SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 1999
Berlitz International, Inc.
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(Exact name of registrant as specified in its charter)
New York 1-10390 13-355-0016
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(State or other jurisdiction of Commission File Number (I.R.S. Employer
incorporation) Identification Number)
400 Alexander Park, Princeton, New Jersey 08540-6306
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(Address of principal executive offices)
(609) 514-9650
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Registrant's telephone number, including area code
Not Applicable
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Former name, former address and former fiscal year,
if changed since last report
Page 1 of 3
Exhibit Index on Page 3
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Item 5. Other Matters.
On July 1, 1999, Berlitz International, Inc., through its wholly owned
subsidiary Berlitz Languages, Inc., entered into a license agreement (the
"Agreement") with Children's Television Workshop ("CTW"). Pursuant to this
license agreement, CTW has agreed to create and produce, at its expense, a
television series, "Sesame English", which will initially consist of 52
15-minute episodes which will be complemented by instruction curricula and
materials developed by Berlitz. The Agreement contemplates that initial
broadcast of Sesame English will begin no later than year-end 2000 (Japan,
China, Taiwan and Korea), 2001 (Germany, Spain, Holland, Austria, Poland and
Russia) and 2002 (Latin America, United States and Canada). In addition, Berlitz
was granted certain rights by CTW, including the exclusive right to use certain
Sesame Street and Sesame English names, logos and characters in connection with
language instructional products, services and schools.
The Agreement, covering an initial term of five years, provides for payments to
CTW of $4 million at inception and an aggregate of $6 million in minimum
guaranteed royalties paid in installments over the initial term of the
agreement. In the event that Berlitz enters into any sublicenses or other
third-party arrangements with a sublicensee for language instruction services in
Japan, such minimum guaranteed royalties shall be reduced dollar for dollar, up
to a maximum of $2 million, from CTW's share of payments from such Japanese
sublicensees. If certain conditions are met, Berlitz may extend the Agreement
for another five years in exchange for annual minimum guaranteed royalties equal
to the greater of $2 million, or an amount equal to 80% of the royalties earned
by CTW under the Agreement during the fifth year of the initial term.
The total worldwide children's language educational market is estimated to be
approximately $4 billion. While it feels that this represents a significant
revenue opportunity, Berlitz makes no forecast as to its ability to penetrate
this market. As part of its CTW and general marketing efforts, Berlitz also
plans to explore opportunities to expand its Internet business.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits.
1. License Agreement, dated as of July 1, 1999, between CTW and Berlitz
Languages, Inc.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BERLITZ INTERNATIONAL, INC.
Dated: July 13, 1999 By: /s/ Henry D. James
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Henry D. James
Executive Vice President and
Chief Financial Officer
LICENSE AGREEMENT
AGREEMENT made and dated as of July 1, 1999, by and between CHILDREN'S
TELEVISION WORKSHOP ("CTW"), a not-for-profit organization incorporated under
the New York State Education Law and having its principal office at One Lincoln
Plaza, New York, New York 10023, and BERLITZ LANGUAGES, INC. ("BERLITZ"), with
its principal office at 400 Alexander Park, Princeton, New Jersey 08540-6306,
who hereby agree as follows:
CTW, the creator and producer of the television series "Sesame English"
(together with adaptations, the "Series"), in pursuance of its educational
purposes, desires to license to BERLITZ certain copyrighted or otherwise
protected intangible intellectual property and to authorize BERLITZ to develop,
manufacture, produce, license, distribute and sell language instruction products
and services that are based on, derived from or utilize such intangible
intellectual property.
1. GRANT OF RIGHTS
(a) CTW shall grant to BERLITZ the sole and exclusive rights in
accordance with this Paragraph 1 to use the Series and the names, logos,
characters, situations and trademarks set forth in Exhibit I attached hereto and
hereby made a part hereof (collectively, the "Sesame Elements") in connection
with the creation, development, manufacturing, delivery, distribution, and other
exploitation of language instructional products, services and schools in any and
all languages by any and all means and in any media now known or hereafter
devised, including, without limitation, radio, print publication, home video
devices (including, without limitation, videocassettes and video discs), home
audio devices (including, without limitation, compact discs and audio
cassettes), CD-ROM and DVD-ROM, Internet and other computer assisted on-line
applications and electronic language instruction toys and products
(collectively, the "Materials"), provided, however, that (i) CTW's right to
exploit the Series through Broadcast Television (as defined below) shall be
exclusive except as set forth in (b) below; (ii) BERLITZ shall not exploit any
Materials in North America by means of CD-ROM or DVD-ROM until after July 1,
2001, and (iii) exploitation of home video devices and home audio devices by
BERLITZ shall be subject to subparagraph 1(f) below. "Broadcast Television" and
"Television Broadcast" shall mean broadcast for television viewing by means of
over the air broadcast, cable broadcast and satellite broadcast. "Television
Broadcaster" shall mean an entity providing such Television Broadcast.
(b) CTW shall also grant BERLITZ the right to broadcast and transmit
the Series within BERLITZ language centers and other facilities offering Sesame
English programs and/or instruction, classes, and on Internet sites or other
venues solely in
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connection with language instruction which utilizes the Materials, it being
understood that CTW shall have the exclusive rights to sell and otherwise
distribute the Series for Broadcast Television.
(c) BERLITZ shall use its best efforts to fully exploit the Materials
throughout the world. "Best efforts," as used in this paragraph, shall not
require BERLITZ to enter into any agreements or arrangements for the
exploitation of the Materials on terms which, in BERLITZ' sole judgment, do not
provide appropriate consideration to BERLITZ or which require the inclusion of
unduly burdensome terms or conditions.
(d) Commencing with Contract Year 2 (as defined below) of the Initial
Term, provided that BERLITZ retains the rights to exploit the Materials on the
Internet (as opposed to granting such rights to a third party), BERLITZ shall
spend at least $100,000 per year on promotion and sale of language lessons and
instruction services on the Internet. BERLITZ will comply with all applicable
laws, regulations and industry self-regulatory guidelines relating to online
sales, promotions, sweepstakes, data collection, and children's privacy and will
also comply with any reasonable guidelines provided by CTW. CTW shall have the
right to purchase the Materials at wholesale prices for sale on CTW's web site.
(e) CTW will not develop any language instruction products utilizing
the Sesame Elements without BERLITZ' consent; it being understood and agreed
that products which merely utilize more than one language, but which are not
intended to be language instruction products shall not be precluded by this
paragraph. An example of a product referred to in the foregoing sentence, which
utilizes more than one language but is not intended to be a language instruction
product, is a doll or book which speaks more than one language but cannot be
considered a learning tool. The parties agree that if CTW creates, manufactures,
distributes, sells or exploits a "Tingo" toy or other product which speaks or
otherwise utilizes more than one language (e.g., stuffed animal, puppet or book
which speaks more than one language) (a "Tingo Language Product"), then CTW,
with respect to each Tingo Language Product, shall pay BERLITZ an amount equal
to 25% of the "Net Tingo Revenues" (as defined below) received by CTW from the
sale of such Tingo Language Product. "Net Tingo Revenues" shall mean gross
amounts received by CTW less actual returns and reasonable and customary third
party commissions and royalty payments made by CTW out of such gross revenues.
(f) BERLITZ will have the exclusive right to exploit Season I (as
defined below) of the Series (including, without limitation, the music contained
therein) in home video devices and home audio devices; provided that such home
video devices and home audio devices are distributed with instructional
materials and also include the logo of the Series rather than the logo of Sesame
Street and do not display the Sesame Street characters on packaging more
prominently than the Sesame English character "Tingo". BERLITZ also shall have
the right to use segments from Season I of the Series in the Materials
throughout the world.
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(g) BERLITZ also shall have the right to produce and sell in BERLITZ
language centers and through Franchisees and Sublicensees merchandise products
("Sesame Merchandise") related to the new Sesame English character "Tingo"
and/or other characters and elements developed solely for the Series, including,
without limitation, t-shirts, mugs and pencils. Any such Sesame Merchandise
produced and sold hereunder by BERLITZ shall be included within the definition
of "Materials" solely for purposes of determining royalties payable to CTW
hereunder.
(h) BERLITZ shall have the right to cut, edit or otherwise utilize the
Series or portions thereof in connection with the creation and production of the
Materials. BERLITZ may not, however, alter any episode of the actual Series, it
being understood and agreed that any production work which alters one or more of
the episodes of the Series must be done by CTW pursuant to Paragraph 6(g)
hereof.
(i) BERLITZ may assign or sublicense any or all the rights granted
hereunder with the prior written approval of CTW (not to be unreasonably
withheld) and consultation with CTW on all material applicable terms. The
parties agree that the purpose of the "consultation" referred to in the
foregoing sentence with respect to material applicable terms of assignments and
sublicenses shall be to provide CTW with the opportunity to object to the terms
of any assignment or sublicense which contains terms that are substantially less
favorable to CTW than other similar third party arrangements, it being
understood, however, that the applicable material terms of any assignment or
sublicense entered into by BERLITZ shall be determined by BERLITZ in its sole
and absolute discretion. Notwithstanding anything contained in this Agreement to
the contrary, BERLITZ shall be free to assign or sublicense any or all of the
rights granted hereunder to any BERLITZ Affiliate without CTW's approval.
(j) All language classes and language instruction materials (other than
those created for (i) the Berlitz Jr. program or (ii) until Materials are
developed for any such country, any other similar program that currently exists
in countries outside of the United States) developed by BERLITZ for children
ages 0-7 after the date that is the Delivery Date (but in no event earlier than
March 31, 2000) will utilize the Materials or adaptations thereof, provided,
however, that nothing in this paragraph shall prohibit BERLITZ from continuing
in perpetuity to sell, distribute or otherwise exploit BERLITZ materials,
services, programs and/or products in connection with the BERLITZ Jr. Program or
other similar program (provided that aggregate revenues from such other similar
programs do not exceed $5,000,000 per year), which are already in existence on
the date hereof, without paying a royalty to CTW with respect to such materials,
services, programs and/or products. BERLITZ shall use its best efforts to
promote the use of the Materials in schools through the BERLITZ Jr. program and
other similar programs, provided, however, that "best efforts," as used in this
paragraph shall not require BERLITZ to enter into any agreements or arrangements
for the inclusion or use of the Materials in schools through the BERLITZ Jr.
program on terms which, in BERLITZ' sole judgment, do not provide appropriate
consideration to BERLITZ or which require the inclusion of unduly burdensome
terms or conditions.
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(k) BERLITZ's exclusive rights shall be subject to the limited uses CTW
may be required to allow Television Broadcasters of the Series to make in order
to obtain carriage for the Series. Towards that end, BERLITZ agrees to work with
CTW and its Television Broadcast partners to fashion mutually agreeable
arrangements which make broadcast of the Series possible; provided, however,
that nothing in this paragraph shall obligate BERLITZ to consent to the license
by CTW to third party Television Broadcasters or other third parties of any of
the rights granted to BERLITZ hereunder or to make any other such arrangements
which make Television Broadcast of the Series possible.
(l) Notwithstanding the fact that the title of the Series is referred
to herein as "Sesame English," the parties understand and agree that BERLITZ
shall have the right, in connection with the creation, development,
manufacturing, delivery, distribution and other exploitation of the Materials
and products, services and schools related thereto, to use the name "Sesame"
preceding the name of any language (e.g., "Sesame French," "Sesame Japanese,"
"Sesame Hebrew").
(m) BERLITZ shall have the non-exclusive right (i) to establish links
to the website with the domain name "sesameenglish.com" or any similar site that
is related to the Series and (ii) to print the name "sesameenglish.com" on the
Materials and/or have the name "sesameenglish.com" appear on any
BERLITZ-controlled website (e.g., "berlitz.com"), provided, however, that such
usage of "sesameenglish.com" is conducted so as not to confuse end-users as to
which website they are on.
(n) CTW reserves all rights other than those expressly granted to
BERLITZ and is free to exercise such rights by itself or through third parties
without any obligation to BERLITZ. CTW agrees that it shall not exploit or
license third parties to exploit the Series in any manner other than as
described in Paragraph 6(d) below.
2. TERM
(a) The "Initial Term" of this Agreement shall be defined as the period
commencing on the date hereof and ending five (5) years from the Delivery Date
(as defined below). BERLITZ may, at its option to be exercised no later than
nine (9) months prior to the end of the Initial Term, extend the Term of this
Agreement for an additional five (5) years (to the date that is ten (10) years
following the Delivery Date) (the "Extended Term") if Royalties earned by CTW
from the following sources in the first four (4) years of the Initial Term equal
or exceed $4,000,000:
(i) Publishing Revenues (as defined below);
(ii) Instruction Revenues (as defined below);
(iii) CTW's share of language instruction Net Profits (as
defined below) from any Japanese Sublicensee (as defined below) up to
$2,000,000; and
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(iv) CTW's share of language instruction revenues from any
Franchisee (as defined below).
(b) The "Delivery Date" shall be defined as the date on which CTW
delivers to BERLITZ the fifty-second (52nd) episode of the Series, provided that
CTW theretofore shall also have delivered the first fifty-one (51) episodes of
the Series to BERLITZ prior to the Delivery Date. For purposes of this
Agreement, delivery of an episode to BERLITZ shall be deemed to have occurred on
the date on which CTW shall have provided BERLITZ with (i) a D-2 video master
tape containing such episode in the English-language (with a local language
version of such master tape to be delivered within ninety (90) days of any
request by BERLITZ for such version thereafter), (ii) an electronic copy of the
script for such episode and (iii) a final so-called "scope and sequence" and
digital audio tape (DAT) of each episode.
3. TERRITORY
The Territory is the World; provided, however, that all rights to any
country in which BERLITZ has not distributed or otherwise exploited the
Materials or for which BERLITZ has not prepared a national roll out strategy for
such country by June 30, 2003 will revert to CTW (any such country, a
"Non-Utilized Country"). After June 30, 2003, subject to obtaining BERLITZ's
prior written consent with respect to each Non-Utilized Country, CTW may utilize
the Materials in the Non- Utilized Countries, in which case (i) BERLITZ shall
receive royalties from, and share third party license fees and revenues with,
CTW on the same basis and at the same royalty rates as CTW would otherwise
receive from BERLITZ, and (ii) BERLITZ shall be afforded the same rights of
approval with respect to CTW's use of the Materials in such Non-Utilized
Countries as are afforded to CTW hereunder with respect to the countries and
territories in which BERLITZ exploits the Materials hereunder, including,
without limitation, the rights to approve all assignments and sublicenses of the
rights to exploit the Materials and all approvals described in Paragraph 4 of
the Standard Terms (as defined below). For example (but without limiting the
generality of anything contained in this Agreement), with respect to CTW's
utilization and/or exploitation of the Materials in the Non-Utilized Countries,
(i) if CTW itself, and not through a third party sublicensee, utilizes and/or
exploits the Materials, then CTW shall pay BERLITZ (A) 9% of Net Revenues from
the sale of the Materials through retail channels and (B) 5% of Net Revenues
from language instruction schools and classes utilizing the Materials including
all tuition or other fees collected from language students and revenues from
Materials sold by CTW directly to such students, and/or (ii) if CTW sublicenses
to a third party sublicensee the rights to utilize and or exploit the Materials,
then CTW shall pay BERLITZ 50% of Net Profits in respect of such sublicenses.
4. ROYALTIES
(a) Publishing Revenues and Instruction Revenues. When BERLITZ itself,
a BERLITZ Affiliate (as defined below) or any BERLITZ-Related Center (as defined
below), and not through Sublicensees or Franchisees, exercises the rights
granted
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hereunder, BERLITZ will pay CTW a royalty equal to (i) 9% of Net Revenues from
the sale of Materials through retail channels ("Publishing Revenues") and (ii)
5% of Net Revenues from BERLITZ led language instruction schools and classes
utilizing the Materials including all tuition or other fees collected from
language students and revenues from Materials sold by BERLITZ directly to such
students ("Instruction Revenues"). In the case of sales by BERLITZ to a BERLITZ
Affiliate or a BERLITZ-Related Center for sales to BERLITZ students, the royalty
rate shall be applied to the purchase price paid by the student. "Net Revenues"
shall be defined as gross revenues received by BERLITZ, a BERLITZ Affiliate or a
BERLITZ-Related Center, as applicable, less actual returns, provided, however,
that with respect to the exploitation of the Materials on the Internet, "Net
Revenues" shall be defined as follows: (A) "Publishing Revenues" shall be
defined as the amount paid by any Internet end-user to acquire any Materials
whether delivered physically or by electronic transmission to such end-user, and
(B) "Instruction Revenues" shall be defined as tuition and/or other fees paid by
Internet end-users, including (I) registrations or subscription fees to any
Internet service or portal reasonably allocable to the exploitation of BERLITZ
led language instruction products and services utilizing the Materials and (II)
revenue from advertising on the Internet reasonably allocable to the
exploitation of the Materials and the exploitation of BERLITZ led language
instruction products and services utilizing the Materials (e.g., advertising
revenue related to Internet banner advertisements on a web page devoted to the
exploitation of the Materials). The parties understand and acknowledge that Net
Revenues shall be net of commissions paid by BERLITZ, a BERLITZ Affiliate or a
BERLITZ-Related Center, as applicable, to a third party distributor. BERLITZ
represents, warrants and covenants to CTW that in the event BERLITZ distributes
the Materials through a third party distributor which retains commissions and
pays BERLITZ for the Materials net of commissions (a "Third Party Distributor"),
rather than selling Materials to a wholesale distributor which pays BERLITZ a
wholesale price for the Materials but does not retain a commission (a
"Wholesaler"), the difference between (i) the net amount received by BERLITZ
from the distribution of certain Materials through a Third Party Distributor and
(ii) the net amount received by BERLITZ from the sale of the same Materials to a
Wholesaler, shall not exceed an amount equal to 5% of the listed retail sale
price of the Materials.
(i) "BERLITZ Affiliate" shall mean BERLITZ International, Inc.
("BII") or any entity that directly or indirectly controls or that is directly
or indirectly controlled by or under common control with BII. For purposes of
this definition of "BERLITZ Affiliate," an entity will control another entity,
or be deemed to control another entity, if such entity: (a) has the ability to
elect a majority of the directors, trustees (or other managers) of such other
entity or (b) is the Beneficial Owner (as defined below) of fifty percent (50%)
or more of the voting equity interests of such other entity. A "Beneficial
Owner" of a security or interest includes any person or entity who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has or shares (x) voting power which includes the power to vote, or to
direct the voting of, the security or interest, and/or (y) investment power
which includes the power to dispose, or to direct the disposition of, such
security or
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interest. "Beneficial Ownership" shall mean ownership of a security or interest
by a Beneficial Owner.
(ii) "BERLITZ-Related Center" shall mean any Berlitz language
center that is jointly owned by BERLITZ and an unrelated third party.
(b) Sublicensee Revenues. BERLITZ shall pay CTW 50% of Net Profits in
respect of sublicenses of rights granted hereunder to non-BERLITZ Affiliate
sublicensees or other non-BERLITZ Affiliate third-parties (collectively,
"Sublicensees") of rights granted to BERLITZ hereunder.
(c) Franchisee Revenues. BERLITZ shall pay CTW 25% of Net Profits in
respect of sublicenses to Franchisees of rights granted to BERLITZ hereunder,
provided, however, that if it is determined that 50% or more of the aggregate
franchise revenues of any such Franchisee during any calendar year during the
term of the applicable franchise agreement between BFC (as defined below) and
such Franchisee, represent revenues derived from products and services utilizing
the Materials, then, notwithstanding anything to the contrary contained herein,
such Franchisee shall be considered a "Sublicensee" for all purposes hereunder,
and (i) BERLITZ shall pay CTW 50% of Net Profits, rather than 25% of Net
Profits, earned from such franchisee during such calendar year and (ii) Net
Profits from such Franchisee during such calendar year shall not be applicable
against the minimum guaranteed royalties set forth in Paragraph 5(b) below nor
against the minimum threshold required for automatic renewal pursuant to
Paragraph 2.
(d) "Franchisee" shall be defined as any business entity under contract
with BERLITZ Franchising Corporation ("BFC") to operate a BERLITZ language
center.
(e) "Net Profits" shall be defined as amounts received by BERLITZ from
Sublicensees and/or Franchisees, as applicable, in respect of revenues related
to products and services related to the Materials and any other amounts paid to
BERLITZ by such Franchisee in connection with the exploitation of the Materials
hereunder, less all direct costs and expenses incurred by BERLITZ and CTW to
secure, maintain and service such sublicenses and/or other third-party
arrangements with Sublicensees and/or Franchisees pro-rated to take into
consideration the percentage of the revenues from such franchisee or Sublicensee
attributable to Sesame English. Except as described below in this sub-paragraph
(e) with respect to Sesame Franchisees (as defined below), Net Profits shall not
include any amounts paid by a Franchisee in respect of franchise application
fees and initial franchise fees. Amounts paid to BERLITZ by a Sesame Franchisee
in respect of franchise application fees and initial franchise fees shall be
included in Net Profits. A "Sesame Franchisee" shall be defined as a franchisee
of BERLITZ or a BERLITZ Affiliate established for the sole purpose of exploiting
the Materials and/or services, programs and products based on the Materials.
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(f) CTW will have prior written consent, not to be unreasonably
withheld, if any Materials are to be (i) distributed, sold or exploited as part
of a package or otherwise in connection with any other product, service or
materials; (ii) given away or used in connection with any "premium" plan; (iii)
sold at a price 20% or more below their usual selling price with CTW receiving a
royalty on the reduced price; or (iv) sold other than on an arms-length basis.
If and to the extent that CTW utilizes or otherwise exploits the Materials in
any Non-Utilized Country, BERLITZ shall have the same rights of approval
accorded to CTW pursuant to the foregoing sentence with respect to CTW's
utilization of the Materials in such Non-Utilized Country.
5. ADVANCES AND GUARANTEES
(a) Upon execution hereof, BERLITZ will make a $4,000,000 advance
payment toward production of the Series (the "Production Advance"). The
Production Advance shall be recoupable solely from aggregate amounts paid to CTW
in respect of (i) Publishing Revenues; (ii) Instruction Revenues; (iii) CTW's
share of Net Profits from Franchisees, and (iv) the pro-rated portion of the
revenues from any Japanese Sublicensee pursuant to subparagraph (e) below, if
and to the extent that the aggregate of the foregoing (i), (ii), (iii) and (iv)
exceed the annual Guarantees set forth in subparagraph (b) below for each
Contract Year of the Initial Term and Extended Term, if any.
(b) BERLITZ will also pay annual minimum royalties to CTW
("Guarantees") with respect to each Contract Year (as defined below). "Contract
Year 1" shall be defined as the period commencing on the date hereof and ending
on the date that is twelve (12) months following the Delivery Date (but in no
event earlier than March 31, 2001). Each "Contract Year" thereafter shall be
defined as the twelve (12) month period commencing on the day following the last
day of the preceding Contract Year. The total Guarantee due to CTW from BERLITZ
for the Initial Term is $6,000,000, payable as follows:
Contract Year 1 $500,000 payable in semi annual
(Date of this Agreement to the date installments beginning on the date (the
that is 12 months following the "Initial Payment Date") that is (i) if
Delivery Date (but in no event earlier the Delivery Date occurs on or prior to
than March 31, 2001)) March 31, 2000, June 30, 2000 or (ii)
if the Delivery Date occurs after March
31, 2000, six (6) months after the
Delivery Date
Contract Year 2 $750,000 payable in semi annual
installments thereafter (calculated
from the Initial Payment Date)
Contract Year 3 $1,250,000 payable in semi annual
installments thereafter (calculated
from the Initial Payment Date)
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Contract Year 4 $1,750,000 payable in semi annual
installments thereafter (calculated
from the Initial Payment Date)
Contract Year 5 $1,750,000 payable in semi annual
installments thereafter (calculated
from the Initial Payment Date)
(c) In the event that BERLITZ extends the Term of the Agreement into
the Extended Term, BERLITZ shall pay CTW minimum guaranteed royalties for each
year of the Extended Term in an amount equal to the greater of (i) $2,000,000 or
(ii) an amount equal to eighty (80%) percent of the royalties earned by CTW
under the agreement during Contract Year 5 of the Initial Term.
(d) All Publishing Revenues, Instruction Revenues and CTW's share of
Net Profits from Franchisees shall be applicable against the annual Guarantees.
Other than as described in subparagraph 5(e) below, amounts payable to CTW in
respect of Net Profits from Sublicensees shall not be applicable against the
annual Guarantees.
(e) In the event BERLITZ, during the Initial Term, enters into any
sublicenses or other third-party arrangements with a Sublicensee for language
instruction services in Japan (any such Sublicensee, a "Japanese Sublicensee"),
the annual Guarantees payable to CTW shall be reduced dollar for dollar, up to a
maximum of $2,000,000, from CTW's share of payments from such Japanese
Sublicensees, including, without limitation, fees, advances, royalties and Net
Profits received from such Japanese Sublicensee during the Initial Term. The
reduction of up to $2,000,000 will be pro-rated equally to the Accounting
Periods remaining in the Initial Term after the royalties are paid or committed
commencing with the Accounting Period following the Accounting Period in which
the royalties are paid or committed. For example, if CTW's share of payments
received from Japanese Sublicensees in the fifth month of Contract Year 3 (i.e.,
the first Accounting Period in Contract Year 3) is an amount equal to
$1,500,000, then the annual Guarantee for Contract Year 3 shall be reduced by an
amount equal to $300,000, and the annual Guarantee for each of Contract Year 4
and Contract Year 5 shall be reduced by an amount equal to $600,000.
6. CTW DELIVERABLES
(a) Promptly following the date hereof, CTW shall deliver to BERLITZ
all information available to CTW at such time regarding the pedagogical design
and content of the Series, including, without limitation, the so-called "scope
and sequence," the lesson plans in which the materials will be presented in the
Series and descriptions of activities, events, story lines and other components
of the Series.
(b) CTW will deliver "Season I" of the Series (including, without
limitation, the music contained therein), which will consist of fifty-two (52)
episodes
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of approximately fifteen (15) minutes in length. As described above, for
purposes of this Agreement, delivery of an episode to BERLITZ shall be deemed to
have occurred when CTW has provided BERLITZ with (i) a D-2 video master tape of
such episode, and (ii) an electronic copy of the script for such episode. CTW
also shall use best efforts to deliver to BERLITZ the new logo for the Series no
later than August 31, 1999, provided that CTW shall consult with BERLITZ during
the creation and development of such logo.
(c) CTW will "consult" with BERLITZ regarding the content of the
episodes of the Series, but CTW alone will retain creative control of the
Series. As used in the foregoing sentence, "consultation" with BERLITZ with
respect to the episodes shall require that (i) CTW and BERLITZ will meet prior
to the creation or development of the first episode of the Series to provide CTW
with a brief introduction to the BERLITZ method of teaching, (ii) BERLITZ will
appoint a content liaison to meet with CTW's Content Director to review the
curriculum and content of the Series, and (iii) CTW will provide BERLITZ with
draft scripts of the episodes of the Series for review and input as soon as
practicable following CTW's review of the first draft of each such script. CTW
and BERLITZ agree that promptly following the date hereof they shall meet to
discuss and agree in good faith on additional procedures to provide BERLITZ with
meaningful consultation with respect to the Series.
(d) CTW will, at its sole cost and expense, use its best efforts to
arrange for the initial broadcast of the Series on television in the following
countries/territories commencing no later than the following dates:
(i) Japan, China, Taiwan, Korea December 31, 2000
(ii) Germany, Spain, Holland, Austria,
Poland, Russia December 31, 2001
(iii) Latin America, United States,
Canada December 31, 2002.
Towards that end, CTW will retain the exclusive rights to sell or otherwise
distribute the Series for Broadcast Television. CTW will also retain 100% of
sponsorship proceeds and broadcast license fees for the broadcast of the Series.
"Best Efforts" as used herein, shall not require CTW to enter into any broadcast
license or sale on terms which, in CTW's sole judgment, do not provide
appropriate consideration to CTW, or which require the inclusion of unduly
burdensome terms or conditions.
(e) CTW will provide BERLITZ with a co-production credit ("produced in
association with Berlitz Languages, Inc.") on the positive prints of each
episode of Season I in any country in which CTW is successful in arranging for
broadcast of the Series. In addition, BERLITZ shall receive a credit in a form
approved by BERLITZ whenever and wherever CTW receives credit in connection with
Season I of the Series. The credit accorded to BERLITZ hereunder (i) shall in
each case immediately
<PAGE>
11
precede or follow the credit accorded to CTW, and (ii) shall in each case be the
same size and degree of boldness and prominence as the credit accorded to CTW.
(f) BERLITZ understands and agrees that upon CTW's request, BERLITZ
will make space available for an appropriate Series sponsorship credit to
Procter & Gamble on all Materials to be distributed in China and Taiwan.
(g) At BERLITZ' request, CTW (i) will adapt the Series for any country
and/or any language and/or (ii) adapt, enrich or otherwise alter the Series
according to BERLITZ' instructions, whether or not for another language or
country, in each case subject to BERLITZ reimbursing CTW its direct, third
party, out-of-pocket costs in connection with the creation and/or production of
such adaptation, enrichment or alteration.
(h) Where possible, CTW will endeavor to make available to BERLITZ time
to promote the BERLITZ Sesame language schools, programs, products and/or
Materials on-air in connection with the broadcast of the Series.
(i) CTW will, at no cost to BERLITZ, use its best efforts to deliver to
BERLITZ no later than August 31, 1999, a database of images culled from the
archives of Sesame Street Magazine and other sources (the "Sesame Database").
The Sesame Database shall meet the following specifications: (i) it shall
contain (A) the standard style sheets provided by CTW to all new CTW licensees
and (B) the Sesame English logo, and (ii) it shall contain at least twelve (12)
position images of each of the principal twelve (12) Sesame Street characters as
identified on Exhibit I, plus twelve (12) position images of each of Tingo and
any other character or element created for the Series, each in Adobe Illustrator
format, approved by CTW for use in connection with the Materials and with
respect to each of which the rights to use such images in connection with the
Materials have already been cleared by CTW. If and to the extent that the Sesame
Database is updated with additional style sheets and/or images following
delivery to BERLITZ of the original Sesame Database, CTW shall promptly deliver
such updates to BERLITZ.
(j) CTW will also make available for inspection certain materials which
currently are in various stages of development. BERLITZ shall have the right to
use such materials upon reimbursement of CTW's actual, third party,
out-of-pocket development costs.
(k) BERLITZ shall have rights of "first negotiation" and "last
negotiation" with respect to the funding of subsequent seasons of the Series and
the acquisition of rights similar to those granted herein to BERLITZ with
respect to any such subsequent season. As used herein, (i) "first negotiation"
shall have the meaning customarily accorded to such term, and (ii) "last
negotiation" shall mean that CTW, immediately prior to entering into an
agreement with a third party with respect to the funding of subsequent seasons
of the Series and the acquisition of rights similar to those granted herein to
BERLITZ with respect to any such subsequent season (the "First Negotiation
Matters"), shall be required to engage in good faith negotiations
<PAGE>
12
with BERLITZ with respect to such First Negotiation Matters, notwithstanding the
fact that BERLITZ and CTW during the period of "first negotiation" were unable
to conclude an agreement with respect to the First Negotiation Matters.
7. COSTS
CTW will be responsible for and shall pay all costs associated with the
creation, development production, promotion, marketing, advertising and
distribution of the Series and CTW will be responsible for and shall pay all
royalties payable to owners of rights in the Series and the Materials in
connection with the exploitation of the Series and the Materials, including,
without limitation, royalties payable to The Jim Henson Company ("JHC") and
royalties payable to music publishers and/or composers and lyricists of songs
used in the Series and/or the Materials, it being understood that CTW shall not
be responsible for paying royalties payable to owners of rights in or to
elements used in the Materials but not also used in the Series (i.e., CTW shall
not be responsible for paying royalties payable to owners of rights in elements
incorporated in the Materials by BERLITZ, if such elements were not also
incorporated in the Series). BERLITZ is responsible for all costs incurred (i)
in connection with the creation, manufacturing, marketing, distribution and sale
of the Materials other than the creation, manufacturing, marketing, distribution
and sale of the Materials in the Non-Utilized Countries, (ii) the construction
and operation of language instruction schools and classrooms, and (iii) any
original production (e.g. recording sessions for radio) by CTW requested by
BERLITZ, other than the production of the Series.
8. OWNERSHIP
The Series and the Sesame Elements shall be owned by CTW (the "CTW
Properties"). All products and services created and/or produced by BERLITZ which
do not incorporate the Series and/or the Sesame Elements shall be owned by
Berlitz (the "BERLITZ Properties"). Works containing material created by both
CTW and BERLITZ (e.g., the Materials, since they incorporate the CTW Properties
and the BERLITZ Properties) shall be owned jointly, but no exploitation of such
works shall be permitted after the termination or expiration of the license
agreement and the Sell- Off Period (as defined in the Standard Terms (as defined
below)).
9. STAFF AND ORGANIZATION
(a) BERLITZ will use best efforts to deliver to CTW a business plan and
product line description prior to June 30, 1999.
(b) BERLITZ will establish a Children's division and dedicate
appropriate staff to work exclusively on language schools and Materials for
children, it being understood that such staff or some portion thereof shall work
exclusively on Sesame English schools, programs and Materials for children
between the ages of 0 and 7.
<PAGE>
13
(c) CTW and BERLITZ agree to make senior financial and operational
executives available to meet quarterly to discuss short and long-term plans,
budgets, projections and strategies.
10. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same document.
This License is subject to all of the provisions of the Standard Terms and
Conditions (the "Standard Terms") which are attached to and hereby made a part
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this License as of the
date set forth above.
CHILDREN'S TELEVISION WORKSHOP BERLITZ LANGUAGES, INC.
By: ________________________ By: ______________________
Daniel Victor Robert Minsky
Executive Vice President Executive Vice President
<PAGE>
CHILDREN'S TELEVISION WORKSHOP
STANDARD TERMS AND CONDITIONS
1. DEFINITIONS
The following words and phrases when used herein and in the License
Agreement between BERLITZ and CTW attached hereto (the "LICENSE") shall, unless
otherwise specifically provided, have the following meanings:
"Accounting Period" as used herein shall mean the semi-annual period
ending June 30th or December 31st; provided, however, that the first Accounting
Period shall end on the June 30th or December 31st at least six months after the
Delivery Date.
"Book Value" means BERLITZ's actual cost minus all expensing,
depreciation and amortization taken with respect thereto.
"Company Affiliate" of a party hereto shall mean any entity that
directly or indirectly controls or that is directly or indirectly controlled by
or under common control with such party. For the purposes of this definition of
"Company Affiliate," an entity will control another entity, or be deemed to
control another entity, if such entity: (a) has the ability to elect a majority
of the directors, trustees (or other managers) of such other entity or (b) is
the Beneficial Owner of fifty percent (50%) or more of the voting equity
interests of such other entity.
"Derivative Works" means any translation, modification or other
pictorial or written matter based substantially on the Sesame Elements.
"Manufacturing Cost" with respect to any Product (or any component
thereof) means BERLITZ's direct cost of material, labor and factory overhead
(including variations from standard cost, if applicable) for such Product (or
component thereof) plus BERLITZ's actual cost of shipping the same and shall
exclude all selling, distribution, general and administrative costs and
expenses.
"Technical Materials" means all artwork, graphics, photos, prints,
films, silk screens, mechanicals, designs, plans, diagrams, dummies, models,
molds, plates, proofs, sketches and all other similar technical or special
materials whatsoever that were used hereunder by BERLITZ and that contain any of
the Sesame Elements.
"Term" means the term of the Agreement as set forth in Paragraph 2 of
the LICENSE and shall include the "Initial Term" and the "Extended Term" as
defined therein.
"Territory" means the countries or areas set forth in Paragraph 3 of
the LICENSE in which BERLITZ is licensed to distribute Materials and services
hereunder.
<PAGE>
2
2. ROYALTIES AND ACCOUNTINGS
(a) In consideration of the rights granted herein, BERLITZ, no later
than sixty (60) days after each Accounting Period, (i) shall pay CTW the amounts
payable to CTW hereunder (whether during the Initial Term or the Extended Term
or thereafter), and (ii) shall deliver to CTW a royalty statement setting forth
the accrued royalties payable to CTW in respect of such Accounting Period, it
being understood that royalties payable to CTW shall be set forth on a country
by country basis for Japan, Germany, Mexico and the United States and in the
aggregate for all other countries and territories throughout the world. BERLITZ
also shall deliver to CTW a statement for each calendar quarter during the Term
which is not also the end of an Accounting Period, setting forth an estimate of
the accrued royalties payable to CTW in respect of such quarter on a country by
country basis with respect to Japan, Germany, Mexico and the United States and
in the aggregate for all other countries and territories throughout the world,
it being understood that such statement shall not be certified by any officer of
BERLITZ and shall be deemed a non-binding estimate of royalties for such
quarter.
(b) Each royalty statement shall include the following information, on
a country by country basis: (A) the number of each or, in the case of revenues
from instruction, the number of sites and students (collectively, the
"Products") sold by BERLITZ, in both unit and monetary amounts, (B) the sale
price of each such item of the Materials (or in the case of revenues from
instruction, the sale price of such instruction) (C) total revenues therefrom,
(D) total allowable credits, including returns, with respect thereto, (E) the
net amounts due CTW therefor, and any adjustments made in such figures for
preceding accounting periods and (F) whatever other items or information which
may be necessary for CTW in calculating the amounts due to it under this
Agreement, and in calculating payments due from CTW to others, as a result of
such sales.
(c) If any Royalty payment shall be late, then BERLITZ shall pay
interest thereon from the due date to the date of payment at the Prime Rate (as
defined below) plus two points. "Prime Rate" shall mean the rate of interest
from time to time published in the Wall Street Journal.
(d) If the cumulative earnings of CTW during any Contract Year of the
Term shall be less than the aggregate minimum Royalties specified for such
Contract Year, BERLITZ shall, on the Payment Date (as defined below) for such
Contract Year, pay CTW the difference; it being understood and agreed that all
payments made to CTW by BERLITZ pursuant to this subparagraph shall be deemed an
advance against the Guarantee for such guaranteed period. All earnings of CTW
for any guaranteed period shall be deemed earned as of the end of the period in
respect of which it is payable. Each "Payment Date" shall be the date that is
sixty (60) days following the end of each Contract Year.
(e) All amounts payable to CTW in accordance with the provisions of
this Agreement are expressed as net sums payable promptly and in full, in United
States
<PAGE>
3
Dollars, free and clear of (i) all costs associated with the transfer of funds
or the conversion of any currency and (ii) all non-United States taxes (other
than V.A.T. and/or any other taxes required by any government to be withheld
from payments made by BERLITZ to CTW hereunder) by bank transfer to Morgan
Guaranty Trust Company of New York, 40 Rockefeller Plaza, New York 10020, ABA
No. 031100238, Attention: Children's Television Workshop, Account No. 162-54-451
or by such other method as CTW shall designate in writing. All amounts payable
to BERLITZ or CTW hereunder shall be converted into United States Dollars in a
manner that is consistent with (i) Generally Accepted Accounting Principles in
effect in the United States at the time of such conversion and (ii) the usual
and customary business practices of the converting party.
(f) During each calendar year during which BERLITZ exercises any rights
hereunder as well as in the following twelve (12) months, any certified public
accountants, attorneys or other persons of CTW's choice may at any time or
times, on reasonable notice, during regular business hours, examine and copy
BERLITZ's books of account, records, vouchers, invoices and all other documents
relating in whole or in part to the subject matter of this Agreement in order to
determine the correctness and completeness of all payments made and statements
delivered to CTW hereunder, provided, however, that CTW shall cooperate with
BERLITZ in determining the most suitable time to conduct such examination of
such books of account, records, vouchers, invoices and other documents, it being
understood that the conduct of such examination during certain periods shall
interrupt BERLITZ' normal business operations. If any such examination reveals
an error of 5% or more in BERLITZ's favor in amounts paid or payable to CTW or
if any such examination is made because BERLITZ has not timely delivered to CTW
any required statement of account hereunder, then it shall, at CTW's request,
promptly pay CTW all reasonable costs of such examination. BERLITZ shall keep,
in accordance with generally accepted accounting principles, throughout the Term
and for at least three (3) years thereafter, proper, accurate, complete and
auditable records and books of account reflecting all dealings with Products and
shall make all such entries therein as may be necessary to enable all
calculations referred to in subparagraph 2(b) hereof to be readily verified.
(g) To the extent that either party hereto shall divulge to the other,
or in the course of its examination shall receive, confidential information,
then such party hereby agrees to maintain such information in confidence unless
and until such information shall become publicly available in the industry.
(h) CTW shall have the same obligations to BERLITZ as BERLITZ has to
CTW under this Paragraph 2 with respect to CTW's exploitation of the Products in
the Non-Utilized Countries, including, without limitation, all obligations to
account and make payments to BERLITZ at the end of each Accounting Period,
provide royalty statements to BERLITZ, pay interest on late royalty payments in
an amount equal to the Prime Rate plus two points, make CTW's books and records
available to BERLITZ for examination and copying, and pay net sums free and
clear of all costs associated with the transfer of funds or the conversion of
any currency and all non-
<PAGE>
4
United States taxes (other than V.A.T. or any other taxes required by any
government to be withheld from payments made by CTW to BERLITZ hereunder),
provided, however, that all royalty payments due to BERLITZ shall be paid in
accordance with instructions provided to CTW by BERLITZ.
3. CREDITS AND INTELLECTUAL PROPERTY RIGHTS
(a) Each Product shall, except as CTW otherwise requests, bear in
legible and irremovable form a statement identifying BERLITZ and CTW with the
names of BERLITZ and CTW equal in size, type and prominence of display.
(b) (i) In order to protect CTW's intellectual property rights, BERLITZ
agrees as follows, but solely in connection with the exploitation of the
Materials in the countries throughout the world which are not Non-Utilized
Countries:
A. use no markings, legends, or notices on or in
association with the Products or the advertising materials, other than specified
herein and any notices as may from time to time be specified by CTW without
first obtaining CTW's prior written consent;
B. cause each Product and all promotional, publicity
and advertising material therefor, to be packaged, distributed and sold in full
compliance with the provisions of this Agreement and the copyright laws of the
United States of America and the Berne and Universal Copyright Conventions;
C. acknowledge and require all third party
contributors to the Materials to acknowledge in writing that as between CTW and
BERLITZ, on the one hand, and such third party contributor, on the other hand,
(I) CTW and/or BERLITZ, as their interests may appear, are for all purposes the
sole and exclusive author(s) and proprietor(s) of the Materials, (II) CTW and/or
BERLITZ, as their interest may appear, have commissioned such contributor to
create a work made for hire and (III) such contributor waives any claim with
respect to the moral right which may be created as a result of the services
rendered by such person and assigns to CTW and/or BERLITZ, as their interests
may appear, all right, title and interest (including the copyright) in and to
all contributions created by such contributor for the Materials, it being
understood that as between CTW and BERLITZ, their rights in the Materials shall
be governed by Paragraph 8 of the Agreement; and
D. promptly notify CTW of all infringements or
violations of any copyright, trademark or other right in or to any of the Sesame
Elements and shall consult with CTW with respect to how to respond to each such
infringement or violation. BERLITZ shall cooperate with CTW in all litigation
relating to this Agreement and shall execute, file and deliver whatever
documentation may be necessary or convenient in connection with copyright and
trademark matters.
(ii) BERLITZ acknowledges and agrees that all the Sesame
Elements have acquired a secondary meaning in the mind of the purchasing public
and
<PAGE>
5
that, to the extent the law allows, it (i) will not attack the validity of the
license or rights granted hereunder to it, (ii) will not do anything, either by
acting or not acting, which might impair, violate or infringe any of the Sesame
Elements, (iii) will not claim adversely to CTW or anyone claiming through CTW
any right, title or interest in or to any of the Sesame Elements and (iv) has
not, directly or indirectly, used or registered (or applied for registration of)
and will not so use or register any item which in CTW's opinion is the same as
or confusingly similar to any of the Sesame Elements and will not use any of the
same as part of its name or the name of any other entity.
(iii) Nothing contained in this Agreement shall give CTW any
right, title or interest in or to any of BERLITZ's logos, trademarks, trade
names, patents or pre-existing copyrighted material and all such right, title
and interest and right to use, shall remain solely with BERLITZ.
(c) (i) In order to protect BERLITZ' intellectual property rights, CTW
agrees as follows, but solely in connection with the exploitation of the
Materials in the Non-Utilized Countries:
A. use no markings, legends, or notices on or in
association with the Products or the advertising materials, other than specified
herein and any notices as may from time to time be specified by BERLITZ without
first obtaining BERLITZ' prior written consent;
B. cause each Product and all promotional, publicity
and advertising material therefor, to be packaged, distributed and sold in full
compliance with the provisions of this Agreement and the copyright laws of the
United States of America and the Berne and Universal Copyright Conventions;
C. acknowledge and require all third party
contributors to the Materials to acknowledge in writing that as between CTW and
BERLITZ, on the one hand, and such third party contributor, on the other hand,
(I) CTW and/or BERLITZ, as their interests may appear, are for all purposes the
sole and exclusive author(s) and proprietor(s) of the Materials, (II) CTW and/or
BERLITZ, as their interests may appear, have commissioned such contributor to
create a work made for hire and (III) such contributor waives any claim with
respect to the moral right which may be created as a result of the services
rendered by such person and assigns to CTW and/or BERLITZ, as their interests
may appear, all right, title and interest (including the copyright) in and to
all contributions created by such contributor for the Materials, it being
understood that as between CTW and BERLITZ, their rights in the Materials shall
be governed by Paragraph 8 of the Agreement; and
D. promptly notify BERLITZ of all infringements or
violations of any copyright, trademark or other right in or to any of the
BERLITZ Properties and shall consult with BERLITZ with respect to how to respond
to each such infringement or violation. CTW shall cooperate with BERLITZ in all
litigation
<PAGE>
6
relating to this Agreement and shall execute, file and deliver whatever
documentation may be necessary or convenient in connection with copyright and
trademark matters.
(ii) CTW acknowledges and agrees that all the BERLITZ
Properties have acquired a secondary meaning in the mind of the purchasing
public and that, to the extent the law allows, it (i) will not attack the
validity of the license or rights granted hereunder to it, (ii) will not do
anything, either by acting or not acting, which might impair, violate or
infringe any of the BERLITZ Properties, (iii) will not claim adversely to
BERLITZ or anyone claiming through BERLITZ any right, title or interest in or to
any of the BERLITZ Properties and (iv) has not, directly or indirectly, used or
registered (or applied for registration of) and will not so use or register any
item which in BERLITZ' opinion is the same as or confusingly similar to any of
the BERLITZ Properties and will not use any of the same as part of its name or
the name of any other entity.
(iii) Nothing contained in this Agreement shall give BERLITZ
any right, title or interest in or to any of CTW's logos, trademarks, trade
names, patents or pre-existing copyrighted material and all such right, title
and interest and right to use, shall remain solely with CTW.
4. APPROVAL RIGHTS
(a) CTW will have prior written approval, not to be unreasonably
withheld, over (i) the Materials (other than printed instructional materials
(for which CTW shall have the right of meaningful consultation), (ii) packaging,
marketing and promotional materials created hereunder, (iii) agreements between
BERLITZ and each Sesame Franchisee, written materials provided to Franchisees,
compliance with which is required by BERLITZ, teacher training materials,
teacher handbooks, scripts and all other written materials prepared by BERLITZ
for use in connection with the teaching, curriculum and/or guidelines for
language instruction services and programs incorporating the Materials, and (iv)
any use of CTW's trademarks and copyrighted materials including, without
limitation, the Sesame Elements.
(b) BERLITZ will have prior written approval, not to be unreasonably
withheld, over any use of BERLITZ' trademarks and copyrighted materials
including, without limitation, the Materials. Notwithstanding any prior
approval, if in CTW's reasonable judgment the quality of any Products (as
defined in Paragraph 2(b) above) hereunder has deteriorated during the continued
distribution thereof, or, if CTW's reputation or name shall be subject to
negative publicity resulting from such continued distribution thereof, CTW may
provide written notice thereof to BERLITZ, and if, within thirty (30) days
following BERLITZ' receipt of such written notice, BERLITZ fails to improve the
quality of such Products in accordance with CTW's written notice, then CTW may,
in addition to other remedies available to it, by written notice, require such
Products to be immediately withdrawn from the market. In the event BERLITZ is
required to withdraw certain Products from the market in accordance with this
paragraph, such withdrawal shall in no way result in the reversion of rights
granted herein to BERLITZ, and BERLITZ, subject to
<PAGE>
7
withdrawing such Products, may thereafter continue to exploit the rights granted
herein in accordance with this Agreement.
(c) BERLITZ shall forward at its expense to CTW all items as to which
CTW has rights of approval hereunder, for the purpose of facilitating such
approval.
(d) CTW will notify BERLITZ of its approval or disapproval of any
submission within two (2) weeks after receipt of such submission. If CTW fails
to notify BERLITZ within such two (2) week period regarding whether CTW approves
any such submission made by BERLITZ, BERLITZ shall have the right to send
written notice to CTW (the "Non-Receipt Notice") by registered or certified mail
or by overnight courier, indicating that BERLITZ has not received such notice
from CTW within such period. If CTW fails to notify BERLITZ regarding the
approval of such submission within two (2) weeks following BERLITZ' provision of
the Non- Receipt Notice to CTW, then CTW shall be deemed to have approved the
submission made by BERLITZ at least four (4) weeks earlier.
(e) No approval by CTW of any Materials, service, advertisement or
promotion shall imply or be deemed to imply that the specific use of the Sesame
Elements is approved in another Material, service and/or promotion. Each such
Material, service and/or promotion shall be subject to CTW's prior written
approval.
5. SAMPLES
(a) BERLITZ shall, at its own cost, furnish six (6) units of each
Material to each of (i) CTW at its address hereunder, at no cost to CTW, and
(ii) JHC at 117 East 69th Street, New York, New York 10021, Attention: Cheryl
Henson, at no cost to Henson, promptly upon or before their initial shipment to
a customer. CTW shall also have the right to select, without any payment
therefor, for quality control purposes (it being agreed that CTW shall have
reasonable access to BERLITZ's facilities to audit such quality control), up to
ten (10) units at a time of each Material developed hereunder.
(b) Subject to availability, CTW shall also have the right to purchase
from BERLITZ, at BERLITZ's Manufacturing Cost, such reasonable number of units
of any Material as CTW may from time to time specify by notice to BERLITZ.
Material so purchased by CTW may be used by CTW as it in its sole discretion may
determine, except that CTW may not resell such Material to any other person or
entity or otherwise receive compensation therefor.
(c) No royalties or other amounts shall be payable by BERLITZ on
Materials delivered to or purchased by CTW under this Paragraph 5.
6. WARRANTIES AND INDEMNIFICATIONS
(a) BERLITZ specifically represents, warrants and agrees that:
<PAGE>
8
(i) it is and shall remain free to enter into and fully
perform this Agreement in all respects and shall develop, manufacture, produce,
advertise, promote, distribute or sell Materials and services only as expressly
permitted under this Agreement;
(ii) CTW would suffer irreparable harm if Materials were
distributed or sold except as herein expressly permitted, and CTW, without
limiting any other rights, shall be entitled to injunctive relief to prevent
BERLITZ from distributing or selling Materials except as herein expressly
permitted in the event of a material breach of this Agreement by BERLITZ;
(iii) Materials distributed or sold hereunder shall be, in all
respects, clearly safe and fit for use by the persons for whom such Materials
are intended to be used, free from all defects in manufacturing and workmanship
and shall not violate, infringe upon or breach any rights of third parties. If
requested by CTW, BERLITZ will provide test results satisfactory to CTW and
otherwise cooperate with CTW to ensure that all Materials meets the safety
standards established by any government or private organization having
jurisdiction thereof. If BERLITZ learns of any defect in or breach of warranty
with respect to any Materials, it shall promptly notify CTW thereof and take all
appropriate measures to remedy such defect as well as to eliminate the same in
all future Materials;
(iv) it shall, no less than once each year, furnish to CTW its
marketing plans (and quarterly updates) including, without limitation, BERLITZ's
annual sales estimate for each Product on a quarter by quarter basis for such
year and its proposed advertising, promotion and publicity in connection with
the distribution and sale of Materials and services during such year;
(v) during the final six (6) months of the Term hereof, it
shall not, without CTW's prior written approval, produce, have produced or place
an order for more Materials than it can reasonably foresee selling during the
remainder of the Term;
(vi) it shall, not less than thirty (30) days prior to the
expiration of the Term of this Agreement, provide CTW with a complete schedule
of all inventory of Materials then on hand;
(vii) it shall, pursuant to a reasonable request made by CTW
in writing, take reasonable steps to minimize or eliminate the incidence of any
taxes, fees or assessments which may be imposed in connection with the
exploitation of the Materials, provided that CTW shall reimburse BERLITZ all
costs and expenses incurred by BERLITZ as a result of such steps taken by
BERLITZ as requested by CTW;
(viii) it shall, unless and until delivered to CTW, preserve,
maintain and safely store all Technical Materials, including specifically, all
original artwork
<PAGE>
9
and film, during the full term hereof, and for at least one hundred (100) days
after receipt of the certificate required to be furnished to CTW pursuant to
8(b)(ii) hereof;
(ix) it shall maintain in full force and effect liability
insurance specifically covering all Materials and services sold or distributed
hereunder by it as well as any liability on the part of CTW and/or The Jim
Henson Company (each of which shall be included as an additional insured in such
insurance) with respect thereto. The insurance (a) shall have limits which, with
respect to each year, shall be no less than $3,000,000. for each occurrence and
$10,000,000. in the aggregate; (b) shall have a deductible not exceeding
$10,000; and (c) shall provide that it is not cancelable except upon thirty (30)
days prior written notice to CTW; it being understood and agreed that any
insurance carried by CTW and JHC shall be deemed excess insurance, not subject
to contribution.
(b) CTW represents and warrants that:
(i) it is and shall remain free to enter into and fully
perform this Agreement in all respects, and to grant BERLITZ the license herein
granted.
(ii) it is and will be the sole creator of the Series and the
Series is and will be wholly original with CTW and has not been and will not be
copied in whole or in part from any work, except for material in the public
domain and/or other material owned exclusively by CTW;
(iii) CTW has the sole and exclusive right to enter into this
Agreement and the full authority to grant the rights granted herein with respect
to the Series and the Materials; the Series is and will be protected by
copyright in the United States and, on publication, copyright for the Series
will be secured and maintained in all countries adherent to the Universal
Copyright Convention and the Berne Convention; and there has never been nor is
there now any claim or litigation existing or threatened involving the ownership
of the Series or any copyright therein, or any of the rights granted hereunder;
(iv) the Series and the use of the Series as herein
contemplated will not violate, conflict with or infringe upon any rights of
copyright of any person, firm or corporation and will not violate, conflict with
or infringe upon any rights of defamation, privacy, publicity or any similar
rights of any person, firm or corporation;
(v) CTW has not made and will not hereafter make any grant,
assignment, encumbrance, claim, contract, license, commitment or other
disposition of any right, title or interest in or to the Series or any of the
rights granted hereunder, adverse to or inconsistent with the rights granted
hereunder to BERLITZ and the enjoyment and exercise thereof by BERLITZ, or by
which such rights, or their exercise by BERLITZ, or any third party pursuant to
a grant of rights from BERLITZ, might be diminished, encumbered, impaired or
invalidated in any way.
<PAGE>
10
(c) BERLITZ and CTW shall at all times indemnify and hold harmless the
other from and against any and all claims, damages, liabilities and reasonable
costs and expenses (including but not limited to attorney's fees and
disbursements) within the scope of the indemnitor's indemnity hereunder which
are reduced to a final adverse judgment, or are settled with the indemnitor's
prior consent, arising from, based on or in connection with the performance of
this Agreement by the indemnitor, or any breach or default by the indemnitor of
its agreements, covenants, representations, obligations or warranties herein;
provided, however, that the indemnitee shall give the indemnitor prompt notice
of each and every claim and litigation to which this indemnity applies and
cooperate fully in the defense of all such claims and litigation and may, at its
cost and expense, participate in the defense thereof.
7. FAIR LABOR PRACTICES
Without limiting the foregoing, each of BERLITZ and CTW covenants as
follows:
(a) It will not use child labor in the manufacturing, packaging or
distribution of Products hereunder. The term "child" refers to a person younger
than the age for completing compulsory education, but in no case shall any child
younger than fourteen (14) years of age be employed in the manufacturing,
packaging or distribution of products.
(b) It will provide employees with a safe and healthy workplace in
compliance with all applicable laws. Each party will provide the other party
with all information requested by such other party about manufacturing,
packaging and distribution facilities for the Products.
(c) It will only employ persons whose presence is voluntary. Neither
party hereto will use prison labor, or use corporal punishment or other forms of
mental or physical coercion as a form of discipline of employees.
(d) It will comply with all applicable wage and hour laws, including
minimum wage, overtime, and maximum hours. Both parties hereto will utilize fair
employment practices as defined by applicable laws.
(e) It will not discriminate in hiring and employment practices on
grounds of race, religion, national origin, political affiliation, sexual
preference, or gender.
(f) It will comply with all applicable environmental laws.
(g) It will comply with all applicable laws pertaining to the
manufacture, pricing, sale and distribution of the Products.
<PAGE>
11
(h) It agrees that the other party hereto may engage in activities such
as unannounced on-site inspections of manufacturing, packaging and distribution
facilities in order to monitor compliance with this paragraph and applicable
laws.
8. TERMINATION/APPROVALS
(a) CTW and BERLITZ, as applicable, shall each, in addition to their
other rights, have the right to terminate the Agreement on written notice to the
other given at any time on or after the initial occurrence of any of the
following conditions:
(i) if either CTW or BERLITZ, without the other's consent,
assigns this Agreement or any of the assigning party's rights hereunder,
provided, however, that either party shall be free to assign or sublicense any
or all of the rights granted hereunder to any Company Affiliate without the
other party's approval;
(ii) if either CTW or BERLITZ, without the other's consent,
transfers ownership of all or substantially all of its assets, stock or other
indicia of ownership to any other entity, provided, however, that neither party
shall have the right to terminate this Agreement if the other party transfers
ownership of this Agreement or any of such party's rights hereunder or all or
substantially all of such party's assets, stock or other indicia of ownership to
any Company Affiliate(s);
(iii) Beneficial Ownership of more than twenty five percent
(25%) of the outstanding voting securities of Berlitz International, Inc. and/or
BERLITZ is transferred to a single person or entity, provided, however that the
effect of the exercise or conversion of the $155,000,000 Convertible
Exchangeable Subordinated Debentures due 2011, currently owned by affiliates of
Benesse Corporation and Apollo Advisors, L.P., shall be excluded from the
foregoing restriction.
(iv) if either party becomes insolvent or subject to any
bankruptcy, insolvency or receivership proceeding of any nature which is not
dismissed and such party fails to assume this Agreement within one hundred and
twenty (120) days after the order granting relief;
(v) if either party is in breach or default under any of its
obligations, representations, warranties, or agreements hereunder (including,
but not limited to, its obligation to pay any Royalties or any other sum due
hereunder or to deliver any statement of account) for a period of thirty (30)
days after the other party shall have given it written notice of such breach or
default.
(b) Upon expiration or termination of the Term of the Agreement other
than due to either party default hereunder:
(i) all monies at any time or times payable hereunder to
either party shall thereupon become due and payable in full to such party and
all rights and licenses granted hereunder shall immediately and automatically
revert to the party granting such rights hereunder;
<PAGE>
12
(ii) each party shall furnish to the other party a certificate
of its existing inventory of Materials and all units and components of Materials
in its possession or under its control, their state of completion, their
physical condition and location and their Manufacturing Cost, or if the
Materials are imported, the purchase price thereof and also listing all
Technical Materials, their physical condition and location and their actual Book
Value--it being also agreed that each party shall have the right, at its
expense, to conduct a physical inventory of all or any of said units,
components, Materials and Technical Materials to inspect any and all sites at
which any of said units, components, Materials and Technical Materials are
stored by the other party;
(iii) provided that it shall have fully performed all of its
obligations hereunder, each party shall have the non-exclusive right to sell, in
accordance with the provisions of this Agreement, all unsold finished Materials
in its inventory on the date of such termination or at the end of the Term, as
applicable, for nine (9) months (the "Sell-Off Period"). No Royalties earned by
CTW from the sale of Materials in accordance with this division (iii) may be
applied in recoupment of any advances made to CTW hereunder nor in reduction of
the earnings of CTW guaranteed by BERLITZ.
(iv) Upon each party's request, the other party shall,
following the Sell-Off Period, destroy all Materials embodying the CTW
Properties and/or the BERLITZ Properties and furnish the other party with a
certificate of such destruction. Each party shall have the right to have a
representative selected by it witness such destruction by the other party.
(c) BERLITZ shall be required to obtain CTW's approval, such approval
not to be unreasonably withheld, prior to the consummation of the sale through
an initial public offering of more than thirty three and one-third percent
(33.33%) of the outstanding voting securities of any BERLITZ Affiliate, if, at
the time of such initial public offering, such BERLITZ Affiliate is exploiting
the Materials hereunder, it being understood that nothing in this sentence shall
require BERLITZ to obtain CTW's approval in connection with the sale of any
securities of a BERLITZ Affiliate through any manner or means other than an
initial public offering.
9. STRICT CONSTRUCTION
All licenses and rights granted herein to BERLITZ shall be strictly
construed and all licenses and rights not expressly granted hereunder are,
insofar as BERLITZ and those claiming through it are concerned, specifically
reserved and retained by CTW without any limitation or restriction.
10. NOTICES
All communication required or permitted to be given under this
Agreement shall be in writing and, if delivered personally or sent to the
following notice party by
<PAGE>
13
prepaid telegram, cable, fax or registered or certified mail with postage
prepaid, shall be deemed to have been duly given as of the date of such delivery
or sending:
If to CTW, at:
Children's Television Workshop
One Lincoln Plaza
New York, NY 10023
to the attention of the General Counsel, with a copy thereof also going to the
attention of the Group President, Products and International Television, or such
other address as CTW shall designate in writing.
If to BERLITZ, at:
BERLITZ LANGUAGES, INC.
400 Alexander Park
Princeton, New Jersey 08540-6306
to the attention of the President of BERLITZ Languages, Inc., with a copy
thereof also going to the attention of the General Counsel, or such other person
and/or address as BERLITZ may shall designate in writing, with a courtesy copy
to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Charles H. Googe, Jr., Esq.
11. ENTIRE AGREEMENT
(a) This Agreement sets forth the entire agreement of the parties
hereto with respect to the subject matter hereof and shall be binding upon, and
inure to the benefit of, CTW's successors and assigns. This Agreement cannot be
modified, extended or terminated orally.
(b) No waiver by BERLITZ or CTW of any of the provisions of this
Agreement or of any breach or default hereunder shall be or be deemed to be a
further or continuing waiver of the same or of any other provisions or breach
thereof or default hereunder. All remedies, rights, obligations and agreements
contained herein or available at law or otherwise are cumulative.
(c) Neither party may assign or transfer any or all of its rights and
obligations under this Agreement without the other party's prior written
approval, such approval not to be unreasonably withheld. In the event one party
assigns this Agreement without the other party's prior approval, the other party
shall have the right to terminate this Agreement. It is further understood and
agreed that if CTW does consent to any such Assignment, BERLITZ shall
nevertheless be, and remain,
<PAGE>
14
fully liable hereunder in all respects and that no such assignee shall acquire
any greater rights with respect to this Agreement than BERLITZ.
(d) In the event of a change in control of one party without the other
party's approval, the other party will have the option to terminate this
Agreement.
(e) No signatory hereto shall by virtue of this Agreement or any action
with respect thereto be or be deemed to be an employee, employer, partner of, or
joint venturer with, any other signatory hereto in any manner whatsoever except
as specifically authorized in this Agreement or otherwise in writing.
(f) This Agreement, and all modifications or extensions thereof, shall
be governed in all respects by the law of the State of New York applicable to
contracts to be fully executed and performed therein. Any disputes arising under
this Agreement shall be subject solely to the jurisdiction of the state and/or
federal courts located within the State, City and County of New York and BERLITZ
hereby agrees to accept the jurisdiction of such courts over it in connection
with any such dispute. It is further understood and agreed by the parties hereto
that service of process by one party by personal delivery, certified mail,
return receipt requested or overnight courier addressed to the other party at
its last known address hereunder, shall be deemed good and sufficient service
for purposes of jurisdiction.
(g) If any provision(s) of this Agreement shall be adjudged illegal,
invalid or unenforceable by a court of competent jurisdiction, the provision(s)
so affected shall be curtailed and limited only to the extent necessary to
permit compliance with the minimum legal requirements, and no other provision
hereof shall be affected thereby and shall such other provisions shall continue
in full force and effect.
<PAGE>
INDUCEMENT
In order to induce Children's Television Workshop ("CTW") to enter into
the foregoing agreement with BERLITZ LANGUAGES, INC. ("BLI"), the undersigned
hereby guarantees to CTW prompt and full compliance with all the financial
obligations of BLI under such agreement. The undersigned further agrees that if
BLI (or any BERLITZ Affiliate assignee of this Agreement) shall at any time or
times during the term of this agreement fail or refuse to fulfill its financial
obligations under the foregoing agreement, the undersigned will cause BLI (or
any BERLITZ Affiliate assignee of this Agreement) to fulfill such obligations or
undertake to fulfill such obligations itself. It is understood and agreed that
this guarantee shall be binding upon the undersigned directly and that CTW shall
have no obligation to pursue any remedy against BLI (or any BERLITZ Affiliate
assignee of this Agreement) prior to pursuing its remedies hereunder against the
undersigned.
BERLITZ INTERNATIONAL, INC.
By: ___________________________
State of New Jersey )
)
County of )
Then appeared before me __________________, _________________of Berlitz
International, Inc., known to me to be the same and acknowledged that he affixed
his signature and the seal of such company on the foregoing document at the
direction of the Board of Directors of Berlitz International, Inc.
Sworn to before me this
_____ day of ________, 1999.
- ------------------------
Notary Public
<PAGE>
EXHIBIT I
SESAME ELEMENTS
---------------
ALICE
BARKLEY
BERT*
BETTY LOU*
BIFF
BIG BIRD*
COOKIE MONSTER*
ELMO*
ERNIE*
GROVER*
GRUNDGETTA
GUY SMILEY
HERRY MONSTER
HONKERS
HOOTS THE OWL
KIKI
LITTLE BIRD
MUMFORD THE MAGICIAN
NATASHA
OSCAR THE GROUCH*
PRAIRIE DAWN*
ROXY MARIE
SHERLOCK HEMLOCK
SLIMEY THE WORM
SNUFFLEUPAGUS
SULLY
TELLY MONSTER*
THE COUNT*
TINGO
TWIDDLEBUGS
ZOE*
AND ANY AND ALL SUCH OTHER CHARACTERS, ELEMENTS, TRADEMARKS AND LOGOS AS ARE
FROM TIME TO TIME CREATED BY CTW.
*Indicates one of the 12 principle characters referred to in Section 6(i) of the
License Agreement.
