Nathan's Famous Systems, Inc.
1400 Old Country Road
Westbury, New York 11590
December 13, 1996
Mr. Peter Shea
President
SMG, Inc.
2890 Chancellor Drive, Suite 210
Crestview Hills, Kentucky 41017
Re: Amendment to License Agreement
Dear Mr. Shea:
This letter agreement is to confirm the understandings reached over the past
two weeks between SMG, Inc. ("SMG") and Nathan's Famous Systems, Inc. ("NFSI")
regarding certain modifications to the license agreement dated February 28, 1994
between SMG and NFSI, as amended on or about April 26, 1995 (the "Amendment";
together, the "License Agreement"). Except as otherwise indicated, capitalized
terms used in this letter agreement shall have the meaning set forth under the
License Agreement.
The parties hereto agree as follows:
1. Recomputed Minimum Royalties. SMG agrees that it shall pay Minimum
Royalties to NFSI using the Recomputed Minimum Royalty formula set out in
Section 2.7(b) of the License Agreement, starting at the earlier of:
a. the first full month after there has been a Change of Control (as
defined in Section 2.7(b) of the License Agreement); or
b. The payment due in April 1997 for the month ended March 31, 1997,
whether or not there has been Change of Control.
2. Percentage Royalties. Effective January 1, 1997, Section 2.7(a) of the
License Agreement (which was previously amended by paragraph 5 of the
Amendment) shall be amended as follows:
a. The provision to such Section 2.7(a) which currently reads "provided,
however, that the Percentage Royalty on corned beef shall be 2% flat."
shall be amended in its entirety to read as follows: "provided, however,
that the Percentage Royalty on corned beef shall be three percent (3%)
flat."
b. The provision in such Section 2.7(a) which currently reads "In addition,
the Percentage Royalty on Deli Products and hamburgers shall be two
percent (2%) flat." shall be amended in its entirety to read as follows:
"In addition, the Percentage Royalty on Deli Products shall be four
percent (4%) flat and the Percentage Royalty on hamburgers shall be two
percent (2%) flat."
c. The following shall be added to such Section 2.7(a) as new Section
2.7(a)(iii):
(iii) Notwithstanding anything to the contrary herein, with respect
to bulk natural casing and skinless frankfurters constituting
Deli Products which are sold to supermarket chain listed on
Exhibit A hereto (a "Designated Supermarket Chain"), the
Percentage Royalty shall be ten percent (10%); provided,
however, that:
(1) For purposes of determining the Percentage Royalty
under this Section 2.7(a)(iii), such Percentage
Royalty shall be paid on the amount of Net Sales of
bulk natural casing and skinless frankfurters sold
to Designated Supermarket Chains.
(2) NFSI shall have the right to introduce SMG
to the Designated Supermarket Chain
business, but SMG shall retain all control
over all sales, manufacturing, shipping,
invoicing, marketing, advertising and
promotion with respect to such Designated
Supermarket Chains (subject to the parties
respective rights and obligations pursuant to
Section 2.4(g) of the License Agreement).
(3) All sales pursuant to this Section 2.7(a)(iii) must
be made directly to Designated Supermarket Chain(s)
(or through a wholesaler, distributor or the like
for shipment only to said Designated Supermarket
Chain(s)), and only frankfurters manufactured by SMG
may be sold to Designated Supermarket Chains by
NFSI.
(4) To the extent NFSI engages any brokers to assist in
soliciting Designated Supermarket Chain business,
such brokers must be approved by SMG (such approval
not to be unreasonably withheld) and the cost and
expense of any such broker shall be for the sole
account of NFSI. In addition to the brokers' costs
and expenses, if any, NFSI shall be solely
responsible for all costs and expenses relating to
its own acts and inactions, and SMG shall be solely
responsible for all costs and expenses relating to
its own acts and inactions.
(5) Unless SMG otherwise agrees (in its sole
discretion), all sales to Designated Supermarket
Chains shall be in accordance with SMG's pricing
schedules and be subject to SMG's approved
promotional programs (which, in turn, shall be
subject to the parties respective rights and
obligations pursuant to Section 2.4(g) of the
License Agreement). Any term or provision hereof to
the contrary notwithstanding, if NFSI engages a
broker to assist in soliciting the business of a
Designated Supermarket Chain, NFSI shall use best
commercial efforts to secure said broker's agreement
to have sole responsibility for taking orders from
such Designated Supermarket Chain for sales pursuant
to this Section 2.7(a)(iii).
(6) As to any supermarket chain set forth on Exhibit A
hereto (as such Exhibit may be amended or modified
from time to time by mutual agreement or pursuant to
Section 2.7(a)(iii)(6) below), such supermarket
chain shall automatically cease to be a Designated
Supermarket Chain if SMG has not sold any natural
casing or skinless frankfurters to such Designated
Supermarket Chain within the immediately preceding
six (6) month period. Notwithstanding anything to
the contrary herein, if there have been no sales of
natural casing or skinless frankfurters to any
Designated Supermarket Chain within any continuous
one (1) year period, then the provisions of this
Section 2.7(a)(iii) shall automatically terminate
and shall be of no further force or effect.
(7) In addition to the two initial Designated
Supermarkets, upon the reasonable written request of
NFSI, additional supermarket chains located in the
New York metropolitan area which are not then
customers of SMG for Deli Product frankfurters may
be added to Exhibit A (and thereby become Designated
Supermarket Chains), provided that SMG, in its sole
discretion, approves such addition to Exhibit A
(which approval shall not be unreasonably withheld).
3. Marketing, Advertising, and Promotion. Each year, SMG shall submit to NFSI a
proposed advertising and promotional plan (the "Plan") for the next calendar
year's sales of Nathan's Products. With respect to the Plan:
a. The Plan shall outline the markets in which SMG proposes to sell
Nathan's Products in that year as well as the projected date of entry
into new markets, planned advertising and other promotional activity,
and projected volume for each market. The parties hereto recognize
and acknowledge that successful entry into new markets will be
subject to a variety of factors, some of which will be out of SMG's
control. There can be no assurance of successful or sustained entry
into a new market.
b. The Plan shall be subject to the parties respective rights and
obligations pursuant to Section 2.4(g) of the License Agreement, to the
extent such provision applies to the Plan.
c. Senior executives of SMG and NFSI shall meet to discuss the Plan on or
before the date on which it is due to be submitted to NFSI. Senior
executives of SMG and NFSI shall meet monthly to review SMG's
performance and progress in implementing the Plan.
d. For calendar year 1997, the Plan shall be submitted to NFSI on or before
February 20, 1997, and SMG shall submit the Plan for each subsequent
calendar year to NFSI on or before February 20th of such calendar year
(e.g., by February 20, 1998 for calendar year 1998).
4. The Applicable Margin. Effective January 1, 1997, the Applicable Margin set
forth in paragraph 3 of Schedule C to the License Agreement shall be amended
as follows:
a. The Applicable Margin for bulk frankfurters, shipped to Restaurants (as
defined in Section 1.12 of the License Agreement), shall be reduced by
ten cents ($.10) per pound for skinless frankfurters and by four
cents ($.04) per pound for natural casing frankfurters, to:
Applicable Margin for
Bulk Nathan's Products Shipped to Restaurants
----------------------------------------------
Description Applicable Margin (per/lb.)
skinless frankfurters;
all markets Seventy cents ($0.70)
natural casing frankfurters;
all markets One dollar and twenty-five cents
($1.25)
5. Branded Product Program. Notwithstanding anything to the contrary in this
letter agreement or the License Agreement, the following terms and conditions
shall apply to sales of bulk natural casing and skinless frankfurters sold
under NFSI's branded product program:
a. SMG will not sell Nathan's Products to branded product program
customers without NFSI's prior written approval;
b. NFSI shall purchase frankfurters from SMG for resale to branded
product program customers.
i. SMG shall sell frankfurters to NFSI for the branded
product program in such amount as NFSI orders (subject
paragraph 5(b)(iii) below).
ii. SMG further agrees that to the extent it sells frankfurters to
NFSI for resale to branded product program customers, SMG shall
act as NFSI's shipping agent with respect to such sales.
iii. SMG's obligations under paragraph 5(b)(i) above shall be
limited as follows:
(1) SMG shall not be required to sell NFSI more than
five million (5,000,000) pounds of frankfurters each
year; and of such amount, SMG shall not be required
to sell more than seven hundred and fifty thousand
(750,000) pounds of natural casing frankfurters each
such year; and
(2) SMG's obligations under paragraph 5(b)(i) shall
only be in effect for a period of three (3) years
from the date of this letter amendment.
c. The Applicable Margin for NFSI's purchases of skinless frankfurters
under the branded product program shall be reduced to the figures that
follow (it being understood that the reduction in the Applicable Margin
described in paragraph 4(a) above shall not apply to the branded
product program):
Applicable Margin for Branded Products Program
(all final prices shall be FOB plant of manufacture)
Description Applicable Margin (per/lb.)
skinless frankfurters; all Forty-four cents
markets ($0.44)
natural casing frankfurters; One dollar and seventeen cents
all markets ($1.17)
d. With respect to all sales under the branded product program, NFSI shall
be solely responsible for all costs and expenses relating to its own
acts and inactions (including without limitation, pricing discrepancies,
errors in taking orders, and promotional costs) and SMG shall be solely
responsible for all costs and expenses relating to its own acts and
inactions (including without limitation, reclamations and spoils, and
losses from shipments refused for quality reasons).
6. Changes to the Applicable Margin. With respect to frankfurters to be sold in
the branded product programs the Applicable Margin shall not be changed
before December 15, 1997. At that time, SMG may change the Applicable Margin
by the same percentage amount as its overhead expenses (but not its raw
material costs) have increased or decreased; provided, that any increases in
the Applicable Margin shall not exceed the percentage change in the Index
over the same period of time. Any changes to the Applicable Margin subsequent
to such date shall not exceed the percentage change in the Index over the
same period of time. For the purpose of this paragraph 6, the term "Index"
shall mean the Consumer Price Index (1982-84=100; all items;
Chicago-Gary-Lake County; CPI-U; all urban consumers) as published by the
U.S. Bureau of Labor Statistics ("BLS"), or, if BLS no longer publishes the
Index, the Consumer Price Index for the United States.
7. Procedure for Calculating Royalties. The procedure for calculating royalties
shall be as set forth in the attached Exhibit B.
8. Miscellaneous.
a. Except as specifically indicated above, this letter agreement shall
neither amend nor modify any term or provision of the License Agreement.
b. This letter agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, supersedes all prior
agreements between the parties relating to the subject matter hereof, and shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
c. This letter agreement may not be modified in any respect except by a
duly executed instrument signed by the parties hereto.
d. This letter agreement shall be interpreted and construed exclusively under
the laws of the State of New York, which laws shall prevail in the event of any
conflict of law (without regard to, and without giving effect to, the
application of New York choice of law rules).
e. This letter agreement may be executed in any number of counterparts (which
may be exchanged by fax), each of which shall be deemed to constitute one and
the same instrument.
f. The headings used in this letter agreement are for the parties'
convenience only, and neither amend nor modify the terms of this letter
agreement.
If you are in agreement with the terms and conditions set out above, kindly
sign below to signify that fact, where indicated.
Sincerely,
Nathan's Famous Systems, Inc.
By: Wayne Norbitz, President
Acknowledged and Agreed:
SMG, Inc.
By: Peter Shea, President
396292.8
Exhibit A
Supermarkets
Para. 2(c)(1)
1. Waldbaum's
2. A&P (provided that A&P must purchase Deli Product frankfurters within six (6)
months after SMG's initial shipment of Deli Product frankfurters to the
Waldbaum's chain).
Exhibit B
Pricing Formula