XXXXXX XXXXXX
c/o ABRAMS/XXXXXXX ENTERTAINMENT. INC.
000 XXXX 00XX XXXXXX
XXX XXXX, XX 00000
January 21, 0000
XXX Xxxxxxxxxxxxx Corporation
000 Xxxxx Xxxx Xxxx.
Xxxxx Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxx, Chairman
Dear Xx. Xxxxx:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement") as amended by Letter Agreements dated September 4, 1998, September
24, 1998 and October 1, 1998 (the "Amendments") between the undersigned, MSH
Entertainment Corporation ("Buyer") and the undersigned, Xxxxxx Xxxxxx
("Seller"). This Agreement will modify the Agreement and the Amendments;
however, except as expressly provided herein, the terms and conditions of the
Agreement and the Amendments are hereby confirmed and ratified, Seller has
agreed to extend the date of the Closing until 5 pm on January 27, 1999 on the
condition that MSH confirm the following, by signing where indicated below:
1. It is agreed that for a period of two (2) years after the date of
Closing in the transaction contemplated by the Agreement and the Amendments, Up
Up & Away (America), Inc. and Parico Investments Ltd., d/b/a Up Up & Away
(collectively referred to herein as "Up Up & Away") (or another entity, with the
same shareholders, designated by Seller) shall act as the exclusive
licensing/marketing agent for any and all toys created by Buyer or by
Xxxxxx/Xxxxxxx Entertainment, Inc. ("AGE"), but only to the extent such toys are
related to properties in development with AGE prior to the date of Closing
(including without limitation any toys or toy concepts created by Xxxx or
Xxxxxxx Xxxxxxx), on the following basis:
(a) In those instances where toys or toy concepts arise as an
offshoot of a television, motion picture or other entertainment property, Up Up
& Away will receive 35% of the gross advances and royalties derived from the
sale or exploitation of any such toys or toy concepts, except that if advances
subject to this sentence are needed to fund production of a theatrical or
television show (live or animated), or video or electronic games, and any and
all visual productions for any delivery system, Up Up & Away shall receive only
8% of such advances, such reduction to be applicable only to advances actually
used for production expenses. In those instances where a toy or toy concept is
created separate and apart from an entertainment property, Up Up & Away will
receive 50% of the gross advances and royalties derived from such exploitation
of such toy or toy concept. For purposes of clarification, the parties
acknowledge that the exclusive arrangement described in this Paragraph 1 shall
not be applicable to (A) any arrangement proposed by a third party for which
there is already in place an arrangement for the licensing/marketing of toys or
toy concepts and (B) any revenues arising from sales of toys if such sales are
executed entirely in-house by MSH (e.g., internet, e-commerce or an internet
network).
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(b) With respect to all other merchandise licensing activities
conducted by MSH or its affiliates, Up Up & Away shall act as the exclusive
merchandise licensing agent with respect to any and all such properties and will
receive a licensing agent fee of 30% (domestic) and 40% (foreign), it being
understood that such fee shall include all fees payable to foreign agents.
(c) The fees payable to Up Up & Away hereunder shall at all
times be within the industry standard range of fees paid to licensing/marketing
agents, and if it is established that such fees are in excess of the industry
standard range, the parties agree that such fees shall be reduced so as to be
within such range.
(d) Up Up & Away agrees that if, in a change in control or
purchase of MSH by a third party, Seller is offered the opportunity to
participate in such purchase on the same terms as are applicable to the selling
shareholders of MSH or if Seller is, at the time of such change in control, no
longer a shareholder of MSH, MSH shall have the right to elect to terminate the
exclusive arrangement described in this Paragraph 1, it being agreed that such
termination shall not be applicable to current agreements or agreements for
which material negotiations have begun and which are executed within 6 months
following the change of control.
(e) Up Up & Away shall have the right to terminate the
exclusivity arrangement described in this subparagraph 1(a) upon 30 days prior
written notice to MSH. Such termination shall not affect agreements in force or
agreement fore which material negotiations have begun and which are executed
within 6 months following such termination.
(f) It is agreed that the fees payable to Up Up & Away
hereunder shall be payable for the full term (including any renewals or
extensions) of any applicable license, regardless of the termination of the
exclusivity arrangement described in this Paragraph 1.
2. MSH acknowledges that, for a period of five (5) years from the date
of Closing, neither it nor any affiliate will, enter into any co-production,
licensing, distribution or other business arrangement with the Canadian
production company known as Annex, or the production company known as Cambian if
the arrangement relates to the property known as "Hammer Horror", without the
prior written consent of Seller and without having first having negotiated and
signed an agreement with Seller confirming his right to receive 25% of the
advances, royalties or other compensation payable to MSH or any of its
affiliates, or on its or any of its affiliates' behalf in connection with any
such business arrangement, it being understood that Seller has been the
procuring cause of any such business relationship by virtue of his having
introduced those entities to MSH and AGE.
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3. MSH agrees that Up Up & Away shall be entitled to partition and
sublease, for a period of two (2) years, offices on the 9th floor which
constitute the front part of the space on such floor, at a monthly rent of which
is proportionate to the entire 9th Floor, payable on or before the 10th day of
each month. MSH further agrees that Up Up & Away shall be entitled to subdivide
such space so as to physically separate Up Up & Away's office space from the
rest of the 9th Floor office space, although Up Up & Away shall, if MSH
requests, subdivide so as to provide MSH with reasonable access to its space on
the 9th Floor through the space occupied by Up Up & Away. If the applicable
lease forbids such arrangement, Up Up & Away shall sublease MSH the back part of
the space on the same terms. MSH further agrees that if MSH/AGE proposes to
terminate its lease for the 9th Floor, MSH shall offer Up Up & Away the right to
take over the part of the space Up Up & Away is then occupying, subject to any
consent required by the Landlord.
4. MSH agrees that, commencing upon the closing of the transactions
contemplated hereunder, MSH (or any of its affiliates) shall enter into a
consulting arrangement with Xx. Xxxxx Xxxxxxx, pursuant to which MSH (or any of
its affiliates) will pay Xx. Xxxxxxx an annual consulting fee in the amount of
$120,000 per annum, (payable at the rate of $10,000 per month) for a period of
three (3) years, in consideration of Xx. Xxxxxxx'x rendering marketing and
licensing consulting services to MSH and AGE and in further consideration of her
serving as a liaison between MSH/AGE and Up Up & Away. and in addition to any
consideration Xx. Xxxxxxx may receive for her shares of ACE. That consulting
agreement will further provide that, in the event of MSH's (or AGE's) default in
making any of the monthly payments due to Xx. Xxxxxxx thereunder, the balance of
the consulting fees for the unexpired portion of the three year term will
immediately accelerate and become due and payable. Finally, MSH agrees that Xx.
Xxxxxxx shall report directly to Xxxx Xxxxxxx in connection with her consulting
services. Seller agrees that if Xx. Xxxxxxx refuses to enter into such an
agreement, or renegotiates the terms of such an agreement, MSH/AGE shall not be
in breach of the Agreement. At Seller's request, MSH shall provide Seller with a
copy of Xx. Xxxxxxx'x agreement with MSH/AGE so as to confirm its satisfaction
of the obligations hereunder.
5.) MSH agrees to provide Seller with 750,000 shares of newly issued
shares of restricted common stock of MSH. These shares will be in addition to
the shares issuable pursuant to subsection 1.2.4 of the Agreement (as modified
by the Amendments).
6.) Seller agrees that the interest payment required by Paragraph 5 of
the September 4, 1998 Amendment is hereby waived, and Seller agrees to return to
MSH, at the Closing, the Confession of Judgment previously delivered to Seller.
7.) You agree that if the Closing does not occur by January 26, 1999 as
provided herein, you authorize Rubin, Bailin, Ortoli, Xxxxx Xxxxx & Xxx, LLP, as
escrow agent for 660,000 shares of freely trading common stock of MSH, to
release to Seller such shares, and MSH agrees that such shares shall be Seller's
without further obligation to MSH and in addition to Seller's obligations under
the Agreement, as amended, and without limiting any of Seller's legal or
equitable rights against MSH for its breach of the Agreement, as amended. MSH
agrees that if the Closing does occur as provided herein, such shares shall be
released to Seller as additional consideration.
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8.) Unless and until the closing of MSH's acquisition of AGE, MSH will
not issue any further press releases or disseminate any other information, over
the Internet or otherwise, concerning Xxxxx Xxxxxx, AGE or the pending
transactions, without Xxxxx Xxxxxx' prior written consent.
9.) You acknowledge that I, or one of my affiliates has made the
September 30, 1998 and November 80, 1998 interest installments of the Hallmark
Loan (defined in the Agreement), and you agree to reimburse me (or to reimburse
my affiliate) for such payments at the Closing. In addition, you agree that you
will, at the Closing, pay $100,000 to Rubin, Bailin, Ortoli, Mayer, Xxxxx & Fry
in escrow, such amount to be used to pay an additional payment of the Hallmark
Loan prior to February 20, 1999. If you fail to do so, you shall negotiate in
good faith with me so as to provide me with additional security acceptable to me
for the repayment of the Hallmark Loan, and I shall not be obligated to close
this transaction until such additional security is satisfactory to me.
Notwithstanding the foregoing I agree that prior to any such payment of the
Hallmark Loan. I will cooperate with you in your efforts to renegotiate the
terms of the Hallmark Loan. If you are unable to accomplish such renegotiation
by February 20, 1999, I am hereby authorized to instruct Xxxxx Xxxxxx, et al. to
make the required payment.
10.) You agree to modify the Security Agreement, pursuant to which you
agreed that MSH's 18.75% membership interest in Freedom Multimedia LLC
("Freedom") was collateral for certain obligations, so as to provide that such
membership interest shall not be diluted below 18.75% of the total membership
interests in Freedom until such collateral is released as provided in the
Security Agreement, except in the event of a mutually agreed financing pursuant
to which all members of Freedom are diluted in proportion to their respective
interests. I agree that you shall, after the Closing, be entitled to appoint one
of the members of the Board of Managing Members of Freedom.
11.) You agree to modify the Security Agreement which governs the
collateral of 26 shares of the shares of AGE purchased by MSH to provide that
such collateral shall not be diluted below 29.54% of the total outstanding
equity of AGE until such collateral is released as provided in the Security
Agreement.
12.) MSH and Seller agree that instead of the escrow arrangement
described in subparagraph 8.6 of the Agreement, Seller has agreed to reduce the
number of newly issued restricted shares deliverable to Seller at the Closing by
400,000 shares, and MSH agrees that Seller shall have no obligation or liability
regarding the Gaumont claim.
13.) In light of my continued employment by AGE through the end of the
1998, and to ensure the funding of my pension fund interests, including my
$65,000 share of the $98,000 in aggregate underfunding of such pension funds,
Paragraph 1 of the September 4, 1998 Amendment to the Agreement is hereby
amended to read as follows:
"1.) You, on behalf of yourself and AGE, hereby waive any claim
against me for underfunding of the AGE pension funds. You agree that my
pension shall be funded at $256,000, and I agree that funding for my
pension will be limited to $256,000, and I waive any rights I may have
to require further funding of my AGE pension. I will execute such other
documents as you may request to confirm such waiver. You agree
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that I will not be responsible for any other underfunding of such
pension funds for other employees. I agree that if you are required by
law to provide funding in excess of the aforesaid $256,000 with respect
to my pension in order to avoid reporting an underfunded pension,
notwithstanding try waiver. I shall reimburse you for such excess
funding upon your request."
You agree that you shall make all payments required to satisfy such
obligations no later than the date such payments are required to be made by law
(taking into effect any extensions permitted by law).
14. You, on behalf of yourself and AGE, acknowledge and agree that:
(a) it has not been the intention of the intention of the parties for MSH to
acquire any direct or indirect interest in the company Up Up & Away, Inc., and
(b) if AGE owns any interest in the company Up Up & Away, Inc., all such
interests shall be transferred, prior to the Closing, or expeditiously after the
Closing, to the current shareholders of AGE, namely Xxxxxx Xxxxxx, Xxxx Xxxxxxx,
Xxxxxxx Xxxxxxx and Xxxxx Xxxxxxx, and that any such transfer shall not be
subject to your approval or consent.
15. You and I agree that my right to participate in the net proceeds of
Space Cowboys (licensed from Xxxx Xxxxxxxx) shall be the same as are applicable
to the Micronauts property referred to in subparagraph 8.2.2 of the Agreement.
16. You and I agree that all contracts entered into by you (or AGE)
with respect to any properties in connection with which I have a right to net
proceeds shall require that proceeds payable to you or on your behalf (or to AGE
or on AGE's behalf) including, without limitation, Micronauts, Samurai/Paparazzi
and Space Cowboys, shall be paid directly into an account held in our joint
names, and that payments shall be made directly from such account to you and me
immediately following credits thereof, upon authorization of both Xxxx Xxxxx (or
MSH's designated representative) on your behalf and me.
17. You agree that producer fees payable to AGE on Micronauts shall be
negotiated in good faith between Xxxxxx Xxxxxx and Xxxx Xxxxxxx expeditiously
following the Closing.
18. I agree that the 500,000 shares of free trading common stock of MSH
deliverable pursuant to subparagraph 7 of the September 24, 1998 Amendment shall
be delivered on or before May 6, 1999.
19. You further acknowledge that you shall cause AGE to pay me the sum
of $175,000 at Closing, which sum represents my share of previously reported
taxable profits which I voluntarily elected to leave in AGE.
20. It is agreed tat with respect to any fees, royalties or other
payments due Seller pursuant to the Agreement shall be subject to Seller's right
to examine, or retain an accountant to examine Buyer's, or Buyer's affiliate's
books and records as same pertain to the applicable property. Seller shall
notify you in writing of his election to conduct such an audit. Any such
examination shall be for a reasonable duration, shall take place at Buyer's
offices during normal business hours not less than thirty (30) days following
Buyer's receipt of such notice from Seller.
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21. It is agreed that I shall have a right to approve all production
elements as well as the terms of all licensing or other agreements pertaining to
the Micronauts property.
22. For purposes of clarification only, you acknowledge that the total
number of shares to be issued to me as part of the purchase price pursuant to
the Agreement is as follows:
1.) 300,000 newly issued shares, receipt of which is
acknowledged (pursuant to 1.2.3 of the Agreement);
2.) 1,765,000 newly issued restricted shares, deliverable
at the Closing (pursuant to 1.2.4 of the Agreement, as
modified by Paragraph 3 of the 9/4/98 Amendment and
Paragraph 12 above);
3.) 660,000 shares of free trading common stock,
deliverable at the Closing (currently in escrow,
pursuant to Paragraph 3 of the 9/4/98 Amendment);
4.) 400,000 shares of newly issued restricted shares,
deliverable at the Closing (pursuant to Paragraph 4 of
the 9/4/98 Amendment);
5.) 500,000 shares of free trading common stock,
deliverable on or after the Closing, but no later than
May 8, 1998 (pursuant to Paragraph. 7 of the 9/24/98
Amendment and Paragraph 18 of this agreement); and
6.) 750,000 shares of newly issued restricted shares,
deliverable at the Closing (pursuant to Paragraph 5 of
this agreement).
Kindly indicate your confirmation below.
/s/XXXXXX XXXXXX
-----------------------------------
Xxxxxx Xxxxxx
AGREED AND CONFIRMED:
MSH ENTERTAINMENT CORPORATION
By: /s/XXXXXX XXXXX
-----------------------------------
Xxxxxx Xxxxx, Chairman
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