1
EXHIBIT 10.75
The Xxxxxx Entertainment Company
1999 Avenue of the Stars
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Re: AMENDMENT TO MERCHANDISING DEAL
Gentlemen:
The Xxxxxx Entertainment Company, through its predecessors Xxxxxx
Comics Entertainment, Inc., Xxxxxx Comics, Inc. and HMH Communications, Inc.
(the Xxxxxx Entertainment Company and its predecessors hereinafter "Xxxxxx") has
granted to Universal Studios, Inc. through its predecessor MCA, Inc. (Universal
Studios, Inc. and its predecessor hereinafter "Universal" and Xxxxxx and
Universal each a "Party" and together "Parties") certain merchandising rights
with respect to Xxxxxx'x Characters and Products featuring those Characters
pursuant to a Memorandum of Distribution Agreement (in its unamended form the
"Original Form of Agreement") dated as of December 7, 1990 (the "Original
Agreement Date").
Since the Original Agreement Date, the Parties amended the
Original Form of Agreement by letter agreements dated as of April 22, 1993 and
September 28, 1993 (the "Letter Amendments"). The Parties have also entered into
certain other agreements pursuant to or in furtherance of the terms of the
Original Form of Agreement as previously amended, namely, that certain letter
dated May 19, 1995 as amended by an agreement dated as of August 1, 1996 related
to certain Products featuring the Character known as "Xxxx Xxxx" (the "Xxxx Xxxx
Agreement"), that certain letter agreement dated as of September 22, 1994
related to the Universal/Xxxxxx Animation Studio (the "PSO Agreement"), that
certain agreement dated as of March 15, 1992 related to domestic distribution of
home video product from the Xxxxxx Library (the "Distribution Acquisition
Agreement"(no longer in force)), and that certain agreement dated as of March
26, 1996 related to the distribution of certain television programs featuring
the Character known as "Casper" (the "Television Distribution Agreement"). The
Parties have also entered into an Amended and Restated Memorandum of
Distribution Agreement (the "Amended and Restated Agreement") amending the
Original Form of the Agreement based on that certain "Term Sheet for
Universal/Xxxxxx Restated Agreement" (the "Term Sheet") entered into on May 15,
1997 (the "Settlement Date"), and effective as of the Settlement Date.
After the Original Form of Agreement was entered into certain
disputes arose between us over the scope of the Parties' merchandising rights
under the agreements referenced hereinabove. Consequently, a letter agreement
was negotiated between the Parties and a draft dated October 29, 1996 (the
"Merchandising Amendment Draft") was created by Universal but not executed. The
Term Sheet includes changes to the Merchandising Amendment Draft which are
incorporated in this letter, which is substantially in the form of the
Merchandising Amendment Draft. Also incorporated in this letter is a proposed
side letter regarding foreign licensing agents and other matters (the
"Merchandising Side Letter") dated November 1966.
2
This letter (the "Merchandising Amendment") memorializes our agreement to amend
and restate our respective rights and obligations regarding Merchandising rights
under all prior agreements.
Except as otherwise provided in this Merchandising Amendment,
this Merchandising Amendment therefore replaces and supersedes, effective as of
January 21, 1997 (the "Merchandising Amendment Date") all prior agreements
(including the Xxxx Xxxx Agreement, the PSO Agreement, the Television
Distribution Agreement, the Distribution Acquisition Agreement (no longer in
force), the Letter Amendment, and Article 5 of the Original Form of Agreement
and of the Amended and Restated Agreement) made and entered into prior to the
Settlement Date insofar as they concern or relate to Merchandising rights and
settles any and all existing disputes between Universal and Xxxxxx related to
such rights pursuant to Paragraph 7.2 of the Amended and Restated Agreement. For
Merchandising licensing agreements which commenced prior to the Merchandising
Amendment Date, the provisions of such agreements shall be effective. Such
Merchandising licensing agreements written by Universal prior to the
Merchandising Amendment Date shall remain in full force, and the respective
rights and obligations of the Parties under the provisions of Article 5 of the
Amended and Restated Agreement or Paragraph 14 of the PSO Agreement, as the case
may be, shall remain in force with respect to such licenses until such licenses
expire by their terms without regard to this Merchandising Amendment.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Amended and Restated Agreement. The Parties hereby agree as follows:
1. DEFINITIONS:
a. MERCHANDISING: For the purposes of this Merchandising
Amendment, Merchandising shall mean Exploitation through merchandising,
including Promotional Tie-Ups as defined below, and publishing, and shall
include without limitation, direct response Merchandising licensing and/or
sales, Merchandising sales over the internet, and licensing interactive games
and software, but shall exclude Exploitation of comic books in any format and
Filmed Entertainment Products (including but not limited to videos).
b. REVENUES FROM FILMED ENTERTAINMENT PRODUCTS: For purposes of
clarification, Universal shall not be entitled under this Merchandising
Amendment to share, in any form, revenues from any filmed entertainment Product
(including without limitation video) sold in connection with a Promotional
Tie-Up or other Merchandising activity for a Product which is not produced or
released by Universal. Nor shall Universal be entitled under this agreement to
share in any non-Merchandising revenues received by Xxxxxx for any filmed
entertainment Product not produced or released by Universal, including without
limitation any direct-to-video not produced or released by Universal or any
work-for-hire done by Universal for Xxxxxx.
x. XXXXXX CHARACTERS: For the purposes of this Merchandising
Amendment, Casper Characters shall have the same definition as that stated in
Schedule 1 of the Amended and Restated Agreement.
x. XXXXXX FEATURE NEW PICTURE: For purposes of this Merchandising
-2-
3
Amendment, Casper Feature New Picture shall mean a Filmed Entertainment Product
constituting a Feature New Picture, other than the original release of the 1995
Casper Feature (including home video devices that include such Picture)
featuring a Casper Character or in the title for which there is included the
name of a Casper Character as a reference to such Character, which is produced
or released by Universal (or the rights to the production or distribution of
which are otherwise acquired by Universal in connection with the exercise of its
First Negotiation Right under the Amended and Restated Agreement).
x. XXXXXX FAMILY ENTERTAINMENT CENTER: For purposes of this
Merchandising Amendment, Xxxxxx Family Entertainment Center shall mean an
entertainment facility which does not constitute a Theme Park within the meaning
of the Amended and Restated Agreement.
x. XXXXXX RETAIL STORES: For purposes of this Merchandising
Agreement, Xxxxxx Retail Stores shall be (x) free standing stores that have
either the Casper or Xxxxxx name in the name of the store and that carry
merchandise that is primarily based on Xxxxxx Characters, and (y) clearly
distinguishable stores-within-stores meeting the following criteria:
(A) The store within-a-store must be comprised of a
least 1,000 contiguous square feet of space that is a permanent installation
(i.e., not transitory or tied to any event or season);
(B) The store-within-a-store must be in place prior
to the giving of the Initial Notice with respect to the Theatrical Preclusion
Period in question (or Non-TPP Preclusion Notice with respect to a Xxxxxx
Preclusion Period when there is no Theatrical Preclusion Period);
(C) The store-within-a-store may not be installed
within the stores of more than one major retailer per region (in addition to a
national retailer in the U.S.); and
(D) Each store-within-a-store must carry
merchandise exclusively (except for de minimis items) based on Xxxxxx Characters
and must have either the Casper or Xxxxxx name in the title of the
distinguishable store-within-a-store area.
g. PROMOTIONAL TIE-UPS: For the purposes of this Merchandising
Amendment, Promotional Tie-Ups shall refer to a type of advertising, marketing
or Exploitation in which some product, service or commodity (in addition to a
particular Product) is advertised, marketed or sold in conjunction with such
particular Product. Promotional Tie-Ups shall include promotions, premium items,
commercial tie-ins and tie-ups and sponsorships.
2. XXXXXX'X MERCHANDISING RIGHTS FOR CHARACTERS OTHER THAN CASPER
CHARACTERS:
Except as otherwise provided in this Merchandising Amendment for
Merchandising licensing agreements which commenced prior to the Merchandising
Amendment
-3-
4
Date, the Parties hereby agree to terminate the provisions of Section V of the
Amended and Restated Agreement. The Parties further agree that Merchandising
rights for (x) all Characters other than the Casper Characters, and for (y) all
Products other than those Products featuring the Casper Characters, shall revert
to Xxxxxx. Xxxxxx'x Merchandising rights and obligations in the Casper
Characters and Products featuring the Casper Characters are set forth in
Paragraph 4 below. During periods beginning with and following the Merchandising
Amendment Date, Xxxxxx shall not be required to share any Merchandising revenues
with Universal, except as provided in Paragraph 4 below which applies solely to
the Casper Characters and Products featuring the Casper Characters.
Notwithstanding anything in this Merchandising Amendment to the contrary, the
terms of the Xxxx Xxxx Agreement with respect to Merchandising revenues for the
"Xxxx Xxxx" character shall remain in force and unmodified.
3. MERCHANDISING RIGHTS FOR NEW CHARACTERS WHICH ARE NOT UNIVERSAL NEW
ELEMENTS:
For purposes of clarification, all New Characters which are not
Universal New Elements, even if such New Character is created for or first
appears in a non-Universal produced Casper Product (such as a non-Universal
produced Casper direct-to-video), are governed by the terms of Paragraph 2;
i.e., Merchandising rights for such New Characters shall revert to Xxxxxx, and
during periods beginning with and following the Merchandising Amendment Date,
Xxxxxx shall not be required to share any Merchandising revenues for such New
Characters with Universal. Thus, for example, if any New Characters are created
in the first live action Casper direct-to-video produced by Xxxxx-Xxx, all such
characters shall be governed by Paragraph 2 (and this paragraph), and shall not
be considered Casper Characters as defined herein.
4. XXXXXX'X MERCHANDISING RIGHTS FOR THE CASPER CHARACTERS AND PRODUCTS:
a. MERCHANDISING LICENSING AGENT: Xxxxxx shall, subject to the
terms of this Merchandising Amendment, be the exclusive Merchandising licensing
agent for the Casper Characters and Products featuring the Casper Characters,
except as provided in Paragraph 6 below. Xxxxxx shall pay to Universal (in lieu
of any Merchandising participation to Universal under any other agreements with
Xxxxxx with respect to the Casper Characters) an amount equal to one-half of all
Merchandising gross revenues received by Xxxxxx in connection with the Casper
Characters and Products featuring the Casper Characters in all media, including
without limitation any "Casper" direct-to-video (live action or animated),
whether or not produced by Universal, during the term hereof, specifically
excluding any revenues received by Xxxxxx (x) directly from Universal Theme
Parks (as defined in Schedule 1 of the Amended and Restated Agreement), (y) in
connection with any Xxxxxx Family Entertainment Center, and (z) in connection
with a Feature New Picture not produced by Universal featuring Xxxxxx, Poil or
Nightmare (and no other Casper Characters), after deducting only the following
amounts:
(A) Costs of up to 10% of gross revenues incurred by
Xxxxxx in the exercise of its Merchandising rights under this paragraph, not
including amounts otherwise deducted under paragraphs (C) and (D) below;
(B) Actual out-of-pocket third party foreign agent fees,
or commissions
-4-
5
paid to foreign agents, of up to 25% of gross revenues attributable to such
foreign agent paid in connection with the Merchandising rights under this
paragraph;
(C) Overhead amounts under Paragraph 9, if applicable; and
(D) Merchandising-related copyright and trademark expenses
and litigation to protect or enforce merchandising-related copyright or
trademark rights in the Casper Characters or related to the specific Product
featuring the Casper Characters.
b. MERCHANDISING GROSS REVENUES: For purposes of this
Merchandising Amendment, gross revenues received by Xxxxxx shall mean (x) for
Merchandising Exploitation by licensees, and all amounts received by Xxxxxx from
such licensees (including all revenues from Promotional Tie-Ups, other than
revenues received by Xxxxxx from the sale of Filmed Entertainment Products sold
in connection with a Promotional Tie-Up), and (y) for Merchandising Exploitation
by Xxxxxx, an amount equal to 10% of the costs incurred by Xxxxxx in connection
with such Merchandising.
c. COSTS: For purposes of this paragraph, costs shall be defined
as all out-of-pocket direct expenses paid by or on behalf of Xxxxxx in good
faith to third parties in connection with the exercise of Merchandising rights
under this paragraph, including without limitation artwork and licensing kit
development and reproduction costs, freight, travel and entertainment directly
related to the Casper Characters, tradeshow expenses directly related to the
Casper Characters and Products featuring the Casper Characters, and directly
related promotional, marketing and advertising expenses. Costs shall also
include overhead, which is defined as employees' salaries and occupancy costs,
as well as appropriately allocated office supplies, equipment rental and
corporate overhead.
d. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS: Xxxxxx shall,
within 90 days after the Merchandising Amendment Date, be responsible for
handling all Merchandising-related copyright and trademark expenses and
litigation to protect or enforce Merchandising-related copyright or trademark
rights in the Casper Characters or related to the specific Product featuring the
Casper Characters, and shall use its best efforts to protect and enforce the
Merchandising-related copyrights and trademarks in the Casper Characters and
Products featuring the Casper Characters. Universal, however, shall provide
reasonable cooperation and assistance to Xxxxxx in protecting and enforcing the
Merchandising-related copyrights and trademarks in the Casper Characters and
Products featuring the Casper Characters. Universal shall cooperate and assist
Xxxxxx in transitioning any Merchandising-related copyright or trademark matters
currently pending so that all such matters may be transferred, where deemed
appropriate by both Universal and Xxxxxx, to Xxxxxx with a minimum of
disruption.
5. PAYMENTS BY XXXXXX:
a. ACCOUNTING STATEMENTS AND REPORTS: Xxxxxx agrees to provide
Universal with quarterly accounting statements with respect to amounts due to
Universal under Paragraph 4 above. Such statements shall conform to the end of
Xxxxxx'x corresponding accounting periods, shall be delivered within 90 days
thereafter, and shall be accompanied with
-5-
6
payment of the amount, if any, shown to be due. In addition, Xxxxxx shall remit
to Universal a projected Merchandise royalty report approximately thirty (30)
days after the end of each quarter, and will request licensees to remit to
Universal a copy of the Merchandise royalty report which relates to Universal
only. Nothing contained in this Paragraph 5 shall affect the Parties audit
rights under any other agreement.
b. AUDIT RIGHTS: Universal shall have the right to audit Xxxxxx'x
books of account, but only as they relate to the Exploitation of rights under
Paragraph 4, not more frequently than once annually, by either (x) a national
firm of certified public accountants of a stature equal to Price Waterhouse LLP
or Deloitte and Touche, or (y) such other first-class reputable firm of
certified public accountants as Xxxxxx in its good faith discretion may approve.
No audit may (x) go into transactions reported in any statement period rendered
prior to the commencement of any earlier audit, or (y) continue for longer than
45 consecutive business days. Xxxxxx will use its good faith efforts to
cooperate with Universal in the conduct of any audit.
c. DISPUTES: Each quarterly accounting statement shall be deemed
correct and conclusive and binding on Universal on the expiration of 12 months
after it is given, and the inclusion in any statement of information or items
which appeared in a previous statement shall not render any such information or
terms contestable or recommence the running of such 12 month period with respect
thereto; provided that if Universal delivers a written notice to Xxxxxx
objecting to any such statement or item within such 12 month period and if such
notice specifies in detail the particular items to which Universal objects and
the nature of Universal's objections thereto, then insofar as such particular
items are concerned, such statements shall not be deemed correct or binding on
Universal hereunder. Any objection to any statement given to Universal shall be
deemed to have been waived unless an arbitration based thereon has been
instituted by Universal against Xxxxxx within 6 months following the expiration
of such 12 month period. The arbitration pursuant to this provision shall be
conducted in accordance with the Amended and Restated Agreement, and shall be
binding on and non-appealable by both Parties.
6. UNIVERSAL MERCHANDISING RIGHTS FOR CASPER FEATURE NEW PICTURES:
Notwithstanding the provisions of Paragraph 4 above, in
connection with a Casper Feature New Picture, Universal shall have the exclusive
right to initiate and control the Merchandising Exploitation of the Casper
Feature New Picture and the Casper Characters appearing in such Casper Feature
New Picture, but (with respect to Merchandising Exploitation of such Casper
Characters) only in connection with Merchandising related to or derived from
such Casper Feature New Picture and only during the Xxxxxx Preclusion Period (as
defined in Paragraph 7 below) which has application to such Casper Feature New
Picture. Universal shall be entitled to retain certain fees from the revenues
from such Merchandising activities, and shall share the remaining revenues with
Xxxxxx as follows: (x) the Parties shall share Merchandising revenues from the
First Sequel per the Pricing Schedule attached hereto; and (y) the Parties shall
share Merchandising revenues for each other Casper Feature New Picture in
accordance with Sections 2.9 and 2.10 of the Amended and Restated Agreement.
7. MERCHANDISING PRECLUSION FOR THE CASPER CHARACTERS:
-6-
7
x. Xxxxxx Preclusion Period:
Subject to the terms and provisions set forth in this Paragraph
7, Universal shall be entitled to a preclusion period for Merchandising (the
"Xxxxxx Preclusion Period") as described below. The Xxxxxx Preclusion Period
will mirror the Theatrical Preclusion Period (as described in Paragraphs 2.6 and
2.7 of the Amended and Restated Agreement and the Pricing Schedule attached
thereto as Schedule 2) as to timing, scope, restrictions, frequency, exceptions
and all other respective rights and obligations of the Parties when a Theatrical
Preclusion Period is in effect. In addition, the Xxxxxx Preclusion Period
Merchandising restrictions, exceptions and coordination requirements (described
in Paragraphs 7b, 7c and 7d, respectively, below) which apply during a Xxxxxx
Preclusion Period shall apply during a Theatrical Preclusion Period. When a
Theatrical Preclusion Period with respect to such Casper Feature New Picture is
not in effect, the Xxxxxx Preclusion Period shall be the period commencing upon
Xxxxxx'x receipt of written notice from Universal (the "Non-TPP Preclusion
Notice") that Universal intends in good faith to: (x) theatrically release and
distribute a Casper Feature New Picture in at least 800 movie theaters
domestically within the next twelve (12) months, and continuing until the date
which is the earlier of (i) 12 months after the initial theatrical release of
the Casper Feature New Picture, or (ii) 16 months after Xxxxxx'x receipt of such
Non-TPP Preclusion Notice if, as of such date, the Casper Feature New Picture
has not been initially released theatrically in at least 800 movie theaters
domestically, provided that in no event shall any Xxxxxx Preclusion Period for
any initial theatrical release exceed 28 months; or (y) theatrically reissue and
distribute a Casper Feature New Picture in at least 800 movie theaters
domestically within the next six (6) months, and continuing until the date which
is the earlier of (i) 12 months after the initial theatrical reissue of the
Casper Feature New Picture, or (ii) 10 months after Xxxxxx'x receipt of the
Non-TPP Preclusion Notice if, as of such date, the Casper Feature New Picture
has not been initially reissued theatrically in at least 800 movie theaters,
provided that in no event shall any Xxxxxx Preclusion Period for any theatrical
reissue exceed 22 months. Except for the first Xxxxxx Preclusion Period, a
Xxxxxx Preclusion Period may not commence earlier than the third anniversary or
later than the sixth anniversary of the beginning of the immediately preceding
Xxxxxx Preclusion Period, and then only if there were an initial release or a
re-release of a Casper Feature New Picture theatrical sequel in at least 800
theaters in the Domestic Territory at any time during such immediately preceding
Xxxxxx Preclusion Period. Universal shall only be entitled to send a Non-TPP
Preclusion Notice to Xxxxxx if (x) there is no Initial Notice or Final Notice
then in effect, (y) if Universal has a good faith intent to release (or reissue)
the Casper Feature New Picture and (z) after a director and (if the Casper
Feature New Picture is live action) two principal cast members for the Casper
Feature New Picture have been made pay or play for such Casper Feature New
Picture. Except when an Initial Notice has been given for a Theatrical
Preclusion Period, Universal will use its best efforts in good faith to provide
Xxxxxx with written notice of the initial theatrical release (or reissue) date
of a Casper Feature New Picture 18 months before the anticipated initial
theatrical release (or reissue) date.
b. SCOPE OF PRECLUSION:
During a Xxxxxx Preclusion Period, neither Xxxxxx nor its film or
television licensees, distributors, sublicensees and subdistributors (other than
members of the Universal
-7-
8
Group and its Existing Licensees as provided in this paragraph below) shall
engage in Merchandising activities, including without limitation Merchandising
through Promotional Tie-Ups, with respect to the Casper Characters appearing in
the Casper Feature New Picture that is the subject of such Xxxxxx Preclusion
Period or with respect to Products featuring such Casper Characters, except as
set forth in this subsection (b) or subsection (c). Following the commencement
of the Xxxxxx Preclusion Period, Xxxxxx (and its agents and licensees) shall be
permitted to negotiate and enter into new Merchandising licenses, or renew or
extend any existing Merchandising licenses (together, "New Licensee") for the
Casper Characters featured in a Casper Feature New Picture to which the Xxxxxx
Preclusion Period applies, provided however, that neither Xxxxxx (nor its agents
or licensees) will grant to any New Licensee the right to (x) release (and
Xxxxxx will not itself release) Merchandise featuring such Casper Characters
into the marketplace; or (y) market or advertise (and Xxxxxx will not itself
market or advertise) such Merchandise, in each case during the Xxxxxx Preclusion
Period. If, however, at the time the Xxxxxx Preclusion Period commences, Xxxxxx
(or any of its licensees or agents) has already granted a Merchandising license
to a licensee ("Existing Licensee") which license runs into the Xxxxxx
Preclusion Period, said Existing Licensee shall not be precluded from releasing
Merchandise into the marketplace during the Xxxxxx Preclusion Period, provided
that Xxxxxx shall use its best efforts as described more particularly in
Paragraph 7d below to facilitate coordination between the Existing Licensees and
Universal's marketing and Merchandising efforts in connection with the Casper
Feature New Picture. For example, if an Existing Licensee wishes to release
Casper Merchandise into the marketplace during the Xxxxxx Preclusion Period,
Xxxxxx shall use its best efforts to coordinate such release so that it does not
interfere with or undermine Universal's Merchandising efforts in connection with
a Casper Feature New Picture. Each license with a New Licensee shall prohibit
the New Licensee from releasing Merchandise into the marketplace during the
Xxxxxx Preclusion Period and require the New Licensee to indemnify Xxxxxx with
respect to any breach of the license, including any release of Merchandise into
the marketplace during the Xxxxxx Preclusion Period, and each license with an
Existing Licensee shall require the Existing Licensee to coordinate with Xxxxxx
with respect to the Merchandising Exploitation of the Casper Characters and the
Exploitation of other Products. Xxxxxx shall use its best efforts to ensure that
each New Licensee and Existing Licensee complies with the terms of its
Merchandising license.
c. EXCEPTIONS:
Notwithstanding the foregoing:
(i) The Xxxxxx Preclusion Period shall not apply to
Harvey's Merchandising Exploitation through Promotional Tie-Ups, including fast
food promotions, in connection with Harvey's "Xxxxxx, A Spirited Beginning"
scheduled for release in 1997. Universal shall be given prompt written notice of
any such permitted Promotional Tie-Ups.
(ii) The Xxxxxx Preclusion Period shall not apply to the
Merchandising, manufacturing and sale of Merchandise at any Xxxxxx Family
Entertainment Center or Xxxxxx Retail Store. During a Xxxxxx Preclusion Period,
Xxxxxx will not sell from any Xxxxxx Retail Store which is a
store-within-a-store any Casper related merchandise that has not
-8-
9
been purchased at arm's length from a third party licensee, and if Universal
does not financially participate in Harvey's arm's length purchase from a
licensee with respect to any such merchandise, then Xxxxxx will pay Universal
the royalty described in the Merchandising Pricing Schedule attached hereto upon
the sale of such merchandise designed to place Universal and Xxxxxx in roughly
the same position as the Parties believe they would have been in had such
article of merchandise been acquired by Xxxxxx during the Xxxxxx Preclusion
Period from a Universal licensee.
(iii) During a Xxxxxx Preclusion Period, Xxxxxx will not
be prohibited from purchasing Merchandise for its Family Entertainment Centers
or Xxxxxx Retail Stores from Merchandising licensees.
d. Coordination of Merchandising Activities:
The Parties are not required to coordinate competing promotional
activities. However, the Parties recognize the significant value of the "Casper"
rights Xxxxxx and Universal both possess. More specifically, Universal
recognizes that the "Casper" direct-to-video rights are tremendously valuable to
Xxxxxx and Xxxxxx recognizes that the "Casper" theatrical motion picture rights
are tremendously valuable to Universal. In an effort to avoid conflicts in the
enjoyment of their respective rights, the Parties agree, subject to legal
constraints, to meet and confer from time-to-time to consider the proposals of
one another concerning the adoption of cooperative strategies and coordination
of licenses during a Xxxxxx Preclusion Period.
8. PAYMENT OF ADVANCE TO XXXXXX:
Universal shall pay to Xxxxxx, upon commencement of each 12 month
period of the Xxxxxx Preclusion Period after the Merchandising Amendment Date,
an advance against the Merchandising revenues payable by Universal under
Paragraph 6 as indicated in the Pricing Schedule attached hereto. Universal
shall retain all Merchandising revenues otherwise payable to Xxxxxx as
contemplated under Paragraph 6 until it has recouped amounts advanced. Amounts
advanced to Xxxxxx with respect to a Xxxxxx Preclusion Period which is a
Theatrical Preclusion Period shall be subject to refund in the circumstances
(and only in the circumstances) contemplated under Section 2.7(b)(iii) of the
Amended and Restated Agreement. Once the Merchandising restrictions are in
effect during a Theatrical Preclusion Period, Xxxxxx will be guaranteed the
merchandising advance.
9. XXXXXX OVERHEAD RECOUPMENT:
Upon commencement of a Xxxxxx Preclusion Period after the
Merchandising Amendment Date, and continuing throughout the term of such Xxxxxx
Preclusion Period, Xxxxxx shall be entitled to deduct from the gross revenues it
receives from Merchandising the Casper Characters 50% of that portion of
Harvey's overhead directly related to Harvey's Merchandising of the Casper
Characters featured in the Casper Feature New Picture related to such Xxxxxx
Preclusion Period (and no other Characters), which shall be computed as follows:
Total Merchandising revenues for the Casper Characters featured
in the Casper
-9-
10
Feature New Picture related to the Xxxxxx Preclusion Period for the 12-month
period immediately preceding the commencement of the Xxxxxx Preclusion Period,
excluding (x) any revenues from such Casper Characters received by Xxxxxx from
Universal Theme Parks or in connection with any Xxxxxx Family Entertainment
Center or Retail Store, and (y) any payment made by Universal hereunder ("Casper
Base Year Revenues"), divided by the total Xxxxxx Xxxxxxxxxxxxx revenues from
such Casper Characters for such 12-month period ("Xxxxxx Base Year Revenues"),
times Harvey's direct overhead costs associated with Merchandising (calculated
in accordance with generally accepted accounting principles) for such 12-month
period, provided that for purposes of calculation, Harvey's aggregate direct
overhead costs associated with Merchandising shall not exceed its directly
related costs for the four employees Xxxxxx is required to hire under Paragraph
14. For example, if Xxxxxx Base Year Revenues were $3,000,000, and Casper Base
Year Revenues were $1,000,000 of the total, and Harvey's overhead costs for such
period associated with the Merchandising were $600,000, then Xxxxxx would be
entitled to recoup, before Universal's or Harvey's participation, $8,333 for
each month that the Xxxxxx Preclusion Period is in effect, provided that in no
event shall the amount of Merchandising revenues payable to Universal pursuant
to Paragraph 4 after deducting such overhead costs be less than zero.
10. UNIVERSAL THEME PARK RIGHTS:
Notwithstanding the provisions of Paragraphs 2 and 4 of this
Merchandising Amendment, Universal shall continue to have all existing rights
set forth in the Amended and Restated Agreement and the Stroller Agreement (if
executed) with respect to the Exploitation of Characters and Products in Theme
Parks, including without limitation the right to conduct Merchandising
activities in its Theme Parks under the terms of existing agreements between the
Parties. Xxxxxx will act as the agent for Universal and agrees to continue to
instruct licensees under licenses assumed by Xxxxxx pursuant to this
Merchandising Amendment to charge Universal only the amount of royalties
currently paid by Universal under existing Universal Merchandising licenses for
Merchandise sold in Universal Theme Parks, so long as Universal Theme Parks
continue to remit royalty payments to Xxxxxx, which payments shall not be
included in Universal's Merchandising revenues.
11. RIGHTS GRANTED TO FOX CHILDREN'S NETWORK:
Nothing contained in this Merchandising Amendment shall modify
any rights previously granted to Fox Children's Network, Inc. ("Fox") pursuant
to that certain letter agreement between Fox and Universal dated as of October
26, 1994.
12. UNIVERSAL'S AND HARVEY'S APPROVAL RIGHTS RELATING TO CASPER
CHARACTERS:
a. UNIVERSAL'S APPROVAL RIGHTS. Universal shall have the right
during the term of this Merchandising Amendment (Paragraph 15 hereunder) to
approve Harvey's choice of Merchandising agents, and Harvey's business decisions
in connection with Harvey's (or any agent's) grant of Merchandising licenses to
third parties for (x) the Casper character and New Universal Elements (and
Products based on or featuring the Casper Character and any New Universal
Elements) in all media, and (y) the other Casper Characters (and Products based
on or
-10-
11
featuring the Casper Characters) in all media produced or released by Universal,
and any direct-to-video (live action or animation) whether or not produced by
Universal (e.g., initial deal approval, the duration and other terms of any
license or commitment in connection therewith), including the grant of
Promotional Tie-Up rights, provided, however, that Universal understands that
with respect to approvals related to Promotional Tie-Up rights for any
direct-to-video produced by Xxxxxx or its licensees, in the event of a
disagreement Harvey's decision shall be final. Universal shall have mutual
approval over Products and style guides with respect to Merchandising for the
Casper Characters and Products featuring the Casper Characters by Xxxxxx or its
licensees, provided, however, that in the event of a disagreement, Harvey's
decision shall be final. Xxxxxx shall, regardless of whether Universal has
approval rights for a license under this paragraph, use its best efforts to
ensure that all of its licensees maintain the integrity of the Casper Characters
and produce high-quality Products so as not to diminish the value of the Casper
Characters.
Universal's approval rights for Merchandising licenses and
Products and style guides covering New Universal Elements as defined in the
Amended and Restated Agreement (e.g. Kat, Whipstaff Manor) will continue in
perpetuity, whether or not for media produced, released or distributed by
Universal, such approval not to be unreasonably withheld.
x. XXXXXX APPROVAL RIGHTS. In connection with Universal's
Merchandising rights under Paragraph 6 of this Merchandising Amendment, Xxxxxx
shall have the right to approve Universal's choice of Merchandising agents, and
Universal's business decisions in connection with Universal's (or any agent's)
grant of Merchandising licenses to third parties, including without limitation
the grant of Promotional Tie-Up rights, provided that Xxxxxx shall have no such
right of approval with respect to the grant of Promotional Tie-Up rights related
to the initial theatrical and home video release of the First Xxxxxx Xxxxxx
except for the limited purpose of ensuring that the Casper Characters are
depicted in a manner consistent with the artistic representation of the
Characters as the same have been depicted heretofore. Xxxxxx shall similarly
have approval rights over Products and style guides developed or used by
Universal and its licensees and agents in connection with Casper
Character-related Merchandising, it being understood that in the event of a
disagreement, Harvey's decision shall be final.
c. STANDARDS AND PROCEDURES FOR APPROVALS. Neither Party shall
unreasonably withhold any of its approvals requested hereunder and a Party from
whom approval is sought shall use its best efforts to respond in writing to the
Party seeking approval within 5 business days of the initial request for
approval. In the event a Party reasonably requests the other Party's expedited
approval, the Party whose approval has been sought shall use its best efforts to
respond to the requesting Party within 3 business days. If the Party whose
approval has been sought fails to respond within the allotted time periods set
forth herein, such Party whose approval has been requested will be deemed to
have approved of the requesting Party's request. The requesting Party's request
for approval of any Merchandising license shall be accompanied by such
information as the other Party shall reasonably request. Any request for
approval of a Product or style guide shall be accompanied by a prototype,
artist's rendition or sample that is sufficiently detailed to permit the
reasonable exercise of the approval rights granted hereby. For purposes of this
paragraph, approval of a license will not be deemed unreasonably withheld if the
-11-
12
terms of the license are inconsistent with industry standards.
13. ASSUMPTION OF EXISTING MERCHANDISING LICENSE AGREEMENTS:
Universal hereby assigns to Xxxxxx, and Xxxxxx assumes and agrees
to perform, Universal's product review and approval obligations under all of
Universal's existing Merchandising licensing agreements for the Casper
Characters.
14. HARVEY'S MERCHANDISING EFFORTS:
Xxxxxx has hired and agrees to maintain during the term of
Universal's financial participation under Paragraph 4 of this Merchandising
Amendment (pursuant to the first sentence of Paragraph 15) at least four
additional employees to handle merchandising of Characters and Products, and to
use throughout such term its best efforts in the exploitation of rights under
Paragraph 4 above to maximize quality, exposure and revenues.
15. TERM; OTHER AGREEMENTS:
a. TERMINATION OF UNIVERSAL'S FINANCIAL PARTICIPATION. This
Merchandising Amendment shall become effective as of the Merchandising Amendment
Date, and Universal's Merchandising financial participation under Paragraph 4
and this Merchandising Amendment shall expire on the earlier of (i) two and
one-half years after the completion of the last television motion picture
produced under the PSO Agreement, or (ii) December 7, 2000, provided that
Universal's participation in Merchandising from Universal's Casper animated
television series will expire on the later of December 7, 2000 or 30 months
after the completion of production of the last television series episode
produced under the PSO Agreement. Additionally, Universal's Merchandising
financial participation for New Universal Elements only (e.g. Kat, Whipstaff
Manor, as defined in the Amended and Restated Agreement) will survive until
termination of this Merchandising Amendment.
b. OTHER AGREEMENTS. Except as specifically set forth in this
Merchandising Amendment, nothing contained herein is intended to affect the
Parties' respective rights and obligations under the Related Agreements, and
each Party hereby reserves all of its rights under such agreements other than as
specifically modified by the Amended and Restated Agreement and this
Merchandising Amendment.
c. SURVIVAL OF CERTAIN PROVISIONS. Paragraphs 1, 4d, 5, 6, 7, 8,
9, 15, 17, 18, and 21 shall survive expiration of this Merchandising Amendment,
but shall be effective after such expiration only so long as Universal (or any
of its direct or indirect transferees, assignees or successors in interest)
retains Casper motion picture rights. In addition, Paragraphs 10 and 11 shall
survive termination of this Agreement, provided that the foregoing shall not
extend the terms of the agreements described in those paragraphs.
16. INTERACTIVE BONUS:
Universal shall pay Xxxxxx a non-refundable interactive bonus of
$250,000 for the
-12-
13
period ended September 30, 1996. The bonus was paid in full on August 27, 1997.
17. REPRESENTATION BY COUNSEL:
Each Party hereto has been represented or has had the opportunity
to be represented by counsel of its own selection and shall be deemed to have
participated equally in the drafting of this Merchandising Amendment. Each Party
has reviewed this Merchandising Amendment with such counsel and understands its
terms.
18. UNIVERSAL AND XXXXXX PROMOTIONAL RIGHTS:
Notwithstanding the provisions of Paragraph 4 and subject to the
terms of this Merchandising Amendment, Universal shall continue to have the
right to advertise, market, exploit and publicize all Products released by
Universal. Subject to the terms of this Merchandising Amendment, Xxxxxx shall
continue to have the right to advertise, market, exploit and publicize all
Products released by Xxxxxx.
19. PROMOTIONAL TIE-UP LICENSES:
Promotional Tie-Up arrangements entered into by either Xxxxxx or
Universal or their respective licensees with third parties will be entered into
on an arm's length basis, and Xxxxxx or Universal, as the case may be, will
provide the other with copies of all such agreements promptly after they are
executed provided, however, that when Universal's financial participation under
Paragraph 4 herein terminates (pursuant to the first sentence of Paragraph 15),
Harvey's obligations under this paragraph shall also terminate.
20. INTENTIONALLY OMITTED
21. RIGHTS UPON BREACH:
No material or non-material breach of this Merchandising
Amendment by Xxxxxx shall affect Harvey's rights under Paragraphs 2 and 3 of
this Merchandising Amendment. All disputes hereunder between the Parties shall
be submitted to binding arbitration consistent with the arbitration provisions
of the Stock Purchase Agreement.
Please acknowledge your acceptance of the foregoing which shall
be effective as of the Merchandising Amendment Date by countersigning a copy of
this letter below.
Sincerely,
Universal Studios, Inc.
Accepted and Agreed to:
-13-
14
The Xxxxxx Entertainment Company
By:_____________________________
Date:
Universal Consumer Products
By:_____________________________
-14-
15
PRICING SCHEDULE
FINANCIAL TERMS
1. Sharing of Merchandising Revenues from the First Sequel (Paragraph 6):
Universal shall pay to Xxxxxx XXXXXX (XXX%) of all Casper
Picture-related Merchandising of the First Sequel, after deducting only
the following amounts in the following order:
- Costs of up to XXX% of gross revenues incurred by Universal in
the exercise of its Merchandising rights under Paragraph 6.
- A distribution fee of XXX% on the gross revenues after the XXX%
cost allowance (i.e. XXX% x XXX%)
For example: If Universal's Casper Picture-related Merchandising revenue
for the First Sequel is $1,000,000, Universal may take up to XXX%
($XXXXXX) off the top, leaving $XXXXXX on which a XXX% distribution fee
will be computed ($XXXXXX). Universal would then pay Xxxxxx XXX% of the
net amount remaining ($XXXXXX), or $XXXXXX.
2. Xxxxxx Retail Stores merchandise royalty (Paragraph 7.c(ii)): XXX% of
gross revenues.
3. Minimum Advance (Paragraph 8): The greater of the (x) XXXXXX dollars or
(y) the revenues retained by Xxxxxx from Merchandising activities under
Paragraph 4 above for the twelve (12) months preceding the commencement
of the Xxxxxx Preclusion Period. Upon commencement of any period of the
Xxxxxx Preclusion Period which is less than 12 months, Universal shall
pay to Xxxxxx a prorated portion of such advance.
4. Example of Minimum Advance Amounts Payable During Merchandising
Preclusion Period (Paragraph 8):
If the Xxxxxx Preclusion Period is 24 months, Universal must pay to
Xxxxxx a minimum of $XXXXXX (i.e., $XXXXXX at the beginning of such
Preclusion Period and the second $XXXXX on the beginning of the 13th
month of such Preclusion Period. If the Xxxxxx Preclusion Period is 28
months, Universal must pay to Xxxxxx a minimum of $XXXXXX (i.e., $XXXXXX
at the beginning of such Preclusion Period, $XXXXXX on the beginning of
the 13th month of such Preclusion Period, and $XXXXXX on the beginning
of the 25th month of such Preclusion Period).
-15-
