EXHIBIT 10.14
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RETAIL ALLIANCE AGREEMENT
BY AND BETWEEN
SEPHORA USA, LLC
AND
ADVANCED AESTHETICS, LLC AND ADVANCED AESTHETICS, INC.
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TABLE OF CONTENTS
Page
1. DEFINED TERMS.........................................................1
1.1 Definitions..................................................1
2. GRANT OF EXCLUSIVE RIGHTS.............................................5
2.1 Grant........................................................5
2.2 Rights Reserved by AAI.......................................6
3. TERM..................................................................6
3.1 Initial Term.................................................6
3.2 Additional Term..............................................6
3.3 Early Termination............................................6
3.4 Consequences of Termination..................................7
4. CONSIDERATION; PAYMENT PROCEDURES.....................................8
4.1 Consideration................................................8
4.2 No Other Consideration.......................................9
4.3 Payment Procedures...........................................9
5. EARN BACK OF PERFORMANCE DEPOSIT......................................9
5.1 Earn Back Right..............................................9
6. PRODUCTS AND EQUIPMENT...............................................10
6.1 Definition of Products......................................10
6.2 Product Specifications......................................10
6.3 Supply of Products to Sephora...............................10
6.4 Product Recalls.............................................11
6.5 Supply of AAI Equipment to Sephora; Software
Interface Development.......................................11
7. AAI CENTERS..........................................................12
7.1 Designation of Sephora Host Stores and Test Centers.........12
7.2 Construction of AAI Centers.................................12
7.3 Operation of AAI Centers....................................12
7.4 Qualified Sephora Cast Members..............................13
8. ADJACENT AAI FACILITIES..............................................13
8.1 Timing; Construction........................................13
8.2 Operation...................................................14
8.3 Adjacent AAI Facility Service Revenue; Monthly
Reconciliation..............................................14
9. SEPHORA ALLIANCE STORES..............................................14
9.1 Timing; Construction........................................14
9.2 Operations; Costs...........................................14
10. PROMOTIONAL CAMPAIGN.................................................15
10.1 Ownership...................................................15
10.2 Provision of Materials......................................15
10.3 AAI Promotions or Advertising...............................15
11. INTELLECTUAL PROPERTY................................................15
11.1 Grant of License to AAI Intellectual Property...............15
11.2 Grant of License to Sephora Intellectual Property...........15
11.3 Goodwill....................................................16
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TABLE OF CONTENTS
(Continued)
Page
12. REPRESENTATIONS AND WARRANTIES.......................................16
12.1 Representations and Warranties of AAI and Parent............16
12.2 Representations and Warranties of Sephora...................18
13. ADDITIONAL COVENANTS.................................................19
13.1 Prestige Operations.........................................19
13.2 Deliveries by AAI...........................................19
13.3 Accounting Audit Rights.....................................19
13.4 Ownership of Customer Information...........................19
13.5 Parent Guaranty.............................................20
13.6 Notification of Events......................................21
14. CONFIDENTIALITY; NON-COMPETITION.....................................21
14.1 Confidentiality.............................................21
14.2 Non-Competition.............................................22
15. INSURANCE............................................................22
15.1 AAI Insurance Obligations...................................22
15.2 Sephora Insurance Obligations...............................23
15.3 Policy Information..........................................23
16. INDEMNIFICATION......................................................23
16.1 Indemnification Obligation..................................23
16.2 Procedure...................................................24
16.3 Limitation on Liability.....................................24
16.4 Survival....................................................24
17. MISCELLANEOUS........................................................25
17.1 Notices.....................................................25
17.2 Dispute Resolution..........................................26
17.3 Relationship Among Parties..................................27
17.4 Amendments; Waivers.........................................27
17.5 Entire Agreement............................................27
17.6 Severability................................................28
17.7 No Assignment; No Third Party Beneficiaries.................28
17.8 Survival....................................................28
17.9 Governing Law; Submission to Jurisdiction...................28
17.10 Expenses....................................................28
17.11 Force Majeure...............................................28
17.12 Counterparts Facsimile Signatures...........................28
RETAIL ALLIANCE AGREEMENT
This RETAIL ALLIANCE AGREEMENT (this "Agreement"), dated effective as
of , 2004, is made and entered into by and between SEPHORA USA, LLC, a Delaware
limited liability company ("Sephora"), and ADVANCED AESTHETICS, LLC, a Delaware
limited liability company doing business as Advanced Aesthetics Institute
("AAI") and ADVANCED AESTHETICS, INC., a Delaware corporation ("Parent").
RECITALS
A. Sephora is a leading retailer with an excellent reputation for
selling a wide variety of prestige and innovative beauty products, including
skin care products, in the United States and Canada (the "Territory") through
retail stores and through the internet, including on its website ▇▇▇.▇▇▇▇▇▇▇.▇▇▇
B. AAI is the owner and operator of a fully integrated aesthetics
resource center that brings together medical and non-medical aesthetic
practitioners to create and deliver optimized client appearance.
C. AAI desires to expand its existing diagnostic and treatment platform
by developing a line of skin care products with scientifically proven efficacy,
as more specifically described herein, and Sephora desires to become the
exclusive retailer of such products in the Territory.
D. To further the parties' mutual interest as set forth in these
premises, Sephora and AAI desire to engage in a strategic retail alliance on the
terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. DEFINED TERMS
1.1 Definitions. Capitalized terms used herein will have the respective
meanings set forth below:
"AAI" has the meaning set forth in the Preamble.
"AAI Center" has the meaning set forth in Section 2.1.2 hereof. The
phrase "AAI Centers" includes the Test Centers unless otherwise expressly
indicated.
"AAI Equipment" means the proprietary equipment of AAI necessary to
provide the AAI Services. The operation of the AAI Equipment is dependent, in
part, on the use of third party operating software that will be furnished by AAI
with the AAI Equipment. The initial AAI Equipment to be provided by AAI
hereunder is listed on Schedule 1 attached hereto and incorporated herein by
this reference.
"AAI Host Store" has the meaning set forth in Section 9.1 hereof.
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"AAI Intellectual Property" has the meaning set forth in Section 11.1
hereof.
"AAI Methods" means, collectively, AAI methodologies regarding skin
biology and skin care actives; the diagnostic techniques and methods used by AAI
to identify and define skin care issues; and the proper use of the AAI Equipment
and the Products.
"AAI Salon" means the aesthetic facial salons owned and operated by AAI
in the Territory whether under the brand "▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇," or otherwise.
"AAI Services" means the services listed on Schedule 2 attached hereto
and incorporated herein by this reference that will be provided (i) at AAI
Centers by Qualified Sephora Cast Members and/or (ii) at Adjacent AAI
Facilities. All AAI Services incorporate the AAI Methods, involve the sale of
the Products, and utilize the AAI Equipment. If necessary to obtain a lease,
permits or otherwise comply with Applicable Law at an AAI Center, Sephora Host
Store, or Adjacent AAI Facility, Sephora and AAI may agree to limit the types of
AAI Services offered at any particular AAI Center or Adjacent AAI Facility.
"Adjacent AAI Facility" has the meaning set forth in Section 2.1.3
hereof.
"Adjacent AAI Facility Product Revenue" has the meaning set forth in
Section 8.3 hereof.
"Adjacent AAI Facility Service Revenue" has the meaning set forth in
Section 8.3 hereof.
"Affiliate" means, with respect to any Person (including any party),
any other Person that directly or indirectly controls, is controlled by or is
under common control with that Person, or which that Person beneficially owns
more than fifty percent (50%) of the equity interests therein (provided,
however, that with respect to the parties, no individual or entity as to which
the ultimate parent entity of a party does not directly or indirectly control
the operations or management thereof will be deemed to be an Affiliate of such
party for purposes of this Agreement).
"Agreement" has the meaning set forth in the Preamble.
"Applicable Law" means, as applicable in the context so used, any law,
ordinance, rule, regulation, order, license, permit and other requirement, now
or hereafter in effect, of any Governmental Body of competent jurisdiction
(including, without limitation, regulations promulgated by the U.S. Food and
Drug Administration and the Occupational Safety and Health Administration
regarding health and safety) which is applicable to the operation of the AM
Centers, Adjacent AM Facilities, Sephora Host Stores, Sephora Alliance Stores
and/or the AAI Salons, the manufacture and sale of the Products, the design,
manufacture and use of the AM Equipment, the use of the AM Methods, the
provision of the AAI Services, or the business and operations of Sephora.
"Capital Expenditures" means the aggregate expenditures by Sephora for
the construction of the AAI Centers, the Adjacent AAI Facilities and the Sephora
Alliance Stores including, without limitation, expenditures for leasehold
improvements, furniture, fixtures and equipment (including AAI Equipment).
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"Change of Control" has the meaning given in Section 3.3.2 hereof.
"Claim" means any claim, action or proceeding instituted against a
party by a third Person, including, without limitation, any Governmental Body.
"Confidential Information" has the meaning given in Section 14.1
hereof.
"CRM Application" has the meaning given in Section 6.5.2 hereof.
"Customer Information" means information collected, owned and managed
by Sephora, in accordance with Applicable Law, from Sephora's clients and
customers as a result of providing the AAI Services, or selling the Products,
whether or not such information is integrated into the Software Interface or the
CRM Application.
"Disclosing Party" has the meaning set forth in Section 14.1 hereof
"Dispute" has the meaning set forth in Section 17.2.1 hereof
"Escrow" has the meaning set forth in Section 4.1.1.
"FDA" means the U.S. Food and Drug Administration.
"Force Majeure" has the meaning set forth in Section 17.11 hereof
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Incapacitated" means, with respect to AAI or Sephora, (i) such party
becomes insolvent because of its inability to pay its debts as they become due;
(ii) such party makes a general assignment for the benefit of its creditors;
(iii) a voluntary petition in bankruptcy is filed by such party, or an
involuntary petition is filed against such party and is not opposed within 90
days of such filing; (iv) such party is adjudicated a bankrupt or insolvent; (v)
such party consents to the appointment of a receiver or other custodian for such
party's business or assets, or a receiver or other custodian of such party's
assets or property, or any substantial part thereof, is appointed by any court
of competent jurisdiction; (vi) a final judgment in an amount in excess of
$500,000 rendered against such party remains unsatisfied or of record for 90
days or longer; (vii) such party is dissolved; or (viii) execution is levied
against a substantial portion of such party's business or property.
"Indemnified Party" has the meaning set forth in Section 16.1 hereof
"Indemnifying Party" has the meaning set forth in Section 16.1 hereof "Initial
Term" has the meaning set forth in Section 3.1 hereof "▇▇▇▇▇ ▇▇▇▇▇▇▇" means
▇▇▇▇▇ ▇▇▇▇▇▇▇ Medicine, acting through The ▇▇▇▇▇ ▇▇▇▇▇▇▇ Health System
Corporation, a Maryland corporation, and The ▇▇▇▇▇ ▇▇▇▇▇▇▇ University, a
Maryland corporation.
"▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement" means the Services and Licensing Agreement to
be entered into by and between ▇▇▇▇▇ ▇▇▇▇▇▇▇, Advanced Aesthetics, Inc., and AAI
regarding ▇▇▇▇▇ ▇▇▇▇▇▇▇' development of skin testing methodologies and skin care
product efficacy testing protocols, the scientific testing on Third Party
Products and the Products, and the use of
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the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Certification, including, without limitation, a grant to AAI
and Sephora to use the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Certification in connection with the
Products, the AAI Equipment and the AAI Services. The latest draft of the ▇▇▇▇▇
▇▇▇▇▇▇▇ Agreement is attached hereto as Exhibit C.
"▇▇▇▇▇ ▇▇▇▇▇▇▇ Certification" means the branded validation authorized
by the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement signifying the results of specific testing of the
AAI Products and the validation of the AAI Equipment and the AAI Services.
"Liability" means any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with GAAP and regardless of whether such debt, obligation, duty or
liability is immediately due and payable.
"Material Adverse Effect" with respect to a party hereto, means a
material adverse effect on the business, financial condition or results of
operations of such party.
"Net Revenue" means gross sales revenue from (i) the sale of the
Products by Sephora, (ii) the provision of the AAI Services from the AAJ
Centers, and (iii) the operation of the Sephora Alliance Stores and the Adjacent
AAI Facilities, less customary allowances, discounts, and returns; gross sales
revenue does not include sales tax or other taxes collected from customers for
payment to a governmental authority.
"Parent" has the meaning given in the Preamble hereof.
"Performance Deposit" has the meaning set forth in Section 4.1.1
hereof.
"Performance Deposit Balance" means that portion of the Performance
Deposit not yet earned back by Sephora pursuant to Section 5 hereof.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Product Availability Date" means the date on which both (1) the
Products are first available for purchase by Sephora and (2) Sephora is prepared
to sell the Products in Sephora Retail Stores or on the Website. The parties
anticipate that the Product Availability Date will be in July 2005.
"Products" has the meaning set forth in Section 6.1 hereof.
"Promotional Campaign" has the meaning set forth in Section 10.1
hereof.
"Purchase Order" means a purchase order issued by Sephora to AAI for
any Product substantially in the form attached hereto as Exhibit A. I the event
of any conflict between the provisions of a Purchase Order and the provisions of
this Agreement, the provisions of this Agreement will control.
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"Qualified Sephora Cast Member" has the meaning set forth in Section
7.3 hereof. "Receiving Party" has the meaning set forth in Section 14.1 hereof.
"Renewal Term" has the meaning set forth in Section 3.2 hereof. "Sephora" has
the meaning set forth in the Preamble.
"Sephora Host Store" has the meaning set forth in Section 7.1 hereof.
"Sephora Intellectual Property" has the meaning set forth in Section 11.2
hereof. "Sephora Alliance Store" has the meaning set forth in Section 9.1
hereof. "Sephora Alliance Store Costs" has the meaning set forth in Section 9.2
hereof.
"Sephora Retail Stores" means the retail stores now and hereafter owned
and operated by Sephora in the Territory. As of December 31, 2004, Sephora
expects to own and operate approximately ninety-five (95) Sephora Retail Stores.
"Software Interface" has the meaning given in Section 6.5.2 hereof
"Term" means the Initial Term or the Renewal Term, as applicable.
"Termination Date" means the date on which the Term of this Agreement
terminates either because the Initial Term or any Renewal Term has expired or
because this Agreement has been sooner terminated in accordance with Section 3.3
hereof.
"Territory" has the meaning set forth in Recital A.
"Test Centers' has the meaning set forth in Section 7.1.1 hereof
"Third Party Products" means an assortment of cosmetic products or
cosmeceuticals sold by Sephora, from time to time, from the Sephora Retail
Stores (including the Sephora Host Stores and the Website). An assortment of
Third Party Products may be incorporated by AAI into the AAI Services performed
by the Qualified Sephora Cast Members at the AAI Centers and may be utilized,
featured and promoted by AAI in AAI Salons and Adjacent AAI Facilities to
enhance the professional credibility and awareness of Third Party Products,
subject to any limitations imposed by the vendors of the Third Party Products.
"Website" means any point of presence maintained by Sephora on the
Internet or on any other public or private data network including that certain
website which is identified by the URL ▇▇▇.▇▇▇▇▇▇▇.▇▇▇ With respect to any
Website maintained by Sephora on the World Wide Web or any successor public data
network, such Website includes all HTML pages (or similar unit of information
presented in any relevant data protocol) that either (a) are identified by the
same second-level domain (such as ▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇.▇▇▇) or by the same
equivalent level identifier in any relevant address scheme, or (b) contain
branding, graphics, navigation or other characteristics such that a user
reasonably would conclude that the pages are part of an integrated information
or service offering.
2. GRANT OF EXCLUSIVE RIGHTS
2.1 Grant. Subject to the limited exceptions set forth in Section 2.2
below, AAI grants to Sephora for the Term of this Agreement the exclusive right
throughout the Territory (but only in the Territory) to:
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2.1.1 Sell the Products in Sephora Retail Stores, through the
Website and through any other retail channel of distribution anywhere in the
Territory and promote the sale of the Products through the Promotional Campaign
and any other means reasonably identified by Sephora including television or
radio advertising and catalogues;
2.1.2 Utilize the AAI Intellectual Property and AAI Methods to own
and operate defined retail sales and consultation centers as more particularly
described in Section 7 within the four walls of Sephora Retail Stores (each, an
"AAI Center").
2.1.3 Develop retail space for the operation of an AAI Salon
adjacent to a Sephora Retail Store which is designed to permit the free
pass-through of customers from the AAJ Salon space to the Sephora Retail Store
as more particularly described in Section 8 hereof (each such adjacent retail
space to be referred to as an "Adjacent AAI Facility"); and
2.1.4 Sublease retail space from AAI for the purpose of
constructing and operating a Sephora Alliance Store, as more particularly
described in Section 9 hereof.
2.2 Rights Reserved by AAI. Notwithstanding the exclusive rights granted to
Sephora under Section 2.1 hereof, AAI reserves all rights to use the AAI
Intellectual Property and the AAI Methods, and to sell the Products: (i) in AAI
Salons, excluding an Adjacent AAI Facility; (ii) in offices of licensed medical
or dental doctors including medical spas; (iii) on cruise ships; and (iv)
subject to Sephora's consent, which consent may be granted or withheld in
Sephora's sole discretion, through any other retail distribution channel that
will not have a Material Adverse Effect on Sephora's rights under this
Agreement.
3. TERM
3.1 Initial Term. The initial term of this Agreement (the "Initial
Term") will commence on the date first written above and expire on December 31,
2010 (the "Initial Expiration Date") unless sooner terminated in accordance with
the terms of this Agreement.
3.2 Additional Term Upon the expiration of the Initial Term, this
Agreement may be , extended for one additional term of three (3) years (a
"Removal Term") by mutual agreement of Sephora and AM.
3.3 Early Termination. This Agreement will terminate prior to the
expiration of the Initial Term or the Renewal Term, as applicable, in the manner
and on the earliest date on which any of the following occurs:
3.3.1 upon execution of a written termination agreement by Sephora
and AAI;
3.3.2 by Sephora, in its sole discretion, thirty (30) days after
Sephora receives notice of a transaction by AAI or by any Person which has a
direct or indirect ownership interest in AAI that results in fifty percent (5
0%) or more of the constituent ownership interests in AAI being sold, assigned,
transferred, shared, divided, conveyed or otherwise disposed of to a person not
a beneficial owner of AAI on the date of this Agreement (or a current Affiliate
thereof), or which otherwise results in a change in control of AAI a "Change of
Control" provided, that (i) any sale, assignment, transfer or disposal to AAI's
current beneficial owners or any of their
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current Affiliates and (ii) an initial public offering of AAI, shall not
constitute a Change of Control; provided, further, that if Sephora does not
elect to terminate this Agreement following a Change of Control, by delivery of
a written notice of termination to AAI within thirty (30) days of Sephora's
receipt of notice of a Change of Control, then this Agreement will continue in
full force and effect and will be binding on AAI's successor-in-interest;
3.3.3 by Sephora in its sole discretion within one hundred eighty
(180) days after Sephora discovers that the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement has been
terminated;
3.3.4 automatically, by either AAI or Sephora, if the other party
hereto becomes Incapacitated;
3.3.5 by Sephora in its sole discretion if ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
stops serving as Chairman of AAI at any time prior to December 31, 2007;
provided, however, that the death or permanent physical disability of ▇▇.
▇▇▇▇▇▇▇▇ will not trigger a termination right in favor of Sephora so long as AAI
identifies a qualified replacement within ninety (90) days following the date of
such death or disability; and
3.3.6 by either AAI or Sephora in its sole discretion within one
hundred eighty (180) days after receipt of a written report indicating that Net
Revenue for any trailing twelve (12) month period (from and after December 31,
2006) is less than Five Million Dollars ($5,000,000).
3.4 Consequences of Termination. Except as expressly provided herein,
such expiration or termination will not relieve any party of any obligations or
prejudice any rights of any other party existing at the time of expiration or
termination or terminate those rights or obligations which by their nature
survive the expiration or termination of this Agreement. On the Termination
Date, the following will occur:
3.4.1 Sephora's exclusive rights under Section 2.1 will
automatically terminate and be of no further force and effect.
3.4.2 AAI will be obligated to sell Products to Sephora on a
non-exclusive basis to the extent necessary to fulfill Purchase Orders
outstanding on the Termination Date if fulfillment is so elected by Sephora, and
to permit Sephora to exercise its rights under Section 3.4.4 below.
3.4.3 AAI will be permitted to sell its Products, utilize the AAI
Methods and the AAI Intellectual Property and provide any AAI Services as it
deems, in its sole discretion, appropriate including, but not limited to (i)
selling its Products to Persons other than Sephora, (ii) promoting the sale of
the Products through promotional campaigns and any other means reasonably
identified by AAI, including television or radio advertising and catalogues, and
(iii) providing the AAI Services and utilizing the AAI Intellectual Property and
the AAI Methods to own and/or operate retail sales and consultation centers in
cooperation with other Persons.
3.4.4 Sephora, in sole discretion, will have the right to elect to
continue to operate any or all of the AAI Centers and Sephora Alliance Stores,
in operation immediately prior to the Termination Date, in the same maimer that
such AAI Centers and/or Sephora
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Alliance Stores were operated immediately prior to such termination and in
connection therewith, sell the Products, use the AAI Intellectual Property and
utilize the AAI Methods. Such continued operations shall be on a non-exclusive
basis for up to twelve (12) months following the termination of the Agreement
(the " Period") The Tail Period can be extended by mutual written agreement of
Sephora and AAI. During the Tail Period, Sephora will pay AAI an annual
licensing fee on December 31 of each year (pro-rated for any partial calendar
year) equal to (i) the sum of $50,000 multiplied by the number of AAI Centers
and the Sephora Alliance Stores operated during the preceding calendar year up
to a maximum aggregate licensing fee of $500,000. No additional license fee will
be payable to AAI during the Tail Period for Products sold by Sephora.
3.4.5 If Sephora has terminated the Agreement under Section 3.3.3
or 3.3.5, then by the thirtieth ( day following the Termination Date, AAI shall
return to Sephora 100% of the Performance Deposit Balance. If either party has
terminated the Agreement under Section 3.3.6, then by the thirtieth ( day
following the Termination Date, AAI shall return to Sephora an amount equal to
50% of the Performance Deposit Balance.
3.4.6 If Sephora has not elected to continue to operate the AAI
Centers and the Sephora Alliance Stores under Section 3.4.4, then Sephora will
have a period of six (6) months from the Termination Date to close the AAI
Centers and Sephora Alliance Stores in an orderly manner.
3.4.7 AAI will remain liable for the remaining term of any
sublease for Adjacent AAI Facilities, it being expressly understood that the
termination of this Agreement will not terminate such sublease.
3.4.8 If Sephora has not elected to continue to sell the Products
under Section 3.4.4, then Sephora will have a period of six (6) months from the
Termination Date to sell off Product carried by Sephora and AAI must repurchase
all remaining inventories of the Product (at Sephora's original cost) that are
carried by Sephora within twelve (12) months from the end of such sell-off
period as designated by Sephora for repurchase, with payment for all of the
repurchased inventory to be made, at AAI's election, in either one lump sum or
in equal monthly installments over a period not to exceed six (6) months from
the end of such sell-off period.
4. CONSJDERATION; PAYMENT PROCEDURES
4.1 Consideration. In consideration of the grant of exclusive rights
from AAI to Sephora under Section 2.1 hereof, Sephora will provide AAI with the
consideration set forth in this Section 4.1.
4.1.1 Upon the execution and delivery of this Agreement by Sephora
and AAI, Sephora will deposit the sum of Five Million Dollars ($5,000,000) (the
"Performance Deposit") in an interest bearing account with an escrow agent
jointly selected by AAI and Sephora (the "Escrow"). The Performance Deposit is
intended to secure Sephora's performance of its obligations under this Agreement
and may be earned back by Sephora upon completion of certain milestones as set
forth in Section 5 hereof. The Performance Deposit, with interest accrued
thereon, will be released to AAI on the date on which AAI (i) delivers the
fully-executed ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement to Sephora that does not materially
differ from the draft version
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attached as Exhibit C and (ii) provides Sephora with a certificate of an officer
of AAI certifying that there is no default under the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement,
and an opinion of counsel in the form attached hereto as Exhibit B-2. If AAI
does not deliver the fully executed ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement to Sephora within
one hundred eighty (1 80) days following the execution of this Agreement,
Sephora will have the right, but not the obligation, to terminate this
Agreement. If Sephora so elects to terminate, the entire Performance Deposit,
plus all interest accrued thereon, will be immediately released to Sephora.
4.1.2 For the period commencing with the Product Availability Date
and ending on the Termination Date, Sephora will offer the Products for sale at
the Sephora Retail Stores and, when ready, the AAI Centers and through the
Website pursuant to the terms of this Agreement. AAI may provide Sephora with
suggested prices at which the Products may be sold in the Sephora Retail Stores
and through the Website, but Sephora will retain sole control over pricing of
the Products. Sephora will make payments to AAJ with respect to any Products
purchased by Sephora, within thirty (30) days of delivery of such Products to
Sephora. AAI, in its sole discretion, may offer discounts for earlier payment of
invoices.
4.1.3 Subject to the terms provided in Section 9, Sephora may
construct and operate Sephora Alliance Stores within the AAI Host Stores
(excluding any Sephora Alliance Store in New York, NY or Beverly Hills, CA), and
pay AAI fifty percent (50%) of the net profit from all Sephora Alliance Stores
on a monthly basis, after accounting for Sephora Alliance Store Costs. The
calculation of net profit will be based on the methodology set forth in Schedule
4 attached hereto and incorporated herein by this reference.
4.2 No Other Consideration. Except as specifically provided in Section
4.1 or elsewhere in this Agreement, Sephora will not have any obligation to pay
or provide any other consideration to AAI or any other Person including, without
limitation ▇▇▇▇▇ ▇▇▇▇▇▇▇. AAI will indemnify, defend and protect Sephora from
and against any claim by ▇▇▇▇▇ ▇▇▇▇▇▇▇ for royalty payments under the ▇▇▇▇▇
▇▇▇▇▇▇▇ Agreement.
4.3 Payment Procedures. With the exception of payment of the
Performance Deposit, any amounts due from Sephora hereunder will be paid by
company check. The Performance Deposit will be paid by wire transfer of
immediately available funds. AAI will provide wire instructions to Sephora
concurrently with the execution of this Agreement. With the exception of the
Performance Deposit Balance, all amounts due from AAI hereunder will be paid by
company check. The Performance Deposit Balance will be paid, if at all, by wire
transfer of immediately available funds. Sephora will provide wire instructions
to AAI concurrently with the execution of this Agreement.
5. EARN BACK OF PERFORMANCE DEPOSIT
5.1 Earn Back Right. AAII will return fifty percent (50%) of the
Performance Deposit to Sephora within thirty (30) days of the date on which the
parties have determined that, based on monthly sales reports
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generated by Sephora and furnished to AM, the total of the cumulative Net
Revenues plus Capital Expenditures equals Thirty Million Dollars ($30,000,000).
AAI will return the remaining Performance Deposit to Sephora within thirty (30)
days of the date on which the parties have determined that, based on monthly
sales reports generated by Sephora and furnished to AAI, the total of the
cumulative Net Revenues plus Capital Expenditures equals or exceeds Sixty
Million Dollars ($60,000,000).
6. PRODUCTS AND EQUIPMENT
6.1 Definition of Products. For purposes of this Agreement, the term
"Products" will mean the entire assortment of skin care products developed and
manufactured by AAI and its representatives during the Term pursuant to the
specifications set forth in Section 6.2 below, as the same may be changed,
improved and further developed from time to time throughout the Term of this
Agreement.
6.2 Product Specifications.
----------------------
6.2.1 Product Assortment and Lines. The Products will consist of
an assortment of cosmetic skin treatments, including but not limited to lotions,
creams and gels, for the treatment and management of the skin issues of clients
which may be identified by a Qualified Sephora Cast Member using the AAI
Equipment and the AAI Methods.
6.2.2 Product Warranty. Without limiting AAI's indemnification
obligations under Section 16.1 hereof, AAI's warranty with respect to the
Products sold to Sephora hereunder will be enclosed with the Products and will
extend to any purchaser of the Products.
6.2.3 Branding and Packaging. The packaging for each Product will
be designed by AAI at its sole cost and expense. The packaging for every Product
will, in any event, prominently feature the AAI name and registered trademark,
or any other recognized ▇▇▇▇ of AAI which invokes the goodwill associated with
the AAI name, business and services, and the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Certification. All
Products will be delivered to Sephora conforming to the requirements of this
Section 6.2.3 and Sephora will use only the packaging provided by AAI, other
than external packaging materials. Products will be delivered to Sephora "ready
to sell" with no further action by Sephora required.
6.3 Supply of Products to Sephora.
-----------------------------
6.3.1 Generally. AAI will supply the Products to Sephora for
re-sale by Sephora at the Sephora Retail Stores and the AAI Centers, and from
the Website in quantities, and pursuant to the terms and conditions, specified
in the Purchase Orders which Sephora will issue to AAI from time to time
throughout the Term. AAI will not supply the Products to Sephora at wholesale
prices greater than those charged by AAI to any third Person to whom AAI is
entitled to supply Products under Section 2.2. Sephora will not alter, modify,
add to, or in any way change the Products or the packaging. Sephora may not
knowingly sell the Products to dealers, catalogue houses, resellers or
distributors without the prior written consent of AAI, which will be in AAI's
sole discretion.
6.3.2 Customer Returns. AAI will reimburse Sephora for customers'
returns of Products in accordance with normal cosmetics industry practice.
6.3.3 Product Obsolescence. In the event that AAI discontinues
production of any Product supplied to Sephora, or if Products purchased by
Sephora are not sold prior to such
-10-
Products' expiration date as specified by AAI on the Product packaging or by
Applicable Law, then AAI will reimburse Sephora for the original purchase price
of that unsold Product in accordance with normal cosmetics industry practice.
6.3.4 Testers. AAI will supply testers of the Products at its sole
cost and expense in sufficient quantities for certain Products carried by
Sephora, in accordance with normal cosmetics industry practice. If, in Sephora's
reasonable opinion, sufficient quantities of testers are not provided to
Sephora, then Sephora may provide testers out of Product previously purchased
from AAI, and AAI agrees to reimburse Sephora for the original purchase cost of
such Product.
6.4 Product Recalls. In the event that AAI initiates a recall of a Product,
whether voluntarily or in response to a request from the FDA or any other state
or federal regulatory authority, AAI will be solely responsible for all costs
incurred in connection with such recall including, without limitation,
developing contingency plans for a recall, advertising the recall, making
follow-up checks to ensure that the recall has been successful, and complying
with any requests from the FDA or any other state or federal regulatory
authority. AAI must also repurchase all recalled Products from Sephora at the
original cost to Sephora within sixty (60) days of initiating the recall.
6.5 Supply of AAI Equipment to Sephora; Software Interface
Development.
------------------------------------------------------------------
6.5.1 AAI will supply, at Sephora's cost and expense, all AAI
Equipment required to properly furnish AAI Centers. The AAI Equipment will be
standard third party equipment inclusive of third party software that is also
customized by the equipment manufacturer with AAI's own software including,
without limitation, the Software Interface described in Section 6.5.2 below. AAI
will evaluate and test the AAI Equipment at least quarterly and will provide
software functionality upgrades concurrently with any upgrades of AAI Equipment
used in AAI Salons. The cost of software functionality upgrades will be shared
equally by Sephora and AAI provided that AAI submits a budget for such upgrades
to Sephora in advance and obtains Sephora's consent to such upgrades. In the
event of any mechanical failure of the AAI Equipment, Sephora will seek
replacement, repair or other remedy from the equipment manufacturer. If Sephora
purchases the AAI Equipment from AAI (as opposed to direct from the
manufacturer), AAI will transfer all manufacturer warranties to Sephora. In the
event of a software failure within the AAI Equipment, Sephora will seek
replacement, repair or other remedy from the equipment manufacturer first and
then, if no manufacturer solution is available, from AM.
6.5.2 AAI and Sephora are jointly developing both (i) an
integrated diagnostic software platform and user interface to be utilized in
performing the AAI Services (the "Software Interface") and (ii) a client
relationship management application (the "CRM Application") pursuant to a
mutually agreed work plan. The entire development cost for the Software
Interface and the CRM Application, as mutually agreed in advance, will be shared
jointly by Sephora and AAI. Sephora and AAI will jointly own any and all
intellectual property, source code, object code, and trade secrets associated
with the Software Interface and the CRM Application and, subject only to any
limitations in this Agreement, will have the right to use such intellectual
property, source code, object code and trade secrets without restriction or
limitation or any compensation to the other party. Each of Sephora and AAI will
have the right to retain a
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complete copy of the source code and object code, as modified and updated from
time to time. Sephora will be the sole owner of all Customer Information
collected through the Software Interface or the CRM Application as well as the
sole owner of any Sephora Intellectual Property captured by or embedded in
either the Software Interface or the CRM Application. AAI will be the sole owner
of any AAI Intellectual Property and AAI Methods embedded in the AAI Equipment,
the Software Interface or the CRM Application. AAI and Sephora will enter into a
separate agreement regarding the hosting of the CRM Application on mutually
agreeable terms, although it is expected that AAI will initially provide the
hosting for the CRM Application until the parties agree that the CRM Application
is stable, and then the hosting will be transferred to Sephora or its third
party hosting services provider.
7. AAI CENTERS
7.1 Designation of Sephora Host Stores and Test Centers. Pursuant to
its exclusive grant under Section 2.1 hereof, Sephora will construct and
operate, at its sole cost and expense, AAI Centers in those present and future
Sephora Retail Stores which Sephora selects for such purpose (the "Sephora Host
Stores"). In all instances, the selection of a Sephora Host Store will be
dependent on Sephora securing the consent of its lessor, if required, to the
proposed use of the AAI Center.
7.1.1 Test Centers. Following the execution of this Agreement, AAI
and Sephora will use commercially reasonable efforts to (i) identify, construct
and open eight (8) test centers (the "Test Centers") on a schedule mutually
agreeable to the parties (which will include at least two (2) Adjacent AAI
Facilities). The Test Centers will be constructed and operated in all respects
as AAI Centers arid Adjacent AAI Facilities as set forth in Sections 7 and 8
hereof. The location of the Test Centers will be mutually selected by Sephora
and AAI but in any event will be representative of all of the Sephora Retail
Stores in terms of location, size, sales volume, and revenue. If the parties are
unable to agree on the designation of the Test Centers, Sephora will have final
authority over such designation (subject to lessor approval as noted above).
7.2 Construction of AAI Centers. The precise location of any AAI Center
within each Sephora Host Store will be determined by Sephora and is subject, in
all instances, to the approval of Sephora's lessor. The design and appearance of
the AAI Centers, including layout, signage, furniture and fixtures, will utilize
the AAI Intellectual Property and the AAJ Equipment, and will be designed by
Sephora in consultation with AAI. Notwithstanding such consultation, the final
decision on the design and appearance of the AAI Centers will be made by
Sephora. All furnishings, fixtures and equipment (including the AAI Equipment)
incorporated in the construction of the AAI Centers will be the sole property of
Sephora. The construction costs of the AAI Centers as well as the costs
associated with supplying each AAI Center with the AAI Equipment will be borne
solely by Sephora. All costs of occupancy and operation of the AAI Centers shall
be borne solely by Sephora.
7.3 Operation of AAI Centers. The AAI Centers will be operated as a
"store within a store" inside the four-walls of the Sephora Host Store. Each AAI
Center will be staffed by one or more Sephora employees who will be trained by
AAI to use the AAI Methods and to provide the AAI Services pursuant to Section
7.4 (each, a "Qualified Sephora Cast Member"). Qualified Sephora Cast Members
will use the AAI Methods and the AAJ Equipment to provide the AAI Services and
to sell the Products. All sales of Products (whether from the AAI Center or from
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the Sephora Host Store) will be processed at the cash wrap for the Sephora Host
Store. Each AAI Center will provide AAI Services only when a Qualified Sephora
Cast Member is available.
7.4 Qualified Sephora Cast Members.
------------------------------
7.4.1 Employment. All Qualified Sephora Cast Members will be
employed by Sephora, at its sole cost and expense, and will be subject to
Sephora's employment policies and procedures. All hiring and termination
decisions with respect to Qualified Sephora Cast Members will be made solely by
Sephora. Notwithstanding the foregoing, AAI will provide Sephora with its
recruiting guidelines to assist Sephora in hiring Qualified Sephora Cast
Members. It is anticipated that Qualified Sephora Cast Members will be able to
work interchangeably in the AM Centers and the Sephora Host Stores.
7.4.2 Training. Each Qualified Sephora Cast Member will be trained
by AAI, at AAI's sole cost and expense, to serve as a skin care consultant and
salesperson at the AAI Centers and to provide the AAJ Services. The training of
the Qualified Sephora Cast Members will be commensurate with the training
received by the skin care consultants that service AAJ Salons. To the extent
required by Applicable Law, AAI will also pay for and ensure that every
Qualified Sephora Cast Member is certified and/or licensed by the appropriate
Governmental Body with jurisdiction over the services to be provided by the
Qualified Sephora Cast Member at a particular AAI Center. AAI will also provide
such additional, continuing training arid certification of the Qualified Sephora
Cast Members as is necessary in keeping with AAI's highest standards for
concierges at the AAI Salons, as well as such additional training or
certification required by Applicable Law. AAI shall have the right, from time to
time, to review and inspect the quality of the operations of the AAI Centers by
Sephora and the Qualified Sephora Cast Members providing AAI Services to ensure
compliance with AAI standards. If re training of the Qualified Sephora Cast
Members is required as a result of such compliance review, AAI will provide such
training at AAI' s sole cost and expense. Travel costs for training for
Sephora's personnel will be the responsibility of Sephora. Travel costs for AAI
personnel to train within a Sephora Retail Store will be the responsibility of
AAI.
8. ADJACENT AAI FACILITIES
8.1 Timing; Construction. Sephora and AAI will mutually agree on the
timing, placement and quantity of Adjacent AAI Facilities to be constructed and
retrofitted, as applicable, adjacent to the designated Sephora Retail Stores.
The parties agree that at least two (2) of the Adjacent AAI Facilities will be
adjacent to Sephora Host Stores with Test Centers. In furtherance of this
objective, Sephora and AAI agree to diligently pursue retail leasing
opportunities that would permit the side-by-side operation of a Sephora Retail
Store and the Adjacent AAI Facility under separate direct leases for each of the
Sephora Retail Store and the Adjacent AAI Facility, if possible. If a single
lease for both the Sephora Retail Store and the Adjacent AAI Facility is
required, Sephora and AAI will mutually agree as to who the tenant will be under
any such lease. The cost of construction or modification to any space for an
Adjacent AAI Facility will be charged to AM as provided in Section 8.3 below;
provided, however, that any costs specifically associated with constructing the
free pass-through for customers between the Sephora Retail Store and the
Adjacent AAI Facility will be shared equally by Sephora and AAI. At the request
of AAI, Sephora may provide construction services
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to AAI, at AAI' s cost and expense, if the construction of the Adjacent AAI
Facility is coordinated with the construction of the AAI Center.
8.2 Operation. Sephora and AAI will mutually agree on the specific
method of operation for each Adjacent AAI Facility following execution of this
Agreement; provided, however, that it is expected that AAI will bear all costs
associated with the operation of the Adjacent AAI Facility including, without
limitation, (i) the costs of both the trained staff performing salon services at
the Adjacent AAT Facilities and any administrative staff, such as salaries, the
cost of regulatory compliance or certifications, (ii) leasing and occupancy
costs and all other costs of operating the Adjacent AAI Facilities, (iii)
inventory and shipping costs, (iv) taxes, and (v) the cost of state and local
building code compliance.
8.3 Adjacent AAI Facility Service Revenue; Monthly Reconciliation.
There will be a separate monthly accounting for (i) gross revenue from sales of
Products and Third Party Products at the Adjacent AAI Facility ("Adjacent AAI
Facility Product Revenue") and (ii) gross revenue from sales of salon services
for each Adjacent AAI Facility ("Adjacent AAI Facility Service Revenue") AAI
will be entitled to all Adjacent AAI Facility Service Revenue. Sephora will
retain all Adjacent AAI Facility Product Revenue. Settlement of amounts due and
owing will be made within thirty (30) days of the end of each month. Without
limiting the foregoing, AAI will have the right to sell (and retain the entire
gross revenue from) certain unique products at the Adjacent AAI Facilities that
are specific to or directly associated with the AAI Services offered at the
Adjacent AAI Facilities and that do not overlap or compete with either the
Products or any Third Party Products carried by Sephora; provided that AAI must
submit a listing of such unique products to Sephora in advance of any sales
thereof and obtain Sephora's prior approval, which approval will not be
unreasonably withheld.
9. SEPHORA ALLIANCE STORES
9.1 Timing; Construction. Based on the success of the retail alliance
contemplated by this Agreement, the parties will consider the appropriateness of
constructing a store (a "Sephora Alliance Store") within two (2) AAI Salons to
be selected by mutual agreement of the parties (each, an "AAI Host Store") in
addition to any Sephora Alliance Store that the parties to choose to construct
within AAI Host Stores located in New York, NY and Beverly Hills, CA.
Development of the Sephora Alliance Stores is subject in each instance to the
approval of AAI's lessor. The size of each Sephora Alliance Store and the
assortment to be carried within the Sephora Alliance Store will be mutually
agreed by Sephora and AAI. Sephora and AAI may mutually agree on the development
and location of additional Sephora Alliance Stores beyond the two (2) Sephora
Alliance Stores contemplated by this Section 9.1. Although the placement of the
Sephora Alliance Store within the AAI Host Store will be determined by AAI, the
appearance and design of each Sephora Alliance Store will be within the sole
direction and control of Sephora.
9.2 Operations; Costs. Each Sephora Alliance Store will be operated
exclusively by Sephora under the direction of Sephora employees and will have
its own point-of-sale system and cash wrap. At each AAI Host Store, AAI will be
solely responsible for leasing and occupancy costs (such as rent, utilities and
insurance) and state and- local building code compliance; and Sephora will be
responsible for costs associated with Sephora's operations within the Sephora
Alliance Store including, without limitation, employee payroll, taxes,
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inventory costs, construction costs and all in store merchandising costs (the
"Sephora Alliance Store Costs"). If Sephora must sublease the space for the
Sephora Alliance Store from AAI, such sublease will be in such form as the
parties may mutually agree; provided, however, that Sephora will not be
obligated to pay AAI for any occupancy costs.
10. PROMOTIONAL CAMPAIGN
10.1 Ownership. When the first Test Center is ready to open for
business to the public, Sephora and AAI will jointly launch a marketing campaign
to announce the retail alliance between Sephora and AAI and to advertise the
Products and the AAJ Centers. The look, content and other creative elements of
such promotions will be mutually agreed to by Sephora and AAI (any such
individual element, or all of such elements combined, to be referred to as the
"Promotional Campaign"). Notwithstanding the foregoing, Sephora may commence
promotion of the Products separate and apart from the Promotional Campaign.
During and after the Term, Sephora will be the sole owner of the Promotional
Campaign and any intellectual property or proprietary design or copy used in
such Promotional Campaign will constitute Sephora Intellectual Property.
10.2 Provision of Materials. Upon the written request of Sephora, AAI
will provide Sephora (at no cost to Sephora) with existing AAI-approved
advertising and promotional materials and designs, transfers, negatives,
camera-ready artwork or similar material depicting the AAI Intellectual Property
used by AAI in the advertisement of its business and services in the Territory
for use by Sephora in the Promotional Campaign and in any other marketing or
advertising promotions deemed necessary by Sephora to sell the Products. All
such advertising and promotional materials furnished by AAI must comply with
Applicable Laws.
10.3 AAI Promotions or Advertising. If AAI desires to use Sephora
Intellectual Property in promotions, on its website or in its AAI Salons, AAI
must obtain Sephora's prior written approval, such approval not to be
unreasonably withheld or delayed.
11. INTELLECTUAL PROPERTY
11.1 Grant of License to AAI Intellectual Property. Consistent with
grant of exclusive rights under Section 2.1, AAI hereby grants to Sephora a
royalty-free, non-exclusive, right and license in the United States and Canada
irrevocable during the Term to: (a) use, reproduce, perform, display and
distribute the AAI logo, associated trademarks and the copyrights in any artwork
supplied by AAI to Sephora in connection with this Agreement and the AAI Methods
(collectively, the "AAI Intellectual Property") for use by Sephora in marketing
materials and other communications promoting the AAI Centers, in the Promotional
Campaign, at the AAI Centers, the Sephora Retail Stores or Sephora Alliance
Stores, and in the sale of the Products; and (b) subject to AAI's prior written
consent, adapt, modify, re-format and create derivative works of any AAI
Intellectual Property for use solely as provided in clause (a) above. Sephora
may specifically use the AAI Intellectual Property as a source identifier to
indicate that AAI is the source and origin of the Products and the AAI Services.
11.2 Grant of License to Sephora Intellectual Property. Sephora hereby
grants to AAI a royalty-free, non-exclusive, right and license in the United
States and Canada irrevocable during the Term to (a) use, reproduce, perform,
display and distribute the Sephora logo,
-15-
associated trademarks and the copyrights in any artwork supplied by Sephora to
AAI in connection with this Agreement (collectively, the "Sephora Intellectual
Property") for use in marketing materials and other communications promoting the
Products, the AAI Centers and the Adjacent AAI Facilities; and (b) subject to
Sephora's prior written consent, adapt, modify, re format and create derivative
works of any Sephora Intellectual Property for use solely as provided in clause
(a) above. AAI may not use the Sephora Intellectual Property as a source
identifier to indicate the Sephora is the source or origin of the Products or
the AAI Services.
11.3 Goodwill. AAI acknowledges that any and all goodwill arising from
Sephora's use of the AAI Intellectual Property as permitted under Section 11.1
will inure solely and exclusively to the benefit of Sephora, and upon expiration
or termination of this Agreement, no monetary amount will be assigned as
attributable to any goodwill associated with Sephora's use of the AAI
Intellectual Property. Sephora acknowledges that any and all goodwill arising
from AAI's use of the Sephora Intellectual Property as permitted under Section
11.2 will inure solely and exclusively to the benefit of AAI, and upon
expiration or termination of this Agreement, no monetary amount will be assigned
as attributable to any goodwill associated with AAI's use of the Sephora
Intellectual Property.
12. REPRESENTATIONS AND WARRANTIES
12.1 Representations and Warranties of AAI and Parent. As an inducement
to Sephora to enter into this Agreement and to consummate the transactions
contemplated in this Agreement and in recognition of the unique relationship
between Sephora and AAI created by this Agreement, AAI and Parent, jointly and
severally, make the representations and warranties to Sephora set forth in this
Section 12.1; provided, however, that the representation and warranty in Section
12.1.9 will be made if and when AAI delivers the officer's certificate required
by Section 4.1.1 hereof.
12.1.1 Organization and Authority; Beneficial Ownership. AAI is a
limited liability company duly organized and existing in good standing under the
laws of the State of Delaware. Parent is a corporation duly organized and
existing in good standing under the laws of the State of Delaware. AAI has the
requisite limited liability company power and authority, to own its properties
and assets and to carry on its business as now conducted. AAI has the limited
liability company power to execute, deliver and perform this Agreement. Parent
has the requisite corporate power and authority to own its properties and assets
and to carry on its business as now conducted. Parent has the corporate power to
execute, deliver and perform this Agreement. This Agreement and the transactions
contemplated hereby have been duly authorized by all necessary limited liability
company action on the part of AAT and all necessary corporate action on the part
of Parent. This Agreement constitutes the valid and legally binding obligation
of AAI and Parent, enforceable against AAI and Parent in accordance with its
terms. Attached hereto as Schedule 3 is a listing of all of the current
beneficial owners of AAI and their respective Affiliates.
12.1.2 No Violations. Neither the execution nor delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor the
performance of AAI's or Parent's obligations hereunder, (i) will violate or
conflict with the articles of organization or operating agreement of AAI, or the
articles or organization or bylaws of Parent, (ii) will result in any breach of
or default under any provision of any material contract or agreement to which
AAI or Parent is a party or by which AAI or Parent is bound, or (iii) will
result in a violation of any Applicable Laws.
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12.1.3 No Consents. Except for such consents as may be required
from the lessors of the space occupied by AAI Host Stores and the obligation to
deliver the executed ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement, no consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
Governmental Body or any other Person is required by or with respect to AAI or
Parent in connection with the execution and delivery of this Agreement by AAI
and Parent or the consummation by AAI and Parent of the transactions
contemplated hereunder.
12.1.4 Litigation. There is no litigation, proceeding (arbitral or
otherwise), claim or investigation of any nature pending or, to the actual
knowledge of AAI and Parent, threatened, against AAI or Parent that reasonably
could be expected to materially adversely affect the ability of AAI and Parent
to perform in accordance with the terms of this Agreement.
12.1.5 Compliance with Applicable Law. Each of AAI and Parent is
in material compliance with all Applicable Laws relating to its business, the
Products and the AAI Equipment and neither AAI nor Parent has received any
written notice from any Person asserting non-compliance with Applicable Laws.
AAI specifically confirms that the Products will be cosmetic products and will
be compliant with the rules and regulations of the FDA and consumer protection
and labeling requirements in the United States and Canada. AAI also specifically
confirms that the Products do not constitute a "drug" under The Food, Drug, and
Cosmetic Act because the Products do not cure, treat, mitigate or prevent
disease and do not affect the structure or function of the human body.
12.1.6 No Medical Advice. Neither the AAI Methods nor the AAI
Services constitute medical advice to clients or customers of Sephora. The
Qualified Sephora Cast Members will not be required or trained by AAI to provide
any such medical advice.
12.1.7 Intellectual Property. AAI owns, or uses under valid and
fully paid licenses, all AAI Intellectual Property. There are no claims or
demands, and to AAI's actual knowledge, no reasonable basis for any such claim
or demand, that any of the AAI Intellectual Property infringes or conflicts in
any way with any copyright, patent, trademark, service ▇▇▇▇, trade name, trade
secret, license, application or other proprietary right or intellectual property
of any Person, or makes unauthorized use of any secret process, formula, method,
information, know-how of any other Person. With the exception of royalty
payments due to ▇▇▇▇▇ ▇▇▇▇▇▇▇, AAI is not under any obligation to pay any
royalty or other compensation to any Person as a result of, or to obtain
approval or consent for, the grant of exclusive rights to Sephora hereunder.
12.1.8 No Other Existing Rights. AAI has not granted licenses or
other rights in the AAI Intellectual Property, the Products, the AAII Methods,
the AAI Equipment or the AAI Services to any other Person except as permitted
under Section 2.2, and, to AAI's knowledge, none of the AAI Intellectual
Property, the Products, the AAT Methods, the AAI Equipment or the AAI Services
is being used by any other Person.
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12.1.9 ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement. The ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement is a
legally valid and enforceable agreement and is in full force and effect. AAI is
not in default under the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement.
12.1.10 Product Warranty. The Products are manufactured in
accordance with industry standards and are intended for application to human
skin in accordance with the stated instructions. All statements made or
information provided by AAI regarding the Products are true and correct in all
material respects, including without limitation, statements or information
regarding safety, efficacy or ingredients, regardless of where any such
statement or information is contained or published (including, without
limitation, on the packaging for the Products, in promotional materials or
advertising content published or prepared by AAI, in Product descriptions, or in
ingredient lists). None of the Products, or the formulations thereof, infringe
or conflict in any way with any copyright, patent, trademark service ▇▇▇▇, trade
name, trade secret, license, application or other proprietary right or
intellectual property of any Person or make unauthorized use of any secret
process, formula, method, information, or know-how of any other Person.
12.2 Representations and Warranties of Sephora. As an inducement to AAI
to enter into this Agreement and to consummate the transactions contemplated in
this Agreement, Sephora represents and warrants to AAI as follows:
12.2.1 Organization and Authority. Sephora is a limited liability
company duly organized and existing in good standing under the laws of the State
of Delaware. Sephora has the requisite limited liability company power and
authority, to own its properties and assets and to carry on its business as now
conducted. Sephora has the limited liability company power to execute, deliver
and perform this Agreement. This Agreement and the transactions contemplated
hereby have been duly authorized by all necessary limited liability company
action on the part of Sephora. This Agreement constitutes the valid and legally
binding obligation of Sephora, enforceable against Sephora in accordance with
its terms.
12.2.2 No Violations. Neither the execution nor delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor the
performance of Sephora's obligations hereunder, (i) will violate or conflict
with the articles of organization or operating agreement of Sephora, (ii) will
result in any breach of or default under any provision of any material contract
or agreement to which Sephora is a party or by which Sephora is bound, or (iii)
will result in a violation of any Applicable Laws.
12.2.3 No Consents. Except for such consents as may be required
from the lessors of the space occupied by Sephora Host Stores, no consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Body or any other Person is required by or
with respect to Sephora in connection with the execution and delivery of this
Agreement by Sephora or the consummation by Sephora of the transactions
contemplated hereunder.
12.2.4 Litigation. There is no litigation, proceeding (arbitral or
otherwise), claim or investigation of any nature pending or, to Sephora's actual
knowledge, threatened, against Sephora that reasonably could be expected to
materially adversely affect Sephora's ability to perform in accordance with the
terms of this Agreement.
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12.2.5 Compliance with Applicable Law. Sephora is in material
compliance with all material Applicable Laws relating to Sephora's business and
Sephora has not received any written notice from any Person asserting
non-compliance with Applicable Laws.
12.2.6 Intellectual Property. Sephora owns, or uses under valid
and fully paid licenses, all Sephora Intellectual Property. There are no claims
or demands, and to Sephora's actual knowledge, no reasonable basis for any such
claim or demand, that any of the Sephora Intellectual Property infringes or
conflicts in any way with any copyright, patent, trademark, service ▇▇▇▇, trade
name, trade secret, license, application or other proprietary right or
intellectual property of any Person, or makes unauthorized use of any secret
process, formula, method, information, know-bow of any other Person. Sephora is
not under any obligation to pay any royalty or other compensation to any Person
as a result of, or to obtain approval or consent for, the grant of rights to AAI
hereunder.
13. ADDITIONAL COVENANTS
13.1 Prestige Operations. To preserve the goodwill associated with the
Sephora Intellectual Property and the AAI Intellectual Property, at all times
throughout the Term of this Agreement, AAI and Sephora, as applicable, will
operate the Sephora Retail Stores, the Sephora Host Stores, the AAI Center, the
Sephora Alliance Stores, the Adjacent AAI Facilities, and the AAI Host Stores in
a "first-class" manner consistent with the overall prestige image, design and
decor of each type of retail or service outlet.
13.2 Deliveries by AAI. Concurrently with its execution of this
Agreement, AAI will deliver to Sephora (i) evidence that AAI is in good standing
in the State of Delaware, (ii) wire instructions for the Performance Deposit,
and (iii) a legal opinion from counsel to AAI containing the opinions set forth
in Exhibit B-i attached hereto and incorporated herein by this reference.
13.3 Accounting Audit Rights. Within fifteen (15) days after the end of
each month during the Term of this Agreement, Sephora will issue a report to AAI
that details for the prior month (and cumulatively year-to-date) the calculation
of Net Revenue, Capital Expenditures, Adjacent AAI Facility Product Revenue,
Adjacent AAI Facility Service Revenue, and net profit from Sephora Alliance
Stores calculated in accordance with Schedule 4 attached hereto and incorporated
herein by this reference. AAI (and its professional advisors, if applicable)
will be entitled to examine the accounting books and records of Sephora during
normal business hours that pertain specifically to these calculations and
Sephora will provide sufficient access to enable AAI to verify the accuracy of
the calculated amounts. AAI will be responsible for the costs of such
examination; provided, however, that (i) if AAI discovers an underpayment by
Sephora of amounts owed under this Agreement that exceeds 10% of the amount
actually owed, the costs of the audit will be paid by Sephora, and (ii) if AAI
thereafter discovers a second underpayment by Sephora of amounts owed under this
Agreement that exceeds 5% of the amount actually owed, Sephora will bear the
cost of that audit and all subsequent audits by AAI.
13.4 Ownership of Customer Information As provided in Section 6.5.2
above, Customer Information will be owned solely by Sephora, both during the
Term and following the Termination Date. Sephora may use Customer Information
for any commercial purpose, so long as such use is in accordance with Applicable
Law. From time to time during the Term, Sephora
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will agree to share Customer Information with AAI for the following limited
purposes: (a) AAI may use aggregate Customer Information collected from the
Software Interface or CRM Application that reflects summary or aggregate
condition and treatment information for client populations to further refine and
develop the AAI Methods, the AAI Equipment and the Products; and (b) AAI may use
Customer Information that contains personally identifiable information for
individual clients but only to the extent reasonably necessary for AAI to
provide services to that specific client at an Adjacent AAI Facility. On the
Termination Date, AM must return to Sephora all copies (whether in electronic or
paper format) of Customer Information and must immediately cease all use of
Customer Information. Sephora will hold AAI harmless from, and indemnify AAI
against, any Claim arising from any use of Customer Information in violation of
Applicable Law.
13.5 Parent Guaranty. As an additional inducement to Sephora to enter
into this Agreement, Parent hereby unconditionally and irrevocably guarantees
the performance by AAI of its obligations hereunder including, if applicable,
the payment of the Performance Deposit Balance. The obligations of Parent under
this guaranty will automatically terminate on the date on which AAI's
obligations under this Agreement have been performed and satisfied in full.
Parent agrees that, without the consent of Parent and without affecting any of
the obligations of Parent under this guaranty: (a) AAI and Sephora may amend,
compromise, release or otherwise alter any term, covenant or condition of this
Agreement, and Parent guarantees and promises to perform all obligations of AAI
under this Agreement as so modified, amended, compromised, released or altered;
(b) Sephora may exercise, not exercise, impair, modify, limit, destroy or
suspend any right or remedy under this Agreement; and (c) Sephora or any other
person acting on Sephora's behalf may deal in any manner with AAI. This is a
continuing guaranty and Parent waives the benefit of the provisions of section
2815 of the California Civil Code. Parent waives and agrees not to assert or
take advantage of: (x) any right to require Sephora to proceed against AAI or
any other person or to pursue any other remedy before proceeding against Parent;
(y) any right or defense that may arise by reason of AAI being Incapacitated;
and (z) any right or defense arising by reason of the absence, impairment,
modification, limitation, destruction or cessation (in bankruptcy, by an
election of remedies, or otherwise) of the liability of AAI, of the subrogation
rights of Parent, or of the right of Parent to proceed against AAI for
reimbursement. Without limiting the generality of the foregoing, Parent waives
the benefit of the provisions of sections 2809, 2810, 2819, 2845, 2849 and 2850
of the California Civil Code and any similar or analogous statutes of California
or any other jurisdiction. In addition, Guarantor waives and agrees not to
assert or take advantage of any right or defense based on the absence of any or
all presentments, demands (including demands for performance), notices
(including notices of adverse change in the financial status of AAI or other
facts that increase the risk to Parent, notices of nonperformance, and notices
of acceptance of this guaranty), and protests of each and every kind. Until
AAI's obligations under this Agreement are fully performed, Parent shall have no
right of subrogation against AAI by reason of any payments or acts of
performance by Parent; and subordinates any liability or indebtedness of AAI now
or hereafter held by Parent to AAI' s obligations under, arising out of, or
related to this Agreement. The liability of Parent and all rights, powers and
remedies of Sephora under this guaranty relating to this Agreement are
cumulative and not alternative, and such rights, powers and remedies are in
addition to all rights, powers and remedies given to Sephora by law or in
equity.
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13.6 Notification of Events. If there is a Change of Control, a change
in management as described in Section 3.3.5, or if the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement
is terminated, AAI must give written notice to Sephora within forty-eight (48)
hours after the occurrence of such event. A failure to give such notice will be
a material breach of this Agreement.
14. CONFIDENTIALITY; NON-COMPETITION
14.1 Confidentiality.
---------------
14.1.1 Definition of Confidential Information. Each of AAJ and
Sephora acknowledge and agree that a party (the " Party" may disclose to the
other party (the " Party" certain confidential and proprietary business
information and trade secrets, including, without limitation, the following
categories of information, methods, techniques, procedures and specialized
knowledge which is not in the possession of third parties other than as a result
of the unauthorized disclosure thereof or pursuant to an obligation of
confidentiality with respect thereto (the "Receiving Information") (i) the AAI
Intellectual Property or the Sephora Intellectual Property, as applicable; (ii)
methods, techniques, equipment, specifications, standards, policies, procedures,
information, concepts, drawings, models and systems relating to the
establishment and operation of a Sephora Retail Store or an AAI retail store, as
applicable; (iii) marketing and promotional programs including the Promotional
Campaign; (iv) information concerning suppliers, manufacturing and sales of the
Products, operating results, financial performance and other financial date; (v)
sales data and information concerning customer preferences and materials and
supplies; (vi) employee selection procedures, training and staff and (vii) the
terms of this Agreement. Confidential Information may be contained in tangible
materials, such as drawings, data, specifications, reports and computer
programs, or may be in the nature of unwritten knowledge.
14.1.2 Use of Confidential Information. A Disclosing Party will
disclose to the Receiving Party such Confidential Information as is reasonably
required from time to time for the sale of the Products and the operation of the
AAI Centers, the Adjacent AAI Facilities and the Sephora Alliance Stores.
Neither the Receiving Party nor any other Person will acquire by or through the
Receiving Party any interest in or right to use the Confidential Information,
other than the Receiving Party's right to use the Confidential Information to
perform its obligations under this Agreement, and the use or duplication of the
Confidential Information in any other business would constitute an unfair method
of competition with the Disclosing Party. The Receiving Party will not disclose
the Confidential Information to any Person other than its employees or agents
and then only to the extent reasonably necessary for the Receiving Party to
perform its obligations under this Agreement. The Receiving Party acknowledges
and agrees that the Confidential Information is confidential to and a valuable
asset of the Disclosing Party, is proprietary, includes trade secrets of the
Disclosing Party, and is disclosed to the Receiving Party solely on the
condition that the Receiving Party and its employees who have access to the
Confidential Information (i) will not use the Confidential Information in any
other business or capacity, (ii) will maintain the confidentiality of the
Confidential Information in accordance with the terms of this Agreement, (iii)
will not make unauthorized copies of any portion of the Confidential
Information, and (iv) will adopt and implement reasonable procedures to prevent
the unauthorized use or disclosure of the Confidential Information.
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14.1.3 Permitted Disclosures. The restrictions on disclosure and
use of the Confidential Information will not apply to the following: (i)
information that has become generally available to the public other than as a
result of unauthorized disclosure by the Receiving Party; (ii) information that
becomes available to the Receiving Party on a non- confidential basis from a
third Person having no obligation of confidentiality to the Disclosing Party;
and (iii) information that is required to be disclosed by Applicable Law,
judicial order or pursuant to any listing application with, or the rules or
regulations of, any securities exchange on which the securities of the Receiving
Party is listed or traded; provided, however, the Receiving Party will notify
the Disclosing Party as promptly as practicable (and, if possible, prior to
making such disclosure) and will use its reasonable best efforts to limit the
scope of such disclosure and seek confidential treatment of the information
disclosed.
14.1.4 Specific Performance. In the event of a breach of this
Section 14 by the Receiving Party, the parties acknowledge that such breach will
result in irreparable harm and continuing damage to the Disclosing Party, that
money damages will not adequately compensate the Disclosing Party for any such
breaches, and that the Disclosing Party therefore would not have an adequate
remedy at law. As a result, the Disclosing Party may, in addition to any other
remedies at law or in equity, seek to obtain an injunction before a court of
competent jurisdiction, including temporary and immediate relief (without notice
to the Receiving Party) and permanent relief specific performance and/or other
equitable relief to prevent the violation of any obligation under this Section
14.
14.2 Non-Competition. During the Term of this Agreement, neither
Sephora, nor any of its Affiliates, will, without the written consent of AAI:
14.2.1 allow any third Person to provide diagnostic services with
respect to skin care that are substantially similar to the AAI Services or
utilize diagnostic methods with respect to skin care that are substantially
similar to the AAI Methods, within the Sephora Retail Stores or in any other
location in which Sephora has an interest; and
14.2.2 directly or indirectly provide diagnostic services with
respect to skin care that are substantially similar to the AAI Services or
utilize diagnostic methods with respect to skin care that are substantially
similar to the AAI Methods.
15. INSURANCE
15.1 AAI Insurance Obligations. As (i) the manufacturer of the Products
and the AAI Equipment, (ii) the party responsible for the training of the
Qualified Sephora Cast Members, and (iii) the owner and operator of the Adjacent
AAI Facilities and AAI Salons (in which Sephora Alliance Stores will be located)
AAI will obtain, within thirty (30) days after execution of this Agreement, and
will maintain in full force and effect at all times during the Term and for a
period of twelve (12) months thereafter, at AAI's sole expense, the following
minimum insurance policies from insurers rated A- VIII by A.M. Best protecting
AAI, Sephora and their respective Affiliates, officers, directors, partners,
members, agents and employees:
15.1.1 Commercial General, Umbrella and/or Excess Liability
Insurance with limits of at least Four Million Dollars ($4,000,000) in the
aggregate and Two Million Dollars ($2,000,000) per occurrence; such insurance
will include, but not be limited to, products,
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products/completed operations, professional liability, bodily injury, personal
injury, broad form property damage and broad form contractual; and
15.1.2 Workers' Compensation Insurance with such minimum limits as
may be required by law.
15.2 Sephora Insurance Obligations. As the owner and operator of the
Sephora Retail Stores (including the AAI Centers) and the Sephora Alliance
Stores, Sephora will obtain within thirty (30) days after execution of this
Agreement and will maintain in full force and effect at all times during the
Term and for a period of twelve (12) months thereafter, at Sephora's sole
expense, the following minimum insurance policies from insurers rated A- VIII by
A.M. Best protecting Sephora, AAI and their respective Affiliates, officers,
directors, employees, agents and representatives:
15.2.1 Commercial General, Umbrella and/or Excess Liability
Insurance with limits of at least Four Million Dollars ($4,000,000) in the
aggregate and Two Million Dollars ($2,000,000) per occurrence; such insurance
will include, but not be limited to, products, products/completed operations,
bodily injury, personal injury, broad form property damage and broad form
contractual; and
15.2.2 Workers' Compensation Insurance with such minimum limits as
may be required by law.
15.3 Policy Information. Without limiting the generality of the
foregoing, each of AAI and Sephora will ensure that such policies contain a
waiver of subrogation against the other party and its Affiliates and will name
the other party and its assignees as additional insureds. Neither AAI nor
Sephora will materially modify or terminate any coverage without giving at least
thirty (30) days' prior written notice to the other party. Upon request from the
other party, AAI or Sephora, as applicable, will furnish certificates of
insurance and such other documentation relating to such policies as the other
party may reasonably request. The insurance requirement under this Section 15
will not serve as a limitation on the indemnification obligations under Section
16.
16. INDEMNIFICATION
16.1 Indemnification Obligation. Each party (as applicable, the
"Indemnifying Party") will defend, indemnify and hold harmless the other party
(the "Indemnified Party") and its Affiliates (and their respective officers,
directors, employees, agents and representatives) to the fullest extent
permitted by law from and against any and all Claims and Liabilities arising out
of any Claim, to the extent such Claim is based on any of the following:
16.1.1 any actual or alleged breach of the Indemnifying Party's
representations or warranties or its obligations under this Agreement;
16.1.2 any actual or alleged infringement of any intellectual
property rights of any other Person by any items or materials provided by the
Indemnifying Party under this Agreement;
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16.1.3 in the case of AAI as the Indemnifying Party, the
manufacture, distribution and use of the Products; the manufacture and use of
the AAI Equipment; the application of the AAI Methods; the provision of the AAI
Services; the training of the Qualified Sephora Cast Members; the referral by
the Qualified Sephora Cast Members of clients to medical or dental doctors; the
operation of the AAI Salons, AAI Host Stores and the Adjacent AAI Facilities;
the Promotional Campaign; and the use of the ▇▇▇▇▇ ▇▇▇▇▇▇▇ Certification;
16.1.4 in the case of Sephora as the Indemnifying Party, the
operation of the Sephora Retail Stores and the Website, the construction and
operation of the AAI Centers and the Sephora Alliance Stores, the Promotional
Campaign, or the offer, sale or return of the Products and any Third Party
Products.
In the event of a Claim arising from the actual or alleged contributory
negligence of both the Indemnified Party and the Indemnifying Party, AAI and
Sephora will share liability in proportion to their actual negligence, as
determined by a court of competent jurisdiction. No Indemnified Party will be
entitled to indemnification for its own gross negligence or willful misconduct.
In the event that the Indemnified Party is independently awarded its costs or
any other sums in connection with any Claim against which it is entitled to
indemnification pursuant to this Section 16.1, the Indemnifying Party's
financial obligation to the Indemnified Party in respect of such Claim will be
reduced by the amount of any sums actually paid to the Indemnified Party.
16.2 Procedure. In connection with any Claim for which indemnification
is sought under Section 16.1, the Indemnified Party will (a) give the
Indemnifying Party prompt written notice of the Claim, (b) cooperate with the
Indemnifying Party (at the Indemnifying Party's expense) in connection with the
defense and settlement of the Claim, and (c) permit the Indemnifying Party to
control the defense and settlement of the Claim (except as provided below);
provided, that the Indemnifying Party may not settle the Claim without the
Indemnified Party's prior written consent (which will not be unreasonably
withheld). Further, the Indemnified Party (at its cost) may participate in the
defense and settlement of the Claim with counsel of its own choosing.
16.3 Limitation on Liability. EXCEPT TO THE EXTENT ENCOMPASSED WITHIN A
THIRD PARTY CLAIM INDEMNIFIED AGAINST PURSUANT TO THIS SECTION 16, AND
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, NEITHER
AAI NOR SEPHORA WILL BE LIABLE TO THE OTHER (OR ANY SUCCESSORS AND ASSIGNS) FOR
ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSS, DAMAGE, COST OR EXPENSE OF ANY
KIND OR NATURE WHATSOEVER, WHETHER ARISING UNDER CONTRACT, TORT, EQUITY OR
OTHERWISE, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR OF CONTRACTS, LOSS
OF OPERATION TIME, LOSS OF GOODWILL, OR LOSS OF ANTICIPATED PROFITS OR EXPECTED
SAVINGS, EVEN IF A PARTY HAS BEEN ADVISED, KNEW OR SHOULD HAVE KNOWN OF THEIR
POSSIBILITY. FOR THE PURPOSES OF THIS SECTION 16.3, "LOSS" INCLUDES A PARTIAL
LOSS OR REDUCTION IN VALUE, AS WELL AS A COMPLETE OR TOTAL LOSS.
16.4 Survival. The right to seek indemnification for a Claim under
Section 16.1 will survive the Termination Date for a period equal to the
applicable statute of limitations for such Claim plus sixty (60) days.
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17. MISCELLANEOUS
17.1 Notices. Any and all notices, requests, demands and other
communications required or otherwise contemplated to be made under this
Agreement will be in writing and will be deemed to have been duly given (a) if
delivered personally, when received, (b) if transmitted by telecopier, upon
receipt of a transmittal confirmation, (c) if sent by registered airmail, return
receipt requested, postage prepaid, on the sixth business day following the date
of deposit in the mail or (d) if by international courier service, on the second
business day following the date of deposit with such courier service, or such
earlier delivery date as may be confirmed to the sender by such courier service.
All such notices, requests, demands and other communications will be addressed
as follows:
if to AAI or Parent:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Jenkens & ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
if to Sephora:
Sephora USA LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇ LLP
1900 Avenue of the Stars, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address or telecopy number as any party will have specified by
notice in writing to the other parties; provided, however any such notice of
change of address or telecopy number will be effective only upon receipt.
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17.2 Dispute Resolution.
------------------
17.2.1 If any dispute arises relating to the performance of any
party under this Agreement that the parties are unable to resolve in the
ordinary course of business (a "Dispute"), the parties will use good-faith
efforts to resolve the matter in accordance with this Section 17.2 prior to
instituting any mediation or arbitration proceeding in connection therewith;
provided, however, that nothing herein will require a party to forego or delay
the institution of any proceeding to seek equitable or injunctive relief to stop
or prevent any breach of this Agreement if it would be irreparably harmed by any
delay in seeking such relief.
17.2.2 In the event of any Dispute, within five (5) business days
following the written request of a party (which will describe the nature of the
Dispute and other relevant information), the parties' executives or managers who
are responsible for managing the relationship created by this Agreement will
meet to resolve the Dispute at a mutually convenient time and place. If such
relationship managers are unable to resolve the Dispute within five (5) business
days following their initial meeting, they will refer the matter to the parties'
Chief Executive Officers (or designees of such Chief Executive Officers who have
the authority to resolve the Dispute), together with a written statement (or
statements) describing the nature of the Dispute and other relevant information.
Within five (5) business days following the referral of the matter to the
Parties' Chief Executive Officers (or their designees), the Chief Executive
Officers (or their designees) will meet to resolve the Dispute at a mutually
convenient time and place. Additional representatives of the parties (but not
their relationship managers) may be present at the meeting. If the Chief
Executive Officers (or their designees) are unable to resolve the Dispute within
five (5) business days following their initial meeting (or such later date as
they may agree), the parties will be free to seek arbitration of the Dispute
pursuant to Section 17.2.3. Any resolution of any Dispute reached under this
Section 17.2.2 will be reduced to writing and signed by the parties. During any
Dispute resolution procedure conducted under this Section 17.2.2, the parties
will diligently perform all obligations hereunder that are not directly related
to the Dispute.
17.2.3 Any Dispute arising out of or related to this Agreement
that the parties are unable to resolve in accordance with Section 17.2.2 must
then be referred to non-binding mediation in San Francisco, California before
proceeding with binding arbitration under Section 17.2.4 below. The mediation
will be conducted by a single mediator who must be a person experienced in
negotiating, making and consummating retail agreements and who will be mutually
selected by AAI and Sephora. Mediation fees, if any, will be divided equally
among the parties involved.
17.2.4 Except as otherwise provided to the contrary below, any
Dispute arising out of or related to this Agreement that the parties are unable
to resolve by mediation in accordance with Section 17.2.3 will be settled by
binding arbitration in San Francisco, California by a single arbitrator who must
be a person experienced in negotiating, making and consummating retail
agreements and will be mutually selected by AAI (on behalf of itself and Parent)
and Sephora. If the parties cannot agree on the selection of an arbitrator, an
arbitrator will be chosen by the American Arbitration Association. The rules of
arbitration will be the Commercial Arbitration Rules of the American Arbitration
Association, as modified by any other instructions that the parties may agree
upon at the time, except that each party will have the
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right to conduct discovery in a manner and to the extent authorized by the
Federal Rules of Civil Procedure as interpreted by the federal courts in
California. If there is any conflict between those Rules and the provisions of
this Section 17.2.4, the provisions in this Section 17.2.4 will prevail. The
arbitration will be administered by the arbitrator and not by any outside
organization or body. The arbitrator will be bound by and will strictly enforce
the terms of this Agreement and may not limit, expand or otherwise modify its
terms. The arbitrator will make a good faith effort to apply substantive
applicable law, but an arbitration decision will not be subject to review
because of errors of law. The arbitrator will be bound to honor claims of
privilege or work- product doctrine recognized at law, but the arbitrator will
have the discretion to determine whether any such claim of privilege or
work-product doctrine applies. The arbitrator's decision will provide a reasoned
basis for the resolution of each dispute and for any award. The arbitrator will
not have power to award damages in connection with any Dispute in excess of
actual compensatory damages and will not multiply actual damages or award
consequential or punitive damages. Each party will bear its own fees and
expenses with respect to the arbitration and any proceeding related thereto and
the parties will share equally the fees and expenses of the arbitrator. Except
as expressly limited in this Section 17.2.4, the arbitrator will have power and
authority to award any remedy or judgment that could be awarded by a court of
law in San Francisco, California. The award rendered by arbitration will be
final and binding upon the parties, and judgment upon the award may be entered
in any court of competent jurisdiction in the United States.
17.3 Relationship Among Parties.
--------------------------
17.3.1 The parties acknowledge and agree that this Agreement does
not create a fiduciary relationship among any of them; that each of Sephora and
AAI will be an independent contractor to the other; and, that nothing in this
Agreement is intended to constitute any party a joint venturer, agent, legal
representative, subsidiary, partner, employee or servant of any other for any
purpose whatsoever.
17.3.2 The parties acknowledge and agree that nothing in this
Agreement authorizes any party to make any contract, agreement, warranty or
representation on any other party's behalf, or to incur any debt or other
obligation in any other party's name; and that none of the parties will in any
event assume liability for, or be deemed liable hereunder as a result of, any
such action; nor will any party be liable by reason of any act or omission of
any other party in any other party's operations hereunder, or for any claim or
judgment arising therefrom against such other party.
17.4 Amendments; Waivers. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived only by a
written instrument signed by AAI (on behalf of itself and Parent) and Sephora,
or, in the case of a waiver, by the party waiving compliance. Except where a
specific period for action or inaction is provided herein, no delay, waiver,
omission or forbearance on the part of a party to exercise any right, option,
duty or power hereunder will constitute a waiver thereof. Neither any waiver of
any such right, option, duty or power, nor any single or partial exercise
thereof, will preclude any further exercise thereof or the exercise of any other
such right, option, duty or power.
17.5 Entire Agreement. This Agreement (including the Exhibits hereto)
and the other documents referred to herein constitute the entire, full and
complete Agreement between AAI,
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Sephora and Parent concerning the subject matter hereof, and supersede all prior
agreements, no other representations having induced either Sephora, AAI or
Parent to execute this Agreement.
17.6 Severability. If any part of this Agreement will be invalid or
unenforceable, such invalidity or unenforceability will not affect the validity
and enforceability of the remaining portions.
17.7 No Assignment; No Third Party Beneficiaries. This Agreement may
not be assigned by a party to any Person, including an affiliate, without the
prior written consent of the other parties, which consent may be conditioned or
withheld in the sold discretion of such consenting parties. Except as expressly
provided to the contrary in this Agreement, nothing in this Agreement is
intended, nor will be deemed, to confer upon any person or legal entity other
than Sephora, AAI, Parent and their permitted successors and assigns, any rights
or remedies under or by reason of this Agreement.
17.8 Survival. All provisions of this Agreement that, by their terms or
intent, are designed to survive the expiration or termination of this Agreement,
will so survive the expiration and/or termination of this Agreement.
17.9 Governing Law; Submission to Jurisdiction. This Agreement will be
governed by and construed in accordance with the laws of the State of
California, without regarding to principles of conflicts of laws.
17.10 Expenses. Each of AAI, Parent and Sephora will pay its own costs
and expenses (including attorneys' fees) that it incurs in connection with the
negotiation and execution of this Agreement.
17.11 Force Majeure. No party will be liable for or be considered to be
in breach of or in default under this Agreement (other than for failure to make
payment when due) on account of any delay or failure to perform as required by
this Agreement as a result of any cause or condition beyond its reasonable
control, including, but not limited to: fire, explosions, earthquakes, storms,
flood, wind, drought and acts of God or the elements; court orders; acts, delays
and failures to act by civil, military or other governmental authority; strikes,
lockouts, labor disputes, riots, insurrections, terrorism, sabotage and war;
breakdown or destruction of, or damage or casualty to, any equipment, facilities
or other property, unavailability of materials, supplies, parts, equipment,
personnel or other necessary items; and interruption, suspension, curtailment or
other disruption of utilities ( Majeure") To the extent that a party's
performance is delayed or prevented by Force Majeure, the delayed party will
notify the other parties of the conditions for invoking Force Majeure and will
provide its best estimate of the time by which performance can be re-commenced.
In the event that Force Majeure continues for more than forty-five (45) days, at
the non-delaying parties' option, it may, by written notice delivered during the
Force Majeure, elect to either: (a) terminate the Term by written notice to the
delaying party; or (b) elect to extend the Term by a number of days equal to the
Force Majeure.
17.12 Counterparts Facsimile Signatures. This Agreement may be executed
in one or more counterparts each of which will be an original and all of which,
when taken together, will constitute one and the same instrument. Delivery of
any signatures hereto may be accomplished
-28-
by facsimile or email and signatures so delivered will be treated in all
respects as original signatures.
IN WITNESS WHEREOF, the parties hereto have duly executed this Retail
Alliance Agreement as of the date first above written.
SEPHORA USA, LLC ADVANCED AESTHETICS, LLC
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
By:_____________________________ By:_________________________
Name Name
CFO President
Its: _____________________________ Its: _______________________
ADVANCED AESTHETICS, INC.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
By:_________________________
Name
President
Its: _______________________
-29-
EXHIBITS
--------
Exhibit A: Form of Sephora Purchase Order
Exhibit B-1: Form of Legal Opinions from AAI Counsel (at execution)
Exhibit B-2: Form of Legal Opinion from AAI Counsel (upon execution of
▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement)
Exhibit C: Draft of ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement as of November , 2004
SCHEDULES
---------
Schedule 1: Listing of AAI Equipment
Schedule 2: Description of AAI Services
Schedule 3: Listing of AAI Beneficial Owners and Affiliates
Schedule 4: Net Profit Calculation for Sephora Alliance Stores
-30-
EXHIBIT A
---------
FORM OF SEPRORA PURCHASE ORDER
------------------------------
TERMS AND CONDITIONS OF PURCHASE ORDER
ALL PURCHASE ORDERS ISSUED BY SEPHORA USA, LLC OR ANY OF ITS
SUBSIDIARIES OR AFFILIATES (EACH RESPECTIVE A "BUYER" SHALL BE SUBJECT TO THESE
TERMS AND CONDITIONS.
1. Order Subject to these Terms and Conditions. This purchase order
(this "Order") is issued by the Buyer for purchase of the goods described on the
face hereof (the "Goods") and shall be subject to and performed in accordance
with these Terms and Conditions, which, together with she terms stated on the
face hereof, constitute the entire agreement between the Buyer and the Seller.
Any provision included by the Seller in any acceptance or confirmation of this
Order or other communication which is at variance from the terms hereof shall be
ineffective as a modification hereof unless specifically accepted in writing by
the Buyer. The Buyer will not accept and will not pay for any substitutions of
items. All substituted items will be shipped back at Supplier expense.
2. Time of Delivery. The time or times specified on the fare hereof for
delivery shall be of the essence. If delivery is not timely made or is tendered
in advance of the scheduled delivery date, the Buyer may refuse to accept the
Goods.
3. Shipping Instructions. The Seller must follow site shipping
instructions specified on the face of this Order. Goods shall be prepared for
shipment in a manner that is in accordance with standard commercial practice and
is adequate to ensure safe arrival of the Goods to a designated destination. If
the shipping instructions on the face of this Order are not followed, a charge
back will be made for any resulting excess its shipping costs.
4. Documentary, Marketing and Labelling Requirements.
-------------------------------------------------
(a) Import/Export Requirement Generally. At the Seller's sole cost
and expense, the Seller shall secure all required government approvals and shall
comply with any and all governmental requirements (including but not limited to
quotas, visas, certificates of origin, permits, declarations, licenses, health
and purity certificates) necessary for lawful expert of the Goods from the
country of origin or country of manufacture and subsequent importation into the
country of destination. The Seller shall be liable for detention or refusal of
entry of Goods if they are shipped without proper documentation. Such Goods
which cannot be imported into the country of destination without delay may, at
the Buyer's option, be returned to the Seller at the Seller's expense.
(b) Particular Documentation to be Dispatched at Time of Shipment
of Goods
(i) AIR Shipments: Attach to the air waybill addressed to the
"SHIP TO" location:
(A) 2 copies of signed invoice;
(B) 2 copies of packing list; and
(C) 4 copies of CE 7512 Withdrawal for Transportation
(or successor form), showing this Order number within the body
or text (For shipment to USA only).
(ii) OCEAN Shipments: Airmail to the "SHIP TO" location:
(A) 2 copies of the signed invoice;
(B) 2 copies of packing list; and
(C) 2 original bills of lading.
(iii) IN ADDITION to the above documents, for both OCEAN and AIR
shipments: Airmail to the "▇▇▇▇ TO" location:
(A) 2 copies of signed invoice;
(B) 1 original ▇▇▇▇ of lading or original ▇▇▇
▇▇▇▇▇▇▇; and
(C) 1 copy of packing list.
(c) Other Special Requirements.
(i) Perfume and Cosmetics. All perfume and cosmetics shipped to
the United States, Guam and other U.S. territories or possessions must meet FDA
requirements.
(d) Bills of Lading. The Seller must indicate on the ▇▇▇▇ of
lading the complete routing, Order number, department number, place or delivery
as shown on face of this Order, case or package number, separated weight for
each classification or commodity shipped, proper description of articles shipped
according to the applicable tariff or classification (including the showing of'
released or declared valuation when rates are conditioned on such valuation),
and whether articles are "knocked down" or "set up." The Seller shall not list
Goods on the ▇▇▇▇ of lading under general terms such as "clothing," "dry goods,"
"electrical appliances," etc. The Seller shall list all items of Goods in
specific classification or tariff-descriptive terms such as "Cotton Sheets,"
"Electrical Iron," "Electrical Ventilating Stand," etc., or other
tariff-descriptive terms according to the type of Goods shipped. Documents must
be prepared in English for U.S. Territories.
(e) Markings. The Seller shall (i) ▇▇▇▇ Order numbers on invoices,
packing slips, bills of lading, container detail sheets on all cases sod
packages; (ii) show the complete routing weight, commodity and case or package
numbers; and (iii) ▇▇▇▇ each container to show the total number of cases or
containers covered by each ▇▇▇▇ of lading.
(f) Invoices. The original invoice mutt be signed and stamped with
the Seller's Company stamp. The true cost of all samples, factices, testers,
dummy bottles, display stands or any other advertising material being sent
separately or together with other goods must be shown on the invoices and
processed to the same manner as the other goods, whether charged to Buyer or
not. For U.S. Customs purposes, all commercial invoices must (a) list the name
of a
-2-
responsible employee of the seller, who has or can readily obtain knowledge of
the Order; (b) identify the country of origin of the Goods; and (c) show
separately all Goods and service provided for the production of the Goods which
are not included in the invoice price, excluding Goods and services furnished in
the U.S.A. invoice must describe merchandise in English for Goods arriving in
the United States per U.S. Customs Regulation 141 Subpart F, directive 3590-01
(May 1989).
5. No Insurance. Unless otherwise instructed in writing by the Buyer,
the Seller shall not provide and shall not be entitled to charge the Buyer for
insurance coverage with respect to the Goods.
6. Representations and Warranties. The Seller hereby represents and
warrants that the Goods shall; (a) be free from defects to design, workmanship
and materials, including but not limited to defects potentially hazardous to
life or property; (b) comply with, and where required, be registered under, any
applicable laws, regulations, codes, orders and ordinances of the country of
destination, as well as any state, territory, possession, locality or
subdivision thereof; (c) not infringe or encroach upon any third parties'
personal, contractual or property rights, including, without limitation,
patents, trademarks, tradenames, copyrights, rights of privacy, or trade
secrets; (d) not violate any governmental law, regulation or ordinance by reason
of their manufacture, sale, delivery or use; and (e) conform to all
specifications furnished to the Seller, all descriptions set forth on the face
of this Order, and/or any samples of the Goods. The Sellers' representations and
warranties hereunder, whether express or implied, shall continue to apply after
delivery of the Goods to the Buyer and after the Goods are inspected, accepted,
paid for, resold, repacked or repackaged.
7. Inspection; Defective or Non-Conforming Goods. The Buyer shall have
the right, at the Buyers' option at any time, to inspect the Goods, including
any sample thereof, before accepting delivery. If the Goods are defective or
fail to conform in all respects with the Seller's representations and warranties
as set forth in Section 6, have been shipped in variation of the quantities
ordered, substituted for Goods ordered, not shipped in standard containers
approved by Buyer or otherwise strictly in accordance with specifications shown
on the face of this Order, the Buyer may, at its option: (i) return such Goods
at the Seller's expense; (ii) hold such Goods subject to the Seller's order,
expense and risk or (iii) cancel this Order and obtain reimbursement for the
reduced value of any non-conforming Goods or subtract such amount from any
amounts then owning or thereafter owed the Seller or its affiliated persons or
entities. No rights or remedies under this Order or otherwise given by
applicable law shall be waived by the Buyer's acceptance of the Goods.
8. Hazardous Goods. If the Buyer has bees notified or believes that the
Goods contain defects or hazards which could create a substantial risk of injury
to any person or property, upon notice from the Buyer the Seller shall locate,
identify and recall such Goods, regardless of whether the Goods have been sold
to the Buyer's customers or retail purchasers, refund to such retail purchasers
their full retail price. All expenses of such recall and otherwise relating to
defective or hazardous Goods shall be for the account of the Seller.
9. Indemnity. The Seller shall protect, defend, indemnify and hold the
Buyer harmless from and against any arid all claims, liabilities, damages, costs
and expenses (including attorneys' fees and disbursements) arising from the
sale, consumption or use of the Goods or
-3-
from the Sellers' failure to faithfully perform or observe any of the terms,
covenants and conditions of this Order.
10. Designs. Any designs for the Goods which have been supplied by the
Buyer to the Seller or which have been specially created for the Buyer by the
Seller (the "Designs") shall be and remain the Buyer's property. The Seller
shall permit the Designs to be used only for goods produced pursuant to the
Buyer's written authorization. The Seller shall cooperate with and assist the
Buyer in obtaining appropriate legal protection for the Designs.
11. Changes In Price. The price for the Goods on the face of this Order
it firm and shall not be increased. The Seller represents that such price is the
lowest price offered by the seller under conditions similar to those specified
in this Order. Any general price decrease effected by Seller in Classes of goods
identical or similar to the Goods shall automatically reduce such price to the
extent of such decrease.
12. Taxes and Other Charms. Unless otherwise noted on this Order, the
prices stated on the face hereof include all applicable ▇▇▇▇▇, use, excise, ad
valorem, receipts or other taxes of any nature whatsoever, consular
certification fees and import surcharges, and all boxing, packing, shipping,
storage and documentation charges, None of the foregoing shall be borne by the
Buyer.
13. Resale Certification. The Buyer hereby certifies that all Goods
covered by this Order are purchased for resale in the form of tangible personal
property.
14. Change Orders. The Buyer may require changes to the terms stated on
the face of this Order by a written change order notice to the Seller. If such
change order affects the cost or time of manufacture or delivery of the Goods,
the Seller shall immediately notify the Buyer in writing and the parties shall
make an equitable and mutually satisfactory adjustment to the purchase price
and/or delivery schedule. If the parties are unable to agree on an adjustment,
the Buyer may, at its option, terminate this Order.
15. Miscellaneous. (a) The Buyer's rights and remedies under this Order
shall be cumulative and in addition to these given by applicable law; (b) the
failure of the Buyer to insist on strict performance of any term or conditions
hereof shall not be deemed a waiver of Buyers' rights to insist on strict
performance thereof at any time; (c) if a court of competent jurisdiction
finally determines that any provisions of this Order is invalid, such provision
will be deemed omitted or amended to conform to such law without affecting any
other provision or the validity hereof; (d) this Order shall be governed by and
construed and enforced in accordance with the laws of the location of the
Buyer's office issuing the Order; (e) the Seller agrees to submit to the
non-exclusive jurisdiction of the courts of the United States of America and any
court of competent jurisdiction of the location of Buyer's office issuing this
Order and to the service of process out of such courts by registered mail in
addition to any other method of service permitted by applicable law; (f) except
as provided in Section 14, this Order may not be modified except by a writing
signed by an authorized representative of each party and no obligation hereunder
may be waived except as specifically set forth in a written waiver signed by the
party to be charged therewith.
-4-
EXHIBIT B-1
-----------
FORM OF OPINION OF AAI'S COUNSEL
-------------------------------
[All terms used herein and not otherwise defined have the meanings given in the
Retail Alliance Agreement. The opinions set forth below shall be subject to such
customary qualifications and exceptions as such counsel may require.]
1. AAI is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware. Parent is a
corporation duly organized and existing in good standing under the laws of the
State of Delaware. AAI has the requisite power and authority, as a limited
liability company, to own its properties and assets and to carry on its business
as it is currently conducted. Parent has the requisite corporate power and
authority to own its properties and assets and to carry on its business as now
conducted.
2. AAI has the requisite power and authority, as a limited liability
company, to execute and deliver the Retail Alliance Agreement, to perform its
obligations thereunder and to consummate the transactions contemplated thereby.
Parent has the corporate power to execute, deliver and perform the Retail
Alliance Agreement, to perform its obligations thereunder and to consummate the
transactions contemplated thereby. The execution and delivery of the Retail
Alliance Agreement, the performance of AAI's and Parent's respective obligations
thereunder and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary limited liability company action on the
part of AAI and all corporate action on the part of Parent. The Retail Alliance
Agreement has been duly executed and delivered by AAI and Parent.
3. The execution and delivery by AAI and Parent of the Retail Alliance
Agreement, the performance of its obligations thereunder and the consummation of
the transactions contemplated thereby (a) do not and will not result in a
violation of (i) the certificate of formation or the operating agreement of AAI,
or the articles of organization or bylaws of Parent, each as currently in
effect, (ii) any Applicable Law, (iii) any law, ordinance, rule or regulation
applicable to AAI or Parent that in such counsel's experience is generally
applicable to transactions of the type contemplated by the Retail Alliance
Agreement, or (iv) to such counsel's knowledge, any judgment, order or decree of
any court, arbitrator or governmental agency rendered in a matter to which AAI
or Parent is a party or is subject; and (b) do not and will not result in a
material breach of any of the terms or conditions of, or constitute a default
under, any agreement to which AAI or Parent is a party.
4. No approval, consent or authorization of, or declaration, filing or
registration with, any federal or state governmental authority or regulatory
body that in such counsel's experience is generally applicable to transactions
of the type contemplated by the Retail Alliance Agreement is required on the
part of AAI or Parent for the valid execution and delivery of the Retail
Alliance Agreement by AAI or Parent, the consummation by AAI and Parent of the
transactions contemplated thereby or compliance by AAI and Parent with the
terms, conditions and provisions thereof except for such approvals, consents,
authorizations, declarations, filings and registrations as have been obtained,
waived or made prior to the date hereof.
5. To such counsel's knowledge, there is not now pending or threatened
any action, suit, proceeding, inquiry or investigation at law or in equity or
before any court, arbitrator or governmental authority, whether state, local or
federal, against or affecting AAI or Parent and (a) affecting the Products, the
AAI Equipment or the AAI Methods or (b) affecting the right or ability of AAJ or
Parent to enter into the Retail Alliance Agreement.
6. Neither the Products, nor the Products' active ingredients, if any,
are (1) recognized by an official pharmacopoeia or formulary; (2) intended for
use in the diagnosis, cure, mitigation, treatment, or prevention of disease; (3)
intended to affect the structure or any function of the body; (4) intended for
use as a component of a medicine but not a device or a component, part or
accessory of a device; or a biologic product as that term is defined under the
Federal Food, Drug and Cosmetic Act ("FDCA"). Neither the Products, nor the
Products' active ingredients, if any, (1) are subject to a New Drug Application,
an Abbreviated New Drug Application, or any Food and Drug Administration
Over-the-Counter Monograph, nor (2) have ever been approved as a "drug" as that
term is defined under the FDCA. [Opinion to be delivered at Sephora's request
when Products are first delivered by AM to Sephora for sale to the public.]
7. To such counsel's knowledge, neither AAI nor Parent has received any
written notice from any Person that asserts that the Products, including all
packaging and labeling, materially violate, or will result in the material
violation of, any Applicable Law. [Opinion to be delivered at Sephora's request
when Products are first delivered by AAI to Sephora for sale to the public.]
8. Neither the conduct of the AAI Methods or AAI Services pursuant to
the Retail Alliance Agreement, the AAI Equipment, or use of the AAI Equipment
consistent with the AAI Methods or as part of the AAI Services, materially
violate, or will result in the material violation of, any Applicable Law. To
such counsel's knowledge, neither AAI nor Parent has received any written notice
from any Person that asserts that the Products, including all packaging and
labeling, the conduct of the AAI Methods or AM Services pursuant to the Retail
Alliance Agreement, the AM Equipment, or use of the AAI Equipment consistent
with the AAI Methods or as part of the AAI Services, materially violate, or will
result in the material violation of, any Applicable Law.
9. The Retail Alliance Agreement constitutes the valid and binding
obligation of each of AAI and Parent and is enforceable against AAI and Parent
in accordance with its terms.
-2-
EXHIBIT B-2
-----------
FORM OF OPINION OF AAI'S COUNSEL
-------------------------------
[All terms used herein and not otherwise defined have the meanings given in the
Retail Alliance Agreement. The opinions set forth below shall be subject to such
customary qualifications and exceptions as such counsel may require.]
1. The ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement is in full force and effect and
constitutes the valid and binding obligation of each of AAI and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
The ▇▇▇▇▇ ▇▇▇▇▇▇▇ Agreement is enforceable by AAI against ▇▇▇▇▇ ▇▇▇▇▇▇▇ in
accordance with its terms.
2. Neither AAI nor ▇▇▇▇▇ ▇▇▇▇▇▇▇ is in default under the ▇▇▇▇▇ ▇▇▇▇▇▇▇
Agreement.
EXHIBIT C
---------
FORM OF ▇▇▇▇▇ ▇▇▇▇▇▇▇ AGREEMENT
-------------------------------
SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT
[FORM OF SERVICES AND LICENSING AGREEMENT]
This Services and Licensing Agreement (the "Agreement") is made this
8th day of December, 2004 by and between Advanced Aesthetics, Inc., a Delaware
corporation ("AAI") and ▇▇▇▇▇ ▇▇▇▇▇▇▇ Medicine ("JH"), acting through The ▇▇▇▇▇
▇▇▇▇▇▇▇ Health System Corporation, a Maryland corporation ("JHHS") and The ▇▇▇▇▇
▇▇▇▇▇▇▇ University, a Maryland corporation ("JHU").
RECITALS
1. AAI is a company dedicated to providing a nationwide, comprehensive
suite of medical and non-medical services and products for aesthetic enhancement
in a hospitality-oriented environment.
2. JHU is a university that has medical, nursing and public health
schools and JHHS is a hospital system; together, both are international leaders
in the education of physicians and medical scientists, in biomedical research,
and in the application of medical knowledge to patient care.
3. AAI has assembled leading cosmetic medical professionals to serve on
its medical board to set clinical policy and provide insight and advanced market
knowledge of clinical innovation in the field of aesthetic medicine,
4. AAI and JH previously entered into a Consulting Services Agreement
dated December 17, 2003, as amended by a First Amendment to Consulting Services
Agreement dated December 1, 2004 (the "Consulting Agreement"), pursuant to which
JH and AAI agreed to collaborate to enhance the level of quality of care and
safety for cosmetic medical procedures provided by AAI to patients at AAI
facilities (the "AAI Facilities").
5. This Agreement is being signed solely to confirm the status of
negotiations between the parties. If the open points described in Sections 1 and
4 and other Conditions Precedent (hereinafter defined) are not agreed upon by
AAI and JHI by July 31, 2005 (subject to extension by mutual agreement of the
parties), this Agreement shall be null and void.
6. Working in conjunction with JH, AAI now desires to develop a line of
skin care products with scientifically proven efficacy. As described in this
Agreement, JH has agreed to (subject to the Conditions Precedent):
(a) develop skin testing methodologies and skin care product
efficacy testing protocols,
(b) conduct all scientific testing on third party and proposed AAI
products, and
(c) place on AAI products its branded verification of the specific
testing that has been performed on the product and allow branded reference to
skin testing methodologies validated by JH.
NOW THEREFORE, in consideration of the premises, and of the mutual
covenants and conditions contained herein, JH and AAI agree as follows:
1. JH Services.
(a) JH will investigate current methods, including both protocols
and equipment, for skin care parameter testing at the point of sale. Parameters
to be tested include hydration, tone, elasticity, wrinkling, pigmentation, dead
skin levels (squares), TJV damage and sebum (the "Skin Care Parameters"). JH
will provide AAI with written reports regarding the accuracy and validity of
such existing testing methods.
(b) Where existing protocols and equipment for Skin Care Parameter
testing do not exist or are not acceptable to JH, JH will develop acceptable
methods to measure the condition of clients' skin with respect to the Skin Care
Parameters. JH will also confirm identified equipment reliability in following
such fl- developed methods.
(c) JH will create a new testing methodology to validate selected
skin care product efficacy. Among other things, JH will develop the testing
protocols (using human trials, but not needing to comply with FDA/IRB standards)
that will either refute or validate specific narrow claims made by skin care
providers regarding improvement in one or more of the Skin Care Parameters. Such
methodologies and protocols developed by JH are called the "JH Testing
Standards." Skin care products referenced in this Section 1 include both over
the counter and prescription products.
(d) JH will oversee the ongoing testing of third party skin care
products using the JH Testing Standards. Once the JH Testing standards are
established, JH will oversee the selection of the providers and process of the
testing of third party skin care products using the human trial methodology.
(e) JH will oversee the testing of fifteen (15) AAI skin care
products using the JH Testing Standards. Once the JH Testing Standards are
established, JH will oversee the selection of the providers and process of the
testing of AAI skin care products using the human trial methodology.
In order to enable JH to provide the services described in this Section
(the "Services"), AAI will provide JH with:
(i) a list and samples of candidate equipment and
technologies to be tested pursuant to paragraph (a),
(ii) third party skin care products to be tested as described
in paragraph (d),
(iii) the AAI products to be tested as described in paragraph
(e), and
(iv) human trial subjects that meet JH requirements for both
type and quantity that are required for testing under
(d) and (e).
As a condition to undertaking any Services, AAI and JH must first agree in
writing upon the specific scope of such Services, the estimated time required
from JH faculty and other personnel deliverables to be provided by JH and a time
schedule for such deliverables. AAI acknowledges that time of JH faculty and
other personnel may be limited, due to other obligations. Until a
-2-
written agreement defining the scope of; and. timing for, any JH Services has
been agreed to, JH shall not be required to make faculty or other personnel
available for any specific amount of time.
As an academic institution, JH will provide AAI with objective,
scientifically based findings. AAI acknowledges that such findings may be
negative in nature from AAI's perspective, including a conclusion that there is
no valid methodology for testing Skin Care Parameters or developing JH Testing
Standards or that skin care products tested are not effective. As one of the
Conditions Precedent (hereinafter defined), JH and AAI must agree upon
parameters distinguishing between research, with respect to which JH policies
and principles regarding research and academic freedom (including, without
limitation, publication of unfavorable results) shall apply, and work for hire,
with respect to which certain AAI confidentiality rights to be negotiated will
apply.
JH will perform the Services in good faith and through the reasonable
exercise of the professional judgment of its faculty and staff who are engaged
to provide the Services. JH DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY ANT)
FITNESS FOR A PARTICULAR PURPOSE.
2. Permitted Name Reference.
------------------------
(a) Subject to the prior written approval of JH, JH agrees that AAI,
and to the extent provided below Sephora ("Sephora"), may make a factual
statement that: (i) certain Skin Care Parameter testing methodologies have been
developed by JH or found by JH to be effective pursuant to Sections 1(a) and
1(b) above, which statement may be used within AAI Facilities and retail outlets
of Sephora (so long as the conditions set forth below are satisfied) and on
their respective websites and in other media as mutually agreed upon by JH and
AAI, and (ii) certain skin care products have been found to be effective based
on the JH Testing Standards pursuant to Sections 1(d) and 1(e) above, which
statement may be used by placing it on the product in question (collectively,
the "Permitted Statement of Fact"). Hypothetical examples of permissible ways in
which the Permitted Statement of Fact may be made are set forth on Exhibit 1 to
this Agreement. JH reserves the right to approve the specific context in which
any Permitted Statement of Fact is used including the prominence and frequency
of usage and juxtaposition with other content. Specifically, but without
limitation: (i) any skin care product bearing a Permitted Statement of Fact may
be sold only in an AAI Facility, a retail outlet of Sephora or through such
other outlets as are mutually agreed upon by JH and AAI, and (ii) a Permitted
Statement of Fact regarding Skin Care Parameter testing methodologies may be
made only within an AAI Facility or Sephora outlet that in fact adheres to such
methodologies. With respect to Sephora, Permitted Statements of Fact may be used
only so long as Sephora continues to (i) be a wholly-owned subsidiary of LVMH,
and (ii) market its retail outlets in a high quality manner to a sophisticated
customer base with each outlet staffed. by highly trained skin experts and
supported by reliable and accurate skin diagnostics, and (iii) comply with the
restrictions on usage of Permitted Statements of Fact and the ▇▇▇▇ as set forth
in this Agreement. At or prior to execution of this Agreement, AAI will provide
JH with a commitment from Sephora to comply with such restrictions. In addition
to the extent any retail outlet of AAI and Sephora indicates that it adheres to
testing for Skin Care Parameters developed or validated by JH, JH reserves the
-3-
right, at AAI's expense, to make periodic inspections of such retail outlet to
confirm that it is appropriately utilizing such testing standards. Such
inspections shall occur with such frequency as is determined by JH to be
necessary in its reasonable discretion. Any reference to JH that is not
consistent with the, examples on Exhibit 1 or any other use of the ▇▇▇▇
(hereinafter defined), except as otherwise provided in the Consulting Agreement,
shall be subject to the prior written approval of JH which may be granted or
denied in its sole discretion. The ▇▇▇▇▇ ▇▇▇▇▇▇▇ name, any derivatives of such
name, and any logos or symbols of JH or any of its affiliates are herein
collectively called the "▇▇▇▇".
(b) Any usage of a Permitted Statement of Fact not previously approved
in writing by JH will be subject to consultation with and the final approval of
JH as described above, with appropriate lead time in each case. Unless otherwise
agreed in writing by JH, requests for approval, of a Permitted Statement of Fact
shall be submitted at least fourteen (14) days in advance. The director of the
Health Publishing Business Group of the School of Medicine's Office of Corporate
Communications (currently ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇) will serve as JH's first source of
review and the sole contact with media. No JH faculty, staff, student or
administrator or any other person associated with JH will be made available to
the media unless it is with the express, written consent of the director of the
Health Publishing Business Group of the School of Medicine's Office of Corporate
Communications.
3. Intellectual Property. If JH develops, in whole or in part, any
unique (i.e. not available in the public domain or brought to JH by AAI)
intellectual property as a result of providing the Services, such intellectual
property shall belong solely to JH, JHHS or JHU and, as such, can be used by
them without restriction or limitation or any compensation to AAI. ▇.▇▇ shall
have a perpetual, non-exclusive license to use Skin Care Parameter testing
methodologies and JH Testing Standards developed by JH pursuant to this
Agreement. However, AAI may make a Permitted Statement of Fact or other
reference to JH in connection with such methodologies or JH Testing Standards
only as permitted in, and during the Term of (hereinafter defined), this
Agreement.
4. Consideration. The consideration for the Services and the limited
use by ▇.▇▇ of the Permitted Statement of Fact shall be as follows:
(a) AAI will pay faculty of the JHU School of Medicine fees in the
amount of $5,000 per day (or $700 per hour) to perform the Services outlined in
Section 1 of this Agreement subject to normal inflation increases occurring
during the Term (hereinafter defined) of this Agreement. Payment will be made
within thirty (30) days after invoicing by JH.
(b) In addition to the compensation for Services, AAI, in consideration
for the limited use of the Permitted Statement of Fact as provided in this
Agreement, will provide JH with substantial additional compensation to be
negotiated. Such additional compensation will include guaranteed annual fees,
plus a royalty plus equity.
5. Term; Conditions Precedent.
--------------------------
(a) This Agreement shall be in effect through November 30, 2009 (the
"Term"). Thereafter, this Agreement shall renew for additional five-year periods
unless either party shall provide written notice of termination to the other
party no later than 120 days prior to the then
-4-
current expiration date. As one of the Conditions Precedent, JH and AAI must
agree upon a formula to appropriately compensate JH for the value created by it
pursuant to this Agreement in the event the Term is not extended beyond such
initial five (5) year period. This may include, for example, an ending cash
payment to JH or issuance of additional stock.
(b) JH and AAI have agreed to enter into this Agreement to reflect the
current stage of their negotiations. However, the Term shall not commence, and
neither JH nor AAI shall have any legally binding obligation in this Agreement,
until all of the Conditions Precedent have been satisfied. If all of the
Conditions Precedent have not been satisfied by July 31, 2005 (as such date may
be extended by mutual agreement of the parties), either party may elect by
written notice to the other to terminate this Agreement. The "Conditions
Precedent" include:
(i) written agreement by JH and AAI on: (A) the parameters for research
and academic freedom as opposed to work for hire as noted in Section 1 of this
Agreement; (B) the amount of royalty fees, guaranteed. annual fees and equity as
noted in Section 4(a) of this Agreement; (C) the buyout or additional stock to
be provided JH at the end of the Term as noted in Section 5 of this Agreement;
and (D) an appropriate scope of coverage for product and/or contractual
liability insurance to be maintained by AAI;
(ii) final approval by internal. JH committees for the Permitted
Statement of Fact (AAI acknowledges that, notwithstanding anything to the
contrary in this Agreement, such approvals have not yet been obtained); and
(iii) documentation of the matters described in the preceding
paragraphs (i) and (ii) by an amendment to this Agreement acceptable in form and
content to, and signed by, JH and AAI.
Neither JH nor AAI shall have any legal obligation of any nature to
proceed with the transactions described in this Agreement anti] all of the
Conditions Precedent have been satisfied in the sole discretion of each party.
No implied obligations of any nature, whether to negotiate in good faith or
otherwise, shall arise by virtue of the execution of this Agreement.
6. Representations and Warranties of JH. JH represents and warrants to
AAI as follows:
6.1 Authorization, Validity of Agreement; No Violation.
--------------------------------------------------
(a) JH has the requisite power and authority to (i) perform this
Agreement and each other document to be performed pursuant to this Agreement
(collectively, with this Agreement, the "JH Documents") to which JH is a party,
and (ii) consummate the transactions contemplated hereby and thereby.
(b) JH has duly authorized, executed and delivered this Agreement and
each of the other JH Documents to which it is or will be a party.
(c) This Agreement and each other JH Document are valid and binding
obligations of JH, enforceable against JH in accordance with their terms and do
not violate any law or agreement applicable to JH.
-5-
6.2 Investment Undertaking. JH acknowledges that the Preferred Shares
to be issued pursuant to Section 4(a) of this Agreement and the shares of common
stock, par value $.01 per share, of AAI issuable upon conversion of the
Preferred Shares will be "restricted securities" within the meaning of Rule 144
of the General Rules and Regulations under the Securities Act of 1933 ("Rule
144"). JH is acquiring the Preferred Shares for its own account and not with a
view to their distribution within the meaning of Section 2(11) of the Securities
Act of 1933. JHHS and JHU are "accredited, investors," as defined in Rule 501 of
Regulation D under the Securities Act of 1933. JH understands that Rule 144
requires that the Preferred Shares and the shares of common stock issuable upon
conversion may not be disposed of for a period of at least one year. JH
understands that it must bear the economic risk of the investment in the
Preferred Shares and the shares of common stock issuable upon conversion of the
Preferred Shares indefinitely because such shares may not be sold, hypothecated
or otherwise disposed of unless subsequently registered under the Securities Act
of 1933 and applicable state securities laws, or an exemption from registration
is available.
7. Representations and Warranties of AAI. AAI represents and warrants
to JH as follows:
7.1 Authorization: Validity of Agreement No Violation
-------------------------------------------------
(a) AAI has the requisite capacity and authority to perform this
Agreement and each other document to be performed pursuant to this Agreement
(collectively, with this Agreement, the "to which it is a party and to
consummate the transactions contemplated hereby and thereby.
(b) AAI has duly authorized, executed and delivered this Agreement
and each of the other AAI Agreements.
(c) This Agreement and each other AAI Agreement is a valid and
binding obligation of AAI, enforceable against it in accordance with their
respective terms and do not violate any law or agreement applicable to AAI.
7.2 Shares Duly Authorized. The Preferred Shares and Common Stock
issuable upon conversion thereof have been duly authorized and upon issuance in
accordance with their terms will be duly and validly issued and non-assessable.
8. Other Agreements of the Parties. In addition to the other provisions
of this Agreement, the parties agree as follows:
8.1 Licenses; Professional Insurance. AAI will cause (i) all AAI
Facilities to be fully licensed by all appropriate agencies, and (ii) each such
AAI Facility to carry all required liability and professional insurance. In any
event, AAI shall at a minimum maintain, the insurance coverages set forth on
Exhibit 2 to this Agreement. Such insurance shall name JHHS, JHU and their
affiliates as additional insureds and provide that JH will receive thirty (30)
days advance written notice of any change in, or cancellation of, coverage. AAI
shall provide certificates evidencing such insurance to JH within fifteen (15)
days after request.
8.2 General Conduct of Business. AAI will conduct its business in
accordance with all applicable laws arid the provisions of the Consulting
Agreement.
-6-
8.3 Financing Reporting. AAI shall provide to JH:
-------------------
(a) As soon as available, and in any event within thirty (30) days
after the end of each calendar quarter, copies of a balance sheet, operating
statement and cash flow statement for AAI as of the close of such period, in
each case setting forth in comparative form the figures for the corresponding
period of the preceding year, all in reasonable detail and certified as complete
and correct, subject to changes resulting from year-end adjustments, by the
chief financial officer of AAI, which shall be accompanied by: (i) a letter from
such chief financial officer certifying that AAI has paid all sums due to JH
pursuant to this Agreement and (ii) a breakdown, in form and detail reasonably
acceptable to JH, of royalty fees due iii; and
(b) As soon as available, and in any event within one hundred twenty
(120) days after the close of each of its fiscal years, copies of: (i) an
audited balance sheet of AAI as of the close of such fiscal year, and (ii) for
each such fiscal year, audited operating and cash flow statements, in each case
setting forth in comparative form the figures for the preceding fiscal year, all
in reasonable detail. Audited financial statements shall be accompanied by an
opinion thereon of a firm of independent certified public accountants of
recognized standing reasonably acceptable to IH to the effect that such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently maintained (except for changes in which such
accountants concur) and present fairly the financial condition of AA1. Such firm
of independent certified public accountants shall contemporaneously provide JH
with a letter stating that, based on the results of its audit, AAI has paid JH
all sums due pursuant to this Agreement; and
(c) Such information regarding its business and financial affairs as JH
may reasonably request within fifteen (15) days after any such request and also
make its principal officers and independent accountants and attorneys available
to discuss such affairs with JH.
8.4 Non-Disclosure of Confidential Information.
------------------------------------------
(a) Each party shall not, arid each party shall cause its officers,
directors, employees, agents, accountants and counsel not to, communicate or use
to the detriment of the other party or for the benefit of any other person any
Confidential Information (hereinafter defined) relating to the other party.
Prior to satisfaction of the Conditions Precedent, the existence of this
Agreement and the transactions described in this Agreement shall be considered
Confidential Information and shall not be disclosed by AAI to any third party
without the prior written consent of JH.
(b) For purposes of this Agreement:
(i) "Confidential Information" shall mean: Any data or information
pertaining to the arrangement between the parties contemplated by this
Agreement that is specifically designated as "CONFIDENTIAL". To the extent
consistent with the foregoing, Confidential Information includes, without
limitation, JH Testing Standards and methodologies developed by JH for
testing Skin Care Parameters, contracts and contractual relations with
customers and suppliers, computer software programs (including object code
and source code), database technologies, systems, structures and
architectures, business acquisition plans and new personnel acquisition
plans. "Confidential Information" shall not include any information that:
(i) is or becomes publicly known other than as a
-7-
result of a breach by Recipient Party (hereinafter defined) or its
representatives of this Agreement; (ii) has been or shall be otherwise
independently acquired by or developed by Recipient Party without violating
the terms of this Agreement; or (iii) is known by Recipient Party or its
representatives prior to its disclosure to Recipient Party by Disclosing
Party (hereinafter defined).
(ii) "Disclosing Party" shall mean the party disclosing
Confidential Information to the other party. "Recipient Party" shall mean
the party receiving Confidential Information from the other party.
(c) In the event Recipient Party receives a court order or other
governmental or administrative decree of appropriate and sufficient jurisdiction
requiring disclosure of Disclosing Party's Confidential Information, Recipient
Party shall give Disclosing Party reasonable written notice prior to such
disclosure in order to permit Disclosing Party, at its expense, to seek a
protective order. Recipient Party shall also cooperate with Disclosing Party in
seeking a protective order, and release only so much of Disclosing Party's
Confidential Information as is required by such order.
8.5 Stockholders Agreement. Concurrently with the issuance of any
additional equity to JH, the parties will enter into a stockholders agreement
(the "Stockholders Agreement") relating to the transfer of the shares of AAI to
be received by JH in substantially the same form as the Stockholders Agreement
attached to the Consulting Agreement.
8.6 Registration Rights Agreement. Concurrently with the issuance of
any additional equity to 3 the parties will enter into a registration rights
agreement (the "Registration Rights Agreement") which provides JH with the right
to register the shares of Common Stock underlying the Preferred Shares in
substantially the same form as the Registration Rights Agreement attached to the
Consulting Agreement.
8.7 Late Payments. Any payment due pursuant to this Agreement that is
not made by AAI within fifteen (15) days of the date due shall: (i) be subject
to a 3% late charge which is intended to cover in part the administrative
expense incurred by JH in handling a late payment, and (ii) accrue interest from
the date due until paid in full at the rate of 10% per annum.
8.8 Audit Right. JH shall have the right to audit (including making
copies of) the books and records of AAI at any time to, among other things,
confirm royalty fees due JH. AAI agrees to cooperate in such audit and make
available to JH, or the person designated by JH to conduct the audit, all such
books and records and personnel of AAI (including its internal and independent
accountants) to respond to questions and discuss such matters as JH may desire.
Any appropriate reconciliation in payment based on the results of such audit
shall be made within thirty (30) days after the completion of the audit. Should
an audit disclose an underpayment of the royalty fees of more than 5%, AAI shall
pay to fl-I: (i) all costs of the audit, and (ii) interest on the amount
underpaid from the date it should have been paid until the date received, by JH
at the rate of ten percent (10%) per anijurn. In addition to any other remedy
provided to 3 in this Agreement, JH may assess an administrative penalty of US
$1,000 for any failure of AAI to provide information, or make personnel
available for discussion, as described in this Section and in Section 8.3.
-8-
9. Control of ▇▇▇▇.
---------------
(a) The rights granted to make the Permitted Statement of Fact by this
Agreement are non-divisible and shall not be transferred or sub-licensed, except
to Sephora to the extent provided in this Agreement, in whole or in part without
the prior written consent of JH, which consent may be granted or denied in its
sole discretion.
(b) Notwithstanding anything to the contrary contained in this
Agreement, AAI may not use the Permitted Statement of Fact in any manner that
JH, in its sole discretion, deems to be illegal, vulgar, obscene, in bad taste
or inconsistent with the professional image and reputation of JH.
(c) AAI recognizes the substantial value and goodwill associated with
the ▇▇▇▇ and that the ▇▇▇▇ has acquired a secondary meaning as being synonymous
with medical services and education of the highest quality and pioneering health
and medical research. AAI agrees that it will conduct its businesses in
accordance with such standards of quality and professionalism and in compliance
with all applicable laws, so as to protect the goodwill embodied in the ▇▇▇▇ and
the reputation of JH, JHHS and JHU. All marketing and promotion of AAI's
services using the Permitted Statement of Fact shall be: (i) limited as defined
in this Agreement, and (ii) done in a dignified, tasteful and professional
manner in keeping with the standards of JH.
(d) JH shall have the right, but not the obligation, to request at any
time samples of then current usage of the Permitted Statement of Fact for
quality control purposes. .TH shall advise AAI in writing of any use which is
inconsistent with this Agreement (an "Inconsistent Use Notice"), and AAI shall
immediately cease such use. Notwithstanding the foregoing, JH shall not have the
right to send an Inconsistent Use Notice with respect to any use previously
approved by JH pursuant to this Agreement.
(e) In addition to any other rights or remedies of JH set forth in this
Agreement, AAI shall pay JH the sum of $10,000 for each instance of an
intentional and controllable misuse of the ▇▇▇▇. Such fee represents an
administrative charge to defray costs and expenses of JH in monitoring use of
the ▇▇▇▇ and Permitted Statement of Fact. It does not constitute a license for
such misuse nor does it in any manner affect JH's right to seek injunctive
relief or damages.
10. Protection of the ▇▇▇▇.
----------------------
(a) AAI agrees that, except for the rights granted expressly in this
Agreement to make a Permitted Statement of Fact and rights granted pursuant to
the Consulting Agreement, AAI shall have no right, title or interest in the
▇▇▇▇, and that the ▇▇▇▇ is the sole property of JH and its affiliated entities.
AAI shall not challenge, or cause a third party to challenge, the validity and
ownership by JH and its affiliated entities of the ▇▇▇▇, or seek to register,
defend, compromise or dispute any rights in and to the ▇▇▇▇.
(b) AAI shall advise JH of any apparent infringement of the ▇▇▇▇ of
which it becomes aware and will cooperate with JH in the prosecution of any
action brought to protect the ▇▇▇▇. JH shall have the sole and exclusive right
to ▇▇▇ for an alleged infringement of the ▇▇▇▇ and to retain all recoveries and
any other revenues deriving therefrom.
-9-
(c) Each party agrees to give the other prompt written notice of any
claim or legal proceeding which is threatened or actually instituted against
such party by any third party involving the rights to the ▇▇▇▇ and to cooperate
in good faith in the resolution of the matter.
(d) AAI shall execute any additional documents and provide any
information and consents as are reasonably necessary in order to effect the
protection of the ▇▇▇▇ as licensed under this Agreement.
11. Indemnification.
---------------
(a) AAI agrees to indemnify, defend and hold harmless 111 and. its
respective employees, officers, directors, physicians, agents, and all related.
and affiliated entities (including
(b) AAI and JHU) (collectively, the "▇▇▇▇▇▇▇ Parties") for any losses,
claims, damages or liabilities, including, without limitation, attorneys' fees
and court costs (collectively, the "Claims"), arising out of or with respect to
(i) any injury or damage caused by any services or goods sold or otherwise
provided by AAJ including medical diagnosis and treatment, or (ii) any negligent
action or negligent omission of AAI, or (iii) any breach by AAI of this
Agreement, or (iv) any use of the Permitted Statement of Fact or ▇▇▇▇ in
connection with the business of AAI; provided that, such indemnification
obligation shall be reduced in an equitable maimer to the extent any Claim
arises in part from a negligent act or omission by M or its affiliates or a
material breach by JH or its affiliates of this Agreement. In the event any
claim, action or proceeding is brought against any of the ▇▇▇▇▇▇▇ Parties, which
is subject to indemnification under this Section, AXE, upon written notice from
the ▇▇▇▇▇▇▇ Parties, shall defend or settle the same at AM's sole cost and
expense with legal counsel reasonably satisfactory to the ▇▇▇▇▇▇▇ Parties. If
AAI fails to assume the defense of any matter subject hereto within a reasonable
period of time after such written notice, the ▇▇▇▇▇▇▇ Parties may proceed to
defend or settle the matter with legal counsel of their own selection at AAI's
cost and expense. The ▇▇▇▇▇▇▇ Parties shall cooperate with AAI in the defense or
settlement of any claim subject to indemnification under this Section. All
compromises arid settlements shall require the prior written consent of the
▇▇▇▇▇▇▇ Parties, which consent shall not be unreasonably withheld.
(b) JH agrees to indemnify, defend arid hold harmless AAI and its
respective employees, officers, directors, agents, and affiliated entities
(collectively, the "AM Parties") for any Claims arising out of or with respect
to: (i) any allegation that the use of the Permitted Statement of Fact as
permitted under this Agreement infringes the proprietary rights of any third
party, (ii) any negligent acts or negligent omissions of Ill, or its affiliated
entities, or their employees, consultants, physicians, agents or
representatives, or (iii) any breach by JH or its affiliates of this Agreement;
provided that, such indemnification obligation shall be reduced in an equitable
manner to the extent any Claim arises in part from a negligent act or omission
by AAI or a breach by AAI of this Agreement. In the event any claim, action or
proceeding is brought against the AAI Parties which is subject to
indemnification under this Section, JH, upon written notice from the AM Parties,
shall defend or settle the same at JH's sole cost and expense with legal counsel
reasonably satisfactory to the AAI Parties. If JH fails to assume the defense of
any matter subject hereto within a reasonable period of time after such written
notice, the AAI Parties may proceed to defend or settle the matter with legal
counsel of their own selection at JH's cost and expense. The AAI Parties shall
cooperate with JH in the defense or settlement of any claim
-10-
subject to indemnification under this Section. All compromises and settlements
shall require the prior written consent of the AA1 Parties, which consent shall
not be unreasonably withheld.
(c) These indemnification provisions shall survive termination of this
Agreement for any reason.
12. Termination of Right to Use the Permitted Statement of Fact.
-----------------------------------------------------------
JH shall have the right to require AAI to cease any reference to or use
of the Permitted Statement of Fact: (a) if an Event of Default by AAI occurs and
continues beyond any applicable notice and cure period set forth in Section 13
of this Agreement, or (b) in the event JH determines in good faith that AAI is
not operating its business in conformance with protocols and quality standards
acceptable to JH, or (c) in the event JH determines in good faith that AAI or
Sephora, respectively, has conducted its business in a manner that materially
and adversely reflects on the image and reputation of JH, JHHS or JHU because of
the use of the Permitted Statement of Fact. JH shall not exercise its rights
pursuant to the previous clauses (b) arid (c) without first providing to AAI a
sixty (60) day period in which to explain the situation and state how it intends
to remedy it. If not satisfied at the end of such sixty (60) day period, JH, at
its option, may prohibit further use of the Permitted Statement of Fact. Upon
exercise of the right to terminate use of the Permitted Statement of Fact as
described above or upon termination of this Agreement for any reason, AAI shall
have no further iight to use the Permitted Statement of Fact and shall
immediately cease use of the Permitted Statement of Pact. AAI consents to
injunctive relief in the event of any misuse or unauthorized use of the ▇▇▇▇.
13. Default Termination.
-------------------
(a) Termination by AAI. AAI shall have the right to terminate this
Agreement upon the occurrence of any of the following events provided that such
intent to terminate is expressly stated in any Notice (hereinafter defined) of
default described below:
(i) If JH fails to perform any material term, condition, or provision
contained in this Agreement and such default continues for sixty (60) days after
Notice to remedy same from A-Al; provided that, in the event such default on the
part of JH cannot be remedied within sixty (60) days and iB has promptly and
diligently proceeded with action to remedy such default, then JH shall be
allowed such additional time as shall be reasonable to remedy the default;
(ii) If JH files a voluntary bankruptcy or goes into liquidation
voluntarily or enters into any composition or arrangement with or for the
benefit of creditors of JH, or allows any final, non-appealable judgment or
involuntary bankruptcy filed against JH to remain unsatisfied or not dismissed
for a period of sixty (60) days;
(iii) If any representation or warranty of JH in this Agreement proves
to be false or misleading in any material respect; or
(iv) If JH defaults under the Consulting Agreement and such default
continues uncured beyond any applicable notice and cure period.
-11-
(b) Termination by JH. JH shall have the right to terminate this
Agreement upon the occurrence of any of the following events provided that such
intent to terminate is expressly stated in any Notice of default described
below:
(i) If AAI fails to make any payment to JH when due pursuant. to this
Agreement and such failure continues uncured for fifteen (15) days after Notice
from JH; provided that, AAI shall be entitled to notice of a monetary default
only once during each Contract Year (the term Contract Year meaning each
consecutive twelve (12) month period from the date of this Agreement), with iii
having a right to terminate immediately upon Notice and with no cure period upon
a second monetary default within a Contract Year;
(ii) If AAI misuses the ▇▇▇▇ and such misuse continues for five (5)
days after Notice from JH; provided that ▇.▇▇ shall only be entitled to one (1)
Notice for a specific misuse of the ▇▇▇▇ and, in the event of a reoccurrence of
such misuse for which a Notice has been given, JH may terminate this Agreement
immediately upon Notice and with no further cure period;
(iii) If AAI fails to perform ai other material term, condition, or
provision contained in this Agreement (exclusive of those described in
paragraphs (i) arid (ii) above) and such default continues for sixty (60) days
after Notice to remedy same from JH; provided that, in the event such default on
the part of AAI cannot be remedied within sixty (60) days and AAI has proceeded
promptly and diligently with action to remedy such default, then AAI shall be
allowed such additional time as shall be reasonable to remedy the default (such
extended cure period shall apply only to this subparagraph (iii) and not to any
other defaults set forth in this Section (b);
(iv) If AAI files a voluntary bankruptcy or goes into liquidation
voluntarily, or enters into any composition or arrangement with or for the
benefit of creditors of AAI, or allows any final, non-appealable judgment or
involuntary bankruptcy filed against AAJ to remain unsatisfied or not dismissed
for a period of sixty (60) days;
(v) If any representation or warranty of AAI in this Agreement proves
to be false or misleading in any material respect;
(vi) If AAI defaults under the Stockholders Agreement or Registration
Rights Agreement and such default continues uncured beyond any applicable notice
and cure period; or
(vii) If AAI defaults under the Consulting Agreement and such default
continues uncured beyond any applicable notice and cure period.
(c) Upon termination of this Agreement pursuant to this Section 13, all
obligations of the parties shall terminate except those under Section 8.4 and
Section 11.
(d) JH and AAI agree that the occurrence of a default under this
Agreement which continues beyond any applicable notice and cure period, shall,
at the option of the non defaulting party, also constitute a default by the
defaulting party under the Consulting Agreement.
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14. Damages.
-------
(A) EXCEPT TO THE EXTENT ENCOMPASSED WITHIN A THIRD PARTY CLAIM
INDEMNIFIED AGAINST PURSUANT TO SECTION 11, NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT TO THE CONTRARY, JH, JHU, JHHS AND AAI SHALL NOT BE LIABLE IN
ANY MANNER FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES. EACH PARTY
IRREVOCABLY WAIVES ITS RIGHT TO SEEK SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES AND ACKNOWLEDGES THAT SUCH WAIVER IS A MATERIAL INDUCEMENT FOR THE OTHER
PARTY TO ENTER INTO THIS AGREEMENT.
(B) AAI AGREES THAT NO ▇▇▇▇▇▇▇ PARTY (INCLUDING, WITHOUT LIMITATION,
JH, JHU AND JHHS) SHALL BE LIABLE TO AAI FOR ANY ACTIONS, DAMAGES, CLAIMS,
LIABILITIES, COSTS, EXPENSES OR LOSSES IN ANY WAY ARISING OUT OF OR RELATJNG TO
THIS AGREEMENT OR THE SERVICES PERFORMED HEREUNDER FOR AN AGGREGATE AMOUNT IN
EXCESS OF THE GREATER OF; (A) $250,000, OR (B) THE SUMS ACTUALLY PAID TO JH
PURSUANT TO THIS AGREEMENT.
15. Miscellaneous
-------------
15.1 Force Majeure. Neither JH nor AAI shall be liable for any delays
resulting from circumstances or causes beyond its reasonable control, including,
without limitation, fire or other casualty, act of God, strike or labor dispute,
war, terrorism or other violence, or any law, order or requirement of any
governmental agency or authority. Nothing contained in this Section, though,
shall excuse payment of a monetary obligation.
15.2 Independent Contractor. Each party to this Agreement is an
independent contractor. None of the provisions of this Agreement is intended, to
create, nor shall be deemed or construed to create, any employer-employee
partnership, joint venture, or other relationship between such parties.
15.3 No Third-Party Beneficiaries. The obligations of each party to
this Agreement shall inure solely to the benefit of the other party, and no
person or entity shall be a third party beneficiary of this Agreement.
15.4 Preparation. Each party and its respective legal counsel have
cooperated in the drafting of this Agreement. This Agreement shall be deemed,
therefore, to be their joint work product and shall not be construed against any
party on the basis of its preparation.
15.5 Survival of Representations and Warranties. Each party has the
right to rely upon the representations and warranties of the other contained
herein and the documents referred to herein all of which shall continue in full
force and effect after the closing hereunder.
15.6 Transaction Fees and Expenses. Each party hereto shall bear all
costs incurred by it in connection with this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, AAI shall reimburse JB for
all reasonable and necessary travel and other business related expenses incurred
by JH in connection with the performance of JH's agreements hereunder, provided
that such expenses shall be subject to prior approval by AAI, which approval
will not be unreasonably withheld or delayed. Such expenses shall be reimbursed
-13-
within thirty (30) days after the submission by JH of appropriate documentation
with respect thereto. Reimbursable expenses include, without limitation,
business class airfare (unless otherwise mutually agreed), lodging in hotels of
mutually acceptable quality, meals, ground transportation, gratuities and
mutually agreed upon hotel expenses.
15.7 Notices. All notices or other communications to be given hereunder
("Notice") shall be in writing and sent by (i) messenger or a recognized
national overnight courier service for next day delivery with receipt therefor,
(ii) certified or registered mail, postage paid, return receipt requested, (iii)
facsimile transmission with a written copy thereof sent on the same day by
postage paid first-class mail or (iv) by personal delivery to such party at the
following address:
To AAI:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Jenkens & ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
To: AAI:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ A, ▇▇▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
The ▇▇▇▇▇ ▇▇▇▇▇▇▇ Health System Corporation
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: General Counsel
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
The ▇▇▇▇▇ ▇▇▇▇▇▇▇ University
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
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or such other address as either party hereto may at any time, or from time to
time, direct by Notice given to the other party in accordance with this Section
15.7.
15.8 Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.
15.9 Governing Law: Jurisdiction: Jury Trial. This Agreement shall be
governed by, and interpreted and enforced in accordance with, the laws of the
State of Maryland. Each of the parties hereto hereby irrevocably consents and
submits to the exclusive jurisdiction of the United States District Court for
the Northern Division of the State of Maryland in connection with any proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, waives any objection to venue in such Court (unless such Court lacks
jurisdiction with respect to such proceeding, in which case, each of the parties
hereto irrevocably consents to the jurisdiction of the courts of ▇▇▇▇▇▇ County
in the State of Maryland in connection with such proceeding and waives any
objection to venue in the courts of ▇▇▇▇▇▇ County) arid, agrees that service of
any summons, complaint, notice or other process relating to such proceeding may
be effected in the manner provided by Section 15.7. EACH PARTY UNCONDITIONALLY
AND IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH THIS
AGREEMENT OR ANY MATTER OR CONTROVERSY ARISING OUT OF, OR IN CONNECTION WITH,
THIS AGREEMENT OR THE TRANSACTIONS DESCRIBED HEREIN. THIS WAIVER IS MADE
KNOWINGLY AND VOLUNTARILY AFTER CONSULTATION WITH COUNSEL.
15.10 Remedies. In the event of any actual or prospective breach or
default by any party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of injunction and specific performance.
Nothing contained herein and no election of any particular remedy shall be
deemed to prohibit or limit any party from pursuing, or be deemed a waiver of
the right to pursue, any other remedy or relief available now or hereafter
existing at law or in equity (whether by statute or otherwise) for such actual
or prospective breach or default, including the recovery of damages.
15.11 Severability. The provisions hereof are severable and if any
provision of this Agreement shall be determined to be legally invalid,
inoperative or unenforceable in any respect by a court of competent
jurisdiction, then the remaining provisions hereof shall not be affected, but
shall, subject to the discretion of such court, remain in full force and effect,
and any such invalid, inoperative or unenforceable provision shall be deemed,
without any further action on the part of the parties hereto, amended and
limited to the extent necessary to render such provision valid, operative and
enforceable.
15.12 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
successors (whether by operation of law or otherwise) and including a purchaser
of the business, stock or assets of a party hereto; provided that, JH may elect,
in its sole discretion, to terminate this Agreement if Control (hereinafter
defined) of AAI is acquired by a pharmaceutical company or by a manufacturer or
distributor of alcohol, weapons or pornography or by any other person or entity
whose ownership of AAI would impair the image and reputation of JH as determined
by JH in its sole discretion. "Control" means either: (a) ownership, directly or
indirectly, of more than fifty percent (50%) of
-15-
the stock or voting interests in AAI, or (b) the right, directly or indirectly,
to direct the executive decision making of AAI by contract or otherwise,
including, without limitation, by ability to appoint a controlling number of the
members of the board of directors of AAI. In addition, JH may assign this
Agreement at any time to a wholly-owned subsidiary of JHU and JHHS and, in such
event, shall have no further obligation or liability under this Agreement from
and after the date of such assignment. Except as aforesaid, no party shall
assign any rights or delegate any obligations hereunder. AAI acknowledges,
however, that JHHS and JHU may subcontract with other affiliates for performance
of certain of the Services. Such subcontracting shall not create any direct
liability of other affiliates to AAI.
15.13 Entire Agreement. This Agreement, together with the Exhibits and
other documents referred to herein, required to be delivered pursuant to the
terms hereof or delivered simultaneously herewith, contains the terms of the
entire agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, commitments, understandings,
discussions, negotiations or arrangements of any nature relating thereto.
15.14 Sole Discretion. Wherever in this Agreement IH has the right to
make a decision in its "sole discretion," AAI acknowledges and agrees that the
decision of JH shall not be subject to question or challenge in any manner by
AAI. AAI waives any right it may otherwise have, if any, to question or
challenge any such decision of JH.
SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first listed above.
ADVANCED AESTHETICS, INC.
By: _______________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chairman
▇▇▇▇▇ ▇▇▇▇▇▇▇ MEDICINE
Acting through
The ▇▇▇▇▇ ▇▇▇▇▇▇▇ Health System Corporation
By: _______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
The ▇▇▇▇▇ ▇▇▇▇▇▇▇ University
By: _______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-16-
EXHIBIT LIST
Exhibit 1 -- Examples of Permitted Statements of Fact
Exhibit 2 -- Insurance
Exhibit 1
---------
Examples of Permitted Statements of Fact to be approved by JH.
-2-
Exhibit 2: Minimum Insurance Coverages for AAI
----------------------------------------------
o General liability ($1 million/$3 million)
o D&O and Employee Practices Liability ($3 million)
o Umbrella coverage ($4 million)
Specific scope of coverage to be approved by JH.
-3-
EXHIBIT LIST
Exhibit 1 -- Examples of Permitted Statements of Fact
Exhibit 2 -- Certificate of Designation
Exhibit 3 -- Insurance
Exhibit 4 -- Stockholders Agreement
Exhibit 5 -- Registration Rights Agreement
-4-
Exhibit 2: Certificate of Designation
---------------------------------------
-5-
Exhibit 3: Minimum Insurance Coverages for AAI
-----------------------------------------------
o General liability ($1 million/$3 million)
o D&O and Employee Practices Liability ($3 million)
o Umbrella coverage ($4 million)
-6-
Exhibit 4: Stockholders Agreement
----------------------------------
-7-
Exhibit 5: Registration Rights Agreement
-----------------------------------------
-8-
SCHEDULE 1
----------
LISTING OF AAI EQUIPMENT
------------------------
-9-
Item Description
---- -----------
Body Sculpting
--------------
Ultrasound Body Sculpting Destroys fat cells
Light Medical
-------------
Electrical Hyfrecator Cauterizer
Laser Hair Removal
Laser Tatoo Removal
IPL Laser Photorejuvenation
Microdermabrasion machine Improves skin texture/tone
Autoclave Sterilizer Sterilizes
Dentistry
---------
Laser Whitening Whitens teeth
Tray Impression Maker Makes custom whitening trays
Teeth Shade Measuring Probe Measures shade of teeth
Teeth Symmetry Measuring Program Measures symmetry of teeth
Spa
---
Multiunit Facial Machines Steam/Brush/Spray/High-Freq/etc.
Wax Warmer Warms wax
Hot Towel Cabbie Warms towels
Permanent Make-up Unit For applying permanent makeup
Autoclave Sterilizer Sterilizes
Facial Steamer Cleanses pores/refreshes face
Bath Therapy Melts paraffin for hand treatment
Mitt/Booty Warmer Warms client mitts/booties
Diagnostics
-----------
Digital UV System Identification of UV damage
Morphing Software Client surgical morphing images
NexTech Medical Client Management Software
▇▇▇▇▇▇▇▇▇ Software Face proportional measurement
VISIA Complexion Analysis Measures several skin parameters
Corneometer Measures hydration
Sebumeter Measures sebum
Cutometer Measures elasticity
Tewameter Measures trans-epidermal water loss
Visioscope Measures squames (dead skin), fine lines,
dandruff
Colormeter Measures skin color
VisioFace Measures smoothness, pores, UV Damage,
pigmentation; provides digital mask
-10-
Videomiroscope Measures cutical damage, hair color
DiaComm Smile projection software
Digital Camera -
Studio Strobe Flash Lights -
Facial Grid Face Symmetry measurement
3D Imaging Software Renders future client appearance
Nail Care
---------
Manicure Station w/Hand Bath
Pedicure Station w/Foot Bath
Hair Treatment
--------------
Hair Steamer Steams coloring into hair
Precision Cutting Station -
Coloring Station -
Custom Color Mixing Lab -
-11-
SCHEDULE 2
----------
DESCRIPTION OF AAI SERVICES
---------------------------
Description of Services for AAI Centers
---------------------------------------
o Diagnostics of skin (e.g. hydration, wrinkling, etc)
o Review of available Products to address indications
o Assessment of client's skin care needs (aka client assessment)
o Merchandising and selling of Products
o Providing advice for Third Party Products
o Referral of clients to medical or dental doctors directly
affiliated with AAI
Description of Additional Services for the Adjacent AAI Facility
----------------------------------------------------------------
o Therapeutic facial treatment that will include the use of skin
care products performed by a licensed and trained aesthetician or
medical/aesthetician
o Provide Products and/or provide referral service back to AAI
Center.
o Manicure-Pedicure
o Waxing
o Proprietary hair coloring/treatments
o Facials
o Massage
o Permanent Make-Up/Tatooing
o Botox and soft tissue fillers and injectibles
o Laser skin treatments
o Laser hair removal
o Cellulite treatments
o Non-invasive body shaping
o Teeth Whitening
o Consultation for cosmetic surgery and cosmetic dentistry services
-12-
Schedule 3
----------
Advanced Aesthetics Shareholders/Warrant Holders
------------------------------------------------
Name Common Preferred Preferred Preferred Preferred Preferred Warrants
---- ------ --------- ---------- ---------- ---------- ---------- --------
A B C D E
Seapine Investments, LLC 6,708,147 1,375.657 275,132
▇▇▇▇▇▇ Family Limited Partnership 508,979
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 104.378 20,875
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 152,770 31.329 6,266
▇▇▇▇▇▇▇ Family Limited 91,752 18.077
Partnership
▇▇▇▇▇▇▇ ▇▇▇▇ 24,342 4.991 998
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Grantor Trust 474,321 97.270 19,454
▇▇▇▇ ▇. ▇▇▇▇ Trust 474,321 97.270 19,454
▇▇▇▇▇▇ ▇. ▇▇▇▇ Trust 474,321 97.270 19,454
Sand Dollar Partners, L.P. 207,441
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 42.541 8,508
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 12,925 2.651 530
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 12,925 2.651 530
▇▇▇▇▇▇▇ ▇▇▇▇▇ 12,925 2.651 530
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 12,925 2.651 530
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 3,231 0.663 133
▇▇▇▇▇▇ ▇▇▇▇▇ 69,488 14.250 2,850
▇▇▇▇▇ ▇▇▇▇▇▇ 13,898 2.850 570
▇▇▇▇▇ ▇▇▇▇▇▇▇ 13,898 2.850 570
▇▇▇▇ ▇'▇▇▇▇ 15,000
▇▇▇▇▇▇ ▇▇▇▇▇ 10,000
▇▇▇ ▇▇▇▇▇ 80,000
▇▇▇▇▇▇ ▇. ▇▇▇▇ Revocable Trust 20,000
U/A/D May 20, 1997
▇▇▇▇ ▇▇▇▇ 40,000
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Living Trust 1,300
Dated July 9, 2002
L Capital 8,200
▇▇▇▇▇ ▇▇▇▇▇▇▇ 500
Forele Ltd., Inc. 950
Lord & Foursight, LLC 2,600
The ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1,150
Irrevocable Trust
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ 1,625
▇▇▇▇▇▇ ▇. ▇▇▇▇ 1,625
-13-
SCHEDULE 4
----------
NET PROFIT CALCULATION FOR SEPHORA ALLIANCE STORES
--------------------------------------------------
Report #: SE181 **Management** **Confidential** Run Date:
09/13/04
Run Time: 11:55:46
SEPHORA GROUP
-------------
SEPHORA USA
CURRENT PERIOD SHOP P&L YEAR-TO-DATE
---------------------------------------------------------------------------------- -------------------------
% VAR-B(W) % OF RETAIL SALES 08/31/04 % VAR-B(W)
CURRENT LAST LAST CURRENT LAST CURRENT
YEAR BUDGET YEAR BUDGET R1 FCST YEAR YEAR BUDGET YEAR ($,000 Omitted) YEAR BUDGET
---------------------------------------------------------------------------------- -------------------------
0 0 0 0.0 0.0 0.0 100.0 100.0 100.0 NET SALES 0 0
=== === === ===== ===== ===== === ===
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 CONC FEES 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 FACIL RENT 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 FACIL DEPREC 0 0
0 0 0 0.0 0.0 0.0 0 0 0 OTHER 0 0
--- --- --- ----- ----- ----- --- ---
0 0 0 0.0 0.0 0.0 0 0 0 OCCUPANCY COST 0 0
--- --- --- ----- ----- ----- --- ---
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 SALARIES & WAGES 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 BONUS 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 BENEFITS 0 0
0 0 0 0.0 0.0 0.0 0 0 0 OTHER 0 0
--- --- --- ----- ----- ----- --- ---
0 0 0 0.0 0.0 0.0 0 0 0 PAYROLL 0 0
--- --- --- ----- ----- ----- --- ---
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 ADV & DISPLAY 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 SUPPLIES 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 REPAIRS & MAINT 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 CONTRACT SERV 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 BANK CHARGES 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 UTILITIES 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 EQUIP DEREC 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 COMMUNICATIONS 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 OTH TAX & LICENS 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 (G)/l F/A DISP 0 0
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 PREOPENING COSTS 0 0
0 0 0 0.0 0.0 0.0 0 0 0 OTHER 0 0
--- --- --- ----- ----- ----- --- ---
0 0 0 0.0 0.0 0.0 0 0 0 TOTAL OTHER SHOP 0 0
--- --- --- ----- ----- ----- --- ---
0.0 0.0 0.0 0 0.0 0.0 0.0 0.0 0.0 TOTAL SHOP EXP. 0.0 0.0
=== === === ===== ===== ===== === ===
0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 SHOP PROFIT 0 0
=== === === ===== ===== ===== === ===
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YEAR-TO-DATE
-------------------------------------------------------
% VAR-B(W) % OF RETAIL SALES
LAST LAST CURRENT LAST
YEAR BUDGET YEAR YEAR BUDGET YEAR
--------------------------------------------------------
0 0.0 0.0 100.0 100.0 100.0 NET SALES
=== ===== ===== =====
0 0.0 0.0 0.0 0.0 0.0 CONC FEES
0 0.0 0.0 0.0 0.0 0.0 FACIL RENT
0 0.0 0.0 0.0 0.0 0.0 FACIL DEPREC
0 0.0 0.0 0 0 0 OTHER
--- --- --- ---
0 0.0 0.0 0 0 0 OCCUPANCY COST
--- --- --- ---
0 0.0 0.0 0.0 0.0 0.0 SALARIES & WAGES
0 0.0 0.0 0.0 0.0 0.0 BONUS
0 0.0 0.0 0.0 0.0 0.0 BENEFITS
0 0.0 0.0 0 0 0 OTHER
--- --- --- ---
0 0.0 0.0 0 0 0 PAYROLL
--- --- --- ---
0 0.0 0.0 0.0 0.0 0.0 ADV & DISPLAY
0 0.0 0.0 0.0 0.0 0.0 SUPPLIES
0 0.0 0.0 0.0 0.0 0.0 REPAIRS & MAINT
0 0.0 0.0 0.0 0.0 0.0 CONTRACT SERV
0 0.0 0.0 0.0 0.0 0.0 BANK CHARGES
0 0.0 0.0 0.0 0.0 0.0 UTILITIES
0 0.0 0.0 0.0 0.0 0.0 EQUIP DEREC
0 0.0 0.0 0.0 0.0 0.0 COMMUNICATIONS
0 0.0 0.0 0.0 0.0 0.0 OTH TAX & LICENS
0 0.0 0.0 0.0 0.0 0.0 (G)/l F/A DISP
0 0.0 0.0 0.0 0.0 0.0 PREOPENING COSTS
0 0.0 0.0 0 0 0 OTHER
=== === === ===
0 0.0 0.0 0 0 0 TOTAL OTHER SHOP
=== === === ===
0.0 0.0 0.0 0.0 0.0 0.0 TOTAL SHOP EXP.
=== === === ===
0 0.0 0.0 0.0 0.0 0.0 SHOP PROFIT
=== === === ===
-15-