Exhibit 99.2
CHART STUDIO PUBLISHING & XXXXX CORPORATION
MEMORANDUM OF UNDERSTANDING
Memorandum of Agreement (hereinafter called the "MOU")
February 19, 2004
Between:
Xxxxx Corporation, doing business under the trade names, Soundprints and Studio
Mouse, having its principal offices at 000 Xxxx Xxxxxx, Xxxxxxx, XX, 00000-0000,
U.S.A., hereinafter called "Xxxxx," of the one part,
And:
Chart Studio Publishing (PTY) Ltd., Portion 00 Xxxxxxxxx, Xxxxxxxxxxx, 0000
Xxxxxxx, Xxxxx Xxxxxx hereinafter called "Chart," of the other part,
Concerning:
Studio Mouse, LLC, a Connecticut limited liability company, having its principal
offices at 000 Xxxx Xxxxxx, Xxxxxxx, XX, 00000-0000, U.S.A., hereinafter called
"Studio Mouse."
Witnessing that:
Chart Studio currently holds an option to acquire 50% of Studio Mouse provided
that certain criteria are met, per the Memorandum of Understanding dated August
20, 2002 between Xxxxx and Chart (the "8/20/02 MOU");
And:
Xxxxx intends to merge the operations of Studio Mouse with those of Xxxxx, and
to merge the legal entity, Studio Mouse, into and with Xxxxx under applicable
law (the "Merger");
Whereby it is now mutually agreed as follows:
1. Timing: The operations of Studio Mouse shall be merged with Xxxxx, and the
legal entity, Studio Mouse, shall be merged into and with Xxxxx, prior to
Chart's application for approval of equity participation in Xxxxx to the
Reserve Bank of South Africa (Chart's equity participation in both Studio
Mouse and Xxxxx are subject to approval by the Reserve Bank of South
Africa). Studio Mouse shall be merged with Xxxxx by no later than April 1,
2004.
2. Equity: Upon the completion of 1) the Merger, 2) approval by the Reserve
Bank of South Africa of Chart's participation, and 3) compliance with all
applicable state and federal laws in the United States, including, but not
limited to, the federal securities laws, for the sum of US$25,000, paid in
full by Chart to Xxxxx, Chart shall receive:
(a) Shares, restricted as to transfer, equal to 30% of the total
number of shares of Common Stock of Xxxxx, issued and outstanding
on a fully diluted basis immediately after and including issuance
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of such 30% to Chart, in consideration of (i) forgiveness of the
loan from Chart to Studio Mouse, currently in the amount of
US$444,852, and (ii) cancellation of Chart's option to acquire
50% of Studio Mouse and iii) the contribution by Chart to Xxxxx
of certain formats, designated by Chart, which shall assist in
generating incremental revenues for Xxxxx within 12 months of
signature of this Memorandum of Understanding. Chart's
contribution to the business of Xxxxx shall also consist of the
following: A) Agreement to refrain from acquiring licenses for
the territory of North America per Clause 8 of this Memorandum of
Understanding, B) Access to sample-making facilities, C) Access
to logistics facilities as currently exist at Chart, and D)
Access to design services. Access to theses items listed in
Clause 2(a)iii (B), (C) and (D) to be provided at Chart's cost,
to be supported by a certificate of audit upon Trudy's request.
(b) An additional 3% equity interest in Xxxxx, for a total of 33% of
the total number of shares of Common Stock of Xxxxx, issued and
outstanding on a fully diluted basis immediately after and
including issuance of such 3% to Chart; provided that Chart,
using Chart sales personnel (a new Xxxxx product sales manager to
be hired by Chart no later than April 1, 2004, and supervised by
Xxxxxxx Xxxxxxxx), generates not less than US$750,000.00 in
non-returnable net invoiced sales, at a gross margin of 40% after
any applicable freight charges, of existing or new Soundprints or
Studio Mouse licensed Disney and Smithsonian or generic content
for Xxxxx within a territory consisting of the world outside of
North America, within 12 months from the date of execution of
this Memorandum of Understanding. Such sales shall be
commissionable at 5% of net invoiced value to Chart for all sales
up to US$750,000.00. Any such sales of US$750,001.00 to
US$1,500,000.00 shall be commissionable at 7%. Any such sales of
US$1,500,001.00 and above shall be commissionable at 10%
providing that each sale is non-returnable and yields Xxxxx a
minimum gross margin of 40% after any applicable freight charges.
For any completed sales US$1,500.001.00 and above at a gross
margin below 40% after any applicable freight charges, the
commissions due to Chart shall be adjusted on a prorata basis.
Such commission arrangement to be renewable by mutual consent at
the completion of the 12 month period stated in this Clause 2(b).
By way of example, for the avoidance of doubt, if completed sales
are in the amount of US$1,000,000.00 and the gross margin is 30%
(in lieu of 40%), the percentage commission due to Chart shall be
adjusted downward by 1/4, reflecting the reduction of gross
margin from 40% to 30% or 1/4 (25%) of the total gross margin,
therefore the 7% commission payable on the US$1,000,000.00 would
be reduced 1/4 to 5.25%. All commissions to be payable thirty
(30) days from receipt of payment by Xxxxx for such sales. This
3% equity shall be granted upon the completion of the
requirements set forth in this Clause 2(b) and such shares shall
be restricted as to transfer.
(c) Chart shall submit to the Reserve Bank of South Africa an
application for approval of equity participation in Xxxxx by no
later than April 30, 2004. Chart shall in good faith prepare such
application to the best of its ability for expeditious approval.
In the event that Chart fails to obtain the approval of the
Reserve Bank of South Africa as contemplated herein by December
31, 2004, Xxxxx shall have no further obligation under the terms
and provisions of the 8/20/02 MOU and in consideration of the
termination thereof, Xxxxx agrees to pay Chart 30% of 900% of
Trudy's earnings (Xxxxx to include Studio Mouse as a result of
the Merger no later than April 1, 2004) before interest, tax,
depreciation and amortization (EBITDA) for the 12 months ending
August 31, 2004, to include consolidated financial statements of
Xxxxx and Studio Mouse prior to the merger of Xxxxx and Studio
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Mouse to take place no later than April 1, 2004. In no event
shall such payment be less than $444,852, which amount shall be
due and payable on August 20, 2007.
3. Xxxxx Bank and Shareholder Loans: On February 5, 2004, Xxxxx entered into
an agreement with Westport National Bank for a US$750,000 revolving credit
facility and a US$300,000 term loan, both of which are secured by the
accounts receivable of Studio Mouse and Xxxxx and by a second and third
mortgage on the warehouse and office facility at 000 Xxxx Xxxxxx, Xxxxxxx,
Xxxxxxxxxxx, owned by Noreast Management LLC and leased to Xxxxx under an
agreement expiring June 30, 2004. In acknowledging the foregoing, Chart
agrees to provide not later than July 1, 2004 its written guarantee to
Westport National Bank of the repayment by Xxxxx of 30% of the outstanding
principal and interest relating to such 30% of the US$750,000 revolving
credit facility and to arrange for the issuance of an irrevocable Letter of
Credit, payable at a U.S. bank of Trudy's election, in an amount equal to
30% of the outstanding principal of this loan, which Letter of Credit shall
constitute security for Chart's guarantee. In the event of a collection by
the bank of assets securing the US$750,000 line, the assets of Xxxxx
currently pledged, such as receivables, shall be collected by the bank to
satisfy the loan guarantee prior to the collection of the Letter of Credit
issued by Chart mentioned herein. In addition, not later than July 1, 2004,
Chart shall provide Xxxxx with written confirmation that it shall be
indebted to Xxxxx and Noreast Management, LLC for 30% of the US$300,000
loan. Xxxxx agrees that wherever possible and prudent, Xxxxx shall seek to
pay down the equity lines mentioned herein in favor of factoring at
advantageous interest rates. Furthermore, Xxxxx agrees (as provided under
the law of Delaware, the state of Trudy's incorporation) that the
encumbrance of additional debt by Xxxxx, whether secured or not by the
assets of Xxxxx, shall be subject to a vote of the board of directors, such
board to include the Chart-appointed directors noted in Clause 5 of this
Memorandum of Understanding. Any such board resolutions concerning
additional debt to Xxxxx require a majority vote to pass. In no instance
shall Xxxxx exceed a debt to equity ratio of 2:1 without unanimous consent
of the board of directors, all shareholder loans as of the date of this
Agreement to be considered equity. In no instance shall the board of
directors be able to require additional shareholder loans or equity
investment be made in Xxxxx without the consent of the shareholder(s) in
question.
4. Strategic Publishing Initiatives (Capex Needs): On November 18, 2003,
Soundprints entered into a work for hire agreement in the amount of
US$160,000 (amount subject partially to fluctuations in applicable exchange
rates) to recreate 60 Mother Goose Nursery Rhymes (to which Xxxxx will own
the intellectual property for world wide distribution). On January 30,
2004, Soundprints entered into a deal memo with WGBH for the worldwide
master license for books, audio and plush toys to for the property PEEP and
the Big Wide World. The memo calls for a total advance against royalties of
US$117,000 over the three-year term of the license. In acknowledging the
foregoing and understanding that there will be future capital needs, Chart
agrees to fund such initiatives to the extent of their equity interest,
subject to unanimous consent of the Board of Directors, such board to
include the Chart-appointed directors noted in clause 5 of this Memorandum
of Understanding. Xxxxx and Chart further agree that should unanimous
consent not be granted, other potential sources of capital expenditure
funding can be sought, such as operating surpluses or additional debt or
equity funding, subject to Clauses 3 and 9 of this Memorandum of
Understanding.
5. Board Positions: Xxxxx agrees to accept certain members of Chart's choosing
to be elected to the Board of Directors of Xxxxx Corporation such that a
nine (9) member Xxxxx board would include three (3) elected members of
Chart's choosing, or a seven (7) member Xxxxx board would include two (2)
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elected members of Chart's choosing. Xxxxx and Chart agree that upon the
later of August 31, 2004 or 30 days from the date of approval by the
Reserve Bank of South Africa of Chart Studio's equity participation in
Xxxxx, such approval to be received no later than December 31, 2004, the
Xxxxx board, including the two (2) Chart-nominated members mentioned above,
shall consist of seven (7) total members. Telephonic participation by any
board member in a Xxxxx board meeting shall contribute to meeting quorum
requirements. Chart agrees to elect one (1) member of Trudy's Board of
Directors as a member of the Board of Directors of one or more of Chart's
business interests outside of South Africa not later than 30 days from
receipt of approval by the Reserve bank of South Africa.
6. Subordination of Xxxxxxx Debt: Xxxxx and Xxxxxxx Xxxxxxx debt shall be
subordinated to all other debt instruments and shall be subject to a
repayment schedule with the approval of Chart and any bank creditor. Xxxxx
and Xxxxxxx Xxxxxxx may convert all or a portion of their Xxxxx debt to
equity at their sole discretion.
7. Competitive Relationship: Chart agrees not enter into any licensed product
agreements specific to North American distribution with the understanding
that licensed product is the purview of Xxxxx. Xxxxx agrees that it shall
not produce or distribute with licensed content any product originally
produced and distributed by Chart prior to receipt of express written
consent of Chart. Xxxxx and Chart shall act in utmost good faith in
ensuring that each party does not produce products or adaptations or
modifications of products with key identifiable elements that may
reasonably be seen as competing with a product of either party. Failure to
comply with the aforementioned shall be deemed a material breach of this
Memorandum of Understanding.
8. Strategic Planning: Strategic planning meetings, to include product
development and sales strategy, among other topics, shall occur at least
three (3) times per year and may coincide with Board meetings of either
party.
9. Pre-emptive Rights: Chart shall be granted pre-emptive rights in respect of
future sales by Xxxxx of shares of its Common Stock in order to give Chart
the right to prevent dilution of its percentage equity ownership of Xxxxx.
10. Law and Jurisdiction: The validity, construction and performance of this
Agreement shall be governed and interpreted in accordance with the laws of
the state of Connecticut.
11. Complete Understanding: This Agreement represents the complete
understanding of the parties and it supersedes all prior agreements,
written or oral, relating to the subject matter hereof. This Agreement may
not be changed except by written instrument, executed by Xxxxx and Chart.
The parties hereby acknowledge that they contemplate entering into a more
detailed agreement, but until such time as a more detailed agreement is
executed, this Memorandum of Understanding shall serve as the whole and
complete understanding between the parties. Each party hereto represents
and warrants that it is authorized to enter into this Agreement under all
applicable law and in accordance with such party's governing documents.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and date first written above.
XXXXX CORPORATION
By /s/ XXXXXXX X. XXXXXXX February 19, 2004
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Xxxxxxx X. Xxxxxxx, President Date
CHART STUDIO PUBLISHING LTD
By /s/ XXXXXXX XXXXXXXX February 19, 2004
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Xxxxxxx Xxxxxxxx, Chief Executive Officer Date
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