A. Annual Fee
Upon the opening of THE SECOND GATE, and on an annual basis thereafter, MCA will pay a fee of $***.
B. Merchandise Opportunities/Specialty Stores
Throughout THE SECOND GATE, stores will carry a wide range of Marvel produced or licensed products and artwork, Marvel comic books, Fleer trading cards (or cards of such other licensee as may be designated by Marvel), and toys (primarily action figures) manufactured by Toy Biz, Inc. (or such other Marvel licensee as may be designated by Marvel). Additionally, within or adjacent to THE MARVEL UNIVERSE there would be significant retail space dedicated to Marvel publications, software, products, and cards produced or licensed by Marvel. It is anticipated that this exposure to a highly motivated public who have experienced THE MARVEL UNIVERSE, combined with the underlying popularity of the Marvel properties, will result in a level of sale of Marvel manufactured and licensed products, such as would make THE SECOND GATE an extremely lucrative outlet for its properties.
Within THE SECOND GATE, a minimum of 10,000 square feet of retail space will be devoted to items licensed or manufactured by Marvel or its related companies
including a minimum of 5,000 square feet of retail space in stores themed around MARVEL properties and devoted virtually exclusively (allowing for minor exceptions such as film, etc., but not competing characters) to the sale of MARVEL items.
MCA will give serious consideration to placing such Marvel-oriented stores at or adjacent to the exit of the major attractions within THE MARVEL UNIVERSE, consistent with its reasonable judgment as to traffic flow, planning considerations and customer acceptance.
The various Marvel properties and merchandise will also be used throughout the destination resort including within the hotels (if operated by MCA or an MCA Corporately Related Company; or if operated by a third party MCA will encourage such use), and Marvel theming and merchandise will be featured in any airport stores operated by MCA in Los Angeles or Orlando. Uses of Marvel theming in MCA operated stores other than within the resort property or within the aforesaid MCA operated airport stores will require specific Marvel approval.
The merchandise within such retail facilities will either be (i) purchased from Marvels licensees; (ii) purchased directly from Marvel or its designated distributors; or (iii) manufactured by or to MCAs specifications as a direct licensee of Marvel.
a. Sale of food or beverage, at non-premium prices, from Marvel themed facilities will not be subject to royalties, unless the items sold carry Marvel logos or proprietary elements. In the event such item(s) carry Marvel logos or proprietary elements, Marvel shall receive a license fee of *** percent on the wholesale price of such item (i.e. combined food and packaging).
b. Food or beverage items sold at a premium price, either from Marvel themed facilities or which carry Marvel logos or proprietary elements, shall bear a licensee fee to Marvel equal to the greater of (x) *** percent on the wholesale price or (y) *** percent of the retail price of such item (i.e. combined food and packaging).
C. Merchandise Royalty Guarantee
MCA will pay an annual guaranteed merchandise advance of $*** which will be applied against merchandise royalties from any of its retail outlets calculated at a
rate of ***% of wholesale cost. After the annual guaranteed advance is fully earned, the royalty on additional sales will decrease to ***% and will be paid quarterly. Such royalty will be applied to the wholesale cost of merchandise manufactured for and purchased by MCA as a direct licensee of Marvel, and to the cost of items purchased from Marvels licensees. (While Marvel will not require its licensees to sell items to MCA without a royalty built into the price, Marvel will not in any way prohibit or restrict MCA from being a direct licensee of Marvel or a Marvel Related Company for the purpose of producing products to be sold by MCA at Universal Theme Parks, surrounding complexes and certain airport stores as provided herein, including by means of exclusive licenses granted to parties other than Marvel Related Companies). In the event Marvel is unable to give MCA a direct license because of a conflicting license, MCA shall receive a credit for the license fees payable to Marvel by MCA hereunder, and Marvel agrees that the royalty rate paid by its Licensee in connection with each item as to which Marvel cannot grant a license to MCA will be set consistent with Marvels normal business practices.
1. Marvel will have reasonable audit and review rights to assure that proper payments are made and that the cost attributed to merchandise manufactured for MCAs order is being fairly stated and, inter alia, is not being adjusted so as to reduce the royalties due Marvel in favor of other merchandise not covered by this agreement.
2. The parties will develop reasonable audit rights and procedures which will be consistent with industry standards. MCA will reimburse Marvel for the reasonable cost of any audit resulting in Marvel being due additional sums exceeding ***% of the sums paid by MCA.
3. Marvel will have reasonable approval of all licensed merchandise, artwork, merchandise packaging, logos, and the like utilizing the Marvel properties, which approval will be granted or withheld in a timely and reasonable manner and will not be used in a way which would frustrate the intent of this Agreement.
4. Where items of merchandise feature both the Marvel properties and other characters or elements proprietary to third parties (such as posters, T-shirts, coffee mugs and the like portraying the wide range of characters present in THE SECOND GATE) a procedure to arrive at a reasonable allocation of the royalty will be worked out.
D. Product Purchase Guarantee
In addition to the Royalty Guarantee set forth in C above, if MCAs wholesale cost of the comic books, art work, trading cards, toys, videos, games, and related items purchased from Marvel (or a Marvel Related Company) or their distributor (as to such Marvel produced items) do not exceed at least $*** in a given year, MCA will promptly pay to Marvel any such short fall, or purchase items covering such short fall. Such items purchased by MCA from Marvel or a Marvel Related Company (whether directly or through a distributor) shall not be subject to a Marvel royalty, and any royalty built into the wholesale cost shall be deducted. In the event that the product line produced by Marvel and Marvel Related Companies is substantially reduced after the date hereof, limiting the product available to MCA for sale at Universal Theme Parks, the parties shall negotiate in good faith an adjustment to the above $*** guarantee.
E. Comic Book Advertising
MCA intends to advertise THE SECOND GATE (in a manner that features the Marvel properties) on the back page of various Marvel Comics. Marvel will work with MCA toward this end and provide information concerning
demographically appropriate magazines and their availability. Such advertising buys will be at the best rates available from Marvel to unrelated third parties for such publications for purchases of comparable volume. Subject to the availability of the specific publications MCA reasonably believes appropriate for its needs, MCA will expend at least the following amounts on advertisements appearing on Marvel comics:
1. During the initial two years of operations (plus the pre-opening period) - $***.
2. Per year thereafter - $***.
F. Marvel Compensation Alternative
MCA agrees that if, as to any Universal Theme Park containing a THE MARVEL UNIVERSE, MCA utilizes characters not owned by MCA or an MCA Related Company and the financial arrangement between MCA and the owner or licensor of such characters (the third party) involves the payment by MCA of sums based on revenues of the Theme Park or a significant portion thereof (defined below), MCA shall offer to Marvel, the opportunity at Marvels option to elect to be compensated for the use of the Marvel license granted herein as it relates to such specific THE MARVEL UNIVERSE, on the same basis as such
third party. If Marvel so elects then MCA shall receive credit for payments previously made to Marvel to the extent comparable or similar payments were not part of such third party deal. In the event such third party is required by MCA to invest in the Universal Theme Park where its characters are being utilized, Marvel shall have a comparable obligation if Marvel exercises the option to be compensated based on the Compensation Alternative set forth in this paragraph F.
The payment by MCA of sums based on revenues of the Theme Park or a significant portion thereof is intended to encompass royalty arrangements or similar arrangements which compensate the third party based on net revenues, gross revenues, attendance, or any other standard measuring the economic performance of a particular Universal Theme Park or a significant portion thereof.
