Exhibit 10.7

 

DISTRIBUTION AGREEMENT

 

This DISTRIBUTION AGREEMENT (the “Agreement”) is made and entered into this 31st
day of July, 2005 (the “Effective Date”), by and between Cygne Designs, Inc., a
Delaware corporation (“Cygne”), with its principal executive office at 11 West
42nd Street, New York, New York 10036), and Commerce Clothing Company, LLC, a
California limited liability company (“Commerce”) with its principal executive
office at 5804 East Slauson Avenue, Commerce, California 90040.

 

WITNESSETH:

 

WHEREAS, Cygne is, among other things, a seller of apparel products; and

 

WHEREAS, the parties have entered into a separate Asset Purchase Agreement dated
the same date as this Agreement, pursuant to which Cygne has acquired from
Commerce certain assets and properties formerly used by Commerce in the
operation of its business of selling and distributing branded and private label
denim-related products; and

 

WHEREAS, the parties now desire to enter into this exclusive Agreement whereby
Commerce will provide certain Services (as defined herein) for Cygne under the
terms and conditions set forth in this Agreement.

 

NOW THEREFORE, in consideration of the mutual promises, covenants,
representations and good and valuable consideration hereinafter set forth, the
adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 

1. Term.

 

(a) Initial Term. The term of this Agreement shall commence as of the Effective
Date and shall continue until the earlier of (i) two (2) years after the
Effective Date and (ii) the date this Agreement is otherwise terminated in
accordance with the provisions hereof (such period referred to herein as the
“Initial Term”).

 

(b) Renewal Term. This Agreement will automatically renew for consecutive one
(1) year terms under the same terms and conditions set forth herein (each a
“Renewal Term”) unless terminated by either party upon delivering written notice
to the other party at least ninety (90) days but not more than one hundred
twenty (120) days prior to the end of the then existing term. The Renewal
Term(s), if any, and the Initial Term are collectively referred to herein as the
“Term.”

 

2. Warehouse Facilities. The Services, defined below, will be rendered by
Commerce at the following facilities:

 

5804 E. Slauson Avenue

Commerce, California 90040

 

ITC

309 Nafta Boulevard

Loredo, Texas 78045

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3. Services and Performance. In accordance with the terms of this Agreement,
during the Term of this Agreement, Commerce shall, upon Cygne’s request, provide
services, as described in Annex A attached hereto and incorporated into this
Agreement, to Cygne with respect to Cygne’s apparel products (the “Services”).
Commerce shall be the sole and exclusive provider of Services to Cygne and Cygne
agrees that, during the Term of this Agreement, it shall not utilize any third
party to provide such Services to Cygne without the prior written consent of
Commerce.

 

4. Consideration.

 

(a) Distribution and Operations Services. As consideration for the Services
provided hereunder, Cygne will pay Commerce a fixed rate per apparel unit of
Fifty Cents ($0.50) (the “Unit Rate”).

 

(b) On an annual basis, Commerce may increase the Unit Rate based upon economic
factors. Any requests for increases in the Unit Rate that Commerce submits to
Cygne shall be accompanied by supporting documentation and shall be determined
upon the mutual agreement of the parties; provided, that in no event shall the
Unit Rate be increased by more than the lesser of five percent (5%) per annum or
the annual increase in the Consumer Price Index (CPI) for the corresponding
year. In the event that the parties, after good faith negotiation, are unable to
agree upon the increase to the Unit Rate, the matter shall be submitted to
arbitration. The arbitration award shall be final and binding upon the parties
and shall be enforceable in accordance with its terms. Pending the final
decision of the arbitrator, this Agreement shall stay in full force and effect.

 

5. Auditing Procedures.

 

(a) During the Term, Cygne’s personnel and/or its agents and representatives,
shall have the right to inspect Commerce’s records relating to this Agreement
and the Services provided herein, and perform inventory audits with respect to
the inventory held by Commerce on behalf of Cygne, upon at least ten (10) days
prior written notice to Commerce, during regular business hours, and not more
frequently than once per each of Cygne’s fiscal quarters. Commerce shall provide
reasonable assistance and access to its facilities, personnel and materials for
such purposes. Without limiting the foregoing, Cygne shall, at the end of each
of the second and fourth quarters, take an accounting of the inventory held by
Commerce on behalf of Cygne. Overages and shortages will be balanced to a net
result at the end of each fiscal year of Cygne during the Term.

 

(b) If there is a net shortage of units after the overages and shortages have
been balanced to a net result, then, within 10 tens after the parties’ mutual
agreement on the determination of the net shortage determination, Commerce shall
pay to Cygne an amount equal to the direct and invoiced manufacturing costs
actually incurred by Cygne in connection with the units included in such net
shortage (the “Shortage Payment”).

 

(c) In the event there is a net shortage of units pursuant to subsection (b)
above and any of the units included in such shortage are subsequently located
causing a net overage of units after the overages and shortages have been
balanced to a net result at the end of any fiscal year pursuant to subsection
(a) above, then Cygne shall reimburse Commerce for that portion of the Shortage
Payment made to Cygne by Commerce applicable to the units included in such net
overage, with reasonable deductions for the aging of the units.

 

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6. Fees, Expenses and Payment Conditions.

 

(a) Services Fees. The fees for Services will be invoiced on a monthly basis and
will be computed based on the actual number of units processed for that month
multiplied by the Unit Rate.

 

(b) Packaging Costs. Purchases of packaging and shipping materials shall be
invoiced monthly and paid by Cygne based on the actual cost of materials
purchased that month.

 

(c) Other Costs. Purchases of all other items associated with the provision of
the Services contemplated herein, including, but not limited to freight, office
supplies, and postage, shall be invoiced monthly and paid by Cygne based on the
actual cost of any such items purchased that month.

 

(d) Special Handling Fees. Special activities such as quality control, annual
inventory, customized repairs, customized finishing, labeling, tagging or
packaging, and specialized administrative and management projects shall be
performed by Commerce only after receipt of a written authorization from Cygne
containing mutually agreed upon fixed hourly rates for such special activities.
These activities will be invoiced monthly, based on the actual number of hours
worked.

 

(e) Payment Conditions. Cygne shall pay each invoice net 30 (thirty) days from
the date of the invoice, by either cash or letter of credit, provided however,
that Cygne may, in its discretion, make such payments prior to the end of such
30-day period to the extent sufficient funds are available therefore. Invoices
shall be sent by mail or by courier within five (5) days after the invoice date.

 

7. Insurance and Indemnification.

 

(a) All of Cygne’s products which are subject to the Services provided for
herein (the “Products”) shall be insured by Cygne while in the custody and under
the control of Commerce, for the benefit of both Cygne and Commerce. Commerce
represents that it is insured for professional and third party liabilities on
standard business conditions. Commerce shall be liable for property damage
and/or loss caused during the performance of Services due to its proven gross
negligence or willful misconduct.

 

(b) Each party to this Agreement shall defend and indemnify the other and hold
it harmless from and against any and all liability, damages, costs and expenses
(including attorneys’ fees), arising from any willful misconduct or gross
negligence of the indemnifying party, or any of its officers, contractors,
licensees, agents, servants or employees.

 

(c) Each party shall, upon the request of the other party, furnish such other
party with copies of all insurance policies concerning its standard business
liability coverage. Each party shall ensure that premiums due with respect to
such insurance policies are made when due and fully paid and are in full force
and effect.

 

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(d) Damage Limitations. NEITHER PARTY NOR ANY OF ITS RESPECTIVE AFFILIATES,
SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER INDIVIDUAL OR ENTITY FOR ANY
INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, OR INCIDENTAL LOSS OR
DAMAGE OF ANY KIND OR NATURE, RELATING TO OR ARISING OUT OF THIS AGREEMENT
INCLUDING BUT NOT LIMITED TO ANY LOSS OF REVENUES, ANTICIPATED PROFITS OR
SAVINGS, OR LOSS BY REASON OF SHUTDOWN IN OPERATION OR FOR INCREASED EXPENSES OF
OPERATION.

 

8. Security, Safety and Environmental Matters.

 

(a) As soon as practicable after the execution of this Agreement, Cygne will
provide Commerce with a listing of its representatives and any other authorized
third parties who may enter the warehouse and act on behalf of Cygne. Commerce
will only allow employees or agents of Commerce, Cygne and/or third parties
authorized by Cygne to enter the warehouse as necessary to administer the terms
of this Agreement. Cygne’s authorized personnel, including the personnel of
third parties authorized by Cygne, shall have access to the warehouse at all
reasonable times upon notice to Commerce and without notice in the event of
emergencies. In no event shall Cygne’s authorized personnel located at the
warehouse be considered employees, representatives or agents of Commerce for any
purpose whatsoever. Cygne’s authorized personnel shall be subject to the same
general rules and regulations regarding safety, security and environmental
procedures and processes that generally apply to non-Cygne authorized personnel
at the warehouse.

 

(b) Commerce shall, at its sole cost, provide and maintain adequate and
customary security measures, including, but not limited to, alarms, gates and
locks, relating to the warehouse facilities. Cygne shall, at its sole cost,
provide any additional security personnel it deems necessary relating to
protection of the Products at the warehouse facilities.

 

(c) Commerce shall, at its sole cost, apply for and maintain during the Term of
this Agreement all licenses and authorizations required for performing the
Services. Commerce shall comply with all federal, state and local applicable
laws and regulations in performing the Services, including, but not limited to,
those regarding safety, health and environmental matters.

 

9. Confidential Information. Each party acknowledges and agrees that it may have
access to information, including, but not limited to, intellectual property,
trade secrets, business information, ideas and expressions, which are
proprietary to and/or embody the substantial creative efforts of the other party
(“Confidential Information”). The parties agree that Confidential Information
will remain the sole and exclusive property of the disclosing party (“Disclosing
Party”), and the receiving party (“Receiving Party”) agrees to maintain and
preserve the confidentiality of such information, including, but without
limitation, taking such steps to protect and preserve the confidentiality of the
Confidential Information as it takes to preserve and protect the confidentiality
of its own confidential information. All materials and information disclosed by
either party to the other will be presumed to be Confidential Information and
will be so regarded by the Receiving Party unless, the Receiving Party can prove
that the materials or information are not Confidential Information. For the
purposes of this section:

 

(a) The parties agree that the Confidential Information will be disclosed for
use by the Receiving Party only for the limited and sole purpose of carrying out
the terms of this Agreement.

 

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(b) The Receiving Party agrees not to disclose or permit any other person or
entity access to the Confidential Information, except that such disclosure will
be permitted to an employee, agent, representative or independent contractor of
the Receiving Party requiring access to the same.

 

(c) The Receiving Party agrees: (i) not to alter or remove any identification of
any copyright, trademark or other proprietary rights notice which indicates the
ownership of any part of the Confidential Information, and (ii) to notify the
Disclosing Party of the circumstances surrounding any possession, use or
knowledge of the Confidential Information by any person or entity other than
those authorized by this Agreement.

 

(d) Confidential Information will exclude any information that (i) has been or
is obtained by the Receiving Party from a source independent of the Disclosing
Party and not receiving such information from the Disclosing Party, (ii) is or
becomes generally available to the public other than as a result of an
unauthorized disclosure by the Disclosing Party or its personnel, or (iii) is
independently developed by the Receiving Party without reliance in any way on
the Confidential Information provided by the Disclosing Party; or (iv) the
Receiving Party is required to disclose under judicial order, regulatory
requirement, or statutory requirement, provided that the Receiving Party
provides written notice and an opportunity for the Disclosing Party to take any
available protective action prior to such disclosure.

 

10. Assignment of Duties. This Agreement may not be assigned by any party hereto
to any other person, firm, or entity without the express written approval of the
other party hereto and any attempt at assignment in violation of this section
will be null and void; provided that, notwithstanding the foregoing, Commerce
shall have the right to assign this Agreement to an affiliate of Commerce upon
written notice to Cygne, without being required to obtain the consent or
approval of Cygne.

 

11. Termination. This Agreement may be immediately terminated by either party
upon (i) failure of the other party to comply with laws and regulations which
materially affect such party’s contracting rights or reputation and where such
failure is not cured within thirty (30) days of receipt of written notice
thereof; (ii) any material breach of this Agreement by the other party which is
not cured within thirty (30) days of receipt of written notice thereof, or (iii)
the mutual agreement of the parties.

 

12. Governing Law. This Agreement shall be interpreted in accordance with the
laws of the State of California, without regard to the conflicts of laws
principles thereof. The parties agree that jurisdiction over and venue in any
legal proceeding arising out of or relating to this Agreement will exclusively
be in the state or federal courts located in Los Angeles County, California.

 

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13. Submission to Jurisdiction; Service of Process.

 

(a) Commerce hereby irrevocably agrees that any lawsuit commenced by Commerce
against Cygne or any of its affiliates in connection with any dispute arising
out of or relating to this Agreement (each, a “Commerce Lawsuit”) shall be
brought by Commerce solely in a federal or state court located within the County
of Los Angeles, State of California, and, in connection with each Commerce
Lawsuit, each of the parties hereto irrevocably agrees to submit to the
exclusive jurisdiction of any federal or state court located within the County
of Los Angeles, State of California and irrevocably agrees to waive, to the
fullest extent permitted by applicable law, any objection which it may now or
hereafter have to the laying of venue of any Commerce Lawsuit brought in such
court or any defense of inconvenient forum for the maintenance of such Commerce
Lawsuit in such court.

 

(b) Cygne hereby irrevocably agrees that any lawsuit commenced by Cygne against
Commerce in connection with any dispute arising out of or relating to this
Agreement or any of the transactions contemplated hereby (each, a “Cygne
Lawsuit”) shall be brought by Cygne, as the case may be, solely in a federal or
state court located within the County of Los Angeles, State of California, and,
in connection with each Cygne Lawsuit, each of the parties hereto irrevocably
agrees to submit to the exclusive jurisdiction of any federal or state court
located with the County of Los Angeles, State of California and irrevocably
waives, to the fullest extent permitted by applicable law, any objection which
it may now or hereafter have to the laying of venue of any Cygne Lawsuit brought
in such court or any defense of inconvenient forum for the maintenance of such
Cygne Lawsuit in such court.

 

(c) Each of the parties hereto agrees that a judgment in any Commerce Lawsuit or
Cygne Lawsuit may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Each of the parties hereto hereby consents
to process being served by either party to this Agreement in any suit, action or
proceeding by the mailing of a copy thereof in accordance with Section 13 below.

 

(d) All expenses (including, without limitation, legal fees and expenses)
incurred by the prevailing party in any Commerce Lawsuit or Cygne Lawsuit in
connection with, or in prosecuting or defending, any such claim or controversy
shall be paid by the other party.

 

14. Notices. All notices, demands or requests which are required or permitted to
be given pursuant to this Agreement shall be in writing and shall be delivered
personally, sent by telecopy or mailed by prepaid registered mail to the
affected party at the address indicated for such party on the first page hereof
or to such other address as such party may from time to time advise the other
party hereto.

 

15. Force Majeure. Whenever a period of time is provided for in this Agreement
for any of the parties to do or perform any act or obligation, none of the
parties shall be liable for any delays or inability to perform due to causes
beyond the reasonable control of said party, such as war, riot, insurrection,
rebellion, strike, lockout, unavoidable casualty, or damage to personnel,
material or equipment, fire, flood, storm, earthquake, tornado, act of terror or
any act of God; provided, that such time period shall be extended for only the
actual amount of time said party is so delayed; and provided further, that any
payment obligation under this Agreement shall not be extended. In the event
Commerce is so delayed, Cygne may obtain Services elsewhere during the time of
such delay.

 

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16. Amendments. This Agreement may not be amended, modified, supplemented or
waived orally, and may only be so amended, modified, supplemented or waived by
an instrument in writing executed by the parties hereto.

 

17. Binding Effect. This Agreement and all the terms and provisions hereof shall
be binding upon and inure solely to the benefit of the parties hereto and their
respective permitted successors and assigns.

 

18. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which, when taken
together, shall constitute one and the same instrument.

 

19. Entire Agreement. This Agreement contains the entire understanding and
Agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, whether written or oral, between the parties.
Cygne agrees that the terms of any purchase orders issued by it which are
inconsistent with the terms hereof shall be inapplicable unless expressly
accepted in writing by Commerce.

 

20. Survival. Sections 7(b) and 7(e) of this Agreement shall survive the
termination or expiration of this Agreement.

 

21. Severability. In the event that in any legal proceedings before a competent
tribunal it is determined that any of the sections of this Agreement or any
subsection, provision or, part thereof is invalid, such section, subsection,
provision or part thereof shall be deemed to be severed from this Agreement for
the purposes only of particular legal proceedings in question, and this
Agreement, and the said section, subsection, provision or part thereof, shall in
every other respect continue in full force and effect.

 

[SIGNATURE PAGES FOLLOW]

 

 

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IN WITNESS WHEREOF, the parties have executed this Distribution Agreement as of
the day and year first above written.

 

COMMERCE CLOTHING COMPANY, LLC By:  

/s/ Hubert Guez

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Name:   Hubert Guez Title:   President CYGNE DESIGNS, INC. By:  

/s/ Bernard Manuel

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Name:   Bernard Manuel Title:   President

 

 

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ANNEX A

 

DISTRIBUTION SERVICES TO BE PROVIDED BY COMMERCE:

 

  •   All warehousing functions:

 

  •   receiving

 

  •   storage

 

  •   shipping

 

  •   order processing

 

  •   maintenance of perpetual inventory

 

  •   all direct labor and management services

 

  •   space

 

  •   utilities

 

  •   maintenance and repair

 

  •   medical insurance

 

OPERATIONS SERVICES TO BE PROVIDED BY COMMERCE:

 

  •   Order Entry

 

  •   Customer Service

 

  •   MIS

 

  •   Order Allocation

 

  •   Billing

 

  •   Office Supplies

 

 

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