-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
NGUaKlAsMmiOiJYWH53yU5/47IRbeQKQkpe3A72tIqgEivq6sut9B7FrTeUuVSqp
3QkiDO5HFN3IssHdtQ1NdA==
UNITED
STATES FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER
31,
2005 OR COMMISSION FILE NUMBER:
1-10857 THE WARNACO
GROUP, INC. 501 Seventh Avenue Registrant's telephone number,
including area code: (212)
287-8000 Securities
registered pursuant to Section 12(b) of the Act: None Indicate by
check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Act. Yes Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act. Yes Indicate
by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. Yes Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition
of ‘‘accelerated filer and large accelerated
filer’’ in Rule 12b-2 of the Exchange Act. Large accelerated filer
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes As of July
1, 2005 (the last business day of the registrant’s most
recently completed second fiscal quarter), the aggregate market value
of the registrant’s common equity held by non-affiliates was
$1,060,778,056, based upon the last sale price reported for such date
on the NASDAQ National Market. Indicate by check mark whether
the registrant has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by
a court. Yes The number
of shares outstanding of the registrant’s Common Stock, par
value $.01 per share, as of February 17, 2006:
46,680,876. DOCUMENTS INCORPORATED BY REFERENCE Certain
information required by Part III of this report is incorporated by
reference from the Proxy Statement of the registrant relating to the
2006 Annual Meeting of Stockholders, to be filed with the Securities
and Exchange Commission within 120 days of the Fiscal 2005
year-end. THE
WARNACO GROUP, INC. TABLE
OF
CONTENTS PART
I Item 1. Business. Introduction The
Warnaco Group, Inc. (‘‘Warnaco’’), a
Delaware corporation organized in 1986 (collectively with its
subsidiaries, the ‘‘Company’’), designs,
sources, manufactures, markets, licenses and distributes a broad line
of intimate apparel, sportswear and swimwear worldwide. The
Company's products are sold under several highly recognized brand
names, including Warner's®, Olga®,
Calvin Klein®, Speedo®, Ocean
Pacific®, Chaps®, Nautica®,
Catalina®, Anne Cole® and Lejaby®. The Company's products are distributed domestically and
internationally, primarily to wholesale customers through various
distribution channels, including major department stores, independent
retailers, chain stores, membership clubs, specialty and other stores,
mass merchandisers and the internet, including such leading retailers
as Macy's and other units of Federated Department Stores, J.C.
Penney, Kohl's, Sears, Target, Costco and Wal-Mart Stores, Inc.
As of December 31, 2005, the Company operated 121 Calvin Klein
retail stores worldwide (consisting of 59 stores directly operated by
the Company, including one on-line store, and 62 stores operated under
retail licenses or distributor agreements). The Company’s
Swimwear Group also operates two Speedo outlet stores, which
opened in July 2005, and one on-line store. For the fiscal year
ended December 31, 2005 (‘‘Fiscal
2005’’), approximately 71.6% of the
Company's net revenues were generated from domestic sales and
approximately 28.4% were generated from international sales. The Company owns and licenses a portfolio of highly recognized brand
names. As described below, the majority of trademarks used by the
Company are either owned or licensed in perpetuity and generated
approximately 61% of its revenues during Fiscal 2005. Brand
names the Company licenses for a term generated approximately
39% of its revenues during Fiscal 2005. The Company's
highly recognized brand names have been established in their respective
markets for extended periods and have attained a high level of consumer
awareness. The following table sets forth the Company's
trademarks and licenses as of February 17, 2006: Owned
Trademarks Trademarks
Licensed in
Perpetuity 1 Trademarks Licensed for a
Term 2 The Company relies on its highly
recognized brand names to appeal to a broad range of consumers. The
Company designs products across a wide range of price points to meet
the needs and shopping preferences of male and female consumers across
a broad age spectrum. The Company 3
believes that its ability to serve multiple
domestic and international distribution channels with a diversified
portfolio of products under widely recognized brand names at varying
price points distinguishes it from many of its competitors and reduces
its reliance on any single distribution channel, product, brand or
price point. The Company operates on a fiscal year basis ending
on the Saturday closest to December 31. References in this
Annual Report on Form 10-K to the
‘‘Predecessor’’ refer to the Company prior
to February 4, 2003 (the date the Company emerged from
bankruptcy). References to the
‘‘Successor’’ refer to the Company on and
after February 4, 2003 after giving effect to the
implementation of fresh start accounting. References in this Form 10-K
to ‘‘Fiscal 2005’’ refer to operations for
the twelve months ended December 31, 2005. References in
this Form 10-K to ‘‘Fiscal 2004’’ refer to
operations for the twelve months ended January 1, 2005.
References in this Form 10-K to ‘‘Fiscal
2003’’ refer to the operations for the twelve months
ended January 3, 2004, comprising operations of the
Predecessor for the period January 5, 2003 to
February 4, 2003 combined with the operations of the
Successor for the period February 5, 2003 to
January 3, 2004. The Company’s two fiscal years
prior to Fiscal 2003 and Fiscal 2004 ended on January 4,
2003 (‘‘Fiscal 2002’’) and January
5, 2002 (‘‘Fiscal 2001’’). Acquisitions
CKJEA Acquisition
On January
31, 2006, the Company acquired (the "CKJEA
Acquisition") 100% of the shares of the companies
that operate the wholesale and retail businesses of Calvin Klein
jeanswear and accessories in Europe and Asia and the CK Calvin
Klein "bridge" line of sportswear and
accessories in Europe from Fingen Apparel N.V., Fingen S.p.A. Euro
Cormar S.p.A., and Calvin Klein, Inc. (collectively, the
"Sellers") for total consideration of
approximately €240 million (approximately $292 million),
consisting of cash consideration of approximately €179
million (approximately $218 million) and assumption of indebtedness of
approximately €61 million (approximately $74 million), net
of cash acquired of approximately €13 million (total
assumed debt aggregating approximately €74 million
(approximately $90 million)). In addition, as of December 31, 2005, the
Company had incurred professional fees and other related costs of
approximately $5.5 million in connection with the acquisition. The
purchase price is subject to certain post-closing adjustments,
including adjustments related to the amount of working capital
acquired. Approximately €37 million (approximately $45
million) of the assumed debt was repaid simultaneously with the
closing, leaving approximately €37 million (approximately
$45 million) of assumed debt outstanding. The CKJEA Acquisition was
consummated pursuant to the terms and conditions of a Stock Purchase
Agreement, dated as of December 20, 2005 (as amended as of January 30,
2006). The Company is in the process of determining the allocation of
the purchase price to the fair values of the assets acquired and
liabilities assumed on acquisition. The Company funded the
acquisition using a combination of cash on hand and borrowings under a
new $180 million term loan facility under the Amended and Restated
Credit Agreement (as defined below). See
"Management's Discussion and Analysis of
Financial Condition and Results of Operations —Capital Resources
and Liquidity—Financing Arrangements." In
connection with the consummation of the CKJEA Acquisition, the Company
will, subject to certain conditions, acquire 100% of the shares
of the company that operates the license for Calvin Klein
men's and women's Collection apparel and accessories
worldwide on or about January 2, 2008. The Calvin Klein
Collection license terminates on December 2013, subject to certain
conditions. In addition, in connection with the consummation of
the CKJEA Acquisition, on January 31, 2006, the Company acquired
various exclusive license agreements and entered into amendments to
certain of its existing license agreements with Calvin Klein, Inc. (in
its capacity as licensor). See "—Trademarks and
Licensing Agreements."
Ocean
Pacific
On August 19, 2004, the Company
acquired 100% of the outstanding common stock of Ocean Pacific
Apparel Corp. (collectively with its subsidiaries,
‘‘OP’’) for $40.0 million in
cash and the 4
assumption and retirement of $1.0
million in debt owed to a selling shareholder of OP. The assumed
debt was repaid simultaneously with the closing. The terms of the
acquisition agreement require the Company to make certain contingent
payments to the sellers if (i) wholesale net revenues (both directly
earned by the Company and directly earned by the Company's
licensees) exceed a defined threshold for fiscal 2007 and (ii)
operating profits of certain defined direct operations of the Company
exceed 5% of wholesale net revenues for fiscal 2007 and fiscal
2008. The contingent payments are based on the amount earned by the
Company in excess of the applicable thresholds. The defined thresholds
represent significant growth in OP's business compared to
Fiscal 2004 and 2005. No contingent payments are required if the
defined thresholds are not exceeded by the Company. Any contingent
payments ultimately made by the Company will be recorded as an increase
in the purchase price of OP and an increase in goodwill.
OP is based in Irvine, California and is a surf and beach
lifestyle brand which operates both directly and through a network of
third party licensees worldwide. OP offers a broad array of
apparel and accessories catering to men, women, young men, juniors and
kids under its Op and Ocean Pacific labels. During Fiscal
2005, the Company exited certain key third party licenses and added
certain OP product categories to its wholesale business
model. The results of operations of OP have been included
in the Company's consolidated statement of operations (as part of
the Company's Swimwear Group) since August 19,
2004. Business Groups The Company operates in three
business segments: (i) Intimate Apparel Group; (ii) Sportswear Group;
and (iii) Swimwear Group. The following table sets forth, for
each of the last three fiscal years, net revenues and operating income
for each of the Company's business groups and for the Company on
a consolidated basis. The Company does not allocate interest expense
(including the amortization of deferred financing charges), income
taxes, corporate overhead (including depreciation of corporate assets
and the cost of certain shared services), restructuring items or
reorganization items to its business groups. The
following table sets forth, as of December 31, 2005 and January 1,
2005, total assets for each of the Company's business groups and
for the Company on a consolidated basis: 5
Intimate
Apparel Group
The Intimate Apparel Group designs,
manufactures, sources and markets moderate to premium priced intimate
apparel and other products for women and better to premium priced
men's underwear and loungewear. Net revenues of the Intimate
Apparel Group accounted for approximately 39.6% of the
Company's net revenues in Fiscal 2005. The Intimate
Apparel Group targets a broad range of consumers and provides products
across a wide range of price points. The Company's design team
strives to design products of a price, quality, fashion and style that
meet its customers' demands. The following table sets
forth the Intimate Apparel Group's brand names and the apparel
price ranges and types: The Calvin Klein women's lines
consist primarily of women's underwear, bras, panties, daywear,
loungewear and sleepwear. The Calvin Klein men's lines
consist primarily of men's underwear, briefs, boxers, T-shirts,
loungewear and sleepwear. According to The NPD Group
(‘‘NPD’’), a market research firm,
Calvin Klein men's underwear was the number two selling
brand of men's underwear in 2005 and 2004 in U.S. department
stores participating in the surveys. The Warner's,
Olga, Lejaby/Lejaby Rose and J. Lo by Jennifer Lopez
(‘‘JLO’’) lines consist primarily of
bras, panties, daywear and sleepwear. The Body Nancy
Ganz/Bodyslimmers line is primarily a shapewear line. The
Rasurel line consists primarily of swimwear sold in Europe. The
Company's Axcelerate/Axcelerate Engineered by Speedo
(‘‘Axcelerate’’) line of intimate
apparel consists primarily of women's performance bras and, to a
lesser extent, men’s performance underwear. The
Company's Intimate Apparel brands are distributed primarily
through department stores, independent retailers, chain stores,
membership clubs, Company operated retail stores/stores operated
6
under retail licenses or distributor
agreements, the Company’s CKU.com internet website and, to a
lesser extent, specialty stores. In addition, the Company uses its
design, manufacturing and sourcing expertise to produce private label
intimate apparel for customers that may not carry the Company's
branded products. The following table sets forth the Intimate
Apparel Group's principal distribution channels and
customers: The Intimate Apparel Group generally
markets its product lines for three retail-selling seasons (Spring,
Fall and holiday). Its revenues are generally consistent throughout the
year, with 49.5%, 45.8%, and 48.6% of the Intimate
Apparel Group's net revenues recorded in the first halves of
Fiscal 2005, 2004 and 2003, respectively. The Intimate Apparel
Group has operations in North America (United States, Canada and
Mexico), Europe (Austria, Belgium, France, Germany, Italy, the
Netherlands, Spain, Switzerland and the United Kingdom) and Asia (Hong
Kong, Singapore, China and Macau). In the first quarter of Fiscal 2004,
the Company sold its intimate apparel production facilities located in
Villanueva, Honduras and San Luis, Mexico. 7 The following table sets forth the domestic
and international net revenues of the Intimate Apparel Group: The
Company's Calvin Klein underwear, Warner's, Olga,
Body Nancy Ganz/Bodyslimmers, JLO and Axcelerate underwear
products (generating approximately 83.5% of the Intimate Apparel
Group's net revenues) are sourced from third parties.
Lejaby's products are produced in the Company's
facilities located in France, with a portion of the manufacturing
process subcontracted to third parties located in Tunisia and China.
Sourcing allows the Company to maximize production flexibility while
avoiding significant capital expenditures, work-in-process inventory
buildups and the costs of managing a large production work force. The
Company inspects products manufactured by suppliers to ensure that they
meet its quality and production standards.
Sportswear Group
The Sportswear Group designs, sources and markets moderate
to premium priced men's, women's and juniors'
sportswear. Net revenues of the Sportswear Group accounted for
34.4% of the Company's net revenues in Fiscal 2005. The
following table sets forth the Sportswear Group's brand names and
their apparel price ranges and types: The Calvin Klein line includes men's and
women's jeans and jeans-related products, including outerwear,
knit and woven tops and shirts. The Company renegotiated the term of
its Calvin Klein jeans license in the second quarter of Fiscal
2003, providing the Company with greater control over the design and
product development calendar and setting forth the terms of the
Company’s license to use the Calvin Klein name in
connection with swimwear. The Company believes that this increased
flexibility has allowed it to provide better service to retailers,
which has resulted in improved sell-through of merchandise at retail.
In January 2006, the Company acquired 100% of the shares
of the companies that operate the licenses and related wholesale and
retail businesses of Calvin Klein jeans and accessories in
Europe and Asia and the CK Calvin Klein
‘‘bridge’’ line of sportswear and
accessories in Europe. See
‘‘Acquisitions—CKJEA
Acquisition’’ described above.
Chaps is
a moderately priced men's sportswear line providing a more casual
product offering to the consumer. During Fiscal 2003, the Company
negotiated an amendment and extension of the Chaps license
through 2018, assuming the exercise of renewal options and satisfaction
of certain conditions. The renegotiated license gives the Company an
opportunity to extend the brand in terms of both 8
product and distribution channels, which
allowed the Company to launch Chaps sportswear in Fiscal 2004 in
the mid-tier distribution channel. The Sportswear Group's
apparel products are distributed primarily through department stores,
independent retailers, chain stores, membership clubs, mass
merchandisers and, to a lesser extent, specialty stores. The
following table sets forth, as of December 31, 2005, the
Sportswear Group's principal distribution channels and
customers: As noted above, in January 2006, the
Company consummated the CKJEA Acquisition. The channels of distribution
and customers of the businesses acquired in the CKJEA Acquisition are
not reflected in the table above. The Sportswear Group generally
markets its products for four retail selling seasons (Spring, Summer,
Fall and holiday). New styles, fabrics and colors are introduced based
upon consumer preferences and market trends, and coincide with the
appropriate selling season. The Sportswear Group recorded 48.4%,
41.3%, and 47.9% of its net revenues in the first halves
of Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively. During Fiscal 2005, the Sportswear Group had operations in the
United States, Canada and Mexico. The Sportswear Group's products
are entirely sourced from third party suppliers worldwide. As discussed
previously, the Company acquired certain licensed Calvin Klein
businesses in Europe and Asia in January 2006. See
‘‘Acquisitions—CKJEA
Acquisition’’. 9 The following table sets forth the
domestic and international net revenues of the Sportswear Group:
Swimwear
Group
The Swimwear Group designs, manufactures, sources and
markets mass market to premium priced swimwear, fitness apparel, swim
accessories and related products and licenses its owned brand names to
suppliers of apparel and other products in widely diversified channels
of distribution. Net revenues of the Swimwear Group accounted for
26.0% of the Company's net revenues in Fiscal 2005. The following table sets forth the Swimwear Group's
significant brand names and their apparel price ranges and types: 10 The Company believes that Speedo is the
pre-eminent competitive swimwear brand in the world. Innovations by the
Swimwear Group and its licensor, SIL, have led and continue to lead the
competitive swimwear industry. For example, in March 2004,
Speedo introduced the next generation of its Fastskin
suit (the ‘‘FS II’’), developed by the
Swimwear Group and SIL. Based on data compiled by the Company's
Swimwear Group, the Company believes that over 67% of the total
U.S. swimming medal winners at the 2004 Summer Olympic Games in Athens
raced in Speedo suits. Speedo competitive swimwear is
primarily distributed through chain stores, sporting goods stores, team
dealers, swim specialty shops and the Company's Speedo
internet website. Speedo competitive swimwear accounted for
approximately 13.5% of the Swimwear Group's net revenues
in Fiscal 2005. During the fourth quarter of Fiscal 2005, Speedo
introduced the FS II Ice speed suit worn by U.S. sledding
hopefuls at the 2006 Winter Olympic Games in Torino, Italy. This is the
first time athletes have competed in Speedo at the Winter
Olympic Games and reflects the Company’s strategy of bringing
Speedo ‘‘out of the
water.’’ The Company capitalizes on the competitive
Speedo image in marketing its Speedo brand fitness and
fashion swimwear by incorporating performance elements in its more
fashion-oriented products. Speedo fitness and fashion swimwear,
Speedo swimwear for children and Speedo active apparel
are distributed in the United States, Mexico, Canada and the Caribbean
through department and specialty stores, independent retailers, chain
stores, sporting goods stores, team dealers, catalog retailers,
membership clubs, the Company's Speedo internet website
and two outlet stores. Speedo fashion swimwear, active apparel
and related products accounted for approximately 26.4% of the
Swimwear Group's net revenues in Fiscal 2005.
Speedo accessories, including swim goggles, footwear,
water-based fitness products, water toys, electronics and other swim
and fitness-related products for adults and children, are primarily
distributed through sporting goods stores, chain stores, swim specialty
shops, membership clubs and mass merchandisers. Speedo
accessories accounted for approximately $58.4 million of net
revenues in Fiscal 2005, or approximately 14.9% of the Swimwear
Group's net revenues, which included $31.3 million of net
revenues from the sale of Speedo footwear products. The
Swimwear Group's Designer Swimwear business unit designs,
sources, manufactures and sells a broad range of fashion swimwear and
beachwear for girls, juniors and women. Designer Swimwear products are
distributed through many channels of distribution in the United States,
Mexico and Canada, including department stores, independent retailers,
chain stores, membership clubs, mass merchandisers and swim specialty
shops. In addition, the Company uses its design, manufacturing and
sourcing expertise to produce private label swimwear at lower price
points to customers that generally do not carry the Company's
branded products. Designer Swimwear accounted for approximately
32.7% of the Swimwear Group's net revenues in Fiscal
2005. The Swimwear Group's OP business unit was
acquired by the Company on August 19, 2004. OP is
a surf and beach lifestyle brand which operates both directly and
through a network of licensees worldwide. OP offers a broad
array of apparel and accessories catering to men, women, young men,
juniors and kids under its Op and Ocean Pacific labels.
During Fiscal 2005, the Company exited certain key third party licenses
and added certain OP product categories to its wholesale
business model. 11 The following table sets forth the
Swimwear Group's principal distribution channels and
customers: The Swimwear Group generally markets its
products for three retail selling seasons (cruise, Spring and Summer).
New styles, fabrics and colors are introduced based upon consumer
preferences and market trends and coincide with the appropriate selling
season. The swimwear business is seasonal. Approximately 70% of
the Swimwear Group's net revenues were recorded in the first
halves of Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively. The Swimwear Group has operations in the United States, Mexico,
Canada and Europe and its licensees operate worldwide. The Swimwear
Group's products are manufactured both in the Company's
facilities in Mexico and Canada and sourced from third party
contractors primarily in the United States, Mexico, Europe and
Asia. 12 The following table sets forth the
domestic and international net revenues of the Swimwear Group: Customers As
of December 31, 2005, the Company's products are
widely distributed to department and specialty stores, independent
retailers, chain stores, membership clubs and mass merchandise stores
in North America, Asia and Europe. One customer, Federated Department
Stores, accounted for approximately 11.4% of the
Company’s net revenues in Fiscal 2005. No other customer
accounted for more than 10% of the Company’s net revenues
in Fiscal 2005. No one customer accounted for more than 10% of
the Company's net revenues in Fiscal 2004. One customer, Wal-Mart
Stores, Inc., accounted for approximately 10.5% of the
Company's net revenues in Fiscal 2003. No other customer
accounted for more than 10% of the Company’s net revenues
in Fiscal 2003. The Company offers a diversified portfolio of
brands across virtually all distribution channels to a wide range of
customers. The Company utilizes focus groups, market research and
in-house and licensor design staffs to align its brands with the
preferences of consumers. The Company believes that this strategy
reduces its reliance on any single distribution channel and allows it
to market products with designs and features that appeal to a wide
range of consumers at varying price points. As of December
31, 2005, the Company operated 121 Calvin Klein retail
stores worldwide (consisting of 59 stores directly operated by the
Company, including one on-line store, and 62 stores operated under
retail licenses or distributor agreements). The Company’s
Swimwear Group also operates two Speedo outlet stores, which
opened in July 2005, and one on-line store. Advertising,
Marketing, and Promotion The Company devotes significant
resources to advertising and promoting its various brands to increase
awareness of its products with retail consumers and, consequently, to
increase consumer demand. Total advertising, marketing and
promotion expense (including cooperative advertising programs) was
$85.3 million, or 5.7% of net revenues, in Fiscal 2005
compared with $86.0 million, or 6.0% of net revenues, in
Fiscal 2004 and $73.8 million, or 5.4% of net revenues,
in Fiscal 2003. The Company focuses its advertising and promotional
spending on brand and/or product-specific advertising, primarily
through point of sale product displays, visuals and individual in-store
promotions. Certain of the Company's brands also advertise in
national print publications. In addition, the Swimwear Group sponsors a
number of world-class swimmers, divers, volleyball players, surfers,
winter-sports athletes, skateboarders and tri-athletes who wear its
products in competition and participate in various promotional
activities on behalf of the Speedo and OP brands. The Company participates in cooperative advertising programs with
many of its customers, reimbursing customers for a portion of the cost
incurred by the customer in placing advertisements featuring its
products. Cooperative advertising expenses included in advertising,
marketing and promotion expenses were $15.9 million,
$18.4 million and $18.9 million for Fiscal 2005, 2004 and
2003, respectively. The Company's licenses for the
Calvin Klein, Nautica and Michael Kors trademarks
include provisions requiring the Company to spend a specified
percentage (ranging from 1% to 3%) of 13
revenues on advertising and promotion
related to the licensed products. The Company also benefits from
general advertising campaigns conducted by its licensors. Though some
of these advertising campaigns do not focus specifically on the
Company's licensed products and often include the products of
other licensees in addition to its own, the Company believes it
benefits from the general brand recognition that these campaigns
generate. Sales The Company's wholesale customers
are served by sales representatives who are generally assigned to
specific brands and products. The Company also employs sales
coordinators who assist its customers in presenting its products
effectively and in educating consumers about its various products. In
addition, the Company has customer service departments for each
business unit that assist its sales representatives and customers in
tracking goods available for sale, determining order and shipping lead
times and tracking the status of open orders. The Company
utilizes Electronic Data Interchange programs
(‘‘EDI’’) wherever possible, which permit
it to receive purchase orders electronically from customers and, in
some cases, to transmit invoices electronically to customers. EDI helps
the Company ensure that its customers receive its products in a timely
and efficient manner. Distribution As of
December 31, 2005, the Company distributed its products
to its wholesale customers and retail stores from its various
distribution facilities located in the United States (four primary
facilities), Mexico (two facilities), Canada (one facility), France
(one facility), Hong Kong (one facility), China (one facility) and the
Netherlands (one facility). The Company acquired 100% control of
the management of the Netherlands facility on December
31, 2004, which facility had previously been managed through a
joint venture. Several of the Company's facilities are shared by
more than one of its business units and/or operating segments. During
Fiscal 2003, the Company consolidated the distribution and logistics of
its Calvin Klein jeans operation into its primary distribution
facilities in Pennsylvania. These services were previously provided by
a third party. During Fiscal 2004, the Company completed the process of
consolidating its two Canadian distribution operations into one
facility. The Company owns one of its distribution facilities and
leases all of its other distribution facilities. In connection with the
CKJEA Acquisition, as discussed previously, the Company acquired
distribution facilities in Italy (one facility), Korea (one facility)
and China (one facility), all of which are leased. Raw Materials
and Sourcing The Company's products are comprised of raw
materials which consist principally of cotton, wool, silk, synthetic
and cotton-synthetic blends of fabrics and yarns. Raw materials are
generally available from multiple sources. Neither the Company, nor, to
the Company's knowledge, any of its third party contractors, have
experienced any significant shortage of raw materials. Substantially all of the Company's products sold in the United
States are imported and are subject to federal customs laws. See
"—Government Regulations." The
Company seeks to maintain a balanced portfolio of sourcing countries
and factories worldwide to ensure continuity in supply of product.
Quotas are monitored closely and contingencies activated when
necessary. Pursuant to its strategy of shifting from a
manufacturing to a sourcing based production model, the Company hired a
President-Global Sourcing in April 2005. In addition, during the
first half of Fiscal 2005, the Company acquired a portion of a business
located in Asia that had provided sourcing and buying services to the
Company. The consideration for the acquisition is based on the cost of
inventory sourced by the acquired entity from the date of acquisition
through February 25, 2006. The Company expects the total
purchase price for the acquisition to be approximately $2.0
million. Trademarks and Licensing
Agreements
The Company owns and licenses a
portfolio of highly recognized brand names. Most of the trademarks used
by the Company are either owned, licensed in perpetuity or, in the case
of Calvin
14
Klein jeans, licensed for terms through
2044 and 2046. The Company's core brands have been established in
their respective markets for extended periods and have attained a high
level of consumer awareness. The Speedo brand has been in
existence for 78 years and the Company believes Speedo is the
dominant competitive swimwear brand in the United States. The
Warner's and Olga brands have been in existence for
133 and 66 years, respectively; Lejaby has been in existence for
more than 50 years; and Calvin Klein, OP and Chaps have
each been in existence for more than 25 years. According to NPD,
Warner's, Olga and Calvin Klein were three
of the top ten selling intimate apparel brands in U.S. department
stores participating in the survey in Fiscal 2005. The Company
regards its intellectual property in general and, in particular, its
owned trademarks and licenses, as its most valuable asset. The Company
believes the trademarks and licenses have substantial value in the
marketing of its products. The Company has protected its trademarks by
registering them with the U.S. Patent and Trademark Office and with
governmental agencies in other countries where its products are
manufactured and sold. The Company works vigorously to enforce and
protect its trademark rights by engaging in regular market reviews,
helping local law enforcement authorities detect and prosecute
counterfeiters, issuing cease-and-desist letters against third parties
infringing or denigrating its trademarks and initiating litigation as
necessary. The Company also works with trade groups and industry
participants seeking to strengthen laws relating to the protection of
intellectual property rights in markets around the world. Although the specific terms of each of the Company's license
agreements vary, generally the agreements provide for minimum royalty
payments and/or royalty payments based on a percentage of net sales.
The license agreements generally also grant the licensor the right to
approve any designs marketed by the Company. The Company has
license agreements in perpetuity with SIL which permit the Company to
design, manufacture and market certain men's, women's and
children's apparel, including swimwear, sportswear and a wide
variety of other products, using the Speedo trademark and
certain other trademarks, including Axcelerate. The
Company's license to use Speedo and other trademarks was
granted in perpetuity subject to certain conditions and is exclusive in
the United States and its territories and possessions, Canada, Mexico
and the Caribbean. The license agreements provide for minimum royalty
payments to be credited against future royalty payments based on a
percentage of net sales. The license agreements may be terminated with
respect to a particular territory in the event the Company does not pay
royalties or abandons the trademark in such territory. Moreover, the
license agreements may be terminated in the event the Company
manufactures, or is controlled by a company that manufactures,
racing/competitive swimwear, swimwear caps or swimwear accessories
under a different trademark, as specifically defined in the license
agreements. The Company generally may sublicense the Speedo
trademark within the geographic regions covered by the licenses. SIL
retains the right to use or license the Speedo trademark in
other jurisdictions and actively uses or licenses the Speedo
trademark throughout the world outside of the Company's licensed
territory. In 1992, the Company entered into an agreement with
Speedo Holdings B.V. and its successor, SIL, granting certain
additional irrevocable rights to the Company relating to the use of the
Authentic Fitness® name and service mark, which rights are
in addition to the rights under the license agreements with SIL. The Company has an exclusive worldwide license agreement with Anne
Cole and Anne Cole Design Studio Ltd. Under the license agreement, the
Company has the right to use, in perpetuity, the Anne Cole
trademark for women's swimwear, activewear and beachwear and
children's swimwear, subject to certain terms and conditions.
Under the license agreement, the Company is required to pay certain
minimum guaranteed annual royalties, to be credited against earned
royalties, based on a percentage of net sales. Anne Cole and Anne Cole
Design Studio Ltd. have the right to approve products bearing the
licensed trademark, as set forth in the license. The Company has
a license to develop, manufacture and market designer jeanswear
products under the Calvin Klein trademark in North, South and
Central America. In July 2004, the Company acquired the license
to open retail stores to sell jeanswear and ancillary products bearing
the Calvin Klein marks in Central and South America. In
addition, in connection with the CKJEA Acquisition, 15
the Company expanded the territory covered
by the retail stores license to include Mexico and Canada. The initial
term of these licenses expire on December 31, 2034 and
are extendable by the Company for a further ten-year term expiring on
December 31, 2044 if the Company achieves certain sales
targets in the United States, Mexico and Canada. The Company had an
exclusive worldwide license agreement with Calvin Klein, Inc. to
distribute Calvin Klein men's accessories, which expired
on June 30, 2004. The Company had extended this license
agreement through December 31, 2005 for Western Europe
only. In January 2006, the Company acquired certain Calvin Klein
accessories licenses as part of the CKJEA Acquisition (as discussed
below). The Company also has a license to develop, manufacture
and market women’s and juniors’ swimwear under the
Calvin Klein, CK Calvin Klein and Choice Calvin
Klein trademarks in the approved forms as designated by the
licensor worldwide and men’s swimwear under the Calvin
Klein mark in the form designated by the licensor in Europe
(countries constituting European Union at May 1, 2004),
Norway, Switzerland, United Arab Emirates, Saudi Arabia, Kuwait,
Lebanon, Jordan, the West Bank, Egypt, Israel and Russia. The initial
terms of these licenses expire on December 31, 2009 and
are extendable by the Company for a further 5-year term expiring on
December 31, 2014 if the Company achieves certain sales
targets. In May 2005, the Company acquired from the former
licensee (with the consent of the licensor) the right to develop,
manufacture and market women’s and juniors’ swimwear
under the Calvin Klein and CK Calvin Klein trademarks in
the approved forms as designated by the licensor in the United States,
Mexico and Canada. In January 2006, the Company acquired
the companies that operate the license and related wholesale and retail
businesses of Calvin Klein jeans and accessories in Europe and
Asia and the CK Calvin Klein
‘‘bridge’’ line of sportswear and
accessories in Europe. See
‘‘Acquisitions—CKJEAAcquisition.’’ In connection with the acquisition,
the Company acquired various exclusive license agreements and entered
into amendments to certain of its existing license agreements with
Calvin Klein, Inc. (in its capacity as licensor). Under these
agreements the Company has licenses to develop, manufacture, distribute
and market, and to open retail stores to sell,
‘‘bridge’’ apparel and accessories under
the CK/Calvin Klein trademark and service mark in Europe
(countries constituting European Union at May 1, 2004),
Norway, Switzerland, Monte Carlo, Vatican City, Liechtenstein, Iceland
and parts of Eastern Europe, Russia, the Middle East and Africa. These
licenses extend through December 31, 2046. In
connection with the CKJEA Acquisition, the Company acquired the
licenses to develop, manufacture, distribute and market, and to open
retail stores to sell, jeans apparel and accessories under the
Calvin Klein and/or CK/Calvin Klein trademark and service
mark in the forms of the logos Calvin Klein jeans and/or
CK/Calvin Klein jeans in Japan, China, South Korea and
‘‘Rest of Asia’’ (Hong Kong, Thailand,
Australia, New Zealand, Philippines, Taiwan, Singapore, Malaysia,
Indonesia, New Guinea, Vietnam, Cambodia, Laos, Myanmar, Macau and the
Federated State of Micronesia) and parts of Western Europe, the Middle
East, Egypt, Eastern Europe and Southern Africa. These licenses also
extend through December 31, 2046. All of the
Calvin Klein trademarks (including all variations and formatives
thereof) for all products and services are owned by the Calvin Klein
Trademark Trust. The trust is co-owned by Calvin Klein, Inc. and the
Company. The Class B and C Series Estates of the trust correspond to
the Calvin Klein trademarks for men's, women's and
children's underwear, intimate apparel and sleepwear and are
owned by the Company. Accordingly, as owner of the Class B and C Estate
Shares of the trust corresponding to these product categories, the
Company is the beneficial owner of the Calvin Klein trademarks
for men's, women's and children's underwear, intimate
apparel, loungewear and sleepwear throughout the entire world. In November 2003, the Company entered into an exclusive
worldwide license agreement with Sweetface Fashion Company, LLC for the
design, sourcing, distribution, advertising, marketing and sale of
women's panties, bras, shapewear, sleepwear, loungewear and
daywear bearing the J. Lo by Jennifer Lopez brand name. Assuming
compliance with certain terms and conditions for the exercise of two
renewal options, this license can be extended through 2013. 16 The Company has the exclusive right to
use the Chaps trademark for men's sportswear, jeanswear,
activewear, sports shirts and swimwear in the United States and its
territories and possessions, including Puerto Rico, Mexico and Canada
and has rights of first refusal with respect to Europe. The license
extends through December 31, 2008, subject to the
Company's right to renew for two additional five-year terms
beyond the expiration date up to and including December
31, 2018, provided that the Company has achieved certain levels
of minimum earned royalties. In March 2003, the Company
entered into an exclusive license agreement to manufacture, distribute
and sell Nautica women's swimwear and related products in
the United States, Canada, Mexico and the Caribbean Islands for an
initial term of four years. The license agreement may be renewed at the
Company's option for two additional years to June
30, 2009 if it achieves certain sales targets. In February 2006,
the Nautica license agreement was amended to expand the licensed
territories with respect to certain product lines. In
July 1995, the Company entered into a license agreement with
Lifeguard Licensing Corp. Under the license agreement, the Company has
the exclusive right to manufacture, source, sublicense, distribute,
promote and advertise Lifeguard apparel worldwide. In
September 2003, the Lifeguard license was amended and
extended to add other product categories, namely accessories and
sporting equipment. The current term of the license agreement expires
on June 30, 2010. The agreement includes four renewal
options, each of which permits the Company to extend for an additional
five-year term (through June 30, 2030) subject to
compliance with certain conditions. In June 2004, the
Company entered into a license agreement with Michael Kors, L.L.C. The
Company has the worldwide (excluding Japan) right to manufacture and
distribute Michael Kors and MICHAEL Michael Kors swimwear
products in the designer collection market segment and in the better
market segment. The current term of the license agreement expires on
June 30, 2008. The agreement includes two renewal
options, each of which permits the Company to extend for an additional
three-year term (through June 30, 2014) subject to
compliance with certain conditions. In August 2004, the
Company acquired 100% of the outstanding common stock of
OP. OP is based in Irvine, California and is a surf and
beach lifestyle brand offering a broad array of apparel and accessories
catering to men, women, young men, juniors and kids under various
trademarks, the most recognizable being its Op, Ocean Pacific
and Op Classics labels. Assets acquired included, among
other things, license agreements pursuant to which a worldwide network
of third-party licensees were granted the right to design, market and
distribute licensed products in specific geographic areas. The terms
for OP licenses range from one to 26 years. Licenses that are
set to expire by 2008 accounted for approximately 36% of
OP's royalty income for Fiscal 2005. During Fiscal 2005,
the Company exited certain key third-party licenses and added certain
OP product categories to its wholesale business model. On
an ongoing basis, the Company evaluates entering into distribution or
license agreements with other companies that would permit those
companies to market products under the Company's trademarks. In
evaluating a potential distributor or licensee, the Company generally
considers the experience, financial stability, manufacturing
performance and marketing ability of the proposed licensee. Certain of the Company's license agreements with third parties
will expire by their terms over the next several years. There can be no
assurance that the Company will be able to negotiate and conclude
extensions of such agreements on similar economic terms or at all. International Operations In addition to its operations in
the United States, as of December 31, 2005, the Company
had operations in Canada, Brazil (pursuant to a joint venture), Mexico,
Europe (Austria, Belgium, Denmark, France, Germany, Italy, the
Netherlands, Portugal, Spain, Switzerland and the United Kingdom) and
Asia (Hong Kong, Singapore, China, Taiwan, Korea, Japan and Macau),
which engage in sales, manufacturing and/or marketing activities.
International operations generated $427.5 million, or
28.4% of net revenues, in Fiscal 2005 compared with
$390.6 million, or 27.4% of net revenues, in
17
Fiscal 2004 and $345.3 million, or
25.1% of net revenues, in Fiscal 2003. International operations
generated operating income of $72.6 million, $60.2
million and $50.0 million (representing 39.8%,
36.0% and 35.6%, respectively, of group operating income)
in Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively. Pursuant to
the CKJEA Acquisition, in January 2006, the Company acquired additional
operations in Europe and Asia. The Company has manufacturing
facilities in Canada, Mexico and France. As of December 31, 2005, the
Company had distribution facilities in Canada, Mexico, France, China,
Hong Kong and the Netherlands. Pursuant to the CKJEA Acquisition, in
January 2006, the Company acquired leased distribution facilities in
Italy, Korea and China. The Swimwear Group operates manufacturing
facilities in Mexico pursuant to duty-advantaged (commonly referred to
as ‘‘Item 807’’) programs. During Fiscal
2005, the Company acquired a portion of a business located in Asia that
had provided sourcing and buying services to the Company. A
portion of the Company's Warner's, Olga and Body
Nancy Ganz/Bodyslimmers products are currently manufactured by a
third party supplier in Honduras. A loss of production from this
supplier could have a short-term adverse effect on the Company's
ability to deliver these products to its customers. The Company has
many potential sources of supply and believes a disruption at any one
facility would not have a material adverse effect on the Company. The
Company maintains insurance policies designed to substantially mitigate
the financial effects of disruptions in its sources of
supply. The movement of foreign currency exchange rates affects
the Company's results of operations. For further discussion of
certain of the risks involved in the Company's foreign
operations, including foreign currency exposure, see
"Risk Factors." Competition The apparel industry is highly competitive. The
Company competes with many domestic and foreign apparel manufacturers
and suppliers, some of which are larger and more diversified and have
greater financial and other resources than the Company. In addition to
competition from other branded apparel manufacturers, the Company
competes in certain product lines with department stores, mass
merchandisers and specialty store private label programs. The
Company offers a diversified portfolio of brands across a wide range of
price points in many channels of distribution in an effort to appeal to
all consumers. The Company competes on the basis of product design,
quality, brand recognition, price, product differentiation, marketing
and advertising, customer service and other factors. Although some of
its competitors have greater sales, the Company does not believe that
any single competitor dominates any channel in which it operates. The
Company believes that its ability to serve multiple distribution
channels with a diversified portfolio of products under widely
recognized brand names distinguishes it from many of its
competitors. Government Regulations The Company is
subject to federal, state and local laws and regulations affecting its
business, including those promulgated under the Occupational Safety and
Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act,
the Textile Fiber Product Identification Act, the rules and regulations
of the Consumer Products Safety Commission and various environmental
laws and regulations. The Company's international businesses are
subject to similar regulations in the countries where they operate. The
Company believes that it is in compliance in all material respects with
all applicable governmental regulations. The Company's
operations are also subject to various international trade agreements
and regulations such as the North American Free Trade Agreement, the
Central American Free Trade Agreement and the Caribbean Basin
Initiative, and the activities and regulations of the World Trade
Organization. The Company believes that these trade agreements
generally benefit the Company's business by reducing or
eliminating the duties and/or quotas assessed on products manufactured
in a particular country; however, the elimination of quotas with
respect to certain countries could adversely affect the Company as a
result of increased competition from such countries. See
"Risk Factors." In 18
addition, trade agreements can also impose
requirements that negatively affect the Company's business, such
as limiting the countries from which it can purchase raw materials and
setting quotas on products that may be imported from a particular
country. On January 1, 2005, in accordance with its
commitments under the World Trade Organization
(‘‘WTO’’), the United States discontinued
imposing quotas on the import of apparel from WTO members. In response
to import surges in key categories and to develop a stable and
predictable trading environment, the United States and China entered
into a three year memorandum of understanding
(‘‘MOU’’) in November 2005. The MOU
essentially imposes quotas on key apparel categories manufactured in
China and exported on or after January 2006 through
December 2008. The Company monitors trade-related matters
pending with the United States government for potential positive or
negative effects on its operations. Employees As of
December 31, 2005, the Company employed 10,156 employees.
As of December 31, 2005, approximately 49% of the
Company's employees, all of whom are engaged in the manufacture
and distribution of its products, were represented by labor unions. The
Company considers labor relations with its employees to be satisfactory
and has not experienced any significant interruption of its operations
due to labor disagreements. The Company monitors all of its
owned and contracted factories to ensure their continued human rights
and labor compliance and adherence to all applicable laws and the
Company's own business partner manufacturing guidelines. All of the Company's contractors are required, by the terms of
such contractor's agreement with the Company, to execute the
Company's business partner manufacturing guidelines. All purchase
orders and letters of credit contain similar contractual requirements.
Company personnel regularly conduct on-site visits to monitor a
contractor's working environment, compliance with local labor
laws and compliance with the Company's business partner
manufacturing guidelines. In addition, the Company has engaged
third-party labor compliance auditing companies to monitor its
facilities and those of its contractors. These auditing companies
periodically audit all the Company's foreign and domestic
contractors' payroll records, age certificates, and compliance
with local labor laws and compliance with the Company's business
partner manufacturing guidelines. These auditing companies also conduct
unannounced visits, surveillance and random interviews with
contractors, employees and supervisors. In addition, these companies
regularly conduct labor compliance training sessions for personnel at
the Company's factories and sourcing operations around the
world. Backlog The Company's Swimwear Group had
unfilled customer orders (consisting of both confirmed and unconfirmed
orders) of approximately $207.7 million as of December
31, 2005 and $219.1 million as of January
1, 2005. A substantial portion of net revenues of the
Company's other businesses is based on orders for immediate
delivery and, therefore, backlog is not necessarily indicative of
future net revenues. Asset Sales During the course of
the Chapter 11 Cases (as defined below), the Company obtained the
Bankruptcy Court's authorization to sell assets and settle
liabilities for amounts other than those reflected in the consolidated
financial statements. The Company sold certain personal property,
certain owned buildings and land and other assets, generating net
proceeds of approximately $36.3 million. These proceeds included
approximately $23.2 million from the sale of inventory related
to certain closed outlet stores. The sale of assets in Fiscal 2002 and
Fiscal 2003 did not result in a material gain or loss since the Company
had previously written-down assets identified for potential disposition
to their estimated net realizable value. Substantially all of the net
proceeds from the sale of assets were used to reduce outstanding
borrowings under the Amended Debtor-in-Possession Financing Facility
entered into in connection with the Chapter 11 Cases, or to provide
collateral for outstanding trade and standby letters of credit. 19 In November 2003, the Company
entered into an agreement to sell its A.B.S. by Allen
Schwartz® (‘‘ABS’’) business
unit. The sale was finalized on January 30, 2004. The
sale price was $15.4 million in cash plus the assumption of up
to $2.0 million in liabilities. The Company recorded, as part of
the loss from discontinued operations in the statement of operations, a
loss pursuant to the sale of the ABS business unit of
$3.1 million. The loss included an impairment charge of
$3.0 million related to the write-down of the ABS
trademark to net realizable value at January 3, 2004.
Cash proceeds from the sale, net of related expenses, were $15.2
million. During the fourth quarter of Fiscal 2003, the Company
entered into an agreement to sell its manufacturing operations located
in Villanueva, Honduras. The manufacturing operations sold consisted of
one cutting center and four sewing facilities. The sale was finalized
in January 2004 and, pursuant to the sale agreement, the Company
sold certain items of property and machinery for $0.5 million.
Included in restructuring charges in Fiscal 2003 is an impairment
charge of approximately $1.5 million related to the write-down
of these assets to net realizable value based on the selling price as
stated in the agreement. During the fourth quarter of Fiscal
2003, the Company sold its White Stag trademark to Wal-Mart
Stores, Inc. for $28.7 million. Pursuant to the sale agreement,
the Company received $10.0 million in cash in December
2003 and a note receivable for an aggregate of $18.7 million
(plus interest). The note, including interest, is payable on or before
March 2, 2007. The Company recorded a loss on the sale of
the White Stag trademark of $3.8 million, which is
included in other income (expense) in the consolidated statement of
operations for the period February 5, 2003 to
January 3, 2004. During the first quarter of
Fiscal 2004, the Company entered into an agreement to sell its
manufacturing operation located in San Luis, Mexico. The manufacturing
operation sold consisted of a combined cutting and sewing facility. The
sale was finalized in March 2004 and, pursuant to the sale
agreement, the Company sold certain items of property and machinery for
$0.1 million. During Fiscal 2004, the Company sold
certain real property in the United Kingdom and Costa Rica for total
proceeds of $2.3 million. The Company recorded a net gain of
$0.5 million, as part of restructuring items, related to these
properties. Executive Officers of the Registrant The
executive officers of the Company, their age and their position as of
February 17, 2006 are set forth below:
Mr.
Gromek has served as the Company's President and Chief
Executive Officer since April 2003, at which time he was also
elected to the Board of Directors. From 1996 to January 2002,
Mr. Gromek served as President and Chief Executive Officer of
Brooks Brothers, Inc. From January 2002 until he joined the
Company in April 2003, Mr. Gromek worked as an
independent consultant. Over the last 25 years, Mr. Gromek has
held senior management positions with Saks Fifth Avenue, Limited
Brands, Inc. and AnnTaylor Stores Corporation. Mr. Gromek is the
Chairman of the Board of Directors of Volunteers of America and a
member of the Board of Governors of the Parsons School of
Design. 20
Mr. Rutkowski currently
serves as the Company's Executive Vice President and Chief
Financial Officer. From September 2003 until March
2, 2005, Mr. Rutkowski served as the Company's
Senior Vice President and Chief Financial Officer. Over the last 20
years, Mr. Rutkowski has held senior management positions at
National Broadcasting Company/General Electric and Walt Disney Studios.
From December 1999 to June 2003, he served as Executive
Vice President and Chief Financial Officer at Primedia, Inc. From
November 1993 to December 1999, he served at National
Broadcasting Company/General Electric as Senior Vice President and
Chief Financial Officer—Strategic Business Development and
Controller of Corporate Finance.
Mr. Williams has served
as the Company's President—Swimwear Group since May
2002. Mr. Williams owned his own private consulting firm from 1998 to
2002. Between 1994 and 1997, Mr. Williams served as Executive Vice
President of Guess?. He also served as Executive Vice President of
Donna Karan from 1992 to 1994. Mr. Williams served as Chief Operating
Officer of Authentic Fitness Corporation from 1990 to 1992. From 1982
to 1990, Mr. Williams served as Chief Operating Officer of Olga
Intimate Apparel and Group President, Warnaco Retail, and as Executive
Vice President and Chief Financial Officer for Warnaco Inc.
Ms. McCluskey joined the Company as
President—Intimate Apparel Group in July 2004 and is
responsible for all aspects of the Company's intimate apparel
business, including Calvin Klein underwear, Warner's,
Olga and Body Nancy Ganz, as well as Lejaby, Lejaby
Rose and JLO lingerie. Prior to joining the Company,
Ms. McCluskey served as Group President of the Moderate
Women's Sportswear division of Liz Claiborne Corporation from
August 2001 to June 2004. Previously, she spent 18 years
at Sara Lee Corporation where she held executive positions in
marketing, operations and general management, including President of
Playtex Apparel from 1999 to 2001.
Mr. Tworecke
joined the Company as President—Sportswear Group in May
2004 and currently oversees the Calvin Klein jeans and
Chaps brands. Mr. Tworecke has over 30 years experience
in leading retail and apparel companies. Mr. Tworecke served as
President and Chief Operating Officer of Bon-Ton Stores from 1999 to
April 2004. Previously, he was President and Chief Operating
Officer of Jos. A. Bank. Mr. Tworecke has also held senior
management positions with other apparel wholesalers, as well as
specialty and department store retailers including MGR, Inc.,
Rich's Lazarus Goldsmith (a division of Federated Department
Stores) and John Wanamaker.
Mr. Meyer joined the
Company as President—Global Sourcing in April 2005.
Mr. Meyer served as Executive Vice President of Global Sourcing
of AnnTaylor Stores Corporation, a specialty clothing retailer of
women’s apparel, shoes and accessories, from 1996 until
April 2005. Previously, he served as the President and Chief
Operating Officer of C.A.T. (a joint venture between AnnTaylor Stores
Corporation and Cygne Design) and Vice President, Sourcing for the
Abercrombie & Fitch division of M.A.S.T.
Industries.
Mr. Silverstein currently serves as the
Company's Executive Vice President—International Strategy
and Business Development. From March 3, 2005 to
January 26, 2006, Mr. Silverstein served as the
Company’s Executive Vice President—Corporate Development.
From March 2003 to March 2, 2005, Mr.
Silverstein served as the Company's Senior Vice
President—Corporate Development. Mr. Silverstein served as
the Company's Vice President and General Counsel from
December 1990 until February 2003. Mr. Silverstein
served as the Company's Secretary from January 1987 until
May 2003 and as its Assistant Secretary from June 1986 to
January 1987. Mr. Silverstein has also served as the
Company's Chief Administrative Officer from December 2001
to January 26, 2006.
Mr. Galluzzo currently
serves as the Company's Senior Vice President, General Counsel
and Secretary. From March 2003 to March 2, 2005,
Mr. Galluzzo served as the Company's Vice President and
General Counsel and has served as the Company's Secretary since
May 2003. Mr. Galluzzo was associated with the law firm
of Skadden, Arps, Slate, Meagher & Flom LLP from October
2000 to March 2003. From September 1999 to
September 2000, Mr. Galluzzo served as a law clerk to the
Hon. Charles L. Brieant, United States District Judge for the Southern
District of New York. 21
Ms. Wood joined the Company as
Senior Vice President—Human Resources in September 2005.
From May 2002 to August 2005, Ms. Wood served as a consultant for
Breakthrough Group, a consulting company that focuses on executive and
employee training and development. From May 1996 to February 2002, Ms.
Wood served as the Executive Vice President of Human Resources of
Brooks Brothers, Inc. Previously, Ms. Wood served as Corporate Human
Resources Director of Marks and Spencer Group, plc. Proceedings
Under Chapter 11 of the Bankruptcy Code On June
11, 2001 (the ‘‘Petition Date’’),
the Company and certain of its subsidiaries (each a
‘‘Debtor’’ and, collectively, the
‘‘Debtors’’) each filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code, 11
U.S.C. §§101-1330, as amended (the
‘‘Bankruptcy Code’’), in the United States
Bankruptcy Court for the Southern District of New York (the
‘‘Bankruptcy Court’’) (collectively, the
‘‘Chapter 11 Cases’’). Warnaco, 36 of its
37 U.S. subsidiaries and one of the Company's Canadian
subsidiaries, Warnaco of Canada Company, were Debtors in the Chapter 11
Cases. The remainder of the Company's foreign subsidiaries were
not debtors in the Chapter 11 Cases, nor were they subject to foreign
bankruptcy or insolvency proceedings. On November
9, 2002, the Debtors filed the First Amended Joint Plan of
Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors
and Debtors-In-Possession Under Chapter 11 of the Bankruptcy Code (the
‘‘Reorganization Plan’’). On January
16, 2003, the Bankruptcy Court entered (i) its Findings of Fact
to and Conclusions of Law Re: Order and Judgment Confirming The First
Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and Its
Affiliated Debtors and Debtors-In-Possession Under Chapter 11 of Title
11 of the United States Code, dated November 8, 2002, and
(ii) an Order and Judgment Confirming The First Amended Joint Plan of
Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors
and Debtors-In-Possession Under Chapter 11 of Title 11 of the United
States Code, dated November 8, 2002, and Granting Related
Relief (the ‘‘Confirmation Order’’). In accordance with the provisions of the Reorganization Plan and the
Confirmation Order, the Reorganization Plan became effective on
February 4, 2003 (the ‘‘Effective
Date’’) and the Company entered into a $275
million Senior Secured Revolving Credit Facility (as amended on
November 12, 2003, August 1, 2004 and
September 15, 2005, the ‘‘Revolving Credit
Facility’’). The Revolving Credit Facility entered into
on the Effective Date provided for a four-year, non-amortizing
revolving credit facility. In accordance with the Reorganization Plan,
on the Effective Date, the Company issued $200.9 million of New
Warnaco Second Lien Notes due 2008 (the ‘‘Second Lien
Notes’’) to certain pre-petition creditors and others in
a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended (‘‘Securities
Act’’), pursuant to Section 1145(a) of the Bankruptcy
Code. On June 12, 2003, the Company repaid the Second
Lien Notes and the accrued interest thereon, in full, with the proceeds
of the offering of Warnaco Inc.'s 8 7/8%
Senior Notes due 2013 (the ‘‘Senior
Notes’’). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations—Capital Resources and Liquidity—Financing
Arrangements" and Note 15 of Notes to Consolidated
Financial Statements for a discussion of the Company's
outstanding debt arrangements. Set forth below is a summary of
certain material provisions of the Reorganization Plan. Among other
things, as described below, the Reorganization Plan resulted in the
cancellation of the Predecessor's Class A Common Stock, issued
prior to the Effective Date (the ‘‘Old Common
Stock’’). The holders of Old Common Stock did not receive
any distribution on account of the Old Common Stock under the
Reorganization Plan. The Company, as reorganized under the
Reorganization Plan, issued 44,999,973 shares of common stock, par
value $0.01 per share (the ‘‘Common
Stock’’), in reliance on the exemption from registration
afforded by Section 1145 of the Bankruptcy Code, which shares were
distributed to pre-petition creditors as specified below. In addition,
5,000,000 shares of Common Stock of the Company were reserved for
issuance pursuant to management incentive stock grants. On March
12, 2003, subject to approval by the stockholders of the
Company's proposed The Warnaco Group, Inc. 2003 Stock Incentive
Plan (the ‘‘Stock Incentive Plan’’), the
Company authorized the grant of 750,000 shares of restricted stock and
options to purchase 3,000,000 shares of Common 22
Stock at the fair market value of the Common
Stock on the date of grant. On May 28, 2003, the
stockholders of the Company approved the Stock Incentive Plan. The
Reorganization Plan also provided for the issuance by the Company of
the Second Lien Notes in the principal amount of $200.9 million
to pre-petition creditors and others as specified below, secured by a
second priority security interest in substantially all of the
Debtors' domestic assets and guaranteed by the Company and its
domestic subsidiaries. The following is a summary of
distributions pursuant to the Reorganization Plan: Website Access to Reports The Company's
internet website is http://www.warnaco.com. The Company makes
available free of charge on its website (under the heading
‘‘SEC Filings’’) its SEC filings, including
its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports as soon as
reasonably practicable after the Company electronically files such
material with, or furnishes it to, the Securities and Exchange
Commission (‘‘SEC’’). Additional
information required by Item 1 of Part I is incorporated by reference
to Note 8 of Notes to Consolidated Financial Statements. Item 1A. Risk Factors
In this Item 1A, the
terms "we," "us,"
and "our" refer to The Warnaco Group, Inc.
and its consolidated subsidiaries. Our business, operations and
financial condition are subject to various risks and uncertainties. The
most significant of these risks include those described below; however,
there may be additional risks and uncertainties not presently known to
us or that we currently consider immaterial. If any of the events or
circumstances described in the following risk factors occur, our
business, financial condition or results of operations may suffer, and,
among other things, the trading price of our Common Stock could
decline. These risk factors should be read in conjunction with the
other information in this Annual Report on Form 10-K and in the other
documents that we file from time to time with the SEC. 23
The worldwide apparel industry
is heavily influenced by general economic conditions.
The
apparel industry is highly cyclical and heavily dependent upon the
overall level of consumer spending. Purchases of apparel and related
goods tend to be highly correlated with cycles in the disposable income
of consumers. Our wholesale customers may anticipate and respond to
adverse changes in economic conditions and uncertainty by reducing
inventories and canceling orders. Accordingly, a reduction in consumer
spending in any of the regions in which we compete as a result of any
substantial deterioration in general economic conditions (including as
a result of the war against terrorism, the turmoil in Iraq or
additional terrorist attacks) or increases in interest rates could
adversely affect the sales of our products.
The
apparel industry is subject to constantly changing fashion trends and
if we misjudge consumer preferences, the image of one or more of our
brands may suffer and the demand for our products may
decrease.
The apparel industry is subject to shifting
consumer demands and evolving fashion trends both in domestic and
overseas markets and our success is dependent upon our ability to
anticipate and promptly respond to these changes. Failure to
anticipate, identify or promptly react to changing trends, styles or
brand preferences may result in decreased demand for our products, as
well as excess inventories and markdowns, which could have an adverse
effect on our results of operations. In addition, if we misjudge
consumer preferences, the brand image of our products may be impaired,
which would adversely affect our business.
The
apparel industry is subject to pricing pressures that may require us to
lower the prices we charge for our products.
Prices in the
apparel industry have been declining over the past several years,
primarily as a result of the trend to move manufacturing operations
offshore, the elimination of certain trade quotas, the introduction of
new manufacturing technologies, growth of the mass retail channel of
distribution, increased competition and consolidation in the retail
industry. Products manufactured offshore generally cost less to
manufacture than those made domestically, primarily because labor costs
are lower offshore. We and our competitors source a significant portion
of products from developing countries to achieve lower costs. Certain
of our competitors may be able to source their products at lower costs
than ours, and use these cost savings to reduce their prices. In
addition, the elimination of certain quotas on the import of goods
could result in increased competition from other countries (which may
have lower labor costs) which may place additional pressure on apparel
prices. Prices may also decline as a result of new manufacturing
technologies (which enable manufacturers to produce goods on a more
cost effective basis), increases in sales through the mass retail
channel of distribution (which retailers seek to sell their products at
discounted prices) or consolidation in the retail industry (which could
result in larger customers with greater negotiating leverage). To remain competitive, we must adjust our prices from time to time
in response to these industry-wide pricing pressures. In addition, our
customers are increasingly seeking allowances, incentives and other
forms of economic support. Our profitability may be negatively affected
by these pricing pressures if we are forced to reduce our prices but
are unable to reduce our production or other operating costs.
Similarly, our margins may also suffer if our production costs increase
and we are unable to increase the prices we charge for our
products.
The markets in which we operate are highly
competitive and we may not be able to compete effectively.
The apparel industry is extremely competitive. We compete with many
domestic and foreign apparel manufacturers and distributors, some of
which are larger, more diversified and have greater financial and other
resources than us. This competition could cause reduced unit sales or
prices, or both, which could adversely affect us. We compete on the
basis of a variety of factors,
including: 24 Our ability
to remain competitive in these areas will, in large part, determine our
future success. Our failure to compete successfully could adversely
affect our business.
Increases in the prices of raw
materials used to manufacture our products could materially increase
our costs and decrease our profitability.
The principal
fabrics used in our business are made from cotton, wool, silk,
synthetic and cotton-synthetic blends. The prices we pay for these
fabrics are dependent on the market prices for the raw materials used
to produce them, primarily cotton and chemical components of synthetic
fabrics. These raw materials are subject to price volatility caused by
weather, supply conditions, government regulations, energy costs,
economic climate and other unpredictable factors. Fluctuations in
petroleum prices may also influence the prices of related items such as
chemicals, dyestuffs and polyester yarn. Any raw material price
increase could increase our cost of sales and decrease our
profitability unless we are able to pass higher prices on to our
customers. In addition, if one or more of our competitors is able to
reduce its production costs by taking greater advantage of any
reductions in raw material prices or favorable sourcing agreements, we
may face pricing pressures from those competitors and may be forced to
reduce our prices or face a decline in net sales, either of which could
have an adverse effect on our business, results of operations or
financial condition.
Shortages in the supply of
sourced goods, difficulties encountered by the third parties that
source certain of our products or interruptions in our manufacturing or
distribution operations could result in difficulty in procuring,
producing and distributing our products.
We seek to secure
and maintain favorable relationships with the companies that source our
products and to ensure the proper operation of our manufacturing
facilities. We generally utilize multiple sources of supply. An
unexpected interruption in the supply of our sourced or manufactured
products, including as a result of a disruption in operations at any of
our manufacturing or distribution facilities or at the facilities which
source our products, our failure to secure or maintain favorable
sourcing relationships, shortages of sourced goods or disruptions in
shipping, could adversely affect our results of operations until
alternate sources or facilities can be secured. Such events could
result in difficulty in procuring or producing our products on a
cost-effective basis or at all, which could have an adverse effect on
our results of operations. In addition, although we monitor the
third party facilities that source certain of our products to ensure
their continued human rights and labor compliance and adherence to all
applicable laws and our own business partner manufacturing guidelines,
we do not control these independent manufacturers. Accordingly, vendors
may violate labor or other laws, or fail to adhere to our business
partner manufacturing guidelines, including by engaging in business or
labor practices that would generally be regarded as unethical in the
U.S. In such case, our reputation may be damaged, our supply of sourced
goods may be interrupted and we may terminate our relationship with
such vendors, any of which could have an adverse effect on our
business.
We depend on a limited number of customers
for a significant portion of our sales, and our financial success is
linked to the success of our customers, our customers' commitment
to our products and our ability to satisfy and maintain our
customers.
Net revenues from our ten largest customers
represented approximately 50.0% and 49.9% of our
worldwide net revenues during Fiscal 2005 and 2004, respectively. One
customer, Federated Department Stores, Inc., accounted for 11.4%
of our Fiscal 2005 net revenues. We do not have long-term
contracts with any of our customers. Sales to customers are generally
on an order-by-order basis. If we cannot fill customers' orders
on time, orders may be cancelled and relationships with customers may
suffer, which could have an adverse effect on us, especially if the
25
relationship is with a major customer.
Furthermore, if any of our customers experiences a significant downturn
in its business, or fails to remain committed to our programs or
brands, the customer may reduce or discontinue purchases from us. The
loss of a major customer or a reduction in the amount of our products
purchased by our major customers could have an adverse effect on our
results of operations. During the past several years, various
retailers, including some of our customers, have experienced
significant changes and difficulties, including consolidation of
ownership, restructurings, bankruptcies and liquidations. Consolidation
of retailers or other events that eliminate our customers could result
in fewer stores selling our products and could increase our reliance on
a smaller group of customers. In addition, if our retailer customers
experience significant problems in the future, including as a result of
general weakness in the retail environment, our sales may be reduced
and the risk of extending credit to these retailers may increase. A
significant adverse change in a customer relationship or in a
customer's financial position could cause us to limit or
discontinue business with that customer, require us to assume greater
credit risk relating to that customer's receivables or limit our
ability to collect amounts related to previous purchases by that
customer. These or other events related to our significant customers
could have an adverse effect on our business, results of operations or
financial condition.
Our success depends upon the
continued protection of our trademarks and other intellectual property
rights and we may be forced to incur substantial costs to maintain,
defend, protect and enforce our intellectual property rights.
Our registered and common law trademarks, as well as certain of our
licensed trademarks, have significant value and are instrumental to our
ability to market our products. Third parties may assert claims against
any such intellectual property and we may not be able to successfully
resolve such claims. In addition, we may be required to assert legal
claims or take other enforcement actions against third parties who
infringe on our intellectual property rights. We may be required to
incur substantial costs in defending such claims or in taking such
actions. In addition, the laws of some foreign countries may not allow
us to protect, defend or enforce our intellectual property rights to
the same extent as the laws of the U.S. Our failure to successfully
protect our intellectual property rights, or the substantial costs that
we may incur in doing so, may have an adverse effect on our
operations.
A significant portion of our operations
is dependent on license agreements with third parties that allow us to
design, produce, source and market our products.
As of
December 31, 2005, approximately 57.5% of our revenues were
derived from sales of products which we design, manufacture, source
and/or market pursuant to license agreements with third parties. The
success of this portion of our business requires us to maintain
favorable relationships with our licensors; deterioration in these
relationships could impair our ability to market our brands and
distribute our products. Certain of our license agreements,
including the license agreements with Speedo International, Ltd.,
Calvin Klein, Inc., Nautica Apparel, Inc. and Anne Cole and Anne Cole
Design Studio Ltd., require us to make minimum royalty payments,
subject us to restrictive covenants, require us to provide certain
services (such as design services) and may be terminated if certain
conditions are not met. We may not be able to continue to meet our
obligations or fulfill the conditions under these agreements in the
future. The termination of certain of these license agreements could
have an adverse effect on our business, results of operations or
financial condition.
Our success depends on the
reputation of our owned and licensed brand names, including, in
particular, Calvin Klein.
The success of our business
depends on the reputation and value of our owned and licensed brand
names. The value of our brands could be diminished by actions taken by
licensors or others who have interests in the brands for other products
and/or territories. Because we cannot control the quality of other
products produced and sold under such licensed brand names, if such
products are of poor quality, the value of the brand name could be
damaged, which could have an adverse effect on our sales. In addition,
some of the brand names licensed to us reflect the names of living
individuals, 26
whose actions are outside our control. If
the reputation of one of these individuals is significantly harmed, our
products bearing such individual's name may fall into disfavor,
which could adversely affect our business. In addition, we may from
time to time license our owned and licensed brand names to third
parties. The actions of these licensees may diminish the reputation of
the licensed brand, which could adversely affect our business. The Calvin Klein brand name is significant to our business,
in particular as a result of the CKJEA Acquisition (See
"Business — Acquisitions — CKJEA
Acquisition"). Sales of a substantial portion of our
products are in large part tied to the success of the Calvin
Klein brand name. In the event that consumer demand in the U.S. or
overseas for the Calvin Klein brand declines, including as a
result of changing fashion trends or an adverse change in the
perception of the Calvin Klein brand image, our businesses which
rely on the Calvin Klein brand name, including the businesses
acquired in the CKJEA Acquisition, would be significantly harmed.
We are subject to local laws and regulations in the U.S.
and abroad.
We are subject to U.S. federal, state and local
laws and regulations affecting our business, including those
promulgated under the Occupational Safety and Health Act, the Consumer
Product Safety Act, the Flammable Fabrics Act, the Textile Fiber
Product Identification Act, the rules and regulations of the Consumer
Products Safety Commission and various labor, workplace and related
laws, as well as environmental laws and regulations. Our international
businesses and the companies which source our products are subject to
similar regulations in the countries where they operate. Our efforts to
maintain compliance with local laws and regulations may require us to
incur significant expenses, and our failure to comply with such laws
may expose us to potential liability, which could have an adverse
effect on our results of operations. Similarly, local laws could have
an adverse effect on our sourcing vendors, which could affect our
ability to procure our products.
Changing
international trade regulation may increase our costs and limit the
amount of products or raw materials that we may import from or export
to a given country.
Substantially all of our operations are
subject to quotas imposed by bilateral textile agreements between the
countries from which we procure raw materials, such as yarn, and the
countries where our manufacturing facilities or the facilities of the
companies which source our products are located. Such agreements and
regulations include the North American Free Trade Agreement and the
Caribbean Basin Initiative, and the activities and regulations of the
World Trade Organization ("WTO"). These
quotas may limit the amount of products that may be imported from a
particular country, which could impair our ability to produce or
procure our products on a cost-effective basis. In addition, the
countries in which our products are manufactured or sourced, or into
which they are imported, may from time to time impose additional new
quotas, duties, tariffs and requirements as to where raw materials must
be purchased or additional workplace regulations or other restrictions,
or may adversely modify existing restrictions. Changes in international
trade regulation, including future trade agreements, could provide our
competitors an advantage over us, or increase our costs, either of
which could have an adverse effect on our business, results of
operations or financial condition.
Our business
outside of the U.S. exposes us to uncertain conditions in overseas
markets.
Our foreign operations subject us to risks
customarily associated with foreign operations. As of December 31,
2005, we sold our products throughout the world and had warehousing and
distribution facilities in seven countries. In addition, in January
2006, we acquired additional operations in Europe and Asia pursuant to
the CKJEA Acquisition. See "Business —
Acquisitions — CKJEA Acquisition". We also
source many of our products from third-party vendors based in foreign
countries. For Fiscal 2005, we had net revenues outside of the U.S. of
$427.5 million, representing 28.4% of our total net revenues,
with the majority of these sales in Canada and Europe, and we expect
that as a result of the CKJEA Acquisition, the percentage of our total
revenues derived from foreign operations will increase to over
35%. We are exposed to the risk of changes in social, political
and economic conditions inherent in operating in foreign countries,
including: 27 In addition, transactions between our foreign
subsidiaries and us may be subject to U.S. and foreign withholding
taxes. Applicable tax rates in foreign jurisdictions differ from those
of the U.S., and change periodically.
We have foreign
currency exposures relating to buying, selling and financing in
currencies other than the U.S. dollar, our functional
currency.
We have foreign currency exposure related to
foreign denominated revenues and costs which must be translated into
U.S. dollars. Fluctuations in foreign currency exchange rates may
adversely affect our reported earnings and the comparability of
period-to-period results of operations. In addition, certain of our
foreign operations purchase products from suppliers denominated in U.S.
dollars, which exposes such operations to increases in cost of goods
sold (thereby lowering profit margins) as a result of foreign currency
fluctuations. Our exposures are primarily concentrated in the Canadian
dollar, euro, British pound sterling and Mexican peso. Changes in
currency exchange rates may also affect the relative prices at which we
and our foreign competitors sell products in the same market and the
cost of certain items required in our operations. We are currently
party to foreign currency exchange contracts, which were designed to
fix the number of euros required to satisfy the first one-third of
dollar denominated purchases of inventory by certain of our pre-CKJEA
Acquisition European subsidiaries. See Item 7A- Quantitative and
Qualitative Disclosures About Market Risk-Foreign Exchange Risk.
Management of our foreign currency exposure may not sufficiently
protect us from fluctuations in foreign currency exchange rates, which
could have an adverse effect on our business, results of operations and
financial condition.
We are subject to certain risks
as a result of our indebtedness.
As of December 31, 2005,
we had total debt of approximately $210.0 million. In connection with
the CKJEA Acquisition (See "Business —
Acquisitions — CKJEA Acquisition"), we borrowed
$180.0 million under a term loan under the Amended and Restated Credit
Agreement and assumed approximately $45 million of indebtedness of the
acquired companies. As of February 17, 2006, we had total debt of
approximately $435 million. Our ability to service our indebtedness
using cash flows from operations is dependent on our financial and
operating performance, which is subject to prevailing economic and
competitive industry conditions and to certain other factors beyond our
control, including the factors described in this Item 1A. In the event
that we are unable to satisfy our debt obligations as they come due, we
may be forced to refinance our indebtedness, and there can be no
assurance that we will be able to refinance our indebtedness on terms
favorable to us, or at all. Our debt service obligations may also limit
cash flow available for our operations and adversely affect our ability
to obtain additional financing, if necessary. In addition, certain of
the indebtedness under our Amended and Restated Credit Agreement, our
Foreign Credit Facility and the indebtedness we assumed in the CKJEA
Acquisition is subject to floating interest rates; accordingly, our
results of operations may be adversely affected if market interest
rates increase. The terms of the agreements governing our
indebtedness may also limit our operating and financial flexibility.
The indenture governing our Senior Notes and the Amended and Restated
Credit 28
Agreement each contain a number of
significant restrictions and other covenants, including financial
covenants, with which we must comply. See
"Management's Discussion and Analysis of
Financial Condition and Results of Operations — Capital Resources
and Liquidity — Financing Arrangements." In
addition, in the event that we are unable to comply with these
restrictions and other covenants and are not able to obtain waivers
from our lenders, we would be in default under these agreements and,
among other things, our debt may be accelerated by our lenders. In such
case, we may not be able to repay our debt or borrow sufficient funds
to refinance it on commercially reasonable terms, or terms that are
acceptable to us, which could have an adverse effect on our financial
condition.
Our business depends on our senior
management team and other key personnel.
Our success is, to
a significant extent, dependent on our ability to attract, retain and
motivate senior management and other key employees, including
managerial, operational, design and sales personnel. Demand and
competition for qualified personnel in our industry is intense, and we
compete for personnel with companies which may have greater financial
resources than we do. The unexpected loss of our current senior
management or other key employees, or our inability to attract and
retain such persons in the future, could harm our ability to operate
our business, including our ability to effectively service our
customers, generate new business or formulate and execute on our
strategic initiatives.
We may experience difficulties
in connection with SAP's Apparel and Footwear Solution, which
could increase our costs and impair the operation of our
business.
We are in the process of implementing SAP's
Apparel and Footwear Solution (an enterprise-wide software platform
encompassing finance, sales and distribution and materials management).
We have implemented SAP at our Swimwear Group and certain of our
corporate shared services departments, and plan to implement SAP
Company-wide over the next three years. As previously disclosed,
we experienced difficulties under our SAP system which negatively
affected our January 2006 shipments. Although we believe that these
difficulties had been addressed as of February 2006, the continuing
implementation and maintenance of the SAP system could in the future
result in unanticipated costs or expenditures, which could adversely
affect our results of operations. Moreover, failure to smoothly and
successfully implement SAP in our business operations, or difficulties
that we may experience in operating our business under SAP's
systems, could disrupt our operations, including our ability to timely
ship and track product orders to customers, project inventory
requirements, manage our supply chain, and otherwise adequately service
our customers, which could have an adverse effect on our business.
Businesses that we may acquire, including the businesses
acquired in the CKJEA Acquisition, may fail to perform to expectations.
In addition, we may be unable to successfully integrate acquired
businesses with our existing business.
From time to time,
we evaluate potential acquisition opportunities to support and
strengthen our business. On January 31, 2006, we acquired the licenses
and related wholesale and retail business of Calvin Klein jeans
and accessories in Europe and Asia and the CK Calvin Klein
"bridge" line of sportswear and accessories
in Europe. In August 2004, we acquired Ocean Pacific Apparel Corp. See
"Business —
Acquisitions". We may not be able to realize
all or a substantial portion of the anticipated benefits of these or
the other acquisitions that we may consummate. Newly acquired
businesses may not achieve expected results of operations, including
expected levels of revenues, and may require unanticipated costs and
expenditures. Acquired businesses may also subject us to liabilities
that we were unable to discover in the course of our due diligence, and
our rights to indemnification from the sellers of such businesses, even
if obtained, may not be sufficient to offset the relevant liabilities.
In addition, acquired businesses may be adversely affected by the risks
described in this Item 1A, or other risks, including as a result of
factors that we are not currently aware of. In addition, the
integration of newly acquired businesses and products may be expensive
and time-consuming and may not be entirely successful. The success of
integrating acquired businesses is 29
dependent on our ability to, among other
things, merge operational and financial systems, retain customers of
acquired businesses, realize cost reduction synergies and retain key
management and other personnel of the acquired companies. Integration
of the recently acquired international Calvin Klein businesses
may also place additional pressures on our systems of internal control
over financial reporting. If we are unable to successfully integrate
newly acquired businesses, including the business acquired in the CKJEA
Acquisition (which represents our most significant acquisition since
our emergence from bankruptcy), or if acquired businesses fail to
produce targeted results, it could have an adverse effect on our
results of operations or financial condition. Item
1B. Unresolved Staff Comments.
None. Item
2. Properties.
The Company's principal
executive offices are located at 501 Seventh Avenue, New York, New
York, which the Company leases pursuant to a 13-year lease that
commenced in May 2003 (expiring August 2016). In addition
to the Company's executive offices, the Company leases offices in
California and Connecticut pursuant to leases that expire between 2010
and 2013. As of December 31, 2005, the Company had
four primary domestic distribution and warehousing facilities located
in California and Pennsylvania and fourteen international manufacturing
and warehouse facilities in Canada (two), France (five), Mexico (four),
China (one), Hong Kong (one) and the Netherlands (one). Some of the
Company's manufacturing and warehouse facilities are also used
for administrative functions. The Company owns one of its domestic
facilities and two of its international facilities. The owned domestic
facility is subject to liens in favor of the lenders under the Amended
and Restated Credit Agreement. The rest of the Company's
facilities are leased with terms expiring between 2006 and 2020, except
for certain leases which operate on a month-to-month basis. In
connection with the CKJEA Acquisition, as discussed above, the Company
acquired distribution and warehousing facilities in Italy (two), Korea
(one) and China (one), all of which are leased. The Company
leases sales offices in a number of major cities, including Atlanta,
Dallas, Los Angeles and New York in the United States; Brussels,
Belgium; Toronto, Canada; Paris, France; Cologne, Germany; Shanghai,
China; Hong Kong; Milan, Italy; Mexico City, Mexico; and Lausanne,
Switzerland. The sales office leases expire between 2006 and 2008 and
are generally renewable at the Company's option. The Company
leases 59 retail store sites in the United States, Canada, Europe and
Asia. Retail leases expire between 2006 and 2025 and are generally
renewable at the Company's option. Prior to Fiscal 2004, the
Company also operated Speedo Authentic Fitness retail stores.
During Fiscal 2004, the Company finalized the closure of all its leased
Speedo Authentic Fitness retail stores and recorded, as part of
loss from discontinued operations, charges of $2.6 million
related to future operating lease commitments and landlord settlements,
net of possible sublease rental income. All of the
Company's production and warehouse facilities are located in
appropriately designed buildings, which are kept in good repair. All
such facilities have well-maintained equipment and sufficient capacity
to handle present and expected future volumes. The Company owns one
vacant domestic manufacturing facility that it has listed for sale with
local real estate agents. The carrying value of this facility has been
reduced to its expected net realizable value. Item
3. Legal Proceedings.
From time to time, the
Company is involved in arbitrations or legal proceedings that arise in
the ordinary course of its business. The Company cannot predict the
timing or outcome of these claims and proceedings. Currently, the
Company is not involved in any arbitration and/or legal proceeding that
it expects to have a material effect on its financial condition,
results of operations or business. Item 4. Submission
of Matters to a Vote of Security
Holders.
None. 30 PART
II The Common Stock
began trading on the NASDAQ National Stock Market under the ticker
symbol ‘‘WRNC’’ on February
5, 2003, following the Company's emergence from
bankruptcy. The table below sets forth the high and low sales prices of
the Common Stock as reported on the NASDAQ Composite Tape from
January 4, 2004 through February 17,
2006: As of
February 17, 2006, there were 2,041 holders of the Common
Stock, based upon the number of holders of record and the number of
individual participants in certain security position listings. The last reported sale price of the Common Stock as reported on the
NASDAQ Composite Tape on February 17, 2006 was $23.59 per
share. The Amended and Restated Credit Agreement and the indenture
governing the Senior Notes place restrictions on the Company's
ability to pay dividends on the Common Stock, and the Company has not
paid any dividends on the Common Stock. Share Repurchase
Program In July 2005, the Company’s Board of
Directors authorized the Company to enter into a share repurchase
program of up to 3,000,000 shares of common stock. During the third
quarter of Fiscal 2005, the Company repurchased 9,151 shares of common
stock in the open market at a total cost of $0.2 million (an
average cost of $24.25 per share) under the share repurchase program.
The Company did not repurchase any shares of its common stock during
the fourth quarter of Fiscal 2005. The share repurchase program may be
modified or terminated by the Company’s Board of Directors at
any time. Item 6. Selected Financial
Data
The following table sets forth the Company's
selected historical consolidated financial and operating data for
Fiscal 2005, Fiscal 2004, the period February 5, 2003 to
January 3, 2004, the period January 5, 2003
to February 4, 2003, Fiscal 2002 and Fiscal 2001. All
fiscal years for which financial information is set forth below had 52
weeks, except Fiscal 2001 which had 53 weeks. The period
February 5, 2003 to January 3, 2004 and the
period January 5, 2003 to February 4, 2003
had 48 weeks and four weeks, respectively. Income from
continuing operations excludes the results of the Company's
ABS business unit, the Company's Warner's
Europe operations and the Company's Speedo Authentic
Fitness retail stores which the Company closed in Fiscal 2004. The
ABS business unit, the Company's Warner's
Europe operations and the Speedo Authentic Fitness retail stores
have been accounted for as discontinued 31
operations in accordance with Statement of
Financial Accounting Standards (‘‘SFAS’’)
No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly, the results of operations of these business
units are presented separately in the following table. The
Company emerged from bankruptcy on February 4, 2003 and,
pursuant to American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code (‘‘SOP
90-7’’), the Company adopted fresh start accounting.
Fresh start accounting principles provide, among other things, that the
Company determines the reorganization value of its company and
allocates such reorganization value to the fair value of its assets in
accordance with the provisions of SFAS No. 141, Business
Combinations (‘‘SFAS 141’’). The
Company engaged an independent third party appraisal firm to assist it
in determining its reorganization value. The reorganization value of
the Company as approved by the bankruptcy court was $750.0
million. Using the work of valuation specialists, the Company allocated
the reorganization value to the fair value of its tangible assets,
finite lived intangible assets and indefinite lived intangible assets
in accordance with the provisions of SFAS 141. The Company's
audited consolidated balance sheet as of February 4,
2003, reflecting the implementation of the Reorganization Plan and the
Company's emergence from bankruptcy, is included in the notes to
the Company's financial statements included elsewhere in this
Annual Report on Form 10-K. See Note 3 of Notes to Consolidated
Financial Statements. The Company's consolidated balance
sheet as of February 4, 2003 and consolidated balance
sheets presented for periods thereafter will not be comparable in
certain material respects to historical balance sheets presented
elsewhere in this Annual Report on Form 10-K. The Company's
consolidated statements of operations for periods beginning after
February 4, 2003 will not be comparable in certain
material respects to the historical consolidated financial statements
for prior periods included elsewhere in this Annual Report on Form
10-K. References to ‘‘Predecessor’’
refer to the Company prior to February 4, 2003.
References to ‘‘Successor’’ refer to the
Company on and after February 4, 2003 after giving effect
to the implementation of fresh start accounting. The information
set forth in the following table should be read in conjunction with
"Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the
Company's consolidated financial statements and related notes
thereto included elsewhere in this Annual Report on Form
10-K. 32 33 34 Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The Company is subject to certain risks and
uncertainties that could cause its future results of operations to
differ materially from its historical results of operations and those
expected in the future and that could affect the market value of the
Company's common stock, par value $0.01 per share (the
‘‘Common Stock’’). Except for the
historical information contained herein, this Annual Report on Form
10-K, including the following discussion, contains forward-looking
statements that involve risks and uncertainties. See
‘‘Statement Regarding Forward-Looking
Disclosure’’ and ‘‘Risk
Factors.’’
The following Management's
Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated
financial statements and related notes thereto which are included in
this Annual Report on Form 10-K. References to ‘‘Core
Brands’’ refer to the Intimate Apparel Group's
Warner's, Olga and Body Nancy Ganz
/Bodyslimmers brand names. References to ‘‘Fashion
Brands’’ refer to the Intimate Apparel Group's
Lejaby, JLO and Axcelerate brand names. References to
‘‘Designer’’ refer to the Swimwear
Group's fashion brands, including Cole of California,
Catalina, Anne Cole, Lifeguard, Nautica, Calvin
Klein and Michael Kors. Overview The Company
designs, sources, manufactures, markets, licenses and distributes
intimate apparel, sportswear and swimwear worldwide through a broad
line of highly recognized brand names. The Company's products are
distributed primarily to wholesale customers through multiple
distribution channels, including major department stores, independent
retailers, membership clubs, chain stores, specialty and other stores
and mass merchandisers. As of December 31, 2005, the Company also
operated 121 Calvin Klein retail stores worldwide (consisting of
59 stores directly operated by the Company, including one on-line
store, and 62 stores operated under retail licenses or distributor
agreements). The Company’s Swimwear Group also operates two
Speedo outlet stores, which opened in July 2005, and one
on-line store. During Fiscal 2005, the Company had net revenues
of $1.5 billion and net income of $52.1 million. During
Fiscal 2005, the Company capitalized on the launch (in Fiscal 2004) of
Chaps into an expanded channel of distribution and improved the
profitability of its Core Brands division. In addition, the Company
experienced growth in net revenues and operating income in its
Calvin Klein jeans business and launched two new brand
extensions from Calvin Klein underwear. The Company also
invested in the development of OP, Calvin Klein and
Michael Kors swimwear brands. During Fiscal 2005, the Company
added key executives in its global sourcing and human resources
departments. In addition, on July 12, 2005, the Company
announced the election of Donald L. Seeley to the Board of Directors.
With the addition of Mr. Seeley, seven of the Company's
eight directors are independent. On January 31,
2006, the Company consummated the acquisition of 100% of the
shares of the companies that operate the licenses and related wholesale
and retail businesses of Calvin Klein jeans and accessories in
Europe and Asia and the CK Calvin Klein
‘‘bridge’’ line of sportswear and
accessories in Europe. For a description of the CKJEA Acquisition, see
‘‘Business—Acquisitions—CKJEA
Acquisition.’’ The Company funded the acquisition
using a combination of cash on hand and borrowings under the Amended
and Restated Credit Agreement. See "—Capital
Resources and Liquidity—Financing
Arrangements." The Company continues to plan for
its long-term growth and profitability by investing in its operating
platform and infrastructure. During the first quarter of 2006, the
Company implemented SAP’s Apparel and Footwear Solution (an
enterprise-wide computer software platform encompassing finance, sales
and distribution and materials management)
(‘‘SAP’’) in both its Swimwear Group and
certain corporate shared services departments. The Company will
continue the SAP implementation process in its remaining domestic
operations and certain foreign operations during 2006 and expects that
SAP will be fully implemented across its entire platform before 2009.
See "Risk Factors—We may experience difficulties
in connection with SAP's Apparel and Footwear Solution, which
could increase our costs and impair the operation of our
business." The Company believes that this enterprise
software solution will enable management to better and more efficiently
gather, analyze and assess information worldwide. 35 In fiscal 2006, the Company intends to
continue the global development of its portfolio of brands and maximize
on the expansion potential of the recently acquired Calvin Klein
businesses in Europe and Asia. In addition, the Company will seek to
further improve its intimate apparel business and capitalize on its
leadership position in swimwear. The Company has identified many
near-term opportunities for growth and operational improvement, as well
as challenges and uncertainties relating to certain of its businesses.
In particular, management believes that there are many factors
influencing the manufacturing and procurement business cycle of the
apparel industry, including but not limited to uncertainty surrounding
ongoing import restrictions (including recently established limits on
imports of certain intimate apparel products from Asia), overall
deflation in the selling prices of apparel products and consolidation
of the Company's retail customers. See ‘‘Risk
Factors’’ and ‘‘Statement Regarding
Forward-Looking Disclosure.’’ The Company will
continue to address these and other challenges by, among other things,
seeking to: (i) improve its procurement process and identify and
utilize lower cost, high quality reliable sourcing partners; (ii) focus
on operational controls and efficiency by continuing its investment in
its infrastructure; (iii) continue to develop and invest in its
portfolio of desirable brands while maintaining a diverse product
offering at competitive price points across multiple channels of
distribution; (iv) expand its product offerings with existing
customers; (v) introduce new products in new channels of distribution;
and (vi) identify strategic acquisition
opportunities.
Financial and Operating
Highlights
Net revenues increased $80.2 million, or
5.6%, to $1.50 billion for Fiscal 2005 compared to
$1.42 billion for Fiscal 2004, reflecting increases across all
operating groups. The majority of the increase was attributable to
expanded distribution of the Sportswear Group’s Chaps
brand and the continued strength of the Calvin Klein jeans
brand. The increase in net revenues was also due to increases in the
Intimate Apparel Group reflecting increases in the Company’s
Calvin Klein underwear brand net revenues, partially offset by
decreases in net revenues of the Core Brands and Fashion labels. In
addition, net revenues increased in the Swimwear Group, reflecting
increases in net revenues for OP (reflecting a full year in
Fiscal 2005 compared to a partial year in Fiscal 2004), Designer and
retail, partially offset by a decrease in Speedo. In translating
foreign currencies into the United States dollar, the weakness of the
United States dollar relative to the functional currencies where the
Company conducts certain of its operations (primarily the euro in
Europe and Canadian dollar in Canada) resulted in a $6.5 million
increase in net revenues for Fiscal 2005 compared to Fiscal
2004. Gross profit increased $36.6 million, or
7.7%, to $509.6 million for Fiscal 2005 compared to
$473.0 million for Fiscal 2004, attributable to increases in the
Sportswear and Intimate Apparel Groups, partially offset by a decrease
in the Swimwear Group. Gross profit as a percentage of net revenues
(‘‘gross margin’’) increased from
33.2% for Fiscal 2004 to 33.9% for Fiscal 2005, primarily
reflecting the realization of initial benefits from the sourcing
initiatives implemented during the year, partially offset by less
favorable markdown and allowance experience. Gross profit also includes
the effect of design and merchandising expenses related to the
introduction of new products, primarily OP, Calvin Klein
swimwear, Michael Kors and Axcelerate. In translating
foreign currencies into the United States dollar, the weakness of the
United States dollar relative to the functional currencies where the
Company conducts certain of its operations (primarily the euro in
Europe and Canadian dollar in Canada) resulted in a $2.2 million
increase in gross profit for Fiscal 2005 compared to Fiscal 2004. SG&A expenses increased $28.2 million, or 7.4%, to
$406.7 million (27.0% of net revenues) for Fiscal 2005
from $378.5 million (26.6% of net revenues) for Fiscal
2004. Selling expenses (including distribution expenses) increased
$19.9 million, primarily as a result of the associated increase
in net revenues, a full period of operations in the Company’s
OP business (acquired in August 2004) and expenses
associated with the launches of Michael Kors and Calvin
Klein swimwear. Marketing expenses decreased $0.7 million,
due primarily to reduced marketing related to Calvin Klein
accessories. Administrative expenses increased $9.0 million,
reflecting an increase in expenses related to operating groups of
$0.1 million combined with an increase in unallocated corporate
expenses of $8.9 million. The increase in administrative
expenses related to the operating groups primarily reflects
36
the full period effect and vertical
integration of a portion of the OP business, increases related
to the Company’s expansion of its retail business, additional
amortization expense related to the Calvin Klein swimwear and
OP licenses and the provision for an uncollectible non-trade
receivable balance (totaling $1.5 million, $0.3 million
of which is included in restructuring items) in the Intimate Apparel
Group, partially offset by net cost savings realized in the Sportswear
Group. The increase in unallocated corporate expenses includes an
increase in employee benefits and incentive based compensation
($4.4 million), an increase in charges related to the
Company’s SAP implementation (which commenced in the fourth
quarter of Fiscal 2004) ($2.3 million), an increase in insurance
costs of $2.3 million and other net increases ($3.3
million), partially offset by a reduction in professional fees of
$3.3 million associated with Sarbanes-Oxley
("SOX") compliance and an internal control
review conducted in connection with the Company’s previously
disclosed settlement with the SEC. In translating foreign currencies
into the United States dollar, the weakness of the United States dollar
relative to the functional currencies where the Company conducts
certain of its operations (primarily the euro in Europe and Canadian
dollar in Canada) resulted in a $0.6 million increase in
SG&A expenses for Fiscal 2005 compared to Fiscal 2004. Pension expense was $1.6 million in Fiscal 2005 compared to
pension income of $6.8 million in Fiscal 2004. This $8.4
million increase in expense was due primarily to the net effect of a
lower return on plan assets, loss related to plan amendments for prior
service costs and a loss related to a change in mortality tables,
partially offset by a gain related to the change in the discount rate.
See Note 10 of Notes to Consolidated Financial
Statements. Operating income was $101.9 million
(6.8% of net revenues) for Fiscal 2005 compared to $96.1
million (6.8% of net revenues) for Fiscal 2004, primarily
reflecting an increase in gross profit combined with a decrease in
restructuring expenses, partially offset by an increase in pension and
SG&A expenses. Operating margin for Fiscal 2005 was flat compared
to Fiscal 2004. In translating foreign currencies into the United
States dollar, the weakness of the United States dollar relative to the
functional currencies where the Company conducts certain of its
operations (primarily the euro in Europe and Canadian dollar in Canada)
resulted in a $1.5 million increase in operating income for
Fiscal 2005 compared to Fiscal 2004. Net income increased to
$52.1 million, or $1.11 per diluted share, for Fiscal 2005
compared to $42.5 million, or $0.93 per diluted share, for
Fiscal 2004. The improvement in net income resulted primarily from the
increase in gross profit, the increase in restructuring income, lower
interest expense and lower tax expense. Accounts receivable
decreased $6.4 million from $219.8 million at
January 1, 2005 to $213.4 million at
December 31, 2005. The decrease primarily reflects
initial shipments of Chaps into the mid-tier channel of
distribution at the end of December 2004, which resulted in a
high level of accounts receivable for the Chaps division at the
end of Fiscal 2004. Inventories decreased $9.4 million
from $335.7 million at January 1, 2005 to
$326.3 million at December 31, 2005. Intimate
Apparel inventory decreased $22.0 million, due primarily to a decrease
in the level of excess and obsolete inventory. Sportswear Group
inventory decreased $11.5 million, due primarily to a high level of
inventory for the Chaps division at the end of Fiscal 2004 as a
result of the introduction of the Chaps brand into the mid-tier
channel of distribution. Swimwear inventory increased $24.1 million,
primarily related to the increase in the level of excess and/or
obsolete inventory coupled with an increase in levels necessary to
service anticipated sales in the first quarter of 2006. The Company had
identified inventory having a carrying value of $58.6 million as
potentially excess and/or obsolete at December 31, 2005,
compared to $53.5 million at January 1, 2005.
Adjustments to reduce the carrying value of excess and/or obsolete
inventory to estimated net realizable value totaled $19.3
million at December 31, 2005 compared to $22.4
million at January 1, 2005. Adjustments to reduce the
carrying value of excess and obsolete inventory to net realizable value
reflect the mix of inventory and historical realization rates for the
sales of goods by type and location. 37 Cash and cash equivalents increased by
$98.6 million, or 150.3%, to $164.2 million at
December 31, 2005 compared to $65.6 million at
January 1, 2005. See ‘‘—Capital
Resources and Liquidity—Liquidity" for a
discussion of cash used for the CKJEA Acquisition in January 2006. Bankruptcy Reorganization and Turnaround On the Petition
Date, the Debtors each filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. A
number of factors contributed to the Company's decision to file
for reorganization, including the Company's highly leveraged
capital structure, the impact of litigation with certain licensors and
general operating problems. The Company incurred substantial debt in
part to finance and support its acquisition strategy and share
repurchase program during the period from 1994 to 2001, and the Company
was unable to refinance its debt. In addition, Calvin Klein, Inc. and
the Calvin Klein Trademark Trust filed a lawsuit against the Company
alleging breach of a license agreement by selling to retailers other
than those permitted by the agreement and by the Company's use of
the license. Although this lawsuit ultimately was settled favorably and
dismissed in January 2001, it generated adverse publicity that
the Company believes had a negative effect on its business. Additional
factors contributing to the Company's deteriorating financial
performance in Fiscal 2001 included: (i) increased competition in the
apparel industry; (ii) the closings and/or bankruptcies of a number of
the stores that carried the Company's product lines; (iii)
escalating interest rates under the Company's then outstanding
credit agreements; and (iv) a softening retail environment and overall
economy. As part of the Company's reorganization, it
implemented a comprehensive turnaround plan intended to stabilize and
improve operations of the Company's core business units and sell
or liquidate certain of the Company's non-core businesses. The
Company also explored the potential sale of its core businesses. Discussion of Critical Accounting Policies The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the Company to use judgment in making estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities and the reported amounts of
revenues and expenses in its consolidated financial statements and
accompanying notes. The following critical accounting policies are
based on, among other things, judgments and assumptions made by the
Company that involve inherent risks and uncertainties.
Use of Estimates
The Company uses estimates
and assumptions in the preparation of its financial statements which
affect (i) the reported amounts of assets and liabilities at the date
of the consolidated financial statements and (ii) the reported amounts
of revenues and expenses. Actual results could materially differ from
these estimates. The estimates the Company makes are based upon
historical factors, current circumstances and the experience and
judgment of the Company’s management. The Company evaluates its
assumptions and estimates on an ongoing basis and may employ outside
experts to assist in its evaluations. The Company believes that the use
of estimates affects the application of all of the Company’s
significant accounting policies and procedures.
Revenue Recognition
The Company recognizes
revenue when goods are shipped to customers and title and risk of loss
have passed, net of estimated customer returns, allowances and other
discounts. The Company recognizes revenue from its consignment accounts
and retail stores when goods are sold to consumers, net of allowances
for future returns. The determination of allowances and returns
involves the use of significant judgment and estimates by the Company.
The Company bases its estimates of allowance rates on past experience
by product line and account, the financial stability of its customers,
the 38
expected rate of retail sales and general
economic and retail forecasts. The Company reviews and adjusts its
accrual rates each month based on its current experience. During the
Company's monthly review, the Company also considers its accounts
receivable collection rate and the nature and amount of customer
deductions and requests for promotion assistance. The Company believes
it is likely that its accrual rates will vary over time and could
change materially if the Company's mix of customers, channels of
distribution or product mix changes. Current rates of accrual for sales
allowances, returns and discounts vary by customer. Revenues from the
licensing or sub-licensing of certain trademarks are recognized when
the underlying royalties are earned.
Cost of Goods
Sold
Cost of goods sold for the Successor consists of the
cost of products produced or purchased and certain period costs related
to the product procurement and manufacturing process. Product costs
include: (i) material, direct labor and overhead (including the costs
incurred by external contractors); (ii) duty, quota and related
tariffs; (iii) in-bound freight and traffic costs, including
inter-plant freight; (iv) procurement and material handling costs; (v)
indirect production overhead including inspection, quality control,
sample making, production control and planning, cost accounting and
preproduction; and (vi) in-stocking costs in the Company's
warehouse (in-stocking costs may include but are not limited to costs
to receive, unpack and stock product available for sale in its
distribution centers). Period costs included in cost of goods sold
include: (a) royalty; (b) design and merchandising; (c) prototype
costs; (d) manufacturing variances (net of amounts capitalized); (e)
loss on seconds; (f) provisions for inventory losses (including
provisions for shrinkage and losses on the disposition of excess and
obsolete inventory); and (g) direct freight charges incurred to ship
finished goods to customers. Costs incurred to store, pick, pack and
ship (excluding direct freight charges) inventory to customers are
included in shipping and handling costs and are classified in SG&A
expenses. The Company's gross profit and gross margin may not be
directly comparable to those of its competitors, as income statement
classifications of certain expenses may vary by company.
Accounts Receivable
The Company maintains
reserves for estimated amounts that the Company does not expect to
collect from its trade customers. Accounts receivable reserves include
amounts the Company expects its customers to deduct for returns,
allowances, trade discounts, markdowns, amounts for accounts that go
out of business or seek the protection of the Bankruptcy Code and
amounts related to charges in dispute with customers. The
Company's estimate of the allowance amounts that are necessary
includes amounts for specific deductions the Company has authorized and
an amount for other estimated losses. Adjustments for specific account
allowances and negotiated settlements of customer deductions are
recorded as deductions to revenue in the period the specific adjustment
is identified. The provision for accounts receivable allowances is
affected by general economic conditions, the financial condition of the
Company's customers, the inventory position of the
Company's customers and many other factors. The determination of
accounts receivable reserves is subject to significant levels of
judgment and estimation by the Company's management. If
circumstances change or economic conditions deteriorate, the Company
may need to increase the reserve significantly. As of December
31, 2005 and January 1, 2005, the Company recorded
$48.3 million and $54.9 million, respectively, of
accounts receivable reserves.
Inventories
The Company records purchases of inventory when it assumes
title and the risk of loss. The Company values its inventories at the
lower of cost, determined on a first-in, first-out basis, or market.
The Company evaluates its inventories to determine excess units or
slow-moving styles based upon quantities on hand, orders in house and
expected future orders. For those items for which the Company believes
it has an excess supply or for styles or colors that are obsolete, the
Company estimates the net amount that it expects to realize from the
sale of such items. The Company's objective is to recognize
projected inventory losses at the time the loss is evident rather than
when the goods are ultimately sold. The Company's calculation of
the reduction in carrying value necessary for 39
the disposition of excess inventory is
highly dependent on its projections of future sales of those products
and the prices it is able to obtain for such products. The Company
reviews its inventory position monthly and adjusts its carrying value
for excess or obsolete goods based on revised projections and current
market conditions for the disposition of excess and obsolete inventory.
If economic conditions worsen, the Company may have to decrease its
carrying value of excess or obsolete goods substantially.
Long-lived Assets
As of February
4, 2003, the Company adopted fresh start reporting and, as a
result, its long-lived assets, including property, plant and equipment
were recorded at their fair values based upon the preliminary appraised
values of such assets. Adjustments to the preliminary appraised values
were recorded as adjustments to goodwill in the period February 5, 2003
to January 3, 2004. The Company used the work of an independent third
party appraisal firm to assist it in determining the fair values of its
property, plant and equipment. The Company and the independent third
party appraiser determined the fair value of the Company's
property, plant and equipment using the planned future use of each
asset or group of assets, quoted market prices for assets where a
market existed for such assets, the expected future revenue and
profitability of the business unit utilizing such assets and the
expected future life of such assets. In its determination of fair
value, the Company also considered whether an asset would be sold
either individually or with other assets and the proceeds the Company
expected to receive from such a sale. Long-lived assets in existence at
February 4, 2003 are recorded at their fair values net of
accumulated depreciation since February 4, 2003.
Long-lived assets acquired after February 4, 2003 are
recorded at historical costs, net of accumulated depreciation.
Assumptions relating to the expected future use of individual assets
could affect the fair value of such assets and the depreciation expense
recorded related to such assets in the future. The Company reviews its
long-lived assets for possible impairment when events or circumstances
indicate that the carrying value of the assets may not be recoverable.
Assumptions and estimates used in the evaluation of impairment may
affect the carrying value of long-lived and intangible assets, which
could result in impairment charges in future periods. In addition,
depreciation and amortization expense is affected by the
Company's determination of the estimated useful lives of the
related assets. The estimated useful lives of fixed assets and finite
lived intangible assets are based on their classification and expected
usage, as determined by the Company.
Goodwill and
Other Intangible Assets
Goodwill represents (i) the amount
by which the Company's reorganization value exceeded the fair
value of its tangible assets and identified intangible assets less its
liabilities allocated in accordance with the provisions of SFAS 141 as
of February 4, 2003 and (ii), for transactions subsequent
to February 4, 2003, the excess of purchase price over fair value of
net assets acquired in business combinations under the purchase method
of accounting. Pursuant to the provisions of SFAS 142, goodwill is not
amortized and is subject to an annual impairment test which the Company
performs in the fourth quarter of each fiscal year. Goodwill was
allocated to various reporting units, which are either the operating
segment or one reporting level below the operating segment. As of
December 31, 2005, the Company's reporting units
for purposes of applying the provisions of SFAS 142 are:
Warner's/Olga/Body Nancy Ganz/Bodyslimmers, Calvin
Klein underwear, Lejaby, Calvin Klein jeans, Chaps,
Swimwear (excluding OP) and OP. SFAS 142 requires the
Company to compare the fair value of the reporting unit to its carrying
amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the
implied fair value of the goodwill within the reporting unit is less
than its carrying value. If the carrying amount of goodwill exceeds its
fair value, an impairment loss is recognized. Fair values for goodwill
are determined based on discounted cash flows, market multiples or
appraised values, as appropriate. Intangible assets primarily
consist of licenses and trademarks. The fair value of such licenses and
trademarks owned by the Company at February 4, 2003 was
based upon the preliminary appraised values of such assets as
determined by the Company and an independent third party appraiser.
40
Adjustments to the preliminary appraised
amounts were recorded as adjustments to goodwill in the period February
5, 2003 to January 3, 2004. Licenses and trademarks in existence at
February 4, 2003 are recorded at their fair values net of
accumulated amortization since February 4, 2003. Licenses
and trademarks acquired after February 4, 2003 are
recorded at cost net of accumulated amortization. The majority of the
Company's license and trademark agreements cover periods of time
in excess of forty years. The estimates and assumptions used in the
determination of the value of indefinite-lived intangible assets will
not have an effect on the Company's future earnings unless a
future evaluation of trademark or license value indicates that such
asset is impaired. Pursuant to the provisions of SFAS 142, intangible
assets with indefinite lives are not amortized. The Company reviews its
indefinite-lived intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an
indefinite-lived intangible asset exceeds its fair value. If the
carrying value of an indefinite-lived intangible asset exceeds its fair
value (determined based on discounted cash flows), an impairment loss
is recognized. Identifiable intangible assets with finite lives are
amortized on a straight-line basis over the estimated useful lives of
the assets. The Company reviews its finite-lived intangible assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of a finite-lived intangible asset may not be
recoverable. Recoverability of a finite-lived intangible asset is
measured by a comparison of its carrying amount to the undiscounted
future cash flows expected to be generated by the asset. If the asset
is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset, which is determined based on
discounted cash flows. See Note 13 of Notes to Consolidated
Financial Statements. The Company did not identify any
impairments of goodwill or intangible assets for Fiscal 2005, Fiscal
2004 or the period February 5, 2003 to January
3, 2004.
Income Taxes
Deferred
income taxes are determined using the liability method. Deferred tax
assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in
which such differences are expected to reverse. A valuation allowance
is established to reduce the amount of deferred tax assets to an amount
that the Company believes, based upon objectively verifiable evidence,
is realizable.
Pension Plans
The
Company has a defined benefit pension plan covering certain full-time
non-union domestic employees and certain domestic employees covered by
a collective bargaining agreement (the ‘‘Pension
Plan’’). The Company also has unfunded defined benefit
plans in foreign countries. The determination of the total liability
attributable to benefits owed to participants covered by the defined
benefit plans is determined by third party actuaries using assumptions
provided by the Company. The assumptions used can have a significant
effect on the amount of pension liability recorded by the Company. The
actuaries also determine the annual cash contribution to the defined
benefit plans. The Pension Plan was under-funded as of December
31, 2005 and January 1, 2005. The Pension Plan and
the Company’s Reorganization Plan contemplate that the Company
will continue to fund its minimum required contributions and any other
premiums due under the Employee Retirement Income Security Act of 1974,
as amended and the United States Internal Revenue Code of 1986, as
amended. Effective January 1, 2003, the Pension Plan was
amended and, as a result, no future benefits accrue to participants in
the Pension Plan. As a result of the amendment, the Company has not
recorded pension expense related to current service for all periods
presented and will not record pension expense for current service for
any future period. As of December 31, 2005 and
January 1, 2005, the Company recorded a Pension Plan
liability equal to the amount that the present value of projected
benefit obligations exceeded the fair value of Pension Plan assets as
determined by the Pension Plan trustee. The Company's cash
contribution to the Pension Plan for 2005 was $5.0 million and
is expected to be approximately $28.9 million in the aggregate
from fiscal 2006 through fiscal 2010. The amount of estimated cash
contributions that the Company will be required to make to the Pension
41
Plan could increase or decrease depending on
the actual return earned by the assets of the Pension Plan and changes
in the amount of projected benefit obligation as determined by the
Pension Plan actuary. The accrued long-term defined benefit plans
liability and accruals for other post-retirement benefits are
classified as long-term liabilities in the consolidated balance sheet
at December 31, 2005. The portion of the total unfunded
liability that will be contributed by the Company to the Pension Plan
in fiscal 2006 of approximately $12.9 million is classified as
accrued pension obligations at December 31, 2005. On October 5, 2003, the Company changed its method of
accounting for its defined benefit plans (including the Pension Plan)
to a method that accelerates the recognition of gains or losses on
Pension Plan assets and the projected benefit obligations
(‘‘Accelerated Method’’). The Company
previously deferred gains and losses on assets and liabilities in
excess of the expected rate of return and amortized the deferred amount
into operations over the remaining estimated service life to the extent
such gains and losses exceeded 10% of the projected benefit
obligation. The Company also deferred the recognition of certain
changes in the projected benefit obligations (‘‘Deferred
Method’’). The Company believes that the Accelerated
Method is preferable to the Deferred Method because the recorded
pension liability, using the Accelerated Method, will approximate fair
value. Pursuant to SFAS No. 87, Employers' Accounting for
Pensions, each quarter the Company recognizes interest cost on
projected benefit obligations, offset by the expected return on Pension
Plan assets. In addition, the Company obtains reports from the Pension
Plan actuary and Pension Plan trustee to measure Pension Plan assets
and liabilities at year-end. The Company records the effect of actual
gains and losses exceeding the expected return on Pension Plan assets
and any other changes in the projected benefit obligations determined
by the actuary in the fourth quarter of each fiscal year. This change
results in additional volatility in pension expense/income in future
periods. Therefore, the Company reports pension expense/income on a
separate line of its statement of operations in each period. To conform
to the current year presentation, pension expense (income) was
reclassified from SG&A expenses to pension expense (income) for all
defined benefit plans in foreign countries. See Note 10 of Notes to
Consolidated Financial Statements.
Stock-Based
Compensation
Effective February 5, 2003, the
Company adopted the fair value method of accounting for stock options
for all options granted by the Company after February 4,
2003 pursuant to the prospective method provisions of SFAS No. 148,
Accounting for Stock-Based Compensation, Transition and
Disclosure. The Company uses the Black-Scholes-Merton model to
calculate the fair value of stock option awards. The
Black-Scholes-Merton model requires the Company to make significant
judgments regarding the assumptions used within the
Black-Scholes-Merton model, the most significant of which are the stock
price volatility assumption, the expected life of the option award and
the risk-free rate of return. In determining the stock price volatility
assumption used, the Company considered the volatility of the stock
prices of selected companies in the apparel industry, the nature of
those companies, the Company's stock price volatility since its
emergence from bankruptcy and other factors. The Company based its
Fiscal 2005 estimate of the expected life of a stock option of six
years upon the vesting period of 36-42 months and the option term of
ten years for issued and outstanding options. The Company's
risk-free rate of return assumption for options granted in Fiscal 2005,
Fiscal 2004 and the period February 5, 2003 to
January 3, 2004 was equal to the quoted yield for
five-year U.S. treasury bonds as of the date of grant. Compensation
expense related to stock option grants is determined based on the fair
value of the stock option on the grant date and is recognized over the
vesting period of the grants on a straight-line basis. Compensation
expense related to restricted stock grants is determined based on the
fair value of the underlying stock on the grant date and recognized
over the vesting period of the grants on a straight-line basis. Prior to February 5, 2003, the Company followed the
disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation (‘‘SFAS
123’’). The Company accounted for stock-based
compensation for employees using the intrinsic value method as
prescribed by Accounting Principles Board
(‘‘APB’’) Opinion No. 25, Accounting for
Stock Issued to Employees (‘‘APB 25’’),
and related interpretations. Under APB 25, no compensation expense was
recognized for employee share option 42
grants because the exercise price of the
options granted equaled the market price of the underlying shares on
the date of grant (the ‘‘intrinsic value
method’’). Compensation expense related to restricted
stock grants, prior to February 4, 2003, was recognized
over the vesting period of the grants.
Advertising
Costs
Advertising costs are included in SG&A expenses
and are expensed when the advertising or promotion is published or
presented to consumers. Cooperative advertising expenses are charged to
operations as incurred and are also included in SG&A expenses. The
amounts charged to operations for advertising, marketing and promotion
expenses (including cooperative advertising, marketing and promotion
expenses) for Fiscal 2005, Fiscal 2004, and the periods February
5, 2003 to January 3, 2004 and January
5, 2003 to February 4, 2003 were $85.3
million, $86.0 million, $66.4 million, and $7.4
million, respectively. Cooperative advertising expenses for Fiscal
2005, Fiscal 2004, the periods February 5, 2003 to
January 3, 2004 and January 5, 2003 to
February 4, 2003 were $15.9 million, $18.4
million, $17.5 million, and $1.4 million,
respectively.
Reorganization Items
Reorganization items included in the consolidated
statement of operations for the period January 5, 2003 to
February 4, 2003 were $29.8 million. Included in
reorganization items are certain non-cash asset impairment provisions
and accruals for items that were paid in cash or settled in connection
with the Reorganization Plan. Certain accruals at January
4, 2003 were subject to compromise under the provisions of the
Bankruptcy Code. The Company recorded these accruals at the estimated
amount the creditor was entitled to claim under the provisions of the
Bankruptcy Code. The ultimate amount of and settlement terms for such
liabilities are detailed in the Reorganization Plan. See Note 5 of
Notes to Consolidated Financial Statements. Subsequent to
February 4, 2003, to the extent that the Company has
incurred reorganization items in respect of the Chapter 11 Cases, such
items have been recorded in SG&A expenses. Included in SG&A
expenses for Fiscal 2004 and the period February 5, 2003
to January 3, 2004 are legal and professional fees and
certain compensation related costs relating to the Chapter 11 Cases of
$0.7 million and $5.0 million, respectively.
Restructuring Expense (Income)
During
Fiscal 2005 the Company recorded restructuring income of $0.5
million. During Fiscal 2004 and the period February 5,
2003 to January 3, 2004, the Company incurred
restructuring expense of $5.1 million and $19.1 million,
respectively. See Note 6 of Notes to Consolidated Financial
Statements. 43 Results of Operations Statement
of Operations (Selected Data) The following tables summarize the
historical results of operations of the Company for Fiscal 2005, Fiscal
2004, the period February 5, 2003 to January
3, 2004 and the period January 5, 2003 to
February 4, 2003. The period January 5,
2003 to February 4, 2003 combined with the period
February 5, 2003 to January 3, 2004
constitutes a combined presentation of Fiscal 2003. The results
of the Company's discontinued operations are included in
‘‘Loss from discontinued operations, net of
taxes’’ for all periods presented. 44 Comparison of Fiscal 2005 to Fiscal
2004
Net Revenues
Net revenues by
segment were as follows: The
Company's products are widely distributed through virtually all
channels of distribution. The following table summarizes the
Company's net revenues by channel of distribution for Fiscal 2005
and Fiscal 2004: Intimate
Apparel Group Intimate Apparel Group net revenues were as
follows: The increase in
Calvin Klein underwear net revenues reflects increases of
$7.1 million in Europe, $8.0 million in Asia and
$1.7 million in Mexico, partially offset by a combined decrease
of $1.9 million in the United States and Canada. The increase in
Europe primarily reflects volume increases in the men’s and
women’s businesses and increased sales in the Company’s
retail stores. The Company experienced an increase in both its retail
and wholesale operations in Asia, primarily reflecting the
Company’s expansion initiatives in China, Korea, Taiwan, Japan
and Singapore. The increase in Asia is also attributable to an increase
in net revenues from same store sales of approximately 20%. The
increase in Mexico primarily reflects volume increases related to
improved customer service levels. 45
The decreases in the United States from
$151.0 million in Fiscal 2004 to $149.1 million for
Fiscal 2005 reflects continued strength in the men’s business
($5.0 million increase) combined with increases in all other
lines, net, of $2.9 million, more than offset by continued
declines in the women’s business ($9.8 million decrease).
The increase in the men’s business primarily reflects increases
in sales to retail stores operated by Calvin Klein, Inc. and increases
in sales to customers in the off-price channel, partially offset by a
decrease in department store sales. Management continues to address the
weakness in its women’s business. Measures taken thus far by
management include the decision to discontinue the underperforming
Choice Calvin Klein line in 2006 and the decision to extend the
Company’s Perfectly Fit line which was launched in 2005.
Management believes, based on early indications, that the Perfectly
Fit line is being favorably received at retail. The decrease
in Core Brands net revenues reflects a decrease of $5.6 million
the United States, partially offset by a $1.5 million increase
in foreign operations. The decrease in the United States primarily
reflects an $8.3 million decrease in the Olga and Body
Nancy Ganz/Bodyslimmers brands, partially offset by an increase of
$2.7 million in Warner’s. The declines in the
Olga and Body Nancy Ganz/Bodyslimmers brands were due to
the limited success of new product introductions in Fiscal 2004 and
fewer new product launches and reduced distribution in Fiscal 2005. The
increase in Warner’s reflects an increase in sales to
membership clubs as a result of the Company’s expansion into
that distribution channel. Management believes the improved performance
of the Warner’s brand is the result of its ongoing
efforts to reinvigorate this brand. The decrease in Fashion
Brands net revenues primarily reflects a $5.4 million decrease
in Lejaby/Lejaby Rose, partially offset by a $1.3 million
increase in JLO and a $0.7 million increase related to
the launch of Axcelerate in 2005. The decrease in Lejaby
reflects a $3.8 million decrease in Europe and a $2.6
million decrease in the United States, partially offset by a
$1.0 million increase in other foreign operations. The decline
in Lejaby Europe primarily reflects volume decreases across
certain basic lines, partially offset by an increase in average selling
prices. Management is in the process of making design improvements to
certain basic lines in Europe in an effort to address the declining
sales volumes. The decline in Lejaby in the United States
primarily relates to declines in the Company’s underperforming
Lejaby Rose brand. The Company plans to exit the Lejaby
Rose business in the United States in the Spring of 2006. The
increase in JLO reflects a $1.8 million decrease in the
United States, more than offset by a $3.1 million net increase
in the Company’s foreign operations. The net increase in
JLO’s foreign operations primarily reflects a full year
of revenues in Europe for Fiscal 2005 compared to a partial year in
Fiscal 2004. Sportswear Group Sportswear Group
net revenues were as follows:
Calvin Klein
jeans net revenues increased $18.6 million, reflecting increases
of $16.6 million and $4.2 million in the United States
and Mexico, respectively, partially offset by a $2.2 million
decrease in 46
Canada. The increase in net revenues in the
United States reflects an increase in sales to membership clubs
($3.7 million), increases in sales to department stores
($6.9 million), increases in sales to stores operated by the
Calvin Klein jeans licensor ($5.6 million), increases in
sales to customers in the off-price channel ($2.6 million) and
decreases across all other channels of distribution ($2.2
million). The Company believes the increases reflect the successful
execution of its product and distribution
strategies.
Chaps net revenues increased $43.0
million reflecting an increase of $39.3 million in the United
States combined with a $3.7 million increase in foreign
countries. The increase in Chaps net revenues in the United
States primarily reflects the Company’s expansion into the
mid-tier channel of distribution (first shipped in December 2004),
resulting in an increase of $52.6 million. This, along with an increase
in net revenues to customers in the off-price channel of $4.7 million,
was partially offset by declines in the department store and specialty
channels of $14.1 million and all other channels of distribution of
$3.9 million. The decrease in department store sales reflects
Chaps’ planned exit from certain department store
accounts in Fiscal 2005. Sales to all of the above channels included
sales of Chaps denim products which were introduced in
June 2004 and which generated incremental net revenues of
$15.9 million for Fiscal 2005 compared to Fiscal 2004. Swimwear Group Swimwear Group net revenues were as
follows: Approximately
66% of Speedo’s net revenues were earned during
the first half of Fiscal 2005 due to the seasonal nature of the
swimwear business. The decrease in Speedo net revenues reflects
a $7.4 million decrease in net revenues for the first half of
Fiscal 2005, which the Company believes is attributable to the poor
weather in the first half of Fiscal 2005, offset by an increase in net
revenues of $5.8 million in the second half of Fiscal 2005. The
increase in net revenues for the second half of Fiscal 2005 is
primarily related to $1.4 million in sales of Speedo
activewear (which sales commenced in Fiscal 2005) coupled with
favorable returns experience and volume increases across other sport
related Speedo lines. The increase in Designer swimwear
net revenues reflects approximately $9.8 million related to the
introduction of Calvin Klein swimwear in Europe and the United
States, $3.1 million of additional revenues related to other
branded businesses and $2.1 million related to net revenues
generated following the launch of Michael Kors swimwear in 2005,
partially offset by reductions of $4.7 million primarily related
to private label and mass merchandisers and a $6.4 million
planned reduction in close-out sales. The reduction in sales to mass
merchandisers primarily reflects a decline in net revenues associated
with sales of Catalina brand products to Wal-Mart Stores Inc.
due primarily to the discontinuance of the Company’s
Catalina Ocean Gear line. Net revenues for OP,
which was acquired in August 2004, increased $7.0
million, reflecting an increase of $6.5 million in licensing
revenues (as a result of a full year of activity in Fiscal 2005
compared to Fiscal 2004) coupled with net revenues of $0.5
million related to OP’s wholesale business which launched
in Fiscal 2005. 47
Gross Profit
Gross profit was as follows: Intimate
Apparel Group gross profit increased $18.7 million, or
8.9%, and gross margin increased 270 basis points. The increase
in gross profit and gross margin reflects strength in the
Company’s Calvin Klein underwear business (increased
gross profit and gross margin of $12.4 million and 180 basis
points, respectively) and strength in the Core Brands (increased gross
profit and gross margin of $9.2 million and 700 basis points,
respectively), partially offset by a decrease in Fashion Brands
(decreased gross profit and gross margin of $2.9 million and 140
basis points, respectively). The increase in gross margin in the Core
Brands primarily reflects an improved sales mix and a more favorable
markdowns and allowances experience coupled with the execution of
initiatives to improve sourcing and inventory management. The Company
believes that the improved sales mix reflects a more favorable
reception of the Intimate Apparel Group’s products at retail,
primarily Warner’s. The decrease in Fashion Brands gross
profit and gross margin primarily reflects the decrease in net revenues
described previously coupled with certain inventory markdowns related
to the underperforming JLO and Lejaby Rose brands in the
United States. As discussed above, the Company plans to exit the
Lejaby Rose business in the Spring of 2006. In addition, the
Company anticipates a higher portion of its JLO business will be
derived from its foreign operations in fiscal 2006 (which typically
yield higher gross margins than the domestic JLO business). Sportswear Group gross profit increased $20.3 million, or
16.0%, for Fiscal 2005 compared to Fiscal 2004. The increase in
gross profit primarily reflects strength in Calvin Klein jeans
($7.7 million increase in gross profit) and Chaps
($13.7 million increase in gross profit). Sportswear Group gross
margin increased 60 basis points, primarily reflecting an improvement
in the ratio of off-price sales to total sales. Swimwear Group
gross profit declined $2.4 million, or 1.8%, for Fiscal
2005 compared to Fiscal 2004. The decrease primarily reflects increases
in manufacturing costs, increases in inventory markdowns (primarily in
the Designer business) and increases in design and development costs
related to the development of new lines such as OP, Michael
Kors, Calvin Klein and Choice Calvin Klein, partially
offset by increased gross profit on higher net revenues earned in the
Company’s OP business.
Selling,
General and Administrative Expenses
SG&A expenses
increased $28.2 million, or 7.4%, to $406.7
million (27.0% of net revenues) for Fiscal 2005 from
$378.5 million (26.6% of net revenues) for Fiscal 2004.
Selling expenses (including distribution expenses) increased
$19.9 million, primarily as a result of the associated increase
in net revenues, a full period of operations in the Company’s
OP business (acquired in August 2004) and expenses
associated with the launches of Michael Kors and Calvin
Klein swimwear. Marketing expenses decreased $0.7 million,
due primarily to reduced marketing related to Calvin Klein
accessories. Administrative expenses increased $9.0 million,
reflecting an increase in expenses related to operating groups of
$0.1 million combined with an increase in unallocated corporate
expenses of $8.9 million. The increase in administrative
expenses related to the operating groups primarily reflects the full
period effect and vertical integration of a portion of the OP
business, increases related to the Company’s expansion of its
retail business, additional amortization expense related to the
Calvin Klein swimwear and OP licenses and the provision
for an uncollectible non-trade receivable balance (totaling $1.5
million, $0.3 million of which is included in restructuring
items) in the Intimate Apparel 48
Group, partially offset by net cost savings
realized in the Sportswear Group. The increase in unallocated corporate
expenses includes an increase in employee benefits and incentive based
compensation ($4.4 million), an increase in charges related to
the Company’s SAP implementation (which commenced in the fourth
quarter of Fiscal 2004) ($2.3 million), an increase in insurance
costs of $2.3 million and other net increases ($3.3
million), partially offset by a reduction in professional fees of
$3.3 million associated with SOX compliance and an internal
control review conducted in connection with the Company’s
previously disclosed settlement with the
SEC.
Pension Income / Expense
Pension
expense was $1.6 million in Fiscal 2005 compared to pension
income of $6.8 million in Fiscal 2004. This $8.4 million
increase in expense was due primarily to the net effect of a lower
return on plan assets, a loss related to plan amendments for prior
service costs and a loss related to a change in mortality tables,
partially offset by a gain related to a change in the discount rate.
See Note 10 of Notes to Consolidated Financial
Statements.
Restructuring Expense
(Income)
During Fiscal 2005, the Company recorded
restructuring income of $0.5 million related primarily to a
$1.5 million reversal of accruals due to a reduction in the
estimated amounts required for employee terminations, partially offset
by expenses incurred in connection with the continuation of activities
commenced in prior periods associated with the closure, consolidation
or sale of certain facilities of $1.0 million. During Fiscal
2004, the Company incurred restructuring expenses of $5.1
million. See Note 6 of Notes to Consolidated Financial
Statements.
Operating
Income
The following table presents operating
income by group: Intimate
Apparel Group Intimate Apparel Group operating income
was as follows: Intimate
Apparel Group operating income increased $11.3 million, or
20.4%, over the prior year reflecting increases in Calvin
Klein underwear and Core Brands, partially offset by decreases in
Fashion Brands. The $7.0 million increase in Calvin Klein
underwear operating income reflects a 49
$12.4 million increase in gross
profit (as described above), partially offset by a $5.4 million
increase in SG&A expenses (primarily reflecting an increase in
variable selling expenses commensurate with the increase in net
revenues described previously). The $10.0 million and 700 basis
point increase in Core Brands operating income and operating margin,
respectively, primarily reflects the increase in gross profit and gross
margin described previously. Management believes the improved
performance of the Core Brands in the United States primarily reflects
its ongoing efforts to reinvigorate these brands coupled with the
favorable reception of the Warner’s brand at retail. The
$5.7 million decrease in Fashion Brands operating income
reflects the decrease in gross profit of $2.9 million described
previously, combined with a $2.8 million increase in SG&A
expenses. The increase in SG&A expenses primarily reflects initial
costs related to the expansion of the Lejaby brand into Asia
(Taiwan) combined with costs to support the Axcelerate line
(which began shipping in 2005). Sportswear Group Sportswear Group operating income was as follows: Sportswear
Group operating income increased $18.1 million, or 33.6%,
over the prior year primarily due to increases in operating income in
Calvin Klein and Chaps. The $10.7 million increase
in Calvin Klein jeans operating income reflects the $7.7
million increase in gross profit described previously, combined with a
$3.0 million reduction in SG&A expenses primarily related to
the reduction in administration and distribution costs reflecting
operating efficiency improvements. The $8.7 million increase in
Chaps operating income is attributable to the $13.7
million increase in gross profit described above, partially offset by a
$5.0 million increase in SG&A expenses. The increase in
Chaps SG&A expenses primarily reflects an increase in
marketing expenses to support the Company’s expanded
distribution platform combined with an increase in variable selling
expenses as a result of the increase in net
revenues. Swimwear Group Swimwear Group
operating income was as follows: Swimwear
Group operating income decreased $14.0 million, or 24.0%.
The $1.1 million increase in Speedo operating income
reflects a $2.8 million decrease in gross profit, more than
offset by a $3.9 million decrease in SG&A expenses primarily
as a result of lower marketing expenditure (expenses in Fiscal 2004
were higher primarily due to the 2004 Olympic Games in Athens) coupled
with a reduction in amounts incurred for employee termination
costs. 50 Designer operating income decreased
$10.5 million, reflecting a $4.2 million decrease in
gross profit combined with a $6.3 million increase in SG&A
expenses. As described previously, the decrease in gross profit
primarily reflects an increase in design costs associated with new
brands combined with increases in manufacturing costs and inventory
markdowns. The increase in SG&A expenses primarily reflects an
increase in spending associated with the launches of Michael
Kors and Calvin Klein swimwear coupled with an increase in
amortization costs associated with the Calvin Klein swimwear
license in the United States that was acquired during Fiscal
2005. The decrease in OP operating income primarily
reflects increased spending related to the development of the OP
wholesale business.
Other (Income)
Loss
Other (income) loss primarily reflects foreign
exchange losses for Fiscal 2005 of $1.1 million and foreign
exchange gains for Fiscal 2004 of $1.9 million, in each case, on
the current portion of inter-company loans to foreign subsidiaries that
are denominated in United States dollars.
Interest
Expense, Net
Interest expense decreased $1.7
million to $18.1 million for Fiscal 2005 from $19.8
million for Fiscal 2004. Interest expense in Fiscal 2005 included
interest on the Company’s 8 7/8% Senior
Notes due 2013 (‘‘Senior Notes’’) of
$17.6 million (net of the benefit related to the 2003 and 2004
Swap Agreements (as defined below) of approximately $1.0
million), unused commitment fees and letter of credit charges of
$1.7 million related to the Revolving Credit Facility,
amortization of deferred financing fees of $2.1 million and
other items of $1.2 million, partially offset by interest income
of $3.4 million related to interest earned on the note
receivable associated with the sale of the White Stag trademark,
income related to cash investments and cash collateral accounts and
other miscellaneous interest income. In addition, during Fiscal 2005,
$1.1 million of interest expense was capitalized to fixed assets
in connection with the implementation of SAP. Interest expense for
Fiscal 2004 included interest on the Senior Notes of $16.9
million (net of the benefit related to the 2003 and 2004 Swap
Agreements of approximately $1.6 million), unused commitment
fees and letters of credit charges of $2.4 million and
amortization of deferred financing fees and other items of $2.4
million, partially offset by interest income of $1.9 million.
Interest income primarily reflects income earned on the note receivable
relating to the sales of White Stag and interest earned on
invested cash balances.
Income
Taxes
The effective tax rate in Fiscal 2005 was
36.9% compared to 40.3% in Fiscal 2004. The effective tax
rate was higher in Fiscal 2004 due to an increase in the
Company’s valuation allowance maintained against certain
deferred tax assets. Realization of the Company's deferred tax
assets is dependent upon future earnings in specific tax jurisdictions,
the timing and amount of which are uncertain. Accordingly, the Company
evaluates all significant available positive and negative evidence,
including the existence of losses in recent years and its forecast of
future taxable income, in assessing the need for a valuation allowance.
The underlying assumptions used in forecasting future taxable income
require significant judgment and take into account the Company's
recent performance. A valuation allowance is established to reduce the
deferred tax assets to the amount that is more likely than not to be
realized. As of the end of Fiscal 2005 and 2004, based upon its
evaluation of historical and projected results of operation and the
current business environment, the Company recorded a valuation
allowance on all of its domestic deferred tax assets and certain of its
foreign deferred tax assets. The Company anticipates that it will be
able to utilize net operating loss carryforwards related to Fiscal
2005, which should result in approximately $6 million of cash tax
benefit.
Discontinued Operations
Loss
from discontinued operations was $0.2 million and $4.4
million for Fiscal 2005 and Fiscal 2004, respectively. See Note 4 of
Notes to Consolidated Financial Statements. 51 Comparison of Fiscal 2004 to Fiscal
2003
Net Revenues
Net revenues by
segment were as follows: The
Company's products are widely distributed through many major
channels of distribution. The following table summarizes the
Company's net revenues by channel of distribution for Fiscal 2004
and Fiscal 2003: Intimate
Apparel Group Intimate Apparel Group net revenues were as
follows: The
increase in Calvin Klein underwear net revenues reflects an
increase of $11.2 million, $15.6 million and $4.3
million in the United States, Europe and all other foreign operations,
respectively. The increased sales in the United States and Europe were
primarily driven by strength in the men's regular price business
combined with the launch of the Company's new Choice Calvin
Klein label (which accounted for approximately $7.9 million
of the increase in net revenues in the United States and Europe). The
Company believes the increase in net revenues is a result of
improvements and innovations in product design and an increase in
marketing expenditures combined with the positive impact of a stronger
euro relative to the United States dollar. The decrease in Core
Brands net revenues reflects a $35.9 million decline in the
United States, partially offset by a combined increase of $3.1
million in Canada, Asia and Mexico. The decline in net 52
revenues in the United States primarily
reflects continued difficulty for the Company's Core Brands at
retail. In addition, the Company experienced a reduction in the level
of service to customers, primarily as a result of transitioning from an
owned manufacturing to an outsourced production model, which negatively
affected order fulfillment rates. The increase in Fashion Brands
net revenues reflects $11.6 million in net revenues from the
launch of JLO in July 2004 and an increase of $5.1
million in Lejaby net revenues. The increase in Lejaby
reflects an increase of $3.1 million in the United States
primarily related to the launch of Lejaby Rose in March
2004 combined with an increase of $2.0 million in Europe. The
increase in Lejaby net revenues in Europe primarily reflects the
positive effect of a stronger euro of $9.5 million, partially
offset by a decrease, primarily related to lower unit volumes, of
$7.9 million. The decrease in sales volumes was attributable to
a less favorable reception of certain product lines at retail and a
declining specialty store distribution base. Sportswear
Group Sportswear Group net revenues were as follows:
Chaps net revenues increased $37.4
million and $2.3 million in the United States and Mexico,
respectively, partially offset by a $1.2 million decrease in
Canada. The increase in Chaps domestic net revenues includes
$18.1 million related to the launch of the new denim line in
June 2004 combined with a $19.3 million net increase
across all other Chaps sportswear lines reflecting the
Company's planned expansion into the mid-tier channel of
distribution and a favorable reception of the Company's products
at retail, which increased certain reorder sales. These increases were
partially offset by a reduction in sales to military base stores.
Calvin Klein jeans net revenues decreased $17.0
million reflecting a decrease of $29.6 million in the United
States, partially offset by an increase of $8.9 million and
$3.7 million in Mexico and Canada, respectively. The decrease in
the United States reflects a planned reduction of unit sales to low
margin off-price channels (accounting for a decrease of approximately
$30.0 million) and declines in department store unit sales and
sales to military base stores. The decreases in off-price and
department store sales were partially offset by an increase in unit
sales to membership clubs and to stores operated by the Calvin
Klein jeans licensor. Net unit selling prices increased due to more
favorable returns and allowances experience, which management believes
is the result of reinvigorated designs and extended product offerings.
The increase in Mexico net revenues relates to volume increases in
sales of certain men's basic lines to department stores combined
with increased sales to membership clubs. The decrease in mass
sportswear licensing net revenues reflects the sale of the White
Stag trademark to Wal-Mart in December 2003. Pursuant to the
sales agreement, the Company no longer receives royalties from
Wal-Mart; however, the Company receives fees for design services
provided to Wal-Mart related to the White Stag women's
sportswear line. 53 Swimwear Group Swimwear
Group net revenues were as follows: The increase in Speedo
net revenues reflects a $3.9 million increase in regular-price
sales combined with a $4.3 million increase in off-price sales.
The increase in regular price sales reflects higher net selling price
due to a $3.0 million reduction in sales allowances and returns,
primarily as a result of better product performance at retail in Fiscal
2004 compared to Fiscal 2003, combined with increased net sales of
$1.0 million primarily related to increased unit shipments of
shoes, accessories and racing gear. The increase in Designer
swimwear net revenues reflects increases primarily related to the
Company's private label business with Target ($7.3
million), increased net sales of Catalina ($2.3 million)
and increased net sales of Nautica and Anne Cole swimwear
($17.3 million), offset by declines in Polo®
(license terminated in June 2003) and other brands
($19.6 million). The increase in net revenues from private label
and Catalina sales reflects volume increases. The increase in
Nautica and Anne Cole primarily reflects a full year of
selling of the Nautica brand which was launched during Fiscal
2003. Net revenues of OP relate to the acquisition of
OP in August 2004 and represent royalty income earned
from licensing partners.
Gross
Profit
Gross profit was as follows: The
increase in gross profit of $38.0 million reflects an increase
of $22.6 million, $10.9 million and $4.5 million
in the Sportswear Group, Intimate Apparel Group and Swimwear Group,
respectively. Gross profit as a percentage of net revenues
(‘‘gross margin’’) increased 160 basis
points primarily due to a more favorable sales mix in the
Company's Calvin Klein jeans business. Gross profit for
Fiscal 2004 includes the effect of approximately $16.7 million
related to the favorable impact of foreign currency exchange rate
fluctuations, primarily as a result of a stronger euro and Canadian
dollar. Intimate Apparel Group gross profit increased
$10.9 million primarily reflecting strength in the
Company's Calvin Klein underwear business (increased gross
profit of $22.3 million) and the launch of JLO lingerie
in July 2004 (gross profit of $2.1 million) combined with
increases of $2.3 million and $1.8 million in the
Company's Lejaby and Intimate Apparel retail operations,
respectively. The 54
increases were partially offset by a
$17.6 million decrease in Core Brands gross profit. The increase
in Calvin Klein underwear gross profit and gross margin reflects
the increase in net revenues described above, combined with a favorable
sales mix and lower sourcing costs. The decline in Core Brands gross
profit reflects sales allowances granted to customers and unfavorable
absorption of fixed overhead costs due to decreased sales volumes. Sportswear Group gross profit increased $22.6 million, or
21.8%, in Fiscal 2004 as compared to Fiscal 2003 and gross
margin increased 420 basis points. The increase in gross profit and
gross margin primarily reflects strength in the Calvin Klein
jeans ($17.6 million increase in gross profit), Calvin
Klein accessories ($1.8 million increase in gross profit)
and Chaps ($10.5 million increase in gross profit)
businesses, partially offset by a $7.3 million decline in mass
sportswear licensing as a result of the sale of the White Stag
trademark to Wal-Mart in December 2003. The increase in
Calvin Klein jeans gross profit and gross margin reflects an
improved sales mix, primarily as a result of the Company's
planned reduction of sales to low margin off-price channels. The
increase in Chaps gross profit reflects the increase in net
revenues described above and improved allowance experience to customers
reflecting higher net selling prices. Swimwear Group gross
profit increased $4.5 million, reflecting the increase in net
revenues described above and efficiencies realized in the
Company's manufacturing plants as a result of production volume
increases. The decrease in gross margin of 70 basis points reflects the
less favorable sales mix, start-up activities related to a new
activewear line and the unfavorable impact of foreign currency exchange
rate fluctuations on cost of sales, primarily as a result of the effect
of a stronger Canadian dollar related to Canadian manufacturing
operations, partially offset by margins earned on royalty income
(related to the August 2004 acquisition of OP) and
favorable manufacturing variances.
Selling, General
and Administrative Expenses
SG&A expenses increased
$26.4 million, or 7.5%, to $378.5 million
(26.6% of net revenues) for Fiscal 2004 from $352.1
million (25.6% of net revenues) for Fiscal 2003. Marketing
expenses increased $12.0 million, reflecting the Company's
investment in the marketing of new and existing brands of $10.0
million (including the launches of JLO lingerie and Chaps
denim) and expenses related to the 2004 Summer Olympic Games in Athens
of $2.0 million. Selling expenses increased $9.5 million
reflecting higher sales volumes, partially offset by the positive
impact of terminating a third party distribution agreement and
consolidating the Company's Calvin Klein jeans
distribution facility into the Company's primary distribution
facility in Pennsylvania. Unallocated corporate administrative expenses
include $5.6 million related to professional costs associated
with SOX compliance and an internal control review conducted in
connection with the Company's previously announced settlement
with the SEC. In addition, SG&A expenses for Fiscal 2004 include
$6.1 million related to the unfavorable impact of foreign
currency exchange rate fluctuations, primarily as a result of a
stronger euro and Canadian dollar.
Pension Income /
Expense
Pension Plan income of $6.8 million for
Fiscal 2004 reflects the income earned by Pension Plan assets, offset
by interest costs associated with Pension Plan projected benefit
obligations. Pension Plan income was $6.8 million for Fiscal
2003.
Amortization of Sales Order Backlog
Results of operations for Fiscal 2003 included
$11.8 million of expenses related to the amortization of sales
order backlog recorded in connection with the adoption of fresh start
accounting on February 4, 2003. The sales order backlog
was amortized over six months using the straight-line method and was
fully amortized as of January 3, 2004.
Restructuring Expense
During Fiscal 2004
and the period February 5, 2003 to January
3, 2004, the Company incurred restructuring charges of
$5.1 million and $19.1 million, respectively. 55
Reorganization Items
Reorganization items were $29.8 million for the
period January 5, 2003 to February 4,
2003.
Operating Income
The following
table presents operating income by group: Operating
income increased $67.1 million, reflecting an increase in group
operating income of $26.7 million and a decrease in
restructuring and reorganization items of $43.8 million,
partially offset by an increase in unallocated corporate expenses of
$3.4 million. The increase in group operating income includes
the effect of an $11.8 million decrease in amortization expense
related to sales order backlog which was incurred in the 2003 period in
connection with the adoption of fresh start accounting. Operating
income for Fiscal 2004 was positively affected by the favorable impact
of foreign currency exchange rate fluctuations of approximately
$10.6 million, primarily as a result of a stronger euro and
Canadian dollar. The increase in unallocated corporate expenses of
$3.4 million in Fiscal 2004 compared to Fiscal 2003 was due
primarily to consulting fees of $5.6 million related to
professional costs associated with SOX compliance and an internal
control review conducted in connection with the Company's
previously announced settlement with the SEC. Intimate
Apparel Group Intimate Apparel Group operating income was as
follows: Intimate
Apparel Group operating income decreased $0.5 million, primarily
reflecting an increase in Calvin Klein underwear, more than
offset by a decrease in Core Brands and Fashion Brands. The
$10.0 million increase in Calvin Klein underwear
operating income reflects a $22.3 million increase in gross
profit (as described above), the positive effect of a stronger euro and
a $2.2 million decrease in amortization of sales order backlog.
Partially offsetting this net increase was an increase of $14.5
million in SG&A expenses (primarily due to a planned increase in
marketing expenditures to support the launch of Choice Calvin
Klein), the increase in volume-related selling costs and the effect
of a stronger euro. The $5.0 million decrease in Core Brands
operating income reflects a decline in Core Brands gross profit of
$17.6 million as described above, partially offset by a decrease
of $12.6 million in SG&A expenses due to cost cutting
initiatives undertaken by management in Fiscal 2004 and a decrease in
volume-related selling expenses due to reduced net revenues. The
$6.7 million 56
decrease in Fashion Brands operating income
reflects a $3.0 million operating loss from the launch of
JLO in July 2004 and a $3.7 million decrease in
Lejaby. The decrease in Lejaby operating income reflects
a $6.0 million increase in SG&A expenses, partially offset
by a $2.3 million increase in Lejaby gross profit. The
increase in SG&A expenses includes a $2.8 million increase
in marketing costs associated with a new European advertising campaign
and the launch of Lejaby Rose in the United States combined with
the unfavorable impact of a stronger euro. Sportswear
Group Sportswear Group operating income was as follows: Sportswear
Group operating income increased $22.0 million reflecting
increases in Calvin Klein jeans, Chaps and Calvin
Klein accessories, partially offset by decreases in mass sportswear
licensing. The increase of $7.8 million in Chaps
operating income reflects an increase in gross profit of $10.5
million (as discussed above) combined with a $0.8 million
reduction in amortization of sales order backlog, partially offset by
an increase of $3.5 million in SG&A expenses. The increase
in SG&A expenses included a $2.7 million increase in
marketing expenses primarily related to the launch of Chaps
denim in June 2004 and the increased variable selling expenses
associated with higher sales volume. The increase of $20.8
million in Calvin Klein jeans operating income reflects an
increase in gross profit of $17.6 million (as discussed above)
combined with a $3.2 million reduction in SG&A expenses,
primarily related to a decrease in warehouse and distribution expenses
as a result of the Company relocating its distribution center in the
fourth quarter of Fiscal 2003 from a third-party operated facility to
the Company's facility in Huntingdon, Pennsylvania. The decrease
in operating income of mass sportswear licensing reflects the sale of
the White Stag trademark in December 2003. Swimwear Group Swimwear Group operating income was
as follows: Swimwear
Group operating income increased $5.2 million, reflecting an
increase of $4.5 million in gross profit as a result of
increased net revenues combined with a decrease of $8.5 million
in amortization of sales order backlog, partially offset by a
$7.8 million increase in SG&A expenses. The increase in
SG&A expenses reflects a $2.3 million increase in marketing
expenses, primarily related to the 2004 Summer Olympic Games in Athens,
a $2.1 million increase in volume related selling expenses and a
$3.4 million increase in administrative expenses primarily
related to the acquisition of OP. 57
Gain on Cancellation of Debt
and Fresh Start Adjustments
Fiscal 2003 includes a gain of
$1,692.7 million related to the cancellation of the
Company's pre-petition debt and other liabilities subject to
compromise net of the fair value of cash and cash equivalents and
securities distributed to the pre-petition creditors. Fresh start
adjustments of $765.7 million represent adjustments to the
carrying amount of the Company's assets and liabilities to fair
value in accordance with the provisions of SOP 90-7.
Other (Income) Loss
Other (income) loss
primarily reflects gains on the current portion of inter-company loans
to foreign subsidiaries that are denominated in United States dollars
of $1.9 million and $6.7 million for Fiscal 2004 and
Fiscal 2003, respectively. The foreign exchange gain for Fiscal 2003
was partially offset by a $3.8 million loss on the sale of the
White Stag trademark.
Interest Expense, Net
Interest expense decreased $2.6 million, or
11.5%, to $19.8 million in Fiscal 2004 compared to
$22.4 million in Fiscal 2003. Interest expense in Fiscal 2004
included interest on the Senior Notes of $16.9 million (net of
the benefit of approximately $1.6 million from the Swap
Agreements (as defined below)), unused commitment fees and letters of
credit charges of $2.4 million related to the Revolving Credit
Facility and amortization of deferred financing fees and other items of
$2.4 million, partially offset by interest income of $1.9
million. Interest income primarily reflects income earned on the note
receivable relating to the sale of White Stag and interest earned on
invested cash balances. Interest expense for Fiscal 2003 includes
interest on foreign debt for one month of $1.0 million, interest
on the Second Lien Notes of $6.7 million, interest on the Senior
Notes of approximately $10.0 million, amortization of deferred
financing fees of $2.1 and other interest and fees of approximately
$2.6 million.
Income Taxes
The
provision for income taxes of $31.6 million for Fiscal 2004
consists of an income tax expense of $13.3 million on domestic
earnings and an $18.3 million income tax expense on foreign
earnings. The provision for income taxes for Fiscal 2003 of
$90.2 million includes income taxes related to the income of
foreign operations of $11.6 million, state and local income
taxes of $1.0 million and deferred income taxes of $77.6
million related to the recording of the Company's assets at fair
value in accordance with fresh start accounting. Under U.S. tax
law, a company that realized cancellation of debt income
(‘‘COD’’) while in bankruptcy is entitled
to exclude such income from taxable income for U.S. tax reporting
purposes. A company that excludes COD will be required to reduce
certain tax attributes in an amount equal to the COD excluded from
taxable income. If the attribute reduction is applied on a consolidated
basis, all of the Company's U.S. consolidated net operating loss
carryovers would be eliminated and certain of its other U.S. tax
attributes will be substantially reduced or eliminated. However, by
applying the attribute reduction rules on a separate company basis, the
Company retained U.S. net operating loss carryforwards of approximately
$246.2 million, which can be used to reduce U.S. taxable income,
if any, by approximately $23.4 million per year. There can be no
assurance that the Company's position with respect to separate
company attribute reduction will be sustained upon review by the
Internal Revenue Service. Any tax benefit from the utilization of
consolidated U.S. net operating losses that existed as of
February 4, 2003 will reduce goodwill when realized and
will not affect the Company's future results of
operations. Additionally, as a result of the Company's
acquisition of OP on August 19, 2004, non-current
deferred tax liabilities were increased by $12.4 million,
primarily related to acquired trademarks and licenses. Deferred taxes
also included a U.S. net operating loss carryforward of $2.6
million, of which the majority is subject to an annual limitation of
$0.4 million.
Discontinued Operations
Loss from discontinued operations was $4.4 million
and $18.9 million for Fiscal 2004 and Fiscal 2003, respectively.
See Note 4 of Notes to Consolidated Financial
Statements. 58 Capital Resources and
Liquidity
Financing Arrangements
Senior Notes On June 12,
2003, Warnaco Inc., the principal operating subsidiary of Warnaco,
completed the sale of $210.0 million aggregate principal amount
of Senior Notes at par value, which notes mature on June
15, 2013 and bear interest at 8 7/8%
payable semi-annually on December 15 and June 15 of each
year. No principal payments prior to the maturity date are required.
The Senior Notes are unconditionally guaranteed, jointly and severally,
by Warnaco and substantially all of Warnaco Inc.'s domestic
subsidiaries (all of which are 100% owned, either directly or
indirectly, by Warnaco). The Senior Notes are effectively subordinate
in right of payment to existing and future secured debt (including the
Company's Amended and Restated Credit Agreement) and to the
obligations (including trade accounts payable) of the subsidiaries that
are not guarantors of the Senior Notes. The guarantees of each
guarantor are effectively subordinate to that guarantor's
existing and future secured debt (including guarantees of the Amended
and Restated Credit Agreement) to the extent of the value of the assets
securing that debt. There are no restrictions that prevent the
guarantor subsidiaries from transferring funds or paying dividends to
the Company. The indenture pursuant to which the Senior Notes were
issued contains covenants which, among other things, restrict the
Company's ability to incur additional debt, pay dividends and
make restricted payments, create or permit certain liens, use the
proceeds of sales of assets and subsidiaries' stock, create or
permit restrictions on the ability of certain of Warnaco Inc.'s
subsidiaries to pay dividends or make other distributions to Warnaco or
to Warnaco Inc., enter into transactions with affiliates, engage in
certain business activities, engage in sale and leaseback transactions
and consolidate or merge or sell all or substantially all of its
assets. The Company was in compliance with the covenants of the Senior
Notes at December 31, 2005. Redemption of the Senior
Notes prior to their maturity is subject to premiums as set forth in
the indenture. Proceeds from the sale of the Senior Notes were used to
repay the outstanding principal balance on the Second Lien Notes of
$200.9 million and accrued interest thereon of $2.0
million. The proceeds were also used to pay underwriting fees, legal
and professional fees and other expenses associated with the offering
in an aggregate amount of approximately $7.1 million. In
connection with the offering of the Senior Notes, the Company entered
into a registration rights agreement with the initial purchasers of the
Senior Notes, which, among other things, required Warnaco Inc. and the
guarantors to complete a registration and exchange of the Senior Notes.
In accordance with the registration rights agreement, the Company
completed the registration and exchange of the Senior Notes in the
first quarter of Fiscal 2004. Interest Rate Swap
Agreements On September 18, 2003, the Company
entered into an Interest Rate Swap Agreement (the ‘‘2003
Swap Agreement’’) with respect to the Senior Notes for a
total notional amount of $50 million. The 2003 Swap Agreement
provides that the Company will receive interest at
8 7/8% and pay a variable rate of interest based
upon six month London Interbank Offered Rate
(‘‘LIBOR’’) plus 4.11% (8.78%
at December 31, 2005). The 2003 Swap Agreement expires on
June 15, 2013 (the date on which the Senior Notes
mature). On November 5, 2004, the Company entered
into a second Interest Rate Swap Agreement (the ‘‘2004
Swap Agreement’’) with respect to the Company's
Senior Notes for a total notional amount of $25 million. The
2004 Swap Agreement provides that the Company will receive interest of
8 7/8% and pay a variable rate of interest based
upon six months LIBOR plus 4.34% (9.01% at December 31,
2005). The 2004 Swap Agreement expires on June 15, 2013
(the date on which the Senior Notes mature). As a result of the
2003 and 2004 Swap Agreements, the weighted average effective interest
rate of the Senior Notes was 8.87% and 8.16% as of
December 31, 2005 and January 1, 2005,
respectively. The Company designated the 2003 and 2004 Swap
Agreements as fair value hedges of the changes in fair value of
$50 million and $25 million, respectively, aggregate
principal amount of the 59
$210 million aggregate principal
amount of Senior Notes outstanding. As of December 31,
2005, the fair values of the 2003 and 2004 Swap Agreements were losses
of $1.4 million and $1.0 million, respectively, recorded
as part of long-term debt, which were offset by corresponding gains on
the hedged debt. No hedge ineffectiveness is recognized in the
consolidated statement of operations, as the provisions of the 2003 and
2004 Swap Agreements match the provisions of the hedged debt. Revolving Credit Facility; Amended and Restated Credit
Agreement On the Effective Date, Warnaco Inc. entered into the
Revolving Credit Facility, which was amended November 12,
2003, August 1, 2004 and September 15,
2005. In addition, as described below, the Revolving Credit Facility
was amended and restated on January 31, 2006 in
connection with the closing of the CKJEA Acquisition. As of
December 31, 2005, the Revolving Credit Facility provided for a
$175 million revolving credit facility maturing on
February 3, 2009. The Revolving Credit Facility includes
a provision which allows Warnaco Inc. to increase maximum available
borrowings under the revolving credit facility from $175.0
million to $325.0 million. Borrowings under the Revolving Credit
Facility bear interest, at Warnaco Inc.’s option, at Citibank
N.A.’s base rate plus 0.5% (7.75% at
December 31, 2005) or at LIBOR plus 1.5%
(approximately 6.04% at December 31, 2005), in
each case, on a per annum basis. The rates of interest payable on
outstanding borrowings under the Revolving Credit Facility may change
based on the Company's financial ratios. Warnaco Inc. enters into
contracts to elect the LIBOR option when it expects borrowings to be
outstanding for more than 30 days. The remaining balances bear interest
based upon Citibank N.A.’s base rate. The Revolving Credit
Facility contains financial covenants that, among other things, require
the Company to maintain a fixed charge coverage ratio above a minimum
level and a leverage ratio below a maximum level and limit the amount
of the Company's capital expenditures. In addition, the Revolving
Credit Facility contains certain covenants that, among other things,
limit investments and asset sales, prohibit the payment of dividends
(subject to limited exceptions) and limit the incurrence of material
additional indebtedness. As of December 31, 2005,
the Company was in compliance with the covenants of the Revolving
Credit Facility. Warnaco Inc. did not borrow under the Revolving Credit
Facility during Fiscal 2005 or Fiscal 2004, and had paid down all
outstanding borrowings under the Revolving Credit Facility as of
January 3, 2004. The Revolving Credit Facility is
guaranteed by the Company and its domestic subsidiaries (other than
Warnaco Inc.) and the obligations under such guaranty, together with
Warnaco Inc.’s obligations under the Revolving Credit Facility,
are secured by a lien for the benefit of the lenders on substantially
all of the assets of the Company and its domestic
subsidiaries. On January 31, 2006, the Revolving
Credit Facility was amended and restated (the ‘‘Amended
and Restated Credit Agreement’’) to, among other things,
add a $180 million term loan facility which was used to finance
a portion of the CKJEA Acquisition. Generally, the loans under the term
loan facility bear interest, at Warnaco Inc.’s option, at either
Citibank N.A.'s base rate plus 0.50% or at LIBOR plus
1.50%, in each case, on a per annum basis. The term loan
facility matures on January 31, 2013 and must be repaid
at the rate of $450,000 per quarter from June 30, 2006
through March 31, 2012 and $42,300,000 on each of
June 30, 2012, September 30, 2012,
December 31, 2012 and January 31, 2013.
Loans under the Amended and Restated Credit Agreement may be required
to be repaid upon the occurrence of certain events, including certain
types of asset sales, insurance recoveries, and issuances of debt. In
addition, the term loan facility requires Warnaco Inc. to repay term
loan principal in amounts equal to 25% of Excess Cash Flow (as
defined in the Amended and Restated Credit Agreement), subject to
certain conditions. In addition to the amendments relating to the
term loan facility, under the Amended and Restated Credit Agreement,
certain covenants were modified, including financial covenants and the
covenants relating to indebtedness, acquisitions, asset sales and
investments. Further, certain terms and conditions under which an Event
of Default (as defined in the Amended and Restated Credit Agreement)
may be declared were amended. On January 31, 2006,
Warnaco Inc. increased the revolving credit facility commitment under
the Amended and Restated Credit Agreement from $175 million to
$225 million. 60 Warnaco Inc.’s obligations under
the term loan facility are guaranteed by the same parties as had
guaranteed the Revolving Credit Facility, and are secured by the same
assets as had secured the Revolving Credit Facility, except that the
lenders under the loan facilities have different lien priorities in the
collateral. Foreign Revolving Credit
Facility During Fiscal 2005, certain of the Company's
foreign subsidiaries (the "Foreign
Subsidiaries") entered into a $25 million revolving credit
facility with Bank of America, N.A. (the "Foreign
Revolving Credit Facility"). The Foreign Revolving Credit
Facility provides for a four year, non-amortizing revolving credit
facility. Borrowings under the Foreign Revolving Credit Facility accrue
interest at LIBOR or, if applicable, the lending bank's base
rate, in each case, plus 2.25% or 2.00% (depending on the
level of EBITDA (as defined in the Foreign Revolving Credit Facility)
of the Foreign Subsidiaries). The Foreign Revolving Credit Facility is
secured by first priority security interests on the assets of the
Foreign Subsidiaries and the Foreign Subsidiaries guarantee each
others' obligations under the Foreign Revolving Credit Facility.
The Foreign Revolving Credit Facility contains covenants that require
the Foreign Subsidiaries to maintain certain financial ratios and limit
the amount of the Foreign Subsidiaries' capital expenditures. In
addition, the Foreign Revolving Credit Facility contains certain
restrictive covenants which, among other things, limit investments by
the Foreign Subsidiaries and prohibit the Foreign Subsidiaries from
incurring additional indebtedness. The Company's ability to
borrow under the Foreign Revolving Credit Facility is subject to the
satisfaction of certain conditions. As of December 31, 2005, the
Company had no borrowing outstanding under the Foreign Revolving Credit
Facility.
Liquidity
As of
December 31, 2005, the Company had working capital of
$498.6 million and had no borrowings outstanding under the
Revolving Credit Facility. As of December 31, 2005, the
Company had approximately $92.0 million of cash and cash
equivalents available as collateral against outstanding letters of
credit of $60.0 million and approximately $72.2 million
of other cash and cash equivalents primarily held by foreign
subsidiaries. As of December 31, 2005, the Company had
$207.1 million of credit available under its Revolving Credit
Facility which included available borrowings of $175.0 million
and cash and cash equivalents, net of outstanding letters of credit of
$32.1 million. Total cash and cash equivalents increased
$98.6 million from $65.6 million as of January
1, 2005 to $164.2 million as of December
31, 2005. The Company’s total debt as of
December 31, 2005 was $210.0 million, consisting
of the Senior Notes. On January 31, 2006, the
Company consummated the CKJEA Acquisition. See
‘‘Business— Acquisitions—CKJEA
Acquisition.’’ The Company funded the acquisition
using a combination of approximately $70.7 million of cash on
hand (net of cash acquired) and borrowings of $180 million under
a new term loan under the Amended and Restated Credit Agreement. In
connection with the closing of the CKJEA Acquisition, on January 31,
2006, the Company also assumed an aggregate of approximately
€74 million (approximately $90 million) of debt.
Approximately €37 million (approximately $45 million) of
the assumed debt was repaid simultaneously with the closing, leaving
approximately €37 million (approximately $45 million) of
debt outstanding. The Company believes that cash available under
its Amended and Restated Credit Agreement and cash to be generated from
future operating activities will be sufficient to fund its operations,
including capital expenditures, for the next three years. If the
Company requires additional sources of capital to fund its operations,
it will consider reducing capital expenditures, seeking additional
financing or selling assets to meet such requirements.
Share Repurchase Program
In July
2005, the Company’s Board of Directors authorized the Company to
enter into a share repurchase program of up to 3,000,000 shares of
common stock. In order to comply with the terms of 61
the applicable debt instruments (which
contain certain limitations on share repurchases), the Company expects
that purchases under the share repurchase program will be made over the
course of the next three years. During Fiscal 2005, the Company
repurchased 9,151 shares of its common stock in the open market at a
total cost of $0.2 million (an average cost of $24.25 per share)
under the share repurchase program. The share repurchase program may be
modified or terminated by the Company’s Board of Directors at
any time.
Cash Flows
The following
table summarizes the cash flows from the Company's operating,
investing and financing activities for Fiscal 2005, 2004, and 2003. The
cash flows for Fiscal 2003 include cash flows for the period
January 5, 2003 to February 4, 2003
combined with cash flows for the period February 5, 2003
to January 3, 2004. For
Fiscal 2005, cash provided by operating activities from continuing
operations was $137.0 million compared to $54.8 million
in Fiscal 2004 and $64.3 million in Fiscal 2003. The
$82.2 million increase in cash provided by operating activities
from continuing operations for Fiscal 2005 compared to Fiscal 2004 was
due primarily to a $77.4 million reduction in cash required to
fund net working capital (primarily inventory, accounts receivable,
accounts payable and accrued liabilities). Net working capital
improvements resulted in $16.5 million of net operating cash
inflows in Fiscal 2005 compared to $60.9 million of net
operating cash outflows in Fiscal 2004. Net inventory decreased by
$2.0 million in Fiscal 2005 compared to an increase of
$55.7 million in Fiscal 2004. The improvement in inventory
reflects the Company’s efforts to time inventory receipts to
match shipping requirements more closely. Accounts receivable decreased
$0.8 million in Fiscal 2005 compared to an increase of
$7.2 million in Fiscal 2004, reflecting initial shipments of
Chaps into the mid-tier channel of distribution at the end of
December 2004 (which had resulted in an unusually high level of
accounts receivable for the Chaps business unit at the end of
Fiscal 2004). The $9.4 million decrease in cash provided
by operating activities from continuing operations for Fiscal 2004
compared to Fiscal 2003 was due primarily to a $44.9 million
increase in net income (after adjusting for the effect of non-cash
items) offset by a $54.4 million decrease in cash flows from
operating assets and liabilities. The decrease in cash flows from
operating assets and liabilities primarily reflects the $39.9
million increase in working capital primarily as a result of a
$55.8 million increase in inventory related to the Chaps
business (to support Chaps’ introduction to the mid-tier
channel of distribution) and increases in Calvin Klein jeans
inventories as a result of expected increased shipments for the first
quarter of Fiscal 2005. For Fiscal 2005, cash provided by
operating activities from discontinued operations was $1.0
million as compared to cash used in operating activities from
discontinued operations of $4.5 million in Fiscal 2004 and
$5.6 million in Fiscal 2003. The $5.5 million increase in
cash provided by operating activities from discontinued operations from
Fiscal 2004 to Fiscal 2005 was due primarily to the winding down of
discontinued operations including the collection of open accounts
receivables of $1.7 million. 62 For Fiscal 2005, cash used in investing
activities from continuing operations was $36.7 million compared
to $46.4 million in Fiscal 2004 and $18.7 million in
Fiscal 2003. The $9.7 million decrease from Fiscal 2004 to
Fiscal 2005 was due primarily to a decrease in cash used for business
acquisitions. During Fiscal 2004, the Company used $40.0 million
for the purchase of Ocean Pacific. During Fiscal 2005, the Company used
$1.5 million for business acquisitions. The decrease in cash
used in Fiscal 2004 was partially offset by the sale of the assets of
the ABS business unit in January 2004 for $15.2 million.
The Company did not sell any business units during Fiscal 2005. Cash
used in investing activities for Fiscal 2005 included the $4.3
million purchase of the Calvin Klein swimwear license (see
Note 13 of Notes to Consolidated Financial Statements). In
addition, purchases of property, plant and equipment increased
$5.7 million for Fiscal 2005 as compared to Fiscal 2004, due
primarily to capitalized costs associated with the implementation of
the SAP system. The $27.7 million increase in cash used in
investing activities in Fiscal 2004 compared to Fiscal 2003 was due
primarily to the $40.0 million acquisition of the OP
business in Fiscal 2004 (the Company did not have any business
acquisitions in Fiscal 2003). Partially offsetting this increase in
cash used was a $13.4 million increase in Fiscal 2004 in
proceeds on disposal of assets and collection of notes receivable. In
Fiscal 2004, the Company received $15.2 million for the sale of
the ABS business unit, $6.4 million for the collection of notes
receivable (primarily related to the sale of the White Stag
trademark to Wal-Mart Stores, Inc.) and $2.5 million for the
sale of other assets as compared to $9.5 million net proceeds
received in Fiscal 2003 from the sale of the White Stag trademark to
Wal-Mart Stores, Inc. The Company had no cash provided by
investing activities from discontinued operations in Fiscal 2005
compared to $1.1 million in Fiscal 2004 and cash used of
$0.6 million in Fiscal 2003. Cash provided by investing
activities from discontinued operations in Fiscal 2004 primarily
reflects net proceeds of $1.2 million received from the sale of
real property in the United Kingdom related to the Company’s
Warner’s Europe operations. For Fiscal 2005, cash
used in financing activities was $0.1 million compared to cash
provided by financing activities of $0.6 million in Fiscal 2004
and cash used in financing activities of $112.5 million in
Fiscal 2003. The $0.7 million increase in cash used in financing
activities from Fiscal 2004 to Fiscal 2005 was due primarily to an
increase in payments of deferred financing costs related to the
amendments to the Company’s Revolving Credit Facility. The
$113.1 million increase in cash provided by financing activities
from Fiscal 2003 to Fiscal 2004 was due primarily to the $109.7
million net effect of proceeds received for the issuance of and
payments made on debt in Fiscal 2003 in connection with the
Company’s emergence from bankruptcy on February 4,
2003. Cash in operating accounts primarily represents lockbox
receipts not yet cleared or available to the Company, cash held by
foreign subsidiaries and compensating balances required under various
trade, credit and other arrangements. 63 Contractual Obligations The
following table summarizes the Company's contractual commitments
as of December 31, 2005: Seasonality The operations of the
Company are somewhat seasonal. In Fiscal 2005, approximately
54.1% of the Company's net revenues were generated in the
first half of the fiscal year. The Company's Swimwear business is
seasonal; approximately 68.7% of the Swimwear Group's net
revenues were generated in the first half of Fiscal 2005. The working
capital needs of the Swimwear Group are highest during the periods when
the Company's other businesses have their lowest working capital
requirements. Sales and earnings from the Company's other groups
and business units are generally expected to be somewhat higher in the
second half of the fiscal year. The following sets forth the net
revenues, operating income and net cash flow from operating activities
generated for each quarter of Fiscal 2005 and Fiscal 2004. 64 Inflation The Company does not believe that the relatively moderate levels of
inflation in the United States, Canada and Western Europe have had a
significant effect on its net revenues or its profitability in any of
the last three fiscal years. The Company believes that, in the past, it
has been able to offset such effects by increasing prices on certain
items or instituting improvements in productivity. Mexico historically
has been subject to high rates of inflation; however, the effects of
inflation on the operation of the Company's Mexican subsidiaries
have not had a material effect on the results of the Company in any of
the last three fiscal years. Deflation of Apparel Selling
Prices Management believes the apparel industry is undergoing
significant changes in its manufacturing and procurement business
cycles through the lifting of import restrictions on certain products,
overall deflation in the selling prices of its products and department
store and retailer demands for increased profitability from the
wholesale apparel industry. The Company expects to meet these
challenges by improving its procurement process through aggressive
sourcing of product from multiple vendors and locations, improving its
efficiency through upgraded systems and improved procedures,
maintaining a diverse mix of products that are offered at multiple
price points across virtually all channels of distribution. Off-Balance Sheet Arrangements None. Recent
Accounting Pronouncements In November 2004, the Financial
Accounting Standards Board (‘‘FASB’’)
issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4 (‘‘SFAS 151’’). SFAS 151
clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). SFAS 151 is
effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for
costs incurred during fiscal years beginning after November
24, 2004. SFAS 151 is effective January 1, 2006
for the Company. The Company believes the provisions of SFAS 151 are
consistent with its current accounting position and does not expect the
adoption of SFAS 151 to have a material effect on the Company's
consolidated financial statements. In December 2004, the
FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
(‘‘SFAS 123R’’). SFAS 123R requires
compensation costs related to share-based payment transactions to be
recognized in the financial statements. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date
fair value of the equity or liability instruments issued. In addition,
liability awards will be remeasured each reporting period. Compensation
cost will be recognized ratably over the period that an employee
provides service in exchange for the award. SFAS 123R replaces SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Among other matters, SFAS 123R requires
companies to estimate the forfeiture rate of stock-based compensation
awards. On April 14, 2005, the SEC announced the adoption
of a rule that defers the required effective date of SFAS 123R. The SEC
rule provides that SFAS 123R is now effective for registrants
65
as of the beginning of the first fiscal year
beginning after June 15, 2005. Effective February
5, 2003, the Company adopted the fair value method of accounting
for stock options for all options granted by the Company after
February 4, 2003 pursuant to the prospective method
provisions of SFAS No. 148, Accounting for Stock-Based Compensation,
Transition and Disclosure. Since February 5, 2003,
the Company has recorded stock-based compensation expense based on
actual forfeitures of stock-based compensation awards. The Company has
determined that the adoption of SFAS 123R at the commencement of its
2006 fiscal year will not have a material effect on its consolidated
financial statements. In March 2005, the FASB issued FASB
Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations (‘‘FIN 47’’). FIN 47
clarifies that the term conditional asset retirement obligation
as used in SFAS No. 143, Accounting for Asset Retirement
Obligations (‘‘SFAS 143’’), refers to a
legal obligation to perform an asset retirement activity in which the
timing and (or) method of settlement are conditional on a future event
that may or may not be within the control of the entity. SFAS 143
requires an entity to recognize the fair value of a legal obligation to
perform asset retirement activities when the obligation is incurred
— generally upon acquisition, construction, or development and
(or) through the normal operation of the asset. FIN 47 is effective no
later than the end of fiscal years ending after December
15, 2005 (December 31, 2005 for the Company). Adoption of FIN 47
did not have a material effect on the Company’s consolidated
financial statements. In June 2005, the FASB issued SFAS
No. 154, Accounting Changes and Error Corrections
(‘‘SFAS 154’’). SFAS 154 replaces APB
Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements. SFAS 154
requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statements presented
reflecting the new accounting principle as if it had been adopted at
the beginning of the earliest period presented. SFAS 154 also requires
that a change in method of depreciating or amortizing a long-lived
nonfinancial asset be accounted for prospectively as a change in
estimate and that the correction of errors in previously issued
financial statements be termed a restatement. SFAS 154 is effective for
accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. In
June 2005, the FASB issued Emerging Issue Task Force Abstract
No. 05-6, Determining the Amortization Period for Leasehold
Improvements Purchased after Lease Inception or Acquired in a Business
Combination ("EITF 05-6"). EITF 05-6
requires that leasehold improvements acquired in a business combination
or purchased subsequent to the inception of a lease be amortized over
the shorter of the useful life of the assets or a term that includes
the remaining lease term and renewals that are deemed to be reasonably
assured at the date of acquisition or purchase. EITF 05-6 is effective
for leasehold improvements that are purchased or acquired in reporting
periods beginning after June 29, 2005. Adoption of EITF
05-6 did not have an effect on the Company’s consolidated
financial statements.
Statement Regarding Forward-Looking
Disclosure
This Annual Report on Form 10-K, as well as
certain other written, electronic and oral disclosures made by the
Company from time to time, contains ‘‘forward-looking
statements’’ within the meaning of Rule 3b-6 of the
Securities Exchange Act of 1934, as amended, Rule 175 of the Securities
Act and relevant legal decisions. The forward-looking statements
involve risks and uncertainties and reflect, when made, the
Company's estimates, objectives, projections, forecasts, plans,
strategies, beliefs, intentions, opportunities and expectations. Actual
results may differ materially from anticipated results or expectations
and investors are cautioned not to place undue reliance on any
forward-looking statements. Statements other than statements of
historical fact are forward-looking statements. These forward-looking
statements may be identified by, among other things, the use of
forward-looking language, such as the words
‘‘believe,’’
‘‘anticipate,’’
‘‘expect,’’
‘‘estimate,’’
‘‘intend,’’
‘‘may,’’
‘‘project,’’ ‘‘scheduled
to,’’ ‘‘seek,’’
‘‘should,’’ ‘‘will
be,’’ ‘‘will continue,’’
‘‘will likely result,’’ or the negative of
those terms, or other similar words and phrases or by discussions of
intentions or strategies. 66 The following factors, among others,
including those described in this Annual Report on Form 10-K under the
heading ‘‘Risk Factors’’ (as such
disclosure may be modified or supplemented from time to time), could
cause the Company's actual results to differ materially from
those expressed in any forward-looking statements made by it: economic
conditions that affect the apparel industry; the Company's
failure to anticipate, identify or promptly react to changing trends,
styles, or brand preferences; further declines in prices in the apparel
industry; declining sales resulting from increased competition in the
Company’s markets; increases in the prices of raw materials;
events which result in difficulty in procuring or producing the
Company's products on a cost-effective basis; the effect of laws
and regulations, including those relating to labor, workplace and the
environment; changing international trade regulation, including as it
relates to the imposition or elimination of quotas on imports of
textiles and apparel; the Company’s ability to protect its
intellectual property or the costs incurred by the Company related
thereto; the Company’s dependence on a limited number of
customers; the Company's dependence on license agreements with
third parties; the Company’s dependence on the reputation of its
brand names, including, in particular, Calvin Klein; the
Company’s exposure to conditions in overseas markets in
connection with the Company’s foreign operations and the
sourcing of products from foreign third-party vendors; the
Company's foreign currency exposure; unanticipated internal
control deficiencies or weaknesses or ineffective disclosure controls
and procedures; the sufficiency of cash to fund operations, including
capital expenditures; the Company's ability to service its
indebtedness, the effect of changes in interest rates on the
Company's indebtedness that is subject to floating interest rates
and the limitations imposed on the Company's operating and
financial flexibility by the agreements governing the Company's
indebtedness; the Company's dependence on its senior management
team and other key personnel; disruptions in the Company's
operations caused by difficulties with the SAP Apparel and Footwear
Solution; the limitations on purchases under the Company's share
repurchase program contained in the Company's debt instruments,
the number of shares that the Company purchases under such program and
the prices paid for such shares; the failure of newly acquired
businesses to generate expected levels of revenues; the failure of the
Company to successfully integrate such businesses with its existing
businesses (and as a result, not achieving all or a substantial portion
of the anticipated benefits of the acquisition); and such newly
acquired business being adversely affected, including by one or more of
the factors described above, and thereby failing to achieve anticipated
revenues and earnings growth. The Company encourages investors to
read the section entitled ‘‘Risk
Factors’’ and the discussion of the Company's
critical accounting policies under
‘‘—Discussion of Critical Accounting
Policies’’ included in this Annual Report on Form
10-K, as such discussions may be modified or supplemented by subsequent
reports that the Company files with the SEC. This discussion of
forward-looking statements is not exhaustive but is designed to
highlight important factors that may affect actual results.
Forward-looking statements speak only as of the date on which they are
made, and, except for the Company's ongoing obligation under the
U.S. federal securities laws, the Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. Item
7A. Quantitative and Qualitative Disclosures About Market
Risk. The Company is exposed to market risk primarily
related to changes in hypothetical investment values under certain of
the Company’s employee benefit plans, interest rates and foreign
currency exchange rates. The Company does not use derivative financial
instruments for speculation or for trading purposes. Market
Risk During Fiscal 2005, the Company adopted a non-qualified
deferred compensation plan. Liabilities accrued for the plan’s
participants are based on the participants’ contributions and
the market values of hypothetical investments approved by the Company
that are selected by the participants. Increases and decreases in
liabilities attributable to changes in the market values of the
participants’ hypothetical investments are reflected in the
Company’s statement of operations. As of December
31, 2005, the total liability accrued attributable to
participants’ accounts was $0.2 million. A 67
hypothetical increase of 10% in the
value of participants’ hypothetical investment accounts (which
would increase the accrued liability related to the deferred
compensation plan) would not have had a material effect on the
Company’s balance sheet or statement of operations for Fiscal
2005. Interest Rate Risk The Company’s market risk
from exposure to changes in interest rates as of December
31, 2005 was limited because the Company did not have any
borrowings outstanding under its Revolving Credit Facility as of
December 31, 2005, and the interest rate on the Company’s
Senior Notes is fixed at 8 7/8% per annum.
However, as of December 31, 2005, the Company was exposed
to interest rate risk on its 2003 and 2004 Swap Agreements with
notional amounts totaling $75 million. The variable interest
rate portion of the Company’s outstanding swap agreements is
determined semi-annually on December 15 and June 15 for
the ensuing six-month period. A hypothetical 10% increase in
interest rates would have had an annual unfavorable impact of
$0.4 million and $0.2 million in Fiscal 2005 and 2004,
respectively, on the Company’s income from continuing operations
before provision for income taxes. See
"Management's Discussion and Analysis of
Financial Condition and Results of Operations—Capital Resources
and Liquidity—Financing Arrangements" and
Note 15 of Notes to Consolidated Financial Statements. Foreign Exchange Risk The Company has foreign currency
exposures primarily related to buying in currencies other than the
functional currency in which it operates. These exposures are primarily
concentrated in the Company's Canadian, Mexican and European
operations, which accounted for approximately 28.4% of the
Company's total net revenues for Fiscal 2005. These foreign
operations of the Company purchase products from suppliers denominated
in United States dollars. Total purchases of products made by foreign
subsidiaries denominated in United States dollars amounted to
approximately $102.9 million for Fiscal 2005. A hypothetical
decrease of 10% in the value of these foreign currencies
relative to the United States dollar would have increased cost of goods
sold (which would decrease operating income) by $10.3 million
for Fiscal 2005. As of December 31, 2005, the
Company had foreign currency exchange contracts outstanding to
purchase, through April 2006, approximately $3.4 million
for a total of approximately €2.8 million at a
weighted-average exchange rate of 1.22 $/€. The foreign
currency exchange contracts mature through April 2006 and were
are designed to fix the number of euros required to satisfy the first
one-third of dollar denominated purchases of inventory by certain of
the Company’s pre-CKJEA Acquisition European subsidiaries. A
hypothetical 10% adverse change in the foreign currency exchange
rate between the euro and the United States dollar (i.e., an increase
in the euro/dollar exchange rate from 1.22 $/€ to 1.34
$/€) would have decreased the unrealized gain on
outstanding foreign exchange contracts by approximately $0.3
million at December 31, 2005. The hypothetical change
would have reduced the Company’s income from continuing
operations before provision for income taxes by a comparable amount
when the related inventory is sold. In January 2006, in
connection with the CKJEA Acquisition, the Company entered into euro
forward purchase contracts to purchase approximately
€146.0 million for $180.0 million. The euro
to dollar exchange rate at the close of business on the purchase date
resulted in an exchange loss of approximately $2.5 million which
the Company recorded in fiscal 2006. Item 8. Financial
Statements and Supplementary Data.
The information required
by Item 8 of Part II is incorporated by reference to the Consolidated
Financial Statements filed with this Annual Report on Form 10-K. See
Item 15 of Part IV. Item 9. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure. None. 68 Item 9A. Controls and
Procedures. (a) Disclosure Controls
and Procedures
The Company's management, with the
participation of the Company's Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
the end of the fiscal year covered by this Annual Report on Form 10-K.
Based on management's evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that, as
of the end of the period covered by this report, the Company's
disclosure controls and procedures were effective. (b) Management’s Annual Report on
Internal Control Over Financial Reporting
Pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, the Company has included
Management's Annual Report on Internal Control Over Financial
Reporting (the ‘‘Management Report’’) in
this Form 10-K. Deloitte & Touche LLP, the independent registered
public accounting firm of the Company, has audited management's
assessment of, and the effectiveness of, the Company's internal
control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act). The Management Report
appears on page F-1 and the report of Deloitte & Touche LLP appears
at pages F-2 to F-3 of this Form 10-K under the captions
‘‘Management's Annual Report on Internal Control
Over Financial Reporting’’ and
‘‘Report of Independent Registered Public Accounting
Firm’’ and are incorporated herein by reference. (c) Changes in Internal Control Over Financial
Reporting
There have not been any changes in the
Company's internal control over financial reporting during the
Company's fourth fiscal quarter ended December 31,
2005 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting. Item 9B. Other Information.
None. 69 PART
III Item 10. Directors and Executive Officers of the
Registrant. The information required by Item 10 of Part III
is incorporated by reference from Executive Officers of the
Registrant in Item 1 of Part I included herein and from the Proxy
Statement of The Warnaco Group, Inc., relating to the 2006 Annual
Meeting of Stockholders, to be filed with the SEC within 120 days of
the Fiscal 2005 year-end. Item 11. Executive
Compensation. The information required by Item 11 of Part
III is incorporated by reference from the Proxy Statement of The
Warnaco Group, Inc., relating to the 2006 Annual Meeting of
Stockholders, to be filed with the SEC within 120 days of the Fiscal
2005 year-end. Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
The information required by Item 12 of Part III is
incorporated by reference from the Proxy Statement of The Warnaco
Group, Inc., relating to the 2006 Annual Meeting of Stockholders, to be
filed with the SEC within 120 days of the Fiscal 2005 year-end. Item 13. Certain Relationships and Related
Transactions.
The information required by Item 13 of Part
III is incorporated by reference from the Proxy Statement of The
Warnaco Group, Inc., relating to the 2006 Annual Meeting of
Stockholders, to be filed with the SEC within 120 days of the Fiscal
2005 year-end. Item 14. Principal Accounting Fees and
Services.
The information required by Item 14 of Part III
is incorporated by reference from the Proxy Statement of The Warnaco
Group, Inc., relating to the 2006 Annual Meeting of Stockholders, to be
filed with the SEC within 120 days of the Fiscal 2005 year-end. 70 PART IV Item 15. Exhibits and
Financial Statement
Schedules. All other schedules for which
provision is made in the applicable accounting regulations of the SEC
which are not included with this additional financial data have been
omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or Notes
thereto. 71 3. List of
Exhibits. 72 73 74 75 76 77 78 SIGNATURES Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 2nd
day of March, 2006. Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated: 79 MANAGEMENT'S
ANNUAL REPORT ON Management of the Company is responsible for
establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the supervision of, the
Company's principal executive and principal financial officers
and effected by the Company's board of directors, management and
other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that: Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risks
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. Management assessed the effectiveness of the
Company's internal control over financial reporting as of
December 31, 2005. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment,
management concluded that, as of December 31, 2005, the
Company's internal control over financial reporting was
effective. The Company's independent registered public
accounting firm has issued a report on our assessment of the
Company's internal control over financial reporting. This report
appears on pages F-2 and F-3. F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM To the Board of Directors and
Stockholders of The Warnaco Group, Inc. We have audited management's assessment, included in
the accompanying Management's Annual Report on Internal
Control Over Financial Reporting on Page F-1, that The Warnaco
Group, Inc. and subsidiaries (the
‘‘Company’’) maintained effective internal
control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Company's management is responsible
for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of
the Company's internal control over financial reporting based on
our audit. We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinions. A company's
internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions,
and effected by the company's board of directors, management, and
other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material
effect on the financial statements. Because of the
inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate. In our opinion, management's
assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on the criteria established in
Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Also
in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2005, based on the criteria established in
Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. F-2 We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial
statement schedule as of and for the fiscal year ended December
31, 2005 of The Warnaco Group, Inc. and subsidiaries and our
report dated March 2, 2006 expressed an unqualified opinion on
those financial statements and financial statement schedule. DELOITTE & TOUCHE LLP New York, New
York F-3 REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM To the Board of Directors and
Stockholders of We have audited the accompanying consolidated balance
sheets of The Warnaco Group, Inc. and subsidiaries (the
‘‘Company’’) as of December
31, 2005 and January 1, 2005, and the related
consolidated statements of operations, stockholders' equity
(deficiency) and comprehensive income (loss), and cash flows for the
fiscal years ended December 31, 2005 and January
1, 2005, the period February 5, 2003 to
January 3, 2004 (‘‘Successor Company
operations’’), and the period January 5,
2003 to February 4, 2003 (‘‘Predecessor
Company operations’’). Our audits also included the
financial statement schedule listed in the Index at Item 15(a)2. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on the financial statements and financial
statement schedule based on our audits. We conducted our audits
in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion. In our opinion, the Successor Company consolidated
financial statements referred to above present fairly, in all material
respects, the financial position of The Warnaco Group, Inc. and
subsidiaries as of December 31, 2005 and January
1, 2005, and the results of its operations and its cash flows
for the fiscal years ended December 31, 2005 and
January 1, 2005 and the period February 5,
2003 to January 3, 2004, in conformity with accounting
principles generally accepted in the United States of America. Further,
in our opinion, the Predecessor Company consolidated financial
statements referred to above present fairly, in all material respects,
the results of its operations and its cash flows for the period
January 5, 2003 to February 4, 2003, in
conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein. As discussed in
Note 3 to the consolidated financial statements, on January
16, 2003, the Bankruptcy Court entered an order confirming the
Company's Reorganization Plan which became effective on
February 4, 2003. Accordingly, the accompanying financial
statements have been prepared in conformity with AICPA Statement of
Position 90-7, ‘‘Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code,’’ for the
Successor Company as a new entity with assets, liabilities, and a
capital structure having carrying values not comparable with prior
periods as described in Note 3. As discussed in Note 10 to the
consolidated financial statements, during the period February
5, 2003 to January 3, 2004, the Successor Company
changed its method of accounting for defined benefit pension
plans. F-4 We have also audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of the Company's internal control over
financial reporting as of December 31, 2005, based on the
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 2, 2006
expressed an unqualified opinion on management's assessment of
the effectiveness of the Company's internal control over
financial reporting and an unqualified opinion on the effectiveness of
the Company's internal control over financial reporting. DELOITTE & TOUCHE LLP New York, New
York F-5 THE WARNACO GROUP,
INC. CONSOLIDATED BALANCE SHEETS
See
Notes to Consolidated Financial
Statements.
F-6 THE WARNACO GROUP,
INC. CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes
to Consolidated Financial
Statements.
F-7 THE
WARNACO GROUP, INC. CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIENCY)
See
Notes to Consolidated Financial Statements.
F-8 THE WARNACO GROUP,
INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (continued) F-9 THE WARNACO GROUP,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
See
Notes to Consolidated Financial
Statements.
F-10 THE
WARNACO GROUP, INC. Note 1—Nature of
Operations and Summary of Significant Accounting Policies
Organization: The Warnaco Group, Inc.
(‘‘Warnaco Group’’ and, collectively with
its subsidiaries, the ‘‘Company’’) was
incorporated in Delaware on March 14, 1986 and, on
May 10, 1986, acquired substantially all of the
outstanding shares of Warnaco Inc.
(‘‘Warnaco’’). Warnaco is the principal
operating subsidiary of Warnaco Group. Warnaco Group, Warnaco and
certain of Warnaco's subsidiaries were reorganized under Chapter
11 of the U.S. Bankruptcy Code, 11 U.S.C. Sections 101-1330, as amended
(the ‘‘Bankruptcy Code’’), effective
February 4, 2003 (the ‘‘Effective
Date’’). See Note 3.
Nature of Operations:
The Company designs, sources, manufactures, markets and licenses a
broad line of (i) intimate apparel (including bras, panties, sleepwear,
loungewear, shapewear and daywear for women and underwear and sleepwear
for men); (ii) sportswear for men, women and juniors (including
jeanswear, knit and woven shirts, tops and outerwear); and (iii)
swimwear for men, women, juniors and children (including swim
accessories and fitness and active apparel). The Company's
products are sold under a number of highly recognized owned and
licensed brand names. The Company offers a diversified portfolio of
brands across multiple distribution channels to a wide range of
customers. The Company distributes its products to customers, both
domestically and internationally, through a variety of channels,
including department and specialty stores, independent retailers, chain
stores, membership clubs, mass merchandisers and the internet. The
Company also currently operates 121 Calvin Klein® retail
stores worldwide (consisting of 59 stores directly operated by the
Company, including one on-line store, and 62 stores operated under
retail licenses or distributor agreements). The Company’s
Swimwear Group also operates two Speedo® outlet stores which
opened in July 2005 and one on-line store.
Basis of
Consolidation and Presentation: The accompanying consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
References in these consolidated financial statements to the
‘‘Predecessor’’ refer to the Company prior
to February 4, 2003. References to the
‘‘Successor’’ refer to the Company on and
after February 4, 2003 after giving effect to the
implementation of fresh start accounting. The Company operates
on a fiscal year basis ending on the Saturday closest to
December 31. The period January 2, 2005 to
December 31, 2005 (‘‘Fiscal
2005’’), the period January 4, 2004 to
January 1, 2005 (‘‘Fiscal
2004’’) and the period February 5, 2003 to
January 3, 2004 contained fifty-two weeks, fifty-two
weeks and forty-eight weeks, respectively, of operations of the
Successor. The period January 5, 2003 to February
4, 2003 contained four weeks of operations of the
Predecessor. All inter-company accounts have been eliminated in
consolidation. The accompanying consolidated financial
statements of the Predecessor for the period January 5,
2003 to February 4, 2003 have been presented in
accordance with American Institute of Certified Public Accountants
Statement of Position (‘‘SOP’’) 90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (‘‘SOP 90-7’’). In the
Chapter 11 Cases (as defined in Note 3), substantially all unsecured
liabilities and under-secured liabilities as of June 11,
2001 were subject to compromise or other treatment under the First
Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and Its
Affiliated Debtors and Debtors-In-Possession Under Chapter 11 of the
Bankruptcy Code (the ‘‘Reorganization
Plan’’). Pursuant to SOP 90-7, professional fees
and other costs associated with the Chapter 11 Cases were expensed as
incurred and reported as reorganization items. Interest expense was
reported only to the extent that it was to be paid during the Chapter
11 Cases. Upon emergence from bankruptcy on February
4, 2003, the Company adopted fresh start reporting under the
provisions of SOP 90-7. Pursuant to the provisions of SOP 90-7, (i) the
Company's reorganization value of $750,000 was allocated to the
fair value of the Company's assets and liabilities; F-11 THE
WARNACO GROUP, INC.
(ii) the Company's accumulated deficit
was eliminated; and (iii) the Class A Common Stock, par value $0.01 per
share, issued by the Predecessor (the ‘‘Old Common
Stock’’) was cancelled. In addition, approximately
$2,499,385 of the Company's outstanding pre-petition debt and
liabilities were discharged. See Note 3.
Use of
Estimates: The Company uses estimates and assumptions in the
preparation of its financial statements which affect (i) the reported
amounts of assets and liabilities at the date of the consolidated
financial statements and (ii) the reported amounts of revenues and
expenses. Actual results could materially differ from these estimates.
The estimates the Company makes are based upon historical factors,
current circumstances and the experience and judgment of the
Company's management. The Company evaluates its assumptions and
estimates on an ongoing basis and may employ outside experts to assist
in its evaluations. The Company believes that the use of estimates
affects the application of all of the Company's significant
accounting policies and procedures.
Revenue Recognition:
The Company recognizes revenue when goods are shipped to customers and
title and risk of loss have passed, net of estimated customer returns,
allowances and other discounts. The Company recognizes revenue from its
consignment accounts and retail stores when goods are sold to
consumers, net of allowances for future returns. The determination of
allowances and returns involves the use of significant judgment and
estimates by the Company. The Company bases its estimates of allowance
rates on past experience by product line and account, the financial
stability of its customers, the expected rate of retail sales and
general economic and retail forecasts. The Company reviews and adjusts
its accrual rates each month based on its current experience. During
the Company's monthly review, the Company also considers its
accounts receivable collection rate and the nature and amount of
customer deductions and requests for promotion assistance. The Company
believes it is likely that its accrual rates will vary over time and
could change materially if the Company's mix of customers,
channels of distribution or product mix changes. Current rates of
accrual for sales allowances, returns and discounts vary by customer.
Revenues from the licensing or sub-licensing of certain trademarks are
recognized when the underlying royalties are earned.
Cost of
Goods Sold: Cost of goods sold for the Successor consists of the
cost of products produced or purchased and certain period costs related
to the product procurement and manufacturing process. Product costs
include: (i) material, direct labor and overhead (including the costs
incurred by external contractors); (ii) duty, quota and related
tariffs; (iii) in-bound freight and traffic costs, including
inter-plant freight; (iv) procurement and material handling costs; (v)
indirect production overhead including inspection, quality control,
sample making, production control and planning, cost accounting and
preproduction; and (vi) in-stocking costs in the Company's
warehouse (in-stocking costs may include but are not limited to costs
to receive, unpack and stock product available for sale in its
distribution centers). Period costs included in cost of goods sold
include: (a) royalty; (b) design and merchandising; (c) prototype
costs; (d) manufacturing variances (net of amounts capitalized); (e)
loss on seconds; (f) provisions for inventory losses (including
provisions for shrinkage and losses on the disposition of excess and
obsolete inventory), and (g) direct freight charges incurred to ship
finished goods to customers. Costs incurred to store, pick, pack and
ship (excluding direct freight charges) inventory to customers are
included in shipping and handling costs and are classified in selling,
general and administrative (‘‘SG&A’’)
expenses. The Company's gross profit and gross margin may not be
directly comparable to those of its competitors as income statement
classifications of certain expenses may vary by company.
Cash
and Cash Equivalents: Cash and cash equivalents include cash in
banks, demand deposits and investments in short-term marketable
securities with maturities of 90 days or less. Restricted cash on the
consolidated statements of cash flows relates to restricted cash
balances as of January 5, 2003 and February 4, 2003. The Company did
not have any restricted cash balances as of January 3, 2004, January 1,
2005 and December 31, 2005. F-12 THE
WARNACO GROUP, INC.
Accounts Receivable: The Company
maintains reserves for estimated amounts that the Company does not
expect to collect from its trade customers. Accounts receivable
reserves include amounts the Company expects its customers to deduct
for returns, allowances, trade discounts, markdowns, amounts for
accounts that go out of business or seek the protection of the
Bankruptcy Code and amounts related to charges in dispute with
customers. The Company's estimate of the allowance amounts that
are necessary includes amounts for specific deductions the Company has
authorized and an amount for other estimated losses. Adjustments for
specific account allowances and negotiated settlements of customer
deductions are recorded as deductions to revenue in the period the
specific adjustment is identified. The provision for accounts
receivable allowances is affected by general economic conditions, the
financial condition of the Company's customers, the inventory
position of the Company's customers and many other factors. The
determination of accounts receivable reserves is subject to significant
levels of judgment and estimation by the Company's management. If
circumstances change or economic conditions deteriorate, the Company
may need to increase the reserve significantly. As of December
31, 2005 and January 1, 2005, the Company recorded
$48,258 and $54,943, respectively, of accounts receivable
reserves.
Inventories: The Company records purchases of
inventory when it assumes title and the risk of loss. The Company
values its inventories at the lower of cost, determined on a first-in,
first-out basis, or market. The Company evaluates its inventories to
determine excess units or slow-moving styles based upon quantities on
hand, orders in house and expected future orders. For those items for
which the Company believes it has an excess supply or for styles or
colors that are obsolete, the Company estimates the net amount that it
expects to realize from the sale of such items. The Company's
objective is to recognize projected inventory losses at the time the
loss is evident rather than when the goods are ultimately sold. The
Company's calculation of the reduction in carrying value
necessary for the disposition of excess inventory is highly dependent
on its projections of future sales of those products and the prices it
is able to obtain for such products. The Company reviews its inventory
position monthly and adjusts its carrying value for excess or obsolete
goods based on revised projections and current market conditions for
the disposition of excess and obsolete inventory. If economic
conditions worsen, the Company may have to decrease its carrying value
of excess or obsolete goods substantially.
Long-lived
Assets: As of February 4, 2003, the Company adopted
fresh start reporting and, as a result, its long-lived assets,
including property, plant and equipment were recorded at their fair
values based upon the preliminary appraised values of such assets.
Adjustments to the preliminary appraised values were recorded as
adjustments to goodwill in the period February 5, 2003 to
January 3, 2004. The Company used the work of an
independent third party appraisal firm to assist it in determining the
fair values of its property, plant and equipment. The Company and the
independent third party appraiser determined the fair value of the
Company's property, plant and equipment using the planned future
use of each asset or group of assets, quoted market prices for assets
where a market existed for such assets, the expected future revenue and
profitability of the business unit utilizing such assets and the
expected future life of such assets. In its determination of fair
value, the Company also considered whether an asset would be sold
either individually or with other assets and the proceeds the Company
expected to receive from such a sale. Long-lived assets in existence at
February 4, 2003 are recorded at their fair values net of
accumulated depreciation since February 4, 2003.
Long-lived assets acquired after February 4, 2003 are
recorded at historical costs, net of accumulated depreciation.
Assumptions relating to the expected future use of individual assets
could affect the fair value of such assets and the depreciation expense
recorded related to such assets in the future. The Company
reviews its long-lived assets for possible impairment when events or
circumstances indicate that the carrying value of the assets may not be
recoverable. Assumptions and estimates used in the evaluation of
impairment may affect the carrying value of long-lived and intangible
assets, which could result in impairment charges in future periods. In
addition, depreciation and amortization F-13 THE
WARNACO GROUP, INC.
expense is affected by the Company's
determination of the estimated useful lives of the related assets. The
estimated useful lives of fixed assets and finite lived intangible
assets are based on their classification and expected usage, as
determined by the Company.
Goodwill and Other Intangible
Assets: Goodwill represents (i) the amount by which the
Company's reorganization value exceeded the fair value of its
tangible assets and identified intangible assets less its liabilities
allocated in accordance with the provisions of Statement of Financial
Accounting Standards (‘‘SFAS’’) No. 141,
Business Combinations (‘‘SFAS
141’’), as of February 4, 2003 and (ii) for
transactions subsequent to February 4, 2003, the excess of purchase
price over fair value of net assets acquired in business combinations
under the purchase method of accounting. Pursuant to the provisions of
SFAS No. 142, Goodwill and Other Intangible Assets
(‘‘SFAS 142’’), goodwill is not amortized
and is subject to an annual impairment test which the Company performs
in the fourth quarter of each fiscal year. Goodwill was allocated to
various reporting units, which are either the operating segment or one
reporting level below the operating segment. As of December 31, 2005,
the Company's reporting units for purposes of applying the
provisions of SFAS 142 are:
Warner's®/Olga®/Body Nancy
Ganz®/Bodyslimmers®, Calvin Klein underwear,
Lejaby®, Calvin Klein jeans, Chaps®,
Swimwear (excluding Ocean Pacific®) and Ocean
Pacific. SFAS 142 requires the Company to compare the fair value of
the reporting unit to its carrying amount on an annual basis to
determine if there is potential impairment. If the fair value of the
reporting unit is less than its carrying value, an impairment loss is
recorded to the extent that the implied fair value of the goodwill
within the reporting unit is less than its carrying value. If the
carrying amount of goodwill exceeds its fair value, an impairment loss
is recognized. Fair values for goodwill are determined based on
discounted cash flows, market multiples or appraised values, as
appropriate. Intangible assets primarily consist of licenses and
trademarks. The fair value of such licenses and trademarks owned by the
Company at February 4, 2003 was based upon the
preliminary appraised values of such assets as determined by the
Company and an independent third party appraiser. Adjustments to the
preliminary appraised amounts were recorded as adjustments to goodwill
in the period February 5, 2003 to January
3, 2004. Licenses and trademarks in existence at February
4, 2003 are recorded at their fair values net of accumulated
amortization since February 4, 2003. Licenses and
trademarks acquired after February 4, 2003 are recorded
at cost net of accumulated amortization. The majority of the
Company's license and trademark agreements cover periods of time
in excess of forty years. The estimates and assumptions used in the
determination of the value of indefinite-lived intangible assets will
not have an effect on the Company's future earnings unless a
future evaluation of trademark or license value indicates that such
asset is impaired. Pursuant to the provisions of SFAS 142, intangible
assets with indefinite lives are not amortized. The Company reviews its
indefinite-lived intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an
indefinite-lived intangible asset exceeds its fair value. If the
carrying value of an indefinite-lived intangible asset exceeds its fair
value (determined based on discounted cash flows), an impairment loss
is recognized. Identifiable intangible assets with finite lives are
amortized on a straight-line basis over the estimated useful lives of
the assets. The Company reviews its finite-lived intangible assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of finite-lived intangible asset may not be
recoverable. Recoverability of a finite-lived intangible asset is
measured by a comparison of its carrying amount to the undiscounted
future cash flows expected to be generated by the asset. If the asset
is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset, which is determined based on
discounted cash flows. See Note 13. The Company did not identify
any impairments of goodwill or intangible assets for Fiscal 2005,
Fiscal 2004 or the period February 5, 2003 to
January 3, 2004.
Property, Plant and
Equipment: Property, plant and equipment as of December
31, 2005 and January 1, 2005 is stated at
estimated fair value, net of accumulated depreciation, for the assets
in F-14 THE
WARNACO GROUP, INC.
existence at February 4, 2003
and at historical costs, net of accumulated depreciation, for additions
during the period February 5, 2003 to December
31, 2005. Property, plant and equipment in existence at
February 4, 2003 was stated at fair value as determined
by the Company together with the assistance of a third party appraiser.
The estimated useful lives of property, plant and equipment are
summarized below: Depreciation and amortization expense is
based on the estimated useful lives of depreciable assets and is
provided using the straight line method. Leasehold improvements are
amortized over the lesser of the useful lives of the assets or the
lease term; or the lease term plus renewal options if renewal of the
lease is reasonably assured. Depreciation and amortization expense
related to property, plant and equipment was $28,311, $29,226, $27,678,
and $4,243 for Fiscal 2005, Fiscal 2004, the period February
5, 2003 to January 3, 2004, and the period
January 5, 2003 to February 4, 2003,
respectively.
Computer Software Costs: Internal and
external costs incurred in developing or obtaining computer software
for internal use are capitalized in property, plant and equipment in
accordance with SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and related
guidance, and are amortized on a straight-line basis, over the
estimated useful life of the software (3 to 7 years). Interest costs of
$1,134 in Fiscal 2005 related to developing or obtaining computer
software were capitalized to the cost of the asset in accordance with
SFAS No. 34, Capitalization of Interest Costs. General and
administrative costs related to developing or obtaining such software
are expensed as incurred.
Income Taxes: Deferred income
taxes are determined using the liability method. Deferred tax assets
and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in
which such differences are expected to reverse. A valuation allowance
is established to reduce the amount of deferred tax assets to an amount
that the Company believes, based upon objectively verifiable evidence,
is realizable.
Pension Plans: The Company has a defined
benefit pension plan covering certain full-time non-union domestic
employees and certain domestic employees covered by a collective
bargaining agreement (the ‘‘Pension
Plan’’). The Company also has unfunded defined benefit
pension plans in foreign countries. The determination of the total
liability attributable to benefits owed to participants covered by the
defined benefit plans is determined by third party actuaries using
assumptions provided by the Company. The assumptions used can have a
significant effect on the amount of pension liability recorded by the
Company. The actuaries also determine the annual cash contribution to
the defined benefit plans. The Pension Plan was under-funded as of
December 31, 2005 and January 1, 2005. The
Pension Plan and the Company's Reorganization Plan contemplate
that the Company will continue to fund its minimum required
contributions and any other premiums due under the Employee Retirement
Income Security Act of 1974, as amended and the United States Internal
Revenue Code of 1986, as amended. Effective January 1,
2003, the Pension Plan was amended and, as a result, no future benefits
accrue to participants in the Pension Plan. As a result of the
amendment, the Company has not recorded pension expense related to
current service for all periods presented and will not record pension
expense for current service in any future period. As of December
31, 2005 and January 1, 2005, the Company recorded
a Pension Plan liability equal to the amount that the present value of
projected benefit obligations exceeded the fair value of Pension Plan
assets as determined by F-15 THE
WARNACO GROUP, INC.
the Pension Plan trustee. The Company's
cash contribution to the Pension Plan for 2005 was $4,978 and is
expected to be approximately $28,900 in the aggregate from fiscal 2006
through fiscal 2010. The amount of estimated cash contributions that
the Company will be required to make to the Pension Plan could increase
or decrease depending on the actual return earned by the assets of the
Pension Plan and changes in the amount of projected benefit obligation
as determined by the Pension Plan actuary. The accrued long-term
defined benefit plans liability and accruals for other post retirement
benefits are classified as long-term liabilities in the consolidated
balance sheet at December 31, 2005. The portion of the
total unfunded liability that will be contributed by the Company to the
Pension Plan in fiscal 2006 of approximately $12,900 is classified as
accrued pension obligations at December 31, 2005. On October 5, 2003, the Company changed its method of
accounting for its defined benefit plans (including the Pension Plan)
to a method that accelerates the recognition of gains or losses on
Pension Plan assets and the projected benefit obligations
(‘‘Accelerated Method’’). The Company
previously deferred gains and losses on assets and liabilities in
excess of the expected rate of return and amortized the deferred amount
into operations over the remaining estimated service life to the extent
such gains and losses exceeded 10% of the projected benefit
obligation. The Company also deferred the recognition of certain
changes in the projected benefit obligations (‘‘Deferred
Method’’). The Company believes that the Accelerated
Method is preferable to the Deferred Method because the recorded
pension liability, using the Accelerated Method, will approximate fair
value. Pursuant to SFAS No. 87, Employers' Accounting for
Pensions, each quarter the Company recognizes interest cost on
projected benefit obligations offset by the expected return on Pension
Plan assets. In addition, the Company obtains reports from the Pension
Plan actuary and Pension Plan trustee to measure Pension Plan assets
and liabilities at year-end. The Company records the effect of actual
gains and losses exceeding the expected return on Pension Plan assets
and any other changes in the projected benefit obligations determined
by the actuary in the fourth quarter of each fiscal year. This change
results in additional volatility in pension expense/income in future
periods. Therefore, the Company reports pension expense/income on a
separate line of its statement of operations in each period. To conform
to the current year presentation, pension expense (income) was
reclassified from selling, general and administrative expenses to
pension expense (income) for all defined benefit plans in foreign
countries. See Note 10.
Stock-Based Compensation:
Effective February 5, 2003, the Company adopted the fair
value method of accounting for stock options for all options granted by
the Company after February 4, 2003 pursuant to the
prospective method provisions of SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. The Company
uses the Black-Scholes-Merton model to calculate the fair value of
stock option awards. The Black-Scholes-Merton model requires the
Company to make significant judgments regarding the assumptions used
within the Black-Scholes-Merton model, the most significant of which
are the stock price volatility assumption, the expected life of the
option award and the risk-free rate of return. In determining the stock
price volatility assumption used, the Company considered the volatility
of the stock prices of selected companies in the apparel industry, the
nature of those companies, the Company's stock price volatility
since its emergence from bankruptcy and other factors. The Company
based its Fiscal 2005 estimate of the expected life of a stock option
of six years upon the vesting period of 36-42 months and the option
term of ten years for issued and outstanding options. The
Company's risk-free rate of return assumption for options granted
in Fiscal 2005, Fiscal 2004 and the period February 5,
2003 to January 3, 2004 was equal to the quoted yield for
five-year U.S. treasury bonds as of the date of grant. Compensation
expense related to stock option grants is determined based on the fair
value of the stock option on the grant date and is recognized over the
vesting period of the grants on a straight F-16 THE
WARNACO GROUP, INC.
line basis. Compensation expense related to
restricted stock grants is determined based on the fair value of the
underlying stock on the grant date and recognized over the vesting
period of the grants on a straight-line basis. Prior to
February 5, 2003, the Company followed the
disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation (‘‘SFAS
123’’). The Company accounted for stock-based
compensation for employees using the intrinsic value method as
prescribed by Accounting Principles Board
(‘‘APB’’) Opinion No. 25, Accounting for
Stock Issued to Employees (‘‘APB 25’’),
and related interpretations. Under APB 25, no compensation expense was
recognized for employee share option grants because the exercise price
of the options granted equaled the market price of the underlying
shares on the date of grant (the ‘‘intrinsic value
method’’). Compensation expense related to restricted
stock grants, prior to February 4, 2003, was recognized
over the vesting period of the grants. The following table
illustrates the effect that stock-based compensation would have had on
net income (loss) and net income (loss) per share of the Predecessor if
such compensation had been included in its net income (loss) and net
income (loss) per share for the period January 5, 2003 to
February 4, 2003: F-17 THE
WARNACO GROUP, INC. Total stock-based compensation expense of
the Successor for periods presented after February 4,
2003 was as follows: The
fair values of these stock options were estimated at the date of grant
using a Black-Scholes-Merton option pricing model with the following
assumptions: The Predecessor did not grant any
stock-based compensation or stock options during the period
January 5, 2003 to February 4, 2003.
Advertising Costs: Advertising costs are included in SG&A
expenses and are expensed when the advertising or promotion is
published or presented to consumers. Cooperative advertising expenses
are charged to operations as incurred and are also included in SG&A
expenses. The amounts charged to operations for advertising, marketing
and promotion expenses (including cooperative advertising, marketing
and promotion expenses) for Fiscal 2005, Fiscal 2004, the periods
February 5, 2003 to January 3, 2004 and
January 5, 2003 to February 4, 2003 were
$85,273, $85,972, $66,393, and $7,403, respectively. Cooperative
advertising expenses for Fiscal 2005, Fiscal 2004, the periods
February 5, 2003 to January 3, 2004 and
January 5, 2003 to February 4, 2003 were
$15,913, $18,406, $17,509, and $1,420, respectively. F-18 THE
WARNACO GROUP, INC.
Shipping and Handling Costs: Costs
to store, pick and pack merchandise and costs related to warehousing
and distribution activities (with the exception of freight charges
incurred to ship finished goods to customers) are expensed as incurred
and are classified in SG&A expenses. Direct freight charges
incurred to ship merchandise to customers are expensed as incurred and
are classified in cost of goods sold. The amounts charged to SG&A
for shipping and handling costs for Fiscal 2005, Fiscal 2004 and the
periods February 5, 2003 to January 3, 2004
and January 5, 2003 to February 4, 2003
were $48,840, $45,195, $38,002, and $3,508, respectively.
Leases: The Company recognizes rent expense for operating
leases on a straight-line basis (including the effect of reduced or
free rent and rent escalations) over the initial lease term. The
difference between the cash paid to the landlord and the amount
recognized as rent expense on a straight-line basis is included in
deferred rent and classified within other long-term liabilities. Cash
reimbursements received from landlords for leasehold improvements and
other cash payments received from landlords as lease incentives are
recorded as deferred rent and classified as other long-term
liabilities. Deferred rent related to landlord incentives is amortized
using the straight-line method over the initial lease term as an offset
to rent expense.
Marketable Securities: Marketable
securities are stated at fair value based on quoted market prices.
Marketable securities are classified as available-for-sale with any
unrealized gains or losses, net of tax, included as a component of
stockholders' equity and included in accumulated other
comprehensive income.
Assets Held for Sale: The Company
classifies non-inventory assets to be sold as assets held for sale.
Assets held for sale are reported at estimated fair values less selling
costs. Assets held for sale at December 31, 2005 and
January 1, 2005 include certain property, plant and
equipment identified for disposition.
Notes Receivable:
Notes receivable represents the long-term portion of amounts due from
third parties evidenced by long-term note agreements, net of allowances
for doubtful accounts. Notes receivable earn interest at a rate of
8%. Interest income from notes receivable is included in
interest expense, net. The current portion of notes receivable is
classified with other current assets.
Deferred Financing
Costs: Deferred financing costs represent legal, other professional
and bank underwriting fees incurred in connection with the issuance of
debt. Such fees are amortized over the life of the related debt using
the interest method. Amortization of deferred financing costs is
included in interest expense, net.
Financial Instruments:
During Fiscal 2005, the Company entered into foreign currency exchange
contracts which mature through April 24, 2006 and are
designed to fix the number of euros required to satisfy the first
one-third of dollar denominated purchases of inventory by certain of
the Company’s European subsidiaries. See Note 11. The foreign
currency exchange contracts are designated as cash flow hedges. Changes
in the fair values of these cash flow hedges are deferred and recorded
as a component of other comprehensive income until the associated
inventory is sold, at which time the deferred gains or losses are
recorded in cost of goods sold. Commissions and fees related to foreign
currency exchange contacts are expensed as incurred. See Note 19. The Company also utilizes interest rate swaps to convert a portion
of the interest obligation related to its long-term debt from a fixed
rate to floating rates. See Note 15. A number of international
financial institutions are counterparties to the Company's
outstanding letters of credit, interest rate swap agreements and
foreign exchange contracts. The Company monitors its positions with,
and the credit quality of, these counterparty financial institutions
and does not anticipate nonperformance by these counterparties.
Management believes that the Company would not suffer a material loss
in the event of nonperformance by these counterparties. The Company
does not use derivative financial instruments for speculative or
trading purposes and has not done so since the Petition Date (as
defined in Note 3). F-19 THE
WARNACO GROUP, INC.
Start-Up Costs: Pre-operating
costs relating to the start-up of new product lines and businesses are
expensed as incurred.
Other Liabilities: Other long-term
liabilities consist primarily of deferred rent and other landlord
incentives.
Comprehensive Income (Loss): Comprehensive
income (loss) consists of net income (loss), unrealized gain (loss) on
marketable securities (net of tax) and cumulative translation
adjustments. Because such cumulative translation adjustments are
considered a component of permanently invested earnings of foreign
subsidiaries, no income taxes are provided on such amounts.
Translation of Foreign Currencies: Cumulative translation
adjustments arise primarily from consolidating the net assets and
liabilities of the Company's foreign operations at current rates
of exchange. Assets and liabilities of the Company's foreign
operations are recorded at current rates of exchange at the balance
sheet date and translation adjustments are applied directly to
stockholders' equity and are included as part of accumulated
other comprehensive income. Gains and losses related to the translation
of current amounts due from foreign subsidiaries are included in other
income (loss) and are expensed in the period incurred. Translation
gains and losses related to long-term and permanently invested
inter-company balances are recorded in accumulated other comprehensive
income. Income and expense items for the Company's foreign
operations are translated using monthly average exchange rates.
Reclassifications: For comparative purposes, certain prior
period items have been reclassified to conform to the current period
presentation.
Recent Accounting Pronouncements: In
November 2004, the Financial Accounting Standards Board
(‘‘FASB’’) issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43, Chapter 4
(‘‘SFAS 151’’). SFAS 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 is effective
for inventory costs incurred during fiscal years beginning after
June 15, 2005. Earlier application is permitted for costs
incurred during fiscal years beginning after November 24,
2004. SFAS 151 is effective January 1, 2006 for the
Company. The Company believes the provisions of SFAS 151 are consistent
with its current accounting position and does not expect the adoption
of SFAS 151 to have a material effect on the Company's
consolidated financial statements. In December 2004, the
FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
(‘‘SFAS 123R’’). SFAS 123R requires
compensation costs related to share-based payment transactions to be
recognized in the financial statements. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date
fair value of the equity or liability instruments issued. In addition,
liability awards will be remeasured each reporting period. Compensation
cost will be recognized ratably over the period that an employee
provides service in exchange for the award. SFAS 123R replaces SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board (‘‘APB’’)
Opinion No. 25, Accounting for Stock Issued to Employees. On
April 14, 2005, the SEC announced the adoption of a rule
that defers the required effective date of SFAS 123R. The SEC rule
provides that SFAS 123R is now effective for registrants as of the
beginning of the first fiscal year beginning after June
15, 2005. Effective February 5, 2003, the Company
adopted the fair value method of accounting for stock options for all
options granted by the Company after February 4, 2003
pursuant to the prospective method provisions of SFAS No. 148,
Accounting for Stock-Based Compensation, Transition and
Disclosure. Among other matters, SFAS 123R requires companies to
estimate the future forfeiture rate of stock-based compensation awards.
Since February 5, 2003, the Company has recorded
stock-based compensation expense based on actual forfeitures of
stock-based compensation awards. The Company has determined that the
adoption of SFAS 123R at the commencement of its 2006 fiscal year will
not have a material effect on its consolidated financial
statements. F-20 THE
WARNACO GROUP, INC. In March 2005, the FASB issued
FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations (‘‘FIN 47’’).
FIN 47 clarifies that the term conditional asset retirement
obligation as used in SFAS No. 143, Accounting for Asset
Retirement Obligations (‘‘SFAS 143’’),
refers to a legal obligation to perform an asset retirement activity in
which the timing and (or) method of settlement are conditional on a
future event that may or may not be within the control of the entity.
SFAS 143 requires an entity to recognize the fair value of a legal
obligation to perform asset retirement activities when the obligation
is incurred—generally upon acquisition, construction, or
development and (or) through the normal operation of the asset. FIN 47
is effective no later than the end of fiscal years ending after
December 15, 2005 (December 31, 2005 for the Company).
Adoption of FIN 47 did not have a material effect on the
Company’s consolidated financial statements. In
June 2005, the FASB issued SFAS No. 154, Accounting Changes
and Error Corrections (‘‘SFAS 154’’).
SFAS 154 replaces APB Opinion No. 20, Accounting Changes and
SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. SFAS 154 requires that a voluntary change in accounting
principle be applied retrospectively with all prior period financial
statements presented reflecting the new accounting principle as if it
had been adopted at the beginning of the earliest period presented.
SFAS 154 also requires that a change in method of depreciating or
amortizing a long-lived nonfinancial asset be accounted for
prospectively as a change in estimate and that the correction of errors
in previously issued financial statements be termed a restatement. SFAS
154 is effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005. In June 2005, the FASB issued Emerging Issue Task Force
Abstract No. 05-6, Determining the Amortization Period for Leasehold
Improvements Purchased after Lease Inception or Acquired in a Business
Combination (‘‘EITF 05-6’’). EITF 05-6
requires that leasehold improvements acquired in a business combination
or purchased subsequent to the inception of a lease be amortized over
the shorter of the useful life of the assets or a term that includes
the remaining lease term and renewals that are deemed to be reasonably
assured at the date of acquisition or purchase. EITF 05-6 is effective
for leasehold improvements that are purchased or acquired in reporting
periods beginning after June 29, 2005. Adoption of EITF
05-6 did not have an effect on the Company’s consolidated
financial statements. Note 2—Acquisitions
Calvin Klein Jeans Business in Europe and Asia: On January
31, 2006, the Company acquired (the "CKJEA
Acquisition") 100% of the shares of the companies
that operate the wholesale and retail businesses of Calvin Klein
jeanswear and accessories in Europe and Asia and the CK Calvin
Klein "bridge" line of sportswear and
accessories in Europe from Fingen Apparel N.V., Fingen S.p.A., Euro
Cormar S.p.A., and Calvin Klein, Inc. (collectively, the
"Sellers") for total consideration of
approximately €240,000 (approximately $292,000),
consisting of cash consideration of approximately €179,000
(approximately $218,000) and assumption of indebtedness of
approximately €61,000 (approximately $74,000), net of cash
acquired of approximately €13,000 (total assumed debt
aggregating approximately €74,000 (approximately
$90,000)). In addition, as of December 31, 2005, the Company had
incurred professional fees and other related costs of approximately
$5,500 in connection with the acquisition. The purchase price is
subject to certain post-closing adjustments, including adjustments
related to the amount of working capital acquired. Approximately
€37,000 (approximately $45,000) of the assumed debt was
repaid simultaneously with the closing, leaving approximately
€37,000 (approximately $45,000) of assumed debt
outstanding. The CKJEA Acquisition was consummated pursuant to the
terms and conditions of a Stock Purchase Agreement, dated as of
December 20, 2005 (as amended as of January 30, 2006). The Company is
in the process of determining the allocation of the purchase price to
the fair values of the assets acquired and liabilities assumed on
acquisition. F-21 THE
WARNACO GROUP, INC. The Company funded the acquisition using
a combination of cash on hand and borrowings under a new $180,000 term
loan facility under the Amended and Restated Credit Agreement. See
Note 15— Financing Agreements—Revolving Credit Facility;
Amended and Restated Credit Agreement. In connection with
the consummation of the CKJEA Acquisition, the Company will, subject to
certain conditions, acquire 100% of the shares of the company
that operates the license for Calvin Klein men's and
women's Collection apparel and accessories worldwide on or about
January 2, 2008. The Calvin Klein Collection license terminates
on December 2013, subject to certain conditions. In addition, in
connection with the consummation of the CKJEA Acquisition, on January
31, 2006, the Company acquired various exclusive license agreements and
entered into amendments to certain of its existing license agreements
with Calvin Klein, Inc. (in its capacity as licensor).
Ocean
Pacific: On August 19, 2004, the Company acquired
100% of the outstanding common stock of Ocean Pacific Apparel
Corp. (collectively, with its subsidiaries
‘‘OP’’) for $40,000 in cash and the
assumption of $1,000 in debt owed to a prior significant shareholder of
OP. The assumed debt was repaid simultaneously with the closing.
The terms of the acquisition agreement require the Company to make
certain contingent payments to the seller if (i) wholesale net revenues
(both directly earned by the Company and directly earned by the
Company's licensees) exceed a defined threshold for fiscal 2007
and (ii) the operating profits of certain defined direct operations of
the Company exceed 5% of wholesale net revenues for fiscal 2007
and fiscal 2008. The contingent payments are based upon the amounts
earned by the Company in excess of the applicable thresholds. The
defined thresholds represent significant growth in OP's
business compared to Fiscal 2004 and 2005. No contingent payments are
required if the defined thresholds are not exceeded by the Company. Any
contingent payments ultimately made by the Company will be recorded as
an increase in the purchase price of OP and an increase in
goodwill.
OP, based in Irvine, California, is a surf and
beach lifestyle brand which operates both directly and through a
network of licensees worldwide and offers a broad array of apparel and
accessories for men, women, young men, juniors, and kids under its
Op®, Ocean Pacific®, and Op Classics®
labels. During Fiscal 2005, the Company exited certain key third party
licenses and added certain OP product categories to its
wholesale business model. The results of OP's
operations have been included in the Company's consolidated
statement of operations (as part of the Company's Swimwear Group)
since August 19, 2004 and the acquired assets and liabilities have been
included in the Company's consolidated balance sheets. Unaudited
pro forma information related to this acquisition is not included since
the impact of this transaction is not material to the consolidated
results of operations or balance sheet of the Company. F-22 THE
WARNACO GROUP, INC. Assets acquired and liabilities assumed
at August 19, 2004 were as follows:
Distribution Facility: In April 2004, the
Company entered into an agreement to terminate its joint venture
agreement in regards to a distribution facility located in the
Netherlands. The Company acquired the remaining outstanding shares of
the company formed under the joint venture for $288, net of cash
acquired of $104. Note 3—Bankruptcy and Fresh Start
Reporting
Chapter 11 Cases: On June 11,
2001 (the ‘‘Petition Date’’), Warnaco
Group, 36 of its 37 U.S. subsidiaries and one of its Canadian
subsidiaries, Warnaco of Canada Company (each a
‘‘Debtor’’ and, collectively, the
‘‘Debtors’’), each filed a voluntary
petition for relief under the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (the
‘‘Bankruptcy Court’’) (collectively, the
‘‘Chapter 11 Cases’’). The remainder of
Warnaco Group's foreign subsidiaries were not debtors in the
Chapter 11 Cases, nor were they subject to foreign bankruptcy or
insolvency proceedings. On November 9, 2002, the
Debtors filed the Reorganization Plan. On January 16,
2003, the Bankruptcy Court entered (i) its Findings of Fact to and
Conclusions of Law Re: Order and Judgment Confirming The First Amended
Joint Plan of The Warnaco Group, Inc. and Its Affiliated Debtors and
Debtors-In-Possession Under Chapter 11 of Title 11 of the United States
Code, dated November 8, 2002, and (ii) an Order and
Judgment Confirming The First Amended Joint Plan of The Warnaco Group,
Inc. and Its Affiliated Debtors and Debtors-In-Possession Under Chapter
11 of Title 11 of the United States Code, dated November
8, 2002, and Granting Related Relief (the
‘‘Confirmation Order’’). In
accordance with the provisions of the Reorganization Plan and the
Confirmation Order, the Reorganization Plan became effective on the
Effective Date and the Company entered into a $275,000 Senior Secured
Revolving Credit Facility (as amended on November 12,
2003, August 1, 2004 and September 15,
2005, the ‘‘Revolving Credit Facility’’).
The Revolving Credit Facility entered into on F-23 THE
WARNACO GROUP, INC.
the Effective Date provided for a four-year,
non-amortizing revolving credit facility. In accordance with the
Reorganization Plan, on the Effective Date, the Company issued $200,942
of New Warnaco Second Lien Notes due 2008 (the ‘‘Second
Lien Notes’’) to certain pre-petition creditors and
others in a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended (the ‘‘Securities
Act’’), pursuant to Section 1145(a) of the Bankruptcy
Code. The Second Lien Notes were secured by a second priority security
interest in substantially all of the Debtors' domestic assets and
guaranteed by Warnaco Group and Warnaco's domestic subsidiaries.
On June 12, 2003, the Company repaid the Second Lien
Notes and the accrued interest thereon, in full, with the proceeds of
the offering of Warnaco's 8 7/8% Senior
Notes due 2013 (the ‘‘Senior Notes’’). See
Note 15. Set forth below is a summary of certain material
provisions of the Reorganization Plan. Among other things, as described
below, the Reorganization Plan resulted in the cancellation of the Old
Common Stock issued prior to the Effective Date. The holders of Old
Common Stock did not receive any distribution on account of the Old
Common Stock under the Reorganization Plan. The Company, as reorganized
under the Reorganization Plan, issued 44,999,973 shares of common
stock, par value $0.01 per share (the ‘‘New Common
Stock’’), in reliance on the exemption from registration
afforded by Section 1145 of the Bankruptcy Code, which were distributed
to pre-petition creditors as described below. In addition, 5,000,000
shares of New Common Stock were reserved for issuance pursuant to
management incentive stock awards, including options. On March
12, 2003, subject to approval by the stockholders of the
Company's proposed 2003 Stock Incentive Plan (the
‘‘Stock Incentive Plan’’), the Company
authorized the grant of 750,000 shares of restricted stock and options
to purchase 3,000,000 shares of New Common Stock at the fair market
value of the New Common Stock on the date of grant. On May
28, 2003, the stockholders of the Company approved the Stock
Incentive Plan. The Company received no proceeds from the issuance of
the New Common Stock and the Second Lien Notes; however, approximately
$2,499,385 of indebtedness was extinguished in connection with such
issuances. The following is a summary of distributions made
pursuant to the Reorganization Plan:
Reorganization Value: In conjunction with the
preparation of the Reorganization Plan, the Company considered many
factors in determining its reorganization value, including the amount
and nature of its monetary assets, estimated earnings and cash flow to
be generated by the Company in the future, the enterprise value of
apparel companies selling similar products based on quoted market
F-24 THE
WARNACO GROUP, INC.
prices and the value of recently completed
transactions for the purchase and sale of companies or parts of
companies in the apparel industry. All of these factors involved the
use of judgments and estimates, the most significant of which involve
estimates of future earnings and cash flow that the Company will
generate. The Company also engaged an independent third party appraisal
and consulting firm (the ‘‘BEV Appraiser’’)
to assist the Company in preparing a valuation analysis of the
reorganized Company. The BEV Appraiser utilized a combination of the
market approach and income approaches. The BEV Appraiser, based upon
its discussions with the Company, made certain assumptions in its work.
The weighted average long-term debt interest rate was assumed to be
7.81% and the weighted average cost of capital was assumed to be
13.80%. The appraiser used three years of financial projections
in its evaluation and determined the terminal value based upon the
Company's weighted average cost of capital and expected free cash
flow using a 5.00% growth rate per annum. The determination of
the Company's projected income and free cash flow required the
use of significant judgments and estimates by the Company. Changes in
economic conditions and many other factors will have a significant
effect on the Company's ability to earn the income or generate
the free cash flow assumed in its projections. In addition, the cost of
equity or debt financing and the changes in general economic conditions
will have a significant effect on the Company's ability to
finance and fund its operations and the cost associated with its
borrowing activities. As a result, variations in the amounts of income
and cash flow actually earned by the Company will have a significant
effect on its business enterprise value
(‘‘BEV’’). The Company also
allocated the overall business enterprise value to its various business
units. The determination of the value of each of the Company's
business units was based upon the estimated earnings and cash flow to
be generated by those business units. The Company also considered the
type and amount of assets held by each of those units. In addition, the
Company offered several of its business units for sale as part of its
reorganization under the Bankruptcy Code. The Company considered the
prices offered for those business units in allocating its BEV to its
business units. The Company allocated the value of each business unit
to the individual assets and liabilities held by each business unit
based on the fair value of the specific assets. The Company used the
work of third party appraisers to assist it in allocating such fair
value. Based upon the analysis of the BEV Appraiser and
considering the factors noted above, the Company determined that the
BEV of the reorganized Company was between $730,000 and $770,000. Based
upon the timing of the Debtors' emergence from bankruptcy, market
conditions at the time of emergence and the net assets of the Company
at the Effective Date, the Company determined its reorganization equity
value of $503,548 by subtracting the Company's debt of $246,452
on the Effective Date from the mid-point ($750,000) of the BEV
valuation range.
Fair Value of Certain Long-Term Tangible and
Intangible Assets: In order to implement the provisions of SFAS
141, the Company engaged an independent third party to appraise its
various business units and long-term tangible and intangible assets and
to assist the Company in allocating the reorganization value of the
Company to its various assets and liabilities at February
4, 2003. The Company engaged an independent third party
appraisal and consulting firm (the ‘‘Asset
Appraiser’’) separate from the BEV Appraiser to assist
the Company in determining the fair value of the Company's
long-term tangible assets and identifiable intangible assets. Based
upon the reorganization value of the Company, the Asset Appraiser
provided detailed analysis of certain of the Company's long-term
tangible and intangible assets. See Note 13.
Fresh Start
Reporting: The Debtors' emergence from bankruptcy proceedings
on February 4, 2003 resulted in a new reporting entity
and adoption of fresh start reporting as of that date in accordance
with SOP 90-7. The consolidated balance sheet as of February
4, 2003 (provided below) gives effect to adjustments in the
carrying value of assets and liabilities to fair value in accordance
with the provisions of SOP 90-7 and SFAS 141. F-25 THE
WARNACO GROUP, INC. The following table reflects the
implementation of the Reorganization Plan and the adjustments recorded
to the Company's assets and liabilities to reflect the
implementation of the Reorganization Plan and the adjustments of such
assets and liabilities to fair value at February 4, 2003,
based upon the Company's reorganization value of $750,000 (as
included in the Reorganization Plan and as approved by the Bankruptcy
Court). Reorganization adjustments resulted primarily from
the: The Company determined the preliminary values of its
assets and liabilities after considering the work of the BEV Appraiser
and the Asset Appraiser, as well as other valuation estimates. The table below reflects reorganization adjustments for the
discharge of indebtedness, issuance of New Common Stock, issuance of
Second Lien Notes and the fresh start adjustments and the resulting
fresh start consolidated balance sheet. F-26 THE
WARNACO GROUP, INC.
(footnotes
on next page)
F-27 THE
WARNACO GROUP, INC.
(footnotes from previous
page)
Note
4—Discontinued Operations During the period
February 5, 2003 to January 3, 2004, as
part of its ongoing restructuring activities, the Company entered into
an agreement to sell its A.B.S. by Allen Schwartz®
(‘‘ABS’’) business unit and announced its
intention to close its 44 remaining Speedo Authentic
Fitness® retail stores. In addition, in the fourth quarter of
2003, the Company announced its intention to rationalize its
Warner's European operation through a sale of the
business. A description of discontinued operations is presented
below:
Sale of ABS: In November 2003, the Company
entered into an agreement to sell the assets of its ABS business unit.
The sale of the ABS business unit was finalized on January
30, 2004. The sales price was $15,368 in cash plus the
assumption of approximately $2,000 in liabilities. In the fourth
quarter of 2003, the Company recorded a loss related to the sale of its
ABS business unit of $3,143, which was included in loss from
discontinued operations. The loss included an impairment charge of
$3,019, before income taxes, related to the write-down of the ABS
trademark to net realizable value. Cash proceeds from the sale, net of
related expenses, were $15,179.
Closure of 44 Speedo
Authentic Fitness Retail Stores: During the fourth quarter of 2003,
the Company announced its intention to close its 44 remaining Speedo
Authentic Fitness retail stores. As of January 1,
2005, the Company had ceased all operations related to its 44 stores.
During Fiscal 2004, the Company recorded, as part of loss from
discontinued operations, charges of $2,639 related to future operating
lease commitments and landlord settlements, net of possible sublease
rental income. F-28 THE
WARNACO GROUP, INC.
Rationalization of Warner's
Europe Operations: During the fourth quarter of 2003, the Company
announced its plan to exit its Warner's business in
Europe. On May 21, 2004, the Company entered into a
licensing agreement for its Warner's business in Europe.
According to the terms of the agreement, the licensee pays royalties
based upon sales. The licensee is not required to pay minimum royalties
until fiscal 2007 and no royalties have been earned to date. The
Company amended the license agreement in Fiscal 2005. Summarized
operating results for the discontinued operations are as follows: The assets and liabilities of the discontinued
operations at January 1, 2005 are presented in the
consolidated balance sheets as follows: Note
5—Reorganization Items (Predecessor) In connection with
the Chapter 11 Cases, the Company initiated several strategic and
organizational changes to streamline its operations, focus on its core
businesses and return it to profitability. In connection with these
actions, by January 4, 2003 the Company had closed all of
its domestic outlet retail stores and certain of its Speedo
Authentic Fitness retail stores. In the first quarter of 2003, the
Company closed the last three remaining Speedo Authentic Fitness
retail stores. Long term obligations related to many of the strategic
actions, including the closure and consolidation of certain European
facilities, are expected to be fully paid by the end of the first
quarter of fiscal 2006. During the fourth quarter of Fiscal 2002,
the Company completed a strategic review of its Intimate Apparel
operations in Europe and formalized a plan to consolidate its European
manufacturing operations and to restructure certain other
manufacturing, sales, and administrative F-29 THE
WARNACO GROUP, INC.
operations in Europe (the
‘‘Social Plan’’). The Company incurred
severance, outplacement, legal, accounting and other expenses
associated with the Social Plan covering approximately 350 employees.
Through February 4, 2003, the Company had accrued $14,698
related to the minimum level of benefits to be paid to terminated
employees in addition to legal fees and other shutdown expenses in
connection with the Social Plan. In the period February
5, 2003 to January 3, 2004, the Company recorded
an additional $1,723 for obligations due under the Social Plan. The
costs incurred after February 4, 2003 are recorded as
part of ‘‘restructuring items’’ of the
Successor in the consolidated statement of operations. As a
direct result of the Chapter 11 Cases, the Company has recorded certain
liabilities, incurred certain legal and professional fees and
written-down certain assets. The transactions recorded were consistent
with the provisions of SOP 90-7. Reorganization items included
in the consolidated statement of operations for the period
January 5, 2003 to February 4, 2003 were
$29,805. Included in reorganization items are certain non-cash asset
impairment provisions and accruals for items that were paid in cash.
Subsequent to February 4, 2003, to the extent that the
Company incurred reorganization items in respect of the Chapter 11
Cases, such items have been recorded in SG&A expenses. Included in
SG&A expenses for Fiscal 2004 and the period February
5, 2003 to January 3, 2004 are legal and
professional fees and certain employee-related costs relating to the
Chapter 11 Cases of $662 and $5,012, respectively. Reorganization items were as follows: The Reorganization Plan was
consummated on February 4, 2003. Pursuant to the
Reorganization Plan, unsecured pre-petition claimants received their
pro rata share of 1,147,050 shares of New Common Stock. The shares were
distributed to each individual claimant in 2003. Note
6—Restructuring Expense (Income) During Fiscal 2005 the
company recorded income related to restructuring items of $503 related
primarily to the reversal of accruals due to reductions in the
estimated amounts required for employee terminations, partially offset
by expenses incurred in connection with the continuation of activities
commenced in prior periods associated with the closure, consolidation
or sale of certain facilities. During Fiscal 2004 and the period
February 5, 2003 to January 3, 2004, the
Company incurred restructuring charges of $5,130 and $19,101,
respectively, primarily related to the continuation of activities
commenced in prior periods associated with the closure and
consolidation of certain facilities, the January 2004 sale of
the Company's manufacturing facility in Honduras and the
February 2004 sale of the Company's San Luis, Mexico
manufacturing facility.
Closure and/or Consolidation of
Facilities: The Company closed two sewing plants (one located in
each of Puerto Cortes, Honduras and Los Angeles, California), one
cutting and warehousing facility in F-30 THE
WARNACO GROUP, INC.
Thomasville, Georgia, distribution
facilities in Secaucus, New Jersey, distribution facilities in Canada,
a technical production support center in Van Nuys, California and
certain manufacturing and sales offices in Europe. The Company also
completed the consolidation of its executive offices in New York City.
In addition, the Company incurred severance and contract termination
costs related to the shutdown, in January 2005, of two retail
outlet stores in the United Kingdom.
Sale of Manufacturing
Facility in Villanueva, Honduras: During the fourth quarter of
Fiscal 2003, the Company entered into an agreement to sell its
manufacturing operations located in Villanueva, Honduras. The
manufacturing operations sold consisted of one cutting center and four
sewing facilities. The sale was finalized in January 2004 and in
connection with the sale the Company entered into a one-year production
agreement with the buyer, pursuant to which the Company guaranteed open
purchase order obligations to certain suppliers of the buyer. The
Company's obligation to enter into such guarantees expired on
July 1, 2004. The production agreement with the buyer
allows the Company to set off its payment obligations to the buyer
against any payments the Company has made to a supplier pursuant to the
related guarantee in the event the buyer defaults on its payment
obligations to the supplier.
Sale of Manufacturing Facility in
San Luis, Mexico: During the first quarter of Fiscal 2004, the
Company entered into an agreement to sell its manufacturing operation
located in San Luis, Mexico. The manufacturing operation sold consisted
of a combined cutting and sewing facility. The sale was finalized in
March 2004. In connection with the sale, the Company entered
into an 18-month production agreement with the buyer (expired in Fiscal
2005). The Company has no obligation to guarantee open purchase orders
for the buyer. A summary of restructuring charges is as
follows: F-31 THE
WARNACO GROUP, INC. Restructuring
charges have been recorded in the consolidated statement of operations
for Fiscal 2005, Fiscal 2004 and the period February 5,
2003 to January 3, 2004 as follows: Changes
in liabilities related to restructuring and reorganization items are
summarized below: Note
7—Related Party Transactions The Company leased certain
real property from an entity controlled by a former employee. All
rights and obligations related to this lease were transferred to the
new owners of the ABS business unit in the first quarter of
Fiscal 2004. See Note 4. Rent expense related to this lease for Fiscal
2004, the period February 5, 2003 to January
3, 2004 and the period January 5, 2003 to
February 4, 2003 was $40, $496 and $45, respectively, and
is included in income (loss) from discontinued operations. In
2001, the Company entered into a consulting agreement with Alvarez
& Marsal, Inc. (‘‘A&M’’). Under
this agreement, several individuals who held executive positions with
the Company (including Antonio C. Alvarez II, former President and
Chief Executive Officer of the Company, and James P. Fogarty, former
Senior Vice President and Chief Financial Officer of the Company)
provided services as advisors to the Company. Mr. Alvarez is a
co-founding Managing Director and Mr. Fogarty is a Managing
Director of A&M. The A&M consulting agreement was terminated on
June 11, 2001 and certain A&M employees became
employees of the Company. F-32 THE
WARNACO GROUP, INC. In connection with the Company's
emergence from Chapter 11 bankruptcy protection, it entered into a
second consulting agreement with A&M on January 29,
2003, which was supplemented by a March 18, 2003 letter
agreement (collectively, the ‘‘A&M
Agreement’’), pursuant to which Mr. Alvarez and
Mr. Fogarty continued serving the Company as Chief Executive
Officer and Chief Financial Officer, respectively, and certain other
A&M affiliated persons continued serving the Company in a
consulting capacity. The A&M Agreement was effective as of
February 4, 2003. Mr. Alvarez and Mr.
Fogarty provided transitional assistance to the Company during 2003.
During the period February 5, 2003 to January
3, 2004, the Company incurred expenses totaling $3,524 in
connection with services performed by A&M. All amounts had been
paid as of January 1, 2005. In connection with the
repayment of the Second Lien Notes with the proceeds of the offering of
the Senior Notes, Mr. Alvarez received accrued interest and
outstanding principal in the amount of $951 related to the Second Lien
Notes. In addition, amounts, including accrued interest, were paid to
affiliates of some of the initial purchasers of the Senior Notes on
account of Second Lien Notes then owned by such affiliates. In
April 2003, the Company recruited Joseph R. Gromek to be its
President and Chief Executive Officer. Following an orderly transition,
Mr. Alvarez returned to A&M. In September 2003, the
Company hired Lawrence R. Rutkowski to be its Senior Vice
President—Finance and Chief Financial Officer. Following an
orderly transition, Mr. Fogarty returned to A&M. The
Company believes that the terms of the relationships and transactions
described above are at least as favorable to the Company as could have
been obtained from an unrelated third party. Note
8—Business Segments and Geographic Information
Business Segments: The Company operates in three business
segments: (i) Intimate Apparel Group; (ii) Sportswear Group; and (iii)
Swimwear Group. The Intimate Apparel Group designs,
manufactures, sources and markets moderate to premium priced intimate
apparel and other products for women and better to premium priced
men's underwear and loungewear under the Warner's, Olga,
Body Nancy Ganz/Bodyslimmers, J. Lo by Jennifer Lopez®,
Axcelerate/Axcelerate Engineered by Speedo, Calvin Klein,
Lejaby, Lejaby Rose and Rasurel® brand names. As of
December 31, 2005, the Intimate Apparel Group also operated 121
Calvin Klein retail stores worldwide (consisting of 59 stores
directly operated by the Intimate Apparel Group, including one on-line
store, and 62 stores operated under retail licenses or distributor
agreements). The Sportswear Group designs, sources and markets
moderate to premium priced men's and women's sportswear
under the Calvin Klein and Chaps brands. The
Swimwear Group designs, licenses, sources, manufactures and markets
mass market to premium priced swimwear, fitness apparel, swim
accessories and related products under the Speedo, Anne
Cole®, Cole of California®, Catalina®,
Lifeguard®, Nautica®, Michael Kors®,
OP, Axcelerate/Axcelerate Engineered by Speedo and Calvin
Klein brand names. The Swimwear Group also operates two
Speedo outlet stores and one on-line store. F-33 THE
WARNACO GROUP, INC. Information by business group, excluding
discontinued operations, is set forth below: The
Company does not include corporate departmental expenses,
reorganization items, restructuring items and depreciation and
amortization of corporate assets in its determination of segment
operating income (loss). Corporate departmental expenses include
general corporate overhead and certain shared corporate services. The
Company evaluates the business groups' results without allocating
these corporate/other items. Other companies may allocate these costs
to their operating divisions and, as a result, the operating results of
the Company's operating groups may not be directly comparable to
the results of other companies. The table below summarizes
corporate/other expenses for each period presented: F-34 THE
WARNACO GROUP, INC. A
reconciliation of Group operating income to income from continuing
operations before provision for income taxes for Fiscal 2005, Fiscal
2004, the period February 5, 2003 to January
3, 2004, and the period January 5, 2003 to
February 4, 2003 is as follows:
Geographic
Information: Included in the consolidated financial statements are
the following amounts relating to geographic locations where the
Company has business operations: F-35 THE
WARNACO GROUP, INC.
Information
about Major Customers: For Fiscal 2005, one customer, Federated
Department Stores, accounted for 11.4% of the Company’s
net revenues. No one customer accounted for more than 10% of the
Company's net revenues for Fiscal 2004 or for the period
February 5, 2003 to January 3, 2004. One
customer, Wal-Mart Stores, Inc., accounted for approximately
16.1% of the Company's net revenues for the period
January 5, 2003 to February 4, 2003. Note 9—Income Taxes The following presents the
United States and foreign components of income from continuing
operations before income taxes and discontinued operations: F-36 THE
WARNACO GROUP, INC. The following presents the components of
the Company's total income tax provision from continuing
operations: The
following presents the reconciliation of the provision for income taxes
to United States federal income taxes computed at the statutory
rate: F-37 THE
WARNACO GROUP, INC. The components of deferred tax assets and
liabilities as of December 31, 2005 and January
1, 2005 were as follows:
Successor
Company: Realization of the Company's deferred tax assets is
dependent upon future earnings in specific tax jurisdictions, the
timing and amount of which are uncertain. Accordingly, the Company
evaluates all significant available positive and negative evidence,
including the existence of losses in recent years and its forecast of
future taxable income, in assessing the need for a valuation allowance.
The underlying assumptions the Company used in forecasting future
taxable income require significant judgment and take into account its
recent performance. A valuation allowance is established to reduce the
deferred tax assets to the amount that is more likely than not to be
realized. As of the end of Fiscal 2005 and 2004, based upon its
evaluation of historical and projected results of operation and the
current business environment, the Company recorded a valuation
allowance on all of its domestic deferred tax assets and certain of its
foreign deferred tax assets. In accordance with the methodology
discussed above, the Company recorded a valuation allowance to reflect
the estimated amount of deferred tax assets that "more
likely than not’’ may not be realized. The valuation
allowance decreased to $158,599 (of which $26,642 relates to foreign
entities) at December 31, 2005 from $165,835 (of which
$30,552 relates to foreign entities) at January 1, 2005,
primarily as a result of the utilization of certain net operating loss
carryforwards. A portion of the valuation allowance in the amount of
approximately $151,080 (of which $20,410 relates to foreign entities)
and approximately $157,932 (of which $23,936 relates to foreign
entities) at December 31, 2005 and January
1, 2005, respectively, relates to deferred tax assets which were
recorded in fresh start accounting. The realization of such amount in
future years will be allocated to reduce goodwill and other non-current
intangible assets. Under U.S. tax law, a company that realized
cancellation of debt (‘‘COD’’) income while
in bankruptcy is entitled to exclude such income from taxable income
for U.S. tax reporting purposes. A company that excludes COD income
will be required to reduce certain tax attributes in an amount equal to
the COD income excluded from taxable income. If the attribute reduction
is applied on a consolidated return basis, all of the Company's
U.S. consolidated net operating loss
(‘‘NOL’’) carryovers generated prior to
Fiscal 2004 would be eliminated and certain of its other U.S. tax
attributes will be substantially reduced or eliminated. However, by
applying the attribute reduction rules on a separate company basis, the
Company retained U.S. net operating loss carryforwards of F-38 THE
WARNACO GROUP, INC.
approximately $246,200 at the end of Fiscal
2003. Under Section 382 of the Internal Revenue Code, the Company can
use its NOL carryforwards to reduce U.S. taxable income, if any, by
approximately $23,400 per year. There can be no assurance that the
Company's position with respect to separate company attribute
reduction will be sustained upon review by the Internal Revenue
Service. Furthermore, the Company believes that as a result of the COD
income, it can increase the annual limitation amount above due to the
built-in gain rules under Section 382. There can be no assurance that
the Company's position of treating the COD income as an item of
built-in gain will be sustained upon review by the Internal Revenue
Service, in which case certain losses and expenses generated during the
five-year period after emergence will be subject to the annual
limitation amount above. Any tax benefit from the utilization of
consolidated U.S. net operating losses attributable to periods before
emergence from bankruptcy will reduce either goodwill or other
intangible assets when realized and will not affect the Company's
future results of operations. At December 31, 2005,
the Company had U.S. NOL carryforwards of approximately $295,830
(including approximately $246,200 described above that is subject to
Section 382) expiring in periods beginning in 2009 through 2024. The
Company had foreign NOL carryforwards of approximately $82,543, of
which $2,698 expire between the years 2008 and 2015 and $79,845 have an
indefinite life. The Company has approximately $1,104 of U.S.
alternative minimum tax credit carryforwards which have an indefinite
carryforward period. The Company has foreign tax credit carryforwards
of $210, of which $5 expires in 2012 and $205 expires in 2013. The
Company has state tax credit carryforwards of $844, of which $714
expire in periods beginning in 2006 through 2011. $130 of the
Company's state tax credit carryforwards have an indefinite
life. Tax benefits associated with the exercise of employee
stock options and other employee stock programs of $1,356 in Fiscal
2005, $768 in Fiscal 2004 and $249 for the period February
5, 2003 to January 3, 2004, were allocated to
shareholders' equity. A corresponding valuation allowance for
deferred taxes has been recorded for Fiscal 2005, Fiscal 2004 and the
period February 5, 2003 to January 3, 2004.
The associated benefit will be credited to equity when realized. As of December 31, 2005, the total amount of
undistributed earnings of foreign subsidiaries was approximately
$104,484. The Company's intention is to permanently reinvest
these earnings and thereby indefinitely postpone their remittance.
Accordingly, no provision has been made for foreign withholding taxes
or U.S. income taxes which may become payable if undistributed earnings
were paid as dividends to the Company. Determination of the amount of
unrecognized U.S. income tax liability with respect to such earnings is
not practical. On October 22, 2004, the American
Jobs Creation Act of 2004 (the ‘‘AJC Act’’)
was signed into law. The AJC Act provides a temporary incentive for
U.S. multinationals to repatriate foreign earnings at a 5.25%
U.S. tax rate. In 2005 the IRS issued a series of notices which
provided clarifying language and guidance regarding the special
one-time dividends received deduction. The Company has considered this
guidance in light of its tax position and overall business strategy,
and it did not repatriate any of its foreign earnings under the special
provisions of the AJC Act. The Company and its
subsidiaries' income tax returns are routinely examined by U.S.,
state, and foreign tax authorities. The tax years under examination
vary by jurisdiction. The Company regularly assesses the potential
outcomes of both ongoing and future examinations for the current or
prior years to ensure the Company's provision for income taxes is
sufficient. The Company recognizes liabilities based on estimates of
whether additional taxes will be due and believes its reserves are
adequate in relation to the potential assessments.
Predecessor Company: The provision for income taxes of
$78,150 for the period January 5, 2003 to February
4, 2003 consists of a deferred income tax provision of $77,584
related to the increase in the carrying value of certain assets to fair
value recorded in connection with the Company's adoption of fresh
start reporting and accrued income taxes on foreign earnings of
$566. F-39 THE
WARNACO GROUP, INC. Upon the adoption of fresh start
accounting at February 4, 2003, the Company recorded a
valuation allowance of $89,319 to reduce deferred tax assets to an
amount that the Company believes, based upon objectively verifiable
evidence, is realizable. The future recognition of such amount will
first reduce goodwill. Should the recognition of net deferred tax
assets result in the elimination of goodwill, any additional deferred
tax asset recognition will reduce other noncurrent intangible assets.
Deferred tax assets recognized in excess of the carrying value of
intangible assets will be treated as an increase to additional paid-in
capital. The Company has also established a valuation allowance
against certain foreign NOL carry- forwards to reduce them to the
amount that will, more likely than not, be realized. Note
10—Employee Retirement Plans The Company has a defined
benefit Pension Plan in the United States, which covers substantially
all full-time domestic employees. The Pension Plan is noncontributory
and benefits are based upon years of service. The Company also has
defined benefit health care and life insurance plans that provide
post-retirement benefits to retired domestic employees
(‘‘Other Benefit Plans’’). The Other
Benefit Plans are, in most cases, contributory with retiree
contributions adjusted annually. The Company also has unfunded defined
benefit pension plans in foreign countries. On October
5, 2003 (the beginning of the fourth quarter of 2003), the
Company changed its method of accounting for its defined benefit plans
(including the Pension Plan) to a method that accelerates the
recognition of gains or losses which are changes in the amount of
either the projected benefit obligations or plan assets resulting from
experience different than assumed and from changes in assumptions
(‘‘Accelerated Method’’). The Company
previously deferred gains and losses and amortized the deferred amount
into operations over the remaining estimated service life to the extent
such gains and losses exceeded 10% of the Pension Plan's
projected benefit obligations (‘‘Deferred
Method’’). The Company believes that the Accelerated
Method is preferable because the recorded pension liability, using the
Accelerated Method, will approximate fair value. Pursuant to SFAS No.
87, Employer’s Accounting for Pensions, each quarter the
Company recognizes interest cost offset by the expected return on
Pension Plan assets. In addition, the Company obtains a report from the
Pension Plan trustee and Pension Plan actuary to measure Pension Plan
assets and liabilities at year-end. The Company records the impact of
actual gains and losses that differ from the expected return on Pension
Plan assets and any other changes determined by the actuary in the
fourth quarter of each year based upon the year-end measurement. This
change results in additional volatility in pension expense or income.
Therefore, the Company reports pension expense or income on a separate
line of its statement of operations. To conform to the current year
presentation, the pension income or expense line item in the statement
of operations also includes pension expense or income related to the
Company’s unfunded foreign defined benefit pension plans which
are considered immaterial to the consolidated financial statements and,
therefore, are not included in the following tables. Effective
January 1, 2003 the Pension Plan was amended such that
participants in the Pension Plan will not earn any additional pension
benefits after December 31, 2002. The accumulated benefit
obligation for the Pension Plan was equal to the projected benefit
obligation at December 31, 2005 and January
1, 2005 due to the curtailment of plan benefits at
December 31, 2002. F-40 THE
WARNACO GROUP, INC. A reconciliation of the balance of
domestic plan benefit obligations follows: A
reconciliation of the change in the fair value of domestic plan assets
is as follows: F-41 THE
WARNACO GROUP, INC. The components of domestic net periodic
benefit (income) cost are as follows: The domestic Pension Plan's weighted
average asset allocations are as follows: The
Company's investment strategy for the Pension Plan's assets
is to invest in a diversified portfolio of assets managed by various
fund and money managers. No individual manager accounts for more than
15% of overall Pension Plan assets at December 31,
2005. The Company's goal is to provide for steady growth in the
Pension Plan's assets, exceeding the Company's expected
return on plan assets of 7%. Individual fund managers are
evaluated against a relevant market index and against other managers
with similar investment goals. Underperforming investments are
reallocated to other investments and fund managers. The portfolio is
balanced annually to maintain the Company's targeted allocation
percentages by type of investment. The targeted allocation percentages
are guidelines; actual investments may differ from the targeted
allocations. The Company expects to contribute approximately
$12,900 to the Pension Plan in fiscal 2006 and approximately $16,000
from 2007 through 2010. The amount of cash contributions the Company is
required to make to the Pension Plan could increase or decrease
depending on the performance of the Pension Plan's assets and
other factors which are not in the control of the Company. The
Company’s F-42 THE
WARNACO GROUP, INC.
expected cash contributions to the Other
Benefit Plans are equal to the expected benefit payments as shown in
the table below due to the nature of the Other Benefit Plans. Future domestic benefit payments are expected to be: The
weighted-average assumptions used in the actuarial calculations for the
Pension Plan and Other Benefit Plans were as follows: The
Company's discount rate assumption for both the Pension Plan and
Other Benefit Plans was 5.85% for Fiscal 2005, 5.5% for
Fiscal 2004 and 5.3% for the period February 5,
2003 to January 3, 2004, and the period January
5, 2003 to February 4, 2003. The Company considers
changes in the interest rate for ten-year United States Treasury Bonds
and other long-term low risk bond rates as indicative of its discount
rate. The Company's expected rate of return in the table above
only applies to Pension Plan assets and reflects the Company's
expectation of the long-term rate of return on the Pension Plan's
assets. The Company evaluates its discount rate and long-term rate of
return assumptions annually. The Company evaluates its
assumptions related to the expected return on plan assets in the fourth
quarter of each fiscal year and revises the expected return on plan
assets for future valuations as required. In the fourth quarter of
Fiscal 2002, the Company revised the expected return on plan assets for
future valuations to 7% effective with the Pension Benefit
Plan's 2003 year. The Company's review in the fourth
quarter of Fiscal 2005 did not result in a change in the estimated
return assumption for future periods. The rate of compensation increase
is not applicable because Pension Plan participants' benefits
have been frozen. The Company's Pension Benefit Plan and Other
Benefit Plans measurement date is December 31st. For
measurement purposes, the weighted average annual assumed rate of
increase in the per capita cost of covered benefits (health care trend
rate) related to Other Benefit Plans is as follows: F-43 THE
WARNACO GROUP, INC. A one-percentage point change in assumed
health care cost trend rates would have the following effects: In
December 2003, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 was passed into law. The Act provides for a
subsidy for certain costs related to prescription drug benefits to
sponsors of post retirement healthcare plans that provide prescription
drug benefits to retirees. FSP No.106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (‘‘FSP
106-2’’), defines the accounting treatment for changes in
post retirement benefit liabilities and post retirement benefits
expense that are necessitated by the provisions of the Act. FSP 106-2
was effective for the first interim or annual period beginning after
June 15, 2004 (the three months ended October
2, 2004 for the Company). Based upon the provisions of the
Company's post retirement benefit plans, the retirees eligible to
participate in such plans, the participation rate of such retirees and
the contribution rates attributable to the participants in the plans,
the Company does not believe that the enactment of the Act was a
‘‘Significant Event’’ to its post
retirement benefit plans as defined in paragraph 73 of SFAS No. 106,
Employers Accounting for Post Retirement Benefits Other Than
Pensions, and as a result, the Act did not have a material effect
on the Company's post retirement benefit obligation or expense.
The Company may amend its existing post retirement plans so that
benefits payable under the plans will qualify for reimbursement under
the Act in the future. Such amendments, if any, will be reflected in
future valuations of the Company's post retirement benefit
obligation and determination of the related post retirement benefits
expense. The Company also sponsors a defined contribution plan
for substantially all of its domestic employees. Employees can
contribute to the plan, on a pre-tax basis, a percentage of their
qualifying compensation up to the legal limits allowed. The Company
makes matching contributions to the defined contribution plan. The
maximum Company contribution on behalf of any individual employee was
$5.040, $4.920, and $4.200 for 2005, 2004, and 2003, respectively.
Employees vest in the Company contribution over four years. Company
contributions to the defined contribution plan, in the aggregate, were
$1,667, $1,458, $918, and $83 for Fiscal 2005, Fiscal 2004, the period
February 5, 2003 to January 3, 2004, and
the period January 5, 2003 to February 4,
2003, respectively. The Company contributed to multi-employer
defined benefit pension plans on behalf of union employees of two
manufacturing facilities and contributes to a multi-employer defined
benefit pension plan on behalf of union employees of a warehouse and
distribution facility, which amounts are not significant for the
periods presented. On April 25, 2005, the Company
adopted a deferred compensation plan (the ‘‘Deferred
Compensation Plan’’) for the benefit of certain
employees. The Deferred Compensation Plan allows participating
employees to make pre-tax deferrals of up to 50% of their annual
base salary and up to 100% of their incentive pay. A bookkeeping
account is established for each participant, and each account is
increased or decreased by the deemed positive or negative return based
on hypothetical investment alternatives approved by the Company and
selected by the participating employee. In the case of a change of
control, the Company will establish a
‘‘rabbi’’ trust in connection with the
Deferred Compensation Plan and will make contributions to the rabbi
trust equal to the Deferred Compensation Plan’s aggregate
benefit obligations. As of December 31, 2005, the Company
had a liability with respect to the Deferred Compensation Plan of $162
for employee contributions and investment activity to date, which is
recorded in other long-term liabilities. F-44 THE
WARNACO GROUP, INC. Note 11—Inventories As
of December 31, 2005, the Company was party to
outstanding foreign currency exchange contracts to purchase
approximately $3,352 for a total of approximately €2,745
at a weighted-average exchange rate of 1.221 $/€. The
foreign currency exchange contracts mature through April
24, 2006 and are designed to fix the number of euros required to
satisfy the first one-third of dollar denominated purchases of
inventory by certain of the Company’s European subsidiaries. As
of December 31, 2005, the fair value of the outstanding
foreign currency exchange contracts was $98. The Company did not have
any foreign currency exchange forward contracts outstanding as of
January 1, 2005. Note 12—Property, Plant
and Equipment F-45 THE
WARNACO GROUP, INC. Note 13—Intangible Assets and
Goodwill The following tables set forth intangible assets at
December 31, 2005 and January 1, 2005 and
the activity in the intangible asset accounts during Fiscal 2005 and
Fiscal 2004: The following table summarizes the Company's
weighted average amortization period related to each class of
finite-lived intangible asset: F-46 THE
WARNACO GROUP, INC. The following table summarizes the
Company's estimated amortization expense for intangible assets
for the next five years: The
following table summarizes the changes in the carrying amount of
goodwill for Fiscal 2005 and for Fiscal 2004: F-47 THE
WARNACO GROUP, INC. Note 14—Accumulated Other
Comprehensive Income The components of accumulated other
comprehensive income as of December 31, 2005 and
January 1, 2005 are summarized below: Note 15—Debt Debt was
as follows: Financing
Agreements
Senior Notes
On June
12, 2003, Warnaco completed the sale of $210,000 aggregate
principal amount of Senior Notes at par value, which notes mature on
June 15, 2013 and bear interest at
8 7/8% payable semi-annually on December
15 and June 15 of each year. No principal payments prior to the
maturity date are required. The Senior Notes are unconditionally
guaranteed, jointly and severally, by Warnaco Group and substantially
all of Warnaco's domestic subsidiaries (all of which are
100% owned, either directly or indirectly, by Warnaco). The
Senior Notes are effectively subordinate in right of payment to
existing and future secured debt (including the Amended and Restated
Credit Agreement) and to the obligations (including trade accounts
payable) of the subsidiaries that are not guarantors of the Senior
Notes. The guarantees of each guarantor are effectively subordinate to
that guarantor's existing and future secured debt (including
guarantees of the Amended and Restated Credit Agreement) to the extent
of the value of the assets securing that debt. There are no
restrictions that prevent the guarantor subsidiaries from transferring
funds or paying dividends to the Company. The indenture pursuant to
which the Senior Notes were issued contains covenants which, among
other things, restrict the Company's ability to incur additional
debt, pay dividends and make restricted payments, create or permit
certain liens, use the proceeds of sales of assets and
subsidiaries' stock, create or permit restrictions on the ability
of certain of Warnaco's subsidiaries to pay dividends or make
other distributions to Warnaco or to Warnaco Group, enter into
transactions with affiliates, engage in certain business activities,
engage in sale and leaseback transactions and consolidate or merge or
sell all or substantially all of its assets. The Company was in
compliance with the covenants of the Senior Notes at December
31, 2005. Redemption of the Senior Notes prior to their maturity
is subject to premiums as set forth in the indenture. Proceeds from the
sale of the Senior Notes were used to repay the outstanding principal
balance on the Second Lien Notes of $200,942 and accrued interest
thereon of $1,987. The proceeds were also used to pay underwriting
fees, legal and professional fees and other expenses associated with
the offering in an aggregate amount of approximately $7,071. In
connection F-48 THE
WARNACO GROUP, INC.
with the offering of the Senior Notes, the
Company entered into a registration rights agreement with the initial
purchasers of the Senior Notes, which, among other things, required
Warnaco and the guarantors to complete a registration and exchange of
the Senior Notes. In accordance with the registration rights agreement,
the Company completed the registration and exchange of the Senior Notes
in the first quarter of Fiscal 2004.
Interest Rate Swap
Agreements
On September 18, 2003, the Company
entered into an interest rate swap agreement (the ‘‘2003
Swap Agreement’’) with respect to the Senior Notes for a
total notional amount of $50,000. The 2003 Swap Agreement provides that
the Company will receive interest of 8 7/8% and
pay a variable rate of interest based upon six month London Interbank
Offered Rate (‘‘LIBOR’’) plus 4.11%
(8.78% December 31, 2005). The 2003 Swap Agreement
expires on June 15, 2013 (the date on which the Senior
Notes mature). The Company designated the 2003 Swap Agreement as a fair
value hedge of the changes in fair value of $50,000 aggregate principal
amount of the $210,000 aggregate principal amount of Senior Notes
outstanding. As of December 31, 2005, the fair value of
the 2003 Swap Agreement was a loss of $1,366. As of January
1, 2005, the fair value of the 2003 Swap Agreement was a gain of
$81. On November 5, 2004, the Company entered into
a second interest rate swap agreement (the ‘‘2004 Swap
Agreement’’) with respect to the Company's Senior
Notes for a total notional amount of $25,000. The 2004 Swap Agreement
provides that the Company will receive interest of
8 7/8% and pay a variable rate of interest based
upon six months LIBOR plus 4.34% (9.01% at
December 31, 2005). The 2004 Swap Agreement expires on
June 15, 2013 (the date on which the Senior Notes
mature). The Company designated the 2004 Swap Agreement as a fair value
hedge of the changes in fair value of $25,000 aggregate principal
amount of the $210,000 aggregate principal amount of Senior Notes
outstanding. As of December 31, 2005, the fair value of
the 2004 Swap Agreement was a loss of $990. As of January
1, 2005, the fair value of the 2004 Swap Agreement was a loss of
$310. As a result of the 2003 and 2004 Swap Agreements, the
weighted average effective interest rate of the Senior Notes was
8.87% and 8.16% as of December 31, 2005 and
January 1, 2005, respectively. As of
December 31, 2005 and January 1, 2005, the
net fair value of the swap agreements (a loss of $2,356 and $229,
respectively) was recorded as part of long-term debt, which was offset
by a corresponding gain on the hedged debt. No hedge ineffectiveness is
recognized in the consolidated statement of operations, as the
provisions of the 2003 and 2004 Swap Agreements match the provisions of
the hedged debt.
Revolving Credit Facility; Amended and
Restated Credit Agreement
On the Effective Date, the
Company entered into the Revolving Credit Facility, which was amended
November 12, 2003, August 1, 2004 and September 15, 2005. In addition,
as described below, the Revolving Credit Facility was amended and
restated on January 31, 2006 in connection with the
closing of the CKJEA Acquisition. As of December 31, 2005, the
Revolving Credit Facility, as amended, provided for a $175,000
revolving credit facility maturing on February 3, 2009. The Revolving
Credit Facility, as amended, includes a provision that allows the
Company to increase the maximum available borrowings from $175,000 to
$325,000. Borrowings under the Revolving Credit Facility bear interest,
at the Company's option, at Citibank N.A.’s base rate plus
0.5% (7.75% at December 31, 2005) or at
LIBOR plus 1.5% (approximately 6.04% at December
31, 2005) in each case, on a per annum basis. The rates of
interest payable on outstanding borrowings under the Revolving Credit
Facility may change based on the Company's financial ratios. The
Company enters into contracts to elect the LIBOR option when it expects
borrowings to be outstanding for more than 30 days. The remaining
balances bear interest based upon Citibank N.A.’s base rate. The
Revolving F-49 THE
WARNACO GROUP, INC.
Credit Facility contains financial covenants
that, among other things, require the Company to maintain a fixed
charge coverage ratio above a minimum level and a leverage ratio below
a maximum level and limit the amount of the Company's capital
expenditures. In addition, the Revolving Credit Facility contains
certain covenants that, among other things, limit investments and asset
sales, prohibit the payment of dividends (subject to limited
exceptions) and limit the incurrence of material additional
indebtedness. The Revolving Credit Facility is guaranteed by the
Company and its domestic subsidiaries (other than Warnaco) and the
obligations under such guaranty, together with Warnaco's
obligations under the Revolving Credit Facility, are secured by a lien
on substantially all of the assets of the Company and its domestic
subsidiaries. On November 12, 2003, the Revolving
Credit Facility had been amended to modify certain covenants and
definitions, including those relating to asset sales, retirement of
debt and acquisitions. On August 1, 2004, the
Revolving Credit Facility had been amended to modify certain covenants
and reduce the amount of available borrowings from $275,000 to
$175,000, thereby reducing fees paid. The covenants which were modified
included those relating to incurring debt and liens, investments, asset
sales, restricted payments and retirement of debt. On
September 15, 2005, the Revolving Credit Facility had
been amended to extend the maturity date from February 3, 2007 to
February 3, 2009, to reduce interest rates and fees payable under the
facility and to modify certain covenants, including those relating to
restricted payments, incurring debt and liens, and acquisitions, as
well as financial covenants. As of December 31,
2005, the Company was in compliance with the covenants of the Revolving
Credit Facility, as amended. The Company had paid down all outstanding
borrowings under the Revolving Credit Facility as of January
3, 2004 and did not borrow under the Revolving Credit Facility
in Fiscal 2005 or Fiscal 2004. As of December 31, 2005,
the Company had $92,018 of cash and cash equivalents available as
collateral against outstanding letters of credit of $59,956 and $72,183
of other cash and cash equivalents primarily held by foreign
subsidiaries. As of December 31, 2005, the Company had $207,062 of
credit available, which included available borrowings of $175,000 under
its Revolving Credit Facility and cash and cash equivalents net of
outstanding letters of credit of $32,062. On January
31, 2006, the Revolving Credit Facility was amended and restated
(the ‘‘Amended and Restated Credit
Agreement’’) to, among other things, add a $180,000 term
loan facility which was drawn down and used to finance a portion of the
CKJEA Acquisition. Generally, the loans under the term loan facility
bear interest, at the Company's option, at either Citibank
N.A.'s base rate plus 0.50% or at LIBOR plus 1.50%,
in each case, on a per annum basis. The term loan facility matures on
January 31, 2013 and must be repaid at the rate of $450
per quarter from June 30, 2006 through March
31, 2012 and $42,300 on each of June 30, 2012,
September 30, 2012, December 31, 2012 and
January 31, 2013. Loans under the Amended and Restated
Credit Agreement may be required to be repaid upon the occurrence of
certain events, including certain types of asset sales, insurance
recoveries, and issuances of debt. In addition, the term loan facility
requires the Company to repay term loan principal in amounts equal to
25% of Excess Cash Flow (as defined in the Amended and Restated
Credit Agreement), subject to certain conditions. In addition to
the amendments relating to the term loan facility, under the Amended
and Restated Credit Agreement, certain covenants were modified,
including financial covenants and the covenants relating to
indebtedness, acquisitions, asset sales and investments. Further,
certain terms and conditions under which an Event of Default (as
defined in the Amended and Restated Credit Agreement) may be declared
were amended. On January 31, 2006, the Company also
increased the maximum borrowings available under the Revolving Credit
Facility from $175,000 to $225,000. F-50 THE
WARNACO GROUP, INC. The Company's obligations under the
term loan facility are guaranteed by the same parties as had guaranteed
the Revolving Credit Facility, and are secured by the same assets as
had secured the Revolving Credit Facility, except that the lenders
under the two loan facilities have different lien priorities in the
collateral.
Ocean Pacific Acquisition Debt
On
August 19, 2004, the Company assumed $1,000 of debt as
part of the acquisition of OP. The debt was paid in full
simultaneously with the closing of the acquisition.
Foreign
Revolving Credit Facility
During Fiscal 2005, certain of
the Company's foreign subsidiaries (the "Foreign
Subsidiaries") entered into a $25,000 revolving credit
facility with Bank of America, N.A. (the "Foreign
Revolving Credit Facility"). The Foreign Revolving Credit
Facility provides for a four year, non-amortizing revolving credit
facility. Borrowings under the Foreign Revolving Credit Facility accrue
interest at LIBOR or, if applicable, the lending bank's base
rate, in each case, plus 2.25% or 2.00% (depending on the
level of EBITDA (as defined in the Foreign Revolving Credit Facility)
of the Foreign Subsidiaries). The Foreign Revolving Credit Facility is
secured by first priority security interests on the assets of the
Foreign Subsidiaries and the Foreign Subsidiaries guarantee each
others' obligations under the Foreign Revolving Credit Facility.
The Foreign Revolving Credit Facility contains covenants that require
the Foreign Subsidiaries to maintain certain financial ratios and limit
the amount of the Foreign Subsidiaries' capital expenditures. In
addition, the Foreign Revolving Credit Facility contains certain
restrictive covenants which, among other things, limit investments by
the Foreign Subsidiaries and prohibit the Foreign Subsidiaries from
incurring additional indebtedness. The Company's ability to
borrow under the Foreign Revolving Credit Facility is subject to the
satisfaction of certain conditions. As of December 31, 2005, the
Company had no borrowing outstanding under the Foreign Revolving Credit
Facility.
Second Lien Notes
In
accordance with The Reorganization Plan, on the Effective Date, the
Company issued $200,942 Second Lien Notes to certain pre-petition
creditors and others in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 1145(a) of the
Bankruptcy Code. The Second Lien Notes were scheduled to mature on
February 4, 2008 subject to, in certain instances,
earlier repayment in whole or in part. The Second Lien Notes bore an
annual interest rate which was the greater of (i) 9.5% plus a
margin (initially 0%, and beginning on August 4,
2003, 0.5% would have been added to the margin every six
months); and (ii) LIBOR plus 5.0% plus a margin (initially
0%, and beginning on August 4, 2003, 0.5%
would have been added to the margin every six months). The indenture
pursuant to which the Second Lien Notes were issued contained certain
covenants that, among other things, limited investments and asset sales
and prohibited the Company from paying dividends (subject to limited
exceptions) and incurring material additional indebtedness. The Second
Lien Notes were guaranteed by most of the Company's domestic
subsidiaries and the obligations under such guarantee, together with
the Company's obligations under the Second Lien Notes, were
secured by a second priority lien on substantially the same assets
which secured the Revolving Credit Facility. On June 12,
2003, the Company repaid all outstanding principal and accrued interest
on the Second Lien Notes of $202,929 with the proceeds from the
Company's offering of the Senior Notes.
GECC
Settlement
On June 12, 2002, the Bankruptcy
Court approved the Company's settlement of certain operating
lease agreements with General Electric Capital Corporation
(‘‘GECC’’). The leases had original terms
F-51 THE
WARNACO GROUP, INC.
from three to seven years and were secured
by certain equipment, machinery, furniture, fixtures and other assets.
GECC's claims under the leases totaled approximately $51,152.
Under the terms of the settlement agreement GECC received $15,200, all
of which had been repaid as of January 3, 2004. The
remaining amount of the GECC claim of approximately $35,952 was
included in liabilities subject to compromise at of January
4, 2003. The assets acquired pursuant to the terms of the
settlement agreement were recorded at their estimated fair value, which
was estimated to be equal to the present value of payments due to GECC
under the terms of the settlement agreement. Such assets are being
depreciated using the straight-line method over their estimated
remaining useful lives of two to four years.
Pre-Petition Debt
The Company was in
default of substantially all of its U.S. pre-petition credit agreements
as of January 4, 2003. All pre-petition debt of the
Debtors was classified as liabilities subject to compromise in the
consolidated balance sheet at January 4, 2003. In
addition, the Company stopped accruing interest on all domestic
pre-petition credit facilities and outstanding balances on the Petition
Date. The Company continued to accrue interest on certain foreign
credit agreements that were subject to standstill and inter-creditor
agreements. Such interest of approximately $14,844 was paid pursuant to
the Reorganization Plan on February 4, 2003. Such
interest was included in liabilities subject to compromise at
January 4, 2003. Note
16—Stockholders’ Equity Successor
Company
Preferred Stock
The Company
has authorized an aggregate of 20,000,000 shares of preferred stock,
par value $0.01 per share, of which 112,500 shares are designated as
Series A preferred stock, par value $0.01 per share. There were no
shares of preferred stock issued and outstanding at either
December 31, 2005 or January 1, 2005.
Common Stock
The Company has authorized an
aggregate of 112,500,000 shares of Common Stock, of which 44,999,973
shares were issued pursuant to the terms of the Reorganization Plan. A
further 20,975 shares, 8,807 shares and 25,210 shares were issued to
the Company's directors during Fiscal 2005, Fiscal 2004 and the
period February 5, 2003 to January 3, 2004,
respectively, as partial compensation for serving as members on the
Board of Directors of the Company. The total number of shares of New
Common Stock issued and outstanding at December 31, 2005
and January 1, 2005 was 46,146,869 and 45,655,515,
respectively. Share Repurchase Program In
July 2005, the Company’s Board of Directors authorized
the Company to enter into a share repurchase program of up to 3,000,000
shares of common stock. In order to comply with the terms of applicable
debt instruments (which contain certain limitations on share
repurchases), the Company expects that purchases under the share
repurchase program will be made over the course of the next three
years. During the third quarter of Fiscal 2005, the Company
purchased 9,151 shares of its common stock in the open market at a
total cost of approximately $222 ($24.25 per share) under the share
repurchase program. F-52 THE
WARNACO GROUP, INC. Repurchased shares are held in treasury
pending use for general corporate purposes, including issuances under
the Company’s employee stock plans. 2005 Stock
Incentive Plan At the annual meeting of stockholders of the
Company held on May 23, 2005, the Company's
stockholders approved The Warnaco Group, Inc. 2005 Stock Incentive Plan
(the ‘‘2005 Stock Incentive Plan’’) for
directors, executive officers and other key employees and consultants
of the Company and its affiliates. The 2005 Stock Incentive Plan
permits the granting of incentive stock options, non-qualified stock
options, restricted stock, stock awards and other stock-based awards
(including but not limited to restricted stock units), some of which
may require the satisfaction of performance-based criteria in order to
become vested or payable to participants. Subject to adjustment for
dividends, distributions, recapitalizations, stock splits, reverse
stock splits, reorganizations, mergers, consolidations, split-ups,
spin-offs, combinations, repurchases or exchanges of shares or other
securities of the Company, issuances of warrants or other rights to
purchase shares of common stock or other securities of the Company and
other similar events, the aggregate number of shares that may be issued
under the 2005 Stock Incentive Plan is 3,000,000 shares of common
stock; provided, however, that the aggregate number of shares that may
be subject to restricted stock awards and other stock-based awards
shall be 750,000. The Compensation Committee of the Company's
Board of Directors is responsible for administering the 2005 Stock
Incentive Plan. The Company has reserved 3,000,000 shares of its common
stock for stock based compensation awards granted pursuant to the 2005
Stock Incentive Plan. Pursuant to the 2005 Stock Incentive Plan,
during Fiscal 2005, the Company granted 169,736 shares of restricted
stock to employees. Substantially all of these grants vest annually
with respect to one-third of the shares or options on each anniversary
of the grant date beginning in 2006 provided that the grantee is
employed by the Company on each such anniversary date. The fair market
value of the New Common Stock on the date of the restricted stock
grants during Fiscal 2005 ranged from $20.87 to $25.52 per share. At
December 31, 2005, under the 2005 Stock Incentive Plan,
there were approximately 1,308,350 shares available for future grants
of stock options and approximately 561,486 shares available for future
grants of either stock options or restricted stock
awards. 2003 Stock Incentive Plan The Board of
Directors and Compensation Committee thereof are responsible for
administration of The Warnaco Group, Inc. 2003 Stock Incentive Plan
(the ‘‘2003 Stock Incentive Plan’’) and
determined, subject to the provisions of the plans, the number of
shares to be issued, the terms of awards, the sale or exercise price,
the number of shares awarded and the rate at which awards vested or
became exercisable. The Company has reserved 5,000,000 shares of New
Common Stock for stock-based compensation awards under the 2003 Stock
Incentive Plan. Pursuant to the 2003 Stock Incentive Plan, the Company
granted, net of cancellations, 120,282, 196,275 and 654,750 shares of
restricted stock during Fiscal 2005, Fiscal 2004 and the period
February 5, 2003 to January 3, 2004,
respectively. Substantially all the grants of restricted stock in
Fiscal 2005 and Fiscal 2004 vest annually with respect to 1/3 of the
shares on each anniversary of the grant date beginning in 2005 provided
that the grantee is employed by the Company on each date. The fair
market value of the New Common Stock on the date of the grants during
Fiscal 2005 ranged from $20.87 to $25.52 per share. The fair market
value of the New Common Stock on the date of the grants during Fiscal
2004 ranged from $16.30 to $20.91 per share. Substantially all the
grants of restricted stock for the period February 5,
2003 to January 3, 2004 vest, with respect to 25%
of the shares, six months after the grant date and, with respect to an
additional 25% of such shares, each anniversary after the first
vesting date F-53 THE
WARNACO GROUP, INC.
for a period of three years. The fair market
value of the New Common Stock on the date of the grants for the period
February 5, 2003 to January 3, 2004 ranged
from $9.55 to $16.95 per share. At December 31, 2005,
under the 2003 Stock Incentive Plan, there were approximately 260,885
shares available for future grants of either stock options or
restricted stock awards. Information related to options is
summarized below: Information related to options outstanding at
December 31, 2005 is summarized below: The
following represents the reconciliation of the number of shares of New
Common Stock and treasury stock issued and outstanding as of
December 31, 2005: F-54 THE
WARNACO GROUP, INC. F-55 THE
WARNACO GROUP, INC. Note 17—Income per Common
Share Options
to purchase shares of common stock at an exercise price greater than
the average market price of the underlying shares are anti-dilutive and
therefore not included in the computation of diluted income per common
share from continuing operations. The effect of dilutive securities was
not included in the computation of diluted income per share from
continuing operations for the period January 5, 2003 to
February 4, 2003 because the effect would have been
anti-dilutive. F-56 THE
WARNACO GROUP, INC. Note 18—Lease and Other
Commitments The Company is a party to various lease agreements
for equipment, real estate, furniture, fixtures and other assets, which
expire on various dates through 2025. Under these agreements, the
Company is required to pay various amounts including property taxes,
insurance, maintenance fees, and other costs. The following is a
schedule of future minimum rental payments required under
non-cancelable operating leases with terms in excess of one year, as of
December 31, 2005: Rent
expense included in the consolidated statements of operations for
Fiscal 2005, Fiscal 2004, the period February 5, 2003 to
January 3, 2004, and the period January 5,
2003 to February 4, 2003 was $27,581, $23,512, $25,159,
and $1,760, respectively. The Company had capital lease
obligations of $394 (classified in accrued liabilities) and $799
(classified in long term-debt) as of December 31, 2005 and January 1,
2005, respectively. Although the specific terms of each of the
Company’s license agreements vary, generally such agreements
provide for minimum royalty payments and/or royalty payments based upon
a percentage of net sales. Such license agreements also generally grant
the licensor the right to approve any designs marketed by the licensee.
The Company has license agreements with the following minimum
guaranteed royalty payments as of December 31, 2005: The Company has entered into employment
agreements with certain members of management. Minimum obligations
pursuant to such agreements total $5,185, $3,943, $1,347, $63, $62 and
$75 in fiscal 2006, 2007, 2008, 2009, 2010 and thereafter,
respectively. These agreements also provide for deferred compensation
arrangements and supplemental awards. During Fiscal 2005, the
Company entered into agreements to guarantee certain purchase orders by
one of its finished goods contractors with vendors of raw materials (to
a maximum of $3,700). As of December 31, 2005, the
Company had recorded inventory purchases of $3,200 related to these
guarantees and approximately $500 of the guarantees were still
outstanding. The guarantees expire at F-57 THE
WARNACO GROUP, INC.
various times through March 2006. The
estimated fair value of the guarantees was not material to the
Company’s consolidated financial statements as of
December 31, 2005. As of December 31,
2005, the Company had purchase obligations of $7,930, $350, $350 and
$350 for fiscal 2006, 2007, 2008 and 2009, respectively. These
obligations include payments for software maintenance and licensing
fees, store fixtures, and advertising. Note 19—Financial
Instruments The following methods and assumptions were used by
the Company in estimating its fair value disclosures for financial
instruments.
Accounts Receivable: The carrying amount of
the Company's accounts receivable approximates fair value.
Notes Receivable: The carrying amount of the Company's
notes receivable approximates fair value, as the notes bear interest at
market rates based upon the risk associated with the debtor.
Accounts Payable: The carrying amount of the Company's
accounts payable are approximately equal to their fair value because
accounts payable are short-term in nature and the carrying value is
equal to the settlement value.
Senior Notes: The Senior
Notes mature on June 15, 2013 and bear interest at
8 7/8% payable semi-annually beginning
December 15, 2003. The fair value of the Senior Notes is
based upon quoted market prices for the Senior Notes.
Interest Rate Swaps: The fair value of the outstanding
interest rate swaps is based upon the cost to terminate the
contracts.
Letters of Credit: Letters of credit
collateralize the Company's obligations to third parties and have
terms ranging from 30 days to one year. The face amounts of the letters
of credit are a reasonable estimate of the fair value since the value
for each is fixed over its relatively short maturity.
Foreign
Currency Exchange Forward Contracts: The fair value of the
outstanding foreign currency exchange forward contracts is based upon
the cost to terminate the contracts. The Company did not have any
foreign currency exchange forward contracts outstanding as of
January 1, 2005. The carrying amounts and fair
value of the Company's financial instruments are as follows: F-58 THE
WARNACO GROUP, INC. Note 20—Cash Flow Information The following table sets forth supplemental cash flow information
for Fiscal 2005, Fiscal 2004, the period February 5, 2003
to January 3, 2004, and the period January
5, 2003 to February 4, 2003: Note
21—Legal Matters
SEC Investigation: As previously
disclosed, the Company reached a settlement with the SEC on the
proposed allegations related to matters that had been under
investigation. Pursuant to the settlement, on May 11,
2004, the SEC issued an administrative order requiring that the Company
cease and desist from committing or causing any violations and future
violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The
cease-and-desist order, in which the Company neither admits nor denies
the findings, was pursuant to the Company's offer of settlement.
The Company paid no fine under the SEC settlement. As part of the
settlement, the Company agreed to certain undertakings, including
retention of an independent consultant to perform a review of the
Company's internal controls and policies relating to its
inventory systems, internal audit, financial reporting and other
accounting functions. On October 29, 2004, the
independent consultant delivered its report to the Special Committee of
the Board of Directors, which report was thereafter delivered to the
SEC. In January 2005, the Board, upon recommendation of the
Special Committee, adopted the recommendations contained in the report.
In addition, pursuant to the settlement, the Company agreed that for a
period of two years its Chief Administrative Officer (who previously
served as General Counsel) shall not sign any documents to be filed
with the SEC by or on behalf of the Company and shall not participate
in or be responsible for the preparation or review of such filings
except under limited circumstances. The Company also agreed that for a
period of two years its General Counsel shall continue to report
directly to the Audit Committee of the Board of Directors on any
matters relating to the Company's financial reporting
obligations. The Company does not expect the settlement with the SEC to
have a material effect on its financial condition, results of
operations or business.
Other: In addition to the above,
from time to time, the Company is involved in arbitrations or legal
proceedings that arise in the ordinary course of its business. The
Company cannot predict the timing or outcome of these claims and
proceedings. Currently, the Company is not involved in any arbitration
and/or legal proceeding that it expects to have a material effect on
its financial condition, results of operations or
business. F-59 THE
WARNACO GROUP, INC. Note 22—Supplemental
Consolidating Condensed Financial Information The
following tables set forth supplemental consolidating condensed
financial information as of December 31, 2005 and
January 1, 2005 and for Fiscal 2005, Fiscal 2004, the
period February 5, 2003 to January 3, 2004,
and the period January 5, 2003 to February
4, 2003 for: (i) The Warnaco Group, Inc., (ii) Warnaco Inc.,
(iii) the subsidiaries that guarantee the Senior Notes (the
‘‘Guarantor Subsidiaries’’), (iv) the
subsidiaries other than the Guarantor Subsidiaries (the
‘‘Non-Guarantor Subsidiaries’’) and (v) The
Warnaco Group, Inc. on a consolidated basis. The Senior Notes are
guaranteed by substantially all of Warnaco Inc.'s domestic
subsidiaries. See Note 15. F-60 THE
WARNACO GROUP, INC. F-61 THE
WARNACO GROUP, INC. F-62 THE
WARNACO GROUP, INC. F-63 THE
WARNACO GROUP, INC. F-64 THE
WARNACO GROUP, INC. Note 23—Quarterly Results of
Operations (Unaudited) The following tables contain selected
financial data for each quarter of Fiscal 2005 and Fiscal 2004. The
Company believes that the following information reflects all normal
recurring adjustments necessary for a fair presentation of the
information for each quarter of Fiscal 2005 and Fiscal 2004. The
operating results for any period are not necessarily indicative of
results for any future periods. F-65 SCHEDULE
II THE WARNACO GROUP, INC. A-1
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF
1934
(Exact name of registrant as specified in
its
charter)
Delaware
95-4032739
(State
or other jurisdiction of
incorporation or
organization)(I.R.S. Employer
Identification
No.)
New York,
New York 10018
(Address of principal executive
offices)
Securities
registered pursuant to Section 12(g) of the
Act:
Title
of each class
Name of each exchange on which
registered
Common
Stock, par value $0.01 per share
The NASDAQ National
Market
No
No
No
Accelerated filer
Non-accelerated
filer
No
No
2005 ANNUAL REPORT ON FORM 10-K
PAGE
PART
I
Item
1.
Business
1
Item
1A.
Risk Factors
23
Item
1B.
Unresolved Staff
Comments
30
Item
2.
Properties
30
Item
3.
Legal Proceedings
30
Item
4.
Submission of Matters to a Vote of Security
Holders
30
PART
II
Item
5.
Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
31
Item 6.
Selected
Financial Data
31
Item
7.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
35
Item
7A.
Quantitative and Qualitative Disclosures About Market
Risk
67
Item 8.
Financial Statements
and Supplementary Data
68
Item
9.
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
68
Item
9A.
Controls and Procedures
69
Item
9B.
Other
Information
69
PART
III
Item
10.
Directors and Executive Officers of the
Registrant
70
Item 11.
Executive
Compensation
70
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
70
Item
13.
Certain Relationships and Related
Transactions
70
Item 14.
Principal
Accounting Fees and
Services
70
PART
IV
Item
15.
Exhibits and Financial Statement
Schedules
71
Warner's
Catalina
(a)
Olga
Cole of
California®
Body Nancy
Ganz®/Bodyslimmers®
Ocean
Pacific and related brands
(b)
Lejaby/ Lejaby Rose®
Calvin Klein and formatives
(including Choice
Rasurel®
Calvin Klein) (beneficially owned for
men's,
women's and children's
underwear,
loungewear and sleepwear. See
‘‘Trademarks
and Licensing
Agreements’’)
Trademark
Territory
Speedo(c)
United States,
Canada, Mexico, Caribbean
Islands
Axcelerate™
United
States, Canada, Mexico, Caribbean
Islands
Axcelerate Engineered by
Speedo™
United States, Canada, Mexico, Caribbean
Islands
Fastskin® (secondary
Speedo® mark)
United States, Canada, Mexico, Caribbean
Islands
Anne Cole (for women's
swimwear)(d)
Worldwide
Trademark
Territory
Expires
(n)
Calvin Klein (for
men's/women's/juniors' jeans and certain
jeans-related
products)(e)
North,
South and Central
America
12/31/2044
CK/Calvin
Klein Jeans (for retail stores selling men’s, women’s and
juniors’ jeans and certain jeans-related products and ancillary
products bearing the Calvin Klein marks)(e)
Canada, Mexico
and Central and South
America
12/31/2044
CK/Calvin Klein (for
bridge apparel, bridge accessories and retail stores selling bridge
apparel and accessories)(f)
All countries constituting
European Union, Norway, Switzerland, Monte Carlo, Vatican City,
Liechtenstein, Iceland and parts of Eastern Europe, Russia, Middle East
and Africa
12/31/2046
Calvin Klein and
CK/Calvin Klein (for men’s/women’s/children’s
jeans, khakis and other related apparel as well as retail stores
selling such items and ancillary products)(f)
Western
Europe including Ireland, Great Britain, France, Monte Carlo, Germany,
Spain, Portugal, Andorra, Italy, San Marino, Vatican City, Benelux,
Denmark, Sweden, Norway, Finland, Austria, Switzerland, Lichtenstein,
Greece, Cyprus, Turkey and Malta; parts of Eastern Europe, Russia, the
Middle East and Africa; Japan, China, South Korea and
‘‘Rest of Asia’’ (Hong Kong, Thailand,
Australia, New Zealand, Philippines, Taiwan, Singapore, Malaysia,
Indonesia, New Guinea, Vietnam, Cambodia, Laos, Myanmar, Macau and the
Federated State of
Micronesia)
12/31/2046
Calvin Klein (for
jeans accessories)(f)
All countries constituting European
Union, Norway, Switzerland, Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia, Middle East, Africa and
Asia
12/31/2046
Chaps (for men's
sportswear, jeanswear, activewear, sport shirts and men’s
swimwear)(g)
United States, Canada, Mexico, Puerto Rico and
Caribbean Islands
12/31/2018
Nautica (for
women's swimwear, beachwear and
accessories)(h)
United States, United States Virgin
Islands, Canada, Mexico and Caribbean
Islands
6/30/2009
Nautica (for
women's swimwear and coordinating
cover-ups)(h)
Australia, Austria, Belgium, Bulgaria,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg,
Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russia,
Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine and United
Kingdom
6/30/2009
Trademark
Territory
Expires
(n)
Lifeguard®(for wearing
apparel excluding underwear and loungewear)(i)
Worldwide
(United States, Canada, Mexico, Caribbean Islands and all other
countries where trademark filings are or will be
made)
6/30/2030
Calvin Klein, CK Calvin
Klein and Choice Calvin Klein (for women's and juniors'
swimwear)(j)
Worldwide with respect to Calvin Klein;
Worldwide in approved forms with respect to CK Calvin Klein and
Choice Calvin
Klein
12/31/2014
Calvin Klein (for
men's swimwear)(k)
Europe (countries constituting
European Union at May 1, 2004), Switzerland, Norway,
United Arab Emirates, Saudi Arabia, Kuwait, Lebanon, Jordan, the West
Bank, Egypt, Israel and
Russia
12/31/2014
J. Lo by Jennifer
Lopez® (for women's intimate
apparel)(l)
Worldwide
12/31/2013
Michael
Kors® and MICHAEL Michael Kors® (for women's
swimwear)(m)
Worldwide (excluding
Japan)
6/30/2014
(a)
The
Company sells swimwear to Wal-Mart Stores, Inc. under the
Catalina trademark.
(b)
In August
2004, the Company acquired 100% of the outstanding common stock
of Ocean Pacific Apparel Corp. Ocean Pacific operates directly and
through a network of third-party licensees worldwide and offers a broad
array of apparel and accessories catering to men, women, young men,
juniors and kids under various trademarks, the most recognizable being
its Op® and Ocean Pacific labels.
(c)
Licensed in perpetuity from Speedo International,
Ltd. (‘‘SIL’’).
(d)
Licensed in perpetuity from Anne Cole and Anne Cole
Design Studio.
(e)
Expiration date reflects a
renewal option, which permits the Company to extend for an additional
ten-year term through 12/31/2044 (subject to compliance with certain
terms and conditions).
(f)
In January
2006, the Company acquired the companies that operate the license and
related wholesale and retail businesses of Calvin Klein jeans
and accessories in Europe and Asia and the CK Calvin Klein
‘‘bridge’’ line of sportswear and
accessories in Europe. See
"—Acquisitions—CKJEA
Acquisition." In connection with the acquisition, the
Company acquired various exclusive license agreements. In addition, the
Company entered into amendments to certain of its existing license
agreements with Calvin Klein, Inc. (in its capacity as licensor). See
"—Trademarks and Licensing
Agreements."
(g)
Expiration
date reflects two renewal options, each of which permits the Company to
extend for an additional five-year term (subject to compliance with
certain terms and conditions) for the trademark Chaps and the
Chaps mark and logo.
(h)
Expiration date
reflects a renewal option which permits the Company to extend for an
additional two years (subject to compliance with certain terms and
conditions).
(i)
Expiration date reflects four
renewal options, each of which permits the Company to extend for an
additional five-year term (subject to compliance with certain terms and
conditions).
(j)
Expiration date reflects a
renewal option which permits the Company to extend for an additional
five-year term (subject to compliance with certain terms and
conditions). In January 2006, the Company announced its plans to
discontinue the Choice Calvin Klein
line.
(k)
Expiration date reflects a renewal
option, which permits the Company to extend for an additional five-year
term (subject to compliance with certain terms and
conditions).
(l)
Expiration date reflects two
renewal options, each of which permits the Company to extend for an
additional three-year term (subject to compliance with certain terms
and conditions).
(m)
Expiration date reflects
two renewal options, each of which permits the Company to extend for an
additional three-year term (subject to compliance with certain terms
and conditions).
(n)
Assumes exercise of renewal
option(s), as applicable.
Fiscal
2005
Fiscal 2004
Fiscal 2003
(in thousands of
dollars)
%
of Total
% of
Total
% of
Total
Net
revenues:
Intimate
Apparel Group
$
595,702
39.6
%
$
588,256
41.3
%
$
572,813
41.7
%
Sportswear
Group
517,567
34.4
%
455,601
32.0
%
440,516
32.0
%
Swimwear
Group
391,146
26.0
%
380,324
26.7
%
361,092
26.3
%
Net
revenues
$
1,504,415
100.0
%
$
1,424,181
100.0
%
$
1,374,421
100.0
%
%
of Net
Revenues
% of
Net
Revenues
% of
Net
Revenues
Operating
income:
Intimate
Apparel
Group
$
66,679
$
55,361
$
55,858
Sportswear
Group
71,845
53,757
31,764
Swimwear
Group
44,186
58,147
52,901
Group
operating
income
182,710
12.1
%
167,265
11.8
%
140,523
10.2
%
Unallocated
corporate
expenses
(81,321
)
-5.3
%
(66,000
)
-4.6
%
(62,603
)
-4.5
%
Restructuring
(expense)
income
503
0.0
%
(5,130
)
-0.4
%
(19,101
)
-1.4
%
Reorganization
items
—
0.0
%
—
0.0
%
(29,805
)
-2.2
%
Operating
income
$
101,892
6.8
%
$
96,135
6.8
%
$
29,014
2.1
%
December
31, 2005
% of Total
January 1,
2005
% of Total
Total
assets:
Intimate
Apparel Group
$
282,352
23.1
%
$
303,484
26.3
%
Sportswear
Group
233,877
19.1
%
254,728
22.1
%
Swimwear
Group
359,343
29.4
%
356,288
30.9
%
Corporate/Other
346,644
28.4
%
239,404
20.7
%
Total
assets
$
1,222,216
100.0
%
$
1,153,904
100.0
%
Brand
Name
Price Range
Type of
Apparel
Calvin Klein
Better to
premium
Women's intimate apparel and sleepwear and
men's underwear and
loungewear
Choice
Calvin Klein (a)
Better to premium
Juniors'
intimate apparel
Warner's
Upper
moderate to better
Women's intimate
apparel
Olga
Upper moderate to
better
Women's intimate
apparel
Body Nancy
Ganz/Bodyslimmers
Better to premium
Women's
intimate apparel
Lejaby/Rasurel/Lejaby
Rose
Better to premium
Women's intimate
apparel and
swimwear
J. Lo by Jennifer
Lopez
Better to premium
Women's intimate
apparel
Axcelerate/Axcelerate Engineered by
Speedo (b)
Better to premium
Women's
intimate apparel and
men's
underwear
(a)
In
January 2006, the Company announced its plans to discontinue the
Choice Calvin Klein
line.
(b)
Axcelerate/Axcelerate Engineered by
Speedo began shipping in the second quarter of Fiscal
2005.
Channels
of
Distribution
Customers
Brands
United
States
Department
Stores
Federated Department Stores,
Carson’s/Bon Ton and
Saks Fifth
AvenueWarner's, Olga, Body Nancy Ganz, JLO,
Lejaby Rose, Lejaby, Calvin Klein underwear and
Axcelerate
Independent
Retailers
Nordstrom, Dillard's,
Neiman Marcus
and BelkWarner's, Olga, Body Nancy Ganz,
Lejaby Rose and Calvin Klein
underwear
Chain
Stores
Kohl's and Sears
Warner's,
Olga, Body Nancy Ganz and private
label
Membership Clubs
Costco
and Sam's Club
Warner's, Olga and
Bodyslimmers
Canada
Hudson Bay
Company,
Zellers, Sears and Wal-MartWarner's,
Olga, Body Nancy Ganz/Bodyslimmers, JLO, Calvin
Klein underwear and Lejaby/Lejaby
Rose
Mexico
Liverpool, Palacio de
Hierro, Suburbia, Sears and Sam's Club
Warner's,
Olga, Body Nancy Ganz/Bodyslimmers and Calvin
Klein
underwear
Europe
Harrods, House of
Fraser,
Galeries Lafayette,
Selfridges, Debenhams,
Au
Printemps, Karstadt,
Kaufhof and El Corte InglesJLO,
Lejaby, Rasurel and Calvin Klein
underwear
Company operated retail
stores/
stores operated under retail licenses or distributor
agreementsCalvin Klein underwear and
Lejaby
Asia
Company operated
retail stores/
stores operated under retail licenses or
distributor agreementsCalvin Klein underwear and
Lejaby
Fiscal
2005
Fiscal 2004
Fiscal
2003
Net
Revenues%
of
TotalNet
Revenues% of
TotalNet
Revenues% of
Total
(in thousands of
dollars)
Net
revenues:
United
States
$
271,681
45.6
%
$
282,866
48.1
%
$
295,656
51.6
%
International
324,021
54.4
%
305,390
51.9
%
277,157
48.4
%
$
595,702
100.0
%
$
588,256
100.0
%
$
572,813
100.0
%
Brand
Name (a)
Price Range
Type of
Apparel
Calvin Klein
(b)
Better to premium
Men's, women's,
juniors' and children's (c) designer jeanswear (bottoms and
tops)
Chaps
Moderate
Men's sportswear, jeanswear, activewear, knit and woven
sports shirts and
swimwear
(a)
In
December 2003, the Company sold its White Stag®
trademark to Wal-Mart Stores, Inc. Pursuant to the sale agreement, the
Company provides certain sourcing and design services related to the
White Stag women's sportswear line. The design services
agreement extends through January 2007.
(b)
Choice Calvin Klein (a formative brand of
Calvin Klein) will be discontinued in
2006.
(c)
The Sportswear Group sub-licenses the
rights to produce children's designer jeanswear to a third
party.
Channels
of
Distribution
Customers
Brands
United
States
Department
Stores
Federated Department Stores Carson’s/Bon
Ton
Calvin Klein jeans
Calvin Klein jeans
and Chaps
Independent
Retailers
Nordstrom
Dillard’s and
BelkCalvin Klein jeans
Calvin Klein jeans
and Chaps
Chain
Stores
Kohl's/Mervyn’s
Chaps
Membership
Clubs
Costco and Sam's
Club
BJ’sCalvin Klein jeans
Calvin
Klein jeans and Chaps
Mass
Merchandisers
Wal-Mart
Design and sourcing services
related to the White Stag
trademark
Other
Military
Calvin
Klein jeans and
Chaps
Canada
Hudson Bay
Company and Sears
Calvin Klein jeans and
Chaps
Mexico
Liverpool, Sears
and membership clubs
Calvin Klein jeans and
Chaps
South America
Stores
operated under distributor agreements
Calvin Klein
jeans
Fiscal
2005
Fiscal 2004
Fiscal
2003
Net
Revenues%
of
TotalNet
Revenues% of
TotalNet
Revenues% of
Total
(in thousands of
dollars)
Net
revenues:
United
States
$
442,553
85.5
%
$
388,907
85.4
%
$
388,529
88.2
%
International
75,014
14.5
%
66,694
14.6
%
51,987
11.8
%
$
517,567
100.0
%
$
455,601
100.0
%
$
440,516
100.0
%
Brand
Name
Price Range
Type of
Apparel
Speedo
Better
Men's
and women's competitive
swimwear, competitive and non-
competitive swim accessories,
men's swimwear and
coordinating T-shirts, women's fitness swimwear, fashion swimwear
and activewear and children's swimwear
Anne
Cole
Better to premium
Women's
swimwear
Cole of California
Upper
moderate to better
Women's
swimwear
Catalina
Mass
market
Women's and juniors'
swimwear
Lifeguard
Upper moderate to
better
Men's and women's swimwear and related
products
Nautica
Upper moderate to
better
Women's swimwear, beachwear and
accessories
Calvin Klein
Better to
premium
Men's and women's
swimwear
Choice Calvin Klein
(a)
Better to premium
Juniors'
swimwear
Ocean Pacific (b)
Better to
premium
Men's, women's, young men's,
juniors' and kid's swimwear, sportswear and related
products
Michael Kors (c)
Better to
premium
Women's swimwear
Axcelerate
Engineered by Speedo
(d)
Better
Men's and
women's swimwear, Better activewear and accessories
Private Label
Moderate
Women's
and juniors'
swimwear
(a)
In
January 2006, the Company announced its plans to discontinue the
Choice Calvin Klein line.
(b)
In Fiscal 2004, OP
products were sold by third-party licensees. During Fiscal 2005, the
Company exited certain key third-party licenses and added certain
OP product categories to its wholesale business
model.
(c)
Company shipments of Michael
Kors commenced in the fourth quarter of Fiscal 2005.
(d)
Shipments of Axcelerate activewear, swimwear
and accessories commenced in the first quarter of Fiscal
2005.
Channels
of Distribution (a)
Customers
Brands
(a)
United
States
Department
Stores
Federated Department Stores
and Saks
Inc.Speedo swimwear and accessories,
Anne Cole,
Cole of California,
Nautica, Choice Calvin Klein
swimwear, Axcelerate, Michael Kors and
OP
Independent
Retailers
Nordstrom, Dillard's,
Neiman Marcus
and BelkAnne Cole, Speedo swimwear,
Nautica swimwear and Choice
Calvin Klein
swimwear
Chain Stores
J. C.
Penney, Kohl's and
SearsSpeedo swimwear and
accessories
Designer, Private Label and
Axcelerate
Membership
Clubs
Costco and Sam's Club
Speedo
swimwear, active apparel
and
accessories
Mass
Merchandisers
Wal-Mart and Target
Catalina
(wholesale basis), private
label and Speedo
accessories
Other
Military,
Victoria's Secret
Catalog and The Sports
AuthoritySpeedo swimwear and accessories,
Lifeguard, Anne Cole, Nautica and
private
label
Canada
Hudson Bay Company,
Sears and membership
clubsSpeedo swimwear and
accessories,
Nautica and Anne
Cole
Mexico
Liverpool, Palacio
De
Hierro, Marti, Suburbia,
Wal-Mart and membership
ClubsSpeedo swimwear and accessories,
Nautica,
Anne Cole and
Catalina
Europe
EL Corte
Ingles, House of
Fraiser, La Rinascente and
Company-owned
Stores/stores
operated under distributor
agreementsCalvin Klein
swimwear
(a)
In Fiscal
2004, the Company's OP business was operated through a
network of third party licensees which distributed a broad range of
apparel and accessories through multiple channels of distribution
including department stores, swim specialty stores and chain stores.
During Fiscal 2005, the Company exited certain key third-party licenses
and added certain OP product categories to its wholesale
business model.
Fiscal
2005
Fiscal 2004
Fiscal
2003
Net
Revenues%
of
TotalNet
Revenues% of
TotalNet
Revenues% of
Total
(in thousands of
dollars)
Net
revenues:
United
States
$
362,639
92.7
%
$
361,770
95.1
%
$
344,980
95.5
%
International
28,507
7.3
%
18,554
4.9
%
16,112
4.5
%
$
391,146
100.0
%
$
380,324
100.0
%
$
361,092
100.0
%
Name
Age
Position
Joseph
R.
Gromek
59
Director,
President and Chief Executive Officer
Lawrence R.
Rutkowski
47
Executive Vice President and Chief
Financial Officer
Roger A.
Williams
58
President—Swimwear
Group
Helen
McCluskey
50
President—Intimate Apparel
Group
Frank
Tworecke
59
President—Sportswear
Group
Dwight
Meyer
53
President—Global
Sourcing
Stanley P.
Silverstein
53
Executive Vice
President—International Strategy
and
Business
Development
Jay A.
Galluzzo
31
Senior Vice President, General Counsel and
Secretary
Elizabeth Wood
44
Senior
Vice President—Human Resources
a)
the Old Common Stock, including all
stock options and restricted shares, was extinguished, and holders of
the Old Common Stock received no distribution on account of the Old
Common Stock;
b)
general unsecured
claimants received approximately 2.55% (1,147,050 shares) of the
Common Stock, which the Company distributed in April
2003;
c)
the Company's
pre-petition secured lenders received their pro rata share of
approximately $106.1 million in cash, Second Lien Notes in the
principal amount of $200 million and approximately 96.26%
of the Common Stock (43,318,350 shares);
d)
holders of claims arising from or
related to certain of the Predecessor's preferred securities
received approximately 0.60% of the Common Stock (268,200
shares);
e)
pursuant to the terms
of his employment agreement, as modified by the Reorganization Plan,
Antonio C. Alvarez II, then President and Chief Executive Officer of
the Company, received an incentive bonus consisting of approximately
$2.0 million in cash, Second Lien Notes in the principal amount
of approximately $0.9 million and approximately 0.59% of
the Common Stock (266,400 shares valued at $11.19 per share); and
f)
in addition to the foregoing,
allowed administrative and certain priority claims were paid in full in
cash.
•
product
quality;
•
brand
recognition;
•
price;
•
product
differentiation (including product
innovation);
•
manufacturing and
distribution expertise and
efficiency;
•
marketing and advertising;
and
•
customer service.
•
currency
fluctuations;
•
import and
export license requirements;
•
trade
restrictions;
•
changes in quotas,
tariffs, taxes and duties;
•
restrictions
on repatriating foreign profits back to the
U.S.;
•
foreign laws and
regulations;
•
international trade
agreements;
•
difficulties in staffing and
managing international operations;
•
economic conditions
overseas;
•
political or social unrest;
and
•
disruptions or delays in
shipments.
Item 5.
Market for
Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
High
Low
2004
First
Quarter
$
20.62
$
15.66
Second
Quarter
$
21.98
$
17.63
Third
Quarter
$
22.76
$
17.57
Fourth Quarter
$
22.55
$
19.21
2005
First
Quarter
$
25.84
$
20.05
Second
Quarter
$
25.58
$
19.70
Third
Quarter
$
25.88
$
21.49
Fourth Quarter
$
27.53
$
19.70
2006
First
Quarter (through February 17,
2006)
$
28.22
$
23.14
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the
Period
February
5,
2003 to
January 3,
2004For
the
Period
January 5,
2003 to
February 4,
2003Fiscal 2002 (a)
Fiscal 2001
(a)
(Dollars in millions, except per
share data)
Statement of operations
data:
Net
revenues
$
1,504.4
$
1,424.2
$
1,264.3
$
110.1
$
1,408.2
$
1,582.9
Gross
profit
509.6
473.0
392.1
42.8
405.4
268.3
Selling,
general and administrative expenses
(b)
406.7
378.5
319.9
32.2
370.0
545.2
Amortization
of sales order
backlog
—
—
11.8
—
—
—
Impairment
charge
—
—
—
—
—
65.0
Restructuring
expense
(income)
(0.5
)
5.1
19.1
—
—
—
Reorganization
expense
—
—
—
29.8
114.5
171.9
Operating
income
(loss)
101.9
96.1
48.1
(19.1
)
(84.4
)
(513.8
)
Gain
on cancellation of pre-petition
indebtedness
—
—
—
(1,692.7
)
—
—
Fresh
start
adjustments
—
—
—
(765.7
)
—
—
Other
(income)
loss
1.0
(2.2
)
(2.8
)
0.4
(0.1
)
6.6
Interest
expense,
net
18.1
19.8
20.6
1.8
20.0
122.2
Income
(loss) from continuing operations before cumulative effect of change in
accounting
principle
52.2
46.9
18.2
2,359.0
(154.0
)
(793.5
)
Loss
from discontinued operations, net of taxes
(0.2
)
(4.4
)
(18.4
)
(0.5
)
(9.3
)
(67.7
)
Cumulative
effect of change in accounting principle, net of
taxes
—
—
—
—
(801.6
)
—
Net
income (loss)
52.1
42.5
(0.2
)
2,358.5
(964.9
)
(861.2
)
Net
income (loss) applicable to Common
Stock
52.1
42.5
(0.2
)
2,358.5
(964.9
)
(861.2
)
Dividends
on Common
Stock
—
—
—
—
—
—
Per
share
data:
Income
(loss) from continuing operations before cumulative effect of change in
accounting
principle
Basic
$
1.14
$
1.03
$
0.40
$
44.52
$
(2.91
)
$
(15.00
)
Diluted
1.12
1.02
0.40
44.52
(2.91
)
(15.00
)
Income
(loss) from discontinued operations, net of
taxes
Basic
(0.01
)
(0.10
)
(0.41
)
(0.01
)
(0.17
)
(1.28
)
Diluted
(0.01
)
(0.09
)
(0.40
)
(0.01
)
(0.17
)
(1.28
)
Cumulative
effect of change in accounting principle, net of
taxes
Basic
—
—
—
—
(15.13
)
—
Diluted
—
—
—
—
(15.13
)
—
Net
income
(loss)
Basic
1.13
0.93
(0.01
)
44.51
(18.21
)
(16.28
)
Diluted
1.11
0.93
—
44.51
(18.21
)
(16.28
)
Dividends
declared
—
—
—
—
—
—
Shares
used in computing earnings per share
(c)
Basic
45,872,308
45,418,069
45,060,724
52,989,965
52,989,965
52,911,005
Diluted
46,804,053
46,178,535
45,462,560
52,989,965
52,989,965
52,911,005
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the
Period
February
5,
2003 to
January 3,
2004For
the
Period
January 5,
2003 to
February 4,
2003Fiscal 2002 (a)
Fiscal 2001
(a)
(Dollars in millions, except per
share data)
Other
data:
Cash
flows from operating
activities
138.1
50.3
83.6
(24.9
)
226.2
(422.8
)
Cash
flows from investing
activities
(36.7
)
(45.2
)
(18.5
)
(0.7
)
16.2
(21.4
)
Cash
flows from financing
activities
(0.1
)
0.6
(44.9
)
(67.6
)
(176.8
)
474.6
Depreciation
and
amortization
33.7
32.5
43.5
4.3
53.2
89.3
Capital
expenditures
39.1
31.9
30.1
0.6
20.0
22.8
Ratio
of earnings to fixed
charges
(d)
3.2
3.3
1.8
787.2
n/a
n/a
Deficit
of earnings to fixed
charges
(d)
n/a
n/a
n/a
n/a
104.3
642.5
Successor
Predecessor
December
31,
2005January 1,
2005January
3,
2004February 4,
2003January
4,
2003January 5,
2002
(Dollars in millions, except per share
data)
Balance sheet data:
Working
capital
498.6
434.2
394.3
327.7
461.2
(e)
446.3
(e)
Total
assets
1,222.2
1,153.9
1,091.0
1,126.6
947.9
1,985.5
Liabilities
subject to
compromise
—
—
—
2,486.1
2,435.0
Debtor-in-possession
financing
—
—
—
—
—
155.9
Senior
Secured Credit
Facility
—
—
—
39.2
—
—
Second
Lien Notes due
2008
—
—
—
200.9
—
—
8
7/8% Senior Notes due
2013
210.0
210.0
210.0
—
—
—
Long-term
debt (excluding current
maturities)
210.0
210.8
211.1
202.2
1.3
2.2
Stockholders'
equity
(deficit)
632.0
576.9
520.6
503.5
(1,856.1
)
(851.3
)
(a)
Includes
reorganization items related to the Chapter 11 Cases of $177.8
million and $116.7 million in Fiscal 2001 and Fiscal 2002,
respectively, impairment charges of $101.8 million in Fiscal
2001, and a tax provision of $151.0 million in Fiscal 2001
primarily related to the increase in the valuation allowance related to
future income tax benefits. Also includes the cumulative effect of a
change in accounting of $801.6 million, net of income tax
benefit of $53.5 million, related to the adoption of SFAS No.
142, Goodwill and Other Intangible Assets (‘‘SFAS
142’’) in Fiscal 2002.
(b)
Selling general & administrative
(‘‘SG&A’’) expenses exclude pension
expense (income) of $1.6 million, $(6.8) million, $(6.8)
million, $0, $5.4 million, and $2.9 million for Fiscal
2005, Fiscal 2004, the period February 5, 2003 to
January 3, 2004, the period January 5, 2003
to February 4, 2003, Fiscal 2002 and Fiscal 2001,
respectively. Pension income of $634 and $323 related to the
Company's foreign defined benefit plans have been reclassified
for Fiscal 2004 and the period February 5, 2003 to January 3, 2004,
respectively, from SG&A expense to pension expense (income). See
Note 10 of Notes to Consolidated Financial Statements.
(c)
On February 4, 2003, pursuant
to the terms of the Reorganization Plan, the outstanding Old Common
Stock was cancelled, and the Company issued 44,999,973 shares of Common
Stock. Due to the cancellation of the Predecessor's Old Common
Stock and the issuance of approximately 45 million shares of
Common Stock by the Successor in connection with the Company's
emergence from bankruptcy on February 4, 2003, income
(loss) per common share for periods beginning after February
4, 2003 will not be comparable to income (loss) per common share
for periods before February 4,
2003.
(d)
For the purposes of computing
the ratio of earnings to fixed charges, earnings are defined as income
from continuing operations before income taxes, plus fixed charges and
less capitalized interest. Fixed charges are defined as the sum of
interest expense, including the amortization of deferred financing
costs, capitalized interest and that portion of rental expense which
the Company believes to be representative of an interest factor. The
deficit of earnings to fixed charges represents the amount of earnings
that would be required to increase the ratio of earnings to fixed
charges to 1.00 in those cases where earnings are less than the total
fixed charges.
(e)
Does not include
liabilities subject to compromise.
Successor
Predecessor
Combined
Fiscal
2005
% of Net
RevenuesFiscal
2004
% of Net
RevenuesFor
the
Period
February 5,
2003 to
January 3,
2004For the Period
January 5,
2003 to
February 4,
2003Fiscal 2003
% of Net
Revenues
(in thousands of
dollars)
Net
revenues
$
1,504,415
100.0
%
$
1,424,181
100.0
%
$
1,264,301
$
110,120
$
1,374,421
100.0
%
Cost
of goods
sold
994,799
66.1
%
951,198
66.8
%
872,170
67,283
939,453
68.4
%
Gross
profit
509,616
33.9
%
472,983
33.2
%
392,131
42,837
434,968
31.6
%
Selling,
general and administrative expenses
(a)
406,664
27.0
%
378,502
26.6
%
319,903
32,156
352,059
25.6
%
Pension
expense (income)
(a)
1,563
0.1
%
(6,784
)
-0.5
%
(6,811
)
—
(6,811
)
-0.5
%
Amortization
of sales order
backlog
—
0.0
%
—
—
11,800
—
11,800
0.8
%
Restructuring
expense
(income)
(503
)
0.0
%
5,130
0.3
%
19,101
—
19,101
1.4
%
Reorganization
expense
—
0.0
%
—
—
—
29,805
29,805
2.2
%
Operating
income
(loss)
101,892
6.8
%
96,135
6.8
%
48,138
(19,124
)
29,014
2.1
%
Gain
on cancellation of pre-petition
indebtedness
—
—
—
(1,692,696
)
(1,692,696
)
Fresh
start
adjustments
—
—
—
(765,726
)
(765,726
)
Other
(income)
loss
1,019
(2,197
)
(2,817
)
359
(2,458
)
Interest
expense,
net
18,080
19,821
20,641
1,751
22,392
Income
from continuing operations before provision for income
taxes
82,793
78,511
30,314
2,437,188
2,467,502
Provision
for income
taxes
30,556
31,636
12,084
78,150
90,234
Income
from continuing
operations
52,237
46,875
18,230
2,359,038
2,377,268
Loss
from discontinued operations, net of
taxes
(185
)
(4,358
)
(18,393
)
(501
)
(18,894
)
Net
income
(loss)
$
52,052
$
42,517
$
(163
)
$
2,358,537
$
2,358,374
(a)
Pension
income of $634 and $323 related to the Company’s foreign defined
benefit plans have been reclassified for Fiscal 2004 and the period
February 5, 2003 to January 3, 2004,
respectively, from SG&A expenses to pension expense (income).
See Note 10 of Notes to Consolidated Financial
Statements.
Fiscal
2005Fiscal
2004Increase
(Decrease)%
Change
(in thousands of
dollars)
Intimate Apparel
Group
$
595,702
$
588,256
$
7,446
1.3
%
Sportswear
Group
517,567
455,601
61,966
13.6
%
Swimwear
Group
391,146
380,324
10,822
2.8
%
Net
revenues
$
1,504,415
$
1,424,181
$
80,234
5.6
%
Fiscal
2005Fiscal
2004
United
States – wholesale
Department stores
and independent
retailers
21
%
23
%
Specialty
stores
10
%
10
%
Chain
stores
9
%
7
%
Mass
merchandisers
7
%
8
%
Membership
clubs and
other
24
%
24
%
Total
United States –
wholesale
71
%
72
%
International
–
wholesale
27
%
26
%
Retail
/
other
2
%
2
%
Net
revenues –
consolidated
100
%
100
%
Fiscal
2005Fiscal
2004Increase
(Decrease)%
Change
(in thousands of
dollars)
Calvin Klein underwear
(a)
$
338,069
$
323,130
$
14,939
4.6
%
Core
Brands
144,070
148,176
(4,106
)
-2.8
%
Fashion
Brands
113,563
116,950
(3,387
)
-2.9
%
Intimate
Apparel
Group
$
595,702
$
588,256
$
7,446
1.3
%
(a)
Includes
net revenues from Company operated retail and on-line stores of
approximately $29.4 million and $21.8 million for Fiscal
2005 and Fiscal 2004, respectively.
Fiscal
2005Fiscal
2004Increase
(Decrease)%
Change
(in thousands of
dollars)
Calvin Klein
jeans
$
284,387
$
265,754
$
18,633
7.0
%
Chaps
211,107
168,114
42,993
25.6
%
Calvin
Klein accessories
(a)
16,430
13,857
2,573
18.6
%
Mass
sportswear licensing
(b)
5,643
7,876
(2,233
)
-28.4
%
Sportswear
Group
$
517,567
$
455,601
$
61,966
13.6
%
(a)
The
Calvin Klein accessories license expired on December
31, 2005. On January 31, 2006, the Company
acquired certain accessories licenses as part of the CKJEA Acquisition.
See ‘‘Business—Acquisitions—CKJEA
Acquisition’’ discussed above.
(b)
Mass sportswear licensing revenues include
design services fees earned in connection with the White Stag
women’s sportswear line.
Fiscal
2005Fiscal
2004Increase
(Decrease)%
Change
(in thousands of
dollars)
Speedo
$
246,989
$
248,619
$
(1,630
)
-0.7
%
Designer
127,837
123,890
3,947
3.2
%
OP
(a)
9,730
2,747
6,983
254.2
%
Online
retail
store
6,590
5,068
1,522
30.0
%
Swimwear
Group
$
391,146
$
380,324
$
10,822
2.8
%
(a)
For
Fiscal 2005, consists of wholesale and licensing revenue. For Fiscal
2004, consists of licensing revenue.
Fiscal
2005% of
Segment Net
RevenuesFiscal
2004% of
Segment Net
Revenues
(in thousands of
dollars)
Intimate Apparel Group
$
229,176
38.5
%
$
210,455
35.8
%
Sportswear
Group
146,874
28.4
%
126,571
27.8
%
Swimwear
Group
133,566
34.1
%
135,957
35.7
%
Total
gross
profit
$
509,616
33.9
%
$
472,983
33.2
%
Fiscal
2005% of Net
RevenuesFiscal
2004% of Net
Revenues
(in
thousands of dollars)
Intimate Apparel Group
$
66,679
$
55,361
Sportswear
Group
71,845
53,757
Swimwear
Group
44,186
58,147
Group
operating income
182,710
12.1
%
167,265
11.8
%
Unallocated
corporate expenses
(81,321
)
–5.3
%
(66,000
)
-4.6
%
Restructuring
items
503
0.0
%
(5,130
)
-0.4
%
Operating
income
$
101,892
6.8
%
$
96,135
6.8
%
Fiscal
2005% of Brand
Net
RevenuesFiscal
2004% of Brand
Net
Revenues
(in thousands of
dollars)
Calvin Klein
underwear
$
57,274
16.9
%
$
50,262
15.6
%
Core
Brands
13,230
9.2
%
3,251
2.2
%
Fashion
Brands
(3,825
)
–3.4
%
1,848
1.6
%
Intimate
Apparel Group
$
66,679
11.2
%
$
55,361
9.4
%
Fiscal
2005% of Brand
Net
RevenuesFiscal
2004% of Brand
Net
Revenues
(in thousands of
dollars)
Calvin Klein
jeans
$
40,932
14.4
%
$
30,266
11.4
%
Chaps
26,211
12.4
%
17,479
10.4
%
Calvin
Klein
accessories
3,531
21.5
%
2,564
18.5
%
Mass
sportswear
licensing
1,171
20.8
%
3,448
43.8
%
Sportswear
Group
$
71,845
13.9
%
$
53,757
11.8
%
Fiscal
2005% of Brand
Net
RevenuesFiscal
2004% of Brand
Net
Revenues
(in thousands of
dollars)
Speedo
$
40,102
16.2
%
$
38,999
15.7
%
Designer
6,797
5.3
%
17,344
14.0
%
OP
(4,773
)
-49.1
%
(423
)
-15.4
%
Online
retail store
2,060
31.3
%
2,227
43.9
%
Swimwear
Group
$
44,186
11.3
%
$
58,147
15.3
%
Fiscal
2004Fiscal
2003Increase
(Decrease)%
Change
(in thousands of
dollars)
Intimate Apparel
Group
$
588,256
$
572,813
$
15,443
2.7
%
Sportswear
Group
455,601
440,516
15,085
3.4
%
Swimwear
Group
380,324
361,092
19,232
5.3
%
Net
revenues
$
1,424,181
$
1,374,421
$
49,760
3.6
%
Fiscal
2004Fiscal
2003
United
States – wholesale
Department stores
and independent
retailers
23
%
25
%
Specialty
stores
10
%
9
%
Chain
stores
7
%
7
%
Mass
merchandisers
8
%
9
%
Membership
clubs and
other
24
%
25
%
Total
United States –
wholesale
72
%
75
%
International
–
wholesale
26
%
24
%
Retail
/
other
2
%
1
%
Net
revenues –
consolidated
100
%
100
%
Fiscal
2004Fiscal
2003Increase
(Decrease)%
Change
(in thousands of
dollars)
Calvin Klein
underwear
$
310,192
$
279,106
31,086
11.1
%
Core
Brands
148,176
180,945
(32,769
)
-18.1
%
Fashion
Brands
116,950
100,240
16,710
16.7
%
Retail/other
12,938
12,522
416
3.3
%
Intimate
Apparel
Group
$
588,256
$
572,813
$
15,443
2.7
%
Fiscal
2004Fiscal
2003Increase
(Decrease)%
Change
(in thousands of
dollars)
Calvin Klein
jeans
$
265,754
$
282,718
$
(16,964
)
-6.0
%
Chaps
168,114
129,634
38,480
29.7
%
Calvin
Klein accessories
(a)
13,857
13,335
522
3.9
%
Mass
sportswear licensing
(b)
7,876
14,829
(6,953
)
-46.9
%
Sportswear
Group
$
455,601
$
440,516
$
15,085
3.4
%
(a)
The
Calvin Klein accessories license expired on December
31, 2005.
(b)
Mass sportswear
licensing revenues for Fiscal 2003 consist of royalty revenues related
to the White Stag trademark. With respect to Fiscal 2004, mass
sportswear licensing revenues include design services fees earned in
connection with the White Stag women's sportswear
line.
Fiscal
2004Fiscal
2003Increase
(Decrease)%
Change
(in thousands of
dollars)
Speedo
$
248,619
$
240,405
$
8,214
3.4
%
Designer
swimwear
123,890
116,575
7,315
6.3
%
OP
(a)
2,747
—
2,747
0.0
%
Online
retail
store
5,068
4,112
956
23.2
%
Swimwear
Group
$
380,324
$
361,092
$
19,232
5.3
%
(a)
Consists
of licensing revenue.
Fiscal
2004% of
Segment
Net
RevenuesFiscal
2003% of
Segment
Net
Revenues
(in thousands of
dollars)
Intimate Apparel Group
$
210,455
35.8
%
$
199,598
34.8
%
Sportswear
Group
126,571
27.8
%
103,946
23.6
%
Swimwear
Group
135,957
35.7
%
131,424
36.4
%
Total
gross
profit
$
472,983
33.2
%
$
434,968
31.6
%
Fiscal
2004% of Net
RevenuesFiscal
2003% of Net
Revenues
(in thousands of
dollars)
Intimate Apparel Group
$
55,361
$
55,858
Sportswear
Group
53,757
31,764
Swimwear
Group
58,147
52,901
Group
operating income
167,265
11.8
%
140,523
10.2
%
Unallocated
corporate expenses
(66,000
)
–4.6
%
(62,603
)
-4.5
%
Restructuring
expense
(5,130
)
–0.4
%
(19,101
)
-1.4
%
Reorganization
expense
—
0.0
%
(29,805
)
-2.2
%
Operating
income
$
96,135
6.8
%
$
29,014
2.1
%
Fiscal
2004% of Net
RevenuesFiscal
2003% of Net
Revenues
(in thousands of
dollars)
Calvin Klein
underwear
$
49,871
16.1
%
$
39,837
14.3
%
Core
Brands
2,520
1.7
%
7,524
4.2
%
Fashion
Brands
2,579
2.2
%
9,256
9.2
%
Retail/other
391
3.0
%
(759
)
-6.1
%
Intimate
Apparel Group
$
55,361
9.4
%
$
55,858
9.8
%
Fiscal
2004% of Brand
Net
RevenuesFiscal
2003% of Brand
Net
Revenues
(in thousands of
dollars)
Calvin Klein
jeans
$
30,266
11.4
%
$
9,447
3.3
%
Chaps
17,479
10.4
%
9,718
7.5
%
Calvin
Klein
accessories
2,564
18.5
%
1,795
13.5
%
Mass
sportswear
licensing
3,448
43.8
%
10,804
72.9
%
Sportswear
Group
$
53,757
11.8
%
$
31,764
7.2
%
Fiscal
2004% of Brand
Net
RevenuesFiscal
2003% of Brand
Net
Revenues
(in thousands of
dollars)
Speedo
$
38,999
15.7
%
$
34,729
14.4
%
Designer
17,344
14.0
%
16,574
14.2
%
OP
(423
)
–15.4
%
—
—
Ubertech
—
—
34
—
Online
retail store
2,227
43.9
%
1,564
38.0
%
Swimwear
Group
$
58,147
15.3
%
$
52,901
14.7
%
Fiscal
2005Fiscal
2004Fiscal
2003
(in thousands of
dollars)
Net cash provided by (used in)
operating activities:
Continuing
operations
$
137,042
$
54,816
$
64,263
Discontinued
operations
1,024
(4,497
)
(5,601
)
Net
cash provided by (used in) investing
activities:
Continuing
operations
(36,727
)
(46,383
)
(18,666
)
Discontinued
operations
—
1,137
(586
)
Net
cash provided by (used in) financing
activities:
Continuing
operations
(65
)
637
(112,482
)
Translation
adjustments
(2,661
)
6,421
12,504
Increase
(decrease) in cash and cash
equivalents
$
98,613
$
12,131
$
(60,568
)
Payments Due by Year
Contractual
Obligations
2006
2007
2008
2009
2010
Thereafter
Total
(Dollars
in thousands)
Revolving Credit Facility
(a)
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Senior
Notes
(b)
—
—
—
—
—
210,000
210,000
Operating
leases
(c)
27,801
23,825
20,144
16,232
14,409
68,876
171,287
Employment
and severance
contracts
5,749
3,943
1,347
63
62
75
11,239
Purchase
obligations
(d)
7,930
350
350
350
—
—
8,980
Trade
letters of credit
(e)
59,956
—
—
—
—
—
59,956
Purchase
order
guarantees
526
—
—
—
—
—
526
Capital
leases
394
—
—
—
—
—
394
Other
long-term obligations
(f)
46,850
41,719
39,668
39,756
36,843
457,933
662,769
Total
$
149,206
$
69,837
$
61,509
$
56,401
$
51,314
$
736,884
$
1,125,151
(a)
The
Revolving Credit Facility matures on February 4, 2009.
There were no amounts outstanding under the Revolving Credit Facility
as of December 31, 2005 and therefore, no maturity amount
is included in the commitments table. On January 31,
2006, the Revolving Credit Facility was amended and restated to, among
other things, add a $180 million term loan facility which was
used to finance a portion of the CKJEA Acquisition. See
"—Capital Resources and Liquidity—
Financing Arrangements—Revolving Credit Facility; Amended and
Restated Credit
Agreement."
(b)
The
Senior Notes mature on June 15, 2013. See
"—Capital Resources and
Liquidity—Financing Arrangements—Senior
Notes" and Note 15 of Notes to Consolidated
Financial Statements.
(c)
See
Note 18 of Notes to Consolidated Financial Statements.
(d)
Represents contractual commitments for
goods or services not received or recorded on the Company’s
consolidated balance sheet. See Note 18 of Notes to Consolidated
Financial Statements.
(e)
Trade
letters of credit represent obligations, in the ordinary course of
business, for inventory
purchases.
(f)
Represents other
commitments for the expenditure of funds including estimated funding
contributions to the Company’s pension plan (see Note 10 of
Notes to Consolidated Financial Statements) and minimum royalties
(see Note 18 of Notes to Consolidated Financial
Statements).
For
the Three Months Ended
For the Three Months
Ended
April
2,
2005July 2,
2005October
1,
2005December 31,
2005April 3,
2004July 3,
2004October 2,
2004January 1,
2005
(in millions of
dollars)
Net
revenues
$
439.5
$
374.7
$
327.7
$
362.5
$
393.3
$
332.1
$
324.4
$
374.4
Operating
income
52.9
15.6
13.7
19.7
43.2
12.8
7.8
32.3
Cash
flow provided by (used in) operating activities
(12.6
)
105.5
114.8
(69.6
)
4.1
97.9
56.4
(108.1
)
PAGE
(a) 1. The
Consolidated Financial Statements of The Warnaco Group,
Inc.
Management's
Annual Report on Internal Control Over Financial
Reporting
F-1
Report
of Independent Registered Public Accounting
Firm
F-2
Report of Independent Registered
Public Accounting Firm
F-4
Consolidated
Balance Sheets as of December 31, 2005 and January 1,
2005
F-6
Consolidated Statements of
Operations for the years ended December 31, 2005 and January 1, 2005
and the periods February 5, 2003 to January 3, 2004 and January 5, 2003
to February 4, 2003
F-7
Consolidated
Statements of Stockholders' Equity (Deficiency) and Comprehensive
Income (Loss) for the years ended December 31, 2005 and January 1, 2005
and the periods February 5, 2003 to January 3, 2004 and January 5, 2003
to February 4,
2003
F-8
Consolidated Statements of Cash
Flows for the years ended December 31, 2005 and January 1, 2005 and the
periods February 5, 2003 to January 3, 2004 and January
5, 2003 to February 4,
2003
F-9-F-10
Notes to Consolidated
Financial
Statements
F-11-F-65
2. Financial
Statement Schedule
Schedule II. Valuation
and Qualifying Accounts and
Reserves
A-1
Exhibit
No.
Description of
Exhibit
2.1
First
Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and its
Affiliated Debtors in Possession Under Chapter 11 of the Bankruptcy
Code (incorporated by reference to Exhibit 99.2 to The Warnaco Group,
Inc.'s Form 10-Q filed on November 18,
2002).*
2.2
Disclosure Statement with
respect to the First Amended Joint Plan of Reorganization of The
Warnaco Group, Inc. and its Affiliated Debtors and Debtors in
Possession Under Chapter 11 of the Bankruptcy Code (incorporated by
reference to Exhibit 99.3 to The Warnaco Group, Inc.'s Form 10-Q
filed November 18, 2002).*
2.3
Stock
Purchase Agreement, dated as of August 3, 2004, by and among Warnaco
Inc., Ocean Pacific Apparel Corp. and Doyle & Boissiere Fund I,
LLC, Anders Brag, Leo Isotolo and Richard A. Baker (incorporated by
reference to Exhibit 2.1 to The Warnaco Group, Inc.'s Form 10-Q
filed November 10, 2004).*##**
2.4
Stock
Purchase Agreement, dated as of December 20, 2005, by and among Warnaco
Inc., Fingen Apparel N.V., Fingen S.p.A., Euro Cormar S.p.A., and
Calvin Klein, Inc. (incorporated by reference to Exhibit 10.1 to The
Warnaco Group, Inc.'s Form 8-K filed December 23, 2005).*
**
2.5
Amendment, dated as of January 30,
2006, to the Stock Purchase Agreement, dated as of December 20, 2005,
by and among Warnaco Inc., Fingen Apparel N.V., Fingen S.p.A., Euro
Cormar S.p.A., and Calvin Klein, Inc. (incorporated by reference to
Exhibit 10.1 to The Warnaco Group, Inc.'s Form 8-K filed February
3, 2006).*
3.1
Amended and Restated
Certificate of Incorporation of The Warnaco Group, Inc. (incorporated
by reference to Exhibit 1 to the Form 8-A/A filed by The Warnaco Group,
Inc. on February 4, 2003).*
3.2
Bylaws of
The Warnaco Group, Inc. (incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K filed by The Warnaco Group, Inc. on
April 4, 2003).*
4.1
Registration Rights
Agreement, dated as of June 12, 2003, among Warnaco Inc., the
Guarantors (as defined therein) and the Initial Purchasers (as defined
therein) (incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 (File No. 333-107788) filed by The Warnaco Group,
Inc. and certain of its subsidiaries on August 8,
2003).*
4.2
Indenture, dated as of June 12,
2003, among Warnaco Inc., the Guarantors (as defined therein) and the
Trustee (as defined therein) (incorporated by reference to Exhibit 4.2
to the Registration Statement on Form S-4 (File No. 333-107788) filed
by The Warnaco Group, Inc. and certain of its subsidiaries on August 8,
2003).*
4.3
Registration Rights Agreement,
dated as of February 4, 2003, among The Warnaco Group, Inc. and certain
creditors thereof (as described in the Registration Rights Agreement)
(incorporated by reference to Exhibit 4.5 to The Warnaco Group,
Inc.'s Form 8-K filed February 10,
2003).*
10.1
Senior Secured Revolving Credit
Agreement, dated as of February 4, 2003, among Warnaco Inc., The
Warnaco Group, Inc., the Administrative Agent, the Lenders, the Issuing
Banks, the Syndication Agent and Salomon Smith Barney Inc. and J.P.
Morgan Securities, Inc., as joint lead managers and joint lead book
managers (incorporated by reference to Exhibit 99.2 to The Warnaco
Group, Inc.'s Form 8-K filed February 10,
2003).*
Exhibit
No.
Description of
Exhibit
10.2
Amendment No. 1,
Consent and Waiver, dated as of November 12, 2003, to the Senior
Secured Revolving Credit Agreement, dated as of February 4, 2003, among
Warnaco Inc., The Warnaco Group, Inc., the financial institutions from
time to time party thereto as lenders, the financial institutions from
time to time party thereto as issuers, Citicorp North America, as
administrative agent and collateral agent for the Lenders and the
Issuers, JPMorgan Chase Bank, as syndication agent for the Lenders and
the Issuers and Bank of America, NA, The CIT Group/Commercial Services
Inc., and Congress Financial Corporation (Central), each as a
co-documentation agent for the Lenders and Issuers (incorporated by
reference to Exhibit 10.2 to Amendment No. 2 to the Registration
Statement on Form S-4/A (File No. 333-107788) filed by The Warnaco
Group, Inc. and certain of its subsidiaries on December 18,
2003).*
10.3
Amendment No. 2, dated as of
August 1, 2004, to the Credit Agreement, dated as of February 4, 2003
(as amended by Amendment No. 1, Consent and Waiver dated as of November
12, 2003), among Warnaco Inc., The Warnaco Group, Inc., the Lenders,
the Issuers, Citicorp North America, as Administrative Agent, JPMorgan
Chase Bank, as Syndication Agent and Bank of America, N.A., The CIT
Group/Commercial Services, Inc., and Congress Financial Corporation
(Central), as Co-Documentation Agents (incorporated by reference to
Exhibit 10.2 to The Warnaco Group, Inc.'s Form 10-Q filed
November 10, 2004).*
10.4
Amendment No. 3,
dated as of September 15, 2005, to the Credit Agreement, dated as of
February 4, 2003 (as amended by Amendment No. 1, Consent and Waiver
dated as of November 12, 2003, as further amended by that certain
Amendment No. 2 dated as of August 1, 2004), among Warnaco Inc., The
Warnaco Group, Inc., the Lenders, the Issuers, Citicorp North America,
as Administrative Agent, JPMorgan Chase Bank, as Syndication Agent and
Bank of America, N.A., The CIT Group/Commercial Services, Inc., and
Congress Financial Corporation (Central), as Co-Documentation Agents
(incorporated by reference to Exhibit 10.1 to The Warnaco Group,
Inc.'s Form 8-K filed September 20,
2005).*
10.5
Amended and Restated Credit
Agreement, dated as of January 31, 2006, by and among Warnaco Inc., The
Warnaco Group, Inc., the Lenders (as defined therein), the Issuers (as
defined therein), Citicorp North America, Inc., as revolving facility
agent, term facility agent and collateral agent, JPMorgan Chase Bank,
N.A., as syndication agent, and Bank of America, NA, The CIT
Group/Commercial Services, Inc. and Wachovia Capital Finance
Corporation (Central) f/k/a Congress Financial Corporation (Central),
in each case, as co-documentation agents (incorporated by reference to
Exhibit 10.1 to The Warnaco Group, Inc.'s Form 8-K/A filed
February 15, 2006).*
10.6
Amended and
Restated Guaranty, dated as of January 31, 2006, by and among The
Warnaco Group, Inc., the Subsidiary Guarantors (as defined therein) and
Citicorp North America, Inc., as collateral agent (incorporated by
reference to Exhibit 10.2 to The Warnaco Group, Inc.'s Form 8-K/A
filed February 15, 2006).*
10.7
Amended and
Restated Pledge and Security Agreement, dated as of January 31, 2006,
by and among Warnaco Inc., the other Grantors (as defined therein) and
Citicorp North America, Inc., as collateral agent (incorporated by
reference to Exhibit 10.3 to The Warnaco Group, Inc.'s Form 8-K/A
filed February 15,
2006).*
10.8
Intercreditor and Collateral
Agency Agreement, dated as of January 31, 2006, by and among Citicorp
North America, Inc., as revolving facility agent, term facility agent
and collateral agent, The Warnaco Group, Inc., Warnaco Inc. and each
other Loan Party (as defined therein) (incorporated by reference to
Exhibit 10.4 to The Warnaco Group, Inc.'s Form 8-K/A filed
February 15, 2006).*
10.9
Warnaco Employee
Retirement Plan (incorporated by reference to Exhibit 10.11 to The
Warnaco Group, Inc.'s Registration Statement on Form S-1 (File
No. 33-4587)).*
Exhibit
No.
Description of
Exhibit
10.10
The Warnaco Group,
Inc. 2003 Stock Incentive Plan (incorporated by reference to Appendix D
to The Warnaco Group, Inc.'s Proxy Statement filed April 29,
2003).*
10.11
The Warnaco Group, Inc.
Incentive Compensation Plan (incorporated by reference to Appendix E to
The Warnaco Group, Inc.'s Proxy Statement filed April 29,
2003).*
10.12
The Warnaco Group, Inc. 2005
Stock Incentive Plan (incorporated by reference to Annex A to The
Warnaco Group, Inc.'s 2005 Proxy Statement on Schedule 14A filed
on April 12, 2005).*
10.13
The Warnaco
Group, Inc. Deferred Compensation Plan (incorporated by reference to
Exhibit 10.1 to The Warnaco Group, Inc.'s Form 8-K filed April
28, 2005).*
10.14
2005 Directors'
Compensation (incorporated by reference to Exhibit 10.4 to The Warnaco
Group, Inc.'s Form 10-Q filed May 10, 2005).*
10.15
2005 Base Salaries of Named Executive Officers
(incorporated by reference to Exhibit 10.5 to The Warnaco Group,
Inc.'s Form 10-Q filed May 10,
2005).*
10.16
2005 Performance Bonus Targets
for Named Executive Officers (incorporated by reference to Exhibit 10.6
to The Warnaco Group, Inc.'s Form 10-Q filed May 10,
2005).*
10.17
2004 Bonus Awards
(incorporated by reference to Exhibit 10.7 to The Warnaco Group,
Inc.'s Form 10-Q filed May 10,
2005).*
10.18
Form of Restricted Stock Award
Agreement (incorporated by reference to Exhibit 10.2 to The Warnaco
Group, Inc.'s Form 8-K filed May 25,
2005).*
10.19
Form of Non-Qualified Stock
Option Agreement (incorporated by reference to Exhibit 10.3 to The
Warnaco Group, Inc.'s Form 8-K filed May 25,
2005).*
10.20
Form of Restricted Stock Unit
Award Agreement for Joseph R. Gromek (incorporated by reference to
Exhibit 10.4 to The Warnaco Group, Inc.'s Form 8-K filed May 25,
2005).*
10.21
Form of The Warnaco Group,
Inc. 2005 Stock Incentive Plan Notice of Grant of Restricted Stock
(incorporated by reference to Exhibit 10.8 to The Warnaco Group,
Inc.'s Form 8-K filed August 12,
2005).*
10.22
Offer Letter and Employee
Waiver, Release and Discharge of Claims pursuant to the Key Domestic
Employee Retention Plan for Stanley P. Silverstein, dated November 26,
2001 (incorporated by reference to Exhibit 10.41 to The Warnaco Group,
Inc.'s Form 10-K filed July 31,
2002).*
10.23
Employment Agreement, dated as
of December 22, 2004, by and between The Warnaco Group, Inc. and Joseph
R. Gromek (incorporated by reference to Exhibit 10.1 to The Warnaco
Group, Inc.'s Form 8-K filed December 22,
2004).*
10.24
Letter Agreement, dated as of
September 11, 2003, by and between The Warnaco Group, Inc. and Lawrence
R. Rutkowski (incorporated by reference to Exhibit 10.36 to Amendment
No. 1 to the Registration Statement on Form S-4/A (File No. 333-107788)
filed by The Warnaco Group, Inc. and certain of its subsidiaries on
October 30, 2003).*
10.25
Amendment, dated
as of August 11, 2005, to the Letter Agreement, dated as of September
11, 2003, by and between The Warnaco Group, Inc. and Lawrence R.
Rutkowski (incorporated by reference to Exhibit 10.4 to The Warnaco
Group, Inc.'s Form 8-K filed August 12,
2005).*
10.26
Letter Agreement, dated as of
April 16, 2004, by and between The Warnaco Group, Inc. and Frank
Tworecke (incorporated by reference to Exhibit 10.1 to The Warnaco
Group, Inc.'s Form 10-Q filed May 10,
2005).*
10.27
Letter Agreement, dated as of
April 21, 2004, by and between The Warnaco Group, Inc. and Frank
Tworecke (incorporated by reference to Exhibit 10.1 to The Warnaco
Group, Inc.'s Form 10-Q filed August 6,
2004).*
10.28
Amendment, dated as of August
11, 2005, to the Letter Agreement, dated as of April 21, 2004, by and
between The Warnaco Group, Inc. and Frank Tworecke (incorporated by
reference to Exhibit 10.5 to The Warnaco Group, Inc.'s Form 8-K
filed August 12, 2005).*
Exhibit
No.
Description of
Exhibit
10.29
Letter Agreement,
dated as of June 15, 2004, by and between The Warnaco Group, Inc. and
Helen McCluskey (incorporated by reference to Exhibit 10.2 to The
Warnaco Group, Inc.'s Form 10-Q filed August 6,
2004).*
10.30
Amendment, dated as of August
11, 2005, to the Letter Agreement, dated as of June 15, 2004, by and
between The Warnaco Group, Inc. and Helen McCluskey (incorporated by
reference to Exhibit 10.7 to The Warnaco Group, Inc.'s Form 8-K
filed August 12, 2005).*
10.31
Employment
Agreement, dated as of August 11, 2005, by and between The Warnaco
Group, Inc. and Roger A. Williams (incorporated by reference to Exhibit
10.1 to The Warnaco Group, Inc.'s Form 8-K filed August 12,
2005).*
10.32
Employment Agreement, dated as
of August 11, 2005, by and between The Warnaco Group, Inc. and Stanley
P. Silverstein (incorporated by reference to Exhibit 10.2 to The
Warnaco Group, Inc.'s Form 8-K filed August 12,
2005).*
10.33
Employment Agreement, dated as
of August 11, 2005, by and between The Warnaco Group, Inc. and Jay A.
Galluzzo (incorporated by reference to Exhibit 10.3 to The Warnaco
Group, Inc.'s Form 8-K filed August 12,
2005).*
10.34
Letter Agreement, dated as of
April 6, 2005, by and between The Warnaco Group, Inc. and Dwight Meyer
(incorporated by reference to Exhibit 10.1 to The Warnaco Group,
Inc.'s Form 8-K filed April 8,
2005).*
10.35
Amendment, dated as of August
11, 2005, to the Letter Agreement, dated as of April 6, 2005, by and
between The Warnaco Group, Inc. and Dwight Meyer (incorporated by
reference to Exhibit 10.4 to The Warnaco Group, Inc.'s Form 8-K
filed August 12, 2005).*
10.36
Employment
Agreement, dated as of September 12, 2005 by and between The Warnaco
Group, Inc. and Elizabeth Wood (incorporated by reference to Exhibit
10.1 to The Warnaco Group, Inc.'s Form 8-K filed September 14,
2005).*
10.37
Amended and Restated License
Agreement, dated as of January 1, 1996, between Polo Ralph Lauren, L.P.
and Warnaco Inc. (incorporated by reference to Exhibit 10.4 to The
Warnaco Group, Inc.'s Form 10-Q filed November 14,
1997).*
10.38
Amended and Restated Design
Services Agreement, dated as of January 1, 1996, between Polo Ralph
Lauren Enterprises, L.P. and Warnaco Inc. (incorporated by reference to
Exhibit 10.5 to The Warnaco Group, Inc.'s Form 10-Q filed
November 14, 1997).*
10.39
License Agreement
and Design Services Agreement Amendment and Extension, dated as of
September 19, 2003, by and among PRL USA, Inc., as successor to Polo
Ralph Lauren L.P., The Polo/Lauren Company, L.P., Polo Ralph Lauren
Corporation, as successor to Polo Ralph Lauren L.P., and Warnaco Inc.
and Warnaco of Canada Company (incorporated by reference to Exhibit
10.2 to the Warnaco Group, Inc.'s Form 10-Q filed November 18,
2003).*#
10.40
License Agreement, dated as
of August 4, 1994, between Calvin Klein, Inc. and Calvin Klein
Jeanswear Company (incorporated by reference to Exhibit 10.20 to
Designer Holdings, Ltd.'s Registration Statement on Form S-1
(File No. 333-02236)).*
10.41
Amendment to
the Calvin Klein License Agreement, dated as of December 7, 1994
(incorporated by reference to Exhibit 10.21 to Designer Holdings,
Ltd.'s Registration Statement on Form S-1 (File No.
333-02236)).*
10.42
Amendment to the Calvin
Klein License Agreement, dated as of January 10, 1995 (incorporated by
reference to Exhibit 10.22 to Designer Holdings, Ltd.'s
Registration Statement on Form S-1 (File No.
333-02236)).*
10.43
Amendment to the Calvin
Klein License Agreement, dated as of February 28, 1995 (incorporated by
reference to Exhibit 10.23 to Designer Holdings, Ltd.'s
Registration Statement on Form S-1 (File No.
333-02236)).*
10.44
Amendment to the Calvin
Klein License Agreement, dated as of April 22, 1996 (incorporated by
reference to Exhibit 10.38 to Designer Holdings, Ltd.'s
Registration Statement on Form S-1 (File No.
333-02236)).*
Exhibit
No.
Description of
Exhibit
10.45
Amendment and
Agreement, dated June 5, 2003, by and among Calvin Klein, Inc.,
Phillips-Van Heusen Corporation, Warnaco Inc., Calvin Klein Jeanswear
Company, and CKJ Holdings Inc. (incorporated by reference to Exhibit
10.25 to Amendment No. 2 to the Registration Statement on Form S-4/A
(File No. 333-107788) filed by The Warnaco Group, Inc. and certain of
its subsidiaries on December 18,
2003).*##
10.46
Consent and Amendment No. 1
to the Facility Agreement, dated as of February 5, 2002 (incorporated
by reference to Exhibit 10.49 to The Warnaco Group, Inc.'s Form
10-K filed July 31, 2002).*
10.47
Speedo
Settlement Agreement, dated November 25, 2002, by and between Speedo
International Limited and Authentic Fitness Corporation, Authentic
Fitness Products, Inc., The Warnaco Group, Inc. and Warnaco Inc.
(incorporated by reference to Exhibit 10.28 to The Warnaco Group,
Inc.'s Form 10-K filed April 4,
2003).*
10.48
Amendment to the Speedo
Licenses, dated as of November 25, 2002, by and among Speedo
International Limited, Authentic Fitness Corporation and Authentic
Fitness Products, Inc. (incorporated by reference to Exhibit 10.29 to
The Warnaco Group, Inc.'s Form 10-K filed April 4,
2003).*##
10.49
Settlement Agreement, dated
January 22, 2001, by and between Calvin Klein Trademark Trust, Calvin
Klein, Inc. and Calvin Klein and Linda Wachner, The Warnaco Group,
Inc., Warnaco Inc., Designer Holdings, Ltd, CKJ Holdings, Inc.,
Jeanswear Holdings Inc., Calvin Klein Jeanswear Company and Outlet
Holdings, Inc. (incorporated by reference to Exhibit 10.57 to The
Warnaco Group, Inc.'s Form 10-K filed July 31,
2002).*##
10.50
License Agreement, dated as
of March 1, 2003, by and between Nautica Apparel, Inc. and Authentic
Fitness Corporation (incorporated by reference to Exhibit 10.31 to The
Warnaco Group, Inc.'s Form 10-K filed April 4,
2003).*##
10.51
Amended and Restated Master
Agreement of Sale, dated as of September 30, 1998, among Warnaco Inc.,
as Originator, and Gregory Street, Inc., as Buyer and Servicer
(incorporated by reference to Exhibit 10.4 to The Warnaco Group,
Inc.'s Form 10-Q filed November 16,
1998).*
10.52
Master Agreement of Sale,
dated as of September 30, 1998, among Calvin Klein Jeanswear Company,
as Originator, and Gregory Street, Inc., as Buyer and Servicer
(incorporated by reference to Exhibit 10.5 to The Warnaco Group,
Inc.'s Form 10-Q filed November 16,
1998).*
10.53
Purchase and Sale Agreement,
dated as of September 30, 1998, among Gregory Street, Inc., as Seller
and initial Servicer and Warnaco Operations Corporation, as Buyer
(incorporated by reference to Exhibit 10.6 to The Warnaco Group,
Inc.'s Form 10-Q filed November 16,
1998).*
10.54
Parallel Purchase Commitment,
dated as of September 30, 1998, among Warnaco Operations Corporation,
as Seller and certain commercial lending institutions, as the Banks,
and Gregory Street, Inc., as the initial Servicer and The Bank of Nova
Scotia, as Agent (incorporated by reference to Exhibit 10.7 to The
Warnaco Group, Inc.'s Form 10-Q filed November 16,
1998).*
10.55
Receivables Purchase
Agreement, dated as of September 30, 1998, among Warnaco Operations
Corporation, as Seller, Gregory Street, Inc., as Servicer, Liberty
Street Funding Corp., and Corporate Asset Funding Company, Inc. as
Investors and The Bank of Nova Scotia, as Agent, and Citicorp North
America, Inc., as Co-Agent (incorporated by reference to Exhibit 10.8
to The Warnaco Group, Inc.'s Form 10-Q filed November 16,
1998).*
Exhibit
No.
Description of
Exhibit
10.56
Settlement Agreement,
dated November 15, 2002, by and among Linda J. Wachner, the Debtors,
the Bank of Nova Scotia and Citibank, N.A. in their capacity as Debt
Coordinators for the Debtors' Prepetition Secured Lenders and the
Official Committee of Unsecured Creditors of the Debtors (incorporated
by reference to Exhibit 10.38 to The Warnaco Group, Inc.'s Form
10-K filed April 4,
2003).*
10.57
Acquisition Agreement, dated
as of March 14, 1994, by and among Calvin Klein, Inc., The Warnaco
Group, Inc. and Warnaco Inc. (incorporated by reference to Exhibit 10.6
to The Warnaco Group, Inc.'s Form 10-Q filed on May 24,
1994).*
10.58
Sublicense Agreement, dated as
of November 2003, by and between Sweetface Fashion Company, LLC and
Warnaco Inc. (incorporated by reference to Exhibit 10.39 to The Warnaco
Group, Inc.'s Form 10-K filed March 18,
2004).*##
10.59
License Agreement, dated as
of June 21, 2004, by and between The Warnaco Group, Inc. and Michael
Kors (USA), Inc. (incorporated by reference to Exhibit 10.3 to The
Warnaco Group, Inc.'s Form 10-Q filed August 6,
2004).*##
10.60
License Agreement, dated as
of July 26, 2004, by and between Calvin Klein, Inc. and Warnaco
Swimwear Inc. (incorporated by reference to Exhibit 10.1 to The Warnaco
Group, Inc.'s Form 10-Q filed November 10,
2004).*##
10.61
License Agreement, dated as
of December 1, 2004, by and between The Warnaco Group, Inc. and SAP
America, Inc. (incorporated by reference to Exhibit 10.46 to The
Warnaco Group, Inc.'s Form 10-K filed March 17, 2005)
*#
10.62
Amended and Restated License
Agreement, dated as of January 1, 1997, by and between Calvin Klein,
Inc. and Calvin Klein Jeanswear Asia
Ltd.†#
10.63
Amendment and Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., WF
Overseas Fashion C.V. and the CKJ Entities (as defined therein), with
respect to the Amended and Restated License Agreement, dated as of
January 1, 1997, by and between Calvin Klein, Inc. and Calvin Klein
Jeanswear Asia Ltd.†#
10.64
Amended
and Restated Letter Agreement, dated as of March 6, 2002, by and among
Calvin Klein, Inc., CK Jeanswear N.V., CK Jeanswear Asia Limited and CK
Jeanswear Europe
S.p.A.†#
10.65
Letter Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., WF
Overseas Fashion C.V., CK Jeanswear N.V., CK Jeanswear Asia Limited and
CK Jeanswear Europe S.p.A., with respect to the Amended and Restated
Letter Agreement, dated as of March 6, 2002, by and among Calvin Klein,
Inc., CK Jeanswear N.V., CK Jeanswear Asia Limited and CK Jeanswear
Europe S.p.A.†#
10.66
Amended and
Restated License Agreement, dated January 1, 1997, by and between
Calvin Klein, Inc. and CK Jeanswear Europe,
S.p.A.†#
10.67
Letter Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., WF
Overseas Fashion C.V. and CK Jeanswear Europe, S.p.A., with respect to
the Amended and Restated License Agreement, dated January 1, 1997, by
and between Calvin Klein, Inc. and CK Jeanswear Europe,
S.p.A.†#
10.68
License Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., CK
Jeanswear Europe S.p.A and WF Overseas Fashion C.V. (re: Bridge
Apparel).†#
10.69
License Agreement,
dated as of January 31, 2006, by and among Calvin, Klein, Inc., CK
Jeanswear Europe S.p.A and WF Overseas Fashion C.V. (re: Bridge
Accessories).†#
10.70
License
Agreement, dated as of January 31, 2006, by and among Calvin, Klein,
Inc., CK Jeanswear Europe S.p.A, CK Jeanswear Asia Limited and WF
Overseas Fashion C.V. (re: Jean
Accessories).†#
10.71
Letter
Agreement, dated January 31, 2006, by and among Calvin Klein, Inc., CK
Jeanswear N.V., CK Jeanswear Europe S.p.A., CK Jeanswear Asia Limited
and WF Overseas Fashion C.V. (re: Bridge
Store).†#
12.1
Computation of Ratio
of Earnings to Fixed Charges.†
Exhibit
No.
Description of
Exhibit
21.1
Subsidiaries of The
Warnaco Group, Inc.†
23.1
Consent of
Independent Registered Public Accounting
Firm.†
31.1
Certification of Chief
Executive Officer of The Warnaco Group, Inc. pursuant to Rule
13a− 14(a)/15d-14(a) of the Securities Exchange Act of
1934.†
31.2
Certification of Chief
Financial Officer of The Warnaco Group, Inc. pursuant to Rule
13a− 14(a)/15d-14(a) of the Securities Exchange Act of
1934.†
32.1
Certifications of Chief
Executive Officer and Chief Financial Officer of The Warnaco Group,
Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. (furnished
herewith)
*
Previously
filed.
**
The schedules to this agreement have
been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
will furnish copies of any of the schedules to the Securities and
Exchange Commission upon request.
†
Filed
herewith.
#
Certain portions of this exhibit
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential
treatment.
##
Certain portions of this exhibit
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment, which
request was granted.
THE
WARNACO GROUP,
INC.
By:
/s/
JOSEPH R. GROMEK
Name: Joseph R.
Gromek
Title: President and Chief Executive
Officer
SIGNATURE
TITLE
DATE
/s/ JOSEPH R. GROMEK
Director, President and Chief
Executive
Officer (Principal
Executive Officer)
March
2, 2006
(Joseph R.
Gromek)
/s/ LAWRENCE R.
RUTKOWSKI
Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
March 2, 2006
(Lawrence R.
Rutkowski)
/s/
CHARLES R. PERRIN
Non-Executive Chairman of the
Board of
Directors
March 2,
2006
(Charles R.
Perrin)
/s/ DAVID A. BELL
Director
March 2,
2006
(David A.
Bell)
/s/ ROBERT A.
BOWMAN
Director
March 2,
2006
(Robert A.
Bowman)
/s/ RICHARD KARL
GOELTZ
Director
March 2,
2006
(Richard Karl
Goeltz)
/s/ SHEILA A.
HOPKINS
Director
March 2,
2006
(Sheila A.
Hopkins)
/s/ DONALD SEELEY
Director
March 2,
2006
(Donald
Seeley)
/s/ CHERYL NIDO
TURPIN
Director
March 2,
2006
(Cheryl Nido
Turpin)
INTERNAL CONTROL OVER FINANCIAL
REPORTING
•
pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;
•
provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors
of the company; and
•
provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
New York, New York
March 2, 2006
The Warnaco Group, Inc.
New York, New
York
March 2, 2006
(Dollars in thousands,
excluding per share
data)
December
31,
2005January
1,
2005
ASSETS
Current
assets:
Cash and cash
equivalents
$
164,201
$
65,588
Accounts
receivable, less reserves of $48,258 and $54,943 as of December
31, 2005 and January 1, 2005,
respectively
213,364
219,805
Inventories
326,274
335,651
Prepaid
expenses and other current
assets
43,797
43,137
Assets held for
sale
1,112
1,547
Assets of
discontinued
operations
—
2,618
Deferred
income
taxes
2,666
727
Total
current
assets
751,414
669,073
Property,
plant and equipment,
net
116,995
106,937
Other
assets:
Licenses, trademarks and other intangible
assets, net
302,173
305,505
Deferred
financing costs,
net
10,928
11,566
Notes
receivable
1,072
6,995
Deferred
income taxes
3,736
5,568
Other
assets
7,136
4,589
Goodwill
28,762
43,671
Total
other
assets
353,807
377,894
Total
assets
$
1,222,216
$
1,153,904
LIABILITIES
AND STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts
payable
$
126,333
$
122,418
Accrued
liabilities
89,807
83,244
Accrued
pension
obligations
12,919
5,400
Liabilities
of discontinued
operations
—
1,450
Accrued
income taxes
payable
22,162
20,590
Deferred
income
taxes
1,588
1,746
Total
current
liabilities
252,809
234,848
Long-term
debt
210,000
210,799
Deferred income
taxes
74,466
67,744
Retirement
obligations
33,039
44,293
Other
long-term
liabilities
19,855
19,271
Commitments
and contingencies: (See Notes 2, 4, 6, 9, 10, 15, 18, 19, 21 and
22)
Stockholders'
equity
Preferred
stock:
Preferred stock, $0.01 par value,
20,000,000 (112,500 designated as Series A) authorized and none issued
or outstanding as of December 31, 2005 and January
1,
2005
—
—
Common
stock: $0.01 par value, 112,500,000 shares authorized, 46,146,869 and
45,655,515 issued as of December 31, 2005 and
January 1, 2005,
respectively
461
456
Additional
paid-in
capital
533,565
518,591
Accumulated
other comprehensive
income
4,668
15,561
Retained
earnings
94,406
42,354
Treasury
stock, at cost, 42,498 and 638 shares as of December 31,
2005 and January 1, 2005,
respectively
(1,053
)
(13
)
Total
stockholders'
equity
632,047
576,949
Total
liabilities and stockholders'
equity
$
1,222,216
$
1,153,904
(Dollars in
thousands, excluding per share
amounts)
Successor
Predecessor
Fiscal 2005
Fiscal
2004
For the Period
February 5, 2003 to
January 3,
2004For the Period
January 5, 2003 to
February 4,
2003
Net revenues
$
1,504,415
$
1,424,181
$
1,264,301
$
110,120
Cost
of goods sold
994,799
951,198
872,170
67,283
Gross
profit
509,616
472,983
392,131
42,837
Selling,
general and administrative expenses
406,664
378,502
319,903
32,156
Pension
expense (income)
1,563
(6,784
)
(6,811
)
—
Amortization
of sales order backlog
—
—
11,800
—
Restructuring
expense (income)
(503
)
5,130
19,101
—
Reorganization
expense
—
—
—
29,805
Operating
income (loss)
101,892
96,135
48,138
(19,124
)
Gain
on cancellation of pre-petition indebtedness
—
—
—
(1,692,696
)
Fresh
start adjustments
—
—
—
(765,726
)
Other
(income) loss
1,019
(2,197
)
(2,817
)
359
Interest
expense, net (a)
18,080
19,821
20,641
1,751
Income
from continuing operations before provision for income
taxes
82,793
78,511
30,314
2,437,188
Provision
for income taxes
30,556
31,636
12,084
78,150
Income
from continuing operations
52,237
46,875
18,230
2,359,038
Loss
from discontinued operations, net of taxes
(185
)
(4,358
)
(18,393
)
(501
)
Net
income (loss)
$
52,052
$
42,517
$
(163
)
$
2,358,537
Basic
income (loss) per common
share:
Income
from continuing
operations
$
1.14
$
1.03
$
0.40
$
44.52
Loss
from discontinued
operations
(0.01
)
(0.10
)
(0.41
)
(0.01
)
Net
income
(loss)
$
1.13
$
0.93
$
(0.01
)
$
44.51
Diluted
income per common
share:
Income
(loss) from continuing operations
$
1.12
$
1.02
$
0.40
$
44.52
Loss
from discontinued
operations
(0.01
)
(0.09
)
(0.40
)
(0.01
)
Net
income
$
1.11
$
0.93
$
—
$
44.51
Weighted
average number of shares outstanding used in computing income (loss)
per common
share:
Basic
45,872,308
45,418,069
45,060,724
52,989,965
Diluted
46,804,053
46,178,535
45,462,560
52,989,965
(a)
Includes
interest income of $3,410, $1,905, $616 and $46 for Fiscal 2005, Fiscal
2004, the period February 5, 2003 to January
3, 2004 and the period January 5, 2003 to
February 4, 2003, respectively. Contractual interest for
the Predecessor was $15,019 for the period January 5,
2003 to February 4, 2003.
AND COMPREHENSIVE INCOME
(LOSS)
(Dollars in thousands)
Common
StockAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive
Income/(Loss)Retained
Earnings
(Deficit)Treasury
StockTotal
PREDECESSOR
Balance at
January 4, 2003
$
654
$
908,899
$
(93,223
)
$
(2,358,537
)
$
(313,889
)
$
(1,856,096
)
Net
income
2,358,537
2,358,537
Foreign
currency translation adjustments
244
244
Unrealized
gain on marketable securities, net of tax
308
308
Comprehensive
income
2,359,089
Amortization
of unearned stock compensation
8
8
Reorganization
(204
)
(405,809
)
92,671
313,889
547
Balance
at February 4, 2003
450
503,098
—
—
—
503,548
SUCCESSOR
Balance at February 4, 2003
450
503,098
—
—
—
503,548
Net
loss
(163
)
(163
)
Foreign
currency translation adjustments
11,556
11,556
Unrealized
gain on marketable securities, net of
tax
35
35
Comprehensive
income
11,428
Purchase
of treasury stock related to employee stock compensation
plans
(385
)
(385
)
Stock
issued in connection with stock compensation plans
2
489
—
491
Compensation
expense in connection with employee stock compensation plans
5,530
5,530
Balance
at January 3, 2004
452
509,117
11,591
(163
)
(385
)
520,612
Net
income
42,517
42,517
Foreign
currency translation adjustments
3,988
3,988
Unrealized
loss on marketable securities, net of
tax
(18
)
(18
)
Comprehensive
income
46,487
Purchase
of treasury stock related to stock compensation
plans
(1,030
)
(1,030
)
Stock
issued in connection with stock compensation
plans
4
2,353
1,402
3,759
Compensation
expense in connection with employee stock compensation plans
7,121
7,121
Balance
at January 1, 2005
456
518,591
15,561
42,354
(13
)
576,949
Net
income
52,052
52,052
Foreign
currency translation adjustments
(11,039
)
(11,039
)
Other
146
146
Comprehensive
income
41,159
Stock
issued in connection with stock compensation
plans
5
3,462
3,467
Compensation
expense in connection with employee stock compensation plans
11,512
11,512
Purchase
of treasury stock related to stock compensation plans
(818
)
(818
)
Repurchases
of common stock
(222
)
(222
)
Balance
at December 31, 2005
$
461
$
533,565
$
4,668
$
94,406
$
(1,053
)
$
632,047
(Dollars in
thousands)
Successor
Predecessor
Fiscal
2005Fiscal
2004Period
February
5,
2003 to
January 3,
2004Period
January
5,
2003 to
February 4,
2003
Cash flows
from operating
activities:
Net
income
(loss)
$
52,052
$
42,517
$
(163
)
$
2,358,537
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
Loss
from discontinued
operations
185
4,358
18,393
501
Depreciation
and
amortization
33,695
32,456
43,474
4,321
Non
– cash restructuring
expense
640
677
8,356
—
Non
– cash reorganization
expense
—
—
—
15,561
Stock
compensation
11,512
7,121
5,530
8
Loss
on sale of White Stag
trademark
—
—
3,829
—
Amortization
of deferred financing
costs
2,228
2,268
1,682
463
Loss
(gain) on sale of
assets
199
(704
)
(1,035
)
—
Gain
on cancellation of pre-petition
indebtedness
—
—
—
(1,692,696
)
Fresh
start
adjustments
—
—
—
(765,726
)
Provision
for trade and other bad
debts
2,929
508
589
190
Inventory
writedown
29,106
28,926
18,374
3,456
Provision
(benefit) for deferred income
tax
16,863
20,520
(2,191
)
77,584
Foreign
exchange gain
1,016
(1,958
)
(5,211
)
—
Equity
in earnings of affiliate
(47
)
—
—
—
Landlord
reimbursements
966
8,482
2,709
—
Change
in operating assets and
liabilities:
Accounts
receivable
(886
)
(7,715
)
(19,258
)
(6,417
)
Inventories
(27,062
)
(84,650
)
35,283
(28,254
)
Prepaid
expenses and other
assets
(997
)
8,236
7,466
(6,640
)
Accounts
payable, accrued expenses and other
liabilities
4,533
(12,072
)
(31,196
)
14,567
Accrued
income
taxes
10,110
5,846
1,903
274
Net
cash provided by (used in) operating activities from continuing
operations
137,042
54,816
88,534
(24,271
)
Net
cash provided by (used in) operating activities from discontinued
operations
1,024
(4,497
)
(4,946
)
(655
)
Net
cash provided by (used in) operating activities
138,066
50,319
83,588
(24,926
)
Cash
flows from investing
activities:
Proceeds
on disposal of assets and collection of notes
receivable
6,346
24,046
10,687
—
Purchase
of property, plant &
equipment
(35,325
)
(29,644
)
(28,710
)
(643
)
Business
acquisitions, net of cash
acquired
(1,514
)
(40,785
)
—
—
Payments
related to the CKJEA
Acquisition
(1,901
)
—
—
—
Purchase
of intangible
asset
(4,333
)
—
—
—
Net
cash used in investing activities from continuing
operations
(36,727
)
(46,383
)
(18,023
)
(643
)
Net
cash provided by (used in) investing activities from discontinued
operations
—
1,137
(484
)
(102
)
Net
cash used in investing activities
(36,727
)
(45,246
)
(18,507
)
(745
)
(Dollars in
thousands)
Successor
Predecessor
Fiscal
2005Fiscal
2004Period
February
5,
2003 to
January 3,
2004Period
January
5,
2003 to
February 4,
2003
Cash flows from financing
activities:
Repayments
of GECC
debt
$
—
$
—
$
(4,890
)
$
(715
)
Repayments
of capital lease
obligations
(405
)
(333
)
(288
)
—
Payment
of debt assumed on acquisition of
subsidiary
—
(1,000
)
—
—
Repayments
of Second Lien
Notes
—
—
(200,942
)
—
Payment
of deferred financing
costs
(1,625
)
(997
)
(9,233
)
—
Proceeds
from the issuance of Senior Notes due
2013
—
—
210,000
—
Borrowings
(repayments) under revolving credit
facility
—
—
(39,200
)
39,200
Proceeds
from issuance of
stock
3,005
3,997
183
—
Purchase
of treasury
stock
(1,040
)
(1,030
)
(385
)
—
Repayments
of pre-petition
debt
—
—
—
(106,112
)
Other
—
—
(100
)
—
Net
cash provided by (used in) financing activities
(65
)
637
(44,855
)
(67,627
)
Translation
adjustments
(2,661
)
6,421
12,525
(21
)
Increase
(decrease) in cash and cash
equivalents
98,613
12,131
32,751
(93,319
)
Cash
and cash equivalents, excluding restricted cash, at beginning of
period
65,588
53,457
20,706
114,025
Cash
and cash equivalents, excluding restricted cash, at end of
period
$
164,201
$
65,588
$
53,457
$
20,706
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Buildings
20-40
years
Building Improvements (including leasehold
improvements)
2-20 years
Machinery and
equipment
3-10 years
Furniture and fixtures
(including store fixtures)
4-10
years
Computer hardware
3-5
years
Computer software
3-7
years
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Predecessor
For
the Period
January 5, 2003
to February 4,
2003
Net income as
reported
$
2,358,537
Add: Stock-based
employee compensation cost
included in
reported net income, net of related
income tax
effects
8
Less: Stock-based
employee compensation cost, net
of income tax
effects, that would have been
included in the
determination of net income if
the fair value
method had been applied to all
awards
(252
)
Net
income—pro
forma
$
2,358,293
Income
per share:
Basic and
diluted—as
reported
$
44.51
Basic
and diluted—pro
forma
$
44.50
Weighted
average number of shares outstanding:
Basic
and
diluted
52,989,965
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Fiscal
2005
Fiscal 2004
For the Period
February 5,
2003
to January
3,
2004
Stock-based compensation
expense before income
taxes:
Stock
options
$
6,765
$
4,489
$
3,255
Restricted
stock
grants
4,747
2,632
2,275
Total
11,512
7,121
5,530
Income
tax benefit:
Stock
options
2,477
1,840
1,302
Restricted
stock
grants
1,738
1,079
910
Total
4,215
2,919
2,212
Stock-based
compensation expense after income
taxes:
Stock
options
4,288
2,649
1,953
Restricted
stock
grants
3,009
1,553
1,365
Total
$
7,297
$
4,202
$
3,318
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the Period
February 5,
2003
to January 3,
2004For the Period
January 5,
2003
to February 4,
2003
Weighted average risk
free rate of
return
3.85
%
3.32
%
2.55
%
n/a
Dividend
yield
(a)
—
—
—
n/a
Expected volatility of the market price of the Company's
common
stock
30.0%
35.0%
35.0%
n/a
Expected
option life
6 years
5 years
5
years
n/a
(a)
The
Company's ability to pay dividends is limited by the terms of the
Amended and Restated Credit Agreement and the indenture governing the
Senior Notes. See Note 15.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Accounts
receivable
$
1,645
Prepaid and other current
assets
1,234
Property, plant and
equipment
286
Licenses and trademarks
(a)
35,861
Goodwill
(b)
17,664
Other
143
Total
assets
56,833
Related
party debt owed to
shareholder
1,000
Accounts payable, accrued
liabilities and other current
liabilities
2,888
Deferred
taxes
12,448
Total
liabilities
16,336
Cost
of acquisition
(c)
$
40,497
(a)
Intangible
assets include various trademarks of OP and certain license
agreements, the terms of which grant the Company the right to receive
royalties from licensees for periods ranging from 1 to 21 years. Any
contingent payments ultimately recorded by the Company will be recorded
as an increase in the purchase price of OP and as an increase in
goodwill in accordance with SFAS 141.
(b)
Goodwill recorded in connection with this
acquisition is classified in the Swimwear
Group.
(c)
The cost of acquisition reflects the
purchase price of $40,000 and additional costs incurred by the Company
associated with the acquisition of $678 net of cash acquired of
$181.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(a)
the Old
Common Stock, including all stock options and restricted shares, was
extinguished and holders of the Old Common Stock received no
distribution on account of the Old Common Stock;
(b)
general unsecured claimants received 2.55%
(1,147,050 shares) of the New Common Stock, which the Company
distributed in April 2003;
(c)
the
Company's pre-petition secured lenders received their pro rata
share of $106,112 in cash, Second Lien Notes in the principal amount of
$200,000 and 96.26% of the New Common Stock (43,318,350
shares);
(d)
holders of claims arising from or
related to certain of the Predecessor's preferred securities
received 0.60% of the New Common Stock (268,200 shares);
(e)
pursuant to the terms of his employment agreement,
as modified by the Reorganization Plan, Antonio C. Alvarez II, the
former President and Chief Executive Officer of the Company, received
an incentive bonus in an aggregate amount of $5,873, consisting of
$1,950 in cash, Second Lien Notes in the principal amount of $942 and
0.59% of the New Common Stock (266,400 shares valued at $11.19
per share); and
(f)
in addition to the foregoing,
allowed administrative and certain priority claims were paid in full in
cash.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(a)
distribution of cash of $106,112
(including accrued interest of $14,844) to the Company's
pre-petition secured lenders;
(b)
forgiveness of
the Debtors' pre-petition debt;
(c)
issuance
of New Common Stock and Second Lien Notes pursuant to the
Reorganization Plan;
(d)
payment of various
administrative and other claims associated with the Company's
emergence from bankruptcy;
(e)
adjustment of
property, plant and equipment carrying values to fair value; and
(f)
adjustment of the carrying value of the
Company's various trademarks and license agreements to fair
value.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Predecessor
February
4,
2003Discharge of
IndebtednessIssuance
of
New SecuritiesFresh
Start
AdjustmentsSuccessor
February
4,
2003
ASSETS
Current
assets:
Cash
$
96,224
$
(75,533)
(a)
$
—
$
15
(f)
$
20,706
Restricted
cash
6,100
100
(f)
6,200
Accounts
receivable
190,390
190,390
Inventories
370,527
(22,494
)(h)
348,033
Prepaid
expenses and other current
assets
53,548
53,548
Assets
held for
sale
1,485
1,485
Current
assets of discontinued operations
Deferred income
taxes
2,972
4,427
(e)
7,399
Current
assets
721,246
(75,533
)
—
(17,952
)
627,761
Property,
plant and equipment
153,394
(24,037
)(e)
129,357
Other
assets:
Licenses, trademarks and other intangible
assets
86,904
274,603
(e)
361,507
Deferred
financing
costs
859
4,427
(d)
5,286
Other
assets
2,703
2,703
Goodwill
—
(515,659
)(b)
503,548
(c)
(213,510
)(e)
(225,621
)
3,193
(e)
3,193
197,019
(d)
114
(f)
197,133
2,801
(g)
2,801
22,494
(h)
22,494
Total
other
assets
90,466
(515,659
)
704,994
89,695
369,496
$
965,106
$
(591,192
)
$
704,994
$
47,706
$
1,126,614
LIABILITIES
AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Liabilities not
subject to compromise:
Current
liabilities:
Current
portion of long-term
debt
$
5,050
$
—
$
—
$
—
$
5,050
Debtor-in-possession
revolving credit facility
—
Revolving
credit
facility
—
30,579
(a)
1,950
(d)
2,244
(f)
34,773
4,427
(d)
4,427
Accounts
payable
123,235
(859
)(f)
122,376
Accrued
liabilities
109,530
—
(1,950
)(d)
(1,156
)(f)
106,424
(2,981
)(d)
2,801
(g)
(180
)
Current
liabilities of discontinued
operations
(942
)(d)
(942
)
Accrued
income taxes
payable
28,140
—
28,140
Total
current
liabilities
265,955
30,579
504
3,030
300,068
Long-term
debt:
Second
Lien Notes due
2008
—
—
200,942
(d)
—
200,942
Capital
lease
obligations
1,260
1,260
Liabilities
subject to
compromise
2,499,385
(106,112
)(a)
—
—
2,393,273
(2,393,273
)(b)
(2,393,273
)
Deferred
income
taxes
4,964
44,676
(e)
49,640
Other
long-term
liabilities
71,156
71,156
Stockholders'
equity
(deficiency):
Common
Stock, $0.01 par
value
654
(654
)(b)
450
(c)
—
450
Additional
paid-in
capital
908,939
(908,939
)(b)
503,098
(c)
—
503,098
Accumulated
other comprehensive
loss
(92,671
)
92,671
(b)
—
—
—
Deficit
(2,380,615
)
2,380,615
(b)
—
—
—
Treasury
stock, at cost
(313,889
)
313,889
(b)
—
—
—
Unearned
stock
compensation
(32
)
32
(b)
—
—
—
Total
stockholders' equity
(deficiency)
(1,877,614
)
1,877,614
503,548
—
503,548
$
965,106
$
(591,192
)
$
704,994
$
47,706
$
1,126,614
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(a)
Utilized excess cash of $75,533 and
borrowed $30,579 under the Revolving Credit Facility to pay $106,112
(including accrued interest of $14,844) to the Company's
pre-petition secured creditors; such amounts were included in
liabilities subject to compromise.
(b)
Reflects
the discharge of pre-petition indebtedness of $2,393,273 (not including
$106,112 in cash paid to pre-petition secured lenders) and cancellation
of all outstanding shares of Old Common Stock ($654), including all
options and restricted stock, additional paid-in capital ($908,939),
treasury stock ($313,889), unearned stock compensation ($32) and
elimination of accumulated other comprehensive loss ($92,671) and
deficit ($2,380,615). A corresponding amount of $515,659 was recorded
as a decrease in goodwill.
(c)
Reflects the
issuance of 44,999,973 shares of New Common Stock and recognition of
reorganization equity value of $503,548 pursuant to the provisions of
the Reorganization Plan. A corresponding amount of $503,548 was
recorded as an increase in goodwill.
(d)
Reflects the issuance of $200,000 principal amount
of Second Lien Notes to creditors pursuant to the terms of the
Reorganization Plan, payment of $1,950 in cash bonus to the
Company's former Chief Executive Officer pursuant to the terms of
the Reorganization Plan and the payment of $4,427 of deferred financing
costs. The Company also issued $942 in Second Lien Notes and 266,400
shares of New Common Stock (representing value of $2,981) to its former
Chief Executive Officer in payment of a bonus pursuant to the terms of
the Reorganization Plan. The total accrued bonus to the former Chief
Executive Officer was $5,873. A corresponding amount of $197,019 was
recorded as an increase in goodwill.
(e)
Reflects $24,037 adjustment to fixed assets to their
fair value of $129,357 as determined by the Asset Appraiser, $277,796
to intangible assets to reflect their fair value of $364,700 as
determined by the Asset Appraiser, offset by the allocation of negative
goodwill of $3,193 to indefinite lived intangible assets, the
recognition of an initial deferred income tax liability of $49,640 and
an adjustment of $4,427 to recognize deferred tax assets of $7,399
related to the preliminary fair value adjustments noted above. The
deferred tax balance as of February 4, 2003 reflects an
initial valuation allowance of $89,319 which was established in
connection with fresh start reporting. A corresponding amount of
$138,959 was recorded as the initial decrease in goodwill. The Company
recorded a deferred income tax liability of
$49,640.
(f)
Borrowed $2,244 under the Revolving
Credit Facility to pay certain administrative and priority claims
aggregating $859 and $1,156, unaccrued tax claims of $114 and the
translation escrow account (subsequently released to the Company) of
$100 and to provide additional cash funds at closing of $15. A
corresponding amount of $114 was recorded as an increase in
goodwill.
(g)
Reflects the recording of an
unfavorable contract commitment of $2,801 related to one of the
Company's distribution facilities. A corresponding amount of
$2,801 was recorded as an increase in goodwill.
(h)
Reflects adjustments of $22,494 to adjust inventory
to its fair value of $348,033. A corresponding amount of $22,494 was
recorded as an increase in goodwill.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the Period
February 5,
2003
to January 3,
2004For the Period
January 5,
2003
to February 4,
2003
Net
revenues
$
222
$
17,499
$
65,237
$
5,994
Loss
before provision for income taxes
(a)
(288
)
(6,336
)
(18,369
)
(501
)
Provision
(benefit) for income
taxes
(103
)
(1,978
)
24
—
Loss
from discontinued operations
$
(185
)
$
(4,358
)
$
(18,393
)
$
(501
)
(a)
Includes
the loss on the sale of the ABS business unit of $3,143 for the period
February 5, 2003 to January 3, 2004. In
addition, loss before provision for income taxes for the period
February 5, 2003 to January 3, 2004
includes restructuring charges of $9,826 related to the
Warner's operation in Europe and the closure of the
Company's 44 remaining Speedo Authentic Fitness retail
stores.
January
1, 2005 (a)
Accounts receivable,
net
$
1,735
Inventories,
net
40
Prepaid expenses and other current
assets
504
Property, plant and equipment,
net
280
Intangible and other
assets
59
Assets
of discontinued
operations
$
2,618
Accounts
payable
$
130
Accrued
liabilities
1,320
Liabilities
of discontinued
operations
$
1,450
(a)
Assets
at January 1, 2005 relate to the Warner's
business in Europe and liabilities at January 1, 2005
relate to the Warner's business in Europe and the
Speedo Authentic Fitness retail stores.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Predecessor
Period
January 5,
2003 to February 4,
2003
Legal
and professional fees
$
4,468
Employee
contracts and retention
14,540
Facility
shutdown costs
(2
)
Lease
terminations
10,098
Aviation and other
assets
631
Losses from write-offs and sales
of fixed
assets
70
$
29,805
Cash
portion of reorganization items
$
14,244
Non-cash portion of reorganization
items
$
15,561
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Fiscal
2005
Fiscal 2004
For the Period
February 5,
2003
to January 3,
2004
Employee
termination costs and related items
(a)
$
(1,262
)
$
3,315
$
7,957
Facility
shutdown costs, loss on disposal/write-down of property, plant and
equipment
(b)
864
857
8,517
Inventory
write-down
(c)
—
—
2,120
Lease
and contract termination costs
(d)
(130
)
750
2,500
Legal
and professional
fees
25
208
127
$
(503
)
$
5,130
$
21,221
Cash
portion of restructuring items
$
(1,143
)
$
4,453
$
12,865
Non-cash
portion of restructuring items
$
640
$
677
$
8,356
(a)
For
Fiscal 2005, includes a gain of $1,485 related to the reversal of
accruals for the estimated amounts required for employee terminations,
partially offset by severance and other benefits of $223 payable to 38
employees. During the third quarter of Fiscal 2005, the Company
determined that certain employee termination accruals of $1,415 related
to the Company’s formalized Social Plan to consolidate its
European manufacturing operations (initiated in the fourth quarter of
Fiscal 2002) were no longer required.
For
Fiscal 2004, includes severance and other benefits payable to
approximately 672 employees. Severance related costs were paid to
employees whose jobs were eliminated as part of restructuring
initiatives undertaken in Fiscal 2003 ($2,263), the sale, in the first
quarter of Fiscal 2004, of the Company's San Luis, Mexico
manufacturing facility ($992) and the January 2005 shutdown of
two retail outlet stores in the United Kingdom ($60). During Fiscal
2004, the Company reduced its accrual for employee termination costs by
$660, which had been previously accrued.
For
the period February 5, 2003 to January 3,
2004, relates to severance and other benefits payable to approximately
1,656 terminated employees. Substantially all payments to such
employees were complete by the end of Fiscal 2004.
(b)
For Fiscal 2005, includes $640 of net losses on
disposal / writedowns of assets related to facilities that had been
either closed or sold.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
For Fiscal 2004, as relates
to closed facilities, includes a net gain of $742 on the sale of
property, plant and equipment and write downs of certain items of
property, plant and equipment totaling $667.
For the period February 5, 2003 to
January 3, 2004, relates to the write-down or abandonment
of certain property, plant and equipment to net realizable
value.
(c)
For the period February
5, 2003 to January 3, 2004, the Intimate Apparel
group recorded an inventory write-down primarily related to its former
manufacturing facility in Honduras which it sold in January 2004.
Inventory markdowns are included in cost of goods sold as period costs.
See Note 1.
(d)
For Fiscal 2005, amount
includes the reversal of an accrual no longer required related to the
closure of a technical production support center located in Van Nuys,
California. The accrual was no longer required because the Company
settled the lease with the landlord earlier than
anticipated.
For the period February
5, 2003 to January 3, 2004, relates to an amount
paid to terminate the Company's third-party distribution
agreement for Calvin Klein jeans.
Fiscal
2005
Fiscal 2004
For the Period
February 5,
2003
to January 3, 2004
Cost of goods
sold
$
—
$
—
$
2,120
Restructuring
expense
(503
)
5,130
19,101
$
(503
)
$
5,130
$
21,221
Employee
Termination
CostsFacility
Shutdown CostsLegal
and
Professional
FeesLease and
Contract
Termination CostsTotal
Balance at
January 3, 2004
$
10,550
$
236
$
420
$
—
$
11,206
Charges
for Fiscal 2004
3,315
932
208
750
5,205
Cash
reductions for Fiscal 2004
(11,091
)
(1,162
)
(603
)
(175
)
(13,031
)
Effect
of foreign currencies
(155
)
(2
)
—
(2
)
(159
)
Balance
at January 1, 2005
2,619
4
25
573
3,221
Charges
for Fiscal 2005
(1,262
)
224
25
(130
)
(1,143
)
Cash
reductions for Fiscal 2005
(1,428
)
(232
)
(30
)
(438
)
(2,128
)
Effect
of foreign currencies
373
4
(10
)
(5
)
362
Balance
at December 31, 2005
$
302
$
—
$
10
$
—
$
312
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Intimate
Apparel
GroupSportswear
GroupSwimwear
GroupGroup
Total
Corporate /
Other
ItemsTotal
Successor
Fiscal
2005
Net
revenues
$
595,702
$
517,567
$
391,146
$
1,504,415
$
—
$
1,504,415
Operating
income
(loss)
66,679
71,845
44,186
182,710
(80,818
)
101,892
Depreciation
and
amortization
7,231
6,318
6,226
19,775
13,920
33,695
Restructuring
income
—
—
—
—
(503
)
(503
)
Capital
expenditures
9,365
4,323
5,241
18,929
20,175
39,104
Fiscal
2004
Net
revenues
$
588,256
$
455,601
$
380,324
$
1,424,181
$
—
$
1,424,181
Operating
income
(loss)
55,361
53,757
58,147
167,265
(71,130
)
96,135
Depreciation
and
amortization
7,454
5,884
4,168
17,506
14,950
32,456
Restructuring
expense
—
—
—
—
5,130
5,130
Capital
expenditures
9,853
5,587
2,320
17,760
14,100
31,860
For
the Period February 5, 2003 to January 3,
2004
Net
revenues
$
537,507
$
402,682
$
324,112
$
1,264,301
$
—
$
1,264,301
Operating
income
(loss)
53,554
26,222
43,926
123,702
(75,564
)
48,138
Depreciation
and
amortization
8,988
2,495
4,359
15,842
27,632
43,474
Restructuring
expense
—
—
—
—
19,101
19,101
Capital
expenditures
6,921
3,386
2,760
13,067
17,025
30,092
Predecessor
For
the Period January 5, 2003 to February 4,
2003
Net
revenues
$
35,306
$
37,834
$
36,980
$
110,120
$
—
$
110,120
Operating
income
(loss)
2,304
5,542
8,975
16,821
(35,945
)
(19,124
)
Depreciation
and
amortization
1,102
939
495
2,536
1,785
4,321
Reorganization
expense
—
—
—
—
29,805
29,805
Capital
expenditures
149
202
10
361
282
643
Balance
Sheet
Total
Assets:
December
31,
2005
$
280,480
$
232,943
$
362,149
$
875,572
$
346,644
$
1,222,216
January
1,
2005
$
303,484
$
254,728
$
356,288
$
914,500
$
239,404
$
1,153,904
Property,
Plant and
Equipment:
December
31,
2005
$
19,061
$
9,703
$
17,607
$
46,371
$
70,624
$
116,995
January
1,
2005
$
17,545
$
8,875
$
15,917
$
42,337
$
64,600
$
106,937
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the Period
February 5, 2003
to
January 3, 2004For the Period
January 5, 2003
to
February 4, 2003
Unallocated corporate
expenses
$
67,401
$
51,050
$
28,831
$
4,355
Reorganization
expense
—
—
—
29,805
Restructuring
expense (income)
(503
)
5,130
19,101
—
Depreciation
and amortization of corporate
assets
13,920
14,950
27,632
1,785
Corporate/other
expenses
$
80,818
$
71,130
$
75,564
$
35,945
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the Period
February 5, 2003
to
January 3, 2004For the Period
January 5, 2003
to
February 4, 2003
Group operating
income
$
182,710
$
167,265
$
123,702
$
16,821
Corporate/other
items
(80,818
)
(71,130
)
(75,564
)
(35,945
)
Operating
income
(loss)
101,892
96,135
48,138
(19,124
)
Gain
on cancellation of pre-petition
indebtedness
—
—
—
(1,692,696
)
Fresh
start
adjustments
—
—
—
(765,726
)
Other
(income)
loss
1,019
(2,197
)
(2,817
)
359
Interest
expense,
net
18,080
19,821
20,641
1,751
Income
from continuing operations before provision for income
taxes
$
82,793
$
78,511
$
30,314
$
2,437,188
Successor
Predecessor
Fiscal
2005%
Fiscal
2004%
For
the
Period
February 5,
2003 to
January 3,
2004
%For
the
Period
January 5,
2003 to
February 4,
2003%
Net
revenues:
United
States
$
1,076,873
71.6
%
$
1,033,543
72.6
%
$
946,341
74.9
%
$
82,824
75.2
%
Canada
92,189
6.1
%
91,655
6.4
%
79,463
6.3
%
5,813
5.3
%
Europe
252,919
16.8
%
236,320
16.6
%
197,857
15.6
%
17,847
16.2
%
Mexico
44,974
3.0
%
33,595
2.4
%
17,709
1.4
%
1,849
1.7
%
Asia
37,460
2.5
%
29,068
2.0
%
22,931
1.8
%
1,787
1.6
%
$
1,504,415
100.0
%
$
1,424,181
100.0
%
$
1,264,301
100.0
%
$
110,120
100.0
%
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31, 2005
January 1,
2005
Property, plant and equipment,
net:
United
States
$
92,370
79.0
%
$
74,318
69.5
%
All
other
24,625
21.0
%
32,619
30.5
%
$
116,995
100.0
%
$
106,937
100.0
%
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the
Period
February
5,
2003 to
January 3,
2004For the
Period
January 5,
2003 to
February 4,
2003
Income from continuing operations
before provision for income
taxes:
Domestic
$
22,085
$
28,858
$
(13,351
)
$
2,440,938
Foreign
60,708
49,653
43,665
(3,750
)
Total
$
82,793
$
78,511
$
30,314
$
2,437,188
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the
Period
February
5,
2003 to
January 3,
2004For the
Period
January 5,
2003 to
February 4,
2003
Current:
Federal
$
454
$
—
$
—
$
—
State
and
local
41
910
1,000
—
Foreign
13,198
10,206
13,275
566
Total
current tax
provision
$
13,693
$
11,116
$
14,275
$
566
Deferred:
Federal
$
8,561
$
10,254
$
1,751
$
521,421
State
and
local
1,415
2,106
452
112,133
Foreign
6,797
6,575
(4,290
)
(9,186
)
Valuation
allowance increase
(decrease)
90
1,585
(104
)
(546,784
)
Total
deferred tax provision
$
16,863
$
20,520
$
(2,191
)
$
77,584
Provision
for income
taxes
$
30,556
$
31,636
$
12,084
$
78,150
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the
Period
February
5,
2003 to
January 3,
2004For the
Period
January 5,
2003 to
February 4,
2003
Income from continuing
operations before provision for income
taxes
$
82,793
$
78,511
$
30,314
$
2,437,188
Income
tax expense computed at U.S. statutory
rate
$
28,978
$
27,479
$
10,610
$
853,016
State
income taxes, net of federal
benefit
947
1,960
944
72,887
Foreign
taxes in excess of (less than) the U.S. statutory
rate
(1,252
)
(598
)
(6,312
)
1,879
Net
U.S. tax on distribution of foreign
earnings
—
—
7,106
—
Fresh
start
adjustments
—
—
—
(303,251
)
Other,
net
1,793
1,210
(160
)
403
Increase
(decrease) in valuation allowance
90
1,585
(104
)
(546,784
)
Provision
for income taxes
$
30,556
$
31,636
$
12,084
$
78,150
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31, 2005
January 1, 2005
Deferred
tax
assets:
Inventory
$
10,506
$
12,086
Pension
and post-retirement
benefits
16,805
17,847
Advertising
credits
12,947
13,558
Reserves and
accruals
23,637
29,312
Net operating
losses
132,445
142,596
Other
4,460
2,161
200,800
217,560
Valuation
allowance
(158,599
)
(165,835
)
Subtotal
42,201
51,725
Gross
deferred tax
liabilities:
Depreciation and
amortization
110,977
106,270
Other
876
8,650
Subtotal
111,853
114,920
Deferred
tax
liability—net
$
(69,652
)
$
(63,195
)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Pension
Plan
Other Benefit
Plans
December
31,
2005January 1,
2005December 31,
2005January 1,
2005
Change
in projected benefit
obligations:
Benefit
obligation at beginning of
period
$
156,436
$
161,677
$
5,233
$
5,868
Service
cost
—
—
302
229
Interest
cost
8,658
8,338
394
270
Change
in actuarial (gain) loss
(a)
(647
)
(3,192
)
2,001
(498
)
Benefits
paid
(10,241
)
(10,387
)
(685
)
(636
)
Benefit
obligation at end of period
(b)
$
154,206
$
156,436
$
7,245
$
5,233
(a)
The
Pension Plan’s actuarial gain in Fiscal 2005 is primarily
related to the net effect of a gain related to the change in discount
rate of approximately $6,000, a loss related to plan amendments for
prior service cost of approximately $3,500 and a loss related to a
change in mortality tables effective December 31, 2005 of
approximately $2,000. The Other Benefit Plans actuarial loss in Fiscal
2005 is primarily related to an increase in the Company’s
contribution percentage toward the cost of retiree medical benefits.
The Pension Plan's actuarial gain in Fiscal 2004 is primarily
related to the change in the discount
rate.
(b)
Pension Plan benefit obligation
reflects the domestic pension plan only. In addition, the Company had
foreign defined benefit plan obligations of $3,886 and $4,048 as of
December 31, 2005 and January 1, 2005,
respectively, of which $3,780 and $3,697 were classified as retirement
obligations on the Company's Consolidated Balance Sheet as of
December 31, 2005 and January 1, 2005, respectively.
Pension
Plan
Other Benefit
Plans
December
31,
2005January 1,
2005December
31,
2005January 1,
2005
Fair value
of plan assets at beginning of
period
$
110,440
$
97,245
$
—
$
—
Actual
return on plan
assets
6,851
11,296
—
—
Employer's
contributions
4,978
12,286
685
636
Benefits
paid
(10,241
)
(10,387
)
(685
)
(636
)
Fair
value of plan assets at end of
period
$
112,028
$
110,440
$
—
$
—
Funded
(unfunded)
status
$
(42,178
)
$
(45,996
)
$
(7,245
)
$
(5,233
)
Unrecognized
net actuarial
loss
—
—
2,350
503
Net
amount recognized / Retirement
obligations
$
(42,178
)
$
(45,996
)
$
(4,895
)
$
(4,730
)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Pension
Plan
Other Benefit
Plans
Successor
Predecessor
Successor
Predecessor
Fiscal
2005Fiscal
2004For the
Period
February 5,
2003 to
January
3,
2004For the
Period
January 5,
2003
to
February 4,
2003Fiscal
2005Fiscal
2004For the
Period
February
5,
2003 to
January 3,
2004For the Period
January 5,
2003 to
February
4,
2003
Service
cost
$
—
$
—
$
—
$
—
$
302
$
229
$
228
$
9
Interest
cost
8,658
8,338
9,269
—
394
270
269
24
Expected
return on plan
assets
(7,576
)
(6,934
)
(5,154
)
—
—
—
—
—
Gain
(loss) on plan assets
in
excess
of expected
return
725
(4,362
)
(10,603
)
—
—
—
—
—
Amortization
of prior service
cost
—
—
—
—
—
—
—
(34
)
Net
actuarial (gain) loss
(a)
(647
)
(3,192
)
—
—
154
—
—
—
Net
benefit (income) cost
(b)
$
1,160
$
(6,150
)
$
(6,488
)
$
—
$
850
$
499
$
497
$
(1
)
(a)
The
Pension Plan net actuarial gain in Fiscal 2005 is primarily related to
the net effect of a gain related to the change in the discount rate, a
loss related to plan amendments for prior service costs and a loss
related to a change in the mortality tables. The net actuarial gain in
Fiscal 2004 is primarily related to the change in the discount
rate.
(b)
The Pension Plan net benefit (income)
cost reflects the domestic pension plan only. The amounts do not
include foreign defined benefit plans of $403 of expense, $634 of
income and $323 of income for Fiscal 2005, Fiscal 2004 and the period
February 5, 2003 to January 3, 2004,
respectively.
Targeted
Asset
AllocationDecember 31,
2005January
1,
2005
Asset
Category:
Equity
securities
40
%
42
%
42
%
Debt
securities
20
%
16
%
16
%
Real
estate
5
%
7
%
7
%
Other
35
%
35
%
35
%
Total
100
%
100
%
100
%
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Pension
PlanOther
Benefit
Plans
2006
$
9,900
$
610
2007
9,900
580
2008
9,900
540
2009
10,100
480
2010
10,300
470
2011-2015
54,300
2,260
Successor
Predecessor
Fiscal
2005
Fiscal 2004
February 5, 2003 to
January 3,
2004January 5, 2003 to
February 4,
2003
Discount
Rate
5.85%
5.50%
5.30%
5.30%
Expected
return on plan
assets
7.00%
7.00%
7.00%
7.00%
Average
rate of compensation
increase
N/A
N/A
N/A
N/A
December
31, 2005
January 1, 2005
Health care cost
trend rate assumed next
year
10.0
%
10.5
%
Rate
at which the trend rate is assumed to
decline
(the ultimate trend
rate)
5.0
%
5.0
%
Year
trend rate reaches the ultimate
rate
2015
2015
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
One
Percentage
Point IncreaseOne Percentage
Point
Decrease
Effect on total of service and interest
cost components
$
72
$
(59
)
Effect on
health care component of the accumulated post-retirement benefit
obligation
$
588
$
(489
)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31,
2005January 1,
2005
Finished
goods
$
243,125
$
259,451
Work in
process / in
transit
55,974
45,384
Raw
materials
27,175
30,816
$
326,274
$
335,651
December
31,
2005January 1,
2005
Land and
land
improvements
$
1,260
$
1,260
Building,
building improvements and
leasehold
improvements
38,799
33,687
Furniture
and fixtures
43,101
32,159
Machinery
and equipment
23,545
20,114
Computer
hardware and
software
64,110
64,549
Construction
in progress
22,006
8,053
$
192,821
$
159,822
Less:
Accumulated depreciation and
amortization
(75,826
)
(52,885
)
Property,
plant and equipment,
net
$
116,995
$
106,937
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31, 2005
January 1,
2005
Gross
Carrying
AmountAccumulated
AmortizationNet
Gross
Carrying
AmountAccumulated
AmortizationNet
Finite
lived intangible
assets:
Licenses for a term
(Company as
licensee)
$
108,363
$
10,158
$
98,205
$
104,030
$
6,140
$
97,890
Licenses
for a term (Company as
licensor)
5,861
1,790
4,071
5,861
425
5,436
Sales
order backlog
(a)
—
—
—
11,800
11,800
—
Other
(a)
—
—
—
662
662
—
114,224
11,948
102,276
122,353
19,027
103,326
Indefinite
lived intangible
assets:
Trademarks
154,397
—
154,397
156,679
—
156,679
Licenses
in
perpetuity
45,500
—
45,500
45,500
—
45,500
199,897
—
199,897
202,179
—
202,179
Intangible
Assets
$
314,121
$
11,948
$
302,173
$
324,532
$
19,027
$
305,505
(a)
During
Fiscal 2005, the Company wrote off its fully amortized sales order
backlog and other fully amortized finite-lived intangible
assets.
Trademarks
Licenses
in
PerpetuityFinite
lived
Intangible
AssetsTotal
Balance
at January 3,
2004
$
125,327
$
45,500
$
100,696
$
271,523
Acquisition
of Ocean Pacific
(a)
30,000
—
5,861
35,861
Amortization
expense
—
—
(3,231
)
(3,231
)
Translation
adjustments
1,352
—
—
1,352
Balance
at January 1,
2005
156,679
45,500
103,326
305,505
Acquisition
of CK Swimwear
(b)
—
—
4,333
4,333
Amortization
expense
—
—
(5,383
)
(5,383
)
Translation
adjustments
(2,282
)
—
—
(2,282
)
Balance
at December 31,
2005
$
154,397
$
45,500
$
102,276
$
302,173
(a)
Following
the acquisition of OP on August 19, 2004 (See Note
2), the Company recorded $30,000 related to the fair value of
indefinite-lived trademarks acquired. In addition, the Company recorded
$5,861, representing the fair value of finite-lived intangible assets
related to license agreements which grant the Company the right to
receive royalties for a fixed term. The amortization periods related to
these finite- lived intangible assets are equal to the estimated
duration of each individual license and range from one to 21
years.
(b)
In July 2004, the Company
entered into a license agreement granting the Company the exclusive
worldwide rights to sell Calvin Klein women’s swimwear.
The license was subject to certain remaining rights of a predecessor
licensee in certain territories through June 2007. On May
23, 2005, the Company acquired the remaining rights under the
Calvin Klein swimwear license for $4,333, which is being
amortized through June 2007 using the straight-line
method.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Weighted
Average
Amortization Period
Finite
lived intangible assets:
Licenses for a
term (Company as
licensee)
38
years
Licenses for a term (Company as licensor)
9 years
2006
$
5,730
2007
4,691
2008
3,418
2009
3,286
2010
2,998
Intimate
Apparel
GroupSportswear
GroupSwimwear
GroupTotal
Goodwill
balance at January 3, 2004
$
22,335
$
10,592
$
15,002
$
47,929
Adjustment:
Acquisition
of Ocean Pacific
(a)
—
—
17,664
17,664
Acquisition
of joint venture
(b)
370
—
—
370
Income
taxes
(c)
(9,525
)
(4,516
)
(8,251
)
(22,292
)
Goodwill
balance at January 1, 2005
13,180
6,076
24,415
43,671
Adjustment:
Income
taxes
(d)
(8,019
)
(4,113
)
(5,402
)
(17,534
)
Other
(e)
(49
)
1,854
820
2,625
Goodwill
balance at December 31, 2005
$
5,112
$
3,817
$
19,833
$
28,762
(a)
Following
the acquisition of OP on August 19, 2004 (See Note
2), the Company recorded $17,664 related to goodwill associated with
the acquisition. Approximately $1,713 related to the acquired goodwill
and other intangible assets is expected to be deductible for income tax
purposes over the next three years. OP is included in the
Company's Swimwear Group. Any contingent payments ultimately
recorded by the Company will be recorded as an increase in the purchase
price of OP and as an increase in
goodwill.
(b)
Relates to the acquisition of the
remaining shares of the Company's 50% owned joint venture
distribution center located in Holland.
(c)
Relates primarily to deferred tax adjustments due to
basis differences resulting from the filing of the Company's 2003
U.S. corporate income tax return, offset by the decrease in the
valuation allowance as a result of the realization of certain deferred
tax assets.
(d)
Relates primarily to adjustments
to deferred taxes resulting from a completed assessment of one of the
Company's foreign tax returns by taxing authorities, as well as
the realization during the current year of certain deferred tax assets
that existed as of the Effective
Date.
(e)
Reflects, among other items, amounts
accrued during Fiscal 2005 for the acquisition by the Company of a
business located in Asia that had provided sourcing and buying agent
services to the Company. The consideration for the acquisition is based
primarily on the cost of inventory sourced by the acquired entity from
the date of acquisition through February 26, 2006. The
Company expects that the total purchase price for the acquisition will
approximate $2,200.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31,
2005January 1,
2005
Foreign
currency translation adjustments
(a)
$
4,505
$
15,544
Other
163
17
Total
accumulated other comprehensive
income
$
4,668
$
15,561
(a)
The
decrease in foreign currency translation adjustments from
January 1, 2005 to December 31, 2005
primarily reflects the strengthening of the United States dollar
compared to the euro.
December
31,
2005January 1,
2005
8
7/8% Senior Notes due
2013
$
210,000
$
210,000
Capital lease
obligations
—
799
Total
debt
$
210,000
$
210,799
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Fiscal
2005
Fiscal 2004
For the
period
February 5, 2003 to
January 3,
2004
Options
Weighted
Average
Exercise
PriceOptions
Weighted
Average
Exercise
PriceOptions
Weighted
Average
Exercise
Price
Outstanding
at beginning of period
3,464,500
$
14.28
2,602,000
$
10.85
—
Granted
986,900
(a)
21.05
1,588,000
(b)
18.35
2,906,000
(c)
$
10.80
Exercised
(273,634
)
12.14
(377,500
)
10.56
(17,000
)
10.45
Cancelled
(214,466
)
16.59
(348,000
)
12.23
(287,000
)
10.43
Outstanding
at end of
period
3,963,300
16.24
3,464,500
14.28
2,602,000
10.85
Options
exercisable at end of
period
1,582,711
$
13.00
864,250
$
10.63
637,000
$
10.25
(a)
Substantially
all options granted during Fiscal 2005 vest annually with respect to
one-third of the shares on each anniversary of the grant date beginning
in 2006 provided that the grantee is employed by the Company on such
date. Exercise prices ranged from $20.87 to $25.52 per share per share,
which represented the fair market value of the New Common Stock at the
date of grant. The options have a 10 year term.
(b)
Substantially all options granted during Fiscal 2004
vest annually with respect to one-third of the shares on each
anniversary of the grant date beginning in 2005 provided that the
grantee is employed by the Company on such date. Exercise prices ranged
from $16.30 to $20.91 per share, which represented the fair market
value of the New Common Stock at the date of grant. The options have a
10 year term.
(c)
Substantially all options
granted during the period February 5, 2003 to
January 3, 2004 vest, with respect to 25% of the
shares, six months after the grant date, and with respect to an
additional 25% of such shares, each anniversary after the first
vesting date for a period of three years. Exercise prices ranged from
$9.55 to $16.95 per share, which represented the fair market value of
the New Common Stock at the date of grant. The options have a 10 year
term.
Options
Outstanding
Options
Exercisable
Range of Exercise
Prices
Outstanding
at
December
31,
2005Weighted
Average
Remaining
Contractual
Life
(Years)Weighted
Average
Exercise
PriceExercisable
at
December
31,
2005Weighted
Average
Exercise
Price
$9.55-$12.74
$
1,440,000
7.2
$
10.08
$
1,020,000
$
10.05
$12.75-$15.94
16,000
7.6
15.43
8,000
15.43
$15.95-$19.13
1,099,400
8.1
17.64
385,802
17.55
$19.14-$22.33
1,320,900
9.1
21.26
168,909
20.31
$22.34-$25.52
87,000
9.7
24.56
—
—
$
3,963,300
8.2
$
16.24
$
1,582,711
$
13.00
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31, 2005
January 1,
2005
Common
Stock:
Balance at beginning of
year
45,655,515
45,188,683
Shares
issued to
directors
20,975
8,807
Shares issued
upon exercise of stock
options
267,834
313,400
Shares
issued upon vesting of restricted stock
grants
202,545
144,625
Balance
at end of
year
46,146,869
45,655,515
Treasury
Stock:
Balance at beginning of
year
638
22,766
Purchases of Common
Stock (a)
58,285
50,158
Shares
issued upon vesting of restricted stock
grants
(10,625
)
(8,186
)
Shares
issued upon exercise of stock
options
(5,800
)
(64,100
)
Balance
at end of
year
42,498
638
(a)
For
Fiscal 2005, represents 9,151 shares purchased under the
Company’s share repurchase program and 49,134 shares surrendered
by employees in satisfaction of certain payroll tax obligations
associated with the vesting of restricted stock. For Fiscal 2004,
represents shares surrendered by employees in satisfaction of certain
payroll tax obligations associated with the vesting of restricted
stock.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Successor
Predecessor
Fiscal
2005
Fiscal 2004
For the Period
February 5,
2003
to January 3,
2004For the Period
January
5, 2003
to February
4,
2003
Numerator for basic and
diluted income per common
share:
Income
from continuing operations
$
52,237
$
46,875
$
18,230
$
2,359,038
Basic:
Weighted
average number of shares outstanding used in computing income per
common
share
45,872,308
45,418,069
45,060,724
52,989,965
Income
per common share from continuing
operations
$
1.14
$
1.03
$
0.40
$
44.52
Diluted:
Weighted
average number of shares outstanding
45,872,308
45,418,069
45,060,724
52,989,965
Effect
of dilutive
securities:
Employee
stock
options
694,971
544,972
219,318
—
Unvested
employees' restricted
stock
236,774
215,494
182,518
—
Weighted
average number of shares and share equivalents
outstanding
46,804,053
46,178,535
45,462,560
52,989,965
Income
per common share from continuing
operations
$
1.12
$
1.02
$
0.40
$
44.52
Number
of anti-dilutive ‘‘out-of-the-money’’ stock
options
outstanding
84,600
479,200
246,000
—
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Rental
payments
Year
Real
Estate
Equipment
2006
$
23,748
$
4,053
2007
20,044
3,781
2008
16,924
3,220
2009
15,054
1,178
2010
13,282
1,127
2011
and thereafter
63,411
5,465
Year
Minimum
Royalty
(a)
2006
$
33,847
2007
37,437
2008
35,386
2009
35,474
2010
32,561
2011
and
thereafter
455,279
(a)
Includes
all minimum royalty obligations. Some of the Company's license
agreements have no expiration date or extend beyond 20 years. The
duration of these agreements for the purposes of this item are assumed
to be 20 years. Variable based minimum royalty obligations are based
upon payments for the most recent fiscal year. Certain of the
Company's license agreements also require the Company to pay a
specified percentage of net revenue (ranging from 2-3%) to the
licensor for advertising and promotion of the licensed products (which
amount is not included in minimum royalty obligations for purposes of
this item).
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31, 2005
January 1, 2005
Carrying
AmountFair
ValueCarrying
AmountFair
Value
Accounts receivable
$
213,364
$
213,364
$
219,805
$
219,805
Note
receivable
7,439
7,439
13,993
13,993
Accounts
payable
126,333
126,333
122,418
122,418
Senior
Notes
207,644
226,275
209,771
231,000
Interest
rate swaps – net
loss
2,356
2,356
229
229
Letters
of credit
—
59,956
—
61,097
Foreign
currency exchange contracts
98
98
—
—
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Successor
Predecessor
Fiscal 2005
Fiscal
2004
For the Period
February 5,
2003 to January
3,
2004For the Period
January 5,
2003 to
February 4,
2003
Cash paid (received) during
the year
for:
Interest
expense
$
21,718
$
21,498
$
18,809
$
14,844
Interest
income
(3,676
)
(2,211
)
(552
)
(47
)
Income
taxes, net of refunds
received
439
(2,746
)
13,282
273
Supplemental
non-cash investing and
financing
activities:
Accounts
payable for purchase of fixed
assets
8,783
5,004
2,788
—
Note
receivable on asset
sales
—
—
18,700
—
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
December
31,
2005
The
Warnaco
Group, Inc.Warnaco
Inc.Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
ASSETS
Current
assets:
Cash
and cash
equivalents
$
—
$
105,770
$
581
$
57,850
$
—
$
164,201
Accounts
receivable,
net
—
—
144,728
68,636
—
213,364
Inventories
—
74,727
168,997
82,550
—
326,274
Prepaid
expenses and other current
assets
—
19,710
10,221
17,644
—
47,575
Total
current
assets
—
200,207
324,527
226,680
—
751,414
Property,
plant and equipment,
net
—
50,899
41,489
24,607
—
116,995
Investment
in subsidiaries
853,302
551,616
—
—
(1,404,918
)
—
Other
assets
—
38,360
298,633
16,814
—
353,807
Total
assets
$
853,302
$
841,082
$
664,649
$
268,101
$
(1,404,918
)
$
1,222,216
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts
payable, accrued liabilities and accrued
taxes
$
—
$
116,747
$
45,303
$
90,759
$
—-
$
252,809
Total current
liabilities
—
116,747
45,303
90,759
—
252,809
Intercompany
accounts
221,255
(171,318
)
21,263
(71,200
)
—
—
Long-term debt
—
210,000
—
—
—
210,000
Other long-term
liabilities
—
109,643
13,017
4,700
—
127,360
Stockholders'
equity
632,047
576,010
585,066
243,842
(1,404,918
)
632,047
Total liabilities
and stockholders' equity
$
853,302
$
841,082
$
664,649
$
268,101
$
(1,404,918
)
$
1,222,216
January
1,
2005
The
Warnaco
Group, Inc.Warnaco
Inc.Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
ASSETS
Current
assets:
Cash
and cash
equivalents
$
—
$
44,155
$
122
$
21,311
$
—
$
65,588
Accounts
receivable,
net
—
—
160,030
59,775
—
219,805
Inventories
—
93,284
153,462
88,905
—
335,651
Prepaid
expenses and other current
assets
—
19,252
9,961
16,198
—
45,411
Assets
of discontinued
operations
—
—
39
2,579
—
2,618
Total
current
assets
—
156,691
323,614
188,768
—
669,073
Property,
plant and equipment,
net
—
30,323
54,373
22,241
—
106,937
Investment
in
subsidiaries
812,144
551,616
—
—
(1,363,760
)
—
Other
assets
—
47,830
312,255
17,809
—
377,894
Total
assets
$
812,144
$
786,460
$
690,242
$
228,818
$
(1,363,760
)
$
1,153,904
LIABILITIES
AND STOCKHOLDERS'
EQUITY
Current
liabilities:
Liabilities
of discontinued
operations
$
—
$
—
$
480
$
970
$
—
$
1,450
Accounts
payable, accrued liabilities and accrued
taxes
—
106,235
49,944
77,219
—
233,398
Total
current
liabilities
—
106,235
50,424
78,189
—
234,848
Intercompany
accounts
235,195
(270,597
)
113,943
(78,541
)
—
—
Long-term
debt
—
210,000
—
799
—
210,799
Other
long-term
liabilities
—
109,118
10,891
11,299
—
131,308
Stockholders'
equity
576,949
631,704
514,984
217,072
(1,363,760
)
576,949
Total
liabilities and stockholders'
equity
$
812,144
$
786,460
$
690,242
$
228,818
$
(1,363,760
)
$
1,153,904
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Fiscal
2005
The
Warnaco
Group, Inc.Warnaco
Inc.Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net
revenues
$
—
$
463,152
$
614,262
$
427,001
$
—
$
1,504,415
Cost
of goods
sold
—
348,633
417,674
228,492
—
994,799
Gross
profit
—
114,519
196,588
198,509
—
509,616
Selling,
general and administrative
expenses
—
140,094
140,699
125,871
—
406,664
Pension
expense
—
1,160
—
403
—
1,563
Restructuring
expense
(income)
—
685
—
(1,188
)
—
(503
)
Operating
income
(loss)
—
(27,420
)
55,889
73,423
—
101,892
Equity
in income of
subsidiaries
(52,052
)
—
—
—
52,052
—
Intercompany
—
1,223
(14,979
)
13,756
—
—
Other
(income)
loss
—
(1,093
)
1,087
1,025
—
1,019
Interest
(income) expense, net
—
58,554
(41,579
)
1,105
—
18,080
Income
(loss) from continuing operations before provision for income
taxes
52,052
(86,104
)
111,360
57,537
(52,052
)
82,793
Provision
(benefit) for income
taxes
—
(31,778
)
41,099
21,235
—
30,556
Income
(loss) from continuing
operations
52,052
(54,326
)
70,261
36,302
(52,052
)
52,237
Loss
from discontinued operations, net of income
taxes
—
—
(165
)
(20
)
—
(185
)
Net
income
(loss)
$
52,052
$
(54,326
)
$
70,096
$
36,282
$
(52,052
)
$
52,052
Fiscal
2004
The
Warnaco
Group, Inc.Warnaco
Inc.Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net
revenues
$
—
$
437,249
$
596,835
$
390,097
$
—
$
1,424,181
Cost
of goods
sold
—
334,057
400,950
216,191
—
951,198
Gross
profit
—
103,192
195,885
173,906
—
472,983
Selling,
general and administrative
expenses
—
139,706
124,025
114,771
—
378,502
Pension
income
—
(6,150
)
—
(634
)
—
(6,784
)
Restructuring
expense
—
4,387
109
634
—
5,130
Operating
income
(loss)
—
(34,751
)
71,751
59,135
—
96,135
Equity
in income of
subsidiaries
(42,517
)
—
—
—
42,517
—
Intercompany
—
6,824
(18,032
)
11,208
—
—
Other
(income)
loss
—
(19,243
)
18,961
(1,915
)
—
(2,197
)
Interest
(income) expense, net
—
43,895
(25,037
)
963
—
19,821
Income
(loss) from continuing operations before provision for income
taxes
42,517
(66,227
)
95,859
48,879
(42,517
)
78,511
Provision
(benefit) for income
taxes
—
(26,686
)
38,626
19,696
—
31,636
Income
(loss) from continuing
operations
42,517
(39,541
)
57,233
29,183
(42,517
)
46,875
Income
(loss) from discontinued operations, net of income
taxes
—
—
(4,812
)
454
—
(4,358
)
Net
income
(loss)
$
42,517
$
(39,541
)
$
52,421
$
29,637
$
(42,517
)
$
42,517
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
For
the Period February 5, 2003 to January 3,
2004
The
Warnaco
Group, Inc.Warnaco
Inc.Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net
revenues
$
—
$
397,490
$
548,996
$
317,815
$
—
$
1,264,301
Cost
of goods
sold
—
292,208
393,098
186,864
—
872,170
Gross
profit
—
105,282
155,898
130,951
—
392,131
Selling,
general and administrative
expenses
—
135,156
105,698
79,049
—
319,903
Pension
income
—
(6,488
)
—
(323
)
—
(6,811
)
Amortization
of sales order
backlog
—
3,300
8,500
—
—
11,800
Restructuring
expense
—
10,311
4,160
4,630
—
19,101
Operating
income
(loss)
—
(36,997
)
37,540
47,595
—
48,138
Equity
in income of
subsidiaries
163
—
—
—
(163
)
—
Intercompany
—
7,439
(12,887
)
5,448
—
—
Other
(income) expense,
net
—
(10,754
)
9,581
(1,644
)
—
(2,817
)
Interest
(income) expense,
net
—
34,518
(15,881
)
2,004
—
20,641
Income
(loss) from continuing operations before provision (benefit) for income
taxes
(163
)
(68,200
)
56,727
41,787
163
30,314
Provision
for income
taxes
—
2,467
632
8,985
—
12,084
Income
(loss) from continuing
operations
(163
)
(70,667
)
56,095
32,802
163
18,230
Loss
from discontinued operations, net of income
taxes
—
—
(8,809
)
(9,584
)
—
(18,393
)
Net
income
(loss)
$
(163
)
$
(70,667
)
$
47,286
$
23,218
$
163
$
(163
)
For
the Period January 5, 2003 to February 4,
2003
The
Warnaco
Group, Inc.Warnaco
Inc.Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net
revenues
$
—
$
25,673
$
57,091
$
27,356
$
—
$
110,120
Cost
of goods
sold
—
15,666
36,852
14,765
—
67,283
Gross
profit
—
10,007
20,239
12,591
—
42,837
Selling,
general and administrative
expenses
—
13,873
9,034
9,249
—
32,156
Reorganization
expense
(income)
—
29,922
—
(117
)
—
29,805
Operating
income
(loss)
—
(33,788
)
11,205
3,459
—
(19,124
)
Equity
in income of
subsidiaries
(2,358,537
)
—
—
—
2,358,537
—
Gain
on cancellation of pre-petition
indebtedness
—
(1,567,721
)
(124,975
)
—
—
(1,692,696
)
Fresh
start
adjustments
—
(765,726
)
—
—
—
(765,726
)
Other
expense
—
359
—
—
—
359
Interest
(income) expense,
net
—
1,887
(4
)
(132
)
—
1,751
Income
from continuing operations before provision for income taxes
2,358,537
2,297,413
136,184
3,591
(2,358,537
)
2,437,188
Provision
for income
taxes
—
77,603
—
547
—
78,150
Income
from continuing
operations
2,358,537
2,219,810
136,184
3,044
(2,358,537
)
2,359,038
Loss
from discontinued operations, net of income
taxes
—
—
(303
)
(198
)
—
(501
)
Net
income
$
2,358,537
$
2,219,810
$
135,881
$
2,846
$
(2,358,537
)
$
2,358,537
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Fiscal
2005
The
Warnaco
Group, Inc.Warnaco Inc.
Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net cash provided by
(used in) operating activities from continuing
operations
$
(1,965
)
$
77,617
$
11,672
$
49,718
$
—
$
137,042
Net
cash provided by (used in) operating activities from discontinued
operations
—
—
(274
)
1,298
—
1,024
Net
cash provided by (used in) operating activities
(1,965
)
77,617
11,398
51,016
—
138,066
Cash
flows from investing
activities:
Proceeds
on disposal of assets and collection of notes
receivable
—
6,299
—
47
—
6,346
Purchase
of property, plant and
equipment
—
(20,679
)
(6,606
)
(8,040
)
—
(35,325
)
Business
acquisitions
—
(1,236
)
—
(278
)
—
(1,514
)
Preacquisition
costs
—
—
—
(1,901
)
—
(1,901
)
Purchase
of intangible
asset
—
—
(4,333
)
—
—
(4,333
)
Net
cash used in investing activities
—
(15,616
)
(10,939
)
(10,172
)
—
(36,727
)
Cash
flows from financing
activities:
Repayment
of capital lease
obligations
—
—
—
(405
)
—
(405
)
Payment
of deferred financing
costs
—
(386
)
—
(1,239
)
—
(1,625
)
Proceeds
from issuance of stock,
net
3,005
—
—
—
—
3,005
Purchase
of treasury
stock
(1,040
)
—
—
—
—
(1,040
)
Net
cash provided by (used in) financing
activities
1,965
(386
)
—
(1,644
)
—
(65
)
Translation
adjustments
—
—
—
(2,661
)
—
(2,661
)
Increase
in cash and cash
equivalents
—
61,615
459
36,539
—
98,613
Cash
and cash equivalents, excluding restricted cash, at beginning of
period
—
44,155
122
21,311
—
65,588
Cash
and cash equivalents, excluding restricted cash, at end of
period
$
—
$
105,770
$
581
$
57,850
$
—
$
164,201
Fiscal
2004
The
Warnaco
Group, Inc.Warnaco Inc.
Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net cash provided by
(used in) operating activities from continuing
operations
$
(2,967
)
$
22,712
$
34,059
$
1,012
$
—
$
54,816
Net
cash provided by (used in) operating activities from discontinued
operations
—
—
(5,179
)
682
—
(4,497
)
Net
cash provided by (used in) operating activities
(2,967
)
22,712
28,880
1,694
—
50,319
Cash
flows from investing
activities:
Proceeds
on disposal of assets and collection of notes
receivable
—
8,624
15,179
243
—
24,046
Purchase
of property, plant and
equipment
—
(20,056
)
(2,941
)
(6,647
)
—
(29,644
)
Business
acquisitions
—
—
(40,497
)
(288
)
(40,785
)
Net
cash used in investing activities
from
continuing
operations
—
(11,432
)
(28,259
)
(6,692
)
—
(46,383
)
Net
cash provided by investing
activities
from
discontinued
operations
—
—
—
1,137
—
1,137
Net
cash used in investing activities
—
(11,432
)
(28,259
)
(5,555
)
—
(45,246
)
Cash
flows from financing
activities:
Payment
of deferred financing
costs
—
(997
)
—
—
—
(997
)
Proceeds
from issuance of stock,
net
2,967
—
—
—
—
2,967
Repayments
under other debt
agreements
—
—
(1,000
)
(333
)
—
(1,333
)
Net
cash provided by (used in) financing
activities
2,967
(997
)
(1,000
)
(333
)
—
637
Translation
adjustments
—
—
—
6,421
—
6,421
Increase
(decrease) in cash and cash
equivalents
—
10,283
(379
)
2,227
—
12,131
Cash
and cash equivalents, excluding restricted cash, at beginning of
period
—
33,872
501
19,084
—
53,457
Cash
and cash equivalents, excluding restricted cash, at end of
period
$
—
$
44,155
$
122
$
21,311
$
—
$
65,588
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
For
the Period February 5, 2003 to January 3,
2004
The
Warnaco
Group, Inc.Warnaco Inc.
Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net cash provided by
operating activities from continuing
operations
$
302
$
82,249
$
5,214
$
769
$
—
$
88,534
Net
cash used in operating activities from discontinued
operations
—
—
(713
)
(4,233
)
—
(4,946
)
Net
cash provided by (used in) operating
activities
302
82,249
4,501
(3,464
)
—
83,588
Cash
flows from investing
activities:
Disposal
of fixed and other
assets
—
10,687
—
—
—
10,687
Purchase
of property, plant and
equipment
—
(21,248
)
(3,878
)
(3,584
)
—
(28,710
)
Net
cash used in investing activities from continuing
operations
—
(10,561
)
(3,878
)
(3,584
)
—
(18,023
)
Net
cash used in investing activities from discontinued
operations
—
—
(461
)
(23
)
—
(484
)
Net
cash used in investing
activities
—
(10,561
)
(4,339
)
(3,607
)
—
(18,507
)
Cash
flows from financing
activities:
Repayments
under revolving credit
facility
—
(39,200
)
—
—
—
(39,200
)
Issuance
of Senior Notes
—
210,000
—
—
—
210,000
Repayment
of Second Lien
Notes
—
(200,942
)
—
—
—
(200,942
)
Repayment
under term loan and other debt
agreements
—
(5,050
)
—
(128
)
—
(5,178
)
Other
(302
)
(9,233
)
—
—
—
(9,535
)
Net
cash used in financing activities
(302
)
(44,425
)
—
(128
)
—
(44,855
)
Translation
adjustments
—
—
—
12,525
—
12,525
Increase
in cash and cash
equivalents
—
27,263
162
5,326
—
32,751
Cash
and cash equivalents, excluding restricted cash, at beginning of
period
—
6,610
339
13,757
—
20,706
Cash
and cash equivalents, excluding restricted cash, at end of
period
$
—
$
33,873
$
501
$
19,083
$
—
$
53,457
For
the Period January 5, 2003 to February 4,
2003
The
Warnaco
Group, Inc.Warnaco Inc.
Guarantor
SubsidiariesNon-
Guarantor
SubsidiariesElimination
EntriesConsolidated
Net cash provided by
(used in) operating activities from continuing
operations
$
—
$
(126,583
)
$
(1,209
)
$
103,521
$
—
$
(24,271
)
Net
cash provided by (used in) operating activities from discontinued
operations
—
—
1,469
(2,124
)
(655
)
Net
cash provided by (used in) operating
activities
—
(126,583
)
260
101,397
—
(24,926
)
Cash
flows from investing
activities:
Purchase
of property, plant and
equipment
—
(468
)
(159
)
(16
)
—
(643
)
Net
cash used in investing activities from continuing
operations
—
(468
)
(159
)
(16
)
—
(643
)
Net
cash used in investing activities from discontinued
operations
—
—
(102
)
—
—
(102
)
Net
cash used in investing
activities
—
(468
)
(261
)
(16
)
—
(745
)
Cash
flows from financing
activities:
Borrowings
under revolving credit
facility
—
39,200
—
—
—
39,200
Repayments
under term loan and other debt
agreements
—
785
—
(1,500
)
—
(715
)
Repayments
of prepetition
debt
—
—
—
(106,112
)
—
(106,112
)
Net
cash provided by (used in) financing
activities
—
39,985
—
(107,612
)
—
(67,627
)
Translation
adjustments
—
—
—
(21
)
—
(21
)
Decrease
in cash and cash
equivalents
—
(87,066
)
(1
)
(6,252
)
—
(93,319
)
Cash
and cash equivalents, excluding restricted cash, at beginning of
period
—
93,676
340
20,009
—
114,025
Cash
and cash equivalents, excluding restricted cash, at end of
period
$
—
$
6,610
$
339
$
13,757
$
—
$
20,706
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands, excluding per share
amounts)
Fiscal
2005
First
QuarterSecond
QuarterThird
QuarterFourth
Quarter
Net revenues
$
439,541
$
374,679
$
327,651
$
362,544
Gross
profit
157,008
112,971
112,665
126,972
Income
from continuing operations
29,226
6,581
6,977
9,453
Income
(loss) from discontinued operations, net of taxes
125
(253
)
(29
)
(28
)
Net
income
29,351
6,328
6,948
9,425
Basic
income per common
share:
Income from
continuing
operations
$
0.64
$
0.14
$
0.15
$
0.21
Loss
from discontinued
operations
—
—
—
(0.01
)
Net
income
$
0.64
$
0.14
$
0.15
$
0.20
Diluted
income per common
share:
Income from
continuing operations
$
0.63
$
0.14
$
0.15
$
0.20
Loss
from discontinued
operations
—
—
—
—
Net
income
$
0.63
$
0.14
$
0.15
$
0.20
Fiscal
2004
First
QuarterSecond
QuarterThird
QuarterFourth
Quarter
Net revenues
$
393,253
$
332,077
$
324,434
$
374,417
Gross
profit
141,497
103,432
102,673
125,381
Income
from continuing operations
23,702
4,430
1,866
16,877
Income
(loss) from discontinued operations, net of taxes
(3,478
)
12
(262
)
(630
)
Net
income
20,224
4,442
1,604
16,247
Basic
income per common
share:
Income
from continuing
operations
$
0.52
$
0.10
$
0.04
$
0.37
Loss
from discontinued
operations
(0.07
)
—
(0.01
)
(0.01
)
Net
income
$
0.45
$
0.10
$
0.03
$
0.36
Diluted
income per common
share:
Income
from continuing operations
$
0.51
$
0.10
$
0.04
$
0.36
Loss
from discontinued
operations
(0.07
)
—
(0.01
)
(0.01
)
Net
income
$
0.44
$
0.10
$
0.03
$
0.35
VALUATION
& QUALIFYING ACCOUNTS & RESERVES (5)
(Dollars in
thousands)
Description
Balance
at
Beginning
of PeriodAdditions
Charges to
Cost and
Expenses (1)Other
Additions
/
ReclassificationDeductions
Balance
at End
of
Period
Period January
5, 2003 to February 4,
2003
Receivable
allowances
$
87,512
$
8,806
(3)
$
—
$
(96,318
)(5)
$
—
Tax
valuation
allowance
$
670,772
$
—
$
(34,669
)(6)
$
(546,784
)(7)
$
89,319
Period
February 5, 2003 to January 3,
2004
Receivable
allowances
$
—
$
148,677
(3)
$
(6,375
)(4)
$
(84,866
)(2)
$
57,436
Tax
valuation
allowance
$
89,319
$
(104
)
$
41,894
(6)
$
—
$
131,109
Fiscal
2004
Receivable
allowances
$
57,436
$
151,564
$
—
$
(154,057
)(2)
$
54,943
Tax
valuation
allowance
$
131,109
$
1,585
$
33,141
(6)
$
—
$
165,835
Fiscal
2005
Receivable
allowances
$
54,943
$
166,571
$
—
$
(173,256
)(2)
$
48,258
Tax
valuation
allowance
$
165,835
$
90
$
(7,326
)(6)
$
—
$
158,599
(1)
With
respect to receivable allowances, includes bad debts, cash discounts,
allowances and sales
returns.
(2)
Credits issued and amounts
written-off, net of recoveries.
(3)
Amounts include reserve balances for
discontinued
operations.
(4)
Reclassification of
reserve amounts for discontinued operations, which assets were
classified as current assets of discontinued operations as of
January 3,
2004.
(5)
Reflects elimination of
reserves upon the adoption of fresh start accounting and the resulting
valuation of accounts receivable at fair
value.
(6)
Relates primarily to
adjustments to the Company's valuation allowance resulting from
changes in its deferred taxes due to: (a) basis differences resulting
from the filing of the Company's 2003 U.S. corporate income tax
return, (b) finalized assessments of the Company's foreign tax
returns by local taxing authorities, and (c) the realization of certain
deferred tax assets that existed as of the date of the Company's
emergence from bankruptcy.
(7)
Includes
an adjustment to the valuation allowance recorded in connection with
the Company's adoption of fresh start
accounting.
EXHIBIT 10.62
PORTIONS OF THIS EXHIBIT 10.62 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
EXECUTION COPY
CONFIDENTIAL - THIS DOCUMENT AND ITS SUBSTANCE ARE NOT TO BE USED OR DISCUSSED WITHOUT CONSENT OF CALVIN KLEIN, INC. THIS IS A DRAFT WHICH SHALL NOT BE BINDING UPON THE PARTIES AND DOES NOT CONSTITUTE AN OBLIGATION OF THE PARTIES. NO BINDING AGREEMENT OR OBLIGATION WILL RESULT UNLESS A DEFINITIVE WRITTEN AGREEMENT IS EXECUTED AND DELIVERED BY THE PARTIES. NEITHER THIS DRAFT NOR ANY OTHER DRAFT, MEMO, OTHER WRITING NOR ANY ORAL CONVERSATION OR DISCUSSION IS TO BE CONSIDERED BINDING OR A COMMITMENT ON THE PART OF CALVIN KLEIN, INC.
CALVIN KLEIN, INC.
and
CALVIN KLEIN JEANSWEAR ASIA LTD.
THIS AMENDED AND RESTATED LICENSE AGREEMENT is made this 1st day of January 1997, by and between CALVIN KLEIN, INC., a New York corporation having its principal business office at 205 West 39th Street, New York, New York 10018 ("Licensor"), on the one hand and Calvin Klein Jeanswear Asia Ltd., a Hong Kong corporation having its principal business office at c/o Jeanswear Services Hong Kong Ltd., Suite 3506, Tower 1, The Gateway, 25 Canton Road, TST, Kowloon, Hong Kong ("Licensee") and it amends and restates in its entirety a License Agreement dated as of May 14, 1996 (the "Original License Agreement") by and between Licensor and Licensee.
Index
Section
![]() |
![]() |
1 | Grant (Products/Territory) |
![]() |
![]() |
2 | Term |
![]() |
![]() |
3 | Design |
![]() |
![]() |
4 | Confidentiality |
![]() |
![]() |
5 | Quality Control |
![]() |
![]() |
6 | Operations |
![]() |
![]() |
7 | Advertising |
![]() |
![]() |
8 | Approval Standard |
![]() |
![]() |
9 | Minimum Guaranteed Fees |
![]() |
![]() |
10 | Percentage Fee |
![]() |
![]() |
11 | Equity Interest |
![]() |
![]() |
12 | Audit |
![]() |
![]() |
13 | Trademark |
![]() |
![]() |
14 | Infringement |
![]() |
![]() |
15 | Counterfeit/Parallel Considerations |
![]() |
![]() |
16 | Copyright |
![]() |
![]() |
17 | Other Designers |
![]() |
![]() |
18 | Indemnification/Insurance |
![]() |
![]() |
19 | Breach/Default |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
20 | Termination |
![]() |
![]() |
21 | Licensor Representations |
![]() |
![]() |
22 | Licensee Representations |
![]() |
![]() |
23 | Notice |
![]() |
![]() |
24 | Assignment |
![]() |
![]() |
25 | Entire Agreement |
![]() |
![]() |
26 | Independent Contractor |
![]() |
![]() |
27 | No Waiver |
![]() |
![]() |
28 | Severability |
![]() |
![]() |
29 | Governing Law |
![]() |
![]() |
30 | Forum, Jurisdiction and Service of Process |
![]() |
![]() |
31 | Jurisdictional Approval |
Schedules/Exhibits/Attachments
Schedule A (Products)
Schedule 3.1.1 Time and Action
Calendar
Schedule 24 (Shareholdings)
W I T N E S S E T H:
In consideration of the premises and the mutual covenants hereinafter set forth, Licensor and Licensee do hereby respectively grant, covenant and agree as follows:
Definitions: As used in this Agreement, the following terms have the meanings specified or referred to below.
"Aggregate Net Sales Thresholds" shall have the meaning set forth in Section 2.1.
"Asia" shall have the meaning set forth in Section 1.1.
"Articles" shall have the meaning set forth in Section 1.1.
"Close-out Articles" shall have the meaning set forth in Section 5.4.
"CPI" shall mean the Consumer Price Index (All Cities - All Urban Consumers) as published by the United States Department of Labor (or the successor index).
"Form" shall have the meaning set forth in Section 1.1.
"Irregulars" shall have the meaning set forth in Section 5.4.
"Licensor's Data" shall have the meaning set forth in Section 4.1.
"Licensed Mark" shall have the meaning set forth in Section 1.1.
"Minimum Advertising Expenditure" shall have the meaning set forth in Section 7.2.
"Minimum Guaranteed Fee" shall have the meaning set forth in Section 9.1.
"Minimum Net Sales Thresholds" shall have the meaning set forth in Section 2.2.
"Net Sales" shall have the meaning set forth in Section 10.1.
"Percentage Fee" shall have the meaning set forth in Section 10.1.
"Products" shall have the meaning set forth in Section 1.1.
CONFIDENTIAL TREATMENT |
"Salesmen's Samples" shall mean Articles sold to Licensee's commercial agents and salesmen at a discount of at least 50% off the wholesale price for use in promoting and selling Articles.
"Territory" shall have the meaning set forth in Section 1.1.
"Special Fee" shall have the meaning set forth in Section 9.1.
Section 1. Grant (Products/Territory).
1.1.1 Licensor hereby grants to Licensee an exclusive license, except as otherwise provided herein, only throughout certain countries in "Asia," namely Hong Kong, Republic of Korea, Republic of China (Taiwan), China (PRC), Indonesia, Philippines, Singapore, Malaysia, Thailand, New Guinea, Vietnam, Australia, New Zealand, Cambodia, Laos, Myanmar, Burma, Macau, the Federated State of Micronesia and Mariana Islands (Saipan) (except as provided below) (hereinafter referred to as the "Territory") to use the mark "Calvin Klein" and "CK/Calvin Klein" (hereinafter referred to as the "Licensed Mark") only in the form of the logo "Calvin Klein Jeans" and/or "CK/Calvin Klein Jeans" as may be approved by Licensor (hereinafter referred to as the "Form") on and in connection with the manufacture, distribution and sale at wholesale solely of the items of men's (and boys) and women's (and girls) jeans and jeans related apparel and men's (and boys) and women's (and girls) "khaki" pants, skirts, shorts and "khaki" related items as are set forth on Schedule A annexed hereto (hereinafter referred to as "Products"), provided that Licensee acknowledges that Licensor has retained the rights specified below and in Sections 1.1.2 and 1.2. Products produced by or for Licensee and approved by Licensor, from time to time, for each collection for sale under this Agreement hereinafter shall be referred to as "Articles." Notwithstanding the foregoing, the license granted hereunder with respect to manufacture is non-exclusive and Licensor retains the right to *** Licensee acknowledges that Licensor's grant hereunder does ***
1.1.2 Licensee's right to use the Licensed Mark in the ***
1.2 All Articles shall bear the Licensed Mark only in the Form except as hereinafter provided, and no Article shall be sold or otherwise distributed by Licensee under any mark other than the Licensed Mark. Licensor reserves all rights to the *** Licensee specifically acknowledges that Licensor has retained:
(a) the right to use, and to grant to any other third party the right to use, the Licensed Mark, in the Form or otherwise:
(i) in the Territory, with regard to any ***, and
(ii) outside the Territory, with regard to any *** and
![]() |
![]() |
![]() |
(b) | the right to use, and to grant to any other third party the right to use *** and |
![]() |
![]() |
![]() |
(c) | the right to *** |
1.3 Licensee acknowledges that Articles hereunder may bear some similarity of design to other items of merchandise which hereafter may be distributed or sold in the Territory in connection with the Licensed Mark by either Licensor or Licensor's duly authorized licensees or others and further acknowledges that such similarity of design shall not be deemed a breach of or default under this Agreement.
1.4 Licensee acknowledges that ***
1.5 Licensee will use its best efforts to exploit the rights herein granted throughout each and every jurisdiction in the Territory and to sell the maximum quantity of each category of Articles in each and every jurisdiction in the Territory therein consistent with the high standards and prestige represented by the Licensed Mark.
1.6 Licensee shall not export Articles from the Territory and shall not sell Articles to any third party which it knows, has reason to believe or should have reason to believe intends to export Articles from the
CONFIDENTIAL TREATMENT |
Territory. However, Licensee may sell Articles to Licensor and/or another authorized licensee of Licensor for Products for sale in other jurisdictions, as may be consented to from time to time by Licensor. Furthermore, Licensee agrees to utilize product identification systems and other desirable measures, as specified from time to time by Licensor for marking Articles to facilitate effective control of the distribution thereof and the monitoring and prevention of parallel or grey goods marketing.
1.7 Licensee acknowledges that Licensor has entered into, and will hereafter enter into, licenses with third parties regarding the use of the Licensed Mark and/or the Form on Articles in jurisdictions outside the Territory and that Licensor may grant third parties the right to produce Products for sale outside the Territory. Licensee agrees to fully co-operate with such third parties, as requested by Licensor including but not by way of limitation, ***
1.8 Furthermore, Licensee agrees that the marketing placement and distribution of Articles in the Territory may but shall not necessarily be the same as that for Products being sold *** Licensee acknowledges that Licensor has heretofore granted an exclusive distributorship to third parties in the Territory and that the license granted hereunder is subject to the same. Licensee agrees to assume and to fully comply with all of Licensor's obligations provided therein or relating thereto, including but not by way of limitation, *** Furthermore, if requested by Licensor, and subject to availability, Licensee will ***
1.9 In the event Licensor desires to ***
1.10 Licensee acknowledges that Licensor has ***
Section 2. Term.
2.1 (a) The initial term of this Agreement will be ten (10) years and six (6) months commencing as of 1 July 1996 and continuing through 31 December 2006, unless sooner terminated in accordance with the provisions hereof. This Agreement shall be renewed for up to two (2) consecutive additional terms of ten (10) years each, commencing 1 January 2007, and 1 January 2017 respectively, but such renewal shall be effective only if (a) Licensee is in compliance with all of the terms and conditions of this Agreement throughout the initial or preceding term, as applicable (b) (subject to Section 2.2(e)) "Net Sales" (as hereinafter defined) during each Annual Period have attained or exceeded the "Aggregate Net Sales Thresholds" set forth below.
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
Aggregate Net Sales Thresholds | ||||
1 | ![]() |
*** | ||||
2 | ![]() |
*** | ||||
3 | ![]() |
*** | ||||
4 | ![]() |
*** | ||||
5 | ![]() |
*** | ||||
6-10 | ![]() |
*** | ||||
11-20 | ![]() |
*** | ||||
![]() |
(c) Licensee is in compliance with the financial covenants set forth in Section 6, and (d) Licensee has, in the sole determination of Licensor, continued throughout the initial term of the Agreement to maintain the high quality standards necessary to reflect the prestige and reputation of the Articles and the Licensed Mark. Licensor may specifically waive compliance with any of the foregoing. At least 90 days prior to each such renewal, Licensee shall deliver to Licensor a detailed business plan for its operations for the renewal period which shall contain reasonably detailed projections prepared by Licensee in good faith. The eighteen (18) month period commencing 1 July 1996, the twelve (12) month period commencing 1 January 1998 and each twelve (12) month period commencing on each 1st January thereafter during the term of this Agreement, shall each constitute and hereinafter shall be referred to as an "Annual Period."
CONFIDENTIAL TREATMENT |
(a) Notwithstanding the provisions of Section 2.1(a), *** for each of the following Annual Periods as follows:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
*** | ||||
1 | ![]() |
*** | ||||
2 | ![]() |
*** | ||||
3 | ![]() |
*** | ||||
4 | ![]() |
*** | ||||
5 | ![]() |
*** | ||||
![]() |
; provided, that, commencing in the Annual Period in effect on the date ***
2.2 (a) In addition to the provisions of Section 2.1 and subject to Section 2.2(d) below, commencing at any time after the ***
(b) The following are the "Minimum Net Sales Thresholds" which Licensee shall be required to attain for each of the following jurisdictions during the second Annual Period, except as otherwise provided in the table (in each case, a "Second Year Amount") ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Jurisdiction | ![]() |
Minimum
Net Sales Threshold (in millions) |
||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Jurisdiction | ![]() |
Minimum
Net Sales Threshold (in millions) |
||||
*** | ![]() |
*** | ||||
![]() |
For each subsequent Annual Period during the Term the "Minimum Net Sales Threshold" for each jurisdiction will be an amount ***
(c) For purposes of computing the "Minimum Net Sales Threshold" pursuant to Section (b) for ***
(d) Notwithstanding the fact that ***
(e) ***
Section 3. Design.
3.1.1 Licensee will cooperate with Licensor and will each use their respective best efforts in the preparation of seasonal collections of Articles in accordance with the Time and Action Calendar attached hereto as Schedule 3.1.1. Licensee will provide Licensor, *** for Licensor's review and use in developing seasonal collections as provided herein.
3.1.2 In connection therewith, Licensor or Licensor's designee, which may be Calvin Klein Jeanswear Company and/or Calvin Klein Jeanswear Europe S.p.A. ("Designee") will ***
3.2 In order to present cohesive and representative collections of Articles, Licensee will utilize substantially all of the designs or samples submitted by Designee or approved by Licensor and/or such
CONFIDENTIAL TREATMENT |
designs or samples developed by Licensor and produce, offer for sale, and ship as ordered, those Articles which are produced therefrom, except as Licensor may otherwise consent. Within thirty (30) days following the close of each seasonal collection, Licensee will provide Licensor with the sales results, by style on a unit basis, of Articles shown and sold for such seasonal collection.
3.3 Licensee may use only sketches, designs, colors and other materials provided by Designee or Licensor or approved by Licensor in connection with Articles. If Licensee rejects any such sketches, designs, color samples or other materials and chooses not to use them in connection with Articles, Licensee must return such sketches, designs, color samples and other materials at Licensee's expense, and may not use them or permit their use by any unauthorized parties thereafter.
3.4 Licensor may use and permit others to use sketches, designs and other materials provided or approved by Licensor for use in connection with Articles in any manner it desires, provided that such use does not conflict with any rights granted Licensee hereunder.
3.5 Licensee will be responsible for making all prototypes (including design as well as production prototypes) and samples as well as for the production of Articles, and Licensee will bear all costs in connection therewith. Licensee will be responsible for and will bear all costs (except to the extent such stores bear such costs) involved in the design, development and construction of showrooms and in-store shops or in-store "stores" or in-store areas in which Articles are sold, all of which shall be subject to the ongoing approval of Licensor. Initially certain services of Licensor's visual display and other personnel may be needed to assist Licensee; the costs of which personnel, as may be, requested or approved in advance by Licensee, will be borne by Licensee. Licensor shall be entitled to inspect Licensee's showrooms, such in-store shops and in-store areas within stores periodically at its expense. Licensee, however, will bear all costs in connection with Licensor's inspection of such showrooms, in-store shops and in-store areas within stores to the extent Licensor determines as a result of such inspection that Licensee's showrooms, or in-store shops or in-store areas within stores are not maintained pursuant to specifications supplied by Licensor. Licensee shall then, at its expense, make any modifications to the design, layout, decor, visual display or merchandise display formats as Licensor shall reasonably require and bear any costs incurred by Licensor as a result of follow-up inspection to determine compliance with Licensor's directions. Furthermore, Licensee will remit directly payment for, or reimburse Licensor for, any out-of-pocket expenses incurred by Licensor or its representatives in connection with this Agreement, which are requested (or approved in advance by Licensee).
3.6 Licensee shall sell to Licensor, Licensor's affiliates or Licensor's licensees (including store licensees, for full price retail and outlet stores) in, or if specifically requested in writing outside of, the Territory, such reasonable quantities of Articles as may be requested ***
3.7 Licensee shall make available to Licensor, *** Licensee shall permit Licensor and its employees and other representatives to purchase Articles for *** Licensor agrees to use its reasonable efforts to enable Licensee and its employees to ***
Section 4. Confidentiality. Licensee acknowledges that all information relating to the terms and provisions of this Agreement and any agreements entered into by the parties on the date hereof and the business and operations of Licensor and its affiliates and/or Designee which it learns during the term, or has learned during negotiation, of this Agreement, all special design concepts which Licensor or its affiliates or its Designee provide to it hereunder and all sketches and designs received by it from Licensor or its affiliates or its Designees (hereinafter referred to as "Licensor's Data") are valuable property of such entities. Licensee acknowledges the need to preserve the confidentiality and secrecy of Licensor's Data and agrees that, both during the term of this Agreement and after the termination hereof, it shall not use (except use required to fulfill the provisions of this Agreement during the term of this Agreement) or disclose same, and it shall take all necessary steps to ensure that use by it or by its authorized designees (which use and which designees shall be solely as necessary for, and in connection with, the manufacture, distribution, sale, advertising or promotion of Articles) shall preserve in all respects such confidentiality and secrecy. Licensee hereby indemnifies Licensor, its affiliates and its Designee against any damage of any kind which may be suffered by any of them as a result of any breach by Licensee, or any of its said
CONFIDENTIAL TREATMENT |
designees of the provisions of this paragraph. (For purposes hereof "affiliates" shall consist of those persons, firms, corporations and other entities controlled by, controlling or under common control with the entities in question.)
Section 5. Quality Control.
5.1 The components, workmanship, fit and durability of Articles will at all times be of the highest quality and commensurate with the reputation, image and prestige of the Licensed Mark. Licensee will maintain production and other quality control procedures so as to ensure that the quality of Articles meets or surpasses that of the approved samples of Articles. Articles will be distributed, merchandised and sold with packaging and sales promotion materials appropriate for highest quality products of that type of merchandise. All Articles will be manufactured, sold, labeled, packaged, distributed and advertised in accordance with all applicable laws and regulations in the Territory.
5.2 Licensor will have the right to design and/or approve the styles, designs, packaging, components, workmanship, fit, quality, display, merchandising, advertising and promotion of all Articles so as to ensure that Articles manufactured, merchandised, sold, advertised and promoted hereunder are consistent with the reputation, image and prestige of the Licensed Mark as a designation for highest quality products.
5.3 (a) Before selling, distributing or promoting any Article, Licensee will deliver to Licensor for its approval, free of charge, one (1) prototype sample of each such Article together with prototype tags, labels and packaging to be used in connection therewith. In the event any such prototype sample fails to meet with Licensor's approval, Licensee shall promptly correct such prototype and re-submit it for Licensor's approval. Licensor may require Licensee to purchase labels, tags and other identification including packaging materials from Licensor, or Licensor's designated supplier in order to protect the Licensed Mark and to preclude or prevent counterfeiting or unauthorized use of materials utilizing the Licensed Mark.
(b) Licensee will deliver to Licensor, free of charge, one (1) initial production sample of each Article together with the tags, labels and packaging to be used in connection therewith. In addition, from time to time in order to ensure that Licensor is maintaining the quality standards set forth herein upon Licensor's request, Licensee will deliver to Licensor, free of charge, such reasonable number of then current production samples of each Article produced hereunder together with the tags, labels and packaging being used in connection therewith. In the event Licensor determines that the initial production sample delivered to Licensor or any Article subsequently submitted to Licensor fails to meet the quality standards set forth herein, Licensee will make any corrections determined by Licensor to be necessary to meet such quality standards. All Articles to be sold hereunder will be at least equal in quality to the samples approved by Licensor.
(c) Licensor and its duly authorized representatives will have the right, upon reasonable advance notice and during normal business hours, to examine Articles in the process of being manufactured and to inspect all facilities utilized by Licensee or its contractors in connection therewith. Licensee shall include in its arrangements with third party contractors a similar provision permitting Licensor's inspections of such contractor's facilities.
5.4 All Articles will bear the Licensed Mark only in the Form and only in such form and manner as may be approved by Licensor. Notwithstanding the foregoing, *** Licensee will cause to appear on all Articles produced hereunder, and on their labels, packaging and the like, on all advertising, promotional, merchandising and publicity material used in connection therewith, and on any printed matter of any kind on which the Licensed Mark, the Form or any other "Calvin Klein" or "CK" or "CK/Calvin Klein" identification appears (including business cards, invoices, stationery and other printed matter), such legends, markings and notices as Licensor may request. Before using or releasing any proposed advertising (including any and all co-operative trade and consumer advertising), promotional, merchandising or publicity material or any such other printed matter, Licensee will submit same together with the proposed placement thereof to Licensor for Licensor's approval. The same will not be used or released prior to receipt of Licensor's approval.
CONFIDENTIAL TREATMENT |
5.5 After any sample, copy, art work or other material has been approved, Licensee will not depart therefrom in any respect without the prior written approval of Licensor. If Licensor should disapprove any sample Article, tag, label, package or the like, or any advertising, promotional, merchandising or publicity material or the proposed placement thereof or any other printed matter, Licensee will not use or permit the use of the same in any manner, whether or not in connection with the Articles or the Licensed Mark or otherwise.
5.6 In order to maintain the reputation, image and prestige of the Licensed Mark, Licensee's distribution patterns shall consist of those retail outlets whose location, merchandising and overall operations, and whose positioning of Articles are consistent with (a) the high quality of Articles, (b) the reputation, image and prestige of the Licensed Mark, and (c) the exclusive nature of distribution and market placement applicable to such Articles and as are approved by Licensor on an ongoing basis. ***
Section 6. Operations. During the term of this Agreement, Licensee shall use such trade name incorporating the Licensed Mark in the Form, and no other name or mark, as is specifically approved by Licensor as the name of an entity which shall operate solely in connection with and arising from its performance of its obligations and responsibilities hereunder. Licensee shall comply with all legal requirements applicable to the establishment and maintenance of the same including the filing of a fictitious name certificate (sometimes referred to as a "d/b/a" or "doing business as" form) where applicable. Licensee shall be permitted to use the name "CK Jeanswear Asia Ltd.," only for so long as Licensee operates solely as the licensee hereunder and shall change its name from "Calvin Klein Jeanswear Asia Ltd." within 30 days of the date hereof. The use of the Licensed Mark in the Form in connection with the operation of such entity shall be subject to the provisions of paragraph 13 below. In connection with the operation of such entity Licensee shall:
(a) employ, on an exclusive basis, a "President" and/or a "Managing Director" who shall be subject to the ongoing approval of Licensor;
(b) employ, on an exclusive basis, as part of its staff such personnel (including personnel to liaise with Licensor) as will enable Licensee, in the opinion of Licensor, to exploit the license herein granted and to maintain the quality standards required hereunder which personnel would customarily include sales, merchandising, public relations (who may be retained as consultants or through a servicing arrangement with Licensor), visual display and production (including quality control) personnel and the initial staffing shall consist of one full-time Managing Director, one full-time merchandiser, one part-time logistical person and one part-time accounting person;
(c) establish as soon as practicable and thereafter maintain throughout the term of this Agreement, a separate showroom in Hong Kong, and a separate showroom in such other jurisdiction in the Territory, as may be required by Licensor as and when it establishes a central "Calvin Klein" headquarters in the Territory, in which such showroom shall be located and in every case wherever and at the time an agent or distributor is delegated for such jurisdiction, for the sole purpose of displaying, promoting and selling Articles, the general location (and relocation) and general decor of which will be subject to the on-going approval of Licensor, and the architect retained by Licensee will be subject to the approval of Licensor both at the time such showroom is established and thereafter throughout the term of this Agreement;
(d) establish and maintain throughout the term of this Agreement, production and other facilities, whether by ownership, or by contractual arrangement, in order to exploit the license herein granted and to maintain the quality standards required hereunder;
(e) *** Licensee will deliver to Licensor ***; and
(f) furnish Licensor with information regarding the above and such other information regarding the company as Licensor may, from time to time, request including (i) providing Licensor in writing, with ***, (ii) ***, (iii) ***, and (iv) ***
(g) Within sixty (60) days following the close of the second Annual Period and each Annual Period thereafter, Licensee will provide Licensor with a ***. Licensee will also furnish Licensor with
CONFIDENTIAL TREATMENT |
such additional specific information and data as may be requested by Licensor. Licensor and Licensee will then review and discuss certain aspects of the operations under this Agreement. Licensor may recommend such changes in the operations, design or merchandising of Articles, or change in distribution patterns as it deems necessary or desirable to exploit the license granted under this Agreement and/or to ensure the cohesive development, presentation, sale merchandising, distribution, advertising and/or promotion of Articles and the Licensed Mark with and within the range of other merchandise produced by Licensor or by other authorized licensees of the Licensed Mark, and Licensee agrees to use its best efforts to implement such changes as promptly as practicable.
Section 7. Advertising.
7.1 Subject to the last sentence of Section 7.4, Licensee will spend for ***
7.2 Licensee will remit to Licensor to ***, not less than the following amounts (the "Minimum Advertising Expenditure"):
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
Minimum
Advertising Expenditure |
||||
1st | ![]() |
*** | ||||
2nd | ![]() |
*** | ||||
3rd
and each Annual Period thereafter |
![]() |
*** | ||||
![]() |
However, ***. Nothwithstanding the foregoing, if the *** (subject to the last sentence of Section 7.4 hereof) during such Annual Period.
7.3 For purposes hereof, ***
7.4 Any qualified expenditure incurred by Licensee during any Annual Period for ***
7.5 CRK Advertising operates as the advertising agency responsible for advertising campaigns relating to ***
Section 8. Approval Standard. Licensee acknowledges that approvals required pursuant to this Agreement, under Sections 2, 3, 5, 6(c), 7.3 and 13.1, may be based solely on Licensors subjective aesthetic standards and may be granted, withheld and/or changed in Licensor's sole and absolute discretion.
Section 9. Minimum Guaranteed Fees.
9.1 (a) In consideration of the license granted and the services to be performed by Licensor hereunder, Licensee will pay to Licensor in the manner provided in Section 9.2 below a Minimum Guaranteed Fee for each Annual Period as follows:
***
***
***
***
***
The Minimum Guaranteed Fee for the sixth through the tenth Annual Periods will be as mutually determined by the parties but in no event *** In the event this Agreement is renewed, the Minimum Guaranteed Fees for each of the 11th through the 20th Annual Periods, will be as mutually determined by the parties but in no event ***
CONFIDENTIAL TREATMENT |
(a) Notwithstanding the provisions of Section 9.1(a), to the extent *** for each of the following Annual Periods as follows:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
*** | ||||
1 | ![]() |
*** | ||||
2 | ![]() |
*** | ||||
3 | ![]() |
*** | ||||
4 | ![]() |
*** | ||||
5 | ![]() |
*** | ||||
![]() |
; provided, that, commencing in the Annual Period in effect on the ***
9.2 The Minimum Guaranteed Fee for each Annual Period will be paid in advance in four (4) equal quarterly installments on the first day of January, April, July and October during each Annual Period except that the Minimum Guaranteed Fee for the first Annual Period shall be paid in five (5) equal installments simultaneously with the execution hereof, on 1 July 1996, 1 January 1997, 1 April 1997 and on 1 October 1997.
9.3 *** of the Minimum Guaranteed Fee shall be allocated as a royalty for the use of the Licensed Mark and the remaining *** shall be allocated as a fee for the design and other services to be performed by Licensor.
Section 10. Percentage Fee.
10.1 In consideration of the license granted and the services to be performed by Licensor hereunder, Licensee shall pay to Licensor (i) a Percentage Fee computed at the rate of *** For purposes hereof, "Net Sales" shall mean (i) *** [approximately 1.5 pages redacted]
10.2 Fifty percent (50%) of the Percentage Fee shall be allocated as a royalty for the use of the Licensed Mark and the remaining fifty percent (50%) shall be allocated as a fee for the design and other services to be performed by Licensor.
10.3 The Percentage Fee payments hereunder shall be accounted for and paid quarterly, within thirty (30) days following the close of each three (3) month period during each Annual Period. The Percentage Fee payable for each accounting period during each Annual Period shall be computed on the basis of Net Sales from the beginning of such Annual Period through the last day of such accounting period with a credit for the Minimum Guaranteed Fees and Percentage Fees, if any, theretofore paid to Licensor for such Annual Period.
10.4 Licensee shall deliver to Licensor at the time each Percentage Fee payment is due, statements signed by the chief financial officer of Licensee and certified by him as accurate. Each such statement shall indicate, by month, the amount of Net Sales, and shall show in detail, separately for each category of Articles and each jurisdiction in the Territory for each account of Licensee, the style number, description, number of units, unit price and the total amount of gross sales of Articles shipped during the period covered by such statement, the type and amount of discounts and credits from gross sales which may be deducted therefrom (separately as to each type of discount or credit), a computation of the amount of Percentage Fee payable hereunder in respect of Net Sales for such period. Each such statement shall indicate by month the amount and details of all advertising and promotional expenditures incurred by Licensee during such period. Such statements shall be furnished to Licensor whether or not any Articles have been sold or advertising placed during the period for which such statements are due.
10.5 Licensee shall furnish to Licensor, not later than ninety (90) days following the close of each Annual Period during the term of this Agreement (or portion thereof in the event of prior termination for any reason), a report certified by its independent certified public accountants, or the equivalent thereof in the Territory, covering such Annual Period (or portion thereof) and containing the same information, required to be contained in the statements referred to in paragraph 10.4 above.
10.6 ***
CONFIDENTIAL TREATMENT |
10.7 All payments required of Licensee hereunder shall be made to Licensor in New York, New York or, if specified by Licensor, to an account in the Territory in United States dollars (or, if so designated by Licensor, an alternative currency) via wire transfers specifying federal funds, or in such other manner as Licensor designate, with simultaneous telex notification and telephone confirmation to Licensor to the accounting and licensing department. The Percentage Fee (and other amounts provided for herein) shall be computed and paid in accordance with Licensee's accounting records which are kept in United States dollars.
10.8 If applicable, Licensee shall compute and pay on behalf of Licensor all withholding taxes which any governmental authority in the Territory may impose on Licensor with respect to the fees paid by Licensee to Licensor. The amount of such taxes shall be appropriately deducted from payments of fees. Licensee shall furnish Licensor with an official receipt (together with a translation thereof if not in English) promptly after each such payment of taxes. In the event such taxes are not paid when due, all resulting penalties and interest shall be borne by Licensee.
Section 11. Equity Interest. One hundred percent (100%) equity interest in Licensee is held by CK Jeanswear N.V., a Dutch holding company, on the date hereof. Licensee shall cause the transfer of ten percent (10%) of such equity interest to Licensor free of charge as directed by Licensor.
Section 12. Audit.
12.1 Licensee will prepare and maintain, in such manner as will allow them to be audited in accordance with generally accepted accounting principles consistently applied, *** Licensor and its duly authorized representatives have the right, during regular business hours and upon reasonable notice, for ***
12.2 If, as a result of any examination of Licensee's books and records, it is shown that the ***
Section 13. Trademark.
13.1 Licensee agrees that (a) no name or names shall be co-joined with the Licensed Mark, (b) it will not use the name "Calvin Klein," "CK" or "CK/Calvin Klein" or any portion or derivative thereof in its corporate name except as provided in Sections 23 and 6 hereof, and (c) no name or names shall be used in connection with the Licensed Mark in any advertising, promotion, publicity, labeling, packaging or printed matter of any kind utilized by Licensee in connection with Articles unless specifically consented to, and only in the Form, and only in the form approved, by Licensor. Any such use by Licensee pursuant to clause (c) above shall clearly indicate that the Calvin Klein Trademark Trust ("CKTT") is the owner and Licensor is the beneficial owner of the Licensed Mark and that Licensee is using the same pursuant to a license granted by Licensor.
13.2 Licensee acknowledges that CKTT is the owner and Licensor is the beneficial owner of all right, title and interest in and to the Licensed Mark as to Products in the Territory in any form or embodiment thereof and is also the owner of the goodwill attached or which shall become attached to the Licensed Mark and the Form in connection with the business and goods in relation to which the same has been, is or shall be used. Sales by Licensee and its affiliates shall be deemed to have been made by CKTT for purposes of trademark registration and all uses of the Licensed Mark and the Form by Licensee and its affiliates shall inure to the benefit of CKTT. Licensee will not, at any time, do or suffer to be done any act or thing which may in any way adversely affect any rights of Licensor or CKTT in and to the Licensed Mark or the mark or logo "CK" or any registrations thereof or any applications for registration thereof, or any applications for registration of the Form or which, directly or indirectly, may reduce the value of the Licensed Mark or detract from its reputation, image or prestige or that of Licensor or Calvin Klein.
13.3 Licensee will, at Licensor's request, execute any and all documents including Registered User Agreements and take any actions required by Licensor to confirm CKTT's ownership and Licensor's beneficial ownership of all rights in and to the Licensed Mark as to Products in the Territory and the respective rights of CKTT, Licensor and Licensee pursuant to this Agreement. Licensee will cooperate with Licensor and will, at Licensor's request, take any actions requested by Licensor in connection with
CONFIDENTIAL TREATMENT |
the filing and prosecution by Licensor of applications in CKTT's name (or if applicable, Licensor's name) to register the Licensed Mark for Articles in the Territory and in connection with the maintenance and renewal of such registrations as may issue. Upon termination of this Agreement, Licensee shall execute any documents required by Licensor to evidence such termination. Licensee will bear all expenses in connection with the filing of Registered User Agreements and with any documents required to evidence termination of this Agreement including termination of such Registered User Agreements.
13.4 Licensee will use the Licensed Mark in the Territory strictly in compliance with the legal requirements obtaining therein and will use such markings in connection therewith as may be required by applicable legal provisions. Licensee will comply with all governmental regulations in connection with the manufacture, distribution and sale of Articles.
13.5 Whether during the term of this Agreement or subsequent to its termination, Licensee will never (a) challenge Licensor's ownership of or the validity of the Licensed Mark or any application for registration thereof, or any trademark registration thereof, or any rights of Licensor therein, nor (b) challenge the fact that Licensee's rights pursuant to this Agreement are solely those of a licensee.
Section 14. Infringement. In the event that Licensee learns of any infringement or imitation of the Licensed Mark with respect to Products which would be considered a counterfeit of the Articles, or of any use by any person of a trademark similar to the Licensed Mark with respect to Products which would be considered a deliberate use of something substantially similar to the Licensed Mark, it will promptly notify Licensor thereof. Licensee will take no action, including, but not by way of limitation, settling any action, appealing any adverse decision or discontinuing any action taken by it, except to the extent the same is approved in advance by Licensor. All costs and expenses incurred in any action or proceeding (including investigatory expenses and attorneys' fees, if applicable, court costs and filing fees) will be borne as determined in Section 15. Any damages recovered or sums obtained in settlement in or with respect to any action shall (i) first be applied to proportionately reimburse Licensee for the expenses incurred and actually paid by it and to reimburse Licensor for the expenses incurred and actually paid by it, (ii) the balance, if any, shall belong and shall be paid over to on a fifty-fifty basis to Licensee and Licensor. In no event will any infringement by a third party justify the withholding of any payment of royalty or design fee by Licensee.
Section 15. Counterfeit/Parallel Considerations.
(a) Licensor will use commercially reasonable efforts, including, without limitation, establishing an enforcement network of attorneys, investigators and customs inspectors in the Territory (the "Network") to minimize and deter (i) the diversion into and sale within the Territory of products, corresponding to the Articles, authorized for sale by its other licensees solely outside the Territory (including, without limitation, unauthorized distribution of such products by the manufacturers and subcontractors of such licensees) ("Parallel Imports") and (ii) the importation into, or sale or manufacture within, the Territory of counterfeit Articles; in each case subject to Licensee's compliance with its reimbursement obligations set forth in this subsection, the other subsections of this Section, and subject to applicable law. Licensee will cooperate in such efforts, and will promptly *** as follows:
![]() |
![]() |
![]() |
(A) | *** |
![]() |
![]() |
![]() |
(B) | ***; and |
![]() |
![]() |
![]() |
(C) | *** |
(b) Licensee will use commercially reasonable efforts to minimize and deter the diversion of Articles for sale outside of the Territory (including, without limitation, unauthorized distribution of Articles by Licensee's manufacturers and subcontractors) ("Diversion"). Such efforts will include, without limitation, the utilization of such processes, controls, identification methods and reporting and auditing procedures as Licensor may from time to time reasonably request. Licensee will cooperate with Licensor in Licensor's efforts to minimize and deter Diversion ("Anti-Diversion Efforts"). Without limiting the foregoing:
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
(i) | Licensee will promptly provide such information as Licensor may from time to time reasonably request concerning its manufacturing, subcontracting and distribution locations, activities and shipments, product and label identification systems and data and sales to and by its customers; and |
![]() |
![]() |
![]() |
(ii) | Licensee will promptly *** |
(c) In addition to the foregoing, promptly after receipt of any certification by Licensor (with available supporting evidence) specifying the quantity of Articles recovered or otherwise identified as having been involved in any incident of Diversion or attempted Diversion, ***
(d) Where appropriate and consented to by Licensee, Licensor will initiate criminal or civil actions against persons outside the Territory seeking to manufacture counterfeit Articles or sell or ship counterfeit Articles into the Territory (excluding, for this purpose, manufacturers or subcontractors described in the definitions of Diversion or Parallel Imports). The cost related to any such actions shall be entirely for Licensee's account.
(e) Licensor will consult with Licensee in planning and enforcement activities pursuant to this Section 15. In addition, the parties will consult and cooperate to forecast Licensor's reimbursable expenses hereunder and make suitable arrangements so that Licensor may receive Licensee's payments in respect thereof at or shortly before such expenses are incurred.
(f) Whenever it is not readily apparent whether actions or proceedings involve counterfeit Articles, Parallel Imports or Diversion, Licensor will determine the nature of such items in good faith, taking into account all relevant information provided by Licensee.
(g) The parties agree to mutually explore alternative structures that will facilitate the prevention of Parallel Imports and Diversion in the Republic of Korea.
Section 16. Copyright. Any copyright which may be created in connection with any material using or used in connection with the Licensed Mark shall be the property of Licensor. Licensee shall do any and all things required by Licensor to preserve and protect said rights.
Section 17. Other Designers. During the term of this Agreement, Licensee will not *** Licensee shall not advertise or otherwise use the Licensed Mark or any other "Calvin Klein" identification together with any other trademark or name, or any other identification of any other fashion designer or any other fashion designer's merchandise; and Licensee shall use its best efforts to see that its purchasers of Articles comply with this restriction. During the term of this Agreement, Licensee's affiliates (as defined in Paragraph 4 of this Agreement, and to include any person or entity directly or indirectly owning or controlling a majority interest in Licensee) may distribute, sell or advertise Products under the name of other designers, except: *** This statement shall not be deemed to limit any affiliate from manufacturing goods as a contractor for such designers.
Section 18. Indemnification/Insurance.
18.1 Licensee does hereby indemnify Licensor, CKTT and Calvin Klein, individually, against and save and hold each of them harmless of and from any and all losses, liability, damages and expenses (including reasonable attorneys' fees and expenses) which they or either of them incur or for which they or either of them may become liable or be compelled to pay in any action or claim against them or either of them, for or by reason of any acts, whether of omission or commission, that may be committed or suffered by Licensee or any of its affiliates or any of their respective servants, agents or employees in connection with Licensee's performance of this Agreement and transactions arising therefrom. The provisions of this paragraph and the obligations of Licensee set forth therein shall survive expiration or other termination of this Agreement.
18.2 Licensee will procure and maintain at its own expense in full force and effect at all times during which Articles are being sold with a responsible insurance carrier acceptable to Licensor, a public liability insurance policy including products liability coverage with respect to Articles as well as contractual
CONFIDENTIAL TREATMENT |
liability (to the extent customarily available in the Territory, as indicated by Licensee's insurance representative, on an annual basis) with respect to this Agreement, with a limit of liability of not less than *** Such insurance policy shall insure against occurrences happening at any time during which Articles are being sold or used regardless of when claims may be made. Such insurance policy shall be written for the benefit of Licensor, Licensee and Calvin Klein, individually, and will provide for at least ten (10) days prior written notice to Licensor and Licensee of the cancellation, non renewal or substantial modification thereof. Such insurance may be obtained by Licensee in conjunction with a policy of products liability insurance which covers products other than Articles. Licensee will deliver a certificate of such insurance to Licensor promptly upon issuance of said insurance policy and shall, annually and otherwise from time to time, upon reasonable request by Licensor, promptly furnish to licensor evidence of the maintenance of said insurance policy. Nothing contained in this paragraph 18.2 shall be deemed to limit, in any way, the indemnification provisions of paragraph 18.1 above.
Section 19. Breach/Default.
19.1 (a) If Licensee fails to make any payment to Licensor on the date such payment is due as provided hereunder:
(1) Licensee shall pay interest on the unpaid balance of the amount due at a rate equal to ***; and
(2) if such default continues uncured for a period of ten (10) days after the date such payment initially became due Licensor shall have the right to terminate this Agreement forthwith by and upon written notice to Licensee.
(a) If Licensee fails to perform any of the terms, conditions, agreements or covenants in this Agreement on its part to be performed which failure may adversely affect the Licensed Mark, Licensor may terminate this Agreement forthwith by written notice: (i) if such default is incurable, or (ii) if such default is curable but continues uncured for a period of ten (10) days after written notice thereof has been given to Licensee by Licensor. If Licensee fails to comply with the provisions of paragraph 1.6 above, Licensor may terminate this Agreement effective upon ten (10) days prior written notice to Licensee.
(b) If Licensee fails to pay any amounts due any of Licensor's affiliates within ten (10) days following written notice thereof from Licensor or if Licensee or Corrado Fratini breaches or defaults under the Shareholder Agreement referred to in Section 24, beyond the applicable cure period, Licensor may terminate this Agreement effective upon ten (10) days prior written notice to Licensee.
(c) If Licensee shall otherwise fail to perform, or if Licensor fails to perform, any of the terms, conditions, agreements or covenants in this Agreement on its respective part to be performed, the non-defaulting party may terminate this Agreement forthwith by written notice: (i) if such default is incurable; or (ii) if such default is curable but continues uncured for a period of thirty (30) days after written notice thereof has been given to the defaulting party in writing by the other party; or (iii) if such default is curable but it is not reasonably curable within 30 days, if the defaulting party promptly and diligently takes all necessary actions to cure such default, but such default continues uncured for a period of sixty (60) days after written notice thereof has been given to the defaulting party in writing by the other party.
19.2 In the event Licensee files a petition in bankruptcy, or is adjudicated a bankrupt, or if it becomes insolvent, or makes an assignment for the benefit of creditors, or files a petition or otherwise seeks relief under or pursuant to any bankruptcy, insolvency or reorganization statute or proceeding, or if it discontinues its business for a period of sixty (60) days or more, or if it discontinues reasonable commercial exploitation of Articles for a period of sixty (60) days or more, or if a custodian, receiver or trustee is appointed for it or a substantial portion of its business or assets for any reason, or if it defaults on any obligation which is secured by a security interest in any Articles, or if it adopts resolutions for the filing of or entering into any type of insolvency proceeding, or assignment for the benefit of its creditors, or liquidation of the business, this Agreement shall automatically terminate forthwith.
CONFIDENTIAL TREATMENT |
19.3 No assignee for the benefit of creditors, custodian, receiver, trustee in bankruptcy, sheriff or any other officer of the court or official charged with taking over custody of Licensee's assets or business shall have the right to continue this Agreement or to exploit or in any way use the Licensed Mark if this Agreement terminates pursuant to paragraph 19.2 above.
19.4 Notwithstanding any termination in accordance with the foregoing, Licensor shall have, and hereby reserves, all the rights and remedies which it has or which are granted to it by operation of law, to collect fees due, earned or payable by Licensee pursuant to this Agreement, to be compensated for damages for breach of the Agreement and to enjoin the unlawful or unauthorized use of the Licensed Mark without the necessity of posting any bond or proving any actual damages (which injunctive relief may also be sought prior to or in lieu of termination). Licensee hereby waives any and all rights relating to claims for wrongful termination, loss of goodwill or damages in connection with any such termination and agrees that it will never allege any such claims. In the event of termination of the Agreement by Licensor pursuant to paragraph 19.1 and/or paragraph 19.2 above, the entire unpaid balance of the Minimum Guaranteed Fees for the remaining balance of the then current term of this Agreement shall immediately become due and payable by Licensee to Licensor and Licensee agrees to make such payment within thirty (30) days following written demand therefor by Licensor. Such amounts shall be in addition to any other amounts due Licensor, hereunder, including, without limitation, any unpaid but accrued Percentage Fees and any unpaid Special Fee.
Section 20. Termination.
20.1 On the expiration or earlier termination pursuant to Section 18 or otherwise of this Agreement, all the rights of Licensee hereunder shall forthwith terminate and automatically revert to Licensor. Notwithstanding the foregoing, in the event of expiration or earlier termination of this Agreement (other than pursuant to paragraph 19.2 above or by Licensor pursuant to paragraph 19.1 above), Licensee shall be entitled, for ***
20.2 Except as provided in paragraph 20.1 above, on the expiration or earlier termination of this Agreement, Licensee shall forthwith discontinue all use of the Licensed Mark (including discontinuing use of the Licensed Mark or "CK" in its corporate name), shall no longer have the right to use the Licensed Mark or any variation or simulation thereof, and shall transfer to Licensor all registrations, filings and rights with regard to the Licensed Mark which it may have possessed at any time. In addition, Licensee shall thereupon deliver to Licensor or to Licensor's designee, free of charge, or at Licensor's option shall destroy, all materials utilized in connection with Articles and all labels, tags and other material in its possession with the Licensed Mark thereon. Licensee will use its best efforts to cause stencils, sketches and other materials in the possession of third parties to be destroyed or otherwise rendered unusable. Licensee shall not reproduce or adapt any of said stencils, sketches or other materials for use on or in connection with merchandise subsequent to the termination of this Agreement.
20.3 Licensor may, in its sole discretion, at any time, enter into such arrangements as its desires pursuant to which Products bearing the Licensed Mark may be shown, advertised, distributed or sold in the Territory by it or by any duly authorized third party other than Licensee provided only that no shipment of such Products will be permitted prior to the date of termination of this Agreement.
Section 21. Licensor Representations. Licensor represents and warrants that it has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder. CKTT has applications to register, or registrations of the mark "Calvin Klein" and/or the mark "CK/Calvin Klein" in the jurisdiction in the Territory; as indicated on the schedule attached hereto.
Section 22. Licensee Representations. Licensee represents and warrants that it has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder. Licensee further represents and warrants that no broker or finder brought about this transaction and Licensee hereby indemnifies Licensor against and holds it harmless of and from any and all liabilities (including, without limitation, reasonable attorneys' fees and disbursements paid or incurred in connection with any such liabilities) for any brokerage commissions or finders' fees in connection with this Agreement or the transactions contemplated hereby.
CONFIDENTIAL TREATMENT |
Section 23. Notice. All reports, approvals and notices required or permitted by this Agreement to be given to any party shall be in writing and shall be delivered personally, by reputable overnight courier, telecopied or sent by certified, registered or express mail (in each case with return receipt requested), postage prepaid. Any such notice shall be deemed given when so delivered personally, telecopied or sent by reputable overnight courier or, on the date received (as evidenced by a signed receipt) if deposited in the mail, in each case to the party concerned at its address as set forth above (with facsimile confirmation to Licensor at (212) 768-8930) or at such other address as a party may specify by notice to the other. Copies of all notices sent to Licensor shall be sent to the attention of (i) Licensing Department (ii) Corporate Affairs Department and (iii) General Counsel.
Section 24. Assignment.
(a) Licensee acknowledges and recognizes: that it has been granted the license herein because of its particular expertise, knowledge, judgment, skill and ability; that it has substantial and direct responsibilities to perform this Agreement in accordance with all of the terms contained herein; that Licensor is relying on Licensee's unique knowledge, experience and capabilities to perform this Agreement in a specific manner consistent with the high standards of integrity and quality associated with Licensor and its business; that the granting of the license under this Agreement creates a relationship of confidence and trust between Licensee and Licensor, and that this Agreement is one under which applicable law excuses Licensor from accepting performance from, or rendering performance to, a person or entity other than Licensee, within the meaning of Section 365(c) and (e) of the Bankruptcy Code (title 11, U.S. Code). Except as set forth in Section 24(b), neither this Agreement nor the license or other rights granted to Licensee hereunder may be assigned, sublicensed, or otherwise transferred. Any attempted assignment, transfer or sublicensing whether voluntary or by operation of law, directly or indirectly, shall be void and of no force or effect.
(b) The parties acknowledge and agree that Licensee was formed for the sole purpose of operating as the licensee hereunder and will not engage in or conduct any other activities or operations. For purposes hereof, any transfer of all or a controlling portion or a majority of the shares of the Licensee by CK Jeanswear N.V., its affiliates, Corrado Fratini and/or Marcello Fratini, in a single transaction or in a series of transactions, of their respective shares, effecting a reduction in their interest in Licensee, except to Licensor, or a Licensor-approved shareholder, or to a corporate entity of which Corrado Fratini and/or Marcello Fratini own the majority of shares, shall be deemed a transfer in violation of the terms hereof and prohibited hereunder. Set forth on Schedule 24 hereto is a list of the shareholders of Licensee and their respective shareholdings. Prompt notice of any transfer by CK Jeanswear N.V. or its affiliates (other than Calvin Klein, Inc. or its successors, assignees or transferees) of more than five percent (5%) (whether over a period of time or all at once), shall be delivered to Licensor. Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.
Section 25. Entire Agreement. This Agreement contains the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, supersedes all prior oral and written understandings and agreements relating thereto, and may not be modified, discharged or terminated, nor may any of the provisions hereof be waived, orally. This Agreement amends and restates the Original License Agreement which is expressly superseded by this Agreement; provided, that, any representations and warranties set forth in this Agreement shall not be deemed to have been given again in connection with the execution and delivery of this Agreement, but shall only be deemed to have been made as of the date of the Original License Agreement and not as of the date of this Agreement.
Section 26. Independent Contractor. Nothing herein shall be construed to constitute the parties hereto as partners or as joint venturers, or either as agent of the other, and Licensee shall have no power to obligate or bind Licensor in any manner whatsoever. Licensor shall have no responsibility for the operation or production of Licensee's manufacturing, distribution or sales facilities or for any decisions that may be made in connection therewith regardless of whether Licensor approved any of the same.
CONFIDENTIAL TREATMENT |
Section 27. No Waiver. No waiver by either party, whether expressed or implied, of any breach hereof or default hereunder shall constitute a continuing waiver of such provision or of any other provision of this Agreement. Acceptance of payments by Licensor shall not be deemed a waiver by Licensor of any violation of or default under any of the provisions of this Agreement by Licensee.
Section 28. Severability. If any provision or any portion of any provision of this Agreement shall be held to be void or unenforceable, the remaining provisions of this Agreement and the remaining portion of any provision held void or unenforceable in part shall continue in full force and effect.
Section 29. Governing Law. This Agreement shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein. However, disputes regarding the Licensed Mark shall be resolved in accordance with the U.S. Federal trademark laws and related laws, statutes, rules and regulations of the United States unless there are no U.S. Federal laws, statutes, rules or regulations dispositive of such a dispute, in which event such disputes shall be resolved in accordance with the laws of the State of New York.
Section 30. Forum, Jurisdiction and Service of Process. The parties expressly agree that (a) the courts of the State of New York and/or the federal courts located in the State of New York shall be the exclusive forum for the adjudication of any disputes relating to this Agreement or the subject matter hereof and (b) that any judgment, award or order issued by the courts of the State of New York and/or the federal courts located in the State of New York shall be enforceable in the courts in any jurisdiction in the Territory. Licensee expressly and irrevocably (a) submits to the jurisdiction of the courts of the State of New York and/or the federal courts located in the State of New York and waives any right to contest the jurisdiction of such courts to adjudicate disputes relating to this Agreement or the subject matter hereof and, (b) waives any objection to the laying of venue of any suit or proceeding in the above-described courts. Notwithstanding anything to the contrary in this Agreement, Licensee expressly agrees that Licensor shall have the right to enjoin use of the Licensed Mark and the Form in any venue or jurisdiction in the Territory. Service of any notice, process, motion or other document in connection with proceedings relating in any way to this Agreement or the subject matter hereof may be effectuated by: (a) as to Licensor, either by personal service or in the same manner as notices are to be given pursuant to paragraph 23 above; and (b) as to Licensee, by service upon (i) the Prentice-Hall Corporation System, Inc. ("Prentice-Hall"), 375 Hudson Street, New York, New York 10014, as agent for Licensee, or (ii) upon such attorney with an office in New York, New York, as agent for Licensee, as may be specified by Licensee by notice to Licensor, or (iii) any other manner permitted by law, provided, in each case, a copy thereof is sent to Licensee in accordance with the provisions of paragraph 23 above. Licensee shall execute any consent forms required by Prentice-Hall in order to effect the appointment of Prentice-Hall as its agent for service of process and Licensee expressly and irrevocably agrees that service upon the Prentice-Hall shall be effective and sufficient service of process upon Licensee.
Section 31. Jurisdictional Approval. This Agreement shall be subject to the obtaining of any and all required recordation and approvals of this Agreement by the appropriate agencies of the government of Hong Kong, if any. If such approvals are not obtained within three (3) months after the earlier of the presentation of this Agreement to such agencies and the date of execution hereof, Licensor may, in its sole discretion, terminate this Agreement by giving written notice to Licensee at any time after such period and prior to the time such approvals are obtained. Licensee shall promptly present this Agreement for any such approvals. Licensor and Licensee shall cooperate with each other and use their respective best efforts to obtain as promptly as possible any such approvals. Licensee shall bear any expense incurred in connection with obtaining and maintaining any such approvals. Promptly after the granting of any such approval, Licensee shall notify Licensor of the date thereof and shall provide Licensor with a copy thereof in both the original language and, if applicable, in English. Notwithstanding anything to the contrary herein, if any such approval is conditioned upon the deletion, insertion or modification of any provision or any portion of any provision hereof, Licensor shall retain the right to rescind this Agreement in its entirety by and upon written notice given to Licensee in the event the required deletions, insertions or modifications affect the terms of this Agreement so as to render, in the sole discretion of Licensor, the
CONFIDENTIAL TREATMENT |
transactions contemplated by this Agreement an undesirable business venture. In the event this Agreement is so rescinded, neither party shall be in any way liable to the other, except for payments due to Licensor or its designees with respect to transactions which have already occurred, or as otherwise provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
![]() |
CALVIN KLEIN, INC. |
![]() |
By: /s/ Barry Schuntz |
![]() |
CALVIN KLEIN JEANSWEAR ASIA LTD. |
![]() |
By: /s/ Illegible |
CONFIDENTIAL TREATMENT |
Schedule A
***
CONFIDENTIAL TREATMENT |
Schedule 24
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Shareholders | ![]() |
% | ||||
CK Jeanswear N.V. | ![]() |
100 | % | |||
![]() |
EXHIBIT 10.63
PORTIONS OF THIS EXHIBIT 10.63 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
January 31, 2006
WF Overseas Fashion C.V.
(‘‘W’’)
CK Jeanswear Asia Limited
(‘‘CKJA’’)
CK Jeanswear Australia, Ltd.
(‘‘CKJAus’’)
CK Jeanswear New Zealand,
Ltd. (‘‘CKJNZ’’)
CK Jeanswear Korea,
Ltd. (‘‘CKJK’’)
CK Jeanswear Shanghai,
Ltd. (‘‘CKJS’’)
CK Jeanswear Europe
S.p.A. (‘‘CKJE’’)
(‘‘CKJA
Group Entities’’)
CK Jeanswear N.V. (as
‘‘guarantor’’)
(‘‘CKJNV’’)
(‘‘CKJ
Entities’’)
![]() |
![]() |
Re: | Calvin Klein Inc. (‘‘CKI’’)/CKJA — Jeans License Agreement (May 1996, Amended and Restated d. as of 1 January 1997) (‘‘CK Jeans Asia License’’), including as to assigned portions to CKJAus (Australia), CKJNZ (New Zealand), CKJ Korea (S. Korea), CKJ Shanghai (PRC China) and CKJ Europe (Japan), sometimes ‘‘Assigned Licenses’’ |
CKI and W Heads of Agreement d. 29 September 2005 (‘‘Heads of Agreement’’)
Ladies and Gentlemen:
Pursuant to the Heads of Agreement, the parties contemplated that W would acquire the CALVIN KLEIN businesses (and/or the rights to assets thereto) in whatever structure, form and format as such transaction occurs) of Fingen S.p.A., Fingen Apparel, N.V. (and, as applicable, their parents, subsidiaries and affiliates responsible for the operation of the CALVIN KLEIN businesses) (the ‘‘Transaction’’).
As contemplated in the Heads of Agreement, effective upon the conclusion of the Transaction (to be 17 January 2006, or such later date as mutually agreed between the parties to the Transaction, but not later than 31 December 2006) (the ‘‘Effective Date’’), it is agreed by CKI and W that the captioned license and ‘‘Assigned Licenses’’ shall be and hereby is amended as to the ‘‘term’’ and CKI’s rights in the event of a failure to reach certain minimum net levels, all as follows:
1. § 2.1 shall be amended as follows:
‘‘2.1 Subject to the terms and conditions of § 2.2, the term of this Agreement will be forty nine (49) years and eight (8) months commencing as of 1 May 1996 and ending forty (40) years after the closing of the Transaction on 31 December of the applicable year but not later than 31 December 2046, unless sooner terminated in accordance with the provisions hereof. The twelve (12) month-period commencing 1 January 2006 and each twelve (12) month period commencing on each 1 January thereafter during the term of this Agreement, shall each constitute and hereinafter shall be referred to as an ‘Annual Period.’’’
2. § 2.2 shall be amended to state as follows:
‘‘(a) shall for the ***
(b) The following are the ‘‘Minimum Net Sales Thresholds’’ which Licensee shall be required to attain in each of the following jurisdictions ***
CONFIDENTIAL TREATMENT |
As to retail Net Sales under this Agreement, which occur ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Jurisdiction | ![]() |
![]() |
New MNST’s (US $ millions) | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||||
Base Contract Original MNST’s (US $, millions) |
![]() |
2006 | ![]() |
2007 | ![]() |
2008 | ![]() |
2009 | ![]() |
2010 | ![]() |
2011
et seq.* |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||
*** | ![]() |
![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
![]() |
![]() |
||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
![]() |
![]() |
|||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
![]() |
![]() |
|||||||||||||||||||||||||
*** | ![]() |
![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
![]() |
![]() |
||||||||||||||||||||||||||
![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
||||||||||||||||||||||||||||||||
*** | ![]() |
*** | ![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
|||||||||||||||||||||||||||||||
![]() |
![]() |
![]() |
* *** |
(c) For purposes of computing the ‘‘Minimum Net Sales Threshold’’ pursuant to ***
(d) shall, for the ***.
(e) If Licensee fails to meet the aggregate MNST’s as referenced in § 2.2 (b) for any Annual Period, the provision relating to the overall aggregate MNST’s under § 2.2 (a) shall ***
(f) In the event that Licensee fails to attain the Minimum Net Sales Threshold (‘MNST’) set forth below for any Annual Period commencing in ***
Minimum Net Sales Thresholds
For each Annual Period commencing 2006, 2016, 2026, 2036, respectively, during each ten (10) year period, the product of:
(i) the greater of
![]() |
![]() |
![]() |
(x) | the Minimum Net Sales Threshold for the *** and |
![]() |
![]() |
![]() |
(y) | *** |
![]() |
![]() |
3. | For Annual Periods commencing 1 January 2006, § 9.1 shall read as follows: |
‘‘9.1 In consideration of the license granted and the services to be performed by Licensor hereunder, Licensee will pay to Licensor a Minimum Guaranteed Fee for each Annual Period as follows:
![]() |
![]() |
*** |
The Minimum Guaranteed Fee for the 16th through the 20th Annual Periods will be the ***
The Minimum Guaranteed Fees for the 21st through the 25th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 26th through the 30th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 31st through the 35th Annual Periods will be the ***
CONFIDENTIAL TREATMENT |
The Minimum Guaranteed Fee for the 36th through the 40th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 41st through the 45th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 46th Annual Period through the 50th Annual Periods will be the ***
The parties acknowledge and agree that the total MGF in each Annual Period include ***
4. § 23 (b) shall be amended to add the following at the end:
‘‘Notwithstanding anything herein contained, a change of control Transfer shall be permitted if in accordance with all of the applicable provisions of the CKI/CF Group Irrevocable Consent d. 29 September 2005. In the event of any such CKI-permitted change-of-control Transfer, the provisions hereof shall apply to any ‘successor in interest’ permitted Transferee (except that Notice shall apply to any transfer of more than 35% of the Transferee). Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.’’
![]() |
![]() |
5. | Except as set forth herein, the CK Jeans Asia License (and Assigned Licenses as applicable) shall remain in full force and effect. For the avoidance of doubt, the parties acknowledge that no further ‘‘Override’’ payments are due and owing. Any defined terms used herein not specifically defined herein shall have the meanings ascribed to them in the CK Jeans Asia License. |
![]() |
![]() |
6. | To the extent that there is any discrepancy between this Amendment and Agreement and the CK Jeans Asia License, this Amendment and Agreement shall govern and control. |
![]() |
![]() |
7. | This Amendment and Agreement and the CK Jeans Asia License shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein. |
![]() |
![]() |
8. | Following the closing of the Transaction, this Amendment and Agreement, the CK Jeans Asia License and the Assigned Licenses may be assigned within the Warnaco family of companies, in accordance with the terms as agreed by CKI and set forth in writing, simultaneously herewith. |
Warnaco U.S., Inc., a Delaware corporation, is the general partner of WF Overseas Fashion C.V., a limited partnership (‘‘commanditaire vennootschap’’) organized and existing under the laws of the Netherlands, and, solely in such capacity, is executing this Amendment and Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
CONFIDENTIAL TREATMENT |
The parties have executed this Amendment and Agreement effective upon W’s acquisition of the CKJ Entities this 31st day of January 2006.
![]() |
||||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Calvin Klein, Inc. | ||||||
By: /s/ Tom Murry | ||||||
Name: | ![]() |
Tom Murry | ||||
Title: | ![]() |
President and COO | ||||
![]() |
||||||
WF Overseas Fashion C.V. | ||||||
By: Warnaco U.S., Inc., its general partner | ||||||
By: /s/ Stanley P. Silverstein | ||||||
Name: | ![]() |
Stanley P. Silverstein | ||||
Title: | ![]() |
President and Secretary | ||||
CK Jeanswear Asia Limited CK Jeanswear Australia, Ltd. CK Jeanswear New Zealand, Ltd. CK Jeanswear Korea, Ltd. CK Jeanswear Shanghai, Ltd. CK Jeanswear Europe S.p.A. CK Jeanswear N.V. |
||||||
By: /s/ Lawrence R. Rutkowski | ||||||
Name: | ![]() |
Lawrence R. Rutkowski | ||||
Title: | ![]() |
Vice President and Treasurer | ||||
![]() |
EXHIBIT 10.64
PORTIONS OF THIS EXHIBIT 10.64 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
Deirdre Miles-Graeter
CK
Jeanswear World — Store License
8 Dec 2000/6 Sep 01/
13
Nov 01 /3 Dec 01 /16 Jan 02
6 March
2002
![]() |
Calvin Klein |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
CK
Jeanswear N.V. Olympic Palaza, 1st floor Fred. Roeskestraat 123. 1076 EE Amsterdam |
![]() |
CK Jeanswear Asia Limited Tower 1, The Gateway, Suite 3596 25 Canton Rd., TST, Hong Kong |
![]() |
CK Jeanswear Europe S.p.a. Via Provinciale Lucchese,181/11 50019 Sest Fiorentino Italy |
||||||
![]() |
Re: ‘‘CK/Calvin Klein Jeans Stores’’ — Europe and Asia
Ladies and Gentlemen:
CK Jeanswear N.V. (‘‘CKJNV’’) and Calvin Klein, Inc. (‘‘CKI’’) previously entered into a store license relating to the firm of the logo ‘‘CK/Calvin Klein Jeans’’, which was subsequently (12 Jan 99) assigned as to ‘‘Asia’’ to CK Jeanswear Asia Limited (‘‘CKJ Asia’’), and which was subsequently (2 Jan 98) sublicensed as to ‘‘Europe’’ to CK Jeanswear Europe S.p.A. (‘‘CKJ Europe’’). This confirms that each of CKJNV, CKJ Asia and CKJ Europe, each respectively ‘‘Operator’’ as applicable, and CKI have agreed as follows, effective upon execution of this amended and restated agreement as of 1 September 2001:
1. (a) CKI hereby grants to Operator a license to use the trademark in the form of the logo ‘‘CK/Calvin Klein Jeans’’ (‘‘Mark’’) on and in connection with the operation of a *** as defined in the amended and restated license agreement dated as of 1 January 1997 between CKI and CK Jeanswear Europe S.p.A., as amended to include *** as defined on the date hereof in the amended and restated license agreement dated as of 1 January 1997 between CKI and CK Jeanswear Asia Ltd. (‘‘CK Jeans A’’) (‘‘the Master Asia License’’), and (iii) ***, hereinafter the ‘‘Territory’’; for the sole purpose of selling therein at *** (as hereinafter defined). Operator will sell *** All use by Operator of the Mark is subject to CKI’s prior approval. Operator will promptly, following execution of this Agreement, deliver to CKI a proposed plan for any and each jurisdiction in the Territory, in which it desires or intends to open Stores, for CKI’s review, recommendations and in all instances reasonable prior approval. *** to be covered by such plans and opened in the ‘‘Territory’’ defined in the Master Europe License (the ‘‘Europe Territory’’) will *** Operator shall provide CKI annually, not later than *** Operator is required to ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Total Additional | ![]() |
||||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
![]() |
Operator is to itself *** However, CKI shall permit Operator, and Operator will ***
(b) For purposes hereof, Merchandise shall consist only of ‘‘Articles’’ as respectively defined in the Master Europe License and the Master Asia License.
(c) CKI reserves the right to ***
(d) Notwithstanding the provisions of *** Section 1(a)(ii) above, Operator shall be permitted to *** Any and all such Stores shall be considered ‘‘Stores’’ for the purposes of this Agreement, and shall be subject to the prior approval of CKI as to the ***, and shall be subject to all the terms of this Agreement including but not limited to *** Operator shall not be permitted to sublicense the rights under this Section 1(d) to any unaffiliated third party.
2. (a) CKI shall have the right to approve the number and each specific location of each Store (prior to the execution of any lease or other commitment), and to approve the design, signage, layout, fixtures and decoration of each such Store and to designate the architect or Store planner utilized in connection with the build-out of each such Store (as set forth below), as well as all packaging, Store tags or labels, business
CONFIDENTIAL TREATMENT |
materials (including business cards), advertising and promotional materials so as to ensure that the same are of the highest quality, and are consistent with the ‘‘Calvin Klein’’ image. Operator recognizes that CKI will grant such approvals as to location and number subject to and consistent with its other programs for related retail outlets, and only if such locations are reflected in the plan(s) approved pursuant to Section 1(a).
Operator recognizes that its public actions and statements con affect the image of CKI, the Mark, the Merchandise and other trademarks used by CKI and/or its licensees and other designees, CKI’s other licensees and their respective products. Accordingly, (i) the use and release by Operator of any and all advertising, promotional or publicity material (including press releases and other public relations media events) and (ii) any other corporate release, data or information which Operator has reason to believe might become public and, if so, could affect such image, will be prepared or conducted in consultation with and subject to the prior approval of CKI’s Public Relations Department. After any such approval, Operator will not modify such approved material or activities in any respect, without CKI’s prior approval. CKI shall have the right to inspect each Store to ensure compliance with this Agreement. Operator shall co-operate with CKI in any such inspection, shall promptly take steps to correct all deficiencies as noted by CKI during or following such inspection and will bear the expense of any follow up inspection.
(b) Operator will:
![]() |
![]() |
![]() |
(i) | bear all costs incurred in connection with development, build-out and operation of the Stores, including without limitation: (A) travel and other expenses and costs of CKI’s designated architect and/or Store planner who will design or approve the design of the Stores; (B) out-of-pocket expenses, travel expenses and per diem expenses of CKI personnel, including without limitation design, Store planning, Store opening set-up, on-site inspections and visual display; (C) remit to CKI *** |
![]() |
![]() |
![]() |
(ii) | conduct and operate the Stores in accordance with all applicable health, safety, occupancy, tax and other governmental laws, rules and regulations; |
![]() |
![]() |
![]() |
(iii) | maintain the Stores in a sanitary condition and in good repair at all times, and in accordance with the design, Store set-up (merchandising) and visual display specifications, standards and guidelines of CKI, and refurbish the Stores as may be reasonably necessary in order to keep the Stores in an up-to-date condition; |
![]() |
![]() |
![]() |
(iv) | employ only competent, trained and exemplary personnel (and provide for dress codes and uniforms for the same) including a General Manager for all retail operations hereunder as well as Store managers, all subject to CKI’s ongoing approval; |
![]() |
![]() |
![]() |
(v) | retain public relations personnel or consultants to promote the Mark and the Stores under the supervision of and as approved by CKI and its public relations personnel; |
![]() |
![]() |
![]() |
(vi) | purchase a supply of Merchandise for each Store which constitutes, in the reasonable opinion of CKI, a representative collection and which will satisfy consumer demands; |
![]() |
![]() |
![]() |
(vii) | prepare and deliver to CKI *** |
![]() |
![]() |
![]() |
(viii) | not dispute or otherwise allege wrongful termination (except in the case of a bona fide dispute as to whether Operator is or was in breach), in the event this Agreement is terminated by CKI due to Operator’s breach or default; and |
![]() |
![]() |
![]() |
(ix) | keep confidential all material, data and proprietary information of CKI, which shall include but not be limited to the design and decor specifications and prototypes utilized in connection with the Stores. |
(c) Operator will expend such amounts for advertising and promotion and public relations event (which shall be subject to the approval of CKI) as are reasonable and appropriate in connection with Operator’s exploitation of the license granted hereby, but not less than *** during such Annual Period.
CONFIDENTIAL TREATMENT |
(d) Upon reasonable prior written notice, CKI and its representatives may, no more than once each year unless good cause is shown, examine the books and records (and any and all underlying data) of Operator during the term of the Agreement, and for a period of three years following termination hereof. Such books, records and data will be maintained for at least three years following the year to which they relate.
3. (a) Operator acknowledges that; (i) Calvin Klein Trademark Trust (‘‘CKTT’’) CKTT is the owner, and CKI is a beneficial owner, of all right, title and interest in and to the Mark and the goodwill attached or will become attached thereto (including goodwill arising from advertising expenditures applicable to the grant hereunder); (ii) all use thereof by Operator will inure to the benefit of CKTT; and (iii) CKTT and/or CKI retains all rights to use and to grant others the right to use the Mark except as specifically granted to Operator herein. Operator will not do or permit to be done anything which will detract from the value or reputation of the Mark and do all things which may reasonably be required by CKI in order to confirm CKI’s beneficial ownership and CKTT’s ownership of the Mark.
(b) In the event Operator learns of any infringement or imitation of the Mark or use by any person of a trademark similar to the Mark, it will immediately notify CKI. Operator will cooperate with CKI in any action taken by CKI to protect its rights and those of CKTT in and to the Mark. Operator will take no such action itself without prior written approval of CKI.
4. Operator will indemnify and save CKTT, CKI and Calvin Klein harmless from any and all claims that may arise or be asserted against either of them from Operator’s use of the Mark, Operator’s sale of the Merchandise or Operator’s establishment, ownership or operation of the Store, and all costs and expenses, including reasonable counsel fees, incurred in connection with defense of the same. Operator will procure and maintain insurance as reasonably required by CKI in order to insure the property and contents of the Store and its operations, and from liability claims as referred to herein.
5. (a) The term of this Agreement shall commence of the date hereof and shall continue in effect through the current initial term (through 31 December 2005), and renewal term(s) if any of the Master Europe License as to the ‘‘Territory’’ referred to in Section 1(a)(i), subject to compliance with the exploitation and Store roll-out requirements noted in Section 1 hereof, and shall terminate automatically and forthwith as to such ‘‘Territory’’ or termination of the Master Europe License above and the current initial term, and renewal term(s) if any of the Master Asia license as to the ‘‘Territory’’ referred to in Section (a)(ii) and (iii) above, and shall terminate automatically and forthwith as to such ‘‘Territory’’ on termination of the Master Asia License.
(b) Except as set forth otherwise in this section, in the event of any *** If Operator files a bankruptcy petition, is adjudicated a bankrupt or becomes involved in a bankruptcy or insolvency proceeding, this Agreement will terminate automatically and forthwith. ***
(c) Upon termination of this Agreement, Operator will immediately discontinue use of the Mark in connection with the Stores, will alter the interior and exterior of the Stores so as to distinguish them from their former appearance and will dispose of any inventory of Merchandise, on a non-exclusive basis, only in the ordinary course of business, or otherwise as specifically directed by CKI, for a period not to exceed 90 days following the date of such termination. No such disposal may occur unless Operator provides CKI with a detailed schedule of its inventory, certified by its chief financial officer in form and content satisfactory to CKI, within 30 days following termination of this Agreement. Notwithstanding the foregoing, CKI has the option, exercisable by written notice sent either prior to or not later than 30 days following the date of termination, to have any Store, and Operator’s entire interest therein, assigned to it, (A) if such termination is due to breach by Operator at the lower of (i) the net depreciated cost to Operator and (ii) the then current market value of such Store, including the lease thereof and the improvements therein, or (B) if for other reasons (or upon expiration), at the then current market value of such Store, including the lease and the improvements therein.
6. Each party to this Agreement is an independent contractor and nothing herein contained and no action arising from or relating to this Agreement shall be construed to constitute the parties as joint venturers or either as agent of the other.
CONFIDENTIAL TREATMENT |
7. No waiver, express or implied, of any provision of this Agreement, or of any breach or default hereof, shall constitute a continuing waiver hereof except as expressly provided in a writing signed by the waiving party.
8. (a) Neither this Agreement or any rights granted hereunder may be assigned or otherwise transferred by Operator, except as agreed on by CKI. Any sublicense agreement shall be in the form attached hereto with only such modifications as CKI may approve in advance; and the selection (identity) of any sublicensee shall also be subject to CKI’s prior approval. *** The existing provisions of the existing sublicenses which may conflict with the preceding sentence are excepted.
( b) If Corrado and Marcello Fratini cease to have the power directly or indirectly to elect or cause the election of at least a majority of Operator’s directors and direct the management and operations of Operator, CKI may immediately terminate this Agreement by written notice. Operator will provide CKI with at least 20 days’ prior notice of any event or transaction that would activate the right of termination provided in the preceding sentence. Except as provided above, this Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors and assigns.
9. This Agreement shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein. However, disputes regarding the Mark shall be resolved in accordance with the Federal trademark laws and related laws, statutes, rules and regulations of the United States unless there are no Federal laws, statutes, rules or regulations dispositive of such a dispute, in which case such dispute shall be resolved in accordance with the laws of the State of New York. Operator represents and warrants that it is not entitled to immunity from judicial proceedings commenced in the State of New York, U.S.A. (whether relating to state laws or federal laws) and expressly agrees that, should any judicial proceedings be brought, it will not claim any immunity from such proceedings and that they shall be brought In New York, New York and shall be conducted in English. Operator irrevocably submits to the jurisdiction of the courts of the State of New York and/or the federal courts located therein and waives the right to contest such jurisdiction and to the laying of venue in such courts. Operator is completing forms relating to the appointment of the Corporation Services Company to act as its agent for service relating to any dispute or adjudication hereunder, simultaneously with the execution of this Agreement and will maintain such appointment throughout the term of this Agreement (including extensions, renewals and the non-exclusive inventory disposal period referred to herein).
If the foregoing fully and accurately sets forth our understanding with regard to the subject matter hereof, please so signify by signing below where indicated.
![]() |
Very truly yours, |
![]() |
CALVIN KLEIN, INC. |
![]() |
By:/s/ Illegible |
Agreed to:
CK JEANSWEAR N.V.
By: /s/ Illegible
CK JEANSWEAR ASIA LIMITED
By: /s/ Illegible
CK JEANSWEAR EUROPE S.P.A.
By: /s/ Illegible
CONFIDENTIAL TREATMENT |
SCHEDULE
1(d)
OUTLET
***
EXHIBIT 10.65
PORTIONS OF THIS EXHIBIT 10.65 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
January 31, 2006
WF Overseas Fashion C.V.
("W")
CK Jeanswear N.V.
CK
Jeanswear Asia Limited
CK Jeanswear Europe S.p.A.
![]() |
![]() |
Re: | CKI/CKJNV – Amended and Restated Jeans
Store License d. as of 6 March 2002 ("Jeans Store
License") Calvin Klein, Inc. ("CKI")/W Heads of Agreement d. 29 September 2005 ("Heads of Agreement") |
Ladies and Gentlemen:
Pursuant to the Heads of Agreement, the parties contemplated that W would acquire the CALVIN KLEIN businesses (and/or the rights to assets thereto) in whatever structure, form and format as such transaction occurs) of Fingen S.p.A., Fingen Apparel, N.V. (and, as applicable, their parents, subsidiaries and affiliates responsible for the operation of the CALVIN KLEIN businesses) (the "Transaction").
As contemplated in the Heads of Agreement noted above, CKI and W agree to amend the Jeans Store License, effective upon and following the closing of the Transaction (to be 17 January 2006, or such later date as mutually agreed between the parties to the Transaction, but not later than 31 December 2006) to extend the term as follows:
![]() |
![]() |
1. | §5(a) shall be amended to state as follows: |
"5(a). The term of this Agreement shall commence as of the date hereof and shall continue in effect through the term of the CK Jeans Europe License as to the "Territory" covered thereunder, and through the term of the CK Jeans Asia License as to the "Territory" covered thereunder subject to compliance with the exploitation and Store roll-out requirements noted in Section 1 hereof, and shall terminate automatically and forthwith as to such "Territory" for Europe referred to in §1(a)(i) above on termination of the Master Europe License (or jurisdiction thereunder); and shall terminate automatically and forthwith as to such "Territory" for Asia referred to in §(a)(iii) and §(a)(iii) above on termination of the Master Asia License" (or jurisdiction thereunder )."
![]() |
![]() |
2. | (a) CKI and W hereby confirm that W is permitted, *** |
![]() |
![]() |
(b) CKI and W also hereby confirm that the *** |
3. Except as set forth herein, the Jeans Store License remains in full force and effect. Any defined terms used herein not specifically defined herein, shall have the meanings ascribed to them in the Jeans Store License.
4. To the extent that there is any discrepancy between this Agreement and the Jeans Store License, this Agreement shall govern and control.
5. This Agreement and the Jeans Store License shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein.
6. Following the closing of the Transaction, this Agreement and the Jeans Store License may be assigned within the Warnaco family of companies, in accordance with the terms as agreed by CKI and as set forth in writing, simultaneously herewith.
Warnaco U.S., Inc., a Delaware corporation, is the general partner of WF Overseas Fashion C.V., a limited partnership ("commanditaire vennootschap") organized and existing under the laws of the Netherlands, and, solely in such capacity, is executing this Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
CONFIDENTIAL TREATMENT |
The parties have signed this Agreement this 31 day of January 2006.
![]() |
Calvin Klein, Inc. |
![]() |
By: /s/ Tom
Murry
Name: Tom Murry Title: President and COO |
![]() |
WF Overseas Fashion C.V. |
![]() |
By: Warnaco U.S., Inc., its general partner |
![]() |
By: /s/ Stanley P.
Silverstein
Name: Stanley P. Silverstein Title: President and Secretary |
![]() |
CK
Jeanswear N.V. CK Jeanswear Asia Limited CK Jeanswear Europe S.p.A. |
![]() |
By: /s/ Lawrence R.
Rutkowski
Name: Lawrence R. Rutkowski Title: Vice President and Treasurer |
CONFIDENTIAL TREATMENT |
Schedule
***
EXHIBIT 10.66
PORTIONS OF THIS EXHIBIT 10.66 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
EXECUTION COPY
CONFIDENTIAL - THIS DOCUMENT AND ITS SUBSTANCE ARE NOT TO BE USED OR DISCUSSED WITHOUT CONSENT OF CALVIN KLEIN, INC. THIS IS A DRAFT WHICH SHALL NOT BE BINDING UPON THE PARTIES AND DOES NOT CONSTITUTE AN OBLIGATION OF THE PARTIES. NO BINDING AGREEMENT OR OBLIGATION WILL RESULT UNLESS A DEFINITIVE WRITTEN AGREEMENT IS EXECUTED AND DELIVERED BY THE PARTIES. NEITHER THIS DRAFT NOR ANY OTHER DRAFT, MEMO, OTHER WRITING NOR ANY ORAL CONVERSATION OR DISCUSSION IS TO BE CONSIDERED BINDING OR A COMMITMENT ON THE PART OF CALVIN KLEIN, INC.
CALVIN KLEIN, INC.
and
CK JEANSWEAR EUROPE, S.p.A.
THIS AMENDED AND RESTATED LICENSE AGREEMENT ("Agreement") is made this 1st day of January 1997, by and between CALVIN KLEIN, INC., a New York corporation having its principal business office at 205 West 39th Street, New York, New York 10018 (hereinafter referred to as "Licensor"), on the one hand and CK Jeanswear Europe, S.p.A. having its address, at Via Provinciale Lucchese, 181/11, 50019, Sesto Fiorentino, Italy (hereinafter referred to as "Licensee") and it amends and restates in its entirety a License Agreement dated as of May 9, 1995, as amended (the "Original License Agreement"), by and between Licensor and Corrado Fratini and Marcello Fratini (subsequently assigned to Licensee).
CONFIDENTIAL TREATMENT |
Index
Section
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
1 | ![]() |
Grant (Products/Territory) | ||||
2 | ![]() |
Term | ||||
3 | ![]() |
Design | ||||
4 | ![]() |
Confidentiality | ||||
5 | ![]() |
Quality Control | ||||
6 | ![]() |
Operations | ||||
7 | ![]() |
Advertising | ||||
8 | ![]() |
Approval Standard | ||||
9 | ![]() |
Minimum Guaranteed Fees | ||||
10 | ![]() |
Percentage Fee | ||||
11 | ![]() |
Equity Interest | ||||
12 | ![]() |
Audit | ||||
13 | ![]() |
Trademark | ||||
14 | ![]() |
Infringement | ||||
15 | ![]() |
Copyright | ||||
16 | ![]() |
Other Designers | ||||
17 | ![]() |
Indemnification/Insurance | ||||
18 | ![]() |
Breach/Default | ||||
19 | ![]() |
Termination | ||||
20 | ![]() |
Licensor Representations | ||||
21 | ![]() |
Licensee Representations | ||||
22 | ![]() |
Notice | ||||
23 | ![]() |
Assignment | ||||
24 | ![]() |
Entire Agreement | ||||
25 | ![]() |
Independent Contractor | ||||
26 | ![]() |
No Waiver | ||||
27 | ![]() |
Severability | ||||
28 | ![]() |
Governing Law | ||||
29 | ![]() |
Service | ||||
![]() |
Schedules/Exhibits/Attachments
Schedule A (Products)
Schedule 3.1.1 Time and Action Calendar
Schedule 24 (Shareholdings)
CONFIDENTIAL TREATMENT |
W I T N E S S E T H:
In consideration of the premises and the mutual covenants hereinafter set forth, Licensor and Licensee do hereby respectively grant, covenant and agree as follows:
Definitions: As used in this Agreement, the following terms have the meanings specified or referred to below.
"Articles" shall have the meaning set forth in Section 1.1.1.
"CPI" shall mean the Consumer Price Index (All Cities - All Urban Consumers) as published by the United States Department of Labor (or the successor index).
"Eastern Europe" shall have the meaning set forth in Section 1.1.1.
"Form" shall have the meaning set forth in Section 1.1.1.
"Irregular and Close-out Articles" shall have the meaning set forth in Section 10.1.
"Licensor's Data" shall have the meaning set forth in Section 4.1.
"Licensed Mark" shall have the meaning set forth in Section 1.1.1.
"Middle East" shall have the meaning set forth in Section 1.1.1.
"Minimum Advertising Expenditure" shall have the meaning set forth in Section 7.2.
"Minimum Guaranteed Fee" shall have the meaning set forth in Section 9.1.
"Minimum Net Sales Thresholds" shall have the meaning set forth in Section 2.
"Net Sales" shall have the meaning set forth in Section 10.1.
"Percentage Fee" shall have the meaning set forth in Section 10.1.
"Products" shall have the meaning set forth in Section 1.1.1.
"Salesmen's Samples" shall mean Articles sold to Licensee's commercial agents and salesmen at a discount of at least 50% off the wholesale price for use in promoting and selling Articles.
"Southern Africa" shall have the meaning set forth in Section 1.1.1.
"Territory" shall have the meaning set forth in Section 1.1.1.
"Western Europe" shall have the meaning set forth in Section 1.1.1.
Section 1. Grant (Products/Territory)
1.1.1 Licensor hereby grants to Licensee an exclusive license only throughout certain countries in (i) "Western Europe," namely Ireland, Great Britain, France, Monte Carlo, Germany, Spain, Portugal, Andorra, Italy, San Marino, Vatican City, Belgium, the Netherlands, Luxembourg, Denmark, Sweden, Norway, Finland, Austria, Switzerland, Liechtenstein, Greece, Cyprus, Turkey and Malta, (ii) the "Middle East," namely Lebanon, Israel, Palestine, Jordan, Syria, Iran, Saudi Arabia, Yemen, Qatar, Kuwait, Bahrain, Oman, and the United Arab Emirates, and (iii) "Eastern Europe," namely Hungary, Czech Republic, Poland, Bosnia-Herzogovina, Croatia, Serbia, Slovenia, Romania, Bulgaria, Slovak Republic, Macedonia, Moldavia, Lithuania, Latvia, Estonia, Ukraine, Belorussia, Russia (C.I.S.), Georgia, Armenia, Azerbaijan, Kazakhstan, and Uzbekistan (except as provided below including Section 10.4.2) (Western Europe, together with the Middle East, Eastern Europe and Southern Africa (as defined below) are hereinafter referred to as the "Territory") to use the mark "Calvin Klein" and "CK/Calvin Klein" (hereinafter referred to as the "Licensed Mark") only in the form of the logo Calvin Klein Jeans" and/or "CK/Calvin Klein Jeans" as may be approved by Licensor ("Form") on and in connection with the manufacture, distribution and sale at wholesale solely of the items of women's jeans and jeans related apparel and men's jeans and jeans related apparel as are set forth on Schedule A annexed hereto (hereinafter referred to as "Products"). In addition to the foregoing, Licensor hereby grants effective 1
CONFIDENTIAL TREATMENT |
June 1997 to Licensee an exclusive license in South Africa, Botswana, Mozambique, Namibia, Swaziland and Zimbabwe (collectively, "Southern Africa") to use the Licensed Mark in the Form solely for the purpose of permitting Licensee to grant a sublicense to a third party for the distribution and sale of Products in Southern Africa to be approved in advance by Licensor (the "Sublicense"); provided, that, if the Contract Fee (as defined in the Sublicense) is not paid to Licensor simultaneously with the execution of the Sublicense or not later than thirty (30) days following execution of the Sublicense, then Southern Africa shall not be part of the Territory and the provisions of this sentence shall be null and void and of no further force and effect. Products produced by or for Licensee and approved by Licensor, from time to time, for each collection for sale under this Agreement hereinafter shall be referred to as "Articles." Notwithstanding the foregoing, the license granted hereunder with respect to manufacture is non-exclusive and Licensor retains the right to *** Licensee acknowledges that Licensor's grant hereunder does ***
1.1.2 Licensee's right to use the Licensed Mark in the Form on Articles is ***
1.2 All Articles shall bear the Licensed Mark only in the Form except as hereinafter provided, and no Article shall be sold or otherwise distributed by Licensee under any mark other than the Licensed Mark. Licensor reserves all rights to the *** Licensee specifically acknowledges that Licensor has retained:
(a) the right to use, and to grant to any other third party the right to use, the Licensed Mark:
(i) in the Territory, with regard to *** and
(ii) outside the Territory, with regard to ***
(b) the right to use, and to grant to any other third party the right to use the mark *** and
(c) the right to ***
1.3 Licensee acknowledges that Articles hereunder may bear some similarity of design to other items of merchandise which hereafter may be distributed or sold in the Territory in connection with the Licensed Mark by either Licensor or Licensor's duly authorized licensees or others and further acknowledges that such similarity of design shall not be deemed a breach of or default under this Agreement.
1.4 Licensee acknowledges that ***
1.5 Licensee will use its best efforts to exploit the rights herein granted throughout each and every jurisdiction in the Territory and to sell the maximum quantity of each category of Articles in each and every jurisdiction in the Territory therein consistent with the high standards and prestige represented by the Licensed Mark.
1.6 Licensee shall not export Articles from the Territory and shall not sell Articles to any third party which it knows, has reason to believe or should have reason to believe intends to export Articles from the Territory.
1.7 Licensee acknowledges that Licensor has entered into, and will hereafter enter into, licenses with third parties regarding the use of the Licensed Mark and/or the Form on Articles in jurisdictions outside the Territory and that Licensor may grant third parties the right to produce Products for sale outside the Territory. Licensee agrees to fully co-operate with such third parties, as requested by Licensor including but not by way of limitation, ***
1.8 Furthermore, Licensee agrees that the marketing placement and distribution of Articles in the Territory may but shall not necessarily be the same as that for Products being sold *** Licensee acknowledges that Licensor has heretofore granted exclusive distributorships to third parties in the Territory and that the license granted hereunder is subject to the same. Licensee agrees to assume and to fully comply with all of Licensor's obligations provided therein or relating thereto, including but not by way of limitation, *** Licensee further acknowledges that Licensor has heretofore entered into an
CONFIDENTIAL TREATMENT |
exclusive distributorship with a third party for the jurisdictions of *** Furthermore, if requested by Licensor, and subject to availability, Licensee will ***
Section 2. Term
2.1 Except as set forth in Section 2.2, the initial term of this Agreement will be ten (10) years and eight (8) months commencing as of 1 May 1995 and continuing through 31 December 2005, unless sooner terminated in accordance with the provisions hereof. This Agreement shall be renewed for up to two (2) consecutive additional terms of ten (10) years, each commencing 1 January 2006, and 1 January 2016, respectively, but such renewal shall be effective only if (a) Licensee is in compliance with all of the terms and conditions of this Agreement throughout the initial term, or the then current term, as applicable, (b) "Net Sales" for Western Europe during each Annual Period have attained or exceeded the "Minimum Net Sales Thresholds" set forth below:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
Western Europe Minimum Net Sales Thresholds |
||||
1 (95-96) | ![]() |
*** | ||||
2 (1997) | ![]() |
*** | ||||
3 (1998) | ![]() |
*** | ||||
4 (1999) | ![]() |
*** | ||||
5 (2000) | ![]() |
*** | ||||
6-10 (2001-2005) | ![]() |
*** | ||||
11-20 (2006-2015) | ![]() |
*** | ||||
![]() |
(c) Licensee is in compliance with the minimum net worth and other financial covenants required herein, and (d) Licensee has, in the sole determination of Licensor, continued throughout the initial term of the Agreement to maintain the high quality standards necessary to reflect the prestige and reputation of the Articles and the Licensed Mark. Licensor may specifically waive compliance with any of the foregoing. At least 90 days prior to each such renewal, Licensee shall deliver to Licensor a detailed business plan for its operations for the renewal period which shall contain reasonably detailed projections prepared by Licensee in good faith. The twenty (20) month period commencing 1 May 1995, the twelve (12) month period commencing 1 January 1997 and each twelve (12) month period commencing on each 1 January thereafter during the term of this Agreement, shall each constitute and hereinafter shall be referred to as an "Annual Period."
2.2 Notwithstanding the provisions of Section 2.1, the initial term of this Agreement for Eastern Europe and the Middle East shall terminate on 31 December 2000 and may not be renewed unless before December 31, 1997, (i) Licensee shall have submitted a *** In addition, notwithstanding the provisions of Section 2.1, the ***
Section 3. Design
3.1.1 Licensee will cooperate with Licensor and Licensee and Licensor will each use their respective best efforts in the preparation of seasonal collections of Articles in accordance with the Time and Action Calendar attached hereto as Schedule 3.1.1. Licensee will provide Licensor, at least ***
3.1.2 In connection therewith, Licensor or Licensor's designee, Calvin Klein Jeanswear Company ("Designee") will ***
3.2 In order to present cohesive and representative collections of Articles, Licensee will utilize substantially all of the designs or samples submitted by Designee or approved by Licensor and/or such designs or samples developed by Licensor and produce, offer for sale, and ship as ordered, those Articles which are produced therefrom, except as Licensor may otherwise consent. Within thirty (30) days following the close of each seasonal collection, Licensee will provide Licensor with the sales results, by style on a unit basis, of Articles shown and sold for such seasonal collection.
3.3 Licensee may use only sketches, designs, colors and other materials provided by Designee or Licensor or approved by Licensor in connection with Articles. If Licensee rejects any such sketches,
CONFIDENTIAL TREATMENT |
designs, color samples or other materials and chooses not to use them in connection with Articles, Licensee must return such sketches, designs, color samples and other materials at Licensee's expense, and may not use them or permit their use by any unauthorized parties thereafter.
3.4 Licensor may use and permit others to use sketches, designs and other materials provided or approved by Licensor for use in connection with Articles in any manner it desires, provided that such use does not conflict with any rights granted Licensee hereunder.
3.5 Licensee will be responsible for making all prototypes and samples as well as for the production of Articles, and Licensee will bear all costs in connection therewith. Licensee will be responsible for and will bear all costs involved in the design, development and construction of showrooms and in-store shops or stores in which Articles are sold, all of which shall be subject to the ongoing approval of Licensor (except to the extent such stores bear such costs) including costs of Licensor's visual display personnel which may include certain per diem costs based upon reasonable third party rates, for services usually performed by third parties based upon estimates provided to and approved by Licensee, and the costs (including per diem costs based upon rates of and services performed by third parties) of other personnel including in-store coordinators, advertising and public relations (other than design) with respect to services performed in connection with this Agreement. Furthermore, Licensee will remit directly payment for, or reimburse Licensor for, any out-of-pocket expenses incurred by Licensor or its representatives in connection with this Agreement (1) which are required by Licensor consistent with its corporate operating procedures, (2) which are requested (or approved in advance) by Licensee, or (3) with respect to travel to and throughout the Territory in connection with this Agreement, the cost of round trip business class airfare or first class airfare if so provided by Licensor's internal travel policies in effect from time to time, hotel accommodations, food and local transportation incurred by Licensor's representatives, based upon proposed travel plans and estimated expenses delivered to and requested by or approved by Licensee in advance.
3.6 Licensee shall sell to Licensor, Licensor's affiliates or Licensor's licensees (including store licensees, for full price retail and outlet stores) in, or if specifically requested in writing outside of, the Territory, such reasonable quantities of Articles as may be requested at discounts ***
Section 4. Confidentiality
4. Licensee acknowledges that all information relating to the business and operations of Licensor and its affiliates and/or Designee which it learns during the term, or has learned during negotiation, of this Agreement, all special design concepts which Licensor or its affiliates or its Designee provide to it hereunder and all sketches and designs received by it from Licensor or its affiliates or its Designees (hereinafter referred to as "Licensor's Data") are valuable property of such entities. Licensee acknowledges the need to preserve the confidentiality and secrecy of Licensor's Data and agrees that, both during the term of this Agreement and after the termination hereof, it shall not use (except use required to fulfill the provisions of this Agreement during the term of this Agreement) or disclose same, and it shall take all necessary steps to ensure that use by it or by its authorized designees (which use and which designees shall be solely as necessary for, and in connection with, the manufacture, distribution, sale, advertising or promotion of Articles) shall preserve in all respects such confidentiality and secrecy. Licensee hereby indemnifies Licensor, its affiliates and its Designee against any damage of any kind which may be suffered by any of them as a result of any breach by Licensee or its said designees of the provisions of this paragraph. (For purposes hereof "affiliates" shall consist of those persons, firms, corporations and other entities controlled by, controlling or under common control with the entities in question.)
Section 5. Quality Control
5.1 The components, workmanship, fit and durability of Articles will at all times be of the highest quality and commensurate with the reputation, image and prestige of the Licensed Mark. Licensee will maintain production and other quality control procedures so as to ensure that the quality of Articles meets or surpasses that of the approved samples of Articles. Articles will be distributed, merchandised and sold with packaging and sales promotion materials appropriate for highest quality products of that
CONFIDENTIAL TREATMENT |
type of merchandise. All Articles will be manufactured, sold, labeled, packaged, distributed and advertised in accordance with all applicable laws and regulations in the Territory.
5.2 Licensor will have the right to approve the styles, designs, packaging, components, workmanship, fit, quality, display, merchandising, advertising and promotion of all Articles so as to ensure that Articles manufactured, merchandised, sold, advertised and promoted hereunder are consistent with the reputation, image and prestige of the Licensed Mark as a designation for highest quality products.
5.3 (a) Before selling, distributing or promoting any Article, Licensee will deliver to Licensor for its approval, free of charge, one (1) prototype samples of each such Article together with prototype tags, labels and packaging to be used in connection therewith. In the event any such prototype sample fails to meet with Licensor's approval, Licensee shall promptly correct such prototype and re-submit it for Licensor's approval. Licensor may require Licensee to purchase labels, tags and other identification including packaging materials from Licensor, or Licensor's designated supplier in order to protect the Licensed Mark and to preclude or prevent counterfeiting or unauthorized use of materials utilizing the Licensed Mark.
(b) Licensee will deliver to Licensor, free of charge, one (1) initial production sample of each Article together with the tags, labels and packaging to be used in connection therewith. In addition, from time to time in order to ensure that Licensor is maintaining the quality standards set forth herein upon Licensor's request, Licensee will deliver to Licensor, free of charge, such reasonable number of then current production samples of each Article produced hereunder together with the tags, labels and packaging being used in connection therewith. In the event Licensor determines that the initial production sample delivered to Licensor or any Article subsequently submitted to Licensor fails to meet the quality standards set forth herein, Licensee will make any corrections determined by Licensor to be necessary to meet such quality standards. All Articles to be sold hereunder will be at least equal in quality to the samples approved by Licensor.
(c) Licensor and its duly authorized representatives will have the right, upon reasonable advance notice and during normal business hours, to examine Articles in the process of being manufactured and to inspect all facilities utilized by Licensee or its contractors in connection therewith. Licensee shall include in its arrangements with third party contractors a similar provision permitting Licensors inspections of such contractor's facilities.
5.4 All Articles will bear the Licensed Mark only in the Form and only in such form and manner as may be approved by Licensor. Notwithstanding the foregoing, *** Licensee will cause to appear on all Articles produced hereunder, and on their labels, packaging and the like, on all advertising, promotional, merchandising and publicity material used in connection therewith, and on any printed matter of any kind on which the Licensed Mark, the Form or any other "Calvin Klein" or "CK" or "CK/Calvin Klein" identification appears (including business cards, invoices, stationery and other printed matter), such legends, markings and notices as Licensor may request. Before using or releasing any proposed advertising (including any and all co-operative trade and consumer advertising), promotional, merchandising or publicity material or any such other printed matter, Licensee will submit same together with the proposed placement thereof to Licensor for Licensors approval. The same will not be used or released prior to receipt of Licensor's approval.
5.5 After any sample, copy, art work or other material has been approved, Licensee will not depart therefrom in any respect with the prior written approval of Licensor. If Licensor should disapprove any sample Article, tag, label, package or the like, or any advertising, promotional, merchandising or publicity material or the proposed placement thereof or any other printed matter, Licensee will not use or permit the use of the same in any manner, whether or not in connection with the Articles or the Licensed Mark or otherwise.
5.6 In order to maintain the reputation, image and prestige of the Licensed Mark, Licensee's distribution patterns shall consist of those retail outlets whose location, merchandising and overall operations, and whose positioning and price selling for Articles are consistent with (a) the high quality of
CONFIDENTIAL TREATMENT |
Articles, (b) the reputation, image and prestige of the Licensed Mark, and (c) the exclusive nature of distribution and market placement applicable to such Articles and as are approved by Licensor on an ongoing basis. ***
Section 6. Operations
6. During the term of this Agreement, Licensee shall use such trade name incorporating the Licensed Mark in the Form, and no other name or mark, as is specifically approved by Licensor as the name of an entity which shall operate solely in connection with and arising from its performance of its obligations and responsibilities hereunder. Licensee shall comply with all legal requirements applicable to the establishment and maintenance of the same. Licensee shall be permitted to use the name "CK Jeanswear Europe, S.p.A." only for so long as such entity operates solely as licensee hereunder. The use of the Licensed Mark in the Form in connection with the operation of such entity shall be subject to the provisions of paragraph 13 below. In connection with the operation of such division or entity Licensee shall:
(a) employ, on an exclusive basis, a "President" and/or a Managing Director who shall be subject to the ongoing approval of Licensor;
(b) employ, on an exclusive basis, sales, merchandising, public relations (who may be retained as consultants or through a servicing arrangement with Licensor), visual display and production (including quality control) personnel as part of its staff as will enable Licensee, in the opinion of Licensor, to exploit the license herein granted and to maintain the quality standards required hereunder;
(c) establish as soon as practicable and thereafter maintain throughout the term of this Agreement, a separate showroom in Milan, Italy, and separate showrooms in other jurisdictions in the Territory, wherever and at the time an agent is delegated for such jurisdiction, for the sole purpose of displaying, promoting and selling Articles, the general location and general decor of which will be subject to the approval of Licensor, and the architect retained by Licensee will be either selected or approved by Licensor both at the time such showroom is established and thereafter throughout the term of this Agreement;
(d) establish and maintain throughout the term of this Agreement, production and other facilities, whether by ownership, or by contractual arrangement, in order to exploit the license herein granted and to maintain the quality standards required hereunder;
(e) employ or retain public relations personnel or consultants (which may be directly employed by Licensor and retained by or remunerated by Licensee) to assist in promoting the Licensed Mark and the sale of Articles in the Territory;
(f)*** and
(g) furnish Licensor with information regarding the above and such other information regarding the company division or subdivision as Licensor may, from time to time, request including (i) providing Licensor in writing, with net sales estimates (prospectively for three (3) years) by September 30 of the prior year, (ii) estimated total net sales and total aggregate advertising and promotional expenses (actual) by January 30 of the following year, (iii) monthly notices of net sales within ten (10) days following the last day of such month, and (iv) annually, broad based market information and analysis of the Products covered hereunder (including independent market research as to commensurate or comparable merchandise).
(h) ***
CONFIDENTIAL TREATMENT |
Section 7. Advertising
7.1 Licensee will spend for cooperative advertising and promotion of Articles and the Licensed Mark, during each Annual Period, such amounts ***
7.2.1 ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
*** | ||||
1st | ![]() |
*** | ||||
2nd | ![]() |
*** | ||||
3rd and each subsequent Annual Period | ![]() |
*** | ||||
![]() |
Notwithstanding the foregoing, *** [approximately 1.5 pages redacted]
7.2.2 ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
*** | ||||
1st and 2nd | ![]() |
*** | ||||
3rd | ![]() |
*** | ||||
4th and 5th | ![]() |
*** | ||||
if this Agreement is ***, for each subsequent Annual Period | ![]() |
*** | ||||
![]() |
7.2.3 Licensee will remit to Licensor to ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
*** | ||||
1st and 2nd | ![]() |
*** | ||||
3rd and 4th | ![]() |
*** | ||||
5th | ![]() |
*** | ||||
if this Agreement is ***, for each subsequent Annual Period | ![]() |
*** | ||||
![]() |
***
7.2.4 Notwithstanding the provisions of Sections 7.2.1, 7.2.2 and 7.2.3, no minimum advertising expenditure shall be ***
7.3 For purposes hereof, ***
7.4 ***
7.5 CRK Advertising operates as the advertising agency responsible for advertising campaigns relating to ***
Section 8. Approval Standard
8. Licensee acknowledges that approvals required pursuant to this Agreement, under Sections 2, 3, 5, 6(c), 7.3 and 13.1, may be based solely on Licensor's subjective aesthetic standards and may be granted, withheld and or charged in Licensor's sale and absolute discretion.
Section 9. Minimum Guaranteed Fees
9.1 In consideration of the license granted and the services to be performed by Licensor hereunder, Licensee will pay to Licensor a Minimum Guaranteed Fee for each Annual Period as follows:
***
The Minimum Guaranteed Fee for the sixth through the tenth Annual Periods will be as mutually determined by the parties, but in no event *** In the event that this Agreement is renewed, the Minimum Guaranteed Fees for each of the 11th through the 20th Annual Periods will be as mutually determined by the parties, but in no event ***
CONFIDENTIAL TREATMENT |
9.2 The Minimum Guaranteed Fee for each Annual Period will be paid in advance in four (4) equal quarterly installments on the first day of January, April, July and October during each Annual Period except that the installments of the Minimum Guaranteed Fee for the first Annual Period shall be paid simultaneously with the execution hereof, on 1 January 1996, on 1 April 1996 and on 1 October 1996. ***
9.3 *** of the Minimum Guaranteed Fee shall be allocated as a royalty for the use of the Licensed Mark and the remaining *** shall be allocated as a fee for the design and other services to be performed by Licensor.
Section 10. Percentage Fee
10.1 In consideration of the license granted and the services to be performed by Licensor hereunder, Licensee shall pay to Licensor *** For purposes hereof, "Net Sales" shall be deemed to mean the ***
Notwithstanding the foregoing, Licensee shall pay to Licensor in accordance with Section 10.3 *** Such payments shall be in US dollars based on the actual conversion rate of Italian lire into US dollars (determined pursuant to Section 10.7) (the "actual rate"); provided, that solely for purposes of determining ***
Notwithstanding the foregoing, (i) no Percentage Fee shall be payable ***
For purposes of this Agreement, "Net Sales" generated by the ***
For purposes of this Agreement, the term "Irregular and Close-out Articles" shall mean (i) ***
10.2 Fifty percent (50%) of the Percentage Fee shall be allocated as a royalty for the use of the Licensed Mark and the remaining fifty percent (50%) shall be allocated as a fee for the design and other services to be performed by Licensor.
10.3 The Percentage Fee payments hereunder shall be accounted for and paid quarterly, within thirty (30) days following the close of each three (3) month period during each Annual Period, except that the initial accounting and payment will be made within thirty (30) days following the close of the initial eight (8) month period of the first Annual Period. The Percentage Fee payable for each accounting period during each Annual Period shall be computed on the basis of Net Sales from the beginning of such Annual Period through the last day of such accounting period with a credit for the Minimum Guaranteed Fees and Percentage Fees, if any, theretofore paid to Licensor for such Annual Period.
10.4.1 Licensee shall deliver to Licensor at the time each Percentage Fee payment is due, statements signed by the chief financial officer of Licensee and certified by him as accurate. Each such statement shall indicate, by month, the amount of Net Sales, and shall show in detail, separately for each category of Articles and each jurisdiction in the Territory for each account of Licensee, the style number, description, number of units, unit price and the total amount of gross sales of Articles shipped during the period covered by such statement, the type and amount of discounts and credits from gross sales which may be deducted therefrom (separately as to each type of discount or credit), a computation of the amount of Percentage Fee payable hereunder in respect of Net Sales for such period. Each such statement shall indicate by month the amount and details of all advertising and promotional expenditures incurred by Licensee during such period. Such statements shall be furnished to Licensor whether or not any Articles have been sold or advertising placed during the period for which such statements are due.
10.4.2 The Percentage Fee payable for each jurisdiction in the Middle East and Eastern Europe shall be computed and accounted for separately from other jurisdictions in the Territory. As promptly as practicable, Licensee will provide Licensor with information as to the market in each jurisdiction in the Middle East and Eastern Europe (of the type referred to in § 6(g)) and details of the operations in these jurisdictions (of the type referred to in § 6(h)), and any other information as may be reasonably requested by Licensor. The foregoing information to be supplied by Licensee shall be provided to Licensor in order to develop and mutually agree upon a satisfactory business plan, Minimum Guaranteed Fees and Minimum Net Sales Thresholds for these jurisdictions as contemplated by Section 2.2.
10.5 Licensee shall furnish to Licensor, not later than ninety (90) days following the close of each Annual Period during the term of this Agreement (or portion thereof in the event of prior termination
CONFIDENTIAL TREATMENT |
for any reason), a report certified by its independent certified public accountants, or the equivalent thereof in the Territory, covering such Annual Period (or portion thereof) and containing the same information, required to be contained in the statements referred to in paragraph 10.4 above.
10.6 ***
10.7 All payments required of Licensee hereunder shall be made to Licensor in New York, New York or, if specified by Licensor, to an account in the Territory in United States dollars (or, if so designated by Licensor, an alternative currency) via wire transfers specifying federal funds, or in such other manner as Licensor designate, with simultaneous telex notification and telephone confirmation to Licensor to the accounting and licensing department. The Percentage Fee (and other amounts provided for herein) shall be computed in accordance with Licensee's accounting records which are kept in Italian Lire on the basis of the conversion rate of Italian lire, into United States dollars in effect as the official conversion rate in Italy, currently as published by Banca di Italia (Central Bank of Italy) unless there is a variance of 5% or more between that and the conversion rate as published by Dow Jones Telerate, Inc. (in the U.S.) in which case, the conversion rate as published by Dow Jones Telerate, Inc. in The Wall Street Journal will apply as of the close of business on the date prior to the date such amount is due. However, Licensor may permit Licensee to make. such payment in Italian Lire, in lieu of the adjusted US dollar amount, at Licensor's option, from time to time, upon notice to Licensee. Licensee will simultaneously provide Licensor with the basis for use of the conversion rate utilized.
10.8 If applicable, Licensee shall compute and pay on behalf of Licensor all withholding taxes which any governmental authority in the Territory may impose on Licensor with respect to the fees paid by Licensee to Licensor. The amount of such taxes shall be appropriately deducted from payments of fees. Licensee shall furnish Licensor with an official receipt (together with a translation thereof if not in English) promptly after each such Payment of taxes. In the event such taxes are not paid when due, all resulting penalties and interest shall be borne by Licensee.
Section 11. Equity Interest
11. Licensee has caused ten percent (10%) of the stated capital in Licensee to be transferred to Licensor.
Section 12. Audit
12.1 Licensee will prepare and maintain, in such manner as will allow them to be audited in accordance with generally accepted accounting principles consistently applied, *** Licensor and its duly authorized representatives have the right, during regular business hours and upon reasonable notice, ***
12.2 If, as a result of any examination of Licensee's books and records, it is shown that the ***
Section 13. Trademark
13.1 Licensee agrees that (a) no name or names shall be co-joined with the Licensed Mark, (b) it will not use the name "Calvin Klein," "CK" or "CK/Calvin Klein" or any portion or derivative thereof in its corporate name except as provided in Sections 23 and 6 hereof, and (c) no name or names shall be used in connection with the Licensed Mark in any advertising, promotion, publicity, labeling, packaging or printed matter of any kind utilized by Licensee in connection with Articles unless specifically consented to, and only in the Form, and only in the form approved, by Licensor. Any such use by Licensee pursuant to clause (c) above shall clearly indicate that the Calvin Klein Trademark Trust ("CKTT") is the owner and Licensor is the beneficial owner of the Licensed Mark and that Licensee is using the same pursuant to a license granted by Licensor.
13.2 Licensee acknowledges that CKTT is the owner and Licensor is the beneficial owner of all right, title and interest in and to the Licensed Mark as to Products in the Territory in any form or embodiment thereof and is also the owner of the goodwill attached or which shall become attached to the Licensed Mark and the Form in connection with the business and goods in relation to which the same has been, is or shall be used. Sales by Licensee and its affiliates shall be deemed to have been made by CKTT for
CONFIDENTIAL TREATMENT |
purposes of trademark registration and all uses of the Licensed Mark and the Form by Licensee and its affiliates shall inure to the benefit of CKTT. Licensee will not, at any time, do or suffer to be done any act or thing which may in any way adversely affect any rights of Licensor or CKTT in and to the Licensed Mark or any registrations thereof or any applications for registration thereof of the Form or which, directly or indirectly, may reduce the value of the Licensed Mark or detract from its reputation, image or prestige or that of Licensor or Calvin Klein.
13.3 Licensee will, at Licensor's request, execute any and all documents including Registered User Agreements and take any actions required by Licensor to confirm CKTT's ownership and Licensor's beneficial ownership of all rights in and to the Licensed Mark as to Products in the Territory and the respective rights of Licensor and Licensee pursuant to this Agreement. Licensee will cooperate with Licensor and will, at Licensor's request, take any actions requested by Licensor in connection with the filing and prosecution by Licensor of applications in CKTT's name (or if applicable, Licensor's name) to register the Licensed Mark for Articles in the Territory and in connection with the maintenance and renewal of such registrations as may issue. Upon termination of this Agreement, Licensee shall execute any documents required by Licensor to evidence such termination. Licensee will bear all expenses in connection with the filing of Registered User Agreements and with any documents required to evidence termination of this Agreement including termination of such Registered User Agreements.
13.4 Licensee will use the Licensed Mark in the Territory strictly in compliance with the legal requirements obtaining therein and will use such markings in connection therewith as may be required by applicable legal provisions. Licensee will comply with all governmental regulations in connection with the manufacture, distribution and sale of Articles.
13.5 Whether during the term of this Agreement or subsequent to its termination, Licensee will never (a) challenge Licensor's ownership of or the validity of the Licensed Mark or any application for registration thereof, or any trademark registration thereof, or any rights of Licensor therein, nor (b) challenge the fact that Licensee's rights pursuant to this Agreement are solely those of a licensee.
Section 14. Infringement
14. In the event that Licensee learns of any infringement or imitation of the Licensed Mark with respect to Products which would be considered a counterfeit of the Articles, or of any use by any person of a trademark similar to the Licensed Mark with respect to Products which would be considered a deliberate use of something substantially similar to the Licensed Mark, it will promptly notify Licensor thereof. Licensee will take no action, including, but not by way of limitation, settling any action, appealing any adverse decision or discontinuing any action taken by it, except to the extent the same is approved in advance by Licensor. All costs and expenses incurred in any action or proceeding (including investigatory expenses and attorneys' fees, if applicable, court costs and filing fees) will be borne as determined in Section 15. Any damages recovered or sums obtained in settlement in or with respect to any action shall (i) first be applied to proportionately reimburse Licensee for the expenses incurred and actually paid by it and to reimburse Licensor for the expenses incurred and actually paid by it, and (ii) the balance, if any, shall belong and shall be paid over to on a fifty-fifty basis to Licensee and Licensor. In no event will any infringement by a third party justify the withholding of any payment of royalty or design fee by Licensee.
Section 15. Parallel Imports; Copyright
15.1 Licensor will use commercially reasonable efforts, including, without limitation, establishing an enforcement network of attorneys, investigators and customs inspectors in the Territory (the "Network") to minimize and deter (i) the diversion into and sale within the Territory of products, corresponding to the Articles, authorized for sale by its other licensees solely outside the Territory (including, without limitation, unauthorized distribution of such products by the manufacturers and subcontractors of such licensees) ("Parallel Imports"), and (ii) the importation into, or sale or manufacture within, the Territory of counterfeit Articles; in each case subject to Licensee's compliance with its reimbursement obligations
CONFIDENTIAL TREATMENT |
set forth in this subsection, the other subsections of this Section, and subject to applicable law. Licensee will cooperate in such efforts, and will promptly *** as follows:
(A) ***
(B) ***
(C) ***
15.2 Licensee will use commercially reasonable efforts to minimize and deter the diversion of Articles for sale outside of the Territory (including, without limitation, unauthorized distribution of Articles by Licensee's manufacturers and subcontractors) ("Diversion"). Such efforts will include, without limitation, the utilization of such processes, controls, identification methods and reporting and auditing procedures as Licensor may from time to time reasonably request. Licensee will cooperate with Licensor in Licensor's efforts to minimize and deter Diversion ("Anti-Diversion Efforts"). Without limiting the foregoing:
(a) Licensee will promptly provide such information as Licensor may from time to time reasonably request concerning its manufacturing, subcontracting and distribution locations, activities and shipments, product and label identification systems and data and sales to and by its customers; and
(b) Licensee will promptly ***
15.3 In addition to the foregoing, promptly after receipt of any certification by Licensor with available supporting evidence specifying the quantity of Articles recovered or otherwise identified as having been involved in any incident of Diversion or attempted Diversion, ***
15.4 Where appropriate and consented to by Licensee, Licensor will initiate criminal or civil actions against the persons outside Territory seeking to manufacture counterfeit Articles or sell or ship counterfeit Articles into the Territory (excluding, for this purpose, manufacturers or subcontractors described in the definitions of Diversion or Parallel Imports). The cost related to any such actions shall be entirely for Licensee's account.
15.5 Licensor will consult with Licensee in planning and enforcement activities pursuant to this Section 15. In addition, the parties will consult and cooperate to forecast Licensor's reimbursable expenses hereunder and make suitable arrangements so that Licensor may receive Licensee's payments in respect thereof at or shortly before such expenses are incurred.
15.6 Whenever it is not readily apparent whether actions or proceedings involve counterfeit Articles, Parallel Imports or Diversion, Licensor will determine the nature of such items in good faith, taking into account all relevant information provided by Licensee.
15.7 Any copyright which may be created in connection with any material using or used in connection with the Licensed Mark shall be the property of Licensor. Licensee shall do any and all things required by Licensor to preserve and protect said rights.
Section 16. Other Designers
16. During the term of this Agreement, *** Licensee shall not advertise or otherwise use the Licensed Mark or any other "Calvin Klein" identification together with any other trademark or name, or any other identification of any other fashion designer or any other fashion designer's merchandise; and Licensee shall use its best efforts to see that its purchasers of Articles comply with this restriction. During the term of this Agreement, Licensee's affiliates (as defined in Paragraph 4 of this Agreement, and to include any person or entity directly or indirectly owning or controlling a majority interest in Licensee) may distribute, sell or advertise Products under the name of other designers, except: *** This statement shall not be deemed to limit any affiliate from manufacturing goods as a contractor for such designers.
Section 17. Indemnification/Insurance
17.1 Licensee does hereby indemnify Licensor, CKTT and Calvin Klein, individually, against and save and hold each of them harmless of and from any and all losses, liability, damages and expenses (including
CONFIDENTIAL TREATMENT |
reasonable attorneys' fees and expenses) which they or either of them incur or for which they or either of them may become liable or be compelled to pay in any action or claim against them or either of them, for or by reason of any acts, whether of omission or commission, that may be committed or suffered by Licensee or any of its affiliates or any of their respective servants, agents or employees in connection with Licensee's performance of this Agreement and transactions arising therefrom. The provisions of this paragraph and the obligations of Licensee set forth therein shall survive expiration or other termination of this Agreement.
17.2 Licensee will procure and maintain at its own expense in full force and effect at all times during which Articles are being sold with a responsible insurance carrier acceptable to Licensor, a public liability insurance policy including products liability coverage with respect to Articles as well as contractual liability with respect to this Agreement, with a limit of liability of not less than *** Such insurance policy shall insure against occurrences happening at any time during which Articles are being sold or used regardless of when claims may be made. Such insurance policy shall be written for the benefit of Licensor, Licensee and Calvin Klein, individually, and will provide for at least ten (10) days prior written notice to Licensor and Licensee of the cancellation, non renewal or substantial modification thereof. Such insurance may be obtained by Licensee in conjunction with a policy of products liability insurance which covers products other than Articles. Licensee will deliver a certificate of such insurance to Licensor promptly upon issuance of said insurance policy and shall, annually and otherwise from time to time, upon reasonable request by Licensor, promptly furnish to licensor evidence of the maintenance of said insurance policy. Nothing contained in this paragraph 17.2 shall be deemed to limit, in any way, the indemnification provisions of paragraph 17.1 above.
Section 18. Breach/Default
18.1If Licensee fails to make any payment on the date such payment is due as provided hereunder: (a) Licensee shall pay interest on the unpaid balance of the amount due at a rate equal to ***; and (b) if such default continues uncured for a period of ten (10) days after the date such payment initially became due Licensor shall have the right to terminate this Agreement forthwith by and upon written notice to Licensee. If Licensee fails to perform any of the terms, conditions, agreements or covenants in this Agreement on its part to be performed which failure may adversely affect the Licensed Mark, Licensor may terminate this Agreement forthwith by written notice: (i) if such default is incurable, or (ii) if such default is curable but continues uncured for a period of ten (10) days after written notice thereof has been given to Licensee by Licensor, or (iii) if such default is curable but not within said ten (10) day period and (A) if all reasonable steps necessary to cure such default have not been taken by Licensee within said ten (10) day period or (B) if Licensee fails to diligently take all steps necessary to cure such default as promptly as practical. If Licensee fails to comply with the provisions of paragraph 1.6 above, Licensor may terminate this Agreement effective upon ten (10) days prior written notice to Licensee. If Licensee fails to pay any amounts due any of Licensor's affiliates or Licensee's within ten (10) days following written notice thereof from Licensor, Licensor may terminate this Agreement effective upon ten (10) days prior written notice to Licensee. If Licensee shall otherwise fail to perform, or if Licensor fails to perform, any of the terms, conditions, agreements or covenants in this Agreement on its respective part to be performed, the non-defaulting party may terminate this Agreement forthwith by written notice: (i) if such default is incurable, or (ii) if such default is curable but continues uncured for a period of thirty (30) days after written notice thereof has been given to the defaulting party in writing by the other party, or (iii) if such default is curable but not within said thirty (30) day period and (A) all reasonable steps necessary to cure such default have not been taken by the defaulting within said thirty (30) day period or (B) such defaulting party fails to diligently take all steps necessary to cure such default as promptly as practicable.
18.2 In the event Licensee files a petition in bankruptcy, or is adjudicated a bankrupt, or if it becomes insolvent, or makes an assignment for the benefit of creditors, or files a petition or otherwise seeks relief under or pursuant to any bankruptcy, insolvency or reorganization statute or proceeding, or if it discontinues its business for a period of sixty (60) days or more, or if it discontinues reasonable commercial exploitation of Articles for a period of sixty (60) days or more, or if a custodian, receiver or trustee is appointed for it or a substantial portion of its business or assets for any reason, or if it defaults
CONFIDENTIAL TREATMENT |
on any obligation which is secured by a security interest in any Articles, or if it files for a petition for "Amministrazione Controllata" or if it files a petition for a settlement with creditors ("Concordato Preventivo") or if it adopts resolutions for the filing of or entering into any type of insolvency proceeding, or assignment for the benefit of its creditors, or liquidation of the business, this Agreement shall automatically terminate forthwith.
18.3 No assignee for the benefit of creditors, custodian, receiver, trustee in bankruptcy, sheriff or any other officer of the court or official charged with taking over custody of Licensee's assets or business shall have the right to continue this Agreement or to exploit or in any way use the Licensed Mark if this Agreement terminates pursuant to paragraph 18.2 above.
18.4 Notwithstanding any termination in accordance with the foregoing, Licensor shall have, and hereby reserves, all the rights and remedies which it has or which are granted to it by operation of law, to collect fees due, earned or payable by Licensee pursuant to this Agreement, to be compensated for damages for breach of the Agreement and to enjoin the unlawful or unauthorized use of the Licensed Mark without the necessity of posting any bond or proving any actual damages (which injunctive relief may also be sought prior to or in lieu of termination) Licensee hereby waives any and all rights relating to claims for wrongful termination, loss of goodwill or damages in connection with any such termination and agrees that it will never allege any such claims. In the event of termination of the Agreement by Licensor pursuant to paragraph 18.1 and/or paragraph 18.2 above, the entire unpaid balance of the Minimum Guaranteed Fees for the remaining balance of the then current term of this Agreement shall immediately become due and payable by Licensee to Licensor and Licensee agrees to make such payment within thirty (30) days following written demand therefor by Licensor. Such amounts shall be in addition to any other amounts due Licensor, hereunder, including, without limitation, any unpaid but accrued Sales Fees.
Section 19. Termination
19.1 On the expiration or earlier termination of this Agreement, all the rights of Licensee hereunder shall forthwith terminate and automatically revert to Licensor. Notwithstanding the foregoing, in the event of expiration or earlier termination of this Agreement (other than pursuant to paragraph 18.2 above or by Licensor pursuant to paragraph 18.1 above), Licensee shall be entitled, ***
19.2 Except as provided in paragraph 19.1 above, on the expiration or earlier termination of this Agreement, Licensee shall forthwith discontinue all use of the Licensed Mark, shall no longer have the right to use the Licensed Mark or any variation or simulation thereof, and shall transfer to Licensor all registrations, filings and rights with regard to the Licensed Mark which it may have possessed at any time. In addition, Licensee shall thereupon deliver to Licensor or to Licensor's designee, free of charge, or at Licensor's option shall destroy, all materials utilized in connection with Articles and all labels, tags and other material in its possession with the Licensed Mark thereon. Licensee will use its best efforts to cause stencils, sketches and other materials in the possession of third parties to be destroyed or otherwise rendered unusable. Licensee shall not reproduce or adapt any of said stencils, sketches or other materials for use on or in connection with merchandise subsequent to the termination of this Agreement.
19.3 Licensor may, in its sole discretion, at any time, enter into such arrangements as its desires pursuant to which Products bearing the Licensed Mark may be shown, advertised, distributed or sold in the Territory by it or by any duly authorized third party other than Licensee provided only that no shipment of such Products will be permitted prior to the date of termination of this Agreement.
Section 20. Licensor Representations
20. Licensor represents and warrants that it has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder. CKTT has applications to register, or registrations of the mark "Calvin Klein" and/or the mark "CK/Calvin Klein" in certain of the jurisdictions in the Territory as specified in Section 20 of the Original License Agreement.
CONFIDENTIAL TREATMENT |
Section 21. Licensee Representations
21. Licensee represents and warrants that it has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder. Licensee further represents and warrants that no broker or finder brought about this transaction and Licensee hereby indemnifies Licensor against and holds it harmless of and from any and all liabilities (including, without limitation, reasonable attorneys' fees and disbursements paid or incurred in connection with any such liabilities) for any brokerage commissions or finders' fees in connection with this Agreement or the transactions contemplated hereby.
Section 22. Notice
22. All reports, approvals and notices required or permitted by this Agreement to be given to any party shall be in writing and shall be delivered personally, by reputable overnight courier, telecopied or sent by certified, registered or express mail (in each case with return receipt requested), postage prepaid. Any such notice shall be deemed given when so delivered personally, telecopied or sent by reputable overnight courier or, on the date received (as evidenced by a signed receipt) if deposited in the mail, in each case to the party concerned at its address as set forth above (with facsimile confirmation to Licensor at (212) 768-8930) or at such other address as a party may specify by notice to the other. Copies of all notices sent to Licensor shall be sent to the attention of (i) Licensing Department (ii) Corporate Affairs Department and (iii) General Counsel.
Section 23. Assignment
23. (a) Licensee acknowledges and recognizes: that it has been granted the license herein because of its particular expertise, knowledge, judgment, skill and ability; that it has substantial and direct responsibilities to perform this Agreement in accordance with all of the terms contained herein; that Licensor is relying on Licensee's unique knowledge, experience and capabilities to perform this Agreement in a specific manner consistent with the high standards of integrity and quality associated with Licensor and its business; that the granting of the license under this Agreement creates a relationship of confidence and trust between Licensee and Licensor; and that this Agreement is one under which applicable law excuses Licensor from accepting performance from, or rendering performance to, a person or entity other than Licensee, within the meaning of Section 365(c) and (e) of the Bankruptcy Code (title 11, U.S. Code). Neither this Agreement nor the license or other rights granted hereunder may be assigned, sublicensed, or otherwise transferred. Any attempted assignment, transfer or sublicensing whether voluntary or by operation of law, directly or indirectly, shall be void and of no force or effect.
(b) The parties acknowledge and agree that Licensee was formed for the sole purpose of operating as the licensee hereunder and will not engage in or conduct any other activities or operations. For purposes of this Agreement, any transfer of all or a controlling portion or a majority of the shares of the Licensee by CK Jeanswear N.V., its affiliates, Corrado Fratini and/or Marcello Fratini, in a single transaction or in a series of transactions, of their respective shares, effecting a reduction in their interest in Licensee, except to Licensor, or a Licensor-approved shareholder, or to a corporate entity of which Corrado Fratini and/or Marcello Fratini own the majority of shares, shall be deemed a transfer in violation of the terms hereof and prohibited hereunder. Set forth on Schedule 23 hereto is a list of the shareholders of Licensee and their respective shareholdings. Prompt notice of any transfer by CK Jeanswear N.V. or its affiliates (other than Calvin Klein, Inc. or its successors, assignees or transferees) of more than five percent (5%) (whether over a period of time or all at once), shall be delivered to Licensor. Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.
Section 24. Entire Agreement
24. This Agreement contains the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, supersedes all prior oral and written understandings and agreements relating thereto, and may not be modified, discharged or terminated, nor may any of the provisions hereof be waived, orally. This Agreement amends and restates the Original License Agreement and all of the amendments thereto which are expressly superseded by this Agreement; provided, that, any
CONFIDENTIAL TREATMENT |
representations and warranties set forth in this Agreement shall not be deemed to have been given again in connection with the execution and delivery of this Agreement, but shall only be deemed to have been made as of the date of the Original License Agreement and not as of the date of this Agreement.
Section 25. Independent Contractor
25. Nothing herein shall be construed to constitute the parties hereto as partners or as joint venturers, or either as agent of the other, and Licensee shall have no power to obligate or bind Licensor in any manner whatsoever. Licensor shall have no responsibility for the operation or production of Licensee's manufacturing, distribution or sales facilities or for any decisions that may be made in connection therewith regardless of whether Licensor approved any of the same.
Section 26. No Waiver
26. No waiver by either party, whether expressed or implied, of any breach hereof or default hereunder shall constitute a continuing waiver of such provision or of any other provision of this Agreement. Acceptance of payments by Licensor shall not be deemed a waiver by Licensor of any violation of or default under any of the provisions of this Agreement by Licensee.
Section 27. Severability
27. If any provision or any portion of any provision of this Agreement shall be held to be void or unenforceable, the remaining provisions of this Agreement and the remaining portion of any provision held void or unenforceable in part shall continue in full force and effect.
Section 28. Governing Law
28. This Agreement shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein. However, disputes regarding the Licensed Mark shall be resolved in accordance with the U.S. Federal trademark laws and related laws, statutes, rules and regulations of the United States unless there are no U.S. Federal laws, statutes, rules or regulations dispositive of such a dispute, in which event such disputes shall be resolved in accordance with the laws of the State of New York.
Section 29. Service
29. The service of any notice, process, motion or other document in connection with a suit brought in regard to this Agreement, may be effectuated by: (a) as to Licensor, either by personal service upon Licensor or in the same manner as notices are to be given pursuant to paragraph 22 above; and (b) as to Licensee, by service upon (i) The Prentice-Hall Corporation System, Inc., 375 Hudson Street, New York, New York 10014, as agent for Licensee, or (ii) upon such attorney with an office in New York, New York as agent for Licensee as may be specified by Licensee by notice to Licensor; provided that in either case, a copy thereof is sent to Licensee in accordance with the provisions of paragraph 22 above. Licensee will execute any consent forms required by The Prentice-Hall Corporation System, Inc. and specifically consents to service upon The Prentice-Hall Corporation System, Inc. and to the jurisdiction and venue of the courts of the State of New York. The parties agree that any judgement, award or order issued by any court of the State of New York and/or the federal courts in such state may be enforced by the courts in Italy under the Code of Civil Procedure of Italy or otherwise in any court in any jurisdiction of the Territory, the jurisdiction of which courts in New York is hereby consented to by the parties for purposes of this Agreement notwithstanding any jurisdictional statute to the contrary. In addition, Licensee specifically acknowledges and agrees that Licensor has the right, provided herein, to enjoin use of the Licensed Mark and the Form and to do so in any and all appropriate venues as determined by Licensor in any jurisdiction in the Territory, and/or in the State of New York, for enforcement in any jurisdiction in the Territory, including the courts in Italy.
CONFIDENTIAL TREATMENT |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
![]() |
CALVIN KLEIN, INC. |
![]() |
BY: /s/
Barry Schwartz
Name: Title: |
![]() |
CK JEANSWEAR EUROPE, S.p.A. |
![]() |
BY: /s/
Illegible
Name: Title: |
CONFIDENTIAL TREATMENT |
Schedule A
***
EXHIBIT 10.67
PORTIONS OF THIS EXHIBIT 10.67
MARKED BY AN *** HAVE BEEN OMITTED
PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND FILED
SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
January 31, 2006
WF Overseas Fashion C.V.
(‘‘W’’)
CK Jeanswear Europe, S.p.A.
(‘‘CKJE’’)
![]() |
![]() |
Re: | Calvin Klein, Inc. (‘‘CKI’’) and CK Jeanswear Europe, S.p.A. (‘‘CKJE’’) Jeans License Agreement (May 95, Amended and Restated d. as of 1 January 1997 (‘‘CK Jeans Europe License’’) |
CKI and W Heads of Agreement d. 29 September 2005 (‘‘Heads of Agreement’’)
Ladies and Gentlemen:
Pursuant to the Heads of Agreement, the parties contemplated that W would acquire the CALVIN KLEIN businesses (and/or the rights to assets thereto) in whatever structure, form and format as such transaction occurs) of Fingen S.p.A., Fingen Apparel, N.V. (and, as applicable, their parents, subsidiaries and affiliates responsible for the operation of the CALVIN KLEIN businesses) (the ‘‘Transaction’’).
As contemplated in the Heads of Agreement, effective upon the conclusion of the Transaction (the ‘‘Effective Date’’), it is agreed by CKI and W that the captioned license shall be and is hereby amended (to be 17 January 2006, or such later date as mutually agreed between the parties to the Transaction, but not later than 31 December 2006) to (i) extend the ‘‘term’’, and (ii) provide for ‘‘shortfall’’ payments as to royalties and advertising commitment payments in the event that there is a failure to meet minimum net sales levels or ‘‘thresholds,’’ all as follows:
1. § 2.1 shall be amended as follows:
‘‘2.1 Subject to the terms and conditions of § 2.2, the term of this Agreement will be fifty (50) years and eight (8) months commencing as of 1 May 1995 and ending forty (40) years after the closing of the Transaction on 31 December of the applicable year, but not later than 31 December 2046 unless sooner terminated in accordance with the provisions hereof. The twelve (12) month period commencing 1 January 2006 and each twelve (12) month period commencing 1 January 2006 and each twelve (12) month period commencing on each of 1 January thereafter during the term of this Agreement, shall each constitute and hereinafter shall be referred to as an ‘‘Annual Period.‘‘
2. § 2.2 shall be amended as follows:
‘‘2.2 The ’’Minimum Net Sales Threshold’’ for ***, shall be respectively, the product of:
(i) the greater of
![]() |
![]() |
![]() |
(x) | the Minimum Net Sales Threshold for the *** and |
![]() |
![]() |
![]() |
(y) | *** |
(ii) a fraction, the numerator of which is ***
In the event that Licensee *** under § 18.1 or of the ‘‘best efforts’’ requirements of § 1.5 for such Annual Period and *** as contemplated under §18.1 or related to §1.5 ***
provided however, that Licensor has and will ***
3. For Annual Periods commencing 1 January 2006, § 9.1 shall read as follows:
‘‘9.1 In consideration of the license granted and the services to be performed by Licensor hereunder, Licensee will pay to Licensor a Minimum Guaranteed Fee1 for each Annual Period as follows:
***
![]() |
![]() |
![]() |
1 *** |
CONFIDENTIAL TREATMENT |
The Minimum Guaranteed Fee for the 16th through the 20th Annual Periods will be the ***
The Minimum Guaranteed Fees for each of the 21st through the 25th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 26th through the 30th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 31st through the 35th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 36th through the 40th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 41st through the 45th Annual Periods will be the ***
The Minimum Guaranteed Fee for the 46th through the 50th Annual Periods will be the ***
4. The second sentence of § 23 (b) shall be amended to add the following at the end:
‘‘In the event of any CKI-permitted change-of-control Transfer from the original shareholders, the provisions hereof shall apply to any ‘successor in interest’ permitted Transferee (except that Notice shall apply to any transfer of more than 35% of the Transferee). Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.’’
![]() |
![]() |
5. | Effective for the 2006 Annual Period et seq., *** |
![]() |
![]() |
6. | Except as set forth herein, the CK Jeans Europe License shall remain in full force and effect, including that the ‘‘Design Credit’’ and the ‘‘Advertising Credit’’ shall remain in effect as provided in the CK Jeans Europe License. Notwithstanding anything to the contrary in the CK Jeans Europe License or any amendment thereto, including the Amendment dated 29 April 2002, the Design Credit shall be available to reduce, and may be applied to, the amount of Percentage Fees and Minimum Guaranteed Fees, as applicable. For the avoidance of doubt, the parties acknowledge that no further ‘‘Override’’ payments are due and owing. Any defined terms used herein not specifically defined herein shall have the meanings ascribed to them in the CK Jeans Europe License. |
![]() |
![]() |
7. | To the extent that there is any discrepancy between this Letter Agreement and the CK Jeans Europe License, this Letter Agreement shall govern and control. |
![]() |
![]() |
8. | This Letter Agreement and the CK Jeans Europe License shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein. |
![]() |
![]() |
9. | Following the closing of the Transaction, this Letter Agreement and the CK Jeans Europe License may be assigned within the Warnaco family of companies, in accordance with the terms as agreed by CKI and set forth in writing, simultaneously herewith. |
Warnaco U.S., Inc., a Delaware corporation, is the general partner of WF Overseas Fashion C.V., a limited partnership (‘‘commanditaire vennootschap’’) organized and existing under the laws of the Netherlands, and, solely in such capacity, is executing this Letter Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
CONFIDENTIAL TREATMENT |
The parties have executed this Letter Agreement effective upon the conclusion of the Transaction this 31st day of January 2006.
![]() |
||||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Calvin Klein, Inc. | ||||||
By: /s/ Tom Murry | ||||||
Name: | ![]() |
Tom Murry | ||||
Title: | ![]() |
President and COO | ||||
WF Overseas Fashion C.V. | ||||||
By: Warnaco U.S., Inc., its general partner | ||||||
By: /s/ Stanley P. Silverstein | ||||||
Name: | ![]() |
Stanley P. Silverstein | ||||
Title: | ![]() |
President and Secretary | ||||
CK Jeanswear Europe S.p.A. | ||||||
By: /s/ Lawrence R. Rutkowski | ||||||
Name: | ![]() |
Lawrence R. Rutkowski | ||||
Title: | ![]() |
Vice President and Treasurer | ||||
![]() |
EXHIBIT 10.68
PORTIONS OF THIS EXHIBIT 10.68 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
CONFIDENTIAL — NEITHER THIS DOCUMENT, ITS TERMS OR PROVISIONS OR THE RELATIONSHIP CONTEMPLATED THEREIN IS TO BE DISCUSSED OR USED WITHOUT THE CONSENT OF CALVIN KLEIN, INC. OR WF OVERSEAS FASHION C.V. A DRAFT DOES NOT CONSTITUTE AN OBLIGATION OF THE PARTIES. NO BINDING AGREEMENT WILL RESULT UNLESS A DEFINITIVE WRITTEN AGREEMENT IS EXECUTED AND DELIVERED BY THE PARTIES. THERE IS NO OBLIGATION TO EXECUTE ANY SUCH AGREEMENT.
LICENSE AGREEMENT
BETWEEN
CALVIN KLEIN, INC.
AND
CK JEANSWEAR EUROPE S.P.A.
AND
WF OVERSEAS FASHION C.V.
![]() |
|||
![]() |
![]() ![]() |
![]() |
![]() |
![]() |
CONFIDENTIAL TREATMENT |
TABLE OF CONTENTS
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
ARTICLE I. GRANT | ![]() |
|||||||||||||||||
![]() |
1.1 | ![]() |
License | |||||||||||||||
![]() |
![]() |
1.1.1 | ![]() |
Exclusion of Retail Sales | ||||||||||||||
![]() |
![]() |
1.1.2 | ![]() |
Right to Manufacture | ||||||||||||||
![]() |
1.2 | ![]() |
Reservation | |||||||||||||||
![]() |
![]() |
1.2.1 | ![]() |
Retail Stores; Company-Controlled Stores | ||||||||||||||
![]() |
![]() |
1.2.2 | ![]() |
E-Commerce/Promotional Goods | ||||||||||||||
![]() |
![]() |
1.2.3 | ![]() |
Third Party Licensees | ||||||||||||||
![]() |
1.3 | ![]() |
Limitations | |||||||||||||||
![]() |
1.4 | ![]() |
Definitional Disputes | |||||||||||||||
![]() |
1.5 | ![]() |
Exploitation of the License | |||||||||||||||
![]() |
![]() |
1.5.1 | ![]() |
Best Efforts | ||||||||||||||
![]() |
![]() |
1.5.2 | ![]() |
Non-Competition | ||||||||||||||
![]() |
1.6 | ![]() |
Showrooms; In-Store Shops; Trade Shows | |||||||||||||||
![]() |
![]() |
1.6.1 | ![]() |
Showrooms | ![]() |
|||||||||||||
![]() |
![]() |
1.6.2 | ![]() |
In-Store Shops | ||||||||||||||
![]() |
![]() |
1.6.3 | ![]() |
Trade Shows | ||||||||||||||
![]() |
![]() |
1.6.4 | ![]() |
Visual Design Personnel | ||||||||||||||
ARTICLE II. LICENSE PERIOD | ||||||||||||||||||
![]() |
2.1 | ![]() |
License Period | |||||||||||||||
ARTICLE III. SALES | ||||||||||||||||||
![]() |
3.1 | ![]() |
Sales/Marketing and Production Plans | |||||||||||||||
![]() |
3.2 | ![]() |
Deliberately Omitted | |||||||||||||||
![]() |
3.3 | ![]() |
Sales to CKI and its Employees | |||||||||||||||
ARTICLE IV. LICENSE FEES | ||||||||||||||||||
![]() |
4.1 | ![]() |
Requirement of Fees | |||||||||||||||
![]() |
![]() |
4.1.1 | ![]() |
Percentage Fees | ||||||||||||||
![]() |
![]() |
4.1.2 | ![]() |
Gross and Net Sales | ||||||||||||||
![]() |
![]() |
4.1.3 | ![]() |
Minimum Guaranteed Fees | ||||||||||||||
![]() |
![]() |
4.1.4 | ![]() |
Allocation of Minimum Guaranteed Fees and Percentage Fees | ||||||||||||||
![]() |
4.2 | ![]() |
Statements | |||||||||||||||
![]() |
4.3 | ![]() |
Books and Records | |||||||||||||||
![]() |
4.4 | ![]() |
Underpayments | |||||||||||||||
![]() |
4.5 | ![]() |
Manner of Payment | |||||||||||||||
![]() |
4.6 | ![]() |
Interest on Late Payment | |||||||||||||||
![]() |
4.7 | ![]() |
No Set-Off | |||||||||||||||
![]() |
4.8 | ![]() |
Taxes | |||||||||||||||
![]() |
4.9 | ![]() |
Financial Statements | |||||||||||||||
![]() |
4.10 | ![]() |
Financial Covenants | |||||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
ARTICLE V. ADVERTISING AND PROMOTION | ||||||||||||||||||
![]() |
5.1 | ![]() |
Advertising | |||||||||||||||
![]() |
![]() |
5.1.1 | ![]() |
Initial Support/Reimbursement | ||||||||||||||
![]() |
![]() |
5.1.2 | ![]() |
Advertising Obligation | ||||||||||||||
![]() |
![]() |
5.1.3 | ![]() |
CRK Fee | ||||||||||||||
![]() |
![]() |
5.1.4 | ![]() |
Co-operative Advertising and Public Relations | ||||||||||||||
![]() |
5.2 | ![]() |
‘Usage’ | |||||||||||||||
![]() |
5.3 | ![]() |
Approval of Materials, Activities | |||||||||||||||
![]() |
5.4 | ![]() |
Samples | |||||||||||||||
ARTICLE VI. QUALITY AND STANDARDS | ||||||||||||||||||
![]() |
6.1 | ![]() |
Distinctiveness and Quality of the Licensed Mark | |||||||||||||||
![]() |
![]() |
6.1.1 | ![]() |
Consistency with Other Products | ||||||||||||||
![]() |
6.2 | ![]() |
Design | |||||||||||||||
![]() |
![]() |
6.2.1 | ![]() |
Time and Action Calendar | ||||||||||||||
![]() |
![]() |
6.2.2 | ![]() |
Themes | ||||||||||||||
![]() |
![]() |
6.2.3 | ![]() |
Design Concepts | ||||||||||||||
![]() |
![]() |
6.2.4 | ![]() |
Certain Other Approvals | ||||||||||||||
![]() |
![]() |
6.2.5 | ![]() |
CKI Designs | ||||||||||||||
![]() |
![]() |
6.2.6 | ![]() |
Prototypes | ||||||||||||||
![]() |
![]() |
6.2.7 | ![]() |
Final Approval and Sales | ||||||||||||||
![]() |
6.3 | ![]() |
Manufacture of Licensed Products by Third Parties | |||||||||||||||
![]() |
6.4 | ![]() |
Non-Conforming Products | |||||||||||||||
![]() |
6.5 | ![]() |
Approvals | |||||||||||||||
![]() |
6.6 | ![]() |
Marketing, Labeling, Packaging, Promotions, Business Materials | |||||||||||||||
![]() |
6.7 | ![]() |
Inspection of Facilities | |||||||||||||||
![]() |
6.8 | ![]() |
Samples and Artwork | |||||||||||||||
![]() |
6.9 | ![]() |
Know-how | |||||||||||||||
![]() |
6.10 | ![]() |
Meetings | |||||||||||||||
![]() |
6.11 | ![]() |
Design Direction | |||||||||||||||
![]() |
6.12 | ![]() |
Design Rights | |||||||||||||||
![]() |
6.13 | ![]() |
Shops, Stores, Retail Outlets | |||||||||||||||
![]() |
6.14 | ![]() |
Disposal of Seconds and Close-Outs | |||||||||||||||
![]() |
![]() |
6.14.1 | ![]() |
Seconds | ||||||||||||||
![]() |
![]() |
6.14.2 | ![]() |
Close-Outs | ||||||||||||||
![]() |
6.15 | ![]() |
Standards of Conduct | |||||||||||||||
![]() |
![]() |
6.15.1 | ![]() |
Standards | ||||||||||||||
![]() |
![]() |
6.15.2 | ![]() |
Audit Requirement | ||||||||||||||
![]() |
![]() |
6.15.3 | ![]() |
Approval | ||||||||||||||
![]() |
![]() |
6.15.4 | ![]() |
Use of Facility | ||||||||||||||
![]() |
6.16 | ![]() |
Personnel | |||||||||||||||
ARTICLE VII. THE LICENSED MARK | ||||||||||||||||||
![]() |
7.1 | ![]() |
Rights to the Licensed Mark. | |||||||||||||||
![]() |
![]() |
7.1.1 | ![]() |
Ownership of Licensed Mark | ||||||||||||||
![]() |
![]() |
7.1.2 | ![]() |
No Adverse Actions | ||||||||||||||
![]() |
![]() |
7.1.3 | ![]() |
Registrations | ||||||||||||||
![]() |
![]() |
7.1.4 | ![]() |
Survival | ||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
7.2 | ![]() |
Protecting the Licensed Mark. | |||||||||||||||
![]() |
7.3 | ![]() |
Use of the Licensed Mark | |||||||||||||||
![]() |
![]() |
7.3.1 | ![]() |
Compliance with Legal Requirements | ||||||||||||||
![]() |
![]() |
7.3.2 | ![]() |
Use with Other Name | ||||||||||||||
![]() |
![]() |
7.3.3 | ![]() |
Execution of Documents | ||||||||||||||
![]() |
7.4 | ![]() |
Ownership of Copyright | |||||||||||||||
![]() |
7.5 | ![]() |
Infringements, Counterfeits and Parallel Imports | |||||||||||||||
![]() |
![]() |
7.5.1 | ![]() |
Infringements | ||||||||||||||
![]() |
![]() |
7.5.2 | ![]() |
Counterfeits and Parallel Imports | ||||||||||||||
![]() |
![]() |
![]() |
7.5.2.1 | ![]() |
The Network | |||||||||||||
![]() |
![]() |
![]() |
7.5.2.2 | ![]() |
Diversion | |||||||||||||
![]() |
![]() |
7.5.3 | ![]() |
Criminal Proceedings | ||||||||||||||
![]() |
![]() |
7.5.4 | ![]() |
Enforcement Activities | ||||||||||||||
![]() |
![]() |
7.5.5 | ![]() |
Nature of Proceedings | ||||||||||||||
![]() |
![]() |
7.5.6 | ![]() |
Cooperation | ||||||||||||||
![]() |
7.6 | ![]() |
Trademark Security | |||||||||||||||
![]() |
![]() |
7.6.1 | ![]() |
Counterfeit Protection | ||||||||||||||
![]() |
7.7 | ![]() |
Use of Licensed Mark on Invoices, etc. | |||||||||||||||
![]() |
7.8 | ![]() |
Monitoring | |||||||||||||||
ARTICLE VIII. TERM AND TERMINATION | ||||||||||||||||||
![]() |
8.1 | ![]() |
Expiration | |||||||||||||||
![]() |
8.2 | ![]() |
Other Rights Unaffected | |||||||||||||||
![]() |
8.3 | ![]() |
Right of Termination of the License | |||||||||||||||
![]() |
8.4 | ![]() |
Termination With Notice and Right to Cure | |||||||||||||||
![]() |
8.5 | ![]() |
Effect of Termination | |||||||||||||||
![]() |
8.6 | ![]() |
Inventory Upon Termination | |||||||||||||||
![]() |
8.7 | ![]() |
Freedom to License | |||||||||||||||
![]() |
8.8 | ![]() |
Rights Personal | |||||||||||||||
![]() |
8.9 | ![]() |
Trustee in Bankruptcy | |||||||||||||||
![]() |
8.10 | ![]() |
Compensation | |||||||||||||||
ARTICLE IX. INDEMNIFICATION AND INSURANCE | ||||||||||||||||||
![]() |
9.1 | ![]() |
Indemnification by the Licensee | |||||||||||||||
![]() |
9.2 | ![]() |
Notice of Suit or Claim | |||||||||||||||
![]() |
9.3 | ![]() |
Indemnification by CKI | |||||||||||||||
![]() |
9.4 | ![]() |
Insurance | |||||||||||||||
![]() |
![]() |
9.4.1 | ![]() |
Requirement | ||||||||||||||
![]() |
![]() |
9.4.2 | ![]() |
General Provision | ||||||||||||||
![]() |
![]() |
9.4.3 | ![]() |
Approved Carrier/Policy Changes | ||||||||||||||
![]() |
![]() |
9.4.4 | ![]() |
Evidence of Coverage | ||||||||||||||
![]() |
![]() |
9.4.5 | ![]() |
Territory | ||||||||||||||
ARTICLE X. COMPLIANCE WITH LAWS | ||||||||||||||||||
![]() |
10.1 | ![]() |
Compliance with Laws | |||||||||||||||
![]() |
10.2 | ![]() |
Equitable Relief | |||||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
ARTICLE XI. MISCELLANEOUS | ||||||||||
![]() |
11.1 | ![]() |
Warranties and Representations of the Parties | |||||||
![]() |
11.2 | ![]() |
Definitions | |||||||
![]() |
11.3 | ![]() |
Notices | |||||||
![]() |
11.4 | ![]() |
Assignment | |||||||
![]() |
11.5 | ![]() |
Sublicense | |||||||
![]() |
11.6 | ![]() |
Assignment by CKI | |||||||
![]() |
11.7 | ![]() |
No Agency | |||||||
![]() |
11.8 | ![]() |
Suspension of Obligations | |||||||
![]() |
11.9 | ![]() |
Benefit | |||||||
![]() |
11.10 | ![]() |
Entire Agreement; Amendment | |||||||
![]() |
11.11 | ![]() |
Non-Waiver | |||||||
![]() |
11.12 | ![]() |
Severability | |||||||
![]() |
11.13 | ![]() |
Headings | |||||||
![]() |
11.14 | ![]() |
Counterparts | |||||||
![]() |
11.15 | ![]() |
Governing Law | |||||||
![]() |
11.16 | ![]() |
Jurisdiction | |||||||
![]() |
11.17 | ![]() |
Non-Solicitation | |||||||
![]() |
11.18 | ![]() |
Confidentiality | |||||||
![]() |
11.19 | ![]() |
Cross-Termination | |||||||
![]() |
11.20 | ![]() |
Assignment Within Warnaco Family | |||||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
SCHEDULE 6.13 | ![]() |
APPROVED ACCOUNTS | |||||||
![]() |
SCHEDULE 6.14 | ![]() |
APPROVED SECONDS AND CLOSE-OUTS ACCOUNTS | |||||||
![]() |
SCHEDULE S | ![]() |
SHAREHOLDERS | |||||||
EXHIBITS | ![]() |
|||||||||
![]() |
EXHIBIT T | ![]() |
TERRITORY | |||||||
![]() |
EXHIBIT P | ![]() |
PRODUCTS | |||||||
![]() |
EXHIBIT B | ![]() |
ROYALTY STATEMENT | |||||||
![]() |
EXHIBIT D | ![]() |
THIRD-PARTY MANUFACTURING AGREEMENT | |||||||
![]() |
EXHIBIT E | ![]() |
PRODUCTION FACILITY EVALUATION FORM | |||||||
![]() |
SCHEDULE
OF ISSUED REGISTRATIONS AND PENDING APPLICATIONS
FOR ‘‘CK/ CALVIN KLEIN’’ TRADEMARKS IN CLASS 25 |
|||||||||
![]() |
CONFIDENTIAL TREATMENT |
LICENSE AGREEMENT
LICENSE AGREEMENT, dated as of January 31, 2006, between CALVIN KLEIN, INC. (‘‘CKI’’), a New York corporation, CK JEANSWEAR EUROPE S.P.A. (the ‘‘Licensee’’), an Italian corporation and WF Overseas Fashion C.V., a limited partnership (‘‘commanditaire vennootschap’’) organized and existing under the laws of the Netherlands (‘‘Warnaco’’).
WITNESSETH:
WHEREAS, Licensee desires to obtain from CKI, and CKI is willing to grant to the Licensee, a license in the Territory (as hereinafter defined), to use the trademark ‘‘CK/CALVIN KLEIN’’ to be used in the form designated by CKI from time to time (‘‘Licensed Mark’’) in connection with the manufacture, wholesale sale, distribution, advertising and promotion of certain women’s and men’s bridge apparel, as defined in Exhibit P (collectively, the ‘‘Products’’), subject to the terms contained in this Agreement. Products bearing the Licensed Mark are hereinafter referred to as ‘‘Licensed Products.’’
WHEREAS, Warnaco U.S., Inc. a Delaware corporation, is the general partner of WF Overseas Fashion C.V., and, solely in such capacity, is executing this Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. GRANT
1.1 License. CKI hereby grants to the Licensee an exclusive license (the ‘‘License’’), without the right to assign, and the right to sublicense with CKI’s prior written consent (exercisable in CKI’s sole and absolute discretion) and subject to and in accordance with the terms contained in this Agreement, to use the Licensed Mark, during the License Period in connection with the manufacture and sale, distribution, advertising, and promotion in the ‘‘Territory,’’ set forth on Exhibit T, of Licensed Products to approved customers ***
1.1.1 Exclusion of Retail Sales. The License excludes the sale, distribution, and promotion of Licensed Products via commerce conducted on, made available through, or facilitated by *** or upon prior approval of CKI, which CKI may withhold in its sole and absolute discretion, The License also excludes the right to *** only as approved by CKI, and except as permitted as to such Licensed Products pursuant to other agreements between the parties (and their affiliates). However, the foregoing does not ***
1.1.2 Right to Manufacture. The Licensee’s right to manufacture in the Territory and elsewhere in the world is non-exclusive (others may and will have the right to produce Products within the Territory for export and sale outside the Territory). Licensee shall have the right to import into the Territory Licensed Products manufactured outside the Territory; provided, however, that the Licensee takes reasonable precautions to prevent all labels, tags, packaging material, business supplies and advertising and promotional materials and all other forms of identification bearing the Trademark (collectively, ‘‘Labels’’) from being used otherwise than in connection with the distribution and sale of Licensed Products within the Territory. The Licensee shall neither export Licensed Products from the Territory, nor sell Licensed Products to any entity which it knows, or reasonably should know, intends to export Licensed Products from the Territory.
1.2 Reservation. CKI reserves all rights in and to the Licensed Mark except as specifically granted herein including, without limitation, those rights set forth in this § 1.2. CKI may exercise any of its rights, or authorize others to exercise such rights, at any time, in accordance with the terms and conditions set forth herein.
1.2.1 Retail Stores; Company-Controlled Stores. CKI reserves the right to*** In the case of E Commerce arrangement covering *** However, CKI shall in connection with the sale,
CONFIDENTIAL TREATMENT |
distribution and promotion of Licensed Products through the CKI Stores, purchase Licensed Products from the Licensee , at mutually agreed upon prices, terms and conditions, provided that Licensee timely produces, ships and delivers such Licensed Products in quantities as may reasonably be required by CKI. If (i) Licensee cannot sell or supply any Licensed Products due to a continuing force majeure event or other event outside of Licensee’s reasonable control (i.e., more than thirty calendar days) or (ii) Licensee fails to timely deliver for two consecutive quarters the products so ordered (other than minor shortages), then during the pendency of such force majeure event or after such failures to deliver, CKI or its Affiliates shall have the right to manufacture or have manufactured for it by others, and to sell, distribute and promote such Licensed Products through CKI Stores for the next two years, at which time the provisions hereof shall again apply, CKI shall also require that any such retail stores in the Territory owned or operated by an authorized licensee of CKI shall purchase the Licensed Products from Licensee. The Licensee acknowledges and agrees that ***
1.2.2 E-Commerce/Promotional Goods. CKI reserves the right to ***
1.2.3 Third Party Licensees. CKI may grant third parties the right to produce Products for distribution and sale outside the Territory. Licensee agrees to fully co-operate with such third parties, and upon CKI’s request, Licensee will, furnish samples of Licensed Products, provide at cost (without markup), any patterns, trim samples, samples of garments and other materials, names of contractors and sources of supply, reasonably necessary to manufacture Licensed Products as reasonably requested on a timely basis by such licensees, in accordance with such third parties’ reasonable design and production schedules and subject to appropriate confidentiality undertakings. Licensee will timely supply CKI’s distributors or other third party licensees outside the Territory, with Licensed Products for distribution in such quantities as CKI may reasonably request on such credit or other terms as Licensee may impose on its customers generally, ***
1.3 Limitations. The Licensee understands and agrees that CKI, and its other licensees and sublicensees, may manufacture or authorize third parties to manufacture Licensed Products in the Territory for sale outside of the Territory, or to manufacture and sell or authorize third parties to manufacture and sell products of any and all types and descriptions other than the Products in or outside the Territory. In this regard, the Licensee acknowledges and agrees that products that bear some similarity of design to the Licensed Products may be manufactured, distributed or sold in the Territory in connection with the Licensed Mark by either CKI or a third party authorized to use the Licensed Mark, and the Licensee further acknowledges and agrees that such similarity of design will not be deemed a breach of or default under this Agreement. In addition, no license is granted hereunder for the manufacture, sale or distribution of the Licensed Products to be used for publicity purposes (other than publicity of the Licensed Products), in combination sales or as premiums or giveaways, or to be disposed of under or in connection with similar methods of merchandising, such rights being specifically reserved for CKI or otherwise subject to CKI’s prior review and approval. Licensee agrees that the marketing, placement and distribution of Licensed Products in the Territory may but shall not necessarily be the same as that for Products being sold in the U.S. or elsewhere in the world by CKI’s duly authorized licensee, but shall be commensurate with the marketing, placement and distribution of Licensed Products in comparison with other competitive and competitors’ ‘‘bridge’’ or ‘‘diffusion’’ lines sold both in the U.S. and the Territory.
1.4 Definitional Disputes. The Licensee acknowledges that due to the nature of the marketplace, the definition of Products may change or may not be amenable to precise delineation. In addition, the Licensee acknowledges that CKI does have and may hereafter have, other licensees within the Territory. However, CKI will use its reasonable efforts to *** In the event of any dispute between the Licensee and any other licensee of CKI in the Territory with respect to whether particular merchandise is covered by one or the other of their respective licenses, or there is otherwise a dispute over the definition of Licensed Products, CKI shall render, based upon its reasonable (but with all due consideration given to aesthetic and quality factors) good faith judgement, commercial reasonableness, and a reasonable written determination.
CONFIDENTIAL TREATMENT |
1.5 Exploitation of the License.
1.5.1 Best Efforts. At all times during the License Period, the Licensee shall use its reasonable best efforts to exploit the License throughout each and every country the Territory, including, but not limited to: (i) selling what reasonably constitutes a full line of Products within each seasonal collection of Licensed Products (each, a ‘‘Collection’’), subject to seasonal differences, and a sufficiently representative quantity of each type of Product within each Collection; (ii) timely developing, producing and offering for sale the Licensed Products so that they may be sold and shipped to consumers on a timely basis; (iii) maintaining a sales force sufficient to provide effective distribution throughout all areas of the Territory; (iv) cooperating with CKI’s and any of its licensees’ marketing, merchandising, sales, and anti-counterfeiting programs as may be applicable, and (v) maintaining necessary financial position to adequately support the operations and obligations herein.
1.5.2 Non-Competition. The Licensee shall devote itself and all of its employees and operations exclusively to the operations of this license and other ‘‘CALVIN KLEIN’’ operations licensed by CKI. The Licensee’s Affiliates shall not enter into or obtain from any person or entity a license in the Territory for any of the Products bearing the name of any designer or designer brand (or any derivative or formative thereof) of *** without the prior written consent of CKI and except for arrangements and agreements in effect on and as of the Effective Date of this Agreement. ***
1.6 Showrooms; In-Store Shops; Trade Shows.
1.6.1 Showrooms. Licensee shall maintain a separate showroom within the existing premises in Milan of CKI’s affiliate, Calvin Klein Europe S.r.l. (‘‘CKE’’), under a form of sublease or sharing arrangement, to be entered into by the parties. If at any time the showroom shall be relocated due to unavailability of CKE’s premises, the location shall be subject to the approval (not to be unreasonably withheld) of CKI. Furthermore, CKI may require an additional showroom to be established in London; and, if the parties so agree, an additional showroom in Frankfurt or another city in Germany. Such showroom(s) shall be used for the sole purpose of displaying, promoting and selling Licensed Products. All such separate areas in the showrooms shall be subject to the standards of CKI, and shall be designed and maintained in conformity with the prestige associated with the Licensed Mark. The plans for each showroom, including décor, set-up and display (and material changes thereto), and for any renovations thereto shall be subject to the reasonable prior written approval of CKI, which approval shall not be unreasonably withheld or delayed;provided, however, that CKI shall have 10 business days after its receipt of such plans to approve or disapprove such plans or such longer period as is reasonable under the circumstances. Promptly after the execution of this Agreement, CKI and the Licensee will mutually agree *** The Licensee may (i) display the Licensed Mark on showroom doors and office directories and (ii) display the Licensed Products for sale in other showroom spaces, subject to the prior written approval of CKI. The parties shall meet upon request to establish a budget for required or requested renovations to the showrooms.
1.6.2 In-Store Shops. The Licensee will participate in in-store shop or fixturing programs, with the Licensee’s customers throughout the Territory, and will spend amounts on in-store décor, refurbishments and fixturing (including development costs of consultants for design and fixturing prototypes and on sales personnel or coordinators, sufficient to ensure and the appropriate as may be applicable to enhance the presentation of Licensed Products within its retail accounts, including appropriate stocking and merchandise mix, to be developed with and under the direction of CKI (and outside consultants where required by CKI for the prototype development). Appropriate budgets for such in-store shop programs shall be developed, reviewed and agreed upon by the parties. All such programs shall be designed in conformity with the prestige associated with the Licensed Mark, and plans for any such shop-in-shop areas shall be subject to the prior written approval of CKI. In-shop décor, refurbishing and fixturing are essential to the exploitation of the License Agreement; in addition to other expenses hereunder (and not considered either a qualified Co-op or Public Relations expenditure).
CONFIDENTIAL TREATMENT |
1.6.3 Trade Shows. The Licensee shall display the Licensed Products at a separate booth space at all tradeshows attended by the Licensee to promote Products. The design of such booth shall be developed in consultation with CKI’s visual design personnel, as provided in § 1.6.4.
1.6.4 Visual Design Personnel. The Licensee shall consult with and utilize CKI’s visual design personnel in connection with the design, development and construction of showrooms, trade show booths, fixturing, signage and any in-store shops or in-store areas for the sale of Licensed Products within the stores of the Licensee’s customers, and shall provide all funds necessary in connection therewith (including, but not limited to, reasonable per diem rates for work performed by CKI’s visual display personnel based upon estimated amounts or anticipated expenditures, as provided or discussed and agreed upon in advance, or based upon agreed-upon-in-advance budgets), it being understood and agreed that the fabrication, manufacturing, production or construction of showrooms, trade show booths and fixtures may be performed by third parties. All such design, development and construction shall be subject to CKI’s ongoing approval. Licensee will arrange for the opening of shop-in-shops within department stores and specialty stores using appropriate fixtures and signage, and to maintain seasonal visual display and ‘‘set-ups’’ of Licensed Products, as approved by Licensor, and to fully stock such shop-in-shops with an appropriate merchandise mix of Licensed Products, all as approved by CKI, pursuant to and consistent with Licensee’s shop-in-shop development program. Such in-store development programs shall be financed in a manner comparable to and commensurate with those of CKI’s competitors as to Licensed Products. CKI may periodically inspect Licensee’s showrooms, shows at trade exhibitions, and such shop-in-shops. Any such inspection will be at CKI’s expense unless CKI determines as a result of such inspection that Licensee’s showrooms, trade exhibition shows or in-store shops or in-store areas have not been maintained in accordance with CKI’s specifications, in which case Licensee will at its expense promptly make any modifications to design, layout, decor, visual display or merchandise display formats as CKI may reasonably require and will bear the costs incurred in connection therewith, including any costs incurred by CKI in connection with follow-up inspections to determine the satisfactory completion of such modifications. The Licensee shall also promptly reimburse CKI for the reasonable costs and expenses of any CKI personnel, such as visual display, advertising and public relations (other than design), with respect to services performed by CKI under this § 1.6 or otherwise requested by the Licensee based upon estimated amounts or anticipated expenditures, as provided or discussed in advance, and based upon agreed-upon-in-advance budgets. In addition, the Licensee shall pay or reimburse CKI for reasonable out-of-pocket expenses incurred by CKI or its representatives, whether for travel or otherwise, including round-trip business-class airfare or first-class airfare if provided by CKI’s internal travel policies in effect from time to time, hotel accommodations and food and local transportation, in connection with this Agreement, such as travel to Italy to review or approve prototypes, based upon estimated amounts or anticipated expenditures, as provided and discussed in advance with Licensee, and based upon agreed-upon-in-advance budgets.
ARTICLE II. LICENSE PERIOD
2.1 License Period. The license period shall commence effective 1 January 2006, with certain preliminary design and development being initiated prior to 1 January 2006 (‘‘preliminary period’’), with the Spring 2006 season being anticipated to be the first season for which Licensed Products will be offered for sale (and the parties may initiate preliminary design and other development in contemplation thereof in order to be able to offer for sale such Spring 2006 season,but if the time for development, presentation, production, marketing and showroom is deemed by the parties to be not sufficient to timely and appropriately launch such Collection, the initial season shall be Fall 2006 (or Pre-Fall 2006). The term shall end forty (40) years from the closing of the Transaction described and defined in the Heads of Agreement dated 29 September 2005 between inter alia, CKI and Warnaco Inc., (not to be later than 31 December 2006) on 31 December 2046, unless sooner terminated as herein provided. The first period commencing 1 January 2006 and ending on 31 December 2006, including the preliminary period, and each 12-month period commencing on 1 January thereafter during the License Period are each referred to herein as an ‘‘Annual Period.’’ Notwithstanding the
CONFIDENTIAL TREATMENT |
foregoing, the Licensee shall not commence offering Licensed Products for the Spring 2006 season unless and until CKI determines in its good-faith judgement (including aesthetic and creative considerations) that all elements necessary for a successful launch, including, without limitation, product design, development and production, marketing strategy, advertising materials and placement, and if applicable, launch events, have been satisfied. The term of this Agreement may sometimes be referred to as the ‘‘License Period’’ or ‘‘Term.’’
The ‘‘Minimum Net Sales Thresholds’’ for each Annual Period are as indicated below:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period |
![]() |
Year | ![]() |
Minimum Net Sales* Thresholds (Euros, millions) |
![]() |
|||||||||
1 | ![]() |
2006 | ![]() |
*** | ![]() |
|||||||||
2 | ![]() |
2007 | ![]() |
*** | ![]() |
|||||||||
3 | ![]() |
2008 | ![]() |
*** | ![]() |
|||||||||
4 | ![]() |
2009 | ![]() |
*** | ![]() |
|||||||||
5 | ![]() |
2010 | ![]() |
*** | ![]() |
|||||||||
6 | ![]() |
2011 | ![]() |
*** | ![]() |
*** | ||||||||
7 | ![]() |
2012 | ![]() |
*** | ![]() |
*** | ||||||||
8 | ![]() |
2013 | ![]() |
*** | ![]() |
*** | ||||||||
9 | ![]() |
2014 | ![]() |
*** | ![]() |
*** | ||||||||
10 | ![]() |
2015 | ![]() |
*** | ![]() |
*** | ||||||||
11 through 20 | ![]() |
2016 through 2025 |
![]() |
*** | ![]() |
*** | ||||||||
21 through 30 | ![]() |
2026 through 2035 |
![]() |
*** | ![]() |
*** | ||||||||
31 through 41 | ![]() |
2036 through 2046 |
![]() |
*** | ![]() |
*** | ||||||||
![]() |
* For purposes of calculating Net Sales for the MNST’s, ***
If Licensee fails to attain the minimum net sales thresholds (‘‘MNST’s’’) of Articles during any Annual Period, as set forth above (except as specifically indicated in the immediately following paragraph), ***
Notwithstanding the foregoing, if Licensee has *** Expiration or termination of the License shall not affect any obligation of the Licensee to make payments hereunder accruing prior to such expiration or termination.
ARTICLE III. SALES
3.1 Sales/Marketing and Production Plans. Licensee shall deliver to CKI: ***
3.2 Deliberately Omitted.
3.3 Sales to CKI and its Employees. The Licensee shall be obligated to sell Licensed Products to CKI, its Affiliates and its third-party store licensees, for sale and distribution by (i) CKI and its Affiliates through CKI Stores, via E-Commerce, or otherwise; or (ii) by its third-party store licensees, through the stores of such licensees. The Licensee acknowledges and agrees that such sales of Licensed Products shall be in quantities designated by CKI, its Affiliates, or reasonably required by its licensees, as the case may be, and shall be at the ***
ARTICLE IV. LICENSE FEES
4.1 Requirement of Fees. All Licensed Products sold by the Licensee or its Affiliates (including those from which the Licensed Mark may have been removed, e.g., irregulars) require the payment of Fees by the Licensee to CKI as set forth in this Article IV, except as otherwise provided
CONFIDENTIAL TREATMENT |
in § 4.1.1. ‘‘Affiliates’’ of any party means all individuals and business entities, whether corporations, limited liability companies, partnerships, joint ventures or otherwise, which now or hereafter control, or are controlled, directly or indirectly, by such party, or are under common control with such party.
4.1.1 Percentage Fees. In respect of each Annual Period or portion thereof during the License Period, the Licensee shall pay CKI Percentage Fees computed *** as follows:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year |
![]() |
*** | ![]() |
*** | ||||||
1 (2006) | ![]() |
*** | ![]() |
*** | ||||||
2 (2007) | ![]() |
*** | ![]() |
*** | ||||||
3 (2008) | ![]() |
*** | ![]() |
*** | ||||||
4 (2009) | ![]() |
*** | ![]() |
*** | ||||||
5 et seq (2010 et seq) | ![]() |
*** | ![]() |
*** | ||||||
![]() |
* The rates applicable to ***
For sales directly at ***, as noted in § 1.2.1 and §1.2.3.
As noted in § 1.2.1 above, the Percentage Fee shall be ***
Percentage Fees shall be accounted for and payable ***
4.1.2 Gross and Net Sales. ‘‘Gross Sales’’ means *** "Net Sale’’ means ***
4.1.3 Minimum Guaranteed Fees. In respect of each Annual Period or portion thereof during the License Period, the Licensee shall pay to CKI the minimum fees listed below (the ‘‘Minimum Guaranteed Fees’’ or ‘‘MGF’s’’ ) ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year |
![]() |
Minimum Guaranteed Fee (MGF) (Euros) |
![]() |
|||||||
1 (2006) | ![]() |
*** | ![]() |
|||||||
2 (2007) | ![]() |
*** | ![]() |
|||||||
3 (2008) | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
*** | ![]() |
*** | ![]() |
|||||||
![]() |
*** | ![]() |
||||||||
![]() |
4.1.4 Allocation of Minimum Guaranteed Fees and Percentage Fees. For purposes of CKI internal allocation, *** of the Minimum Guaranteed Fees and *** of the Percentage Fees shall be allocated as a royalty for the use of the Licensed Mark and the remaining *** shall be allocated as ‘‘fees’’ for the design, including the reviews and approval procedures, and other overall services under or relating to the Agreement.
4.2 Statements. Quarterly within each Annual Period 30 days in arrears, the Licensee shall deliver to CKI *** or in such simplified format as may be agreed to by the parties, signed by the ***, stating that the Licensee is in compliance with the terms and conditions hereof and setting forth *** Licensee will use all reasonable efforts to provide Licensor with *** Within 90 days of the end of each Annual Period, the Licensee shall also deliver to CKI a *** and in accordance with the provisions hereof. Receipt or acceptance by CKI of any statement furnished, or of any sums paid by
CONFIDENTIAL TREATMENT |
the Licensee, shall not preclude CKI from questioning their correctness at any time; provided, however, that reports submitted by the Licensee, shall be binding and conclusive on the Licensee.
4.3 Books and Records. The Licensee shall, at its sole cost and expense, maintain complete and accurate books and records (specifically including, without limitation, the originals or copies of documents supporting entries in the books of account or electronic records) covering all transactions arising out of or relating to this Agreement. Such books and records shall be maintained in accordance with international accounting principles generally accepted in Italy, and under the laws thereof (‘‘ GAAP’’). CKI and its duly authorized representatives shall have the right, upon reasonable prior written notice from CKI and during normal business hours, once during each Annual Period and for three years after such Annual Period, to examine and copy said books and records and all other documents and materials in the possession of and under the control of the Licensee with respect to all transactions arising out of or relating to this Agreement (such audits are to be completed within 6 months of commencement, provided Licensee and its accountants promptly respond fully and completely to all inquires of CKI, including all books, records, back-up, answers to question and other reasonable requests, and afford CKI and its representatives entry and accommodations at all times during such period). Each Annual Period shall be subject to audit once (and when finalized as provided hereunder, not subject to additional audits under this Agreement (except CKI’s shareholders)). The exercise by CKI of any right to audit at any time or times or the acceptance by CKI of any statement or payment shall be without prejudice to any of CKI’s rights or remedies. (Nor will any acceptance of audit results affect or limit any rights of CKI as a shareholder.) The Licensed Products shall be assigned style numbers unique from any other products the Licensee may manufacture or sell. The style number assigned to each Licensed Product shall be identical to the style number utilized to identify the Licensed Product in all of the Licensee’s books and records. All documents evidencing the sale of Licensed Products shall state the style number of each such Product. The Licensee shall not use terms such as ‘‘assorted’’ or ‘‘irregular’’ without a style specification with respect to the Licensed Products . Once finalized and all disputes resolved, as provided hereunder and under § 4.4, results shall be binding on both parties under this Agreement.
4.4 Underpayments. If, upon any examination of the Licensee’s books and records pursuant to § 4.3, CKI shall discover any Fee underpayment by the Licensee, the Licensee will make all payments required to be made to correct and eliminate such underpayment within 10 days of CKI’s demand together with interest thereon. In addition, if said examination reveals a Fee underpayment of *** or more for any Annual Period, the Licensee will reimburse CKI for the reasonable out-of-pocket cost of said examination within 10 days of CKI’s demand . In the event Licensee disagrees with any finding underlying CKI’s demands, it shall so notify CKI within 15 business days of demand, with reasons and specifics as to why. The parties will then promptly meet and fully co-operate on a continuing, best-efforts basis to present any ‘‘counter finding’’ or other back-ups and in good faith resolve the same before payment is due. Notwithstanding the foregoing, if such dispute remains unresolved within 90 days of Licensee’s receipt of CKI’s initial demand (unless extended by CKI) despite and provided CKI has used good faith best efforts to resolve within said time period, CKI’s last demand or final demand as may have been revised during such post audit meetings or discussions shall apply, and Licensee shall promptly remit such amounts (and interest) .
4.5 Manner of Payment. All payments required by the Licensee hereunder shall be made to CKI in US $ dollars via wire transfer specifying federal funds ***
The Percentage Fees based upon Net Sales made in a currency other than US $ dollars (and certain other amounts provided for or contemplated under this Agreement), if applicable, shall be computed on the basis of the conversion rate of the currency in which the sale or other transaction occurred into US $ dollars in effect, as published in the Wall Street Journal, as of the close of business on the last business day of the relevant quarterly period during the Annual Period, and two (2) business days prior to the remittance due date (or where no remittance ‘‘due date’’ is applicable, the remittance date) for other applicable amounts. In the event that the Licensee is required to withhold certain
CONFIDENTIAL TREATMENT |
amounts for payment to the appropriate governmental authorities, the Licensee will supply to CKI the official receipts evidencing payment therefore, promptly upon receipt (as noted in §4.8).
4.6 Interest on Late Payment. In addition to any other remedy available to CKI, if any payment due under this Agreement is delayed for any reason, including, without limitation, as a result of any Fee underpayment, interest shall accrue and be payable, to the extent legally enforceable, on such unpaid principal amounts from and after the date on which the same became due, at the rate of ***
4.7 No Set-Off. The obligation of the Licensee to pay Fees hereunder shall be absolute, notwithstanding any claim which the Licensee may assert against CKI. The Licensee shall not have the right to set-off, compensate or make any deduction from such Fee payments for any reason whatsoever.
4.8 Taxes. The Licensee will bear all taxes, duties and other governmental charges in the Territory relating to or arising under this Agreement, including, without limitation, any state or federal income taxes on the Licensee (except withholding taxes on Fees due CKI and taxes on CKI’s income), any stamp or documentary taxes or duties, turnover, sales or use taxes, value added taxes, excise taxes, customs or exchange control duties or any other charges relating to or on any Fee payable by the Licensee to CKI. The Licensee shall obtain, at its own cost and expense, all licenses, Federal Reserve Bank, commercial bank or other bank approvals, and any other documentation necessary for the importation of materials and Products and the transmission of Fees and all other payments relevant to the Licensee’s performance under this Agreement. If any tax or withholding is imposed on Fees, that is, and to the extent it may become applicable, when or where payments of Minimum Guaranteed Fees and/or Percentage Fees are made directly to CKI from any jurisdiction outside the United States, the Licensee shall compute and pay on behalf of CKI all withholding taxes which any governmental authority in the Territory may impose on CKI with respect to the Fees paid by the Licensee to CKI. The amount of such taxes shall be appropriately deducted from payments, and immediately paid to such governmental authorities. Such amounts shall not be held in reserve by Licensee pending later due dates. The Licensee shall obtain and provide certified proof of the tax payment of the amount withheld, and promptly transmit it to CKI. In the event such taxes are not paid when due, all resulting penalties and interest shall be borne by the Licensee.
4.9 Financial Statements. Licensee shall deliver to CKI,:
(i) within 180 days after the close of each of Licensee’s fiscal year’s during or concurrent with an Annual Period, copies of its annual financial reports (balance sheets, statements of income and cash flow) which may be unaudited (but if the Licensee otherwise prepares or is otherwise required to prepare, audited reports, it will so provide them to CKI) prepared in accordance with International GAAP, reported on by a recognized accounting firm together with English translation thereof; and
(ii) within 60 days after the close of each calendar quarter copies of its quarterly financial reports, which will be prepared on a basis consistent with the annual financial reports.
4.10 Financial Covenants. Licensee (and its parent Warnaco Inc.) will ***
Licensee will immediately upon the occurrence of any default deliver a certificate by the Chief Financial Officer setting forth the details of any such default and action the Licensee is taking or proposed to take with respect thereto.
ARTICLE V. ADVERTISING AND PROMOTION
5.1 Advertising.
5.1.1 Initial Support/Reimbursement. Deliberately Omitted.
CONFIDENTIAL TREATMENT |
5.1.2 Advertising Obligation. For each Annual Period, the Licensee shall remit to CKI an amount (the ‘‘Advertising Obligation’’ or ‘‘Minimum Advertising Expenditure,’’ a/k/a ‘‘MAE’’) equal to ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year |
![]() |
Minimum Advertising Expenditure (Euros) |
||||
1 (2006) | ![]() |
*** | ||||
2 (2007) | ![]() |
*** | ||||
3 (2008) | ![]() |
*** | ||||
4 (2009) | ![]() |
*** | ||||
5
et seq (2010 et seq) |
![]() |
*** | ||||
![]() |
The Licensee shall pay to CKI in respect of the Advertising Obligation for each Annual Period, no later than *** CKI shall use the Advertising Obligation, in its sole and absolute discretion, in connection with the advertising, marketing and promotion of the Licensed Mark and the Licensed Products. Although the final decision as to the advertising program’s form, content and placement must remain with CKI, CKI agrees to consider Licensee’s input and agrees that prior to the commencement of each campaign season, CKI and CRK will meet and listen to Licensee’s needs and overall strategy, and CKI and CRK will also review CRK’s concepts for the upcoming season with Licensee. (Although CRK will give reasonable consideration as to Licensee’s input, decisions will be in CKI’s sole discretion and based on CKI’s subjective aesthetic judgement and other considerations.) If there are material changes to what CKI, CRK and Licensee discussed at the beginning of the season by CKI, CRK will apprise Licensee of the same. ***
5.1.3 CRK Fee. As the advertising agency heretofore responsible for advertising campaigns relating to ‘‘CK/Calvin Klein’’ and Licensed Mark activities, CRK Advertising (‘‘CRK’’), a division of CKI, has developed certain expertise regarding the image of the Licensed Mark. *** Notwithstanding anything to the contrary in the foregoing, in no event shall CKI require the Licensee to ***
5.1.4 Co-operative Advertising and Public Relations. *** All Co-operative Advertising shall be (i) in accordance with the parameters reasonably promulgated by CKI from time to time, including, without limitation, creative, as approved by CKI, as well as the Licensed Products presented in such Co-operative Advertising, and timing and applicable placement (the publication as well as the particular location within the publication) (sometimes referred to as a ‘‘media plan’’), and (ii) subject to CKI’s approval as provided in § 5.1.3. The Licensee shall be obligated to notify its accounts of these requirements and ensure their compliance with such requirements, including obtaining CKI’s approval prior to use. The Licensee shall provide CKI with its ***
For purposes of this Agreement ‘‘Co-operative Advertising’’ means advertisements by or in connection with retail accounts in local publications, such as newspapers and certain approved retail catalogs (for CK/Calvin Klein Bridge Stores), if any, which CKI may specifically approve in writing after viewing the same), and applicable ‘‘sharing’’ of expenses by such retail account with the Licensee, by way of advertising reimbursements, credits, charge-backs, or payments, only. Expenditures for ‘‘co-op’’ advertising not included within the definition hereunder or not in compliance with CKI’s parameters will not constitute a ‘‘qualified’’ expenditure for Co-operative Advertising hereunder.
‘‘Co-operative Advertising’’ does not include and shall not consist of advertisements in trade publications (except for certain prestigious fashion trade publications as may be approved by CKI in writing on a case-by-case basis) or any expenses or costs of (without limitation) packaging, fixturing, display materials, point-of-sale (‘‘POS’’) or point-of-purchase (‘‘POP’’) materials, or advertising or selling materials or ‘‘tools’’ or seminars or training sessions, in-store merchandising contributions or
CONFIDENTIAL TREATMENT |
sharing of expenses, or any other selling or merchandising expenses or events, or any promotional materials, events or activities, such as press kits, goody bags (gifts), or any consumer advertising.
Public Relations events, activities and efforts shall include editorial coverage in prestigious fashion magazines, launch events for press, editors, buyers, fashion shows or trunk shows (‘‘mini’’ fashion shows at key retail stores), and involvement with highly publicized events such as ‘‘concerts,’’ as may be reviewed with and approved by CKI. Any PR event or activity to be conducted or overseen by a 3rd party shall be conducted or overseen by CRK or a 3rd party approved by CRK (‘‘PR Agency of Record’’) at market rates.
The CRK Fee shall be applied on actual services and materials developed, produced or provided by CRK for such Co-op/PR Obligation-qualified expenditures hereunder.
5.2 "Usage". If the Licensee requests advertising support including, without limitation, the acquisition of rights to use images of models in jurisdictions within the Territory where rights have not been obtained or for uses for which authorization has not been granted, the Licensee shall pay over to CKI the reasonable incremental costs associated with such advertising support. Such amounts shall be credited to the MAE, but may be credited over a number of Annual Periods not limited to the Annual Period in which the expense occurs.
5.3 Approval of Materials, Activities. The use and release of any and all promotional material (printed or otherwise) relating to the Licensed Products or the Licensee’s activities pursuant to this Agreement in the nature of press releases, interviews or other similar public relations events, and any other corporate release, data or information which will or is likely to become public and, if so, could affect such image, will be prepared or conducted in consultation with, and subject to the prior approval of (or approval subject to reasonable CKI-required modifications of), CKI’s public relations department (to be provided or responded to promptly (as per § 6.5 ) and not to be unreasonably delayed). After any such approval, the Licensee will not modify the approved material or activity in any material respect unless such modification is specifically approved by CKI’s public relations department. Any advertising marketing or promotional or public relations activity, event or effort shall be reviewed with and approved by CKI in advance (not to be unreasonably delayed). All materials bearing the Licensed Mark, including, without limitation, all advertising, promotional materials, packaging and collateral (e.g., POP or POS materials) shall be subject to CKI’s approval (not to be unreasonably delayed), and developed by CKI or pursuant to CKI’s direction.
5.4 Samples. The Licensee shall provide to CKI, *** in the promotion of Licensed Products, including advertising shoots, public relations promotions, editorial promotions, press coverage and celebrity use, including where needed in advance of regular production cycles (e.g., fashion shows, merchandising displays within showrooms, advertising shoots). Licensed Products which constitute celebrity, editorial and/or public relations ‘‘samples’’ which are gifted to recipient without cost, by Licensee*** Included in such ‘‘Promo Articles ’’ shall be a reasonable number of Licensed Products to be provided to CKI (CRK) for its use for particular celebrity ‘‘individuals’’ and press or editorial recipients, as requested and/or specified by CKI, ***
If and to the extent tax forms evidencing the value of any such gift items to celebrity ‘‘individuals’’ for purposes of income tax requirements under any governmental authority are or become required, Licensee shall provide the same as soon as such practice could be reasonably implemented.
ARTICLE VI. QUALITY AND STANDARDS
6.1 Distinctiveness and Quality of the Licensed Mark. The Licensee shall maintain the distinctiveness of the Licensed Mark and the image and high quality of the goods and merchandise bearing the Licensed Mark presently manufactured and sold by CKI and its other licensees, and the prestigious marketing of same as presently maintained by CKI and its other licensees. The Licensee agrees that all Licensed Products manufactured or sold by it will be of high quality as to workmanship, fit, design and materials, and shall be at least equal in quality, workmanship, fit, design
CONFIDENTIAL TREATMENT |
and material to the samples of Licensed Products submitted by the Licensee and approved by CKI pursuant to § 6.2.6. All manufacturing and production shall be of a quality in keeping with the prestige of the Licensed Mark. In addition, the Licensee agrees that it will only use the Licensed Mark in the form thereof then approved by CKI, and that all Licensed Products shall bear the Licensed Mark in such approved form. CKI shall give the Licensee reasonable prior notice of any change in the form of the Licensed Mark and shall permit the Licensee to use a superceded form of the Licensed Mark for up to 6 months in order to enable the Licensee to sell inventory, complete and sell work-in-process, and to deplete inventories of labels, tags, packaging, and other materials bearing the Licensed Mark. In the event CKI elects to change the form of the Licensed Mark, the Licensee’s obligations in respect to the image and high quality of the goods and merchandise bearing the Licensed Mark, and the prestigious marketing of same as required by this § 6.1, shall be consistent with the actions of CKI and its other licensees in respect to Licensed Products bearing such new form of the Licensed Mark. However, on reasonable advance request (within 20 days prior to the end of the 6-months period) if Licensee provides CKI with its inventory of Licensed Products and other materials utilizing the old form, with anticipated outside ‘‘depletion’’ dates for the materials, CKI may provide additional time for such depletion. However, all Licensed Products to be shipped from and after the 6-months period (except for Close-outs or Seconds from prior seasons) will carry new labels, regardless of excess label stock.
6.1.1 Consistency with Other Products. The Licensed Products hereunder are among a range of lines of men’s, women’s, boys’ and girls’ apparel and accessories products which are produced and/or sold by CKI, its licensees and other duly authorized parties under the Licensed Mark and other related trademarks. In order to provide for consistency in scope, and to prevent confusion in the market, the Licensee agrees to use commercially reasonable efforts to ensure that it will only use the Licensed Mark in the form thereof then approved by CKI and that the placement of items constituting Licensed Products in the market will be consistent with other merchandise bearing the Licensed Mark and be distinguishable from the placement of product lines bearing other trademarks.
6.2 Design.
6.2.1 Time and Action Calendar. The Licensee shall prepare, for the Licensed Products, and at least 60 days prior to the commencement of each Annual Period, shall deliver to CKI for its approval (reasonably exercised within the standard design policy and procedures of CKI and timing, development and production and placement schedules), a proposed time and action calendar (‘‘Time and Action Calendar’’) for the Collections to be developed during such Annual Period; provided; however, that the Time and Action Calendar for the first Annual Period shall be delivered for approval no later than the date of execution hereof. The substance and format of each Time and Action Calendar shall be as approved by CKI from time to time. In accordance with each Time and Action Calendar, and at least 60 days before the development stage of any Collection, the Licensee will provide a merchandising plan setting forth for each Product category the number of styles, estimated unit production, in-store delivery dates, target manufacturer’s suggested retail price, target market segment and, where applicable, historical sales statistics for CKI’s review and approval.
6.2.2 Themes. The Licensee shall maintain during the License Period a design staff capable of timely developing seasonal collections of Licensed Products pursuant to the Time and Action Calendars, in order to exploit the License and to maintain the prestige and reputation of the Licensed Mark, as required hereunder. The Licensee’s design team shall have meetings with CKI’s-designated creative or design person or persons, the purpose of which will be to discuss and establish agreed-upon themes that will be covered for the season (such agreed upon themes hereafter referred to as the ‘‘Agreed Upon Season’s Themes’’).
6.2.3 Design Concepts. Based on the Agreed Upon Season’s Themes, the Licensee shall create, develop and present for CKI’s review and approval, a program in a tangible illustrative format of design themes and concepts (‘‘Design Concepts’’) with respect to the proposed designs for the applicable Collection, together with relevant trims , samples of fabrics and other components.
CONFIDENTIAL TREATMENT |
The Licensee shall present the Design Concepts to CKI in a ‘‘Design Concepts Presentation Meeting’’, the purpose of which is to provide CKI with a clear and concrete understanding of the themes, fabrications, styles, attitude and direction of such Collection through the use of either design boards, sketches and/or ‘‘rigs’’ as well as samples of trim, fabrics and other components in each of the Licensee’s suggested colors and qualities, also swatches, yarns and illustrations sufficient to give CKI a clear understanding of the particular Products and components the Licensee wishes to develop based upon approved Design Concepts. CKI shall, within 10 business days from presentation of the Design Concepts identified at the Design Concepts Presentation Meetings approve or disapprove and/or provide suggestions, modifications or recommendations, as determined by CKI in its sole and absolute discretion. Any Design Concept which is not rejected or required to be modified within such 10 business day period shall be deemed approved. Any Design Concept or component thereof presented, initiated or submitted by CKI to Licensee to be included in the applicable Collection shall be included in the Approved Design Concepts except as otherwise may be agreed by CKI. All approved and deemed approved Design Concepts are referred to herein as the ‘‘Approved Design Concepts.’’ The Licensee shall provide CKI with a photographic record, duplicate ‘‘boards’’ or such other comparable method acceptable to CKI, of the Approved Design Concepts so that CKI has a means to verify compliance with the Approved Design Concepts at subsequent stages of the approval process, within 10 business days after approval of the Approved Design Concepts. The Licensee shall have 10 business days to resubmit for CKI’s approval any Design Concept to which CKI directed modifications to be made. If any resubmitted Design Concept, as changed, does not strictly conform to CKI’s request for changes, and such strict conformity cannot be obtained after one resubmission, such Design Concept shall not become an Approved Design Concept. No Licensed Products (including samples) shall be distributed and/or sold by the Licensee unless such Licensed Products are in substantial conformity with Approved Design Concepts. Approved Design Concepts shall only be deemed approved for the specific Collection for which they have been submitted and approved, unless CKI agrees otherwise in writing.
6.2.4 Certain Other Approvals. The Licensee shall provide and present to CKI proposed styles, designs, fabrications (fabric, leather or other materials, swatches in reasonably sufficient size to determine ‘‘hand’’ as well as color, content and other matters, trim, samples, labels (quality), artwork, if requested by CKI (e.g., layouts and relevant technical information for graphic motifs, patterns (such as florals, stripes, checks))) and other materials in quantities and sufficient variety to enable CKI to review and approve (including to require modifications to or changes in), on a timely basis, sufficiently in advance of the market and production timing.
6.2.5 CKI Designs. CKI may provide the Licensee with creative concepts and fashion direction as to each Collection, including recommendations as to color, material, design and styling of Products and such additional design assistance including sketches, samples, suggestions or other information or data as CKI determines in its sole discretion. For each Collection, the Licensee shall utilize substantially all of the designs, fabrics, trim or other material submitted or approved by CKI and shall produce on a timely basis pre-production prototypes for CKI’s review and approval.
6.2.6 Prototypes. Prior to showing each season’s Collection to the trade or commencing production of the Products for such Collection in accordance with the Time and Action Calendars, the Licensee shall produce pre-production prototypes (both initial (first) and second prototypes, where required by CKI) of each Product in the approved fabrications, or , if applicable, in those fabrications specifically requested by CKI (or, if CKI so permits on a season-by-season, case-by-case basis, pre-production prototypes of each ‘‘body’’ or style of Product in representative fabrications or those fabrications specifically requested by CKI), along with swatches and samples of sufficient size in order to determine hand and/or other aspects related to the Products that the Licensee proposes to include in such Collection, for CKI’s approval. No previously approved Licensed Products shall be included in a subsequent Collection unless and only if presented for inclusion and approved by CKI for such subsequent Collection. CKI shall have the right to approve or disapprove of any or all aspects of each prototype and to require modifications to meet its requirements for approval. Notwithstanding such
CONFIDENTIAL TREATMENT |
requirements or approvals, all responsibility (and liability) for the merchantability, fit and technical requirements of such Licensed Products is and will belong to Licensee. If CKI disapproves any proposed carryover of a ‘‘core’’ item (i.e., part of the Collection for at least four prior seasons, if any), then the Licensee will discontinue such product within three months to enable the Licensee to fulfill outstanding orders. (Prototypes which have been approved by CKI, or those subject to changes being made by the Licensee, upon resubmission of corrected prototypes and subsequent approval by CKI, shall hereinafter be referred to as ‘‘Approved Prototypes.’’). The Licensee shall provide CKI with a photographic record of all Approved Prototypes for each Collection, and also, the Licensee shall promptly provide CKI, with a record of the use (i.e., the factory location in which each prototype will be used to produce the specific Licensed Products) of the Approved Prototypes, which shall include notification (i.e., e-mail, fax, modified purchase order to factory producing the particular item of Licensed Product) and evidence (e.g., in the form of duplicate or modified prototype) of any changes required by CKI. CKI may request that prototypes be developed in a standard size or to provide CKI with a variety of sizes and styles, covering the spectrum, to assure itself of ‘‘fit’’ and sizing.
6.2.7 Final Approval and Sales. The final composition of each Collection shall be determined and agreed upon by the Licensee and CKI, and is subject to the approval of CKI, upon presentation and edit of the sample line produced from Approved Prototypes for technical quality and final editing purposes. Thereafter, the Licensee shall timely sell, market, produce and ship such Collection based on the Approved Prototypes.
6.3 Manufacture of Licensed Products by Third Parties. All contractors wherever located which the Licensee desires to use in connection with the manufacture of Licensed Products are subject to the prior written approval of CKI, which consent shall not be unreasonably withheld or delayed; provided, however, that CKI shall have 10 business days after its receipt of a written request from the Licensee to use a manufacturer or such longer period as is reasonable under the circumstances to approve or disapprove such manufacturer. In order to maintain CKI’s high standard of quality control and to insure that appropriate measures are taken against counterfeiting, the Licensee shall provide CKI with the following information: (i) name and address of each proposed manufacturer; (ii) type of Licensed Products to be manufactured; (iii) quantity of Licensed Products to be manufactured; and (iv) any other relevant information. The Licensee shall obtain the signature of an authorized representative from each approved third-party manufacturer used by the Licensee on an agreement (a ‘‘Third-Party Manufacturing Agreement’’), substantially in the form of Exhibit D. The Licensee shall not knowingly enter into a Third-Party Manufacturing Agreement with any third party that has materially breached a similar agreement with CKI or its Affiliates or any licensee of CKI or its Affiliates. The Licensee acknowledges that it shall remain primarily liable and completely obligated under all of the provisions of this Agreement in respect of such contracting or assembly arrangements.
6.4 Non-Conforming Products. In the event that any Licensed Products are, in the judgement (which shall include subjective aesthetic considerations and standards) of CKI, not being manufactured, distributed or sold with first quality workmanship or in strict adherence to the prototypes approved by CKI, CKI shall notify the Licensee thereof in writing, and the Licensee shall promptly initiate corrections or changes to production of such Licensed Product to conform thereto. Where non-conformity is material, substantial or may adversely affect the reputation or prestige or value of the Licensed Mark or CKI’s business operations, CKI may require that no further sale or shipment of such Licensed Mark be made until such corrections are made. If Licensed Products as changed do not strictly conform after CKI’s request and such strict conformity cannot be obtained after one resubmission, such Licensed Products (the ‘‘Non-Conforming Products’’) shall be disposed of in a way which shall not reduce the value of the Licensed Mark or detract from its reputation, which may include, without limitation, the destruction of the Non-Conforming Products, the donation of such Non-Conforming Products to eleemosynary institutions, the sale of such Non-Conforming Products in a private sale, with proceeds to be given to charity, or the removal of Labels and other identification prior to sale, or other method reasonably approved by CKI. As noted, CKI may require the Licensee to cease further shipment and sale of such Licensed Products, to recall any Licensed
CONFIDENTIAL TREATMENT |
Products that are not consistent with approved quality standards and the approved prototypes and/or to purchase at the Licensee’s expense any such Licensed Products found in the marketplace. ***
6.5 Approvals. All approvals by CKI required under this Agreement must be obtained in advance of use of the item subject to approval, which approval must be in writing from CKI to the Licensee. Except as otherwise expressly provided hereunder, a submission for approval shall be deemed approved unless CKI delivers a notice of disapproval within 10 business days after its receipt of a written request for approval (together with the submission as well as all information, details and specifications reasonably necessary to review, determine and provide an approval). All matters requiring approval of CKI shall be granted or withheld in the sole and absolute good-faith discretion of CKI and may be based solely on CKI’s subjective aesthetic standards. CKI shall provide an explanation for disapprovals, unless such disapproval reflects an issue of taste or subjective judgement. CKI has no obligation to approve, review or consider any item which does not strictly comply with the required submission procedures. Approval by CKI shall not be construed as a determination that the approved matter complies with all applicable regulations and laws. No disapproved item shall be manufactured, sold, used, distributed or advertised by the Licensee under the Licensed Mark. The Licensee may revise any disapproved item and resubmit it. The Licensee must strictly comply with all of CKI’s decisions. CKI may amend the approval forms as appropriate. Otherwise, the parties may mutually agree to amend the approval forms as they deem appropriate. In the event that it is reasonably necessary for CKI to do on-site approvals, the Licensee shall pay any and all reasonable expenses and airfare incurred by CKI with respect to such on-site approvals. CKI to provide Licensee with advance notice as to any such trips or anticipated on-site approval situations to reasonably co-ordinate with Licensee.
6.6 Marketing, Labeling, Packaging, Promotions, Business Materials. All packaging, labeling, including within the Licensed Product (‘‘Labels’’) must be approved by CKI. The use of any Label that has not been approved is expressly prohibited. CKI reserves the right to require the Licensee to purchase Labels to be used on the Licensed Products only from sources designated by CKI, provided that such sources provide the Labels to the Licensee in a reasonably competitive manner as to price and delivery schedules. All Licensed Products manufactured, distributed or sold by, or on behalf of, the Licensee shall be marked, labeled, packaged, advertised, distributed and sold in accordance with this Agreement. At the request of CKI, the Licensee shall cause to be placed on (or attached to) all Licensed Products (by way of labels, tags or inserts, and/or packaging) an appropriate notice designating CKI as the ‘‘licensor’’ of the Licensed Mark, and/or CKTT as the owner of the Licensed Mark. The manner of presentation of such notice shall be determined by CKI. Any and all proposed advertising, promotional, business (including stationary, business cards, invoices) or marketing or publicity material (including issuing press releases, interviews or other public relations media), any POS, POP or other promotional material and any other printed material or other form of communications to be used in connection with the marketing, promotion, sale or distribution of the Licensed Mark must be approved by CKI (as to content, form and specific use, including timing and duration of use) prior to use by Licensee, as noted in the 2nd sentence of § 6.5 above, as to 10 business days, submission and information. If CKI should disapprove any sample tag, label, package or the like, or any advertising, promotional, merchandising, marketing or publicity material, activity or event or the proposed placement or use thereof or any other printed matter, event or activity, Licensee will not use or permit the use of the same in any manner, whether or not in connection with Licensed Products or the Licensed Mark.
6.7 Inspection of Facilities. CKI and its duly authorized representatives shall have the right, during normal business hours and upon reasonable notice, to inspect all facilities utilized by the Licensee (and its contractors and suppliers to the extent the Licensee may do so) in connection with the manufacture, sale, storage or distribution of Licensed Products, and to examine the Licensed Products in the process of manufacture.
6.8 Samples and Artwork. CKI may make available to the Licensee certain samples, designs, colors, fabric samples, tags, labels, packaging, catalogues and artwork available to CKI, and the cost of
CONFIDENTIAL TREATMENT |
providing such materials shall be borne by the Licensee at prices equal to CKI’s cost (A) as may be requested by Licensee or (B), in the case of ‘‘multi-regional’’ items which CKI requires to be utilized amongst its multiple licensees for Licensed Products, not to exceed $25,000 per annum without the Licensee’s prior consent. The payment for these already ‘‘developed’’ materials are separate and apart from the payment of any CRK fee for the development of such samples, designs, colors, fabric samples, tags, labels, packaging, catalogues and artwork directly for Licensee for each Collection of Articles which shall also be borne by Licensee. All right, title and interest in and to samples, sketches, designs, and other materials furnished to the Licensee or submitted by CKI in connection with the Licensed Products, including any modifications or improvements thereof which may be created by CKI, shall remain the sole property of CKI as between the Licensee and CKI, and are ‘‘licensed’’ hereunder solely and exclusively for use in connection with the manufacture, sale, distribution and promotion of Licensed Products in the Territory, otherwise subject to the terms and conditions of this License Agreement.
6.9 Know-how. The Licensee shall have the right to request visits to CKI’s offices or showrooms to meet with its personnel, in order to obtain additional know-how and assistance, all as and only as CKI deems appropriate. The scheduling of such visits shall be at times mutually convenient to the parties hereto. In connection with such visits, the Licensee shall bear all expenses of the Licensee’s representatives.
6.10 Meetings. CKI may from time to time hold meetings of CKI’s licensees. The Licensee shall, upon receipt of reasonable notice, attend such meetings at its own expense but shall not be required to attend more than two such meetings per year.
6.11 Design Direction. The designs of the Licensed Products shall at all times be consistent with CKI’s design aesthetic for the Licensed Mark. CKI may submit samples to the Licensee of or for products it deems to be core to the image of the overall ‘‘CALVIN KLEIN’’ trademark and/or product lines, and the Licensee shall develop Licensed Products based thereon and shall use commercially reasonable efforts to market same.
6.12 Design Rights. The Licensee acknowledges and agrees that CKI owns or shall own all design rights, regardless of whether such designs were created by CKI or by or on behalf of the Licensee, except with respect to Excluded Designs. The Licensee agrees to make, procure and execute all assignments necessary to vest ownership of design rights in CKI. The Licensee shall not do or allow to be done anything which may adversely affect any of CKI’s design rights. All designs used by the Licensee for the Licensed Products, except with respect to Excluded Designs, shall be used exclusively for the Licensed Products and may not be used under any other mark, whether during the License Period or any time thereafter, without the prior written consent of CKI. The Licensee shall disclose and freely make available to CKI any and all developments or improvements it may make relating to the Licensed Products and to their manufacture, promotion and sales, including, without limitation, developments and improvements in any machine, process or product design, that may be disclosed or suggested by CKI or regarding any patent or trademark which the Licensee is entitled to utilize. ‘‘Excluded Design’’ means a design (i) submitted by the Licensee and not approved by CKI; (ii) not distinguishable from similar generic products generally available in the marketplace; or (iii) not distinguishable from a product which has previously appeared in the Licensee’s product line and the Licensee advised CKI of such condition at the time of submission. In the event of clause (i) or (iii) above, the Licensee shall retain title to such designs but shall permit CKI to use such designs during the Term o f this License Agreement. CKI may use and permit others to use said designs and other materials in any manner it desires, provided that such use does not conflict with any rights granted the Licensee hereunder or belonging to Licensee. The Licensee specifically acknowledges that such designs and other materials may be used by CKI and its Affiliates and other licensees of CKI and its Affiliates on Licensed Products in jurisdictions outside the Territory and on products other than Licensed Products anywhere in the world, subject to the limitations described herein. Notwithstanding the foregoing, CKI shall not acquire any ownership interests in any patents,
CONFIDENTIAL TREATMENT |
trademarks or copyright rights owned or commissioned by Licensee and utilized for products other than Licensed Products, but utilized as well in connection with the Licensed Products.
6.13 Shops, Stores, Retail Outlets. Subject to § 6.14, the Licensed Products sold by the Licensee may be *** Nothing herein shall be deemed to ***
6.14 Disposal of Seconds and Close-Outs. Seconds and Close-Outs sold by the Licensee may be sold only to Approved Accounts and Approved Seconds and Close-Outs Accounts, including those customers identified on Schedule 6.14. Whenever the Licensee shall wish to sell Seconds and Close-Outs to customers not previously approved by CKI, the Licensee shall submit to CKI a written list of the proposed customers for Seconds and Close-Outs for CKI’s prior written approval. The proposed customers approved from such list, together with the customers listed on Schedule 6.14, are referred to as the ‘‘Approved Seconds and Close-Outs Accounts.’’ Notwithstanding CKI’s approval of any customer, CKI may at any time subject sales to any such customer, including, without limitation, any such customer listed on Schedule 6.14, to any conditions or limitations CKI considers appropriate; provided, however, that in order to be effective, any such conditions or limitations must be set forth in a writing provided to the Licensee. Nothing herein shall be deemed to prohibit CKI from withdrawing its approval of any Approved Seconds and Close-Outs Account for ‘‘good’’ bona fide reasons, including, without limitation, any such Approved Seconds and Close-Outs Account listed on Schedule 6.14, upon written notice to the Licensee (at which time, such customer shall cease to be an Approved Seconds and Close-Outs Account for purposes of this Agreement); provided, however, that the Licensee may fulfill any firm orders entered into prior to the Licensee’s receipt of CKI’s withdrawal of approval.
6.14.1 Seconds. The Licensee shall only sell Licensed Products which are damaged, imperfect, non-first quality or defective goods (‘‘Seconds’’) in a way which shall not *** Notwithstanding anything to the contrary ***
6.14.2 Close-Outs. ***
6.15 Standards of Conduct.
6.15.1 Standards. The Licensee acknowledges that CKI is a wholly owned subsidiary of Phillips-Van Heusen Corporation (‘‘PVH’’). The Licensee acknowledges that it has received copies of, read and understands PVH’s publication ‘‘A Shared Commitment — Requirements for Suppliers, Contractors, Business Partners’’ and PVH’s ‘‘Statement of Corporate Responsibility.’’ The Licensee shall conduct its business in compliance with the moral, ethical and legal standards set forth in such publications, as the same may from time to time be revised by PVH upon reasonable notice to the Licensee (the ‘‘Standards’’) and shall cause all manufacturers, contractors and suppliers which manufacture Licensed Products or from whom the Licensee obtains Licensed Products or materials for the manufacture of Licensed Products to abide by the Standards.
6.15.2 Audit Requirement. For each facility utilized by Licensee for the manufacturing of the Licensed Products (whether directly produced or produced by or through a contractor, subcontractor or supplier) the Licensee will arrange to have the facility audited for compliance with the Standards unless PVH notifies the Licensee in writing that it already has a current audit with respect to such facility that evidences compliance with the Standards. Audits on each facility used must thereafter be conducted no less often than annually. Each audit shall be conducted by a suitable auditor (whether internal or external) designated by the Licensee, subject to Licensor’s and PVH’s approval. Disapproval by Licensor and PVH may only be for grounded reasons. Each audit shall be conducted using the evaluation form attached hereto asExhibit E or a substantively similar form approved by PVH. The Licensee shall identify to PVH in writing each facility in which Licensed Product (or part thereof) are produced or which is to be re-audited and PVH shall notify the Licensee within 30 days of PVH’s receipt of such notice if PVH has currently approved the facility for production and when re-audit is required. If a facility is currently approved for production, the Licensee shall have no obligation to arrange for a current audit of the facility. If a facility is denied
CONFIDENTIAL TREATMENT |
approval by PVH as of such date, Licensee will not place any new orders in such facility and will only use the facility to fulfill currently existing, non-cancelable orders. Licensee will stop producing in such facility starting from the immediately subsequent season. All audits shall be conducted at the Licensee’s sole expense. All support to be given by PVH will be at PVH’s expense.
Notwithstanding anything to the contrary contained in this §6.15.2, ***
6.15.3 Approval. A comprehensive audit report prepared by the auditor shall be provided to PVH, attention the director of PVH’s Human Rights Program Department, promptly upon its completion. PVH shall have 30 days from its receipt of an audit report to notify the Licensee: a) of its approval of the audited facility either (i) fully without remarks; or (ii) with request to re-audit within a certain period (‘‘Red Flag’’); or b) of its disapproval of the facility that is the subject thereof in which case Licensee may fulfill any firm orders entered into prior to the Licensee’s receipt of PVH’s disapproval and cease to utilize such disapproved facility from the subsequent season. If PVH does not give notice to the Licensee within such 30-day period, the facility shall be deemed approved by PVH. PVH shall set forth in its notice of disapproval its reason(s) for disapproval in reasonable detail.
6.15.4 Use of Facility. Unless and until the Licensee delivers to PVH an audit report for a facility that evidences compliance with the Standards and PVH approves such facility, the facility shall not be used for the production of Licensed Products. If the Licensee uses a facility that has not been approved in accordance herewith, fails timely to cause an approved auditor to submit to PVH an audit report evidencing continued compliance with the Standards when a re-audit of a facility is required in accordance with the terms hereof or if the Licensee or any of its manufacturers, contractors or suppliers with respect to Licensed Products shall, in PVH’s sole determination, fail to abide by the Standards, CKI’s sole remedy with respect to such breach of this § 6.15.4, to the extent that CKI is not otherwise damaged as a result of such breach, shall be to terminate the License and all of the other rights granted to the Licensee under this Agreement, as provided in § 8.3 below. Nothing in this § 6.15.4 shall be deemed to confer third-party beneficiary rights upon any person, corporation, partnership or other entity.
6.16 Personnel. Licensee shall perform its obligations hereunder through a separate sub− division of the Licensee exclusively dedicated, and the employees of which shall be dedicated to the performance of the Licensee’s obligations hereunder; provided, however, that financial, logistics and other back-office support need not be exclusive, except with respect to operations of other licenses with CKI. Licensee shall employ, on an exclusively devoted basis (to operations hereunder and to operations under the CKI Jeans License and CKI Jeans and ‘‘bridge’’ Accessories Licenses), a ‘‘President’’ who is subject to the initial reasonable approval of CKI, as is any successor thereto, as well as other personnel as may be needed to successfully exploit the business. Managing Directors may be substantially devoted to the operations hereunder as well as to other Fingen S.p.A. and affiliated entities, business and operations. Such personnel would include sales, merchandising, technical, product development and other production, visual display, quality control and retail development personnel. CKI may, on an ongoing basis, advise Licensee of any problems or difficulties, if any, it may be experiencing, and Licensee will use all reasonable efforts to address any such concerns to CKI’s reasonable satisfaction.
ARTICLE VII. THE LICENSED MARK
7.1 Rights to the Licensed Mark.
7.1.1 Ownership of Licensed Mark. The Licensee acknowledges that the Calvin Klein Trademark Trust (‘‘CKTT’’) is the owner, and CKI is the beneficial owner, of all right, title and interest in and to the Licensed Mark, and to any variant, modification or embodiment thereof, for Products in the Territory; and that CKTT and CKI also own the goodwill related to such marks and to the business and goods in relation to which such marks have been or will be used. The Licensee will not at any time directly or indirectly do or suffer to be done any act or thing that might in any way adversely affect any rights of CKTT or CKI in and to any of such marks, any registrations thereof
CONFIDENTIAL TREATMENT |
or any applications for registration thereof, or which might reduce the value thereof or detract from their reputation, image or prestige of that of CKTT, CKI or Mr. Calvin Klein. Sales by the Licensee shall be deemed to have been made by CKTT for purposes of trademark registration and all uses of the Licensed Mark by the Licensee and any and all goodwill generated by use of the Licensed Mark shall inure to the benefit of CKI and CKTT.
7.1.2 No Adverse Actions. The Licensee shall not, at any time, do, or otherwise suffer to be done, any act or thing which may at any time, in any way, adversely affect any rights of CKI or CKTT in and to the Licensed Mark or any registrations thereof or which, directly or indirectly, may reduce the value of the Licensed Mark or detract from its reputation. The Licensee shall not file or prosecute a trademark or service mark application or applications to register the Licensed Mark or any trademark, name or other mark confusingly similar thereto in respect of the Licensed Products or any other goods or services in the Territory or elsewhere. The Licensee shall not, during the term of the License Period or thereafter, (i) contest CKTT’s or CKI’s title, right, ownership or other interest in or to the Licensed Mark in any jurisdiction or attack the validity of the License or the Licensed Mark or (ii) contest the fact that the Licensee’s rights under this Agreement (a) are solely those of a manufacturer, licensee and, if appropriate, distributor; and (b) subject to the provisions of § 8.5, cease upon termination of the License Period.
7.1.3 Registrations. The Licensee acknowledges and agrees that CKTT, as the sole and exclusive owner of the Licensed Mark, has the exclusive right to apply for registrations and to extend appropriate registrations of the Licensed Mark for all categories of goods, including, without limitation, the Products. CKI, on behalf of CKTT, shall maintain at its expense and as determined by CKI consistent with its past practice the registrations for the currently existing Licensed Mark in the Territory with respect to Products. The Licensee agrees to cooperate with CKTT and/or CKI in the preparation, filing and prosecution of applications for registration, or extensions of existing registrations, or other documentation relative to the Licensed Mark. CKI represents that CKTT has applications and registrations for the ‘‘CK/CALVIN KLEIN’’ mark for products in International Class 25 (apparel) in a number of jurisdictions in the Territory, as per schedule to be attached.
7.1.4 Survival. The provisions of this § 7.1 shall survive the termination of the License Period and this Agreement.
7.2 Protecting the Licensed Mark. The Licensee shall cooperate fully and in good faith with CKI and CKTT for the purpose of securing, preserving and protecting CKTT’s and CKI’s rights in and to the Licensed Mark and any secondary trademark that the Licensee may develop and use with the approval of CKI. Any such secondary mark will be owned by CKTT. At the request of CKI, the Licensee shall execute and deliver to CKI any and all documents and do all other acts and things which CKI and/or CKTT deems necessary or appropriate to make fully effective or to implement the provisions of this Agreement relating to the ownership or registration of the Licensed Mark, including, without limitation, information regarding use and supporting documentation therefore, as well as labels, hang tags, packaging, and other appropriate specimens evidencing use of the Licensed Mark in each country in the Territory.
7.3 Use of the Licensed Mark.
7.3.1 Compliance with Legal Requirements. The Licensee will use the Licensed Mark in the Territory strictly in compliance with the legal requirements therein. The Licensee shall duly display all other notices with respect to the Licensed Mark, on the Licensed Products and otherwise, as are or may be required by the trademark laws and regulations applicable within the Territory. Upon expiration or termination of the License for any reason whatsoever, the Licensee will execute and deliver to CKI any and all documents required by CKI.
7.3.2 Use with Other Name. The Licensee shall not (a) co-join any name or names with the Licensed Mark, (b) use the name ‘‘Calvin Klein’’ or ‘‘CK’’ or ‘‘CK/Calvin Klein’’ or any portion or derivative thereof in its corporate name except as previously approved or subsequently approved by
CONFIDENTIAL TREATMENT |
CKI in writing, or (c) use any other name, or names in connection with the Licensed Mark, in any advertising, promotion, publicity, labeling, packaging or other printed matter of any kind in connection with the distribution or sale of Licensed Products except as may be approved in writing by CKI. Any use of the Licensee’s corporate name or that of its Affiliates in connection with the Licensed Mark will be subject to the approval of CKI. If CKI approves any use of the Licensed Mark in connection with the Licensee’s corporate name, the Licensee will clearly indicate that the Licensee is using the Licensed Mark pursuant to a license from CKI as may be required by CKI. The Licensee will use such trade name to designate the operations under this Agreement as is approved by CKI, and will file a fictitious name certificate (‘‘d/b/a’’) or use of ‘‘trade name’’ certificate or notice, as is generally used or required in the various jurisdictions in the Territory to reflect such use, as is reasonably approved by CKI).
7.3.3 Execution of Documents. At CKI’s request, the Licensee will execute any and all documents (including registered user agreements) and take any actions required by CKI to confirm CKTT’s ownership or CKI’s beneficial ownership of the marks referred to in §7.1.1 and the respective rights of CKTT, CKI and the Licensee pursuant to this Agreement.
7.4 Ownership of Copyright. Except as specifically provided herein, any copyright which may be created in any sketch, design, print, Label or the like designed or approved or used with the Licensed Mark by the Licensee will be the property of CKI. The Licensee shall not, at any time, do, or otherwise suffer to be done, any act or thing which may adversely affect any rights that CKI may have in such sketches, designs, prints, Labels and the like and will, at CKI’s request, do all things reasonably required by CKI to preserve and protect said rights.
7.5 Infringements, Counterfeits and Parallel Imports.
7.5.1 Infringements. In the event that Licensee learns of any infringement or imitation of the Licensed Mark with respect to Products (other than insignificant, immaterial or de minimus situations) which it believes could be considered a counterfeit of the Licensed Products, or of any use by any person of a trademark similar to the Licensed Mark with respect to Products which it believes could be considered a deliberate use of something substantially similar to the Licensed Mark and is either substantive, significant or would adversely affect the prestige, reputation or value of the Licensed Mark), it will promptly notify CKI thereof. The Licensee will take no action, including, but not by way of limitation, settling any action, appealing any adverse decision or discontinuing any action taken by it, except to the extent the same is approved in advance by CKI. All costs and expenses incurred in any action or proceeding (including investigatory expenses and attorneys’ fees, if applicable, court costs and filing fees) will be borne as determined in § 7.5.2. Any damages recovered or sums obtained in settlement in or with respect to any action shall (i) first be applied proportionately to reimburse CKI and the Licensee for the respective expenses incurred and actually paid by it and (ii) the balance, if any, shall belong and shall be paid over to, on a fifty-fifty basis, to CKI and the Licensee. In no event will any infringement by a third party justify the withholding of any payment of Fee or other amount by the Licensee.
7.5.2 Counterfeits and Parallel Imports.
7.5.2.1 The Network. CKI currently maintains certain staff which maintains an enforcement network of attorneys, investigators and customs inspectors in the Territory (the ‘‘Network’’) to minimize and deter (i) the diversion into and sale within and from the Territory of products (including those which would correspond to Licensed Products) authorized for sale by its Affiliates and other licensees, which may include, without limitation, unauthorized distribution of such products by the manufacturers and subcontractors thereof (‘‘Parallel Imports’’) and (ii) the importation into, or sale or manufacture within as well as from, the Territory of counterfeit Licensed Products or infringing Products; in each case subject to contributions from and reimbursement by various licensees (as well as other authorized users of the Licensed Mark and other marks of CKI and CKTT), and subject to applicable law. CKI generally requires, and will continue to require, its licensees in their respective agreements to restrict exports from their respective ‘‘territories’’ (as per the final sentence of § 1.1.2)
CONFIDENTIAL TREATMENT |
in order to prevent importation of applicable merchandise into another licensee’s ‘‘territory.’’ The Licensee acknowledges and agrees that CKI is under no obligation to maintain any such Network or other arrangement, and may curtail, modify, terminate or discontinue such Network in whole or in part at any time. For the time being, unless or until CKI otherwise determines and so advises the Licensee in CKI’s reasonable discretion, the Licensee will cooperate in such efforts as reasonably requested by CKI, and under procedures as CKI may agree upon with Licensee, and will timely remit and/or, as applicable, promptly reimburse out-of-pocket expenses reasonably incurred by CKI in such efforts (including, without limitation, reasonable attorneys’ fees and expenses) as follows: *** Upon the Licensee’s request, CKI will meet with the Licensee to discuss CKI’s enforcement activities and the costs associated therewith.
7.5.2.2 Diversion. The Licensee shall use all commercially reasonable efforts to minimize and deter the diversion of Licensed Products for sale outside of the Territory, including, without limitation, the unauthorized distribution of Licensed Products by the Licensee’s manufacturers and subcontractors (‘‘Diversion’’). The Licensee shall cooperate with CKI in CKI’s efforts to minimize and deter Diversion (‘‘Anti-Diversion Efforts’’). Without limiting the foregoing the Licensee shall promptly (i) provide such information as CKI may from time to time reasonably request concerning its manufacturing, subcontracting and distribution locations, activities and shipments, product and label identification systems and data and sales to and by its customers; and (ii) as provided in § 7.5.4, reimburse all agreed upon out-of-pocket expenses reasonably incurred by CKI in its Anti-Diversion Efforts (including, without limitation, reasonable attorneys’ fees and expenses).
7.5.3 Criminal Proceedings. CKI may, but need not elect to, initiate criminal or civil actions against persons or entities outside the Territory seeking to manufacture counterfeit Licensed Products or sell or ship counterfeit Licensed Products into the Territory (excluding, for this purpose, manufacturers or subcontractors described in the definitions of Diversion or Parallel Imports). The cost related to any such actions shall be borne entirely by the Licensee, if the Licensee requests that such action be taken, or by CKI, if CKI determines to take such action.
7.5.4 Enforcement Activities. CKI will consult with the Licensee in connection with the enforcement activities undertaken pursuant to this § 7.5. In connection with this § 7.5.4 through § 7.5.6, and § 7.5.2, Licensee and CKI from time to time will use reasonable efforts to apply a substantive portion of the budgeted amounts and expenditures towards more substantive, significant and/or material actions (and acts of infringement, counterfeiting, etc.) in order to enhance the effectiveness of application of resources. In addition, upon the request of the Licensee, the parties will consult one time each Annual Period to forecast CKI’s continuing and reimbursable expenses hereunder and enter into suitable arrangements as may be agreed upon with Licensee, including retainer arrangements, so that CKI may receive the Licensee’s payments in respect thereof at or shortly before such expenses are incurred.
7.5.5 Nature of Proceedings. Whenever it is not readily apparent whether actions or proceedings involve counterfeit Licensed Products, Parallel Imports or Diversion, CKI will, where practical and subject to time constraints, contact CKJE for information or input, and then reasonably determine the nature of such items in good faith (with all due caution as to ramifications of erroneous determinations as to whether ‘‘counterfeit’’ or not), taking into account all relevant information provided by the Licensee.
7.5.6 Cooperation. The Licensee shall cooperate with CKI in all actions taken by CKI pursuant to this § 7.5, whether on its own or at the Licensee’s request, and in all criminal proceedings, as may be required or reasonably requested.
7.6 Trademark Security.
7.6.1 Counterfeit Protection. The Licensee shall use all commercially reasonable efforts to prevent counterfeiting of the Licensed Products. All Licensed Products shall bear and use any reasonable counterfeit preventive system, devices or labels, provided that Licensee may decide in its own good faith discretion, which system, devise or labels to use.
CONFIDENTIAL TREATMENT |
7.7 Use of Licensed Mark on Invoices, etc. The use of the Licensed Mark by the Licensee on invoices, order forms, stationery and related materials, in advertising in telephone or other directory listings is permitted only upon CKI’s prior written approval of format in which the Licensed Mark is to be so used, the juxtaposition of the Licensed Mark with other words and phrases, and the specific trade name (and form and format thereof), the content of the copy and filing of a fictitious name certificate (‘‘d/b/a’’) or ‘‘trade name’’ certificate or notice, if using the Licensed Mark or portion (e.g., ‘‘CK’’) in such name (or other regional notice of ‘‘trade’’ name or use of the Licensed Mark) as applicable, as approved by CKI.
7.8 Monitoring. The Licensee shall use reasonable efforts to monitor the use of the Licensed Mark by the Licensee’s customers and to require its customers to advertise, display and promote the Licensed Mark in a manner consistent with the terms and conditions of this Agreement.
ARTICLE VIII. TERM AND TERMINATION
8.1 Expiration. The License and, subject to § 8.5, the other rights granted to the Licensee hereunder shall terminate at the end of the License Period and all rights shall immediately revert to CKI.
8.2 Other Rights Unaffected. It is understood and agreed that termination of the License or other rights granted to the Licensee hereunder by CKI on any ground shall be without prejudice to any other rights or remedies which CKI may have.
8.3 Right of Termination of the License. If any of the following grounds for termination shall occur, CKI may elect, by written notice to the Licensee, to terminate
(A) upon 20 business days notice unless cured within such 20 business days in the case of any of subsections ‘‘(b)’’ through ‘‘(e)’’;
(B) in the case of subsections ‘‘(f),’’ ‘‘(g),’’ ‘‘(h)’’ (alone or with other breaches or defaults), upon 30 business days notice (without any cure period); and
(C) upon 25 business days notice, unless cured within such 25 business days, in the case of subsections ‘‘(l)’’ or ‘‘(m)’’ (provided not with other breaches or defaults under other noted subsections),
the License and other rights granted to the Licensee hereunder:
(a) Deliberately Omitted ;
(b) The Licensee shall repeatedly sell or distribute individual items of Licensed Products (in other words, ‘‘a pattern’’ of behavior) , or shall sell at any time a significant quantity of Licensed Products in breach of CKI’s review and approval rights under § 6.2;
(c) Failure by the Licensee to perform or observe any term or covenant or agreement contained in § 11.4 or in § 4.10;
(d) The Licensee shall sell or distribute Licensed Products to retailers not approved by CKI or disapproved by CKI in accordance with or otherwise in breach of §§ 6.13 or 6.14 (unless such sale or distribution was inadvertent, and was of an insignificant quantity of products or single or isolated account, and the Licensee promptly represents to CKI in writing that steps to avoid such sales or distribution in the future are being taken (which steps are to be delineated in such writing), and are deemed acceptable to CKI’s reasonable satisfaction, and further provided that the Licensee does not repeat any such sales or distribution in breach of §§ 6.13 or 6.14 within the same Annual Period);
(e) Underpayment by the Licensee of Fees (including non-timely (i.e., on or within 15 business days of the due date) payment of any installment of Minimum Guaranteed Fees or MAE hereunder) of 7.5% or more with respect to any Annual Period, or of 5% or more with respect to any two (2) consecutive Annual Periods, unless such underpayment of fees (not MGF’s or MAE’s) was result of clerical or bank errors, or constitutes a ‘‘bona fide’’ dispute between the parties, which is the
CONFIDENTIAL TREATMENT |
subject of continuing good faith efforts to ‘‘resolve,’’ not known to a responsible officer or other financial person, and promptly corrected as soon as ‘‘known’’ or so advised by CKI);
(f) The Licensee institutes for its protection, or is made a defendant, in any proceeding under bankruptcy, insolvency, reorganization or receivership law, or the Licensee is placed in receivership or makes an assignment for benefit of creditors or is, or states that it is, unable to meet its debts in the regular course of business, and such involuntary proceedings or receiverships are not dismissed or vacated within 60 days of filing or appointment;
(g) Cessation by the Licensee of its business;
(h) The Licensee assigns, attempts to assign (entering into a binding term sheet or contingent contract or agreement, not just ‘‘discussion’’) , sublicense (without CKI’s approval), or otherwise transfers or attempts to transfer any of its rights or obligations hereunder. Any such attempted or completed assignment, sublicense or transfer (‘‘Transfer’’), whether voluntary or by operation of law, directly or indirectly, will be void and of no force or effect. For purposes of this Agreement, any transfer of all or a controlling portion or a majority of the shares of the Licensee or other ‘‘CK’’ affiliates by CK Jeanswear N.V., Fingen S.p.A., its affiliates, shall be deemed a transfer in violation of the terms hereof and prohibited as a ‘‘Transfer’’ hereunder. Prompt notice of any transfer by CK Jeanswear N.V., Fingen S.p.A. or its affiliates (other than Calvin Klein, Inc. or its successors, assignees or transferees) of more than five percent (5%) (whether over a period of time or all at once) (‘‘Notice’’) , shall be delivered to Licensor . Notwithstanding anything herein contained, a change-of-control Transfer shall be permitted if in accordance with all of the applicable provisions of the CKI/CF Group Irrevocable Consent d. 29 September 2005. In the event of any such CKI-permitted change-of-control Transfer, the provisions hereof shall apply to any ‘‘successor in interest’’ permitted Transferee (except that Notice shall apply to any transfer of more than 35% of the Transferee) . Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.
(i) A change, effect or circumstance occurs that is materially adverse to the business, condition, operations, performance or properties of Licensee’s ability to perform timely its otherwise material obligations under this Agreement , which would, with the normal passage of time, without cash infusion or other material improvement, result in liquidation, substantial discontinuance or even cessation of business (‘‘Material Adverse Effect’’) ;
(j) A final unappealable money judgement is entered against the Licensee in excess of € 2,500,000, which has not been satisfied and which would have a Material Adverse Effect ;
(k) Any indebtedness of the Licensee in excess of Euros €5 million is accelerated or otherwise comes due and payable before its stated maturity and is not subject to cure under the applicable instrument , which would have a Material Adverse Effect ;
(l) The failure by the Licensee to perform or observe any material term or covenant or agreement contained in this Agreement, other than those specified in §§ 8.3(a) to (k), and other than those cured to CKI’s reasonable satisfaction, within the applicable cure period (25 business days) for the second time in any Annual Period; or
(m) The repeated violation by the Licensee of any material term or covenant or agreement contained in this Agreement, other than those specified in §§ 8.3(a) to (k) and other than those cured to CKI’s reasonable satisfaction within the applicable cure period (25 business days).
8.4 Termination With Notice and Right to Cure. In the event of the failure by the Licensee to perform or observe any material term or covenant or agreement contained in this Agreement, other than those specified in § 8.3, CKI may terminate the License and the other rights granted to the Licensee under this Agreement by giving notice of termination to the Licensee (a ‘‘Notice of Termination’’), which termination shall become effective automatically unless the Licensee completely cures the breach within 30 days of the giving of the Notice of Termination unless such cure cannot be
CONFIDENTIAL TREATMENT |
completed within 30 days, in which case termination will not become effective so long as the Licensee is in good faith diligently and expeditiously attempting to cure such breach, only for up to, but not beyond, 90 days.
8.5 Effect of Termination. Upon the expiration or termination of the License and the License Period for any reason whatsoever, all of the rights of the Licensee under this Agreement shall forthwith terminate and immediately revert to CKI; all Fees on sales theretofore made shall become immediately due and payable; the Licensee shall forthwith discontinue all use of the Licensed Mark, except that the Licensee may, on a non-exclusive basis, during the period (i) commencing on the date of the expiration of the License Period pursuant to § 2.1 or termination of the License because of the breach of § 3.2 and ending 4 months thereafter or (ii) commencing on the date of the termination of the License pursuant to clause (b), (c), (d) or (e) of § 8.3 and ending 4 months thereafter (unless at the advance request of Licensee, which request includes an up-to-date inventory schedule, with anticipated disposition dates, CKI in writing agrees to extend such Disposal Period for up to an additional 30, 60 or 90-day period only, in no event to exceed 6 months in aggregate) (the ‘‘Disposal Period’’), consummate all sales of Licensed Products which were firm on the date of such expiration or termination and sell the balance of the Inventory not purchased by CKI within 45 days following date of expiration or termination, and sold within the applicable Disposal Period as provided in § 8.6; provided, however, that any advertising used during the Disposal Period shall be subject to CKI’s prior written approval and such disposition of the Licensed Products shall continue to be subject to the Licensee’s obligations hereunder, including, but not limited to, payments to be made to CKI, and Fees with respect thereto shall be due on the last day of the Disposal Period. Without limiting the generality of the first clause of this § 8.5, the Licensee acknowledges that activities, including sales during the Disposal Period, are on a non-exclusive basis. Subsequent to the Disposal Period or, if none, subsequent to such termination, the Licensee shall no longer use the Licensed Mark, any variation, imitation or simulation thereof, or any trademark similar thereto; and the Licensee shall thereupon deliver to CKI, free of charge, all sketches, designs, colors and the like in its possession or control, designed or approved by CKI, and all Labels supplied by CKI in the Licensee’s possession or control. CKI shall have the option, exercisable upon notice to the Licensee within 30 days of such expiration or termination, to negotiate the purchase of Labels which have not been supplied by CKI. If such negotiations do not result in the purchase of such Labels or any part of W-I-P, the Licensee shall destroy the unused Labels and W-I-P (except for greige goods or other unidentifiable generic materials otherwise useable by Licensee) at the end of the Disposal Period or, if none, upon such termination, under the supervision of CKI, and the Licensee shall supply to CKI a certificate of destruction thereof signed by a duly authorized officer of the Licensee.
8.6 Inventory Upon Termination. Upon the expiration or termination of the License and the License Period for any reason whatsoever, the Licensee shall deliver to CKI within 15 business days a complete and accurate schedule of Inventory of Licensed Products (i.e., inventory constituting finished Licensed Products on hand at termination, work-in-process, a/k/a ‘‘W-I-P,’’ to be completed and received in warehouse within 3 months only) as of the close of business on the date of) such expiration or termination (the ‘‘Inventory Schedule’’). CKI thereupon shall have the option, exercisable by written notice to the Licensee within 15 days after its receipt of the Inventory Schedule, to purchase (or to have its designee purchase) any or all of the Inventory (other than Inventory required to consummate sales of Licensed Products which were firm on the date of such expiration or termination) for an amount *** In the event such notice is sent by CKI, CKI (or its designee) may collect the Inventory referred to therein within 90 days after CKI’s notice. CKI (or its designee) will pay for the Inventory upon collection. In the event such notice is not sent, the Licensee may dispose of the Licensed Products during any Disposal Period pursuant to § 8.5; provided, however, that such disposition shall continue to be subject to the Licensee’s obligations hereunder, including, without limitation, with respect to the payment of fees and the approval of customers and advertising. At the end of the Disposal Period, or if none, upon such termination, any Licensed Products remaining in the Licensee’s possession or control, including, without limitation, in any stores of the Licensee, shall, at
CONFIDENTIAL TREATMENT |
the request of CKI, be destroyed. To the extent the Licensee completely removes the Licensed Mark from the Licensed Products, and all Labels attached to such Licensed Products, and such Licensed Products are not recognizable as a Licensed Product and cannot be distinguished from similar generic products generally available in the marketplace, such Products shall no longer be Licensed Products. CKI shall have the right at any time, and at its expense, to conduct a physical inventory of the Licensed Products then in the Licensee’s possession or control.
8.7 Freedom to License. CKI shall be free to license to others the use of the Licensed Mark in connection with the manufacture, sale, distribution and promotion of Licensed Products in the Territory upon termination or expiration of this Agreement and to enter into discussions and negotiations applicable thereto, provided only that no shipment of Licensed Products and no publication of institutional or consumer advertising of the Licensed Products pursuant to any such new license will be permitted prior to the termination or expiration of this Agreement.
8.8 Rights Personal. The License and rights granted hereunder are personal to the Licensee. No assignee for the benefit of creditors, receiver, trustee in bankruptcy, sheriff or any other officer or court charged with taking over custody of the Licensee’s assets or business, shall have any right to continue performance of this Agreement or to exploit or in any way use the Licensed Mark if this Agreement is terminated pursuant to §§ 8.3, 8.4 or 11.8, except as may be required by law.
8.9 Trustee in Bankruptcy. Notwithstanding the provisions of § 8.8, in the event that, pursuant to the applicable bankruptcy law (the ‘‘Code’’), a trustee in bankruptcy, receiver or other comparable person, of the Licensee, or the Licensee, as debtor, is permitted to assume this Agreement and does so and, thereafter, desires to assign this Agreement to a third party, which assignment satisfies the requirements of the Code, the trustee or the Licensee, as the case may be, shall notify CKI of same in writing. Said notice shall set forth the name and address of the proposed assignee, the proposed consideration for the assignment and all other relevant details thereof. The giving of such notice shall be deemed to constitute an offer to CKI to have this Agreement assigned to it or its designee for such consideration, or its equivalent in money, and upon such terms as are specified in the notice. The aforesaid offer may be accepted by CKI only by written notice given to the trustee or the Licensee, as the case may be, within 15 days after CKI’s receipt of the notice to such party. If CKI fails to deliver such notice within said 15 days, such party may complete the assignment referred to in its notice, but only if such assignment is to the entity named in said notice and for the consideration and upon the terms specified therein. Nothing contained herein shall be deemed to preclude or impair any rights which CKI may have as a creditor in any bankruptcy proceeding.
8.10 Compensation. Without limiting any right or remedy of CKI, if CKI terminates this Agreement pursuant to § 8.3, CKI shall have the right to ***
ARTICLE IX. INDEMNIFICATION AND INSURANCE
9.1 Indemnification by the Licensee. The Licensee does hereby indemnify and hold harmless CKI, its Affiliates, including, without limitation, PVH, CKTT, and its and their current and former respective directors, officers, employees, agents, trustees, and representatives, as well as Mr. Calvin Klein, his heirs, his estate and their respective legal representatives (each, an ‘‘Indemnified Party’) from and against any and all losses, liabilities, damages and expenses (including reasonable attorneys’ fees and expenses (including allocable costs of in-house counsel)), which an Indemnified Party may incur or be obligated to pay in any third party action, claim or proceeding, for or by reason of any acts, whether of omission or commission, that may be committed by the Licensee (which for purposes of this § 9.1, includes its Affiliates, but not Guarantor) or any of their servants, agents or employees in connection with the Licensee’s performance of this Agreement, including but not limited to:
(a) to the extent permitted by law, any alleged defect in any Licensed Product, regardless of whether the action is based upon negligence or strict liability, and regardless of whether the alleged negligence is characterized as ‘‘passive’’ or ‘‘active’’;
CONFIDENTIAL TREATMENT |
(b) the manufacture, labeling, sale or distribution of any Licensed Product by the Licensee;
(c) any violation of any warranty, representation or agreement made by the Licensee pertaining to a Licensed Product; or
(d) the claim of any broker, finder or agent used by the Licensee in connection with the making of this Agreement or any transactions contemplated by this Agreement.
CKI shall give the Licensee prompt written notice of any such claim or action and thereupon the Licensee shall undertake and conduct the defense of any suit so brought. In the event an appropriate action is not taken by the Licensee within 30 days of its receipt of notice from CKI, CKI shall have the right to defend such claim or action in its own name, but no settlement or compromise of any such claim or action may be made without the prior written consent of the Licensee, such consent not to be unreasonably withheld or delayed. In either case, CKI and the Licensee shall keep each other fully advised of all developments and shall cooperate fully with each other and in all respects in connection with any such defense. Such indemnification shall be deemed to apply solely to the amount of the judgement, if any, against CKI and reasonable sums paid by CKI in connection with its defense, and shall not apply to any consequential damages suffered by CKI which are not included in the aforementioned judgement. The provisions of this § 9.1 and the Licensee’s obligations hereunder shall survive any termination of the License or rescission of this Agreement.
9.2 Notice of Suit or Claim. The Licensee shall promptly inform CKI by written notice of any suit or claim against the Licensee relating to the Licensee’s performance under this Agreement, whether such suit or claim is for personal injury, involves alleged defects in the Licensed Products manufactured, sold or distributed hereunder, or otherwise.
9.3 Indemnification by CKI. CKI does hereby indemnify and hold harmless the Licensee and its Affiliates, and their respective managers, directors, members, shareholders, employees and agents from and against any and all losses, liability, damages and expenses (including reasonable attorneys’ fees, costs and expenses, but excluding consequential damages, incidental damages and lost profits) which any of them may incur or for which it may become liable or compelled to pay in any action or claim alleging: (i) CKI’s breach of any representation or warranty of CKI hereunder in § 11.1; or (ii) that the Licensee’s use of the Licensed Mark in accordance with the terms of this Agreement violates the bona fide trademark ownership rights of a third party in the United States or Canada. The Licensee will promptly notify CKI of any action or claim brought to its attention; provided, however, that the failure to promptly notify CKI shall not relieve CKI of its obligation hereunder, except to the extent (if any) that CKI actually prejudiced thereby. The provisions of this § 9.3 and the obligations of CKI set forth herein shall survive the expiration or other termination of this Agreement.
9.4 Insurance.
9.4.1 Requirement. Without limiting the Licensee’s liability pursuant to the indemnity provisions of this Agreement, the Licensee shall maintain comprehensive general liability insurance in the amount of at least *** with a broad form property damage liability endorsement. This insurance shall include broad form blanket contractual liability, personal injury liability, products and completed operations liability. Each coverage shall be written on an ‘‘occurrence’’ form.
9.4.2 General Provision. The insurance described in § 9.4.1 shall include: (i) a cross-liability endorsement naming each of CKI, CKTT, and Mr. Calvin Klein; (ii) an endorsement stating that CKI shall receive at least 30 days’ written notice prior to cancellation or non-renewal of coverage; (iii) an endorsement naming each of CKI, CKTT, and Mr. Calvin Klein as additional insureds; (iv) an endorsement stating that the insurance required by this Agreement is primary and that any insurance purchased by CKI, CKTT, or Mr. Calvin Klein shall only apply in excess of the insurance purchased by the Licensee; (v) a waiver of subrogation in favor of each of CKI, CKTT, and Mr. Calvin Klein; and (vi) an endorsement stating that each of CKI, CKTT, and Mr. Calvin Klein may recover for any loss caused CKI, its agents or employees, whether caused by the negligence (including active, passive and gross negligence) of the Licensee, or otherwise.
CONFIDENTIAL TREATMENT |
9.4.3 Approved Carrier/Policy Changes. All insurance shall be obtained from primary, and financially capable and reputable, insurance companies. The Licensee shall give at least 30 days’ prior written notice to CKI of the cancellation or any modification of such insurance policy that would affect any of CKI’s, CKTT’s, or Mr. Calvin Klein’s status or benefits thereunder. This insurance may be obtained for CKI, CKTT, or Mr. Calvin Klein by the Licensee in conjunction with a policy which covers products other than the Licensed Products.
9.4.4 Evidence of Coverage. No later than 20 days from the date hereof, the Licensee shall furnish to CKI evidence, in form and substance satisfactory to CKI, of the maintenance and renewal of the required insurance copies of policies with applicable riders and endorsements) and certificates of insurance.
9.4.5 Territory. The insurance set forth in this § must cover the entire Territory to the extent available in each jurisdiction in the Territory.
ARTICLE X. COMPLIANCE WITH LAWS
10.1 Compliance with Laws. The Licensee shall comply with all laws, rules, regulations and requirements of any governmental body which may be applicable to the operations of the Licensee contemplated hereby, including, without limitation, as they relate to the manufacture, distribution, sale or promotion of Licensed Products, notwithstanding the fact that CKI may have approved such item or conduct.
10.2 Equitable Relief. CKI shall be entitled to equitable relief by way of temporary and permanent injunction and such other and further relief at law or in equity as any court with jurisdiction may deem just and proper. The Licensee waives the requirement of the posting of a bond in connection with any application by CKI for equitable relief.
ARTICLE XI. MISCELLANEOUS
11.1 Warranties and Representations of the Parties. Each of the parties hereby represents and warrants to the other party that: it is a corporation (or limited liability company, as applicable) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; it has the full right, power and authority to enter into, and perform its obligations under, this Agreement; and all necessary corporate acts have been effected by it to render this Agreement valid and binding upon it.
11.2 Definitions. Each of the following terms (unless deliberately omitted) has the meaning ascribed thereto in the applicable § therein contained:
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Defined Term | ![]() |
|||||
![]() |
Advertising Obligation
Advertising Overage
Advertising Shortfall
Affiliates
Agreed Upon Season’s Themes
Annual Period
Anti-Diversion Efforts
Annual Period
Approved Accounts
Approved Design Concepts
Approved Prototypes
Approved Seconds and Closeouts
Accounts
CKI
CKI Stores
CKTT
Close-Outs
Code
Collection
Co-operative Advertising
CRK
CRK Fee
Design Concepts
Disclosing Party
Disposal Period
Diversion
E-Commerce
Excluded Design
Gross Sales
Minimum Guaranteed Fees
Indemnified Party
Initial License Period
Inventory
Inventory Schedule
Labels
License
Licensed Mark
License Period
Licensed Products
Licensee
Licensing Forecast
Minimum Net Sales Threshold
Net Sales
Network
Non-Conforming Products
Notice of Termination
Parallel Imports
Percentage Fees
PR Overage
PR Shortfall
Products
PVH
Renewal License Period
Seconds
Standards
Territory
Time And Action Calendar
Third-Party Manufacturing
Agreement
Trademark Security Plan
Transfer
CONFIDENTIAL TREATMENT |
11.3 Notices. All reports and notices required or permitted to be given under this Agreement shall be in writing and shall, unless specifically provided otherwise in this Agreement, be deemed to have been given if personally delivered or faxed (on the date of messengering or faxing), or if mailed, three business days from the date of mailing (by certified or registered mail, return receipt requested and postage prepaid), or if by overnight air courier, one business day from the date of overnight air courier handling as follows:
![]() |
![]() |
![]() |
If to CKI, to: | ![]() |
Calvin Klein, Inc. 205 West 39th Street New York, New York 10018 Attention: President and Chief Operating Officer Telephone: (212) 292-9901 Facsimile: (212) 292-9933 |
![]() |
![]() |
![]() |
With a copy to: | ![]() |
Calvin Klein,
Inc. 205 West 39th Street New York, New York 10018 Attention: General Counsel Telephone: (212) 292-9652 Facsimile: (212) 764-6784 |
![]() |
![]() |
![]() |
If to the Licensee, to: | ![]() |
CK Jeanswear Europe S.p.A. Via Provinciale Lucchese 181 50019 Sesto Fiorentino, Florence, Italy Attn.: Chief Executive Officer Telephone: +39 055 305 442 Facsimile: +39 055 310 506 |
![]() |
![]() |
![]() |
If to Warnaco, to: | ![]() |
WF Overseas Fashion C.V. c/o Warnaco Inc. 501 Seventh Avenue New York, New York 10018 Attn: General Counsel Telephone: (212) 287-8282 Facsimile: (212) 287-8275 |
Requests for approvals with appropriate submissions shall be sent to the applicable party, either CRK, the President or the designated design staff member. Financial reports shall be sent to the designated party in the Finance Department. A party may change its address for receipt of notices at any time upon notice to the other party.
11.4 Assignment. The License and all rights granted to the Licensee hereunder are personal in nature, and the Licensee shall not Transfer the License, this Agreement or its rights and interest hereunder, or any part hereof, without the prior written consent of CKI, which consent may be withheld by CKI in its sole and absolute discretion.
11.5 Sublicense. The Licensee is prohibited from granting any sublicenses under this Agreement unless approved by CKI.
Licensee shall have the right to grant a distributorship or distributorships (excluding a sublicense) for limited areas or jurisdictions in the Territory), but no such distributorship shall reduce in any way Licensee's obligations hereunder nor may such distributorship or any sublicense agreement be entered into unless the following terms and conditions are first satisfied:
CONFIDENTIAL TREATMENT |
(i) The term of any distributorship or sublicense agreement shall be no more than five (5) years or five (5) years plus five (5) years contingent on at least compliance (with automatic termination upon termination of this Agreement);
(ii) The distributor or sublicensee must agree to comply in its activities as a distributor or sublicensee with all of the provisions of this Agreement applicable to such distribution;
(iii) The distributor or sublicensee must agree not to assign, transfer, or further grant the distributorship agreement or sublicense agreement itself or any of the rights granted to it thereunder without CKI's prior written consent; and
(iv) The distributor or sublicensee must acknowledge that each of CKI, CKTT and Mr. Calvin Klein are third-party beneficiaries, must afford CKI rights of inspection, approval and termination consistent with its rights pursuant to this Agreement, which it may exercise directly, including rights of termination, and must indemnify CKI, CKTT and Mr. Calvin Klein from liabilities and claims specifically in accordance with the provisions hereof;
(v) Licensee must deliver a copy of each distributorship and proposed sublicense agreement and must subsequently deliver a copy of each material amendment thereof, to CKI, prior to the execution thereof in the case of any proposed sublicense for review and approval, and shall deliver a conformed copy to CKI promptly after its execution and the execution of each amendment thereto;
(vi) if Licensee enters into an agreement and fails to control, pursuant to this Agreement or the terms of the distributorship agreement or sublicense agreement, the distributor or sublicense thereunder, and as a result of such failure fails to prevent a breach by such distributor or sublicensee of any provision of this Agreement or the distributorship agreement or sublicense agreement, CKI may, in addition to all of its other rights and remedies under this Agreement, require Licensee to ameliorate the effect of such breach; and
(vii) if applicable, ***
11.6 Assignment by CKI. CKI shall have a complete and unrestricted right to Transfer any or all of its rights and interests in this Agreement, provided that such transferee is bound by all of the terms hereof, and subject to the Licensee’s right to continue to exercise all of its rights hereunder.
11.7 No Agency. The Licensee shall not represent itself as the agent or legal representative of CKI or its Affiliates for any purpose whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever. CKI shall similarly not represent itself as the agent or legal representative of the Licensee or its Affiliates for any purposes whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever.
11.8 Suspension of Obligations. If the Licensee shall be prevented from performing any of its obligations because of Federal governmental regulation or martial order, or by war, declared or undeclared, or other major and material calamities such as fire, earthquake, or similar Acts of God, the Licensee’s obligations shall be suspended during the period of such conditions except for payment and provided the Licensee promptly commences and proceeds diligently to ameliorate the effect. If such condition continues for a period of more than 60 days, CKI shall have the right to terminate this Agreement.
11.9 Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and, subject to §§ 11.4 and 11.6, their successors and assigns. PVH, CKTT and Mr. Calvin Klein (with respect to §§ 9.1 and 9.4) shall be third-party beneficiaries of this Agreement and, whether or not expressly set forth herein, shall have the right (a) to exercise, and enforce against the Licensee, the rights of CKI hereunder if CKI fails to exercise such rights, and (b) to exercise, and enforce against the Licensee, the same rights as CKI hereunder in addition to (and not in lieu of) any
CONFIDENTIAL TREATMENT |
rights CKI has hereunder. Nothing herein shall be deemed to give the Licensee any rights to make any claim against PVH, CKTT and/or Mr. Calvin Klein.
11.10 Entire Agreement; Amendment. This Agreement, including the exhibits hereto, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and all prior agreements, contracts, promises, representations and statements between them, if any, whether written or oral, with respect thereto are merged into and superseded by this Agreement (except as specifically set forth herein). This Agreement may not be amended or modified, except in a writing signed by both parties hereto and exchanged between them.
11.11 Non-Waiver. No waiver by either party of any breach hereof or default hereunder will constitute a continuing wavier of such provision or of any other provision of this Agreement. Acceptance of payment by CKI will not be deemed a waiver by CKI of any violation of or default under any of the provisions of this Agreement by the Licensee or an election of remedies as to which any and all rights (and all remedies) are expressly reserved and retained.
11.12 Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not be affected or impaired in any other jurisdiction, nor shall the remaining provisions contained herein in any way be affected or impaired thereby, unless CKI determines such provision was material, in which case CKI may terminate this Agreement.
11.13 Headings. The headings of the Articles and sections of this Agreement are for convenience only and in no way limit, define or affect the terms or conditions of this Agreement.
11.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
11.15 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW. (HOWEVER, DISPUTES REGARDING THE LICENSED MARK WILL BE RESOLVED IN ACCORDANCE WITH THE U.S. FEDERAL TRADEMARK LAWS AND RELATED LAWS, STATUES, RULES AND REGULATIONS OF THE UNITED STATES UNLESS THERE ARE NO U.S. FEDERAL LAWS, STATUTES, RULES OR REGULATIONS DISPOSITIVE OF SUCH DISPUTE, IN WHICH EVENT SUCH DISPUTES WILL BE RESOLVED IN ACCORDANCE WITH THE PREVIOUSLY DESCRIBED LAWS OF THE STATE OF NEW YORK.)
11.16 Jurisdiction. Any legal action or proceeding with respect to this Agreement shall be brought in the federal or state courts seated in the County of New York, State of New York and, by execution and delivery of this Agreement, each party hereby accepts for itself and in respect to its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts. The Licensee hereby irrevocably and unconditionally waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing or maintaining of any such action or proceeding in such respective jurisdictions, and specifically acknowledges and agrees that any judicial opinion and/or decision rendered, judgement award in order issued by the courts of the State of New York and/or the federal courts located therein, will be enforceable in any jurisdiction. Any such opinion, decision, judgement and/or order may be deposited in the applicable jurisdictional venue and court in Italy or elsewhere in the Territory with full force and effect as if rendered within such venue and by such judicial authority with the same full force and effect. Each party irrevocably and unconditionally consents to the service of process of the aforementioned courts in any such action or proceeding by the mailing of copies
CONFIDENTIAL TREATMENT |
thereof by registered or certified mail, postage prepaid, to the other party at its address for notices provided in § 11.3, such service to become effective 30 days after such mailing.
11.17 Non-Solicitation.
(a) The Licensee agrees that ***
(b) CKI agrees that ***
11.18 Confidentiality. Each of the parties hereto acknowledges that it may receive from the other (the ‘‘Disclosing Party’’): (a) prints, designs, ideas, sketches, and other materials or information, including, without limitation; (b) financial or business information; (c) a formula, pattern, compilation, program, device, method, technique, or process; or (d) other information that in each case derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use which the Disclosing Party intends to use on or in connection with lines of merchandise other than the Licensed Products and which have not as yet found their way into the channels of distribution. The parties recognize that these materials are valuable property of the Disclosing Party. Each of the parties hereto acknowledges the need to preserve the confidentiality and secrecy of these materials and agrees to take all necessary steps to ensure that use by it, or by its contractors, will in all respects preserve such confidentiality and secrecy, while acknowledging that each of the parties works with others on product development and designs. None of the parties shall, at any time during the License Period or any time thereafter, disclose or use for any purpose, other than as contemplated by this Agreement, any confidential information and data relating to the business of the other, except as required or otherwise considered necessary in or to its business, but under its normal and customary confidentiality procedures applicable overall as to such use. Nothing herein shall be deemed to limit CKI’s rights under §§ 6.8 and 6.12. The provisions of this § 11.18 shall not apply to information that (i) is now or hereafter becomes generally available to the public, other than as a result of a breach hereof, or (ii) is obtained from a third party that, to the knowledge of the party receiving the information, is not under any obligation to keep such information confidential. Notwithstanding anything in this § 11.18 to the contrary, if any party becomes legally compelled (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any of the confidential information, such party shall provide the others with prompt written notice of such requirement so that the party whose information it is may seek a protective order or other appropriate remedy. If such protective order or other remedy is not obtained, the party under compulsion to disclose the information agrees to disclose only that portion of the confidential information, which it is advised by counsel, is legally required to be disclosed, and it agrees to take all reasonable steps to preserve the confidentiality of the confidential information (including by obtaining, at the cost of the owner of the information, an appropriate protective order or other reliable assurance that confidential treatment will be accorded the confidential information). In addition, the party under compulsion to disclose the information shall not oppose any effort (and shall, if and to the extent requested by the owner of the information, cooperate with, assist and join with the owner of the information, at the expense of the owner of the information) in any action by the owner of the information to obtain a protective order or other reliable assurance that confidential treatment will be accorded the confidential information.
11.19 Cross Termination. ***
11.20 Assignment Within Warnaco Family. Following the closing of the Transaction, pursuant to which Warnaco will, in accordance with its terms, acquire the business of Operator, this Agreement may be assigned within the Warnaco family of companies in accordance with the terms as agreed by CKI and set forth in writing simultaneously herewith.
CONFIDENTIAL TREATMENT |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
![]() |
CALVIN KLEIN, INC. |
![]() |
By: /s/ Tom
Murry
Name: Tom Murry Title: President and COO |
![]() |
CK JEANSWEAR EUROPE, S.P.A. |
![]() |
By: /s/ Lawrence R. Rutkowski
Name: Lawrence R. Rutkowski Title: Vice President and Treasurer |
![]() |
WF OVERSEAS FASHION C.V. |
![]() |
By: Warnaco U.S., Inc., its general partner |
![]() |
By: /s/ Stanley P.
Silverstein
Name: Stanley P. Silverstein Title: President and Secretary |
CONFIDENTIAL TREATMENT |
SCHEDULE 6.13
APPROVED ACCOUNTS
CONFIDENTIAL TREATMENT |
SCHEDULE 6.14
APPROVED SECONDS AND CLOSE-OUTS ACCOUNTS
CONFIDENTIAL TREATMENT |
SCHEDULE S
SHAREHOLDERS
![]() |
![]() |
![]() |
Name/Address/Position | ![]() |
#/% Shareholdings |
CONFIDENTIAL TREATMENT |
EXHIBIT T
TERRITORY
European Union at 1 May 2004, which included Austria, Belgium, Luxembourg, Netherlands, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, Portugal, Spain, Sweden, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Slovenia, Hungary, Poland, Malta, Cyprus.
Also Norway, Switzerland, Monte Carlo, Vatican City, Liechtenstein, Iceland and
Eastern Europe and Russia, consisting of:
Croatia, Bosnia-Herzegovina, Serbia, Macedonia, Bulgaria, Romania, Moldavia, Ukraine, Byelorussia, ex-C.I.S. (Russia), Georgia, Armenia, Azerbaijan, Kazakhstan and Uzbekistan.
Middle East:
Lebanon, Israel, Palestine, Jordan, Iran, Saudi Arabia, Yemen, Qatar, Kuwait, Bahrain, Oman, UAE, Egypt and Turkey.*
Africa**:
South Africa, Tunisia, Algeria, Morocco, Ivory Coast, Senegal, Nigeria.
* Not Syria, as regulations preclude protection of trademark, until registration of trademark may occur, as advised by CKI.
** N.B. — for trademark, only OAPI application/registration.
CONFIDENTIAL TREATMENT |
EXHIBIT P
PRODUCTS
Products shall mean:
***
CONFIDENTIAL TREATMENT |
EXHIBIT B
ROYALTY STATEMENT
FORM MUST BE SUBMITTED COMPLETED
CALVIN KLEIN, INC.
Page
of
Date
NAME OF LICENSEE:
LICENSEE’S ADDRESS:
LICENSED PRODUCT:
205 For each month during the period of to (the ‘‘Period’’).
For the month of .
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Category | ![]() |
Style No. | ![]() |
Units | ![]() |
Gross Sales | ![]() |
Discounts | ![]() |
Net Sales | ![]() |
Percentage Fees | ||||||||||||||
![]() |
For the month of .
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Category | ![]() |
Style No. | ![]() |
Units | ![]() |
Gross Sales | ![]() |
Discounts | ![]() |
Net Sales | ![]() |
Percentage Fees | ||||||||||||||
![]() |
For the month of .
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Category | ![]() |
Style No. | ![]() |
Units | ![]() |
Gross Sales | ![]() |
Discounts | ![]() |
Net Sales | ![]() |
Percentage Fees | ||||||||||||||
![]() |
TOTAL
![]() |
![]() |
205 | NET SALES BY ACCOUNT |
![]() |
![]() |
205 | INVENTORY AS OF THE END OF THE PERIOD: |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Style Number | ![]() |
Units | ![]() |
Wholesale Price | ||||||
![]() |
CONFIDENTIAL TREATMENT |
The undersigned, the of the Licensee, does hereby certify that the foregoing information provided to CKI pursuant to the License Agreement is complete and accurate.
IN WITNESS WHEREOF, the undersigned has executed this Royalty Statement on this day of , .
![]() |
LICENSEE : |
![]() |
By:______________________________________ |
![]() |
Name: |
![]() |
Title: Chief Financial Officer or other duly authorized executive officer as applicable |
The completion of this statement does not limit the Licensee’s right to receive credit for payments of Minimum Guaranteed Fees and Percentage Fees as set forth said License Agreement.
CONFIDENTIAL TREATMENT |
EXHIBIT D
THIRD-PARTY
MANUFACTURING
AGREEMENT
AGREEMENT, dated , , by and between (the ‘‘Licensee’’), having an address at , and (the ‘‘Manufacturer’’), having an address at .
WITNESSETH:
WHEREAS, the Licensee pursuant to a License Agreement with CALVIN KLEIN, INC. (‘‘CKI’’) has been granted a license (‘‘License’’) to use the CK/CALVIN KLEIN trademark (the ‘‘Licensed Mark’’) in connection with the distribution, sale and marketing of certain goods (‘‘Licensed Products’’);
WHEREAS, CKI, a subsidiary of Phillips-Van Heusen Corporation (‘‘PVH’’), is the licensee and beneficial owner of the trademarks CALVIN KLEIN, CK and CK/CALVIN KLEIN for certain products, which are owned of record by the Calvin Klein Trademark Trust (‘‘CKTT’’), and PVH is the owner, licensee or sublicensee of the trademarks VAN HEUSEN, IZOD, IZOD CLUB, BASS, G.H. BASS, GEOFFREY BEENE, ARROW, KENNETH COLE NEW YORK, REACTION BY KENNETH COLE, BCBG MAX AZRIA and DKNY, and PVH’s policy is not to place, and to cause its subsidiaries and their respective licensees and sublicensees not to place, orders with any manufacturer or subcontractor that breaches the provisions contained in this Agreement and similar provisions contained in other third-party manufacturing agreements of PVH or any of its affiliates, including, without limitation, CKI;
WHEREAS, the License entitles the Licensee to subcontract the manufacture and/or assembly of the Licensed Products to third parties, subject to certain express limitations and conditions; and
WHEREAS, the Licensee has selected the Manufacturer as a manufacturer to produce the Licensed Products for the Licensee subject and pursuant to the terms and conditions set forth below;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Manufacturer shall have no rights in or to the Licensed Mark or in any mark similar thereto by reason of its manufacture of the Licensed Products and shall only use the Licensed Mark in strict accordance with the Licensee’s instructions.
2. The Manufacturer recognizes the validity of the Licensed Mark and will take no action, either during the term of this Agreement or at any time thereafter, in derogation of CKI’s and/or CKTT’s entire right and interest in and to the Licensed Mark or any value thereof or prestige related thereto. The Manufacturer will not, either during the term of this Agreement or at any time thereafter, oppose, petition to cancel or otherwise interfere with any registration CKI or CKTT has now or may obtain in the future for the Licensed Mark.
3. The Manufacturer will manufacture and sell the Licensed Products and/or assemble the Licensed Products and will deliver them only to the Licensee or to the Licensee’s authorized representative or agents. Any and all Licensed Products produced by the Manufacturer which do not meet the Licensee’s quality standards or result from overruns or cancellations of the Licensee’s orders (collectively, ‘‘Rejected Products’’) will be strictly accounted for and physically maintained, at the Manufacturer’s sole expense, in the Manufacturer’s warehouse or such other place as may be under the Manufacturer’s exclusive access and control. Rejected Products not bearing the Licensed Mark or any identifying logo may be sold to any third party;provided; however, that all labels, hang tags, and other identifying marks must be removed from such Rejected Products before sale to such a third party. Rejected Products bearing the Licensed Mark or any identifying logo may be sold to any third
CONFIDENTIAL TREATMENT |
party; provided, however, that (A) such Rejected Products must be held for a minimum period of three months after the original ship date of the Licensee’s purchase order, and (B) all labels must be cut and the Product clearly and significantly stamped ‘‘irregular’’ before sale to such a third party. *1 *
4. The Manufacturer will follow the specifications and standards from time to time stipulated by the Licensee and will permit the Licensee, CKI and PVH to inspect the manufacturing processes and provide samples of the Licensed Products in order for the Licensee, CKI or PVH, as the case may be, to satisfy itself that the specifications and standards are being met.
5. The Manufacturer acknowledges that the Licensee may provide it with certain prints, designs, ideas, sketches and other materials or trade secrets which may or will be used in connection with the Licensed Products and/or lines of merchandise other than the Licensed Products which have not been announced to the public or entered the stream of commerce. The Manufacturer recognizes that such materials are exclusive and valuable property of CKI or PVH and acknowledges the need to preserve the confidentiality and secrecy of such materials. The Manufacturer agrees to take all reasonable precautions to protect the secrecy of the materials, samples and designs prior to their commercial distribution or the showing of samples of same for sale. The Manufacturer will also take all reasonable precautions to protect the secrecy of the original designs created either by CKI, PVH or the Licensee for Licensed Products prior to their advertisement, commercial distribution or the showing of samples for sale. During the term of this Agreement, the Manufacturer will not disclose or use for any purpose not contemplated by this Agreement any confidential information or data that is proprietary to CKI, PVH or the Licensee.
6. The Manufacturer shall institute procedures to control the storage, requisition from storage and use all labels, packages and other materials bearing the Licensed Mark to safeguard against the escape or unauthorized use of the Licensed Mark or Licensed Products.
7. The Manufacturer will adhere to the standards and guidelines set forth in PVH’s publication ‘‘A Shared Commitment — Requirements for Suppliers, Contractors, Business Partners’’ and PVH’s ‘‘Statement of Corporate Responsibility,’’ copies of which the Manufacturer acknowledges it has received. The Manufacturer further acknowledges that it has read and understands such publications. The Manufacturer will communicate immediately to the Licensee
any departure from such standards and guidelines. The Manufacturer acknowledges that compliance with such standards and guidelines is a prerequisite to a continuing relationship with the Licensee.
In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not be affected or impaired in any other jurisdiction, nor shall the remaining provisions contained herein in any way be affected or impaired thereby.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPALS OF CONFLICTS OF LAW.
![]() |
![]() |
![]() |
1 | **Bracketed language should be deleted where agreement is with subcontractor. |
CONFIDENTIAL TREATMENT |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
![]() |
LICENSEE: |
![]() |
By:____________________________ Name: Title: |
![]() |
MANUFACTURER: |
![]() |
By:____________________________ Name: Title: |
CONFIDENTIAL TREATMENT |
EXHIBIT E
PRODUCTION FACILITY EVALUATION FORM
FORM MUST BE SUBMITTED COMPLETED
CALVIN KLEIN, INC.
Page
of
Date
NAME OF LICENSEE:
LICENSEE’S ADDRESS:
![]() |
![]() |
LICENSED PRODUCT: |
PRODUCTION FACILITY:
Name:____________________________________________________________________
Name of President of Production Facility______________________________________________
Address: &nbs ;
![]() |
|
![]() ![]() |
![]() |
![]() |
Product: &nbs ;
Date Factory Evaluation Completed:
Signed:
(Note: Must be signed by an authorized officer of the division producing Licensed Products)
![]() |
||
![]() |
![]() ![]() |
![]() |
![]() |
(Print Name)
Submit to the attention of:
![]() |
CALVIN KLEIN, INC. 205 West 39th Street New York, NY 10018 Attention: |
CONFIDENTIAL TREATMENT |
Deirdre Miles-Graeter 10 May 2005
SCHEDULE OF ISSUED
REGISTRATIONS AND
PENDING APPLICATIONS FOR
‘‘CK/CALVIN KLEIN’’ TRADEMARKS IN CLASS
25
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE | ![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. | ![]() |
CLASS | ||||||||
Algeria | ![]() |
16 Aug 95 | ![]() |
Reg. No. 49384 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
30 Dec 95 | ![]() |
Reg. No. 50097 | ![]() |
18,25 (CK/Calvin Klein) | |||||||||
Armenia | ![]() |
14 Oct 98 | ![]() |
Reg. No. 3633 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
21 Apr 97 | ![]() |
Reg. No. 4134 | ![]() |
24,25,42 (CK/Calvin Klein) | |||||||||
Austria | ![]() |
11 Oct 93 | ![]() |
Reg. No. 153,247 | ![]() |
18,24,25 (CK/Calvin Klein) | ||||||||
Azerbaijan | ![]() |
10 Jun 99 | ![]() |
Reg. No. 990586 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Bahrain | ![]() |
31 May 95 | ![]() |
Reg. No. 18853 | ![]() |
25(CK/Calvin Klein) | ||||||||
Byelorussian | ![]() |
18 Dec 97 | ![]() |
Reg. No. 7637 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
24 Apr 97 | ![]() |
Ser. No. 970,704 | ![]() |
24,25,42 (CK/Calvin Klein) | |||||||||
Bulgaria | ![]() |
23 May 95 | ![]() |
Reg. No. 27675 | ![]() |
3,18,24,25 (CK/Calvin Klein) | ||||||||
Croatia | ![]() |
28 Jun 95 | ![]() |
Reg. No. Z-951067 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
18 Mar 93 | ![]() |
Reg. No. Z-930655 | ![]() |
3,25(re-reg Yugoslav#34173) | |||||||||
CTM | ![]() |
1 Apr 96 | ![]() |
Reg. No. 66712 | ![]() |
3,4,8,9,14,16,18,20,21, 24,25,26,27,35,42(CK/Calvin Klein) | ||||||||
![]() |
21 Aug 97 | ![]() |
Reg. No. 617415 | ![]() |
9,25 (CK/Calvin Klein) | |||||||||
Cyprus | ![]() |
5 Mar 96 | ![]() |
Reg. No. 44740 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Czech Republic | ![]() |
27 Mar 97 | ![]() |
Reg. No. 198,533 | ![]() |
9,18,25 (CK/Calvin Klein) | ||||||||
Denmark | ![]() |
10 Dec 93 | ![]() |
Reg. No. 08562/1993 | ![]() |
3,18,25 (CK/Calvin Klein) | ||||||||
Egypt | ![]() |
18 Apr 95 | ![]() |
Reg. No. 95389 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Estonia | ![]() |
21Feb97 | ![]() |
Reg. No. 22535 | ![]() |
18,25(CK/Calvin Klein) | ||||||||
Finland | ![]() |
6Feb95 | ![]() |
Reg. No. 136190 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
France (St. Martin, St. Barthelomy, French Guiana & other French Antilles) | ![]() |
25 Aug 93 | ![]() |
Reg. No. 93/481421 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Georgia | ![]() |
30 Apr 98 | ![]() |
Reg. No. 9139 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
7 Jul 98 | ![]() |
Reg. No. 9934 | ![]() |
24,25,42 (CK/Calvin Klein) | |||||||||
Germany | ![]() |
5 Jul 94 | ![]() |
Reg. No. 2070077 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Greece | ![]() |
26 Oct 93 | ![]() |
Reg. No. 116,446 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
19 Sep 96 | ![]() |
Reg. No. 130,753 | ![]() |
9,25 (CK/Calvin Klein) | |||||||||
Hungary | ![]() |
15 Nov 95 | ![]() |
Reg. No. 145,249 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Iceland | ![]() |
27 Apr 94 | ![]() |
Reg. No. 284/1994 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE | ![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. | ![]() |
CLASS | ||||||||
Iran | ![]() |
4 May 96 | ![]() |
Reg. No. 79864 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Ireland | ![]() |
21 Sep 93 | ![]() |
Reg. No. 157,276 | ![]() |
25 (CK/Calvin Klein) | ||||||||
![]() |
21 Aug 97 | ![]() |
Reg. No. 208,239 | ![]() |
8,21,25,26,27,35 (CK/Calvin Klein) | |||||||||
Israel | ![]() |
4Feb97 | ![]() |
Reg. No. 98092 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Italy | ![]() |
12 Apr 96 | ![]() |
Reg. No. 675,586 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Jordan | ![]() |
8 May 95 | ![]() |
Reg. No. 37965(r) | ![]() |
25 (CK/Calvin Klein) | ||||||||
Kazakhstan | ![]() |
1 Oct 97 | ![]() |
Reg. No. 6157 | ![]() |
18,25(CK/Calvin Klein) | ||||||||
![]() |
24Feb99 | ![]() |
Reg. No. 8324 | ![]() |
24,25,35,42 (CK/Calvin Klein) | |||||||||
Kuwait | ![]() |
30 Nov 96 | ![]() |
Reg. No. 31697 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Latvia | ![]() |
20 Aug 97 | ![]() |
Reg. No. LV M-37968 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Lebanon | ![]() |
14 Jun 95 | ![]() |
Reg. No. 66134 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Liechtenstein | ![]() |
24Feb95 | ![]() |
Reg. No. 9322 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Lithuania | ![]() |
25 Aug 95 | ![]() |
Reg. No. LT-31807 | ![]() |
18,25(CK/Calvin Klein) | ||||||||
Malta & Gozo | ![]() |
8 May 96 | ![]() |
Reg. No. 25650 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Morocco | ![]() |
22 Aug 95 | ![]() |
Reg. No. 57300 | ![]() |
18,25(CK/Calvin Klein) | ||||||||
![]() |
1 Mar 96 | ![]() |
Reg. No. 58871 | ![]() |
3,4,8,9,14,16,18,20,21,24,25,26, 27,35,42(CK/Calvin Klein) | |||||||||
Nigeria | ![]() |
9 Dec 93 | ![]() |
Reg. No. 57750 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Norway | ![]() |
10 Nov 94 | ![]() |
Reg. No. 165,458 | ![]() |
25 (CK/Calvin Klein) | ||||||||
*OAPI | ![]() |
24 Nov 95 | ![]() |
Reg. No. 35745 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Oman | ![]() |
29 May 96 | ![]() |
Reg. No. 13673 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Poland | ![]() |
28 May 99 | ![]() |
Reg. No. 106459 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Portugal | ![]() |
15 Dec 94 | ![]() |
Reg. No. 295,319 | ![]() |
25(CK/Calvin Klein) | ||||||||
Qatar | ![]() |
11 Jun 02 | ![]() |
Reg. No. 13233 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Romania | ![]() |
16 Aug 95 | ![]() |
Reg. No. 24051 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
Russian Federation (former USSR) |
![]() |
18 Jul 97 | ![]() |
Reg. No. 154,946 | ![]() |
18,24,25 (CK/Calvin Klein) | ||||||||
![]() |
15 Sep 98 | ![]() |
Reg. No. 167,772 | ![]() |
24,25,42 (CK/Calvin Klein) | |||||||||
(Republic of) Saudi Arabia | ![]() |
11 Sep 94 | ![]() |
Reg. No. 319/11 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Slovak Republic | ![]() |
28 Jan 99 | ![]() |
Reg. No. 184071 | ![]() |
18,25(CK/Calvin Klein) | ||||||||
Slovenia | ![]() |
20 Dec 96 | ![]() |
Reg. No. 9570583 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE | ![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. | ![]() |
CLASS | ||||||||
South Africa (Covers Venda Transkei & Bophuthatswana) | ![]() |
24 Apr 95 | ![]() |
Reg. No. B95/05079 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Spain | ![]() |
20 Apr 94 | ![]() |
Reg. No. 1,786,568 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Sweden | ![]() |
28 Jul 95 | ![]() |
Reg. No. 303,850 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Switzerland | ![]() |
5 Oct 93 | ![]() |
Reg. No. 416,838 | ![]() |
18, 25 (CK/Calvin Klein) | ||||||||
Tunisia | ![]() |
23 May 96 | ![]() |
Reg. No. EE96.0642 | ![]() |
3,9,14,16,18,24,25,26, | ||||||||
27,35,42 (CK/Calvin Klein) | ![]() |
![]() |
![]() |
|||||||||||
Turkey | ![]() |
16Feb96 | ![]() |
Reg. No. 167310 | ![]() |
25(CK/Calvin Klein) | ||||||||
United Arab | ![]() |
![]() |
![]() |
|||||||||||
Emirates | ![]() |
24 Nov 97 | ![]() |
Reg. No. 13022 | ![]() |
25 (CK/Calvin Klein) | ||||||||
United Kingdom | ![]() |
19 Aug 00 | ![]() |
Reg. No. 1,545,492 | ![]() |
25 (CK/Calvin Klein) | ||||||||
16 Jun 98 | ![]() |
Reg. No. 2,169,731 | ![]() |
25,35,42(CK/Calvin Klein)(ext goods) | ![]() |
|||||||||
Ukraine | ![]() |
12 Nov 99 | ![]() |
Reg. No. 13942 | ![]() |
18,25(CK/Calvin Klein) | ||||||||
18 Apr 97 | ![]() |
Reg. No. 17758 | ![]() |
24,25,42 (CK/Calvin Klein) | ![]() |
|||||||||
Uzbekistan | ![]() |
4 Jul 95 | ![]() |
Reg. No. 5832 | ![]() |
18,25 (CK/Calvin Klein) | ||||||||
West Bank (Palestine) | ![]() |
7 Mar 96 | ![]() |
Reg. No. 4118 | ![]() |
25 (CK/Calvin Klein) | ||||||||
Yemen | ![]() |
15 Jan 98 | ![]() |
Reg. No. 8333 | ![]() |
25 (CK/Calvin Klein) | ||||||||
![]() |
*OAPI-Benin Guinea,
Burkina Faso(formerly Upper Volta), Cameroon, Central African
Republic,
Chad, Congo, Gabon, Guinea Bissau(Conakry),Guinea
Bissau, Ivory Coast, Mali, Mauritania, Niger, Senegal,
Togo
EXHIBIT 10.69
PORTIONS OF THIS EXHIBIT 10.69 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
CONFIDENTIAL — NEITHER THIS DOCUMENT, ITS TERMS OR PROVISIONS OR THE RELATIONSHIP CONTEMPLATED THEREIN IS TO BE DISCUSSED OR USED WITHOUT THE CONSENT OF CALVIN KLEIN, INC. OR WF OVERSEAS FASHION C.V. A DRAFT DOES NOT CONSTITUTE AN OBLIGATION OF THE PARTIES. NO BINDING AGREEMENT WILL RESULT UNLESS A DEFINITIVE WRITTEN AGREEMENT IS EXECUTED AND DELIVERED BY THE PARTIES. THERE IS NO OBLIGATION TO EXECUTE ANY SUCH AGREEMENT.
LICENSE AGREEMENT
BETWEEN
CALVIN KLEIN, INC.
AND
CK JEANSWEAR EUROPE S.P.A.
AND
WF OVERSEAS FASHION C.V.
![]() |
|||
![]() |
![]() ![]() |
![]() |
![]() |
![]() |
CONFIDENTIAL TREATMENT |
TABLE OF CONTENTS
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
ARTICLE I. GRANT | ||||||
1.1 License | ![]() |
|||||
1.1.1 Exclusion of Retail Sales | ![]() |
|||||
1.1.2 Right to Manufacture | ![]() |
|||||
1.2 Reservation | ![]() |
|||||
1.2.1 Retail Stores; Company-Controlled Stores | ![]() |
|||||
1.2.2 E-Commerce/Promotional Goods | ![]() |
|||||
1.2.3 Third Party Licensees | ![]() |
|||||
1.3 Limitations | ![]() |
|||||
1.4 Definitional Disputes | ![]() |
|||||
1.5 Exploitation of the License | ![]() |
|||||
1.5.1 Best Efforts | ![]() |
|||||
1.5.2 Non-Competition | ![]() |
|||||
1.6 Showrooms; In-Store Shops; Trade Shows | ![]() |
|||||
1.6.1 Showrooms | ![]() |
|||||
1.6.2 In-Store Shops | ![]() |
|||||
1.6.3 Trade Shows | ![]() |
|||||
1.6.4 Visual Design Personnel | ![]() |
|||||
ARTICLE II. LICENSE PERIOD | ||||||
2.1 License Period | ![]() |
|||||
ARTICLE III. SALES | ||||||
3.1 Sales/Marketing and Production Plans | ![]() |
|||||
3.2 Deliberately Omitted | ![]() |
|||||
3.3 Sales to CKI and its Employees | ![]() |
|||||
ARTICLE IV. LICENSE FEES | ||||||
4.1 Requirement of Fees | ![]() |
|||||
4.1.1 Percentage Fees | ![]() |
|||||
4.1.2 Gross and Net Sales | ![]() |
|||||
4.1.3 Minimum Guaranteed Fees | ![]() |
|||||
4.1.4 Allocation of Minimum Guaranteed Fees and Percentage Fees | ![]() |
|||||
4.2 Statements | ![]() |
|||||
4.3 Books and Records | ![]() |
|||||
4.4 Underpayments | ![]() |
|||||
4.5 Manner of Payment | ![]() |
|||||
4.6 Interest on Late Payment | ![]() |
|||||
4.7 No Set-Off | ![]() |
|||||
4.8 Taxes | ![]() |
|||||
4.9 Financial Statements | ![]() |
|||||
4.10 Financial Covenants | ![]() |
|||||
ARTICLE V. ADVERTISING | ||||||
5.1 Advertising | ![]() |
|||||
5.1.1 Initial Support/Reimbursement | ![]() |
|||||
5.1.2 Advertising Obligation | ![]() |
|||||
5.1.3 CRK Fee | ![]() |
|||||
5.1.4 Co-operative Advertising and Public Relations | ![]() |
|||||
5.2 ‘Usage’ | ![]() |
|||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
5.3 Approval of Materials, Activities | ![]() |
|||||
5.4 Samples | ![]() |
|||||
ARTICLE VI. QUALITY AND STANDARDS | ||||||
6.1 Distinctiveness and Quality of the Licensed Mark | ![]() |
|||||
6.1.1 Consistency with Other Products | ![]() |
|||||
6.2 Design | ![]() |
|||||
6.2.1 Time and Action Calendar | ![]() |
|||||
6.2.2 Themes | ![]() |
|||||
6.2.3 Design Concepts | ![]() |
|||||
6.2.4 Certain Other Approvals | ![]() |
|||||
6.2.5 CKI Designs | ![]() |
|||||
6.2.6 Prototypes | ![]() |
|||||
6.2.7 Final Approval and Sales | ![]() |
|||||
6.3 Manufacture of Licensed Products by Third Parties | ![]() |
|||||
6.4 Non-Conforming Products | ![]() |
|||||
6.5 Approvals | ![]() |
|||||
6.6 Marketing, Labeling, Packaging, Promotions, Business Materials | ![]() |
|||||
6.7 Inspection of Facilities | ![]() |
|||||
6.8 Samples and Artwork | ![]() |
|||||
6.9 Know-how | ![]() |
|||||
6.10 Meetings | ![]() |
|||||
6.11 Design Direction | ![]() |
|||||
6.12 Design Rights | ![]() |
|||||
6.13 Shops, Stores, Retail Outlets | ![]() |
|||||
6.14 Disposal of Seconds and Close-Outs | ![]() |
|||||
6.14.1 Seconds | ![]() |
|||||
6.14.2 Close-Outs | ![]() |
|||||
6.15 Standards of Conduct | ![]() |
|||||
6.15.1 Standards | ![]() |
|||||
6.15.2 Audit Requirement | ![]() |
|||||
6.15.3 Approval | ![]() |
|||||
6.15.4 Use of Facility | ![]() |
|||||
6.16 Personnel | ![]() |
|||||
ARTICLE VII. THE LICENSED MARK | ||||||
7.1 Rights to the Licensed Mark. | ![]() |
|||||
7.1.1 Ownership of Licensed Mark | ![]() |
|||||
7.1.2 No Adverse Actions | ![]() |
|||||
7.1.3 Registrations | ![]() |
|||||
7.1.4 Survival | ![]() |
|||||
7.2 Protecting the Licensed Mark. | ![]() |
|||||
7.3 Use of the Licensed Mark | ![]() |
|||||
7.3.1 Compliance with Legal Requirements | ![]() |
|||||
7.3.2 Use with Other Name | ![]() |
|||||
7.3.3 Execution of Documents | ![]() |
|||||
7.4 Ownership of Copyright | ![]() |
|||||
7.5 Infringements, Counterfeits and Parallel Imports | ![]() |
|||||
7.5.1 Infringements | ![]() |
|||||
7.5.2 Counterfeits and Parallel Imports | ![]() |
|||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
7.5.2.1 The Network | ![]() |
|||||
7.5.2.2 Diversion | ![]() |
|||||
7.5.3 Criminal Proceedings | ![]() |
|||||
7.5.4 Enforcement Activities | ![]() |
|||||
7.5.5 Nature of Proceedings | ![]() |
|||||
7.5.6 Cooperation | ![]() |
|||||
7.6 Trademark Security | ![]() |
|||||
7.6.1 Counterfeit Protection | ![]() |
|||||
7.7 Use of Licensed Mark on Invoices, etc. | ![]() |
|||||
7.8 Monitoring | ![]() |
|||||
ARTICLE VIII. TERM AND TERMINATION | ||||||
8.1 Expiration | ![]() |
|||||
8.2 Other Rights Unaffected | ![]() |
|||||
8.3 Right of Termination of the License | ![]() |
|||||
8.4 Termination With Notice and Right to Cure | ![]() |
|||||
8.5 Effect of Termination | ![]() |
|||||
8.6 Inventory Upon Termination | ![]() |
|||||
8.7 Freedom to License | ![]() |
|||||
8.8 Rights Personal | ![]() |
|||||
8.9 Trustee in Bankruptcy | ![]() |
|||||
8.10 Compensation | ![]() |
|||||
ARTICLE IX. INDEMNIFICATION AND INSURANCE | ||||||
9.1 Indemnification by the Licensee | ![]() |
|||||
9.2 Notice of Suit or Claim | ![]() |
|||||
9.3 Indemnification by CKI | ![]() |
|||||
9.4 Insurance | ![]() |
|||||
9.4.1 Requirement | ![]() |
|||||
9.4.2 General Provision | ![]() |
|||||
9.4.3 Approved Carrier/Policy Changes | ![]() |
|||||
9.4.4 Evidence of Coverage | ![]() |
|||||
9.4.5 Territory | ![]() |
|||||
ARTICLE X. COMPLIANCE WITH LAWS | ||||||
10.1 Compliance with Laws | ![]() |
|||||
10.2 Equitable Relief | ![]() |
|||||
ARTICLE XI. MISCELLANEOUS | ![]() |
|||||
11.1 Warranties and Representations of the Parties | ![]() |
|||||
11.2 Definitions | ![]() |
|||||
11.3 Notices | ![]() |
|||||
11.4 Assignment | ![]() |
|||||
11.5 Sublicense | ![]() |
|||||
11.6 Assignment by CKI | ![]() |
|||||
11.7 No Agency | ![]() |
|||||
11.8 Suspension of Obligations | ![]() |
|||||
11.9 Benefit | ![]() |
|||||
11.10 Entire Agreement; Amendment | ![]() |
|||||
11.11 Non-Waiver | ![]() |
|||||
11.12 Severability | ![]() |
|||||
11.13 Headings | ![]() |
|||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
11.14 Counterparts | ![]() |
|||||
11.15 Governing Law | ![]() |
|||||
11.16 Jurisdiction | ![]() |
|||||
11.17 Non-Solicitation | ![]() |
|||||
11.18 Confidentiality | ![]() |
|||||
11.19 Assignment Within Warnaco Family | ![]() |
|||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
SCHEDULES | ![]() |
![]() |
||||||||
SCHEDULE 6.13 | ![]() |
APPROVED ACCOUNTS | ![]() |
|||||||
SCHEDULE 6.14 | ![]() |
APPROVED SECONDS AND CLOSE-OUTS ACCOUNTS | ![]() |
|||||||
EXHIBIT S | ![]() |
SHAREHOLDERS | ![]() |
|||||||
EXHIBITS | ![]() |
![]() |
||||||||
EXHIBIT T | ![]() |
TERRITORY | ![]() |
|||||||
EXHIBIT P | ![]() |
PRODUCTS | ![]() |
|||||||
EXHIBIT B | ![]() |
ROYALTY STATEMENT | ![]() |
|||||||
EXHIBIT D | ![]() |
THIRD-PARTY MANUFACTURING AGREEMENT | ![]() |
|||||||
EXHIBIT E | ![]() |
PRODUCTION FACILITY EVALUATION FORM | ![]() |
|||||||
![]() |
SCHEDULE OF ISSUED REGISTRATIONS AND PENDING APPLICATIONS FOR ‘‘CK/CALVIN KLEIN’’ TRADEMARKS IN CLASS 25
CONFIDENTIAL TREATMENT |
LICENSE AGREEMENT
LICENSE AGREEMENT, dated as of January 31, 2006, between CALVIN KLEIN, INC. (‘‘CKI’’), a New York corporation, CK JEANSWEAR EUROPE S.P.A., an Italian corporation (‘‘CKJE’’ or ‘‘Licensee’’) and WF Overseas Fashion C.V., a limited partnership (‘‘commanditaire vennootschap’’) organized and existing under the laws of the Netherlands (‘‘Warnaco’’).
WITNESSETH:
WHEREAS, Licensee desires to obtain from CKI, and CKI is willing to grant to the Licensee, a license in the Territory (as hereinafter defined), to use the trademark "CK/CALVIN KLEIN" to be used in the form designated by CKI from time to time (‘‘Licensed Mark’’) in connection with the manufacture, wholesale sale, distribution, advertising and promotion of bridge women’s belts, leather gloves, handbags and small leather goods (accessories), and men’s belts, leather gloves, hand bags and small leather goods, as specifically described on Exhibit P (the ‘‘Products’’), subject to the terms contained in this Agreement. Products bearing the Licensed Mark are hereinafter referred to as ‘‘Licensed Products.’’
WHEREAS, Warnaco U.S., Inc. a Delaware corporation, is the general partner of WF Overseas Fashion C.V., and, solely in such capacity, is executing this Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. GRANT
1.1 License. CKI hereby grants to the Licensee an exclusive license (the ‘‘License’’), without the right to assign, and the right to sublicense with CKI’s prior written consent exercisable in CKI’s sole and absolute discretion and subject to and in accordance with the terms contained in this Agreement, to use the Licensed Mark, during the License Period in connection with the manufacture and sale, distribution, advertising, and promotion in the ‘‘Territory,’’ set forth on Exhibit T, of Licensed Products to approved customers ***
1.1.1 Exclusion of Retail Sales. The License excludes the sale, distribution, and promotion of Licensed Products via commerce conducted on, made available through, or facilitated by *** or upon the prior approval of CKI, which CKI may withhold in its sole and absolute discretion, The License also excludes the right to *** only as approved by CKI, and except as permitted as to such Licensed Products pursuant to other agreements between the parties (and their affiliates). However, the foregoing does not***
1.1.2 Right to Manufacture. The Licensee’s right to manufacture in the Territory and elsewhere in the world is non-exclusive (others may and will have the right to produce Products within the Territory for export and sale outside the Territory). Licensee shall have the right to import into the Territory Licensed Products manufactured outside the Territory; provided, however, that the Licensee takes reasonable precautions to prevent all labels, tags, packaging material, business supplies and advertising and promotional materials and all other forms of identification bearing the Trademark (collectively, ‘‘Labels’’) from being used otherwise than in connection with the distribution and sale of Licensed Products within the Territory. The Licensee shall neither export Licensed Products from the Territory, nor sell Licensed Products to any entity which it knows, or reasonably should know, intends to export Licensed Products from the Territory.
1.2 Reservation. CKI reserves all rights in and to the Licensed Mark except as specifically granted herein including, without limitation, those rights set forth in this § 1.2. CKI may exercise any of its rights, or authorize others to exercise such rights, at any time, in accordance with the terms and conditions set forth herein.
1.2.1 Retail Stores; Company-Controlled Stores. CKI reserves the right to *** However, CKI shall, in connection with the sale, distribution and promotion of Licensed Products through the CKI
CONFIDENTIAL TREATMENT |
Stores, purchase Licensed Products from the Licensee, at mutually agreed upon prices, terms and conditions, provided that Licensee timely produces, ships and delivers such Licensed Products in quantities as may be required by CKI. If (i) Licensee cannot sell or supply any Licensed Products due to a continuing force majeure event or other event outside of Licensee’s reasonable control (i.e., more than thirty calendar days) or (ii) Licensee fails to timely deliver for two consecutive quarters, the products so ordered (other than minor shortages), then during the pendency of such force majeure event or after such failures to deliver, CKI (or its Affiliates) shall have the right to manufacture or have manufactured for it by others, and to sell, distribute and promote such Licensed Products through CKI Stores for the next two years, at which time the provisions hereof shall again apply, CKI shall also require that any such retail stores in the Territory owned or operated by an authorized licensee of CKI shall purchase the Licensed Products from Licensee. The Licensee acknowledges and agrees that ***
1.2.2 E-Commerce/Promotional Goods. CKI reserves the right to *** In the case of E-commerce arrangements covering ***
1.2.3 Third Party Licensees. CKI may grant third parties the right to produce Products for distribution and sale outside the Territory. Licensee agrees to fully co-operate with such third parties, and upon CKI’s request, Licensee will, furnish samples of Licensed Products, provide at cost (without markup), any patterns, trim samples, samples of garments and other materials, names of contractors and sources of supply, reasonably necessary to manufacture Licensed Products as reasonably requested on a timely basis by such licensees, in accordance with such third parties’ reasonable design and production schedules and subject to appropriate confidentiality undertakings. Licensee will timely supply CKI’s distributors or other third party licensees outside the Territory, with Licensed Products for distribution in such quantities as CKI may reasonably request on such credit or other terms as Licensee may impose on its customers generally, ***
1.3 Limitations. The Licensee understands and agrees that CKI, and its other licensees and sublicensees, may manufacture or authorize third parties to manufacture Licensed Products in the Territory for sale outside of the Territory, or to manufacture and sell or authorize third parties to manufacture and sell products of any and all types and descriptions other than the Products in or outside the Territory. In this regard, the Licensee acknowledges and agrees that products that bear some similarity of design to the Licensed Products may be manufactured, distributed or sold in the Territory in connection with the Licensed Mark by either CKI or a third party authorized to use the Licensed Mark, and the Licensee further acknowledges and agrees that such similarity of design will not be deemed a breach of or default under this Agreement. In addition, no license is granted hereunder for the manufacture, sale or distribution of the Licensed Products to be used for publicity purposes (other than publicity of the Licensed Products), in combination sales or as premiums or giveaways, or to be disposed of under or in connection with similar methods of merchandising, such rights being specifically reserved for CKI or otherwise subject to CKI’s prior review and approval. Licensee agrees that the marketing, placement and distribution of Licensed Products in the Territory may but shall not necessarily be the same as that for Products being sold in the U.S. or elsewhere in the world by CKI’s duly authorized licensee, but shall be commensurate with the marketing, placement and distribution of Licensed Products in comparison with other competitive and competitors’ ‘‘bridge’’ or ‘‘diffusion’’ lines sold both in the U.S. and the Territory.
1.4 Definitional Disputes. The Licensee acknowledges that due to the nature of the marketplace, the definition of Products may change or may not be amenable to precise delineation. In addition, the Licensee acknowledges that CKI does have and may hereafter have, other licensees within the Territory. However, CKI will use its reasonable efforts to *** In the event of any dispute between the Licensee and any other licensee of CKI in the Territory with respect to whether particular merchandise is covered by one or the other of their respective licenses, or there is otherwise a dispute over the definition of Licensed Products, CKI shall render, based upon its reasonable (but with all due consideration given to aesthetic and quality factors) good faith judgement, commercial reasonableness, and a reasonable written determination.
CONFIDENTIAL TREATMENT |
1.5 Exploitation of the License.
1.5.1 Best Efforts. At all times during the License Period, the Licensee shall use its reasonable best efforts to exploit the License throughout each and every country the Territory, including, but not limited to: (i) selling what reasonably constitutes a full line of Products within each seasonal collection of Licensed Products (each, a ‘‘Collection’’), subject to seasonal differences, and a sufficiently representative quantity of each type of Product within each Collection; (ii) timely developing, producing and offering for sale the Licensed Products so that they may be sold and shipped to consumers on a timely basis; (iii) maintaining a sales force sufficient to provide effective distribution throughout all areas of the Territory; (iv) cooperating with CKI’s and any of its licensees’ marketing, merchandising, sales, and anti-counterfeiting programs as may be applicable, and (v) maintaining necessary financial position to adequately support the operations and obligations herein.
1.5.2 Non-Competition. The Licensee shall devote itself and all of its employees and operations exclusively to the operations of this license and other ‘‘CALVIN KLEIN’’ operations licensed by CKI. The Licensee’s Affiliates shall not enter into or obtain from any person or entity a license in the Territory for any of the Products bearing the name of any designer or designer brand (or any derivative or formative thereof) of *** without the prior written consent of CKI and except for arrangements and agreements in effect on and as of the Effective Date of this Agreement. ***
1.6 Showrooms; In-Store Shops; Trade Shows.
1.6.1 Showrooms. The Licensee shall maintain a separate showroom area adjacent to or within the bridge apparel showroom within the existing premises in Milan of CKI’s affiliate, Calvin Klein Europe S.r.l. (‘‘CKE’’), under a form of sublease or sharing arrangement, to be entered into by the parties. If at any time the showroom shall be relocated due to unavailability of CKE’s premises, the location shall be subject to the approval (not to be unreasonably withheld) of CKI. Furthermore, CKI may require an additional showroom area within the bridge apparel area to be established in London; and, if the parties so agree, an additional showroom in Frankfurt or another city in Germany (if any) . Such showroom area (s) shall be used for the sole purpose of displaying, promoting and selling Licensed Products. All such separate area in the showrooms shall be subject to the standards of CKI, and shall be designed and maintained in conformity with the prestige associated with the Licensed Mark. The plans for each showroom, including décor, set-up and display (and material changes thereto), and for any renovations thereto shall be subject to the reasonable prior written approval of CKI, which approval shall not be unreasonably withheld or delayed; provided, however, that CKI shall have 10 business days after its receipt of such plans to approve or disapprove such plans or such longer period as is reasonable under the circumstances. Promptly after the execution of this Agreement and the bridge apparel agreement, CKI and the Licensee will mutually agree *** The Licensee may (i) display the Licensed Mark on showroom doors and office directories and (ii) display the Licensed Products for sale in other showroom spaces, subject to the prior written approval of CKI. The parties shall meet upon request to establish a budget for required or requested renovations to the showrooms.
1.6.2 In-Store Shops. The Licensee will participate in in-store shop or fixturing programs, with the Licensee’s customers throughout the Territory, and will spend amounts on in-store décor, refurbishments and fixturing (including development costs of consultants for design and fixturing prototypes and on sales personnel or coordinators, sufficient to ensure and the appropriate as may be applicable to enhance the presentation of Licensed Products within its retail accounts, including appropriate stocking and merchandise mix, to be developed with and under the direction of CKI (and outside consultants where required by CKI for the prototype development). Appropriate budgets for such in-store shop programs shall be developed, reviewed and agreed upon by the parties. All such programs shall be designed in conformity with the prestige associated with the Licensed Mark, and plans for any such shop-in-shop areas shall be subject to the prior written approval of CKI. In-shop décor, refurbishing and fixturing are essential to the exploitation of the License Agreement; in addition to other expenses hereunder (and not considered either a qualified Co-op or Public Relations expenditure).
CONFIDENTIAL TREATMENT |
1.6.3 Trade Shows. The Licensee shall display the Licensed Products at a separate booth space at all tradeshows attended by the Licensee to promote Products. The design of such booth shall be developed in consultation with CKI’s visual design personnel, as provided in § 1.6.4.
1.6.4 Visual Design Personnel. The Licensee shall consult with and utilize CKI’s visual design personnel in connection with the design, development and construction of showrooms, trade show booths, fixturing, signage and any in-store shops or in-store areas for the sale of Licensed Products within the stores of the Licensee’s customers, and shall provide all funds necessary in connection therewith (including, but not limited to, reasonable per diem rates for work performed by CKI’s visual display personnel based upon estimated amounts or anticipated expenditures, as provided or discussed and agreed upon in advance, or based upon agreed-upon-in-advance budgets), it being understood and agreed that the fabrication, manufacturing, production or construction of showrooms, trade show booths and fixtures may be performed by third parties. All such design, development and construction shall be subject to CKI’s ongoing approval. Licensee will arrange for the opening of shop-in-shops within department stores and specialty stores using appropriate fixtures and signage, and to maintain seasonal visual display and ‘‘set-ups’’ of Licensed Products, as approved by Licensor, and to fully stock such shop-in-shops with an appropriate merchandise mix of Licensed Products, all as approved by CKI, pursuant to and consistent with Licensee’s shop-in-shop development program. Such in-store development programs shall be financed in a manner comparable to and commensurate with those of CKI’s competitors as to Licensed Products. CKI may periodically inspect Licensee’s showrooms, shows at trade exhibitions, and such shop-in-shops . Any such inspection will be at CKI’s expense unless CKI determines as a result of such inspection that Licensee’s showrooms, trade exhibition shows or in-store shops or in-store areas have not been maintained in accordance with CKI’s specifications, in which case Licensee will at its expense promptly make any modifications to design, layout, decor, visual display or merchandise display formats as CKI may reasonably require and will bear the costs incurred in connection therewith, including any costs incurred by CKI in connection with follow-up inspections to determine the satisfactory completion of such modifications. The Licensee shall also promptly reimburse CKI for the reasonable costs and expenses of any CKI personnel, such as visual display, advertising and public relations (other than design), with respect to services performed by CKI under this § 1.6 or otherwise requested by the Licensee based upon estimated amounts or anticipated expenditures, as provided or discussed in advance, and based upon agreed-upon-in-advance budgets. In addition, the Licensee shall pay or reimburse CKI for reasonable out-of-pocket expenses incurred by CKI or its representatives, whether for travel or otherwise, including round-trip business-class airfare or first-class airfare if provided by CKI’s internal travel policies in effect from time to time, hotel accommodations and food and local transportation, in connection with this Agreement, such as travel to Italy to review or approve prototypes, based upon estimated amounts or anticipated expenditures, as provided and discussed in advance with Licensee, and based upon agreed-upon-in-advance budgets.
ARTICLE II. LICENSE PERIOD
2.1 License Period. The license period shall commence effective 1 January 2006, with certain preliminary design and development being initiated prior to 1 January 2006 (‘‘preliminary period’’), with the Spring 2006 season being anticipated to be the first season for which Licensed Products will be offered for sale (and the parties may initiate preliminary design and other development in contemplation thereof in order to be able to offer for sale such Spring 2006 season,but if the time for development, presentation, production, marketing and showroom is deemed by the parties to be not sufficient to timely and appropriately launch such Collection, the initial season shall be Fall 2006 (or Pre-Fall 2006). The term shall end forty (40) years from the closing of the Transaction described and defined in the Heads of Agreement dated 29 September 2005 between, inter alia, CKI and Warnaco Inc., (not to be later than 31 December 2006) on 31 December 2046, unless sooner terminated as herein provided. The period commencing 1 January 2006 and ending on 31 December 2006, including the preliminary period, and each 12-month period commencing on 1 January thereafter during the License Period are each referred to herein as an ‘‘Annual Period.’’ Notwithstanding the foregoing, the Licensee shall not commence offering Licensed Products for the Spring 2006 season unless and until CKI determines in its good-faith judgement
CONFIDENTIAL TREATMENT |
(including aesthetic and creative considerations) that all elements necessary for a successful launch, including, without limitation, product design, development and production, marketing strategy, advertising materials and placement, and if applicable, launch events, have been satisfied. The term of this agreement may sometimes be referred to as the ‘‘License Period’’ or ‘‘Term.’’
The ‘‘Minimum Net Sales Thresholds’’ for each Annual Period are as indicated below:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period | ![]() |
Year | ![]() |
Minimum Net Sales* Thresholds (Euros, millions) |
![]() |
|||||||||
1 | ![]() |
2006 | ![]() |
*** | ![]() |
|||||||||
2 | ![]() |
2007 | ![]() |
*** | ![]() |
|||||||||
3 | ![]() |
2008 | ![]() |
*** | ![]() |
|||||||||
4 | ![]() |
2009 | ![]() |
*** | ![]() |
|||||||||
5 | ![]() |
2010 | ![]() |
*** | ![]() |
|||||||||
6 | ![]() |
2011 | ![]() |
*** | ![]() |
*** | ||||||||
7 | ![]() |
2012 | ![]() |
*** | ![]() |
*** | ||||||||
8 | ![]() |
2013 | ![]() |
*** | ![]() |
*** | ||||||||
9 | ![]() |
2014 | ![]() |
*** | ![]() |
*** | ||||||||
10 | ![]() |
2015 | ![]() |
*** | ![]() |
*** | ||||||||
11 through 20 | ![]() |
2016 through 2025 |
![]() |
*** | ![]() |
*** | ||||||||
21 through 30 | ![]() |
2026 through 2035 |
![]() |
*** | ![]() |
*** | ||||||||
31 through 41 | ![]() |
2036 through 2046 |
![]() |
*** | ![]() |
*** | ||||||||
![]() |
![]() |
![]() |
* For purposes of calculating Net Sales for the MNST’s, *** |
If Licensee fails to attain the minimum net sales thresholds (‘‘MNST’s’’) of Articles during any Annual Period, as set forth above (except as specifically indicated in the immediately following paragraph), ***
Notwithstanding the foregoing, if Licensee has *** Expiration or termination of the License shall not affect any obligation of the Licensee to make payments hereunder accruing prior to such expiration or termination.
ARTICLE III. SALES
3.1 Sales/Marketing and Production Plans. Licensee shall deliver to CKI: ***
3.2 Deliberately Omitted.
3.3 Sales to CKI and its Employees. The Licensee shall be obligated to sell Licensed Products to CKI, its Affiliates and its third-party store licensees, for sale and distribution by (i) CKI and its Affiliates through CKI Stores, via E-Commerce, or otherwise; or (ii) by its third-party store licensees, through the stores of such licensees. The Licensee acknowledges and agrees that such sales of Licensed Products shall be in quantities designated by CKI, its Affiliates, or reasonably required by its licensees, as the case may be, and shall be at the ***
ARTICLE IV. LICENSE FEES
4.1 Requirement of Fees. All Licensed Products sold by the Licensee or its Affiliates (including those from which the Licensed Mark may have been removed, e.g., irregulars) require the payment of Fees by the Licensee to CKI as set forth in this Article IV, except as otherwise provided in § 4.1.1. ‘‘Affiliates’’ of any party means all individuals and business entities, whether corporations, limited liability companies, partnerships, joint ventures or otherwise, which now or hereafter control, or are controlled, directly or indirectly, by such party, or are under common control with such party.
CONFIDENTIAL TREATMENT |
4.1.1 Percentage Fees. In respect of each Annual Period or portion thereof during the License Period, the Licensee shall pay CKI Percentage Fees computed *** as follows:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year | ![]() |
*** | ![]() |
*** | ||||||
1 (2006) | ![]() |
*** | ![]() |
*** | ||||||
2 (2007) | ![]() |
*** | ![]() |
*** | ||||||
3 (2008) | ![]() |
*** | ![]() |
*** | ||||||
4 (2009) | ![]() |
*** | ![]() |
*** | ||||||
5 et seq (2010 et seq) | ![]() |
*** | ![]() |
*** | ||||||
![]() |
![]() |
![]() |
* The rates applicable to *** as defined herein shall be as noted, provided that in each such case such *** |
For sales directly at ***, as noted in § 1.2.1 or § 1.2.3.
As noted in § 1.2.1 above, the Percentage Fee shall be ***
Percentage Fees shall be accounted for and payable ***
4.1.2 Gross and Net Sales. ‘‘Gross Sales’’ means *** "Net Sales’’ means ***
4.1.3 Minimum Guaranteed Fees. In respect of each Annual Period or portion thereof during the License Period, the Licensee shall pay to CKI the minimum fees listed below (the ‘‘Minimum Guaranteed Fees’’ or ‘‘MGF’s’’) ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year | ![]() |
![]() |
Minimum
Guaranteed Fee (MGF) (Euros) |
![]() |
||||||||||
1(2006) | ![]() |
![]() |
*** | ![]() |
||||||||||
2(2007) | ![]() |
![]() |
*** | ![]() |
||||||||||
3(2008) | ![]() |
![]() |
*** | ![]() |
||||||||||
4(2009) | ![]() |
![]() |
*** | ![]() |
||||||||||
5(2010) | ![]() |
![]() |
*** | ![]() |
||||||||||
6
through 10 (2011 through 2015) |
![]() |
![]() |
*** | ![]() |
*** | |||||||||
11
through 15 (2016 through 2020) |
![]() |
*** | ![]() |
![]() |
||||||||||
16 through 20 (2021 through 2025) |
![]() |
*** | ![]() |
![]() |
||||||||||
21 through
25 (2026 through 2030) |
![]() |
*** | ![]() |
![]() |
||||||||||
26 through 30 (2031 through 2035) |
![]() |
*** | ![]() |
![]() |
||||||||||
31 through
35 (2036 through 2040) |
![]() |
*** | ![]() |
![]() |
||||||||||
36 through 40 (2041 through 2046) |
![]() |
*** | ![]() |
![]() |
||||||||||
![]() |
*** | ![]() |
![]() |
|||||||||||
![]() |
4.1.4 Allocation of Minimum Guaranteed Fees and Percentage Fees. For purposes of CKI internal allocation, *** of the Minimum Guaranteed Fees and *** of the Percentage Fees shall be
CONFIDENTIAL TREATMENT |
allocated as a royalty for the use of the Licensed Mark and the remaining *** shall be allocated as ‘‘fees’’ for the design, including the reviews and approval procedures, and other overall services under or relating to the Agreement.
4.2 Statements. Quarterly within each Annual Period 30 days in arrears, the Licensee shall deliver to CKI *** or in such simplified format as may be agreed to by the parties, signed by the ***, stating that the Licensee is in compliance with the terms and conditions hereof and setting forth for ***. Licensee will use all reasonable efforts to provide Licensor with *** Within 90 days of the end of each Annual Period, the Licensee shall also deliver to CKI a *** and in accordance with the provisions hereof. Receipt or acceptance by CKI of any statement furnished, or of any sums paid by the Licensee, shall not preclude CKI from questioning their correctness at any time; provided, however, that reports submitted by the Licensee, shall be binding and conclusive on the Licensee.
4.3 Books and Records. The Licensee shall, at its sole cost and expense, maintain complete and accurate books and records (specifically including, without limitation, the originals or copies of documents supporting entries in the books of account or electronic records) covering all transactions arising out of or relating to this Agreement. Such books and records shall be maintained in accordance with international accounting principles generally accepted in Italy, and under the laws thereof (‘‘GAAP’’). CKI and its duly authorized representatives shall have the right, upon reasonable prior written notice from CKI and during normal business hours, once during each Annual Period and for three years after such Annual Period, to examine and copy said books and records and all other documents and materials in the possession of and under the control of the Licensee with respect to all transactions arising out of or relating to this Agreement (such audits are to be completed within 6 months of commencement, provided Licensee and its accountants promptly respond fully and completely to all inquires of CKI, including all books, records, back-up, answers to question and other reasonable requests, and afford CKI and its representatives entry and accommodations at all times during such period). Each Annual Period shall be subject to audit once (and when finalized as provided hereunder, not subject to additional audits under this Agreement (except CKI’s shareholders)). The exercise by CKI of any right to audit at any time or times or the acceptance by CKI of any statement or payment shall be without prejudice to any of CKI’s rights or remedies. (Nor will any acceptance of audit results affect or limit any rights of CKI as a shareholder.) The Licensed Products shall be assigned style numbers unique from any other products the Licensee may manufacture or sell. The style number assigned to each Licensed Product shall be identical to the style number utilized to identify the Licensed Product in all of the Licensee’s books and records. All documents evidencing the sale of Licensed Products shall state the style number of each such Product. The Licensee shall not use terms such as ‘‘assorted’’ or ‘‘irregular’’ without a style specification with respect to the Licensed Products. Once finalized and all disputes resolved, as provided hereunder and under § 4.4, results shall be binding on both parties under this Agreement.
4.4 Underpayments. If, upon any examination of the Licensee’s books and records pursuant to § 4.3, CKI shall discover any Fee underpayment by the Licensee, the Licensee will make all payments required to be made to correct and eliminate such underpayment within 10 days of CKI’s demand together with interest thereon. In addition, if said examination reveals a Fee underpayment of *** or more for any Annual Period, the Licensee will reimburse CKI for the reasonable out-of-pocket cost of said examination within 10 days of CKI’s demand. In the event Licensee disagrees with any finding underlying CKI’s demands, it shall so notify CKI within 15 business days of demand, with reasons and specifics as to why. The parties will then promptly meet and fully co-operate on a continuing, best-efforts basis to present any ‘‘counter finding’’ or other back-ups and in good faith resolve the same before payment is due. Notwithstanding the foregoing, if such dispute remains unresolved within 90 days of Licensee’s receipt of CKI’s initial demand (unless extended by CKI) despite and provided CKI has used good faith best efforts to resolve within said time period, CKI’s last demand or final demand as may have been revised during such post audit meetings or discussions shall apply, and Licensee shall promptly remit such amounts (and interest).
4.5 Manner of Payment. All payments required by the Licensee hereunder shall be made to CKI in US $ dollars via wire transfer specifying federal funds ***
CONFIDENTIAL TREATMENT |
The Percentage Fees based upon Net Sales made in a currency other than US $ dollars (and certain other amounts provided for or contemplated under this Agreement), if applicable, shall be computed on the basis of the conversion rate of the currency in which the sale or other transaction occurred into US $ dollars in effect, as published in the Wall Street Journal, as of the close of business on the last business day of the relevant quarterly period during the Annual Period, and two (2) business days prior to the remittance due date (or where no remittance ‘‘due date’’ is applicable, the remittance date) for other applicable amounts. In the event that the Licensee is required to withhold certain amounts for payment to the appropriate governmental authorities, the Licensee will supply to CKI the official receipts evidencing payment therefore, promptly upon receipt (as noted in §4.8).
4.6 Interest on Late Payment. In addition to any other remedy available to CKI, if any payment due under this Agreement is delayed for any reason, including, without limitation, as a result of any Fee underpayment, interest shall accrue and be payable, to the extent legally enforceable, on such unpaid principal amounts from and after the date on which the same became due, at the rate of ***
4.7 No Set-Off. The obligation of the Licensee to pay Fees hereunder shall be absolute, notwithstanding any claim which the Licensee may assert against CKI. The Licensee shall not have the right to set-off, compensate or make any deduction from such Fee payments for any reason whatsoever.
4.8 Taxes. The Licensee will bear all taxes, duties and other governmental charges in the Territory relating to or arising under this Agreement, including, without limitation, any state or federal income taxes on the Licensee (except withholding taxes on Fees due CKI and taxes on CKI’s income), any stamp or documentary taxes or duties, turnover, sales or use taxes, value added taxes, excise taxes, customs or exchange control duties or any other charges relating to or on any Fee payable by the Licensee to CKI. The Licensee shall obtain, at its own cost and expense, all licenses, Federal Reserve Bank, commercial bank or other bank approvals, and any other documentation necessary for the importation of materials and Products and the transmission of Fees and all other payments relevant to the Licensee’s performance under this Agreement. If any tax or withholding is imposed on Fees, that is, and to the extent it may become applicable, when or where payments of Minimum Guaranteed Fees and/or Percentage Fees are made directly to CKI from any jurisdiction outside the United States, the Licensee shall compute and pay on behalf of CKI all withholding taxes which any governmental authority in the Territory may impose on CKI with respect to the Fees paid by the Licensee to CKI. The amount of such taxes shall be appropriately deducted from payments, and immediately paid to such governmental authorities. Such amounts shall not be held in reserve by Licensee pending later due dates. The Licensee shall obtain and provide certified proof of the tax payment of the amount withheld, and promptly transmit it to CKI. In the event such taxes are not paid when due, all resulting penalties and interest shall be borne by the Licensee.
4.9 Financial Statements. Licensee shall deliver to CKI,:
(i) within 180 days after the close of each of Licensee’s fiscal year’s during or concurrent with an Annual Period, copies of its annual financial reports (balance sheets, statements of income and cash flow) which may be unaudited (but if the Licensee otherwise prepares or is otherwise required to prepare, audited reports, it will so provide them to CKI) prepared in accordance with International GAAP, reported on by a recognized accounting firm together with English translation thereof; and
(ii) within 60 days after the close of each calendar quarter copies of its quarterly financial reports, which will be prepared on a basis consistent with the annual financial reports.
4.10 Financial Covenants. Licensee (and its parent Warnaco Inc.) will ***
Licensee will immediately upon the occurrence of any default deliver a certificate by its Chief Financial Officer setting forth the details of any such default and action the Licensee is taking or proposed to take with respect thereto.
CONFIDENTIAL TREATMENT |
ARTICLE V. ADVERTISING AND PROMOTION
5.1 Advertising.
5.1.1 Initial Support/Reimbursement. Deliberately Omitted.
5.1.2 Advertising Obligation. For each Annual Period, the Licensee shall remit to CKI an amount (the ‘‘Advertising Obligation’’ or ‘‘Minimum Advertising Expenditure,’’ a/k/a ‘‘MAE’’) equal to ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year | ![]() |
Minimum Advertising Expenditure (Euros) |
||||
1 (2006) | ![]() |
*** | ||||
2 (2007) | ![]() |
*** | ||||
3 (2008) | ![]() |
*** | ||||
4 (2009) | ![]() |
*** | ||||
5
et seq (2010 et seq) |
![]() |
*** | ||||
![]() |
The Licensee shall pay to CKI in respect of the Advertising Obligation for each Annual Period, no later than *** CKI shall use the Advertising Obligation, in its sole and absolute discretion, in connection with the advertising, marketing and promotion of the Licensed Mark and the Licensed Products. Although the final decision as to the advertising program’s form, content and placement must remain with CKI, CKI agrees to consider Licensee’s input and agrees that prior to the commencement of each campaign season, CKI and CRK will meet and listen to Licensee’s needs and overall strategy, and CKI and CRK will also review CRK’s concepts for the upcoming season with Licensee. (Although CRK will give reasonable consideration as to Licensee’s input, decisions will be in CKI’s sole discretion and based on CKI’s subjective aesthetic judgement and other considerations.) If there are material changes to what CKI, CRK and Licensee discussed at the beginning of the season by CKI, CRK will apprise Licensee of the same. ***
5.1.3 CRK Fee. As the advertising agency heretofore responsible for advertising campaigns relating to ‘‘CK/Calvin Klein’’ and Licensed Mark activities, CRK Advertising (‘‘CRK’’), a division of CKI, has developed certain expertise regarding the image of the Licensed Mark. *** Notwithstanding anything to the contrary in the foregoing, in no event shall CKI require the Licensee ***
5.1.4 Co-operative Advertising and Public Relations. *** All Co-operative Advertising shall be (i) in accordance with the parameters reasonably promulgated by CKI from time to time, including, without limitation, creative, as approved by CKI, as well as the Licensed Products presented in such Co-operative Advertising, and timing and applicable placement (the publication as well as the particular location within the publication) (sometimes referred to as a ‘‘media plan’’), and (ii) subject to CKI’s approval as provided in § 5.1.3. The Licensee shall be obligated to notify its accounts of these requirements and ensure their compliance with such requirements, including obtaining CKI’s approval prior to use. The Licensee shall provide CKI with***
For purposes of this Agreement ‘‘Co-operative Advertising’’ means advertisements by or in connection with retail accounts in local publications, such as newspapers and certain approved retail catalogs (for CK/Calvin Klein Bridge Stores), if any, which CKI may specifically approve in writing after viewing the same), and applicable ‘‘sharing’’ of expenses by such retail account with the Licensee, by way of advertising reimbursements, credits, charge-backs, or payments, only. Expenditures for ‘‘co-op’’ advertising not included within the definition hereunder or not in compliance with CKI’s parameters will not constitute a ‘‘qualified’’ expenditure for Co-operative Advertising hereunder.
‘‘Co-operative Advertising’’ does not include and shall not consist of advertisements in trade publications (except for certain prestigious fashion trade publications as may be approved by CKI in writing on a case-by-case basis) or any expenses or costs of (without limitation) packaging, fixturing, display materials, point-of-sale (‘‘POS’’) or point-of-purchase (‘‘POP’’) materials, or advertising or selling materials or
CONFIDENTIAL TREATMENT |
‘‘tools’’ or seminars or training sessions, in-store merchandising contributions or sharing of expenses, or any other selling or merchandising expenses or events, or any promotional materials, events or activities, such as press kits, goody bags (gifts), or any consumer advertising.
Public Relations events, activities and efforts shall include editorial coverage in prestigious fashion magazines, launch events for press, editors, buyers, fashion shows or trunk shows (‘‘mini’’ fashion shows at key retail stores), and involvement with highly publicized events such as ‘‘concerts,’’ as may be reviewed with and approved by CKI. Any PR event or activity to be conducted or overseen by a 3rd party shall be conducted or overseen by CRK or a 3rd party approved by CRK (‘‘PR Agency of Record’’) at market rates.
The CRK Fee shall be applied on actual services and materials developed, produced or provided by CRK for such Co-op/PR Obligation-qualified expenditures hereunder.
5.2 "Usage". If the Licensee requests advertising support including, without limitation, the acquisition of rights to use images of models in jurisdictions within the Territory where rights have not been obtained or for uses for which authorization has not been granted, the Licensee shall pay over to CKI the reasonable incremental costs associated with such advertising support. Such amounts shall be credited to the MAE, but may be credited over a number of Annual Periods not limited to the Annual Period in which the expense occurs.
5.3 Approval of Materials, Activities. The use and release of any and all promotional material (printed or otherwise) relating to the Licensed Products or the Licensee’s activities pursuant to this Agreement in the nature of press releases, interviews or other similar public relations events, and any other corporate release, data or information which will or is likely to become public and, if so, could affect such image, will be prepared or conducted in consultation with, and subject to the prior approval of (or approval subject to reasonable CKI-required modifications of), CKI’s public relations department (to be provided or responded to promptly (as per § 6.5) and not to be unreasonably delayed). After any such approval, the Licensee will not modify the approved material or activity in any material respect unless such modification is specifically approved by CKI’s public relations department. Any advertising marketing or promotional or public relations activity, event or effort shall be reviewed with and approved by CKI in advance (not to be unreasonably delayed). All materials bearing the Licensed Mark, including, without limitation, all advertising, promotional materials, packaging and collateral (e.g., POP or POS materials) shall be subject to CKI’s approval (not to be unreasonably delayed), and developed by CKI or pursuant to CKI’s direction.
5.4 Samples. The Licensee shall provide to CKI, *** in the promotion of Licensed Products, including advertising shoots, public relations promotions, editorial promotions, press coverage and celebrity use, including where needed in advance of regular production cycles (e.g., fashion shows, merchandising displays within showrooms, advertising shoots). Licensed Products which constitute celebrity, editorial and/or public relations ‘‘samples’’ which are gifted to recipient without cost, by Licensee *** Included in such ‘‘Promo Articles’’ shall be a reasonable number of Licensed Products to be provided to CKI (CRK) for its use for particular celebrity ‘‘individuals’’ and press or editorial recipients, as requested and/or specified by CKI, ***
If and to the extent tax forms evidencing the value of any such gift items to celebrity ‘‘individuals’’ for purposes of income tax requirements under any governmental authority are or become required, Licensee shall provide the same as soon as such practice could be reasonably implemented.
ARTICLE VI. QUALITY AND STANDARDS
6.1 Distinctiveness and Quality of the Licensed Mark. The Licensee shall maintain the distinctiveness of the Licensed Mark and the image and high quality of the goods and merchandise bearing the Licensed Mark presently manufactured and sold by CKI and its other licensees, and the prestigious marketing of same as presently maintained by CKI and its other licensees. The Licensee agrees that all Licensed Products manufactured or sold by it will be of high quality as to workmanship, fit, design and
CONFIDENTIAL TREATMENT |
materials, and shall be at least equal in quality, workmanship, fit, design and material to the samples of Licensed Products submitted by the Licensee and approved by CKI pursuant to § 6.2.6. All manufacturing and production shall be of a quality in keeping with the prestige of the Licensed Mark. In addition, the Licensee agrees that it will only use the Licensed Mark in the form thereof then approved by CKI, and that all Licensed Products shall bear the Licensed Mark in such approved form. CKI shall give the Licensee reasonable prior notice of any change in the form of the Licensed Mark and shall permit the Licensee to use a superceded form of the Licensed Mark for up to 6 months in order to enable the Licensee to sell inventory, complete and sell work-in-process, and to deplete inventories of labels, tags, packaging, and other materials bearing the Licensed Mark. In the event CKI elects to change the form of the Licensed Mark, the Licensee’s obligations in respect to the image and high quality of the goods and merchandise bearing the Licensed Mark, and the prestigious marketing of same as required by this § 6.1, shall be consistent with the actions of CKI and its other licensees in respect to Licensed Products bearing such new form of the Licensed Mark. However, on reasonable advance request (within 20 days prior to the end of the 6-months period) if Licensee provides CKI with its inventory of Licensed Products and other materials utilizing the old form, with anticipated outside ‘‘depletion’’ dates for the materials, CKI may provide additional time for such depletion. However, all Licensed Products to be shipped from and after the 6-months period (except for Close-outs or Seconds from prior seasons) will carry new labels, regardless of excess label stock.
6.1.1 Consistency with Other Products. The Licensed Products hereunder are among a range of lines of men’s, women’s, boys’ and girls’ apparel and accessories products which are produced and/or sold by CKI, its licensees and other duly authorized parties under the Licensed Mark and other related trademarks. In order to provide for consistency in scope, and to prevent confusion in the market, the Licensee agrees to use commercially reasonable efforts to ensure that it will only use the Licensed Mark in the form thereof then approved by CKI and that the placement of items constituting Licensed Products in the market will be consistent with other merchandise bearing the Licensed Mark and be distinguishable from the placement of product lines bearing other trademarks.
6.2 Design.
6.2.1 Time and Action Calendar. The Licensee shall prepare, for the Licensed Products, and at least 60 days prior to the commencement of each Annual Period, shall deliver to CKI for its approval (reasonably exercised within the standard design policy and procedures of CKI and timing, development and production and placement schedules), a proposed time and action calendar (‘‘Time and Action Calendar’’) for the Collections to be developed during such Annual Period; provided; however, that the Time and Action Calendar for the first Annual Period shall be delivered for approval no later than the date of execution hereof. The substance and format of each Time and Action Calendar shall be as approved by CKI from time to time. In accordance with each Time and Action Calendar, and at least 60 days before the development stage of any Collection, the Licensee will provide a merchandising plan setting forth for each Product category the number of styles, estimated unit production, in-store delivery dates, target manufacturer’s suggested retail price, target market segment and, where applicable, historical sales statistics for CKI’s review and approval.
6.2.2 Themes. The Licensee shall maintain during the License Period a design staff capable of timely developing seasonal collections of Licensed Products pursuant to the Time and Action Calendars, in order to exploit the License and to maintain the prestige and reputation of the Licensed Mark, as required hereunder. The Licensee’s design team shall have meetings with CKI’s-designated creative or design person or persons, the purpose of which will be to discuss and establish agreed-upon themes that will be covered for the season (such agreed upon themes hereafter referred to as the ‘‘Agreed Upon Season’s Themes’’).
6.2.3 Design Concepts. Based on the Agreed Upon Season’s Themes, the Licensee shall create, develop and present for CKI’s review and approval, a program in a tangible illustrative format of design themes and concepts (‘‘Design Concepts’’) with respect to the proposed designs for the applicable Collection, together with relevant trims, samples of fabrics and other components. The Licensee shall
CONFIDENTIAL TREATMENT |
present the Design Concepts to CKI in a ‘‘Design Concepts Presentation Meeting’’, the purpose of which is to provide CKI with a clear and concrete understanding of the themes, fabrications, styles, attitude and direction of such Collection through the use of either design boards, sketches and/or ‘‘rigs’’ as well as samples of trim, fabrics and other components in each of the Licensee’s suggested colors and qualities, also swatches, yarns and illustrations sufficient to give CKI a clear understanding of the particular Products and components the Licensee wishes to develop based upon approved Design Concepts. CKI shall, within 10 business days from presentation of the Design Concepts identified at the Design Concepts Presentation Meetings approve or disapprove and/or provide suggestions, modifications or recommendations, as determined by CKI in its sole and absolute discretion. Any Design Concept which is not rejected or required to be modified within such 10 business day period shall be deemed approved. Any Design Concept or component thereof presented, initiated or submitted by CKI to Licensee to be included in the applicable Collection shall be included in the Approved Design Concepts except as otherwise may be agreed by CKI. All approved and deemed approved Design Concepts are referred to herein as the ‘‘Approved Design Concepts.’’ The Licensee shall provide CKI with a photographic record, duplicate ‘‘boards’’ or such other comparable method acceptable to CKI, of the Approved Design Concepts so that CKI has a means to verify compliance with the Approved Design Concepts at subsequent stages of the approval process, within 10 business days after approval of the Approved Design Concepts. The Licensee shall have 10 business days to resubmit for CKI’s approval any Design Concept to which CKI directed modifications to be made. If any resubmitted Design Concept, as changed, does not strictly conform to CKI’s request for changes, and such strict conformity cannot be obtained after one resubmission, such Design Concept shall not become an Approved Design Concept. No Licensed Products (including samples) shall be distributed and/or sold by the Licensee unless such Licensed Products are in substantial conformity with Approved Design Concepts. Approved Design Concepts shall only be deemed approved for the specific Collection for which they have been submitted and approved, unless CKI agrees otherwise in writing.
6.2.4 Certain Other Approvals. The Licensee shall provide and present to CKI proposed styles, designs, fabrications (fabric, leather or other materials, swatches in reasonably sufficient size to determine ‘‘hand’’ as well as color, content and other matters, trim, samples, labels (quality), artwork, if requested by CKI (e.g., layouts and relevant technical information for graphic motifs, patterns (such as florals, stripes, checks))) and other materials in quantities and sufficient variety to enable CKI to review and approve (including to require modifications to or changes in), on a timely basis, sufficiently in advance of the market and production timing.
6.2.5 CKI Designs. CKI may provide the Licensee with creative concepts and fashion direction as to each Collection, including recommendations as to color, material, design and styling of Products and such additional design assistance including sketches, samples, suggestions or other information or data as CKI determines in its sole discretion. For each Collection, the Licensee shall utilize substantially all of the designs, fabrics, trim or other material submitted or approved by CKI and shall produce on a timely basis pre-production prototypes for CKI’s review and approval.
6.2.6 Prototypes. Prior to showing each season’s Collection to the trade or commencing production of the Products for such Collection in accordance with the Time and Action Calendars, the Licensee shall produce pre-production prototypes (both initial (first) and second prototypes, where required by CKI) of each Product in the approved fabrications, or, if applicable, in those fabrications specifically requested by CKI (or, if CKI so permits on a season-by-season, case-by-case basis, pre-production prototypes of each ‘‘body’’ or style of Product in representative fabrications or those fabrications specifically requested by CKI), along with swatches and samples of sufficient size in order to determine hand and/or other aspects related to the Products that the Licensee proposes to include in such Collection, for CKI’s approval. No previously approved Licensed Products shall be included in a subsequent Collection unless and only if presented for inclusion and approved by CKI for such subsequent Collection. CKI shall have the right to approve or disapprove of any or all aspects of each prototype and to require modifications to meet its requirements for approval. Notwithstanding such requirements or approvals, all responsibility (and liability) for the merchantability, fit and technical
CONFIDENTIAL TREATMENT |
requirements of such Licensed Products is and will belong to Licensee. If CKI disapproves any proposed carryover of a ‘‘core’’ item (i.e., part of the Collection for at least four prior seasons, if any), then the Licensee will discontinue such product within three months to enable the Licensee to fulfill outstanding orders. (Prototypes which have been approved by CKI, or those subject to changes being made by the Licensee, upon resubmission of corrected prototypes and subsequent approval by CKI, shall hereinafter be referred to as ‘‘Approved Prototypes.’’). The Licensee shall provide CKI with a photographic record of all Approved Prototypes for each Collection, and also, the Licensee shall promptly provide CKI, with a record of the use (i.e., the factory location in which each prototype will be used to produce the specific Licensed Products) of the Approved Prototypes, which shall include notification (i.e., e-mail, fax, modified purchase order to factory producing the particular item of Licensed Product) and evidence (e.g., in the form of duplicate or modified prototype) of any changes required by CKI. CKI may request that prototypes be developed in a standard size or to provide CKI with a variety of sizes and styles, covering the spectrum, to assure itself of ‘‘fit’’ and sizing.
6.2.7 Final Approval and Sales. The final composition of each Collection shall be determined and agreed upon by the Licensee and CKI, and is subject to the approval of CKI, upon presentation and edit of the sample line produced from Approved Prototypes for technical quality and final editing purposes. Thereafter, the Licensee shall timely sell, market, produce and ship such Collection based on the Approved Prototypes.
6.3 Manufacture of Licensed Products by Third Parties. All contractors wherever located which the Licensee desires to use in connection with the manufacture of Licensed Products are subject to the prior written approval of CKI, which consent shall not be unreasonably withheld or delayed; provided, however, that CKI shall have 10 business days after its receipt of a written request from the Licensee to use a manufacturer or such longer period as is reasonable under the circumstances to approve or disapprove such manufacturer. In order to maintain CKI’s high standard of quality control and to insure that appropriate measures are taken against counterfeiting, the Licensee shall provide CKI with the following information: (i) name and address of each proposed manufacturer; (ii) type of Licensed Products to be manufactured; (iii) quantity of Licensed Products to be manufactured; and (iv) any other relevant information. The Licensee shall obtain the signature of an authorized representative from each approved third-party manufacturer used by the Licensee on an agreement (a ‘‘Third-Party Manufacturing Agreement’’), substantially in the form of Exhibit D. The Licensee shall not knowingly enter into a Third-Party Manufacturing Agreement with any third party that has materially breached a similar agreement with CKI or its Affiliates or any licensee of CKI or its Affiliates. The Licensee acknowledges that it shall remain primarily liable and completely obligated under all of the provisions of this Agreement in respect of such contracting or assembly arrangements.
6.4 Non-Conforming Products. In the event that any Licensed Products are, in the judgement (which shall include subjective aesthetic considerations and standards) of CKI, not being manufactured, distributed or sold with first quality workmanship or in strict adherence to the prototypes approved by CKI, CKI shall notify the Licensee thereof in writing, and the Licensee shall promptly initiate corrections or changes to production of such Licensed Product to conform thereto. Where non-conformity is material, substantial or may adversely affect the reputation or prestige or value of the Licensed Mark or CKI’s business operations, CKI may require that no further sale or shipment of such Licensed Mark be made until such corrections are made. If Licensed Products as changed do not strictly conform after CKI’s request and such strict conformity cannot be obtained after one resubmission, such Licensed Products (the ‘‘Non-Conforming Products’’) shall be disposed of in a way which shall not reduce the value of the Licensed Mark or detract from its reputation, which may include, without limitation, the destruction of the Non-Conforming Products, the donation of such Non-Conforming Products to eleemosynary institutions, the sale of such Non-Conforming Products in a private sale, with proceeds to be given to charity, or the removal of Labels and other identification prior to sale, or other method reasonably approved by CKI. As noted, CKI may require the Licensee to cease further shipment and sale of such Licensed Products, to recall any Licensed Products that are not consistent with approved quality
CONFIDENTIAL TREATMENT |
standards and the approved prototypes and/or to purchase at the Licensee’s expense any such Licensed Products found in the marketplace. ***
6.5 Approvals. All approvals by CKI required under this Agreement must be obtained in advance of use of the item subject to approval, which approval must be in writing from CKI to the Licensee. Except as otherwise expressly provided hereunder, a submission for approval shall be deemed approved unless CKI delivers a notice of disapproval within 10 business days after its receipt of a written request for approval (together with the submission as well as all information, details and specifications reasonably necessary to review, determine and provide an approval). All matters requiring approval of CKI shall be granted or withheld in the sole and absolute good-faith discretion of CKI and may be based solely on CKI’s subjective aesthetic standards. CKI shall provide an explanation for disapprovals, unless such disapproval reflects an issue of taste or subjective judgement. CKI has no obligation to approve, review or consider any item which does not strictly comply with the required submission procedures. Approval by CKI shall not be construed as a determination that the approved matter complies with all applicable regulations and laws. No disapproved item shall be manufactured, sold, used, distributed or advertised by the Licensee under the Licensed Mark. The Licensee may revise any disapproved item and resubmit it. The Licensee must strictly comply with all of CKI’s decisions. CKI may amend the approval forms as appropriate. Otherwise, the parties may mutually agree to amend the approval forms as they deem appropriate. In the event that it is reasonably necessary for CKI to do on-site approvals, the Licensee shall pay any and all reasonable expenses and airfare incurred by CKI with respect to such on-site approvals. CKI to provide Licensee with advance notice as to any such trips or anticipated on-site approval situations to reasonably co-ordinate with Licensee.
6.6 Marketing, Labeling, Packaging, Promotions, Business Materials. All packaging, labeling, including within the Licensed Product (‘‘Labels’’) must be approved by CKI. The use of any Label that has not been approved is expressly prohibited. CKI reserves the right to require the Licensee to purchase Labels to be used on the Licensed Products only from sources designated by CKI, provided that such sources provide the Labels to the Licensee in a reasonably competitive manner as to price and delivery schedules. All Licensed Products manufactured, distributed or sold by, or on behalf of, the Licensee shall be marked, labeled, packaged, advertised, distributed and sold in accordance with this Agreement. At the request of CKI, the Licensee shall cause to be placed on (or attached to) all Licensed Products (by way of labels, tags or inserts, and/or packaging) an appropriate notice designating CKI as the ‘‘licensor’’ of the Licensed Mark, and/or CKTT as the owner of the Licensed Mark. The manner of presentation of such notice shall be determined by CKI. Any and all proposed advertising, promotional, business (including stationary, business cards, invoices) or marketing or publicity material (including issuing press releases, interviews or other public relations media), any POS, POP or other promotional material and any other printed material or other form of communications to be used in connection with the marketing, promotion, sale or distribution of the Licensed Mark must be approved by CKI (as to content, form and specific use, including timing and duration of use) prior to use by Licensee, as noted in the 2nd sentence of § 6.5 above, as to 10 business days, submission and information. If CKI should disapprove any sample tag, label, package or the like, or any advertising, promotional, merchandising, marketing or publicity material, activity or event or the proposed placement or use thereof or any other printed matter, event or activity, Licensee will not use or permit the use of the same in any manner, whether or not in connection with Licensed Products or the Licensed Mark.
6.7 Inspection of Facilities. CKI and its duly authorized representatives shall have the right, during normal business hours and upon reasonable notice, to inspect all facilities utilized by the Licensee (and its contractors and suppliers to the extent the Licensee may do so) in connection with the manufacture, sale, storage or distribution of Licensed Products, and to examine the Licensed Products in the process of manufacture.
6.8 Samples and Artwork. CKI may make available to the Licensee certain samples, designs, colors, fabric samples, tags, labels, packaging, catalogues and artwork available to CKI, and the cost of providing such materials shall be borne by the Licensee at prices equal to CKI’s cost (A) as may be requested by Licensee or (B), in the case of ‘‘multi-regional’’ items which CKI requires to be utilized
CONFIDENTIAL TREATMENT |
amongst its multiple licensees for Licensed Products, not to exceed $25,000 per annum without the Licensee’s prior consent. The payment for these already ‘‘developed’’ materials are separate and apart from the payment of any CRK fee for the development of such samples, designs, colors, fabric samples, tags, labels, packaging, catalogues and artwork directly for Licensee for each Collection of Articles which shall also be borne by Licensee. All right, title and interest in and to samples, sketches, designs, and other materials furnished to the Licensee or submitted by CKI in connection with the Licensed Products, including any modifications or improvements thereof which may be created by CKI, shall remain the sole property of CKI as between the Licensee and CKI, and are ‘‘licensed’’ hereunder solely and exclusively for use in connection with the manufacture, sale, distribution and promotion of Licensed Products in the Territory, otherwise subject to the terms and conditions of this License Agreement.
6.9 Know-how. The Licensee shall have the right to request visits to CKI’s offices or showrooms to meet with its personnel, in order to obtain additional know-how and assistance, all as and only as CKI deems appropriate. The scheduling of such visits shall be at times mutually convenient to the parties hereto. In connection with such visits, the Licensee shall bear all expenses of the Licensee’s representatives.
6.10 Meetings. CKI may from time to time hold meetings of CKI’s licensees. The Licensee shall, upon receipt of reasonable notice, attend such meetings at its own expense but shall not be required to attend more than two such meetings per year.
6.11 Design Direction. The designs of the Licensed Products shall at all times be consistent with CKI’s design aesthetic for the Licensed Mark. CKI may submit samples to the Licensee of or for products it deems to be core to the image of the overall ‘‘CALVIN KLEIN’’ trademark and/or product lines, and the Licensee shall develop Licensed Products based thereon and shall use commercially reasonable efforts to market same.
6.12 Design Rights. The Licensee acknowledges and agrees that CKI owns or shall own all design rights, regardless of whether such designs were created by CKI or by or on behalf of the Licensee, except with respect to Excluded Designs. The Licensee agrees to make, procure and execute all assignments necessary to vest ownership of design rights in CKI. The Licensee shall not do or allow to be done anything which may adversely affect any of CKI’s design rights. All designs used by the Licensee for the Licensed Products, except with respect to Excluded Designs, shall be used exclusively for the Licensed Products and may not be used under any other mark, whether during the License Period or any time thereafter, without the prior written consent of CKI. The Licensee shall disclose and freely make available to CKI any and all developments or improvements it may make relating to the Licensed Products and to their manufacture, promotion and sales, including, without limitation, developments and improvements in any machine, process or product design, that may be disclosed or suggested by CKI or regarding any patent or trademark which the Licensee is entitled to utilize. ‘‘Excluded Design’’ means a design (i) submitted by the Licensee and not approved by CKI; (ii) not distinguishable from similar generic products generally available in the marketplace; or (iii) not distinguishable from a product which has previously appeared in the Licensee’s product line and the Licensee advised CKI of such condition at the time of submission. In the event of clause (i) or (iii) above, the Licensee shall retain title to such designs but shall permit CKI to use such designs during the Term of this License Agreement. CKI may use and permit others to use said designs and other materials in any manner it desires, provided that such use does not conflict with any rights granted the Licensee hereunder or belonging to Licensee. The Licensee specifically acknowledges that such designs and other materials may be used by CKI and its Affiliates and other licensees of CKI and its Affiliates on Licensed Products in jurisdictions outside the Territory and on products other than Licensed Products anywhere in the world, subject to the limitations described herein. Notwithstanding the foregoing, CKI shall not acquire any ownership interests in any patents, trademarks or copyright rights owned or commissioned by Licensee and utilized for multiple or other than Licensed Products, but utilized as well in connection with the Licensed Products.
6.13 Shops, Stores, Retail Outlets. Subject to § 6.14, the Licensed Products sold by the Licensee may be *** Nothing herein shall be deemed to ***
CONFIDENTIAL TREATMENT |
6.14 Disposal of Seconds and Close-Outs. Seconds and Close-Outs sold by the Licensee may be sold only to Approved Accounts and Approved Seconds and Close-Outs Accounts, including those customers identified on Schedule 6.14. Whenever the Licensee shall wish to sell Seconds and Close-Outs to customers not previously approved by CKI, the Licensee shall submit to CKI a written list of the proposed customers for Seconds and Close-Outs for CKI’s prior written approval. The proposed customers approved from such list, together with the customers listed on Schedule 6.14, are referred to as the ‘‘Approved Seconds and Close-Outs Accounts.’’ Notwithstanding CKI’s approval of any customer, CKI may at any time subject sales to any such customer, including, without limitation, any such customer listed on Schedule 6.14, to any conditions or limitations CKI considers appropriate; provided, however, that in order to be effective, any such conditions or limitations must be set forth in a writing provided to the Licensee. Nothing herein shall be deemed to prohibit CKI from withdrawing its approval of any Approved Seconds and Close-Outs Account for ‘‘good’’ bona fide reasons, including, without limitation, any such Approved Seconds and Close-Outs Account listed on Schedule 6.14, upon written notice to the Licensee (at which time, such customer shall cease to be an Approved Seconds and Close-Outs Account for purposes of this Agreement); provided, however, that the Licensee may fulfill any firm orders entered into prior to the Licensee’s receipt of CKI’s withdrawal of approval.
6.14.1 Seconds. The Licensee shall only sell Licensed Products which are damaged, imperfect, non-first quality or defective goods (‘‘Seconds’’) in a way which shall not *** Notwithstanding anything to the contrary, ***
6.14.2 Close-Outs. ***
6.15 Standards of Conduct .
6.15.1 Standards. The Licensee acknowledges that CKI is a wholly owned subsidiary of Phillips-Van Heusen Corporation (‘‘PVH’’). The Licensee acknowledges that it has received copies of, read and understands PVH’s publication ‘‘A Shared Commitment — Requirements for Suppliers, Contractors, Business Partners’’ and PVH’s ‘‘Statement of Corporate Responsibility.’’ The Licensee shall conduct its business in compliance with the moral, ethical and legal standards set forth in such publications, as the same may from time to time be revised by PVH upon reasonable notice to the Licensee (the ‘‘Standards’’) and shall cause all manufacturers, contractors and suppliers which manufacture Licensed Products or from whom the Licensee obtains Licensed Products or materials for the manufacture of Licensed Products to abide by the Standards.
6.15.2 Audit Requirement. For each facility utilized by Licensee for the manufacturing of the Licensed Products (whether directly produced or produced by or through a contractor, subcontractor or supplier) the Licensee will arrange to have the facility audited for compliance with the Standards unless PVH notifies the Licensee in writing that it already has a current audit with respect to such facility that evidences compliance with the Standards. Audits on each facility used must thereafter be conducted no less often than annually. Each audit shall be conducted by a suitable auditor (whether internal or external) designated by the Licensee, subject to Licensor’s and PVH’s approval. Disapproval by Licensor and PVH may only be for grounded reasons. Each audit shall be conducted using the evaluation form attached hereto as Exhibit E or a substantively similar form approved by PVH. The Licensee shall identify to PVH in writing each facility in which Licensed Product (or part thereof) are produced or which is to be re-audited and PVH shall notify the Licensee within 30 days of PVH’s receipt of such notice if PVH has currently approved the facility for production and when re-audit is required. If a facility is currently approved for production, the Licensee shall have no obligation to arrange for a current audit of the facility. If a facility is denied approval by PVH as of such date, Licensee will not place any new orders in such facility and will only use the facility to fulfill currently existing, non-cancelable orders. Licensee will stop producing in such facility starting from the immediately subsequent season. All audits shall be conducted at the Licensee’s sole expense. All support to be given by PVH will be at PVH’s expense.
Notwithstanding anything to the contrary contained in this §6.15.2, ***
6.15.3 Approval. A comprehensive audit report prepared by the auditor shall be provided to PVH, attention the director of PVH’s Human Rights Program Department, promptly upon its
CONFIDENTIAL TREATMENT |
completion. PVH shall have 30 days from its receipt of an audit report to notify the Licensee: a) of its approval of the audited facility either (i) fully without remarks; or (ii) with request to re-audit within a certain period (‘‘Red Flag’’); or b) of its disapproval of the facility that is the subject thereof in which case Licensee may fulfill any firm orders entered into prior to the Licensee’s receipt of PVH’s disapproval and cease to utilize such disapproved facility from the subsequent season. If PVH does not give notice to the Licensee within such 30-day period, the facility shall be deemed approved by PVH. PVH shall set forth in its notice of disapproval its reason(s) for disapproval in reasonable detail.
6.15.4 Use of Facility. Unless and until the Licensee delivers to PVH an audit report for a facility that evidences compliance with the Standards and PVH approves such facility, the facility shall not be used for the production of Licensed Products. If the Licensee uses a facility that has not been approved in accordance herewith, fails timely to cause an approved auditor to submit to PVH an audit report evidencing continued compliance with the Standards when a re-audit of a facility is required in accordance with the terms hereof or if the Licensee or any of its manufacturers, contractors or suppliers with respect to Licensed Products shall, in PVH’s sole determination, fail to abide by the Standards, CKI’s sole remedy with respect to such breach of this § 6.15.4, to the extent that CKI is not otherwise damaged as a result of such breach, shall be to terminate the License and all of the other rights granted to the Licensee under this Agreement, as provided in § 8.3 below. Nothing in this § 6.15.4 shall be deemed to confer third-party beneficiary rights upon any person, corporation, partnership or other entity.
6.16 Personnel. Licensee shall perform its obligations hereunder through a separate sub− division of the Licensee exclusively dedicated, and the employees of which shall be dedicated to the performance of the Licensee’s obligations hereunder; provided, however, that financial, logistics and other back-office support need not be exclusive, except with respect to operations of other licenses with CKI. Licensee shall employ, on an exclusively devoted basis (to operations hereunder and to operations under the CKI Jeans License and CKI Jeans and ‘‘bridge’’ Accessories Licenses), a ‘‘President’’ who is subject to the initial reasonable approval of CKI, as is any successor thereto, as well as other personnel as may be needed to successfully exploit the business. Managing Directors may be substantially devoted to the operations hereunder as well as to other Fingen S.p.A. and affiliated entities, business and operations. Such personnel would include sales, merchandising, technical, product development and other production, visual display, quality control and retail development personnel. CKI may, on an ongoing basis, advise Licensee of any problems or difficulties, if any, it may be experiencing, and Licensee will use all reasonable efforts to address any such concerns to CKI’s reasonable satisfaction.
ARTICLE VII. THE LICENSED MARK
7.1 Rights to the Licensed Mark.
7.1.1 Ownership of Licensed Mark. The Licensee acknowledges that the Calvin Klein Trademark Trust (‘‘CKTT’’) is the owner, and CKI is the beneficial owner, of all right, title and interest in and to the Licensed Mark, and to any variant, modification or embodiment thereof, for Products in the Territory; and that CKTT and CKI also own the goodwill related to such marks and to the business and goods in relation to which such marks have been or will be used. The Licensee will not at any time directly or indirectly do or suffer to be done any act or thing that might in any way adversely affect any rights of CKTT or CKI in and to any of such marks, any registrations thereof or any applications for registration thereof, or which might reduce the value thereof or detract from their reputation, image or prestige of that of CKTT, CKI or Mr. Calvin Klein. Sales by the Licensee shall be deemed to have been made by CKTT for purposes of trademark registration and all uses of the Licensed Mark by the Licensee and any and all goodwill generated by use of the Licensed Mark shall inure to the benefit of CKI and CKTT.
7.1.2 No Adverse Actions. The Licensee shall not, at any time, do, or otherwise suffer to be done, any act or thing which may at any time, in any way, adversely affect any rights of CKI or CKTT in and to the Licensed Mark or any registrations thereof or which, directly or indirectly, may reduce the value of the Licensed Mark or detract from its reputation. The Licensee shall not file or prosecute a trademark or service mark application or applications to register the Licensed Mark or any trademark,
CONFIDENTIAL TREATMENT |
name or other mark confusingly similar thereto in respect of the Licensed Products or any other goods or services in the Territory or elsewhere. The Licensee shall not, during the term of the License Period or thereafter, (i) contest CKTT’s or CKI’s title, right, ownership or other interest in or to the Licensed Mark in any jurisdiction or attack the validity of the License or the Licensed Mark or (ii) contest the fact that the Licensee’s rights under this Agreement (a) are solely those of a manufacturer, licensee and, if appropriate, distributor; and (b) subject to the provisions of § 8.5, cease upon termination of the License Period.
7.1.3 Registrations. The Licensee acknowledges and agrees that CKTT, as the sole and exclusive owner of the Licensed Mark, has the exclusive right to apply for registrations and to extend appropriate registrations of the Licensed Mark for all categories of goods, including, without limitation, the Products. CKI, on behalf of CKTT, shall maintain at its expense and as determined by CKI consistent with its past practice the registrations for the currently existing Licensed Mark in the Territory with respect to Products. The Licensee agrees to cooperate with CKTT and/or CKI in the preparation, filing and prosecution of applications for registration, or extensions of existing registrations, or other documentation relative to the Licensed Mark. CKI represents that CKTT has applications and registrations for the ‘‘CK/CALVIN KLEIN’’ mark for products in International Class 18 (leather accessories) in a number of jurisdictions in the Territory, as per schedule to be attached.
7.1.4 Survival. The provisions of this § 7.1 shall survive the termination of the License Period and this Agreement.
7.2 Protecting the Licensed Mark. The Licensee shall cooperate fully and in good faith with CKI and CKTT for the purpose of securing, preserving and protecting CKTT’s and CKI’s rights in and to the Licensed Mark and any secondary trademark that the Licensee may develop and use with the approval of CKI. Any such secondary mark will be owned by CKTT. At the request of CKI, the Licensee shall execute and deliver to CKI any and all documents and do all other acts and things which CKI and/or CKTT deems necessary or appropriate to make fully effective or to implement the provisions of this Agreement relating to the ownership or registration of the Licensed Mark, including, without limitation, information regarding use and supporting documentation therefore, as well as labels, hang tags, packaging, and other appropriate specimens evidencing use of the Licensed Mark in each country in the Territory.
7.3 Use of the Licensed Mark.
7.3.1 Compliance with Legal Requirements. The Licensee will use the Licensed Mark in the Territory strictly in compliance with the legal requirements therein. The Licensee shall duly display all other notices with respect to the Licensed Mark, on the Licensed Products and otherwise, as are or may be required by the trademark laws and regulations applicable within the Territory. Upon expiration or termination of the License for any reason whatsoever, the Licensee will execute and deliver to CKI any and all documents required by CKI.
7.3.2 Use with Other Name. The Licensee shall not (a) co-join any name or names with the Licensed Mark, (b) use the name ‘‘Calvin Klein’’ or ‘‘CK’’ or ‘‘CK/Calvin Klein’’ or any portion or derivative thereof in its corporate name except as previously approved or subsequently approved by CKI in writing, or (c) use any other name, or names in connection with the Licensed Mark, in any advertising, promotion, publicity, labeling, packaging or other printed matter of any kind in connection with the distribution or sale of Licensed Products except as may be approved in writing by CKI. Any use of the Licensee’s corporate name or that of its Affiliates in connection with the Licensed Mark will be subject to the approval of CKI. If CKI approves any use of the Licensed Mark in connection with the Licensee’s corporate name, the Licensee will clearly indicate that the Licensee is using the Licensed Mark pursuant to a license from CKI as may be required by CKI. The Licensee will use such trade name to designate the operations under this Agreement as is approved by CKI, and will file a fictitious name certificate (‘‘d/b/a’’) or use of ‘‘trade name’’ certificate or notice, as is generally used or required in the various jurisdictions in the Territory to reflect such use, as is reasonably approved by CKI).
CONFIDENTIAL TREATMENT |
7.3.3 Execution of Documents. At CKI’s request, the Licensee will execute any and all documents (including registered user agreements) and take any actions required by CKI to confirm CKTT’s ownership or CKI’s beneficial ownership of the marks referred to in §7.1.1 and the respective rights of CKTT, CKI and the Licensee pursuant to this Agreement.
7.4 Ownership of Copyright. Except as specifically provided herein, any copyright which may be created in any sketch, design, print, Label or the like designed or approved or used with the Licensed Mark by the Licensee will be the property of CKI. The Licensee shall not, at any time, do, or otherwise suffer to be done, any act or thing which may adversely affect any rights that CKI may have in such sketches, designs, prints, Labels and the like and will, at CKI’s request, do all things reasonably required by CKI to preserve and protect said rights.
7.5 Infringements, Counterfeits and Parallel Imports.
7.5.1 Infringements. In the event that Licensee learns of any infringement or imitation of the Licensed Mark with respect to Products (other than insignificant, immaterial or de minimus situations) which it believes could be considered a counterfeit of the Licensed Products, or of any use by any person of a trademark similar to the Licensed Mark with respect to Products which it believes could be considered a deliberate use of something substantially similar to the Licensed Mark and is either substantive, significant or would adversely affect the prestige, reputation or value of the Licensed Mark), it will promptly notify CKI thereof. The Licensee will take no action, including, but not by way of limitation, settling any action, appealing any adverse decision or discontinuing any action taken by it, except to the extent the same is approved in advance by CKI. All costs and expenses incurred in any action or proceeding (including investigatory expenses and attorneys’ fees, if applicable, court costs and filing fees) will be borne as determined in § 7.5.2. Any damages recovered or sums obtained in settlement in or with respect to any action shall (i) first be applied proportionately to reimburse CKI and the Licensee for the respective expenses incurred and actually paid by it and (ii) the balance, if any, shall belong and shall be paid over to, on a fifty-fifty basis, to CKI and the Licensee. In no event will any infringement by a third party justify the withholding of any payment of Fee or other amount by the Licensee.
7.5.2 Counterfeits and Parallel Imports.
7.5.2.1 The Network. CKI currently maintains certain staff which maintains an enforcement network of attorneys, investigators and customs inspectors in the Territory (the ‘‘Network’’) to minimize and deter (i) the diversion into and sale within and from the Territory of products (including those which would correspond to Licensed Products) authorized for sale by its Affiliates and other licensees, which may include, without limitation, unauthorized distribution of such products by the manufacturers and subcontractors thereof (‘‘Parallel Imports’’) and (ii) the importation into, or sale or manufacture within as well as from, the Territory of counterfeit Licensed Products or infringing Products; in each case subject to contributions from and reimbursement by various licensees (as well as other authorized users of the Licensed Mark and other marks of CKI and CKTT), and subject to applicable law. CKI generally requires, and will continue to require, its licensees in their respective agreements to restrict exports from their respective ‘‘territories’’ (as per the final sentence of § 1.1.2) in order to prevent importation of applicable merchandise into another licensee’s ‘‘territory.’’ The Licensee acknowledges and agrees that CKI is under no obligation to maintain any such Network or other arrangement, and may curtail, modify, terminate or discontinue such Network in whole or in part at any time. For the time being, unless or until CKI otherwise determines and so advises the Licensee in CKI’s reasonable discretion, the Licensee will cooperate in such efforts as reasonably requested by CKI, and under procedures as CKI may agree upon with Licensee, and will timely remit and/or, as applicable, promptly reimburse out-of-pocket expenses reasonably incurred by CKI in such efforts (including, without limitation, reasonable attorneys’ fees and expenses) as follows: *** Upon the Licensee’s request, CKI will meet with the Licensee to discuss CKI’s enforcement activities and the costs associated therewith.
7.5.2.2 Diversion. The Licensee shall use all commercially reasonable efforts to minimize and deter the diversion of Licensed Products for sale outside of the Territory, including, without
CONFIDENTIAL TREATMENT |
limitation, the unauthorized distribution of Licensed Products by the Licensee’s manufacturers and subcontractors (‘‘Diversion’’). The Licensee shall cooperate with CKI in CKI’s efforts to minimize and deter Diversion (‘‘Anti-Diversion Efforts’’). Without limiting the foregoing the Licensee shall promptly (i) provide such information as CKI may from time to time reasonably request concerning its manufacturing, subcontracting and distribution locations, activities and shipments, product and label identification systems and data and sales to and by its customers; and (ii) as provided in § 7.5.4, reimburse all agreed upon out-of-pocket expenses reasonably incurred by CKI in its Anti-Diversion Efforts (including, without limitation, reasonable attorneys’ fees and expenses).
7.5.3 Criminal Proceedings. CKI may, but need not elect to, initiate criminal or civil actions against persons or entities outside the Territory seeking to manufacture counterfeit Licensed Products or sell or ship counterfeit Licensed Products into the Territory (excluding, for this purpose, manufacturers or subcontractors described in the definitions of Diversion or Parallel Imports). The cost related to any such actions shall be borne entirely by the Licensee, if the Licensee requests that such action be taken, or by CKI, if CKI determines to take such action.
7.5.4 Enforcement Activities. CKI will consult with the Licensee in connection with the enforcement activities undertaken pursuant to this § 7.5. In connection with this § 7.5.4 through § 7.5.6, and § 7.5.2, Licensee and CKI from time to time will use reasonable efforts to apply a substantive portion of the budgeted amounts and expenditures towards more substantive, significant and/or material actions (and acts of infringement, counterfeiting, etc.) in order to enhance the effectiveness of application of resources. In addition, upon the request of the Licensee, the parties will consult one time each Annual Period to forecast CKI’s continuing and reimbursable expenses hereunder and enter into suitable arrangements as may be agreed upon with Licensee, including retainer arrangements, so that CKI may receive the Licensee’s payments in respect thereof at or shortly before such expenses are incurred.
7.5.5 Nature of Proceedings. Whenever it is not readily apparent whether actions or proceedings involve counterfeit Licensed Products, Parallel Imports or Diversion, CKI will, where practical and subject to time constraints, contact CKJE for information or input, and then reasonably determine the nature of such items in good faith (with all due caution as to ramifications of erroneous determinations as to whether ‘‘counterfeit’’ or not), taking into account all relevant information provided by the Licensee.
7.5.6 Cooperation. The Licensee shall cooperate with CKI in all actions taken by CKI pursuant to this § 7.5, whether on its own or at the Licensee’s request, and in all criminal proceedings, as may be required or reasonably requested.
7.6 Trademark Security.
7.6.1 Counterfeit Protection. The Licensee shall use all commercially reasonable efforts to prevent counterfeiting of the Licensed Products. All Licensed Products shall bear and use any reasonable counterfeit preventive system, devices or labels, provided that Licensee may decide in its own good faith discretion, which system, devise or labels to use.
7.7 Use of Licensed Mark on Invoices, etc. The use of the Licensed Mark by the Licensee on invoices, order forms, stationery and related materials, in advertising in telephone or other directory listings is permitted only upon CKI’s prior written approval of format in which the Licensed Mark is to be so used, the juxtaposition of the Licensed Mark with other words and phrases, and the specific trade name (and form and format thereof), the content of the copy and filing of a fictitious name certificate (‘‘d/b/a’’) or ‘‘trade name’’ certificate or notice, if using the Licensed Mark or portion (e.g., ‘‘CK’’) in such name (or other regional notice of ‘‘trade’’ name or use of the Licensed Mark) as applicable, as approved by CKI.
7.8 Monitoring. The Licensee shall use reasonable efforts to monitor the use of the Licensed Mark by the Licensee’s customers and to require its customers to advertise, display and promote the Licensed Mark in a manner consistent with the terms and conditions of this Agreement.
CONFIDENTIAL TREATMENT |
ARTICLE VIII. TERM AND TERMINATION
8.1 Expiration. The License and, subject to § 8.5, the other rights granted to the Licensee hereunder shall terminate at the end of the License Period and all rights shall immediately revert to CKI.
8.2 Other Rights Unaffected. It is understood and agreed that termination of the License or other rights granted to the Licensee hereunder by CKI on any ground shall be without prejudice to any other rights or remedies which CKI may have.
8.3 Right of Termination of the License. If any of the following grounds for termination shall occur, CKI may elect, by written notice to the Licensee, to terminate
(A) upon 20 business days notice unless cured within such 20 business days in the case of any of subsections ‘‘(b)’’ through ‘‘(e)’’;
(B) in the case of subsections ‘‘(f),’’ ‘‘(g),’’ ‘‘(h)’’ (alone or with other breaches or defaults), upon 25 business days notice (without any cure period); and
(C) upon 25 business days notice, unless cured within such 30 business days, in the case of subsections ‘‘(l)’’ or ‘‘(m)’’ (provided not with other breaches or defaults under other noted subsections),
the License and other rights granted to the Licensee hereunder:
(a) Deliberately Omitted ;
(b) The Licensee shall repeatedly sell or distribute individual items of Licensed Products (in other words, ‘‘a pattern’’ of behavior), or shall sell at any time a significant quantity of Licensed Products in breach of CKI’s review and approval rights under § 6.2;
(c) Failure by the Licensee to perform or observe any term or covenant or agreement contained in § 11.4 or in § 4.10;
(d) The Licensee shall sell or distribute Licensed Products to retailers not approved by CKI or disapproved by CKI in accordance with or otherwise in breach of §§ 6.13 or 6.14 (unless such sale or distribution was inadvertent, and was of an insignificant quantity of products or single or isolated account, and the Licensee promptly represents to CKI in writing that steps to avoid such sales or distribution in the future are being taken (which steps are to be delineated in such writing), and are deemed acceptable to CKI’s reasonable satisfaction, and further provided that the Licensee does not repeat any such sales or distribution in breach of §§ 6.13 or 6.14 within the same Annual Period);
(e) Underpayment by the Licensee of Fees (including non-timely (i.e., on or within 15 business days of the due date) payment of any installment of Minimum Guaranteed Fees or MAE hereunder) of 7.5% or more with respect to any Annual Period, or of 5% or more with respect to any two (2) consecutive Annual Periods, unless such underpayment of fees (not MGF’s or MAE’s) was result of clerical or bank errors, or constitutes a ‘‘bona fide’’ dispute between the parties, which is the subject of continuing good faith efforts to ‘‘resolve,’’ not known to a responsible officer or other financial person, and promptly corrected as soon as ‘‘known’’ or so advised by CKI);
(f) The Licensee institutes for its protection, or is made a defendant, in any proceeding under bankruptcy, insolvency, reorganization or receivership law, or the Licensee is placed in receivership or makes an assignment for benefit of creditors or is, or states that it is, unable to meet its debts in the regular course of business, and such involuntary proceedings or receiverships are not dismissed or vacated within 60 days of filing or appointment;
(g) Cessation by the Licensee of its business;
(h) The Licensee assigns, attempts to assign (entering into a binding term sheet or contingent contract or agreement, not just ‘‘discussion’’) , sublicense (without CKI’s approval), or otherwise transfers or attempts to transfer any of its rights or obligations hereunder. Any such attempted or completed assignment, sublicense or transfer (‘‘Transfer’’), whether voluntary or by operation of law, directly or
CONFIDENTIAL TREATMENT |
indirectly, will be void and of no force or effect. For purposes of this Agreement, any transfer of all or a controlling portion or a majority of the shares of the Licensee or other ‘‘CK’’ affiliates by CK Jeanswear N.V., Fingen S.p.A., its affiliates, shall be deemed a transfer in violation of the terms hereof and prohibited as a ‘‘Transfer’’ hereunder. Prompt notice of any transfer by CK Jeanswear N.V., Fingen S.p.A. or its affiliates (other than Calvin Klein, Inc. or its successors, assignees or transferees) of more than five percent (5%) (whether over a period of time or all at once) (‘‘Notice’’) , shall be delivered to Licensor. Notwithstanding anything herein contained, a change-of-control Transfer shall be permitted if in accordance with all of the applicable provisions of the CKI/CF Group Irrevocable Consent d. 29 September 2005. In the event of any such CKI-permitted change-of-control Transfer, the provisions hereof shall apply to any ‘‘successor in interest’’ permitted Transferee (except that Notice shall apply to any transfer of more than 35% of the Transferee) . Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.
(i) A change, effect or circumstance occurs that is materially adverse to the business, condition, operations, performance or properties of Licensee’s ability to perform timely its otherwise material obligations under this Agreement, which would, with the normal passage of time, without cash infusion or other material improvement, result in liquidation, substantial discontinuance or even cessation of business (‘‘Material Adverse Effect’’);
(j) A final judgement is entered against the Licensee in excess of € 2,500,000 which has not been satisfied and which would have a Material Adverse Effect;
(k) Any indebtedness of the Licensee in excess of Euros €5 million is accelerated or otherwise comes due and payable before its stated maturity and is not subject to cure under the applicable instrument, which would have a Material Adverse Effect;
(l) The failure by the Licensee to perform or observe any material term or covenant or agreement contained in this Agreement, other than those specified in §§ 8.3(a) to (k) and other than those cured to CKI’s reasonable satisfaction, within the applicable cure period (25 business days) for the second time in any Annual Period; or
(m) The repeated violation by the Licensee of any material term or covenant or agreement contained in this Agreement, other than those specified in §§ 8.3(a) to (k) and other than those cured to CKI’s reasonable satisfaction within the applicable cure period (25 business days).
8.4 Termination With Notice and Right to Cure. In the event of the failure by the Licensee to perform or observe any material term or covenant or agreement contained in this Agreement, other than those specified in § 8.3, CKI may terminate the License and the other rights granted to the Licensee under this Agreement by giving notice of termination to the Licensee (a ‘‘Notice of Termination’’), which termination shall become effective automatically unless the Licensee completely cures the breach within 30 days of the giving of the Notice of Termination unless such cure cannot be completed within 30 days, in which case termination will not become effective so long as the Licensee is in good faith diligently and expeditiously attempting to cure such breach, only for up to, but not beyond, 90 days.
8.5 Effect of Termination. Upon the expiration or termination of the License and the License Period for any reason whatsoever, all of the rights of the Licensee under this Agreement shall forthwith terminate and immediately revert to CKI; all Fees on sales theretofore made shall become immediately due and payable; the Licensee shall forthwith discontinue all use of the Licensed Mark, except that the Licensee may, on a non-exclusive basis, during the period (i) commencing on the date of the expiration of the License Period pursuant to § 2.1 or termination of the License because of the breach of § 3.2 and ending 4 months thereafter or (ii) commencing on the date of the termination of the License pursuant to clause (b), (c), (d) or (e) of § 8.3 and ending 4 months thereafter (unless at the advance request of Licensee, which request includes an up-to-date inventory schedule, with anticipated disposition dates, CKI in writing agrees to extend such Disposal Period for up to an additional 30, 60 or 90-day period only, in no event to exceed 6 months in aggregate) (the ‘‘Disposal Period’’), consummate all sales of Licensed Products which were firm on the date of such expiration or termination and sell the balance of the
CONFIDENTIAL TREATMENT |
Inventory not purchased by CKI within 45 days following date of expiration or termination, and sold within the applicable Disposal Period as provided in § 8.6; provided, however, that any advertising used during the Disposal Period shall be subject to CKI’s prior written approval and such disposition of the Licensed Products shall continue to be subject to the Licensee’s obligations hereunder, including, but not limited to, payments to be made to CKI, and Fees with respect thereto shall be due on the last day of the Disposal Period. Without limiting the generality of the first clause of this § 8.5, the Licensee acknowledges that activities, including sales during the Disposal Period, are on a non-exclusive basis. Subsequent to the Disposal Period or, if none, subsequent to such termination, the Licensee shall no longer use the Licensed Mark, any variation, imitation or simulation thereof, or any trademark similar thereto; and the Licensee shall thereupon deliver to CKI, free of charge, all sketches, designs, colors and the like in its possession or control, designed or approved by CKI, and all Labels supplied by CKI in the Licensee’s possession or control. CKI shall have the option, exercisable upon notice to the Licensee within 30 days of such expiration or termination, to negotiate the purchase of Labels which have not been supplied by CKI. If such negotiations do not result in the purchase of such Labels or any part of W-I-P, the Licensee shall destroy the unused Labels and W-I-P (except for greige goods or other unidentifiable generic materials otherwise useable by Licensee) at the end of the Disposal Period or, if none, upon such termination, under the supervision of CKI, and the Licensee shall supply to CKI a certificate of destruction thereof signed by a duly authorized officer of the Licensee.
8.6 Inventory Upon Termination. Upon the expiration or termination of the License and the License Period for any reason whatsoever, the Licensee shall deliver to CKI within 15 business days a complete and accurate schedule of Inventory of Licensed Products (i.e., inventory constituting finished Licensed Products on hand at termination, work-in-process, a/k/a ‘‘W-I-P,’’ to be completed and received in warehouse within 3 months only) as of the close of business on the date of) such expiration or termination (the ‘‘Inventory Schedule’’). CKI thereupon shall have the option, exercisable by written notice to the Licensee within 15 days after its receipt of the Inventory Schedule, to purchase (or to have its designee purchase) any or all of the Inventory (other than Inventory required to consummate sales of Licensed Products which were firm on the date of such expiration or termination) for an amount *** In the event such notice is sent by CKI, CKI (or its designee) may collect the Inventory referred to therein within 90 days after CKI’s notice. CKI (or its designee) will pay for the Inventory upon collection. In the event such notice is not sent, the Licensee may dispose of the Licensed Products during any Disposal Period pursuant to § 8.5; provided, however, that such disposition shall continue to be subject to the Licensee’s obligations hereunder, including, without limitation, with respect to the payment of fees and the approval of customers and advertising. At the end of the Disposal Period, or if none, upon such termination, any Licensed Products remaining in the Licensee’s possession or control, including, without limitation, in any stores of the Licensee, shall, at the request of CKI, be destroyed. To the extent the Licensee completely removes the Licensed Mark from the Licensed Products, and all Labels attached to such Licensed Products, and such Licensed Products are not recognizable as a Licensed Product and cannot be distinguished from similar generic products generally available in the marketplace, such Products shall no longer be Licensed Products. CKI shall have the right at any time, and at its expense, to conduct a physical inventory of the Licensed Products then in the Licensee’s possession or control.
8.7 Freedom to License. CKI shall be free to license to others the use of the Licensed Mark in connection with the manufacture, sale, distribution and promotion of Licensed Products in the Territory upon termination or expiration of this Agreement and to enter into discussions and negotiations applicable thereto, provided only that no shipment of Licensed Products and no publication of institutional or consumer advertising of the Licensed Products pursuant to any such new license will be permitted prior to the termination or expiration of this Agreement.
8.8 Rights Personal. The License and rights granted hereunder are personal to the Licensee. No assignee for the benefit of creditors, receiver, trustee in bankruptcy, sheriff or any other officer or court charged with taking over custody of the Licensee’s assets or business, shall have any right to continue performance of this Agreement or to exploit or in any way use the Licensed Mark if this Agreement is terminated pursuant to §§ 8.3, 8.4 or 11.8, except as may be required by law.
CONFIDENTIAL TREATMENT |
8.9 Trustee in Bankruptcy. Notwithstanding the provisions of § 8.8, in the event that, pursuant to the applicable bankruptcy law (the ‘‘Code’’), a trustee in bankruptcy, receiver or other comparable person, of the Licensee, or the Licensee, as debtor, is permitted to assume this Agreement and does so and, thereafter, desires to assign this Agreement to a third party, which assignment satisfies the requirements of the Code, the trustee or the Licensee, as the case may be, shall notify CKI of same in writing. Said notice shall set forth the name and address of the proposed assignee, the proposed consideration for the assignment and all other relevant details thereof. The giving of such notice shall be deemed to constitute an offer to CKI to have this Agreement assigned to it or its designee for such consideration, or its equivalent in money, and upon such terms as are specified in the notice. The aforesaid offer may be accepted by CKI only by written notice given to the trustee or the Licensee, as the case may be, within 15 days after CKI’s receipt of the notice to such party. If CKI fails to deliver such notice within said 15 days, such party may complete the assignment referred to in its notice, but only if such assignment is to the entity named in said notice and for the consideration and upon the terms specified therein. Nothing contained herein shall be deemed to preclude or impair any rights which CKI may have as a creditor in any bankruptcy proceeding.
8.10 Compensation. Without limiting any right or remedy of CKI, if CKI terminates this Agreement pursuant to § 8.3, CKI shall have the right to ***
ARTICLE IX. INDEMNIFICATION AND INSURANCE
9.1 Indemnification by the Licensee. The Licensee does hereby indemnify and hold harmless CKI, its Affiliates, including, without limitation, PVH, CKTT, and its and their current and former respective directors, officers, employees, agents, trustees, and representatives, as well as Mr. Calvin Klein, his heirs, his estate and their respective legal representatives (each, an ‘‘Indemnified Party’) from and against any and all losses, liabilities, damages and expenses (including reasonable attorneys’ fees and expenses (including allocable costs of in-house counsel)), which an Indemnified Party may incur or be obligated to pay in any third party action, claim or proceeding, for or by reason of any acts, whether of omission or commission, that may be committed by the Licensee (which for purposes of this § 9.1, includes its Affiliates, but not Guarantor) or any of their servants, agents or employees in connection with the Licensee’s performance of this Agreement, including but not limited to:
(a) to the extent permitted by law, any alleged defect in any Licensed Product, regardless of whether the action is based upon negligence or strict liability, and regardless of whether the alleged negligence is characterized as ‘‘passive’’ or ‘‘active’’;
(b) the manufacture, labeling, sale or distribution of any Licensed Product by the Licensee;
(c) any violation of any warranty, representation or agreement made by the Licensee pertaining to a Licensed Product; or
(d) the claim of any broker, finder or agent used by the Licensee in connection with the making of this Agreement or any transactions contemplated by this Agreement.
CKI shall give the Licensee prompt written notice of any such claim or action and thereupon the Licensee shall undertake and conduct the defense of any suit so brought. In the event an appropriate action is not taken by the Licensee within 30 days of its receipt of notice from CKI, CKI shall have the right to defend such claim or action in its own name, but no settlement or compromise of any such claim or action may be made without the prior written consent of the Licensee, such consent not to be unreasonably withheld or delayed. In either case, CKI and the Licensee shall keep each other fully advised of all developments and shall cooperate fully with each other and in all respects in connection with any such defense. Such indemnification shall be deemed to apply solely to the amount of the judgement, if any, against CKI and reasonable sums paid by CKI in connection with its defense, and shall not apply to any consequential damages suffered by CKI which are not included in the aforementioned judgement. The provisions of this § 9.1 and the Licensee’s obligations hereunder shall survive any termination of the License or rescission of this Agreement.
CONFIDENTIAL TREATMENT |
9.2 Notice of Suit or Claim. The Licensee shall promptly inform CKI by written notice of any suit or claim against the Licensee relating to the Licensee’s performance under this Agreement, whether such suit or claim is for personal injury, involves alleged defects in the Licensed Products manufactured, sold or distributed hereunder, or otherwise.
9.3 Indemnification by CKI. CKI does hereby indemnify and hold harmless the Licensee and its Affiliates, and their respective managers, directors, members, shareholders, employees and agents from and against any and all losses, liability, damages and expenses (including reasonable attorneys’ fees, costs and expenses, but excluding consequential damages, incidental damages and lost profits) which any of them may incur or for which it may become liable or compelled to pay in any action or claim alleging: (i) CKI’s breach of any representation or warranty of CKI hereunder in § 11.1; or (ii) that the Licensee’s use of the Licensed Mark in accordance with the terms of this Agreement violates the bona fide trademark ownership rights of a third party in the United States or Canada. The Licensee will promptly notify CKI of any action or claim brought to its attention; provided, however, that the failure to promptly notify CKI shall not relieve CKI of its obligation hereunder, except to the extent (if any) that CKI actually prejudiced thereby. The provisions of this § 9.3 and the obligations of CKI set forth herein shall survive the expiration or other termination of this Agreement.
9.4 Insurance.
9.4.1 Requirement. Without limiting the Licensee’s liability pursuant to the indemnity provisions of this Agreement, the Licensee shall maintain comprehensive general liability insurance in the amount of at least *** with a broad form property damage liability endorsement. This insurance shall include broad form blanket contractual liability, personal injury liability, products and completed operations liability. Each coverage shall be written on an ‘‘occurrence’’ form.
9.4.2 General Provision. The insurance described in § 9.4.1 shall include: (i) a cross-liability endorsement naming each of CKI, CKTT, and Mr. Calvin Klein; (ii) an endorsement stating that CKI shall receive at least 30 days’ written notice prior to cancellation or non-renewal of coverage; (iii) an endorsement naming each of CKI, CKTT, and Mr. Calvin Klein as additional insureds; (iv) an endorsement stating that the insurance required by this Agreement is primary and that any insurance purchased by CKI, CKTT, or Mr. Calvin Klein shall only apply in excess of the insurance purchased by the Licensee; (v) a waiver of subrogation in favor of each of CKI, CKTT, and Mr. Calvin Klein; and (vi) an endorsement stating that each of CKI, CKTT, and Mr. Calvin Klein may recover for any loss caused CKI, its agents or employees, whether caused by the negligence (including active, passive and gross negligence) of the Licensee, or otherwise.
9.4.3 Approved Carrier/Policy Changes. All insurance shall be obtained from primary, and financially capable and reputable, insurance companies. The Licensee shall give at least 30 days’ prior written notice to CKI of the cancellation or any modification of such insurance policy that would affect any of CKI’s, CKTT’s, or Mr. Calvin Klein’s status or benefits thereunder. This insurance may be obtained for CKI, CKTT, or Mr. Calvin Klein by the Licensee in conjunction with a policy which covers products other than the Licensed Products.
9.4.4 Evidence of Coverage. No later than 20 days from the date hereof, the Licensee shall furnish to CKI evidence, in form and substance satisfactory to CKI, of the maintenance and renewal of the required insurance copies of policies with applicable riders and endorsements) and certificates of insurance.
9.4.5 Territory. The insurance set forth in this § 9.4 must cover the entire Territory to the extent available in each jurisdiction in the Territory.
ARTICLE X. COMPLIANCE WITH LAWS
10.1 Compliance with Laws. The Licensee shall comply with all laws, rules, regulations and requirements of any governmental body which may be applicable to the operations of the Licensee
CONFIDENTIAL TREATMENT |
contemplated hereby, including, without limitation, as they relate to the manufacture, distribution, sale or promotion of Licensed Products, notwithstanding the fact that CKI may have approved such item or conduct.
10.2 Equitable Relief. CKI shall be entitled to equitable relief by way of temporary and permanent injunction and such other and further relief at law or in equity as any court with jurisdiction may deem just and proper. The Licensee waives the requirement of the posting of a bond in connection with any application by CKI for equitable relief.
ARTICLE XI. MISCELLANEOUS
11.1 Warranties and Representations of the Parties. Each of the parties hereby represents and warrants to the other party that: it is a corporation (or limited liability company, as applicable) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; it has the full right, power and authority to enter into, and perform its obligations under, this Agreement; and all necessary corporate acts have been effected by it to render this Agreement valid and binding upon it.
11.2 Definitions. Each of the following terms (unless deliberately omitted) has the meaning ascribed thereto in the applicable § therein contained:
Defined Term
Advertising Obligation
Advertising
Overage
Advertising Shortfall
Affiliates
Agreed Upon
Season’s Themes
Annual Period
Anti-Diversion
Efforts
Annual Period
Approved Accounts
Approved Design
Concepts
Approved
Prototypes
Approved Seconds and
Closeouts Accounts
CKI
CKI
Stores
CKTT
Close-Outs
Code
Collection
Co-operative
Advertising
CRK
CRK Fee
Design Concepts
Disclosing
Party
Disposal Period
Diversion
E-Commerce
Excluded
Design
Gross Sales
Minimum Guaranteed Fees
Indemnified
Party
Initial License Period
Inventory
Inventory
Schedule
Labels
License
Licensed Mark
License
Period
Licensed Products
Licensee
Licensing
Forecast
Minimum Net Sales
Threshold
CONFIDENTIAL TREATMENT |
Net
Sales
Network
Non-Conforming Products
Notice of
Termination
Parallel Imports
Percentage Fees
PR Overage
PR
Shortfall
Products
PVH
Renewal License
Period
Seconds
Standards
Territory
Time And Action
Calendar
Third-Party Manufacturing Agreement
Trademark Security
Plan
Transfer
11.3 Notices. All reports and notices required or permitted to be given under this Agreement shall be in writing and shall, unless specifically provided otherwise in this Agreement, be deemed to have been given if personally delivered or faxed (on the date of messengering or faxing), or if mailed, three business days from the date of mailing (by certified or registered mail, return receipt requested and postage prepaid), or if by overnight air courier, one business day from the date of overnight air courier handling as follows:
![]() |
![]() |
If to CKI, to: | Calvin Klein, Inc. 205 West 39th Street New York, New York 10018 Attention: President and Chief Operating Officer Telephone: (212) 292-9901 Facsimile: (212) 292-9933 |
![]() |
![]() |
With a copy to: | Calvin Klein,
Inc. 205 West 39th Street New York, New York 10018 Attention: General Counsel Telephone: (212) 292-9652 Facsimile: (212) 764-6784 |
![]() |
![]() |
If to the Licensee, to: | CK Jeanswear Europe S.p.A. Via Provinciale Lucchese 181 50019 Sesto Fiorentino, Florence, Italy Attn.: Chief Executive Officer Telephone: +39 055 305 442 Facsimile: +39 055 310 506 |
![]() |
![]() |
If to Warnaco, to: | WF Overseas Fashion
C.V. c/o Warnaco Inc. 501 Seventh Avenue New York, New York 10018 Attn: General Counsel Telephone: (212) 287-8282 Facsimile: (212) 287-8275 |
CONFIDENTIAL TREATMENT |
Requests for approvals with appropriate submissions shall be sent to the applicable party, either CRK, the President or the designated design staff member. Financial reports shall be sent to the designated party in the Finance Department. A party may change its address for receipt of notices at any time upon notice to the other party.
11.4 Assignment. The License and all rights granted to the Licensee hereunder are personal in nature, and the Licensee shall not Transfer the License, this Agreement or its rights and interest hereunder, or any part hereof, without the prior written consent of CKI, which consent may be withheld by CKI in its sole and absolute discretion.
11.5 Sublicense. The Licensee is prohibited from granting any sublicenses under this Agreement unless approved by CKI.
Licensee shall have the right to grant a distributorship or distributorships (excluding a sublicense) for limited areas or jurisdictions in the Territory), but no such distributorship shall reduce in any way Licensee's obligations hereunder nor may such distributorship or any sublicense agreement be entered into unless the following terms and conditions are first satisfied:
(i) the term of any distributorship or sublicense agreement shall be no more than five (5) years or five (5) years plus five (5) years contingent on at least compliance (with automatic termination upon termination of this Agreement);
(ii) The distributor or sublicensee must agree to comply in its activities as a distributor or sublicensee with all of the provisions of this Agreement applicable to such distribution;
(iii) The distributor or sublicensee must agree not to assign, transfer, or further grant the distributorship agreement or sublicense agreement itself or any of the rights granted to it thereunder without CKI's prior written consent; and
(iv) The distributor or sublicensee must acknowledge that each of CKI, CKTT and Mr. Calvin Klein are third-party beneficiaries, must afford CKI rights of inspection, approval and termination consistent with its rights pursuant to this Agreement, which it may exercise directly, including rights of termination, and must indemnify CKI, CKTT and Mr. Calvin Klein from liabilities and claims specifically in accordance with the provisions hereof;
(v) Licensee must deliver a copy of each distributorship, and proposed sublicense agreement must subsequently deliver a copy of each material amendment thereof, to CKI, prior to the execution thereof in the case of any proposed sublicense for review and approval , and shall deliver a conformed copy to CKI promptly after its execution and the execution of each amendment thereto;
(vi) if Licensee enters into an agreement and fails to control, pursuant to this Agreement or the terms of the distributorship agreement, the distributor or sublicense thereunder, and as a result of such failure fails to prevent a breach by such distributor or sublicense agreement of any provision of this Agreement or the distributorship agreement or sublicense agreement, CKI may, in addition to all of its other rights and remedies under this Agreement, require Licensee to ameliorate the effect of such breach; and
(vii) if applicable, ***
11.6 Assignment by CKI. CKI shall have a complete and unrestricted right to Transfer any or all of its rights and interests in this Agreement, provided that such transferee is bound by all of the terms hereof, and subject to the Licensee’s right to continue to exercise all of its rights hereunder.
11.7 No Agency. The Licensee shall not represent itself as the agent or legal representative of CKI or its Affiliates for any purpose whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever. CKI shall similarly not represent itself as the agent or legal representative of the Licensee or its Affiliates for any purpose whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever.
CONFIDENTIAL TREATMENT |
11.8 Suspension of Obligations. If the Licensee shall be prevented from performing any of its obligations because of Federal governmental regulation or martial order, or by war, declared or undeclared, or other major and material calamities such as fire, earthquake, or similar Acts of God, the Licensee’s obligations shall be suspended during the period of such conditions except for payment and provided the Licensee promptly commences and proceeds diligently to ameliorate the effect. If such condition continues for a period of more than 60 days, CKI shall have the right to terminate this Agreement.
11.9 Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and, subject to §§ 11.4 and 11.6, their successors and assigns. PVH, CKTT and Mr. Calvin Klein (with respect to §§ 9.1 and 9.4) shall be third-party beneficiaries of this Agreement and, whether or not expressly set forth herein, shall have the right (a) to exercise, and enforce against the Licensee, the rights of CKI hereunder if CKI fails to exercise such rights, and (b) to exercise, and enforce against the Licensee, the same rights as CKI hereunder in addition to (and not in lieu of) any rights CKI has hereunder. Nothing herein shall be deemed to give the Licensee any rights to make any claim against PVH, CKTT and/or Mr. Calvin Klein.
11.10 Entire Agreement; Amendment. This Agreement, including the exhibits hereto, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and all prior agreements, contracts, promises, representations and statements between them, if any, whether written or oral, with respect thereto are merged into and superseded by this Agreement, except as specifically set forth herein. This Agreement may not be amended or modified, except in a writing signed by both parties hereto and exchanged between them.
11.11 Non-Waiver. No waiver by either party of any breach hereof or default hereunder will constitute a continuing wavier of such provision or of any other provision of this Agreement. Acceptance of payment by CKI will not be deemed a waiver by CKI of any violation of or default under any of the provisions of this Agreement by the Licensee or an election of remedies as to which any and all rights (and all remedies) are expressly reserved and retained.
11.12 Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not be affected or impaired in any other jurisdiction, nor shall the remaining provisions contained herein in any way be affected or impaired thereby, unless CKI determines such provision was material, in which case CKI may terminate this Agreement.
11.13 Headings. The headings of the Articles and sections of this Agreement are for convenience only and in no way limit, define or affect the terms or conditions of this Agreement.
11.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
11.15 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW. (HOWEVER, DISPUTES REGARDING THE LICENSED MARK WILL BE RESOLVED IN ACCORDANCE WITH THE U.S. FEDERAL TRADEMARK LAWS AND RELATED LAWS, STATUES, RULES AND REGULATIONS OF THE UNITED STATES UNLESS THERE ARE NO U.S. FEDERAL LAWS, STATUTES, RULES OR REGULATIONS DISPOSITIVE OF SUCH DISPUTE, IN WHICH EVENT SUCH DISPUTES WILL BE RESOLVED IN ACCORDANCE WITH THE PREVIOUSLY DESCRIBED LAWS OF THE STATE OF NEW YORK.)
11.16 Jurisdiction. Any legal action or proceeding with respect to this Agreement shall be brought in the federal or state courts seated in the County of New York, State of New York and, by execution and delivery of this Agreement, each party hereby accepts for itself and in respect to its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts. The Licensee hereby irrevocably
CONFIDENTIAL TREATMENT |
and unconditionally waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing or maintaining of any such action or proceeding in such respective jurisdictions, and specifically acknowledges and agrees that any judicial opinion and/or decision rendered, judgement award in order issued by the courts of the State of New York and/or the federal courts located therein, will be enforceable in any jurisdiction. Any such opinion, decision, judgement and/or order may be deposited in the applicable jurisdictional venue and court in Italy or elsewhere in the Territory with full force and effect as if rendered within such venue and by such judicial authority with the same full force and effect. Each party irrevocably and unconditionally consents to the service of process of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the other party at its address for notices provided in § 11.3, such service to become effective 30 days after such mailing.
11.17 Non-Solicitation.
(a) The Licensee agrees that ***
(b) CKI agrees that ***
11.18 Confidentiality. Each of the parties hereto acknowledges that it may receive from the other (the ‘‘Disclosing Party’’): (a) prints, designs, ideas, sketches, and other materials or information, including, without limitation; (b) financial or business information; (c) a formula, pattern, compilation, program, device, method, technique, or process; or (d) other information that in each case derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use which the Disclosing Party intends to use on or in connection with lines of merchandise other than the Licensed Products and which have not as yet found their way into the channels of distribution. The parties recognize that these materials are valuable property of the Disclosing Party. Each of the parties hereto acknowledges the need to preserve the confidentiality and secrecy of these materials and agrees to take all necessary steps to ensure that use by it, or by its contractors, will in all respects preserve such confidentiality and secrecy, while acknowledging that each of the parties works with others on product development and designs. None of the parties shall, at any time during the License Period or any time thereafter, disclose or use for any purpose, other than as contemplated by this Agreement, any confidential information and data relating to the business of the other, except as required or otherwise considered necessary in or to its business, but under its normal and customary confidentiality procedures applicable overall as to such use. Nothing herein shall be deemed to limit CKI’s rights under §§ 6.8 and 6.12. The provisions of this § 11.18 shall not apply to information that (i) is now or hereafter becomes generally available to the public, other than as a result of a breach hereof, or (ii) is obtained from a third party that, to the knowledge of the party receiving the information, is not under any obligation to keep such information confidential. Notwithstanding anything in this § 11.18 to the contrary, if any party becomes legally compelled (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any of the confidential information, such party shall provide the others with prompt written notice of such requirement so that the party whose information it is may seek a protective order or other appropriate remedy. If such protective order or other remedy is not obtained, the party under compulsion to disclose the information agrees to disclose only that portion of the confidential information, which it is advised by counsel, is legally required to be disclosed, and it agrees to take all reasonable steps to preserve the confidentiality of the confidential information (including by obtaining, at the cost of the owner of the information, an appropriate protective order or other reliable assurance that confidential treatment will be accorded the confidential information). In addition, the party under compulsion to disclose the information shall not oppose any effort (and shall, if and to the extent requested by the owner of the information, cooperate with, assist and join with the owner of the information, at the expense of the owner of the information) in any action by the owner of the information to obtain a protective order or other reliable assurance that confidential treatment will be accorded the confidential information.
11.19 Assignment Within Warnaco Family. Following the closing of the Transaction, pursuant to which Warnaco will, in accordance with its terms, acquire the business of Licensee, this Agreement may
CONFIDENTIAL TREATMENT |
be assigned within the Warnaco family of companies in accordance with the terms as agreed by CKI and set forth in writing simultaneously herewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
![]() |
CALVIN KLEIN, INC. |
![]() |
By:
/s/ Tom
Murry
Name: Tom Murry Title: President and COO |
![]() |
CK JEANSWEAR EUROPE, S.P.A. |
![]() |
By: /s/ Lawrence R.
Rutkowski
Name: Lawrence R. Rutkowski Title: Vice President and Treasurer |
![]() |
WF OVERSEAS FASHION C.V. |
![]() |
By: Warnaco U.S., Inc., its general partner |
![]() |
By: /s/ Stanley P.
Silverstein
Name: Stanley P. Silverstein Title: President and Secretary |
CONFIDENTIAL TREATMENT |
SCHEDULE 6.13
APPROVED ACCOUNTS
CONFIDENTIAL TREATMENT |
SCHEDULE 6.14
APPROVED SECONDS AND CLOSE-OUTS ACCOUNTS
CONFIDENTIAL TREATMENT |
SCHEDULE S
SHAREHOLDERS
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Name/Address/Position | ![]() |
#/% Shareholdings | ||||
![]() |
CONFIDENTIAL TREATMENT |
EXHIBIT T
TERRITORY
European Union at 1 May 2004, which included Austria, Belgium, Luxembourg, Netherlands, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, Portugal, Spain, Sweden, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Slovenia, Hungary, Poland, Malta, Cyprus.
Also Norway, Switzerland, Monte Carlo, Vatican City, Liechtenstein, Iceland and
Eastern Europe and Russia, consisting of:
Croatia, Bosnia-Herzegovina, Serbia, Macedonia, Bulgaria, Romania, Moldavia, Ukraine, Byelorussia, ex-C.I.S. (Russia), Georgia, Armenia, Azerbaijan, Kazakhstan and Uzbekistan.
Middle East:
Lebanon, Israel, Palestine, Jordan, Iran, Saudi Arabia, Yemen, Qatar, Kuwait, Bahrain, Oman, UAE, Egypt and Turkey.*
Africa**:
South Africa, Tunisia, Algeria, Morocco, Ivory Coast, Senegal, Nigeria.
* Not Syria, as regulations preclude protection of trademark, until registration of trademark may occur, as advised by CKI.
** N.B. — for trademark, only OAPI application/registration.
CONFIDENTIAL TREATMENT |
EXHIBIT P (page 1 of 2)
PRODUCTS
*** [approximately 2 pages redacted]
CONFIDENTIAL TREATMENT |
EXHIBIT B
ROYALTY STATEMENT
FORM MUST BE SUBMITTED COMPLETED
CALVIN KLEIN, INC.
![]() |
![]() |
![]() |
Page | ______ of ______ |
![]() |
![]() |
![]() |
Date | ____________ |
NAME OF LICENSEE:
LICENSEE’S ADDRESS:
![]() |
![]() |
LICENSED PRODUCT: |
205 For each month during the period of to (the ‘‘Period’’).
For the month of .
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Category | ![]() |
Style No. | ![]() |
Units | ![]() |
Gross Sales | ![]() |
Discounts | ![]() |
Net Sales | ![]() |
Percentage Fees | ||||||||||||||
![]() |
For the month of .
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Category | ![]() |
Style No. | ![]() |
Units | ![]() |
Gross Sales | ![]() |
Discounts | ![]() |
Net Sales | ![]() |
Percentage Fees | ||||||||||||||
![]() |
For the month of .
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Category | ![]() |
Style No. | ![]() |
Units | ![]() |
Gross Sales | ![]() |
Discounts | ![]() |
Net Sales | ![]() |
Percentage Fees | ||||||||||||||
![]() |
TOTAL
205 NET SALES BY ACCOUNT
205 INVENTORY AS OF THE END OF THE PERIOD:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Style Number | ![]() |
Units | ![]() |
Wholesale Price | ||||||
![]() |
CONFIDENTIAL TREATMENT |
The undersigned, the of the Licensee, does hereby certify that the foregoing information provided to CKI pursuant to the License Agreement is complete and accurate.
IN WITNESS WHEREOF, the undersigned has executed this Royalty Statement on this day of , .
![]() |
LICENSEE : |
![]() |
By:______________________________________ Name: Title: Chief Financial Officer or other duly authorized executive officer as applicable |
The completion of this statement does not limit the Licensee’s right to receive credit for payments of Minimum Guaranteed Fees and Percentage Fees as set forth said License Agreement.
CONFIDENTIAL TREATMENT |
EXHIBIT D
THIRD-PARTY
MANUFACTURING
AGREEMENT
AGREEMENT, dated , , by and between (the ‘‘Licensee’’), having an address at , and (the ‘‘Manufacturer’’), having an address at .
WITNESSETH:
WHEREAS, the Licensee pursuant to a License Agreement with CALVIN KLEIN, INC. (‘‘CKI’’) has been granted a license (‘‘License’’) to use the CK/CALVIN KLEIN trademark (the ‘‘Licensed Mark’’) in connection with the distribution, sale and marketing of certain goods (‘‘Licensed Products’’);
WHEREAS, CKI, a subsidiary of Phillips-Van Heusen Corporation (‘‘PVH’’), is the licensee and beneficial owner of the trademarks CALVIN KLEIN, CK and CK/CALVIN KLEIN for certain products, which are owned of record by the Calvin Klein Trademark Trust (‘‘CKTT’’), and PVH is the owner, licensee or sublicensee of the trademarks VAN HEUSEN, IZOD, IZOD CLUB, BASS, G.H. BASS, GEOFFREY BEENE, ARROW, KENNETH COLE NEW YORK, REACTION BY KENNETH COLE, BCBG MAX AZRIA and DKNY, and PVH’s policy is not to place, and to cause its subsidiaries and their respective licensees and sublicensees not to place, orders with any manufacturer or subcontractor that breaches the provisions contained in this Agreement and similar provisions contained in other third-party manufacturing agreements of PVH or any of its affiliates, including, without limitation, CKI;
WHEREAS, the License entitles the Licensee to subcontract the manufacture and/or assembly of the Licensed Products to third parties, subject to certain express limitations and conditions; and
WHEREAS, the Licensee has selected the Manufacturer as a manufacturer to produce the Licensed Products for the Licensee subject and pursuant to the terms and conditions set forth below;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Manufacturer shall have no rights in or to the Licensed Mark or in any mark similar thereto by reason of its manufacture of the Licensed Products and shall only use the Licensed Mark in strict accordance with the Licensee’s instructions.
2. The Manufacturer recognizes the validity of the Licensed Mark and will take no action, either during the term of this Agreement or at any time thereafter, in derogation of CKI’s and/or CKTT’s entire right and interest in and to the Licensed Mark or any value thereof or prestige related thereto. The Manufacturer will not, either during the term of this Agreement or at any time thereafter, oppose, petition to cancel or otherwise interfere with any registration CKI or CKTT has now or may obtain in the future for the Licensed Mark.
3. The Manufacturer will manufacture and sell the Licensed Products and/or assemble the Licensed Products and will deliver them only to the Licensee or to the Licensee’s authorized representative or agents. Any and all Licensed Products produced by the Manufacturer which do not meet the Licensee’s quality standards or result from overruns or cancellations of the Licensee’s orders (collectively, ‘‘Rejected Products’’) will be strictly accounted for and physically maintained, at the Manufacturer’s sole expense, in the Manufacturer’s warehouse or such other place as may be under the Manufacturer’s exclusive access and control. Rejected Products not bearing the Licensed Mark or any identifying logo may be sold to any third party; provided; however, that all labels, hang tags, and other identifying marks must be removed from such Rejected Products before sale to such a third party. Rejected Products bearing the Licensed Mark or any identifying logo may be sold to any third party; provided, however, that (A) such Rejected Products must be held for a minimum period of three months after the original ship date of the Licensee’s
CONFIDENTIAL TREATMENT |
purchase order, and (B) all labels must be cut and the Product clearly and significantly stamped ‘‘irregular’’ before sale to such a third party. **
4. The Manufacturer will follow the specifications and standards from time to time stipulated by the Licensee and will permit the Licensee, CKI and PVH to inspect the manufacturing processes and provide samples of the Licensed Products in order for the Licensee, CKI or PVH, as the case may be, to satisfy itself that the specifications and standards are being met.
5. The Manufacturer acknowledges that the Licensee may provide it with certain prints, designs, ideas, sketches and other materials or trade secrets which may or will be used in connection with the Licensed Products and/or lines of merchandise other than the Licensed Products which have not been announced to the public or entered the stream of commerce. The Manufacturer recognizes that such materials are exclusive and valuable property of CKI or PVH and acknowledges the need to preserve the confidentiality and secrecy of such materials. The Manufacturer agrees to take all reasonable precautions to protect the secrecy of the materials, samples and designs prior to their commercial distribution or the showing of samples of same for sale. The Manufacturer will also take all reasonable precautions to protect the secrecy of the original designs created either by CKI, PVH or the Licensee for Licensed Products prior to their advertisement, commercial distribution or the showing of samples for sale. During the term of this Agreement, the Manufacturer will not disclose or use for any purpose not contemplated by this Agreement any confidential information or data that is proprietary to CKI, PVH or the Licensee.
6. The Manufacturer shall institute procedures to control the storage, requisition from storage and use all labels, packages and other materials bearing the Licensed Mark to safeguard against the escape or unauthorized use of the Licensed Mark or Licensed Products.
7. The Manufacturer will adhere to the standards and guidelines set forth in PVH’s publication ‘‘A Shared Commitment — Requirements for Suppliers, Contractors, Business Partners’’ and PVH’s ‘‘Statement of Corporate Responsibility,’’ copies of which the Manufacturer acknowledges it has received. The Manufacturer further acknowledges that it has read and understands such publications. The Manufacturer will communicate immediately to the Licensee any departure from such standards and guidelines. The Manufacturer acknowledges that compliance with such standards and guidelines is a prerequisite to a continuing relationship with the Licensee.
In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not be affected or impaired in any other jurisdiction, nor shall the remaining provisions contained herein in any way be affected or impaired thereby.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPALS OF CONFLICTS OF LAW.
![]() |
![]() |
![]() |
** Bracketed language should be deleted where agreement is with subcontractor. |
CONFIDENTIAL TREATMENT |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
![]() |
LICENSEE: |
![]() |
By:____________________________ Name: Title: |
![]() |
MANUFACTURER: |
![]() |
By:____________________________ Name: Title: |
CONFIDENTIAL TREATMENT |
EXHIBIT E
PRODUCTION FACILITY EVALUATION FORM
FORM MUST BE SUBMITTED COMPLETED
CALVIN KLEIN, INC.
![]() |
![]() |
![]() |
Page | ______ of ______ |
![]() |
![]() |
![]() |
Date | ____________ |
NAME OF LICENSEE:
LICENSEE’S ADDRESS:
![]() |
![]() |
LICENSED PRODUCT: |
PRODUCTION FACILITY:
Name:__________________________________________________________________________
Name of President of Production Facility________________________________________________
Address:________________________________________________________________________
![]() |
|
![]() ![]() |
![]() |
![]() |
Product:________________________________________________________________________
Date Factory Evaluation Completed:__________________________________________________
Signed: ________________________________
(Note: Must be signed by an authorized officer of the division producing Licensed Products)
![]() |
||
![]() |
![]() ![]() |
![]() |
![]() |
(Print Name)
![]() |
Submit to the attention of: |
![]() |
CALVIN
KLEIN, INC. 205 West 39th Street New York, NY 10018 Attention: |
![]() |
Deirdre Miles-Graeter 10 May 2005 |
CONFIDENTIAL TREATMENT |
SCHEDULE OF ISSUED REGISTRATIONS
AND
PENDING APPLICATIONS FOR ‘‘CK/CALVIN
KLEIN’’ TRADEMARKS IN CLASS
25
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
Algeria | ![]() |
16 Aug 95 | ![]() |
Reg. No. 49384 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
30 Dec 95 | ![]() |
Reg. No. 50097 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
||||||||||||
Armenia | ![]() |
14 Oct 98 | ![]() |
Reg. No. 3633 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
21 Apr 97 | ![]() |
Reg. No. 4134 | ![]() |
24,25,42 (CK/Calvin Klein) | ![]() |
||||||||||||
Austria | ![]() |
11 Oct 93 | ![]() |
Reg. No. 153,247 | ![]() |
18,24,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Azerbaijan | ![]() |
10 Jun 99 | ![]() |
Reg. No. 990586 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Bahrain | ![]() |
31 May 95 | ![]() |
Reg. No. 18853 | ![]() |
25(CK/Calvin Klein) | ![]() |
|||||||||||
Byelorussian | ![]() |
18 Dec 97 | ![]() |
Reg. No. 7637 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
24 Apr 97 | ![]() |
Ser. No. 970,704 | ![]() |
24,25,42 (CK/Calvin Klein) | ![]() |
||||||||||||
Bulgaria | ![]() |
23 May 95 | ![]() |
Reg. No. 27675 | ![]() |
3,18,24,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Croatia | ![]() |
28 Jun 95 | ![]() |
Reg. No. Z-951067 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
18 Mar 93 | ![]() |
Reg. No. Z-930655 | ![]() |
3,25(re-reg Yugoslav#34173) | ![]() |
||||||||||||
CTM | ![]() |
1 Apr 96 | ![]() |
Reg. No. 66712 | ![]() |
3,4,8,9,14,16,18,20,21, 24,25,26,27,35,42 (CK/Calvin Klein) |
![]() |
|||||||||||
![]() |
21 Aug 97 | ![]() |
Reg. No. 617415 | ![]() |
9,25 (CK/Calvin Klein) | ![]() |
||||||||||||
Cyprus | ![]() |
5 Mar 96 | ![]() |
Reg. No. 44740 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Czech Republic | ![]() |
27 Mar 97 | ![]() |
Reg. No. 198,533 | ![]() |
9,18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Denmark | ![]() |
10 Dec 93 | ![]() |
Reg. No. 08562/1993 | ![]() |
3,18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Egypt | ![]() |
18 Apr 95 | ![]() |
Reg. No. 95389 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Estonia | ![]() |
21 Feb 97 | ![]() |
Reg. No. 22535 | ![]() |
18,25(CK/Calvin Klein) | ![]() |
|||||||||||
Finland | ![]() |
6 Feb 95 | ![]() |
Reg. No. 136190 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
France | ![]() |
25 Aug 93 | ![]() |
Reg. No. 93/481421 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
(St.
Martin, St. Barthelomy, French Guiana & other French Antilles) |
![]() |
![]() |
![]() |
![]() |
||||||||||||||
Georgia | ![]() |
30 Apr 98 | ![]() |
Reg. No. 9139 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
7 Jul 98 | ![]() |
Reg. No. 9934 | ![]() |
24,25,42 (CK/Calvin Klein) | ![]() |
||||||||||||
Germany | ![]() |
5 Jul 94 | ![]() |
Reg. No. 2070077 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Greece | ![]() |
26 Oct 93 | ![]() |
Reg. No. 116,446 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
19 Sep 96 | ![]() |
Reg. No. 130,753 | ![]() |
9,25 (CK/Calvin Klein) | ![]() |
||||||||||||
Hungary | ![]() |
15 Nov 95 | ![]() |
Reg. No. 145,249 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Iceland | ![]() |
27 Apr 94 | ![]() |
Reg. No. 284/1994 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Iran | ![]() |
4 May 96 | ![]() |
Reg. No. 79864 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Ireland | ![]() |
21 Sep 93 | ![]() |
Reg. No. 157,276 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
21 Aug 97 | ![]() |
Reg. No. 208,239 | ![]() |
8,21,25,26,27,35 (CK/Calvin Klein) | ![]() |
||||||||||||
Israel | ![]() |
4 Feb 97 | ![]() |
Reg. No. 98092 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Italy | ![]() |
12 Apr 96 | ![]() |
Reg. No. 675,586 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Jordan | ![]() |
8 May 95 | ![]() |
Reg. No. 37965(r) | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Kazakhstan | ![]() |
1 Oct 97 | ![]() |
Reg. No. 6157 | ![]() |
18,25(CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
24 Feb 99 | ![]() |
Reg. No. 8324 | ![]() |
24,25,35,42 (CK/Calvin Klein) | ![]() |
||||||||||||
Kuwait | ![]() |
30 Nov 96 | ![]() |
Reg. No. 31697 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
Latvia | ![]() |
20 Aug 97 | ![]() |
Reg. No. LV M-37968 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Lebanon | ![]() |
14 Jun 95 | ![]() |
Reg. No. 66134 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Liechtenstein | ![]() |
24 Feb 95 | ![]() |
Reg. No. 9322 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Lithuania | ![]() |
25 Aug 95 | ![]() |
Reg. No. LT-31807 | ![]() |
18,25(CK/Calvin Klein) | ![]() |
|||||||||||
Malta & Gozo | ![]() |
8 May 96 | ![]() |
Reg. No. 25650 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Morocco | ![]() |
22 Aug 95 | ![]() |
Reg. No. 57300 | ![]() |
18,25(CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
1 Mar 96 | ![]() |
Reg. No. 58871 | ![]() |
3,4,8,9,14,16,18,20,21,24,25,26, 27,35,42(CK/Calvin Klein) |
![]() |
||||||||||||
Nigeria | ![]() |
9 Dec 93 | ![]() |
Reg. No. 57750 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Norway | ![]() |
10 Nov 94 | ![]() |
Reg. No. 165,458 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
*OAPI | ![]() |
24 Nov 95 | ![]() |
Reg. No. 35745 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Oman | ![]() |
29 May 96 | ![]() |
Reg. No. 13673 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Poland | ![]() |
28 May 99 | ![]() |
Reg. No. 106459 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Portugal | ![]() |
15 Dec 94 | ![]() |
Reg. No. 295,319 | ![]() |
25(CK/Calvin Klein) | ![]() |
|||||||||||
Qatar | ![]() |
11 Jun 02 | ![]() |
Reg. No. 13233 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Romania | ![]() |
16 Aug 95 | ![]() |
Reg. No. 24051 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
Russian | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Federation | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(former USSR) | ![]() |
18 Jul 97 | ![]() |
Reg. No. 154,946 | ![]() |
18,24,25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
15 Sep 98 | ![]() |
Reg. No. 167,772 | ![]() |
24,25,42 (CK/Calvin Klein) | ![]() |
||||||||||||
(Republic of) | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Saudi Arabia | ![]() |
11 Sep 94 | ![]() |
Reg. No. 319/11 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Slovak Republic | ![]() |
28 Jan 99 | ![]() |
Reg. No. 184071 | ![]() |
18,25(CK/Calvin Klein) | ![]() |
|||||||||||
Slovenia | ![]() |
20 Dec 96 | ![]() |
Reg. No. 9570583 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
South Africa | ![]() |
24 Apr 95 | ![]() |
Reg. No. B95/05079 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
(Covers Venda | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Transkei & | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Bophuthatswana) | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Spain | ![]() |
20 Apr 94 | ![]() |
Reg. No. 1,786,568 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Sweden | ![]() |
28 Jul 95 | ![]() |
Reg. No. 303,850 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Switzerland | ![]() |
5 Oct 93 | ![]() |
Reg. No. 416,838 | ![]() |
18, 25 (CK/Calvin Klein) | ![]() |
|||||||||||
Tunisia | ![]() |
23 May 96 | ![]() |
Reg. No. EE96.0642 | ![]() |
3,9,14,16,18,24,25,26, 27,35,42 (CK/Calvin Klein) |
![]() |
|||||||||||
Turkey | ![]() |
16 Feb 96 | ![]() |
Reg. No. 167310 | ![]() |
25(CK/Calvin Klein) | ![]() |
|||||||||||
United Arab | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Emirates | ![]() |
24 Nov 97 | ![]() |
Reg. No. 13022 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
United Kingdom | ![]() |
19 Aug 00 | ![]() |
Reg. No. 1,545,492 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
16 Jun 98 | ![]() |
Reg. No. 2,169,731 | ![]() |
25,35,42(CK/Calvin Klein)(ext goods) | ![]() |
||||||||||||
Ukraine | ![]() |
12 Nov 99 | ![]() |
Reg. No. 13942 | ![]() |
18,25(CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
18 Apr 97 | ![]() |
Reg. No. 17758 | ![]() |
24,25,42 (CK/Calvin Klein) | ![]() |
||||||||||||
Uzbekistan | ![]() |
4 Jul 95 | ![]() |
Reg. No. 5832 | ![]() |
18,25 (CK/Calvin Klein) | ![]() |
|||||||||||
West Bank | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(Palestine) | ![]() |
7 Mar 96 | ![]() |
Reg. No. 4118 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
Yemen | ![]() |
15 Jan 98 | ![]() |
Reg. No. 8333 | ![]() |
25 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
*OAPI-Benin Guinea, Burkina Faso(formerly Upper Volta), Cameroon, Central African Republic, Chad, Congo, Gabon, Guinea Bissau(Conakry),Guinea Bissau, Ivory Coast, Mali, Mauritania, Niger, Senegal, Togo |
EXHIBIT 10.70
PORTIONS OF THIS EXHIBIT 10.70 MARKED BY AN *** HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
CONFIDENTIAL — NEITHER THIS DOCUMENT, ITS TERMS OR PROVISIONS OR THE RELATIONSHIP CONTEMPLATED THEREIN IS TO BE DISCUSSED OR USED WITHOUT THE CONSENT OF CALVIN KLEIN, INC. OR WF OVERSEAS FASHION C.V. A DRAFT DOES NOT CONSTITUTE AN OBLIGATION OF THE PARTIES. NO BINDING AGREEMENT WILL RESULT UNLESS A DEFINITIVE WRITTEN AGREEMENT IS EXECUTED AND DELIVERED BY THE PARTIES. THERE IS NO OBLIGATION TO EXECUTE ANY SUCH AGREEMENT.
LICENSE AGREEMENT
BETWEEN
CALVIN KLEIN, INC.
AND
CK
JEANSWEAR EUROPE S.P.A.
CK JEANSWEAR ASIA LIMITED
AND
WF OVERSEAS FASHION C.V.
CONFIDENTIAL TREATMENT |
TABLE OF CONTENTS
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
ARTICLE I. GRANT | ||||||
1.1 License | ![]() |
|||||
1.1.1 Exclusion of Retail Sales | ![]() |
|||||
1.1.2 Right to Manufacture | ![]() |
|||||
1.2 Reservation | ![]() |
|||||
1.2.1 Retail Stores; Company-Controlled Stores | ![]() |
|||||
1.2.2 E-Commerce/Promotional Goods | ![]() |
|||||
1.2.3 Third Party Licensees | ![]() |
|||||
1.3 Limitations | ![]() |
|||||
1.4 Definitional Disputes | ![]() |
|||||
1.5 Exploitation of the License | ![]() |
|||||
1.5.1 Best Efforts | ![]() |
|||||
1.5.2 Non-Competition | ![]() |
|||||
1.6 Showrooms; In-Store Shops; Trade Shows | ![]() |
|||||
1.6.1 Showrooms | ![]() |
|||||
1.6.2 In-Store Shops | ![]() |
|||||
1.6.3 Trade Shows | ![]() |
|||||
1.6.4 Visual Design Personnel | ![]() |
|||||
ARTICLE II. LICENSE PERIOD | ||||||
2.1 License Period | ![]() |
|||||
ARTICLE III. SALES | ||||||
3.1 Sales/Marketing and Production Plans | ![]() |
|||||
3.2 Deliberately Omitted | ![]() |
|||||
3.3 Sales to CKI and its Employees | ![]() |
|||||
ARTICLE IV. LICENSE FEES | ||||||
4.1 Requirement of Fees | ![]() |
|||||
4.1.1 Percentage Fees | ![]() |
|||||
4.1.2 Gross and Net Sales | ![]() |
|||||
4.1.3 Minimum Guaranteed Fees | ![]() |
|||||
4.1.4 Allocation of Minimum Guaranteed Fees and Percentage Fees | ![]() |
|||||
4.2 Statements | ![]() |
|||||
4.3 Books and Records | ![]() |
|||||
4.4 Underpayments | ![]() |
|||||
4.5 Manner of Payment | ![]() |
|||||
4.6 Interest on Late Payment | ![]() |
|||||
4.7 No Set-Off | ![]() |
|||||
4.8 Taxes | ![]() |
|||||
4.9 Financial Statements | ![]() |
|||||
4.10 Financial Covenants | ![]() |
|||||
ARTICLE V. ADVERTISING AND PROMOTION | ||||||
5.1 Advertising | ![]() |
|||||
5.1.1 Initial Support/Reimbursement | ![]() |
|||||
5.1.2 Advertising Obligation | ![]() |
|||||
5.1.3 CRK Fee | ![]() |
|||||
5.1.4 Co-operative Advertising and Public Relations | ![]() |
|||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
5.2 ‘Usage’ | ![]() |
|||||
5.3 Approval of Materials, Activities | ![]() |
|||||
5.4 Samples | ![]() |
|||||
ARTICLE VI. QUALITY AND STANDARDS | ||||||
6.1 Distinctiveness and Quality of the Licensed Mark | ![]() |
|||||
6.1.1 Consistency with Other Products | ![]() |
|||||
6.2 Design | ![]() |
|||||
6.2.1 Time and Action Calendar | ![]() |
|||||
6.2.2 Themes | ![]() |
|||||
6.2.3 Design Concepts | ![]() |
|||||
6.2.4 Certain Other Approvals | ![]() |
|||||
6.2.5 CKI Designs | ![]() |
|||||
6.2.6 Prototypes | ![]() |
|||||
6.2.7 Final Approval and Sales | ![]() |
|||||
6.3 Manufacture of Licensed Products by Third Parties | ![]() |
|||||
6.4 Non-Conforming Products | ![]() |
|||||
6.5 Approvals | ![]() |
|||||
6.6 Marketing, Labeling, Packaging, Promotions, Business Materials | ![]() |
|||||
6.7 Inspection of Facilities | ![]() |
|||||
6.8 Samples and Artwork | ![]() |
|||||
6.9 Know-how | ![]() |
|||||
6.10 Meetings | ![]() |
|||||
6.11 Design Direction | ![]() |
|||||
6.12 Design Rights | ![]() |
|||||
6.13 Shops, Stores, Retail Outlets | ![]() |
|||||
6.14 Disposal of Seconds and Close-Outs | ![]() |
|||||
6.14.1 Seconds | ![]() |
|||||
6.14.2 Close-Outs | ![]() |
|||||
6.15 Standards of Conduct | ![]() |
|||||
6.15.1 Standards | ![]() |
|||||
6.15.2 Audit Requirement | ![]() |
|||||
6.15.3 Approval | ![]() |
|||||
6.15.4 Use of Facility | ![]() |
|||||
6.16 Personnel | ![]() |
|||||
ARTICLE VII. THE LICENSED MARK | ||||||
7.1 Rights to the Licensed Mark. | ![]() |
|||||
7.1.1 Ownership of Licensed Mark | ![]() |
|||||
7.1.2 No Adverse Actions | ![]() |
|||||
7.1.3 Registrations | ![]() |
|||||
7.1.4 Survival | ![]() |
|||||
7.2 Protecting the Licensed Mark. | ![]() |
|||||
7.3 Use of the Licensed Mark | ![]() |
|||||
7.3.1 Compliance with Legal Requirements | ![]() |
|||||
7.3.2 Use with Other Name | ![]() |
|||||
7.3.3 Execution of Documents | ![]() |
|||||
7.4 Ownership of Copyright | ![]() |
|||||
7.5 Infringements, Counterfeits and Parallel Imports | ![]() |
|||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
7.5.1 Infringements | ![]() |
|||||
7.5.2 Counterfeits and Parallel Imports | ![]() |
|||||
7.5.2.1 The Network | ![]() |
|||||
7.5.2.2 Diversion | ![]() |
|||||
7.5.3 Criminal Proceedings | ![]() |
|||||
7.5.4 Enforcement Activities | ![]() |
|||||
7.5.5 Nature of Proceedings | ![]() |
|||||
7.5.6 Cooperation | ![]() |
|||||
7.6 Trademark Security | ![]() |
|||||
7.6.1 Counterfeit Protection | ![]() |
|||||
7.7 Use of Licensed Mark on Invoices, etc. | ![]() |
|||||
7.8 Monitoring | ![]() |
|||||
ARTICLE VIII. TERM AND TERMINATION | ||||||
8.1 Expiration | ![]() |
|||||
8.2 Other Rights Unaffected | ![]() |
|||||
8.3 Right of Termination of the License | ![]() |
|||||
8.4 Termination With Notice and Right to Cure | ![]() |
|||||
8.5 Effect of Termination | ![]() |
|||||
8.6 Inventory Upon Termination | ![]() |
|||||
8.7 Freedom to License | ![]() |
|||||
8.8 Rights Personal | ![]() |
|||||
8.9 Trustee in Bankruptcy | ![]() |
|||||
8.10 Compensation | ![]() |
|||||
ARTICLE IX. INDEMNIFICATION AND INSURANCE | ||||||
9.1 Indemnification by the Licensee | ![]() |
|||||
9.2 Notice of Suit or Claim | ![]() |
|||||
9.3 Indemnification by CKI | ![]() |
|||||
9.4 Insurance | ![]() |
|||||
9.4.1 Requirement | ![]() |
|||||
9.4.2 General Provision | ![]() |
|||||
9.4.3 Approved Carrier/Policy Changes | ![]() |
|||||
9.4.4 Evidence of Coverage | ![]() |
|||||
9.4.5 Territory | ![]() |
|||||
ARTICLE X. COMPLIANCE WITH LAWS | ||||||
10.1 Compliance with Laws | ![]() |
|||||
10.2 Equitable Relief | ![]() |
|||||
ARTICLE XI. MISCELLANEOUS | ![]() |
|||||
11.1 Warranties and Representations of the Parties | ![]() |
|||||
11.2 Definitions | ![]() |
|||||
11.3 Notices | ![]() |
|||||
11.4 Assignment | ![]() |
|||||
11.5 Sublicense | ![]() |
|||||
11.6 Assignment by CKI | ![]() |
|||||
11.7 No Agency | ![]() |
|||||
11.8 Suspension of Obligations | ![]() |
|||||
11.9 Benefit | ![]() |
|||||
11.10 Entire Agreement; Amendment | ![]() |
|||||
11.11 Non-Waiver | ![]() |
|||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
11.12 Severability | ![]() |
|||||
11.13 Headings | ![]() |
|||||
11.14 Counterparts | ![]() |
|||||
11.15 Governing Law | ![]() |
|||||
11.16 Jurisdiction | ![]() |
|||||
11.17 Non-Solicitation | ![]() |
|||||
11.18 Confidentiality | ![]() |
|||||
11.19 Cross-Termination | ![]() |
|||||
11.20 Assignment Within Warnaco Family | ![]() |
|||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
SCHEDULES | ![]() |
![]() |
||||||||
SCHEDULE 6.13 | ![]() |
APPROVED ACCOUNTS | ![]() |
|||||||
SCHEDULE 6.14 | ![]() |
APPROVED SECONDS AND CLOSE-OUTS ACCOUNTS | ![]() |
|||||||
SCHEDULE S | ![]() |
SHAREHOLDERS | ![]() |
|||||||
EXHIBITS | ![]() |
![]() |
||||||||
EXHIBIT T | ![]() |
TERRITORY | ![]() |
|||||||
EXHIBIT P | ![]() |
PRODUCTS | ![]() |
|||||||
EXHIBIT B | ![]() |
ROYALTY STATEMENT | ![]() |
|||||||
EXHIBIT D | ![]() |
THIRD-PARTY MANUFACTURING AGREEMENT | ![]() |
|||||||
EXHIBIT E | ![]() |
PRODUCTION FACILITY EVALUATION FORM | ![]() |
|||||||
![]() |
SCHEDULE OF CALVIN KLEIN TRADEMARKS CL. 18
CONFIDENTIAL TREATMENT |
LICENSE AGREEMENT
LICENSE AGREEMENT, dated as of January 31, 2006, between CALVIN KLEIN, INC. ("CKI"), a New York corporation, and CK JEANSWEAR EUROPE S.P.A., an Italian corporation ("CKJE"), CK JEANSWEAR ASIA LIMITED, a Hong Kong corporation (hereinafter individually and collectively the "CKJA", and together with CKJE, "Licensee") and WF Overseas Fashion C.V., a limited partnership ("commanditaire vennootschap") organized and existing under the laws of the Netherlands ("Warnaco").
WITNESSETH:
WHEREAS, Licensee desires to obtain from CKI, and CKI is willing to grant to the Licensee, a license in the Territory (as hereinafter defined), to use the trademark "CALVIN KLEIN" to be used in the logo form "Calvin Klein Jeans" in the form designated by CKI from time to time ("Licensed Mark") in connection with the manufacture, wholesale sale, distribution, advertising and promotion of certain women's and men's "jeans"-styles, type or "level "small leather goods/accessories, handbags items , as defined in Exhibit P (the "Products"), subject to the terms contained in this Agreement. Products bearing the Licensed Mark are hereinafter referred to as "Licensed Products."
WHEREAS, Warnaco U.S., Inc. a Delaware corporation, is the general partner of WF Overseas Fashion C.V., and, solely in such capacity, is executing this Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. GRANT
1.1 License. CKI hereby grants to the Licensee an exclusive license (the "License"), without the right to assign, and the right to sublicense with CKI's prior written consent exercisable in CKI's sole and absolute discretion (not to be unreasonably withheld or delayed), and subject to and in accordance with the terms contained in this Agreement, to use the Licensed Mark, during the License Period in connection with the manufacture and sale, distribution, advertising, and promotion in the "Territory," set forth on Exhibit T, of Licensed Products to approved customers ***
1.1.1 Exclusion of Retail Sales. The License excludes the sale, distribution, and promotion of Licensed Products via commerce conducted on, made available through, or facilitated by *** or upon the prior approval of CKI, which CKI may withhold in its sole and absolute discretion. The License also excludes the right to *** only as approved by CKI, and except as permitted as to such Licensed Products pursuant to other agreements between the parties (and their affiliates). However, the foregoing does not ***
1.1.2 Right to Manufacture. The Licensee's right to manufacture in the Territory and elsewhere in the world is non-exclusive (others may and will have the right to produce Products within the Territory for export and sale outside the Territory). Licensee shall have the right to import into the Territory Licensed Products manufactured outside the Territory; provided, however, that the Licensee takes reasonable precautions to prevent all labels, tags, packaging material, business supplies and advertising and promotional materials and all other forms of identification bearing the Trademark (collectively, "Labels") from being used otherwise than in connection with the distribution and sale of Licensed Products within the Territory. The Licensee shall neither export Licensed Products from the Territory, nor sell Licensed Products to any entity which it knows, or reasonably should know, intends to export Licensed Products from the Territory.
1.2 Reservation. CKI reserves all rights in and to the Licensed Mark except as specifically granted herein including, without limitation, those rights set forth in this § 1.2. CKI may exercise any of its rights, or authorize others to exercise such rights, at any time, in accordance with the terms and conditions set forth herein.
1.2.1 Retail Stores; Company-Controlled Stores. CKI reserves the right *** However, CKI shall, in connection with the sale, distribution and promotion of Licensed Products through the CKI
CONFIDENTIAL TREATMENT |
Stores, purchase Licensed Products from the Licensee, at mutually agreed upon prices, terms and conditions, provided that Licensee timely produces, ships and delivers such Licensed Products in quantities as may reasonably be required by CKI. If (i) Licensee cannot sell or supply any Licensed Products due to a continuing force majeure event or other event outside of Licensee's reasonable control (i.e., more than thirty calendar days) or (ii) Licensee fails to timely deliver for two consecutive quarters a significant portion of the products so ordered (other than minor shortages), then during the pendency of such force majeure event or after such failures to deliver, CKI or its Affiliates shall have the right to manufacture or have manufactured for it by others, and to sell, distribute and promote Licensed Products through CKI Stores for the next two years, at which time the provisions hereof shall again apply. CKI shall also require that any such retail stores in the Territory owned or operated by an authorized licensee of CKI shall purchase the Licensed Products from Licensee. The Licensee acknowledges and agrees that *** for purposes of § 4.1.1, § 5.1.2, and § 5.4 hereunder.
1.2.2 E-Commerce/Promotional Goods. CKI reserves the right to *** In the case of E-commerce arrangements covering ***
1.2.3 Third Party Licensees. CKI may grant third parties the right to produce Products for distribution and sale outside the Territory. Licensee agrees to fully co-operate with such third parties, and upon CKI's request, Licensee will, furnish samples of Licensed Products, provide at cost (without markup), any patterns, trim samples, samples of garments and other materials, names of contractors and sources of supply, reasonably necessary to manufacture Licensed Products as reasonably requested on a timely basis by such licensees, in accordance with such third parties' reasonable design and production schedules and subject to appropriate confidentiality undertakings. Licensee will timely supply CKI's distributors or other third party licensees outside the Territory, with Licensed Products for distribution in such quantities as CKI may reasonably request on such credit or other terms as Licensee may impose on its customers generally, ***
1.3 Limitations. The Licensee understands and agrees that CKI, and its other licensees and sublicensees, may manufacture or authorize third parties to manufacture Licensed Products in the Territory for sale outside of the Territory, or to manufacture and sell or authorize third parties to manufacture and sell products of any and all types and descriptions other than the Products in or outside the Territory. In this regard, the Licensee acknowledges and agrees that products that bear some similarity of design to the Licensed Products may be manufactured, distributed or sold in the Territory in connection with the Licensed Mark by either CKI or a third party authorized to use the Licensed Mark, and the Licensee further acknowledges and agrees that such similarity of design will not be deemed a breach of or default under this Agreement. In addition, no license is granted hereunder for the manufacture, sale or distribution of the Licensed Products to be used for publicity purposes (other than publicity of the Licensed Products), in combination sales or as premiums or giveaways, or to be disposed of under or in connection with similar methods of merchandising, such rights being specifically reserved for CKI or otherwise subject to CKI's prior review and approval. Licensee agrees that the marketing, placement and distribution of Licensed Products in the Territory may but shall not necessarily be the same as that for Products being sold in the U.S. or elsewhere in the world by CKI's duly authorized licensee, but shall be commensurate with the marketing, placement and distribution of Licensed Products in comparison with other competitive and competitors' jeanswear lines sold both in the U.S. and the Territory.
1.4 Definitional Disputes. The Licensee acknowledges that due to the nature of the marketplace, the definition of Products may change or may not be amenable to precise delineation. In addition, the Licensee acknowledges that CKI does have and may hereafter have, other licensees within the Territory. However, CKI will use its reasonable efforts to *** In the event of any dispute between the Licensee and any other licensee of CKI in the Territory with respect to whether particular merchandise is covered by one or the other of their respective licenses, or there is otherwise a dispute over the definition of Licensed Products, CKI shall render, based upon its reasonable (but with all due consideration given to aesthetic and quality factors) good faith judgement, commercial reasonableness, and a reasonable written determination.
CONFIDENTIAL TREATMENT |
1.5 Exploitation of the License.
1.5.1 Best Efforts. At all times during the License Period, the Licensee shall use its reasonable best efforts to exploit the License throughout each and every country of the Territory, including, but not limited to: (i) selling what reasonably constitutes a full line of Products within each seasonal collection of Licensed Products (each, a "Collection"), subject to seasonal differences, and a sufficiently representative quantity of each type of Product within each Collection; (ii) timely developing, producing and offering for sale the Licensed Products so that they may be sold and shipped to consumers on a timely basis; (iii) maintaining a sales force sufficient to provide effective distribution throughout all areas of the Territory; (iv) cooperating with CKI's and any of its licensees' marketing, merchandising, sales, and anti-counterfeiting programs as may be applicable, and (v) maintaining necessary financial position to adequately support the operations and obligations herein.
1.5.2 Non-Competition. The Licensee shall devote itself and all of its employees and operations exclusively to the operations of this license and other "CALVIN KLEIN" operations licensed by CKI. The Licensee's Affiliates shall not enter into or obtain from any person or entity a license in the Territory for any of the Products bearing the name of any designer or designer brand (or any derivative or formative thereof) of *** without the prior written consent of CKI and except for arrangements and agreements in effect on and as of the Effective Date of this Agreement. ***
1.6 Showrooms; In-Store Shops; Trade Shows.
1.6.1 Showrooms. Licensee shall maintain a separate area within its existing jeanswear showrooms in Milan, the United Kingdom, Hong Kong (and, if applicable, Tokyo) and wherever else it maintains jeanswear apparel showrooms. Such showroom area (s) shall be used for the sole purpose of displaying, promoting and selling Licensed Products. All such separate areas in the showrooms shall be subject to the standards of CKI, and shall be designed and maintained in conformity with the prestige associated with the Licensed Mark. The plans for each showroom area , including décor, set-up and display (and material changes thereto), and for any renovations thereto shall be subject to the reasonable prior written approval of CKI, which approval shall not be unreasonably withheld or delayed; provided, however, that CKI shall have 10 business days after its receipt of such plans to approve or disapprove such plans or such longer period as is reasonable under the circumstances. Promptly after the execution of this Agreement and the bridge apparel agreement , CKI and the Licensee will mutually agree *** The Licensee may (i) display the Licensed Mark on showroom doors and office directories and (ii) display the Licensed Products for sale in other showroom spaces, subject to the prior written approval of CKI. The parties shall meet upon request to establish a budget for required or requested renovations to the showrooms.
1.6.2 In-Store Shops. The Licensee will participate in in-store shop or fixturing programs, with the Licensee's customers throughout the Territory, and will spend amounts on in-store décor, refurbishments and fixturing (including development costs of consultants for design and fixturing prototypes and on sales personnel or coordinators, sufficient to ensure and the appropriate as may be applicable to enhance the presentation of Licensed Products within its retail accounts, including appropriate stocking and merchandise mix, to be developed with and under the direction of CKI (and outside consultants where required by CKI for the prototype development). Appropriate budgets for such in-store shop programs shall be developed, reviewed and agreed upon by the parties. All such programs shall be designed in conformity with the prestige associated with the Licensed Mark, and plans for any such shop-in-shop areas shall be subject to the prior written approval of CKI. In-shop décor, refurbishing and fixturing are essential to the exploitation of the License Agreement; in addition to other expenses hereunder (and not considered either a qualified Co-op or Public Relations expenditure).
1.6.3 Trade Shows. The Licensee shall display the Licensed Products at a separate booth space at all tradeshows attended by the Licensee to promote Products. The design of such booth shall be developed in consultation with CKI's visual design personnel, as provided in § 1.6.4.
1.6.4 Visual Design Personnel. The Licensee shall consult with and utilize CKI's visual design personnel in connection with the design, development and construction of showrooms, trade show booths,
CONFIDENTIAL TREATMENT |
fixturing, signage and any in-store shops or in-store areas for the sale of Licensed Products within the stores of the Licensee's customers, and shall provide all funds necessary in connection therewith (including, but not limited to, reasonable per diem rates for work performed by CKI's visual display personnel based upon estimated amounts or anticipated expenditures, as provided or discussed and agreed upon in advance, or based upon agreed-upon-in-advance budgets), it being understood and agreed that the fabrication, manufacturing, production or construction of showrooms, trade show booths and fixtures may be performed by third parties. All such design, development and construction shall be subject to CKI's ongoing approval. Licensee will arrange for the opening of shop-in-shops within department stores and specialty stores using appropriate fixtures and signage, and to maintain seasonal visual display and "set-ups" of Licensed Products, as approved by Licensor, and to fully stock such shop-in-shops with an appropriate merchandise mix of Licensed Products, all as approved by CKI, pursuant to and consistent with Licensee's shop-in-shop development program. Such in-store development programs shall be financed in a manner comparable to and commensurate with those of CKI's competitors as to Licensed Products. CKI may periodically inspect Licensee's showrooms, shows at trade exhibitions, and such shop-in-shops . Any such inspection will be at CKI's expense unless CKI determines as a result of such inspection that Licensee's showrooms, trade exhibition shows or in-store shops or in-store areas have not been maintained in accordance with CKI's specifications, in which case Licensee will at its expense promptly make any modifications to design, layout, decor, visual display or merchandise display formats as CKI may reasonably require and will bear the costs incurred in connection therewith, including any costs incurred by CKI in connection with follow-up inspections to determine the satisfactory completion of such modifications. The Licensee shall also promptly reimburse CKI for the reasonable costs and expenses of any CKI personnel, such as visual display, advertising and public relations (other than design), with respect to services performed by CKI under this § 1.6 or otherwise requested by the Licensee based upon estimated amounts or anticipated expenditures, as provided or discussed in advance, and based upon agreed-upon-in-advance budgets. In addition, the Licensee shall pay or reimburse CKI for reasonable out-of-pocket expenses incurred by CKI or its representatives, whether for travel or otherwise, including round-trip business-class airfare or first-class airfare if provided by CKI's internal travel policies in effect from time to time, hotel accommodations and food and local transportation, in connection with this Agreement, such as travel to Italy to review or approve prototypes, based upon estimated amounts or anticipated expenditures, as provided and discussed in advance with Licensee, and based upon agreed-upon-in-advance budgets.
ARTICLE II. LICENSE PERIOD
2.1 License Period. The license period shall commence effective 1 January 2006, with certain preliminary design and development being initiated prior to 1 January 2006 ("preliminary period"), with the Spring 2006 season being anticipated to be the first season for which Licensed Products will be offered for sale (and the parties may initiate preliminary design and other development in contemplation thereof in order to be able to offer for sale such Spring 2006 season, but if the time for development, presentation, production, marketing and showroom is deemed by the parties to be not sufficient to timely and appropriately launch such Collection, the initial season shall be Fall 2006 (or Pre-Fall 2006). The term shall end forty (40) years from the closing of the Transaction described and defined in the Heads of Agreement dated 29 September 2005 between, inter alia, CKI and Warnaco Inc. , (not to be later than 31 December 2006), on 31 December 2046, unless sooner terminated as herein provided. The first period commencing 1 January 2006 and ending on 31 December 2006, including the preliminary period, and each 12-month period commencing on 1 January thereafter during the License Period are each referred to herein as an "Annual Period." Notwithstanding the foregoing, the Licensee shall not commence offering Licensed Products for the Spring 2006 season unless and until CKI determines in its good-faith judgement (including aesthetic and creative considerations) that all elements necessary for a successful launch, including, without limitation, product design, development and production, marketing strategy, advertising materials and placement, and if applicable, launch events, have been satisfied. The term of this Agreement may sometimes be referred to as the "License Period" or "Term."
CONFIDENTIAL TREATMENT |
The Minimum Net Sales Thresholds for each Annual Period are as indicated below:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period |
![]() |
Year | ![]() |
Minimum
Net
Sales* Thresholds |
||||||||||||||
![]() |
![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
*** | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ![]() |
*** | ||||||||||
![]() |
![]() |
![]() |
* | For purposes of calculating Net Sales for the MNST's, *** |
If Licensee fails to attain the minimum net sales thresholds ("MNST's") of Articles during any Annual Period, as set forth above (except as specifically indicated in the immediately following paragraph), ***
Notwithstanding the foregoing, if Licensee has *** Expiration or termination of the License shall not affect any obligation of the Licensee to make payments hereunder accruing prior to such expiration or termination.
ARTICLE III. SALES
3.1 Sales/Marketing and Production Plans. Licensee shall deliver to CKI: ***
3.2 Deliberately Omitted.
3.3 Sales to CKI and its Employees. The Licensee shall be obligated to sell Licensed Products to CKI, its Affiliates and its third-party store licensees, for sale and distribution by (i) CKI and its Affiliates through CKI Stores, via E-Commerce, or otherwise; or (ii) by its third-party store licensees, through the stores of such licensees. The Licensee acknowledges and agrees that such sales of Licensed Products shall be in quantities designated by CKI, its Affiliates, or reasonably required by its licensees, as the case may be, and shall be at the ***
ARTICLE IV. LICENSE FEES
4.1 Requirement of Fees. All Licensed Products sold by the Licensee or its Affiliates (including those from which the Licensed Mark may have been removed, e.g., irregulars) require the payment of Fees by the Licensee to CKI as set forth in this Article IV, except as otherwise provided in § 4.1.1. "Affiliates" of any party means all individuals and business entities, whether corporations, limited liability companies, partnerships, joint ventures or otherwise, which now or hereafter control, or are controlled, directly or indirectly, by such party, or are under common control with such party.
CONFIDENTIAL TREATMENT |
4.1.1 Percentage Fees. In respect of each Annual Period or portion thereof during the License Period, the Licensee shall pay CKI Percentage Fees computed *** as follows:
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year |
![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
*** | ![]() |
*** | ![]() |
*** | ||||||
![]() |
![]() |
![]() |
* | The rates applicable to *** as defined herein shall be as noted, provided that in each such case such *** |
![]() |
![]() |
For sales directly at ***, as noted in § 1.2.1 or § 1.2.3. |
![]() |
![]() |
As noted in § 1.2.1 above, the Percentage Fee shall be*** |
![]() |
![]() |
Percentage Fees shall be accounted for and payable *** |
4.1.2 Gross and Net Sales. "Gross Sales" means *** "Net Sales"
4.1.3 Minimum Guaranteed Fees. In respect of each Annual Period or portion thereof during the License Period, the Licensee shall pay to CKI the minimum fees listed below (the "Minimum Guaranteed Fees" or "MGF's") ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year |
![]() |
Minimum Guaranteed Fee (MGF) (US $) |
![]() |
|||||||||||
![]() |
*** | ![]() |
*** | ![]() |
*** (TBD Separately from Asia) | |||||||||
1 (2006) | ![]() |
*** | ![]() |
*** | ![]() |
|||||||||
2 (2007) | ![]() |
*** | ![]() |
*** | ![]() |
|||||||||
3 (2008) | ![]() |
*** | ![]() |
*** | ![]() |
|||||||||
4 (2009) | ![]() |
*** | ![]() |
*** | ![]() |
|||||||||
5 (2010) | ![]() |
*** | ![]() |
*** | ![]() |
|||||||||
6 through
10 (2011 through 2015) |
![]() |
*** | ![]() |
*** | ![]() |
* | ||||||||
11
through 15 (2016 through 2020) |
![]() |
*** | ![]() |
*** | ![]() |
* | ||||||||
16
through 20 (2021 through 2025) |
![]() |
** | ![]() |
** | ![]() |
** | ||||||||
21
through 25 (2026 through 2030) |
![]() |
** | ![]() |
** | ![]() |
** | ||||||||
26
through 30 (2031 through 2035) |
![]() |
** | ![]() |
** | ![]() |
** | ||||||||
31
through 35 (2036 through 2040) |
![]() |
** | ![]() |
** | ![]() |
** | ||||||||
36
through 41 (2041 through 2046) |
![]() |
** | ![]() |
** | ![]() |
** | ||||||||
![]() |
![]() |
![]() |
||||||||||||
![]() |
*** | ![]() |
![]() |
|||||||||||
![]() |
CONFIDENTIAL TREATMENT |
4.1.4 Allocation of Minimum Guaranteed Fees and Percentage Fees. For purposes of CKI internal allocation, *** of the Minimum Guaranteed Fees and *** of the Percentage Fees shall be allocated as a royalty for the use of the Licensed Mark and the remaining *** shall be allocated as "fees" for the design, including the reviews and approval procedures, and other overall services under or relating to the Agreement.
4.2 Statements. Quarterly within each Annual Period 30 days in arrears, the Licensee shall deliver to CKI *** or in such simplified format as may be agreed to by the parties, signed by the *** stating that the Licensee is in compliance with the terms and conditions hereof and setting forth *** Licensee will use all reasonable efforts to provide Licensor with *** Within 90 days of the end of each Annual Period, the Licensee shall also deliver to CKI a *** and in accordance with the provisions hereof. Receipt or acceptance by CKI of any statement furnished, or of any sums paid by the Licensee, shall not preclude CKI from questioning their correctness at any time; provided, however, that reports submitted by the Licensee, shall be binding and conclusive on the Licensee.
4.3 Books and Records. The Licensee shall, at its sole cost and expense, maintain complete and accurate books and records (specifically including, without limitation, the originals or copies of documents supporting entries in the books of account or electronic records) covering all transactions arising out of or relating to this Agreement. Such books and records shall be maintained in accordance with international accounting principles generally accepted in Italy, and under the laws thereof ("GAAP"). CKI and its duly authorized representatives shall have the right, upon reasonable prior written notice from CKI and during normal business hours, once during each Annual Period and for three years after such Annual Period, to examine and copy said books and records and all other documents and materials in the possession of and under the control of the Licensee with respect to all transactions arising out of or relating to this Agreement (such audits are to be completed within 6 months of commencement, provided Licensee and its accountants promptly respond fully and completely to all inquires of CKI, including all books, records, back-up, answers to question and other reasonable requests, and afford CKI and its representatives entry and accommodations at all times during such period). Each Annual Period shall be subject to audit once (and when finalized as provided hereunder, not subject to additional audits under this Agreement (except CKI's shareholders)). The exercise by CKI of any right to audit at any time or times or the acceptance by CKI of any statement or payment shall be without prejudice to any of CKI's rights or remedies. (Nor will any acceptance of audit results affect or limit any rights of CKI as a shareholder.) The Licensed Products shall be assigned style numbers unique from any other products the Licensee may manufacture or sell. The style number assigned to each Licensed Product shall be identical to the style number utilized to identify the Licensed Product in all of the Licensee's books and records. All documents evidencing the sale of Licensed Products shall state the style number of each such Product. The Licensee shall not use terms such as "assorted" or "irregular" without a style specification with respect to the Licensed Products. Once finalized and all disputes resolved, as provided hereunder and under § 4.4, results shall be binding on both parties under this Agreement.
4.4 Underpayments. If, upon any examination of the Licensee's books and records pursuant to § 4.3, CKI shall discover any Fee underpayment by the Licensee, the Licensee will make all payments required to be made to correct and eliminate such underpayment within 10 days of CKI's demand together with interest thereon. In addition, if said examination reveals a Fee underpayment of *** or more for any Annual Period, the Licensee will reimburse CKI for the reasonable out-of-pocket cost of said examination within 10 days of CKI's demand. In the event Licensee disagrees with any finding underlying CKI's demands, it shall so notify CKI within 15 business days of demand, with reasons and specifics as to why. The parties will then promptly meet and fully co-operate on a continuing, best-efforts basis to present any "counter finding" or other back-ups and in good faith resolve the same before payment is due. Notwithstanding the foregoing, if such dispute remains unresolved within 90 days of Licensee's receipt of CKI's initial demand (unless extended by CKI) despite and provided CKI has used good faith best efforts to resolve within said time period, CKI's last demand or final demand as may have been revised during such post audit meetings or discussions shall apply, and Licensee shall promptly remit such amounts (and interest).
CONFIDENTIAL TREATMENT |
4.5 Manner of Payment. All payments required by the Licensee hereunder shall be made to CKI in US $ dollars via wire transfer specifying federal funds ***
The Percentage Fees based upon Net Sales made in a currency other than US $ dollars (and certain other amounts provided for or contemplated under this Agreement), if applicable, shall be computed on the basis of the conversion rate of the currency in which the sale or other transaction occurred into US $ dollars in effect, as published in the Wall Street Journal, as of the close of business on the last business day of the relevant quarterly period during the Annual Period, and two (2) business days prior to the remittance due date (or where no remittance "due date" is applicable, the remittance date) for other applicable amounts. In the event that the Licensee is required to withhold certain amounts for payment to the appropriate governmental authorities, the Licensee will supply to CKI the official receipts evidencing payment therefore, promptly upon receipt (as noted in §4.8).
4.6 Interest on Late Payment. In addition to any other remedy available to CKI, if any payment due under this Agreement is delayed for any reason, including, without limitation, as a result of any Fee underpayment, interest shall accrue and be payable, to the extent legally enforceable, on such unpaid principal amounts from and after the date on which the same became due, at the rate of ***
4.7 No Set-Off. The obligation of the Licensee to pay Fees hereunder shall be absolute, notwithstanding any claim which the Licensee may assert against CKI. The Licensee shall not have the right to set-off, compensate or make any deduction from such Fee payments for any reason whatsoever.
4.8 Taxes. The Licensee will bear all taxes, duties and other governmental charges in the Territory relating to or arising under this Agreement, including, without limitation, any state or federal income taxes on the Licensee (except withholding taxes on Fees due CKI and taxes on CKI's income), any stamp or documentary taxes or duties, turnover, sales or use taxes, value added taxes, excise taxes, customs or exchange control duties or any other charges relating to or on any Fee payable by the Licensee to CKI. The Licensee shall obtain, at its own cost and expense, all licenses, Federal Reserve Bank, commercial bank or other bank approvals, and any other documentation necessary for the importation of materials and Products and the transmission of Fees and all other payments relevant to the Licensee's performance under this Agreement. If any tax or withholding is imposed on Fees, that is, and to the extent it may become applicable, when or where payments of Minimum Guaranteed Fees and/or Percentage Fees are made directly to CKI from any jurisdiction outside the United States, the Licensee shall compute and pay on behalf of CKI all withholding taxes which any governmental authority in the Territory may impose on CKI with respect to the Fees paid by the Licensee to CKI. The amount of such taxes shall be appropriately deducted from payments, and immediately paid to such governmental authorities. Such amounts shall not be held in reserve by Licensee pending later due dates. The Licensee shall obtain and provide certified proof of the tax payment of the amount withheld, and promptly transmit it to CKI. In the event such taxes are not paid when due, all resulting penalties and interest shall be borne by the Licensee.
4.9 Financial Statements. Licensee shall deliver to CKI,:
(i) within 180 days after the close of each of Licensee's fiscal year's during or concurrent with an Annual Period, copies of its annual financial reports (balance sheets, statements of income and cash flow) which may be unaudited (but if the Licensee otherwise prepares or is otherwise required to prepare, audited reports, it will so provide them to CKI) prepared in accordance with International GAAP, reported on by a recognized accounting firm together with English translation thereof; and
(ii) within 60 days after the close of each calendar quarter copies of its quarterly financial reports, which will be prepared on a basis consistent with the annual financial reports.
Financial Covenants. Licensee (and its parent Warnaco Inc.) will ***
Licensee will immediately upon the occurrence of any default deliver a certificate by its Chief Financial Officer setting forth the details of any such default and action the Licensee is taking or proposed to take with respect thereto.
CONFIDENTIAL TREATMENT |
ARTICLE V. ADVERTISING AND PROMOTION
5.1 Advertising.
5.1.1 Initial Support/Reimbursement. Deliberately Omitted.
5.1.2 Advertising Obligation. For each Annual Period, the Licensee shall remit to CKI an amount (the "Advertising Obligation" or "Minimum Advertising Expenditure," a/k/a "MAE") equal to ***
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Annual Period/Year |
![]() |
Minimum Advertising Expenditure (US $) |
||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
*** | ![]() |
*** | ||||
![]() |
The Licensee shall pay to CKI in respect of the Advertising Obligation for each Annual Period, no later than *** CKI shall use the Advertising Obligation, in its sole and absolute discretion, in connection with the advertising, marketing and promotion of the Licensed Mark and the Licensed Products. Although the final decision as to the advertising program's form, content and placement must remain with CKI, CKI agrees to consider Licensee's input and agrees that prior to the commencement of each campaign season, CKI and CRK will meet and listen to Licensee's needs and overall strategy, and CKI and CRK will also review CRK's concepts for the upcoming season with Licensee. (Although CRK will give reasonable consideration as to Licensee's input, decisions will be in CKI's sole discretion and based on CKI's subjective aesthetic judgement and other considerations.) If there are material changes to what CKI, CRK and Licensee discussed at the beginning of the season by CKI, CRK will apprise Licensee of the same. ***
5.1.3 CRK Fee. As the advertising agency heretofore responsible for advertising campaigns relating to " Calvin Klein" and Licensed Mark activities, CRK Advertising ("CRK"), a division of CKI, has developed certain expertise regarding the image of the Licensed Mark. *** Notwithstanding anything to the contrary in the foregoing, in no event shall CKI require the Licensee to ***
5.1.4 Co-operative Advertising and Public Relations. *** All Co-operative Advertising shall be (i) in accordance with the parameters reasonably promulgated by CKI from time to time, including, without limitation, creative, as approved by CKI, as well as the Licensed Products presented in such Co-operative Advertising, and timing and applicable placement (the publication as well as the particular location within the publication) (sometimes referred to as a "media plan"), and (ii) subject to CKI's approval as provided in § 5.1.3. The Licensee shall be obligated to notify its accounts of these requirements and ensure their compliance with such requirements, including obtaining CKI's approval prior to use. The Licensee shall provide CKI with ***
For purposes of this Agreement "Co-operative Advertising" means advertisements by or in connection with retail accounts in local publications, such as newspapers and certain approved retail catalogs (for Calvin Klein Bridge Stores), if any, which CKI may specifically approve in writing after viewing the same), and applicable "sharing" of expenses by such retail account with the Licensee, by way of advertising reimbursements, credits, charge-backs, or payments, only. Expenditures for "co-op" advertising not included within the definition hereunder or not in compliance with CKI's parameters will not constitute a "qualified" expenditure for Co-operative Advertising hereunder.
"Co-operative Advertising" does not include and shall not consist of advertisements in trade publications (except for certain prestigious fashion trade publications as may be approved by CKI in writing on a case-by-case basis) or any expenses or costs of (without limitation) packaging, fixturing, display materials, point-of-sale ("POS") or point-of-purchase ("POP") materials, or advertising or selling
CONFIDENTIAL TREATMENT |
materials or "tools" or seminars or training sessions, in-store merchandising contributions or sharing of expenses, or any other selling or merchandising expenses or events, or any promotional materials, events or activities, such as press kits, goody bags (gifts), or any consumer advertising.
Public Relations events, activities and efforts shall include editorial coverage in prestigious fashion magazines, launch events for press, editors, buyers, fashion shows or trunk shows ("mini" fashion shows at key retail stores), and involvement with highly publicized events such as "concerts," as may be reviewed with and approved by CKI. Any PR event or activity to be conducted or overseen by a 3rd party shall be conducted or overseen by CRK or a 3rd party approved by CRK ("PR Agency of Record") at market rates.
The CRK Fee shall be applied on actual services and materials developed, produced or provided by CRK for such Co-op/PR Obligation-qualified expenditures hereunder.
5.2 "Usage". If the Licensee requests advertising support including, without limitation, the acquisition of rights to use images of models in jurisdictions within the Territory where rights have not been obtained or for uses for which authorization has not been granted, the Licensee shall pay over to CKI the reasonable incremental costs associated with such advertising support. Such amounts shall be credited to the MAE, but may be credited over a number of Annual Periods not limited to the Annual Period in which the expense occurs.
5.3 Approval of Materials, Activities. The use and release of any and all promotional material (printed or otherwise) relating to the Licensed Products or the Licensee's activities pursuant to this Agreement in the nature of press releases, interviews or other similar public relations events, and any other corporate release, data or information which will or is likely to become public and, if so, could affect such image, will be prepared or conducted in consultation with, and subject to the prior approval of (or approval subject to reasonable CKI-required modifications of), CKI's public relations department (to be provided or responded to promptly (as per § 6.5) and not to be unreasonably delayed). After any such approval, the Licensee will not modify the approved material or activity in any material respect unless such modification is specifically approved by CKI's public relations department. Any advertising marketing or promotional or public relations activity, event or effort shall be reviewed with and approved by CKI in advance (not to be unreasonably delayed). All materials bearing the Licensed Mark, including, without limitation, all advertising, promotional materials, packaging and collateral (e.g., POP or POS materials) shall be subject to CKI's approval (not to be unreasonably delayed), and developed by CKI or pursuant to CKI's direction.
5.4 Samples. The Licensee shall provide to CKI, *** in the promotion of Licensed Products, including advertising shoots, public relations promotions, editorial promotions, press coverage and celebrity use, including where needed in advance of regular production cycles (e.g., fashion shows, merchandising displays within showrooms, advertising shoots). Licensed Products which constitute celebrity, editorial and/or public relations "samples" which are gifted to recipient without cost, by Licensee *** Included in such "Promo Articles" shall be a reasonable number of Licensed Products to be provided to CKI (CRK) for its use for particular celebrity "individuals" and press or editorial recipients, as requested and/or specified by CKI, ***
If and to the extent tax forms evidencing the value of any such gift items to celebrity "individuals" for purposes of income tax requirements under any governmental authority are or become required, Licensee shall provide the same as soon as such practice could be reasonably implemented.
ARTICLE VI. QUALITY AND STANDARDS
6.1 Distinctiveness and Quality of the Licensed Mark. The Licensee shall maintain the distinctiveness of the Licensed Mark and the image and high quality of the goods and merchandise bearing the Licensed Mark presently manufactured and sold by CKI and its other licensees, and the prestigious marketing of same as presently maintained by CKI and its other licensees. The Licensee agrees that all Licensed Products manufactured or sold by it will be of high quality as to workmanship, fit, design and
CONFIDENTIAL TREATMENT |
materials, and shall be at least equal in quality, workmanship, fit, design and material to the samples of Licensed Products submitted by the Licensee and approved by CKI pursuant to § 6.2.6. All manufacturing and production shall be of a quality in keeping with the prestige of the Licensed Mark. In addition, the Licensee agrees that it will only use the Licensed Mark in the form thereof then approved by CKI, and that all Licensed Products shall bear the Licensed Mark in such approved form. CKI shall give the Licensee reasonable prior notice of any change in the form of the Licensed Mark and shall permit the Licensee to use a superceded form of the Licensed Mark for up to 6 months in order to enable the Licensee to sell inventory, complete and sell work-in-process, and to deplete inventories of labels, tags, packaging, and other materials bearing the Licensed Mark. In the event CKI elects to change the form of the Licensed Mark, the Licensee's obligations in respect to the image and high quality of the goods and merchandise bearing the Licensed Mark, and the prestigious marketing of same as required by this § 6.1, shall be consistent with the actions of CKI and its other licensees in respect to Licensed Products bearing such new form of the Licensed Mark. However, on reasonable advance request (within 20 days prior to the end of the 6-months period) if Licensee provides CKI with its inventory of Licensed Products and other materials utilizing the old form, with anticipated outside "depletion" dates for the materials, CKI may provide additional time for such depletion. However, all Licensed Products to be shipped from and after the 6-months period (except for Close-outs or Seconds from prior seasons) will carry new labels, regardless of excess label stock.
6.1.1 Consistency with Other Products. The Licensed Products hereunder are among a range of lines of men's, women's, boys' and girls' apparel and accessories products which are produced and/or sold by CKI, its licensees and other duly authorized parties under the Licensed Mark and other related trademarks. In order to provide for consistency in scope, and to prevent confusion in the market, the Licensee agrees to use commercially reasonable efforts to ensure that it will only use the Licensed Mark in the form thereof then approved by CKI and that the placement of items constituting Licensed Products in the market will be consistent with other merchandise bearing the Licensed Mark and be distinguishable from the placement of product lines bearing other trademarks.
6.2 Design.
6.2.1 Time and Action Calendar. The Licensee shall prepare, for the Licensed Products, and at least 60 days prior to the commencement of each Annual Period, shall deliver to CKI for its approval (reasonably exercised within the standard design policy and procedures of CKI and timing, development and production and placement schedules), a proposed time and action calendar ("Time and Action Calendar") for the Collections to be developed during such Annual Period; provided; however, that the Time and Action Calendar for the first Annual Period shall be delivered for approval no later than the date of execution hereof. The substance and format of each Time and Action Calendar shall be as approved by CKI from time to time. In accordance with each Time and Action Calendar, and at least 60 days before the development stage of any Collection, the Licensee will provide a merchandising plan setting forth for each Product category the number of styles, estimated unit production, in-store delivery dates, target manufacturer's suggested retail price, target market segment and, where applicable, historical sales statistics for CKI's review and approval.
6.2.2 Themes. The Licensee shall maintain during the License Period a design staff capable of timely developing seasonal collections of Licensed Products pursuant to the Time and Action Calendars, in order to exploit the License and to maintain the prestige and reputation of the Licensed Mark, as required hereunder. The Licensee's design team shall have meetings with CKI's-designated creative or design person or persons, the purpose of which will be to discuss and establish agreed-upon themes that will be covered for the season (such agreed upon themes hereafter referred to as the "Agreed Upon Season's Themes").
6.2.3 Design Concepts. Based on the Agreed Upon Season's Themes, the Licensee shall create, develop and present for CKI's review and approval, a program in a tangible illustrative format of design themes and concepts ("Design Concepts") with respect to the proposed designs for the applicable Collection, together with relevant trims, samples of fabrics and other components. The Licensee shall
CONFIDENTIAL TREATMENT |
present the Design Concepts to CKI in a "Design Concepts Presentation Meeting", the purpose of which is to provide CKI with a clear and concrete understanding of the themes, fabrications, styles, attitude and direction of such Collection through the use of either design boards, sketches and/or "rigs" as well as samples of trim, fabrics and other components in each of the Licensee's suggested colors and qualities, also swatches, yarns and illustrations sufficient to give CKI a clear understanding of the particular Products and components the Licensee wishes to develop based upon approved Design Concepts. CKI shall, within 10 business days from presentation of the Design Concepts identified at the Design Concepts Presentation Meetings approve or disapprove and/or provide suggestions, modifications or recommendations, as determined by CKI in its sole and absolute discretion. Any Design Concept which is not rejected or required to be modified within such 10 business day period shall be deemed approved. Any Design Concept or component thereof presented, initiated or submitted by CKI to Licensee to be included in the applicable Collection shall be included in the Approved Design Concepts except as otherwise may be agreed by CKI. All approved and deemed approved Design Concepts are referred to herein as the "Approved Design Concepts." The Licensee shall provide CKI with a photographic record, duplicate "boards" or such other comparable method acceptable to CKI, of the Approved Design Concepts so that CKI has a means to verify compliance with the Approved Design Concepts at subsequent stages of the approval process, within 10 business days after approval of the Approved Design Concepts. The Licensee shall have 10 business days to resubmit for CKI's approval any Design Concept to which CKI directed modifications to be made. If any resubmitted Design Concept, as changed, does not strictly conform to CKI's request for changes, and such strict conformity cannot be obtained after one resubmission, such Design Concept shall not become an Approved Design Concept. No Licensed Products (including samples) shall be distributed and/or sold by the Licensee unless such Licensed Products are in substantial conformity with Approved Design Concepts. Approved Design Concepts shall only be deemed approved for the specific Collection for which they have been submitted and approved, unless CKI agrees otherwise in writing.
6.2.4 Certain Other Approvals. The Licensee shall provide and present to CKI proposed styles, designs, fabrications (fabric, leather or other materials, swatches in reasonably sufficient size to determine "hand" as well as color, content and other matters, trim, samples, labels (quality), artwork, if requested by CKI (e.g., layouts and relevant technical information for graphic motifs, patterns (such as florals, stripes, checks))) and other materials in quantities and sufficient variety to enable CKI to review and approve (including to require modifications to or changes in), on a timely basis, sufficiently in advance of the market and production timing.
6.2.5 CKI Designs. CKI may provide the Licensee with creative concepts and fashion direction as to each Collection, including recommendations as to color, material, design and styling of Products and such additional design assistance including sketches, samples, suggestions or other information or data as CKI determines in its sole discretion. For each Collection, the Licensee shall utilize substantially all of the designs, fabrics, trim or other material submitted or approved by CKI and shall produce on a timely basis pre-production prototypes for CKI's review and approval.
6.2.6 Prototypes. Prior to showing each season's Collection to the trade or commencing production of the Products for such Collection in accordance with the Time and Action Calendars, the Licensee shall produce pre-production prototypes (both initial (first) and second prototypes, where required by CKI) of each Product in the approved fabrications, or, if applicable, in those fabrications specifically requested by CKI (or, if CKI so permits on a season-by-season, case-by-case basis, pre-production prototypes of each "body" or style of Product in representative fabrications or those fabrications specifically requested by CKI), along with swatches and samples of sufficient size in order to determine hand and/or other aspects related to the Products that the Licensee proposes to include in such Collection, for CKI's approval. No previously approved Licensed Products shall be included in a subsequent Collection unless and only if presented for inclusion and approved by CKI for such subsequent Collection. CKI shall have the right to approve or disapprove of any or all aspects of each prototype and to require modifications to meet its requirements for approval. Notwithstanding such requirements or approvals, all responsibility (and liability) for the merchantability, fit and technical
CONFIDENTIAL TREATMENT |
requirements of such Licensed Products is and will belong to Licensee. If CKI disapproves any proposed carryover of a "core" item (i.e., part of the Collection for at least four prior seasons, if any), then the Licensee will discontinue such product within three months to enable the Licensee to fulfill outstanding orders. (Prototypes which have been approved by CKI, or those subject to changes being made by the Licensee, upon resubmission of corrected prototypes and subsequent approval by CKI, shall hereinafter be referred to as "Approved Prototypes."). The Licensee shall provide CKI with a photographic record of all Approved Prototypes for each Collection, and also, the Licensee shall promptly provide CKI, with a record of the use (i.e., the factory location in which each prototype will be used to produce the specific Licensed Products) of the Approved Prototypes, which shall include notification (i.e., e-mail, fax, modified purchase order to factory producing the particular item of Licensed Product) and evidence (e.g., in the form of duplicate or modified prototype) of any changes required by CKI. CKI may request that prototypes be developed in a standard size or to provide CKI with a variety of sizes and styles, covering the spectrum, to assure itself of "fit" and sizing.
6.2.7 Final Approval and Sales. The final composition of each Collection shall be determined and agreed upon by the Licensee and CKI, and is subject to the approval of CKI, upon presentation and edit of the sample line produced from Approved Prototypes for technical quality and final editing purposes. Thereafter, the Licensee shall timely sell, market, produce and ship such Collection based on the Approved Prototypes.
6.3 Manufacture of Licensed Products by Third Parties. All contractors wherever located which the Licensee desires to use in connection with the manufacture of Licensed Products are subject to the prior written approval of CKI, which consent shall not be unreasonably withheld or delayed; provided, however, that CKI shall have 10 business days after its receipt of a written request from the Licensee to use a manufacturer or such longer period as is reasonable under the circumstances to approve or disapprove such manufacturer. In order to maintain CKI's high standard of quality control and to insure that appropriate measures are taken against counterfeiting, the Licensee shall provide CKI with the following information: (i) name and address of each proposed manufacturer; (ii) type of Licensed Products to be manufactured; (iii) quantity of Licensed Products to be manufactured; and (iv) any other relevant information. The Licensee shall obtain the signature of an authorized representative from each approved third-party manufacturer used by the Licensee on an agreement (a "Third-Party Manufacturing Agreement"), substantially in the form of Exhibit D. The Licensee shall not knowingly enter into a Third-Party Manufacturing Agreement with any third party that has materially breached a similar agreement with CKI or its Affiliates or any licensee of CKI or its Affiliates. The Licensee acknowledges that it shall remain primarily liable and completely obligated under all of the provisions of this Agreement in respect of such contracting or assembly arrangements.
6.4 Non-Conforming Products. In the event that any Licensed Products are, in the judgement (which shall include subjective aesthetic considerations and standards) of CKI, not being manufactured, distributed or sold with first quality workmanship or in strict adherence to the prototypes approved by CKI, CKI shall notify the Licensee thereof in writing, and the Licensee shall promptly initiate corrections or changes to production of such Licensed Product to conform thereto. Where non-conformity is material, substantial or may adversely affect the reputation or prestige or value of the Licensed Mark or CKI's business operations, CKI may require that no further sale or shipment of such Licensed Mark be made until such corrections are made. If Licensed Products as changed do not strictly conform after CKI's request and such strict conformity cannot be obtained after one resubmission, such Licensed Products (the "Non-Conforming Products") shall be disposed of in a way which shall not reduce the value of the Licensed Mark or detract from its reputation, which may include, without limitation, the destruction of the Non-Conforming Products, the donation of such Non-Conforming Products to eleemosynary institutions, the sale of such Non-Conforming Products in a private sale, with proceeds to be given to charity, or the removal of Labels and other identification prior to sale, or other method reasonably approved by CKI. As noted, CKI may require the Licensee to cease further shipment and sale of such Licensed Products, to recall any Licensed Products that are not consistent with approved quality
CONFIDENTIAL TREATMENT |
standards and the approved prototypes and/or to purchase at the Licensee's expense any such Licensed Products found in the marketplace. ***
6.5 Approvals. All approvals by CKI required under this Agreement must be obtained in advance of use of the item subject to approval, which approval must be in writing from CKI to the Licensee. Except as otherwise expressly provided hereunder, a submission for approval shall be deemed approved unless CKI delivers a notice of disapproval within 10 business days after its receipt of a written request for approval (together with the submission as well as all information, details and specifications reasonably necessary to review, determine and provide an approval). All matters requiring approval of CKI shall be granted or withheld in the sole and absolute good-faith discretion of CKI and may be based solely on CKI's subjective aesthetic standards. CKI shall provide an explanation for disapprovals, unless such disapproval reflects an issue of taste or subjective judgement. CKI has no obligation to approve, review or consider any item which does not strictly comply with the required submission procedures. Approval by CKI shall not be construed as a determination that the approved matter complies with all applicable regulations and laws. No disapproved item shall be manufactured, sold, used, distributed or advertised by the Licensee under the Licensed Mark. The Licensee may revise any disapproved item and resubmit it. The Licensee must strictly comply with all of CKI's decisions. CKI may amend the approval forms as appropriate. Otherwise, the parties may mutually agree to amend the approval forms as they deem appropriate. In the event that it is reasonably necessary for CKI to do on-site approvals, the Licensee shall pay any and all reasonable expenses and airfare incurred by CKI with respect to such on-site approvals. CKI to provide Licensee with advance notice as to any such trips or anticipated on-site approval situations to reasonably co-ordinate with Licensee.
6.6 Marketing, Labeling, Packaging, Promotions, Business Materials. All packaging, labeling, including within the Licensed Product ("Labels") must be approved by CKI. The use of any Label that has not been approved is expressly prohibited. CKI reserves the right to require the Licensee to purchase Labels to be used on the Licensed Products only from sources designated by CKI, provided that such sources provide the Labels to the Licensee in a reasonably competitive manner as to price and delivery schedules. All Licensed Products manufactured, distributed or sold by, or on behalf of, the Licensee shall be marked, labeled, packaged, advertised, distributed and sold in accordance with this Agreement. At the request of CKI, the Licensee shall cause to be placed on (or attached to) all Licensed Products (by way of labels, tags or inserts, and/or packaging) an appropriate notice designating CKI as the "licensor" of the Licensed Mark, and/or CKTT as the owner of the Licensed Mark. The manner of presentation of such notice shall be determined by CKI. Any and all proposed advertising, promotional, business (including stationary, business cards, invoices) or marketing or publicity material (including issuing press releases, interviews or other public relations media), any POS, POP or other promotional material and any other printed material or other form of communications to be used in connection with the marketing, promotion, sale or distribution of the Licensed Mark must be approved by CKI (as to content, form and specific use, including timing and duration of use) prior to use by Licensee, as noted in the 2nd sentence of § 6.5 above, as to 10 business days, submission and information. If CKI should disapprove any sample tag, label, package or the like, or any advertising, promotional, merchandising, marketing or publicity material, activity or event or the proposed placement or use thereof or any other printed matter, event or activity, Licensee will not use or permit the use of the same in any manner, whether or not in connection with Licensed Products or the Licensed Mark.
6.7 Inspection of Facilities. CKI and its duly authorized representatives shall have the right, during normal business hours and upon reasonable notice, to inspect all facilities utilized by the Licensee (and its contractors and suppliers to the extent the Licensee may do so) in connection with the manufacture, sale, storage or distribution of Licensed Products, and to examine the Licensed Products in the process of manufacture.
6.8 Samples and Artwork. CKI may make available to the Licensee certain samples, designs, colors, fabric samples, tags, labels, packaging, catalogues and artwork available to CKI, and the cost of providing such materials shall be borne by the Licensee at prices equal to CKI's cost (A) as may be requested by Licensee or (B), in the case of "multi-regional" items which CKI requires to be utilized
CONFIDENTIAL TREATMENT |
amongst its multiple licensees for Licensed Products, not to exceed $25,000 per annum without the Licensee's prior consent. The payment for these already "developed" materials are separate and apart from the payment of any CRK fee for the development of such samples, designs, colors, fabric samples, tags, labels, packaging, catalogues and artwork directly for Licensee for each Collection of Articles which shall also be borne by Licensee. All right, title and interest in and to samples, sketches, designs, and other materials furnished to the Licensee or submitted by CKI in connection with the Licensed Products, including any modifications or improvements thereof which may be created by CKI, shall remain the sole property of CKI as between the Licensee and CKI, and are "licensed" hereunder solely and exclusively for use in connection with the manufacture, sale, distribution and promotion of Licensed Products in the Territory.
6.9 Know-how. The Licensee shall have the right to request visits to CKI's offices or showrooms to meet with its personnel, in order to obtain additional know-how and assistance, all as and only as CKI deems appropriate. The scheduling of such visits shall be at times mutually convenient to the parties hereto. In connection with such visits, the Licensee shall bear all expenses of the Licensee's representatives.
6.10 Meetings. CKI may from time to time hold meetings of CKI's licensees. The Licensee shall, upon receipt of reasonable notice, attend such meetings at its own expense but shall not be required to attend more than two such meetings per year.
6.11 Design Direction. The designs of the Licensed Products shall at all times be consistent with CKI's design aesthetic for the Licensed Mark. CKI may submit samples to the Licensee of or for products it deems to be core to the image of the overall "CALVIN KLEIN" trademark and/or product lines, and the Licensee shall develop Licensed Products based thereon and shall use commercially reasonable efforts to market same.
6.12 Design Rights. The Licensee acknowledges and agrees that CKI owns or shall own all design rights, regardless of whether such designs were created by CKI or by or on behalf of the Licensee, except with respect to Excluded Designs. The Licensee agrees to make, procure and execute all assignments necessary to vest ownership of design rights in CKI. The Licensee shall not do or allow to be done anything which may adversely affect any of CKI's design rights. All designs used by the Licensee for the Licensed Products, except with respect to Excluded Designs, shall be used exclusively for the Licensed Products and may not be used under any other mark, whether during the License Period or any time thereafter, without the prior written consent of CKI. The Licensee shall disclose and freely make available to CKI any and all developments or improvements it may make relating to the Licensed Products and to their manufacture, promotion and sales, including, without limitation, developments and improvements in any machine, process or product design, that may be disclosed or suggested by CKI or regarding any patent or trademark which the Licensee is entitled to utilize. "Excluded Design" means a design (i) submitted by the Licensee and not approved by CKI; (ii) not distinguishable from similar generic products generally available in the marketplace; or (iii) not distinguishable from a product which has previously appeared in the Licensee's product line and the Licensee advised CKI of such condition at the time of submission. In the event of clause (i) or (iii) above, the Licensee shall retain title to such designs but shall permit CKI to use such designs during the Term of this License Agreement. CKI may use and permit others to use said designs and other materials in any manner it desires, provided that such use does not conflict with any rights granted the Licensee hereunder or belonging to Licensee. The Licensee specifically acknowledges that such designs and other materials may be used by CKI and its Affiliates and other licensees of CKI and its Affiliates on Licensed Products in jurisdictions outside the Territory and on products other than Licensed Products anywhere in the world, subject to the limitations described herein. Notwithstanding the foregoing, CKI shall not acquire any ownership interests in any patents, trademarks or copyright rights owned or commissioned by Licensee and utilized for multiple or other than Licensed Products, but utilized as well in connection with the Licensed Products.
6.13 Shops, Stores, Retail Outlets. Subject to § 6.14, the Licensed Products sold by the Licensee may be *** Nothing herein shall be deemed to ***
CONFIDENTIAL TREATMENT |
6.14 Disposal of Seconds and Close-Outs. Seconds and Close-Outs sold by the Licensee may be sold only to Approved Accounts and Approved Seconds and Close-Outs Accounts, including those customers identified on Schedule 6.14. Whenever the Licensee shall wish to sell Seconds and Close-Outs to customers not previously approved by CKI, the Licensee shall submit to CKI a written list of the proposed customers for Seconds and Close-Outs for CKI's prior written approval. The proposed customers approved from such list, together with the customers listed on Schedule 6.14, are referred to as the "Approved Seconds and Close-Outs Accounts." Notwithstanding CKI's approval of any customer, CKI may at any time subject sales to any such customer, including, without limitation, any such customer listed on Schedule 6.14, to any conditions or limitations CKI considers appropriate; provided, however, that in order to be effective, any such conditions or limitations must be set forth in a writing provided to the Licensee. Nothing herein shall be deemed to prohibit CKI from withdrawing its approval of any Approved Seconds and Close-Outs Account for "good" bona fide reasons, including, without limitation, any such Approved Seconds and Close-Outs Account listed on Schedule 6.14, upon written notice to the Licensee (at which time, such customer shall cease to be an Approved Seconds and Close-Outs Account for purposes of this Agreement); provided, however, that the Licensee may fulfill any firm orders entered into prior to the Licensee's receipt of CKI's withdrawal of approval.
6.14.1 Seconds. The Licensee shall only sell Licensed Products which are damaged, imperfect, non-first quality or defective goods ("Seconds") in a way which shall not *** Notwithstanding anything to the contrary, ***
6.14.2 Close-Outs. ***
6.15 Standards of Conduct .
6.15.1 Standards. The Licensee acknowledges that CKI is a wholly owned subsidiary of Phillips-Van Heusen Corporation ("PVH"). The Licensee acknowledges that it has received copies of, read and understands PVH's publication "A Shared Commitment – Requirements for Suppliers, Contractors, Business Partners" and PVH's "Statement of Corporate Responsibility." The Licensee shall conduct its business in compliance with the moral, ethical and legal standards set forth in such publications, as the same may from time to time be revised by PVH upon reasonable notice to the Licensee (the "Standards") and shall cause all manufacturers, contractors and suppliers which manufacture Licensed Products or from whom the Licensee obtains Licensed Products or materials for the manufacture of Licensed Products to abide by the Standards.
6.15.2 Audit Requirement. For each facility utilized by Licensee for the manufacturing of the Licensed Products (whether directly produced or produced by or through a contractor, subcontractor or supplier) the Licensee will arrange to have the facility audited for compliance with the Standards unless PVH notifies the Licensee in writing that it already has a current audit with respect to such facility that evidences compliance with the Standards. Audits on each facility used must thereafter be conducted no less often than annually. Each audit shall be conducted by a suitable auditor (whether internal or external) designated by the Licensee, subject to Licensor's and PVH's approval. Disapproval by Licensor and PVH may only be for grounded reasons. Each audit shall be conducted using the evaluation form attached hereto as Exhibit E or a substantively similar form approved by PVH. The Licensee shall identify to PVH in writing each facility in which Licensed Product (or part thereof) are produced or which is to be re-audited and PVH shall notify the Licensee within 30 days of PVH's receipt of such notice if PVH has currently approved the facility for production and when re-audit is required. If a facility is currently approved for production, the Licensee shall have no obligation to arrange for a current audit of the facility. If a facility is denied approval by PVH as of such date, Licensee will not place any new orders in such facility and will only use the facility to fulfill currently existing, non-cancelable orders. Licensee will stop producing in such facility starting from the immediately subsequent season. All audits shall be conducted at the Licensee's sole expense. All support to be given by PVH will be at PVH's expense.
Notwithstanding anything to the contrary contained in this §6.15.2, ***
6.15.3 Approval. A comprehensive audit report prepared by the auditor shall be provided to PVH, attention the director of PVH's Human Rights Program Department, promptly upon its
CONFIDENTIAL TREATMENT |
completion. PVH shall have 30 days from its receipt of an audit report to notify the Licensee: a) of its approval of the audited facility either (i) fully without remarks; or (ii) with request to re-audit within a certain period ("Red Flag"); or b) of its disapproval of the facility that is the subject thereof in which case Licensee may fulfill any firm orders entered into prior to the Licensee's receipt of PVH's disapproval and cease to utilize such disapproved facility from the subsequent season. If PVH does not give notice to the Licensee within such 30-day period, the facility shall be deemed approved by PVH. PVH shall set forth in its notice of disapproval its reason(s) for disapproval in reasonable detail.
6.15.4 Use of Facility. Unless and until the Licensee delivers to PVH an audit report for a facility that evidences compliance with the Standards and PVH approves such facility, the facility shall not be used for the production of Licensed Products. If the Licensee uses a facility that has not been approved in accordance herewith, fails timely to cause an approved auditor to submit to PVH an audit report evidencing continued compliance with the Standards when a re-audit of a facility is required in accordance with the terms hereof or if the Licensee or any of its manufacturers, contractors or suppliers with respect to Licensed Products shall, in PVH's sole determination, fail to abide by the Standards, CKI's sole remedy with respect to such breach of this § 6.15.4, to the extent that CKI is not otherwise damaged as a result of such breach, shall be to terminate the License and all of the other rights granted to the Licensee under this Agreement, as provided in § 8.3 below. Nothing in this § 6.15.4 shall be deemed to confer third-party beneficiary rights upon any person, corporation, partnership or other entity.
6.16 Personnel. Licensee shall perform its obligations hereunder through a separate sub- division of the Licensee exclusively dedicated, and the employees of which shall be dedicated to the performance of the Licensee's obligations hereunder; provided, however, that financial, logistics and other back-office support need not be exclusive, except with respect to operations of other licenses with CKI. Licensee shall employ, on an exclusively devoted basis (to operations hereunder and to operations under the CKI Jeans License and CKI Jeans and "bridge" Accessories Licenses), a "President" who is subject to the initial reasonable approval of CKI, as is any successor thereto, as well as other personnel as may be needed to successfully exploit the business. Managing Directors may be substantially devoted to the operations hereunder as well as to other Fingen S.p.A. and affiliated entities, business and operations. Such personnel would include sales, merchandising, technical, product development and other production, visual display, quality control and retail development personnel. CKI may, on an ongoing basis, advise Licensee of any problems or difficulties, if any, it may be experiencing, and Licensee will use all reasonable efforts to address any such concerns to CKI's reasonable satisfaction.
ARTICLE VII. THE LICENSED MARK
7.1 Rights to the Licensed Mark.
7.1.1 Ownership of Licensed Mark. The Licensee acknowledges that the Calvin Klein Trademark Trust ("CKTT") is the owner, and CKI is the beneficial owner, of all right, title and interest in and to the Licensed Mark, and to any variant, modification or embodiment thereof, for Products in the Territory; and that CKTT and CKI also own the goodwill related to such marks and to the business and goods in relation to which such marks have been or will be used. The Licensee will not at any time directly or indirectly do or suffer to be done any act or thing that might in any way adversely affect any rights of CKTT or CKI in and to any of such marks, any registrations thereof or any applications for registration thereof, or which might reduce the value thereof or detract from their reputation, image or prestige of that of CKTT, CKI or Mr. Calvin Klein. Sales by the Licensee shall be deemed to have been made by CKTT for purposes of trademark registration and all uses of the Licensed Mark by the Licensee and any and all goodwill generated by use of the Licensed Mark shall inure to the benefit of CKI and CKTT.
7.1.2 No Adverse Actions. The Licensee shall not, at any time, do, or otherwise suffer to be done, any act or thing which may at any time, in any way, adversely affect any rights of CKI or CKTT in and to the Licensed Mark or any registrations thereof or which, directly or indirectly, may reduce the value of the Licensed Mark or detract from its reputation. The Licensee shall not file or prosecute a trademark or service mark application or applications to register the Licensed Mark or any trademark,
CONFIDENTIAL TREATMENT |
name or other mark confusingly similar thereto in respect of the Licensed Products or any other goods or services in the Territory or elsewhere. The Licensee shall not, during the term of the License Period or thereafter, (i) contest CKTT's or CKI's title, right, ownership or other interest in or to the Licensed Mark in any jurisdiction or attack the validity of the License or the Licensed Mark or (ii) contest the fact that the Licensee's rights under this Agreement (a) are solely those of a manufacturer, licensee and, if appropriate, distributor; and (b) subject to the provisions of § 8.5, cease upon termination of the License Period.
7.1.3 Registrations. The Licensee acknowledges and agrees that CKTT, as the sole and exclusive owner of the Licensed Mark, has the exclusive right to apply for registrations and to extend appropriate registrations of the Licensed Mark for all categories of goods, including, without limitation, the Products. CKI, on behalf of CKTT, shall maintain at its expense and as determined by CKI consistent with its past practice the registrations for the currently existing Licensed Mark in the Territory with respect to Products. The Licensee agrees to cooperate with CKTT and/or CKI in the preparation, filing and prosecution of applications for registration, or extensions of existing registrations, or other documentation relative to the Licensed Mark. CKI represents that CKTT has applications and registrations for the " CALVIN KLEIN" mark for products in International Class 18 (leather accessories) in a number of jurisdictions in the Territory, as per schedule to be attached.
7.1.4 Survival. The provisions of this § 7.1 shall survive the termination of the License Period and this Agreement.
7.2 Protecting the Licensed Mark. The Licensee shall cooperate fully and in good faith with CKI and CKTT for the purpose of securing, preserving and protecting CKTT's and CKI's rights in and to the Licensed Mark and any secondary trademark that the Licensee may develop and use with the approval of CKI. Any such secondary mark will be owned by CKTT. At the request of CKI, the Licensee shall execute and deliver to CKI any and all documents and do all other acts and things which CKI and/or CKTT deems necessary or appropriate to make fully effective or to implement the provisions of this Agreement relating to the ownership or registration of the Licensed Mark, including, without limitation, information regarding use and supporting documentation therefore, as well as labels, hang tags, packaging, and other appropriate specimens evidencing use of the Licensed Mark in each country in the Territory.
7.3 Use of the Licensed Mark.
7.3.1 Compliance with Legal Requirements. The Licensee will use the Licensed Mark in the Territory strictly in compliance with the legal requirements therein. The Licensee shall duly display all other notices with respect to the Licensed Mark, on the Licensed Products and otherwise, as are or may be required by the trademark laws and regulations applicable within the Territory. Upon expiration or termination of the License for any reason whatsoever, the Licensee will execute and deliver to CKI any and all documents required by CKI.
7.3.2 Use with Other Name. The Licensee shall not (a) co-join any name or names with the Licensed Mark, (b) use the name "Calvin Klein" or "CK" or "CK/Calvin Klein" or any portion or derivative thereof in its corporate name except as previously approved or subsequently approved by CKI in writing, or (c) use any other name, or names in connection with the Licensed Mark, in any advertising, promotion, publicity, labeling, packaging or other printed matter of any kind in connection with the distribution or sale of Licensed Products except as may be approved in writing by CKI. Any use of the Licensee's corporate name or that of its Affiliates in connection with the Licensed Mark will be subject to the approval of CKI. If CKI approves any use of the Licensed Mark in connection with the Licensee's corporate name, the Licensee will clearly indicate that the Licensee is using the Licensed Mark pursuant to a license from CKI as may be required by CKI. The Licensee will use such trade name to designate the operations under this Agreement as is approved by CKI, and will file a fictitious name certificate ("d/b/a") or use of "trade name" certificate or notice, as is generally used or required in the various jurisdictions in the Territory to reflect such use, as is reasonably approved by CKI).
CONFIDENTIAL TREATMENT |
7.3.3 Execution of Documents. At CKI's request, the Licensee will execute any and all documents (including registered user agreements) and take any actions required by CKI to confirm CKTT's ownership or CKI's beneficial ownership of the marks referred to in §7.1.1 and the respective rights of CKTT, CKI and the Licensee pursuant to this Agreement.
7.4 Ownership of Copyright. Except as specifically provided herein, any copyright which may be created in any sketch, design, print, Label or the like designed or approved or used with the Licensed Mark by the Licensee will be the property of CKI. The Licensee shall not, at any time, do, or otherwise suffer to be done, any act or thing which may adversely affect any rights that CKI may have in such sketches, designs, prints, Labels and the like and will, at CKI's request, do all things reasonably required by CKI to preserve and protect said rights.
7.5 Infringements, Counterfeits and Parallel Imports.
7.5.1 Infringements. In the event that Licensee learns of any infringement or imitation of the Licensed Mark with respect to Products (other than insignificant, immaterial or de minimus situations) which it believes could be considered a counterfeit of the Licensed Products, or of any use by any person of a trademark similar to the Licensed Mark with respect to Products which it believes could be considered a deliberate use of something substantially similar to the Licensed Mark and is either substantive, significant or would adversely affect the prestige, reputation or value of the Licensed Mark), it will promptly notify CKI thereof. The Licensee will take no action, including, but not by way of limitation, settling any action, appealing any adverse decision or discontinuing any action taken by it, except to the extent the same is approved in advance by CKI. All costs and expenses incurred in any action or proceeding (including investigatory expenses and attorneys' fees, if applicable, court costs and filing fees) will be borne as determined in § 7.5.2. Any damages recovered or sums obtained in settlement in or with respect to any action shall (i) first be applied proportionately to reimburse CKI and the Licensee for the respective expenses incurred and actually paid by it and (ii) the balance, if any, shall belong and shall be paid over to, on a fifty-fifty basis, to CKI and the Licensee. In no event will any infringement by a third party justify the withholding of any payment of Fee or other amount by the Licensee.
7.5.2 Counterfeits and Parallel Imports.
7.5.2.1 The Network. CKI currently maintains certain staff which maintains an enforcement network of attorneys, investigators and customs inspectors in the Territory (the "Network") to minimize and deter (i) the diversion into and sale within and from the Territory of products (including those which would correspond to Licensed Products) authorized for sale by its Affiliates and other licensees, which may include, without limitation, unauthorized distribution of such products by the manufacturers and subcontractors thereof ("Parallel Imports") and (ii) the importation into, or sale or manufacture within as well as from, the Territory of counterfeit Licensed Products or infringing Products; in each case subject to contributions from and reimbursement by various licensees (as well as other authorized users of the Licensed Mark and other marks of CKI and CKTT), and subject to applicable law. CKI generally requires, and will continue to require, its licensees in their respective agreements to restrict exports from their respective "territories" (as per the final sentence of § 1.1.2) in order to prevent importation of applicable merchandise into another licensee's "territory." The Licensee acknowledges and agrees that CKI is under no obligation to maintain any such Network or other arrangement, and may curtail, modify, terminate or discontinue such Network in whole or in part at any time. For the time being, unless or until CKI otherwise determines and so advises the Licensee in CKI's reasonable discretion, the Licensee will cooperate in such efforts as reasonably requested by CKI, and under procedures as CKI may agree upon with Licensee, and will timely remit and/or, as applicable, promptly reimburse out-of-pocket expenses reasonably incurred by CKI in such efforts (including, without limitation, reasonable attorneys' fees and expenses) as follows: *** Upon the Licensee's request, CKI will meet with the Licensee to discuss CKI's enforcement activities and the costs associated therewith.
7.5.2.2 Diversion. The Licensee shall use all commercially reasonable efforts to minimize and deter the diversion of Licensed Products for sale outside of the Territory, including, without
CONFIDENTIAL TREATMENT |
limitation, the unauthorized distribution of Licensed Products by the Licensee's manufacturers and subcontractors ("Diversion"). The Licensee shall cooperate with CKI in CKI's efforts to minimize and deter Diversion ("Anti-Diversion Efforts"). Without limiting the foregoing the Licensee shall promptly (i) provide such information as CKI may from time to time reasonably request concerning its manufacturing, subcontracting and distribution locations, activities and shipments, product and label identification systems and data and sales to and by its customers; and (ii) as provided in § 7.5.4, reimburse all agreed upon out-of-pocket expenses reasonably incurred by CKI in its Anti-Diversion Efforts (including, without limitation, reasonable attorneys' fees and expenses).
7.5.3 Criminal Proceedings. CKI may, but need not elect to, initiate criminal or civil actions against persons or entities outside the Territory seeking to manufacture counterfeit Licensed Products or sell or ship counterfeit Licensed Products into the Territory (excluding, for this purpose, manufacturers or subcontractors described in the definitions of Diversion or Parallel Imports). The cost related to any such actions shall be borne entirely by the Licensee, if the Licensee requests that such action be taken, or by CKI, if CKI determines to take such action.
7.5.4 Enforcement Activities. CKI will consult with the Licensee in connection with the enforcement activities undertaken pursuant to this § 7.5. In connection with this § 7.5.4 through § 7.5.6, and § 7.5.2, Licensee and CKI from time to time will use reasonable efforts to apply a substantive portion of the budgeted amounts and expenditures towards more substantive, significant and/or material actions (and acts of infringement, counterfeiting, etc.) in order to enhance the effectiveness of application of resources. In addition, upon the request of the Licensee, the parties will consult one time each Annual Period to forecast CKI's continuing and reimbursable expenses hereunder and enter into suitable arrangements as may be agreed upon with Licensee, including retainer arrangements, so that CKI may receive the Licensee's payments in respect thereof at or shortly before such expenses are incurred.
7.5.5 Nature of Proceedings. Whenever it is not readily apparent whether actions or proceedings involve counterfeit Licensed Products, Parallel Imports or Diversion, CKI will, where practical and subject to time constraints, contact CKJE for information or input, and then reasonably determine the nature of such items in good faith (with all due caution as to ramifications of erroneous determinations as to whether "counterfeit" or not), taking into account all relevant information provided by the Licensee.
7.5.6 Cooperation. The Licensee shall cooperate with CKI in all actions taken by CKI pursuant to this § 7.5, whether on its own or at the Licensee's request, and in all criminal proceedings, as may be required or reasonably requested.
7.6 Trademark Security.
7.6.1 Counterfeit Protection. The Licensee shall use all commercially reasonable efforts to prevent counterfeiting of the Licensed Products. All Licensed Products shall bear and use any reasonable counterfeit preventive system, devices or labels, provided that Licensee may decide in its own good faith discretion, which system, devise or labels to use.
7.7 Use of Licensed Mark on Invoices, etc. The use of the Licensed Mark by the Licensee on invoices, order forms, stationery and related materials, in advertising in telephone or other directory listings is permitted only upon CKI's prior written approval of format in which the Licensed Mark is to be so used, the juxtaposition of the Licensed Mark with other words and phrases, and the specific trade name (and form and format thereof), the content of the copy and filing of a fictitious name certificate ("d/b/a") or "trade name" certificate or notice, if using the Licensed Mark or portion (e.g., "CK") in such name (or other regional notice of "trade" name or use of the Licensed Mark) as applicable, as approved by CKI.
7.8 Monitoring. The Licensee shall use reasonable efforts to monitor the use of the Licensed Mark by the Licensee's customers and to require its customers to advertise, display and promote the Licensed Mark in a manner consistent with the terms and conditions of this Agreement.
CONFIDENTIAL TREATMENT |
ARTICLE VIII. TERM AND TERMINATION
8.1 Expiration. The License and, subject to § 8.5, the other rights granted to the Licensee hereunder shall terminate at the end of the License Period and all rights shall immediately revert to CKI.
8.2 Other Rights Unaffected. It is understood and agreed that termination of the License or other rights granted to the Licensee hereunder by CKI on any ground shall be without prejudice to any other rights or remedies which CKI may have.
8.3 Right of Termination of the License. If any of the following grounds for termination shall occur, CKI may elect, by written notice to the Licensee, to terminate
(A) upon 20 business days notice unless cured within such 20 business days in the case of any of subsections "(b)" through "(e)";
(B) in the case of subsections "(f)," "(g)," "(h)" (alone or with other breaches or defaults), upon 30 business days notice (without any cure period); and
(C) upon 25 business days notice, unless cured within such 25 business days, in the case of subsections "(l)" or "(m)" (provided not with other breaches or defaults under other noted subsections),
the License and other rights granted to the Licensee hereunder:
(a) Deliberately Omitted;
(b) The Licensee shall repeatedly sell or distribute individual items of Licensed Products (in other words, "a pattern" of behavior), or shall sell at any time a significant quantity of Licensed Products in breach of CKI's review and approval rights under § 6.2;
(c) Failure by the Licensee to perform or observe any term or covenant or agreement contained in § 11.4 or in § 4.10;
(d) The Licensee shall sell or distribute Licensed Products to retailers not approved by CKI or disapproved by CKI in accordance with or otherwise in breach of §§ 6.13 or 6.14 (unless such sale or distribution was inadvertent, and was of an insignificant quantity of products or single or isolated account, and the Licensee promptly represents to CKI in writing that steps to avoid such sales or distribution in the future are being taken (which steps are to be delineated in such writing), and are deemed acceptable to CKI's reasonable satisfaction, and further provided that the Licensee does not repeat any such sales or distribution in breach of §§ 6.13 or 6.14 within the same Annual Period);
(e) Underpayment by the Licensee of Fees (including non-timely (i.e., on or within 15 business days of the due date) payment of any installment of Minimum Guaranteed Fees or MAE hereunder) of 7.5% or more with respect to any Annual Period, or of 5% or more with respect to any two (2) consecutive Annual Periods, unless such underpayment of fees (not MGF's or MAE's) was result of clerical or bank errors, or constitutes a "bona fide" dispute between the parties, which is the subject of continuing good faith efforts to "resolve," not known to a responsible officer or other financial person, and promptly corrected as soon as "known" or so advised by CKI);
(f) The Licensee institutes for its protection, or is made a defendant, in any proceeding under bankruptcy, insolvency, reorganization or receivership law, or the Licensee is placed in receivership or makes an assignment for benefit of creditors or is, or states that it is, unable to meet its debts in the regular course of business, and such involuntary proceedings or receiverships are not dismissed or vacated within 60 days of filing or appointment;
(g) Cessation by the Licensee of its business;
(h) The Licensee assigns, attempts to assign (entering into a binding term sheet or contingent contract or agreement, not just "discussion"), sublicense (without CKI's consent), or otherwise transfers or attempts to transfer any of its rights or obligations hereunder. Any such attempted or completed assignment, sublicense or transfer ("Transfer"), whether voluntary or by operation of law, directly or
CONFIDENTIAL TREATMENT |
indirectly, will be void and of no force or effect. For purposes of this Agreement, any transfer of all or a controlling portion or a majority of the shares of the Licensee or other "CK" affiliates by CK Jeanswear N.V., Fingen S.p.A., its affiliates, shall be deemed a transfer in violation of the terms hereof and prohibited as a "Transfer" hereunder. Prompt notice of any transfer by CK Jeanswear N.V., Fingen S.p.A. or its affiliates (other than Calvin Klein, Inc. or its successors, assignees or transferees) of more than five percent (5%) (whether over a period of time or all at once) ("Notice"), shall be delivered to Licensor. Notwithstanding anything herein contained, a change-of-control Transfer shall be permitted if in accordance with all of the applicable provisions of the CKI/CF Group Irrevocable Consent d. 29 September 2005. In the event of any such CKI-permitted change-of-control Transfer, the provisions hereof shall apply to any "successor in interest" permitted Transferee (except that Notice shall apply to any transfer of more than 35% of the Transferee) . Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns.
(i) A change, effect or circumstance occurs that is materially adverse to the business, condition, operations, performance or properties of Licensee's ability to perform timely its otherwise material obligations under this Agreement, which would, with the normal passage of time, without cash infusion or other material improvement, result in liquidation, substantial discontinuance or even cessation of business ("Material Adverse Effect");
(j) A final unappealable judgement is entered against the Licensee in excess of € 2,500,000 which has not been satisfied and which would have a Material Adverse Effect;
(k) Any indebtedness of the Licensee in excess of Euros €5 million is accelerated or otherwise comes due and payable before its stated maturity and is not subject to cure under the applicable instrument, which would have a Material Adverse Effect;
(l) The failure by the Licensee to perform or observe any material term or covenant or agreement contained in this Agreement, other than those specified in §§ 8.3(a) to (k), and other than those cured to CKI's reasonable satisfaction, within the applicable cure period (25 business days) for the second time in any Annual Period; or
(m) The repeated violation by the Licensee of any material term or covenant or agreement contained in this Agreement, other than those specified in §§ 8.3(a) to (k) and other than those cured to CKI's reasonable satisfaction within the applicable cure period (25 business days).
8.4 Termination With Notice and Right to Cure. In the event of the failure by the Licensee to perform or observe any material term or covenant or agreement contained in this Agreement, other than those specified in § 8.3, CKI may terminate the License and the other rights granted to the Licensee under this Agreement by giving notice of termination to the Licensee (a "Notice of Termination"), which termination shall become effective automatically unless the Licensee completely cures the breach within 30 days of the giving of the Notice of Termination unless such cure cannot be completed within 30 days, in which case termination will not become effective so long as the Licensee is in good faith diligently and expeditiously attempting to cure such breach, only for up to, but not beyond, 90 days.
8.5 Effect of Termination. Upon the expiration or termination of the License and the License Period for any reason whatsoever, all of the rights of the Licensee under this Agreement shall forthwith terminate and immediately revert to CKI; all Fees on sales theretofore made shall become immediately due and payable; the Licensee shall forthwith discontinue all use of the Licensed Mark, except that the Licensee may, on a non-exclusive basis, during the period (i) commencing on the date of the expiration of the License Period pursuant to § 2.1 or termination of the License because of the breach of § 3.2 and ending 4 months thereafter or (ii) commencing on the date of the termination of the License pursuant to clause (b), (c), (d) or (e) of § 8.3 and ending 4 months thereafter (unless at the advance request of Licensee, which request includes an up-to-date inventory schedule, with anticipated disposition dates, CKI in writing agrees to extend such Disposal Period for up to an additional 30, 60 or 90-day period only, in no event to exceed 6 months in aggregate) (the "Disposal Period"), consummate all sales of Licensed Products which were firm on the date of such expiration or termination and sell the balance of the
CONFIDENTIAL TREATMENT |
Inventory not purchased by CKI within 45 days following date of expiration or termination, and sold within the applicable Disposal Period as provided in § 8.6; provided, however, that any advertising used during the Disposal Period shall be subject to CKI's prior written approval and such disposition of the Licensed Products shall continue to be subject to the Licensee's obligations hereunder, including, but not limited to, payments to be made to CKI, and Fees with respect thereto shall be due on the last day of the Disposal Period. Without limiting the generality of the first clause of this § 8.5, the Licensee acknowledges that activities, including sales during the Disposal Period, are on a non-exclusive basis. Subsequent to the Disposal Period or, if none, subsequent to such termination, the Licensee shall no longer use the Licensed Mark, any variation, imitation or simulation thereof, or any trademark similar thereto; and the Licensee shall thereupon deliver to CKI, free of charge, all sketches, designs, colors and the like in its possession or control, designed or approved by CKI, and all Labels supplied by CKI in the Licensee's possession or control. CKI shall have the option, exercisable upon notice to the Licensee within 30 days of such expiration or termination, to negotiate the purchase of Labels which have not been supplied by CKI. If such negotiations do not result in the purchase of such Labels or any part of W-I-P, the Licensee shall destroy the unused Labels and W-I-P (except for greige goods or other unidentifiable generic materials otherwise useable by Licensee) at the end of the Disposal Period or, if none, upon such termination, under the supervision of CKI, and the Licensee shall supply to CKI a certificate of destruction thereof signed by a duly authorized officer of the Licensee.
8.6 Inventory Upon Termination. Upon the expiration or termination of the License and the License Period for any reason whatsoever, the Licensee shall deliver to CKI within 15 business days a complete and accurate schedule of Inventory of Licensed Products (i.e., inventory constituting finished Licensed Products on hand at termination, work-in-process, a/k/a "W-I-P," to be completed and received in warehouse within 3 months only) as of the close of business on the date of) such expiration or termination (the "Inventory Schedule"). CKI thereupon shall have the option, exercisable by written notice to the Licensee within 15 days after its receipt of the Inventory Schedule, to purchase (or to have its designee purchase) any or all of the Inventory (other than Inventory required to consummate sales of Licensed Products which were firm on the date of such expiration or termination) for an amount *** In the event such notice is sent by CKI, CKI (or its designee) may collect the Inventory referred to therein within 90 days after CKI's notice. CKI (or its designee) will pay for the Inventory upon collection. In the event such notice is not sent, the Licensee may dispose of the Licensed Products during any Disposal Period pursuant to § 8.5; provided, however, that such disposition shall continue to be subject to the Licensee's obligations hereunder, including, without limitation, with respect to the payment of fees and the approval of customers and advertising. At the end of the Disposal Period, or if none, upon such termination, any Licensed Products remaining in the Licensee's possession or control, including, without limitation, in any stores of the Licensee, shall, at the request of CKI, be destroyed. To the extent the Licensee completely removes the Licensed Mark from the Licensed Products, and all Labels attached to such Licensed Products, and such Licensed Products are not recognizable as a Licensed Product and cannot be distinguished from similar generic products generally available in the marketplace, such Products shall no longer be Licensed Products. CKI shall have the right at any time, and at its expense, to conduct a physical inventory of the Licensed Products then in the Licensee's possession or control.
8.7 Freedom to License. CKI shall be free to license to others the use of the Licensed Mark in connection with the manufacture, sale, distribution and promotion of Licensed Products in the Territory upon termination or expiration of this Agreement and to enter into discussions and negotiations applicable thereto, provided only that no shipment of Licensed Products and no publication of institutional or consumer advertising of the Licensed Products pursuant to any such new license will be permitted prior to the termination or expiration of this Agreement.
8.8 Rights Personal. The License and rights granted hereunder are personal to the Licensee. No assignee for the benefit of creditors, receiver, trustee in bankruptcy, sheriff or any other officer or court charged with taking over custody of the Licensee's assets or business, shall have any right to continue performance of this Agreement or to exploit or in any way use the Licensed Mark if this Agreement is terminated pursuant to §§ 8.3, 8.4 or 11.8, except as may be required by law.
CONFIDENTIAL TREATMENT |
8.9 Trustee in Bankruptcy. Notwithstanding the provisions of § 8.8, in the event that, pursuant to the applicable bankruptcy law (the "Code"), a trustee in bankruptcy, receiver or other comparable person, of the Licensee, or the Licensee, as debtor, is permitted to assume this Agreement and does so and, thereafter, desires to assign this Agreement to a third party, which assignment satisfies the requirements of the Code, the trustee or the Licensee, as the case may be, shall notify CKI of same in writing. Said notice shall set forth the name and address of the proposed assignee, the proposed consideration for the assignment and all other relevant details thereof. The giving of such notice shall be deemed to constitute an offer to CKI to have this Agreement assigned to it or its designee for such consideration, or its equivalent in money, and upon such terms as are specified in the notice. The aforesaid offer may be accepted by CKI only by written notice given to the trustee or the Licensee, as the case may be, within 15 days after CKI's receipt of the notice to such party. If CKI fails to deliver such notice within said 15 days, such party may complete the assignment referred to in its notice, but only if such assignment is to the entity named in said notice and for the consideration and upon the terms specified therein. Nothing contained herein shall be deemed to preclude or impair any rights which CKI may have as a creditor in any bankruptcy proceeding.
8.10 Compensation. Without limiting any right or remedy of CKI, if CKI terminates this Agreement pursuant to § 8.3, CKI shall have the right to ***
ARTICLE IX. INDEMNIFICATION AND INSURANCE
9.1 Indemnification by the Licensee. The Licensee does hereby indemnify and hold harmless CKI, its Affiliates, including, without limitation, PVH, CKTT, and its and their current and former respective directors, officers, employees, agents, trustees, and representatives, as well as Mr. Calvin Klein, his heirs, his estate and their respective legal representatives (each, an "Indemnified Party') from and against any and all losses, liabilities, damages and expenses (including reasonable attorneys' fees and expenses (including allocable costs of in-house counsel)), which an Indemnified Party may incur or be obligated to pay in any third party action, claim or proceeding, for or by reason of any acts, whether of omission or commission, that may be committed by the Licensee (which for purposes of this § 9.1, includes its Affiliates, but not Guarantor) or any of their servants, agents or employees in connection with the Licensee's performance of this Agreement, including but not limited to:
(a) to the extent permitted by law, any alleged defect in any Licensed Product, regardless of whether the action is based upon negligence or strict liability, and regardless of whether the alleged negligence is characterized as "passive" or "active";
(b) the manufacture, labeling, sale or distribution of any Licensed Product by the Licensee;
(c) any violation of any warranty, representation or agreement made by the Licensee pertaining to a Licensed Product; or
(d) the claim of any broker, finder or agent used by the Licensee in connection with the making of this Agreement or any transactions contemplated by this Agreement.
CKI shall give the Licensee prompt written notice of any such claim or action and thereupon the Licensee shall undertake and conduct the defense of any suit so brought. In the event an appropriate action is not taken by the Licensee within 30 days of its receipt of notice from CKI, CKI shall have the right to defend such claim or action in its own name, but no settlement or compromise of any such claim or action may be made without the prior written consent of the Licensee, such consent not to be unreasonably withheld or delayed. In either case, CKI and the Licensee shall keep each other fully advised of all developments and shall cooperate fully with each other and in all respects in connection with any such defense. Such indemnification shall be deemed to apply solely to the amount of the judgement, if any, against CKI and reasonable sums paid by CKI in connection with its defense, and shall not apply to any consequential damages suffered by CKI which are not included in the aforementioned judgement. The provisions of this § 9.1 and the Licensee's obligations hereunder shall survive any termination of the License or rescission of this Agreement.
CONFIDENTIAL TREATMENT |
9.2 Notice of Suit or Claim. The Licensee shall promptly inform CKI by written notice of any suit or claim against the Licensee relating to the Licensee's performance under this Agreement, whether such suit or claim is for personal injury, involves alleged defects in the Licensed Products manufactured, sold or distributed hereunder, or otherwise.
9.3 Indemnification by CKI. CKI does hereby indemnify and hold harmless the Licensee and its Affiliates, and their respective managers, directors, members, shareholders, employees and agents from and against any and all losses, liability, damages and expenses (including reasonable attorneys' fees, costs and expenses, but excluding consequential damages, incidental damages and lost profits) which any of them may incur or for which it may become liable or compelled to pay in any action or claim alleging: (i) CKI's breach of any representation or warranty of CKI hereunder in § 11.1; or (ii) that the Licensee's use of the Licensed Mark in accordance with the terms of this Agreement violates the bona fide trademark ownership rights of a third party in the United States or Canada. The Licensee will promptly notify CKI of any action or claim brought to its attention; provided, however, that the failure to promptly notify CKI shall not relieve CKI of its obligation hereunder, except to the extent (if any) that CKI actually prejudiced thereby. The provisions of this § 9.3 and the obligations of CKI set forth herein shall survive the expiration or other termination of this Agreement.
9.4 Insurance.
9.4.1 Requirement. Without limiting the Licensee's liability pursuant to the indemnity provisions of this Agreement, the Licensee shall maintain comprehensive general liability insurance in the amount of at least *** with a broad form property damage liability endorsement. This insurance shall include broad form blanket contractual liability, personal injury liability, products and completed operations liability. Each coverage shall be written on an "occurrence" form.
9.4.2 General Provision. The insurance described in § 9.4.1 shall include: (i) a cross-liability endorsement naming each of CKI, CKTT, and Mr. Calvin Klein; (ii) an endorsement stating that CKI shall receive at least 30 days' written notice prior to cancellation or non-renewal of coverage; (iii) an endorsement naming each of CKI, CKTT, and Mr. Calvin Klein as additional insureds; (iv) an endorsement stating that the insurance required by this Agreement is primary and that any insurance purchased by CKI, CKTT, or Mr. Calvin Klein shall only apply in excess of the insurance purchased by the Licensee; (v) a waiver of subrogation in favor of each of CKI, CKTT, and Mr. Calvin Klein; and (vi) an endorsement stating that each of CKI, CKTT, and Mr. Calvin Klein may recover for any loss caused CKI, its agents or employees, whether caused by the negligence (including active, passive and gross negligence) of the Licensee, or otherwise.
9.4.3 Approved Carrier/Policy Changes. All insurance shall be obtained from primary, and financially capable and reputable, insurance companies. The Licensee shall give at least 30 days' prior written notice to CKI of the cancellation or any modification of such insurance policy that would affect any of CKI's, CKTT's, or Mr. Calvin Klein's status or benefits thereunder. This insurance may be obtained for CKI, CKTT, or Mr. Calvin Klein by the Licensee in conjunction with a policy which covers products other than the Licensed Products.
9.4.4 Evidence of Coverage. No later than 20 days from the date hereof, the Licensee shall furnish to CKI evidence, in form and substance satisfactory to CKI, of the maintenance and renewal of the required insurance copies of policies with applicable riders and endorsements) and certificates of insurance.
9.4.5 Territory. The insurance set forth in this § 9.4 must cover the entire Territory to the extent available in each jurisdiction in the Territory.
ARTICLE X. COMPLIANCE WITH LAWS
10.1 Compliance with Laws. The Licensee shall comply with all laws, rules, regulations and requirements of any governmental body which may be applicable to the operations of the Licensee
CONFIDENTIAL TREATMENT |
contemplated hereby, including, without limitation, as they relate to the manufacture, distribution, sale or promotion of Licensed Products, notwithstanding the fact that CKI may have approved such item or conduct.
10.2 Equitable Relief. CKI shall be entitled to equitable relief by way of temporary and permanent injunction and such other and further relief at law or in equity as any court with jurisdiction may deem just and proper. The Licensee waives the requirement of the posting of a bond in connection with any application by CKI for equitable relief.
ARTICLE XI. MISCELLANEOUS
11.1 Warranties and Representations of the Parties. Each of the parties hereby represents and warrants to the other party that: it is a corporation (or limited liability company, as applicable) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; it has the full right, power and authority to enter into, and perform its obligations under, this Agreement; and all necessary corporate acts have been effected by it to render this Agreement valid and binding upon it.
11.2 Definitions. Each of the following terms (unless deliberately omitted) has the meaning ascribed thereto in the applicable § therein contained:
![]() |
![]() |
![]() |
Defined Term | ||
Advertising Obligation | ||
Advertising Overage | ||
Advertising Shortfall | ||
Affiliates | ||
Agreed Upon Season's Themes | ||
Annual Period | ||
Anti-Diversion Efforts | ||
Annual Period | ||
Approved Accounts | ||
Approved Design Concepts | ||
Approved Prototypes | ||
Approved Seconds and Closeouts | ||
Accounts | ||
CKI | ||
CKI Stores | ||
CKTT | ||
Close-Outs | ||
Code | ||
Collection | ||
Co-operative Advertising | ||
CRK | ||
CRK Fee | ||
Design Concepts | ||
Disclosing Party | ||
Disposal Period | ||
Diversion | ||
E-Commerce | ||
Excluded Design | ||
Gross Sales | ||
Minimum Guaranteed Fees | ||
Indemnified Party | ||
Initial License Period | ||
Inventory | ||
Inventory Schedule | ||
Labels | ||
License | ||
Licensed Mark | ||
License Period | ||
Licensed Products | ||
Licensee | ||
Licensing Forecast | ||
Minimum Net Sales Threshold | ||
Net Sales | ||
Network | ||
Non-Conforming Products | ||
Notice of Termination | ||
Parallel Imports | ||
Percentage Fees | ||
PR Overage | ||
PR Shortfall | ||
Products | ||
PVH | ||
Renewal License Period | ||
Seconds | ||
Standards | ||
Territory | ||
Time And Action Calendar | ||
Third-Party Manufacturing | ||
Agreement | ||
Trademark Security Plan | ||
Transfer | ||
![]() |
CONFIDENTIAL TREATMENT |
11.3 Notices. All reports and notices required or permitted to be given under this Agreement shall be in writing and shall, unless specifically provided otherwise in this Agreement, be deemed to have been given if personally delivered or faxed (on the date of messengering or faxing), or if mailed, three business days from the date of mailing (by certified or registered mail, return receipt requested and postage prepaid), or if by overnight air courier, one business day from the date of overnight air courier handling as follows:
![]() |
![]() |
![]() |
||||
If to CKI, to: | ![]() |
Calvin Klein, Inc. 205 West 39th Street New York, New York 10018 Attention: President and Chief Operating Officer Telephone: (212) 292-9901 Facsimile: (212) 292-9933 |
||||
With a copy to: | ![]() |
Calvin Klein,
Inc. 205 West 39th Street New York, New York 10018 Attention: General Counsel Telephone: (212) 292-9652 Facsimile: (212) 764-6784 |
||||
If to the Licensee, to: | ![]() |
CK Jeanswear Europe S.p.A. Via Provinciale Lucchese 181 50019 Sesto Fiorentino, Florence, Italy Attn.: Chief Executive Officer Telephone: +39 055 305 442 Facsimile: +39 055 310 506 |
||||
If to Warnaco, to: | ![]() |
WF Overseas Fashion
C.V. c/o Warnaco Inc. 501 Seventh Avenue New York, New York 10018 Attn: General Counsel Telephone: (212) 287-8282 Facsimile: (212) 287-8275 |
||||
![]() |
Requests for approvals with appropriate submissions shall be sent to the applicable party, either CRK, the President or the designated design staff member. Financial reports shall be sent to the designated party in the Finance Department. A party may change its address for receipt of notices at any time upon notice to the other party.
11.4 Assignment. The License and all rights granted to the Licensee hereunder are personal in nature, and the Licensee shall not Transfer the License, this Agreement or its rights and interest hereunder, or any part hereof, without the prior written consent of CKI, which consent may be withheld by CKI in its sole and absolute discretion.
11.5 Sublicense. The Licensee is prohibited from granting any sublicenses under this Agreement, unless approved by CKI.
Licensee shall have the right to grant a distributorship or distributorships (excluding a sublicense) for limited areas or jurisdictions in the Territory), but no such distributorship shall reduce in any way Licensee's obligations hereunder nor may such distributorship or any sublicense agreement be entered into unless the following terms and conditions are first satisfied:
(i) the term of any distributorship or sublicense agreement shall be no more than five (5) years or five (5) years plus five (5) years contingent on at least compliance (with automatic termination upon termination of this Agreement);
CONFIDENTIAL TREATMENT |
(ii) The distributor or sublicensee must agree to comply in its activities as a distributor or sublicensee with all of the provisions of this Agreement applicable to such distribution;
(iii) The distributor or sublicensee must agree not to assign, transfer, or further grant the distributorship agreement or sublicense agreement itself or any of the rights granted to it thereunder without CKI's prior written consent; and
(iv) The distributor or sublicensee must acknowledge that each of CKI, CKTT and Mr. Calvin Klein are third-party beneficiaries, must afford CKI rights of inspection, approval and termination consistent with its rights pursuant to this Agreement, which it may exercise directly, including rights of termination, and must indemnify CKI, CKTT and Mr. Calvin Klein from liabilities and claims specifically in accordance with the provisions hereof;
(v) Licensee must deliver a copy of each distributorship and proposed sublicense agreement and must subsequently deliver a copy of each material amendment thereof to CKI, prior to the execution thereof in the case of any proposed sublicense for review and approval, and shall deliver a conformed copy to CKI promptly after its execution and the execution of each amendment thereto;
(vi) if Licensee enters into an agreement and fails to control, pursuant to this Agreement or the terms of the distributorship agreement or sublicense agreement, the distributor or sublicensee thereunder, and as a result of such failure fails to prevent a breach by such distributor or sublicense agreement of any provision of this Agreement or the distributorship agreement or sublicense agreement, CKI may, in addition to all of its other rights and remedies under this Agreement, require Licensee to ameliorate the effect of such breach; and
(vii) if applicable, ***
11.6 Assignment by CKI. CKI shall have a complete and unrestricted right to Transfer any or all of its rights and interests in this Agreement, provided that such transferee is bound by all of the terms hereof, and subject to the Licensee's right to continue to exercise all of its rights hereunder.
11.7 No Agency. The Licensee shall not represent itself as the agent or legal representative of CKI or its Affiliates for any purpose whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever. CKI shall similarly not represent itself as the agent or legal representative of the Licensee or its Affiliates for any purpose whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever.
11.8 Suspension of Obligations. If the Licensee shall be prevented from performing any of its obligations because of Federal governmental regulation or martial order, or by war, declared or undeclared, or other major and material calamities such as fire, earthquake, or similar Acts of God, the Licensee's obligations shall be suspended during the period of such conditions except for payment and provided the Licensee promptly commences and proceeds diligently to ameliorate the effect. If such condition continues for a period of more than 60 days, CKI shall have the right to terminate this Agreement.
11.9 Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and, subject to §§ 11.4 and 11.6, their successors and assigns. PVH, CKTT and Mr. Calvin Klein (with respect to §§ 9.1 and 9.4) shall be third-party beneficiaries of this Agreement and, whether or not expressly set forth herein, shall have the right (a) to exercise, and enforce against the Licensee, the rights of CKI hereunder if CKI fails to exercise such rights, and (b) to exercise, and enforce against the Licensee, the same rights as CKI hereunder in addition to (and not in lieu of) any rights CKI has hereunder. Nothing herein shall be deemed to give the Licensee any rights to make any claim against PVH, CKTT and/or Mr. Calvin Klein.
11.10 Entire Agreement; Amendment. This Agreement, including the exhibits hereto, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and all prior agreements, contracts, promises, representations and statements between them, if any, whether written or
CONFIDENTIAL TREATMENT |
oral, with respect thereto are merged into and superseded by this Agreement, except as specifically set forth herein. This Agreement may not be amended or modified, except in a writing signed by both parties hereto and exchanged between them.
11.11 Non-Waiver. No waiver by either party of any breach hereof or default hereunder will constitute a continuing wavier of such provision or of any other provision of this Agreement. Acceptance of payment by CKI will not be deemed a waiver by CKI of any violation of or default under any of the provisions of this Agreement by the Licensee or an election of remedies as to which any and all rights (and all remedies) are expressly reserved and retained.
11.12 Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not be affected or impaired in any other jurisdiction, nor shall the remaining provisions contained herein in any way be affected or impaired thereby, unless CKI determines such provision was material, in which case CKI may terminate this Agreement.
11.13 Headings. The headings of the Articles and sections of this Agreement are for convenience only and in no way limit, define or affect the terms or conditions of this Agreement.
11.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
11.15 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW. (HOWEVER, DISPUTES REGARDING THE LICENSED MARK WILL BE RESOLVED IN ACCORDANCE WITH THE U.S. FEDERAL TRADEMARK LAWS AND RELATED LAWS, STATUES, RULES AND REGULATIONS OF THE UNITED STATES UNLESS THERE ARE NO U.S. FEDERAL LAWS, STATUTES, RULES OR REGULATIONS DISPOSITIVE OF SUCH DISPUTE, IN WHICH EVENT SUCH DISPUTES WILL BE RESOLVED IN ACCORDANCE WITH THE PREVIOUSLY DESCRIBED LAWS OF THE STATE OF NEW YORK.)
11.16 Jurisdiction. Any legal action or proceeding with respect to this Agreement shall be brought in the federal or state courts seated in the County of New York, State of New York and, by execution and delivery of this Agreement, each party hereby accepts for itself and in respect to its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts. The Licensee hereby irrevocably and unconditionally waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing or maintaining of any such action or proceeding in such respective jurisdictions, and specifically acknowledges and agrees that any judicial opinion and/or decision rendered, judgement award in order issued by the courts of the State of New York and/or the federal courts located therein, will be enforceable in any jurisdiction. Any such opinion, decision, judgement and/or order may be deposited in the applicable jurisdictional venue and court in Italy or elsewhere in the Territory with full force and effect as if rendered within such venue and by such judicial authority with the same full force and effect. Each party irrevocably and unconditionally consents to the service of process of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the other party at its address for notices provided in § 11.3, such service to become effective 30 days after such mailing.
11.17 Non-Solicitation.
(a) The Licensee agrees that ***
(b) CKI agrees that ***
11.18 Confidentiality. Each of the parties hereto acknowledges that it may receive from the other (the "Disclosing Party"): (a) prints, designs, ideas, sketches, and other materials or information, including,
CONFIDENTIAL TREATMENT |
without limitation; (b) financial or business information; (c) a formula, pattern, compilation, program, device, method, technique, or process; or (d) other information that in each case derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use which the Disclosing Party intends to use on or in connection with lines of merchandise other than the Licensed Products and which have not as yet found their way into the channels of distribution. The parties recognize that these materials are valuable property of the Disclosing Party. Each of the parties hereto acknowledges the need to preserve the confidentiality and secrecy of these materials and agrees to take all necessary steps to ensure that use by it, or by its contractors, will in all respects preserve such confidentiality and secrecy, while acknowledging that each of the parties works with others on product development and designs. None of the parties shall, at any time during the License Period or any time thereafter, disclose or use for any purpose, other than as contemplated by this Agreement, any confidential information and data relating to the business of the other, except as required or otherwise considered necessary in or to its business, but under its normal and customary confidentiality procedures applicable overall as to such use. Nothing herein shall be deemed to limit CKI's rights under §§ 6.8 and 6.12. The provisions of this § 11.18 shall not apply to information that (i) is now or hereafter becomes generally available to the public, other than as a result of a breach hereof, or (ii) is obtained from a third party that, to the knowledge of the party receiving the information, is not under any obligation to keep such information confidential. Notwithstanding anything in this § 11.18 to the contrary, if any party becomes legally compelled (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any of the confidential information, such party shall provide the others with prompt written notice of such requirement so that the party whose information it is may seek a protective order or other appropriate remedy. If such protective order or other remedy is not obtained, the party under compulsion to disclose the information agrees to disclose only that portion of the confidential information, which it is advised by counsel, is legally required to be disclosed, and it agrees to take all reasonable steps to preserve the confidentiality of the confidential information (including by obtaining, at the cost of the owner of the information, an appropriate protective order or other reliable assurance that confidential treatment will be accorded the confidential information). In addition, the party under compulsion to disclose the information shall not oppose any effort (and shall, if and to the extent requested by the owner of the information, cooperate with, assist and join with the owner of the information, at the expense of the owner of the information) in any action by the owner of the information to obtain a protective order or other reliable assurance that confidential treatment will be accorded the confidential information.
11.19 Cross-Termination. ***
11.20 Assignment Within Warnaco Family. Following the closing of the Transaction, pursuant to which Warnaco will, in accordance with its terms, acquire the business of Licensee, this Agreement may be assigned within the Warnaco family of companies in accordance with the terms as agreed by CKI and set forth in writing simultaneously herewith.
CONFIDENTIAL TREATMENT |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
![]() |
CALVIN KLEIN, INC. |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
By: /s/ Tom Murry | |||||
![]() |
Name: Tom Murry | |||||
![]() |
Title: President and COO | |||||
![]() |
CK JEANSWEAR EUROPE, S.P.A. | |||||
![]() |
By: /s/ Lawrence R. Rutkowski | |||||
![]() |
Name: Lawrence R. Rutkowski | |||||
![]() |
Title: Vice President and Treasurer | |||||
![]() |
CK JEANSWEAR ASIA LIMITED | |||||
![]() |
By: /s/ Lawrence R. Rutkowski | |||||
![]() |
Name: Lawrence R. Rutkowski | |||||
![]() |
Title: Vice President and Treasurer | |||||
![]() |
WF OVERSEAS FASHION C.V. | |||||
![]() |
By: Warnaco U.S., Inc., its general partner | |||||
![]() |
By: /s/ Stanley P. Silverstein | |||||
![]() |
Name: Stanley P. Silverstein | |||||
![]() |
Title: President and Secretary | |||||
![]() |
CONFIDENTIAL TREATMENT |
SCHEDULE 6.13
APPROVED ACCOUNTS
CONFIDENTIAL TREATMENT |
SCHEDULE 6.14
APPROVED SECONDS AND CLOSE-OUTS ACCOUNTS
CONFIDENTIAL TREATMENT |
SCHEDULE S
SHAREHOLDERS
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Name/Address/Position | ![]() |
#/% Shareholdings | ||||
![]() |
CONFIDENTIAL TREATMENT |
EXHIBIT T
TERRITORY
European Union at 1 May 2004, which included Austria, Belgium, Luxembourg, Netherlands, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, Portugal, Spain, Sweden, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Slovenia, Hungary, Poland, Malta, Cyprus.
Also Norway, Switzerland, Monte Carlo, Vatican City, Liechtenstein, Iceland and
Eastern Europe and Russia, consisting of: Croatia, Bosnia-Herzegovina, Serbia, Macedonia, Bulgaria, Romania, Moldavia, Ukraine, Byelorussia, ex-C.I.S. (Russia), Georgia, Armenia, Azerbaijan, Kazakhstan and Uzbekistan.
Middle East:
Lebanon, Israel, Palestine, Jordan, Iran, Saudi Arabia, Yemen, Qatar, Kuwait, Bahrain, Oman, UAE, Egypt and Turkey.*
Africa**:
South Africa, Tunisia, Algeria, Morocco, Ivory Coast, Senegal, Nigeria.
Asia:
Hong Kong, Republic of Korea, Republic of China (Taiwan), China (PRC), Indonesia, Philippines, Singapore, Malaysia, Thailand, New Guinea, Vietnam, Australia, New Zealand, Cambodia, Laos, Myanmar, Macau, the Federated State of Micronesia and Mariana Islands (but excluding U.S. Saipan) Japan (not India, Pakistan, other jurisdictions).
![]() |
![]() |
* | Not Syria, as regulations preclude protection of trademark, until registration of trademark may occur, as advised by CKI. |
![]() |
![]() |
** | N.B. – for trademark, only OAPI application/registration. |
CONFIDENTIAL TREATMENT |
EXHIBIT P (page 1 of 2)
PRODUCTS
*** [approximately 2 pages redacted]
CONFIDENTIAL TREATMENT |
EXHIBIT B
ROYALTY STATEMENT
FORM MUST BE SUBMITTED COMPLETED
CALVIN KLEIN, INC.
Page _____of______
Date _____________
NAME OF LICENSEE:
LICENSEE'S ADDRESS:
LICENSED PRODUCT:
![]() |
![]() |
205 | For each month during the period of ___________to _______________(the "Period"). |
For the month of __________________.
Category | Style No. | Units | Gross Sales | Discounts | Net Sales | Percentage Fees |
For the month of __________________.
Category | Style No. | Units | Gross Sales | Discounts | Net Sales | Percentage Fees |
For the month of __________________.
Category | Style No. | Units | Gross Sales | Discounts | Net Sales | Percentage Fees |
TOTAL
205 NET SALES BY ACCOUNT
205 INVENTORY AS OF THE END OF THE PERIOD:
Style Number Units Wholesale Price
CONFIDENTIAL TREATMENT |
The undersigned, _______________the ______________ of the Licensee, does hereby certify that the foregoing information provided to CKI pursuant to the License Agreement is complete and accurate.
IN WITNESS WHEREOF, the undersigned has executed this Royalty Statement on this ____ day of ___________, ____.
![]() |
LICENSEE : |
![]() |
By:
________________________________________ Name: |
![]() |
Title: Chief Financial Officer or other duly authorized executive officer as applicable |
The completion of this statement does not limit the Licensee's right to receive credit for payments of Minimum Guaranteed Fees and Percentage Fees as set forth said License Agreement.
CONFIDENTIAL TREATMENT |
EXHIBIT D
THIRD-PARTY
MANUFACTURING
AGREEMENT
AGREEMENT, dated _________ __, _________, by and between ____________________ (the "Licensee"), having an address at ___________________, and ________________(the "Manufacturer"), having an address at ____________________.
WITNESSETH:
WHEREAS, the Licensee pursuant to a License Agreement with CALVIN KLEIN, INC. ("CKI") has been granted a license ("License") to use the CALVIN KLEIN trademark (the "Licensed Mark") in connection with the distribution, sale and marketing of certain goods ("Licensed Products");
WHEREAS, CKI, a subsidiary of Phillips-Van Heusen Corporation ("PVH"), is the licensee and beneficial owner of the trademarks CALVIN KLEIN, CK and CK/CALVIN KLEIN for certain products, which are owned of record by the Calvin Klein Trademark Trust ("CKTT"), and PVH is the owner, licensee or sublicensee of the trademarks VAN HEUSEN, IZOD, IZOD CLUB, BASS, G.H. BASS, GEOFFREY BEENE, ARROW, KENNETH COLE NEW YORK, REACTION BY KENNETH COLE, BCBG MAX AZRIA and DKNY, and PVH's policy is not to place, and to cause its subsidiaries and their respective licensees and sublicensees not to place, orders with any manufacturer or subcontractor that breaches the provisions contained in this Agreement and similar provisions contained in other third-party manufacturing agreements of PVH or any of its affiliates, including, without limitation, CKI;
WHEREAS, the License entitles the Licensee to subcontract the manufacture and/or assembly of the Licensed Products to third parties, subject to certain express limitations and conditions; and
WHEREAS, the Licensee has selected the Manufacturer as a manufacturer to produce the Licensed Products for the Licensee subject and pursuant to the terms and conditions set forth below;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Manufacturer shall have no rights in or to the Licensed Mark or in any mark similar thereto by reason of its manufacture of the Licensed Products and shall only use the Licensed Mark in strict accordance with the Licensee's instructions.
2. The Manufacturer recognizes the validity of the Licensed Mark and will take no action, either during the term of this Agreement or at any time thereafter, in derogation of CKI's and/or CKTT's entire right and interest in and to the Licensed Mark or any value thereof or prestige related thereto. The Manufacturer will not, either during the term of this Agreement or at any time thereafter, oppose, petition to cancel or otherwise interfere with any registration CKI or CKTT has now or may obtain in the future for the Licensed Mark.
3. The Manufacturer will manufacture and sell the Licensed Products and/or assemble the Licensed Products and will deliver them only to the Licensee or to the Licensee's authorized representative or agents. Any and all Licensed Products produced by the Manufacturer which do not meet the Licensee's quality standards or result from overruns or cancellations of the Licensee's orders (collectively, "Rejected Products") will be strictly accounted for and physically maintained, at the Manufacturer's sole expense, in the Manufacturer's warehouse or such other place as may be under the Manufacturer's exclusive access and control. Rejected Products not bearing the Licensed Mark or any identifying logo may be sold to any third party; provided; however, that all labels, hang tags, and other identifying marks must be removed from such Rejected Products before sale to such a third party. Rejected Products bearing the Licensed Mark or any identifying logo may be sold to any third party; provided, however, that (A) such Rejected Products must be held for a minimum period of three months after the original ship date of the Licensee's
CONFIDENTIAL TREATMENT |
purchase order, and (B) all labels must be cut and the Product clearly and significantly stamped "irregular" before sale to such a third party. **
4. The Manufacturer will follow the specifications and standards from time to time stipulated by the Licensee and will permit the Licensee, CKI and PVH to inspect the manufacturing processes and provide samples of the Licensed Products in order for the Licensee, CKI or PVH, as the case may be, to satisfy itself that the specifications and standards are being met.
5. The Manufacturer acknowledges that the Licensee may provide it with certain prints, designs, ideas, sketches and other materials or trade secrets which may or will be used in connection with the Licensed Products and/or lines of merchandise other than the Licensed Products which have not been announced to the public or entered the stream of commerce. The Manufacturer recognizes that such materials are exclusive and valuable property of CKI or PVH and acknowledges the need to preserve the confidentiality and secrecy of such materials. The Manufacturer agrees to take all reasonable precautions to protect the secrecy of the materials, samples and designs prior to their commercial distribution or the showing of samples of same for sale. The Manufacturer will also take all reasonable precautions to protect the secrecy of the original designs created either by CKI, PVH or the Licensee for Licensed Products prior to their advertisement, commercial distribution or the showing of samples for sale. During the term of this Agreement, the Manufacturer will not disclose or use for any purpose not contemplated by this Agreement any confidential information or data that is proprietary to CKI, PVH or the Licensee.
6. The Manufacturer shall institute procedures to control the storage, requisition from storage and use all labels, packages and other materials bearing the Licensed Mark to safeguard against the escape or unauthorized use of the Licensed Mark or Licensed Products.
7. The Manufacturer will adhere to the standards and guidelines set forth in PVH's publication "A Shared Commitment - Requirements for Suppliers, Contractors, Business Partners" and PVH's "Statement of Corporate Responsibility," copies of which the Manufacturer acknowledges it has received. The Manufacturer further acknowledges that it has read and understands such publications. The Manufacturer will communicate immediately to the Licensee any departure from such standards and guidelines. The Manufacturer acknowledges that compliance with such standards and guidelines is a prerequisite to a continuing relationship with the Licensee.
In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not be affected or impaired in any other jurisdiction, nor shall the remaining provisions contained herein in any way be affected or impaired thereby.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPALS OF CONFLICTS OF LAW.
![]() |
![]() |
![]() |
** | Bracketed language should be deleted where agreement is with subcontractor. |
CONFIDENTIAL TREATMENT |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
LICENSEE: | |||||
![]() |
By: | |||||
![]() |
Name: | |||||
![]() |
Title: | |||||
![]() |
MANUFACTURER: | |||||
![]() |
By: | |||||
![]() |
Name: | |||||
![]() |
Title: | |||||
![]() |
CONFIDENTIAL TREATMENT |
EXHIBIT E
PRODUCTION FACILITY EVALUATION FORM
FORM MUST BE SUBMITTED COMPLETED
CALVIN KLEIN, INC.
Page _____of______
Date _____________
NAME OF LICENSEE:
LICENSEE'S ADDRESS:
LICENSED PRODUCT:
PRODUCTION FACILITY:
Name: _________________________________________________________________________________
Name of President of Production Facility __________________________________________________
Address: _______________________________________________________________________________
_______________________________________________________________________________________
Product:________________________________________________________________________________
Date Factory Evaluation Completed:______________________________________________________
Signed: ______________________________________
(Note: Must be signed by an authorized officer of the division producing Licensed Products)
______________________________________
(Print Name)
Submit to the attention of:
![]() |
CALVIN KLEIN, INC. 205 West 39th Street New York, NY 10018 Attention: Deirdre Miles-Graeter |
CONFIDENTIAL TREATMENT |
4 October 2005
SCHEDULE OF CALVIN KLEIN TRADEMARKS CL. 18
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
||||||||||||
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Afghanistan | ![]() |
4 Jun 96 | ![]() |
Reg. No. 5269 | ![]() |
3,9,14,18,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Albania | ![]() |
2 Jul 97 | ![]() |
Reg. No. 6555 | ![]() |
3,18,24,25,42 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Algeria | ![]() |
3 Feb 92 | ![]() |
Reg. No. 62374 | ![]() |
3,9,14,16,18,24,25,42 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Andorra | ![]() |
13 Dec 96 | ![]() |
Reg. No. 957 | ![]() |
3,9,14,18,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Angola | ![]() |
1 Apr 96 | ![]() |
Reg. No. 004665 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Armenia (4) | ![]() |
11 Jun 97 | ![]() |
Reg. No. 1855 | ![]() |
3,9,14,16,18,24,25,42 | ||||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | |||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Australia | ![]() |
28 Feb 97 | ![]() |
Reg. No. 728,703 | ![]() |
3,8,16,18,20,21,24,25,26,27,35,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Austria | ![]() |
30 May 97 | ![]() |
Reg. No. 95,305 | ![]() |
16,18,35,42 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Azerbaijan | ![]() |
3 Apr 98 | ![]() |
Reg. No. 980,565 | ![]() |
3,9,14,16,18,24,25,42 | ||||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | |||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Bahrain | ![]() |
29 Jun 89 | ![]() |
Reg. No. 12657 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Bangladesh | ![]() |
21 May 96 | ![]() |
Ser. No. 46,969 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Belorussian | ![]() |
4-Oct-93 | ![]() |
Reg. No. 1259 | ![]() |
3,9,14,16,18,24,25,42 | ||||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | |||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Benelux | ![]() |
12 May 97 | ![]() |
Reg. No. 615,779 | ![]() |
16,18,20,21,24,26,27,35,42 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Bosnia- | ![]() |
![]() |
![]() |
|||||||||||||||
Herzegovina | ![]() |
5 Apr 96 | ![]() |
Reg. No. BAZ 96519 | ![]() |
3,9,14,18,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Brunei | ![]() |
20 Jun 98 | ![]() |
Reg. No. 24,840 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Bulgaria | ![]() |
21 Feb 96 | ![]() |
Reg. No. 27674 | ![]() |
3,18,24,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Cambodia | ![]() |
4 Apr 96 | ![]() |
Reg. No. 7089 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
China | ![]() |
21 Apr 93 | ![]() |
Reg. No. 638,716 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Croatia | ![]() |
8 Oct 97 | ![]() |
Reg. No. Z- 960554 | ![]() |
14,18 | ||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
||||||||||||
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
CTM | ![]() |
1 Apr 96 | ![]() |
Reg. No. 79707 | ![]() |
3,4,8,9,14,16,18,20,21, | ||||||||||||
![]() |
![]() |
![]() |
24,25,26,27,35,42 | |||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Cyprus | ![]() |
20 Sep 95 | ![]() |
Reg. No. 43454 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Czech Republic | ![]() |
20 Jan 91 | ![]() |
Reg. No. 168,158 | ![]() |
3,18,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Denmark | ![]() |
30 Dec 77 | ![]() |
Reg. No. 04451/1977 | ![]() |
3,9,14,18,24,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Egypt | ![]() |
23 Apr 97 | ![]() |
Ser . No. 106565 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Estonia | ![]() |
11 Aug 94 | ![]() |
Reg. No. 12297 | ![]() |
3,9,14,16,18,24,25,42 (re-reg of USSR) |
||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Finland | ![]() |
5 May 83 | ![]() |
Reg. No. 85327 | ![]() |
3,14,16,18,24,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
France | ![]() |
31 May 77 | ![]() |
Reg. No. 1,018,501 | ![]() |
3,9,14,18,24,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
(St. Martin, St. Barthelomy, French Guiana & other French Antilles) | ![]() |
28 Apr 87 | ![]() |
Reg. No. 1,405,842 | ![]() |
3,9,14,18,24,25 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Gaza Strip | ![]() |
![]() |
![]() |
|||||||||||||||
(Palestine) | ![]() |
14 Feb 96 | ![]() |
Reg. No. 3575 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Georgia | ![]() |
27 Jan 97 | ![]() |
Reg. No. 4411 | ![]() |
3,9,14,16,18,24,25,42 (re-reg of USSR 85858) |
||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Germany | ![]() |
9 Nov 90 | ![]() |
Reg. No. 647386 | ![]() |
3,9,14,16,18,24,25,42 | ||||||||||||
![]() |
11 Jul 78 | ![]() |
Reg. No. 973637 | ![]() |
3,9,14,18,24,25 | |||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Ghana | ![]() |
26 Apr 89 | ![]() |
Reg. No. 24,235 | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Greece | ![]() |
17 Feb 98 | ![]() |
Reg. No. 126,514 | ![]() |
9,18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Guyana | ![]() |
19 Apr 96 | ![]() |
Reg. No. 15,451A | ![]() |
18 | ![]() |
19 Apr 17 | ||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
Hong Kong | ![]() |
10 Jul 80 | ![]() |
Reg. No. 1955/84 (S) | ![]() |
18 | ||||||||||||
![]() |
![]() |
![]() |
||||||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Hungary (3) | ![]() |
24 May 89 | ![]() |
Reg. No. 128,535 | ![]() |
3,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
India | ![]() |
23 Jan 96 | ![]() |
Reg. No. 566,078 | ![]() |
18 | ![]() |
23 Jan 06 | ||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Indonesia | ![]() |
20 Oct 97 | ![]() |
Reg. No. 400,498 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Iran | ![]() |
10 Jun 92 | ![]() |
Reg. No. 69505 | ![]() |
3,9,14,16,18,24,25,35 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Ireland | ![]() |
1 Apr 97 | ![]() |
Reg. No. 207,116 | ![]() |
16,18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Israel | ![]() |
30 Aug 84 | ![]() |
Reg. No. 50337 | ![]() |
18 | ![]() |
26 Jun 15 | ||||||||||
![]() |
6 Sep 98 | ![]() |
Reg. No. 113537 | ![]() |
18 (ext. goods) | ![]() |
10 Jul 18 | |||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Italy | ![]() |
18 Mar 85 | ![]() |
Reg. No. 346,124 | ![]() |
9,14,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Japan | ![]() |
23 Aug 77 | ![]() |
Reg. No. 1,294,434 | ![]() |
17(18,24,25) | ![]() |
|||||||||||
![]() |
25 Dec 85 | ![]() |
Reg. No. 1,830,626 | ![]() |
21(14,18,25) reclassified 8/05 | ![]() |
||||||||||||
![]() |
25 Dec 85 | ![]() |
Reg. No. 1,830,627 | ![]() |
21(14,18,25)(Katakana) reclassified 8/05 |
![]() |
||||||||||||
![]() |
30 Jun 81 | ![]() |
Reg. No. 1,466,762 | ![]() |
22(18,25) | ![]() |
||||||||||||
![]() |
30 Jun 81 | ![]() |
Reg. No. 1,466,763 | ![]() |
22(18,25)(Katakana) | ![]() |
||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Jordan | ![]() |
8 May 95 | ![]() |
Reg. No. 37781 (r) | ![]() |
18 (CK/Calvin Klein) | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Kazakhstan | ![]() |
23 Jun 95 | ![]() |
Reg. No. 2037 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Kenya | ![]() |
13 Mar 96 | ![]() |
Reg. No. 44020 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Kuwait | ![]() |
1 Aug 94 | ![]() |
Reg. No. 26856 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Kyrgyzstan | ![]() |
1 Nov 88 | ![]() |
Reg. No. 182 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(Re-reg of USSR No. 85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Laos | ![]() |
3 Sep 97 | ![]() |
Reg. No. 5842 | ![]() |
8,9,14,16,18,20,21,26,27,35,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Latvia (3) | ![]() |
30 Jun 93 | ![]() |
Reg. No. LV M19392 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Lesotho | ![]() |
20 Apr 98 | ![]() |
Ser. No. LS/M/98/00149 | ![]() |
3,18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Liberia | ![]() |
23 Mar 92 | ![]() |
Reg. No. 24392/342 | ![]() |
3,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Libya | ![]() |
![]() |
will come | ![]() |
3,14,18,24,25,35,42 | ![]() |
||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
Liechtenstein | ![]() |
16 Aug 93 | ![]() |
Reg. No. 8816 | ![]() |
9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Lithuania | ![]() |
27 Sep 93 | ![]() |
Reg. No. LT- 12685 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Macau | ![]() |
6 Jan 93 | ![]() |
Reg. No. 9378-M | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Macedonia | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
![]() |
17 May 02 | ![]() |
Reg. No. 08165 | ![]() |
18 | ![]() |
||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Malawi | ![]() |
1 Apr 98 | ![]() |
Reg. No. 109/98 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Malaysia | ![]() |
12 Sep 95 | ![]() |
Reg. No. 9546/95 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Malta & Gozo | ![]() |
3 May 96 | ![]() |
Ser. No. 25654 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Mauritius | ![]() |
21 Apr 98 | ![]() |
Reg. No. A/43No53 | ![]() |
No Classes (3,9,16,18,23-26) | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Moldavia | ![]() |
18 Feb 94 | ![]() |
Reg. No. 352 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Monaco | ![]() |
20 Mar 97 | ![]() |
Reg. No. 97-18071 | ![]() |
9,16,18,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Mongolia | ![]() |
13 May 96 | ![]() |
Reg. No. 1948 | ![]() |
3,14,16,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Montserrat | ![]() |
19 Apr 97 | ![]() |
Reg. No. 1528 | ![]() |
18,24,42 UK 2130032 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Myanmar | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(F/K/A Burma) | ![]() |
27 May 96 | ![]() |
Reg. No. 4/2223/96 | ![]() |
3,9,14,18,25,25(MU),25(WU) | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Namibia | ![]() |
1 Mar 98 | ![]() |
Reg. No. 98/0366 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Nepal | ![]() |
18 Dec 96 | ![]() |
Reg. No. 12184/053 | ![]() |
18 | ![]() |
|||||||||||
Netherlands | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Antilles | ![]() |
21 Feb 96 | ![]() |
Reg. No. 00497 | ![]() |
3,4,8,9,14,16,18,20,21,24,25,26,27 | ![]() |
|||||||||||
(Curacao, Bonaire | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Saba, St. | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
St. Eustatius | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Maarten) | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
New Zealand | ![]() |
9 May 80 | ![]() |
Reg. No. B132527 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Nigeria | ![]() |
20 May 98 | ![]() |
Reg. No. 65075 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Norway | ![]() |
11 May 94 | ![]() |
Reg. No. 162,557 | ![]() |
3,16,18,24,25 | ![]() |
|||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
OAPI | ![]() |
9 May 89 | ![]() |
Reg. No. 28977 | ![]() |
3,9,14,16,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Oman | ![]() |
15 Feb 93 | ![]() |
Reg. No. 8070 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Pakistan | ![]() |
3 Aug 92 | ![]() |
Ser. No. 116549 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Philippines | ![]() |
1 Mar 01 | ![]() |
Reg. No. 4-96-110658 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Poland (3) | ![]() |
17 May 89 | ![]() |
Reg. No. 67629 | ![]() |
3,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Portugal | ![]() |
18 Oct 93 | ![]() |
Reg. No. 279,542 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Qatar | ![]() |
18 Aug 97 | ![]() |
Ser. No. 17367 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Romania | ![]() |
25 May 89 | ![]() |
Reg. No. 15922 | ![]() |
3,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Russian | ![]() |
1 Nov 88 | ![]() |
Reg. No. 85858 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
Federation | ![]() |
![]() |
![]() |
(Re-reg of USSR) | ![]() |
|||||||||||||
![]() |
![]() |
![]() |
(former USSR) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
(Republic of) | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Saudi Arabia | ![]() |
19 Apr 98 | ![]() |
Reg. No. 433/5 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Seychelles | ![]() |
20 Apr 98 | ![]() |
Reg. No. 4665 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Singapore | ![]() |
11 Sep 95 | ![]() |
Reg. No. 8648/95 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Slovak Republic | ![]() |
20 Jan 91 | ![]() |
Reg. No. 168,158 | ![]() |
3,18,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Slovenia | ![]() |
2 Apr 98 | ![]() |
Reg. No. 9870456 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
South Africa | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(Covers Venda | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Transkei & | ![]() |
26 Mar 80 | ![]() |
Reg. No. 80/1805 | ![]() |
18 | ![]() |
|||||||||||
Bophuthatswana) | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
South Korea | ![]() |
7 Feb 94 | ![]() |
Reg. No. 284,636 | ![]() |
K12(3,18,26) | ![]() |
|||||||||||
![]() |
27 Dec 94 | ![]() |
Reg. No. 304,729 | ![]() |
K27(18,25) | ![]() |
||||||||||||
![]() |
23 Feb 02 | ![]() |
Reg. No. 250,928 | ![]() |
K25(18) | ![]() |
||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
![]() |
2 Mar 93 | ![]() |
Reg. No. 258,991 | ![]() |
K23(18)(24) | ![]() |
||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Spain | ![]() |
20 Nov 97 | ![]() |
Reg. No. 2,091,389 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Sri Lanka | ![]() |
13 Sep 95 | ![]() |
Reg. No. 75694 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Sudan | ![]() |
7 Dec 95 | ![]() |
Reg. No. 24899 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Suriname | ![]() |
4 Aug 95 | ![]() |
Reg. No. 14,504 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Swaziland | ![]() |
1 Apr 98 | ![]() |
Reg. No. 156/98 | ![]() |
3,18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Sweden | ![]() |
5 May 95 | ![]() |
Reg. No. 301,064 | ![]() |
3,9,16,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Switzerland | ![]() |
11 Apr 95 | ![]() |
Reg. No. 436,944 | ![]() |
4,8,14,16,18,20,21,27,31,35,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Tajikistan | ![]() |
12 Jul 94 | ![]() |
Reg. No. TJ 300 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(rereg USSR No.85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Taiwan | ![]() |
1 Jul 91 | ![]() |
Reg. No. 527,398 | ![]() |
43(18) | ![]() |
|||||||||||
![]() |
16 Jun 91 | ![]() |
Reg. No. 526,301 | ![]() |
64(18) | ![]() |
||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Tangier | ![]() |
19 Mar 96 | ![]() |
Reg. No. 10958 | ![]() |
3,9,14,18,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Thailand | ![]() |
27 Aug 96 | ![]() |
Reg. No. Kor64653 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Tunisia | ![]() |
23 May 96 | ![]() |
Reg. No. EE 96.0641 | ![]() |
3,9,14,16,18,24,25,26, | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Turkey | ![]() |
16 Feb 96 | ![]() |
Reg. No. 167298 | ![]() |
9,16,18,24,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Turkmenistan | ![]() |
3 Sep 97 | ![]() |
Reg. No. 1049 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Uganda | ![]() |
6 May 98 | ![]() |
Reg. No. 21558 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Ukraine | ![]() |
1 Nov 88 | ![]() |
Reg. No. 4610 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
United Arab | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
Emirates | ![]() |
24 Nov 97 | ![]() |
Reg. No. 13005 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
United Kingdom | ![]() |
18 Apr 97 | ![]() |
Reg. No. 2,130,032 | ![]() |
18,24,42 | ![]() |
|||||||||||
![]() |
16 Jul 08 | ![]() |
![]() |
![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
![]() |
CONFIDENTIAL TREATMENT |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
COUNTRY | ![]() |
APPLICATION/ REG. DATE |
![]() |
APPLICATION(S.NO.)/ REGISTRATION NO. |
![]() |
CLASS | ![]() |
|||||||||||
Uzbekistan | ![]() |
13 Aug 93 | ![]() |
Reg. No. 883 | ![]() |
3,9,14,16,18,24,25,42 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
(re-reg of USSR 85858) | ![]() |
||||||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Vietnam | ![]() |
10 Dec 93 | ![]() |
Reg. No. 9981 | ![]() |
14,18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
West Bank | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(Palestine) | ![]() |
7 Mar 96 | ![]() |
Reg. No. 4113 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Yemen | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(Republic of) | ![]() |
10 Jul 97 | ![]() |
Reg. No. 7295 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
F.R. Yugoslavia | ![]() |
![]() |
![]() |
![]() |
||||||||||||||
(Serbia/Montenegro) | ![]() |
16 Apr 96 | ![]() |
Reg. No. 41470 | ![]() |
9,18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Zaire | ![]() |
1 Jun 89 | ![]() |
Reg. No. 1804/89 | ![]() |
3,18,25 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Zambia | ![]() |
31 Mar 98 | ![]() |
Reg. No. 178/98 | ![]() |
18 | ![]() |
|||||||||||
![]() |
![]() |
![]() |
![]() |
|||||||||||||||
Zimbabwe | ![]() |
1 Apr 98 | ![]() |
Reg. No. 442/98 | ![]() |
18 | ![]() |
|||||||||||
![]() |
EXHIBIT 10.71
PORTIONS OF THIS EXHIBIT 10.71
MARKED BY AN *** HAVE BEEN OMITTED
PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND FILED
SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT |
January 31, 2006
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
CK Jeanswear N.V. | ![]() |
CK Jeanswear Europe S.p.A. | ![]() |
WF Overseas Fashion C.V. | ||||||
Olympic Palaza, 1st floor | ![]() |
Via Provinciale Lucchese, 181/11 | ![]() |
Netherlands | ||||||
Fred. Roeskestraat 123, | ![]() |
50019 Sesto Fiorentino | ![]() |
|||||||
1076 EE Amsterdam | ![]() |
Italy | ![]() |
|||||||
![]() |
Re: "CK/Calvin Klein" Store License - Europe
Ladies and Gentlemen:
CK Jeanswear Europe S.p.A. ("CKJE") and Calvin Klein, Inc. ("CKI") are simultaneously entering into a store license relating to the form of the mark "CK/Calvin Klein" for use on full-price free-standing retail stores, for the sale therein of certain "CK/Calvin Klein" Women's and Men's Bridge Apparel, and certain "CK/Calvin Klein" Women's and Men's Bridge small leather goods (accessories) and handbags, pursuant to the Bridge Apparel License and the Bridge Accessories License. This confirms that CKJE, CK Jeanswear N.V. ("CKJNV") (hereinafter referred to as Operator, respectively) and CKI have agreed as follows:
1. (a) CKI hereby grants to Operator a license to use the trademark "CK/Calvin Klein" ("Mark") on and in connection with the operation of free-standing retail shops ("Stores") (plus the outlet Stores permitted by Section 1(d)) located in the "Territory," as defined on the date hereof in the Bridge Apparel License; for the sole purpose of selling therein at retail to consumers only, the "Merchandise" (as herein defined). Operator will sell no products other than Merchandise in the Stores. All use by Operator of the Mark is subject to CKI's prior approval. Operator shall provide CKI annually, not later than 90 days prior to the end of each Annual Period, for CKI's reasonable prior approval, a schedule with existing Stores together with plans for the establishment of additional Stores in the Territory, on a jurisdiction-by-jurisdiction basis. Operator is required to open and maintain Stores within the Territory, and in certain designated key locations (cities and countries) therein, based on the Roll-Out Schedule attached hereto, as noted below.
Operator is required to open, maintain and continuously operate *** of the number of full-price retail stores indicated on the Roll-Out Schedules attached (rounded up to the next whole number, determined at the close of each Annual Period hereunder). If (a) the attached Roll-Out Schedules have not been met, or (b) if *** of the required number of Stores that have been opened have been shut or have discontinued operations (shut down for more than 30 business days) (hereinafter "shut"), as reviewed at the close of the Annual Period, compared to the prior Annual Period, and such "shut" Stores have not re-opened, relocated, or replacement full-price Stores opened within the same Annual Period, or the subsequent Annual Period (so that the "net" number of full-price Stores that have been "shut" is less than *** as reviewed at the close of the said subsequent Annual Period (or, the said "same" Annual Period, if applicable)1, in case of either (a) or (b) above, CKI may terminate this Store License on 12 months prior written notice. However, CKI may permit Operator, and Operator will continue to comply with all of its obligations hereunder, to operate and maintain existing Stores, for up to two (2) years as permitted at that time by CKI in writing (but not longer than the then current term of any Store sublicense, as to any sublicensed Store), on a Store-by-Store basis.
(b) For purposes hereof, Merchandise shall consist of *** as respectively defined in the Bridge Apparel and Bridge Accessories License. Upon the prior written consent of CKI, as to the particular Licensed Products and styles thereof, on a non-exclusive season to season basis, ***
Notwithstanding anything otherwise contained herein, ***
(c) CKI reserves the right to ***
(d) Operator shall be permitted to open in the Territory, on a non-exclusive basis, up to ***, ***. Any and all such Stores shall be considered "Stores" for the purposes of this Agreement, and shall be
![]() |
![]() |
![]() |
1*** |
CONFIDENTIAL TREATMENT |
subject to the prior approval of CKI as to the*** and shall be subject to all the terms of this Agreement including but not limited to ***. Operator shall not be permitted to sublicense the rights under this Section 1(d) to any unaffiliated third party, except on a single store by store basis or a country wide basis only, only as approved in advance by CKI2.
2. (a) CKI shall have the right to approve the number and each specific location of each Store (prior to the execution of any lease or other commitment), and to approve the design, signage, layout, fixtures and decoration of each such Store and to designate the architect or Store planner utilized in connection with the build-out of each such Store (as set forth below), as well as all packaging, Store tags or labels, business materials (including business cards), advertising and promotional materials so as to ensure that the same are of the highest quality, and are consistent with the "Calvin Klein" image. Operator recognizes that CKI will grant such approvals as to location and number subject to and consistent with its other programs for related retail outlets, and only if such locations are reflected in the plan(s) approved pursuant to Section 1(a).
Operator recognizes that its public actions and statements can affect the image of CKI, the Mark, the Merchandise and other trademarks used by CKI and/or its licensees and other designees, CKI's other licensees and their respective products. Accordingly, (i) the use and release by Operator of any and all advertising, promotional or publicity material (including press releases and other public relations media events) and (ii) any other corporate release, data or information which Operator has reason to believe might become public and, if so, could affect such image, will be prepared or conducted in consultation with and subject to the prior approval of CKI's Public Relations Department. After any such approval, Operator will not modify such approved material or activities in any material respect, without CKI's prior approval. CKI shall have the right to inspect each Store to ensure compliance with this Agreement. Operator shall co-operate with CKI in any such inspection, shall promptly take steps to correct all deficiencies as noted by CKI during or following such inspection and will bear the expense of any follow up inspection.
(b) Operator will:
(i) bear all costs incurred in connection with *** referred to in Section 1 (d) above. On the Store by Store planning, the parties shall confer prior to incurring any such expenses and agree upon an estimated budget.
(ii) conduct and operate the Stores in accordance with all applicable health, safety, occupancy, tax and other governmental laws, rules and regulations;
(iii) maintain the Stores in a sanitary condition and in good repair at all times, and in accordance with the design, Store set-up (merchandising) and visual display specifications, standards and guidelines of CKI, as promulgated from time to time, and refurbish the Stores as may be reasonably necessary in order to keep the Stores in an up-to-date condition (every 5 years);
(iv) employ only competent, trained and exemplary personnel (and provide for dress codes and uniforms for the same) including a General Manager for all retail operations hereunder as well as Store managers, all subject to CKI's ongoing approval;
(v) retain public relations personnel or consultants to promote the Mark and the Stores under the supervision of and as approved by CKI and its public relations personnel;
(vi) purchase a supply of Merchandise for each seasonal collection for each Store which constitutes, in the reasonable opinion of CKI, a representative collection and which is intended to satisfy consumer demands;
(vii) prepare and deliver to CKI within ***
![]() |
![]() |
![]() |
2 Currently there are Calvin Klein Collection Store licensees for Milan and Rome (covering Bologna, Verona and Florence) as to which CKI has agreed to use good faith efforts to provide such licensee rights of "first refusal" or "first offer" as applicable as to any "Store" in its "exclusive" area, which may become available under a multi-jurisdictional "CK/Calvin Klein" store license, and if Operator wishes to sublicense any such "exclusive area", agrees to so provide the same. |
CONFIDENTIAL TREATMENT |
(viii) keep confidential all material, data and proprietary information of CKI, which shall include but not be limited to the design and decor specifications and prototypes utilized in connection with the Stores; and
(ix) maintain adequate financing in order to open and maintain the Store and to purchase inventory as required hereunder and demonstrate the same as required by CKI during the term hereof; and
(x) timely remit all amounts payable hereunder (including by example to supplier licensees, vendors, etc.), including ***, or any portion thereof) on the balance of any unpaid overdue amounts not in dispute).
(c) Operator will expend (and/or require its Store sublicensees to respectively spend as to their respective Stores) such amounts for advertising and promotion and public relations events (which shall be subject to the approval of CKI, to be provided promptly and not unreasonably withheld) as are reasonable and appropriate in connection with Operator's exploitation of the license granted hereby, *** under the Bridge Apparel and Bridge Accessories Licenses, as well as any other licensees as to***, during each Annual Period.
(d) Upon reasonable prior written notice, CKI and its representatives may, no more than once each year unless good cause is shown, examine the books and records (and any and all underlying data) of Operator during the term of the Agreement, and for a period of three years following termination hereof. Such books, records and data will be maintained for at least three years following the year to which they relate.
3. (a) Operator acknowledges that: (i) Calvin Klein Trademark Trust ("CKTT") CKTT is the owner, and CKI is a beneficial owner, of all right, title and interest in and to the Mark and the goodwill attached or will become attached thereto (including goodwill arising from advertising expenditures applicable to the grant hereunder ); (ii) all use thereof by Operator will inure to the benefit of CKTT; and (iii) CKTT and/or CKI retains all rights to use and to grant others the right to use the Mark except as specifically granted to Operator herein. Operator will not do or permit to be done anything which will detract from the value or reputation of the Mark and do all things which may reasonably be required by CKI in order to confirm CKI's beneficial ownership and CKTT's ownership of the Mark.
(b) In the event Operator learns of any infringement or imitation of the Mark or use by any person of a trademark confusingly similar to the Mark, it will immediately notify CKI. Operator will cooperate with CKI in any action taken by CKI to protect its rights and those of CKTT in and to the Mark. Operator will take no such action itself without prior written approval of CKI.
4. Operator will indemnify and save CKTT, CKI and Calvin Klein harmless from any and all claims that may arise or be asserted against either of them from Operator's use of the Mark, Operator's sale of the Merchandise or Operator's establishment, ownership or operation of the Store, and all costs and expenses, including reasonable counsel fees, incurred in connection with defense of the same. Operator will procure and maintain insurance as reasonably required by CKI and available in the Territory in order to insure the property and contents of the Store, and its operations, and from liability claims as referred to herein.
5. (a) The term of this Agreement shall commence as of 1 January 2006, and shall continue in effect throughout the full term of the Bridge Apparel License (i.e., up to and including 31 December 2046) unless sooner terminated in accordance herewith as to the "Territory" referred to in Section 1(a)(i).
Notwithstanding the foregoing, CKI may terminate this Agreement if ***
In the event of the termination or reversion of any jurisdiction or Region under the Bridge Apparel License, the same termination or reversion of such jurisdiction or Region shall occur automatically and simultaneously under this Store License, and shall immediately and automatically result in the termination of the applicable Stores, and Store sublicenses under § 1 (a) above.
(b) Except as set forth otherwise in this section, in the event of any breach or default by either party which continues uncured for a period of 30 days after written notice thereof from the
CONFIDENTIAL TREATMENT |
non-defaulting party, the non-defaulting party may terminate this Agreement by written notice effective immediately. If Operator files a bankruptcy petition, is adjudicated a bankrupt or becomes involved in a bankruptcy or insolvency proceeding, this Agreement will terminate automatically and forthwith. If Operator opens or permits any sublicensee to open any Store in an unapproved location, or a Store in excess of the number of Stores approved by CKI, such failure shall be deemed a material breach under the terms of this Agreement, and CKI may immediately terminate this Agreement effective upon written notice to Operator. If Operator fails to pay or any sublicensee fails to pay any amount due CKI on the due date, interest shall accrue thereon at a rate equal to 3 percentage points over the prime rate charged by Chase from the due date until paid in full and (ii) if such default continues uncured for a period of 30 days following the due date, CKI may terminate this Agreement forthwith by written notice.
(c) Upon termination of this Agreement, Operator will immediately discontinue use of the Mark in connection with the Stores, will alter the interior and exterior of the Stores so as to distinguish them from their former appearance and will dispose of any inventory of Merchandise, on a non-exclusive basis, only in the ordinary course of business, or otherwise as specifically directed by CKI, for a period not to exceed 90 days following the date of such termination. No such disposal may occur unless Operator provides CKI with a detailed schedule of its inventory, certified by its chief financial officer in form and content satisfactory to CKI, within 30 days following termination of this Agreement. Notwithstanding the foregoing, CKI has the option, exercisable by written notice sent either prior to or not later than 30 days following the date of termination, to have any Store, and Operator's entire interest therein, assigned to it, (A) if such termination is due to breach by Operator at the lower of (i) the net depreciated cost to Operator and (ii) the then current market value of such Store, including the lease thereof and the improvements therein, or (B) if for other reasons (or upon expiration), at the then current market value of such Store, including the lease and the improvements therein.
6. Each party to this Agreement is an independent contractor and nothing herein contained and no action arising from or relating to this Agreement shall be construed to constitute the parties as joint venturers or either as agent of the other.
7. No waiver, express or implied, of any provision of this Agreement, or of any breach or default hereof, shall constitute a continuing waiver hereof except as expressly provided in a writing signed by the waiving party.
8. (a) Neither this Agreement or any rights granted hereunder may be assigned or otherwise transferred by Operator, except as agreed to by CKI. Any sublicense agreement shall be in the form attached hereto or as approved by CKI with only such modifications as CKI may approve in advance; and the selection (identity) of any sublicensee shall also be subject to CKI's prior approval. Only single-Store (or country wide) sublicenses may be granted, unless otherwise approved in advance by CKI.
(b) Except as provided above, and specifically as provided under the CKI/CF Group Consent dated as of 29 September 2005, this Agreement shall inure to the benefit of and shall be binding upon the parties and their respective successors and assigns. In the event of any CKI-permitted change-of-control transfer from the then current shareholder(s) as required hereunder, the restrictions and provisions hereof shall apply to any successor-in-interest permitted transferee.
9. This Agreement shall be considered as having been entered into in the State of New York and shall be construed and interpreted in accordance with the laws of that state applicable to agreements made and to be performed therein. However, disputes regarding the Mark shall be resolved in accordance with the Federal trademark laws and related laws, statutes, rules and regulations of the United States unless there are no Federal laws, statutes, rules or regulations dispositive of such a dispute, in which case such dispute shall be resolved in accordance with the laws of the State of New York. Operator represents and warrants that it is not entitled to immunity from judicial proceedings commenced in the State of New York, U.S.A. (whether relating to state laws or federal laws) and expressly agrees that, should any judicial proceedings be brought, it will not claim any immunity from such proceedings and that they shall be brought in New York, New York and shall be conducted in
CONFIDENTIAL TREATMENT |
English. Operator irrevocably submits to the jurisdiction of the courts of the State of New York and/or the federal courts located therein and waives the right to contest such jurisdiction and to the laying of venue in such courts. Operator is completing forms relating to the appointment of the Corporation Services Company to act as its agent for service relating to any dispute or adjudication hereunder, simultaneously with the execution of this Agreement and will maintain such appointment throughout the term of this Agreement (including extensions, renewals and the non-exclusive inventory disposal period referred to herein).
10. Following the closing of the transaction, pursuant to which Warnaco Inc. will, in accordance with its terms, acquire the business of the Operator, this Agreement may be assigned within the Warnaco family of companies in accordance with the terms as agreed by CKI and set forth in writing simultaneously herewith.
Warnaco U.S., Inc., a Delaware corporation, is the general partner of WF Overseas Fashion C.V., a limited partnership ("commanditaire vennootschap") organized and existing under the laws of the Netherlands, and solely in such capacity, is executing this Agreement on behalf and for the exclusive risk and benefit of WF Overseas Fashion C.V.
If the foregoing fully and accurately sets forth our understanding with regard to the subject matter hereof, please so signify by signing below where indicated.
![]() |
||||||
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Very truly yours, | ||||||
Calvin Klein, Inc. | ||||||
By: /s/ Tom Murry | ||||||
Name: | ![]() |
Tom Murry | ||||
Title: | ![]() |
President and COO | ||||
![]() |
Agreed to:
CK JEANSWEAR N.V.
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
By: /s/ Lawrence R. Rutkowski | ||||||
Name: | ![]() |
Lawrence R. Rutkowski | ||||
Title: | ![]() |
Vice President and Treasurer | ||||
CK JEANSWEAR EUROPE S.P.A. | ||||||
By: /s/ Lawrence R. Rutkowski | ||||||
Name: | ![]() |
Lawrence R. Rutkowski | ||||
Title: | ![]() |
Vice President and Treasurer | ||||
CK JEANSWEAR ASIA LIMITED | ||||||
By: /s/ Lawrence R. Rutkowski | ||||||
Name: | ![]() |
Lawrence R. Rutkowski | ||||
Title: | ![]() |
Vice President and Treasurer | ||||
WF OVERSEAS FASHION C.V. | ||||||
By: Warnaco U.S., Inc., its general partner | ||||||
By: /s/ Stanley P. Silverstein | ||||||
Name: | ![]() |
Stanley P. Silverstein | ||||
Title: | ![]() |
President and Secretary | ||||
![]() |
CONFIDENTIAL TREATMENT |
SCHEDULE 1(d)
OUTLET
***
CONFIDENTIAL TREATMENT |
EXHIBIT RO
***
Exhibit 12.1
THE WARNACO GROUP, INC.
RATIO OF EARNINGS TO FIXED
CHARGES
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
2005 | ![]() |
2004 | |||||||
![]() |
(Dollars in millions) | |||||||||
Interest expense | ![]() |
$ | 18.1 | ![]() |
$ | 19.8 | ||||
Capitalized interest | ![]() |
1.1 | ![]() |
— | ||||||
Interest on operating leases | ![]() |
17.7 | ![]() |
15.0 | ||||||
Total fixed charges | ![]() |
36.9 | ![]() |
34.8 | ||||||
Pre-tax income (loss) from continuing operations | ![]() |
82.8 | ![]() |
78.5 | ||||||
Fixed charges | ![]() |
36.9 | ![]() |
34.8 | ||||||
Less: Capitalized interest | ![]() |
(1.1 | ) | ![]() |
— | |||||
Total adjusted earnings | ![]() |
$ | 118.6 | ![]() |
$ | 113.3 | ||||
Fixed charge coverage | ![]() |
3.21 | ![]() |
3.26 | ||||||
Deficit of earnings to fixed charges | ![]() |
n/a | ![]() |
n/a | ||||||
![]() |
EXHIBIT 21.1
THE WARNACO GROUP, INC.
SUBSIDIARIES OF THE
WARNACO GROUP, INC.
The following is a list of subsidiaries of The Warnaco Group, Inc. (‘‘Warnaco’’). Subsidiaries of Warnaco, to the extent not listed below, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Company | ![]() |
Country or State of Incorporation | ||||
184 Benton Street Inc. | ![]() |
Delaware | ||||
4278941 Canada Inc. | ![]() |
Canada | ||||
A.B.S. Clothing Collection, Inc. | ![]() |
California | ||||
A.E.S. Advanced Euro Service S.r.l. | ![]() |
Italy | ||||
Authentic Fitness de Mexico, S.A. de C.V. | ![]() |
Mexico | ||||
Authentic Fitness On-line Inc. | ![]() |
Nevada | ||||
C.F. Hathaway Company | ![]() |
Delaware | ||||
C.K. Jeanswear Europe S.p.A. | ![]() |
Italy | ||||
Calvin Klein France SnC | ![]() |
France | ||||
Calvin Klein Jeanswear Company | ![]() |
Delaware | ||||
Calvin Klein Jeanswear Korea Limited | ![]() |
Korea | ||||
CCC Acquisition Corp. | ![]() |
Delaware | ||||
Centro de Corte de Tetla S.A. de C.V. | ![]() |
Mexico | ||||
CK Jeanswear Asia Limited | ![]() |
Hong Kong | ||||
CK Jeanswear Australia Pty Ltd. | ![]() |
Australia | ||||
CK Jeanswear N.V. | ![]() |
Netherlands | ||||
CK Jeanswear NZ Limited | ![]() |
New Zealand | ||||
CKJ Fashion (Shanghai) Ltd. | ![]() |
People's Republic of China | ||||
CKJ Holdings, Inc. | ![]() |
Delaware | ||||
CKU.com Inc. | ![]() |
Delaware | ||||
Designer Holdings Ltd. | ![]() |
Delaware | ||||
Designer Holdings Overseas Limited | ![]() |
Hong Kong | ||||
Distribution D GmbH | ![]() |
Germany | ||||
Donatex-Warnaco S.A. | ![]() |
Belgium | ||||
Eratex GmbH | ![]() |
Germany | ||||
Euralis S.A.S. | ![]() |
France | ||||
Euro Retail S.r.l. | ![]() |
Italy | ||||
F.A. France SARL. | ![]() |
France | ||||
Fingen Apparel U.K. Limited | ![]() |
United Kingdom | ||||
Gold Lightening Limited | ![]() |
Hong Kong | ||||
Gregory Street, Inc. | ![]() |
Delaware | ||||
Hamlet Shirt Company Ltd. | ![]() |
United Kingdom | ||||
Indigo Blue S.A. | ![]() |
Switzerland | ||||
Jeanswear Holdings, Inc. | ![]() |
Delaware | ||||
Jeanswear Services Ltd. | ![]() |
United Kingdom | ||||
Juarmex S.A. de C.V. | ![]() |
Mexico | ||||
![]() |
THE WARNACO GROUP,
INC.
SUBSIDIARIES OF THE WARNACO GROUP,
INC.
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Company | ![]() |
Country or State of Incorporation | ||||
Kai Jay Manufacturing Company | ![]() |
Delaware | ||||
Lejaby S.A.S. | ![]() |
France | ||||
Lejaby Taiwan Co., Ltd. | ![]() |
Taiwan | ||||
Lenitex-Warnaco GesmbH | ![]() |
Austria | ||||
Leratex-Warnaco Ltd. | ![]() |
United Kingdom | ||||
Linda Vista de Tlaxcala S.A. de C.V. | ![]() |
Mexico | ||||
Linda Vista de Veracruz S.A. de C.V. | ![]() |
Mexico | ||||
Lintex-Warnaco S.A. | ![]() |
Switzerland | ||||
Mullion International Ltd. | ![]() |
British Virgin Islands | ||||
Myrtle Avenue, Inc. | ![]() |
Delaware | ||||
Ocean Pacific Apparel Corp. | ![]() |
Delaware | ||||
OP Europe SARL | ![]() |
France | ||||
Outlet Stores, Inc. | ![]() |
Delaware | ||||
PMJ S.A. | ![]() |
France | ||||
Ubertech Products, Inc. | ![]() |
Delaware | ||||
Vista de Huamantla S.A. de C.V. | ![]() |
Mexico | ||||
Vista de Puebla S.A. de C.V. | ![]() |
Mexico | ||||
Vista de Yucatan, S.A. de C.V. | ![]() |
Mexico | ||||
WAC Internacional Distribucion de Puebla S.A. de C.V. | ![]() |
Mexico | ||||
Warnaco (H.K.) Ltd. | ![]() |
Barbados | ||||
Warnaco (Macao) Company Limited | ![]() |
Macao | ||||
Warnaco B.V. | ![]() |
Netherlands | ||||
Warnaco Denmark A/S | ![]() |
Denmark | ||||
Warnaco France SARL | ![]() |
France | ||||
Warnaco Germany GmbH | ![]() |
Germany | ||||
Warnaco Holland B.V. | ![]() |
Netherlands | ||||
Warnaco Inc. | ![]() |
Delaware | ||||
Warnaco International Trading (Shanghai) Co. Ltd. | ![]() |
Peoples Republic of China | ||||
Warnaco Intimo S.A. | ![]() |
Spain | ||||
Warnaco Limited | ![]() |
United Kingdom | ||||
Warnaco Men's Sportswear Inc. | ![]() |
Delaware | ||||
Warnaco Netherlands B.V. | ![]() |
Netherlands | ||||
Warnaco of Canada Company | ![]() |
Canada | ||||
Warnaco Portugal-Vestuario e Acessorios, Sociedade Unipessoal, Lda. | ![]() |
Portugal | ||||
Warnaco Puerto Rico, Inc. | ![]() |
Delaware | ||||
![]() |
THE WARNACO GROUP,
INC.
SUBSIDIARIES OF THE WARNACO GROUP,
INC.
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Company | ![]() |
Country or State of Incorporation | ||||
Warnaco Retail Inc. | ![]() |
Delaware | ||||
Warnaco Shanghai Co. Ltd. | ![]() |
People's Republic of China | ||||
Warnaco Singapore Private Ltd. | ![]() |
Singapore | ||||
Warnaco Sourcing Inc. | ![]() |
Delaware | ||||
Warnaco SrL | ![]() |
Italy | ||||
Warnaco Swimwear Inc. | ![]() |
Delaware | ||||
Warnaco Swimwear Products Inc. | ![]() |
Delaware | ||||
Warnaco U.S. Inc. | ![]() |
Delaware | ||||
Warner's (EIRE) Teoranta | ![]() |
Ireland | ||||
Warner's (United Kingdom) Limited | ![]() |
Northern Ireland | ||||
Warner's Aiglon S.A. | ![]() |
France | ||||
Warner's Company (Belgium) S.A. | ![]() |
Belgium | ||||
Warner's de Mexico S.A. de C.V. | ![]() |
Mexico | ||||
WAS Logistics B.V. | ![]() |
Netherlands | ||||
WBR Industria e Comercio Vestuario S.A. | ![]() |
Brazilian Joint Venture | ||||
WF Overseas Fashion C.V. | ![]() |
Netherlands | ||||
![]() |
EXHIBIT 23.1
THE WARNACO GROUP, INC.
CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-108744, 333-121771 and 333-125159 on Form S-8 of our reports dated March 2, 2006, relating to the consolidated financial statements and financial statement schedule of The Warnaco Group, Inc. and Subsidiaries (the ‘‘Company’’) and management's report of the effectiveness of internal control over financial reporting, (which report on the consolidated financial statements and financial statement schedule expresses an unqualified opinion and includes explanatory paragraphs relating to 1) the Company's plan of reorganization and emergence from bankruptcy as a new entity on February 4, 2003 and 2) a change in method of accounting for defined benefit pension plans), appearing in this Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2005.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 2, 2006
EXHIBIT 31.1
THE WARNACO GROUP, INC.
CERTIFICATION OF CHIEF
EXECUTIVE OFFICER
I, Joseph R. Gromek, certify that:
1. I have reviewed this Annual Report on Form 10-K of The Warnaco Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
![]() |
![]() |
![]() |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
![]() |
![]() |
![]() |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
![]() |
![]() |
![]() |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
![]() |
![]() |
![]() |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
![]() |
![]() |
![]() |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
![]() |
![]() |
![]() |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Date: March 2, 2006 | ![]() |
By: | ![]() |
/s/
Joseph R.
Gromek
JOSEPH R. GROMEK CHIEF EXECUTIVE OFFICER |
||||||
![]() |
EXHIBIT 31.2
THE WARNACO GROUP, INC.
CERTIFICATION OF CHIEF
FINANCIAL OFFICER
I, Lawrence R. Rutkowski, certify that:
1. I have reviewed this Annual Report on Form 10-K of The Warnaco Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
![]() |
![]() |
![]() |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
![]() |
![]() |
![]() |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
![]() |
![]() |
![]() |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
![]() |
![]() |
![]() |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
![]() |
![]() |
![]() |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
![]() |
![]() |
![]() |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
![]() |
Date: March 2, 2006 | ![]() |
By: | ![]() |
/s/
Lawrence R. Rutkowski
LAWRENCE R. RUTKOWSKI CHIEF FINANCIAL OFFICER |
||||||
![]() |
EXHIBIT 32.1
CERTIFICATIONS OF
CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER
OF THE WARNACO GROUP, INC.
PURSUANT TO 18
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of The Warnaco Group, Inc. (the "Company") for the fiscal year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Joseph R. Gromek, as Chief Executive Officer of the Company, and Lawrence R. Rutkowski, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge, based upon a review of the Report, subject to the qualifications noted below:
![]() |
![]() |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
![]() |
![]() |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
In rendering this certification, we note the following qualifications:
![]() |
![]() |
(1) | Certain information in the Report relates to periods prior to Joseph R. Gromek's affiliation with the Company. Mr. Gromek was elected President and Chief Executive Officer of the Company on April 15, 2003; and |
![]() |
![]() |
(2) | Certain information in the Report relates to periods prior to Lawrence R. Rutkowski's affiliation with the Company. Mr. Rutkowski was elected Senior Vice President—Finance and Chief Financial Officer of the Company on September 15, 2003. |
/s/ Joseph R.
Gromek
Name: Joseph R. Gromek
Title:
Chief Executive Officer
Date: March 2,
2006
/s/ Lawrence R.
Rutkowski
Name: Lawrence R.
Rutkowski
Title: Chief Financial Officer
Date: March 2,
2006