the TEKFIT or other TPI Trademark, any correspondence
relating to the availability of the TEKFIT or other trademark and any Office
Actions issued by the PTO against any applications for the TEKFIT or other
trademark, including without limitation, the Office Action dated June 24, 2002
for the TEKFIT Application. TPI shall also promptly inform LS&CO. of any
Oppositions or Requests For Extension of Time To Oppose that may be filed
against the TEKFIT Application or any application for a TPI Trademark. At
LS&CO.'s request, TPI shall notify LS&CO. of any foreign applications or
registrations that it owns for the TPI Trademark and shall not object to
LS&CO.'s use of the TPI Trademark in countries outside the United States in care
labels of garments incorporating Products sold outside the Territory. LS&CO.
shall not use the TPI Trademark on any products not incorporating Products. TPI
shall retain ownership of the TPI Trademark and associated goodwill, and LS&CO.
shall not through such use acquire any rights or interest in the TPI Trademark
other than the right to include it on such care labels.
(e) THIRD PARTY INFRINGEMENTS. TPI shall use commercially
reasonable efforts to defend the Products, Equipment, ***Technology and TPI
Trademark against infringement by third parties. Upon receiving notification
from LS&CO. of any such infringement, TPI shall take commercially reasonable
steps to end the infringement. If TPI does not institute an infringement suit
within sixty (60) days after LS&CO.'s written request that it do so, LS&CO. may
institute and prosecute such lawsuit in the name of TPI. Any lawsuit shall be
prosecuted solely at the expense of the party bringing suit and all sums
recovered shall be paid to TPI. However, should LS&CO. prosecute such action, it
shall be entitled to deduct from any settlement or judgment its costs and legal
fees incurred in connection with bringing the action. If TPI declines to
prosecute such a suit, TPI shall cooperate with LS&CO. including, without
limitation, agreeing to mutually acceptable counsel and settlement terms. Unless
TPI and LS&CO. otherwise agree, no settlement shall limit, restrict or otherwise
affect the right of TPI or LS&CO. to carry on or conduct their business (then or
in the future) or require any payment to be made or license to be granted by TPI
or LS&CO., or limit, restrict, make more expensive or less profitable or
otherwise adversely affect the manner in which TPI or LS&CO. carries on or
conducts its business (then or in the future). In addition, TPI and LS&CO. shall
not be obligated to consent to any settlement which does not include the
delivery by the settling defendant of a full and final release of TPI and LS&CO.
from any and all liability with respect to the subject matter of such action.
(f) NDA APPLICABILITY. A copy of the NDA is attached as
EXHIBIT J. TPI and LS&CO. put in place the NDA in connection with evaluation of
a potential business relationship with one another. Going forward, the NDA shall
remain in effect, apply to exchanges of Confidential Information after the date
of this Agreement and require use of Confidential Information solely in
connection with the transactions and relationship contemplated by this
Agreement. Each party's obligations under Sections 2 and 3 of NDA shall
terminate two years after the termination of this Agreement and in the case of
***Know-How (as defined in the NDA), as provided in the NDA. This Agreement
shall be considered an amendment of the NDA.
12
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
11. TALON APPROVAL
For good and valuable consideration, LS&CO. on May 13, 2002
approved all Talon brand metal and synthetic zippers (the "ZIPPERS") for use by
LS&CO. and all LS&CO. contractors in the manufacture of all LS&CO. products,
including all denim and twill lines (the "ZIPPER APPROVAL"). A copy of the
Zipper Approval is attached as EXHIBIT K. LS&CO. shall use commercially
reasonable efforts to provide a written confirmation of the Zipper Approval
consistent with this Section 10 to all buyers within the LS&CO. organization and
to all LS&CO. subcontractors and contract manufacturers. TPI shall supply the
Zippers to all such purchasers on prices no higher than those offered by ***at
standard prices for the equivalent zippers, and shall provide LS&CO. a ***on all
purchases of Talon brand metal zippers by LS&CO. and its contract manufacturers,
and a ***on all purchases of Talon brand nylon zippers made by LS&CO. and its
contract manufacturers. TPI shall pay LS&CO. ***on a quarterly basis within 30
days after the end of each calendar quarter. The Zipper Approval shall remain in
effect until September 1, 2004.
12. TEST RESULTS
LS&CO. conducted tests of the washability and
manufacturability of garments of the Original construction incorporating the ***
Products and of consumer response to such garments. All test methods, protocols
and results relating to these tests constitute confidential information of LS&CO
and, to the extent provided to TPI, shall be held as such by TPI under the NDA,
and LS&CO. shall not disclose any washability test results and reports except
under the same terms it may disclose TPI confidential information under the NDA.
TPI shall be provided the opportunity to review (but not copy) all such test
results and reports.
13. TERM
(a) INITIAL TERM. Unless earlier terminated by either
party under this Section 13, the term of the Agreement shall end on September 1,
2004, it being understood that the September 1 date shall be extended by the
number of days beyond September 1, 2002, if any, required for completion of the
installation of the Equipment at the Initial Facilities other than delays for
which TPI is not responsible (the "INITIAL TERM"). The first contract year shall
run from the date of this Agreement until September 1, 2003 (as that period may
be extended as described in the preceding sentence), and the second contract
year shall end on the first anniversary of the expiration of the first contract
year. (For clarity, it is understood that the first contract quarter shall run
from the date of this Agreement until September 1, 2002 (as they period may be
extended as described in this Section 13 (a).)
(b) EXTENSION. Six months prior to the expiration of the
Initial Term, TPI and LS&CO. shall meet to discuss an extension of those
elements of the exclusive supply relationship then in effect. Neither TPI nor
LS&CO. shall have any obligation to enter into such an extension. If an
agreement is not reached with respect to extension of any exclusive supply
relationship, all exclusive rights of LS&CO. shall terminate upon the last day
of the Initial Term. If TPI and LS&CO. do not agree on an extension of
exclusivity, for a period of two years following the Initial Term, TPI shall, on
a non-exclusive basis and at LS&CO.'s option, continue to supply *** Products
and Additional Program Products that are actively being supplied by TPI at the
expiration of the Term. Pricing and other supply terms and conditions for such
purchases shall be on a better than most-favored customer basis, but otherwise
in accordance with those generally offered by TPI to its customers.
13
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
14. TERMINATION
(a) TERMINATION AT EXPIRATION OF INITIAL TERM. This
Agreement shall terminate upon the expiration of the Initial Term as described
in Section 13.
(b) TERMINATION BY TPI
(i) TPI may terminate this Agreement if LS&CO.
breaches any of its material obligations under this Agreement and fails to cure
the breach within 40 days after receiving written notice of the breach. Such a
termination shall be effective five days after the expiration of the cure period
if the breach is not cured.
(ii) TPI may terminate this Agreement if LS&CO.
files a petition in bankruptcy, is adjudicated a bankrupt or files a petition or
otherwise seeks relief under any bankruptcy, insolvency or reorganization
statute or proceeding, or a petition in bankruptcy is filed against it or is not
dismissed within 60 days, or it makes an assignment for the benefit of its
creditors or a custodian or a receiver or trustee is appointed for it or a
substantial portion of its business or assets or it admits in writing its
inability to pay its debts as they become due. Such a termination shall be
effective upon delivery of a notice to that effect by TPI to LS&CO.
(iii) TPI may terminate this Agreement as provided in
Section 15 (d). Such a termination shall be effective upon receipt of a notice
to that effect by LS&CO. from TPI as provided in Section 15 (d).
(c) TERMINATION BY LS&CO.
(i) LS&CO. may terminate this Agreement if TPI
breaches any of its material obligations under this Agreement and fails to cure
the breach within 40 days after receiving written notice of the breach. Such a
termination shall be effective five days after the expiration of the cure period
if the breach is not cured.
(ii) LS&CO. may terminate if this Agreement if TPI
files a petition in bankruptcy, is adjudicated a bankrupt or files a petition or
otherwise seeks relief under any bankruptcy, insolvency or reorganization
statute or proceeding, or a petition in bankruptcy is filed against it or is not
dismissed within 60 days, or it makes an assignment for the benefit of its
creditors or a custodian or a receiver or trustee is appointed for it or a
substantial portion of its business or assets or it admits in writing its
inability to pay its debts as they become due. Such a termination shall be
effective upon delivery of a notice to that effect by LS&CO. to TPI.
(iii) LS&CO. may terminate the Agreement upon (A)
termination of the ***License; or (B) a decision by the U.S. Patent and
Trademark Office or by a court to cancel or invalidate or limit the claims of
the Patent.
(d) CONSEQUENCES OF TERMINATION. Upon the effective date
of any termination of this Agreement:
(i) In the event of any termination, and subject
to Section 15 (d), LS&CO. may, for a period of 120 days, use its remaining
inventory of Products and complete production using the Equipment of garments
incorporating those Products, and thereafter market and sell such garments for
an additional 120-day period as provided in this Agreement.
(ii) If LS&CO. terminates or if this Agreement
expires in accordance with its terms, LS&CO. shall have the right (and the
obligation if the termination is a result of expiration or, after
14
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
the Minimum Guaranteed Purchase Amount is satisfied, termination by TPI) to
purchase all Products in TPI's inventory at a price equal to **% of the price
for those Products in effect immediately prior to the time of termination or
expiration, and to manufacture and sell those garments as provided in Section 14
(d)(i).
(iii) TPI shall immediately stop all use of the
Specifications and other LS&CO. data relating to Product requirements and at
LS&CO.'s request return to LS&CO. such materials.
(iv) LS&CO. shall pay any outstanding invoices for
delivered Products and for any Products shipped after the termination or
expiration.
(v) LS&CO.'s exclusivity rights shall terminate and
TPI shall be free to sell ***components and provide Equipment to other companies
for use in all Product Categories in the Territory.
(vi) LS&CO.'s rights to use the TPI Trademark shall
terminate upon completion of Product sales permitted under this Section 14 (d).
(vii) TPI's rights to identify LS&CO. as a customer
shall terminate, and TPI shall no longer identify LS&CO. as a customer or use
photographs, other images or reproductions of LS&CO. products or advertising, in
any promotional materials, advertising, investor relations materials or other
document or medium.
(viii) LS&CO.'s obligation to pay the Minimum
Guaranteed Purchase Amount and remaining Minimum Guaranteed Quarterly Amounts
shall terminate, it being understood that Section 16 (c) provides for liquidated
damages in the case of a termination by TPI under Section 14 (b)(i).
(ix) LS&CO shall promptly return to TPI all
Equipment located in LS&CO.-owned Facilities, and, as provided by Section 3 (e),
reasonably cooperate with TPI to assist TPI to recover from all LS&CO
contractors all Equipment located in contractor Facilities, following cessation
of manufacturing by LS&CO of garments incorporating the Products.
(x) The provisions of Sections 5 (g), 6(b), 10 (b),
10 (c), 11, 12, 15, 16, 17 and 19, and the NDA, shall survive the termination
for any reason of this Agreement.
(xi) The Zipper Approval shall not be affected.
15. INDEMNIFICATION AND INSURANCE
(a) INDEMNITY BY TPI. TPI shall defend, indemnify and hold
harmless LS&CO. and any of its employees or agents (together, the "LS&CO.
Indemnified Parties") from and against any and all claims, actions, liabilities,
obligations, damages, losses, demands, recoveries, deficiencies, costs or
expenses, including, without limitation, reasonable attorneys' fees and
expenses, (collectively, "Claims") which any of the LS&CO. Indemnified Parties
may suffer or incur connected with, resulting from or arising out of: (i) the
inaccuracy in any material respect of any representation made by TPI in this
Agreement; (ii) any material failure by TPI to perform any of its obligations
under this Agreement; (iii) any defects in the Products, any deviation of
Products from the Specifications or any other breach of the warranties about the
Products made by TPI in this Agreement; (iv) any claim that the Products,
Equipment, components of the Products or Equipment, the underlying processes and
know-how, any related manuals and documents, Trim and the TPI Trademark that may
be used on LS&CO. garments violates the patent, trademark, copyright, trade
secret, trade dress or other intellectual property or other right of any third
party; or (v) any other act or failure to act by TPI, including, without
limitation, any negligent, reckless or
15
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
willful misconduct by TPI or its employees, agents, contractors and
subcontractors relating to the transactions contemplated by this Agreement.
(b) INDEMNITY BY LS&CO. LS&CO. shall defend, indemnify and
hold harmless TPI and any of its employees or agents (together, the "TPI
Indemnified Parties") from and against any and all Claims which any of the TPI
Indemnified Parties may suffer or incur connected with, resulting from or
arising out of: (i) the inaccuracy in any material respect of any made by LS&CO.
in this Agreement; (ii) any material failure by LS&CO. to perform any of its
obligations under this Agreement; or (iii) any other act or failure to act by
LS&CO., including, without limitation, any negligent, reckless or willful
misconduct by LS&CO. or its employees, agents, contractors and subcontractors
relating to the transactions contemplated by this Agreement.
(c) MECHANICS. An indemnified party shall promptly notify
the indemnifying party of a claim but failure or delay by the indemnified party
in giving this notice shall not reduce or otherwise affect the indemnifying
party's indemnification obligations, except to the extent that the failure or
delay shall have materially prejudiced its ability to defend against, settle, or
satisfy the Claim or materially increased the cost of doing so. The indemnifying
party at its expense shall have the right to pay, compromise, settle or
otherwise dispose of any Claim. Unless the indemnified party otherwise agrees,
however, no settlement shall limit, restrict or otherwise affect the right of
the indemnified party to carry on or conduct its business (then or in the
future) or require any payment to be made by any indemnified party, or limit,
restrict, make more expensive or less profitable or otherwise adversely affect
the manner in which the indemnified party carries on or conducts its business
(then or in the future). In addition, the indemnifying party shall not enter
into any settlement which does not include the delivery by the settling third
party of a full and final release of all of the indemnified parties from any and
all liability with respect to the Claim. The indemnifying party at its expense
shall defend, subject to the indemnified party being able to reasonably monitor
and participate in such defense (including the selection of counsel reasonably
satisfactory to both), the indemnified party from any Claims. The indemnified
party at all times may employ its own counsel, but the fees and expenses of this
counsel shall be at the indemnified party's own expense unless the indemnifying
party authorizes the employment in connection with the defense of Claims, or
unless the indemnifying party has not employed counsel to take charge of the
defense of any Claims within a reasonable period after receiving notice of the
Claim; the indemnifying party shall pay in both the cases the fees and expenses
of this counsel. That all said, LS&CO. may in its sole discretion decide to
defend a Claim itself and thereby not "tender" the defense to TPI, but with the
consequence that TPI shall not be obligated to indemnify LS&CO. in respect of
that Claim or its defense.
(d) INTELLECTUAL PROPERTY PROBLEMS. TPI shall provide
notice to LS&CO. immediately upon the commencement or threat of any action
brought against TPI whose outcome may affect the validity of TPI's rights under
the ***License or its ability to manufacture and sell Products or to provide or
license and permit the use of the Equipment, ***Technology and TPI Trademark, it
being understood, however, that TPI shall have no liability for any delay in
providing such notice if LS&CO. if not materially prejudiced by such delay. If a
third party alleges, formally or informally, that TPI or LS&CO. is or would
infringe or violate that third party's intellectual property rights or other
rights by reason of the Products, Equipment, ***Technology or TPI Trademark or,
if in LS&CO.'s reasonable opinion, there exist circumstances suggesting the
substantial likelihood or possibility of such a claim, then TPI, at its expense
and as approved by LS&CO. shall: (i) procure for LS&CO., in form and content
reasonably satisfactory to LS&CO., the right to continue using Products,
Equipment, ***Technology and the TPI Trademark; (ii) replace or modify the
Products, Equipment, TPI Trademark or process at TPI's expense so that it
becomes non-infringing, it being understood, however, that the Products,
Equipment and process as modified or replaced must continue to meet the
Specifications; or (iii) take those other actions as may be appropriate given
the credibility, scope and timing of the allegation or claim. If TPI is not able
to able to obtain a license or otherwise work around the claim on commercially
reasonable terms within forty (40) days after TPI receives notice of such claim,
TPI may terminate the Agreement by giving a notice to that effect to LS&CO. (a
"CESSATION"), with the termination effective upon the date of receipt of the
notice.
16
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
Following receipt of that notice, LS&CO. shall cease manufacturing and accepting
new orders for garments incorporating the Products after Cessation unless LS&CO.
obtains the third party claimant's consent that allows LS&CO. to continue
manufacturing and selling such garments until LS&CO. depletes its inventory of
Products existing at the time of Cessation. TPI shall within thirty (30) days
after the Cessation, or any other resolution that requires non-use of Products
in the form sold to LS&CO. or cessation of sale by LS&CO. of garments
incorporating Products, refund to LS&CO. all amounts paid to TPI for Products in
raw material or work-in-process form or in unsold finished garments in LS&CO.'s
inventory and in all garments incorporating Products recalled from LS&CO. retail
customers by reason of the claim giving rise to the Cessation. It is understood
that, if the Cessation or other resolution occurs prior to LS&CO.'s purchase of
at least $1.25 million in Products from TPI, TPI shall refund to LS&CO. the
unapplied portion of Initial Payment in addition to any other amounts to be
refunded under this Section 15 (d). TPI shall further be bound by its
indemnification obligations under Section 15(a)(iv) with respect to judgments,
settlements and claims arising from LS&CO.'s use of Products, Equipment,
***Technology and the TPI Trademark and manufacture and sale of garments
incorporating Products prior to the Cessation.
(e) INSURANCE. From the date of this Agreement until the
date three years after the last sale of a Product, TPI shall maintain at its own
expense with financially sound insurance companies having the following
coverages: (i) worker's compensation insurance as required under the laws of the
state where its work will be performed; (ii) employer's liability insurance with
a limit of $1 million for bodily injury each accident, bodily injury by disease
and bodily injury each employees; (iii) commercial general liability with a
limit of $1 million per occurrence for bodily injury, including death and
property damage, and $2 million in the aggregate. TPI shall furnish to LS&CO.
certificates of insurance evidencing these coverages and shall use reasonable
efforts to obtain each insurer's agreement to give LS&CO. 30 days advance
written notice of any cancellation or material change in coverage. LS&CO. shall
be named as an additional insured with respect to commercial general liability
insurance and, as respects property insurance, LS&CO. shall be named as a loss
payee insofar as its interests appear.
16. REMEDIES
(a) REMEDIES. If LS&CO. breaches this Agreement, and
except as otherwise provided in this Agreement, TPI shall have the rights of a
seller of goods under Division 2 of the California Uniform Commercial Code,
together with all other rights and remedies it may have under applicable law, in
each case subject to Section 16 (b). If TPI breaches this Agreement, and except
as otherwise provided in this Agreement, LS&CO. shall have the rights of a buyer
of goods under Division 2 of the California Uniform Commercial Code, together
with all other rights and remedies it may have under applicable law, in each
case subject to Section 16 (b).
(b) LIMITATION ON MONETARY DAMAGES AND OTHER LIABILITIES.
(i) Except as provided in this Section 16, monetary
damage remedies and indemnification liabilities shall be limited as to both kind
and amount. Neither TPI nor LS&CO. shall be liable to the other for any
indirect, loss of profit (other than such damages for loss of profits as may be
established by TPI as a result of a breach by LS&CO of its obligation to
purchase Trim as required by Section 8 after delivery by LS&CO. of the Trim
Option Notice), loss of use, loss of production, punitive, incidental, special
or consequential damages arising out of or in connection with any breach of any
provision of this Agreement, regardless of whether that party has been advised
of the likelihood of these damages arising from a breach. NEITHER TPI NOR LS&CO.
SHALL BE ENTITLED, DIRECTLY OR INDIRECTLY, TO ANY FORM OF INDEMNITY FROM THE
OTHER AS A CONSEQUENCE OF TERMINATION OF THIS AGREEMENT OR IN RESPECT OF ANY
DECLINE IN THE OTHER'S VOLUMES, REVENUES, MARGINS, EARNINGS OR OPPORTUNITIES
BELOW FORECASTS OR EXPECTATIONS. TPI WAIVES ANY CLAIMS IT MAY HAVE AGAINST
LS&CO. ARISING FROM ANY ALLEGED GOODWILL CREATED BY TPI FOR THE BENEFIT OF
LS&CO. OR FROM THE ALLEGED
17
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
CREATION OR INCREASE OF A MARKET FOR LS&CO.'S PRODUCTS OR OTHERWISE. LS&CO.
WAIVES ANY CLAIMS IT MAY HAVE AGAINST TPI ARISING FROM ANY ALLEGED GOODWILL
CREATED BY LS&CO. FOR THE BENEFIT OF TPI OR FROM THE ALLEGED CREATION OR
INCREASE OF A MARKET FOR TPI'S PRODUCTS OR OTHERWISE.
(ii) Prior to such time as Cumulative Applicable
Payments equal or exceed the Minimum Guaranteed Purchase Amount, LS&CO.'s
cumulative liability for money damages to TPI for any and all breaches or other
claims or otherwise relating to this Agreement shall be limited to (a) $***,
PLUS (b) amounts payable if any by LS&CO. for unpaid invoices for delivered
Products and Trim, PLUS (c) amounts payable if any by LS&CO. to purchase
Products if required under Section 6(b) and/or Section 14(d), PLUS (d) all
liquidated damages payable in respect of LS&CO.'s Minimum Guaranteed Purchase
Amount obligation as provided in Section 16(c).
(iii) After such time as Cumulative Applicable
Payments are greater than the Minimum Guaranteed Purchase Amount, LS&CO.'s
cumulative liability for money damages to TPI for any and all breaches or other
claims or otherwise relating to this Agreement shall be limited to (a) $***,
PLUS (b) amounts payable if any by LS&CO. in respect of unpaid invoices for
delivered Products and Trim, PLUS (c) amounts payable if any by LS&CO. to
purchase Products if required under Section 6(b) and/or Section 14 (d).
(iv) TPI's cumulative liability for money damages to
LS&CO. for any and all breaches of or other claims or otherwise relating to this
Agreement shall not exceed $***. These limitations shall not apply to any claim
by LS&CO., directly or by way of indemnification, arising from the intellectual
property rights indemnification obligation contained in Section 15(a)(iv), it
being understood, however, that TPI's indemnification obligation with respect to
judgments, settlements and third party claims under that provision shall be
limited in the case of Cessation as provided in such Section 15 (d). SUCH
AMOUNTS RECOVERABLE UNDER THIS SECTION 16 (B)(IV) AND SECTION 15(A)(IV) (AS
LIMITED BY SECTION 15(D)) SHALL BE LS&CO'S MAXIMUM ENTITLEMENT TO DAMAGES AND
RECOVERY FROM TPI ARISING FROM MATERIAL BREACH OR TERMINATION OF OR OTHERWISE
RELATING TO THIS AGREEMENT.
(c) LIQUIDATED DAMAGES. If TPI terminates this Agreement
under Section 14(b)(i), then TPI shall be entitled to receive from LS&CO.
liquidated damages in an amount equal to the difference between the Minimum
Guaranteed Purchase Amount and All-In Payments as of the time of termination.
For purposes of this Section 16 (c), "ALL-IN PAYMENTS" means the sum of: (x)
Cumulative Applicable Payments; (y) payments in respect of Product purchases
under Section 6 (b) and 14 (d)(ii) (to the extent not already reflected in the
computation of Cumulative Applicable Payments); and (z) payments, if any, for
purchases of Trim after the Trim Option Notice is exercised. This Section 16 (c)
shall not limit TPI's right to seek and collect additional damages if any
resulting from a breach by LS&CO., including, without limitation, a breach of
its obligation to purchase Trim after exercise of the Trim Option Notice as
contemplated by and subject to Section 16 (b) (i). SUCH LIQUIDATED DAMAGES AS
PROVIDED IN THIS SECTION 16 (C) AND ANY AMOUNTS RECOVERABLE UNDER SECTION 16
(B)(II) SHALL, PRIOR TO DISCHARGE OF THE MINIMUM GUARANTEED PURCHASE AMOUNT
OBLIGATION, BE TPI'S MAXIMUM ENTITLEMENT TO DAMAGES AND RECOVERY FROM LS&CO.
ARISING FROM MATERIAL BREACH OR TERMINATION OF OR OTHERWISE RELATING TO THIS
AGREEMENT. TPI and LS&CO. agree that the liquidated damages set forth in this
Section 16(c) are reasonable in light of the circumstances and are specified
based on the agreement of the parties that actual damages in the circumstances
for which such liquidated damages are specified will be difficult to fix.
Nothing in this Section 16 (c) or otherwise in this Agreement limits TPI's or
LS&CO.'s rights to defend any claim by the other party that TPI or LS&CO. has
committed a breach of this Agreement or limits either TPI or LS&CO.'s ability to
bring a counterclaim against the other party.
18
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(d) INJUNCTIVE RELIEF. Nothing in this Agreement limits
the ability of TPI or LS&CO. to seek injunctive relief and other equitable
remedies as provided in the NDA or in matters involving breaches of obligations
under this Agreement including, without limitation, the provisions of Section 7,
9 and 10, it being acknowledged that such breaches may cause a party to suffer
irreparable harm and may not be adequately compensated in damages. Nothing in
this Agreement prevents either TPI or LS&CO. from bringing such an action for
injunctive relief in lieu of exercising termination rights or seeking damages
under this Agreement.
(e) ATTORNEYS' FEES. In the event that any suit or action
is instituted to enforce any provision in this Agreement, the prevailing party
in such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all reasonable fees, costs and expenses of appeals.
17. RELATIONSHIP
TPI and LS&CO. are and shall remain independent contracting
parties; the arrangements contemplated by this Agreement do not create a
partnership, joint venture, employment, fiduciary or similar relationship for
any purpose. This Agreement is not intended to and does not create any direct
relationship between LS&CO. and any employee, contractor, subcontractor,
supplier, creditor or person in a relationship with TPI. Each of TPI and LS&CO.
shall be solely responsible, both during the effectiveness of and after
termination of this Agreement, for the payment of all wages, benefits and
severance, and federal, provincial, state and local payroll, social security,
unemployment, insurance and similar taxes or amounts, for all of its respective
employees. Neither TPI nor LS&CO. shall have the power to obligate or bind the
other to a third party or commitment in any way.
18. REPRESENTATIONS AND WARRANTIES
(a) TPI REPRESENTATIONS. TPI hereby represents and
warrants to LS&CO. as follows:
(i) ORGANIZATION, GOOD STANDING AND QUALIFICATION.
TPI is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. TPI has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and to carry out the provisions of this Agreement, and to carry
on its business as presently conducted. TPI is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a Material Adverse Effect
(as hereinafter defined) on TPI or its business. (For purposes of this
Agreement, "MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects, material agreements or financial condition of
TPI or LS&CO., as applicable, that is material and adverse to TPI or LS&CO., as
applicable, and its subsidiaries, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with its ability to enter into and perform any of its obligations under this
Agreement in any material respect.)
(ii) AUTHORIZATION; BINDING OBLIGATIONS. TPI has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement. All corporate action on the part of TPI, its
officers, directors and stockholders necessary for the authorization of this
Agreement and the performance of all obligations of TPI hereunder has been
taken. This Agreement, when executed and delivered, shall be, and the ***License
is, a valid and binding obligation of TPI enforceable in accordance with their
terms, except: (i) as limited by applicable bankruptcy, insolvency,
reorganization,
19
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
moratorium or other laws of general application affecting enforcement of
creditors' rights; and (ii) general principles of equity that restrict the
availability of equitable remedies.
(iii) LITIGATION AND OTHER PROCEEDINGS. Except as
disclosed in its filings with the Securities and Exchange Commission (the
"SEC"), (i) there are no lawsuits or proceedings pending or, to the knowledge of
TPI, threatened, against TPI, nor has TPI received any written or oral notice of
any such action, suit, proceeding or investigation, which could reasonably be
expected to have a Material Adverse Effect, and (ii) no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of TPI,
requested of any court, arbitrator or governmental agency which could result in
a Material Adverse Effect.
(iv) ABSENCE OF CONFLICTS. The execution and
delivery of this Agreement, the consummation by TPI of the transactions herein
contemplated and the performance of or compliance with the terms and conditions
hereof by TPI shall not, directly or indirectly (and with or without notice or
the passage of time or both), (a) violate any requirements of law applicable to
TPI or its subsidiaries; (b) conflict with or result in a breach of or a default
under any organizational documents of TPI or its subsidiaries or any contractual
obligation to which TPI or its subsidiaries is a party or by which such entity
or its properties are bound except where such violation or conflict would not
have a Material Adverse Effect; (c) result in the creation or imposition of any
lien upon any property (now owned or hereafter acquired) except where such
violation or conflict would not have a Material Adverse Effect; or (d) violate
or conflict with, or give any governmental authority the right to challenge the
transactions contemplated by this Agreement or revoke, withdraw, suspend,
cancel, terminate or modify, any regulatory authorization issued to or held by
TPI or any subsidiary.
(v) INTELLECTUAL PROPERTY. TPI has rights to all
patents, know-how, technology and information necessary to manufacture and sell
Products and provide and license use of the Equipment and the ***Technology to
LS&CO. and LS&CO.'s contractors as contemplated by this Agreement. To the best
knowledge of TPI, none of the manufacture and sale of Products, the
incorporation of Products into garments, the use of the Equipment and ***
Technology or the TPI Trademark infringes upon or violates the intellectual
property rights of any third party. TPI has not received any notice or claim
from any third party to the effect that manufacture and sale of Products, the
incorporation of Products into garments, the use of the Equipment and ***
Technology or the TPI Trademark infringes such third party's or any other third
party's rights, and, to the best of TPI's knowledge, *** has not received a
similar notice or claim. To the best of TPI's knowledge, other than as may exist
as outlined in the letter included with the *** License in EXHIBIT G, there is
no unauthorized use, infringement or misappropriation by any third party of the
*** Patent, the *** Technology or the Equipment. The *** License in the form
attached as EXHIBIT G is in full force and effect, and TPI has full power and
authority under the *** License to grant the exclusivity rights and make the
other agreements contemplated by this Agreement. This Agreement does not
conflict with or result in a breach under any contract to which TPI is a party
whether or not such breach would result in a Material Adverse Effect. TPI has
not received any notice from *** or other third party objecting to the terms of
this Agreement or the transactions contemplated by this Agreement.
(b) LS&CO. REPRESENTATIONS. LS&CO. hereby represents and
warrants to TPI as follows:
(i) ORGANIZATION, GOOD STANDING AND QUALIFICATION.
LS&CO. is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. LS&CO. has all requisite corporate
power and authority to own and operate its properties and assets, to execute and
deliver this Agreement and to carry out the provisions of this Agreement, and to
carry on its business as presently conducted. LS&CO. is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both
20
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a Material Adverse Effect
on LS&CO. or its business.
(ii) AUTHORIZATION; BINDING OBLIGATIONS. LS&CO. has
all requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement. All corporate action on the part of LS&CO.,
its officers, directors and stockholders necessary for the authorization of this
Agreement and the performance of all obligations of LS&CO. hereunder has been
taken. This Agreement, when executed and delivered, shall be a valid and binding
obligation of LS&CO. enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
and (ii) general principles of equity that restrict the availability of
equitable remedies.
(iii) ABSENCE OF CONFLICTS. The execution and
delivery of this Agreement, the consummation by LS&CO. of the transactions
herein contemplated and the performance of or compliance with the terms and
conditions hereof by LS&CO. shall not, directly or indirectly (and with or
without notice or the passage of time or both), (a) violate any requirements of
law applicable to LS&CO. or its subsidiaries; (b) conflict with or result in a
breach of or a default under any organizational documents of LS&CO. or its
subsidiaries or any contractual obligation to which LS&CO. or its subsidiaries
is a party or by which such entity or its properties are bound except where such
violation or conflict would not have a Material Adverse Effect; (c) result in
the creation or imposition of any lien upon any property (now owned or hereafter
acquired) except where such violation or conflict would not have a Material
Adverse Effect; or (d) violate or conflict with, or give any governmental
authority the right to challenge the transactions contemplated by this Agreement
or revoke, withdraw, suspend, cancel, terminate or modify, any regulatory
authorization issued to or held by LS&CO. or any subsidiary.
(c) NO OTHER REPRESENTATIONS. TPI and LS&CO. recognize
that there are many uncertainties in the transactions contemplated by this
Agreement. TPI and LS&CO. agree and acknowledge that other than those
representations expressly made in this Agreement, no representations,
warranties, commitments or guarantees of any kind have been made to either party
by the other, or by anyone acting on its behalf, including, without limitation,
representations concerning the volume of business, longevity of the relationship
or the prospects for sales or profits. TPI and LS&CO. each has made its own
independent business evaluation in deciding to do business on the terms
described in this Agreement. It is understood and agreed that: (i) TPI shall
always be free to engage in negotiations and to enter into agreements with other
customers provided that these negotiations and agreements do not violate any
term of this Agreement and (ii) LS&CO. shall always be free to engage in
negotiations and to enter into agreements with other vendors and suppliers
provided that these negotiations and agreements do not violate any term of this
Agreement.
19. MISCELLANEOUS
(a) GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California as
applied to contracts entered into and performed solely within the State of
California.
(b) EXPENSES. Each party shall bear its own expenses
in establishing, negotiating and documenting this Agreement.
(c) PRESS RELEASES. TPI expects to issue a press release
and make a Form 8-K filing with the SEC relating to its entry into this
Agreement. TPI shall consult with and obtain LS&CO.'s approval regarding such
statements, such approval not to be unreasonably withheld or delayed. If either
TPI or LS&CO. must file this Agreement as an exhibit to an SEC filing, each
shall consult with the other and use commercially reasonable efforts to obtain
confidential treatment of appropriate provisions of the
21
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
Agreement in accordance with SEC rules. Going forward, except as may be required
by law or applicable stock exchange regulations, neither party shall make any
press release concerning this Agreement or the underlying business relationship
without the prior approval of the other, not to be unreasonably withheld or
delayed.
(d) FORCE MAJEURE. Neither party shall be responsible for
any failure to perform due to causes beyond its reasonable control (each, a
"FORCE MAJEURE" event), provided that such party gives prompt written notice
thereof to the other. The time for performance shall be extended for a period
equal to the duration of the Force Majeure, but in no event longer than 60 days.
It is understood and agreed that Force Majeure events do not include: (a)
non-performance by *** or other supplier or subcontractor to TPI whether as a
result of default by the supplier or subcontractor or by TPI or otherwise other
than a default due to a Force Majeure event affecting such supplier or
contractor; (b) cancellation, invalidity or limitation of the claims of the
patent or, as provided for in Section 15, allegations or findings of
infringement of intellectual property rights of third parties; or (c)
termination, modification, injunction or other action terminating or limiting
TPI's rights under the *** License.
(e) ENTIRE AGREEMENT. This Agreement, together with the
NDA, represent the final, complete and exclusive agreement of LS&CO. and TPI and
supersede any and all prior or contemporaneous agreements, communications,
course of dealing, arrangements or understandings between LS&CO. and TPI. Should
there be any conflict between the terms of this Agreement or any other document
created by LS&CO. or TPI relating to the business relationship, this Agreement
shall control. LS&CO. rejects any term or condition of any TPI invoice, shipping
document, letter, e-mail or other TPI document which conflicts with or adds to
this Agreement; LS&CO. gives advance notification of objection to any aspect of
TPI's acceptance which contains terms which materially alter the terms of this
Agreement under the previsions of California Uniform Commercial Code Sec. 2-207.
TPI rejects any term or condition of any shipping document, letter, e-mail or
other document from LS&CO or its contractors which conflicts with or adds to
this Agreement; TPI gives advance notification of objection to any aspect of
LS&CO.'s or its contractors' purchase order which contains terms which
materially alter the terms of this Agreement under the previsions of California
Uniform Commercial Code Sec. 2-207. This Agreement may be modified only as
stated in and by a writing signed by both LS&CO. and TPI which refers
specifically to this Agreement and states that it is amending this Agreement.
(f) COOPERATION. TPI and LS&CO. shall reasonably cooperate
with one another in providing information relating to its activities in
retrospect of this Agreement in connection with any audit or dispute, whether at
an administrative or judicial level, relating to tax, customs, financial
reporting or other matter.
(g) ASSIGNMENT. This Agreement shall be binding upon the
successors and permitted assigns of LS&CO. and TPI. LS&CO. may, without
obtaining the consent of TPI, freely assign its rights and delegate its duties
(either directly or by operation of law) under this Agreement to any affiliate
of LS&CO. or any successor to LS&CO. by merger, consolidation or sale of assets
or to any purchaser of the assets comprising the ***(R) brand. It is understood
that affiliates of LS&CO. may purchase Products for incorporation in garments
sold outside the United States; such purchases shall be on the same terms and
conditions set out in this Agreement. TPI may not assign its rights or delegate
its duties without first obtaining the written consent of LS&CO., it being
understood, however, that TPI may, without obtaining the consent of TPI, freely
assign its rights and delegate its duties (either directly or by operation of
law) under this Agreement to any affiliate of TPI that succeeds to substantially
all of the manufacturing business of TPI or any successor to TPI by merger,
consolidation or sale of assets.
(h) NO THIRD PARTY BENEFIT. This Agreement is for the
exclusive benefit of LS&CO. and TPI not for the benefit of any third party
including, without limitation, *** or any creditor, equity owner, employee,
supplier, agent or subcontractor of TPI.
22
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
(i) SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(j) DELAYS OR OMISSIONS. No delay or omission to exercise
any right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. Any waiver on any party's
part of any provisions or conditions of this Agreement must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies under this Agreement, by law, or otherwise afforded to any party,
shall be cumulative and not alternative.
(k) NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, or (iii) one (1) day after deposit with an
internationally recognized overnight courier, specifying next day delivery, with
written or electronic verification of receipt. All communications shall be sent
to the parties at the addresses set forth on the signature pages hereof or at
such other address as such party may designate by written notice to the other
parties hereto.
(l) OTHER MATTERS; KEY DATES. It is understood and agreed
that the *** Technology rights and know-how provided and licensed under this
Agreement by TPI to LS&CO. are "intellectual property" within the meaning of
Section 365 of the Bankruptcy Code and that the Products are "unique" for
purposes of Division 2 of the California Uniform Commercial Code. A list of key
dates under this Agreement is attached as EXHIBIT L. This list is not intended
as a comprehensive list of all key dates and timeframes under the Agreement or
as an independent source of legal obligation; instead, it is intended as a
convenient reference tool.
(m) TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
(n) PRONOUNS. All pronouns contained herein, and any
variations thereof, shall be deemed to refer to the masculine, feminine or
neutral, singular or plural, as the identity of the parties hereto may require.
(o) COUNTERPARTS. This Agreement may be executed in
counterparts (including by facsimile), all of which, when taken together, shall
constitute one original.
* * * *
23
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.
If the terms and provisions of this Agreement are acceptable
to you, please indicate your acceptance and approval by signing, or by causing
to be signed on your behalf, the enclosed copy of this Agreement and returning
it to the undersigned.
Very truly yours,
TAG-IT PACIFIC, INC., a Delaware corporation
By: /s/ Colin Dyne
-----------------------------
Colin Dyne
Chief Executive Officer
Address: 21900 Burbank Blvd, Suite 270
Woodland Hills, CA 91367
ACCEPTED:
LEVI STRAUSS & CO., a Delaware corporation
By: /s/ Bobbi Silten
-----------------------------
Bobbi Silten
President, ***(R)Brand
Address: 1155 Battery Street
San Francisco, CA 94111
Exhibits:
Exhibit A: Specifications
Exhibit B: *** Bottoms Processes
Exhibit C: *** Equipment
Exhibit D: Compensation and Payment
Exhibit E: Product Categories
Exhibit F: TAG-IT and TEKFIT marks
Exhibit G: *** License and letter from ***
Exhibit H: *** and letter from inventor
Exhibit I: TEKFIT Trademark Application
Exhibit J: Mutual Non-Disclosure Agreement
Exhibit K: Zipper Approval
Exhibit L: Key Dates
24
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
request filed with the Securities and Exchange Commission and have been filed
separately with the Securities and Exchange Commission.