License Agreement [Amendment] - MSO IP Holdings Inc. and Kmart Corp.
AMENDMENT
Reference is made to the license agreement (the "Agreement") dated as of
June 21, 2001 by and between MSO IP Holdings, Inc., a California corporation
("MSO"), and Kmart Corporation, a Michigan corporation. Whereas, the parties
have now agreed to extend the Term of the Agreement and to modify certain terms
and conditions contained therein; for good and valuable consideration the
sufficiency of which is hereby acknowledged by the parties hereto, the parties
hereby agree to amend the Agreement as follows (this document shall be referred
to hereafter as the "Amendment"):
1. Unless otherwise defined in this Amendment, all defined terms used herein
shall have the same meaning as in the Agreement.
2. In Paragraph I of the Agreement, the following language shall be added in
Line 12 after the words "its Kmart stores.":
[***]
3. The following new Paragraph I(1) shall be added to the Agreement:
[***]
4. In Line 18 of Paragraph II(3) the following shall be inserted:
"The parties hereby agree to add the following Additional Products to this
Agreement on a non-exclusive basis: rugs, ready-to-assemble furniture and
bath fixtures, as more specifically set forth in Schedule I(e) attached
hereto. Notwithstanding the other terms and conditions of this Paragraph
II(3), solely with regard to these particular categories of Additional
Products there shall be no separate additional Minimum Royalty Amounts
payable and royalties earned (at the rate specified in Schedule IV) from
Sales of such Additional Products in Schedule I(e) shall count toward
meeting or exceeding the Minimum Royalty Amounts in the particular year of
sale. It is understood that Sales of any other products in the same
product categories as those set forth on Schedule I(e) that the parties
mutually agree to include under this Agreement shall be automatically
added to Schedule I(e) and all royalties so earned in connection with such
products shall also count toward meeting or exceeding the Minimum Royalty
Amounts as described above."
5. "Ready-to-assemble furniture" and "Area rugs" shall be deleted from
Schedule II(3) of the Agreement.
6. The following language shall be added in the last line of Paragraph II(3)
after the words "cameras or jewelry":
[***]
7. Schedule IV to the Agreement shall be deleted in its entirety and the new
Schedule IV attached to this Amendment shall be inserted in its place.
<PAGE>
8. The following subparagraph 9 shall be added to Paragraph VI:
"(9) Kmart shall have the right, but not the obligation, to hire a
brand manager to work with MSO in connection with the development,
creation, production and advertising of the Licensed Products, and
in the event Kmart does hire a brand manager, then MSO shall
cooperate and work with such person."
9. Paragraph V(2) of the Agreement shall be deleted in its entirety and the
following shall be inserted in its place:
"When Kmart delivers the Quarterly Reports to MSO, Kmart shall also
pay to MSO the royalties due and owing for the corresponding quarter
and, if applicable, any Aggregate Shortfall. These payments shall be
made by wire transfer to a bank account designated by MSO unless it
is not practicable for Kmart to utilize such method, in which event
payment shall be made by check to MSO. Additionally, Schedule V(2)
hereto sets forth certain guaranteed royalty amounts as of each
January 31 of the Term commencing on January 31, 2002 ("Minimum
Royalty Amounts") which may give rise to increases in royalty
payments otherwise payable as set forth below. In the event that the
amount of Kmart's total royalty payments on the Sale of Licensed
Products ("Earned Royalties") for each twelve month period ending
January 31 are less than the applicable Minimum Royalty Amount for
the same period, Kmart shall pay the difference between such amount
and the Minimum Royalty Amount (the "Aggregate Shortfall"). If Kmart
has paid any Aggregate Shortfall to MSO at any time from February 1,
2004 through January 31 2008 pursuant to this Paragraph V(2)
("Aggregate Shortfall Payments"), then Kmart shall be entitled to
recoup the amount of such Aggregate Shortfall Payments, up to the
aggregate credit of ten million dollars ($10,000,000), as a credit
against 25% of any royalties earned in excess of the Minimum Royalty
Amounts set forth in Schedule V(2) for the period ending January 31,
2009 and/or the period ending January 31, 2010 subject to the
following limitation:
For the period from (i) February 1, 2004 through January 31,
2005, such credit shall not exceed three million and seven
hundred and fifty thousand dollars ($3,750,000) for such
period, (ii) February 1, 2005 through January 31, 2005, such
credit shall not exceed three million and seven hundred and
fifty thousand dollars ($3,750,000) for such period, (iii)
February 1, 2006 through January 31, 2007, such credit shall
not exceed two million and five hundred thousand dollars
($2,500,000) for such period, and (iv) February 1, 2007
through January 31, 2008, such credit shall not exceed two
million five hundred thousand dollars ($2,500,000) for such
period. For the purpose of clarity, the aggregate credit under
(i) - (iv) above shall not exceed ten million dollars
($10,000,000).
Notwithstanding anything contained in this Agreement, the parties
acknowledge and agree that there shall be no Minimum Royalty Amounts
by Product Category for 2003 or thereafter during the Term of this
Agreement. Kmart represents and warrants that the Quarterly Reports
delivered to MSO pursuant to the Agreement are true and accurate and
that all amounts due MSO with respect thereof have been paid."
10. Schedule V(2) to the Agreement shall be deleted in its entirety and the
new Schedule V(2) attached to this Amendment shall be inserted in its
place.
11. Paragraph VII of the Agreement shall be deleted in its entirety and the
following shall be inserted in its place:
"VII. Term. This Agreement shall commence on August 1, 2001 and
continue in full force and effect until January 31, 2010 (the
"Term")."
12. Paragraph VIII(1) shall be deleted and the following language shall be
inserted in its place:
"VIII. Promotional and Marketing Services. (1) If and as may be
requested by Kmart from time to time, MSO shall cause Stewart to
render her services in a professional manner
<PAGE>
consistent with the intent of this Agreement and to use her
reasonable good faith efforts to participate in the promotion and
imaging of the Licensed Products including, without limitation,
through television, radio and print advertising, in-store videos,
appearances and other media presentations or programs and shall use
reasonable and appropriate opportunities, in her reasonable
discretion, to promote the Licensed Products and Kmart's sale
thereof including, without limitation, interviews, editorials, press
conferences, press releases and television appearances. In light of
the considerable demands on Stewart's schedule, Kmart and MSO shall
cooperate in good faith to schedule the dates, times, places and
manner in which Stewart shall fulfill her obligations under this
Section as far in advance, and in the most convenient manner,
possible. Subject to the final sentence of this Section VIII(1), MSO
shall cause Martha Stewart to be available to render services under
this Section VIII(1) consistent with past practices under the Prior
Agreements, but in no event for more than 25 days annually,
inclusive of travel time. Kmart shall pay all costs and expenses in
connection with such services including, without limitation, cost of
first class air travel (or private plane) and lodging consistent
with Kmart's past practices with Stewart under the Prior Agreements
as of the date hereof. Any significant expenses anticipated by MSO
in excess of those generally borne by Kmart pursuant to past
practice under the Prior Agreements shall be first submitted to
Kmart for approval. No failure by MSO to comply with the terms of
this provision by reason of the death, disability, incapacity, or
other circumstances beyond the reasonable control of Martha Stewart
(including, without limitation, the prosecution and resolution of
any civil or criminal claims involving Ms. Stewart) shall be
considered a breach of this Agreement."
13. In Line 13 of Paragraph VIII(2) following the sentence ending
"expenditures during 2001", the following shall be inserted:
"Notwithstanding the foregoing, beginning on January 1, 2004 and
continuing for the remainder of the Term the Annual MSE Ad Spend
shall be equal to at least the lesser of: (i) [***] of Kmart
Corporation's aggregate advertising expenditures during such year,
and (ii) [***] of the prior year's Earned Royalty, but in no event
shall such amount be less than [***] of Kmart Corporation's
aggregate advertising expenditures during such year. [***]
14. In Line 14 of Paragraph VIII(2), the sentence beginning "Kmart and MSO
agree" shall be deleted.
15. The period at the end of Paragraph VIII(2) shall be changed to a
semi-colon and the following proviso shall be added:
"provided that beginning on February 1, 2004 through the end of the
Term this amount shall be fixed at [ * * * ] (net of all third party
advertising commissions) per year, but in no event shall Kmart be
obligated to make any advertising expenditures that represent more
than [ * * * ] of aggregate annual advertising pages in any
particular MSO publication and [ * * * ] of aggregate annual
television advertising spots in any particular MSO produced or
sponsored programming."
16. In Line 3 of Paragraph XIII, the following language shall be added after
the phrase "reasonable commercial efforts":
"to market, sell and promote Licensed Products in all Product
Categories licensed hereunder and"
17. Schedule XIV and Paragraph XIV of the Agreement shall be deleted in their
entirety and the following shall be inserted in place of Paragraph XIV:
"MSO and Kmart shall meet to strategize for materially increasing
Sales and profitability in all Product Categories specified in this
Agreement. To that end, MSO and Kmart shall meet at least annually
to so strategize and otherwise develop programs and plans to
materially increase Sales and profitability."
<PAGE>
18. The following language shall be added at the end of Paragraph XX:
"MSO shall continue to dedicate senior level and design support
personnel in connection with the Licensed Products, materially
consistent with past practices (including, without limitation, with
respect to the overall expertise of such personnel); provided,
however, that the failure to dedicate any particular employee shall
not be a breach of this Agreement."
19. In the event that either party, is required by applicable law, regulations
or legal processes (including, without limitation, any disclosures of
Information which are required to be made by applicable securities laws in
connection with any financing activities of either party or standard
disclosure requirements under the Securities and Exchange Act of 1934, as
amended), then the party required to make such disclosure shall give prior
notification to the other party and the parties shall agree upon any
redactions to the Amendment to be filed or otherwise disclosed, and, at
the other party's request, shall request that the relevant legal or
regulatory authority, or major stock exchange, as applicable, treat as
confidential any Information of either Party and/or any of the terms or
conditions of this Amendment included in any such disclosure.
Notwithstanding the foregoing, the final content of any such disclosure
shall be determined by MSO as may be necessary to comply with its
obligations under applicable laws and regulations. In addition, MSO and
Kmart shall mutually agree upon the press release or other publicity
materials issued with respect to the terms or conditions of this
Amendment.
20. The parties have agreed to execute a release in a separate agreement
concurrently with this Amendment.
21. Except as expressly set forth in this Amendment, the Agreement shall
remain in full force and effect and shall not be deemed modified or
changed in any other manner whatsoever.
MSO IP HOLDINGS, INC.
By: /s/ Sharon Patrick
------------------------
Name: Sharon Patrick
Title: President and CEO
KMART CORPORATION
By: /s/ Julian C. Day
------------------------
Name: Julian C. Day
Title: President and CEO
Dated:
as of April 22, 2004
<PAGE>
SCHEDULE I(e)
Rugs:
Area Rugs
Scatter Rugs
Novelty Rugs
Ready-To-Assemble Furniture:
RTA Home Office Furniture
RTA Entertainment Centers
RTA Kitchen Furniture
RTA Bedroom Furniture
RTA Occasional Furniture
Bath Fixtures:
Bathroom Cabinets
Bathroom Shelving
Bathroom Mirrors
Bathroom Storage
Wall Mounted Towel Bars
Wall Mounted Soap Holders
Wall Mounted Toothbrush Holders
Wall Mounted Cup Holders
<PAGE>
SCHEDULE IV
Royalty Rates
Time Period Royalty Rate as a Percentage of Sales
8/01 - 1/02 [ * * * ]
2/02 - 1/03 [ * * * ]
2/03 - 1/04 [ * * * ]
2/04 - 1/05 [ * * * ]
2/05 - 1/06 [ * * * ]
2/06 - 1/07 [ * * * ]
2/07 - 1/08 [ * * * ]
2/08 - 1/09 [ * * * ]
2/09 - 1/10 [ * * * ]
<PAGE>
SCHEDULE V(2)
Minimum Royalty Amounts
1/31/02 $15.3 million
1/31/03 $40.4 million
1/31/04 $47.5 million
1/31/05 $49.0 million
1/31/06 $54.0 million
1/31/07 $59.0 million
1/31/08 $65.0 million
1/31/09 The greater of (i) $20 million or (ii) 50% of
the Earned Royalty for the year ending 1/31/08.
1/31/10 The greater of (i) $15 million or (ii) 50% of
the Earned Royalty for the year ending 1/31/09.