EXHIBIT 10.28
September 28, 2001
Hallmark Entertainment, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
This will confirm our Agreement for the services of Hallmark Entertainment, Inc.
("HEI") as administrator and sales representative for the Purchased Assets which
Crown Media Holdings, Inc. ("Crown") has acquired from Hallmark Entertainment
Distribution, LLC ("HED") pursuant to that certain Purchase and Sale Agreement
dated as of April 10, 2001 by and between Crown and HED (the "HEI Library
Agreement"). Capitalized terms used herein shall have the same meaning as in the
HEI Library Agreement. We have agreed as follows:
1. Services for the Purchased Assets:
a) HEI will continue to act as exclusive worldwide sales representative in
all media (except as herein provided) for the Purchased Assets. In this regard,
HEI will perform the sales and distribution services which it has provided in
the past for the Purchased Assets on the terms set forth herein, and will use
commercially reasonable efforts to maximize the licensing revenues from that
part of the Purchased Assets made available to it under Paragraph 2 hereof,
consistent with its past efforts for comparable product among the Purchased
Assets ("comparable" means comparable production value, age, production budget,
and extent and commercial success of prior licensing). Specifically HEI will
promote and advertise the Purchased Assets consistent with its past efforts and
will include the titles of the Purchased Assets on all product lists.
b) HEI will also provide administrative support for processing licenses
for the Purchased Assets and maintaining the Purchased Assets. Such services
will include, but not be limited to:
i) Distribution -- (x) maintaining a sales database to track
availability of Purchased Assets, sales order origination, physical
storage and maintenance of materials, and handling technical
interface with customers; and (y) ordering of masters/elements,
execution of deliveries, dubbing, duplication, enhancing quality,
coordinating ancillary product requirements (scripts, promos, etc.)
at Crown's expense;
ii) Finance - handling billing, receivables and collections,
financial reporting to third party participants, tracking ultimates,
and providing invoices to Crown for residuals for which Crown is
responsible pursuant to Paragraph 1(c) hereof, so that Crown may
either make direct payment or provide funds to HEI to make direct
payments as contemplated by Paragraph 1(c) hereof; and
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iii) Legal - issuing licensing contracts, handling ongoing business
affairs, including customer interface, and employing outside counsel
as HEI and Crown deem necessary or advisable at Crown's expense.
c) HEI shall be responsible for the payment of, and shall indemnify Crown
with respect to any and all residuals payable to any Guild arising from the
exercise by HEI or its predecessors in interest of their rights under the
Pre-2001 License Agreements ("HEI's Distribution"). Crown shall be responsible
for payment of, and shall indemnify HEI with respect to, any and all residuals
payable to any Guild arising from the exercise by Crown of its rights in and to
the Purchased Assets ("Crown's Distribution"). Notwithstanding the foregoing,
Crown shall not be obligated to pay residuals with respect to receipts received
by HEI prior to Closing for 2001 License Agreements until Crown has received
such receipts from HEI or the account debtor. HEI agrees to maintain all books
and records necessary to calculate residuals. In the event of any claim arising
with respect to residual payments or any audit initiated by any of the Guilds
with respect to residual payments ("Claim"), HEI shall control the
administration, settlement or defense thereof during the Term, provided that
Crown shall have the right to participate and HEI shall not settle any Claims
that arise from Crown's Distribution without the prior consent of Crown. At the
end of the Term or upon earlier termination, Crown shall control the
administration, settlement or defense of Claims, provided that HEI shall have
the right to participate and Crown shall not settle any Claims that arise from
HEI's Distribution without the prior consent of HEI.
2. Availability of Properties from Purchased Assets and Distribution Terms:
Crown will have the sole discretion to determine which properties from the
Purchased Assets are made available to HEI for licensing to third parties, as
well as the territories, media and windows for which the properties are
available, and Crown shall promptly notify HEI of such availabilities. Crown
will appoint an executive to serve as distribution liaison between HEI and Crown
("Crown's Designee"), who will be empowered to make these decisions regarding
the Purchased Assets on a day-to-day basis and to review all licenses, sales and
marketing materials and to execute license agreements on behalf of Crown. All
license agreements relating to the Purchased Assets entered into after Closing
will be subject to Crown's review and approval and will be entered into in the
name of Crown as licensor. HEI will not execute any license agreements on behalf
of Crown.
Crown reserves the right to directly sell or license any "digital rights" to the
Purchased Assets, as that term is defined in the "Amended and Restated Program
Agreement" between the parties of even date, and to transmit, distribute and
otherwise exploit the Purchased Assets over Odyssey, the Hallmark Entertainment
Network, the Hallmark Channel or any of its future network operations; provided
such exhibition and exploitation does not conflict with the Pre-2001 License
Agreements or the 2001 License Agreements.
3. Term:
a) Subject to Closing, the Term of this Agreement shall be for a period of
three years, commencing as of January 1, 2001, however, Crown or HEI will have
the right to terminate the Agreement, effective at any time after the first full
year of the Term, upon 60 days written notice.
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An early termination of this Agreement shall not be effective until 60 days
after a copy of the written notice of termination shall have been delivered to
The Chase Manhattan Bank, as Agent for the Lenders under the Crown Credit
Facility being entered into contemporaneously with the execution of this
Agreement.
b) At the end of the Term or upon earlier termination, Crown shall take
physical possession of all License Agreements, Production Agreements,
assignments and other material documents and copies of the rights availabilities
and copyright databases (subject to Crown's acquiring the appropriate software
licenses) relating to the Purchased Assets which are in HEI's possession, other
than the Pre-2001 License Agreements and related documents (including, but not
limited to, documents relating to the chain of title and ownership of the
Library which have not theretofore been delivered to Crown). Crown shall
continue to provide HEI and its affiliates prompt access to such documents as
provided in the HEI Library Agreement. Crown may also take physical possession
of all Film Properties of the Films on 90 days prior written notice but in such
event shall notify HEI as to where they are located and shall provide access to
such Film Properties to HEI and its affiliates so they may service the Pre-2001
Agreements without any obstacles or delay.
4. Service Fee: In consideration for the services provided by HEI hereunder,
Crown will pay HEI a Service Fee of $1,500,000 per year. Such Service Fee will
be paid in quarterly installments of $375,000 payable in advance except that the
first year's Service Fee will be paid promptly after Closing.
5. Crown Accounts/Licenses:
a) After Closing, Crown will open a bank account in the name of Crown
(which will be at The Chase Manhattan Bank) to accept receipts from contracts
entered into by HEI on behalf of Crown. HEI will direct customers to pay amounts
due directly to that account. All amounts received pursuant to 2001 License
Agreements prior to Closing shall be paid by HEI to Crown within 60 days after
Closing together with the reports and information described in (c) below
relating to such receipts. To the extent that HEI has made payment of residuals
which are the responsibility of Crown pursuant to the terms of Paragraph 1(c)
hereof, or has made payment of costs which are the responsibility of Crown
pursuant to the terms of Paragraph 5(b) hereof, HEI may net out from the
payments being made to Crown, the amount of such residuals and such costs so
paid by HEI.
b) Crown will pay directly all third party direct costs relating to any
service performed by HEI hereunder including duplication costs, marketing costs,
costs of promotional materials, delivery costs, residuals in connection with
distribution of Purchased Assets on behalf of Crown and any participations
relating thereto. Individual expenditures exceeding $10,000 require the prior
written approval of Crown's Designee or another Crown officer.
c) HEI shall submit to Crown within 60 days following the end of each
calendar quarter, (i) a report setting forth all licenses of the Purchased
Assets entered into during the preceding calendar quarter, including the name
and address of each licensee, (ii) a report showing the amount of receipts from
each licensee and the films to which the receipts apply, and (iii) a copy of all
licenses relating to the Purchased Assets. The first such report will cover the
period from
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January 1, 2001 through September 30, 2001, and will contain a reconciliation of
all residual obligations accrued and/or paid during that period.
d) HEI shall maintain its files, documentation and related accounting
records for such period as is required by the statutes, rules and regulations of
the United States Internal Revenue Code and the Internal Revenue Service. Crown
shall have the right once each quarter to request access to such materials
during reasonable business hours and without disruption to the operations of HEI
for the purpose of an accounting and may, for such purpose, hire or otherwise
employ an independent certified accountant.
e) In addition to its other obligations hereunder, HEI shall make
available to any third parties with whom Crown has entered into a license
agreement as contemplated above, such documents and/or financial information as
to which such parties are entitled pursuant to any audit provisions or other
information delivery requirements of any such license agreements.
6. Trademarks; Copyrights: Crown will advise HEI of any relevant trade names,
service marks and copyrights of Crown which it wants referenced in catalogs,
sales brochures and other materials created by HEI relating to the distribution
of the Purchased Assets and HEI will ensure that such names, marks and
copyrights are used in accordance with Crown's instruction. Any inadvertent
failure by HEI to include such names, marks and copyrights shall not constitute
a breach of this Agreement. In the absence of instruction to the contrary, HEI
may continue using the names, marks and copyrights in use for the Purchased
Assets before their acquisition by Crown.
7. Third-Party Disputes; Indemnification: If any third party claim is asserted
or action or proceeding brought against HEI or its affiliates (i) which alleges
that all or any part of the Purchased Assets infringes or misappropriates any
copyright or other proprietary right or title or (ii) which otherwise arises
from the actions of HEI or its affiliates in performing services hereunder, then
HEI shall give Crown prompt written notice thereof and Crown shall defend or
settle such claim or action within its discretion at its cost. Crown further
releases and agrees to indemnify and hold harmless HEI, its affiliates, their
employees, agents and representatives from any and all damages, claims, costs,
and reasonable attorneys' fees resulting from or arising out of the performance
by HEI or its affiliates of HEI's obligations hereunder (other than for
deliberate wrongful acts, gross negligence or HEI's breach of this Agreement for
which HEI shall indemnify Crown) and as a result of any breach of this Agreement
by Crown. In no event shall any liability of HEI to Crown under this Agreement
exceed the amount of fees paid to it hereunder nor shall HEI or its affiliates
have any liability for consequential or special damages including lost profits.
8. General Terms:
a) Arbitration. The parties irrevocably agree that each and every
controversy or claim arising out of, or in connection with or relating to this
Agreement or the interpretation, performance or breach thereof shall be settled
by binding arbitration under the rules then in effect of the American
Arbitration Association or its successor and in accordance with applicable law.
Such arbitration shall not adjudicate any claims made by either of the parties
pursuant to any other agreement between them except to the extent that such
agreement has a comparable arbitration provision in it. The arbitration shall be
conducted in New York, New York and the
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proceedings shall be kept confidential (but as to which The Chase Manhattan Bank
shall be given notice and access). Notice of papers or processes relating to any
arbitration proceeding, or for the confirmation of award and entry of judgment
on an award may be served on each of the parties by registered or certified mail
at the addresses set forth in this section. Each dispute shall be promptly
adjudicated by a panel of three neutral arbitrators. All arbitrators shall be of
good reputation and character and, shall be highly knowledgeable of
entertainment industry matters. Each party shall pay one-half of the arbitrators
expenses and its own legal expenses. The arbitrators shall provide a reasoned
opinion supporting their conclusion, including detailed findings of fact and
conclusions of law. Such findings of fact shall be final and binding on the
parties but such conclusions of law shall be subject to appeal in any New York
court of competent jurisdiction. The arbitrators may award damages and/or
permanent injunctive relief, but in no event shall the arbitrators have the
authority to award punitive or exemplary damages. Notwithstanding anything to
the contrary in this section, either party may apply to a court of competent
jurisdiction for relief in the form of a temporary restraining order or
preliminary injunction, or other provisional remedy pending final determination
of a claim through arbitration in accordance with this section. If proper notice
of any hearing has been given, the arbitrators will have full power to proceed
to take evidence or to perform any other acts necessary to arbitrate the matter
in the absence of any party who fails to appear.
b) Successors and Assigns. The rights and obligations of each of the
parties hereunder may not be assigned or transferred without the written consent
of the other except that HEI may assign a part or all of its obligations
hereunder to one or more of its affiliates but any such assignment shall not
relieve HEI of its obligations hereunder. Assignment or transfer as used herein
shall include any transfer by reason of merger or sale of assets. This provision
shall not preclude HEI from outsourcing or sublicensing certain of its services
hereunder which are customarily outsourced by HEI.
c) No Waiver. No waiver by either party hereto of any breach of any
covenant, agreement, representation or warranty hereunder shall be deemed a
waiver of any preceding or succeeding breach of the same. The exercise of any
right granted to either party herein shall not operate as a waiver of any
default or breach on the part of the other party hereto. Each and all of the
several rights and remedies of either party hereto under this Agreement shall be
construed as cumulative and no one right as exclusive of the others.
d) Entire Agreement; Amendments. This Agreement, including the exhibits
attached hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior or
contemporaneous written or oral agreements between them or any of their related
entities or affiliates with respect to the subject matter hereof. No change,
modification, alteration, amendment or agreement to discharge in whole or in
part, or waiver of any of the terms and conditions of this Agreement, shall be
binding upon either party, unless the same shall be made by a written instrument
signed and executed by the authorized representatives of each party, with the
same formality as the execution of this Agreement.
e) Notices. All notices, requests and demands to or upon the respective
parties hereto, and all statements, accountings and payments given or required
to be given hereunder, shall be made by personal service, or sent by certified
mail, return receipt requested, postage prepaid, or by telegraph or by facsimile
addressed as follows, or to such other address an may hereafter be
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designated in writing by the respective parties hereto, and shall be deemed
received when delivered to the designated address:
HEI: Hallmark Entertainment, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attn: Chief Financial Officer
with a copy to:
Hallmark Cards, Inc.
0000 XxXxx, XX #000
Xxxxxx Xxxx, XX 00000
Attn: General Counsel
Crown: Crown Media Holdings, Inc.
00000 Xxxxxxx Xxxx.
Xxxxxx Xxxx, XX 00000
Attn: President and Chief Executive Officer
with a copy to:
Crown Media Holdings, Inc.
0000 Xxxxx Xxxxxxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Attn: General Counsel
Copies of notices, requests or demands given by HEI to Crown pursuant to the
provisions of Paragraph 7 hereof and copies of any reports submitted by HEI to
Crown pursuant to Paragraph 5 hereof shall contemporaneously be delivered to The
Chase Manhattan Bank, c/o XX Xxxxxx Securities Inc., 0000 Xxxxxxx Xxxx Xxxx,
Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attention: X. Xxxxx Hallren.
f) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State. The parties agree to submit to
the jurisdiction of a court of competent jurisdiction in New York and to accept
service in accordance with 8(e).
g) Section Headings. The section headings of this Agreement are for
convenience of reference only and shall not he deemed to alter or affect any
provision hereof.
h) Severability. If any provision of this Agreement is held or deemed to
be or is, in fact, inoperative or unenforceable as applied in any particular
case because it conflicts with any other provision or provisions hereof or any
constitution or statute or rule of public policy, or for any other reason, such
circumstances shall not have the effect of rendering the provision in question
inoperative or unenforceable.
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i) Survival. The provisions of Paragraphs 1(c) and 8 shall survive the
termination of this Agreement at the end of three years or at an earlier time as
contemplated by Paragraph 3(a) hereof.
If the foregoing terms are acceptable to you, please confirm your agreement by
countersigning this Agreement where provided below.
CROWN MEDIA HOLDINGS, INC.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Its: Executive Vice President
-------------------------------
Agreed and Accepted:
HALLMARK ENTERTAINMENT, INC.,
a Delaware corporation
By: Xxxxxx X. Xxxxx, Xx.
--------------------------------
Its: President
-------------------------------
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December 14, 2001
Xxxx Xxxxxxx
Vice President
Hallmark Entertainment, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Dear Xxxx,
This will confirm that Crown Media Holdings, Inc. has assigned to Crown Media
Distribution, LLC, all of its rights, title and interest in the 702 film titles
which Crown Media Holdings acquired from Hallmark Entertainment Distribution,
LLC, pursuant to the Purchase and Sale Agreement, dated as of April 10, 2001.
In view of this assignment of the film rights, Crown Media Holdings also plans
to assign its rights and obligations under the Service Agreement, dated
September 28, 2001 between Crown Media Holdings and Hallmark Entertainment, Inc.
("HEI") to Crown Media Distribution. I believe that under Paragraph 8(b) of the
Service Agreement, HEI's approval is needed for such an assignment. We would
appreciate confirmation of HEI's consent to this assignment by your
countersignature below.
Once HEI has confirmed its consent to the assignment, HEI is authorized to act
as Crown Media Distribution's agent and representative in the exploitation of
the film titles under the terms of the Service Agreement, in the same manner as
it was authorized to act for Crown Media Holdings, Inc.
Sincerely,
Crown Media Holdings, Inc.
Crown Media Distribution, LLC
Accepted and Agreed to:
Hallmark Entertainment, Inc. By /s/ Xxxxxxx Xxxxxxxx
--------------------------------
Xxxxxxx Xxxxxxxx
By /s/ Xxxxx Von Gal
-----------------------------
Xxxxx Von Gal
CC: Xxxxx Xxxxxx
Xxxxx Xxxxx
Xxxx XxxxXxxxxxx
Xxxx Xxxxx
Xxxxx Xxxxxxx
Xxxxxx Xxxxxx
