10. Commitments and Contingencies

Leases

The Company has operating leases for its current office, former office, and a planned retail store location, as well as certain equipment with a term of 12 months or less. The Company is currently not a party to any finance leases.

The Company's real estate leases have remaining lease terms between approximately 1 year to 8 years. As of December 31, 2020, the weighted average remaining lease term was 6.3 years and the weighted average discount rate was 6.25%.

The Company leases office space under an operating lease agreement related to the Company’s main headquarters located in New York City. This lease commenced on March 1, 2016 and expires on October 30, 2027. In connection with this lease, the Company obtained an Irrevocable Standby Letter of Credit from BHI for a sum not exceeding $1.1 million. The Company has deposited this amount with BHI as collateral for the letter of credit and recorded the amount as restricted cash in the consolidated balance sheets as of December 31, 2020 and December 31, 2019.

The Company also leases office space under an operating lease agreement at another location in New York City, representing the Company’s former corporate offices and operations facility. This lease shall expire on February 28, 2022. This office space is currently subleased to a third-party subtenant through February 27, 2022.

The aforementioned office leases require the Company to pay additional rents related to increases in certain taxes and other costs on the properties.

The Company also leases approximately 1,300 square feet of retail space for a planned future retail store location in Westchester, New York.

For the years ended December 31, 2020 and 2019, total lease expense included in selling, general and administrative expenses on the Company's consolidated statements of operations was approximately $1.5 million and $1.6 million, respectively. The Company’s total lease costs for the years ended December 31, 2020 and 2019 were comprised of the following:


($ in thousands)	2020		2019
Operating lease cost	$	1,986	$	1,925
Short-term lease cost		81		76
Variable lease cost		98		105
Sublease income		(618)		(488)
Total lease cost	$	1,547	$	1,618

Cash paid for amounts included in the measurement of operating lease liabilities was $1.9 million and $2.4 million in the Current Year and Prior Year, respectively. Cash received from subleasing was $0.7 million and $0.3 million in the Current Year and Prior Year, respectively.

As of December 31, 2020, the maturities of lease liabilities were as follows:


($ in thousands)
2021	$	2,682
2022		1,700
2023		1,711
2024		1,711
2025		1,711
After 2025		3,334
Total lease payments		12,849
Less: Discount		2,279
Present value of lease liabilities		10,570
Current portion of lease liabilities		2,101
Non-current portion of lease liabilities	$	8,469

Employment Agreements

The Company has contracts with certain executives and key employees. The future minimum payments under these contracts are as follows:


	Employment
($ in thousands)	Contract
Year Ended December 31,	Payments
2021	$	4,595
2022		2,100
Thereafter		—
Total future minimum employment contract payments	$	6,695

In addition to the employment contract payments stated above, the Company’s employment contracts with certain executives and key employees contain performance-based bonus provisions. These provisions include bonuses based on the Company achieving revenues in excess of established targets and/or on operating results.

Certain of the employment agreements contain severance and/or change in control provisions. Aggregate potential severance compensation amounted to approximately $8.1 million as of December 31, 2020.

Contingent Obligation – HH Seller (Halston Heritage Earn-Out)

In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from HIP, the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) of up to an aggregate of $6.0 million, based on royalties earned through December 31, 2022 (see Note 3). The Halston Heritage Earn-Out of $0.9 million is recorded as a long-term liability as of December 31, 2019 in the accompanying consolidated balance sheets, based on the difference between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid. In accordance with ASC Topic 480, the Halston Heritage Earn-Out obligation is treated as a liability in the accompanying consolidated balance sheets because of the variable number of shares payable under the agreement.

Contingent Obligation – CW Seller (C Wonder Earn-Out)

In connection with the asset purchase of the C Wonder Brand in 2015, the Company agreed to pay the seller additional consideration, which would be payable, if at all, in cash or shares of common stock of the Company, at the Company’s sole discretion, after June 30, 2019. Under the applicable accounting guidance, the Company was required to carry such contingent liability balance on its consolidated balance sheet until the measurement period of the earn-out expired and all related contingencies had been resolved. The seller ultimately did not earn any additional consideration based on the criteria and terms set forth in the asset purchase agreement. As such, during the year ended December 31, 2019, the Company recorded a $2.85 million gain on the reduction of contingent obligations in the accompanying consolidated statements of operations. As of December 31, 2019, there were no amounts remaining under the C Wonder Earn-Out.

Contingent Obligation – JR Seller (Ripka Earn-Out)

In connection with the asset purchase of the Ripka Brand in 2014, the Company agreed to pay the sellers of the Ripka Brand certain additional consideration. As of January 1, 2019, the remaining balance of the Ripka Earn-Out was $0.1 million. On March 31, 2019, the Company satisfied the remaining Ripka Earn-Out balance of $0.1 million by off-setting the amount against the aforementioned promissory note receivable. As of December 31, 2019, there were no amounts remaining outstanding under the Ripka Earn-Out.

Coronavirus Pandemic

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis.

The impacts of the current COVID-19 pandemic are broad reaching and are having an impact on the Company’s licensing and wholesale businesses. The COVID-19 pandemic is impacting the Company’s supply chain as most of the Company’s products are manufactured in China, Thailand, and other places around the world affected by this event. Temporary factory closures and the pace of workers returning to work have impacted contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner. The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business. Further, the pandemic has resulted in a sudden and continuing decrease in sales for many of the Company’s products, resulting in order cancellations, and a decrease in accounts receivable collections, as the Company recorded approximately $1 million of additional allowance for doubtful accounts for the year ended December 31, 2020 for retailers that have filed for bankruptcy.

Due to the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company’s future results of operations and cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term revenues, earnings, liquidity, and cash flows as the Company’s customers and/or licensees may request temporary relief, delay, or not make scheduled payments.