Strategic Alliance Agreement

STRATEGIC ALLIANCE AGREEMENT


This strategic alliance agreement ("Agreement") is made as of this 19th day of December, 2001 ("Effective Date"), by and between WEST MARINE PRODUCTS, INC., with an address at 500 Westridge Drive, Watsonville, CA 95076 ("West Marine"), AND DICKIE WALKER MARINE, INC., with an address at 470 Nautilus Street, Suite 312, La Jolla, CA 92037 ("DWM") with the goal of forming a strategic alliance between the two companies to increase the sales and profitability of West Marine's apparel and related products department.


For and in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:


1. Term. Subject to earlier termination as set forth herein, this Agreement shall terminate two (2) years from the Effective Date hereof ("Initial Term"), unless extended for successive one (1) year terms by mutual, written agreement of the Parties (each a "Renewal Term"). Notwithstanding the foregoing, the parties will review the performance of the apparel department on an annual basis within the period specified in achievement of the "Measurement Goals" (as defined in Section 13), and other retail factors normally associated with retail performance, to determine the economic viability of the venture contemplated by this Agreement. It is agreed that West Marine shall have the sole and final determination as to whether to renew the Agreement after the Initial Term and for any subsequent Renewal Term. The Initial Term and all Renewal Terms hereinafter collectively shall be referred to as the "Term."


2. Standard Vendor Agreement. DWM agrees to be bound by all of the terms and conditions set forth in West Marine's Standard Vendor Agreement, including the indemnification agreement contained therein (collectively, "SVA"), * * A copy of the "SVA" is attached hereto as Exhibit "A" and incorporated herein by this reference. In the event of any inconsistency between this Agreement and the SVA, this Agreement shall control, except as otherwise expressly set forth herein.


3. Product Development and Design.


A. DWM will develop, design, manufacture (through reputable suppliers), package, supply and deliver to West Marine for resale a line of certain casual apparel and accessories designated by West Marine in accordance with prices, plans, specifications, quality assurance standards, and production schedules mutually agreed upon by the parties ("Specifications") and purchase orders placed by West Marine and accepted by DWM ("Purchase Orders"), for retail sale in West Marine's stores, catalogs and retail website at the URL website located at www.westmarine.com under the label "West Marine" or other names or labels chosen by West Marine (the "West Marine Brand Apparel"). All of the containers, packaging and labels for the West Marine Brand Apparel shall include the trademarks, trade names, trade dress, logos, designs, bar codes aid other identifying features (collectively, "Trademarks"), as determined by West Marine. DWM acknowledges and agrees that West Marine, at all times during and after the Term of this Agreement, is and shall continue to be the sole and exclusive owner of all right, title and interest in and to the West Marine Trademarks, including those of the West Marine Brand Apparel.


B. DWM will be the primary supplier of West Marine's casual apparel department (exclusive of foul weather gear and shoes) through the West Marine Brand Apparel including design and development, sourcing of fabrics, trims, packaging and cut and sew, subject to the Specifications and the terms and conditions of this Agreement.


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C. DWM will develop at least two lines per year of the West Marine Brand Apparel, one for Spring and one for Fall, which lines must be submitted to and approved by West Marine * *. In this regard, DWM will design the lines in accordance with the Specifications and forward samples of merchandise for West Marine's final written approval within the specified time periods.


4. Production and Manufacturing: DWM represents and warrants to West Marine that DWM:


A. Will be responsible for the timely production, manufacturing, and quality control of all of the West Marine Brand Apparel in accordance with the Specifications;


B. Will Manufacture the West Marine Brand Apparel in a good and workmanlike manner and will comply with all applicable U.S. federal, state and local laws, ordinances and regulations, as well as all laws of the country in which the West Marine Brand Apparel will be manufactured, including all import and export laws and regulations. In this regard, DWM will utilize its best efforts to not use any cutting, sewing or other contractors, manufacturers or distributors that abuse U.S. Child Labor or other employment standards or laws;


C. Will inspect and approve the finished product before shipment to the United States or other DWM or West Marine designated locations and such approval will be granted only if the West Marine Brand Apparel: conforms to Specifications, including all quality assurance standards; meets the requirements of all applicable laws and regulations; is packaged, labeled, priced and invoiced in accordance with the Specifications (and/or as specified in the SVA); and is executed according to the practices and regulations of the country of exportation;


D. Will issue inspection certificates or return the West Marine Brand Apparel and process claims against the manufacturer(s) for product that fails to meet the Specifications. In the case of claims resulting from any defective or rejected West Marine Brand Apparel (including, without limitation, defects discovered after receipt and resale by West Marine), DWM will reimburse West Marine therefore * *; and


E. Will use its best efforts to make quality products with quality workmanship: that all materials used in the manufacturing process will be new, in accordance with legal requirements, and of good and merchantable quality; that each product delivered to West Marine will, at the time of delivery, be free of defects; and that West Marine will receive good title to it free of all liens, and encumbrances of any kind.


5. Ordering:


A. * *


B. * *


C. Nothing In this Agreement is intended to create any duty on the part of West Marine to place any Purchase Order or Assortment Approval letter or on the part of DWM to accept any Purchase Order or Assortment Approval letter, it being expressly understood that the placement of any such Purchase Order or Assortment Approval letter may be revoked and canceled by West Marine at any time prior to the acceptance thereof by DWM by commencement of purchasing or manufacture.


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6. Distribution:


A. DWM will receive, ship, and warehouse all West Marine Brand Apparel in DWM's distribution center in San Diego County, California and will be responsible for the shipping of said product to each West Marine location as specified in the Purchase Orders.


B. All shipments from DWM warehouse to West Marine stores (or other specified locations) will be shipped according to West Marine's shipping instructions. Delivery will be F.O.B. DWM's warehouse. West Marine will select the carrier.


C. All charges pertaining to the importation and transportation of the West Marine Brand Apparel to DWM's warehouse including, without limitation, all costs related to customs' duties, sales, use, value added or any similar taxes, costs for the visa, imports, freight charges, broker fees, insurance, personal property taxes and other related charges shall be paid solely by DWM. West Marine is responsible for all reasonable and actual shipping charges incurred to ship the West Marine Brand Apparel from the DWM warehouse to the designated West Marine stores, distribution centers, or other specified locations. Title and risk of damage or loss of the West Marine Brand Apparel passes to West Marine after possession transfers at the time of invoicing from DWM, provided however, that DWM shall remain responsible for damage or loss to West Marine Brand Apparel caused by its employees, agents, and subcontractors.


D. West Marine must inspect all West Marine Brand Apparel within * * from date of receipt at the shipping destination, and may reject any goods that fail to meet the Specifications or other restrictions or regulations imposed by this Agreement or applicable law. Rejected products will be returned to DWM.


7. Web-site and Direct Orders Fulfilled by DWM:


A. DWM and West Marine may mutually develop and determine the party(ies) responsible for the costs, operation and maintenance of an e-commerce website which will display and offer for sale the West Marine Brand Apparel ("the Website"). Such website shall either be a separate websites, a separate page on the DWM Website or a separate page on the West Marine website, as the parties shall mutually determine. West Marine shall have the right to develop or approve, at its sole discretion, the Website including, without limitation, the design, content, functionality, and its "Look and Feel" (defined as the distinctive and particular elements of graphics, design, organization, presentation, layout, user interface, navigation, trade dress and stylistic convention [including the digital implementations thereof] of a party's website, the associated online framing areas surrounding the content thereon, and the total appearance and impression substantially formed by the combination, coordination and interaction of these elements). West Marine and DWM, as applicable, will each provide links to Website from pages from their respective websites to be mutually agreed upon. The promotional efforts of West Marine and DWM are set forth in Section 9 below.


B. In addition, DWM offers embroidery of certain designs for a fee to customers. DWM agrees that the sale of the West Marine Brand Apparel with requests for such embroidery services which are fulfilled by and delivered to a customer, directly by DWM through any DWM channels of distribution (the "DWM Direct Orders") will generate "Net Revenue" for West Marine and will be calculated, paid and reported to West Marine in the time and manner specified in Section 8 below. West Marine may elect to offer the West Marine Brand Apparel and other products supplied by DWM for sale directly on the West Marine websites or in the West Marine shipping cart, and Dickie Walker shall have not right to any revenue generated from such sales with the exception of any embroidery, shipping or distribution fees


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that may be incurred by West Marine for services performed by DWM in the process of fulfilling the orders. Any DWM Direct Orders fulfilled by DWM on behalf of West Marine are subject to the current standard embroidery, shipping and fulfillment fees that Dickie Walker would charge West Marine for sales made from its own website and such charges will be deducted directly from the Net Revenue to be paid to West Marine at the time specified in Section 8 below. Any increase in such charges during the Term shall require West Marine's prior written consent.


8. Revenue and Reporting:


A. For purposes of this Agreement the "Net Revenue" to be paid by DWM to West Marine shall mean the actual order retail price for the DWM Direct Orders of the West Marine Brand Apparel sold to customers and fulfilled directly by DWM less only returns and the standard embroidery and fulfillment fees charged by DWM to West Marine.


B. Such Net Revenue shall be due and payable within thirty (30) days following the end of each calendar month to West Marine (or credited on account, as West Marine shall determine), unless otherwise specified in a written program statement provided by DWM and agreed to in writing by West Marine management. Along with such payment or credit to West Marine, DWM will provide a summary report to document the calculation of net revenue. Upon request, DWM shall provide a quarterly report showing, in detail, the calculation of the Net Revenue including dates, customer names, ship to addresses, units sold, price, gross retail sales dollars, product type, taxes, shipping and handling charges, refunds, and embroidery fees and fulfillment charges deducted.


C. For the Term of this Agreement and for a period of five (5) years thereafter, DWM agrees to maintain sufficient books, records and accounts regarding the sales activity contemplated under this Agreement, in order to allow West Marine to calculate and confirm compliance with any and all obligations hereunder, including payment obligations of the Net Revenue. West Marine shall have the right to inspect, audit and copy, at its own expense, the books and records of DWM upon notice of not less than 30 days. If a deficiency in payment of Net Revenue of more than five percent (5%) is discovered by such audit, then DWM shall be responsible for all audit costs incurred by West Marine.


9. Promotion: DWM may supply promotional ideas to maximize sales of the West Marine Brand Apparel. This includes advice on placement and display of product, ad slicks, ad themes and other promotional ideas, provided that West Marine shall be under no obligation to use all or any portion of such promotional ideas. It being understood that all marketing efforts, if any, shall be at West Marine's sole discretion and determination.


10. Pricing of Product: All prices, both wholesale and suggested retail, will be reviewed and approved by West Marine prior to the ordering and sale of any West Marine Brand Apparel. DWM will use its best efforts to negotiate and obtain advantageous prices for West Marine. Moreover, DWM shall not adjust any wholesale or retail pricing of the West Marine Brand Apparel without West Marine's prior written consent.


11. Payment Terms.


A. The West Marine Brand Apparel will be manufactured inside and outside of the United States and subject to the following:


(i) For West Marine Brand Apparel manufactured outside of the United States (the "Overseas Apparel"), West Marine will provide DWM with a transferable or standby letter of credit upon request by DWM for either a portion or all of the product manufactured outside of the United States. The


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letter of credit for the first Purchase Order issued by West Marine for Overseas Apparel is attached hereto as Exhibit "B" and incorporated herein by this reference. Any additional Purchase Orders for Overseas Apparel will require additional Purchase Orders and letters of credit in the same form. Such letter of credit is payable in accordance with the terms specified therein on the date of the Overseas Apparel exits file country of origin, for all such Overseas Apparel which is contained on the Purchase Order issued by West Marine, attached to the letter of credit and imported into the United States for sale to West Marine. For product manufactured outside of the United States for which a letter of credit has not been issued, DWM will deliver to West Marine an invoice describing the products and including the name of each product, its identifying numbers, the place where such product was delivered and the agreed price of each such product. West Marine will pay any undisputed invoices within forty-five (45) days from the later of receipt of invoice or receipt of goods at the DWM distribution centers.


(ii) For the West Marine Brand Apparel for which West Marine has issued a Purchase Order or Assortment Approval letter and that is as a result, manufactured within the United States and delivered to and received in DWM's distribution center (the "Domestic Apparel"), DWM will deliver to West Marine an invoice describing the products and including the name of each product, its identifying numbers, the place where such product was delivered and the agreed price of each such product. West Marine will pay any undisputed invoices within forty-five (45) days from the later of receipt of invoice or receipt of goods at the DWM distribution centers.


12. Confidential Information/Licenses/Ownership:


A. Confidential Information.


(i) Each party acknowledges that, in the course of business development for the other and in performing its respective duties under this Agreement, it may obtain certain information owned by the disclosing party ("Discloser") which the Discloser considers to be confidential (such information shall be deemed to be "Confidential Information"). The term Confidential Information includes all specifications, drawings, sketches, models, samples, forecasted and current data, computer program or documentation or other technical, business or marketing information, business strategies, financial data, unannounced product information and/or designs, individual employee compensation or benefits information; sales information, such as comparisons, pricing practices and markups on merchandise; Trademarks; trade secrets, software, inventions, proprietary information, other intellectual property, data, graphs, graphics, pictures, diagrams, methodologies, techniques, ideas, concepts, know-how, illustrations, pictures promotional plans and advertising; shortage figures and methods of loss prevention; sourcing; product lines, product ideas; price lists, customer lists, the identity of vendors and the products they supply to Discloser lists of dealers, customer and/or prospective dealers and customers; any proposals made to or received by from prospective dealers and/or customers; all materials, including, but not limited to documents, drawings, samples, sketches, designs, software programs and information related to any color palette or color standards, furnished to Recipient by Discloser or any of Discloser's vendors, agents or representatives; all communications between Discloser and Recipient, and between Discloser's vendors and Recipient where Recipient is communicating for, on behalf of, or in connection with the business of Discloser; and any other information designated from time to time by Discloser as confidential, or any information which Recipient should reasonably believe to be confidential. Confidential Information shall not include any material, data or information that is: (a) publicly available or later becomes publicly available other than through a breach of this Agreement; (b) known to Recipient prior to such disclosure or is independently developed by Recipient subsequent to such disclosure; or (c) subsequently lawfully obtained by Recipient from a third party without obligations of confidentiality. If Recipient becomes aware of any unauthorized use or disclosure of the Confidential Information, Recipient shall promptly and fully notify Discloser of all facts known to Recipient concerning such unauthorized use or disclosure of the Confidential Information. If Recipient is requested or required by a governmental or regulatory entity to disclose any of the Confidential Information, as soon as possible after becoming aware of such requirement and prior to disclosing Confidential Information pursuant


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thereto, if legally permitted based solely on the reasonable legal judgment of Recipient's counsel, Recipient shall so notify Discloser in writing and, if possible, Recipient shall provide Discloser notice not less than five (5) business days prior to the required disclosure.


(ii) Recipient acknowledges that any transmission of Confidential Information shall not create any ownership right in such Confidential Information in the Recipient and Recipient agrees that it shall not, directly or indirectly, disclose any Confidential Information to any other party, corporation, affiliate, subsidiary, organization or person of any kind without the prior express written consent of the Discloser, except that Recipient may disclose such Confidential Information to its employees or consultants as may be reasonably necessary for purposes of performing its duties.


(iii) Recipient shall use such Confidential Information solely and exclusively for the purposes set forth in this Agreement, shall hold the Confidential Information in confidence during the Term of this Agreement and at all times thereafter and shall advise its employees and consultants of the proprietary nature of the Information and direct them to keep such Information confidential. Upon termination of Agreement, all Confidential Information (including all copies thereof) shall, upon request of Discloser, be promptly returned or destroyed, at the option of the Discloser and Recipient shall certify in writing to Discloser of such disposition upon written request.


B. Ownership. Recipient acknowledges and agrees that Discloser owns all right, title and interest in and to its Confidential Information prior to and/or during the Term of this Agreement. In this regard, West Marine agrees that all designs for the West Marine Brand Apparel and accessories that DWM provides to West Marine shall be owned by DWM (except that West Marine shall be the sole and exclusive owner of the West Marine Trademarks therein). In this regard, it is agreed that DWM is free to manufacture, market, produce, sell and distribute (for its own account and without accounting to the other party) apparel of such design under DWM's own or other trade names, during or after the termination of this Agreement, provided that DWM shall not, directly or indirectly, manufacture, market, produce or distribute such design to any other marine supply company without West Marine's prior written consent. DWM shall retain ownership of all fixtures it provides to West Marine for displaying said apparel and accessories, except that upon termination of this Agreement, West Marine shall have the right to purchase such fixtures from DWM at a mutually agreed upon price, not to exceed the then fair market value.


C. Licenses. Subject to the terms and conditions of this Agreement, Discloser grants to Recipient and non-exclusive, non-transferable, limited license, without the right to sublicense, to use, reproduce, publicly perform, distribute and display the Discloser's Trademarks solely in the form and manner approved by the Discloser and solely during the Term for the specific and limited purposes set forth in this Agreement. This license will terminate upon termination of this Agreement for any reasons.


13. Intent and Measurements. It is the intention of both parties to form a mutually beneficial relationship to improve West Marine's total sales, gross margins and inventory; in the West Marine casual apparel department, over the Term of this Agreement to the mutual satisfaction of the parties. * *


A. The Measurement Goal for the initial term is as follows: DWM is to be the primary source of West Marine Brand Apparel to be supplied to West Marine. The gross margin goal is * * with department retail sales goal of approximately * *. Both parties will use reasonable commercial efforts to reach this goal. The parties will review sales performance no less than one hundred eighty days (180) prior to the end of each anniversary date of the Effective Date to determine if this Measurement Goal is anticipated to be met (the "Projected Goal Date") and again no less than thirty (30) days prior to the expiration of each one (1) year anniversary date of such Effective Date (the "Actual Goal Date").


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B. The Measurement Goal for each Renewal Term shall be mutually determined by the parties as follows: DWM and West Marine will create merchandise and sales plans no less than * * prior to each seasons before purchase commitments are made, to include mutually agreed upon target gross margin, inventory levels, inventory turn and sales projections, using their best efforts to improve West Marine's total sales and profit in the apparel department ("Measurement Goal Standard"). The parties will also determine within each such Renewal Term whether the Projected Goal and Actual Goal have been met by the Projected Goal and Actual Goal Dates, respectively.


14. Termination:


A. Either party may terminate this Agreement any time after initial term or any then current Renewal Term by delivering notice of such termination to the other party at least 30 days prior to expiration of such Term.


B. Moreover, either party may terminate this Agreement in the event the Measurement Goal is not anticipated to be met by the Projected Goal Date or actually met by the Actual Goal Date during the initial term or any Renewal Term, termination effective upon such applicable Date.


C. A party may terminate this Agreement at any time that the other party material breaches this Agreement and fails to cure it within ten (10) calendar days after written notice of the breach is given. Such termination shall be effective upon the expiration of such cure period. Any non-cancelable purchase orders or Assortment Approval Letters previously issued by West Marine for product not yet delivered by DWM will still be in effect after the termination of this agreement.


D. A party may terminate this Agreement upon the institution of bankruptcy, receivership, insolvency, reorganization or other similar proceedings by or against the other party under any section or chapter of the United States Bankruptcy Code, as amended, or under any similar laws or statutes of the United States or any state thereof, if such proceedings have not dismissed or charged within thirty 30 calendar days after they are instituted; or the insolvency or malting of an assignment for the benefit of creditors or the admittance by such party of any involuntary debts as they mature or the institution of any reorganization arrangement or other readjustment of debt plan of such party not involving the United States Bankruptcy Code; or any corporate action taken by the Board of Directors of such party in furtherance of any of the above actions; and/or appointment of a receiver for all or substantially all of such party's assets or any corporate action taken by the Board of Directors of such party in furtherance of the above action.


E. Upon termination of this Agreement for any reason DWM shall immediately deliver to West Marine all West Marine Brand Apparel and all other property of West Marine in the possession of DWM or subject to DWM's control or direction. No such termination shall relieve a party of the obligation to make the payments described in this Agreement which arose prior to the effect date of such termination (and any other rights as by their nature must survive termination), provided, however, than DWM shall not commence manufacture of any West Marine Brand Apparel contained in a Purchase Order or Assortment Approval Letter previously placed by West Marine unless otherwise directed in writing by West Marine and shall use best efforts to sell any West Marine Brand Apparel not containing the West Marine Trademark to other customers to mitigate any damages otherwise payable by West Marine. Any non-cancelable purchase orders or Assortment Approval Letters previously issued by West Marine to DWM for product where manufacturing has commenced will still be in effect after the termination of this agreement.


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15. Time is of the Essence: Time is of the essence in order for the parties to achieve their goal of developing the West Marine Brand Apparel, accessories and related gift items which will increase the sales and profitability of West Marine's casual apparel and related products department. Both parties agree to use their reasonable commercial efforts to cooperate with each other to accomplish the terms of this Agreement.


16. Governing Law and Equitable Relief:


A. This Agreement shall be governed and construed in accordance with the laws of the State of California without regard to the conflict of laws provisions thereof. Both parties consent to jurisdiction in California and further agree that any cause of action arising out of or relating to this Agreement may be brought in a court in Santa Cruz County, California. Should any litigation or arbitration (upon mutual agreement of the parties) be commenced by any party concerning any provision of this Agreement or the rights and duties of any party, the prevailing party in such litigation or arbitration shall be entitled, in addition to such other relief as may be granted, to reasonable attorneys' fees and expenses.


17. No Assignment. Neither party can assign this Agreement or any interest herein without express prior written cons ...