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Published: 2008-03-26

License Agreement - MSO IP Holdings Inc. and Kmart Corp.



NOTE: CERTAIN MATERIAL HAS BEEN OMITTED FROM THIS AGREEMENT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24B-2. THE LOCATIONS OF THESE
OMISSIONS ARE INDICATED THROUGHOUT THE AGREEMENT BY THE FOLLOWING MARKINGS:
[ * * * ].


                                LICENSE AGREEMENT

            THIS AGREEMENT made as of this 21st day of June, 2001, by and
between MSO IP HOLDINGS, INC., a California corporation, with its principal
place of business at 11100 Santa Monica Boulevard, Suite 600, Los Angeles,
California 90025 ("MSO") and KMART CORPORATION, a Michigan corporation, with its
principal place of business at 3100 West Big Beaver Road, Troy, Michigan 48084
("Kmart").

            WHEREAS, MSO and Kmart have previously entered into an agreement,
dated January 28, 1997 (the "Bed and Bath Agreement"), pursuant to which Kmart
and MSO, among other things, merchandise and develop certain home products;

            WHEREAS, MSO and Kmart have previously entered into an agreement,
dated June 1, 1998 (the "Garden Agreement"), pursuant to which Kmart and MSO,
among other things, merchandise and develop certain garden products;

            WHEREAS, MSO and Kmart have previously entered into an agreement,
dated April 21, 1999 (the "Housewares Agreement," and together with the Bed and
Bath Agreement and the Garden Agreement, the "Prior Agreements"), pursuant to
which Kmart and MSO, among other things, merchandise and develop certain
housewares products;

            WHEREAS, Kmart and MSO have determined to terminate the Prior
Agreements and enter into this Agreement, which shall set forth revised terms
and conditions governing the relationship between the parties and shall, as of
August 1, 2001, supersede the Prior Agreements in every way (except for
obligations relating to payment of royalties for periods prior to August 1,
2001);

            NOW, THEREFORE, for good and valuable consideration the sufficiency
of which is hereby acknowledged by the parties hereto, the parties hereto hereby
agree as follows:

      I.    Grant. Subject to the terms and conditions of this Agreement, MSO
licenses to Kmart the limited right in the Territory (as defined below) to
utilize the trademark MARTHA STEWART EVERYDAY(TM) and variations and stylized
forms thereof designated by MSO (the "Trademark"), together with the name,
likeness, voice and signature of Martha Stewart (in each case solely in
connection with the Trademark) (the "Stewart Property"), and the designs and
other intellectual property incorporated in the Licensed Products (as defined
below) (the "Product Designs," and together with the Stewart Property and the
Trademark, the "Licensed Property"), all of which shall be approved by MSO in
the manner set forth herein, solely in connection with (i) the manufacture of
Licensed Products, (ii) the distribution of Licensed Products to, and retail
sale of Licensed Products by, Kmart's Kmart stores in the Territory, and (iii)
the manufacture and exploitation of the Materials (as defined in Section VI(1))
in connection with Kmart's sales of Licensed Products through its Kmart stores.
Any sale or other exploitation
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of the Licensed Products or use of the Licensed Property in a manner not
explicitly permitted hereunder shall be deemed a material breach of this
Agreement. "Licensed Products" shall mean the Home Products (as defined below),
the Garden Products (as defined below), the Housewares Products (as defined
below), the Seasonal Products (as defined below) and the Additional Products (as
defined in Section XVII). The "Home Products" shall mean those products
developed and merchandised by Kmart and MSO pursuant to the terms of this
Agreement and/or the Bed and Bath Agreement in the product categories set forth
on Schedule I(a) hereto. The "Garden Products" shall mean those products
developed and merchandised by Kmart and MSO pursuant to the terms of this
Agreement and/or the Garden Agreement in the product categories set forth on
Schedule I(b) hereto. The "Housewares Products" shall mean those products
developed and merchandised by Kmart and MSO pursuant to the terms of this
Agreement and/or the Housewares Agreement in the product categories set forth on
Schedule I(c) hereto. The "Seasonal Products" shall mean those products
developed and merchandised by Kmart and MSO pursuant to the terms of this
Agreement in the product categories set forth on Schedule I(d) hereto. "Product
Category" shall mean a broad category of Licensed Product (1) comprising
narrower categories of product associated by a common theme, and (2) which Kmart
and MSO consider a cohesive program (e.g. Home Products, Garden Products, etc.).
"Initial Products" shall mean the Home Products, the Garden Products, the
Housewares Products and the Seasonal Products. "Territory" shall mean the United
States of America and its territories, including, Puerto Rico, Guam, and the
U.S. Virgin Islands, and the Caribbean. Additionally, if Kmart opens Kmart
stores in additional small countries it may request of MSO for such country to
be added to the definition of the Territory, which request MSO shall generally
approve so long as (x) MSO (or its affiliate) is not already actively marketing
(either directly or through third parties) products and/or services in such
country, (y) MSO (or its affiliate) does not have plans to begin to market
(either directly or through third parties) products and/or services in such
country in the foreseeable future, and (z) MSO has no other compelling reason
why adding such country to the Territory would be detrimental to MSO's (or its
affiliate's) business.

      II. Exclusivity. (1) MSO warrants and agrees that the license of the
Licensed Property contained herein is exclusive to Kmart in Exclusive Stores (as
hereafter defined) in the Territory during the Term in connection with the
promotion, advertising, manufacture, distribution and sale of any products which
are Licensed Products. "Exclusive Stores" shall mean (i) the retail store
outlets in the discount store channel of distribution which includes only
Wal-Mart, Sam's Club, Target, J.C. Penney, Montgomery Ward, Venture, Bradlees,
Kohl's, Mervyn's, Meijer, Fred Meyer, Shopko, Costco and Hill's and similar
national or regional discount stores which are not in business as of the date
hereof but which may come into existence in the future during the Term, provided
that Kmart provides MSO with written notice of its desire to include such
newly-existing stores within the definition of Exclusive Stores within 60 days
of the initial opening of any such store and MSO reasonably agrees that such
store should be so included, and (ii) the retail store outlets of Sears, Lowe's,
Home Depot, HQ, Builder's Square and Hechinger's.

      (2) MSO may use or permit others to use the Licensed Property on products
which are of the same product type as Licensed Products and which are of a
higher quality and intended by MSO to be sold at a higher price point than the
Licensed Products sold by Kmart provided, however, that such products are sold
by such licensee other than through Exclusive Stores.


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      (3) In the event MSO wishes to develop, merchandise, and sell products in
cooperation with Kmart in Product Categories other than those of the Initial
Products, MSO shall provide Kmart written notice describing such category and
MSO's desire to work with Kmart in connection therewith. Promptly thereafter,
representatives of Kmart and MSO shall cooperate in good faith to agree upon
appropriate Sales projections for such Product Category, a schedule for
development and launch of the Licensed Products relating thereto, and other
pertinent factors relating to the Program. Upon reaching agreement on these
elements, MSO and Kmart shall enter into an addendum to this Agreement relating
to such Product Category and setting forth all relevant information necessary to
incorporate such Product Category into this Agreement. Royalty rates for such
Product Categories shall be the same as royalty rates otherwise applicable
hereunder and Minimum Royalty Amounts shall be [ * * * ] of agreed upon
projections for Sales of such Licensed Products. MSO may not enter into any
agreement with any Exclusive Store for the sale of Martha Stewart branded
products in any of the Product Categories set forth on Schedule II(3) hereto
unless agreement has not been reached with respect to projections, development
and launch schedule for the Licensed Products in such Product Category within 90
days of the giving of notice by MSO hereunder, provided that if Kmart is still
cooperating with MSO in good faith to come to such agreement this period will be
extended for an additional 30 days. Any Licensed Products developed pursuant to
this Section II(3) shall be "Additional Products." Notwithstanding the
foregoing, in no event shall MSO enter into any agreements with Target,
Wal-mart, Kohl's, J.C. Penny's, and Sears in connection with the manufacture,
distribution or sale at such stores of products in the categories of apparel,
electronics, sporting goods, automotive care, cameras or jewelry.

      III. Restrictions on Use. Kmart agrees that all use of the Licensed
Property by Kmart shall be in the form and manner as is approved by MSO, which
approval shall not be unreasonably withheld or delayed, and there will appear on
all Licensed Products and their tags, labels, containers, packaging and the
like, such legends, markings and notices as may be reasonably deemed necessary
by MSO for protection under trademark, copyright or other applicable laws.

      IV.  Royalties. Kmart shall pay to MSO in the manner described in Section
V below royalties based on Sales (as defined below) at the royalty rates set
forth on Schedule IV hereto. "Sales" for a particular period shall mean the
aggregate retail sale prices charged by Kmart for Licensed Products sold during
such period, net any amounts actually refunded by Kmart to customers on account
of returns of Licensed Products during such period.

      V.   Payments. (1) Kmart shall deliver royalty reports to MSO within
thirty (30) days following the end of each Kmart fiscal quarter (the "Quarterly
Reports"). Each Quarterly Report shall be certified as accurate by an authorized
Kmart officer and shall set forth the Sales during such quarter by Product
Category and SKU, as well as the amount of royalties payable with respect
thereto. In addition to the Quarterly Reports, Kmart shall deliver non-binding
(but based on Kmart's then current knowledge), interim reports containing the
same sales information on a monthly basis, consistent with Kmart's practice
under the Prior Agreements since 1998. Additionally, Kmart shall continue to
work to provide MSO with electronic access to current financial information
relating to Sales via the workbench system, any successor system and any
supplemental systems necessary to provide MSO such access.


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      (2) When Kmart delivers the Quarterly Reports to MSO, Kmart shall also pay
to MSO the royalties due and owing for the corresponding quarter. These payments
shall be made by wire transfer to a bank account designated by MSO unless it is
not practicable for Kmart to utilize such method, in which event payment shall
be made by check to MSO. Additionally, Schedule V(2) hereto sets forth certain
guaranteed royalty amounts as of each January 31 of the Term commencing on
January 31, 2002 ("Minimum Royalty Amounts") by Product Category and in the
aggregate which may give rise to increases in royalty payments otherwise
payable. Specifically, the royalty payable in connection with each quarter
ending January 31 shall be increased by the aggregate Category Shortfalls, if
any, and by the Aggregate Shortfall, if any, for such January 31. A "Category
Shortfall" shall mean, for any Product Category and any January 31, the excess,
if any, of the Minimum Royalty Amount for such Product Category and such January
31 over the amount of royalties paid and/or payable to MSO on account of Sales
relating to such Product Category that occurred during the twelve-month period
ending on such January 31. An "Aggregate Shortfall" for any January 31 shall
mean the excess, if any, of the aggregate Minimum Royalty Amount relating to
such January 31, over the amount of royalties paid and/or payable to MSO on
account of Sales of the Initial Products that occurred during the twelve-month
period ending on such January 31.

      (3) Kmart shall maintain complete and accurate records of the Sales,
royalty computations, royalty reports and amounts spent on advertising and
shall, upon reasonable request, make such records and all other documents and
materials in the possession or control of Kmart and reasonably required to
confirm Kmart's satisfaction of its obligations under this Agreement and the
Prior Agreements available to MSO or its duly authorized representatives, during
usual business hours at Kmart International Headquarters in Troy, Michigan, for
the duration of this Agreement and for one year thereafter, and to make extracts
therefrom at its sole expense. All such records and documents shall be deemed
Information under Section XXV hereof. In the event any audit reveals that Kmart
has underpaid MSO pursuant to this Agreement and/or any of the Prior Agreements,
Kmart shall promptly pay MSO the aggregate difference between what MSO should
have been paid, and what MSO was paid, plus interest on such amount at an annual
rate of 8%, compounded semi-annually. Moreover, in the event the amount of any
such underpayment equals or exceeds two and one-half percent (2.5%) of the
amounts actually paid to MSO during the period with respect to which the audit
was conducted, Kmart shall bear MSO's reasonable costs of the audit, including,
without limitation, any amounts payable to MSO's outside auditors in connection
therewith.

      VI. Licensed Product Design, Consultation, Quality, Schedules, Approvals,
and Expenses. (1) The parties recognize that the name Martha Stewart has
valuable goodwill with the consuming public, and that Martha Stewart ("Stewart")
is recognized as an authority on quality and style in the area of domestic
products and related activities. It is an objective of this Agreement that MSO,
Kmart, and Kmart's vendors of Licensed Products establish a broad spectrum of
Licensed Products with respect to quality and design consistent with Stewart's
image and Kmart's pricing philosophy. The parties agree that as an integral part
of this Agreement, MSO shall direct Kmart and Kmart's vendors of Licensed
Products in the establishment of the Strategic Direction (as defined below) of
the initial line and subsequent evolutionary lines (and all changes therein) of
merchandise comprising each Product Category. As used herein the "Strategic
Direction" shall include development of all aspects of the Licensed Products and
the promotion thereof including, without limitation, (A) concepts, designs, and
product selection, (B) marketing support, and (C) packages, labels, hang tags,
signage, other


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consumer facings and advertising and promotional materials to be used in
connection with the Licensed Products (materials in this sub-clause (C), whether
developed under this Agreement or a Prior Agreement, the "Materials") . The
Strategic Direction with respect to each Product Category shall be developed and
modified as follows:

            (i) Approximately eighteen months prior to the scheduled store
      implementation of each transition of Licensed Products or at such time as
      may be mutually agreed upon, MSO and Kmart shall meet with respect to such
      products. At such meetings, Kmart shall be responsible, in consultation
      with MSO, for proposing a merchandise plan (including selected vendors and
      planned linear footage) and time and action calendars for the relevant
      Licensed Products as well as related packaging/display requirements. MSO
      shall review the foregoing and shall work with Kmart to finalize the same.

            (ii) MSO shall then present Kmart with product and packaging design
      concepts. Kmart shall review such concepts and shall work with MSO to
      finalize the same. After the concepts have been finalized, MSO shall
      deliver to Kmart and the relevant vendors Licensed Product designs, each
      with a specific Martha Stewart Everyday design number, according to the
      approved time and action calendars. Kmart and the relevant vendors shall
      then review the product designs for price point, delivery and other
      pertinent merchandise needs and Kmart quality control shall review all
      designs to ensure that they meet or exceed industry standards.
      Notwithstanding the foregoing, prior to any vendor receiving any designs
      or other proprietary or confidential information, such vendor must enter
      into an agreement (the "Vendor Agreement") in substantially the form set
      forth on Schedule VI(1)(ii) hereof regarding the confidentiality and
      proprietary nature of certain information, designs and materials to which
      the vendors shall have access. MSO and Kmart shall cooperate to cause all
      vendors to enter into the Vendor Agreement.

            (iii) Kmart and the relevant vendors shall determine all package,
      display and label requirements, both legal and otherwise, and forward the
      related specifications and schedules to MSO. MSO shall then direct the
      creative look of all packaging, display and labels for the Licensed
      Products.

            (iv) As Licensed Products are developed by vendors based on MSO's
      approved design concepts, MSO shall review such development and submit
      comments and direction to Kmart and the vendors. When samples of each
      Licensed Product are completed, such samples shall be reviewed by Kmart
      and MSO. All samples shall be reviewed by Kmart and MSO prior to comments
      being given to the vendors and shall be tested for quality by Kmart. Both
      Kmart and MSO must approve a sample before it can be manufactured for
      sale. Kmart shall give such approvals based upon its merchandise needs and
      on the results of its quality testing and MSO shall give its approvals
      based upon the design concepts it submitted to Kmart and MSO's brand
      objectives (including quality).

            (v) Kmart shall monitor the packaging and display development to
      insure schedules for all vendors are being met. MSO shall monitor the
      packaging and display development to coordinate the design and art
      direction needs of all Licensed Products being packaged and displayed.
      Both Kmart and MSO must approve all packaging and displays before they can
      be used in connection with the Licensed Products. Kmart shall


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      give such approvals based upon its merchandise needs and MSO shall give
      such approvals based upon the design concepts it submitted to Kmart and
      MSO's brand objectives (including quality).

            (vi) The activities set forth in this Section VI(1) shall be
      conducted in a manner generally consistent with past practice under the
      Prior Agreements as of the date hereof.

      (2) Kmart agrees that each Licensed Product sold by it pursuant to this
Agreement, and the Materials utilized in connection therewith, shall conform to
the specifications developed by MSO pursuant to Section VI(1) hereof (or under a
Prior Agreement) and shall be of a quality equal to or exceeding the samples of
such Licensed Product approved by MSO pursuant to Section VI(1) hereof (or a
Prior Agreement). Promptly following execution of this Agreement, MSO and Kmart
shall develop and implement a mutually agreeable program for (i) reviewing and
testing the quality, safety and propriety for intended use of samples of
Licensed Products prior to the time at which they are approved for mass
manufacture and sale, and (ii) for monitoring quality and safety on a continuing
basis to make sure that the factory runs of each Licensed Product are consistent
with the initially approved samples. The costs of this program shall be the
responsibility of Kmart. This program shall include vigorous testing of Licensed
Products for wear and tear, maintenance, use and other appropriate elements to
be determined by the parties. The program shall be primarily implemented by
Kmart but shall involve MSO personnel as the parties deem appropriate.

      (3) Upon receipt of a notice from MSO pursuant to this Agreement setting
forth any quality deficiencies prohibited by this Agreement, or upon Kmart's
discovery of any such deficiencies, Kmart and/or Kmart's vendors of the Licensed
Products containing such deficiencies shall remedy such deficiencies prior to
the sale of the deficient Licensed Products or, at their option, dispose of such
off-quality merchandise through other outlets. Whenever such merchandise is sold
as aforesaid, no use of or reference to the name Martha Stewart or any Licensed
Property shall be used in connection with any advertising, publicity, labeling,
wrapping or packaging with respect to any such sales. In accordance with the
practice in the trade, Kmart's vendors of Licensed Products shall notify their
customers to assure compliance by them with the requirements of the preceding
sentence. Kmart and its vendors of Licensed Products shall be deemed to have met
this obligation by the removal of all labels, tags and marks which would
identify the goods as Martha Stewart merchandise and by placing the following
legend on all purchaser's invoices for such goods and by enforcing the terms of
such legend if, in the event of non-compliance and following consultation with
MSO, MSO and Kmart deem it appropriate for brand protection:

            "Purchaser agrees that it will not use the name `Martha Stewart' or
            the legend `designed by Martha Stewart' or any other phrase or
            statement using the name `Martha Stewart' on any advertising,
            publicity, labeling, wrapping or packaging with respect to the
            merchandise listed hereon."

In the event certain Licensed Products must be disposed of pursuant to this
Section VI(3) and such products have the Trademark or some derivation thereof
embedded in the product (e.g. a stamp or mold), Kmart and MSO agree to cooperate
in good faith to determine a manner in which such Licensed Products can be
disposed of that is mutually beneficial and minimizes any potential impact to
the Sales and brand image of the Licensed Products.


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      (4) Kmart shall select its vendors of Licensed Products pursuant to the
Kmart Quality Standards, Policies and Procedures set forth on Schedule VI(4)
hereto.

      (5) MSO and Kmart each agree to exercise their respective rights of
approval hereunder in a reasonable and timely manner, consistent with any agreed
upon time schedules and the established Strategic Direction. Notwithstanding the
foregoing, no decision by Kmart to refuse to offer for sale a particular product
that MSO desires to have manufactured for sale shall be considered unreasonable,
unless such refusal is made for purposes of frustrating the purposes of this
Agreement. Kmart shall designate one individual authorized to exercise its
approval rights hereunder and to be the liaison between Kmart and MSO.

      (6) Except as set forth in Section VIII(2) or as otherwise explicitly
stated herein or agreed upon by Kmart, MSO shall be responsible for the costs of
its personnel in connection with its services and activities hereunder
(including, without limitation, its services and activities under Section VI
(1)) (the "MSO Costs"). Kmart shall bear all its own expenses incurred in
connection with this Agreement, as well as all other costs incurred in
connection with the sourcing, design, manufacturing, distribution, marketing,
advertising and sale of the Licensed Products and the Materials, including,
without limitation, all photography and production costs relating to the
Materials. In connection with all still photography shoots, MSO shall continue
to conduct such shoots, to invoice Kmart therefor and to pay all relevant third
party costs (including photography costs) from such invoiced amounts, provided
that budgets for such shoots will be determined in advance by MSO and Kmart.

      (7) In furtherance of the valuable goodwill that Martha Stewart products
carry with the consuming public, Kmart agrees that it shall cause Kmart store
employees in every Kmart store to dedicate adequate and substantial time to (i)
replenishing the shelves that display Licensed Products, (ii) monitoring store
inventory levels of Licensed Products (including, without limitation, using
reasonable efforts to increase inventory levels in anticipation of sale events,
and generally maintaining inventory levels sufficient to meet demand), (iii)
ensuring that the areas in which the Licensed Products are sold are clean, and
(v) forwarding any Licensed Products which are returned to the relevant Kmart
store for reasons of defect to a Kmart quality assurance representative.

      (8) Kmart and MSO agree that the Seasonal Products shall be introduced at
all Kmart stores in time for the Christmas season in 2002, provided that each
party acknowledges certain products requiring substantial developmental
lead-times will not be available until 2003. The portion of the Martha Stewart
Everyday program comprising Garden Products shall be conducted according to the
terms set forth on Schedule VI(8) hereto as well as the rest of the terms of
this Agreement.

      VII. Term. This Agreement shall commence on August 1, 2001 and continue in
full force and effect until January 31, 2008 (the "Term"). Provided that (i) the
aggregate royalties earned by, and paid to, MSO hereunder with respect to Sales
of the Initial Products occurring from August 1, 2001 through January 31, 2007
equals or exceeds [ * * * ], and (ii) the royalties earned by, and paid to, MSO
with respect to Sales of the Initial Products during the four quarters ending
January 31, 2007 equals or exceeds [ * * * ], this Agreement shall automatically
be


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renewed for an additional five years (the "Renewal Term"). Notwithstanding the
foregoing, the Term commences as of the date hereof solely with respect to the
terms of Section XXIX hereof.

      VIII. Promotional and Marketing Services. (1) MSO shall cause Stewart to
render her services in a professional manner consistent with the intent of this
Agreement and to use her reasonable good faith efforts to participate in the
promotion and imaging of the Licensed Products including, without limitation,
through television, radio and print advertising, in-store videos, appearances
and other media presentations or programs and shall use reasonable and
appropriate opportunities, in her reasonable discretion, to promote the Licensed
Products and Kmart's sale thereof including, without limitation, interviews,
editorials, press conferences, press releases and television appearances. In
light of the considerable demands on Stewart's schedule, Kmart and MSO shall
cooperate in good faith to schedule the dates, times, places and manner in which
Stewart shall fulfill her obligations under this Section as far in advance, and
in the most convenient manner, possible. Subject to the final sentence of this
Section VIII(1), MSO shall cause Martha Stewart to be available to render
services under this Section VIII(1) consistent with past practices under the
Prior Agreements, but in no event for more than 25 days annually, inclusive of
travel time. Kmart shall pay all costs and expenses in connection with such
services including, without limitation, costs of first class air travel (or
private plane) and lodging consistent with Kmart's past practices with Stewart
under the Prior Agreements as of the date hereof. Any significant expenses
anticipated by MSO in excess of those generally borne by Kmart pursuant to past
practice under the Prior Agreements shall be first submitted to Kmart for
approval. No failure by MSO to comply with the terms of this provision by reason
of the death, disability or incapacity of Martha Stewart shall be considered a
breach of this Agreement.

      (2) Each year, Kmart and MSO shall consult regarding the advertising needs
for the Licensed Products for the following year, taking into account the
existence of any Additional Products and extensions of existing product lines,
following which Kmart shall determine the aggregate amount to be spent on
advertising for the Licensed Products ("MSE Advertising") during such year.
Notwithstanding the foregoing, the aggregate amount to be spent on MSE
Advertising during any twelve-month period ending on any January 31 throughout
the Term (the "Annual MSE Ad Spend"), commencing with the twelve-month period
ending January 31, 2002, shall represent a percentage of projected Sales for
such period that is no less than the percentage that estimated MSE Advertising
expenditures for 2001 as of the date hereof (such estimate, the "2001 MSE Ad
Spend") represents of Sales for 2001, provided, however, that the Annual MSE Ad
Spend for any year shall not represent a larger percentage of the aggregate
advertising expenditures by Kmart during such year than the percentage that the
2001 MSE Ad Spend represents of Kmart's aggregate advertising expenditures
during 2001. Marketing expenses relating to significant product launches shall
be outside of this budget. Kmart and MSO agree that in the event of a Renewal
Term the parties shall review whether the foregoing method of determining levels
of MSE Ad Spend is in the mutual best interest of MSO and Kmart and shall make
any changes thereto that are mutually agreed upon at the time of such renewal.
Kmart and MSO shall discuss the best allocation of the year's advertising budget
between production, media selection, and timing of advertising campaigns.
Although MSO shall be given the opportunity to meaningfully consult with Kmart
regarding such allocation, Kmart shall make the final determination as to how
such money should be allocated, provided that amounts dedicated to creative
development and production of advertisements on a per advertisement basis shall
be mutually agreed upon each year and shall be at least consistent with past
practice under the Prior Agreements. Once the allocations have been made and the
advertising needs determined, MSO


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shall be responsible for developing all creative elements of, and, with respect
to television advertisements, producing, all advertising for the Licensed
Products. In doing so, MSO may, subject to the approved budgets, retain
independent advertising agencies, production companies and photographers to
assist in developing, creating and producing the advertisements. All such
advertisements remain subject to Kmart's approval. Kmart shall pay MSO the
budgeted amounts for all creative development and production, out of which MSO
shall pay any third party fees including, where appropriate and approved, any
creative service fees to MSO. All media buying for advertising of the Licensed
Products will continue to be done by Kmart's advertising agency of record. Kmart
further agrees to continue purchasing advertising, whether or not for Licensed
Products, in Martha Stewart Living media properties at 2001 expenditure levels.

      (3) With respect to each television commercial relating in whole or part
to the Licensed Products and featuring Stewart, Kmart shall pay to MSO [ * * * ]
for Stewart's appearance in each such commercial. The foregoing payment shall be
an advance against all residuals owed to Stewart pursuant to any applicable
union, guild, or collective bargaining agreement on account of the use and reuse
of such commercials, provided that such residuals shall be credited and payable
at twice scale. Kmart shall pay or cause to be paid any and all pension, health
and/or welfare fund payments required by reason of Stewart's services hereunder
pursuant to any applicable union, guild or collective bargaining agreement and
covenants that Kmart, or any other entity for whom Stewart is rendering her
services in connection with each such commercial, shall be a signatory to any
applicable union, guild and collective bargaining agreement. The per commercial
fee payable hereunder shall increase by 4% each calendar year.

      (4) Kmart shall sell Licensed Products only through the Martha Stewart
Everyday "store-in-store" format, including, but not limited to, the fixturing,
signage, and layouts of such "store-in-stores." Unless there are compelling
business reasons dictating otherwise, Licensed Products shall be sold in
dedicated, full-run shelf-space. In no event will products that compete with
Licensed Products be commingled with Licensed Products in Kmart stores. The
"store-in-store" format employed by Kmart shall be developed with the assistance
of MSO and shall be subject to MSO's reasonable approval.

      IX. Property Retention. (1) All right, title and interest in the Licensed
Property including, without limitation, all copyrights, trademarks and other
rights therein (and all renewals and extensions thereof) shall be owned
exclusively by MSO. Subject to the terms of this Agreement, MSO shall have the
sole unrestricted right to exploit the Licensed Property in its sole discretion
in any manner in perpetuity in any and all media throughout the world whether
now known or hereafter devised with no further obligation whatsoever to Kmart or
any third party. Any use which Kmart may be permitted to make of the Licensed
Property pursuant to this Agreement shall be subject to MSO's prior approval as
specified herein.

      (2) Kmart confirms the sole ownership by MSO of the Licensed Property and
agrees that all use by Kmart of the Licensed Property shall inure solely to the
benefit of MSO and, as such, Kmart shall not at any time acquire any rights in
the Licensed Property or otherwise by virtue of any use or exploitation Kmart
may make thereof.

      (3) All rights in the Licensed Property other than those specifically
granted herein are reserved by MSO for its sole use and benefit and exploitation
in its sole discretion. Upon the expiration or termination of this Agreement for
any reason whatsoever, all rights in the Licensed


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Property shall automatically revert to MSO for its sole use and disposition with
no further obligation whatsoever to Kmart or any third party, provided, however,
Kmart shall have six months from the date of termination, or three months from
expiration, whichever the case may be, to sell all units of Licensed Products
purchased or ordered before expiration or termination of this Agreement and to
use the associated Materials approved pursuant to this Agreement prior to such
expiration or termination to accomplish such sell-off. MSO shall be paid
royalties on all such sales at the applicable rates under this Agreement.

      (4) Kmart agrees to promptly inform MSO of any use by any person or entity
of a trademark, servicemark or design similar to the Licensed Property which
comes to the attention of Kmart and which Kmart has reason to believe could be a
use unauthorized by MSO. MSO shall have the sole right to determine whether or
not any action shall be taken on account of any infringement and Kmart shall
join in such action at Kmart's expense if MSO so requests. Kmart shall have no
right to take any action with respect to the Licensed Property without prior
written approval from MSO which approval shall not be unreasonably withheld. MSO
and Kmart shall share any award of damages net of costs including, without
limitation, attorneys' fees and disbursements, as a result of such actions, in
proportion to their respective damages suffered by such infringement.

      (5) All designs, concepts, patterns, names and other intellectual property
(including copyright rights) in materials relating to the subject matter of this
Agreement or any Prior Agreement that are developed and/or created by MSO shall
be owned solely by MSO. All designs, concepts, patterns, names and other
intellectual property (including copyright rights) in materials relating to the
subject matter of this Agreement or any Prior Agreement that are developed
and/or created by third parties under MSO's direction, or which are incorporated
into the Licensed Products and/or the Materials at MSO's request, shall, as
between MSO and Kmart, be owned solely by MSO. All designs, concepts, patterns,
names and other intellectual property (including copyright rights) in materials
relating to the subject matter of this Agreement or any Prior Agreement that are
developed and/or created by Kmart shall be owned solely by Kmart. Subject to all
other provisions of this Agreement, the physical elements of all Materials will
be and remain the property of Kmart, provided that, in the event MSO owns the
intellectual property therein, Kmart will provide the necessary access to enable
MSO to duplicate any such Materials.

      (6) Nothing contained herein shall be construed as an assignment or grant
to Kmart of any right, title or interest in or to the Licensed Property, it
being understood that all rights thereto are reserved exclusively by MSO, except
for the license granted hereunder as specifically described herein.

      X. Representations and Warranties. (1) By MSO. MSO represents and warrants
to Kmart that (i) it has the full right and authority to enter into this
Agreement and to grant the licenses herein, and (ii) Kmart's authorized use of
the Licensed Property shall not infringe or violate the rights of any third
parties.

      (2) By Kmart. Kmart hereby represents and warrants to MSO that (i) it has
the full right and authority to enter into this Agreement and the relationship
contemplated herein, (ii) the manufacture, distribution, marketing, sale and use
of the Licensed Products shall not violate or infringe upon any rights
whatsoever of any third party (except as a result of a breach of MSO's


                                       10
   11
representations and warranties), (iii) the Licensed Products (including any
labeling thereon) will conform in all respects to, and satisfy applicable
requirements of, applicable federal, state and local laws, orders and
regulations, and (iv) Kmart has sufficient systems to accurately track, and that
it will accurately track, all Sales.

      XI. Indemnification. (1) Kmart agrees to defend, indemnify and hold
harmless MSO and its officers, directors, members, shareholders, employees and
representatives from, in respect of and against any and all claims, losses,
liabilities, expenses (including, without limitation, reasonable attorneys' fees
and disbursements), judgments, damages, demands, lawsuits or similar actions or
proceedings ("Claims") arising out of the breach of any of Kmart's
representations, warranties or covenants hereunder (or under any Prior
Agreement) or out of the manufacture, design, purchase, promotion, advertising,
distribution, use or sale of Licensed Products, including, without limitation,
any claims for product liability (a "Kmart Claim"). MSO agrees to notify Kmart
within a reasonable time after it receives notice of any Kmart Claim and Kmart
shall promptly assume MSO's defense thereof either directly or through counsel
to any relevant vendor. MSO shall have the right to participate in the defense
of any Kmart Claim with counsel of its choosing and at MSO's expense. Any
settlement which affects the Licensed Property or otherwise contains a remedy
other than the payment of money damages by Kmart (which in any way impacts upon
MSO) must be approved in writing in advance by MSO.

      (2) MSO agrees to defend, indemnify and hold harmless Kmart and its
officers, directors, shareholders, employees and representatives from, in
respect of and against any and all Claims arising out of the breach of any of
MSO's representations, warranties or covenants hereunder (or under any Prior
Agreement) or for copyright, trade dress, or trademark infringement or unfair
trade practice arising directly out of Kmart's authorized use of the Licensed
Property (an "MSO Claim"). Kmart agrees to notify MSO within a reasonable time
after it receives notice of any MSO Claim and MSO shall promptly assume Kmart's
defense thereof. Kmart shall have the right to participate in the defense of any
MSO Claim with counsel of its choosing and at Kmart's expense. Any settlement
which contains a remedy other than the payment of money damages by MSO (which in
any way impacts upon Kmart) must be approved in writing in advance by Kmart.

      XII. Insurance. Kmart shall maintain in full force and effect
comprehensive general liability insurance (the "Insurance"), including, without
limitation, product liability insurance, covering all Licensed Products sold by
it as well as any liability on its part or the part of MSO in the amount of at
least $25,000,000 per occurrence and $100,000,000 in the aggregate. The
Insurance shall be placed with an insurer or insurers of recognized worth and
reputation, duly licensed to carry on the business of insurance in all parts of
the Territory and shall name Martha Stewart, MSO, its officers, directors,
employees, representatives or agents as additional insureds, for coverage
against all forms of liability for death or injury to any individual, and for
loss or damage to property. The Insurance shall provide for primary coverage and
not contributory coverage, notwithstanding any other insurance which MSO may
obtain or maintain. The Insurance shall provide for prior written notice to MSO
of cancellation, lapse or material change in the Insurance and Kmart shall
provide MSO with a certificate of insurance as evidence of the Insurance prior
to, or as soon as practicable after, the execution hereof. MSO hereby
acknowledges that Kmart self-insures a per claim deductible in the amount of
$2,000,000.


                                       11
   12
      XIII. Guaranteed Products. Kmart agrees to manufacture and market Licensed
Products in the categories of merchandise set forth on Schedule XIII hereto upon
request from MSO and to use reasonable commercial efforts to cause Licensed
Products in each such product category to be available at each Kmart store.

      XIV. Projections. Schedule XIV sets forth the projections for annual Sales
relating to the Initial Products through the Term and the Extension, if any, as
of the date hereof (the "Initial Projections"). Promptly following the execution
of this Agreement, MSO and Kmart agree to develop a strategy for materially
increasing Sales in each Product Category to the maximum extent practicable. The
projections set forth on Schedule XIV shall be increased as a result of the
outcome of such efforts (the projections as they may be increased from time to
time, the "Projections"), and MSO and Kmart agree to meet at least annually to
strategize and otherwise develop programs and plans to maximize Sales and
increase Projections. Kmart agrees to use its best efforts to cause Sales to
equal or exceed the Projections.

      XV. [ * * * ].

      XVI. Kmart Bridal and Gift Registry. MSO hereby grants Kmart the right to
offer the Licensed Products as part of a Kmart bridal and/or gift registry
program, provided that the registry is not branded with the name "Martha
Stewart" or any related trademark and all aspects of the sale, marketing,
presentation, promotion and advertisement of the Licensed Products in connection
therewith shall be subject to the same approvals, rights, and processes as the
sale, marketing, presentation, promotion, and advertisement of the Licensed
Products under this Agreement generally.

      XVII. Termination. (1) Subject to subparagraph (2) below, this Agreement
may be immediately terminated by either party in the event a material breach
hereof by the other party continues uncured for a period of 30 days after
written notice thereof, provided, however, such cure period shall be 15 days
with respect to payments due hereunder.

      (2) In the event of termination or expiration of this Agreement, all
rights granted hereunder shall terminate and revert to MSO for its sole use and
disposition without any further obligation to Kmart.

      XVIII. Uniqueness of Services. The services to be performed by MSO and the
rights and privileges granted to Kmart hereunder are special, unique and
incapable of replacement and the loss thereof may not be reasonably or
adequately compensated in an action at law. Additionally, MSO's failure or
refusal to perform the obligations hereunder may cause irreparable harm or
damage. In the event of a material breach by MSO, Kmart shall be entitled, in
addition to any other remedies available to it, to seek injunctive or other
equitable relief against it to prevent the continuance of such failure or
refusal or to prevent it from performing services or granting rights to others
in violation of this Agreement.

      XIX. Services. MSO assumes no liability whatsoever for service, defects or
breach of warranty or any type of product liability claim whatsoever regarding
Licensed Products. In the event that an ultimate purchaser of such a Licensed
Product or any other third party claims it to be defective, in breach of
warranty or in need of service, Kmart or its vendor shall assume all
obligations, liability, cost and expense relating in any manner to such Licensed
Product


                                       12
   13
including, without limitation, any claimed defect, breach of warranty or
service need. In the event any such Licensed Product is returned to MSO on
account of any claimed defect, breach of warranty or service need, MSO shall
promptly notify Kmart regarding such Licensed Product and claim and shall
forward the same within a reasonable time to a reasonable destination designated
by Kmart for handling of the returned Licensed Product by Kmart or its vendor.
Kmart agrees to reimburse MSO for all reasonable costs incurred in connection
with such returns. Kmart agrees to keep MSO timely informed of any material
problems with any Licensed Product and shall meaningfully consult with MSO in a
timely fashion in the event Kmart and/or any vendors of Licensed Products
interact with the United States Consumer Product Safety Commission ("CPSC") and
before any Section 15 Report relating to any Licensed Product is filed with
CPSC.

      XX. Creative Services. As reasonably requested by Kmart, MSO shall
periodically provide creative personnel to consult with Kmart regarding issues
relating to overall Kmart advertising, store layout and other brand issues.

      XXI. Assignment. No party may assign any right or obligation under this
Agreement, other than the right to receive money, to any person or entity other
than its parent or subsidiary companies or a purchaser of all or substantially
all of the assets of a party, without the express written consent of the other
party, provided that MSO shall have the right to assign its interests under this
Agreement to any entity in which Martha Stewart owns a majority of the equity,
and which at or about the time of such assignment acquires the rights to the
Licensed Property licensed to Kmart hereunder. Notwithstanding the foregoing, in
the event either party enters into a transaction in which it sells or otherwise
conveys substantially all of the assets relevant to such party's performance of
its obligations hereunder, the other party shall have the right to compel
assignment of this Agreement as part of such transaction. MSO shall have the
right to cause any of its contractual obligations hereunder to be fulfilled by
an affiliate of MSO, and any such fulfillment shall be deemed a fulfillment of
such obligation by MSO. For purposes of clarity, it is acknowledged that Martha
Stewart Living Omnimedia LLC and Martha Stewart Living Omnimedia, Inc.
(collectively, "MSLO") were each predecessors-in-interest to MSO under the Prior
Agreements, and references herein to MSO in connection with the Prior Agreements
or actions taken thereunder shall include references to MSLO as the context
requires.

      XXII. Choice of Law. This Agreement shall be construed and enforced in
accordance with laws of the State of Michigan.

      XXIII. No Joint Venture. Neither party shall be or be deemed to be an
agent, employee, partner or joint venturer of or for the other party.

      XXIV. Confidentiality. After the date hereof, each of Kmart and MSO (i)
shall hold and shall cause its officers, directors, employees, agents,
accountants, representatives and advisors ("Representatives") to hold in strict
confidence all the terms of this Agreement and the Prior Agreements and all
information furnished to such party or its Representatives in connection with
the transactions contemplated by this Agreement as well as information
concerning the other party contained in analyses, compilations, studies or other
documents prepared by or on behalf of such party (collectively, the
"Information"); provided that the Information shall not include any information
which has become (A) generally available to the public other than as a result of
a disclosure by such party or such party's Representatives, (B) available to
such party on a non-


                                       13
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confidential basis from a source other than the other party or the agents of one
of them if such source is to such party's knowledge entitled to disclose such
information, or (C) independently acquired or developed by such party; and (ii)
shall not, without the prior written consent of the other party, release or
disclose any Information to any other person, except (A) to such person's
Representatives who need to know the Information in connection with the
consummation of the transactions contemplated by this Agreement, who are
informed by such person of the confidential nature of the Information and who
are caused by the relevant party to comply with the terms and conditions of this
Section XXV, and (B) as may be required by applicable law, regulations or legal
processes (including, without limitation, any disclosures of Information which
are required to be made by applicable securities laws in connection with any
financing activities of either party or standard disclosure requirements under
the Securities Exchange Act of 1934, as amended). The parties hereto agree to
cooperate with respect to a joint press release announcing the execution of this
Agreement.

      XXV. Notice. All notices under this Agreement shall be in writing and
shall be given by either party by certified mail, guaranteed express mail or
facsimile (confirmation of delivery received) as follows:

If to MSO:

                  MSO IP Holdings, Inc.
                  11100 Santa Monica Boulevard
                  Suite 600
                  Los Angeles, California 90025

      copy to:

                  Howard Shire, Esq.
                  Kenyon & Kenyon
                  One Broadway
                  New York, New York  10004

If to Kmart:

                  Kmart Corporation
                  3100 West Big Beaver Road
                  Troy, MI 48084
                  Attention: General Counsel

                  Facsimile No.  (248) 463-1054

      copy to:

                  Kmart of Michigan, Inc.
                  Suite 329
                  3250 West Big Beaver Road
                  Troy, MI 48084
                  Attention: Intellectual Property Counsel.


                                       14
   15
                  Facsimile No.  (248) 637-3057

      XXVI. Compliance with Human Rights and Labor Standards. Kmart warrants and
represents that purchase order terms and conditions for the purchase of all
Licensed Products require that such merchandise conforms in all respects with
all applicable federal, state and local laws, orders and regulations. Kmart will
require all manufacturers of Licensed Products hereunder to sign a Certification
of Compliance substantially similar to the form attached hereto as Schedule
XXVII. Upon written request from MSO, Kmart shall supply MSO with the
identification of all manufacturers of Licensed Products. Upon reasonable prior
written notice of MSO and at MSO's sole expense, MSO shall have the right to
inspect the physical facilities of any manufacturer of Licensed Products for the
purpose of assuring that such manufacturer is in satisfactory compliance with
legal and ethical human rights and labor standards and shall have the right to
refuse approval of any Licensed Product manufactured by any such manufacturer
which after such inspection may be reasonably found not to be in substantial
compliance with such standards.

      XXVII. Bankruptcy. Kmart and MSO shall each, in addition to its other
rights, have the right, on written notice to the other, to terminate this
Agreement if the other party files a petition in bankruptcy, or is adjudicated a
bankrupt, or if a petition in bankruptcy is filed against it and is not
dismissed within (60) days thereafter, or if it becomes insolvent, or makes an
assignment for the benefit of creditors, or files a petition or otherwise seeks
relief under or pursuant to any federal or state bankruptcy, insolvency or
reorganization statute or procedure, or if a custodian, receiver or trustee is
appointed for it or a substantial portion of its business or assets (and such
receivership is not discharged within sixty (60) days thereafter).

      XXVIII. Integration. This Agreement shall be the final and complete
agreement between Kmart and MSO with respect to the subject matter hereof. No
representations, inducements, premises or understandings exist in relation to
the subject matter hereof, whether oral or written, except as expressly set
forth herein, and this Agreement shall supercede all prior understandings,
agreements, contracts or arrangements between the parties, whether oral or
written, unless otherwise expressly incorporated herein. No agreement or other
understanding purporting to add to or to modify the terms and conditions hereof
shall be binding unless agreed to by the parties in writing. Any terms or
conditions in any forms of the parties used in the performance of this Agreement
which are in conflict with the terms and conditions hereof shall be void.
Notwithstanding the foregoing, the Prior Agreements shall continue in full force
and effect through July 31, 2001, and shall continue to govern matters arising
under such agreements prior to August 1, 2001 (including, without limitation,
payment obligations relating to periods prior to August 1, 2001), unless
otherwise indicated herein.

      XXIX. Interim Period. From the date hereof through July 31, 2001, Kmart
agrees that it shall continue to conduct its purchasing practices with vendors
and inventory replenishment practices and all other matters relating to the
calculation of the royalties payable under the Prior Agreements in a manner
consistent with past practice and without any regard for the switch in the basis
for calculating royalties to MSO from wholesale purchases to retail sales that
will occur on August 1, 2001.


                                       15
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      IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.


                                KMART CORPORATION



                                By:  /s/ Charles Conaway
                                     --------------------
                                 Name: Charles Conaway
                                 Title: Chairman and CEO

                                MSO IP HOLDINGS, INC.



                                By:  /s/ Martha Stewart
                                     ------------------
                                 Name:  Martha Stewart
                                 Title:  Authorized Signatory



                                       16
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                                  SCHEDULE I(a)

                                  Home Products

BED ROOM
      Sheets (180 and 200 thread count)
      Mattress pads
      Slip covers
      Pillows (synthetic and natural)
      Pillow cases
      Pillow shams
      Comforters
      Quilts
      Bed Spreads
      Bed Skirts
      Duvet/comforter covers
      Blanket/throws
      Coordinating window treatments
      Coordinating decorative borders and wallpaper
      Coordinating rugs

BATH
      Towels (sheet, beach, bath, hand and wash cloth)
      Shower Curtains
      Coordinating bath rugs
      Bath accessories (tooth brush holder, lotion dispenser, soap dish,
      tumbler, tissue cover, etc.)
      Waste baskets
      Coordinating window treatments
      Coordinating decorative borders and wallpaper

KITCHEN
      Towels
      Pot holders
      Dish Cloths
      Tablecloths
      Napkins/Napkin rings
      Chairpads
      Placemats
      Coordinating decorative borders and wallpaper
      Coordinating window treatments (curtains, valances, fabric shades,
      vertical blinds, mini blinds, decorative hardware, drapery, panels, swags,
      tab tops, top treatments, tiers)
      Coordinating rugs

GENERAL SOFT HOME
      Window treatments (valances, mini blinds, decorative hardware, tab tops,
      top treatments, tiers)
      Decorative pillows
      Home Fragrances
      Closet Organizers

SEASONAL HOME TEXTILES

HOME TEXTILES FOR BABIES


                                       17
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SCHEDULE I(b)

                                 Garden Products

LIVE PLANTS

INDOOR FLORAL/PLANT KIOSK

OUTDOOR/GARDEN FURNITURE

WATERING EQUIPMENT

LONG HANDLE GARDEN TOOLS

SHORT HANDLE GARDEN TOOLS

GARDEN CUTTING TOOLS

GARDEN GLOVES

FERTILIZERS

SOILS

PEST CONTROL

GARDEN STORAGE & CARRIERS

GARDEN ACCESSORIES

PLANT POTS

GRILLING

OUTDOOR LAWN DECORATION

FALL BULBS

SPRING BULBS

SEED STARTING

WATER GARDENING

SEEDS

BIRD

LIGHTING




                                       18
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                                  SCHEDULE I(c)

                               Housewares Products

HOME

      Dinnerware (ceramic, glass, enamel)
      Flatware (18/0-18/8)
      Glassware (glass, plastic)
      Decorative Accessories
      Lamps and shades
      Picture Frames
      Candles

FOOD

      Kitchenware


KEEPING

      Closet Accessories                        Dish Felt Pads
      Hangers                                   Floor Savers
            Plastic                             Food Storage Containers
            Wood                                Kitchen Containers
            Metal                               Shelf Paper
      Cedar Products/Moth Protection            Trash Receptacles
      Clothing Storage - Bags and Boxes         Recycling Receptacles
            Shoes
            Sweaters
            Blankets
            Hanging
      Closet Shelving Organization Systems
      Laundry Organization Items
      Underbed Storage Containers
      Wire and Cable Ties
      Kitchen Organization Containers
      Kitchen Labels
      Dish Storage Containers


SEASONAL VARIATIONS OF HOUSEWARES PRODUCTS



                                       19
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                                  SCHEDULE I(d)

                                Seasonal Products


[***]


                                       20
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                                 SCHEDULE II(3)

                          ADDITIONAL PRODUCT CATEGORIES

Small appliances

Notions and crafts

Ready-to-assemble furniture

Decorative artificial flowers

Area rugs

Hardware



                                       21
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                                   SCHEDULE IV

                                  Royalty Rates

[ * * * ]



                                       22
   23
                                  SCHEDULE V(2)

                             Minimum Royalty Amounts

[ * * * ]



                                       23
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                               SCHEDULE VI(1)(ii)

          VENDOR CONFIDENTIALITY AND PROPRIETARY MATERIALS AGREEMENT

                      MARTHA STEWART LIVING OMNIMEDIA, INC.
                               11 WEST 42ND STREET
                            NEW YORK, NEW YORK 10036


                           As of ____________________

[Vendor Name and Address]


      Re:   "Martha Stewart Everyday"

Dear ______________________:

            As you know, you may soon be, or have been, manufacturing products
to be sold under the "Martha Stewart Everyday" brand. Although these products
will be and/or have been manufactured by you pursuant to agreements between you
and certain retailers, you recognize that such retailers have made this
agreement a condition to your manufacturing "Martha Stewart Everyday" products
(the "Products") for them. Accordingly, in consideration of your selection, or
potential selection, to manufacture certain Products, you hereby agree with
Martha Stewart Living Omnimedia, Inc. ("MSLO") as follows:

      1.    For the purposes of this Agreement, "Proprietary Materials" shall
            mean all (i) information or material, whether or not in tangible
            form, relating to MSLO or Martha Stewart or which is supplied to
            you by MSLO, or which is supplied to you by an Approved Retailer
            (as hereafter defined) in connection with the Products, other
            than  (A) any such information known to you, or material in your
            possession, prior to the commencement of your discussions
            regarding the manufacture of Products with any Approved Retailer
            or MSLO, as the case may be, (B) any such information generally
            known to, or such materials generally possessed by, the public at
            large (other than as a result of (X) a breach of this agreement
            by you, (Y) distribution of the Products, or (Z) the acts of any
            other party which you know, or have reason to know, is under an
            obligation of confidentiality to MSLO), and (C) any such
            information or material acquired by you from a third party (other
            than a third party which you know, or have reason to know, is
            under an obligation of confidentiality to MSLO or who acquired
            such information or material as a result of the distribution of
            the Products), (ii) materials, whether or not in tangible form,
            which you develop with MSLO or with any contribution, input,
            advice or direction whatsoever from MSLO (the "Vendor Materials")
            (for the sake of clarity, Vendor Materials shall include the
            entire applicable material, not just the portion developed with
            MSLO's contribution, input, advice or direction), and (iii)
            information or materials, whether or not in tangible form, with
            respect to which you gain access or knowledge as a direct result
            of (A) your relationship relating to the Products with an
            Approved Retailer


                                       24
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            or MSLO, as the case may be, or (B) carrying out any of your
            obligations to MSLO or an Approved Retailer relating to the
            Products. Notwithstanding the foregoing, the Proprietary Materials
            shall include any Materials (as defined below) in which MSLO owns
            any proprietary rights (including, without limitation, any copyright
            rights, trademark rights, or other intellectual property rights).

            The Proprietary Materials may include, but are not necessarily
            limited to, the following: concepts; techniques; data;
            documentation; research and development; customer lists; advertising
            plans; distribution networks; new product concepts; intellectual
            property of all types, including, without limitation, designs,
            patterns, ideas, and any physical manifestations thereof; prints;
            sketches; planned introduction dates; processes; marketing
            procedures; "know-how"; marketing techniques and materials;
            development plans; names and other information related to strategic
            partners, suppliers, or vendors; pricing policies and strategic,
            business or financial information, including business plans and
            financial pro formas (all of the foregoing, "Materials").

            Notwithstanding the foregoing, the Proprietary Materials shall not
            include materials you develop at your sole cost and expense with no
            contribution, input, advice or direction whatsoever from MSLO (the
            "_____ Materials"); provided, however, that no ______ Materials may
            in any way contain, embody or reference any Proprietary Materials,
            including, without limitation, any MSLO trademark, servicemark,
            mark, name or other designation.

            For purposes of this Agreement, "Approved Retailers" shall mean
            those entities set forth on Exhibit A hereto, which exhibit may be
            amended from time to time by MSLO.

      2.    You acknowledge that MSLO exclusively owns, in perpetuity and
            throughout the world, all right, title and interest, including,
            without limitation, all copyrights, trademarks and other
            proprietary rights (and all renewals and extensions thereof)
            embodied in, or related to, the Proprietary Materials, and any
            and all good will therein.  You recognize the great value of the
            publicity and good will associated with the Proprietary Materials
            and acknowledge that such value and good will belongs exclusively
            to MSLO.  You agree that you shall not acquire any rights in or
            to the Proprietary Materials by virtue of your performance of any
            obligations to MSLO or any Approved Retailer or otherwise.  Any
            use which you may make of the Proprietary Materials shall solely
            be pursuant to your agreements with MSLO or the Approved
            Retailers in connection with the Products and shall not restrict,
            limit or otherwise diminish MSLO's rights therein with respect to
            any other products or use.  You hereby acknowledge and agree that
            the Vendor Materials shall be and/or have been solely created by
            you as a "work-made-for-hire" specially commissioned by MSLO for
            use in connection with the Products pursuant to the United States
            Copyright Act, and any and all extensions and/or renewals
            thereof, it being understood that in the event any of the Vendor
            Materials are determined not to be a "work-made-for-hire", then
            you hereby irrevocably assign to MSLO all rights therein.  You
            represent and warrant that (i)


                                       25
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            you shall not undertake or cause any third party to undertake any
            act that violates, infringes, diminishes, challenges or otherwise
            conflicts with MSLO's exclusive ownership of all rights, title and
            interest in and to the Proprietary Materials, and (ii) that MSLO's
            exploitation of the Vendor Materials shall not infringe the rights
            of any third party.

1.          All notes, data, reference materials, sketches, drawings, memoranda,
            documentation and records in any way incorporating or reflecting any
            of the Proprietary Materials shall belong exclusively to MSLO and
            you agree to turn over all copies of such materials in your
            possession or control to MSLO upon the earlier of MSLO's request or
            termination of the final agreement pursuant to which you manufacture
            any Products.

2.          You shall hold in confidence and not directly or indirectly reveal,
            report, publish, disclose or transfer any of the Proprietary
            Materials in any form to any person or entity, nor shall you utilize
            any of the Proprietary Materials for any purpose, except in each
            case as may be necessary in the course of your manufacture of
            Products, provided that no Proprietary Materials which are
            designated as being "confidential" by MSLO may be revealed,
            reported, published, disclosed or transferred without the express
            written consent of MSLO. You shall cause each of your employees,
            agents or representatives that is provided access to any Proprietary
            Materials to abide by the same obligations and restrictions to which
            you are subject hereunder.

3.          You agree that you shall not sell any products incorporating any of
            the Proprietary Materials to any entity other than MSLO or an
            Approved Retailer, except as expressly permitted herein.

4.          Upon receipt of a notice from MSLO or an Approved Retailer that any
            Products manufactured by you are deficient in quality or are not
            consistent with the relevant specifications, or in the event of
            an Overrun (as hereafter defined), you may sell such deficient
            Products or Products with respect to which there has been an
            Overrun (collectively, "Excess Products") to parties other than
            Approved Retailers, provided that (i) no use of or reference to
            the name Martha Stewart, MSLO or any variation thereof is used in
            connection with any advertising, publicity, labeling, wrapping or
            packaging with respect to any such sales, (ii) that prior to
            making any such sale you receive assurances from the party to
            whom you sell such Excess Products that they will comply, and
            will cause any subsequent purchasers to comply, with the terms of
            sub-clause (i) above, and (iii) that such sales are made to
            purchasers who have warranted to you in writing that they shall
            only re-sell the Excess Products outside of North America (unless
            prior approval for North American sales is received from MSLO or
            the Approved Retailer for whom the Excess Products were
            originally manufactured). For purposes of this Agreement, there
            shall be an "Overrun" on a Product only in the event that (1) you
            have received notice from all Approved Retailers for whom you
            manufacture such Product that such Approved Retailers do not
            intend to purchase any more of such Product from you in the
            future, (2) you have delivered to the relevant Approved Retailers
            and to MSLO the amount of Product in your possession with


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            respect to which there is an Overrun, and (3) MSLO and the relevant
            Approved Retailers have approved the quantity of such Overrun. MSLO
            and the Approved Retailers may, in their sole discretion, limit the
            amount of Excess Product you may dispose of pursuant to the terms of
            this paragraph if they determine that the amount of such Products
            that you have on hand for such disposal is excessive and beyond the
            quantity you would have possessed had you followed a normal and
            prudent manufacturing schedule.

5.          In the event that you receive a request to disclose any Proprietary
            Materials under a subpoena or court order, you will (a) promptly
            notify MSLO thereof, (b) consult with MSLO on the advisability of
            taking steps to resist or narrow such request, and (c) if
            disclosure is required or deemed advisable, cooperate with MSLO
            in any attempt that it may make to obtain an order or other
            reliable assurance that confidential treatment will be accorded
            to designated portions of the Proprietary Materials.

6.          Because of the unique nature of the Proprietary Materials, you
            understand and agree that MSLO will suffer irreparable harm in
            the event that you fail to comply with any of your obligations
            hereunder and that monetary damages may be inadequate to fully
            compensate MSLO for such breach.  Accordingly, you agree that
            MSLO will, in addition to any other remedies available to it at
            law or in equity, be entitled to injunctive relief, including,
            without limitation, temporary restraining orders and/or
            preliminary injunctions, to enforce the terms of this Agreement.
            In the event of any breach or purported breach by MSLO hereunder,
            your rights shall be limited to an action at law for money
            damages actually suffered.  In no event shall you be entitled to
            rescission, injunction or other equitable relief of any kind.

7.          In case any one or more of the provisions (or portions of the
            provisions) of this Agreement shall for any reason be held to be
            invalid, illegal or unenforceable in any respect, such
            invalidity, illegality or unenforceability shall not affect any
            other provisions (or portions of the provisions) of this
            Agreement and this Agreement shall be construed as if the
            invalid, illegal or unenforceable provisions (or portions of the
            provisions) had never been contained therein.

8.          In the interest of being guided by a well-developed body of law in
            the event of a dispute, the parties agree that this Agreement,
            including the validity and enforceability hereof, shall be
            interpreted in accordance with the laws of the State of New York
            pertaining to agreements made and performed therein, and the courts
            located in the State of New York, County of New York (federal, if
            jurisdiction is present, state, if federal jurisdiction is lacking),
            shall have exclusive jurisdiction and venue over all disputes
            hereunder.

            Upon execution hereof by your authorized signatory, this letter
shall constitute a binding agreement between you and MSLO, enforceable according
to its terms.

                                Sincerely yours,


                                       27
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                              MARTHA STEWART LIVING OMNIMEDIA, INC.


                              By:_______________________________
                                 Name:
                                 Title:

ACCEPTED AND AGREED BY:

______________________________


By:____________________________
   Name:
   Title:



                                       28
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      EXHIBIT A

Kmart Corporation

Hudson's Bay Company



                                       29
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                                 SCHEDULE VI(4)

             VENDOR SELECTION STANDARDS, POLICIES AND PROCEDURES

A.    BEST QUALITY DESIGN

      1. An acceptance that Martha Stewart Everyday is the driver of product
      content defined as design, packaging, and all other consumer-related
      "facings"; and willingness to work in an open-minded and highly responsive
      development and design process that is based upon: a) hearing MSE's
      requirements, and b) meeting those needs through vendor knowledge and
      experience.

      REQUEST:    MSE REQUESTS THAT KMART TAKE VENDOR WILLINGNESS TO WORK WITH
                  AND FOR MSE DURING PRODUCT DESIGN AND DEVELOPMENT INTO ACCOUNT
                  IN SELECTING MANUFACTURERS FOR THE MSE PRODUCT COLLECTIONS AND
                  LINES.

      2. A desire to work with MSE and Kmart to meet and beat "best of industry"
      standards for all product SKU's and agreement to work within a process of
      prototype-testing with Kmart that ensures all product meets "best"
      standards prior to production and shipment.

      REQUEST:    MSE REQUESTS THAT KMART AND THE VENDORS WORK WITH MSE TO
                  DEVELOP "BEST OF INDUSTRY" STANDARDS FOR ALL MSE SKU'S, AND
                  THAT ALL SKU'S BE TESTED TO "MEET OR BEAT" THESE STANDARDS.
                  FOR THOSE SKU'S THAT FAIL TO MEET "BEST OF" STANDARDS, PRODUCT
                  IS RECALLED AND IS NOT STOCKED OR RESTOCKED UNTIL STANDARDS
                  ARE MET.

B.    MAINTAIN QUALITY THROUGH MANUFACTURING

      1.  A willingness of the vendor to inspect, inspect, inspect "out the
      door".

      REQUEST:    VENDORS SET A "ZERO" DEFECT TOLERANCE TARGET LEVEL TO BE
                  MONITORED ON SITE BY KMART FOR ALL MSE PRODUCT PRODUCED AND
                  SHIPPED, INCLUDING THE OUTPUT OF ALL SUBCONTRACTED
                  MANUFACTURING.

      2.  A willingness by Kmart to inspect, inspect, inspect "in the door" and
      "on the floor".

      REQUEST:    MSE REQUESTS THAT KMART SIGNIFICANTLY IMPROVE ITS IN-STORE
                  AUDIT WORKFORCE AND CAPABILITIES TO FILTER OUT ANY IN-STORE
                  MSE MERCHANDISE THAT DOES NOT MEET APPROVED PRODUCT STANDARDS
                  AND THAT THIS PRODUCT BE RECALLED AND RETURNED TO THE
                  MANUFACTURER WITHOUT PENALTY TO MSE.

C.    COMMUNICATE WITH THE CUSTOMER IN BRAND TERMS

      1. Over and above "best of breed" product, willingness to honestly
      disclose to MSE any and all potential "maintenance" problems with the
      product, set reasonable consumer expectations, and immediately rectify all
      problems.

      REQUEST:    THE SEWN IN LABELS AND HANG TAGS FULLY DISCLOSE ALL
                  POTENTIAL MAINTENANCE "ADVISORIES" AND CARE TIPS, AND
                  EXPECTED SHRINKAGE/STRETCH ADJUSTMENTS. CONSUMER PROBLEMS
                  BE IMMEDIATELY RECTIFIED IN WRITING AND THROUGH REFUND
                  PROGRAMS.


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      2.  Agreement to qualify foreign manufacturing operations up-front against
      Kmart/MSE standards prior to commencing manufacturing.

      REQUEST:    MSE REQUESTS THAT THE PROCEDURES RECENTLY INSTITUTED BE
                  FORMALLY DOCUMENTED AND THAT ALL RESULTS BE PROMPTLY PASSED TO
                  MSE AND THE VENDORS. ALSO THAT A HIGH LEVEL POINT PERSON
                  (EXECUTIVE) BE RESPONSIBLE AND ACCESSIBLE TO MSE TO ASSURE
                  PROMPT RESOLUTION AND FOLLOW UP WHEN PROBLEMS ARISE.

      3. Agreement by all vendors, foreign and domestic, to uphold the highest
      level of manufacturing standards with regard to Human Rights and fair
      treatment of the vendors' workforce.

      REQUEST:    ALL VENDORS USE THE KMART 35-PAGE CHECKLIST TO QUALIFY AND ALL
                  FOREIGN AND DOMESTIC PLANTS PRIOR TO COMMENCING ANY MSE
                  MANUFACTURING AND THAT VENDORS ALLOW KMART AND MSE ACCESS TO
                  ITS FACILITIES TO HELP ASSURE THAT COMPLIANCE STANDARDS ARE
                  MET. KMART AGREES THAT NO VENDOR WILL BE USED WHO DOES NOT
                  MEET THESE STANDARDS.


                                EXCLUSIVELY AT KMART



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                                 SCHEDULE VI(8)

                          Specifics to Garden Products

      (A) Under the Garden Agreement, live plants sold in connection with the
Licensed Property were intended to be sold pursuant to Schedule VI(7) of that
agreement. Following the execution of this Agreement the parties will cooperate
in good faith to revise that Schedule VI(7) to eliminate the roll of the
Designated Broker and the Required System and to otherwise simplify the program
in mutually agreeable ways, provided that the program will continue to be
comprised of Martha Picks and MSEG Commodities, that MSO will continue to have
the ability to determine the Martha Picks and will endeavor, along with Kmart,
to maintain the secrecy of such picks, and that MSO will be permitted to approve
all care and other instructions relating to the live plants. The revised
Schedule VI(7) will be adopted and become a part of this schedule.

      (B) Garden Products that are intended for indoor use shall generally be
available for sale at Kmart year-round. Garden Products that are intended for
outdoor use shall generally be available at all times from March 1 to September
15 of each year (the "Outdoor Availability Period") and at any other times the
parties deem desirable, provided that, with respect to certain Kmart Stores
located in the southern, southwestern and western portions of the Territory,
such products shall be available during longer periods (such periods and such
individual stores to be mutually determined by the parties). In the event of
unseasonal weather in particular regions of the Territory, Kmart and MSO shall
mutually agree on whether certain products intended for outdoor use should be
withheld from sale during a portion of the Outdoor Availability Period.

      (C) MSO shall be entitled to select the vendors who supply Licensed
Products that fall within the "All Natural Organics" product categories.

      (D) Kmart hereby agrees to dedicate funds annually throughout the Term to
the promotion of Sales of the Garden Products through innovative, MSO sponsored
events or promotions consistent with the publication of the Martha Stewart
Everyday Garden magazine in 2001 or the planned sponsorship of the National
Flower Show in 2000. MSO and Kmart shall mutually agree each year on the nature
of the event or project and the cost thereof, but it shall generally be a Martha
Stewart-branded project or promotion intended to enhance Martha Stewart-brand
awareness and Sales of Garden Products at Kmart.





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                                  SCHEDULE XIII

                               GUARANTEED PRODUCTS



GARDEN
1999 2000 2001 TOOL SHED Garden Fork Compost Bin "Best" Level Round Point Shovel LH Bulb Planter Flat Head Hoe Square Spade Bamboo Rake Border Spade Garden Rake Heart Hoe Wheel barrow Hedge Shears Loppers Small Bamboo Rake Compost Fork Pistol Grip Saw Large Pruning Saw Pole Pruner Bow Saw TOOL BAG Pruning Shears SH Bulb Planter "Best" Level Trowel Garden Reel Hand Cultivator Fishtail Weeder Hand Weeder Holster for Shears Planting Dibber Mini Claw Cultivator Tool Bag STORAGE Large Galvanized Bin Garden Cart Storage Hooks Galvanized Bucket Large Plastic Bin/Leaf Med Plastic Bin Soil Scoop Small Bucket w/ Handle Small Plastic Bin Harvest Basket Compost Pail w/ Lid Wire Harvest Basket Folding Tarp/Leaf Small galvanized Bucket Lid for Galv. Bucket Scoops - large and small Tool Storage Rack INDOOR FLORAL Floral Shears Plant Mister Small Watering Can Folding Floral Knife Floral Buckets Thinning Clippers Arranging Kit WATERING Watering Can (4) Sprinklers 50' Garden Hose 80' & 100' Garden Hose Quick Coupler Set Watering Wand
33 34 Adjustable Grip Nozzle Soaker Hose Skylands Sprinkler Hose Hanger or Reel Manual Irrigation Timer Electronic Irrigation Timer Misting Rose Shut Off Valve ACCESSORIES Bamboo Stakes (3', 5') Sharpener for Shovel Wide Brim Hat Metal Plant Labels Clogs Wooden Plant Labels 2 sizes Bamboo Stakes (7') Tool Belt Pen for Plant Markers Twine (2 weights_ Apron Plant Supports Nails SEED STARTING Planting Tray Large Cell Seed Starting Insert Small Cell Seed Starting Insert Planting Dome Seed Starting Mix Mist Bottle Small Wood Plant Labels Cold Frame GLOVES Printed Jersey (W) Plaid Jersey Non-Skid Jersey Dot Jersey w/ Vinyl Printed Jersey (K) Plaid Jersey w/ Vinyl Solid Jersey w/ Suede Non-Skid Jersey (M) Leather/Goatskin (W) Suede Work Glove (W) Solid Twill (W) Surgical (W) 1 x 1 Rib Knit/Nitrile (W) Velux Fleece Chore Glove (M) Solid Jersey (M) Leather (M) Surgical (M) Heavy Suede & Twill (M) Twill (M) Heather Jersey (K) Solid Jersey w/ Suede (K) OUTDOOR POTS Garland Rose "Better" / "Best" Plastic/Seasonal Rolled Rim - Large "Better" / "Best" Clay Rolled Rim - Small Basketweave SOILS General Soil Mix Orchid Mix Soilless Mix with Bark Bulb Mix Indoor Plant Mix
34 35 FOODS/FERTILIZERS Rose Soil Testing Kit Tomato/Vegetable Fish/Seaweed Concentrate Acid Loving Fish/Seaweed Concentrate Tree & Shrub Bonemeal Basic/Granular Tree & Shrub Bulb Food All Purpose OUTDOOR LIGHTING Solar/Low Voltage Outdoor Decor Lighting Lighting & Accessories TRELLIS/EDGING/FENCE Expandable Trellis Basis Arch Wild Lattice Components Pound-in Edging Rolled Edging CHILDREN'S GARDEN Children's Tool Set (Cultivator, trowel, weeder) Bamboo Leaf Rake Shovel Cultivator Garden Rake BIRDS Seed "Best" Level Suet Bird Baths Feeders Bird Houses LAWN/ORNAMENT/DECOR Stone/Concrete Decor "Better"/"Best" Levels PEST CONTROL Mosquito Barrier Garden Insecticide Yellow Jacket & Flying Garden Pesticide Insect Trap Garden Fungiside Flying Insect Killer Wasp & Hornet Killer Ant Killer
HOUSEWARES FOOD Enamel Cast Iron Cookware Cast Iron Cookware Enamel Steel Cookware Anodized Aluminum Cookware Stainless Steel Cookware Aluminum Cookware Metal Bakeware 35 36 Ceramic Bakeware Glass Bakeware Clear Colored Cutlery Serrated Non-Serrated Tea Kettles Kitchen Gadgets & Utensils Wooden Stainless Steel Nylon Melamine Ergonomic Specialty Cookware Ethnic Healthy Barbeque Accessories Baking Gadgets & Utensils Mixing Bowls Glass Stainless Steel Plastic Ceramic Spice Racks Cleaners for Stainless Steel Cookware HOME Embossed Whiteware Dinnerware Mix and Match Stoneware, Dinnerware and Serveware Glass Dinnerware Plastic Dinnerware Beverageware Stemware Glass Serveware Flatware 18/0 18/8 Wooden Serveware Enamelware Picture Frames Mirrors Lamps Accent Desk Floor Lamp Shades Clocks Candles Scented Non-Scented Candle Accessories Holders Snuffers Lanterns Hurricanes 36 37 Matches KEEPING Closet Accessories Hangers Plastic Wood Metal Cedar Products/Moth Protection Clothing Storage - Bags and Boxes Shoes Sweaters Blankets Hanging Closet Shelving Organization Systems Laundry Organization Items Underbed Storage Containers Wire and Cable Ties Kitchen Organization Containers Kitchen Labels Dish Storage Containers Dish Felt Pads Floor Savers Floor Storage Containers Kitchen Containers Shelf Paper Trash Receptacles Recycling Receptacles SEASONAL [TO COME FROM MSO] 37 38 SCHEDULE XIV Sales Projections [ * * * ] 38 39 SCHEDULE XXVI LABOR STANDARDS COMPLIANCE CERTIFICATE All Kmart Vendors: Kmart is strongly committed to full compliance with human rights and labor standards as related to the manufacturing of all merchandise sold at our stores. As a vendor to Kmart, you must ensure that there is no misstatements as to the true country of origin of your merchandise, and that none of your merchandise is made in whole or in part using any child, forced or prison labor. This obligation applies not only to your own company, but to any subcontractors you may use in producing goods for Kmart. If Kmart learns that a factory used by any of our vendors for the production of merchandise has committed legal violations, or failed to comply with our standard Kmart order terms, we will: - Cancel the affected order(s) - Terminate our relationship with the vendor - Take legal action or pursue other equitable remedies to recoup any financial losses incurred by Kmart - Assess a payment to the vendor, equivalent to 50 percent of the order(s), that Kmart will donate to a human rights or children's organization With our current and planned growth in global sourcing, Kmart is increasing our quality control staff to ensure compliance with all applicable human rights and labor standards as well as other critical elements of quality assurance. Consistent with these actions, we expect all of our vendors to increase their factory inspections and take vigilant and immediate action to eliminate any problems that are found to exist. Please sign and return the following Certification of Compliance to John Rutherford, _______________, 3100 W. Big Beaver, Troy, MI 48084 by _______________. Thank you for your prompt attention and personal commitment to this very important matter. Sincerely, Kmart Representative ________________________________________________________________________________ Certification of Compliance "By my signature below, as Chief Executive Officer, and on behalf of my company, I acknowledge receipt of the above letter, and do hereby certify and agree that the company will comply with all applicable labor laws and the order terms and conditions set forth on the back of this agreement for any and all goods supplied to Kmart regardless of country of origin. My company also agrees to make the above assessed payments for donation by Kmart to a human rights or children's organization in the event of failure to comply with the above requirements." ________________________________________________________________________________ (Print) Name & Title - Chief Executive Officer Signature Date ________________________________________________________________________________ Company Name & Address 39