SEARS, ROEBUCK AND CO.
LICENSE AGREEMENT
CONSUMER PROGRAMS
INCORPORATED
SEARS PORTRAIT STUDIOS
January 1, 2009
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (hereinafter
referred to as “Agreement”) is entered into as of the
1st day of January, 2009 (the “Commencement Date”), by
SEARS, ROEBUCK AND CO., a New York corporation
(“Sears”), CONSUMER PROGRAMS INCORPORATED, a Missouri
corporation (“Licensee”), and CPI CORP., a Delaware
corporation (“CPI”).
Sears and certain of its affiliates
and Licensee are parties to that certain License Agreement dated as
of January 1, 1999, as previously amended (as so amended, the
“Original Agreement”), that certain License Agreement
(Off Mall), dated January 1, 1999, as previously amended (as so
amended, the “Off Mall Agreement”), and that certain
Development and License Agreement, dated January 31, 2001, as
previously amended (as so amended the “Development
Agreement”). Sears and Licensee desire to enter into this
Agreement, which supersedes and replaces the Original Agreement,
the Off Mall Agreement and the Development Agreement. Sears and
Licensee hereby agree as follows:
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1.1
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License for On-Premises
Operations.
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Sears hereby grants Licensee the
non-exclusive privilege of conducting and operating, and Licensee
shall conduct and operate, pursuant to the terms, provisions, and
conditions contained in this Agreement, a licensed business
offering the goods and services listed on Exhibit B
(“Licensed Business”), at each of the Sears locations
described in Exhibit A or in Location Riders attached from time to
time (“Designated Sears Store(s)”).
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1.2
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Scope of
License/Restrictions.
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Licensee shall use the Licensed
Business Area (defined in Section 5.1) only for the purpose
authorized in this Agreement, and shall offer for sale only those
services and merchandise expressly authorized by this Agreement as
listed on Exhibit B attached hereto. Any changes, additions or
deletions of services or merchandise require the prior written
approval of Sears appropriate Licensing Manager (“Licensing
Manager”).
Sears makes no promises or
representations whatsoever as to the potential amount of business
Licensee can expect at any time during operation of the Licensed
Business. Except as otherwise set forth herein, Licensee is solely
responsible for any expenses it incurs related to this Agreement,
including, but not limited to, any increase in the number of
Licensee’s employees or any expenditures for additional
facilities or equipment.
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2.1
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License to Use Sears
Marks.
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Licensee shall operate the Licensed
Business under the name SEARS PORTRAIT STUDIO, and only under such
name, except as may be otherwise approved by Sears in
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accordance with the last sentence of
this Section 2.1. Licensee shall use the name of Sears only in
connection with the operation of the Licensed Business and only in
a manner described herein or upon prior written approval by
Sears’ Licensing Manager. Licensee may use the name Sears
when communicating with customers or potential customers of the
Licensed Business, or to identify the location of the Licensed
Business and in other instances specifically approved by Sears.
Licensee shall not conduct any business activity under this
Agreement without Sears’ prior written approval of any and
all names that Licensee intends to use in operating the Licensed
Business. Notwithstanding any such approval by Sears, the name
SEARS PORTRAIT STUDIO shall be, and remain, the name of primary
usage and prominence used to identify the Licensed Business, at all
times and at all locations of the Licensed Business during the Term
(and thereafter, to the extent that continuing operations of the
Licensed Business are permitted under this Agreement).
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2.2
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Communications with Third
Parties.
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Except (i) in the case of
communication permitted by Section 2.1, (ii) for uses of Sears
Licensed Business Marks (as defined in Section 2.5(c)) permitted
under this Agreement, or (iii) as otherwise specifically approved
by Sears, Licensee shall not use the name of Sears, any Sears
Licensed Business Mark, or any other Sears trademarks, service
marks or trade names (collectively, the “Marks”),
either orally or in writing, including, but not limited to, use of
any letterhead, checks, business cards, or contracts. All
communications with persons or entities other than customers or
potential customers of the Licensed Business shall be done solely
in Licensee’s own name.
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2.3
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No Challenge to Marks.
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Licensee shall not question, contest
or challenge, either during or after the Term of this Agreement,
Sears ownership of the Marks, or Sears ownership in any mailing
lists, credit files or other factual information compiled by Sears
and made available by Sears for use by Licensee (“Sears
Information”). Licensee shall claim no right, title or
interest in any Mark or Sears Information, except the right to use
the same pursuant to the terms and conditions of this Agreement,
and shall not register or attempt to register any Mark.
Licensee recognizes and acknowledges
that the use of any Mark or Sears Information shall not confer upon
Licensee any proprietary rights to any Mark or Sears Information.
Upon expiration or termination of this Agreement, Licensee shall
immediately stop using all Marks and Sears Information, and shall
execute all documents Sears reasonably requests in order to confirm
Sears ownership, or to transfer to Sears any rights Licensee may
have acquired from Sears in any Mark or Sears Information. Nothing
in this Agreement shall be construed to bar Sears, during or after
expiration or termination of this Agreement, from protecting its
right to the exclusive ownership of Sears Information or Marks
against infringement or appropriation by any party or parties,
including Licensee.
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2.5
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Registration of Marks; Other
Restrictions on Use.
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(a) In
General. This Section 2.5 sets forth additional rights and
obligations of the parties with respect to ownership and use of
trademarks, service marks and trade names in relation to the
Licensed Business.
(b) Licensee
Prior Marks. “Licensee Prior Marks” shall mean the
trademarks, service marks and trade names set forth on Schedule
2.5(b), all of which were owned or licensed by Licensee prior to
execution of the Original Agreement. None of the Licensee Prior
Marks shall be used for any purpose other than the Licensed
Business, for so long as Licensee operates the Licensed Business at
any Designated Sears Store, without the prior written approval of
Sears.
(c) Sears
Licensed Business Marks. As used in this Agreement, “Sears
Licensed Business Marks” shall mean (i) the service mark and
trade name “SEARS PORTRAIT STUDIO”, and (ii) any and
all of the other trademarks, service marks or trade names used
exclusively in the operation of the Licensed Business and (A) which
are or are hereafter set forth on Schedule 2.5(c) or (B) which
arise in connection with Exclusive Innovations (as defined in
Section 5.14). Sears may register in its own name any and all of
the Sears Licensed Business Marks. The Sears Licensed Business
Marks, and Licensee’s use of all Sears Licensed Business
Marks, shall inure to the benefit of Sears for all purposes,
including, without limitation, in regard to the Licensed Business
and, as applicable, the Exclusive Innovations. Licensee shall
cooperate in any registration or application for registration of
the Sears Licensed Business Marks by Sears. No Sears Licensed
Business Mark shall be used for any purpose other than the Licensed
Business, for so long as Licensee operates the Licensed Business or
at any time thereafter, without the prior written approval of
Sears.
(d) Licensee
Marks Developed or Acquired After Commencement Date. As used in
this Agreement, “New Licensee Marks” shall mean such
trademarks, service marks or trade names which are developed or
acquired by Licensee after the Commencement Date (other than in
connection with Exclusive Innovations, and excluding Third Party
Marks), and which may be used in the Licensed Business on a
nonexclusive basis; provided, however, that the New Licensee Marks
must not in any event damage the brands or reputation of Sears. The
New Licensee Marks shall inure to the benefit of Licensee unless
otherwise agreed by Licensee and Sears. All New Licensee Marks
shall be set forth on Schedule 2.5(d).
(e) Third
Party Marks. As used in this Agreement, “Third Party
Marks” shall mean all of the trademarks, service marks, and
trade names that Licensee may use on a nonexclusive basis in the
Licensed Business, which are required by unaffiliated third parties
to be used by Licensee under licenses of products or services used
by Licensee in connection with the Licensed Business. All Third
Party Marks shall be set forth on Schedule 2.5(e).
(f) Separate
Licensee Marks; No Challenges. Sears acknowledges and agrees that
all (i) Licensee Prior Marks, (ii) New Licensee Marks and (iii)
trademarks, service marks and trade names that Licensee exclusively
uses apart from the Licensed Business (“Separate Licensee
Marks”) are the sole property of Licensee and Sears shall not
have rights to them except as expressly provided in this Agreement.
Sears shall not use any Licensee Prior Marks, New Licensee Marks,
Third Party Marks or Separate Licensee Marks without the prior
written approval of Licensee, except for usages of Licensee Prior
Marks, Third Party Marks and
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New Licensee Marks related to the
purposes and intent of this Agreement. Sears shall not question,
contest or challenge, either during or after the Term,
Licensee’s ownership of any of the Licensee Prior Marks or
New Licensee Marks, or Licensee’s ownership in any mailing
lists, credit files or other factual information compiled solely by
Licensee and made available by Licensee for use by Sears
(“Licensee Information”) except that Sears may freely
use all Licensee Information to the extent pertaining to the
Licensed Business and customers thereof. Except as provided in the
preceding sentence and in Section 10.1, and except to the extent,
if any, that Licensee violates this Agreement in regard to Licensee
Prior Marks, Third Party Marks or New Licensee Marks, Sears shall
claim no right, title or interest in any Licensee Prior Marks,
Third Party Marks or New Licensee Marks or Licensee Information
unless and to the extent such use violates this Agreement, and
shall not register or attempt to register any Licensee Prior Marks,
Third Party Marks or New Licensee Marks.
Licensee acknowledges that the Marks
and Sears Information possess a special, unique and extraordinary
character, which makes it difficult to assess the monetary damage
Sears would sustain in the event of unauthorized use. Irreparable
injury would be caused to Sears by such unauthorized use, and
Licensee agrees that in the event of breach of this Section II by
Licensee there would be no adequate remedy at law and preliminary
or permanent injunctive relief would be appropriate. Sears
acknowledges that the Licensee Marks and Licensee Information
possess a special, unique and extraordinary character, which makes
it difficult to assess the monetary damage Licensee would sustain
in the event of unauthorized use, other than uses permitted under
this Agreement. Irreparable injury would be caused to Licensee by
such unauthorized use, and Sears agrees that in the event of breach
of this Section II by Sears there would be no adequate remedy at
law and preliminary or permanent injunctive relief would be
appropriate.
If Licensee learns of any
manufacture or sale by any third party of products and/or services
similar to those offered by Licensee that, in Licensee’s good
faith judgment, may be confusingly similar in the minds of the
public to those sold by Licensee and which bear or are promoted in
association with the Marks or any names, symbols, emblems, or
designs or colors which, in Licensee’s good faith judgment,
may be confusingly similar in the minds of the public to the Marks,
Licensee shall promptly notify Sears. Sears may, at its sole
expense, take such action as it determines, in its sole discretion,
is appropriate. Licensee shall cooperate and assist in such protest
or legal action at Sears expense. Licensee shall not undertake any
protest or legal action on its own behalf without first securing
Sears written permission to do so (not to be unreasonably withheld,
conditioned or delayed). If Sears permits Licensee to undertake
such protest or legal action, such protest or legal action shall be
at Licensee’s sole expense. Sears shall cooperate and assist
Licensee at Licensee’s expense. For the purposes of this
paragraph, expenses shall include reasonable attorneys’ fees.
All recovery in the form of legal damages or settlement shall
belong to the party bearing the expense of such protest or legal
action.
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Licensee shall not file suit using
Sears name. Licensee shall not use the services of a collection
agency or undertake any legal proceeding against any Sears Portrait
Studio customer without the prior written approval of Sears
Licensing Manager (not to be unreasonably withheld, conditioned or
delayed).
The provisions of this Section II
shall survive the expiration or termination of this
Agreement.
3.1 The
term of this Agreement (“Term”) shall be for a six (6)
year period beginning on the Commencement Date, and ending at the
close of business on December 31, 2014 (such period, the
“Base Term”), subject to extension of the Term as set
forth in the remainder of this Section III, unless sooner
terminated under any of the provisions of this Agreement. All
references in this Agreement to “year” shall mean the
calendar year, unless otherwise provided. References to
Sears’ “fiscal year” refer to the annual period
used for financial reporting by Sears, starting each year on or
around February 1, and ending on or around January 31. A
“fiscal month” refers to a monthly period within the
Sears fiscal year, and follows a customary retail industry pattern
of 4-4-5 weeks per quarter.
3.2 Licensee
shall have the option, exercisable upon written notice to Sears
given during the last six months of the fifth year of the Base Term
(subject to subsequent verification by Sears of the satisfaction of
the terms and conditions of such options), to extend the Term for a
four-year period, commencing on January 1, 2015 and ending at the
close of business on December 31, 2018, if the amount of Net Sales
in 2013 equals or exceeds an amount determined by growing the Net
Sales from fiscal year 2007’s Net Sales of $234,686,930 (such
amount, subject to adjustment as provided herein, the “Net
Sales Baseline”), at a compound annual growth rate of 2.5%
(as distinguished from a simple growth rate) during the period
commencing on the Commencement Date and ending at the close of
business on December 31, 2013 (the “Measurement
Period”). Notwithstanding the foregoing, if the Net Sales for
the Measurement Period increase at a compounded annual growth rate
of less than 2.5% per annum over and above the Net Sales Baseline,
but if the average annual Net Sales for the Measurement Period are
not less than the Net Sales Baseline, then, Licensee may
nevertheless exercise the aforesaid option by making a cash payment
to Sears, concurrent with the required written notice of exercise,
equal to the amount by which (i) the Sales Commission which would
have been payable to Sears by Licensee had the Net Sales of
Licensee for the Measurement Period increased at the 2.5% annual
compounded rate described in the preceding sentence, exceeds (ii)
the Sales Commission actually paid by Licensee to Sears for the
Measurement Period. For each Designated Sears Store as to which
Licensee’s Net Sales are included in the Net Sales Baseline,
and which is closed permanently by Sears after fiscal year 2007 and
prior to January 1, 2014, with the result that the Licensed
Business is closed at such Designated Sears Store during such
period, for all purposes under this Section 3.2, (i) the Net Sales
Baseline shall be reduced to exclude Net Sales of the Licensed
Business during fiscal year 2007 at such Designated
Sears
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Store, and (ii) the Net Sales of the
Licensed Business for the Measuring Period shall exclude Net Sales
at such Designated Sears Store.
Schedule 3.2 attached hereto sets
forth an illustration of increases in Net Sales of the Licensed
Business during the Measuring Period above the Net Sales Baseline
at a compound annual growth rate of 2.5%.
3.3 Licensee
shall have the option, exercisable upon written notice to Sears no
later than 180 days prior to the end of (i) the Base Term, or (ii)
any period by which the Term has been previously extended by
operation of this Section 3.3, to extend the Term for a period of
twelve months (each, a “Twelve Month Extension”), for
every $10,000,000 (or a whole multiple thereof, e.g. $20,000,000)
of Approved Capital Expenditures (as defined herein) made by
Licensee in any 12 month period during the Term (other than the
final year of the Term, as the same may have been previously
extended by operation of this paragraph); provided that the maximum
number of Twelve Month Extensions shall be four (4). For the
avoidance of doubt, no portion of any 12 month period may be used
to support more than one Twelve Month Extension. As used herein,
“Approved Capital Expenditures” shall mean actual
out-of-pocket expenditures made by Licensee directly for the
Licensed Business, in the respective amounts, and for purposes,
approved by Sears, in advance, in its sole discretion. For the
avoidance of doubt, any extension under this Section 3.3 and any
extension under the preceding Section 3.2, shall be non-cumulative,
and in no event will the combined effect of extensions under this
Section III (including a four year extension from the preceding
Section 3.2 and any one year extensions under this Section 3.3)
result in the Term extending past December 31, 2018.
3.4 If
any option of Licensee to extend the Term set forth in Section 3.2
or Section 3.3 above is exercised, the extension term shall be on
the terms and conditions as set forth in this Agreement, which
shall remain in full force and effect, provided that the Sears
Commission applicable to sales in Designated Sears Stores shall be
[***] 1 of Net Sales during the portion of the Term
commencing on or after January 1, 2014, and thereafter, as set
forth on Exhibit C.
Licensee shall pay Sears a
commission (“Sears Commission”) which is set forth on
Exhibit C attached hereto.
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CONFIDENTIAL TREATMENT REQUESTED FOR
PORTIONS OF THIS DOCUMENT. PORTIONS FOR WHICH CONFIDENTIAL
TREATMENT IS REQUESTED ARE DENOTED BY [***]. MATERIAL OMITTED HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
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“Net Sales” means Gross
Sales from operation of the Licensed Business, less sales taxes,
returns and allowances.
“Gross Sales” means all
of Licensee’s direct or indirect sales of services and
merchandise from the Licensed Business, including, but not limited
to, sales arising out of referrals, contacts, or recommendations
obtained through the operation of the Licensed Business.
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V.
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OPERATIONAL OBLIGATIONS OF LICENSEE
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5.1
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Performance Standards.
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Licensee shall provide Sears with
copies of its written procedures and policies establishing minimum
standards of quality, performance and customer service. Licensee
shall immediately advise Sears of any changes in its standards.
Without limiting Section 5.8, Licensee shall observe no less than
such minimum standards of quality, performance and customer
service. Sears may visit the Licensed Business Area at any
reasonable time during business hours for the purpose of verifying
Licensee’s compliance with its standards of quality,
performance and customer service.
Licensee shall conduct its
operations in a safe, professional, courteous and efficient manner
and shall present a neat, business like appearance, including
adherence by Licensees’ employees to a reasonable dress code.
Licensee shall abide by all safety and security rules and
regulations of Sears in effect from time to time provided that
Licensee’s home office management or Licensee’s store
location managers (for the respective Designated Sears Stores)
shall have been provided notice of such rules and regulations and
of any changes thereto. Licensee may not conduct any activities
(e.g., customer marketing tables) outside the Licensed Business
area that is identified in the Block Plan (the “Licensed
Business Area”) without Sears’ approval. Sears
reasonably requires, and Licensee shall maintain, proper business
etiquette, notification and coordination with local Sears store
management regarding visitors and access to non-public areas during
store hours. Official notification and coordination by Licensee, to
and with Sears, is required for Licensee to transport supplies,
equipment, merchandise and other items through a store during,
before or after store operating hours. Licensee’s failure to
cure any violation of this Section 5.1 within 30 days of written
notice from Sears will entitle Sears to terminate this Agreement
with respect to the affected Designated Sears Store. A material
number of breaches of this Section 5.1 at the same or different
Designated Sears Stores, whether cured or not, would entitle Sears
to terminate this Agreement in its entirety under Section
14.1.
Licensee shall also conduct its
operations in an honest and ethical manner at all times. In dealing
with Sears associates and Sears customers, Licensee shall adhere to
the standards described in the “A Guide To Business Conduct
For Sears Associates”, or in the “Licensed Business
Onboarding Guide”, as the “Licensed Business Onboarding
Guide” is made available to the Licensed Business, as each
such guide is provided to Licensee and updated or
replaced
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from time to time with respect to
associates of all licensed businesses. In the event of any
inconsistency or conflict as to any standard set forth in the
aforementioned guides, Licensee shall adhere to the more stringent
standard to the extent of such inconsistency or
conflict.
(a) Subject
to the Cost Savings provisions of Section 5.18, Licensee shall
cause the Licensed Business to be kept open at each Designated
Sears Store for business and operated during the same business
hours that the Designated Sears Store is open for business, unless
otherwise agreed to by Sears Licensing Manager and Licensee;
provided that the Licensed Business may close from 2:00 p.m. to
3:00 p.m. local time each day, other than during the fourth
calendar quarter of each year in each Designated Sears
Store.
(b) Prior
to the commencement of each calendar quarter, Licensee shall
provide Sears with a store-by-store proposal for any reductions of
hours of operation for the Licensed Business, from the hours of
operation required under Section 5.3(a). Each proposal shall be
subject to Sears’ prior written approval. Cost savings
related to any approved reductions of hours of operations shall be
allocated between Sears and Licensee in accordance with Section
5.18.
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5.4
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Merchandise Standards.
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Licensee shall maintain a stock of
good quality merchandise as necessary to assure efficient operation
of the Licensed Business. Licensee shall maintain merchandise
presentation standards consistent with Sears own
standards.
Sears shall have no right or power
to establish or control the prices at which Licensee offers service
and/or merchandise in the Licensed Business. Such right and power
is retained by Licensee, however, Licensee shall participate in
Sears national storewide sales and/or merchandise price off events.
Licensee shall not charge customers for estimates or
proposals.
Licensee shall offer the merchandise
and services listed in Exhibit B (the “Authorized
Merchandise/Services”) to employees and retirees of Sears,
employees of its other licensees who work in a Sears store and
their family members, to the extent such persons are eligible under
Sears’ Discount Guide (as amended by Sears form time to time)
for discounts at a licensed business, at a ten percent discount,
only if such purchases are paid for with cash, check, the Sears
Card or other credit card bearing a Mark and only upon presentation
of a valid Sears associate discount card. Sears shall make
available to Licensee’s employees who are employed
exclusively to service the Licensed Business at Designated Sears
Stores, and Licensee’s home office management employees
(except those whose work responsibilities are primarily for
businesses of Licensee other than the Licensed Business), a
courtesy discount on purchases made at the Designated Sears Stores
in accordance with Sears’ Courtesy Discount Guide (as amended
by Sears from time to time). Misuse of the Sears courtesy discount
by any employee of Licensee
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could result in Sears requesting
that Licensee remove that employee from the Licensed Business under
Section 5.10.
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5.7
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Customer Loyalty
Programs.
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Licensee shall accept all
certificates and coupons relating to customer loyalty programs that
may from time to time be operated by Sears. Before requiring
Licensee to accept such certificates or coupons, Sears will furnish
Licensee a list of its loyalty programs and procedures for handling
them. Sears shall reimburse Licensee for the face purchase value of
all certificates and coupons for which Licensee has followed
Sears’ prescribed procedures.
All of the work and services
performed by Licensee in connection with the Licensed Business
shall be of a standard of performance and quality not less than
that observed by leading providers of similar services in a mass
merchandise retail setting in the U.S., and all of the merchandise
sold in the Licensed Business shall be of merchantable quality (or
fit for the customer’s particular use, if applicable).
Licensee shall at all times maintain a general policy of
“Satisfaction Guaranteed” to customers and shall
reasonably respond to all complaints of and controversies with any
customer arising out of the operation of the Licensed Business. In
any case in which Licensee’s response is unsatisfactory to
the customer, Sears shall have the right, at Licensee’s
expense, to take such further actions to adjust the service or
pricing with respect to the transaction with such customer as Sears
deems necessary under the circumstances, and any adjustment not
exceeding a full refund or full credit made by Sears shall be
conclusive and binding upon Licensee in such transaction. Sears may
deduct the amounts of any such adjustments from the sales receipts
held by Sears as described in Section 9.4. Any adjustments for
amounts in excess of the amount paid by such customer shall be
discussed with Licensee prior to making such adjustment. Licensee
shall maintain files pertaining to customer complaints and their
adjustment and make such files available to Sears.
Licensee shall employ all management
and other personnel necessary for the efficient operation of the
Licensed Business. The Licensed Business shall be operated solely
by Licensee’s employees, and not by independent contractors,
sub-contractors, sub-licensees or by any other such arrangement;
provided that Licensee may engage third parties to perform
marketing and customer outreach services.
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5.10
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Licensee’s
Employees.
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Licensee has no authority to employ
persons on behalf of Sears and no employees of Licensee shall be
deemed to be employees or agents of Sears. Licensee has sole and
exclusive control over its labor and employee relations policies,
and its policies relating to wages; hours, working conditions, or
conditions of its employees. Licensee has the sole and exclusive
right to hire, transfer, suspend, lay off, recall, promote, assign,
discipline, adjust grievances and discharge its employees,
provided, however, that Sears may request at any time that Licensee
remove from the Licensed Business any employee who is objectionable
to Sears because of risk of harm, loss or damage to the health,
safety and/or security of Sears customers, employees or
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merchandise and/or whose manner
impairs Sears customer relations; provided that Sears may require
that such removal be immediate (and Sears may unilaterally effect
such removal), if Sears in its sole discretion believes that such
employee may pose a risk of imminent harm, loss or damage to person
or property. If Sears objects to any of Licensee’s employees,
and Licensee determines not to remove such employee, or interferes
with immediate removal in the circumstances described in the
proviso to the preceding sentence, Sears may terminate any affected
location by giving thirty (30) days notice to Licensee. Sears shall
cooperate with Licensee in the defense of any charge of
discrimination, lawsuit or other claim or action filed against
Licensee which arises from any request by Sears to remove an
employee of Licensee from the Licensed Business.
Licensee shall not permit any
employee or subcontractor to work in the Licensed Business at a
Designated Sears Store unless that individual has passed a criminal
background check (covering all counties of residence for the past
seven years) and a drug screen consistent with normal practice by
retailers similar to Sears, provided that Licensee shall have 180
days from the Commencement Date to complete Licensee’s
criminal background check and drug screening obligations with
respect to its existing employees. Licensee shall also advise all
new employees assigned to work at any Designated Sears Store that
they may be required to undergo a criminal background check or drug
screen at any time. Licensee shall bring to the attention of the
Sears Store Coach and the Sears Licensed Business Director, for
decision, the results from any criminal background check and drug
screen, without identifying the employee or subcontractor directly
or indirectly, if Licensee desires to assign that employee or
subcontractor to work in the Licensed Business in a Designated
Sears Store despite the appearance of adverse findings on the
person’s background check or drug screen.
Sears will request its existing
background check vendors to extend to Licensee the preferred
service terms applicable to Sears under its contracts with such
vendors for the foregoing purpose, and shall provide Licensee with
contact information for such vendors.
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5.11
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Employee Compensation.
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Licensee shall pay in a timely
manner, and is solely responsible for so paying, all salaries and
other compensation of its employees and shall make all necessary
salary deductions and withholdings from its employees’
salaries and other compensation. Licensee shall pay in a timely
manner, and is solely responsible for so paying any and all
contributions, taxes and assessments and all other requirements of
the Federal Social Security, Federal and state unemployment
compensation and Federal, state and local withholding of income tax
laws on all salary and other compensation of its
employees.
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5.12
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Compliance with Labor
Laws.
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Licensee shall comply with any other
contract and all Federal, state and local laws, ordinances, rules
and regulations regarding its employees, including, but not limited
to, Federal or state laws or regulations regarding minimum
compensation, overtime and equal opportunities for employment.
Without limiting the foregoing, Licensee shall comply with the
terms of the Federal Civil Rights Acts, Age Discrimination in
Employment Act, Occupational Safety and Health Act, the Federal
Fair Labor Standards Act, and the Americans with Disabilities
Act
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(“ADA”), whether or not
Licensee may otherwise be exempt from such acts because of its size
or the nature of its business or for any other reason
whatsoever.
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5.13
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Compliance with Law.
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Licensee shall, at its expense,
obtain all permits and licenses which may be required under any
applicable Federal, state, or local law, ordinance, rule or
regulation by virtue of any act performed in connection with its
operation of the Licensed Business. Licensee shall comply fully
with all applicable Federal, state and local laws, ordinances,
rules and regulations, including, but not limited to, the rules and
regulations of the Federal Trade Commission, the ADA, the ADA
Accessibility guidelines, analogous state and local laws and
regulations, and other laws and regulations relating to the
accessibility to persons with disabilities of the Licensed Business
Area, the areas through and adjacent to the Licensed Business Area
which are occupied by Licensee or subject to Licensee’s
control, at each Sears store where Licensee operates and
Licensee’s products, services and displays. Among other
things, Licensee shall fully comply with the guidelines in Schedule
5.13, as amended or modified from time to time, which Licensee
understands is only a partial list of its obligations to persons
with disabilities. Licensee shall cooperate reasonably with all
other programs carried out in Designated Sears Stores to comply
with laws and regulations. In addition, Licensee represents and
warrants that Licensee and all subcontractors and agents involved
in the production or delivery of the merchandise and supplies to be
sold or utilized in connection with the Licensed Business shall
adhere to all applicable laws, regulations, and prohibitions of the
United States and all country(ies) in which such merchandise or
supplies are produced or delivered with respect to the operation of
their production facilities and their other businesses and labor
practices, including without limitation, laws, regulations and
prohibitions governing the working conditions, wages and minimum
age of the work force. Licensee has no knowledge that any such
merchandise or supplies are produced or manufactured in whole or in
part, by convict or forced labor, and shall take reasonable
measures from time to time to verify and ensure that no merchandise
or supplies are produced or manufactured, in whole or in part, by
convict or forced labor. Licensee shall promptly notify Sears if
Licensee becomes aware of any merchandise or supplies produced or
manufactured, in whole or in part, by convict or forced labor, and
Licensee shall thereafter implement such remedial measures as Sears
may reasonably request.
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5.14
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Innovations; Initiatives.
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Licensee shall use commercially
reasonable efforts to maintain and improve customer service levels
and sustain the Licensed Business’s quality and value
perception in the marketplace, including continued innovation of
new products and services. If Licensee or any of its affiliates
intends to introduce innovations of, or relating to, new products
and services in any other portrait-related business of Licensee or
its affiliates, which innovations, products and services
(hereinafter, “Innovations”) would be offered in whole
or in part through, or in association with, retail stores (whether
or not such Innovations are offered in brick and mortar locations,
via the Internet, or otherwise), Licensee shall simultaneously
integrate substantially similar Innovations in the Licensed
Business. If Licensee believes that such Innovations are not
appropriate for the Licensed Business, Licensee shall give written
notice to Sears, describing such new Innovations and
Licensee’s or its affiliate’s proposed usage thereof,
both within, and outside of, the Licensed Business, in reasonable
detail, together with Licensee’s reason for
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proposing to not integrate same in
the Licensed Business. If Sears determines in its sole discretion
that such Innovations should be integrated into the Licensed
Business, Licensee shall do so upon written notice from Sears
regarding such determination, simultaneously with introduction by
Licensee or any of its affiliates in any other portrait-related
business of Licensee or its affiliates. Any trademarks, copyrights
or other marks developed with these products or services shall be
deemed to be owned by Licensee as New Licensee Marks and shall not
be incorporated into Schedule 2.5(c) or otherwise as Sears Licensed
Business Marks. In regard to Innovations, except for Sears Licensed
Business Marks and Licensee Prior Marks, Licensee may use the same
name, brand, and trademark for use with the product or service
within the Licensed Business as for Licensee’s use outside
the Licensed Business. Licensee represents and warrants that during
the term of the Original Agreement it did not introduce innovations
of, or relating to, new products and services in any other
portrait-related business of Licensee or its affiliates, which have
not also been integrated into the Licensed Business.
If Licensee chooses to adopt any new
product, service or marketing approach into its operations that is
proprietary in nature and developed or acquired either separately
by Sears or jointly by Sears and Licensee (e.g., by a
“Project Team” made up of associates of both parties)
(the products, services and marketing approaches described in this
second subparagraph of Section 5.14 being referred to as
“Exclusive Innovations”), Licensee shall use the
Exclusive Innovations only in the Licensed Business as conducted at
Designated Sears Stores, with such exclusivity obligation to
continue until twenty-four (24) months after Licensee has
implemented the Exclusive Innovations at all Designated Sears
Stores.
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5.15
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Payment of Obligations.
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Licensee shall, at its expense, pay
and discharge all license fees, business, use, sales, gross
receipts, income, property or other applicable taxes or assessments
which may be charged or levied by reason of any act performed in
connection with its operation of the Licensed Business, excluding,
however, all taxes and assessments applicable to Sears income from
Sears Commission or applicable to Sears property. Licensee shall
promptly pay all its obligations, including those for labor and
material, and shall not allow any liens to attach to any Sears or
customer’s property as a result of Licensee’s failure
to pay such sums.
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5.16
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Licensee’s
Obligations.
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Licensee shall not make purchases or
incur any obligation or expense of any kind in the name of Sears.
Prior to any purchases involving the Licensed Business, Licensee
shall inform its vendors that Sears in not responsible for any
obligations incurred by Licensee.
Licensee shall not allow any liens,
claims or encumbrances to attach against any of the Designated
Sears Stores. In the event any lien, claim or encumbrance so
attaches or is threatened, Licensee shall immediately take all
necessary action to cause such lien, claim or encumbrance to be
satisfied and released, or Sears, may either terminate this
Agreement or charge Licensee or withhold from sales receipts all
expenses, including attorneys’ fees, incurred by Sears in
removing and/or resolving such liens or claims.
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Licensee shall implement reductions
in operating hours of the Licensed Business in Designated Sears
Stores as described in Schedule 5.18, which initially will total
[***]2 hours per year (“Initial Reduction Hours”).
Licensee shall pay to Sears, on a quarterly basis, [***]
2 of the amount by which Licensee’s labor costs
are reduced (“Labor Cost Savings”), as a result of (i)
the Initial Reduction Hours and (ii) any further reductions of
Licensee’s hours of operation at Designated Sears Stores
effected with Sears’ prior written approval pursuant to
Section 5.3(b). Labor Cost Savings shall be determined as follows:
the federal Minimum Wage Rate (as it may be officially raised or
lowered from time to time) plus $2.25 shall be multiplied by the
number of operating hours reduced beyond those required under
Section 5.3(a), for any given period. Sears’ allocable share
of the actual Labor Cost Savings realized by Licensee in any given
quarter shall be due and payable by the end of the month following
each quarter.
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VI.
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LICENSED BUSINESS AREA
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Prior to the date of this Agreement,
Licensee and Sears will agree to a model whereupon meeting the
model’s standards, Licensee would operate an appropriately
sized Sears Portrait Studio to service Sears shoppers at new Sears
store locations. If the standards are not met and Licensee elects
not to operate in the new store, Sears may offer portrait and
photography services at such store, operated by an alternative
portrait studios operator, or Sears’ own employees, or a
combination thereof, under the name “Sears Portrait
Studio”, or otherwise. Once declined, Sears shall have no
obligation to reoffer the location to Licensee.
The defined area of space provided
by Sears for the operation of the Licensed Business (“Block
Plan”) will be submitted for each Designated Sears Store to
Licensee. Licensee shall be solely responsible for providing final
plans for the Licensed Business Area and Licensee shall authorize
Sears to prepare the final blueprint plans in accordance with
Exhibit D attached hereto and hereafter made a part of this
Agreement. All costs and expenses related to such plans, including,
but not limited to, blueprints, shall be borne by Licensee. The
expense of preparing the initial space assigned to any Licensed
Business location shall be allocated between the parties as
described in Exhibit D. Licensee shall be primarily responsible for
any preparations necessary for the operation of the Licensed
Business. Any improvements and installations made by Sears shall be
made to Sears standard specifications for its own departments as
set forth in Schedule 6.1. All improvements or installations which
vary from Sears standard specifications shall be at
Licensee’s sole expense.
_________________________
2
CONFIDENTIAL TREATMENT REQUESTED FOR
PORTIONS OF THIS DOCUMENT. PORTIONS FOR WHICH CONFIDENTIAL
TREATMENT IS REQUESTED ARE DENOTED BY [***]. MATERIAL OMITTED HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
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All permanent improvements to the
Licensed Business Area shall become the property of Sears at the
expiration or termination of this Agreement. At the expiration or
termination of this Agreement, or if Licensee vacates or abandons
the Licensed Business, Licensee shall convey to Sears, without
charge, good title to such improvements free from any and all
liens, charges, encumbrances and rights of third
parties.
If, at a particular store, the
Licensed Business is not fully operational within thirty (30) days
after Sears has made the Licensed Business Area in such store ready
for Licensee as a result of delay substantially caused by Licensee,
its contractors or agents, Sears may, at Sears sole option,
terminate the license for such Licensed Business Area and have no
further obligation to Licensee with respect thereto, and Licensee
shall reimburse Sears within ten (10) days after receipt of an
invoice, for Sears’ cost, of constructing such Licensed
Business Area and of putting such space back to its condition
immediately prior to the commencement of such
construction.
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6.4
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Condition of Licensed Business
Area.
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Licensee shall, at its expense, keep
such Licensed Business Area in a clean and neat condition and shall
maintain Licensee’s Equipment (as defined below) in good
order and repair. Sears shall provide routine janitorial service in
such Licensed Business Area, consistent with the janitorial
services regularly performed in the Designated Sears
Store.
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6.5
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Changes of Location/Store
Inventory.
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Sears shall have the right, in its
sole discretion, to change the location, dimensions and amount of
area of the Licensed Business Area from time to time during the
Term of this Agreement in accordance with Sears’ judgment as
to what arrangements will be most satisfactory for the general good
of the Designated Sears Store(s). In the event that Sears exercises
its right under this section, it shall provide Licensee with a
minimum of thirty (30) days’ advance notice of the
contemplated change to the Licensed Business Area. Thereafter,
Licensee shall have thirty (30) days (i) to determine whether or
not it desires to remain in that Designated Sears Store and (ii) to
notify Sears of its decision, at which time Licensee shall also
provide Sears a good faith estimate of the costs and expenses of
such relocation. If Licensee elects not to remain at the Designated
Sears Store, such closing will be taken into account when
calculating the Net Sales Baseline. In the event Sears decides to
change the location of the Licensed Business Area, Sears shall move
Licensee’s Equipment to the new location and prepare the new
space for occupancy by Licensee, and the expense for preparing the
new space for occupancy by Licensee shall be allocated between the
parties as described on Exhibit D. If a change in location is
requested or initiated by Licensee, then Licensee shall bear all
expense involved in moving Licensee’s Equipment and the
expense for preparing the new space for occupancy by Licensee shall
be allocated between the parties as described on Exhibit D. Sears
may, solely at Sears discretion, not open any Designated Sears
Store at any time to take a physical inventory of Sears property.
Licensee waives any claim it may have against Sears for damages
resulting from such closing. Sears shall provide Licensee with a
minimum of one (1) week advance notice of such closing for
inventory.
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Licensee shall remodel certain
Licensed Business Areas according to the terms of Exhibit D, and
the expense of such remodels shall be divided between the parties
as described on Exhibit D.
Sears shall furnish, at reasonable
hours, and except as otherwise provided, without expense to
Licensee, reasonable amounts of heat, light, air conditioning and
electric power for the operation of the Licensed Business, except
when prevented by strikes, accidents, breakdowns, improvements and
repairs to the heating, lighting and electric power systems or
other causes beyond the control of Sears. Sears shall not be liable
for any injury, damage or loss whatsoever which may arise by reason
of Sears’ failure to furnish such heat, light, air
conditioning and electric power, regardless of the cause of such
failure. All claims for such injury, damage or loss are expressly
waived by Licensee. The allocations of costs to bring such
utilities to the Licensed Business location are described on
Exhibit D.
Sears shall provide Licensee a
single telephone line in each Designated Sears Store connected to
the store’s in-house telephone system for use in the Licensed
Business and Sears will bear the cost of outbound local and
toll-free calls and store-compatible phone hardware for Licensee.
Sears shall pay for installation of the telephone equipment and for
local telephone service for that line. If Licensee requires
additional phone lines to be installed in the Licensed Business
locations, Licensee shall arrange and pay for their installation
and monthly service. Licensee shall have all long distance service
billed directly to Licensee.
Except as set forth on Schedule 6.9,
all telephone numbers that Licensee uses in the Licensed Business
are Sears’ property and Licensee shall keep those numbers
separate from phone numbers that it uses in its other business
operations. Upon expiration or termination of this Agreement,
Licensee shall immediately cease using such numbers and shall
transfer the numbers to Sears (or Sears’ designee), and
Licensee shall immediately inform the telephone company of the
transfer.
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6.10
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Telephone Directory
Listings.
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Licensee shall obtain Sears’
approval before placing any telephone directory listings for the
Licensed Business, whether in the white pages, yellow pages or
electronic media, except for listings consisting only of the
Licensed Business Name and its address at the Designated Sears
Store. Licensee shall, if requested by Sears, direct any monthly
service fees for a telephone number listed in a telephone directory
using any Mark to be billed through a Sears store or
office.
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6.11
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Access to Licensed Business
Area.
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Licensee shall have access to each
Licensed Business Area at all times that the Designated Sears Store
is open to customers for business, and at all other times as the
appropriate Store General Manager approves (not to be unreasonably
withheld, conditioned or delayed). Sears shall be furnished with
keys to each Licensed Business Area and shall have reasonable
access to the Licensed Business Area at all times.
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6.12
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Effect of Store Leases.
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If any Designated Sears Store is
leased to Sears or is the subject of an easement agreement, this
Agreement shall be subject to all of the terms, agreements and
conditions contained in such lease or easement agreement. In case
of the termination of any such lease by expiration of time or
otherwise, this Agreement shall immediately terminate with respect
to affected Licensed Business locations.
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6.13
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Waiver of Casualty
Liability.
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Licensee waives any and all claims
it may have against Sears for damage to Licensee, for the
safekeeping or safe delivery or damage to any property whatsoever
of Licensee or of any customer of Licensee in or about the Licensed
Business Area, because of the actual or alleged negligence, act or
omission of any tenant, licensee or occupant of the premises at
which the Licensed Business may be located; or because of any
damage caused by any casualty from any cause whatsoever, including,
but not limited to, fire, water, snow, steam, gas or odors in or
from such store or store premises, or because of the leaking of any
plumbing, or because of any accident or event which may occur in
such store or upon store premises; or because of the actual or
alleged acts or omissions of any janitors or other persons in or
about such store or store premises or from any other such cause
whatsoever, except for damage caused by Sears gross
negligence.
Licensee shall advertise and
actively promote the Licensed Business. Licensee shall at all times
adhere to Sears Licensed Business Marketing Manual as provided to
Licensee, in written form, and updated from time to time
(“Marketing Manual”) except where the Marketing Manual
conflicts with the rights of Licensee under this Agreement.
Licensee may rely on the Marketing Manual provided to it by Sears,
until such time as Sears provides to Licensee notice and a copy of
any revised Marketing Manual. Prior to use in connection with the
Licensed Business, Licensee shall submit to Sears Marketing
Manager, Licensed Businesses, or his designee, (a) all proposed
signs and advertising copy (including, but not limited to, in-store
signs, sales brochures, telemarketing scripts, newspaper
advertisements, radio and television commercials, and internet
adverti
