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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1998 Commission File #0-15284
- --------------------------------------------------------------------------------
J2 COMMUNICATIONS
(Exact name of registrant as specified in its charter)
California 95-4053296
- ---------------------------- ----------------------------
(State or other jurisdiction (IRS Employer Identification
incorporation or organization) Number)
10850 Wilshire Blvd., Ste. 1000, Los Angeles, CA 90024
- --------------------------------------------------------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code: 310-474-5252
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Number of shares outstanding of each of the issuers classes of common stock as
of the latest practicable date: 1,200,000 common shares, no par value were
outstanding as of December 1, 1998.
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J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
Assets 10/31/98 7/31/98
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 1,087,000 $ 879,000
Short-term investments 1,158,000 1,352,000
Accounts receivable - net 34,000 7,000
Intangible assets, less accumulated
amortization of $2,369,000 and
$2,309,000 as of 10/31/98 and
7/31/98, respectively 3,596,000 3,656,000
Other assets 73,000 68,000
------------- -------------
Total assets $ 5,948,000 $ 5,962,000
============= =============
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 193,000 $ 154,000
Accrued expenses 524,000 519,000
Accrued royalties 311,000 327,000
Accrued income taxes 38,000 38,000
Deferred income 500,000 800,000
Common stock payable 203,000 203,000
Minority Interest 182,000 118,000
------------- -------------
Total liabilities 1,951,000 2,159,000
------------- -------------
Shareholders' Equity:
Preferred stock, no par value;
Authorized 2,000,000 shares;
none issued and outstanding -- --
Common stock, no par value;
authorized 15,000,000 shares;
issued and outstanding, 1,200,000
as of 10/31/98 and 7/31/98 8,663,000 8,661,000
Less: notes receivable on common stock (130,000) (128,000)
Deficit (4,536,000) (4,730,000)
------------- -------------
Total shareholders' equity 3,997,000 3,803,000
------------- -------------
Total liabilities and
shareholders' equity $ 5,948,000 $ 5,962,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Movies, television, and theatrical $ 554,000 $ 149,000
Video sales, net of returns 3,000 1,000
Royalty income 20,000 49,000
Magazine 27,000 --
Other -- 112,000
------------- -------------
Total revenues 604,000 311,000
------------- -------------
Costs and expenses:
Cost of videocassettes sold 2,000 3,000
Royalty expense 9,000 10,000
Cost of movies, television and theatrical 55,000 --
Cost of Magazine 45,000 --
Selling, general and administrative 180,000 180,000
Amortization of intangible assets 60,000 60,000
------------- -------------
Total expenses 351,000 253,000
------------- -------------
Income from operations 253,000 58,000
Other Income (Expense)
Interest income 16,000 17,000
Minority Interest in income of
consolidated subsidiary (64,000) (31,000)
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Income before income taxes 205,000 44,000
Provision for income taxes 11,000 6,000
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Net income $ 194,000 $ 38,000
============= =============
Income per common share:
Basic and diluted income per share $ 0.16 $ 0.03
============= =============
Weighted average number of shares
of common stock outstanding 1,200,000 1,200,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 194,000 $ 38,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization of intangible assets 60,000 60,000
Minority interest in income
of consolidated subsidiary 64,000 31,000
Changes in assets and liabilities:
Accounts receivable, net (27,000) 11,000
Other Assets 18,000 (13,000)
Accounts payable 39,000 3,000
Accrued expenses 5,000 21,000
Accrued royalties (16,000) (111,000)
Deferred revenues (300,000) (45,000)
------------- -------------
Net cash provided by (used in)
operating activities 37,000 (5,000)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (23,000) --
Purchase of short-term investments -- (192,000)
Sale of short-term investments 194,000 288,000
------------- -------------
Net cash provided by investing
activities 171,000 96,000
------------- -------------
Net increase in cash
and cash equivalents 208,000 91,000
Cash and cash equivalents,
beginning of quarter 879,000 641,000
------------- -------------
Cash and cash equivalents,
end of quarter $ 1,087,000 $ 732,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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J2 COMMUNICATIONS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998
Item 1
Basis of Financial Statement Presentation
The consolidated financial statements of J2 Communications and subsidiaries
(collectively the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Interim
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete year-end
financial statements. The accompanying financial statements should be read in
conjunction with the more detailed financial statements and related footnotes
for the fiscal year ended July 31, 1998, as included in the Company's 1998
Annual Report on Form 10-K (the "Annual Report") filed with the Securities and
Exchange Commission. A signed independent accountant's report relating to the
July 31, 1998 balance sheet is included in the Annual Report. Significant
accounting policies used by the Company are summarized in Note 1 to the
financial statements included in the Annual Report.
In the opinion of management, all adjustments (which include only recurring
normal adjustments) required for a fair presentation of the financial position
of the Company as of October 31, 1998, and the results of its operations and
cash flows for the periods ended October 31, 1998 and 1997 respectively, have
been made. Operating results for the three-month period ended October 31, 1998,
are not necessarily indicative of the operating results for the entire fiscal
year.
Earnings Per Share
The Company has adopted SFAS No. 128,"Earnings Per Share", for the period
commencing in its quarter ending January 31, 1998. Under SFAS No. 128, primary
EPS is replaced by "Basic" EPS, which excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock.
When dilutive, stock options are included as share equivalents in computing
diluted earnings per share using the treasury stock method. The weighted average
number of shares used in computing basic earnings per share was 1,200,000 in the
three months ended October 31, 1998 and October 31, 1997. Options of 249,500
shares for the period ending October 31, 1998 and 214,000 shares for the period
ending October 31, 1997, were antidilutive for the periods.
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Joint Venture
As part of the acquisition of NLI, the Company acquired a 75 percent interest in
a joint venture of which the only operations consist of revenues received from
the licensing of a certain "National Lampoon" motion picture. The minority
interest's share in the joint venture's revenue is deducted from movies,
television and theatrical revenue. Total revenues received by the joint venture
related to this motion picture were $251,000 and $123,000 for the periods ended
October 31, 1998 and 1997. Of this revenue, the minority interest's share
totaled $64,000 and $31,000, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Special Note Regarding Forward Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, particularly under
Item 2, may constitute "forward-looking statements" within the meaning of
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements, expressed or implied by such forward-looking statements.
Results of Operations
Quarter Ended October 31, 1998 Versus October 31, 1997
Total revenues for the current quarter were $604,000 compared with $311,000 in
the prior year quarter. Movies, television and theatrical revenues were $554,000
compared with $149,000 in the prior year quarter. The increase was due primarily
to the recognition of $300,000 of revenue on the licensing of two original
made-for-television movies per the Company's agreement with International Family
Entertainment, Inc. In addition, the profit participation from the film
"National Lampoon's Animal House" that was originally released in 1978 increased
$128,000 from the prior year period. Video sales net of returns were $3,000 up
$2,000 from the prior year quarter. The Company has de-emphasized this segment
of its business due to declining profitability. Royalty income decreased $29,000
to $20,000 from $49,000 from the prior year quarter, primarily due to taking
into income in the prior year quarter the balance of an advance license fee.
Magazine revenue was $27,000 in the current quarter compared to no revenue in
the prior year quarter owing to the Company not publishing the magazine in the
prior year quarter. Other income decreased to zero this year from $112,000 in
the prior year quarter owing to no accrual reversals being recorded in the
current year quarter.
Royalty expense decreased $1,000 to $9,000 compared to $10,000 in the prior year
quarter.
Cost of movies, television and theatrical increased to $55,000 in the current
year quarter primarily due to the payment required on the "GPEC" rights
agreement. No costs were required to be paid in the prior year quarter.
Cost of Magazine was $45,000 in the current year quarter for the publication of
the "National Lampoon" magazine. The magazine was not published in the prior
year quarter.
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Selling, general and administrative expenses were unchanged at $180,000 in the
current quarter, compared with $180,000 in the corresponding prior year quarter.
The Company experienced increased legal expenses related to the Harvard Lampoon
settlement negotiations, which were offset by a reduction in salary expenses.
There was no significant provision for income taxes in either quarter because of
the utilization of tax loss carryforwards.
Net income for the current quarter was $194,000, equal to $0.16 per share,
compared with a net income of $38,000 in the corresponding prior year quarter,
equal to $0.03 per share. The increase is primarily due to the increase in
revenues from licensing of television movies related to the International Family
Entertainment, Inc. agreement.
On October 1, 1998, the Company entered into two agreements with Harvard
Lampoon, Inc. ("HLI") to settle all outstanding past disputes and to confirm the
Company's exclusive ownership of the National Lampoon trademark in a wide
variety of areas, including all media currently being used as well as restaurant
services and new electronic media not contemplated in earlier agreements. Under
the agreement the Company will give up the right and obligation to publish new
issues in print of National Lampoon magazine, which in recent years detracted
from the Company's financial results. The Company has retained full rights to
its extensive library of past issues of the magazine. The Company will deliver
16,667 shares (as adjusted per the reverse split) of common stock to HLI and
increased the royalty level for certain expanded rights of exploitation, but the
financial terms between the Company and HLI for the Company's ongoing and
exiting operations remain the same.
The Company believes the new agreement represents a significant improvement for
the Company, as the agreement clarifies the relationship with HLI, expands
opportunities for business activities, and reduces the possibility of future
disputes with HLI (which have occurred periodically over three decades).
Moreover, the Company is now relieved of the financial obligation of publishing
the magazine.
The impact of the settlement resulted in no material impact on the financial
results of operations of the Company.
Liquidity and Capital Resources
Cash and short-term investments at October 31, 1998 totaled $2,245,000, an
increase of $14,000 from the July 31, 1998 fiscal year end.
The Company has no current plans for any significant capital expenditures in its
current line of business and believes that its current level of cash and cash
equivalents, augmented by internally generated funds, will provide sufficient
cash resources through fiscal 1999.
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Cash Flows
For three months ended October 31, 1998 compared to three months ended October
31, 1997.
Net cash provided by operating activities increased $42,000, primarily due to an
increase in net income, accounts payable, other assets and minority interest in
income of consolidated subsidiary, partially offset by a reduction in deferred
revenue, accrued royalties and increase of net accounts receivable. Net cash
provided by investing activities increased by $75,000 from the prior year
quarter due to increased cash flow from sales of short-term investments. The
Company had no cash flows from financing activities in either quarter.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
On March 10, 1997 counsel for Harvard Lampoon, Inc. ("HLI") filed a demand for
arbitration with the American Arbitration Association, asserting that the
Company underpaid royalties under the HLI royalty agreement by approximately
$226,000, plus unspecified late charges, for the period from July 1, 1992,
through June 30, 1995, based on HLI's interpretation of the agreement. By
agreement of both parties arbitration was stayed in order to mediate the dispute
under the auspices of the Judicial Arbitration and Mediation Services.
On October 1, 1998, the parties participated again in a mediation in New York,
outcome of which resulted in an agreement which consolidates the terms of the
1969 agreement and the 1977, 1983, and 1998 amendments thereto into a new
"Agreement" which became effective as of October 1, 1998. Concurrently with the
execution of this Agreement, the parties have entered into the "Settlement
Agreement and Mutual General Releases" agreement effective as of October 1,
1998, which releases and forever discharges J2 and HLI from any and all actions
against each other. The full terms and conditions set out in the new agreements
are included as Exhibit 1 under Item 6.
The impact of the settlement resulted in no material impact on the financial
condition or results of operation of the Company.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
A Special Meeting of Stockholders of the Company was held on September 16, 1998.
James Jimirro, James Fellows, Bruce Vann and John DeSimio were each elected to
the board of directors until the next annual meeting or until their successors
are elected and qualified. The other proposal submitted for shareholder approval
at the special meeting along with the results of voting is as follows:
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The approval of an amendment to the Company's Articles of Incorporation to
effect a 1 for 3 reverse stock split of the Company's outstanding common stock.
This proposal was approved by a vote of 3,038,536 for and 234,652 against with
14,698 abstentions and no broker non-votes. The split has been retroactively
reflected in the income statements.
Item 5 - Other Events
On August 13, 1998 the Company was notified by Nasdaq that the Company's
security was not in compliance with the new minimum bid price requirement,
pursuant to NASD Marketplace Rule 431(c) (04), which became effective February
23, 1998. As a result, the Company was provided with 90 calendar days, which
expired November 13, 1998, in order to regain compliance with this standard.
On November 9, 1998 the Company was notified by Nasdaq that its staff had
reviewed the Company's common stock trading history with respect to the closing
bid price and had deemed that the Company was in compliance with the new bid
requirement for continued listing on the Nasdaq Stock market.
The Company believes that it will be able to comply with the Nasdaq requirements
for minimum bid price, pursuant to NASD Marketplace Rule 431(c) (04), but no
assurance can be given that the Company will be able to continue to maintain the
minimum bid price requirement on a going forward basis.
Item 6 - Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit 1 - 1998 Agreement between The Harvard Lampoon, Inc. and J2
Communications and settlement agreement and mutual general release
agreement.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None filed during the Quarter
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by its duly
authorized officers.
J2 COMMUNICATIONS
Date December 15, 1998 By: /s/ JAMES P. JIMIRRO
----------------- -----------------------------
JAMES P. JIMIRRO
Chairman of the Board
President
(Principal Executive Officer)
Date December 15, 1998 By: /s/ RUDY R. PATINO
----------------- -----------------------------
RUDY R. PATINO
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT 1
1998 AGREEMENT
THE HARVARD LAMPOON, INC.
with
J2 COMMUNICATIONS
and
SETTLEMENT AGREEMENT AND
MUTUAL GENERAL RELEASES
Effective as of
October 1, 1998
<PAGE> 2
Contents
--------
1. Letter Agreement dated as of October 1, 1998 between The Harvard Lampoon,
Inc. and J2 Communications approved by the Trustees under a Declaration of
Trust dated April 1, 1909
2. Settlement Agreement and Mutual General Releases
3. Directory of persons involved, counsel and mediator
<PAGE> 3
The Harvard Lampoon, Inc.
44 Bow Street
Cambridge, MA 02138
October 1, 1998
J2 Communications
10850 Wilshire Boulevard
Suite 1000
Los Angeles, CA 90025
Gentlemen:
This will confirm and set forth the agreement dated October 8, 1969, as
amended February 14, 1977, as further and most recently amended June 8, 1983,
and as further amended and entirely restated as follows as of the above date,
between THE HARVARD LAMPOON, INC., a Massachusetts corporation, and J2
COMMUNICATIONS, a California corporation and successor-in-interest to all of the
rights, claims and interests of NL Communications, Inc., formerly named The
National Lampoon, Inc. In this Agreement "we", "us", "our" and "ours" refer to
The Harvard Lampoon, Inc.; and "you", "your" and "yours" refer to J2
Communications, Inc.; the "parties" refers to both the Harvard Lampoon, Inc. and
J2 Communications, Inc., and "party" refers to either of them.
RECITALS
WHEREAS, on October 8, 1969, the parties originally entered
into an agreement concerning the right of The National Lampoon,
Inc. to use the name "Lampoon"; and
WHEREAS, on February 14, 1977, the parties amended Paragraphs (1)(c),
(2), (4)(c), (4)(d), (4)(e), (5)(a), (5)(b) and (6)(f) of their agreement; and
WHEREAS, as of June 8, 1983, the parties amended Paragraphs (2)(a)(II),
(2)(c), (2)(d), (2)(e) and (5)(c) of their agreement; and
WHEREAS, it is understood that the representations and warranties
contained in Paragraph (3)(b) hereof are made only as of October 8, 1969, as
updated to this date; and
WHEREAS, for their mutual convenience, the parties wish to consolidate
the terms of the 1969 agreement and the 1977, 1983 and 1998 amendments thereto
into this document (the "Agreement") which shall be deemed a complete
restatement of their agreement as herein set forth to become effective as of
October 1, 1998, although actually executed on later dates.
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AGREEMENT
(1)(a) Consent to Use Mark. Subject to the limitations and conditions
contained in this Agreement, we hereby consent to your exclusive, worldwide
ownership and use of the two-word phrase "NATIONAL LAMPOON" (and all variations
thereof, such as "NL" and "NatLamp" or other variations specifically approved in
writing by us prior to their use, which approval shall not be unreasonably
withheld, delayed or conditioned) (hereafter, the "Mark") as the name of, trade
name, trademark, and service mark for and in connection with:
(i) The goods and services set forth on Exhibit 1 to this
agreement, which is incorporated herein by this reference ("Core
Rights"); and
(ii) The sale and offering for sale of all other products and
services now known or hereafter developed that are not expressly
prohibited hereunder ("Other Rights").
We and you acknowledge and agree that use by you and your licensees of
the Mark as provided in this Agreement and our use of The Harvard Lampoon as the
title of a periodical is not likely to cause confusion, mistake or deception. We
shall refrain from taking any action in the future which is in derogation of
your (a) uses of or rights to use the Mark, or (b) federal or state
registrations of the Mark.
The parties agree to take all commercially reasonable steps in the
promotion of their respective goods and services to prevent actual consumer
confusion which results from advertisement of the parties' respective marks. The
parties agree to cooperate with each other, at their own expense, to execute or
have executed all further documents reasonably required to effectuate this
Agreement.
(1)(b) National Lampoon Magazine. Except for Permitted Publications as
defined at Exhibit 1, P. A(i), you shall not publish any magazine, other
periodicals or pamphlets bearing the Mark. Upon the initial sale of a
controlling interest in the common stock of J2 Communications or all or
substantially all of the assets of J2 Communications, then your successor or
assign shall have the right to notify us of such event and to negotiate with us
for our consent to publish a periodical magazine under the title National
Lampoon. Both parties shall negotiate in good faith during the two-year period
after such sale to achieve an agreement for a license of the Mark for use on a
high quality, nationally distributed periodical.
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(1)(c) Copyright Protection. We further consent to your right to
register the copyright in your name to any copyrightable work permitted
hereunder.
(1)(d) No Use of Lampoon or Variations Separately. You shall not use, or
license the use of, or permit your licensees to use, the word "Lampoon" alone or
separately from the word "National" in any context or for any reason or any
variations of "Lampoon" alone or separately, such as "Lampy" or "Poon".
(1)(e) Licenses to Third Parties. We also consent to your right to
license Core Rights and Other Rights to third parties, in your sole discretion,
provided that:
(i) All license agreements with third parties shall contain an
audit right and incorporate the limitations set forth in
Paragraphs 4(b) through 4(e) of this Agreement;
(ii) All "field of use" licenses (as opposed to those for a
specific product or service) shall be for a limited period of
time; and
(iii) You shall enforce the restrictions and quality requirements
of this Agreement against your licensees.
(1)(f) Term of Agreement, Termination. Your rights hereunder shall be
perpetual, provided, however, that we may terminate this Agreement upon one
hundred eighty (180) days' prior written notice if, for any twelve (12)
consecutive months, you are not actively engaged in good faith efforts to
produce or to market products and services under the Mark. You shall be deemed
to be so actively engaged if you perform at least one of the following
activities at any time during the period in question:
(i) Produce or market any new product or service. A new product
or service shall include, without limitation, any new edition,
episode, issue or version of an existing publication, program,
product or service;
(ii) Enter into a definitive agreement (including, for example,
renewals of existing agreements) with an independent third party
to market, produce or develop a product or service using the
Mark; or
(iii) Employ two or more employees on at least a half-time basis
who are actively engaged in the development of products or
services using the Mark;
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Unless any of the activities described in Subparagraphs (i) through (iii),
above, hereof have been prevented by force majeure, including war (whether
declared or undeclared), domestic insurrection, disturbances, strikes,
governmental regulations or catastrophes caused by nature or human action, in
which case such twelve-month period shall be suspended day-for-day until such
force majeure shall have ceased.
In the case of proposed termination for inactivity for twelve (12)
consecutive months, at any time during such 180 day notice period, you shall
have the right to cure by performing any of the activities described in
paragraph 1(f) above and by providing notice thereof to us during such notice
period, in which case this Agreement then shall not terminate.
(1)(g) Annual Review of Activities. At least once during each calendar
year the parties shall meet to review in reasonable detail your activities, your
current and future licensing program, the activities of your licensees, your
efforts to monitor your licensees and any reasonable questions we may have
relative to payment due to us and their calculation. Such meeting shall be by
telephone conference call unless either party shall request a personal meeting.
In the event of such a request, the meeting shall be in person with the
principals of each party participating; and the party requesting the personal
meeting shall have the obligation to transport its representatives to the other
party's office at its own expense.
(1)(h) Recognition of Existing Licenses. All licenses granted by you for
the use of any mark containing the word "Lampoon" of which we have been notified
by you prior to the effective date of this Agreement (the "Old Licenses") shall,
if they were by their respective terms in effect as of the effective date of
this Agreement, remain in effect in accordance with their respective terms. You
represent and warrant that you have not licensed any third party to publish any
magazine, other periodical or pamphlet bearing the Mark.
(2)(a) Compensation to Us. Except with respect to the licensing of Other
Rights to unaffiliated third parties, our sole compensation for our consent to
your exploitation of Core Rights and Other Rights hereunder shall be as follows:
(i) A payment equal to 2% of the aggregate "Net Sales Price" as
defined in Paragraph 2(d) below received by you for any Permitted
Publication;
(ii) A payment equal to the following percentages of your
"Pre-Tax Profits" as defined in Paragraph 2(e) below or $2,000,
whichever is greater, for any movie, stage show, television show
or radio show using the Mark:
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2% of the first $2,000,000 of your Pre-Tax Profits;
1.75% of your Pre-Tax Profits in excess of $2,000,000 and not in
excess of $5,000,000; and 1.5% of your Pre-Tax Profits in excess
of $5,000,000.
A regularly-scheduled series of four (4) or more installments in
any medium shall be considered one show for the purposes of this
Paragraph 2(a)(ii).
(iii) A payment equal to 2% of your Pre-Tax Profits or $250,
whichever is greater, for the sale of any product or the
performance of any service using the Mark other than those
described above in this Paragraph 2(a) or below in Paragraph
2(b).
(2)(b) Compensation Derived from Exercise of Other Rights. Our sole
compensation with respect to the licensing by you of Other Rights to
unaffiliated third parties shall be a payment equal to 10% of your Pre-Tax
Profits derived from the sale by unaffiliated third parties of Other Rights
goods and/or services using the Mark.
(2)(c) Foreign Currency. Where your receipts are in a currency other
than United States dollars, you may make payment to us of the sums due to us
hereunder arising out of such receipts in like currency in the country or place
received, subject to all restrictions and limitations imposed upon the amounts
received by you.
(2)(d) Net Sales Price Defined. "Net Sales Price" shall mean the actual
price received by you for the sale of any Permitted Publication under the Mark
from third parties before terms of trade or any other expenses incident to such
sale, but after reduction for (i) any refunds made by you for returns of such
Permitted Publications for which no credit on account of payments to us shall
have been claimed by you earlier; (ii) any taxes (including stamp taxes) levied
by any governmental authority whatsoever if based on the sales price or the
number of copies sold; (iii) customs duties; and (iv) any payments by you to
third parties as, or in connection with, retail display allowances with respect
to Permitted Publications, such as are customarily allowed or provided for in
the magazine publishing industry, except that the term Net Sales Price shall not
in any event include amounts received by you for sale of space in any Permitted
Publication.
(2)(e) Pre-Tax Profits Defined. "Pre-Tax Profits" shall mean (i) your
gross income from the sale or performance of a particular product or service by
you, less your actual expenses directly attributable to such product or service
(excluding any general allocation of corporate overhead or other indirect
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expenses) and (ii) all your revenue or income, however designated or
characterized, received from third parties for any products or services sold by
them using the Mark under license from you, and before reduction for any taxes
on or measured by income. As used in this Paragraph, your revenue or income
shall include revenues or income, however designated or characterized, of any of
your parent, wholly-owned subsidiaries or other affiliated companies received
from third parties for any products or services using the Mark; provided,
however, that as to an affiliated company, only that portion of such revenue or
income as is equivalent to the percentage of your ownership interest in such
company shall be deemed to be your "gross income"; and provided further, that as
to an affiliated company which you do not own or control, such revenue or income
shall be deemed to be your "gross income" only when it is actually received by
you, your parent company (if any), a wholly-owned subsidiary, or an affiliated
company controlled by you. Except as to your parent company (if any),
wholly-owned subsidiaries and other affiliated companies as expressly described
above, under no circumstances shall the revenue or income of any other party be
deemed to be a part of your "gross income" or Pre-Tax Profits as used in this
Agreement.
(2)(f) Method and Timing of Payments, Late Payments. Any and all
payments due to us hereunder shall be determined as of June 30 and December 31
of each calendar year within 90 days (or in the case of payments due by reason
of sales or publications outside of the United States 180 calendar days) of the
end thereof. You shall furnish us with statements of all amounts due to us
hereunder and the computations made in determining such amounts within 90 or 180
day periods, whichever shall be applicable, and each such statement shall be
accompanied by remittances for any amounts due to us hereunder or, wherever
applicable, appropriate instruments transferring or taking all action which you
can take to accomplish transfer of any funds outside the United States. In
respect of any amount which is owing to us for more than ten (10) days after its
due date under this Agreement, you shall also remit to us, as a late charge, (i)
interest on that amount for the first 120 days after the due date, at the Prime
Rate in effect as of the due date as reported in the New York edition of the
Wall Street Journal published on the date closest to such due date for prime
commercial loans of ninety (90) day maturity and (ii) interest on that amount
for the period thereafter, at the rate of the greater of the Prime Rate or
twenty-five percent (25%), or if such rates exceed the maximum rate that may be
legally charged, such maximum rate, per annum, which interest shall be
calculated, in each case, on the basis of a 360-day year; provided, however,
that as to any amount which is in dispute, the interest payable, if any, shall
be governed by Paragraph 6(c) hereof. For purposes of this Paragraph, interest
shall be computed from the date on which the amount is due to us until the date
on which the remittance is made. For further purposes of this Paragraph, a
remittance shall be made by
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<PAGE> 9
certified mail, return receipt requested, and deemed to have been made on the
date it is deposited in the mails.
(2)(g) Financial Statements, Audit and Review Right. It is
understood and agreed by the parties that (i) any statement so furnished by you
shall be certified by your chief financial officer; (ii) you shall make
available to us such records (or copies or extracts therefrom) as may be
reasonably required to verify the truth and accuracy of the statements furnished
to us pursuant to Paragraph (2)(e); (iii) any materials furnished by you to us
pursuant to Paragraphs 2(e) and 2(f) hereof shall be held by us on a
confidential basis for the purpose of determining our rights hereunder, shall
not be made public or otherwise publicized except as may be necessary to monitor
or enforce our rights hereunder or required by applicable law or regulation, in
which case we shall promptly notify you, and shall be examined by and held for
us only in the custody of certified public accountants, licensed as such in the
state in which you maintain your records, to be selected by us; (iv) any
materials to be submitted by you to us hereunder shall be prepared on the basis
of good accounting practices usual in your business and consistently maintained;
(v) any computations to be submitted by you to us hereunder may reflect any
previously unclaimed credits to which you may be entitled by reason of returns
during the current or prior accounting periods; (vi) in lieu of submitting the
materials more fully described in clause (ii) hereof, you may make actual books
and records available for inspection and copying by the certified public
accountants (described in clause (iii) hereof) at the place where such books and
records are customarily held; (vii) you are authorized in good faith to reduce
the Net Sales Price of any Permitted Publication after delivery to a third party
even though your right to receive the sales price in full shall have legally
accrued and such reduction shall be treated in the same manner as a return;
(viii) you shall retain the records relating to any statement you render to us
for at least three (3) years after our receipt of the statement to which they
pertain and our certified public accountants may in any event audit, review and
copy such (subject to the foregoing requirement of confidentiality) during
normal business hours on at least ten (10) days' prior written notice, (ix)
payments at the rate specified in this Paragraph (2) shall likewise be
applicable with respect to any Permitted Publication published pursuant to
(1)(a)(i), and (x) nothing herein contained shall require you to pay any sum
with respect to any magazine, publication, book, pamphlet, product or service
not bearing or promoted using the Mark. Should any audit or review of your
records disclose an understatement of our payments by twelve and one-half
percent (12.5%) or more for the period examined, in addition to the payment
understated plus interest in accordance with the provisions of paragraph 2(f),
you shall immediately reimburse us our actual out-of-pocket costs for the
examination that revealed the understatement.
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(3) Our Representations and Warranties. We hereby represent and warrant
to and covenant with you that:
(3)(a) Authority. The execution and consummation of this agreement and
any transaction to be performed or to be suffered by The Harvard Lampoon, Inc.
hereunder has been duly authorized by a meeting of the members of The Harvard
Lampoon, Inc., duly called and held for such purpose, which meeting was attended
by a quorum sufficient for such purpose, was held and conducted in the manner
required by applicable laws; and was fully empowered to take such action in the
matter under applicable laws; that The Harvard Lampoon, Inc. has full power and
authority to enter into this agreement; and that this Agreement and any
transaction contemplated hereunder will not infringe on the rights of any third
party.
(3)(b) The Mark. We have published a periodical under the name of "The
Harvard Lampoon" since 1903; since such date our right to publish under such
name, as aforestated, has never been disputed, nor has any third party claimed
that such publication, or the use of the name "The Harvard Lampoon" or
"Lampoon," as aforestated, has infringed or will infringe the rights of such
third party or of any other person, firm, corporation or body; and, except for
the National Lampoon magazine and our other regular and special publications, we
do not know of any magazine or other publication which has been published or for
which the right has been claimed to be published under the name "Lampoon" or
"The Harvard Lampoon," whether as a name, trade name, trademark or otherwise,
excepting only a magazine or other publication issued prior to 1903 by our
predecessor organization, the Harvard Lampoon Society, from 1876, and various
recent publications not licensed by us that we have demanded cease using the
name "Lampoon".
(3)(c) Covenant Not to License, Reserved Right. Except in connection
with the sale or license of copyrighted material written or otherwise created by
us, we have not licensed nor shall we license during the term of this Agreement
without your written consent the use of the word "Lampoon" (alone or in
conjunction with any qualifying words as the name, trade name, trademark,
service mark, domain name, or otherwise) as a part of the name of or incident to
any transaction by any person, firm, corporation or other body, including
without limitation, for use on or to promote any magazine, periodical or
pamphlet. All other rights to, and uses of, the word "Lampoon", and all
variations thereof such as "Lampy" or "Poon" alone or in connection with other
words (but not the word "National" or any variation of the word "National") are
reserved to us.
(4) Your Representations and Warranties. You warrant and represent that
your execution and consummation of this Agreement hereunder and any transaction
performed or suffered by you
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hereunder have been duly authorized by appropriate corporate action; that you
have full power and authority to enter into this Agreement; and that the
execution of this Agreement and any transaction contemplated hereunder do not
violate the rights of any person, firm, corporation or other body by reason of
any contractual or other arrangements heretofore made by you. In addition, you
covenant and agree that:
(4)(a) Certain Assurances, Licenses Unaffected by Termination. Upon the
termination of this Agreement by the written consent of the parties or pursuant
to Paragraph 1(f) thereof, you shall assign all of your right, title to and
interest in to the Mark to us. Notwithstanding the preceding sentence, all
licenses you have properly granted to third parties shall be unaffected by such
termination, and you shall be entitled to continue as the licensor thereunder
for the remainder of the term of each such license. You agree that you will use
your reasonable efforts to enforce such licenses in all respects against the
licensees thereunder, including your right to be paid the royalties and other
payments due you. Conversely, you agree to continue to make to us the same
payments that would have been due us hereunder relative to such licenses for so
long as you collect payments from licensees, just as if this Agreement had not
been terminated. However, after termination of this Agreement, you may not
consent to any amendment, modification or cancellation, nor grant extensions or
renewals of such licenses without our prior written consent in each such
instance. The restriction in the preceding sentence shall not, however, prevent
a licensee from exercising an option to extend its license, provided that the
option does not require your consent and was in existence as a provision of the
license prior to the termination of this Agreement.
(4)(b) No Harm to the Mark. You shall not harm, misuse or bring into
disrepute the Mark and shall use your reasonable efforts to prevent your
licensees from doing so.
(4)(c) Restrictions on Use of Mark. Without our specific prior written
approval you shall not use the Mark, and shall not authorize your licensees to
use the Mark, on or to promote the bona fide sale of firearms, tobacco products,
addictive substances of any type including pharmaceutical drugs, items depicting
explicit sex acts or articles of personal hygiene.
(4)(d) Restrictions on Making Certain References. Without our written
permission, you shall not include or refer to, and shall not authorize or
license your licensees to include or refer to any editorial or advertising
materials in any Permitted Publication, product or service hereunder which shall
refer to Harvard University, Harvard College (or any school, faculty or
department of the foregoing), The Harvard Lampoon, Lampoon Parody, or any person
identified as an officer, professor,
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instructor, student or employee of Harvard University, Harvard College or The
Harvard Lampoon, Inc.; except that notwithstanding anything contained herein,
you may, to the extent such description is accurate, describe your staff as
consisting of former editors or officers of The Harvard Lampoon, Inc.
(4)(e) Further Restrictions. With respect to your products, services and
publications hereunder (including live, filmed, taped or other recorded
performances) and with respect to licenses to be granted hereunder, you shall
not engage in and shall not authorize or license your licensees to engage in the
display of genitalia of either sex or acts or depictions of explicit sex or
sadomasochism. You shall not include, and shall not authorize your licensees to
include, for any product, service or publication in any media in which the Mark
is used, any materials to which we shall reasonably object because the nature of
the material included or of the products, publications or services thereby would
violate the restriction contained in the preceding sentence, constitute a
criminal offense in any jurisdiction where the particular product, service or
publication is sold, distributed or performed or expose you or your licensees to
any action or judicial or governmental proceeding likely to result in the award
of a remedy against you or your licensees. In addition, neither you nor your
licensees shall distribute, produce, or manufacture any movie using the Mark
which receives an "NC-17" or equivalent rating from the Code and Rating
Administration of the Motion Picture Association of America or its successor.
(4)(f) No References to The Harvard Lampoon, Inc. You shall omit and, if
applicable, cause your licensees to omit, all references to The Harvard Lampoon,
Inc. or The Harvard Lampoon, provided that such duty shall not apply to the
distribution and sale of past Permitted Publications bearing the Mark.
(4)(g) Publication and Product Specimens. In order to implement our
rights pursuant to Paragraphs (4)(c), (4)(d) and (4)(e) hereof, you shall
furnish to us promptly after the printing or manufacture thereof three copies of
each issue of any Permitted Publication and one copy of each product sold by you
hereunder or by your agents or licensees. You shall promptly consult with us
concerning any objections we may have hereunder to the material contained in any
such Permitted Publication, other publication or product and, with respect to
any valid objections, shall take steps promptly to assure that a repetition of
publication or sale of the objectionable material does not occur. You shall
provide us with a copy of all license agreements by you with third parties, in
final form as executed, promptly after execution, which we shall maintain as
confidential (except as necessary to enforce our rights under this Agreement or
as required by applicable law or regulation in which case we shall promptly
notify you of such requirement).
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(5) Certain Additional Rights. You may:
(5)(a) Secure the rights consented to hereunder or any rights which you
may have by reason of any Permitted Publication, product or service pursuant
hereto by such proceedings, administrative or judicial (including without
limitation applications for copyrights, trademarks, actions, or suits at law, in
equity or otherwise against any person, firm, corporation or body) as you may
deem advisable; provided, however, that we shall (i) not be required to incur
any expenses in connection with any such proceeding; and (ii) be indemnified and
held harmless by you against any damages or expenses arising from any such
proceeding, except such expenses, if any, as may arise from actions undertaken
by us without your request or permission; and
(5)(b) Assign all of your rights hereunder but not a part thereof (i) in
connection with any transfer of substantially all of your assets (through sale,
exchange, merger, consolidation or otherwise); or (ii) to a subsidiary,
corporation or other entity (including a partnership, limited or otherwise) in
which the assignor or the stockholders of the assignor or both combined shall
have a capital interest of at least fifty percent (50%).
(6) Miscellaneous.
(6)(a) No Partnership, License or Joint Venture Created. Neither this
Agreement nor any action taken thereunder and contemplated thereby shall create
a partnership, license or joint venture between us.
(6)(b) Governing Law, Captions. This Agreement shall be governed by the
laws of the State of New York for contracts made and performed in New York. The
captions are used for convenience only and shall not be used in the
interpretation of this Agreement.
(6)(c) Dispute. Any dispute, controversy or claim arising out of or
relating to the interpretation or enforcement of this Agreement or the breach
thereof shall be specifically described in a written notice from the party
raising the dispute, controversy or claim to the other party and shall be
finally resolved as follows, both parties hereby agreeing to accept telephone
calls and correspondence, to attend meetings and otherwise participate in the
below-described process diligently, promptly and in good faith:
(i) First, the parties shall confer on the matters in issue by a
telephone conference between the authorized representatives (and
not solely legal counsel) of each party, such call to occur
within fifteen (15) days after delivery of the dispute notice.
That telephone conference shall be followed within the following
seven
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<PAGE> 14
(7) days by an exchange of letters confirming such conference and
indicating areas of agreement and remaining disagreement, if any;
(ii) Second, within fifteen (15) days after such telephone
conference, by a meeting in person (unless otherwise agreed,
alternating between Los Angeles and Cambridge or Boston -- the
first such meeting to occur in Los Angeles) of at least one
authorized representative of each party (and not solely legal
counsel) who will attempt in good faith to resolve all remaining
disagreements;
(iii) Third, by mediation before a mutually acceptable mediator
(unless otherwise agreed, in the alternate city where the
Paragraph 6(c)(ii) meeting did not occur). If the parties cannot
agree upon a mediator within two weeks after a written request by
a party for mediation, then either party may request Judicial
Arbitration and Mediation Services ("JAMS/Endispute") or the
American Arbitration Association ("AAA") to appoint a mediator by
its own selection process in effect at that time; and
(iv) Fourth, upon the written request of either party, by binding
arbitration pursuant to and in accordance with the rules of
either JAMS/Endispute or AAA, as applicable, then in effect. The
location of the arbitration proceeding shall alternate between
Los Angeles and Cambridge or Boston -- the first such arbitration
to occur in Los Angeles. The parties agree that the arbitrator
may award or fashion any relief for the prevailing party
consistent with his or her findings and for which he or she finds
just cause, provided that termination of this Agreement shall not
be available as a remedy except upon a material breach of
Paragraph 1(f) above. Judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction
thereof
(6)(d) Interest. If, on the assertion of a claim by us for payments
under Paragraph 2 of this Agreement, it is determined that payments are due and
owing to us, we shall be entitled to interest on the sum of those payments at
the rate in effect as of the due date thereof as published in the New York
edition of the Wall Street Journal closest to such date for prime commercial
loans of ninety (90) day maturity calculated on the basis of a 360-day year. For
purposes of this Paragraph, interest shall be computed from the date on which it
is determined that the payments were due to us until the date on which the
remittance is made. For further purposes of this Paragraph, a remittance shall
be made by certified mail, return receipt requested, and shall be
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deemed to have been made on the date it is deposited in the mails.
(6)(e) Request for Award of Attorneys' and Experts' Fees. In any
arbitration or other action to interpret or to enforce this Agreement, the
prevailing party as determined by the arbitrator or court shall be entitled to
request an award of its attorneys' and experts' fees and costs incurred in such
arbitration or action from the other party.
(6)(f) Our Damages Limited in Certain Circumstances. Damages for our
breach of any warranty under Paragraph (3) hereof shall be limited to any
amounts which you may theretofore or thereafter pay to us under this Agreement.
(6)(g) Amendments. This Agreement shall not be amended, changed or
terminated in whole or in part, except by an instrument signed on behalf of both
parties.
(6)(h) Notices. Any notice given or to be given hereunder shall be
deemed properly given if (i) personally delivered, (ii) sent by U.S. certified
or registered mail, return receipt requested, or (iii) delivered by a commercial
overnight mail service providing a delivery receipt, and addressed as follows:
To us: with a copy to:
President Jason A. Sokolov, Esq.
Harvard Lampoon Rubin and Rudman LLP
44 Bow Street 50 Rowes Wharf
Cambridge, MA 02138 Boston, MA 02110
To you: with a copy to:
President Michael K. Grace, Esq.
J2 Communications Greenberg Glusker Fields
10850 Wilshire Blvd. Claman & Machtinger LLP
Suite 1000 1900 Avenue of the Stars
Los Angeles, CA 90025 Suite 2100
Los Angeles, CA 90067
or to such other address as either of us shall give to the other in a notice
under this Paragraph (6)(h).
(6)(i) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties.
(6)(j) Trustees' Consent. To the extent they have any interest herein,
this Agreement has been approved and shall be binding upon the Trustees of that
certain trust created by Declaration of Trust dated April 1, 1909 by John T.
Wheelwright,
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Roger L. Scaife and Arthur H. Weed, recorded in Middlesex South District
Registry of Deeds Book in 3432, Page 136.
(6)(k) Merger Clause. This Agreement, together with Exhibit 1 attached
hereto and incorporated herein and that certain Settlement Agreement and General
Mutual Releases between you and us of even date herewith, constitutes the
complete, final, and exclusive statement of the agreement between the parties
with respect to their subject matter and supersedes all prior and
contemporaneous statements, agreements and understandings, oral and written,
between the parties.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed and delivered this Agreement to become effective when executed on
behalf of both parties.
THE HARVARD LAMPOON, INC., a
Massachusetts corporation
By: /s/ [SIG]
-------------------------------
Title: President, Harvard Lampoon
----------------------------
Approved:
The Trustees of the Trust referred
to in Paragraph (6)(j) hereof.
/s/ TYLER CHAPMAN Trustee
----------------------------------
/s/ [SIG] Trustee
----------------------------------
FOR THE TRUSTEES OF THE
HARVARD LAMPOON
----------------------------------
Trustees as Aforesaid and Not
Individually
ACCEPTED AND AGREED TO:
J2 COMMUNICATIONS
a California corporation
By: [SIG]
-----------------------------
Title: President
--------------------------
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EXHIBIT 1
"Core Rights"
A. Subject to the limitations, prohibitions and restrictions in the
Agreement, "CORE RIGHTS" shall mean the sole and exclusive worldwide right to
display and use the Mark in connection with the recording, production, sale,
license, promotion, broadcast, and other distribution and/or exploitation of any
and all forms of the following products and services, and the right to release,
distribute, exhibit, perform, advertise, promote, publicize and otherwise
exploit such products and services and/or other derivative works based thereon
by any and all means and in any and all media, whether now known or hereafter
devised, including, without limitation, theatrical, non-theatrical,
pay-per-view, home video (including videocassettes, digital videodiscs, laser
discs and all other formats), and forms of television (including pay, free,
network, syndication, cable, satellite and digital), video-on-demand, and all
forms of digital distribution and/or transmission (including without limitation
any electronic, online, or Internet distribution), CD-ROM, compact disc,
cassette tapes, DATs, LPs, fiberoptic and any other exhibition, broadcast or
delivery system:
(i) Print publications (including without limitation books,
musical publications, comic books, and single issue publications derived from
preexisting exploitation of Core Rights (e.g., a one-time magazine-format
publication exploiting the characters and/or story depicted in the motion
picture National Lampoon's Animal House) and all issues and reissues of prior
publications bearing the Mark, up to and including the fall 1998 issue of
National Lampoon Magazine) (collectively, "Permitted Publications") but
excluding future magazines, other periodicals and pamphlets;
(ii) Motion pictures (including without limitation sequels,
prequels, remakes, musicals and/or serials, cinematography, films and photoplays
of every kind and character whatsoever, including the sound recordings thereof,
as well as trailers and clips thereof, produced by means of any photographic,
electrical, electronic, mechanical or other processes or devices now known or
hereafter invented, by which photographs, pictures, images or other visual
reproductions or representations are or may be fixed in any tangible medium of
expression, whether translucent or not, for later projection, display or
exhibition in such a manner that the same are, or appear to be, in motion on
screen, mirror, tube or any other medium or device now known or hereafter
developed, whether or not accompanied by sound recordings);
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(iii) Television programming (including without limitation
series, mini-series, specials, variety shows, awards shows, "making of"
programs, and made-for-television motion pictures);
(iv) Radio programming (including without limitation live and/or
pre-recorded);
(v) Sound recordings (including without limitation music, spoken
word, and/or sound effects of any kind or nature), and
(vi) Live performances (including without limitation stage shows,
touring shows, stand up, college tours, sketch comedy, theater, concerts, and
audience participation events).
(vii) Merchandising, including, without limitation, toys, board
games, computer software, video and other electronic games, apparel (including
tee shirts, sweatshirts, sweat pants, footwear, hats, jackets, coats, shirts,
pants, gloves, and scarves), umbrellas, rainwear, calendars, greeting cards,
posters, cups, sports bottles, packaged food and beverages, and all other
commercial tie-ins with any of (i)-(vi) above, and any other goods and services
customarily exploited in connection with printed and filmed entertainment
products and services.
Specifically excluded from the scope of "Core Rights" and included in "Other
Rights" are:
(i) Theme park and other "themed" attractions including themed
restaurants, themed comedy clubs, themed cruises, theme parks and themed hotels;
and
(ii) Restaurant services.
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SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASES
This Settlement Agreement and Mutual General Releases ("Agreement") are
made, executed and delivered by and between The Harvard Lampoon, Inc., a
Massachusetts corporation ("HLI"), located at 44 Bow Street, Cambridge, MA
02138, and J2 Communications, a California corporation ("J2"), located at 10850
Wilshire Boulevard, Suite 1000, Los Angeles, CA 90025.
RECITALS
A. HLI and J2 (as successor in interest by foreclosure to all of the
rights, claims and interests of NL Communications, Inc.) are parties to a letter
agreement dated June 8, 1983, a copy of which is attached hereto as Exhibit "A"
and incorporated herein (the "1983 Agreement").
B. In or about May of 1995, a controversy arose between HLI and J2 with
respect to the 1983 Agreement.
C. March 10, 1997, HLI instituted arbitration proceedings entitled, The
Harvard Lampoon, Inc. and J2 Communications, Inc.[sic], Case No. 13-133-00248-97
(AAA-NY) (the "Arbitration") with the American Arbitration Association pursuant
to paragraph 6(c) of the 1983 Agreement. In the Arbitration HLI seeks
determinations regarding J2's rights to grant licenses, the calculation of
royalties, and HLI's rights to terminate the 1983 Agreement. J2 has denied any
liability to HLI and denied that HLI has any right to terminate the 1983
Agreement except as expressly provided therein.
D. On May 8 and 9, 1997, the parties participated in a mediation in New
York before David Geronemus of JAMS/Endispute. At the conclusion of the
mediation, the parties and agreed upon a joint Outline of Points Under
Consideration for a Revised Agreement.
E. Concurrently with the execution of this Agreement, the parties have
entered into a new letter agreement of even date herewith ("the 1998
Agreement"), which amends and restates the 1983 Agreement.
F. On October 1, 1998, the parties participated again in a mediation in
New York before David Geronemus of JAMS/Endispute.
In consideration of the recitals set forth above and the mutual promises
below, the parties agree as follows:
1. HLI, as the instituting party in the Arbitration, shall file or cause
to be filed a joint stipulation of dismissal thereof, with prejudice, within
five (5) days after the date of this
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Agreement. Each party shall bear its own costs of arbitration and mediation and
attorneys' fees incurred in connection therewith.
2. Simultaneously with the execution of this Agreement, the parties
shall execute and deliver to each other counterparts of the 1998 Agreement. J2
further shall deliver or cause to be delivered to HLI a certificate of stock
ownership for 50,000 shares of the common stock of J2 in the form existing as of
October 1, 1998.
3. HLI hereby releases and forever discharges J2 and, as the case may
be, each of its past and present stockholders, affiliates, divisions,
subsidiaries, predecessors, successors, heirs, assigns, agents, directors,
officers, employees, insurers, representatives, lawyers, and all persons acting
by, through, under or in concert with them, or any of them (hereafter, "J2
Releasees"), of and from any and all manner of action or actions, cause or
causes of action, in law or in equity, suits (including without limitation, the
Arbitration), debts, liens, contracts, agreements, promises, liability, claims,
demands, damages, loss, cost or expense, of any nature whatsoever, known or
unknown, fixed or contingent (hereafter, "HLI CLAIMS"), which HLI now has or may
hereafter have against the J2 Releasees, or any of them, by reason of any
matter, cause or thing whatsoever, from the beginning of time to the date of
this Agreement. Specifically excluded from the foregoing release are the
provisions of the 1998 Agreement, the provisions of this Agreement, the payment
of royalties for the period from January 1, 1998 through June 30, 1998 under the
1983 Agreement, and the right to audit and claim adjustments for royalties due
HLI under the 1983 Agreement (but without asserting the method of determining
the royalty base as revenues of third-party licensees rather than J2's revenues
as claimed by HLI in the Arbitration).
4. J2 hereby releases and forever discharges HLI and, as the case may
be, each of its past and present stockholders, affiliates, divisions,
subsidiaries, predecessors, successors, heirs, assigns, agents, directors,
officers, employees, insurers, representatives, lawyers, and all persons acting
by, through, under or in concert with them, (including the present and past
trustees of a certain trust created by the Declaration of Trust dated April 1,
1909 and recorded with Middlesex County South District Registry of Deeds in Book
3432, Page 136) or any of them (hereafter, "HLI Releasees"), of and from any and
all manner of action or actions, cause or causes of action, in law or in equity,
suits, debts, liens, contracts, agreements, promises, liability, claims demands,
damages, loss, cost or expense, of any nature whatsoever, known or unknown,
fixed or contingent (hereafter, "CLAIMS"), which J2 now has or may hereafter
have against the HLI Releasees, or any of them, by reason of any matter, cause
or thing whatsoever, from the beginning of time to the date of this Agreement.
Specifically excluded from the foregoing release are the provisions of the 1998
Agreement, the provisions of this Agreement, and the provisions of the 1983
Agreement pertaining to audit disputes initiated by HLI.
5. The parties agree that neither will assert in any context that the
1983 Agreement constitutes a "naked trademark license" or other license or that
the Mark (as defined in the 1998 Agreement) or any rights therein, has been
abandoned by either party based on any state of facts which occurred prior to
the date of this Agreement.
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6. THE PARTIES ACKNOWLEDGE THAT THEY HAVE BEEN ADVISED BY THEIR
RESPECTIVE LEGAL COUNSEL AND ARE FAMILIAR WITH THE PROVISIONS OF CALIFORNIA
CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
THE PARTIES, BEING AWARE OF SAID CODE SECTION, EACH HEREBY EXPRESSLY
WAIVES ANY RIGHTS THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR
COMMON LAW PRINCIPLES OF SIMILAR EFFECT.
7. HLI represents and warrants that there has been no assignment or
other transfer of any interest in any Claim which HLI may have against the J2
Releasees, or any of them, and HLI agrees to indemnify and hold the J2
Releasees, and each of them, harmless from any liability, Claims, demands,
damages, costs, expenses and attorneys' fees incurred by the J2 Releasees, or
any of them, as a result of any person asserting any such assignment or
transfer. It is the intention of the parties that this indemnity does not
require payment as a condition precedent to recovery by J2 Releasees from HLI
hereunder.
8. J2 represents and warrants that there has been no assignment or other
transfer of any interest in any Claim which J2 may have against the HLI
Releasees, or any of them, and J2 agrees to indemnify and hold the HLI Releasees
and each of them, harmless from any liability, Claims, demands, damages, costs,
expenses and attorneys' fees incurred by the J2 Releasees, or any of them, as a
result of any person asserting any such assignment or transfer. It is the
intention of the parties that this indemnity does not require payment as a
condition precedent to recovery by the HLI Releasees from J2 hereunder.
9. This Agreement shall be interpreted and enforced under New York law
and without regard to conflict of laws principles.
10. If any provision of this Agreement is held to be invalid, void or
unenforceable, the remaining provisions shall nevertheless remain in effect.
11. If any party to this Agreement brings an action to enforce its
rights hereunder, the prevailing party shall be entitled to recover its costs
and expenses, including court costs and attorneys' and experts' fees, if any,
incurred in connection with such action.
12. This Agreement and the 1998 Agreement constitute the complete,
final, and exclusive statement of the agreement between the parties with respect
to their subject matter
3
<PAGE> 22
and supersede all prior and contemporaneous statements, agreements and
understandings, oral and written, between the parties; provided, however, that
in case of any inconsistency between the provisions of this Agreement and the
1998 Agreement, the 1998 Agreement shall prevail in determining the rights and
duties of the parties. No provision of this Agreement may be modified and its
performance or observance may not be waived except by written agreement of the
party sought to be bound. No waiver of any violation or nonperformance of any
provision of this Agreement shall be deemed to be a waiver of any subsequent
violation or nonperformance of the same or any other provision of this
Agreement.
13. This Agreement may be executed in two or more counterparts, all of
which shall be original and enforceable and which together shall constitute one
agreement.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed and delivered this Agreement as an agreement under seal to become
effective when executed on behalf of both parties.
THE HARVARD LAMPOON, INC. J2 COMMUNICATIONS
a Massachusetts corporation a California corporation
By: /s/ [SIG] By: /s/ JAMES P. JIMIRRO
------------------------------ --------------------------
James P. Jimirro
President
Title: President, Harvard Lampoon
---------------------------
Date: 11/5/98 Date: 11/24/98
---------------------------- ------------------------
4
<PAGE> 23
Directory
---------
Persons Most Involved in Representing The Harvard Lampoon, Inc. in the
Negotiations and Mediation Sessions:
Robert Hoffman
Eric Rayman, Esq.
Jonathan Canter, Esq.
Tyler Chapman, Esq.
Also Involved in Connection with The Harvard Lampoon, Inc.:
Thomas Beale
Jessica Marshall
Edward Widmer
Counsel for The Harvard Lampoon, Inc.:
Jason A. Sokolov, Esq.
Rubin and Rudman LLP
50 Rowes Wharf
Boston, MA 02110
telephone: (617) 330-7019 (direct)
(617) 330-7000 (general number)
Representing J2 Communications:
James Jimirro
Mark Van Arc
Counsel for J2 Communications:
Michael K. Grace, Esq.
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars
Suite 2100
Los Angeles, CA 90067-4590
Telephone: (310) 201-7452 (direct)
(310) 553-3610 (general number)
<PAGE> 24
Mediator:
David Geronemus, Esq.
JAMS/Endispute
345 Park Avenue, 8th Floor
New York, NY
Telephone: (212) 751-2700
Alternate address:
David Geronemus, Esq.
15 Grist Mill Road
Westport, CT 06880
Telephone: (203) 255-8787 extension 204
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,087,000
<SECURITIES> 1,158,000
<RECEIVABLES> 34,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,279,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,948,000
<CURRENT-LIABILITIES> 1,951,000
<BONDS> 0
0
0
<COMMON> 8,663,000
<OTHER-SE> (4,666,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,948,000
<SALES> 0
<TOTAL-REVENUES> 604,000
<CGS> 0
<TOTAL-COSTS> 351,000
<OTHER-EXPENSES> 64,000
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