EXHIBIT 10.1
AMENDED AND RESTATED MASTER AGREEMENT
This Amended and Restated Master Agreement (this "Agreement") is made
and entered into as of August 24, 2005 by and between KMART CORPORATION, a
corporation organized and existing under the laws of the State of Michigan with
a principal address at 0000 Xxxx Xxx Xxxxxx Xxxx, Xxxx, Xxxxxxxx 00000
("Kmart"), the affiliates of Kmart listed on the signature pages hereto (such
affiliates, together with Kmart, "Licensor"), SEARS HOLDINGS CORPORATION, a
corporation organized and existing under the laws of the State of Delaware with
a principal address at 0000 Xxxxxxx Xxxx, Xxxxxxx Xxxxxxx, Xxxxxxxx 00000
("Sears"), solely with respect to Article XX below, and FOOTSTAR, INC., a
corporation organized and existing under the laws of the State of Delaware, with
a principal address at 000 XxxXxxxxx Xxxx., Xxxxxx, Xxx Xxxxxx 00000
("Footstar"). All capitalized terms used herein which are not otherwise defined,
shall have the meanings set forth in Article II.
WHEREAS, Footstar and Kmart are party to a Master Agreement dated as
of June 9, 1995 and effective as of July 1, 1995 (as amended prior to the date
hereof, the "Existing Master Agreement"), pursuant to which the parties agreed
to terms and conditions with respect to the operation of the footwear
departments in certain of Licensor's stores by certain partially and wholly
owned subsidiaries of Footstar (the "Shoemart Corporations");
WHEREAS, pursuant to the Existing Master Agreement, each of the
Shoemart Corporations is party to a license agreement with Kmart (collectively,
the "License Agreements");
WHEREAS, pursuant to the Existing Master Agreement, Footstar and
Kmart are party to a Shareholders Agreement with respect to each of the Shoemart
Corporations (collectively, the "Shareholders Agreements");
WHEREAS, pursuant to a license agreement (the "Kmart IP License
Agreement"), Kmart of Michigan, Inc. ("KMI") has granted to Kmart the exclusive
right, license and privilege to use the Marks in the Territory (each as defined
below), including the right to sublicense use of the Marks within the Territory,
subject to KMI's written consent;
WHEREAS, on March 2, 2004, Footstar, the Shoemart Corporations and
certain of their respective affiliates (collectively, the "Footstar Debtors")
commenced voluntary cases (the "Chapter 11 Cases") under chapter 11 of title 11
of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court");
WHEREAS, by motion, dated August 12, 2004 (the "Assumption Motion"),
the Footstar Debtors sought to assume the Existing Master Agreement and the
License Agreements pursuant to section 365 of the Bankruptcy Code;
WHEREAS, the Assumption Motion gave rise to litigation in the
Bankruptcy Court between Kmart and the Footstar Debtors with respect to, inter
alia, the assumption by Footstar and the Shoemart Corporations of the Existing
Master Agreement, the License Agreements and the Shareholders Agreements (the
"Assumption Litigation"); and
WHEREAS, the parties hereto desire to amend and restate the Existing
Master Agreement in the form of this Agreement in conjunction with the
settlement of the Assumption Litigation.
NOW THEREFORE, in consideration of the mutual promises, undertakings
and covenants herein, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree:
2
ARTICLE I
PURPOSES OF THE AGREEMENT
1.1 Purpose. The purpose of this Agreement is to establish uniform
terms and conditions and uniform procedures for the operation of Footwear
Departments in the Stores in the Territory.
1.2 Prior Agreements. This Agreement supersedes the Existing Master
Agreement, which is hereby amended and restated as of the Effective Date hereof.
The Shareholders Agreements and License Agreements are hereby terminated as of
the Effective Date hereof and, as of such date, shall be null and void and of no
further force and effect. Article XV of the Existing Master Agreement, which
shall survive the Effective Date and is incorporated by reference herein, shall
apply to causes of action that were or could have been commenced prior to the
Effective Date. Article XVIII hereof shall apply to causes of action that are or
may be commenced on or after the Effective Date. To the extent any causes of
action that may be commenced on or after the Effective Date also could have been
commenced prior to the Effective Date, such causes of action are governed by
Article XVIII hereof.
1.3 Structure. From and after the Effective Date, each Footwear
Department licensed under this Agreement shall be operated by Footstar or a
direct or indirect wholly-owned subsidiary of Footstar. Effective as of January
2, 2005 (but subject to the occurrence of the Effective Date), Kmart shall no
longer have any interest in the Shoemart Corporations or any of their respective
affiliates, except as provided herein or in the Assumption Order.
3
ARTICLE II
TERMS AND DEFINITIONS
2.1 Definitions. For purposes of this Agreement, the following terms
shall have the meanings expressed after each term:
"Approval Date" shall mean the date of entry by the Bankruptcy
Court of the Assumption Order.
"Assumption Order" shall mean an order of the Bankruptcy Court, in
form and substance satisfactory to Kmart and
Footstar, each in their reasonable discretion,
(i) approving this Agreement and effectuating
the assumption thereof by Footstar, (ii)
authorizing the payment by Footstar to Kmart of
the amounts set forth in Article 8.1(b), and
(iii) providing for mutual general releases of
and by Kmart and Footstar (and their respective
officers, directors, employees, professionals,
affiliates and subsidiaries (and the officers,
directors, employees, and professionals of the
affiliates and subsidiaries)) with respect to
the Existing Master Agreement (except as
preserved pursuant to Section 1.2), License
Agreements, Shareholders Agreements, and the
Assumption Litigation and all claims of either
thereunder through the Approval Date.
"Book Value" shall mean, with respect to any inventory owned
by any Licensee, the book value of such
inventory calculated in accordance with GAAP,
applied on a consistent basis, but in any event
excluding a) distribution and delivery costs
incurred by Footstar and/or its affiliates
after receipt of such merchandise from
4
suppliers at a Footstar Distribution Center,
and b) any intercompany royalty or other
intercompany charges between and among Footstar
and its affiliates (other than charges that
reflect an out-of-pocket cost incurred by
Footstar or an affiliate and that do not result
in a book value with respect to the applicable
inventory greater than the book value of such
inventory that would have existed had Footstar
and its affiliates been consolidated into a
single entity).
"Buy-Out Date" shall mean December 31, 2008
"Business Day" shall mean a day, excepting Saturday, upon
which banks in Chicago, Illinois are open for
business.
"Designated Purchaser" shall mean Kmart and/or another entity
designated by Kmart in its discretion.
"Disposition" with respect to any Store, shall mean the
occurrence of any of the following: (i) the
real property interest (whether fee or
leasehold) of Licensor in such Store shall be
sold to an unrelated or unaffiliated third
party and the applicable real property shall no
longer be operated as a Store; (ii) such Store
shall be permanently closed for any reason,
including, without limitation, if the lease at
such Store expires and/or is not renewed for
any reason; (iii) the conversion of such Store
to a format that does not satisfy the criteria
of the definition of "Store(s)," including,
without limitation, by way of sale, merger, or
business combination; or (iv) the termination
of this Agreement with respect to any Store
pursuant to section 4.3(a)(iii) in connection
with a cumulative reduction (relative to the
Effective Date) in the aggregate square footage
of the Footwear Department in such Store of 25%
or more. The terms "Dispose" and "Disposed"
shall have corollary meanings.
5
"Excluded Footwear" shall mean:
(a) sports shoes with cleat attachments affixed
to the soles or bowling shoes, ice skates,
roller skates, in-line skates, football shoes,
golf shoes and track shoes (not including
non-cleated running or jogging shoes or shoes
with cleat attachments molded to the soles or
to the shoes);
(b) waders and hip boots;
(c) ski boots;
(d) all knit and crib booties (sizes 0-5)
(excluding infant soft sole shoes and infant
pre-walk hard sole shoes (sizes 0-4));
(e) slipper socks without licensed character
designs;
(f) slippers and/or slipper socks which are
packaged, attached to and sold as a unit with
sleepwear or robes; and
(g) waterproofing preparations for athletic,
hunting, fishing and recreational footwear sold
in Licensor's sporting goods departments.
"Existing Store" shall mean any Store which, as of the Approval
Date, is open for business to the public and as
to which Licensor has not provided Footstar
with notice that such Store will be Disposed
of, it being understood that the Stores listed
on Schedule I hereto are not Existing Stores.
6
"Fee Reference Date" shall mean August 27, 2005.
"Fee True-Up Amount" shall mean the amount by which (a) 14.625% of
Gross Sales from January 2, 2005 through and
including the Fee Reference Date, exceeds (b)
the amount Footstar actually paid to Kmart
pursuant to the Existing Master Agreement in
respect of any fees and minority interests
(other than the Miscellaneous Expense Fee)
accrued from January 2, 2005 to and including
the Fee Reference Date (whether or not paid
through Kmart's deductions from the Weekly
Sales Remittance).
"Fees" shall mean collectively the "License Fee" and
the "Miscellaneous Expense Fee."
"Footwear Department(s)" shall mean the area(s) within Store(s) in the
Territory designated by Licensor in which
retail sales of Licensed Footwear shall take
place.
"Gross Sales" with respect to any period, shall mean the
total revenues generated by retail sales of
Licensed Footwear in all of the Footwear
Departments in the aggregate during such
period, whether for cash, credit or deferred
payment, without diminution for credit losses,
except that the following shall be excluded in
calculating Gross Sales: (a) the amounts
allowed for goods subsequently returned for
refund or credit; and (b) sales, use or excise
taxes passed on to the customer, excluding,
without limitation, any withholding taxes.
7
"Licensee" shall mean Footstar or any direct or indirect
wholly-owned subsidiary of Footstar in its
capacity as an operator of a Footwear
Department.
"Licensed Footwear" shall mean any footwear except Excluded
Footwear and shall also mean shoe care items
(including, without limitation, laces,
polishes, waxes, oils, dyes, brushes, daubers,
shoe trees, shoe cleaning and waterproofing
preparations, heel plates or taps and gift kits
containing any of the foregoing).
"Marks" shall mean the trademarks and service marks
KMART, SUPER KMART CENTER, and BIG KMART, in
block letters or design format, and any service
xxxx adopted in the future that incorporates
the xxxx KMART in whole or in part, together
with registrations therefor, all as more
specifically described in Exhibit A, attached
and incorporated herein.
"Materials" shall mean interior store signs, print and
broadcast advertising pieces, store employee
manuals and employee uniforms and badges on or
in connection with which Licensee may use the
Marks as permitted hereunder.
"Sales Threshold" shall mean $550 million, less an amount equal
to the product of a) $400,000 and b) the number
of Dispositions from and after the Approval
Date; provided, that the Sales Threshold shall
(without duplication) also be reduced by
$400,000 for each Store as to which this
Agreement is terminated pursuant to section
4.3(a)(ii) or (iii) hereof.
8
"Seasonal Inventory" shall mean inventory that is more than four
months post-season. Specifically, Licensees
shall have four months from the end of a season
to sell that season's inventory. If an
obligation of Kmart to purchase inventory
arises during such four-month period, the
preceding season's inventory shall not be
"Seasonal Inventory" as defined herein. If an
obligation of Kmart to purchase inventory
arises more than four months after the end of a
season, such season's inventory shall be
"Seasonal Inventory" as defined herein.
"Services" shall mean Licensee's services relating to the
operation of the applicable Footwear
Department, including stocking and supplying of
Licensed Footwear.
"Stipulated Loss Value" shall mean an amount per Store equal to:
$100,000 with respect to each Store Disposed of
in 2005; $60,000 with respect to each Store
Disposed of in 2006; $40,000 with respect to
each Store Disposed of in 2007; and $20,000
with respect to each Store Disposed of in 2008.
"Store(s)" shall mean discount retail outlet(s) consisting
(currently) of approximately 30,000 to 120,000
square feet of gross indoor floor space
operated by Licensor under the service xxxx
KMART or BIG KMART (or some other service xxxx
incorporating KMART in whole or in part) and
primarily devoted to the sale of a broad
assortment of general merchandise, or a
discount retail outlet consisting (currently)
9
of approximately 120,000 to 250,000 square feet
of gross indoor floor space operated by
Licensor under the service xxxx SUPER KMART
CENTER or BIG KMART (or some other service xxxx
incorporating KMART in whole or in part) and
devoted to the sale of a broad assortment of
general merchandise as well as a broad
assortment of fresh foods and grocery products;
provided, that the term "Store" does not
incorporate, and the license granted by this
Agreement does not extend to, any store,
whether owned, leased, or operated by Licensor,
Sears, Xxxxxxx and Co., Sears or any affiliate
of any of them, to the extent such store (with
the exception of the pharmacy) is operated
under any nameplate, whether now existing or
hereafter created, other than a nameplate
incorporating the xxxx "Kmart" in whole or in
part. Without limitation, the parties agree
that stores operated under the nameplates
"Sears," "Sears Grand" and "Sears Essentials"
are not subject to the license granted
hereunder so long as the Kmart service xxxx is
not used therein (other than with respect to
the pharmacy and, as to the pharmacy, only
until the applicable Sears entity obtains a
license in its own name in accordance with the
Decision on Kmart's Motion to Lift the
Automatic Stay with Respect to Certain Stores
issued by the Bankruptcy Court on May 10,
2005). Licensor acknowledges that, subject to
Section 4.3(c), the expiration, renewal or
renegotiation of an existing lease will be
without prejudice to the right of Footstar to
remain in a store that continues to be operated
under any of the Marks.
10
"Term" shall mean the period commencing on the
Effective Date and continuing until the
Termination Date.
"Termination Date" shall mean the earlier to occur of (a) December
31, 2008, and (b) the termination of the
Agreement in accordance with any provision of
Article 4.2.
"Territory" shall mean the United States of America, its
territories and possessions, including Puerto
Rico, Guam and the U.S. Virgin Islands.
2.2 Definition References. The definitions of certain other terms
that are not defined in Section 2.1 hereof but that are used herein are found in
the following sections:
------------------------------------------------------------ ---------------------------------------------------------
Defined Term Section Reference
------------ -----------------
------------------------------------------------------------ ---------------------------------------------------------
"Assumption Litigation" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Assumption Motion" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Bankruptcy Code" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Bankruptcy Court" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Capital Claim" 7.1
------------------------------------------------------------ ---------------------------------------------------------
"Chapter 11 Cases" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Confidential Information" 17.1
------------------------------------------------------------ ---------------------------------------------------------
"Disposition Notice" 4.3(a)(i)
------------------------------------------------------------ ---------------------------------------------------------
"Effective Date" 8.1
------------------------------------------------------------ ---------------------------------------------------------
11
------------------------------------------------------------ ---------------------------------------------------------
"Employer Action" 12.1
------------------------------------------------------------ ---------------------------------------------------------
"Existing Master Agreement" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Footstar" Preamble
------------------------------------------------------------ ---------------------------------------------------------
"Footwear Department Employees" 12.1
------------------------------------------------------------ ---------------------------------------------------------
"Kmart" Preamble
------------------------------------------------------------ ---------------------------------------------------------
"Kmart IP License Agreement" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"KMI" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"License Agreements" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"License Fee" 6.1(b)
------------------------------------------------------------ ---------------------------------------------------------
"Licensee" Preamble
------------------------------------------------------------ ---------------------------------------------------------
"Licensor" Preamble
------------------------------------------------------------ ---------------------------------------------------------
"Miscellaneous Expense Fee" 6.1(b)
------------------------------------------------------------ ---------------------------------------------------------
"Pricing Files" 4.1(b)
------------------------------------------------------------ ---------------------------------------------------------
"Removal Cost" 4.2(c)(v)
------------------------------------------------------------ ---------------------------------------------------------
"Shareholders Agreements" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Shoemart Corporations" Recitals
------------------------------------------------------------ ---------------------------------------------------------
"Staffing Costs" 12.2
------------------------------------------------------------ ---------------------------------------------------------
"Vacate Date" 4.3(b)(i)
------------------------------------------------------------ ---------------------------------------------------------
"Weekly Sales Remittance" 6.2
------------------------------------------------------------ ---------------------------------------------------------
ARTICLE III
LICENSE
3.1 Grant of License. Licensor grants to Licensee and Licensee
accepts from Licensor, for the Term and upon the terms and conditions specified
herein, (1) the non-transferable exclusive right and license to operate a
Footwear Department in each Store in the Territory (whether such Stores are now
existing or are hereafter opened), and (2) the non-transferable and
12
non-exclusive right to use the Marks (a) on and in connection with the operation
of the applicable Footwear Department, and (b) on and in connection with
authorized Materials if and only if such use complies with the terms and
conditions of this Agreement, including, without limitation, Licensor's quality
standards as set forth herein and the authorization and approval process set
forth below. All use of the Marks by Licensee as permitted hereunder shall
conform to the requirements of Exhibit A and to the quality control requirements
of the Kmart IP License Agreement. Licensor shall be entitled to change Exhibit
A by giving Licensee not less than 30 days' advance written notice of any such
change; however, to the extent Licensee cannot reasonably change any use of the
Marks on authorized Materials by the end of such 30-day period, Licensor shall
reasonably extend such date until Licensee can comply with such new
requirements. Licensor may notify Licensee in writing of any uses of the Marks
by Licensee which are not in accordance with Exhibit A and Licensee shall
promptly make any required change. No other, further or different license is
granted or implied and no assignment of any right or interest in the Marks is
made or intended herein. In particular, no license is granted to permit any
third party to use the Marks, and Licensee may only use the Marks as set forth
above. Licensor and KMI represent, warrant and agree that Licensor is and shall
be authorized to grant Licensee such right to use the Marks during the Term.
3.2 Certain Restrictions. The parties acknowledge that the success of
each Footwear Department is dependent upon, among other things, the Licensee's
compliance with common standards hereinafter referred to as "Rules and
Regulations" for the conduct of the business (set forth in Exhibit B, attached
and incorporated herein), as established from time to time by Licensor, subject
to the terms of this Agreement.
13
3.3 Other Merchandise and Activities. Licensee shall have the right
to sell only the Licensed Footwear specified in this Agreement in the Footwear
Departments, and shall sell or furnish no other merchandise or services in the
Stores without the prior written permission of Licensor. Licensee shall promptly
remove from sale any merchandise not within the definition of "Licensed
Footwear" contained in this Agreement. Licensee shall retain title to Licensee's
merchandise until sale. Licensor shall not be responsible for any loss or damage
to any of Licensee's merchandise, including while it is on Store premises or in
transit to or from Store premises or otherwise. Further, Licensee shall conduct
no promotions (philanthropic or otherwise) in the Stores (other than orderly
sales as provided in sections 4.2(b), (c) and 4.3(e)) or which require the use
of Licensor's resources or the services of Licensor's employees without
obtaining Licensor's prior written approval.
3.4 Marking, Samples and Inspection.
(a) Licensee agrees that on each item of Materials which uses
the Marks it shall xxxx such Materials in a manner complying with the provisions
of Exhibit A.
(b) In advance of the first purchase or production by Licensee
of each type of Material or the first use, publication or broadcast by Licensee
of each particular item of Material on or in connection with which any Xxxx is
used, whichever is earlier, Licensee shall furnish to Licensor for its approval
a sample thereof, including the trademark or copyright notice thereon and any
other label or marking. Licensor shall use its best efforts to communicate its
approval or disapproval in writing as soon as practicable after receiving any
such sample. In no event shall Licensee use the Material until written approval
of the subject sample is granted by Licensor; provided that if Licensor has not
communicated approval in writing within 30 days of receipt of same, it shall be
deemed to have disapproved the sample. Licensee specifically agrees to amend to
the satisfaction of Licensor any Material which is not approved by Licensor. A
further sample shall be provided to Licensor for its approval if any subsequent
change is made in any approved Material.
14
(c) To assure compliance with KMI's and Licensor's standards and
instructions relating to any Licensed Footwear and/or Materials bearing the
Marks, Licensor, at its expense, directly or through representatives, may
inspect the Footwear Departments in Stores and may inspect and/or test such
Licensed Footwear and Materials from time to time. Further, KMI and/or Licensor
may periodically request from Licensee samples of such Licensed Footwear and/or
Materials. Licensee shall cooperate and aid Licensor in making such inspections
or tests and in furnishing such samples.
3.5 Authority. Unless with Licensor's prior written consent, Licensee
shall conduct its sales at the Stores exclusively and solely within the
designated Footwear Department premises of the Stores. Neither Licensee nor any
of its affiliates shall pledge, incur any obligation or liability, hire any
employees, nor purchase any merchandise or services in or under the name of the
Licensor or any of its affiliates, it being understood that no party to this
Agreement shall act as the agent, servant or employer of the other party.
3.6 No Challenge. Licensor represents and warrants that it or KMI has
the exclusive right, title and interest in and to the Marks in the Territory and
has the right to license the Marks to Licensee as provided in this Agreement.
Based on such representation and warranty, Licensee acknowledges the exclusive
right, title and interest of Licensor and KMI in and to the Marks. Licensee
agrees not to attack or impair or challenge said right, title or interest or any
15
of Licensor's or KMI's registrations therefor, nor assist anyone else in doing
so; and Licensee agrees not to apply to register the Marks or any confusingly
similar service marks, trademarks, trade names, trade dress, copyrights,
industrial models or designs, or any derivations thereof, during the Term or
forever thereafter, anywhere in the world. Any and all use of and goodwill
associated with the Marks shall inure to the benefit of Licensor and KMI.
3.7 Business Planning. Footstar and Licensor shall meet and consult
with each other at least once each fiscal year in good faith (and may, in their
discretion, meet further at the request of the other party) to discuss the
annual business plan for the operation of the Footwear Departments. Licensee
shall at such time present its annual business plan for the Footwear Departments
to Licensor. Among others, one goal of such consultations shall be to discuss
increasing the amount of name brand footwear being sold in the Footwear
Departments. Licensor shall share those aspects of its own business plan for the
operation of the Stores which affect or interact with the operation of the
Footwear Departments.
ARTICLE IV
TERM AND TERMINATION
4.1 Buy-Out. If this Agreement is not terminated earlier in
accordance with section 4.2 below:
(a) This Agreement shall be terminated in its entirety (other
than those sections relating to indemnities, choice of law and post-termination
Store exit procedures) on the Buy-Out Date;
(b) On and as of the Buy-Out Date, Licensor shall, or shall
cause a Designated Purchaser to, purchase from Licensee (with payment to be made
within 5 business days of the Buy-Out Date) all inventory of the Footwear
Departments in all remaining Stores (the "Buy-Out"), including any inventory
that is on order pursuant to Kmart's written request and excluding damaged,
unsaleable and Seasonal Inventory, for an amount equal to the Book Value of such
inventory as of such date plus one million five hundred thousand dollars
16
($1,500,000); provided, that (w) Licensee shall provide to Licensor a complete
set of files that will support determination of Book Value ("Pricing Files") for
the six-month period prior to the Buy-Out Date (and the Pricing Files shall
reflect all permanent markdowns of the applicable inventory), (x) Licensee shall
not have, (i) at any time prior to the Buy-Out, purchased or transferred any
goods into inventory outside of the ordinary course in contemplation of the
Buy-Out, (ii) purchased inventory for or otherwise stocked any Store at a level
disproportionately greater than the average level of such Store at the same time
of year for the prior three years, unless Gross Sales at such Store during the
prior six months support such increased stocking, or (iii) prior to the Buy-Out,
marked up any inventory; (y) the inventory mix at each Footwear Department as of
the date of termination shall be reasonably comparable to the average mix at
such Footwear Department during the same time period for the prior three years
and shall reflect ordinary course practice; and (z) all inventory markdowns
shall have been taken in the ordinary course (and the Pricing Files shall
reflect all permanent markdowns).
(c) No later than seven days following the Buy-Out Date, the
Licensee shall remove from the remaining Stores all fixtures, furnishings,
equipment or other property belonging to Licensee (including, without
limitation, any damaged, unsaleable, and Seasonal Inventory not purchased by
Licensor) and surrender occupancy and possession of all Footwear Departments
premises in the same condition as received, ordinary wear and tear excepted. Any
of Licensee's property remaining on any such premises one year after such
termination, through no fault of Licensor, shall become the property of
Licensor. Licensee shall reimburse Licensor for the reasonable cost of removal
or disposal of such property within 30 days of receipt of an invoice setting
forth such charges, and shall pay to Licensor all Fees accruing hereunder
through the Buy-Out Date.
17
(d) Upon the occurrence of the Buy-Out, with respect to any
Stores in which a footwear department shall continue to be operated by Licensor
(or an affiliate of Licensor) following the Buy-Out Date and in which the
footwear department will be staffed by persons not already employees of Licensor
(or an affiliate) prior to the Buy-Out Date, Licensor shall consider the
employees of Licensee prior to the Buy-Out Date for employment in staffing such
footwear department in a manner consistent with the consideration that Sears,
Xxxxxxx and Co. gives to Licensor's (or its affiliates') employees upon the
conversion of a Kmart Store to a Sears Essentials store.
4.2 Termination of Agreement.
(a) During the Term of this Agreement, this Agreement may be
terminated (other than with respect to indemnities, choice of law and
post-termination Store exit procedures) only:
(i) upon written notice by one party, if the other party
shall fail to make any material payments when due or in the event of
a material breach or material failure of any covenant, representation
or warranty of the other party set forth herein, including, without
limitation, the Weekly Sales Remittance as set forth in section 6.2
hereof and the Staffing requirements set forth in section 12.2 hereof
or Licensee's material failure to follow Licensor's instructions
regarding the nature and quality of the Services or Materials and/or
appropriate use of the Marks, or material failure to comply with the
Rules and Regulations established by Licensor for the conduct of the
business within the applicable Store(s); provided, however, the party
charged with the breach or failure shall have the opportunity to cure
said breach or failure within 60 days of receipt of written notice
18
from the charging party (except as set forth in Section 6.2 with
respect to the Weekly Sales Remittance) (the "Notice Period"). If the
breach or failure is not cured to the satisfaction of the charging
party within the Notice Period, the charging party shall be entitled
to exercise any remedies it may have hereunder or under applicable
law, including but not limited to termination of this Agreement;
provided, however, that if such material breach or failure is capable
of being cured but is only incapable, by reason of its nature, of
being cured within the Notice Period, the charging party shall delay
exercising such remedies so long as the party charged with the breach
shall have begun in good faith to cure such breach within the Notice
Period and shall thereafter proceed diligently to complete the cure
of the breach and such breach shall be cured within a reasonable time
period (the "Extended Notice Period"); but in no event shall such
time period be longer than 180 days from the date of first notice to
the party charged with such breach;
(ii) upon 30 days' written notice by one party, if the
other party shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against such
party seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors (including, without limitation, a voluntary petition under
19
chapter 11 of title 11 of the United States Code), or seeking the
entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of
30 days, or any of the actions sought in such proceeding (including
the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for
any substantial part of its property) shall occur; or Licensor or
Licensee shall take any corporate action to authorize any of the
actions set forth above in this subsection.
(iii) at the option of the non-selling or non-transferring
party, upon 30 days' written notice by one party to the other, in the
event of a sale or transfer of a majority of the outstanding shares
(a "Change in Control") of the other party to a single person or
entity or to an affiliate group under common control; provided, with
respect to Licensee, a) this termination provision shall apply only
to a Change in Control of Footstar and not to a Change in Control of
any other Licensee (which other Licensees shall be subject to Section
4.3(a)(iv)), and b) this termination provision shall not apply to a
"going-private" transaction (A) in which a financial institution,
hedge fund or other "financial" buyer, with the consent of Kmart
(such consent not to be unreasonably withheld), becomes the majority
shareholder of Footstar and (B) in connection with which the
employment of no more than two of the top five and no more than one
of the top two senior officers of Footstar is involuntarily
terminated;
20
(iv) at the option of either Licensee or Licensor upon
seven days' written notice, in the event that Gross Sales for the
four-quarter period ending as of the last date of any fiscal quarter
of Licensee fall below the Sales Threshold as of such date; or
(v) at the sole option of Licensee upon seven days'
written notice, in the event that either (y) the number of Stores
falls below 900, or (z) Gross Sales for the four-quarter period
ending as of the last date of any fiscal quarter of Licensee shall be
less than $450 million.
(b) If this Agreement is terminated by Licensor pursuant to
section 4.2(a)(i), (subject to any applicable cure provisions), then Licensee
shall remove all fixtures, furnishings, equipment or other property belonging to
Licensee and surrender occupancy and possession of all Footwear Department
premises in the same condition as received, ordinary wear and tear excepted,
within six months of receipt of notice of termination, or upon expiration of the
applicable cure period, whichever is later. During such six-month period,
Licensee may conduct an orderly sale of Footwear Department inventory, subject
to the Rules and Regulations and the other provisions of this Agreement in
respect of operation of the Footwear Departments. Any of Licensee's property
remaining, through no fault of Licensor, on any such premises at the end of such
six-month period shall become the property of Licensor. Licensee shall reimburse
Licensor for the reasonable cost of removal or disposal of such property within
30 days of receipt of an invoice setting forth such charges, and shall pay to
Licensor all Fees accruing hereunder through the date upon which Licensee
surrenders occupancy and possession of the Footwear Department premises.
21
(c) If this Agreement is terminated pursuant to section
4.2(a)(ii) or (iii), then Licensee shall, within 90 days of the Termination
Date, remove from the remaining Stores all fixtures, furnishings, equipment or
other property belonging to Licensee and surrender occupancy and possession of
the Footwear Department premises in the same condition as received, ordinary
wear and tear excepted. During such 90-day period, Licensee may conduct an
orderly sale of Footwear Department inventory, subject to the applicable Rules
and Regulations and the other provisions of this Agreement in respect of
operation of the Footwear Departments. Any of Licensee's property remaining on
any such premises after such 90-day period, through no fault of Licensor, shall
become the property of Licensor. Licensee shall reimburse Licensor for the
reasonable cost of removal or disposal of such property within 30 days of
receipt of an invoice setting forth such charges, and shall pay to Licensor all
Fees accruing hereunder through the date upon which Licensee surrenders
occupancy and possession of the Footwear Department premises.
(d) If the Agreement is terminated pursuant to section
4.2(a)(iv), or (v) or by Licensee pursuant to section 4.2(a)(i), then:
(i) within 5 business days of the Termination Date,
Licensor shall, or shall cause a Designated Purchaser to, purchase
and make payment for all Footwear Department inventory including
inventory that is on order but excluding damaged, unsaleable and
Seasonal Inventory, for an amount equal to the Book Value of such
inventory as of such date plus one million five hundred thousand
22
dollars ($1,500,000); provided, that (w) Licensee shall provide to
Licensor a complete set of Pricing Files for the six-month period
prior to the Termination Date, (x) Licensee shall not have, (i) in
the 90 days prior to the Termination Date, purchased or transferred
any goods into or out of inventory, other than in the ordinary
course, (ii) purchased inventory for or otherwise stocked any Store
at a level disproportionately greater than the average level of such
Store at the same time of year for the prior three years, unless
Gross Sales at such Store during the prior six months support such
increased stocking, or (iii) prior to the Termination Date, marked up
any inventory; (y) the inventory mix at each Footwear Department as
of the Termination Date shall be reasonably comparable to the average
mix at such Footwear Department during the same time period for the
prior three years and shall reflect ordinary course practice; and (z)
all inventory markdowns shall have been taken in the ordinary course
(and the Pricing Files shall reflect all permanent markdowns);
(ii) at Licensor's sole option, the parties shall enter
into a transition services agreement for up to six months, during
which time Licensee will assist in the operation of the footwear
business and for which Licensor shall pay to Licensee a service fee
in an amount that will cover all costs of providing such services;
23
(iii) at Licensor's cost, Licensee will otherwise lend
such reasonable assistance as requested by Licensor to assist in the
transition of the footwear business to Licensor;
(iv) with respect to any Stores in which a footwear
department shall continue to be operated by Licensor (or an affiliate
of Licensor) following the Termination Date and in which the footwear
department will be staffed by persons not already employees of
Licensor (or an affiliate) prior to the Termination Date, Licensor
shall consider the employees of Licensee prior to the Termination
Date for employment in staffing such footwear department in a manner
consistent with the consideration that Sears, Xxxxxxx and Co. gives
to Licensor's (or its affiliates') employees upon the conversion of a
Kmart store to a Sears Essentials store; and
(v) Licensee shall, within seven days of the Termination
Date, remove from the remaining Stores all fixtures, furnishings,
equipment or other property belonging to Licensee (including, without
limitation, any damaged, unsaleable and Seasonal Inventory not
purchased by Licensor) and surrender occupancy and possession of the
Footwear Department premises in the same condition as received,
ordinary wear and tear excepted. Any of Licensee's property remaining
on any such premises after such seven-day period, through no fault of
Licensor, shall become the property of Licensor. Licensee shall
reimburse Licensor for the reasonable removal cost, if any, (the
"Removal Cost") of such property within 30 days of receipt of an
invoice setting forth such charges, and shall pay to Licensor all
Fees accruing hereunder through the Termination Date.
24
4.3 Termination of License With Respect to Particular Stores.
(a) The license to operate a Footwear Department and the other
terms and provisions of this Agreement may be terminated with respect to any
particular Store(s):
(i) subject to Section 4.3(d) below, upon seven days'
written notice from Licensor to Licensee that the Disposition of such
Store will occur within 97 days of such notice (a "Disposition
Notice");
(ii) upon 30 days' written notice by Licensor or Licensee
to the other, with respect to any affected Store(s), in the event any
Footwear Department premises become unfit for use and occupancy by
reason of material damage or destruction, or as a result of
condemnation;
(iii) as specified in Section 5.1; or
(iv) immediately, to the extent such Store shall be
operated by a Licensee (other than Footstar), in the event that such
Licensee shall not be directly or indirectly wholly-owned and
controlled by Footstar.
(b) If the license granted herein and the other terms of this
Agreement are terminated with respect to a particular Store or Stores pursuant
to Article 4.3(a)(i) (or, solely to the extent such termination qualifies as a
Disposition, pursuant to Article 4.3(a)(iii)):
(i) Licensee shall remove from such Store(s) all fixtures,
furnishings, equipment or other property (including any damaged,
unsaleable and Seasonal Inventory not purchased by Licensor)
belonging to Licensee and surrender occupancy and possession of the
Footwear Department premises in such Store(s) in the same condition
25
as received, ordinary wear and tear excepted, within seven days after
receipt of notice of the applicable Disposition (the "Vacate Date").
Any of Licensee's property remaining on any such premises after the
Vacate Date through no fault of Licensor, shall become the property
of Licensor. Licensee shall reimburse Licensor for the reasonable
cost of removal or disposal of such property within 30 days of
receipt of an invoice setting forth such charges;
(ii) provided that (x) Footstar shall not have, in the 90
days prior to the Vacate Date, purchased or transferred any goods
into or out of inventory of the applicable Store(s) other than in the
ordinary course, or marked up any such inventory, (y) the inventory
mix of the Disposed of store(s) as of the Vacate Date shall reflect
ordinary course practice, and (z) all inventory markdowns at the
Disposed of Store(s) shall have been taken in the ordinary course,
Licensor shall, or shall cause a Designated Purchaser to, on the
Vacate Date, purchase from Footstar and make payment for all
inventory at such Disposed of Store(s), other than inventory that is
damaged or unsaleable or that constitutes Seasonal Inventory, for an
amount equal to the Book Value of such inventory; and
(iii) with respect to any Stores in which a footwear
department shall continue to be operated by Licensor (or an affiliate
of Licensor) following the Disposition of such Store(s) and in which
such footwear department will be staffed by persons not already
employees of Licensor (or an affiliate) prior to such Disposition,
Licensor shall consider the employees of Licensee prior to the
Disposition for employment in staffing such footwear department in a
manner consistent with the consideration that Sears, Xxxxxxx and Co.
gives to Licensor's (or its affiliates') employees upon the
conversion of a Kmart store to a Sears Essentials store;
26
(c) In the event that a Disposition noticed pursuant to section
4.3(a) does not occur within 97 days of such notice:
(i) subject to subsection (ii) below, provided that each
party shall have acted in good faith with respect to such
Disposition, neither Kmart nor Footstar shall have any liability to
the other whatsoever, nor shall either have any remedy whatsoever;
without limitation of the foregoing, and subject to subsection (ii)
below, the purchase and sale of inventory pursuant to paragraph
4.3(b)(ii) shall not be unwound nor the price thereof adjusted in any
manner;
(ii) subject to section 4.3(d) below, in the event that
the noticed Disposition is cancelled (as determined by Kmart in good
faith) for any reason, then Licensee shall have a right of reentry
with respect to the applicable Store and, at Licensee's option, this
Agreement shall remain in effect with respect to such Store;
provided, that such right of reentry shall be contingent upon, in
addition to the cancellation of the Disposition, at Licensee's
option, either (A) the passage of 180 days from the date of the
applicable Disposition Notice, or (B) the repurchase by Licensee from
Licensor of all inventory from the applicable Store purchased in
accordance with section 4.3(b)(ii) and not yet sold by Licensor to a
subsequent purchaser. For any Store for which the cancelled
Disposition was in respect of a conversion as described in subsection
(iii) of the definition of "Disposition" herein, in the event
Licensee chooses to reenter, Licensor shall cover Licensee's
reasonable out-of-pocket costs associated with reentry up to a
maximum of $5,000 per Store.
27
(d) Solely in connection with a Disposition of any of the Stores
set forth on Schedule II hereto, Licensee shall have the option, exercisable by
notice to Kmart within seven days of delivery of a Disposition Notice with
respect to such Store, to (A) continue operating the Footwear Department in such
Store(s) for as long as such Store(s) shall be operated by Kmart or (B) invoke
the inventory buy-out and other provisions set forth in section 4.3(b);
provided, however, that Licensee shall have no right to reenter any of the
Stores set forth on Schedule II hereto should Licensee invoke section 4.3(b)
with respect to such Store(s) and the noticed Disposition of such Store(s) be
cancelled. In the event that Kmart shall not have received notice of Licensee's
election pursuant to this section 4.3(d) within seven days of delivery to
Licensee of an applicable Disposition Notice, Licensee shall be conclusively
deemed to have elected the provisions of Section 4.3(b).
(e) If the License with respect to a particular Store or Stores
is terminated pursuant to Article 4.3(a)(ii), (iii) (other than in the case of a
termination pursuant to Article 4.3(a)(iii) that qualifies as a Disposition), or
(iv), then Licensee shall, within 90 days of such termination, remove from the
applicable Store(s) all fixtures, furnishings, equipment or other property
belonging to Licensee and surrender occupancy and possession of the Footwear
Department premises in the same condition as received, ordinary wear and tear
excepted. During such 90-day period, Licensee may conduct an orderly liquidation
of the applicable Footwear Department inventory, subject to the Rules and
Regulations and the other provisions of this Agreement in respect of operation
of the Footwear Departments. Any of Licensee's property remaining on any such
premises after such 90-day period, through no fault of Licensor, shall become
the property of Licensor. Licensee shall reimburse Licensor for the reasonable
cost of removal or disposal of such property within 30 days of receipt of an
invoice setting forth such charges.
28
ARTICLE V
FOOTWEAR DEPARTMENTS
5.1 Footwear Departments. The area to be occupied by Licensee within
each Store shall be defined by computer aided drawings produced by Licensor's
Store Planning Department. Licensor may at any time and from time to time change
the location and size of a Footwear Department within a Store, in which event,
Licensor shall pay all cost and expense of moving the Footwear Department. In
the event that Licensor shall decrease the square footage of a Footwear
Department by more than 5%, then the Miscellaneous Expense Fee payable with
respect to such Footwear Department shall be reduced proportionately. Licensor
may not increase the square footage of a Footwear Department by more than 5%
without Licensee's written consent. To the extent Licensee consents to such an
increase and the square footage of any Footwear Department is increased by more
than 5%, then the Miscellaneous Expense Fee payable with respect to such
Footwear Department shall be increased proportionately. Should Licensee not
consent to the relocation or change in size of any Footwear Department, it may
terminate the Agreement as to such Footwear Department by immediately giving
Licensor written notice of its intention so to do, such termination to be
subject to the provisions of section 4.3(e).
29
ARTICLE VI
FEES
6.1 Fees.
(a) All Fees and other amounts due and owing from one party to
the other hereunder shall be paid in U.S. Dollars in immediately available funds
and shall be calculated and reported on a per Footwear Department basis. Fees
provided for herein shall accrue from and after the day immediately following
the Fee Reference Date.
(b) Licensee shall pay Fees to Licensor (which fees shall be
apportioned by Licensor among the Kmart affiliates in Licensor's sole
discretion) at the following rates and upon the following terms and conditions
throughout the Term:
(i) License Fees. Each week during the Term, in
consideration of the license granted to Licensee hereunder, Licensee
shall pay a "License Fee" to Licensor at the rate of 14.625% of the
Gross Sales of all Footwear Departments made during the preceding
week. Licensor may deduct and withhold such License Fee from its
Weekly Sales Remittance to Licensee.
(ii) Miscellaneous Expense Fees. Commencing on the
Effective Date (as defined herein) and subject to Section 5.1 hereof,
a "Miscellaneous Expense Fee" equal to $23,500 per year per Footwear
Department open and operated by Licensee shall be payable by Licensee
to Licensor in monthly installments of $1,958.33 per Footwear
Department. The monthly installment with respect to a given month
shall be deducted by Licensor from the Weekly Sales Remittance made
in the second week of such month. The Miscellaneous Expense Fee for a
particular Store shall be payable only with respect to the month(s)
30
during which such Store is open and Licensee has the right to operate
the Footwear Department in such Store. The Miscellaneous Expense Fee
with respect to any Footwear Department as to which Licensee ceases
to have the right to operate shall be pro rated for the month in
which Licensee's right to operate such Footwear Department
terminates. Licensor shall refund any overpayment of the
Miscellaneous Expense Fee, whether resulting from the mid-month
termination of Licensee's right to operate a Footwear Department or
otherwise, by increasing the amount of the first Weekly Sales
Remittance following the ascertainment of such overpayment by the
amount of such overpayment.
6.2 Weekly Sales Remittance and Fee Statements. Once each week
Licensor shall remit to Licensee a) the proceeds of Gross Sales of the Footwear
Departments during the preceding week, net of any Fees or other set-offs
specifically permitted by this Agreement (the "Weekly Sales Remittance"), and b)
shall furnish to Licensee a "Statement of Fees" with respect to each Footwear
Department in each Store. Such Statement of Fees shall set forth the permitted
Fees and any permitted deductions or set-offs taken by Licensor as set forth
herein. Licensor shall make all reasonable efforts to remit the Weekly Sales
Remittance within two Business Days of the last day of Licensor's accounting
week. Licensor's failure to remit the Weekly Sales Remittance within twelve days
after the last day of Licensor's applicable accounting week shall constitute a
material breach of this Agreement without requirement of notice by Licensee to
Licensor. In the event this Agreement is terminated on any grounds, Licensor
shall continue to remit the Weekly Sales Remittance through the Termination Date
or Buy-Out Date, whichever is applicable.
31
6.3 Right of Setoff. Licensor shall deduct from each Weekly Sales
Remittance the License Fee and the Miscellaneous Expense Fee as may be due at
the time of such remittances. Additionally, Licensor may deduct from the Weekly
Sales Remittance any other amounts owing from Licensee to Licensor, including,
without limitation, any Capital Claims due and owing, any expenses (including
payroll advances) of Licensee paid for by Licensor pursuant to Section 12.3,
Section 21.14 or otherwise, and any rental payment owing by Licensee to Licensor
in respect of office space allocated to Licensee at Licensor's or Sears'
headquarters pursuant to Section 21.14.
6.4 Inventory.
(a) Licensor acknowledges that Licensee has advised Licensor
that Licensee owns all of the inventory in the Footwear Departments and has
pledged the proceeds thereof to its secured lenders.
(b) Licensee represents that any inventory purchased by Licensor
or a Designated Purchaser pursuant to section 4.1(b), 4.2(d)(i), or 4.3(b)(ii)
shall be delivered to Licensor or such Designated Purchaser free and clear of
any and all liens, security interests or encumbrances of any kind or nature.
ARTICLE VII
CAPITAL CLAIMS
7.1 Capital Claims. Subject to section 7.3 hereof, Licensor shall
have one claim (each, a "Capital Claim") against Footstar in respect of each
Existing Store in an amount equal to $11,000 per Existing Store, for an
aggregate claim against Footstar equal to $15,730,000 (the parties acknowledging
that there are 1430 Existing Stores as of the Effective Date).
7.2 Payment of Capital Claims. Except as set forth below, the Capital
Claim relating to each Existing Store shall be due and payable upon the sooner
to occur of (A) the termination of the license with respect to the applicable
Existing Store pursuant to Section 4.3 and (B) subject to section 7.3 below, the
Termination Date. Capital Claims which are due and payable may be offset by
Licensor against contemporaneous Weekly Sales Remittances or against other
amounts owing by Licensor to Footstar
32
7.3 Waiver of Capital Claims. Licensor shall waive in their entirety
all Capital Claims which are not yet due and payable as of the Termination Date
or as of the date of the Buy-Out; provided, that, notwithstanding the foregoing,
Licensor shall not waive the Capital Claims in whole or in part in conjunction
with a termination by Licensor pursuant to section 4.2(a)(i), 4.2(a)(ii) or
4.2(a)(iii).
ARTICLE VIII
CONDITIONS TO EFFECTIVENESS
8.1 Conditions Precedent to Effectiveness. This Agreement shall
become effective on and as of the first date on which each of the following
conditions precedent have been satisfied (such date, the "Effective Date"):
(a) the Assumption Order shall have been entered by the
Bankruptcy Court; and
(b) Footstar shall have paid to Kmart an amount equal to the sum
of $45 million and the Fee True-Up Amount; provided, that in the event that the
Effective Date shall not have occurred by September 1, 2005, or such later date
as the parties may agree, then the parties shall seek the first available trial
date in the Bankruptcy Court that is after September 30, 2005 and this Agreement
shall be null and void and of no further force and effect and shall not be
deemed to have amended and restated the Existing Master Agreement or superseded
or terminated the License Agreements or the Shareholders Agreements; provided
further, that Kmart agrees not to object or otherwise interfere in Footstar's
disclosure statement approval process and Footstar's plan of reorganization
confirmation process, provided that the foregoing is consistent with the terms
herein and the terms in the Agreement re Settlement of Assumption and Conversion
Issues, dated July 2, 2005, between the parties.
33
ARTICLE IX
DISPOSITIONS
9.1 Limitation on Dispositions. Licensor shall be permitted to
Dispose of any number of Stores at any time; provided, that in the event that
either a) the total number of Dispositions during the Term exceeds 550, or b)
the number of Dispositions in any calendar year exceeds the limit set forth in
the table below, then Licensor shall, within one business day of the Vacate
Date, pay to Footstar the Stipulated Loss Value with respect to each Store
Disposed of in excess of the applicable limit; provided, further, that Stores as
to which the Stipulated Loss Value is paid shall not be considered in the
calculation of the 550 store limitation.
--------------------------------------- ---------------------------------------------------------------
CALENDAR YEAR NUMBER OF DISPOSITIONS PER CALENDAR YEAR
--------------------------------------- ---------------------------------------------------------------
2005 85
--------------------------------------- ---------------------------------------------------------------
2006 150, plus 85 less the actual number of Dispositions in 2005
(provided that the actual number of Dispositions in 2005 is
less than 85)
--------------------------------------- ---------------------------------------------------------------
2007 160, plus 235 less the actual number of Dispositions in 2005
and 2006 (provided that the actual number of Dispositions in
2005 and 2006 is less than 235)
--------------------------------------- ---------------------------------------------------------------
2008 160, plus 395 less the actual number of Dispositions in 2005,
2006 and 2007 (provided that the actual number of
Dispositions in 2005, 2006, and 2007 is less than 395)
--------------------------------------- ---------------------------------------------------------------
9.2 Stipulated Loss Value Nonrefundable. The payment of Stipulated
Loss Value in any period shall be nonrefundable, regardless of the number of
Dispositions that take place in subsequent periods.
34
ARTICLE X
BOOKS AND AUDITS
10.1 Books.
(a) Footstar shall keep full, true and accurate books of account
containing all particulars which may be necessary for the purpose of disclosing
and determining the computation of a) the Book Value of any inventory purchased
by Licensee for sale in the Footwear Departments, and b) the total amount
expended by Footstar on Staffing Costs. Such books of account shall be kept at
Footstar's principal place of business and maintained by Licensees until six
months following the Termination Date. All of the information within such books
and records which is relevant for purposes of determining the computation and
amount of the Book Value of inventory and/or the expenditures on Staffing Costs
shall be available for inspection by Licensor or its designated certified public
accountant upon reasonable notice.
(b) Licensor shall keep full, true and accurate books of account
regarding Gross Sales, Weekly Sales Remittances, Miscellaneous Expense Fees and
payroll transactions pursuant to Section 12.3. All such information shall be
available for inspection by Licensee or its designated certified public
accountant upon reasonable notice.
(c) To the extent either party alters its information systems,
such party shall take reasonable measures, at its expense, to ensure that such
systems continue to interface with and be compatible with the counterparty's
information systems in a manner sufficient to permit the parties to operate
under this Agreement in a manner reasonably consistent with past practice,
including, without limitation, past practice with respect to the generation of
information used in the conduct of business in the Footwear Departments.
35
10.2 Audits. During the Term and through and including the date that
is six months following the Termination Date, Kmart or its designated agent,
upon reasonable notice to Footstar and during normal business hours, may audit
all books, statements of account, records and reports relating to any inventory
purchased or to be purchased by Kmart (or another Designated Purchaser) pursuant
to any provision of this Agreement or relating to the Staffing Costs. Footstar
shall make available to Kmart or its agent any and all records reasonably
necessary to the verification of the Book Value of such inventory or the amount
of such expenditures. The expense of any and all such audits and verification
shall be borne by Kmart.
10.3 Staffing Reports. Each year, within 90 days of the end of
Footstar's fiscal year, a financial officer of Footstar shall provide to Kmart a
certificate attesting to the amount expended by Footstar for Staffing Costs for
the prior year.
ARTICLE XI
TAXES
11.1 Taxes. Licensees shall pay all occupational fees, taxes,
licenses and permits required in connection with or incident to their operation
of the applicable Footwear Departments, and shall pay all taxes levied on their
personal property, payrolls or income.
11.2 Sales Tax and Certain Gross Receipts Taxes. As an accommodation
to Footstar, for so long as permitted under law and for so long as Licensor's
systems reasonably permit, Licensor shall file and remit sales tax receipts on
Licensees' behalf to the appropriate taxing jurisdictions. In addition, for so
long as permitted under law and for so long as Licensor's systems reasonably
permit, Licensor shall file on behalf of Licensees gross receipts tax returns in
Guam, the Virgin Islands, and Hawaii, and remit amounts owed to the applicable
taxing jurisdiction. Licensor shall withhold sales taxes and gross receipts
taxes paid on Licensees' behalf from its Weekly Sales Remittance and account for
the same in its fee statements to Licensee.
36
11.3 Tax Indemnity. In consideration of the services described in
Section 11.2, and to the extent that Licensor is not guilty of gross negligence
in the performance of such services, Licensee shall indemnify and hold harmless
Licensor from and against any and all costs, including, but not limited to,
reasonable attorneys' fees, assessments, fines or penalties which Licensor
sustains or incurs as a result or consequence of the failure by Licensee to
promptly pay when due taxes to the proper taxing authorities and/or the failure
by Licensee to promptly file when due with such taxing authorities all reports
and other documents required, by applicable law, to be filed with or delivered
to such taxing authorities.
ARTICLE XII
FOOTWEAR DEPARTMENT EMPLOYEES
12.1 Employer Action. Notwithstanding section 12.3 or any other
provision of this Agreement, personnel working in each Footwear Department (the
"Footwear Department Employees") shall be employees of Licensee and Licensee
shall exercise control over such employees, including hiring, firing, promoting,
determining wages and work procedures and the like ("Employer Action"), which
control shall be at Footstar's direction subject to (i) any applicable
employment or union contracts, (ii) Licensor's Rules and Regulations and (iii)
applicable laws. Footstar shall be responsible for all Employer Actions and
shall reimburse, indemnify, defend and hold Licensor and its subsidiaries and
affiliates and their respective officers, directors and employees harmless from
and against any and all loss, damage, cost, expense or penalty, or any claim or
action therefor, arising out of any such Employer Action.
12.2 Staffing. Footstar shall spend, in the aggregate and on an
annual basis, a minimum of 10% of Gross Sales on salaries, payroll taxes, moving
and travel expenses, worker's compensation, incentives and other employee
benefits for the Footwear Department Employees (the "Staffing Costs"); provided,
that in no event shall Footstar schedule staffing in any individual Footwear
Department for fewer than 40 hours per week.
37
12.3 Employee Pay. Licensor will advance the necessary cash for
payroll relative to the Footwear Department Employees upon receipt of proper
documentation, in form to be agreed upon from time to time by Kmart and
Footstar, from Licensee or its designated representative. Footstar shall be
unconditionally liable to reimburse Licensor for all amounts so advanced, and
Licensor may set off such amounts against any subsequent Weekly Sales
Remittance. Footstar shall be responsible for and hereby covenants to, or to
cause another Licensee to, make all required payments to all applicable taxing
and other governmental authorities in respect of the Footwear Department
Employees, including without limitation social security, medicare, state and
local income tax and other payroll taxes, as applicable.
ARTICLE XIII
FURNITURE AND FIXTURES
13.1 Furniture and Fixtures. Licensor shall maintain and update all
shelving, counters, display cases and other trade fixtures which shall be agreed
upon by Licensee and Licensor as necessary for the proper operation of the
Footwear Departments by Licensee. Licensee may furnish and install at its
expense in the applicable Footwear Department such other furniture, fixtures and
equipment as it may desire, subject to the prior written approval of Licensor.
No Licensee may install or maintain electrical equipment (the "Electrical
Equipment") which may interfere with the operation of radios, televisions or
other appliances or communications or security systems sold or in use in the
Stores. To the extent Licensee installs such Electrical Equipment, Licensee
shall promptly correct or remove such Electrical Equipment at its expense.
Licensee agrees to submit for prior approval by Licensor all proposed signs and
sign fixtures. Licensee agrees to follow Licensor's instructions as to such
signs and sign fixtures.
38
ARTICLE XIV
ADVERTISING
14.1 Advertising. Licensor shall have the sole and exclusive control
over all advertising and promotions relating to all business conducted on the
Store premises, including on and in connection with the Footwear Departments.
Licensees shall not, and shall not permit any subsidiary or affiliate to, engage
in advertising or promotional activity of any Footwear Department or any
business conducted on Store premises without the prior review and written
approval of Licensor.
14.2 Minimum Roto Pages. Licensor shall allocate and provide, at its
own expense, no fewer than 52 square tab weekend roto pages per year to Footwear
Department products.
ARTICLE XV
CASH REGISTERS, UTILITIES AND TELEPHONE
15.1 Cash Registers. Licensor shall provide at its expense all cash
registers necessary for the operation of each Store and all cash in registers
shall be at the risk of Licensor. Licensor shall permit Licensee, upon
reasonable notice and during normal business hours, to take readings from such
registers. Licensee shall have no obligation to contribute monies to balance out
such registers.
15.2 Utilities. Licensor shall provide at its expense utilities
consisting of light, heat, power, gas, water and air conditioning as it may deem
necessary, but shall not be responsible for any loss or damage of any nature
resulting from the interruption or failure of such utilities.
15.3 Telephones. Licensor shall provide at its expense telephone
service and facilities for incoming calls under the general business listing of
"Kmart Store No. _____" or the like. Except to the extent any separate voice
telephone lines of telephone listings exist as of Approval Date, no Footwear
Department shall maintain any separate voice telephone lines or telephone
listings.
39
ARTICLE XVI
RULES AND REGULATIONS
16.1 Rules and Regulations. Licensor shall from time to time, for the
benefit of the common enterprise, establish, amend, modify or revise uniform
Rules and Regulations consistent with this Agreement which shall govern but not
be limited to the following subjects: order and appearance of the Store, methods
for handling of cash and cash registers, credit, will-call and layaway sales,
payments made by Licensor for account of Licensee, refunds, pricing policies,
inventory requirements, disposal of old merchandise, overlap in merchandise
carried by various Footwear Departments, products liability insurance, receiving
of merchandise and store security. Licensor agrees to furnish Footstar with a
written copy of such Rules and Regulations and Licensee agrees that it and its
employees and agents shall comply with such Rules and Regulations. The current
version of the Rules and Regulations is set forth at Exhibit B.
16.2 Limitation on Amendment. None of the Rules and Regulations shall
be modified in a manner inconsistent with this Agreement.
ARTICLE XVII
CONFIDENTIAL INFORMATION
17.1 Confidential Information. Footstar acknowledges that in the
course of performing this Agreement, it may learn, and Licensor may disclose to
it, certain information and data, whether written or oral, that is not in the
public domain or otherwise available from third parties except on a confidential
basis ("Confidential Information") concerning Kmart, its affiliates, their
business and their properties, including, without limitation, confidential
information and data concerning sales within Stores, new locations of Stores,
closing and/or conversions of Stores, and other information relating to business
40
plans or retailing and merchandising strategies for Stores as a whole or for
departments within the Stores. Licensor acknowledges that as a result of, or in
connection with this Agreement, it may learn and Licensee may disclose to
Licensor certain Confidential Information concerning Footstar, its affiliates,
their business and their properties. During the Term and for a period of three
years thereafter, except as otherwise required by law, neither Licensor nor
Licensee shall disclose any of the other party's Confidential Information to
third parties or to affiliate, subsidiary or parent companies or their
respective officers, directors, employees or representatives, except as mutually
agreed upon in writing by Licensee and Licensor; provided, that Confidential
Information may be disclosed to affiliate, subsidiary or parent companies or
their respective officers, directors, employees or representatives, to the
extent necessary to effectuate the purposes of this Agreement, so long as such
persons are informed of the confidential nature of the Confidential Information
and agree to maintain the confidentiality thereof in accordance with this
Agreement. Further, all Confidential Information shall remain the sole and
exclusive property of the party from which it has emanated and the recipient of
Confidential Information shall not use such Confidential Information in
furtherance of its own business other than for performance under this Agreement.
ARTICLE XVIII
INDEMNIFICATION
18.1 General; Insurance. Licensee shall reimburse, indemnify, defend
and hold harmless Licensor and its subsidiaries and affiliates and their
respective officers, directors and employees, from and against any and all
damage, loss, cost, expense or penalty, or any claim or action therefor, by or
on behalf of any person, arising out of Licensee's performance or failure to
perform under this Agreement and/or the Existing Master Agreement, including,
but not limited to, personal injury and death claims, false labeling or failure
to correctly label any merchandise under any statutory obligation or rules and
regulations having the force of law, and all claims of employees or agents of
41
Licensee whether for injury, death, compensation, social security, pension,
unemployment compensation, etc. Licensor agrees to obtain and keep in force
appropriate insurance for Licensee and Licensor for liabilities for personal
injuries (including death) and property damage arising out of or relating to the
use of the Footwear Department premises with limits of not less than $5,000,000
for injury to one person and $5,000,000 for injury to more than one person and
not less than $5,000,000 for property damage, and at Licensor's option Licensor
may self insure all or any portion of these limits. Licensees agree to maintain
through and including the Buy-Out Date or Termination Date, as applicable,
appropriate workers' compensation and employer's liability insurance as required
by all applicable federal, state or other laws, and, at Licensor's option, to
name Licensor as an "alternate employer" on such policies. Licensee agrees to
obtain and keep in force through and including the Buy-Out Date or Termination
Date, as applicable, appropriate insurance for claims against Licensor and
Licensee for personal injury (including death) and property damage arising out
of or relating to the goods and services provided pursuant to this Agreement
and/or the Existing Master Agreement (other than for liabilities for which
Licensor has agreed to insure in this Section 15.1), with the same limits and
self insurance options as agreed to above by Licensor. Licensee or Licensor, as
the case may be, shall provide evidence of all of the aforesaid insurance at the
request of the other party, and shall name the other party as an additional
insured on such policies.
18.2 Intellectual Property & Employee Payment Indemnification.
Licensee shall reimburse, indemnify, defend and hold harmless Licensor and its
subsidiaries and affiliates and their respective officers, directors and
employees from and against all third-party claims asserted against Licensor (a)
alleging that any Licensed Footwear, Services, trade fixtures, furnishings,
merchandise, advertisements or promotions furnished by Licensee under this
Agreement or the Existing Master Agreement infringe any patent, copyright,
42
trademark, trade dress, design or other proprietary right or constitute a misuse
of any trade secret information or violate any third-party contractual right, or
(b) arising from the payment (or non-payment) by Kmart of any amount to any
Footwear Department Employee or to any third party (including any taxing or
other governmental authority) relating to any payment (or non-payment) by Kmart
of any amount to any Footwear Department Employee, and shall pay all losses,
costs, attorneys fees, expenses, settlement payments, fines and damages arising
in connection with any such claims under the foregoing subsections (a) and (b).
Notwithstanding the provisions set out in the preceding sentence, Licensor shall
reimburse, indemnify, defend and hold harmless Licensee and its subsidiaries and
affiliates and their respective officers, directors and employees from and
against all third party claims asserted against Licensee alleging that any use
of the Marks by Licensee that was authorized by Licensor pursuant to this
Agreement infringes any trademark or trade dress of a third party and shall pay
all losses, costs, attorneys' fees, expenses, settlement payments, fines and
damages arising in connection with any such claims.
18.3 General. Licensor or Licensee, as the case may be, agree to
timely advise the other party of any lawsuit, claim or proceeding for which an
indemnity is provided pursuant to this Agreement and to cooperate with the other
in the defense or settlement of such lawsuit, claim or proceeding. Licensor or
Licensee, as the case may be, shall keep the other party advised at all times
concerning the handling of such matters and shall furnish for the other party's
prior review and approval all proposed settlement, release or similar documents
or agreements disposing of a given matter if such matter involves the other
party or affects its interests.
43
ARTICLE XIX
NO ASSIGNMENT OR SUBLICENSE
19.1 No Assignment or Sublicense. Neither party shall assign or
sublicense its rights and/or duties under this Agreement without the prior
written consent of the other party given at the other party's sole option,
except that either party may assign its rights, but not its duties, under this
Agreement to a subsidiary or affiliate which is and shall remain wholly owned
and controlled by or under common control with such party, upon written notice
to the other party. Any other attempted assignment or sublicense shall be void.
ARTICLE XX
GUARANTEES
20.1 Sears Guarantee. Sears hereby irrevocably and unconditionally
guarantees to Footstar that any amounts owing by Kmart to Footstar and/or
Licensees hereunder shall be paid in full when due. Sears hereby agrees that its
obligations with regard to such guarantee shall be unconditional, irrespective
of any circumstances which might otherwise constitute a legal or equitable
defense of a guarantor, including, without limitation, as a result of any
amendment of this Agreement of any nature.
20.2 Footstar Guarantee. Footstar hereby irrevocably and
unconditionally guarantees to Kmart that any amounts owing by any Licensee to
Kmart hereunder shall be paid in full when due. Footstar hereby agrees that its
obligations with regard to such guarantee shall be unconditional, irrespective
of any circumstances which might otherwise constitute a legal or equitable
defense of a guarantor, including, without limitation, as a result of any
amendment of this Agreement of any nature.
44
ARTICLE XXI
MISCELLANEOUS
21.1 Inventory Counts. With respect to any purchase of inventory by
Licensor (or a Designated Purchaser) under this Agreement (including pursuant to
Article IV), Licensor and Footstar shall each have the right to require an
actual physical count and determination of the quantity of such inventory and
the qualification (i.e., damaged, unsaleable or Seasonal Inventory) of such
inventory for purchase, such count and determination to be performed by RGIS
Inventory Services or any other mutually acceptable third party and paid for
equally by the parties. The price paid by Licensor in connection with any such
purchase of the applicable inventory shall be adjusted in accordance with the
result of such physical count and determination.
21.2 Maintenance of Premises and Security Service. Licensor shall
maintain and provide janitor service at its cost for the Footwear Departments.
Licensee shall be responsible for janitor service in any storage area occupied
by it under this Agreement. Licensor may from time to time provide such security
service as it may deem necessary.
21.3 Credit Sales. Licensor may provide credit facilities consisting
of credit card, debit card or deferred payment plans for the sale of Licensee's
goods. No Licensee may install or promote its own credit card, debit card or
deferred payment plans without prior written approval of Licensor.
21.4 Risk of Loss; Damage, Destruction or Disappearance of Property.
Except in the event of gross negligence or willful misconduct, the risk of loss,
damage, destruction or disappearance of any property on the Store premises, as
between Licensor and any Licensee, shall be exclusively that of the party having
title to such property. Further, except in the event of gross negligence or
willful misconduct, Licensee relieves Licensor, and Licensor relieves Licensee,
of liability for any loss caused by fire or explosion arising out of any act of
omission or commission, negligent or otherwise, of the agents, servants or
employees of the other party.
45
21.5 Rights and Remedies. The rights and remedies given herein are
not exclusive, but are cumulative, and are in addition to all rights and
remedies allowed by law, except that neither party shall be liable to the other
party for incidental, consequential, punitive or exemplary damages arising in
connection with this Agreement or the performance, omission of performance or
termination hereof, even if the said party has been advised of the possibility
of such damages and without regard to the nature of the claim or the underlying
theory or cause of action (whether in contract, tort or otherwise).
21.6 Independent Contractor. Neither party is nor shall be the agent
of the other party in any matter. Each party is and at all times shall be an
independent contractor in the performance of this Agreement, and neither party
is authorized to bind the other party to any agreement or contract, in any
manner, with any third party. The parties do not intend this Agreement to
constitute a joint venture, partnership or lease and nothing herein shall be
construed to create such a relationship. Subject to the provisions hereof, this
Agreement shall bind the successors and permitted assigns of the parties.
21.7 CHOICE OF ILLINOIS LAW AND FORUM. THIS AGREEMENT AND ALL ASPECTS
OF THE BUSINESS RELATIONSHIP BETWEEN LICENSOR AND LICENSEE SHALL BE DEEMED TO
HAVE BEEN EXECUTED AND DELIVERED IN CHICAGO, ILLINOIS, AND SHALL BE CONSTRUED,
INTERPRETED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ILLINOIS. LICENSEE AGREES TO EXERCISE ANY RIGHT OR REMEDY IN CONNECTION
WITH THIS AGREEMENT OR OTHERWISE ARISING OUT OF SAID BUSINESS RELATIONSHIP(S),
EXCLUSIVELY IN, AND HEREBY SUBMITS TO THE JURISDICTION OF, THE STATE OF ILLINOIS
COURTS OF XXXX COUNTY, ILLINOIS OR THE UNITED STATES DISTRICT COURT AT CHICAGO,
ILLINOIS.
46
21.8 Waiver. Silence, acquiescence or inaction shall not be deemed a
waiver of any right. A waiver shall only be effective if it is in writing and
signed by an authorized officer of the party to be charged. Any such waiver
shall not be construed as a continuing waiver or as a waiver of any other breach
of a same or similar nature.
21.9 Severability. In the event that any part or portion of this
Agreement shall be deemed to be invalid or illegal, then such invalid or illegal
portion shall, so far as possible, not affect the validity or legality of the
remainder of this Agreement. Further, the parties agree that they shall attempt
to arrive at a modification of any illegal or invalid part so as to render the
same legal and valid and within the keeping of the original tenor and spirit of
the Agreement.
21.10 Entire and Exclusive Agreement. This Agreement and the Exhibits
hereto shall constitute the entire exclusive agreement between the parties with
respect to operation of the Footwear Departments and use and licensing of the
Marks in the Territory, and shall supersede all prior negotiations,
understandings and agreements, if any, between the parties, whether oral or
written. Except as otherwise provided herein, this Agreement may only be amended
or modified by written instrument signed by authorized officers of the parties.
21.11 Headings for Convenience Only. The headings, titles or captions
used in this Agreement are provided solely for the convenience of the parties
and shall not be considered relevant in any construction of this Agreement or be
interpreted to define, expand or limit the provisions of this Agreement.
47
21.12 Authority. Each party represents, covenants and warrants that
it has the full legal right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated herein, subject, in
the case of Footstar, to approval of the Bankruptcy Court.
21.13 Notices. Any notices should be delivered by certified mail
return receipt request or a nationally recognized overnight delivery service and
addressed if to Footstar to:
If to Licensee to: Xxxxxxx Xxxxxxxx, Esq.
Sr. Vice President & General Counsel
Footstar, Inc.
000 XxxXxxxxx Xxxx.
Xxxxxx, XX 00000
and if to Licensor to: General Counsel
Sears Holdings Corporation
0000 Xxxxxxx Xxxx
Xxxxxxx Xxxxxxx, XX 00000
21.14 Certain Payments & Expenses.
(a) As an accommodation to Licensee, Kmart, may, from time to
time during the Term, in its discretion and at Licensee's request, assume or pay
freight charges with respect to Licensee's merchandise.
(b) Kmart shall, or shall cause an affiliate to, grant to
Footstar a license, for the Term only and solely for the purpose of facilitating
the operation of the Footwear Departments in accordance with the terms and
intent of this Agreement, for up to 3 employees of Footstar to enter into its
headquarters facility in Hoffman Estates, Illinois and will provide to Footstar
space at its headquarters in Hoffman Estates, Illinois comparable to the space
enjoyed by Footstar at Kmart's headquarters in the period immediately prior to
the commencement of the Chapter 11 Cases. Footstar shall pay to Kmart an amount
equal to $125,000.00 per year, payable quarterly in arrears, in respect of such
license (inclusive of telephone, computer, and other office machine usage),
which license is not intended by the parties to be a lease, it being understood
that Kmart (or its affiliate) shall have complete discretion and control over
the space allocated to Footstar pursuant to this Agreement.
48
(c) Kmart shall be entitled to set off any amounts owing by
Footstar and/or Licensee for amounts owing pursuant to this Article XXI against
any Weekly Sales Remittance.
21.15 Meet and Confer. The parties agree that, prior to commencing
any action arising out of or in connection with this Agreement, senior business
representatives from each party shall meet and confer two times in person in a
good-faith effort to resolve any such dispute.
[Signature Pages to Follow]
49
IN WITNESS WHEREOF, the parties by their duly authorized officers set
their hands as follows:
Licensee
FOOTSTAR, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President & Chief Executive
Officer - Meldisco
Licensor
KMART CORPORATION
By: /s/ Xxxxxxx Xxxxxxxxxxxx
----------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
KMART OF NORTH CAROLINA LLC
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
KMART OF PENNSYLVANIA LP, BY Kmart
Corporation,its General Partner
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
KMART OF TEXAS LP, BY
Kmart Corporation, its General Partner
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
50
KMART STORES OF ILLINOIS LLC
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
KMART OF MICHIGAN, INC.
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
KMART OF WASHINGTON LLC
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
KMART STORES OF TEXAS LLC
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
SEARS HOLDING CORPORATION, solely with
respect to Article XX
By: /s/ Xxxxxxx Xxxxxxxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title:
51
EXHIBIT A
1. The Marks are:
KMART
SUPER KMART CENTER
BIG KMART
2. In using the Marks, Licensee shall affix or display the
appropriate trademark ((R), (TM), SM) or copyright notice ((C)) according to
Licensor's instructions from time to time.
EXHIBIT B
---------
RULES AND REGULATIONS
RESTRICTIONS ON THE USE OF THE REGISTERED SERVICE XXXX "Kmart".
Retail services offered the consumer under the registered service xxxx of
"Kmart" must be under uniform operating conditions established by Kmart
Corporation and Kmart of Michigan, Inc. and equally applicable to all who
operate under the xxxx in order to preserve the legal rights of Kmart of
Michigan, Inc., as the registered owner of the xxxx, and to afford appropriate
legal protection to the Licensee. The limited license granted herein requires
that all sales to the public in Kmart Stores be offered exclusively under the
service xxxx of "Kmart," and prohibits the use of the xxxx in any other manner.
OTHER USES PROHIBITED. The use of "Kmart" by a Licensee in
conjunction with bank accounts, checks, or on order forms, purchase orders or
contracts with manufacturers, vendors, or suppliers, or with governmental
agencies, or public utilities is prohibited by the terms of this license
Agreement.
INCORPORATION. The adoption of "Kmart," or any simulation thereof in
any corporate name is prohibited.
ASSUMED NAME STATUTES. If the registration under any assumed name
statute is required, such registration shall clearly indicate that operations
under the "Kmart" name are subject to and by virtue of a license agreement
between Kmart Corporation and Kmart of Michigan, Inc., the registered owner of
the xxxx.
ADVERTISING AND DISPLAY SIGNS. The use in advertising logotype or
display signs or in any other manner of other service names, service marks, or
service insignia, alone, or in conjunction with the service xxxx "Kmart" (other
than on price tags in accordance with past practice), is in derogation of the
requirement that all sales to the public be exclusively under the xxxx "Kmart"
and is prohibited by the terms of this Agreement.
USE OF THE REGISTERED TRADEMARK "Kmart" ON PRODUCTS. The limited
license granted herein is solely for the use of the registered xxxx "Kmart" in
conjunction with retail services, and the unauthorized application of the
registered trademark "Kmart" to products is in violation of this agreement.
EMPLOYMENT. All hiring and terminations, so far as they apply to each
Licensee, will be under the supervision of the Licensee's management. The Kmart
personnel supervisor will take applications of persons desiring employment. Upon
request, these applications will be made available to Licensee's management.
PURSES AND EXTRA CLOTHING. Purses and extra clothing of employees
shall be kept as directed by the Licensor. Under no circumstances are purses to
be kept at the Licensee's department, provided that Licensor makes available a
secure area for purses.
EMPLOYEE PURCHASES. All store purchases by employees, including all
Licensee's employees, must be taken unsealed to a supervisor designated by the
Licensor. Such purchases will be sealed with the register tape and be available
to be detached by the person who approves packages taken from the store.
Employees may not keep packages in the department.
53
REFUNDS, COMPLAINTS. All refunds except tires, batteries and similar
merchandise involving performance guarantees, are to be made at the Kmart
Service Desk. Complaints are to be cleared through the Kmart Service Desk. Any
disputes over refunds or complaints shall be resolved by Licensor.
SHOPLIFTING. Persons suspected of shoplifting shall only be
questioned or apprehended by the Store loss prevention associate or the
Licensor's Store Manager.
LOST ARTICLES. Customer's change left at the counter should be turned
over to the Licensor's cashier with the employee's name, date, amount of money
tendered, and quantity of merchandise purchased. If money is not called for
within two days, the cash office will report the money as a receipt on the
office balance form.
Money or valuables found by a customer or store employee are to be
held in the office for a period of sixty days, after which, if they have not
been claimed, they will be returned to the person finding them.
SMOKING. Smoking in the department, or anywhere on the sales floor,
except in designated areas, is prohibited. Employees smoking in the stockroom
area will be dismissed.
GREETINGS OF CUSTOMERS. Each customer shall receive a "Friendly" or
"Cheery" greeting and close all sales with "Thank You for Shopping at Kmart".
SUPPLIES. Licensor will furnish, at its expense, wrapping supplies,
paper, bags, twine, and forms which shall be used by all Licensees for the
conduct of the business pertaining to cash transactions, refunds, layaways,
will-calls, credit and reports to Licensor. Licensee shall furnish at its
expense such other special boxes or wrappings as it believes necessary or
desirable to enhance the salability or the security of its merchandise.
SIGNS. Licensee may purchase all signs for display and promotional
selling, including string tags, senso labels, clips and other signs as may be
required, from Licensor at cost of production and material.
PRICE MARKING. Licensee shall individually price all merchandise
where required by law and such merchandise shall be identifiable by a UPC unique
to Footstar and Footstar's unique five-digit style number.
STORAGE. Licensee shall observe the following practices regarding
storage area:
o Keep clean.
o Lock, if possible, and have lights out if only for Licensee's storage area
when not in use.
o Permit no condition to exist which might create a fire hazard.
o Check for hazards at the close of each day.
54
INCOMING - OUTGOING MERCHANDISE. Licensee shall be responsible for
receiving its merchandise into Licensee's storage area (such area to be
specified by Licensor from time to time) unless Licensor performs this service
at Licensee's expense. All incoming and outgoing merchandise shall be under the
supervision of Licensor.
FREIGHT DOOR. The freight door shall be closed except during receipt
of merchandise under the supervision of Licensor.
EMERGENCY EXITS. Licensee shall observe the following practices
regarding emergency exits:
o Keep closed at all times except in emergencies.
o Not used for receipt or removal of merchandise unless under supervision of
Licensor.
o Unauthorized use shall be cause for dismissal.
o No emergency exit is to be padlocked while the store is open for business.
GENERAL OPERATION OF STORE. Licensee agrees to do the following:
o Keep open for business its departments during hours established by
Licensor, it being understood that a department need not be staffed every
hour that the applicable Store is open in order to be "open and ready for
business."
o Not permit its department to be closed for any period without Licensor's
written consent.
o Not permit the continuance of a labor dispute involving its department
which materially affects the sales or threatens the operation of other
Licensee or Licensor.
o Licensee must promptly remove all cardboard and other residue from unpacked
merchandise, from entire area occupied by the Licensee.
o Maintain clean, attractive, well-filled displays of its merchandise, in
adequate assortments, in sufficient depth, in suitable price range, and
competitive in price with the same or similar goods offered for sale in the
trading area.
o Discontinue the sale of any merchandise or service which Licensor shall
deem not within the agreed classification.
o Not to make a fair trade agreement affecting any item sold in the
department.
o To offer first-quality merchandise, including branded merchandise where
possible. Carry no seconds, irregulars or inferior items. Top value,
close-out merchandise offering special promotional possibility is
permitted.
o The height of displays from the floor level shall not be in excess of those
heights set from time to time by Licensor's store planning department,
provided Licensor shall provide Licensee with reasonable notice of any
changes to the height of displays.
ADVERTISING AND PROMOTION BY LICENSOR. Licensee shall work closely
with Licensor in planning sufficiently in advance for a coordinated advertising
program based on budget to make available in sufficient dept and suitability,
merchandise which will produce maximum sales. Licensee shall plan suitable
display of such advertised merchandise.
SALES MEETINGS. Licensee's manager and key personnel shall attend
meetings as determined by Licensor from time to time to discuss operating
procedures, formulate plans, review results and other pertinent information
necessary for the successful operation of the business.
Licensee's employees shall attend briefing and training sessions to
familiarize themselves with store policies and regulations pertaining to the
conduct of the business in their department as well as the entire operation.
AISLE SPACE. Licensee shall not obstruct or alter aisle space, as
provided in the layout of licensed area, without approval of the Licensor.
FIRE RULES. Licensee shall not permit any condition to exist that
will create a fire hazard.
EMPLOYEE CARS. Employees shall park their cars in an area designated
by Licensor's Manager that ensures that customers will have the preferred
parking space in front of the store.
SCHEDULE I
STORES THAT ARE NOT EXISTING STORES
--------------------------------------------------------------------------------
STORE # LOCATION
--------------------------------------------------------------------------------
7707 Warrenton, VA
--------------------------------------------------------------------------------
3973 Stuart, FL
--------------------------------------------------------------------------------
0000 Xxxxxx, XX
--------------------------------------------------------------------------------
7282 Clinton, MD
--------------------------------------------------------------------------------
0000 Xxxx Xx. Xxxxx, XX
--------------------------------------------------------------------------------
0000 Xxx Xxxxx-Xxxxxx, XX
--------------------------------------------------------------------------------
0000 X. Xxxxxxxxxx, XX
--------------------------------------------------------------------------------
7422 Tustin, CA
--------------------------------------------------------------------------------
9406 Peoria, AZ
--------------------------------------------------------------------------------
4384 Palatine, IL
--------------------------------------------------------------------------------
0000 X. Xxxxxxx, XX
--------------------------------------------------------------------------------
0000 Xx Xxxxx, XX
--------------------------------------------------------------------------------
4446 Bethlehem, PA
--------------------------------------------------------------------------------
0000 Xxxx Xxxxx, XX
--------------------------------------------------------------------------------
4180 Louisville, KY
--------------------------------------------------------------------------------
4488 Rochestser, MI
--------------------------------------------------------------------------------
0000 Xxxxxx Xxxxxx, XX
--------------------------------------------------------------------------------
0000 Xxx Xxxxx-Xxxx, XX
--------------------------------------------------------------------------------
0000 Xxx Xxxxx-Xxxxxxxxxx, XX
--------------------------------------------------------------------------------
0000 Xx. Xxxxxxxxxx, XX
--------------------------------------------------------------------------------
0000 Xxxxxxxxx, XX
--------------------------------------------------------------------------------
0000 X. Xx. Xxxxx, XX
--------------------------------------------------------------------------------
3825 Parsippany, NJ
--------------------------------------------------------------------------------
0000 Xxxxxxxx, XX
--------------------------------------------------------------------------------
4496 Keene, NH
--------------------------------------------------------------------------------
0000 Xxxxxxxxxxx, XX
--------------------------------------------------------------------------------
3124 Corona, CA
--------------------------------------------------------------------------------
3988 Putnam, CT
--------------------------------------------------------------------------------
7772 Noblesville, IN
--------------------------------------------------------------------------------
4206 Warren, MI
--------------------------------------------------------------------------------
0000 Xxxxx Xxxx, XX
--------------------------------------------------------------------------------
4224 Denver, CO
--------------------------------------------------------------------------------
0000 Xxx Xxxxxxxx, XX
--------------------------------------------------------------------------------
0000 Xxxxxxx Xxxxxx, XX
--------------------------------------------------------------------------------
4039 South Bend, IN
--------------------------------------------------------------------------------
4869 Deland, FL
--------------------------------------------------------------------------------
3476 Clearwater, FL
--------------------------------------------------------------------------------
9395 Lawnside, NJ
--------------------------------------------------------------------------------
0000 X. Xxxx Xxxxx, XX
--------------------------------------------------------------------------------
0000 Xxxx Xxxxx, XX
--------------------------------------------------------------------------------
4464 Loves Park, IL
--------------------------------------------------------------------------------
0000 Xxxxxxxx, XX
--------------------------------------------------------------------------------
7081 Brighton, MI
--------------------------------------------------------------------------------
4797 Mobile, AL
--------------------------------------------------------------------------------
7640 Mobile, AL
--------------------------------------------------------------------------------
7330 Saraland, AL
--------------------------------------------------------------------------------
7760 Linden, NJ
--------------------------------------------------------------------------------
0000 Xxxxxxx, XX
--------------------------------------------------------------------------------
SCHEDULE II
STORES WITH NO RIGHT OF REENTRY
Store No City ST
LEASES EXPIRING IN 2005
3521 Binghamton NY
0000 Xx Xxxx XX
0000 Xxxxxxx XX
7795 Abilene TX
9287 Atlantic IA
9573 Rhinelander WI
LEASES EXPIRING IN 2006
4041 Sioux Falls SD
4121 Denver CO
0000 Xxxxxxxx XX
0000 Xxxxxxxxxx XX
0000 Xx Xxxx XX
0000 Xxxx XX
9335 Peoria IL
9393 Philadelphia PA
4986 Virginia Beach VA
3960 Bryan OH
4244 Knoxville TN
4151 Sparks NV
4191 Harbor City CA
4277 Xxxxxxxx XX
0000 Xxxxx XX
7375 Endicott NY
LEASES EXPIRING IN 2007
4728 Miami FL
4282 Industry CA
4176 Cheektowaga NY
4285 Ventura CA
4257 Middleburg Heights OH
4303 Billings MT
4199 Amherst NY
4301 Lima OH
9521 Madawaska ME
4330 Oxnard CA
4291 Simi CA
0000 Xxxxx Xxxxx XX
0000 Xxxxxxxxx XX
4314 Cedar Rapids IA
4315 Iowa City IA
LEASES EXPIRING IN 2008
4340 Santa Rosa CA
4233 Xxxxxxxx OH
4344 Allentown PA
9320 Seneca SC
0000 Xxxxxxxxxx XX
0000 Xxxx Xxxx Xxxx XX
