<PAGE>
 
                                                                    EXHIBIT 10.3

                       LICENSE AND DISTRIBUTION AGREEMENT
                       ----------------------------------



                           dated as of August 1, 1997



                                    between



                              ST. JOHN KNITS, INC.



                                      and



                               ST. JOHN CO., LTD.
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                          Page
                                                          ----
<S>                                                       <C>

                          ARTICLE 1
                         DEFINITIONS......................   1
1.1   Distributor List Price..............................   1
1.2   Licensed Trademarks.................................   2
1.3   Products............................................   2
1.4   SJ JAPAN Information................................   2
1.5   ST. JOHN Information................................   2
1.6   Territory...........................................   2

                          ARTICLE 2
                         APPOINTMENT......................   2
2.1   Scope...............................................   2
2.2   Subdistributors.....................................   3
2.3   Sales Outside the Territory.........................   3
2.4   Third-Party Importation.............................   3

                          ARTICLE 3
               GENERAL OBLIGATIONS OF SJ JAPAN............   3
3.1   Marketing...........................................   3
3.2   Use of Licensed Trademarks..........................   4
3.3   Manufacture or Distribution of Competitive Goods....   5
3.4   Customer Complaints.................................   5
3.5   Quality Control.....................................   5
3.6   Design Services.....................................   6
3.7   Expenses............................................   6

                          ARTICLE 4
              INDEMNITY; INFRINGEMENT; INSURANCE..........   7
4.1   SJ JAPAN Indemnity..................................   7
4.2   ST. JOHN Indemnity..................................   7
4.4   Infringement Claims of Third Parties................   8
4.5   Insurance...........................................   8

                          ARTICLE 5
                     ORDERS FOR PRODUCTS..................   8
5.1   Master Purchase Orders..............................   8
5.2   Other Purchase Orders...............................   8
5.3   Terms of Purchase Orders............................   9
</TABLE> 

                             i
<PAGE>
 
<TABLE> 
<S>                                                       <C>
5.4   Acceptance of Orders................................   9
5.5   Modification of Orders..............................   9
5.6   Delivery Terms......................................   9
5.7   Product Changes.....................................  10

                          ARTICLE 6
                      PRICES AND PAYMENT..................  10
6.1   Prices..............................................  10
6.2   Price Increases, Decreases..........................  11
6.3   Payment Terms.......................................  11
6.4   Resale Prices.......................................  11
6.5   Overdue Payments....................................  11

                          ARTICLE 7
                  ACCEPTANCE AND WARRANTY.................  12
7.1   Acceptance of Products..............................  12
7.2   Product Warranty....................................  12
7.3   Excluded Claims.....................................  12
7.4   Limited Warranty....................................  13

                          ARTICLE 8
                   LIMITATION OF REMEDIES.................  13
8.1   Delay...............................................  13
8.2   Sole Remedies.......................................  13
8.3   Consequential Damages...............................  13

                          ARTICLE 9
                       CONFIDENTIALITY....................  14

                          ARTICLE 10
                     TRADEMARKS; COPYRIGHT................  14
10.1   Exploitation of Rights.............................  14
10.2   Disputes Among Licensees...........................  14
10.3   Exclusive License..................................  15
10.4   Ownership..........................................  15
10.5   Use of Name........................................  15
10.6   Compliance With Law; Markings......................  16
10.7   Copyright..........................................  16

                          ARTICLE 11
                  TAXES; IMPORT OF PRODUCTS...............  16
11.1  Taxes...............................................  16
11.2  Import Documentation................................  16
</TABLE> 

                             ii
<PAGE>
 
<TABLE> 
<S>                                                       <C>
                          ARTICLE 12
                    TERM AND TERMINATION..................  17
12.1   Term...............................................  17
12.2   Termination........................................  17
12.3   Rights and Obligations on Termination..............  17
12.4   No Compensation....................................  18
12.5   Injunctive Relief..................................  18
12.6   Reversion of Rights; Return of Materials...........  19

                          ARTICLE 13
                         FORCE MAJEURE....................  19
13.1   Definition.........................................  19
13.2   Notice.............................................  19
13.3   Confirmation.......................................  20
13.4   Suspension of Performance..........................  20
13.5   Termination........................................  20

                          ARTICLE 14
                 REPRESENTATIONS AND WARRANTIES...........  20
14.1  ST. JOHN............................................  20
14.2  SJ JAPAN............................................  20

                          ARTICLE 15
                  JURISDICTION; INTERPRETATION............  20
15.1   Disputes...........................................  20
15.2   Governing Law......................................  21
15.3   Governing Language.................................  21
15.4   Effect of Headings.................................  21
15.5   Non-Waiver.........................................  21

                          ARTICLE 16
                         MISCELLANEOUS....................  21
16.1   Assignment.........................................  21
16.2   Relationship.......................................  22
16.3   Notices............................................  22
16.4   ENTIRE AGREEMENT...................................  22
16.5   Amendment..........................................  22
16.6   Publicity..........................................  22
16.7   Severability.......................................  23
16.8   Counterparts.......................................  23

Schedule A  Licensed Trademarks
Schedule B  U.S. Wholesale Price List
</TABLE>
                             iii
<PAGE>
 
                                                                    EXHIBIT 10.3

                       License and Distribution Agreement
                       ----------------------------------


          THIS AGREEMENT, made as of this 1st day of August, 1997 by and between
ST. JOHN KNITS, INC., a corporation duly organized under the laws of the State
of California and having its principal place of business at 17422 Derian Avenue,
Irvine, California 92614 U.S.A. (hereinafter "ST. JOHN"), and ST. JOHN CO.,
LTD., a corporation duly organized and existing under the laws of Japan and
having its principal place of business at Imperial Tower 9F, 1-1-1 Uchisaiwai-
cho, Chiyoda-ku, Tokyo 100 Japan (hereinafter "SJ JAPAN").

          WHEREAS, ST. JOHN manufactures and markets certain products and
desires to increase the sales of such products;

          WHEREAS, ST. JOHN is the owner of certain valuable trademarks under
which such products are sold;

          WHEREAS, SJ JAPAN has represented that it possesses the necessary
expertise and marketing organization to promote and sell such products in the
territory defined herein; and

          WHEREAS, ST. JOHN is willing to appoint SJ JAPAN as distributor of ST.
JOHN's products, with the right and license to use certain ST. JOHN trademarks,
in the territory, and SJ JAPAN is willing to accept such appointment;

          NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the parties agree as follows:


                                   ARTICLE 1
                                   ---------
                                  DEFINITIONS
                                  -----------

          For purposes of this Agreement, the following words, terms and
phrases, where written with an initial capital letter, shall have the meanings
assigned to them in this Article 1 unless the context otherwise requires:

          1.1  Distributor List Price.  "Distributor List Price" shall mean ST.
               ----------------------                                          
JOHN's published United States wholesale price for a given Product in effect at
the time of acceptance by ST. JOHN of SJ JAPAN's order, less eighteen percent
(18%); provided, that for accessories (which shall specifically exclude any
knitwear and other textile products), the Distributor List Price shall mean ST.
JOHN's published United States wholesale price for a given Product in effect at
the time of acceptance by ST. JOHN of SJ JAPAN's order, less twenty percent
(20%).  A copy of ST. JOHN's current published
<PAGE>
 
United States wholesale price list is attached hereto as Schedule B.  ST. JOHN
                                                         ----------           
reserves the right to change its United States wholesale list prices at any time
and from time to time after execution of this Agreement.

          1.2  Licensed Trademarks.  "Licensed Trademarks" shall mean the
               -------------------                                       
trademarks set forth in Schedule A hereto and all related logos, emblems and
                        ----------                                          
symbols, and all combinations, form and derivations thereof as are currently or
hereafter used by ST. JOHN in connection with the Products (as defined below).

          1.3  Products.  "Products" shall mean all women's apparel and women's
               --------                                                        
accessories which are both manufactured and distributed by ST. JOHN for retail
sale in the United States of America.

          1.4  SJ JAPAN Information.  "SJ JAPAN Information" shall mean all
               --------------------                                        
information, other than information in publicly-available published form or
expressly designated by SJ JAPAN as non-confidential, which is directly or
indirectly disclosed to ST. JOHN, regardless of the form in which it is
disclosed, relating in any way to SJ JAPAN's markets, customers, products,
patents, inventions, procedures, methods, designs, strategies, plans, assets,
liabilities, costs, revenues, profits, organization, employees, agents,
subdistributors, sublicensees or business in general.

          1.5  ST. JOHN Information.  "ST. JOHN Information" shall mean all
               --------------------                                        
information, other than information in publicly-available published form or
expressly designated by ST. JOHN as non-confidential, which is directly or
indirectly disclosed to SJ JAPAN or embodied in Products provided hereunder,
regardless of the form in which it is disclosed, relating in any way to ST.
JOHN's markets, customers, products, patents, inventions, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors, licensees or business in general.

          1.6  Territory.  "Territory" shall mean Japan.
               ---------                                


                                   ARTICLE 2
                                   ---------
                          APPOINTMENT; GRANT OF RIGHT
                          ---------------------------

          2.1  Scope of Appointment and License.  ST. JOHN hereby (i) appoints
               --------------------------------                               
SJ JAPAN, and SJ JAPAN hereby accepts appointment, as ST. JOHN's exclusive
distributor during the term of this Agreement of the Products in the Territory,
and (ii) grants SJ JAPAN a non-transferable license for the term of this
Agreement to use the Licensed Trademarks solely in connection with the
distribution and sale of the Products within the Territory to the extent
permitted herein, in any case subject to all terms and conditions of this
Agreement.

                                       2
<PAGE>
 
          2.2  Subdistributors.  SJ JAPAN shall not, without the prior written
               ---------------                                                
approval of ST. JOHN, which approval shall not be unreasonably withheld, (i)
appoint any subdistributors or agents to promote and/or distribute Products in
the Territory, or (ii) sublicense any of its rights hereunder to use the
Licensed Trademarks.  Further, notwithstanding any such appointment or
sublicense, or ST. JOHN's approval thereof, SJ JAPAN shall at all times remain
fully liable for the performance of its subdistributors, sublicensees and/or
agents and SJ JAPAN hereby agrees to indemnify and hold harmless ST. JOHN from
all damages, losses, costs or expenses arising in any manner from any act or
omission on the part of its subdistributors, sublicensees or agents.  The
parties acknowledge that ST. JOHN has approved the sublicense to Commercial
Development Co., Ltd. pursuant to that certain CDC License Agreement, dated as
of the date hereof, between SJ JAPAN and Commercial Development Co., Ltd.

          2.3  Sales Outside the Territory.  SJ JAPAN shall not advertise,
               ---------------------------                                
promote, solicit customers for, sell or distribute Products outside the
Territory nor establish any office through which orders are solicited or any
depot at which inventories of Products are stored outside the Territory.

          2.4  Third-Party Importation.  In no event shall ST. JOHN bear any 
               -----------------------              
liability to SJ JAPAN for the importation of Products into the Territory by
third parties without the approval or authorization of ST. JOHN.


                                   ARTICLE 3
                                   ---------
                        GENERAL OBLIGATIONS OF SJ JAPAN
                        -------------------------------

          3.1  Marketing.  SJ JAPAN shall have the following obligations with
               ---------                                                     
respect to the marketing and distribution of the Products:

     (a)  To use its best efforts to further the promotion, marketing, sale and
          other distribution of Products in the Territory;

     (b)  To maintain an adequate and balanced inventory of Products;

     (c)  To promptly respond to all inquiries from customers, including
          complaints, process all orders, and effect all shipments of Products;

     (d)  To diligently investigate all leads with respect to potential
          customers referred to it by ST. JOHN;

     (e)  To permit ST. JOHN, upon reasonable notice, to visit SJ JAPAN's
          customers and to visit SJ JAPAN's place of business and inspect its
          inventories, records, and other relevant documents;

                                       3
<PAGE>
 
     (f)  To maintain throughout the Territory an adequate sales force dedicated
on both a full and part-time basis, as the case may be, to the sale of Products;
and

     (g)  To participate, at its own expense, in sales or merchandising programs
          prepared by ST. JOHN, in all shows, fairs and exhibitions in the
          Territory where such participation will, in the reasonable judgment of
          ST. JOHN, promote the Products, and develop and implement sales
          programs for the promotion of the Products.

          3.2  Use of Licensed Trademarks.  SJ JAPAN shall have the following
               --------------------------                                    
obligations in its use of the Licensed Trademarks:

     (a)  SJ JAPAN shall diligently undertake to advertise the Products in the
          Territory.  ST. JOHN shall furnish SJ JAPAN with a reasonable quantity
          of ST. JOHN's brochures and other appropriate advertising materials,
          in the English language, for use by SJ JAPAN in preparing its own
          advertising materials.  SJ JAPAN shall submit to ST. JOHN copies of
          all proposed advertising or promotional materials prepared by or for
          SJ JAPAN utilizing the Licensed Trademarks prior to the use of such
          materials.  ST. JOHN may approve or disapprove any and all advertising
          and promotional materials submitted as aforesaid and shall discuss
          with SJ JAPAN any modifications or alterations thereof.  SJ JAPAN
          shall not use any such advertising or promotional materials without
          first obtaining the prior express written consent of ST. JOHN.  All
          expenses incurred by SJ JAPAN with respect to creating advertising
          materials and advertising the Products shall be borne by SJ JAPAN.

     (b)  SJ JAPAN shall submit to ST. JOHN all proposed tags, labels, packaging
          and other similar materials from which ST. JOHN may select those, if
          any, which ST. JOHN approves for use in connection with Products.  ST.
          JOHN may approve or disapprove the tags, labels, packaging and other
          similar materials submitted as aforesaid and shall discuss with SJ
          JAPAN any modifications or alterations thereof.  SJ JAPAN shall not
          use any such tags, labels, packaging or other similar materials
          without first obtaining the prior express written consent of ST. JOHN.

     (c)  SJ JAPAN shall submit to ST. JOHN samples of all proposed business
          cards, invoices, order forms, stationery and other similar printed
          materials from which ST. JOHN may select those, if any, which ST. JOHN
          approves for use in connection with Products.  ST. JOHN may approve or
          disapprove the business cards, invoices, order forms, stationery and
          other similar printed materials submitted as aforesaid and shall
          discuss with SJ

                                       4
<PAGE>
 
          JAPAN any modifications or alterations thereof.  SJ JAPAN shall not
          use any such business cards, invoices, order forms, stationery or
          other similar printed materials without first obtaining the prior
          express written consent of ST. JOHN.

     (d)  It is specifically understood and agreed that ST. JOHN's approval
          pursuant to subsections (a), (b) and (c) above shall not be
          unreasonably withheld.  Any sample, copy, artwork or other material
          submitted to ST. JOHN for its approval which is not disapproved within
          twenty (20) business days after ST. JOHN's receipt thereof shall be
          deemed approved for use hereunder, but only for the use for which
          approval was sought.  After any sample, copy, artwork or other
          material has been approved, SJ JAPAN shall not depart therefrom in any
          substantial respect without the prior written ap proval of ST. JOHN.
          If  ST. JOHN should disapprove any material pursuant to this Section
          3.2, SJ JAPAN shall neither use nor permit the same to be used in any
          manner.

     (e)  Insofar as any packaging and advertising material to be used in
          connection with the Products or otherwise utilizing the Licensed
          Trademarks is created for SJ JAPAN by a third party, SJ JAPAN shall
          execute such assignments of copyright as ST. JOHN shall require.
          Notwithstanding the foregoing sentence, SJ JAPAN's existing
          copyrights, trademarks and other proprietary rights incorporated into
          such artwork shall remain the property of SJ JAPAN and shall not be
          assigned to ST. JOHN and shall not be subject to ST. JOHN's use,
          without SJ JAPAN's prior written consent.

          3.3  Manufacture or Distribution of Competitive Goods.  SJ JAPAN shall
               ------------------------------------------------                 
not manufacture or distribute any products which are directly or indirectly
competitive with the Products.

          3.4  Customer Complaints.  SJ JAPAN agrees to cooperate with ST. JOHN
               -------------------                                             
in dealing with any customer complaints concerning the Products and to take any
action requested by ST. JOHN to resolve such complaints.

          3.5  Quality Control.  In order to protect the goodwill and reputation
               ---------------                                                  
associated with the Licensed Trademarks, SJ JAPAN covenants and agrees as
follows:

     (a)  The Products shall be distributed and sold with packaging and sales
          promo tion materials appropriate for highest quality Products and
          shall meet all specifications and standards therefor which ST. JOHN
          may provide to SJ JAPAN from time to time.

                                       5
<PAGE>
 
     (b)  In order to maintain the reputation, image and prestige of the
          Licensed Trademarks, SJ JAPAN's distribution patterns shall consist of
          those retail outlets whose location, merchandising and overall
          operations are consistent with the high quality of Products and the
          reputation, image and prestige of the Licensed Trademarks.

     (c)  SJ JAPAN may not use a personality or celebrity to endorse or promote
          any Products unless and until ST. JOHN has given SJ JAPAN its specific
          written approval for such personality or celebrity to endorse or
          promote such Products.

     (d)  SJ JAPAN's policy of sale, distribution and exploitation of the
          Products shall be of high standard and shall in no manner reflect
          adversely upon the good name of ST. JOHN or its other licensees or
          upon the goodwill and reputation associated with the Licensed
          Trademarks.

          3.6  Design Services.  From time to time, ST. JOHN may prepare and
               ---------------                                              
deliver to SJ JAPAN ideas, sketches and other materials utilizing the Licensed
Trademarks for use in connection with the Products ("ST. JOHN Ideas").  ST. JOHN
Ideas shall be used by SJ JAPAN on a non-exclusive basis, solely in connection
with the distribution and sale of Products pursuant to this Agreement.  If SJ
JAPAN chooses not to use such ST. JOHN Ideas within thirty (30) days of SJ
JAPAN's receipt thereof, SJ JAPAN shall return them to ST. JOHN, at SJ JAPAN's
expense, and may not use them or permit their use thereafter.  Whether or not SJ
JAPAN chooses to use any ST. JOHN Ideas, ST. JOHN may use and permit others to
use them in any manner it desires.  ST. JOHN shall at all times retain ownership
of any and all intellectual property rights related to ST. JOHN Ideas and SJ
JAPAN shall keep all information related to the ST. JOHN Ideas confidential and
shall not disclose such information to any party without the prior written
consent of ST. JOHN in each instance; provided, that nothing herein shall
prevent SJ JAPAN from using, disclosing or authorizing the disclosure of any
such information which is disclosed orally and is not identified as confidential
information either at the time of disclosure or by written notice sent to SJ
JAPAN within ten (10) business days after disclosure thereof.

          3.7  Expenses.  Except as specifically stated otherwise, SJ JAPAN
               --------                                                    
assumes full responsibility for all costs and expenses which it incurs in
carrying out its obligations under this Agreement, including but not limited to
all rentals, salaries, commissions, advertising, demonstration, travel and
accommodation expenses without the right to reimbursement for any portion
thereof from ST. JOHN.

                                       6
<PAGE>
 
                                   ARTICLE 4
                                   ---------
                      INDEMNITY; INFRINGEMENT; INSURANCE
                      ----------------------------------

          4.1  SJ JAPAN Indemnity.  SJ JAPAN hereby indemnifies, saves and holds
               ------------------                                               
ST. JOHN harmless from and against any and all liabilities, losses, damages and
expenses (including reasonable attorneys' fees and expenses) arising out of or
resulting from: (i) any act or omission that may be committed or suffered by SJ
JAPAN or any of its servants, agents or employees in connection with SJ JAPAN's
performance of this Agreement, (ii) any actual or alleged infringement or
violation of any patents, copyrights, trademarks or other rights, including
trade secrets and rights of privacy and publicity, in connection with the
distribution, sale, use, advertisement or promotion of any of the Products
(other than those arising from the design or manufacture of Products or other
similar matters not within the control of SJ JAPAN or from the use by SJ JAPAN
of the Licensed Trademarks as permitted hereunder), (iii) SJ JAPAN's false or
misleading advertising in connection with any of the Products, (iv) any
violation of any applicable law or regulation in connection with the marketing,
distribution, sale, advertisement or promotion of any of the Products, (v) any
use of any of the Licensed Trademarks in a manner not authorized by this
Agreement, or (vi) any breach of this Agreement by SJ JAPAN.  SJ JAPAN shall
promptly notify ST. JOHN of any claim which may be made against SJ JAPAN arising
out of SJ JAPAN's use of the Licensed Trademarks.  The provisions of this
Section 4.1 and SJ JAPAN's indemnity obligations hereunder shall sur vive the
expiration or termination of this Agreement.

          4.2  ST. JOHN Indemnity.  ST. JOHN hereby indemnifies, saves and holds
               ------------------                                               
SJ JAPAN harmless from and against any and all liabilities, losses, damages and
expenses (including reasonable attorneys' fees and expenses) arising out of or
resulting from any infringement suit or claim of the nature specified in
Sections 4.3 and 4.4 below to the extent, and only to the extent, that SJ JAPAN
has complied with the provisions of such sections.

          4.3  Third Party Infringement.  In the event that SJ JAPAN learns of
               ------------------------                                       
any infringement, act of unfair competition by third parties or imitation of the
Licensed Trademarks or of any use by any person of a trademark similar to any
Licensed Trademark, it shall promptly notify ST. JOHN thereof.  ST. JOHN
thereupon may take such action as it deems advisable for the protection of its
rights in and to the Licensed Trademarks and, if requested to do so by ST. JOHN,
SJ JAPAN shall cooperate with ST. JOHN in all respects at ST. JOHN's sole
expense, including without limitation by being a plaintiff or co-plaintiff and
by causing its officers to execute pleadings and other necessary documents and
to causing its officers and employees to devote appropriate time to litigation
and/or disposition of all matters within the purview of this Section 4.3; it is
understood that SJ JAPAN's officers and employees will not be compensated for
their time and effort.  In no event, however, shall ST. JOHN be required to take
any action if it deems it inadvisable to do so and SJ JAPAN shall have no right
to take any

                                       7
<PAGE>
 
action with respect to the Licensed Trademarks without ST. JOHN's prior written
approval.  ST. JOHN shall have full control over any action taken, including
without limitation, the right to select counsel, to settle on any terms it deems
advisable in its discretion, to appeal any adverse decision rendered in any
court, to discontinue any action taken by it, and otherwise to make any decision
in respect thereto as it in its discretion deems advisable.  If SJ JAPAN desires
to retain its own counsel, it shall do so at its own expense.  Any recovery as a
result of such action shall belong solely to ST. JOHN.

          4.4  Infringement Claims of Third Parties.  In the event that any
               ------------------------------------                        
infringement suit or any claim of infringement involving the Licensed Trademarks
in connection with the sale or distribution of the Products in the Territory
pursuant to and in accordance with the terms of this Agreement is instituted by
a third party against SJ JAPAN, SJ JAPAN shall give immediate notice of such
suit or claim to ST. JOHN and ST. JOHN shall defend or settle such suit or claim
at its own expense and SJ JAPAN shall offer reasonable cooperation to ST. JOHN
in all aspects of any such suit or claim.  ST. JOHN reserves the right to
control the defense of any such suit or claim, including, without limitation,
the right to choose counsel and to settle and dispose of any such suit or claim
as it deems appropriate in its sole discretion.

          4.5  Insurance.  Before selling or shipping any Products, SJ JAPAN
               ---------                                                    
shall procure and maintain at its own expense in full force and effect at all
times during which Products are being sold, with a reputable insurance carrier
acceptable to ST. JOHN, a liability insurance policy sufficient in the opinion
of ST. JOHN to protect and insure ST. JOHN and SJ JAPAN against any claims or
liabilities with which it or they may be charged because of personal or property
damage or injuries suffered by any person or entity, resulting from the Products
or the use or sale thereof, whether during the term of this Agreement or
thereafter including, without limitation, product liability coverage with
respect to Products.


                                   ARTICLE 5
                                   ---------
                              ORDERS FOR PRODUCTS
                              -------------------

          5.1  Master Purchase Orders.  SJ JAPAN shall submit master purchase
               ----------------------                                        
orders for Products to ST. JOHN twice each calendar year, prior to the Fall
Season and prior to the Spring Cruise Season.  SJ JAPAN shall ensure that its
master purchase orders are received by ST. JOHN no later than thirty (30) days
after SJ JAPAN's receipt from ST. JOHN of samples of Products for such Fall
Season or Spring Cruise Season, as the case may be.

          5.2  Other Purchase Orders.  SJ JAPAN may also submit individual
               ---------------------                                      
purchase orders for Products to ST. JOHN from time to time.  SJ JAPAN shall
ensure

                                       8
<PAGE>
 
that such individual purchase orders are received by ST. JOHN at least sixty
(60) days prior to the delivery dates requested in the order.

          5.3  Terms of Purchase Orders.  Each purchase order submitted by SJ
               ------------------------                                      
JAPAN under Sections 5.1 and 5.2 above shall be in writing sent by mail,
facsimile, telex, telegram or cable, which shall set forth the information
specified below, as well as such other information as ST. JOHN may reasonably
request in the format specified by ST. JOHN from time to time:

     (a)  An identification of the Products ordered, including line name and
          product numbers;

     (b)  Quantity;

     (c)  Delivery schedule, identifying desired delivery dates; and

     (d)  Shipping instructions and shipping addresses.

          5.4  Acceptance of Orders.  All purchase orders are subject to
               --------------------                                     
acceptance in writing by ST. JOHN at its principal offices in Irvine,
California, which acceptance shall be delivered by mail to a regularly
established post office, by facsimile, or by telex, telegram or cable through a
regularly established agency of a commercial telex, telegram or cable company.
Each such purchase order shall be deemed to be an offer by SJ JAPAN to purchase
the Products pursuant to the terms of this Agreement and, when accepted by ST.
JOHN as hereinabove provided, shall give rise to a contract under the terms set
forth herein to the exclusion of any additional or contrary terms set forth in
such purchase order.  ST. JOHN shall deliver to SJ JAPAN its acceptance, if
forthcoming, of any purchase order within two (2) weeks of ST. JOHN's receipt of
such purchase order.

          5.5  Modification of Orders.  Subject to Sections 5.7 and 6.2, no
               ----------------------                                      
accepted purchase order shall be modified or cancelled except upon the written
agreement of both parties.  SJ JAPAN's purchase orders or mutually agreed change
orders shall be subject to all provisions of this Agreement, whether or not the
purchase order or change order so states.

          5.6  Delivery Terms.  (a)  All deliveries of the Products shall be
               --------------                                               
Free Carrier at or near ST. JOHN's manufacturing or warehouse facility.  Unless
otherwise provided in this Agreement, "Free Carrier" shall be construed in
accordance with INCOTERMS 1990 of the International Chamber of Commerce.  All
risk of damage to or loss or delay of the Products shall pass to SJ JAPAN upon
their delivery at the Free Carrier delivery point to (i) a common carrier or
(ii) an agent or any other person specified by SJ JAPAN acting on behalf of SJ
JAPAN.

                                       9
<PAGE>
 
          (b)  SJ JAPAN shall insure each shipment of Products with a reputable
insurer for the full invoice of such shipment.  Such insurance shall provide for
full coverage from the time the Products are delivered at the Free Carrier point
until SJ JAPAN shall have paid ST. JOHN for such Products in full.  ST. JOHN
reserves all rights with respect to delivered Products permitted by law
including, without limitation, the rights of rescission, repossession, resale,
and stoppage in transit until the full amount due from SJ JAPAN in respect of
all delivered Products has been paid.

          (c)  ST. JOHN shall use reasonable commercial efforts to deliver
accepted orders in accordance with requested delivery dates.

          5.7  Product Changes.  ST. JOHN reserves the right, in its sole
               ---------------                                           
discretion and without incurring any liability to SJ JAPAN, to:

          (a)  Alter any Product;

          (b)  Discontinue or cancel the manufacture of any Product, whether or
               not such Product has been announced publicly; or

          (c)  Commence the development, manufacture, marketing or sale of new
               products having features which make any Product wholly or
               partially obsolete.

Notwithstanding the above, ST. JOHN shall use its best efforts to provide SJ
JAPAN with prompt written notice of such decisions and shall use reasonable
commercial efforts to fill all accepted purchase orders from SJ JAPAN for any
altered or discontinued Products of which manufacturing and commercial
deliveries have commenced.


                                   ARTICLE 6
                                   ---------
                              PRICES AND PAYMENTS
                              -------------------

          6.1  Prices.  The prices to be paid by SJ JAPAN for Products purchased
               ------                                                           
pursuant to this Agreement shall be the Distributor List Prices in effect at the
time of acceptance of the relevant purchase order submitted by SJ JAPAN, except
as provided in Section 6.2 below.  The difference between the Distributor List
Prices and the prices SJ JAPAN sells Products to its customers shall be SJ
JAPAN's sole remuneration for distribution of the Products.  All Distributor
List Prices are Free Carrier ST. JOHN's manufacturing or warehouse facility and
include packing in accordance with ST. JOHN's standard commercial export
practices in effect at the time of shipment.  Special packing or handling shall
be at the sole expense of SJ JAPAN.

                                      10
<PAGE>
 
          6.2  Price Increases, Decreases.  ST. JOHN may, at any time during the
               --------------------------                                       
term of this Agreement, increase its prices for the Products by providing SJ
JAPAN with at least sixty (60) days prior written notice.  Increased prices for
all Products shall not apply to purchase orders accepted prior to the effective
date of the price increase unless such orders provide for delivery, and delivery
is in fact made, more than one-hundred and eighty (180) days after the date of
acceptance of the order.  Price decreases with respect to all Products shall be
effective immediately upon written notice to SJ JAPAN on all such Products not
yet delivered.

          6.3  Payment Terms.  All payments hereunder shall be due net ninety
               -------------                                                 
(90) days from the date of shipment of the Products, payable to the bank or
banks specified by ST. JOHN in writing from time to time.  All payments
hereunder shall be made in U.S. dollars or such other currency as may be
mutually agreed upon.  ST. JOHN shall not be obligated to ship Products against
accepted orders in the event ST. JOHN's outstanding accounts receivable from SJ
JAPAN then exceed or would after any such shipment exceed two million dollars
($2,000,000) or such other amount as may be mutually agreed upon from time to
time by ST. JOHN and SJ JAPAN.  In the event of any dispute arising over any
part of an invoice or the total amount due under an invoice, all undisputed
amounts shall be promptly paid by SJ JAPAN in accordance with this Section 6.3.
ST. JOHN shall have the right at any time to require SJ JAPAN to make any
payments hereunder by irrevocable, transferrable and divisible letter of credit
opened at SJ JAPAN's expense, issued or confirmed by a bank specified by, or
acceptable to, ST. JOHN, cash in advance, or such other method of secured
payment as ST. JOHN shall prescribe.

          6.4  Resale Prices.  SJ JAPAN may resell Products at such prices as SJ
               -------------                                                    
JAPAN, in its sole discretion, shall determine.  For purposes of providing ST.
JOHN with relevant market information, SJ JAPAN shall provide ST. JOHN with a
list of its initial sales prices for the Products to be charged to its customers
and SJ JAPAN shall keep ST. JOHN fully informed by providing ST. JOHN with any
new list sales prices within ten (10) days of any change in such sales prices.
Nothing in this Agreement shall be deemed to obligate SJ JAPAN to control and SJ
JAPAN shall not undertake to control the price at which its customers may sell
the Products.

          6.5  Overdue Payments.  If and for so long as any payment from SJ
               ----------------                                            
JAPAN to ST. JOHN under this Agreement shall be overdue, interest shall accrue
on such payment at the rate equal to the lesser of: (i) the prime rate being
charged in Los Angeles, California by Bank of America National Trust & Savings
Association as of the close of business on the date the payment first becomes
due plus one and one-half percent (1.5%), or (ii) the maximum rate permitted by
applicable law.

                                      11
<PAGE>
 
                                   ARTICLE 7
                                   ---------
                            ACCEPTANCE AND WARRANTY
                            -----------------------

          7.1  Acceptance of Products.  In the event of any shortage, damage or
               ----------------------                                          
discrepancy in or to a shipment of Products, SJ JAPAN shall promptly report the
same to ST. JOHN and furnish such written evidence or other documentation as ST.
JOHN may deem appropriate.  ST. JOHN shall not be liable for any such shortage,
damage or discrepancy unless ST. JOHN has received notice and substantiating
evidence thereof from SJ JAPAN within thirty (30) days of arrival of the
Products at SJ JAPAN's shipping address in the Territory.  If the substantiating
evidence delivered by SJ JAPAN demonstrates to ST. JOHN's satisfaction that ST.
JOHN is responsible for such shortage, damage or discrepancy, ST. JOHN shall
promptly deliver additional or substitute Products or parts of Products, as ST.
JOHN may deem sufficient, to SJ JAPAN in accordance with the delivery procedures
set forth herein, and ST. JOHN shall bear any reasonable shipping costs incurred
in the return of any such Products as ST. JOHN directs SJ JAPAN to return and in
ST. JOHN's shipment of such additional or substitute Products; provided that in
no event shall ST. JOHN be liable for any additional costs, expenses or damages
incurred by SJ JAPAN directly or indirectly as a result of such shortage, damage
or discrepancy in or to a shipment.

          7.2  Product Warranty.  ST. JOHN warrants for a period of sixty (60)
               ----------------                                               
days after the date of delivery in accordance with Section 5.6 hereof that the
Products shall be free from defects in material and workmanship.  SJ JAPAN and
ST. JOHN shall discuss in good faith whether any defective Products should be
repaired for resale in the Territory, and any related costs of repair shall be
borne by ST. JOHN.  ST. JOHN's sole obligation in the event of a breach of such
warranty shall be to provide at no charge to SJ JAPAN replacement Products for
those defective Products, and only those defective Products, which the parties
mutually agree shall not be repaired.  All costs of shipment of the replacement
Products to SJ JAPAN shall be borne by ST. JOHN.  SJ JAPAN shall retain all
replaced Products subject to the foregoing warranty for ST. JOHN's inspection
for a period of six (6) months after their replacement.  All such replaced
Products shall become the property of ST. JOHN upon their replacement and SJ
JAPAN shall (i) if so directed by ST. JOHN and upon the terms dictated by ST.
JOHN in its sole discretion, sell all or any portion of such replaced Products
in the Territory as "second" or as "irregular" items, and (ii) return or destroy
any such replaced Products as ST. JOHN shall so request, provided, that ST. JOHN
shall bear any related shipping costs for the return of such Products.  In any
event, SJ JAPAN shall not affix any Licensed Trademark to any Product if it is
to be sold as a "second" or as an "irregular" and shall remove the Licensed
Trademarks from any Product to be sold as a "second" or as an "irregular."

          7.3  Excluded Claims.  ST. JOHN shall have no obligation under Section
               ---------------                                                  
7.2 above in the event that replacement of Products shall have been necessitated
in

                                      12
<PAGE>
 
whole or in part by Force Majeure as defined in Section 13.1 hereof, or by the
fault or negligence of SJ JAPAN.

          7.4  Limited Warranty.  THE WARRANTIES SET FORTH IN THIS ARTICLE 7 ARE
               ----------------                                                 
INTENDED SOLELY FOR THE BENEFIT OF SJ JAPAN.  ALL CLAIMS HEREUNDER SHALL BE MADE
BY SJ JAPAN AND MAY NOT BE MADE BY SJ JAPAN'S CUSTOMERS.  THE WARRANTIES SET
FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE
HEREBY DISCLAIMED AND EXCLUDED BY ST. JOHN, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ALL
OBLIGATIONS OR LIABILITIES ON THE PART OF ST. JOHN FOR DAMAGES ARISING OUT OF OR
IN CONNECTION WITH THE USE OF THE PRODUCTS.


                                   ARTICLE 8
                                   ---------
                             LIMITATION OF REMEDIES
                             ----------------------

SJ JAPAN UNDERSTANDS AND AGREES AS FOLLOWS:

          8.1  Delay.  ST. JOHN SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE
               -----                                                      
CAUSED BY DELAY IN FURNISHING PRODUCTS AND SERVICES OR ANY OTHER PERFORMANCE
UNDER OR PURSUANT TO THIS AGREEMENT.

          8.2  Sole Remedies.  EXCEPT AS SPECIFICALLY STATED OTHERWISE HEREIN,
               -------------                                                  
THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF ANY AND ALL WARRANTIES AND THE
SOLE REMEDIES FOR ST. JOHN'S LIABILITY OF ANY KIND (INCLUDING LIABILITY FOR
NEGLIGENCE) WITH RESPECT TO THE PRODUCTS AND SERVICES COVERED BY THIS AGREEMENT
AND ALL OTHER PERFORMANCE BY ST. JOHN UNDER OR PURSUANT TO THIS AGREEMENT SHALL
BE LIMITED TO THE REMEDIES PROVIDED IN SECTION 7.2, PRODUCT WARRANTY.

          8.3  Consequential Damages.  IN NO EVENT SHALL ST. JOHN'S LIABILITY OF
               ---------------------                                            
ANY KIND INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES, EVEN IF ST. JOHN SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
POTENTIAL LOSS OR DAMAGE.

                                      13
<PAGE>
 
                                   ARTICLE 9
                                   ---------
                                CONFIDENTIALITY
                                ---------------

          SJ JAPAN acknowledges and agrees that all ST. JOHN Information is
confidential and proprietary to ST. JOHN.  SJ JAPAN agrees not to use any of
such ST. JOHN Information during the term of this Agreement and for a period of
five (5) years thereafter for any purpose other than as permitted or required
for performance by SJ JAPAN hereunder.  SJ JAPAN further agrees not to disclose
or provide any of such ST. JOHN Information to any third party and to take all
necessary measures to prevent any such disclosure by its employees, agents,
contractors or consultants during the term hereof and for a period of five (5)
years thereafter.  Nothing herein shall prevent SJ JAPAN from using, disclosing
or authorizing the disclosure of any ST. JOHN Information which (i) is, or
hereafter becomes, through no fault of SJ JAPAN, part of the public domain, (ii)
is disclosed orally and is not identified as confidential information either at
the time of disclosure or by written notice sent to SJ JAPAN within ten (10)
business days after disclosure thereof, or (iii) is required to be disclosed by
any governmental authority or otherwise under applicable law.

          ST. JOHN acknowledges and agrees that all SJ JAPAN Information is
confidential and proprietary to SJ JAPAN.  ST. JOHN agrees not to use any of
such SJ JAPAN Information during the term of this Agreement for any purpose
other than as permitted or required for performance by ST. JOHN hereunder.  ST.
JOHN further agrees not to disclose or provide any of such SJ JAPAN Information
to any third party and to take all necessary measures to prevent any such
disclosure by its employees, agents, contractors or consultants during the term
hereof.  Nothing herein shall prevent ST. JOHN from using, disclosing or
authorizing the disclosure of any SJ JAPAN Information which (i) is, or
hereafter becomes, through no fault of ST. JOHN, part of the public domain, (ii)
is disclosed orally and is not identified as confidential information either at
the time of disclosure or by written notice sent to ST. JOHN within ten (10)
business days after disclosure thereof, or (iii) is required to be disclosed by
any governmental authority or otherwise under applicable law.


                                   ARTICLE 10
                                   ----------
                             TRADEMARKS; COPYRIGHT
                             ---------------------

          10.1  Exploitation of Rights.  SJ JAPAN shall use its best efforts to
                ----------------------                                         
exploit the rights herein granted throughout the Territory consistent with the
high standards and prestige represented by the Licensed Trademarks.

          10.2  Disputes Among Licensees.  Any dispute between SJ JAPAN and any
                ------------------------                                       
other licensee of ST. JOHN with respect to the scope of the license rights
covered

                                      14
<PAGE>
 
by their respective license agreements shall be resolved by ST. JOHN and ST.
JOHN's resolution of such dispute shall be final and binding.

          10.3  Exclusive License.  ST. JOHN hereby covenants not to grant to
                -----------------                                            
any person or entity other than SJ JAPAN a license to use the Licensed
Trademarks in the Territory in connection with the distribution and sale of
women's apparel or women's accessories which are both manufactured and
distributed by ST. JOHN for retail sale in the United States of America.  ST.
JOHN shall indemnify, save and hold harmless SJ JAPAN for any losses or damages
incurred by SJ JAPAN (including reasonable attorney's fees) as a result of such
breach; provided, that in no event shall ST. JOHN bear any liability to SJ JAPAN
for the use of the Licensed Trademarks in connection with the importation of
Products into the Territory by third parties without the approval or
authorization of ST. JOHN.

          10.4  Ownership.  SJ JAPAN acknowledges and agrees that SJ JAPAN shall
                ---------                                                       
acquire no ownership rights to any of the Licensed Trademarks by virtue of this
Agreement or otherwise and that all uses by SJ JAPAN of the Licensed Trademarks
and any and all goodwill related thereto shall inure to the benefit of ST. JOHN.
SJ JAPAN shall not, at any time, do or suffer to be done any act or thing which
may in any way adversely affect the validity of any Licensed Trademark, any
rights of ST. JOHN in and to any Licensed Trademark or any registrations thereof
or which, directly or indirectly, may reduce the value of the Licensed Trademark
or detract from its reputation.  SJ JAPAN shall not, during the term of this
Agreement or at any time thereafter, directly or indirectly, contest or aid
others in contesting the ownership of the Licensed Trademarks or the validity of
said trademarks, including registering or applying to register any of the
Licensed Trademarks or any trademarks or logos similar thereto anywhere in the
world.  At ST. JOHN's request during the term of this Agreement or thereafter,
SJ JAPAN shall execute any and all documents reasonably required by ST. JOHN to
confirm ST. JOHN's ownership of all rights in and to the Licensed Trademarks and
the respective rights of ST. JOHN and SJ JAPAN pursuant to this Agreement.  SJ
JAPAN shall cooperate with ST. JOHN in connection with the filing and
prosecution by ST. JOHN of applications in ST. JOHN's name to register the
Licensed Trademarks for Products and the maintenance and renewal of such
registrations as may issue.  SJ JAPAN hereby irrevocably appoints ST. JOHN as
its attorney-in-fact for the purpose of executing any and all such documents
referred to in this Section 10.4.

          10.5  Use of Name.  Except as otherwise permitted by ST. JOHN, SJ
                -----------                                                
JAPAN shall not use the Licensed Trademarks, in whole or in part, as a corporate
name or trade name. Except as otherwise permitted by ST. JOHN, SJ JAPAN shall
not join any name or names with the Licensed Trademarks so as to form a new mark
or for any other purpose or use.  SJ JAPAN shall not use any name or names in
connection with the Licensed Trademarks in advertising, publicity, labeling,
packaging or printed matter

                                      15
<PAGE>
 
of any kind utilized by SJ JAPAN in connection with Products, unless and until
ST. JOHN consents thereto in writing.

          10.6  Compliance With Law; Markings.  SJ JAPAN shall use the Licensed
                -----------------------------                                  
Trademarks in the Territory strictly in compliance with the legal requirements
obtaining therein and shall use such markings in connection therewith as may be
required by applicable legal provisions.  SJ JAPAN shall use and display the
Licensed Trademarks only in such form and manner as are specifically approved in
writing by ST. JOHN.  SJ JAPAN shall cause to appear such legends, markings and
notices as ST. JOHN may request, including, without limitation, the appropriate
trademark or service mark notice, either "TM", "SM", or (R) as may be reasonably
necessary in order to give appropriate notice of any trademark, service mark or
other rights therein or pertaining thereto.

          10.7  Copyright.  Any copyright which may be created in any materials
                ---------                                                      
provided by ST. JOHN hereunder including, without limitation, any sketch,
design, packaging, label, tag or the like designed or approved by ST. JOHN shall
be the property of ST. JOHN.  SJ JAPAN shall not, at any time, do or suffer to
be done any act or thing which may adversely affect any rights of ST. JOHN in
such sketches, designs, packaging, labels, tags and the like, including, without
limitation, disclosing such information or filing any application in SJ JAPAN's
name to record any claims to copyrights in Products, and SJ JAPAN shall do all
things reasonably required by ST. JOHN to preserve and protect said rights,
including, without limitation, placing the copyright notice on all Products and
the packaging, labels and tags therefor.



                                   ARTICLE 11
                                   ----------
                           TAXES; IMPORT OF PRODUCTS
                           -------------------------

          11.1  Taxes.  All payments to be made by SJ JAPAN to ST. JOHN pursuant
                -----                                                           
to this Agreement represent net amounts ST. JOHN is entitled to receive, shall
not be subject to any deductions for any reason whatsoever, and are net of taxes
(including Japanese withholding tax) and customs duties.  In the event any of
said payments become subject to taxes (including without limitation, sales,
Japanese withholding, value-added and similar taxes), duties, assessments or
fees of whatever kind or nature levied outside the United States, said payments
shall be increased to such an extent as to allow ST. JOHN to receive the net
amounts due under this Agreement.

          11.2  Import Documentation.  SJ JAPAN shall be responsible for
                --------------------                                    
obtaining all licenses and permits and for satisfying all formalities as may be
required to import Products into the Territory in accordance with then
prevailing law or regulations.

                                      16
<PAGE>
 
                                   ARTICLE 12
                                   ----------
                              TERM AND TERMINATION
                              --------------------

          12.1  Term.  This Agreement shall take effect as of the date first
                ----                                                        
above written and shall continue in force for a period of ten (10) years.
Thereafter, this Agreement shall terminate unless renewed by mutual agreement of
the parties hereto.

          12.2  Termination.  Notwithstanding the provisions of Section 12.1
                -----------                                                 
above, this Agreement may be terminated in accordance with the following
provisions:

     (a)  Either party hereto may terminate this Agreement at any time by giving
          notice in writing to the other party, which notice shall be effective
          upon dispatch, should the other party file a petition of any type as
          to its bankruptcy, be declared bankrupt, become insolvent, make an
          assignment or other arrangement for the benefit of its creditors, have
          all or a substantial portion of its capital stock or assets
          expropriated by any government, be dissolved or liquidated, except in
          consequence of a merger, amalgamation or other corporate
          reorganization to which it may be a party.

     (b)  Either party may terminate this Agreement by giving notice in writing
          to the other party should an event of Force Majeure continue for more
          than ninety (90) days as provided in Section 13.5 below.

     (c)  Either party may terminate this Agreement by giving notice in writing
          to the other party in the event the other party is in material breach
          of this Agreement and shall have failed to cure such breach within
          thirty (30) days of receipt of written notice thereof from the first
          party.  During said thirty (30) day period, the parties shall
          negotiate in good faith in an attempt to reach mutual agreement on a
          method to avoid such termination.  The said notice shall specifically
          state the breach which the party giving the notice believes is
          material.

     (d)  Either party may terminate this Agreement upon giving notice in
          writing to the other party in the event of termination of that certain
          Joint Venture Agreement, dated July 17, 1997, between ST. JOHN and
          Commercial Development Co., Ltd.

          12.3  Rights and Obligations on Termination.  In the event of
                -------------------------------------                  
termination of this Agreement for any reason, the parties shall have the
following rights and obligations;

                                      17
<PAGE>
 
     (a)  Termination of this Agreement shall not release either party from the
          obligation to make payment of all amounts then or thereafter due and
          payable.

     (b)  ST. JOHN shall have the right, at its option, to (i) cancel any
          accepted purchase order which provides for delivery after the
          effective date of termination, and/or (ii) repurchase all or any part
          of SJ JAPAN's inventory of Products in SJ JAPAN's possession as of the
          termination date at ST. JOHN's invoiced price to SJ JAPAN for such
          Products, less depreciation calculated on a thirty-six (36) month,
          straight-line basis and less any appropriate amount for excessive wear
          and tear, plus freight to the original Free Carrier shipping point.
          ST. JOHN shall exercise its option under this subsection by notifying
          SJ JAPAN in writing no later than thirty (30) days after the effective
          termination date.

     (c)  SJ JAPAN's obligations pursuant to Article 9 hereof shall survive
          termination of this Agreement.

     (d)  Within thirty (30) days of the effective date of termination of this
          Agreement, SJ JAPAN shall furnish ST. JOHN with a list of all SJ
          JAPAN's customers and the place of destination of all Products sold
          which are still covered by a ST. JOHN warranty.  In addition, SJ JAPAN
          agrees to furnish ST. JOHN with complete information as to calls or
          the status of any negotiations for the sale of the Products.

          12.4 No Compensation.  In the event either party terminates this
               ---------------                                            
Agreement for any reason in accordance with the terms hereof, the parties hereby
agree that, subject to the provisions of Section 12.3(a) hereof and without
prejudice to any other remedies which either party may have in respect of any
breach of this Agreement, neither party shall be entitled to any compensation or
like payment from the other as a result of such termination.

          12.5 Injunctive Relief.  Notwithstanding any expiration or termination
               -----------------                                                
in accordance with Sections 12.1 or 12.2 above, ST. JOHN shall have and hereby
reserves all rights and remedies which it has, or which are granted to it by
operation of law or in equity, to enjoin the unlawful or unauthorized use of the
Licensed Trademarks (any of which injunctive relief may be sought in the courts,
and also may be sought, prior to or in lieu of termination) and to be
compensated for damages for breach of this Agreement.  In addition, nothing
herein shall be deemed to prevent a party from bringing an action for damages
either prior to or in lieu of termination if a default in performance by the
other party occurs and is not cured timely in accordance with the provisions of
Section 12.2 above.  The parties acknowledge that SJ JAPAN's unauthorized use of
the Licensed Trademarks will give rise to irreparable injury to ST. JOHN,
inadequately compensable

                                      18
<PAGE>
 
in damages.  Accordingly, in addition to any other remedies which may be
available to ST. JOHN at law or in equity, ST. JOHN shall be entitled to
preliminary and permanent injunctive relief against such breach or threatened
breach without the necessity of proving actual damages or that monetary damages
would be inadequate.

          12.6 Reversion of Rights; Return of Materials.  On the expiration or
               ----------------------------------------                       
termination of this Agreement, all of the rights of SJ JAPAN under this
Agreement shall terminate forthwith and shall revert immediately to ST. JOHN and
SJ JAPAN shall discontinue forthwith all use of the Licensed Trademarks, no
longer shall have the right to use the Licensed Trademarks or any variation or
simulation thereof and promptly shall transfer to ST. JOHN, free of charge, all
registrations, filings and rights with regard to the Licensed Trademarks which
it may have possessed at any time.  In addition, SJ JAPAN thereupon shall
deliver to ST. JOHN, free of charge, all sketches and other material in its
possession which were designed or approved by ST. JOHN or any other materials or
copies of materials obtained by SJ JAPAN from ST. JOHN and all labels, tags and
other material in its possession with any Licensed Trademark thereon.  After the
expiration or termination of this Agreement, SJ JAPAN shall not use or permit
others to use any of said labels, tags, sketches and other materials, or any
variations or simulations thereof, in connection with Products or any other
merchandise.


                                  ARTICLE 13
                                  ----------
                                 FORCE MAJEURE
                                 -------------

          13.1 Definition.  Force Majeure shall mean any event or condition, not
               ----------                                                       
existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, which prevents in whole or in material part the performance by one of the
parties of its obligations hereunder or which renders the performance of such
obligations so difficult or costly as to make such performance commercially
unreasonable.  Without limiting the foregoing, the following shall constitute
events or conditions of Force Majeure:  acts of State or governmental action,
riots, disturbance, war, strikes, lockouts, slowdowns, prolonged shortage of
energy suppliers, epidemics, fire, flood, hurricane, typhoon, earthquake,
lightning and explosion.  It is in particular expressly agreed that any refusal
or failure of any governmental authority to grant any export license legally
required for the fulfillment by ST. JOHN of its obligations hereunder shall
constitute an event of Force Majeure.

          13.2 Notice.  Upon giving notice to the other party, a party affected
               ------                                                          
by an event of Force Majeure shall be released without any liability on its part
from the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the event of Force Majeure.  Such notice shall include a description of the
nature of the event of Force Majeure, and its

                                      19
<PAGE>
 
cause and possible consequences.  The party claiming Force Majeure shall
promptly notify the other party of the termination of such event.

          13.3 Confirmation.  The party invoking Force Majeure shall provide to
               ------------                                                    
the other party confirmation of the existence of the circumstances constituting
Force Majeure.  Such evidence may consist of a statement or certificate of an
appropriate governmental department or agency where available, or a statement
describing in detail the facts claimed to constitute Force Majeure.

          13.4 Suspension of Performance.  During the period that the
               -------------------------                             
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder to
the extent that such suspension is commercially reasonable.

          13.5 Termination.  Should the period of Force Majeure continue for
               -----------                                                  
more than ninety (90) consecutive days, either party may terminate this
Agreement without liability to the other party, except for payments due to such
date, upon giving written notice to the other party.

                                   ARTICLE 14
                                   ----------
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

          14.1 ST. JOHN.  ST. JOHN represents and warrants (i) that it has full
               --------                                                        
right, power and authority to enter into this Agreement and to perform all of
its obligations hereunder, and (ii) that to its knowledge utilization of the
Licensed Trademarks pursuant to and consistent with the terms of this Agreement
will not constitute an infringement of the rights of any third party.  The
foregoing warranty and Section 7.2 constitute the entire warranty of ST. JOHN
and ST. JOHN makes no other warranty of any kind, either express or implied.

          14.2 SJ JAPAN.  SJ JAPAN represents and warrants that it has full
               --------                                                    
right, power and authority to enter into this Agreement and to perform all of
its obligations hereunder.


                                   ARTICLE 15
                                   ----------
                          JURISDICTION; INTERPRETATION
                          ----------------------------

          15.1 Disputes.  The sole jurisdiction and venue for any court action
               --------                                                       
arising out of this Agreement shall be an appropriate federal or state court in
Orange County, California.  Each of ST. JOHN and SJ JAPAN hereby irrevocably
submits to the jurisdiction of any of said courts in any court action and hereby
waives any claim or

                                      20
<PAGE>
 
defense of inconvenient forum.  Each of ST. JOHN and SJ JAPAN represents and
warrants that it is not entitled to immunity from judicial proceedings and
agrees that, should the other bring any court action, it will not claim any
immunity from such proceedings for itself or with respect to its property.
Notwithstanding the foregoing, the parties acknowledge and agree that ST. JOHN
shall have the right, at any time, to seek injunctive relief in any court in the
Territory to enjoin any unlawful or unauthorized use of the Licensed Trademarks
by SJ JAPAN.

     In the event of any action for the breach of this Agreement or other cause
by any Party, the prevailing Party shall be entitled to reasonable attorney's
fees, costs and expenses incurred in such action.

          15.2 Governing Law.  The validity, construction and performance of
               -------------                                                
this Agreement shall be governed by and interpreted in accordance with the laws
of California, excluding its choice of law provisions.

          15.3 Governing Language.  This Agreement is executed in the English
               ------------------                                            
language which shall be the controlling language and no translation or
restatement of the terms and conditions hereof in any other language will have
any effect in the interpretation or application thereof.  In case of any
conflict between the English version and any translated version of this
Agreement, the English version shall govern.

          15.4 Effect of Headings.  The headings to Articles and Sections of
               ------------------                                           
this Agreement, excepting those in Article 1 hereof, are to facilitate reference
only, do not form a part of this Agreement, and shall not in any way affect the
interpretation hereof.

          15.5 Non-Waiver.  The waiver, express or implied, by any of the
               ----------                                                
parties hereto of any right hereunder or of any failure to perform or breach
hereof by the other party shall not constitute or be deemed a waiver of any
other right hereunder or of any other failure to perform or breach hereof by
such other party(s), whether of a similar or dissimilar nature thereto.


                                  ARTICLE 16
                                  ----------
                                 MISCELLANEOUS
                                 -------------


          16.1 Assignment.  Subject to Section 2.2 above, neither party shall
               ----------                                                    
have the right to assign or otherwise transfer its rights and obligations under
this Agreement, except with the prior written consent of the other party;
provided, however, ST. JOHN shall be entitled to assign any or all of its rights
and obligations hereunder to any of its subsidiaries, provided that ST. JOHN
shall remain fully liable for the performance of all its obligations hereunder;
provided further, that a successor in interest by merger, by

                                      21
<PAGE>
 
operation of law, assignment, purchase or otherwise of the entire business of
either party shall acquire all rights and obligations of such party hereunder.
Any prohibited assignment shall be null and void.  Any permitted assignment
shall be subject to and conditioned on the issuance of any governmental
validations, authorizations, licenses or rulings then required under applicable
law in connection with such assignment.

          16.2 Relationship.  This Agreement does not make either party the
               ------------                                                
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party.  In fulfilling its obligations pursuant to this Agreement each
party shall be acting as an independent contractor.

          16.3 Notices.  All reports, approvals, requests, demands and notices
               -------                                                        
required or permitted by this Agreement to be given to a party shall be valid
and sufficient if dispatched by registered mail, postage prepaid, in any post
office in the United States or Japan, as the case may be, or by facsimile
transmission, to the addresses first above written or such other addresses or
facsimile numbers as the respective parties may designate by like notice from
time to time.  Any notice given as herein provided shall be considered to have
been received fifteen (15) days after the mailing thereof, or if by facsimile
transmission, the next business day of the country in which the recipient is
located.

          16.4 ENTIRE AGREEMENT.  THIS AGREEMENT, INCLUDING THE SCHEDULES HERETO
               ----------------                                                 
AND INCORPORATED AS AN INTEGRAL PART OF THIS AGREEMENT, CONSTITUTES THE ENTIRE
AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND
SUPERSEDES ALL PREVIOUS LICENSE AND/OR DISTRIBUTORSHIP AGREEMENTS BY AND BETWEEN
ST. JOHN AND SJ JAPAN AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN, AND ALL
NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD BETWEEN THE PARTIES
RELATED TO THIS AGREEMENT.  SJ JAPAN ACKNOWLEDGES THAT IT HAS NOT BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY ANY REPRESENTATIONS OR STATEMENTS, ORAL OR
WRITTEN, NOT EXPRESSLY CONTAINED HEREIN.

          16.5 Amendment.  This Agreement shall not be deemed or construed to be
               ---------                                                        
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by written amendment signed by the parties hereto.

          16.6 Publicity.  This Agreement is confidential and no party shall
               ---------                                                    
issue press releases or engage in other types of publicity of any nature dealing
with the commercial and legal details of this Agreement without the other
party's prior written

                                      22
<PAGE>
 
approval, which approval shall not be unreasonably withheld.  However, approval
of such disclosure shall be deemed to be given to the extent such disclosure is
required to comply with governmental rules, regulations or other governmental
requirements.  In such event, the publishing party shall furnish a copy of such
disclosure to the other party.

          16.7 Severability.  In the event that any of the terms of this
               ------------                                             
Agreement are in conflict with any rule of law or statutory provision or are
otherwise unenforceable under the laws or regulations of any government or
subdivision thereof, such terms shall be deemed stricken from this Agreement,
but such invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement and this Agreement shall continue in force, unless the
invalidity or unenforceability of any such provisions hereof does substantial
violence to, or where the invalid or unenforceable provisions comprise an
integral part of, or are otherwise inseparable from, the remainder of this
Agreement.

          16.8 Counterparts.  This Agreement may be executed in counterparts,
               ------------                                                  
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.


                                 * * * * * * *


                                      23
<PAGE>
 
   IN WITNESS WHEREOF, The parties have caused this Agreement to be executed on
the date first above written.


ST. JOHN KNITS, INC.



By:   /s/ Bob Gray
   -------------------------------------------
Bob Gray
Chairman



ST. JOHN CO., LTD.



By:   /s/ Katsuyuki Masuda
   ---------------------------------------
Katsuyuki Masuda
Representative Director



By:   /s/ David Frankel
   -----------------------------------------
David Frankel
Representative Director


                                      24
<PAGE>
 
                                  SCHEDULE A
                                  ----------


                              LICENSED TRADEMARKS


     Marie Gray(R) and Marie Gray by St. John(R), each a registered trademark of
     St. John Knits, Inc.


                                      A-1
<PAGE>
 
                                  SCHEDULE B
                                  ----------


                           U.S. WHOLESALE PRICE LIST


                                      B-1