Low-cost airline easyJet plc (EZJ.L) Monday said it has reached an agreement to resolve its ongoing dispute and litigation with its founder Sir Stelios Haji-Ioannou and easyGroup IP Licensing Ltd. (eGIP) over the terms and operation of the 'easyJet' brand licence. As part of the settlement, the company amended and restated its brand licence agreement with eGIP agreeing to pay an annual royalty of 0.25% of its revenue.
Under the restated agreement, easyJet will continue to have its exclusive worldwide rights to use its brand. EasyJet will have the freedom to enter new co-branding agreements and will also have the right to enter co-branding promotions with other leading brands, the company said.
The restriction on easyJet's ancillary revenue growth is removed and the licence will continue for a 50-year period starting October 1, 2010, with a minimum committed use by easyJet of 10 years. In return, easyJet agreed to pay an annual royalty of 0.25% of its total revenues to eGIP, fixed at GBP 3.9 million and GBP 4.95 million in the first and second years of the deal respectively.
Haji-Ioannou, who founded easyGroup IP Licensing Ltd., had brought a legal claim to High Court alleging that the airline breached a branding agreement made when the airline floated in 2000. The agreement was designed to ensure that easyJet's business remains focused on its operations as an airline and to prevent it from being a conglomerate. It was on August 15, 2008 that the airline said it had received notification from eGIP that it was to ask the High Court to clarify the terms of the agreement.
Under the terms of the previous brand licence contract, no less than 75% of easyJet's revenue is to be derived from its core activity of transporting passengers in fixed-wing aircraft, while limited the amount it can make from ancillary services to 25%. Haji-Ioannou, who resigned from the easyJet board last May, argued that easyJet is generating more than 25% of the revenues from ancillary services due to growth in these types of services, and considered the airline's baggage check-in charges are ancillary to the airline's business.
However, the airline said that more than 90% of its applicable revenues are derived from core activity that includes passenger ticket revenues, infant charges, speedy boarding fees and baggage charges - service that are are just as integral to its main business and all these services are related running an efficient low cost airline.
EasyGroup IP is the owner of the 'easy' brand and licenses it to all 15 easyGroup businesses. It also manages the contracts between the easyGroup businesses and their respective licensees and franchisees. The brand rights were granted in perpetuity at an annual royalty of GBP 1 a year, subject to certain limitations.
The Board of easyJet said it agreed to the settlement keeping in mind that a continuing dispute with the Licensor would have led to ongoing legal costs and wouldn't be in the best interest of its shareholders. The company noted that, with the deal it no longer has to gain eGIP approval for the around GBP 3 million per annum of co-branding and marketing deals within the airport or airline environment.
The transaction is conditional upon the approval of shareholders, other than easyGroup which is a related party shareholder. Upon obtaining shareholder approval for the revised brand licence, Haji-Ioannou has agreed to give up the right to appoint himself as easyJet Chairman and end easyGroup's rights of representation on the Board of easyJet.
EZJ.L is currently trading at 467.80 pence, up 16.20 pence or 3.59%, on a volume of 1.33 million shares on the London Stock Exchange.
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