EXHIBIT 10.24
XXXXXX CREEK PRODUCTIONS, INC.
0000 Xxxxxx Xxxxxxxxx
Xxxxxxxx 00
Xxxxxxx, XX 00000
July 31, 1998
Xxxxxxx Xxxxxxx,
Chairman and CEO
Sound Source Interactive, Inc.
00000 Xxxxxx Xxxx, Xxxxx X
Xxxxxxxxx, XX 00000
Dear Xxxxxxx:
This letter sets forth the intention of Xxxxxx Creek Productions, Inc., a
Delaware corporation ("MCP") to form a joint venture with Sound Source
Interactive, Inc., ("SSII"). This letter sets forth the terms of the
understanding and will serve as the basis of a more detailed long form joint
venture agreement (the "Definitive Agreement") to be negotiated in good faith by
the parties. Until such a Definitive Agreement is negotiated and signed, this
letter once signed by all the parties hereto will represent a binding
obligation.
1. Formation of Joint Venture
MCP and SSII will form a joint venture (the "Venture") to develop an educational
interactive activity center suitable for children ages 4 to10 (the "Center"),
for use in the home solely on the PC and/or CD Rom format, based on "The King
and I" animated motion picture (the "Picture") to be released by MCP. The
parties expect that the Venture will either be a limited liability corporation
or partnership organized under Delaware law and that each of the parties will
hold a 50% interest in the Venture.
2. Initial Capitalization
SSII shall fund an initial investment of no less than $150,000 but no more than
$250,000 to the Venture as required in order to pay for product development of
the Center, in accordance with paragraph 3 below. MCP shall contribute a
nonexclusive license to use the animated characters from the Picture strictly in
connection with pre-approved marketing plans and/or elements of the Center, said
license to commence from the date of signing and continuing for two years
following the release of the product.
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3. Product Development
The Venture shall immediately commence development of the Center and shall
produce the Center on a production schedule that allows shipment to retail
outlets no later than 30 days prior to the theatrical release date of the
Picture; it being acknowledged and agreed that the initial theatrical release
date is currently March 19, 1999 and, accordingly, the Venture must be in a
position to ship units of the Center by February 19, 1999 unless otherwise
designated by MCP in writing; it being understood that MCP agrees to use best
efforts to turnaround concepts, drawings. Or any other materials submitted by
SSII for MCP approval within a forty-eight (48) hour period. To the extent that
MCP exceeds the 48 hour turnaround period. the product shipping deadline
(referred to above) will likewise be extended for SSIL SSII shall develop and
design the Center and shall be responsible for advancing the cost of developing
and designing the Center. MCP and SSII shall mutually approve the budget for the
development, design and manufacture of the Center with the budget determined on
a hard cost basis without any profit or xxxx up factor for SSII. The budget will
contain no overhead costs and no related party expenses shall be included in
"Development Costs" unless approved in writing by MCP. It is of the essence of
this agreement that the Center be of the highest quality in materials, design,
presentation and packaging and MCP shall have the right to approve all aspects
of the Center in its sole discretion including without limitation, designs,
content, materials, and packaging. To this end, MCP and SSII shall jointly
prepare a plan for implementing the design and approval process for the Center
in order that associated design and production costs can be minimized.
4. Marketing and Distribution
SSII shall market and distribute the Center through its regular distribution
channels for a period of two (2) years commencing with the initial release of
the Center. MCP and SSII shall mutually approve a marketing plan for the Center
including a budget for all marketing expenses and duplication costs. SSII shall
advance all marketing expenses and duplication costs for all units for the
Center. In addition. MCP shall have the right to approve any OEM/bundling
distribution arrangements proposed by SSII.
MCP and SSII shall mutually agree on distributors for the product based on the
best third party proposals submitted to the Venture. It is of the essence of
this agreement that all marketing and advertising materials related to the
Center be of the highest quality, and MCP shall have the right to approve all
aspects of the marketing and advertising materials in its sole discretion. MCP
and SSII shall be entitled to place their logos as presentation credits on the
Center and on the packaging, marketing and advertising materials for the Center
in equal size and prominence.
5. Split of Revenue
SSII shall account to the Venture on a monthly basis for the first three (3)
months following initial release of the Picture, with accounting periods ending
on the last business day of each month and with statements rendered by the
twenty fifth day after the
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end of the last month; thereafter, SSII shall account to the Venture on a
quarterly basis. In the event any income is received prior to the initial
release of the motion picture, SSII shall account to MCP for any such income in
a special accounting. SSII shall remit all gross revenue ("Proceeds") to the
Venture which shall be split as follows (and in the following order):
a. Venture shall pay all royalties and residuals to any actors, writers.
developers or hardware manufacturers in connection with the development of the
Center.
b. Reimbursement of Expenses
--------------------------
(i) SSII shall be reimbursed all direct, out of pocket costs and
expenses actually paid by SSII for distribution, marketing,
promotion and advertising of the Center (excluding overhead.
interest and G&A) and which are preapproved by MCP. In no event
shall SSII be reimbursed for expenses in an Amount exceeding
25% of Proceeds.
(ii) MCP shall be reimbursed to the extent MCP incurs distribution
and marketing expenses (such as those described in paragraph 6
below); such expenses shall be recouped pro rata with SSII's
expenses described in (i), above.
c. MCP and SSII shall each recoup their contributions to the costs of
development, design and manufacture of the Center as preapproved by MCP, on a
pro rata basis in proportion to their respective contributions: it being agreed
that MCP's contribution shall be deemed to be S50.000 per product manufactured
by the Venture in respect of the license contributed to the Venture (it being
understood that MCP shall have no obligation to fund any amounts to the
Venture).
The balance of the proceeds shall be split 50% to MCP and 50% to SSII and shall
be distributed as determined by the Venture.
6. Additional Products
Provided that the Center is timely released in accordance with paragraph 3
above. the Venture shall have the option, exercisable within 120 days after
initial release of the Center, to develop and produce one additional interactive
product suitable for children ages 4 to 10 ("Additional Product"). Any such
Additional Product must fall within the reasonable scope of SSII's production
capabilities, and MCP shall have the right to preapprove the product materials.
design and all other material aspects of the proposed product (the "Additional
Product"). In the event that Venture elects to produce the Additional Product,
the costs for the development, design, manufacture, marketing, promotion and
advertising of the Additional Product shall be advanced by SSII. If produced,
the Additional Product must be ready for shipment to coincide "day and date"
with the initial video release of the Picture. MCP plans to offer merchants
several choices of in-store video displays created for video exploitation of the
Picture; at least one such display choice available to merchants will feature.
promote and sell both the videotape
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release of the Picture and a Venture product. Further, MCP shall instruct its
distribution agents to include a "visual depiction" (i.e. photo, rendering,
etc.) of the in-store video display which features, promotes and sells both the
videotape release of the Picture and a Venture Product. MCP shall offer
merchants the option of an in-store video display, which promotes and/or sells
both the videotape release of the Picture and a Venture product. All other terms
applicable to the Center hereunder shall apply to the Additional Product, and
each such product shall be accounted for separately with no offsets or cross
collateralization.
7. Control of Venture
Management and control of the Venture will be by unanimous approval of each of
MCP and SSII. All management issues will require unanimous approval including,
but not limited to, the following:
(a) Liquidation and Sale of the Joint Venture Or any of Venture's assets;
(b) Approval of all expenditures;
(c) Approval of distributors for the Center, except as set forth in
paragraph 4 hereof;
(d) Distributions from the Venture to MCP and SSII other than as set forth
in Paragraphs 5(a), (b) and (c) hereof; and
(e) All Creative and business decisions regarding the Venture.
8. Ownership of Intellectual Property
SSII acknowledges that MCP shall own exclusive rights to any copyrights.
trademarks and other intellectual property licensed to the Venture by MCP. In
addition, the Venture shall exclusively own all rights to all copyrights.
trademarks and other intellectual property developed by the Venture (exclusive
of any intellectual property licensed to the Venture by MCP), including without
limitation all rights to the Center. Except as otherwise provided herein, MCP
shall be entitled to, exploit such copyrights, trademarks and other intellectual
property in any manner whatsoever without any payment of any royalties or other
compensation to the Venture. SSII shall contribute a non-exclusive license to
the Venture for its pre-existing computer tools, utilities, engines, processes,
software systems and designs, source and object codes, program logic,
interactive program structures, retrieval software systems user interface
designs, and other computer procedures and methods of operation and computer
software elements (the "Computer Elements") which are used in connection with
the Center. MCP acknowledges that SSII remains sole owner of the Computer
Elements, and MCP shall on]y have rights in the Computer Elements to the extent
they pertain to the Venture and its products. SSII warrants that SSII will
procure worldwide nonexclusive licenses in perpetuity from any third parties
whom may contribute property (similar to the Computer Elements) not owned by
SSII, to the Venture and its products.
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9. Relationship
This Letter of Intent and the Definitive Agreement shall not create any
additional fiduciary duties of the parties other than the duties expressly
contained herein and in the Definitive Agreement. Each of the parties shall be
free to undertake independent activities, but each party shall consult in good
faith with the other party prior to undertaking any independent activities which
may be competitive with the Venture.
10. Restriction on Assignment
This Agreement and SSII's rights and obligations hereunder shall not be
assignable without the prior written consent of MCP. Any purported assignment by
SSII without MCP's prior written consent thereof shall be null and void from the
making thereof.
11. Expenses
Each party shall bear its own costs and expenses in connection with the
negotiation of the Definitive Agreement and the consumation of the transactions
contemplated thereby.
12. Governing Law
California law shall govern this Letter of Intent and the Definitive Agreement.
13. Entire Agreement
This Letter of Intent represents the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior and/or
contemporaneous agreements and understandings. This Letter of Intent may only be
modified or amended by a written agreement of the authorized representatives of
the Parties.
14. Presumptions
In interpreting the terms and conditions of this Letter of Intent, no
presumption shall operate as a result of the role of any party hereto or such
party's counsel in drafting this Letter of Intent.
15. Counterparts
This Letter of Intent may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
16. Public Announcements
Except as otherwise required by law, including without limitation. any
disclosure required under federal or state securities law, SSII shall not
disclose the terms of this agreement or use file name of MCP or any entity
affiliated with MCP in any advertisement, news release or professional or trade
publication, or in any other manner
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unless MCP has given prior written consent. If SSII determines that it is
required to file with the Securities Exchange Commission this agreement or any
related agreement with MCP, SSII shall consult with MCP regarding the filing and
shall seek confidential treatment for such agreement and for all financial and
business terms therein.
17. Confidentiality
SSII understands and agrees that any materials, intellectual property, and/or
any other elements of or information about the Picture furnished to or disclosed
to the Venture or SSI1 by MCP are proprietary trade secrets of MCP and will be
kept strictly confidential and only made known to employees of SSII on a need to
know basis. Such information and any additional information concerning the
Venture's products and/or any aspects of the relationship between the parties
(including without limitation the terms of this deal) shall also be kept
strictly confidential and may not be released or disclosed to anyone other than
such employees who have a need to know, without the prior written consent of
MCP. No language in this agreement shall be construed as granting SSII
permission to release information in contradiction to this provision.
If the foregoing terms are acceptable to you. please confirm your acceptance by
signing below.
Very truly yours,
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Chairman/CEO
Xxxxxx Creek Productions, Inc.
Agreed to and Accepted this 9th day of Sept., 1998.
--- ------
SOUND SOURCE INTERACTIVE, INC.
By: /s/ Xxxxxxx Xxxxxxx
_____________________________________
Its: CEO
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