Negotiating Your Brand Licensing Agreement

NEGOTIATING LICENSING DEAL TERMS 1© 2011 Licensing Brands, Inc. All Rights Reserved.

A STANDARD LICENSING DEAL APPROVAL PROCESS

© 2009 Licensing Brands, Inc. All Rights Reserved.

Brand Licensing ExpertPete Canal ichio


NEGOTIATING LICENSING DEAL TERMSA Standard Licensing Deal Approval Process

OVERVIEW

Negotiations intimidate most people I know. The reason is people become apprehensive of giving up too much. After having negotiated several brand licensing agreements, I have realized that a little preparation and a structure can go a long way toward a successful outcome. You are probably IDPLOLDU�ZLWK�RXU��6WHS�%UDQG�/LFHQVLQJ�3URFHVV��VHH�¿JXUH��EHORZ��(DFK�VWHSV�OHDGV�XS�WR�WKH�FRQWUDFW�QHJRWLDWLRQ�VWDJH�DQG�SUHSDUHV�WKH�EUDQG�RZQHU��OLFHQVRU��DQG�WKH�PDQXIDFWXUHU��OLFHQVHH��for the negotiation. Both parties have worked very hard to get to this stage. The licensor, or brand owner, has spent valuable resources determining what categories to extend their brand into through OLFHQVLQJ�DQG�WKHQ�FRQGXFWHG�D�WKRURXJK�VHDUFK�WR�¿QG�WKH�EHVW�SDUWQHUV��$IWHU�LQWHUYLHZLQJ�WKH�prospective licensees, the licensor would have conducted a thorough background check of the li-FHQVHHV�WR�PDNH�VXUH�WKH\�DUH�D�JRRG�¿W��7KH�SURVSHFWLYH�OLFHQVHHV�ZRXOG�KDYH�SURYLGHG�WKH�OLFHQ-sor with a marketing plan for the product category for which they want the license. The next step is to formalize the deal through a contract.

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In this module, I will walk you through a standard licensing deal approval process that is followed E\�EHVW�LQ�FODVV�EUDQG�RZQHUV��OLFHQVRUV��ZKR�KDYH�VWUXFWXUHG�D�OLFHQVLQJ�GHDO��7KH�SURFHVV�LQ-cludes the sequence of events and the tools and techniques used by licensors when negotiating a FRQWUDFW�ZLWK�D�PDQXIDFWXUHU��OLFHQVHH��7KLV�PRGXOH�ZLOO�DOVR�JLYH�\RX�DQ�XQGHUVWDQGLQJ�RI�WKH�licensing deal terms you can expect to be included in the contract. These terms consist of rights to territories, channels of distribution, covered products and trademarks, work product, quality as-surance standards, the licensing approval process, manufacturing facility approval, royalty rates, minimum guaranteed royalties, and sales requirements. Understanding these terms and the com-mitments you will be making are crucial to an effective licensing contract negotiation and could save your company hundreds of thousands of dollars over the life of your agreement. This module will ensure you understand the deal terms and your contractual obligations before the agreement is signed.

INTRODUCTION

,Q�HYHU\�OLFHQVLQJ�FRQWUDFW�WKHUH�DUH�FHUWDLQ�GHDO�WHUPV�WKDW�GH¿QH�WKH�VWUXFWXUH�RI�WKH�FRQWUDFW��7KH�deal terms include such parameters as the term of the contract, where the licensed products will be sold, what royalty rate will be paid and what trademarks will be used. Because the value of these terms will be unique to every licensing contract, they must be negotiated between the licensor and the prospective licensee. While each party inherently wants to arrive at the most favorable terms for their side, the best set of deal terms are those that allow both parties to achieve a successful long-term licensing program.

You probably have heard sayings such as “pigs get fat, but hogs gets slaughtered” or “if it sounds too good to be true, it probably is.” These adages are especially relevant when negotiating deal terms for a licensing agreement. Because the licensor knows the prospective licensee wants to license their company’s brand, they inherently have the stronger position in the negotiation. As such, the licensor can and should use this knowledge to their advantage to ensure the brand is protected and shareholder value is maximized. However, if the terms are so restrictive that they preclude the licensee from winning any business or handcuff the licensee from being able to gain a sustainable and growing revenue base once they do the contract is doomed to failure. Similarly if the terms are so expensive that the licensee cannot recover their investment and subsequently PDNH�D�SUR¿W�RYHU�WKH�OLIH�RI�WKH�FRQWUDFW��WKH�OLFHQVH�ZLOO�IDLO�EHIRUH�LW�HYHU�JHWV�RII�WKH�JURXQG��

Successful licensors keep the end in mind and practice win-win negotiating tactics. Similarly, VPDUW�OLFHQVHHV�ZLOO�KDYH�LGHQWL¿HG�VHYHUDO�FKRLFHV�RI�EUDQGV�IURP�ZKLFK�WR�DFTXLUH�D�OLFHQVH�DQG�will set limits on what deal terms they will accept, regardless of their brand preference. In these instances both parties can shake hands on a set of terms they know will allow them both to be suc-cessful.


THE 5-STAGE LICENSING CONTRACT NEGOTIATION PROCESS

In this section we will discuss the internal process that licensors follow before signing an agree-ment with a licensee. We will take you through the various stages of due diligence and the tools and documents used to enable licensors to track the agreement. Brand owners and manufacturers who wish to build a best-in-class program should familiarize themselves with these documents and the process.

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Stage 1: Understanding the Deal Terms

In this stage, the person responsible for negotiating the contract on behalf of either the brand owner RU�PDQXIDFWXUHU�IDPLOLDUL]HV�KLPVHOI�RU�KHUVHOI�ZLWK�WKH�GHDO�WHUPV�DQG�WKHLU�GH¿QLWLRQV��7KLV�LV�especially important if the person responsible has never negotiated a licensing contract or hasn’t negotiated one in the past six months. Having a clear understanding of the deal terms is critical for both the licensor and licensee to appreciate the expectations and obligations that come with signing the agreement. Moreover, a good understanding will ensure that no money is left on the table during the negotiation process, and that the parties won’t unknowingly breach the agreement after it is signed. /LVWHG�EHORZ�DUH�WKH�GHDO�WHUPV�DQG�GH¿QLWLRQV�IRXQG�LQ�PRVW�OLFHQVLQJ�FRQWUDFWV�

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Important Deal Terms

Brand/Trademarks Advance

Covered Products Minimum Guarantees

Authorized Channels New Product Introductions

Territory Sales Performance Requirements

Contract Term Shipping Date

Exclusivity Commercialization Date

Royalty Rate Sell-off Period


Brand/Trademarks� DUH� WKH� WUDGHPDUNV� VSHFL¿HG� LQ�the agreement that the licensee is allowed to use on the covered products. A company may own many brands, so it is important to stipulate in the contract which brands or sub-brands they wish to license. For example, Newell Rubbermaid owns the fol-ORZLQJ�EUDQGV��&DOSKDORQ��*RRG\��*UDFR��3DSHUPDWH��5XEEHUPDLG�DQG�5XEEHUPDLG�&RPPHUFLDO�Products. If a licensee produces kitchen tools and gadgets, they might wish to license one or all WKUHH�RI�WKH�&DOSKDORQ��5XEEHUPDLG�RU�5XEEHUPDLG�&RPPHUFLDO�3URGXFWV�EUDQGV��,I�WKH\�VHOHFW�all three, they should expect to have a different set of deal terms for each brand.

Covered Products�DUH� WKH�SURGXFWV�VSHFL¿HG� LQ� WKH�agreement that will be sold by the licensee that bear the trademarks of the licensor. Therefore, it is im-SRUWDQW�ZKHQ�GH¿QLQJ�WKH�&RYHUHG�3URGXFWV�WR�EH�DV�VSHFL¿F�DV�SRVVLEOH�WR�DYRLG�JUDQWLQJ�WRR�EURDG�D�VHW�of rights. Otherwise, the licensee may be incapable of commercializing the entire line. This can limit a EUDQG¶V� JURZWK� RU� UHVXOW� LQ� XQIXO¿OOHG� H[SHFWDWLRQV��For example, a manufacturer of hand tools for the gar-GHQ�PD\�ZLVK�WR�OLFHQVH�WKH�*DUGHQ�7RROV�FDWHJRU\�XQGHU�WKH�3LNHV�EUDQG�IRU�WKH�+RPH�,PSURYH-PHQW�FKDQQHO��JUDQWLQJ�3LNHV�WKH�DELOLW\�WR�HQWHU�WKLV�QHZ�FKDQQHO��$V�WKH�*DUGHQ�7RROV�FDWHJRU\�FDQ�UHSUHVHQW�D�YDULHW\�RI�SURGXFWV��3LNHV�PD\�ZLVK�WR�PRUH�QDUURZO\�GH¿QH�WKH�&RYHUHG�3URGXFWV�WHUP�WR�*DUGHQ�+DQG�7RROV�DQG�WKHQ�OLVW�WKH�VSHFL¿F�WRROV�WR�EH�OLFHQVHG�LQ�WKH�'HDO�7HUP�6KHHW��0DQXIDFWXUHUV�FDQ�W\SLFDOO\�EURDGHQ�WKH�&RYHUHG�3URGXFWV�GH¿QLWLRQ�RQFH�WKH\�KDYH�VXFFHVVIXOO\�commercialized the original category.

Authorized Channels are the channels of distribution LQ�ZKLFK�WKH�&RYHUHG�3URGXFWV�PD\�EH�VROG�DV�VHW�IRUWK�in the agreement. Typically channels included in the DJUHHPHQW� DV�$XWKRUL]HG� &KDQQHOV� DUH� WKRVH� WKDW� WKH�licensee already has successfully commercialized. Au-WKRUL]HG�&KDQQHOV�LQFOXGH�HYHU\WKLQJ�IURP�ERRNVWRUHV�to catalogs to convenience stores to the Internet to mass markets to television shopping channels. In the garden hand tools example above, one of the authorized chan-nels might be Home Improvement, including stores VXFK� DV�7KH�+RPH�'HSRW� DQG� /RZH¶V�� ,I� D� OLFHQVHH�wants to gain rights to a channel they currently are not


commercializing, they should make the licensor aware of this and come prepared with a plan to enter that channel with the licensor’s brand. The licensor may authorize the channel based on the robustness of the plan or choose to wait until the other approved channels are successfully com-mercialized.

Territory means the region, country or coun-WULHV�LGHQWL¿HG�LQ�WKH�DJUHHPHQW��7\SLFDOO\�WKH�territory selected in the agreement includes those countries where the brand is a recog-nized trademark and the licensee has success-IXOO\�FRPPHUFLDOL]HG� WKH�&RYHUHG�3URGXFWV��([DPSOHV�RI�FRXQWULHV�WKDW�FRXOG�EH�LQFOXGHG�LQ� D� OLFHQVLQJ� DJUHHPHQW� DUH� -DSDQ��&DQDGD�DQG�(QJODQG��,Q�WKH�FDVH�RI�ODUJHU�FRXQWULHV�such as the United States, the territory may EH�OLPLWHG�WR�D�UHJLRQ�VXFK�DV�1HZ�(QJODQG��/LNH�ZLWK�$XWKRUL]HG�&KDQQHOV��WKH�OLFHQVHH�VKRXOG�PDNH�WKH�OLFHQVRU�DZDUH�LI�WKH\�ZLVK�WR�JDLQ�the rights to a territory they currently have no presence in. There can be exceptions to this guide-line when the licensee has exceeded their projections in their existing territories.

Term means the period the Agreement shall be in effect with a beginning and ending date. The ending date of the agreement will be shortened if the contract is terminated instead of being al-ORZHG� WR�H[SLUH��2IWHQ� OLFHQVLQJ�DJUHHPHQWV�KDYH�ERWK�DQ� ,QLWLDO�7HUP�DQG�DQ�([WHQGHG�7HUP��7KH�([WHQGHG�7HUP�VLPSOL¿HV�WKH�UHQHZDO�SHULRG�LI�DOO�WKH�WHUPV�RI�WKH�DJUHHPHQW�KDYH�EHHQ�PHW�throughout the Initial Term of the agreement. Licensees and licensors should have a candid discus-VLRQ�DERXW�WKH�WHUP�RI�WKH�DJUHHPHQW��LQFOXGLQJ�KRZ�ORQJ�LW�ZLOO�WDNH�WR�FRPPHUFLDOL]H�WKH�&RYHUHG�Product, how much investment will be required and how long it will take to recover a satisfactory return on that investment. This will drive the minimum length of the term. Of course, the longer the term, the more guaranteed minimum royalty payments will be required. Therefore, the licensor and licensee must strike an optimal balance.

Initial Term�EHJLQV�RQ�D�VSHFL¿HG�GDWH��RU�ZKHQ�WKH�DJUHHPHQW�LV�VLJQHG�E\�DOO�SDUWLHV��DQG�HQGV�RQ�D�VSHFL¿HG�GDWH��/LFHQVLQJ�DJUHHPHQWV�XVXDOO\�ODVW�IRU�D�SHULRG�RI�\HDUV��%HFDXVH�WKH�DJUHHPHQW�takes a substantial amount of time to negotiate, and it takes time to get the Licensed Product com-PHUFLDOL]HG��WKH�7HUP�RI�DQ�DJUHHPHQW�LV�XVXDOO\�D�PLQLPXP�RI��\HDUV��'HSHQGLQJ�RQ�WKH�SDUWLHV��DQ�,QLWLDO�7HUP�FDQ�EH�DV�ORQJ�DV��\HDUV�RU�ORQJHU��7KLV�ZRUNV�ZHOO�ZKHQ�WKH�OLFHQVRU�NQRZV�WKH\�DUH�QRW�LQWHUHVWHG�LQ�SURGXFLQJ�WKH�SURGXFW�LQWHUQDOO\�DQG�WKH\�DUH�DEOH�WR�¿QG�D�EHVW�LQ�FODVV�licensee willing to invest in the category for an extended period.


Extended Term��RQO\�XSRQ�PXWXDO�DJUHHPHQW�RI�WKH�SDUWLHV��RU�5HQHZDO�7HUP�PHDQV�WKH�SHULRG�RI�UHQHZDO�RI�WKH�FRQWUDFW��7KH�([WHQGHG�7HUP�LV�RIWHQ�WKH�VDPH�GXUDWLRQ�DV�WKH�,QLWLDO�7HUP��EXW�FDQ�EH�VKRUWHU�RU�ORQJHU��3XWWLQJ�DQ�([WHQGHG�7HUP�LQ�D�FRQWUDFW�VLPSOL¿HV�WKH�UHQHZDO�SURFHVV�and is recommended if both parties believe there is a good chance they will want to continue with the license after the Initial Term.

Insurance Requirements are those requirements obligated by the licensor upon the licensee. The amount of insurance required is dependent upon the category of product covered. Products such as toys, car seats and ladders typically have a higher insurance requirement than say door mats or laundry baskets. Many successful licensing programs have a minimum insurance requirement of

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5HTXLUHG�OLPLWV�PD\�EH�VDWLV¿HG�E\�D�FRPELQDWLRQ�RI�SULPDU\�*HQHUDO�3URGXFWV��8PEUHOOD��DQG�RU�([FHVV�/LDELOLW\�LQVXUDQFH�SROLFLHV��$V�WKHVH�VWDQGDUGV�DUH�QRUPDOO\�DOUHDG\�KHOG�E\�WKH�OLFHQVHH��this obligation is typically not an additional burden. Licensing contracts usually stipulate that the licensor be listed as an additional insured on the policy. This requirement protects the licensor if they get sued and typically does not require the licensee to pay an additional premium. Often the licensor will require that the policy stay in effect for a period of time after the agreement ends. 7KLV�H[WHQGHG�FRYHUDJH�FDQ�ODVW�IURP��PRQWKV�WR��\HDUV�RU�ORQJHU��GHSHQGLQJ�RQ�WKH�FDWHJRU\�RI�WKH�&RYHUHG�3URGXFW�DQG�KRZ�ORQJ�LW�LV�H[SHFWHG�WR�UHPDLQ�LQ�XVH�LQ�WKH�PDUNHWSODFH��

Exclusivity ensures that the manufacturer will be the only licensee for the licensor’s brands in the FDWHJRU\�RI�&RYHUHG�3URGXFWV�VSHFL¿HG�LQ�WKH�DJUHHPHQW��2IWHQ�OLFHQVRU¶V�DJUHHPHQWV�DUH�QRQ�exclusive, but the licensor practices exclusivity. When we say the licensor practices exclusivity, we mean that they will not sign more than one licensee to the same category in the same region. This non-exclusivity provision is designed to keep the licensee motivated by authorizing the licen-VRU�WR�SURGXFH�DQG�VHOO�WKH�&RYHUHG�3URGXFW�LI�LW�FKRRVHV�RU�WR�DGG�DQRWKHU�OLFHQVHH�LQ�WKH�VDPH�category. In practicality, the licensor knows that additional competition could hurt overall sales of their branded product in the category. Therefore, non-exclusivity only becomes an issue when the licensee is underperforming on their contract. If exclusivity is critically important to a licensee, they should make the licensor aware at the outset of the contract. If the licensor is willing to agree to an exclusive arrangement, the licensee should be prepared to pay 2 to 3 times the Minimum *XDUDQWHHG�5R\DOWLHV�RI�D�QRQ�H[FOXVLYH�DUUDQJHPHQW�

Sell-off Period is the period of time within which a company must “sell off” their existing branded inventory or destroy it after a contract is terminated or expires. The licensing contract between WKH�EUDQG�RZQHU�DQG�WKH�PDQXIDFWXUHU�VKRXOG�SURYLGH�WKH�PDQXIDFWXUHU�ZLWK�VXI¿FLHQW�WLPH�WR�VHOO�


RII�H[LVWLQJ�LQYHQWRU\�ZKLOH�PLQLPL]LQJ�WKH�SHULRG�RI�WLPH�WKH�&RYHUHG�3URGXFW�LV�VROG�IURP�DQ�expired contract. If the licensee has a product with long sales cycles, they need to ensure that the 6HOO�RII�3HULRG�LV�VXI¿FLHQWO\�ORQJ�IRU�WKHP�WR�JHW�ULG�RI�D�W\SLFDO�DPRXQW�RI�LQYHQWRU\��2WKHUZLVH��they may have to dump the product at a loss, which will hurt the licensor’s brand as well. If a con-tract is terminated because of the unauthorized sale of unapproved product that results in a product recall, the sell-off period may be eliminated altogether.

Royalty and Payment Terms

Royalty Rate�LV�GH¿QHG�DV�WKH�SHUFHQWDJH�RI�1HW�6DOHV�WR�EH�SDLG�E\�WKH�OLFHQVHH�WR�WKH�OLFHQVRU��The royalty rate varies widely, depending on consumer or end user demand for the brand in the cat-HJRU\��+RW�FKDUDFWHU�RU�VSRUWV�EUDQGV�FDQ�HDUQ�DV�PXFK�DV��WR��UR\DOWLHV�ZKLOH�WRS�FRUSR-UDWH�EUDQGV�XVXDOO\�HDUQ�DQ�DYHUDJH�UR\DOW\�UDWH�RI��,Q�DGGLWLRQ�WR�IDFWRUV�VXFK�DV�WKH�VWUHQJWK�RI�WKH�EUDQG��WKH�UR\DOW\�UDWH�IRU�D�VSHFL¿F�FDWHJRU\�RIWHQ�ZLOO�YDU\�EDVHG�RQ�WKH�SUR¿WDELOLW\�RI�that category. For example, resin trash can liners traditionally have thin gross margins since the SURGXFW�LV�SUHGRPLQDQWO\�FRPSULVHG�RI�RLO��D�FRPPRGLW\��$�OLFHQVRU�ZLWK�D�WRS�EUDQG�VXFK�DV�*ODG��Rubbermaid or Hefty wishing to extend their brand into the trash can liner category should expect WR�UHFHLYH�D�UHODWLYHO\�ORZHU�UR\DOW\�UDWH��H�J��FRPSDUHG�WR�WKHLU�RYHUDOO�DYHUDJH��&RQYHUVHO\��companies selling lapel pins typically earn high gross margins. A OLFHQVRU�VXFK�DV�WKH�2O\PSLFV�RU�&RFD�&ROD�FDQ�WKHUHIRUH�H[SHFW�WR�DFKLHYH�D�KLJKHU�UR\DOW\�UDWH��H�J��IURP�D�OLFHQVHH�for lapel pins as compared to their average royalty rate.

*LYHQ�LWV�GLUHFW�LPSDFW�RQ�WKH�DPRXQW�RI�UR\DOW\�WKDW�LV�UHTXLUHG�WR�be paid by the licensee, the Royalty Rate is one of the most sensi-tive and hotly contested terms in the agreement. For this reason, UR\DOW\�UDWHV�RIWHQ�FDQ�EH�GH¿QHG�LQ�WHQWKV�RI�D�SHUFHQW��

Advance means the amount of royalty payable by the licensee to the licensor as installments cred-LWHG�DJDLQVW�WKH�0LQLPXP�*XDUDQWHHG�3HULRGLF�5R\DOW\�3D\PHQWV��0LQLPXP�*XDUDQWHHV��$G-YDQFHV�DUH�W\SLFDOO\�VHW�DW��RI�WKH�¿UVW�\HDU¶V�0LQLPXP�*XDUDQWHHV�DQG�DUH�XVXDOO\�GXH�ZLWKLQ��GD\V�RI�FRQWUDFW�H[HFXWLRQ��7KH�$GYDQFH�SURYLGHV�WKH�OLFHQVRU�ZLWK�LPPHGLDWH�FRPSHQVDWLRQ�for providing the licensee the right to use the brand. By design, the Advance is required to be paid to incentivize or motivate the licensee to execute its license.

Guaranteed Minimum Periodic Royalty Payments�� NQRZQ�DV�0LQLPXP�*XDUDQWHHV�� DUH� WKH�minimum amount of royalties payable by the licensee to the licensor with respect to the sale and distribution of Licensed Products. The payments are normally made on a quarterly basis and are segregated by country or region. As an example, a licensee with rights to North America normally


ZRXOG�EH�UHTXLUHG�WR�SD\�D�0LQLPXP�*XDUDQWHH�HDFK�TXDUWHU�IRU�HDFK�FRXQWU\�LQ�WKH�UHJLRQ��L�H��IRU�&DQDGD��0H[LFR�DQG�WKH�8QLWHG�6WDWHV��7KH�0LQLPXP�*XDUDQWHHV�DUH�QRUPDOO\�VHW�EHWZHHQ��DQG��RI�WKH�SURMHFWHG�UR\DOWLHV�IRU�HDFK�UHJLRQ��7KLV�SHUFHQWDJH�LV�FRQVLGHUHG�VXEVWDQWLDO�enough to put “teeth” into the contract while set low enough under the most conservative scenario WR�HQDEOH�WKH�OLFHQVHH�WR�PHHW�RU�H[FHHG�WKH�VDOH�RI�&RYHUHG�3URGXFW�QHHGHG�WR�JHQHUDWH�HQRXJK�UR\DOW\�SD\PHQWV�WR�FRYHU�WKH�0LQLPXP�*XDUDQWHHV��$V�WKHVH�DUH�ELQGLQJ�¿QDQFLDO�REOLJDWLRQV��LW�LV�FULWLFDOO\�LPSRUWDQW�WKDW�ERWK�WKH�OLFHQVRU�DQG�WKH�OLFHQVHH�EHOLHYH�WKH�0LQLPXP�*XDUDQWHHV�DUH�fair and achievable. Marketing and Sales

Schedule of Minimum New Product Introductions is often required by the licensor on an annual EDVLV�WR�VDWLVI\�WKDW�WKH�OLFHQVHH�LV�VXI¿FLHQWO\�LQYHVWLQJ�LQ�5'�WR�HQVXUH�WKH�&RYHUHG�3URGXFWV�VROG�UHPDLQ�UHOHYDQW�DQG�GHVLUDEOH�LQ�WKH�FDWHJRU\��'HSHQGHQW�RQ�WKH�FDWHJRU\�RI�&RYHUHG�3URGXFWV�being licensed, the minimum number of New Product Introductions could be set at a low number such as in the case of say, car seats, or a high number in the case of kitchen utensils. If a licensee does not achieve the required number of New Product Introductions they can lose channel rights.

Sales Performance Requirements set the minimum sales the licensee must achieve each year of the licensing agreement. This requirement assures the licensor that the licensee is making appropri-DWH�HIIRUW�WR�VHOO�/LFHQVHG�3URGXFWV�LQ�WKH�$XWKRUL]HG�&KDQQHOV��6DOHV�3HUIRUPDQFH�5HTXLUHPHQWV�DUH�QRUPDOO\�VHW�DW��RI�WKH�SURMHFWHG�VDOHV�IRU�HDFK�UHJLRQ��:KLOH�WKH�UDQJH�RI�SHUFHQW-DJHV�LV�WKH�VDPH�DV�WKDW�XVHG�IRU�HVWDEOLVKLQJ�0LQLPXP�*XDUDQWHHV��WKH�WZR�SURYLVLRQV�PD\�QRW�EH�WLHG�WRJHWKHU��7KLV�LV�EHFDXVH�LW�PD\�EH�PRUH�LPSRUWDQW�WR�D�OLFHQVRU�WKDW�WKH�&RYHUHG�3URGXFWV�EH�FRPPHUFLDOL]HG�WR�JHQHUDWH�EUDQG�H[SRVXUH�DQG�FRQVXPHU�LQWHUDFWLRQ�WKDQ�WR�DFKLHYH�D�VSHFL¿F�royalty revenue target.

Shipping Date�PHDQV� WKH�GDWH�E\�ZKLFK� WKH�/LFHQVHH�PXVW�¿UVW� VKLS�/LFHQVHG�3URGXFWV� WR� WKH�retailers for sale by the retailers. A shipping date is set in the contract to help drive the commer-FLDOL]DWLRQ�RI�WKH�&RYHUHG�3URGXFW��7KH�HDUOLHU�WKH�GDWH��WKH�IDVWHU�WKH�SURGXFW�JHWV�FRPPHUFLDOL]HG�and the better it is for both the licensor and the licensee. However, both parties should be cautious when committing to the ship date. This date is set based on a fair estimate of when the licensee EHOLHYHV�WKH\�FDQ�VKLS�WKH�&RYHUHG�3URGXFW�DQG�LQFOXGHV�WKH�SURGXFW�DSSURYDO�SURFHVV�WKDW�WKH�OL-FHQVRU�KDV�LQ�SODFH��1RUPDOO\�WKHUH�LV�D��WR��GD\�EXIIHU�DGGHG�WR�WKH�SURMHFWHG�GDWH�WR�DOORZ�IRU�FRQWLQJHQFLHV��0LVVLQJ�D�6KLSSLQJ�'DWH�LV�RQH�RI�WKH�¿UVW�VLJQV�WKDW�D�OLFHQVLQJ�SURJUDP�ZLOO�not achieve its Sales Performance Requirements.


Commercialization Date is the date by which the licensee must have placement of their Licensed 3URGXFWV�LQ�HDFK�RI�WKH�$XWKRUL]HG�&KDQQHOV�LQ�WKHLU�FRQWUDFW��7KLV�SURYLVLRQ�LV�VHW�LQ�WKH�FRQWUDFW�WR�KHOS�GULYH�WKH�OLFHQVHH�WR�PHHW�LWV�FRQWUDFWXDO�FRPPLWPHQWV�RI�EULQJLQJ�&RYHUHG�3URGXFWV�LQ�WKH�FDWHJRU\�WR�PDUNHW��7KH�&RPPHUFLDOL]DWLRQ�'DWH�LV�VHW�EDVHG�RQ�D�IDLU�HVWLPDWH�RI�ZKHQ�WKH�OLFHQVHH�EHOLHYHV�WKH\�FDQ�FRPPHUFLDOL]H�WKH�&RYHUHG�3URGXFW��1RUPDOO\�WKHUH�LV�D��WR��GD\�buffer added to the projected date to allow for contingencies. Typically a channel is considered to EH�³FRPPHUFLDOL]HG´�ZKHQ�WKH�OLFHQVHH�DFKLHYHV�SURGXFW�SODFHPHQW�LQ�WZR�RI�WKH�WRS�¿YH�UHWDLOHUV�LQ�WKH�FKDQQHO��,I�D�OLFHQVHH�IDLOV�WR�DFKLHYH�D�SUHVHQFH�LQ�WZR�RI�WKH�WRS�¿YH�UHWDLOHUV��WKH�OLFHQVRU�may exercise its right to remove the channel from the contract. In this instance, the licensor may choose to license the rights of the channel in question to another manufacturer.

Stage II: Developing a Negotiating Strategy

1RZ�WKDW�\RX�KDYH�D�JRRG�XQGHUVWDQGLQJ�RI�HDFK�RI�WKH�'HDO�7HUPV�DQG�WKHLU�LPSDFW�RQ�WKH�OLFHQV-ing contract, it is important to develop a negotiations strategy that will enable you to achieve the license you want without paying too much for it. While this module is not designed to be a course on negotiation, I do want to equip you with a structure, which I have used to help me. While ne-gotiation skills come with experience, these terms and techniques should help you improve your effectiveness. The recommendations outlined below come from a course I took a few years ago WLWOHG��³$�3URJUDP�RQ�1HJRWLDWLRQ�IRU�6HQLRU�([HFXWLYHV´�DW�+DUYDUG�/DZ�6FKRRO��%RWK�WKH�FRXUVH�and faculty were outstanding. I would highly recommend the course for anyone wanting to im-prove his or her negotiation skills.

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Alternatives�DUH�GH¿QHG�DV�WKH�ZDON�DZD\�SRVVLELOLWLHV�HDFK�SDUW\�KDV�LI�QR�DJUHHPHQW�LV�UHDFKHG��7KH�%HVW�$OWHUQDWLYH�WR�D�1HJRWLDWHG�$JUHHPHQW��RU�%$71$��LV�GH¿QHG�DV�WKH�RSWLRQ�WKDW�QRUPDOO\�would be chosen if an agreement cannot be reached. For a licensor, alternatives may include choosing to manufacture the product in house or choosing not to enter the market. The BATNA will tend to drive the degree to which a licensor or licensee is willing to tolerate a higher or lower UR\DOW\�RU�0LQLPXP�*XDUDQWHH�ZLWKLQ�D�VWDQGDUG�'HDO�7HUP�UDQJH�� )RU�H[DPSOH�� LI�D� OLFHQVRU�OHDUQV��VD\�WKURXJK�D�35�$QQRXQFHPHQW��WKDW�D�SURVSHFWLYH�OLFHQVHH�MXVW�ORVW�WKHLU�OLFHQVH�ZLWK�D�competitor and is desperately looking for a comparable brand to replace the lost brand, the licen-sor will be in a position of strength in the negotiation. The licensee with a poor BATNA (and less IDYRUDEOH�DOWHUQDWLYHV��ZLOO�EH�LQ�D�SRVLWLRQ�RI�ZHDNQHVV��,Q�WKLV�FDVH��WKH�OLFHQVHH�OLNHO\�ZLOO�HQG�XS�DJUHHLQJ�WR�OHVV�IDYRUDEOH�'HDO�7HUPV�WKDQ�LI�WKH\�KDG�D�VWURQJHU�%$71$��:LWK�SUHSDUDWLRQ��you can improve your alternatives or possibly make the other party’s alternative less appealing. 7KH�¿UVW�VWHS�LQ�JHWWLQJ�SUHSDUHG�LV�KDYLQJ�D�JRRG�XQGHUVWDQGLQJ�RI�\RXU�%$71$��

Interests relate to the needs, concerns, goals, desires and fears that motivate us to negotiate. By clearly knowing your interests and estimating the other party’s, you can then determine which are VKDUHG��GLIIHU��RU�DUH�LQ�FRQÀLFW��7KLV�LQFOXGHV�LQWDQJLEOH�LQWHUHVWV�VXFK�DV�IHHOLQJ�KHDUG��UHVSHFWHG�and valued. Therefore, the better you understand your interests and those of the other party, the more you open up the zone of possible solutions. When evaluating interests in a negotiation, be VXUH�WR�FRQVLGHU�WKLUG�SDUWLHV�ZKR�FDQ�VZD\�D�QHJRWLDWLRQ��(QVXULQJ�WKLUG�SDUW\�LQWHUHVWV�DUH�PHW�DW�a minimum level will enable you to achieve a successful outcome.

Options�DUH�GH¿QHG�DV�DOO�RI�WKH�SRVVLELOLWLHV�RQ�ZKLFK�WKH�SDUWLHV�PLJKW�DJUHH��:KHQ�,�HQWHU�D�negotiation, I look for win-win options. By brainstorming options that are based on each party’s interests, you can improve the results of your negotiation. For example, if you go to the grocery to EX\�DQ�RUDQJH�WKDW�\RX�IHHO�OLNH�HDWLQJ�DQG�¿QG�WKDW�\RX�DQG�DQRWKHU�VKRSSHU�GHVLUH�WKH�ODVW�RUDQJH�OHIW�LQ�WKH�ELQ��\RX�FRXOG�FRQVLGHU�¿JKWLQJ�RYHU�WKH�ODVW�RUDQJH��VSOLWWLQJ�WKH�RUDQJH�LQ�KDOI�ZLWK�WKH�other party OR asking the other party why he wants the orange. It may turn out that the other party desires the orange to get the rind for a dessert he is making, and you only want the fruit inside, so \RX�VKDUH�LQ�WKH�SXUFKDVH��8QGHU�WKH�¿UVW�RSWLRQ�LQ�WKH�H[DPSOH�DERYH��RQH�RI�\RX�ZLOO�ZLQ�DQG�WKH�other will lose; in the second option, each of you will gain only half of what you wanted; in the WKLUG�RSWLRQ��KRZHYHU��ERWK�SDUWLHV�JDLQ��RI�WKHLU�REMHFWLYH��%\�H[SORULQJ�DOO�WKH�RSWLRQV��\RX�FDQ�¿QG�WKH�EHVW�VROXWLRQ��,Q�WKLV�H[DPSOH��\RX�JHW�WR�HDW�WKH�HQWLUH�RUDQJH�ZKLOH�RIIHULQJ�WKH�RWKHU�VKRSSHU�WKH�ULQG��ZKLFK�LV�ZKDW�KH�VRXJKW�LQ�WKH�¿UVW�SODFH�


Standards of Legitimacy includes laws, regulations, industry standards, the market price and expert opinion. Because we are hard-wired to achieve “fair” outcomes and reject unfair outcomes, standards of legitimacy can be a powerful tool in ensuring no one feels taken in a negotiation. In your negotiation preparation, you may wish to understand how the gross margins in your industry differ against industry norms. In that way, you can explain why your appeal for a lower royalty UDWH�LV�D�IDLU�UHTXHVW��&RQYHUVHO\��\RX�FDQ�DVN�WKH�RWKHU�SDUW\�ZK\�D�SDUWLFXODU�6DOHV�3HUIRUPDQFH�Requirement they put forward is a fair number. If they cannot come up with a good explanation, there is likelihood they will move their position in your favor.

Communication�LV�GH¿QHG�DV�WKH�H[FKDQJH�RI�WKRXJKWV��PHVVDJHV�RU�LQIRUPDWLRQ�E\�VSHHFK��ZULW-ing, physical cues or other action. Oftentimes the message you are sending is not the message the other party is receiving. Therefore it is important to tailor your words and tone to the needs of your LQWHQGHG�DXGLHQFH��7KHQ�DVN�WKHP�WR�FRQ¿UP�ZKDW�WKH\�KDYH�KHDUG��,Q�WKLV�ZD\��\RX�FDQ�FODULI\�any miscommunication that may have an adverse impact on the success of your negotiation.

Relationship involves the connection between the parties in a negotiation, especially their abil-ity to manage differences well. Relationship is especially important when the parties must come together as business partners after the negotiation is completed, as is the case in a licensing agree-ment. Therefore, it is valuable to strive to improve the relationship as the result of the negotiation �DV�OLNHO\�ZRXOG�RFFXU�LQ�WKH�WKLUG�RSWLRQ�LQ�WKH�RUDQJH�VKDULQJ�H[DPSOH�DERYH��DQG�DW�PLQLPXP�HQVXUH�WKH�UHODWLRQVKLS�LV�QRW�KDUPHG��DV�LQ�WKH�ZLQQHU�WDNH�DOO�¿UVW�RSWLRQ��7R�SUHSDUH�ZHOO�IRU�a negotiation, be sure to separate the people from the problem, speak for yourself and articulate issues in an open and constructive manner.

Commitment takes into consideration an agreement about what the other party will or will not do in a negotiation. In preparing for any negotiation, avoid committing too early. When you are UHDG\�� VHFXUH� D� VXFFHVVIXO� FRPPLWPHQW� E\�PDNLQJ� VXUH� LW� LV� VSHFL¿F�� ¿UP� DQG� LPSOHPHQWDEOH��&RQVLGHU�PDNLQJ�SURFHVV�FRPPLWPHQWV�HDUO\� LQ� WKH�QHJRWLDWLRQ�� &KRRVH�FRPPLWPHQWV�RI�VXE-VWDQFH�IRU�WKH�HQG�RI�WKH�QHJRWLDWLRQ��:KHQ�,�ZDV�UXQQLQJ�WKH�5XEEHUPDLG�*OREDO�/LFHQVLQJ�SUR-JUDP�,�ZRXOG�LPSURYH�WKH�RXWFRPH�RI�P\�QHJRWLDWLRQV�E\�LQLWLDOO\�FRPPLWWLQJ�WR�'HDO�7HUPV�WKDW�had a minor impact to my business, but would be considered important to the other party. This put me in a stronger negotiating position when I had to make commitments of greater substance later in the negotiation.

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Now that you have a good overview of the 7 elements of a successful negotiation, I recommend that you complete a worksheet before each negotiation that will let you evaluate each of the 7 ele-ments. We have provided you with a template in Appendix I to help get you started.

Standard Deal Term Ranges

$V�\RX�FRQVLGHU�\RXU�QHJRWLDWLQJ�VWUDWHJ\�DQG�VSHFL¿FDOO\�WKH�6WDQGDUGV�RI�/HJLWLPDF\��\RX�ZLOO�ZDQW�WR�IDFWRU�LQ�ZKDW�DUH�WKH�DFFHSWHG�VWDQGDUG�UDQJHV�IRU�WKRVH�TXDQWL¿DEOH�'HDO�7HUPV��$QG��while each licensing contract will vary from licensor to licensor and from category to category of &RYHUHG�3URGXFW��WKH�JXLGHOLQHV�RXWOLQHG�EHORZ�VKRXOG�KROG�\RX�LQ�UHODWLYHO\�JRRG�VWHDG�DV�\RX�determine what will be considered a successful negotiation.

7KHUH�DUH�H[FHSWLRQV�WR�WKHVH�UDQJHV�EDVHG�RQ�WKH�SUR¿WDELOLW\�RI�WKH�FDWHJRU\��XQLTXHQHVV�RI�WKH�opportunity and commitment by the licensee to invest in the license.

Royalty and Payment Terms

,Q�WKH�FDVH�RI�5R\DOW\�5DWHV��WKH�UDQJHV�ZLOO�GHSHQG�RQ�WKH�DYHUDJH�SUR¿WDELOLW\�EHLQJ�DFKLHYHG�LQ�the category at the time and what comparable brands in the category are commanding.

&DWHJRULHV�ZLWK�KLJKHU�PDUJLQV�JHQHUDOO\�ZLOO�UHTXLUH�KLJKHU�UR\DOW\�UDWHV��)RU�H[DPSOH��WKH�PDU-gin on lapel pins is much higher than the margin on tee shirts. So a licensor can typically command D�KLJKHU�UR\DOW\�UDWH�IRU�ODSHO�SLQV��DV�FRPSDUHG�WR�WHH�VKLUWV��WR��

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Deal Terms Guidelines

Technology

1% - 4%

Corporate Brands

5% - 10%

Pro Sports

12% - 20%

Character

8% - 20%

NCAA

8% - 12%Royalty Rates

Sales Performance 25% - 40% of Forecasted Sales by Country, by Period

Minimum Guarantees 25% - 40% of Forecasted Royalties by Country, by Period

Contract Term 40% - 60% of First Year Minimum Guarantees

Advances Commercialization Date

Exclusivity 2 -3 Times Sales Performance and Minimum Guarantees


Another thing licensors consider are the royalty rates that comparable brands in the category are FRPPDQGLQJ��*ODG��5XEEHUPDLG�DUH�+HIW\�DUH�DOO�FRPSDUDEOH�EUDQGV�LQ�WKH�WUDVK�FDQ�OLQHU�FDW-HJRU\��7KH\�VKRXOG�DOO�H[SHFW�WR�UHFHLYH�DQ�DYHUDJH�UR\DOW\�UDWH�RI��EDVHG�RQ�WKH�VWUHQJWK�RI�WKH�brands and the relatively low margins in the trash can liner category. The Royalty Rate can also YDU\�IURP�RQH�OLFHQVHH�WR�WKH�QH[W�ZLWKLQ�D�SDUWLFXODU�FDWHJRU\²RQH�PD\�EH�SD\LQJ��ZKLOH�WKH�RWKHU�LV�SD\LQJ��

The exact value within each range for each deal term will be driven by the comparative negotia-tion skills of each representative from the licensor and licensee. For example, while the average UR\DOW\�UDWH�DFKLHYHG�E\�0DMRU�/HDJXH�%DVHEDOO�PD\�EH��WKLV�SHUFHQWDJH�FDQ�YDU\�EHWZHHQ�&RYHUHG�3URGXFW�FDWHJRULHV�VXFK�DV�FROOHFWLEOHV��DSSDUHO�DQG�VWDWLRQHU\��7KLV�JHQHUDOO\�LV�GLFWDWHG�by each party’s BATNA. The BATNA will tend to drive the degree to which a licensor or licensee is willing to tolerate a higher or lower royalty rate, cash advance and minimum guarantees. For example, if a brand is very well known and has a lot of positive equity in the market, there will be VHYHUDO�OLFHQVHHV�Y\LQJ�IRU�WKH�OLFHQVH�WR�WKH�EUDQG��(DFK�RI�WKH�OLFHQVHHV�LQWHUHVWHG�LQ�WKH�OLFHQVH�will try their best to out-bid the others to win the business. In this case, the licensor is in a position of strength against each of the licensees. Finally, in the example with Major League Baseball, the average royalty rate will be impacted by the average royalty rate of the other major sports prop-erties, e.g., the National Football League, the National Basketball Association and the National Hockey League.

,I�WKH�SDUWLHV�HOHFW�WR�H[WHQG�WKH�7HUP�RI�WKH�/LFHQVH�$JUHHPHQW�IRU�WKH�([WHQGHG�7HUP��WKH�*XDU-DQWHHG�0LQLPXP�3HULRGLF�5R\DOW\�3D\PHQWV�IRU�WKH�([WHQGHG�7HUP�DUH�W\SLFDOO\�VHW�EDVHG�RQ�DQ�agreed-upon growth percentage. Licensors will normally use the sales growth percentage pro-YLGHG�E\�WKH�OLFHQVHH�DV�D�JXLGH��7KLV�FDQ�UDQJH�IURP��WR��HDFK�\HDU�XQWLO�WKH�EXVLQHVV�LV�mature and fully commercialized.

Deal Term Tools and Techniques

Licensee Application 7KH�OLFHQVHH�DSSOLFDWLRQ�LV�XVXDOO\�WKH�¿UVW�UHTXLUHG�GRFXPHQW�WKDW�D�SURVSHFWLYH�OLFHQVHH�FRP-pletes. The application is designed to request a substantive amount of information on the licensee. 7KH�LQIRUPDWLRQ�LV�WKHQ�XVHG�WR�GHWHUPLQH�WKH�VL]H�RI�WKH�SURJUDP��WKH�³¿W´�RI�WKH�OLFHQVHH�DQG�RWKHU�LPSRUWDQW�WKLQJV�VXFK�DV�¿QDQFLDO�VWDELOLW\�DQG�OHJDO�EDFNJURXQG��

This due diligence not only helps the licensor determine the robustness of the licensee but also helps them understand the strengths and weaknesses of the licensee. The licensor can then use this knowledge in optimizing the contract deal terms to put the licensee in the best position to be suc-FHVVIXO��7KLV�LQFOXGHV�WLJKWO\�GH¿QLQJ�FKDQQHOV��WHUULWRULHV�RU�&RYHUHG�3URGXFW�FDWHJRULHV�LQ�ZKLFK�


the licensee has demonstrated strengths.

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Conservative Business Estimator

$QRWKHU�LPSRUWDQW�GRFXPHQW�WKDW�OLFHQVHHV�FRPSOHWH�LV�WKH�&RQVHUYDWLYH�%XVLQHVV�(VWLPDWRU��7KH�conservative business estimator allows the licensee to articulate their vision of the program to the OLFHQVRU� IRU� WKH�¿UVW� WKUHH�\HDUV��SRVW�FRPPHUFLDOL]DWLRQ��7KH�&RQVHUYDWLYH�%XVLQHVV�(VWLPDWRU�requires the prospective licensee to provide a sales forecast broken down by region, channel and 6WRFN�.HHSLQJ�8QLW��6.8��7KLV�GRFXPHQW�LV�QRUPDOO\�DVNHG�RI�D�OLFHQVHH�RQFH�WKH\�KDYH�JRQH�WKURXJK�6WHS��RI�WKH��6WHS�%UDQG�/LFHQVLQJ�SURFHVV��3HUIRUP�'XH�'LOLJHQFH��

The licensor evaluates the sales projections provided by each licensee to determine whether they are viable and achievable, and maximize the licensing opportunity. The licensor uses these sales targets provided by the licensee as a guide when negotiating deal terms, including Sales Perfor-PDQFH�5HTXLUHPHQWV��*XDUDQWHHG�0LQLPXP�3HULRGLF�5R\DOW\�3D\PHQWV��DQG�$GYDQFHV��$V�WKHVH�deal terms are based on the forecasts developed by the licensees, they should not only be fair, but also robust and achievable.

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Stage III: Agreeing to the Deal Terms

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7KH�SUHFXUVRU�WR�WKH�DFWXDO�FRQWUDFW�LV�WKH�'HDO�7HUPV�6KHHW��ZKLFK�FRQWDLQV�WKH�PRVW�LPSRUWDQW�deal terms that the licensee and the licensor need to agree upon. These deal terms, including trademarks licensed, covered products, territories, channels, royalty rates, etc., are terms that both parties will encounter during the day-to-day servicing of the license. Please see Appendix II for an H[DPSOH�RI�WKH�'HDO�7HUPV�6KHHW��

The negotiation of the key deal terms usually takes place face-to-face. While you can negotiate these terms over the phone or even via email, there is nothing like gauging the other party’s body language and facial expressions during any negotiation. As we mentioned in the previous sec-tion, communication is an important piece of the negotiations framework. If both parties have WKRXJKW�WKURXJK�WKHLU�QHJRWLDWLRQV�VWUDWHJ\�LQ�DGYDQFH²L�H��HYDOXDWHG�WKHLU�DOWHUQDWLYHV��GH¿QHG�WKHLU�%$71$�DQG�WKHLU�LQWHUHVWV��DQ�DJUHHPHQW�RQ�WKH�'HDO�7HUPV�6KHHW�FDQ�EH�DFKLHYHG�LQ�DV�OLWWOH�as one day.

7KH�PRFN� QHJRWLDWLRQ� EHORZ� LV� EHWZHHQ� WKH�93� RI�/LFHQVLQJ� IRU� WKH� 6WRUDJH�6ROXWLRQV�%UDQG��WKH�OLFHQVRU��DQG�WKH�+HDG�RI�%XVLQHVV�'HYHORSPHQW�RI�([FHOOHQW�&DELQHWV�&RUS��SURVSHFWLYH�OLFHQVHH��([FHOOHQW�&DELQHWV�LV�LQWHUHVWHG�LQ�OLFHQVLQJ�WKH�6WRUDJH�6ROXWLRQV�EUDQG�LQ�WKH�5HDG\�WR�$VVHPEOH�:RRGHQ�6KHOYHV�DQG�&DELQHWV�FDWHJRU\��([FHOOHQW�&DELQHWV�LV�D�ZHOO�UHVSHFWHG�FRP-pany and already holds licenses of other prestigious brands in the category, including Shelves!, :RRGEORFNHU��6HOI�6KHOI��*DUDJH�(VVHQWLDOV��DQG�6WRUDJH�(VVHQWLDOV��


Good morning Mr. Doe! I hope you had a safe !ight on the way over.

Yes, I did, thank you.

That sounds good.

Yes, the information in the Licensee Application Form is most up-to-date.

Great! Well the objective of meeting today is to agree on the key deal terms. As we agree on each deal term, I will input them into our “Deal Term Sheet.” At the end of the meeting, I will provide you with a copy of the sheet for your review and signature.

So let’s start. I have your Licensee Application form and Conservative Business Estimator that you submitted last month. I will use these as guides through the negotiation. I can "ll in the Proposed License, Licensee Address and details from the licensee application. The approved trademark is the Storage Solutions brand.


Yes, but we are expecting to launch Woodblocker branded Oak Cabinets in the Mass channel nationally this fall.

Exactly! We have developed a great relationship with both Walmart and Target and are looking to launch Wood-blocker branded Oak Shelves with these retailers in the fall.

As we mentioned in the Licensee Ap-plication, we are requesting the license for all of North America and Europe. We represent Woodblocker, Shelves!, Self Shelf and Garage Essentials in North America. We represent Storage Essen-tials in North America and Europe.

Yes, I suppose you are right. We are planning to increase shelf space for Storage Essential’s Teak, Rose and Maple wood shelves in the current stores that we sell in.

We will need 18 months to get con-cept approved, attend line reviews with retailers, book orders, and ship product to the stores. That will give us another 18 months on the shelf at the end of the "rst term. We would like to get a full two years. How about we push the term to four years?

Okay, got that. Let’s move to Covered Products. I see from your Licensee Application that you would like the license for the Storage Solutions brand in 6 different product categories. You’re currently only commercialized in 5 of those cat-egories. Since you’re not selling any Oak Shelves, we can only grant you a license for the other 5 categories.

I didn’t know that. Is that why you’ve requested the Mass channel in addition to the Department Store and Home Improvement channels? You don’t currently have a presence in the Mass Channel.

OK. That addresses our fears of giving you a new product category and a new channel. We don’t normally do this but since you’re ready to launch Woodblocker in a few months, we feel comfortable. Let’s talk about territories.

We are con"dent you have the relationships in North America to make our program a success. What worries me is Europe. Storage Essentials dominates the plastic shelves market in Europe, but their presence in wooden shelves is negligible.

Well, keep us posted on how that goes. We may re-consider Europe for the extended term. For the current term, we will stick with North America. Speaking of term, we normally sign 3-year contracts with a 3-year extended period.


Well, we will be launching with 5 prod-ucts, so we can introduce 1 new prod-uct each year. Does that work for you?

So, if we agree to launch 2 new prod-ucts a year, will you be able to meet your internal velocity rate?

When you put it like that, it doesn’t seem as unachievable. Alright, we agree to $800,000 minimum sales in Year 1.

Well, that depends on the concept approval by your team and the line reviews with the retailer. As I said, we need about 18 months to get product on shelf.

$800,000 in minimum sales seems a little steep…

That’s acceptable. What about new product introductions? How many new products do you plan to introduce each year?

Normally, we look for a velocity of 40% for our internal products every 4 years, i.e., if we currently have 10 products on the market, we will launch 4 new products over that time period.

Yes! I will include a minimum of 2 new products a year in the Deal Terms Sheet. Let’s discuss the sales performance requirements. We would like you to achieve minimum sales of $800,000 in Year 1.

Good. Now when do you plan to ship the product to the stores and when will the product be available on the shelves? In other words, what are the shipping and commercialization dates you’re looking at?

As per your forecast in the conservative business estimator, you projected selling $2 Million in Year 1. Even if you were to fall short of the target by 20%, you would have $1.6 Million in sales. All we’re asking is that you guarantee half of that number in sales.


Yes, I appreciate the buffer. Thank you. October 10, 2012 seems reasonable. To be able to commercialize on October 10, I will ship product by September 01, 2012.

Yes, I understand that is the going rate for a brand of your stature. However, the margins on most of your licensed products are probably higher than 40%. RTA Wooden Shelves and Cabinets just don’t afford these kinds of margins.

So if your line reviews were held in January 2012, you would technically be able to commercialize in August 2012. Let’s just add a couple of months of buffer and assume the line reviews happen in March 2012. Then you will be able to commercial-ize by October 10, 2012?

Sure. We want to set you up for a successful start! Moving on, our standard royalty rate is 10%.

I see. What sort of royalty rate would you be comfortable with?

Well technically yes, but it also depends on our line reviews with the retailers. We need at least 8 months after the line reviews to make and ship product.

The schedule for the next set of line reviews is awaited from the retailers. However, they usually take place in January every year.

That makes sense. We will work with you to ensure there are no delays from our end. When are the line reviews expected to take place?

So what I’m hearing you say is 18 months from today, you will be ready for commercialization. Today is March 10, 2011. You will be ready to commercialize on August 10, 2012?

Well our margins are generally in the 25% - 30% range. Given this, we would be willing to pay a 7% royalty rate. We don’t want to price ourselves out of the market!


I understand and will contact my insurance provider.

Sure, thank you Ms. Z, I look forward to working with you in the future!

That’s correct. The cash advance will be offset against future royalty payments. We also require you to hold insurance with a minimum of $1 million coverage. We really don’t have much bandwidth here.

Well, Mr. Doe, it looks like we have agreed to all deal terms. I will send you a copy of the Deal Terms Sheet for you to review and sign.

That’s the going rate in the market for some of your direct competitors.

I cannot argue with that! Yes, I think 7.25% is a fair rate.

Okay. What are the minimum guaran-teed royalty payments in this case?

And this will be paid at the time of signing the contract?

I’m glad we agree. We also usually ask for 50% of the "rst year minimum guaranteed royalty pay-ments as a cash advance upon signing the contract.

Well, we agreed upon the minimum sales target to be $800,000 in the "rst year. So the minimum guaran-teed royalty payments will have to be $58,022. Half of that amount, $29,011 will be the cash advance.

Well, based on our analysis, if you sold $800,000 worth of product at a 40% margin and paid us 10% in royalty, we would earn $80,000 and you would earn $148,571. Now you said your margin won’t exceed 30%. At a 30% margin, if you paid us 7.25% as royalty, both of our earnings would fall by $21,978 each. We’re willing to share the burden of the lower margins with you, but we will not accept a royalty rate lower than 7.25%.

Can you explain how you reached that number?


2QFH�WKH�QHJRWLDWLRQ�LV�FRPSOHWH��ERWK�WKH�OLFHQVHH�DQG�OLFHQVRU�VKDUH�WKHLU�FRS\�RI�WKH�'HDO�7HUPV�Sheet with their respective teams. If the teams are comfortable with the agreed-upon terms, they ZLOO�VLJQ�WKH�'HDO�7HUPV�6KHHW��*HWWLQJ�D�GHDO�WHUPV�VXPPDU\�VKHHW�VLJQHG�GRHV�QRW�PHDQ�WKDW�WKH�GHDO�LV�FRPSOHWH��,W�GRHV��KRZHYHU��WDNH�\RX�PXFK�FORVHU�WR�JHWWLQJ�WKH�GHDO�GRQH��7KH�'HDO�7HUPV�6KHHW�HOLPLQDWHV�DQ\�FRQIXVLRQ�RU�PLVXQGHUVWDQGLQJ�RI�WKH�WHUPV�RI�WKH�DJUHHPHQW��DV�LW�FODUL¿HV�WKH�VSHFL¿F�GHWDLOV�RI�WKH�SURSRVHG�OLFHQVH�DJUHHPHQW�IRU�ERWK�SDUWLHV�DQG�SXWV�DOO�WKH�WHUPV�LQ�RQH�place for easy access and review by anyone associated with the license agreement. The terms also IHHG�GLUHFWO\�LQWR�WKH�FRQWUDFW�GUDIW��6FKHGXOHV�%��&�RI�WKH�FRQWUDFW��3OHDVH�VHH�$SSHQGL[�,9�DQG�9�IRU�DQ�H[DPSOH�RI�6FKHGXOHV�%��&�

7KH�QH[W�VWHS�LV�IRU�WKH�OLFHQVRU�WR�SUHSDUH�DQ�,QWHUQDO�'HDO�0HPR�DQG�VKDUH�LW�ZLWK�DOO�WKH�WHDP�members. The internal deal memo is a snapshot of each licensing deal and should be maintained by the licensing team. It is primarily for a quick overview of the deal. Please see Appendix III for DQ�H[DPSOH�RI�DQ�,QWHUQDO�'HDO�0HPR��/HW¶V�WDNH�D�ORRN�DW�HDFK�RI�WKH�VHFWLRQV�RI�WKH�,QWHUQDO�'HDO�0HPR�


7KH�,QWHUQDO�'HDO�0HPR�VWDUWV�ZLWK�LGHQWLI\LQJ�WKH�EUDQG�EHLQJ�OLFHQVHG��7KH�PHPR�FOHDUO\�VWDWHV�WKH�OLFHQVHG�WUDGHPDUNV��LQ�WKLV�FDVH��6WRUDJH�6ROXWLRQV��DQG�WKH�EUDQG�SRVLWLRQLQJ�VWDWHPHQW�RI�WKH�brand being licensed. It mentions the primary contact person for the deal on the licensor’s side – which could be someone in the licensor’s core team or the brand owner’s licensing agent. It also mentions the contact details of the prospective licensee and the territories in which the licensee will be granted the license.

The internal deal terms sheet also includes a detailed description of the contract agreement. If the contract is a new contract, the detailed description should include the licensee, description of the product, length of the contract, the royalty percentage agreed upon, the annual revenue stream and the termination fees. If the contract is a renewal, then this section should contain the product description, length of the renewed contract, royalty rates, and annual revenue stream. The renewal VKHHW�DOVR�GHVFULEHV�WKH�EHQH¿WV�RI�UHQHZLQJ�WKH�FRQWUDFW�WR�WKH�OLFHQVRU��7KH�EHQH¿WV�FRXOG�LQFOXGH�D�EHWWHU�GH¿QLWLRQ�RI�WKH�FRYHUHG�SURGXFWV��UHVWULFWLRQ�RI�WKH�OLFHQVHH�LQ�WKH�PDVV�DQG�KRPH�FKDQ-nels and an increase in the royalty rate paid by the licensee.


In addition to the brand positioning statement, the internal deal sheet also contains the product positioning statement and the target consumer of the brand. Positioning statements are important ¿OWHUV�IRU�DSSURYLQJ�DQ\�SURGXFW�FRQFHSWV��1H[W�LV�WKH�QHW�SUHVHQW�YDOXH��139��RI�WKH�FRQWUDFW��LQFOXGLQJ�WKH�LQLWLDO�SD\PHQW��7KH�139�LV�WKH�7RWDO�3URMHFW�$PRXQW��WKH�VXP�RI�DOO�WKH�UR\DOW\�SD\PHQWV��GLVFRXQWHG�DW�WKH�OLFHQVRU¶V�LQWHUQDO�GLVFRXQW�UDWH��7KLV�WHUP�LV�IRXQG�LQ�PRVW�¿QDQFH�text books.

The internal deal terms sheet also contains the commercialization and shipping dates agreed upon E\�WKH�OLFHQVRU��,I�WKH�FRQWUDFW�LV�D�UHQHZDO��WKHVH�¿HOGV�ZLOO�VD\�³RQJRLQJ�´�7KH�QH[W�VHFWLRQ�RI�WKH�memo covers the channels of distribution and the royalty rates agreed upon in each of the territo-ries. It also includes the portion of net sales the licensee will have to dedicate to marketing activi-WLHV�IRU�WKH�EUDQG��*HQHUDOO\��WKLV�DPRXQW�LV�LQ�WKH��WR��RI�QHW�VDOHV�UDQJH��

The next item is the annual minimum guarantees and the cash advances that the licensee has agreed to pay for each of the territories. This also includes a schedule of payments, on a quarterly basis in this case, and the due date of each installment. It also makes note of when the discussions of a UHQHZDO�ZLOO�EH�LQLWLDWHG�E\�WKH�OLFHQVHH��*HQHUDOO\�FRQWUDFW�UHQHZDOV�FDQ�WDNH�XS�WR��PRQWKV�WR�EH�FRPSOHWHG��7KXV��WKH�OLFHQVHHV�DUH�DGYLVHG�WR�WDNH�WKH�LQLWLDWLYH�IRU�DQ\�UHQHZDOV�DW�OHDVW��months prior to the expiration date of the current license.


Finally, the internal deal terms sheet contains any special notes such as the requirement by the licensee to provide the licensor with monthly sales and royalty reports, logo application, etc. The memo also mentions whether the contract is standard or has special provisions, whether the licens-HH�KDV�EHHQ�DSSURYHG�E\�WKH�&UHGLW�'HSDUWPHQW�RI�WKH�OLFHQVRU�DQG�WKH�GDWH�E\�ZKLFK�WKH�FRQWUDFW�should be authorized.


7KH�LQWHUQDO�GHDO�WHUPV�VKHHW�LV�VLJQHG�RII�E\�93�RI�/LFHQVLQJ��6WRUDJH�6ROXWLRQV��WKH�OLFHQVRU��DQG�WKH�3UHVLGHQW�RI�([FHOOHQW�&DELQHWV��WKH�OLFHQVHH��

,Q�EHVW�LQ�FODVV�RUJDQL]DWLRQV��WKH�OLFHQVRU¶V�WHDP�KDV�WR�JDLQ�DSSURYDO�IURP�WKH�&(2�RU�WKH�VHQLRU�management of their company before they can actually sign the contract. This stage may be over-looked for smaller-sized deals. In the case of larger deals, where the expected royalty revenue ex-FHHGV��PLOOLRQ��D�PHPR�RXWOLQLQJ�WKH�GHWDLOV�RI�WKH�DJUHHPHQW�LV�SUHSDUHG�E\�WKH�OLFHQVLQJ�WHDP�and with the help of the business unit that is licensing their brand. The key questions addressed in WKH�PHPR�DUH�A. Can the licensee deliver reliable quality and service levels?B. How will it help the brand?&��'RHV�WKH�¿QDQFLDO�UHWXUQ�MXVWLI\�RXU�WLPH�DQG�WRWDO�HIIRUWV"

The memo contains background information on the product category such as the size of the mar-ket, the players, success factors and consumer insight. It covers the history of the product category DQG�WKH�EUDQG��DQG�PDNHV�D�FDVH�IRU�ZK\�WKH�FKRVHQ�SURGXFW�FDWHJRU\�LV�D�JRRG�¿W�IRU�WKH�EUDQG�DQG�the company. It addresses the rationale behind licensing the category as opposed to manufacturing or sourcing it, and why it makes sense to invest in the project. Included with the memo is a sum-mary of the licensing agreement, any pictures of current product made by the licensee, and physi-FDO�VDPSOHV��LI�DYDLODEOH��3OHDVH�VHH�$SSHQGL[�9,�IRU�DQ�H[DPSOH�RI�D�W\SLFDO�0HPR�WR�WKH�&(2�

The licensee must keep in mind that even though the licensee has signed the deal terms sheet, the licensor can walk away from the agreement at any point. Typically, the licensor needs approval from their senior management before they can sign off on any deal.

Stage IV: Drafting the Agreement

Once senior management have given the deal the green light, and the deal terms have been agreed upon and signed off between the licensee and the licensor, the licensor asks their legal counsel to draft the contract. The deal terms summary sheet provides the material for the contract.

While there are many versions of licensing contracts, best-in-class contracts contain the following SURYLVLRQV�

�� 6FKHGXOH�$�6WDQGDUG�7HUPV��&RQGLWLRQV- Schedule B Scope of License�� 6FKHGXOH�&�5R\DOW\�DQG�3D\PHQW�7HUPV�� 6FKHGXOH�'�6XEPLVVLRQV�1RWLFH


�� 6FKHGXOH�(�0DQXIDFWXUHU�$JUHHPHQW�- Schedule F Quality Standards

Schedule A: Standard Terms & Conditions

Schedule A contains all the standard terms and conditions of the licensing agreements. The stan-dard terms are the contractual guts of the contract and as such, there is little room, if any, for nego-tiation. Schedule A covers which parties are entering the agreement and the reasons for doing so. It covers what is granted, the quality requirements and the approvals required to ensure they meet those requirements. The standard terms and conditions cover royalty payments and provisions to verify those payments were made accurately. This section covers who owns the intellectual prop-HUW\�FUHDWHG�DQG�ZKDW�H[SHFWDWLRQV�DUH�SXW�XSRQ�WKH�OLFHQVHH�WR�PDUNHW�WKH�&RYHUHG�3URGXFWV��,W�covers the term of the agreement, termination provisions and the effect of the termination. The re-mainder of the agreement is typically referred to as the licensor’s “boilerplate.” While most of the discussion in these remaining sections will be between the attorneys from the respective parties, there are a few of these sections that will be of equal interest to the business professionals. These include change of manufacturing, unfair labor practices, customer service and change of control.

:KLOH�WKH�6WDQGDUG�7HUPV��&RQGLWLRQV�SRUWLRQ�RI�WKH�FRQWUDFW�FDQ�EH�WKH�PRVW�WHGLRXV�WR�UHDG�through and comprehend, it is critical that members from both organizations familiarize them-selves with them. This will help ensure each party adheres to the stipulated language, and will position the relationship for successful execution.

7HUPV�LQFOXGHG�LQ�WKLV�VFKHGXOH�DUH� �� 'H¿QLWLRQV�� /LFHQVH�*UDQW�� 0DUNHWLQJ��6DOHV�� 4XDOLW\�&RQWURO��&RPSOLDQFH�ZLWK�/DZV�� $SSURYDOV�� 5R\DOW\�3D\PHQWV�� 5HFRUGV��$XGLWLQJ�� 7UDGHPDUN�5LJKWV��:RUN�3URGXFW�� 7HUP�� 7HUPLQDWLRQ�� (IIHFW�RI�7HUPLQDWLRQ�([SLUDWLRQ�� 5HSUHVHQWDWLRQV��:DUUDQWLHV�� $VVLJQDELOLW\�&KDQJH�RI�&RQWURO�� *RYHUQLQJ�/DZ��-XULVGLFWLRQ��9HQXH


�� ,QIULQJHPHQW�E\�7KLUG�3DUWLHV�� ,QVXUDQFH�� 0DQXIDFWXULQJ��$XWKRUL]HG�0DQXIDFWXUHUV�� &RQ¿GHQWLDO�,QIRUPDWLRQ�� 8QIDLU�/DERU�3UDFWLFHV�+XPDQ�5LJKWV�� 3UHVV�5HOHDVHV�� &XVWRPHU�6HUYLFH�� ,QGHPQL¿FDWLRQ�RI�/LFHQVHH��8VH�RI�/LFHQVHH¶V�1DPH�� 1RWLFHV�� )RUFH�0DMHXUH�� :DLYHU�� 6HYHUDELOLW\�� 1R�$JHQF\�&UHDWHG�� 6XUYLYDO�RI�3URYLVLRQV�� &RXQWHUSDUWV )RU�DQ�DFWXDO�OLFHQVLQJ�DJUHHPHQW�DQG�LQVLJKWV�RQ�WKH�6WDQGDUG�7HUPV��&RQGLWLRQV��SOHDVH�UHIHU�to our Sample Licensing Agreement module.

Schedules B & C

6FKHGXOHV�%��&�UHFDS�WKH�WHUPV�WKDW�DIIHFW�WKH�GD\�WR�GD\�VHUYLFLQJ�RI�WKH�OLFHQVH�DQG�VKRXOG�EH�understood thoroughly—not just by the person who negotiates them, or signs the contract, but also by the people who will be involved in the business planning and operations of commercializing the licensed products. These schedules should always be near at hand for the people involved in the GDLO\�RSHUDWLRQV��6FKHGXOH�%�FRQWDLQV�WHUPV�UHODWHG�WR�WKH�VFRSH�RI�WKH�OLFHQVH�LQFOXGLQJ�

�� 7UDGHPDUNV�� &RYHUHG�3URGXFWV�� $XWKRUL]HG�&KDQQHOV�� 7HUULWRULHV�� &RQWUDFW�7HUP�� ,QVXUDQFH�5HTXLUHPHQWV�

6FKHGXOH�&�LQFOXGHV�WHUPV�UHODWHG�WR�5R\DOW\�DQG�3D\PHQW�7HUPV��0DUNHWLQJ�DQG�6DOHV��DQG�6KLS-SLQJ�DQG�&RPPHUFLDOL]DWLRQ��7KHVH�WHUPV�LQFOXGH�

�� 'H¿QLWLRQ�RI�1HW�6DOHV�� 5R\DOW\�5DWH


�� $GYDQFHV�� *XDUDQWHHG�0LQLPXP�5R\DOW\�3D\PHQWV�� 7UDQVIHU�)HH�IRU�$SSURYHG�$VVLJQPHQWV��&KDQJH�LQ�&RQWURO�� 3D\PHQW�,QVWUXFWLRQV�� 6FKHGXOH�RI�0LQLPXP�3URGXFW�,QWURGXFWLRQV�3HU�<HDU�� 6DOHV�3HUIRUPDQFH�5HTXLUHPHQW�� 6KLSSLQJ�'DWH�� &RPPHUFLDOL]DWLRQ�'DWH

Schedules D, E, and F

6FKHGXOHV�'��(�DQG�)�FRQWDLQ�VWDQGDUG�FRQWUDFW�ODQJXDJH�WKDW�LV�XVXDOO\�QRW�QHJRWLDEOH��7KH�SUR-YLVLRQV�DUH�JHQHUDOO\�WR�SURWHFW�WKH�EUDQG�DQG�WKH�FRPSDQ\��6FKHGXOH�'�FRQWDLQV�D�6XEPLVVLRQV�Notice. The Submissions Notice is the licensor’s requirements for how they want the concepts, SURWRW\SHV�DQG�¿QDO�SURGXFWLRQ�VDPSOHV�VXEPLWWHG��6FKHGXOH�(�LV�WKH�0DQXIDFWXUHU�$JUHHPHQW��This provision is used when the licensee does not own the manufacturer. In this case, the Manufac-turer Agreement states that any third party manufacturers used by the licensee will be audited prior to employing their services to make sure the manufacturer meets the standards set by the licensor. Schedule F covers the Quality Standards that must be followed for all licensed product being sold under the licensor’s name. This section typically includes testing standards for each of the covered products and what testing facilities can be used to evaluate that the approved products pass those standards. Passing the testing standards keeps the product from being recalled, which is critically important to the licensor.

Stage V: Signing the Agreement

Once the contract has been drafted, it is sent to the licensee. The licensee should review each of WKH�WHUPV�ZLWK�WKH�'HDO�7HUPV�6KHHW�WKH\�KDG�VLJQHG�SUHYLRXVO\�WR�FRQ¿UP�WKH�FRQWUDFW�LV�DOLJQHG��If there are any other terms on the contract, or the contract language is unclear or changed, the licensee should contact the licensor; get together with them over the phone or in person and reach an agreement. The licensor will then make a change to the terms or the language (as the case may EH��DQG�UHWXUQ�WKH�UHYLVHG�FRS\�WR�WKH�OLFHQVHH��

The contract may go back and forth several times before both parties are comfortable with all the terms and language. Once this is done, both parties sign the contract. Only when a contract is signed by both parties is it considered “executed.” The contract is now valid and both parties should keep a copy of the “executed contract.”


The licensor and licensee have come a long way in the brand licensing process. With a signed deal, they both now start focusing their efforts on making the license a success.

Summary

Negotiating the optimal deal terms is critical to a successful brand licensing agreement. To help SRVLWLRQ�\RX�IRU�VXFFHVV��ZH�KDYH�GHYHORSHG�D��VWDJH�SURFHVV�WKDW�LQFOXGHV��

6WDUWLQJ�ZLWK�D�FOHDU�XQGHUVWDQGLQJ�RI�WKH�GHDO�WHUPV�KHOSV�WKH�EUDQG�RZQHU��OLFHQVRU��DQG�PDQX-IDFWXUHU��OLFHQVHH��NQRZ�WKH�SDUDPHWHUV�RI�WKH�DJUHHPHQW�DQG�WKH�H[SHFWDWLRQV�DQG�REOLJDWLRQV�WKDW�come with signing one. Moreover, a good understanding will ensure that no money is left on the table during the negotiation process and will prevent the parties from unknowingly breaching the agreement after it is signed.

7\SLFDO�GHDO�WHUPV�IRXQG�LQ�PRVW�OLFHQVLQJ�FRQWUDFWV�LQFOXGH�

Important Deal Terms

Brand/Trademarks Advance

Covered Products Minimum Guarantees

Authorized Channels New Product Introductions

Territory Sales Performance Requirements

Contract Term Shipping Date

Exclusivity Commercialization Date

Royalty Rate Sell-off Period


Once understood, the terms must be negotiated. Being prepared for the impending negotiation enables each party to achieve the license they want for a price they are willing to pay. To increase WKH�FKDQFH�IRU�VXFFHVV��LW�LV�LPSRUWDQW�WR�NQRZ�WKH��HOHPHQWV�RI�DQ\�QHJRWLDWLRQ��7KH\�LQFOXGH�

�� $OWHUQDWLYHV�� ,QWHUHVWV�� 2SWLRQV�� 6WDQGDUGV�RI�/HJLWLPDF\�� &RPPXQLFDWLRQ�� 5HODWLRQVKLS�� &RPPLWPHQW

In addition, it is important to understand the average ranges for licensing agreements. While there are exceptions to any rule, the chart below lists the average ranges.

The negotiation of the key deal terms usually takes place face-to-face. While you can negotiate these terms over the phone or even via email, there is nothing like gauging the other party’s’ body language and facial expressions during any negotiation. If both parties have thought through their negotiations strategy, deal terms can be achieved in as little as one day.

2QFH�WKH�QHJRWLDWLRQ�LV�FRPSOHWH��WKH�SDUWLHV�VKDUH�WKHLU�FRS\�RI�WKH�'HDO�7HUPV�6KHHW�ZLWK�WKHLU�respective teams. If both parties are comfortable with the agreed-upon terms, they will sign the 'HDO�7HUPV�6KHHW��*HWWLQJ�D�GHDO�WHUPV�VXPPDU\�VKHHW�VLJQHG�E\�WKH�SURVSHFWLYH�OLFHQVHH�GRHV�QRW�PHDQ�WKH�GHDO�LV�FRPSOHWH��7KH�QH[W�VWHS�LV�IRU�WKH�OLFHQVRU�WR�SUHSDUH�DQ�,QWHUQDO�'HDO�6KHHW�DQG�VKDUH�LW�ZLWK�WKH�*HQHUDO�0DQDJHU�IRU�DSSURYDO��%HIRUH�VLJQLQJ��WKH�*HQHUDO�0DQDJHU�FKHFNV�WR�VHH�WKDW�WKH�9LFH�3UHVLGHQW�RI�/LFHQVLQJ�KDV�VLJQHG�WKH�DJUHHPHQW�DQG�JHWV�DQ\�TXHVWLRQV�DQVZHUHG��

%HVW�LQ�FODVV�RUJDQL]DWLRQV�PD\�UHTXLUH�DSSURYDO�IURP�WKH�&(2�EHIRUH�WKH�9LFH�3UHVLGHQW�RI�/L-censing can initiate the drafting of the contract. Typically this is accomplished via a memo that RXWOLQHV�WKH�GHWDLOV�RI�WKH�DJUHHPHQW�DQG�DGGUHVVHV�WKH�IROORZLQJ�TXHVWLRQV�

Deal Terms Guidelines

Technology

1% - 4%

Corporate Brands

5% - 10%

Pro Sports

12% - 20%

Character

8% - 20%

NCAA

8% - 12%Royalty Rates

Sales Performance 25% - 40% of Forecasted Sales by Country, by Period

Minimum Guarantees 25% - 40% of Forecasted Royalties by Country, by Period

Contract Term 40% - 60% of First Year Minimum Guarantees

Advances Commercialization Date

Exclusivity 2 -3 Times Sales Performance and Minimum Guarantees


A. Can the licensee deliver reliable quality and service levels?B. How will it help the brand?&��'RHV�WKH�¿QDQFLDO�UHWXUQ�MXVWLI\�RXU�WLPH�DQG�WRWDO�HIIRUWV"

$IWHU�WKH�&(2�KDV�UHYLHZHG�WKH�PHPR�DQG�JLYHQ�DSSURYDO�� WKH�FRQWUDFW� LV�UHDG\�WR�EH�GUDIWHG��6WDQGDUG�OLFHQVLQJ�FRQWUDFW�SURYLVLRQV�LQFOXGH�

�� 6FKHGXOH�$�6WDQGDUG�7HUPV��&RQGLWLRQV- Schedule B Scope of License�� 6FKHGXOH�&�5R\DOW\�DQG�3D\PHQW�7HUPV�� 6FKHGXOH�'�6XEPLVVLRQV�1RWLFH�� 6FKHGXOH�(�0DQXIDFWXUHU�$JUHHPHQW�- Schedule F Quality Standards

Once the contract has been drafted, it is sent to the licensee. The licensee reviews each of the pro-visions of the contract to ensure the terms are acceptable. If there are any terms or language that are not acceptable, the licensee reviews them with the licensor in attempt to reach an agreement. In many instances the contract language is non-negotiable and the licensee must decide whether they can live with the original language. In rare instances, the licensor will make a change to the language and return the revised copy to the licensee to verify agreement.

After all the terms and language are agreed upon, the contract is ready to be signed. The licen-VRU�ZLOO�VHQG�XS�WR�¿YH�H[HFXWDEOH�FRSLHV�WR�WKH�OLFHQVHH�IRU�VLJQDWXUH��7KH�OLFHQVHH�VLJQV�DOO�WKH�FRSLHV�DQG�VHQGV�WKHP�EDFN�WR�WKH�OLFHQVRU�IRU�¿QDO�VLJQDWXUH��7KLV�FRPSOHWHV�WKH�SURFHVV�DQG�WKH�contract is deemed executed. Three copies of the executed contract are retained by the licensor and go to the licensor’s business unit, the licensing department and the licensor’s legal department. The remaining two executed copies are kept by the licensee’s business development and legal depart-ments. With the contract executed, it is now time to recognize all the hard work and celebrate the start of a long and successful relationship.


APPENDIX I : NEGOTIATION SHEET(Can be used as a template)

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APPENDIX I I : DEAL TERM SUMMARY SHEET(Can be used as a template)

Date: __ __ / __ __ / __ __ __ __

This deal term summary sets forth certain deal terms for a proposed license agreement between the parties. The parties agree that this summary is not a con-tract and is not binding on either party.

Proposed Licensee:

Licensee address:

Type of entity and state under which Licensee is formed (e.g., a Delaware corpora-tion):

SCOPE OF LICENSE

Trademarks:

Covered Products:

Authorized Channels:

Territory:

Term:


Initial Term:

Extended Term (only upon mutual agreement of the parties):

Insurance Requirements:

Required limits may be satis"ed by a combination of primary General Products, Umbrella, and/or Excess Liability insurance policies

ROYALTY AND PAYMENT TERMS

Royalty Rate:

Advance:

The Advance payment may be offset against Royalties due during the period that ends on

________________________________

Guaranteed Minimum Periodic Royalty Payments (by country and by period):

Initial Term: Year Amount


In the event the parties elect to extend the Term of the Agreement for the Extend-ed Term, the Guaranteed Minimum Periodic Royalty Payments for the Extended Term are: Year Amount

MARKETING AND SALES

Schedule of Minimum New Product Introductions (per year):

Sales Performance Requirements (per year):

Year Amount

Shipping Date:

The Shipping Date means the date by which the Licensee must "rst ship Licensed Products to the retailers for sale by the retailers.


Commercialization Date:

The Commercialization Date is the date by which Licensee must have placement of each Licensed Product in no less than two of the top "ve retailers or other enti-ties in each of the Authorized Channels in each country of the Territory.

Submitted for approval (Licensee):

_______________________________________________Name:Title:Company Name:Address:

Approved (Licensor):

_______________________________________________Name:Title:Company Name:Address:


APPENDIX I I I : INTERNAL DEAL MEMO(Can be used as a template)


APPENDIX IV: Schedule B of Contract

SCOPE OF LICENSE

The “Trademarks´�DUH�� Storage Solutions

The “Covered Products´�DUH��Ready to Assemble Wood Garage Cabinets and Shelves

The “Authorized Channels´�DUH��PDVV�PHUFKDQWV��H�J��:DOPDUW�DQG�7DUJHW��+RPH�&HQWHUV��H�J��+RPH�'HSRW��/RZH¶V��'HSDUWPHQW�6WRUHV��L�H��.RKO¶V��-&�3HQQH\��6HDUV�

The “Territory´�LV��United States and Canada

Term

7KH�$JUHHPHQW�EHJLQV�RQ�WKH�(IIHFWLYH�'DWH

7KH�,QLWLDO�7HUP�HQGV�RQ�0DUFK��XQOHVV�WKH�$JUHHPHQW�LV�HDUOLHU�WHUPLQDWHG�LQ�DFFRU-GDQFH�ZLWK�LWV�WHUPV�

7KH�([WHQGHG�7HUP�EHJLQV�RQ�WKH�GD\�DIWHU�WKH�HQG�RI�WKH�,QLWLDO�7HUP�DQG�HQGV�RQ�0DUFK��XQOHVV�WKH�$JUHHPHQW�LV�HDUOLHU�WHUPLQDWHG�LQ�DFFRUGDQFH�ZLWK�WKH�WHUPV��

Insurance 86��SHU�RFFXUUHQFH

86��DJJUHJDWH

5HTXLUHG�OLPLWV�PD\�EH�VDWLV¿HG�E\�D�FRPELQDWLRQ�RI�SULPDU\�*HQHUDO�3URGXFWV��8PEUHOOD��DQG�RU�([FHVV�/LDELOLW\�LQVXUDQFH�SROLFLHV�


APPENDIX V: Schedule C

ROYALTY AND PAYMENT TERMS

³1HW�6DOHV´�PHDQV�WKH�JURVV�LQYRLFH�SULFH�ELOOHG�IRU�/LFHQVHG�3URGXFWV�OHVV��L��DOORZDQFHV�DQG�GLVFRXQWV�DFWXDOO\�JLYHQ�LQ�WKH�RUGLQDU\�FRXUVH�RI�EXVLQHVV��DV�UHÀHFWHG�LQ�/LFHQVHH¶V�LQYRLFHV�WR�FXVWRPHUV��DQG��LL��DFWXDO�UHWXUQV��FROOHFWLYHO\��WKH�³'HGXFWHG�$PRXQWV´��SURYLGHG��KRZHYHU��WKDW�WKH�'HGXFWHG�$PRXQWV�IRU�DQ\�FDOHQGDU�TXDUWHU�VKDOO�QRW�H[FHHG��RI�WKH�JURVV�VDOHV�LQ�that calendar year. No deductions shall be made for uncollectible accounts. No costs incurred in the manufacture, sale, marketing, advertising, or distribution of the Licensed Products shall be deducted from any Royalties paid by Licensee.

The “Royalty Rate´�LV��6HYHQ�DQG�RQH�TXDUWHU�SHUFHQW��

The “Advance´�LV��86��

7KH�³$GYDQFH´�SD\PHQW�PD\�EH�RIIVHW�DJDLQVW�5R\DOWLHV�GXH�GXULQJ�WKH�SHULRG�WKDW�HQGV�RQ�'H-FHPEHU��

The Guaranteed Minimum Periodic Royalty Payments�DUH��E\�SHULRG�� ,QLWLDO�7HUP�� Year Amount� � � � ��

,Q�WKH�HYHQW�WKH�SDUWLHV�HOHFW�WR�H[WHQG�WKH�7HUP�RI�WKH�$JUHHPHQW�IRU�WKH�([WHQGHG�7HUP��WKH�*XDUDQWHHG�0LQLPXP�3HULRGLF�5R\DOW\�3D\PHQWV�IRU�WKH�([WHQGHG�7HUP�DUH� Year Amount� � � � ��

PAYMENT INSTRUCTIONS

Licensee shall submit all payments under the License Agreement to Licensor by wire transfer in DFFRUGDQFH�ZLWK�WKH�IROORZLQJ�ZLUH�LQVWUXFWLRQV�

Bank: Account Name: ABA/Routing #: Account #:


(DFK�ZLUH�SD\PHQW�VKDOO�LQFOXGH�WKH�IROORZLQJ�LQIRUPDWLRQ��WKH�WLPH�SHULRG�FRYHUHG�E\�WKH�SD\-PHQW��PRQWK�DQG�\HDU��DQG�VKDOO�LQFOXGH�WKH�IROORZLQJ�LGHQWL¿FDWLRQ�QXPEHU��>LQVHUW�QXPEHU@�

Transfer Fee for Approved Assignments/Change in Control (pursuant to Section 23)

86��

MARKETING AND SALES

6FKHGXOH�RI�0LQLPXP�1HZ�3URGXFW�,QWURGXFWLRQV��SHU�\HDU��

Year 2012 Introductions57$�2DN�&DELQHWVRTA Oak Shelves57$�0DSOH�&DELQHWV�57$�5HVLQ�&DELQHWVRTA Resin Shelves

Year 2013 IntroductionsRTA Rose ShelvesRTA Maple Shelves

Year 2014 Introductions 57$�7HDN�&DELQHWVRTA Teak Shelves

Sales Performance Requirements��DV�GHVFULEHG�LQ�6HFWLRQ��LQFOXGHV�WKH�,QLWLDO�7HUP�DQG�WKH�([WHQGHG�7HUP�LI�WKH�SDUWLHV�DJUHH�WR�SURFHHG�ZLWK�WKH�([WHQGHG�7HUP�� Year Amount� � � � ��

SHIPPING/COMMERCIALIZATION DATES

The “Shipping Date´�LV�6HSWHPEHU��

The “Commercialization Date´�LV�2FWREHU��/LFHQVHH�ZLOO�PHHW�WKH�&RPPHUFLDOL]D-WLRQ�'DWH�DV�WR�DQ�LQLWLDO�JURXS�RI�LWHPV�DPRQJ�WKH�&RYHUHG�3URGXFWV��DQG�ZLOO�DGG�WKH�UHPDLQLQJ�&RYHUHG�3URGXFWV�QRW�ODWHU�WKDQ��PRQWKV�DIWHU�2FWREHU��


APPENDIX VI : MEMO TO THE CEO

To: >1DPH@�&(2

From: >1DPH@�93�RI�/LFHQVLQJ

Cc: Head of STORAGE SOLUTIONS Brand Brand Manager of STORAGE SOLUTIONS Brand

6XEMHFW�� /LFHQVLQJ�$SSURYDO�5HTXHVW��/LFHQVHH��(;&(//(17�&$%,1(76��IRU�� STORAGE SOLUTIONS Branded Ready to Assemble (RTA) wooden garage cabinets and shelves

'DWH�� 0DUFK��

Sir,

:H�KDYH�D�VLJQHG�FRQWUDFW�IURP�([FHOOHQW�&DELQHWV��,QF��WR�OLFHQVH�57$�ZRRGHQ�JDUDJH�FDELQHWV�DQG�VKHOYHV�XQGHU�WKH�6725$*(�62/87,216�EUDQG��7KLV�OLFHQVH�ZLOO�HQDEOH�6725$*(�62/87,216�WR�LPSURYH�LWV�FXUUHQW�FDELQHWV�DQG�VKHOYHV�SURGXFW�OLQH�ZKLOH�PD[LPL]LQJ�SUR¿W-DELOLW\��,PPHGLDWH�H[HFXWLRQ�RI�WKLV�FRQWUDFW�LV�QHFHVVDU\�WR�FDSWXUH��RSSRUWXQLWLHV� 7KLV�PHPR�UHTXHVWV�\RXU�DSSURYDO�IRU�PH�WR�VLJQ�WKLV�FRQWUDFW�ZLWK�([FHOOHQW�&DELQHWV��

Background

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&DWHJRU\�VXFFHVV�LV�ODUJHO\�GH¿QHG�E\��6.8�PDQDJHPHQW�FRUH�FRPSHWHQF\��D�YHQGRU¶V�FRPPLWPHQW�WR�GHYHORS��UHGHVLJQ�DQG�UHSODFH�6.8V�UDSLGO\�WKURXJKRXW�WKH�\HDU��DQG��IXQGLQJ�DQG�SURJUDPPLQJ�WR�LQÀXHQFH�SURGXFW�WULDO�

,Q�WKH�¿UVW�TXDUWHU�RI��6725$*(�62/87,216�FRQGXFWHG�DQ�,QWHUQHW�VXUYH\�RI��FRQ-sumers to determine the brand’s extendibility within the wooden garage cabinets and shelves cat-HJRU\��7KLV�UHVHDUFK�LQGLFDWHG��RI�FRQVXPHUV�EHOLHYHG�6725$*(�62/87,216�¿W�ZLWKLQ�WKH�FDWHJRU\��DQG�6725$*(�62/87,216�HQWHUHG�WKH�FDWHJRU\�ZLWK�UHWDLOHU�VSHFL¿F�VW\OHV�IRU�WHVWV�DW�:DOPDUW��7DUJHW��DQG�7KH�+RPH�'HSRW�LQ�-DQXDU\��6L[�PRQWKV�ODWHU��WKH�SURJUDP�ZDV�GHHPHG�D�IDLOXUH�E\�WKHVH�UHWDLOHUV�DQG�ZDV�GLVFRQWLQXHG�IRU��6725$*(�62/87,216�then decided to exit the category based on this lack of success and service issues with its two suppliers for the line.

,Q�'HFHPEHU�RI��:DOPDUW�PDQDJHPHQW�UHYHUVHG�LWV�GHFLVLRQ�DQG�UHTXHVWHG�WKDW�6725$*(�62/87,216�FRQWLQXH�SURYLGLQJ�WKHP�ZLWK�WKH�OLQH�LQ��6725$*(�62/87,216�XQVXF-FHVVIXOO\�DWWHPSWHG�WR�LQÀXHQFH�:DOPDUW�WR�VHHN�WKH�SURGXFWV�IURP�DQRWKHU�YHQGRU�E\�H[SODLQLQJ�


6725$*(�62/87,216¶V�RQJRLQJ�VXSSOLHU�LVVXHV�IRU�WKH�OLQH�DQG�LWV�LQDELOLW\�WR�UHIUHVK�DQ\�HOHPHQW�RI�WKH�SURGXFW�RIIHULQJ�IURP��

STORAGE SOLUTIONS’ Category Sales (and Standard Margin) ��7UDGH�6DOHV�� 00�� 7UDGH�6DOHV�� 00�� 7UDGH�6DOHV�� 00��

3URJUDP�SHUIRUPDQFH�KDV�FRQWLQXHG�WR�GHFOLQH��6725$*(�62/87,216¶�VDOHV�RI�ZRRGHQ�JDUDJH�FDELQHWV�DQG�VKHOYHV�WR�:DOPDUW�WKLV�\HDU�DUH�HVWLPDWHG�WR�GURS��IURP��PLOOLRQ�LQ��WR��PLOOLRQ�LQ��&ORVH�RXW�VWRUHV�QRZ�DFFRXQW�IRU��RI�WKH�VDOHV�WKLV�\HDU�IRU�D�WRWDO�VDOHV�HVWLPDWH�RI��PLOOLRQ�LQ��7KLV�LV�OHVV�WKDQ��RI�:DOPDUW¶V�WRWDO�ZRRGHQ�JD-UDJH�FDELQHWV�DQG�VKHOYHV�EXVLQHVV��:DOPDUW�DQG�6725$*(�62/87,216�KDYH�MRLQWO\�DJUHHG�WR�FORVH�RXW�WKLV�EXVLQHVV�LQ��GXH�WR�SURJUDP�VHUYLFH�LVVXHV�DQG�6725$*(�62/87,216�ODFN�of attention to this segment.

6725$*(�62/87,216�EHOLHYHV�WKDW�WKH�ZRRGHQ�JDUDJH�FDELQHWV�DQG�VKHOYHV�FDWHJRU\�LV�D�JRRG�¿W�IRU�WKH�6725$*(�62/87,216�EUDQG��PRUH�RQ�WKLV�ODWHU��+RZHYHU��WKH�6725$*(�62/87,216�EXVLQHVV�V\VWHP�LV�QRW�LGHDOO\�FRQ¿JXUHG�WR�VXSSRUW�WKH�G\QDPLFV�RI�WKH�FDWHJRU\�DQG�ODFNV�WKH�FDSDELOLWLHV�FULWLFDO�WR�LWV�VXFFHVV�

$��7KH�SURJUDP�LV�6.8�LQWHQVLYH��JRRG�SURJUDPV�UHTXLUH�RIIHULQJ�UHWDLOHUV�SURGXFW�OLQHV�LQ�H[FHVV�RI��GLIIHUHQW�SURGXFWV�

B. Order sizes, while moderate, are highly variable

&��7KH�SURJUDP�LV�D�GUDLQ�RQ�UHVRXUFHV��UHTXLULQJ�D�IXOO�WLPH�SURGXFW�PDQDJHU��HQJLQHHU�DQG�VRXUFLQJ�VSHFLDOLVW��DORQJ�ZLWK�VXEVWDQWLDO�&KDQQHO�0DUNHWLQJ�WLPH

'��'LYLVLRQ�6*$�FRVWV�DJDLQVW�WKH�SURJUDP�DUH�DSSUR[LPDWHO\��DQQXDOO\

(��&XUUHQW�52,�RQ�WKH�EXVLQHVV�LV�DSSUR[LPDWHO\��

7KH�DERYH�IDFWRUV�FRPELQHG�ZLWK�6725$*(�62/87,216��FXUUHQW�LQYHVWPHQW�SULRULWLHV�UHVXOW�LQ�6725$*(�62/87,216¶�GHFLVLRQ�WR�UHPDLQ�LQ�WKH�FDWHJRU\��EXW�WR�GR�VR�YLD�D�OLFHQVLQJ�UHOD-tionship with a well-positioned market leader. 7KH�IROORZLQJ�IRXU�FRPSDQLHV�KDYH��RI�WKH�ZRRGHQ�JDUDJH�FDELQHWV�DQG�VKHOYHV�FDWHJRU\��DSSUR[LPDWHO\��LV�SULYDWH�ODEHO��

�� 7RSVKHOI�%UDQGV�ZLWK��PDUNHW�VKDUH�� $$$�6WRUDJH�ZLWK��PDUNHW�VKDUH�� ([FHOOHQW�&DELQHWV�ZLWK��PDUNHW�VKDUH�� 3'4�&DELQHWV�ZLWK��PDUNHW�VKDUH


:H�DSSURDFKHG�7RSVKHOI�%UDQGV�DQG�([FHOOHQW�&DELQHWV�EDVHG�RQ�WKHLU�GHPRQVWUDWHG�VXFFHVV�DV�D�licensor of other major brands and the strength of their reputations in the category. Additionally, *OREDO�/LFHQVLQJ�HVWDEOLVKHG�D�UHODWLRQVKLS�ZLWK�6725$*(�62/87,216�LQ��DQG�WKH\�DUH�FXUUHQWO\�D�OLFHQVHH�IRU�6KHOYHV��IRU�ZRRGHQ�JDUDJH�FDELQHWV�DQG�VKHOYHV�XQGHU�WKH�&DELQHW�(V-sentials and Building Shelves sub-branded programs at Target and Lowe’s only. Both Topshelf %UDQGV�DQG�([FHOOHQW�&DELQHWV�H[SUHVVHG�LQWHUHVW�LQ�D�6725$*(�62/87,216�OLFHQVH� As referenced above, Topshelf Brands manages a broad line of Shelf Aid products including tools and gadgets, and ready-to-assemble shelves and cabinets; in addition to mass distribution, WKH�6KHOI�$LG�OLQH�DOVR�VHOOV�DW�%HG��%DWK��%H\RQG�DQG�RWKHU�VSHFLDOW\�FKDQQHOV��GLUHFWO\�FRP-peting with Shelves! core cabinets and shelves program. :LWK�OLFHQVHV�LQFOXGLQJ�6KHOYHV��6HOI�6KHOI��:RRGEORFNHU��*DUDJH�(VVHQWLDOV��DQG�6WRUDJH�3OXV��(;&(//(17�&$%,1(76�KDV�D�GHHS�XQGHUVWDQGLQJ�RI�HDFK�EUDQG¶V�HTXLWLHV�DQG�WKHLU�SRVLWLRQ-ing within the retail landscape.

([FHOOHQW�&DELQHWV�EHOLHYHV�WKH�6725$*(�62/87,216�EUDQG�VKRXOG�EH�SRVLWLRQHG�DW�WKH�0LG�3ULFH�3RLQW�+LJK�3ULFH�3RLQW�OHYHO�DQG�FDQ�DFKLHYH�VXFFHVV�LQ�WKH�PDVV��FOXE��DQG�VSHFLDOW\�FKDQ-nels while also maintaining the unique positioning of its Shelves! line.

Rationale

0U��&(2��\RX�DVNHG�XV�WR�VSHFL¿FDOO\�DGGUHVV�WKUHH�TXHVWLRQV�ZKHQ�PDNLQJ�WKHVH�UHFRPPHQGD-WLRQV�WR�\RX��

A. Can the licensee deliver reliable quality and service levels?

<HV��WKH\�FDQ��,Q�IDFW��([FHOOHQW�&DELQHWV�ZDV�VHOHFWHG�DV�7KH�+RPH�'HSRW�9HQGRU�RI�WKH�<HDU�LQ��DQG��IRU�FDELQHWV�DQG�VKHOYHV�

)RXQGHG�LQ��DV�([FHOOHQW�&DELQHWV��,QF��([FHOOHQW�&DELQHWV�HYROYHG�DV�D�PDQXIDFWXUHU�RI�TXDOLW\�FDELQHWV��VKHOYHV��¿QH�WRROV�DQG�JDGJHWV��(;&(//(17�&$%,1(76�QRZ�PDUNHWV�PRUH�WKDQ��LWHPV�WR�UHWDLOHUV�DQG�ZKROHVDOHUV�EDVHG�LQ�1RUWK�$PHULFD�DQG�PRUH�WKDQ��SLHF-es are shipped each week from its warehouse in Little Rock, AR. All products undergo extensive pre-introduction prototype testing and all products are inspected at their source, whether made in WKH�8�6��(XURSH��RU�$VLD�

%DVHG�RQ�([FHOOHQW�&DELQHWV¶�UHOLDEOH�TXDOLW\��VHUYLFH�OHYHOV��DQG�EUDQG�DQG�SURGXFW�PDQDJHPHQW�FDSDELOLWLHV��([FHOOHQW�&DELQHWV�KDV�KHOG�WKH�*DUDJH�(VVHQWLDOV�OLFHQVH�IRU��\HDUV��WKH�6HOI�6KHOI�OLFHQVH�IRU��\HDUV��DQG�WKH�6WRUDJH�3OXV�OLFHQVH�IRU��\HDUV��,Q��LQ�DGGLWLRQ�WR�WKH�6KHOYHV��OLFHQVH��([FHOOHQW�&DELQHWV�DOVR�DFTXLUHG�WKH�:RRGEORFNHU�OLFHQVH�

B. How will it help the brand?

��Quality product: 6725$*(�62/87,216�ZLOO�HQVXUH�([FHOOHQW�&DELQHWV�GHYHORSV�LQWHO-ligently designed and stylish products, enhancing the consumers’ overall level of satisfaction.


This purposeful innovation will enable the consumer to feel more “relaxed and in control” when KH�LV�UHQRYDWLQJ�KLV�JDUDJH��([FHOOHQW�&DELQHWV�KDV�D�GHHS�XQGHUVWDQGLQJ�RI�WKH�ZRRGHQ�JDUDJH�cabinets and shelves industry; they will have dedicated and skilled product managers, engineers, designers and sourcing specialists assigned full-time to the brand.

2. Availability��:H�ZLOO�RIIHU�JUHDWHU�H[SRVXUH�IRU�WKH�EUDQG²([FHOOHQW�&DELQHWV�KDV�VWURQJ�UHWDLO�UHODWLRQVKLSV�ZLWK�EX\HUV�LQ�FKDQQHOV�ZKHUH�6725$*(�62/87,216�LV�QRW�VWURQJ��7KLV�FUHDWHV�RSSRUWXQLWLHV�WR�SODFH�6725$*(�62/87,216�ZRRGHQ�JDUDJH�FDELQHWV�DQG�VKHOYHV�LQWR�retailers where we currently have no presence.

3. “Free up´�UHVRXUFHV�WR�IRFXV�RQ�EUDQG��)RFXV�ZLOO�UHVXOW�LQ�PRUH�52,²([FHOOHQW�&DELQHWV�can execute a world-class wooden garage cabinets and shelves program with minimal input from RXU�RUJDQL]DWLRQ��/LFHQVLQJ�WR�([FHOOHQW�&DELQHWV�IUHHV�XS�RXU�RZQ�UHVRXUFHV�DOORZLQJ�6725-$*(�62/87,216�WR�H[HFXWH�DOWHUQDWH�SURJUDPV�DOLJQHG�ZLWK�RXU�LQWHUQDO�FRPSHWHQFLHV�

Supporting Data

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Negotiating Your Brand Licensing Agreement

Business

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