Think Entertainment Shareholder Action Group

Due to his intensions with regards to calling an EGM and replace the board, JAG invites comments from Wilf Shorrocks as to the validity of the contents of the following letter and whether there is any truth in rumours posted on the Advfn bulletin board that Ian Miles and David Newcombe conspired with NU to write the letter and that when a Board appointment, possibly CEO's position, did not materialise for NU he resigned (as indicated in the letter from NU to shareholders last November).

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2 College Cottages
Upper Brailes
Banbury
OX15 5AT

Mr Ian Miles
150 Hamilton Terrace
London
NW8 9UX

August 16th, 2001

CC. Mr A M Ausden, Lodders

Dear Ian

I write to you in your role as the current Chairman of the Just Group Plc on a matter of great concern, in strict confidentiality, and under the umbrella of The Public Disclosures Act 1998.

In my role as Director of International Marketing with the Just Group of companies I am directly involved with many of the group’s activities and business dealings on a global basis. My position reports directly to the group’s Chief Executive Officer, Mr Wilf Shorrocks, who instructs and agrees all of the activities falling within my brief.

As you know, I came to the Just Group in 1999 with extensive UK and international marketing experience gained within the children’s media sector, and having directed the rollout strategy on properties such as Teletubbies feel that my track record and professional reputation prior to Just was of a very high calibre. It’s fair to say that I agreed to join the Just Group as a direct result of the vision for the business and the enthusiasm displayed by Wilf Shorrocks when we first met, but it’s also true that my decision was made against the -almost overwhelming- advice of a string of industry friends and highly respected colleagues.

Having joined the group approx. 2-years ago I became concerned almost immediately at the manner in which decisions at all levels of importance were made. Whilst outwardly the business gave the impression of being a democratically managed and publicly owned business, it was very clear that in reality an autocratic ‘vertical’ management system was firmly in place, with all operational decisions made by Wilf Shorrocks.

Throughout my time with the group, which has coincided with a period of immense growth in the business -in overhead and operational terms-, my concerns at the company’s management and mode of operation have grown without check. In recent months I have come to realize that the business as a whole is in considerable danger, along with the shareholders’ investments and employees’ livelihoods.

In order to identify the precise reasons as to why I feel so strongly on this matter, it’s probably easier to separate the issues into two headings:

General Direction
Specific Incidents

General Direction

As previously raised, decisions within the Just Group are made in a totally autocratic manner by Wilf Shorrocks, regardless as to the weight of opinion from other quarters on a particular decision. And, whilst I see nothing wrong with strong leadership, this is a clear case of one individual believing that he has a greater insight than anyone else within the business, and therefore his view is the only view that really has any meaning.

Unfortunately and worryingly, the Chief Executive’s background and experience lies almost solely -in respect to our business sector- in the field of ‘toy sales’, which is where the company began it’s life in the mid-1980’s. In recent years however, Just has developed into a multi-category children’s media group, with divisions in publishing, entertainment creation, television production, programme and video distribution and the licensing of intellectual property. Ironically, individuals -of which I am one- have been employed for their experience and knowledge in these areas, then ignored completely in regards to key business decisions.

Licensing:
One of the first comments that I made when joining the Just Group was in relation to the manner in which licensing sales were reported in the company accounts. When agreeing a license on a particular piece of IP it is normal industry practice to agree a level of guaranteed royalties, a proportion of which is advanced to the licensor (to cover the cost of sale) on signature of an agreement. It is generally regarded that the ‘recoupable’ guarantee as a whole is agreed so as to ensure that the licensees actually and actively develop and market their product lines. Just however, have always pursued very large and often unrealistically high levels of guarantee, preferring to make a deal with the ‘highest bidder’ rather than the market leader. The reason for this being, that the ‘guarantees’ are then booked into the Just Licensing accounts as ‘sales’ for the period in which the license was agreed.

Whilst there is possibly nothing illegal or immoral about this practice, it is extremely misleading and very dangerous. There are many specific -Just Group- examples of why it is a risky practice, and I will highlight some of these further on.

A further concern that I’ve voiced in regards to our licensing strategies lies in the area of multi-territory licenses. There are 3-4 key categories in which it is appropriate to agree ‘global’ licenses, they are; toys, home entertainment, recorded music and interactive. However, it is only appropriate to work on this basis if the proposed licensee has the infrastructure and resources to service all of the various territories, so, as you can imagine, the candidates for these type of agreements are in short supply.

With regards to Butt-Ugly Martians, Just Licensing -pursuing their ‘high guarantee above all else’ strategy- has agreed something in the region of 12 world deals, in categories such as melamine, lollipops, chewing gum, balloons, snack foods, stationery/bags etc.

The impact of these kind of licenses is ‘hard hitting’ on the property, as the licensee firstly ‘ties up’ the particular category in each and every market around the world, but more often cannot service the needs of the markets beyond the US, UK and Europe.

The effect then rolls-on to the ‘licensing agent’ scenario. For instance in New Zealand (where the show is already on air) my negotiations with Newman International Licensing were severely hampered by the fact that there were 30 key categories already licensed in his territory, from which he would receive no commission. Tony Newman’s comment to me being; “There’s nothing left except T-shirts and a few food items”.

So, the potential of the property is restricted as a result of the continuing strategy, and our ability to secure good agent/partners is greatly affected. In some territories we may not find a licensing agent and could be forced to set-up our own office -on a complete risk basis-, as we have now done in Australia.

Project Initiation:
I have often questioned how we -as a group of companies- reach a decision to invest in a particular project or property, and it is clear that this is done entirely and un-systematically on the basis of Wilf’s like or dislike. Despite the fact that the group has 5 clearly defined business divisions, each specialising in one or more areas of activity, they are at no point consulted on the viability of a project in their sector. As was the case with Pinky & Perky, where, the property was acquired by Wilf Shorrocks (against considerable internal advice), and after which, each division was asked to submit their marketing plans - regardless of whether they felt the property was viable in their area.

My information may be slightly out of date, but the investment made to acquire and subsequently attempt to market Pinky & Perky is less than 5% recouped, with little sign of improvement without further substantial investment.

There is also a question of ‘due diligence’ in regards to the ventures upon which the Just Group embarks under the guidance of Wilf Shorrocks. There are countless examples of a total lack of thoroughness in this area, and Wilf has the widely known
reputation of being someone who doesn’t read anything that is more than a paragraph in length. It is also the case that once he has made up his mind and has announced a particular venture internally or externally, he will pursue it regardless of advice and adversity, as seems to have been the case with the Media Key acquisition.

Specific Incidents

Please be aware that –for the purpose of this letter- the versions of events herein are much abridged, but I will be happy to provide you with greater detail of events should you be interested.

Rennoc:
Rennoc is a small company in Australia that has specialised for a number of years in the Christmas decoration business, and has opened a number of warehouse ‘grottos’ in the major areas of population. Approximately 3-years ago their Managing Director was persuaded to move into the licensed toy business and secured the company a Spice Girl license for toys in that territory.

On the back of a very successful experience with the Spice Girls range he entered discussion with Just (David Barker & Wilf Shorrocks) with a view to securing a license for the Jellabies. This agreement was concluded on the basis of Rennoc paying an advance sum -on signature of the deal- against an amount of guaranteed purchases ($250K) from Jusco in Hong Kong. The agreement included a clause that stated that the Jellabies television programming had to be ‘placed’ in Australia in order for product orders to be made by Rennoc.

No sooner had the Jellabies deal with Rennoc been signed, David Barker was instructed by Wilf to broker a ‘broader’ agreement with Rennoc that would essentially give them exclusive access to Just’s properties over a 10-year period. These discussions began in the 1st Quarter of 2000, and were held -face to face- in the Hong Kong showroom and in New York during the US Toy Fair. One of the key elements/factors in these negotiations was the prospect of forthcoming properties, and Paul Rosenberg (MD, Rennoc) was particularly excited about Butt-Ugly Martians.

At this time, Just (Jusco) had begun to develop the Butt-Ugly Martian toy line and David Barker was able to show some of the models to Paul Rosenberg in Hong Kong.

On the back of his discussions with David Barker and on the back of what he had seen in Hong Kong, Rosenberg began to show interest in the proposed long-term agreement being put forward. So, with the Just Group ‘year-end’ rapidly approaching, David Barker was sent to Australia by Wilf Shorrocks to conclude the deal. David was told ‘not to come home until the deal was signed’ as the ‘numbers were needed’ in order for us to make the year-end.

I recall very clearly the scene at that time, with Wilf constantly, desperately hounding David Barker in the middle of the Australian night, telling him that he (Wilf) and Paula had everything they owned riding on this deal.

Even at the time I felt that this kind of pressure being placed on a colleague was completely unacceptable, and on the back of discussions with David it was clear that the deal was totally ‘short-term’ in regards to it’s benefits to the Just Group.

The agreement was duly signed, on the basis that Rennoc had exclusive access to Just’s properties in the toy category over a 10-year period. It delivered a miniscule advance, set against an enormous guarantee! This guarantee was promptly inserted into the group accounts and ‘bingo’, fantastic year-end results.

Things started to go awry not too long after this, when Rosenberg began to enquire about the Jellabies and the programme’s television placement. He was actively investing in marketing the property -exhibiting at the Australian Toy Fair- with no television platform from which to launch the product range.

Meanwhile, the television distribution rights were not under Just’s control, and Winchester Entertainment assured the ‘consortium’ that they had been ‘declined’ by everyone in that territory. Inevitably, as the year progressed Paul Rosenberg’s enquiries on this matter became ever more vigorous.

Meanwhile, Wilf Shorrocks had entered negotiations with Hasbro for a worldwide ‘master toy’ license on the Butt-Ugly Martians property. As this deal progressed Rosenberg became aware of the discussions, and reminded us of his license. Wilf’s comment was that he was ‘not to worry’ and that ‘Paul would be looked after’.

However, when the ‘master’ license was eventually signed with Hasbro, Wilf took the approach that Rennoc had only signed for products manufactured by Jusco Toys in HK, and, that he had no rights that could preclude Just from exclusively ‘licensing’ a third party in his territory. David Barker certainly felt that this was not the case, and that he had agreed with Paul Rosenberg that Rennoc would have Butt-Ugly Martians toys.

The Rennoc contract wording seemed unclear, in fact no-one at Just was sure which version of the contract was actually valid, as there had been so much ‘frantic’ and desperate activity when David had been in Australia to conclude the deal. What did seem certain (to David and I) was that Rennoc would definitely have the smaller collectible range, which was to be produced and manufactured by Jusco.

Throughout this period, Paul Rosenberg was insisting that he had all of the rights to Butt-Ugly Martians toys, but that he was prepared to release those rights so long as he was compensated financially. At this point I strongly believed that a sensible deal was easily achievable with Rennoc, after all, the property was unknown and the relationship with Rennoc (between David Barker, myself and Rosenberg) was good.

Wilf then began negotiating a deal with Hasbro to add the ‘collectible’ range to their existing agreement, on the basis that they would distribute the Jusco manufactured line in tandem to their ‘master’ toy range. Wilf then began to argue that Rennoc did not have rights over this range either. David Barker, Jasbir Uppal, Graham Calderbank and I all argued with Wilf on this matter, but he simply would not listen to us.

Soon after this, David and I were in Australia on a range of business matters, but had been summoned to a meeting with Paul Rosenberg to clarify the position on the Butt-Ugly Martians. Rosenberg made his position very clear, in that, he regarded both categories to be part of his license and although he was still happy to reach a ‘compensatory’ settlement with Just, he was extremely unhappy that we were trying to ‘renege’ on what he saw as a clear cut contract. Wilf had instructed David and I to discuss a level of compensation (for the Jusco line only), but his view was that this was a ‘gesture’ on our part and not a requirement.

Meanwhile, Wilf and Paula had gone away on holiday, so with David and I in Australia, and Graham Calderbank in the UK, a proposal was constructed that we felt was fair and agreeable at our end. We presented this to Rosenberg in Australia, and after some minor adjustments and comments from his lawyer, he accepted.

On Wilf’s return from holiday he was presented with the draft settlement for his approval, at which point he completely overruled the whole thing, saying that there was no need to compensate this company at all.

At that point, Rennoc took the decision to move into legal proceedings and promptly served an injunction in the UK courts, prohibiting Just from pursuing any toy business -directly or via a third party- in the Australian marketplace. Wilf remained totally stubborn in his position -despite advice from our Australian lawyers-, and instructed UK barristers to put together a defence and counter position in order for the injunction to be removed.

The subsequent hearing not only saw the injunction upheld on Rennoc’s behalf, it was also extended by the judge to prohibit any activity whatsoever taking place on Butt-Ugly Martians in Australia!

This and only this prompted Wilf into making a settlement with Rennoc. The deal that was subsequently agreed between Wilf and Rennoc goes way beyond the level of compensation that was previously agreed between Rosenberg, Graham, David and I, with Rennoc now receiving a percentage of all Butt-Ugly Martian royalties in that territory. Additionally, there are the legal costs of both parties, which have had to be born by Just, as well as the untold damage done to the property by delaying the activities for 6-months in that market.

Haven Licensing:
Haven are one of the leading, most respected and fastest growing licensing agents in Australia, founded and managed by Mr Tom Punch.

At the same time that Rennoc were being convinced to make a toy distribution agreement on Jellabies, Haven were in discussion with Just for licensing representation rights for the same property. A deal was made that, somewhat unusually, provided Just with a guarantee from Haven on the level of sales. Haven then advanced US$50,000.00 to just upon signature of the contract.

The signed contract had a clause within it that said that should the television series not be placed within 1-year of signature the $50K would be returned to Haven.

Haven tried their best to assist in the placement of the Jellabies series -calling upon their contacts and relationships-, but the series was not taken-up by any broadcaster within the first year of Haven’s contract. Tom Punch therefore asked David Barker verbally for the return of his money, and when David was told by Wilf to refuse this request, he sent a letter to Wilf asking for the return of his $50K and outlining his legal position. Very begrudgingly and after a lengthy delay -taking Just through the ‘half-year’- Wilf returned the money. However, Wilf then made it very clear that we weren’t to consider Tom Punch for any other properties that Just might wish to launch in Australia.

Having completed the television sales of Butt-Ugly Martians to Network Ten and Fox Kids in Australia, I then had to set about the appointment of a licensing agent for this territory.

After exhaustive meetings with all of the interested partners, both David Barker and I came to the same unanimous conclusion; that Haven Licensing were the right people for this job. We put this to Wilf, who eventually said he would work with Tom Punch only if he was prepared to ‘put up’ a US$500,000 guarantee on the property. Bearing in mind that no other licensing agent anywhere in the world was being asked, or were prepared to accept any level of guarantee, David and I concluded that this was nothing more than an opportunity for revenge on Wilf’s part.

Tom Punch eventually agreed to an AU$500K (US250K) guarantee, however, that was prior to him having sight of the substantial list of exclusions (world-wide deals procured by Just).

Wilf would not agree to Haven’s proposal, preferring to set-up a Just Group office in Melbourne with one employee, and have David and I make regular trips to Australia.

The whole Australian saga surrounding both Butt-Ugly Martians and Jellabies has been a completely un-professional and emotionally driven affair. Decisions have been made by Wilf Shorrocks not on the basis of any good business sense, but with emotional and personal agendas at the fore, resulting in astoundingly bad outcomes for the business.

Jellabies USA:
The Jellabies property was first exhibited at the New York Licensing Show in June 1999, prior to my joining the company. I’m led to believe that Winchester Entertainment had -prior to that event- secured a broadcast platform for Jellabies to appear on the Fox Family Channel, and that this allowed Just Licensing to secure a raft of licensees at the Licensing Show.

Also secured was an agreement with the US mass-market retailer Target, who have approx. 950 store across the US continent, and who apparently agreed to feature Jellabies in their stores throughout the 4th quarter of 99 and onwards.

Target placed a substantial product order with Jusco and product was shipped to the US -apparently late as a result of a force majeur in the Far East. As a result of this delay the promised ‘end cap’ displays failed to materialize in Target stores, and the product eventually went into their stores on December 26th of 99. The subsequent failure of the sell-thru at Target and a change in their merchandising personnel created a crisis in which I was soon to become involved.

As a result of the extremely poor sell-thru of the Jellabies product, Target immediately cancelled the shipment of further goods from Jusco and began to ask for ‘help’ with stock sitting their stores and warehouse facilities.

Gary Felsenthal and I requested a meeting with their team in Minneapolis where we tried to present a range of creative marketing ideas in which we would participate financially and creatively. It was made clear immediately that their only interest was in ‘mark down’ money and in us taking back their warehouse stock.

At the end of this extremely difficult meeting Gary and I left feeling that we had found a compromise that would help us maintain our relationship with this very important retailer, but at the same time meet some of their needs in terms of stock relief. We immediately called Wilf to discuss the proposal and he agreed to give it his blessing. Gary also discussed it with Jules Ruddick prior to calling the Target people to confirm the arrangement.

The arrangement was that Just would take back approx. $100K in value of 12” Jellabies plush from the Target warehouses, leaving them in possession of all of the smaller items that were selling. For their part, they agreed not to ‘mark down’ any of the remaining stock or items currently in store.

This was key to the survival of the Jellabies brand in the US, as the moment a retailer starts to discount the product the property is finished.

Target were very keen to see evidence that the agreed funds for the stock was being transferred to their account, so we asked the Just accounts department to fax a copy of the transfer do*****ent to Target as confirmation. Target then set in motion the shipment of the goods to the Daval warehouse, and it was at this point that Wilf Shorrocks changed his mind!

The transfer was stopped without any warning, and Wilf’s comment was “why do I want to send them $100,000.00?” Gary was sent into a wild panic and only just managed to stop the shipment leaving the Target warehouse. Then, approx. 2-weeks after this Target began marking down all Jellabies items in their stores, effectively killing the property in the US.

However, there was a further and potentially more damaging problem looming in the US on the back of Jellabies, in the form of a powerful group of licensees, all of whom had been signed-up to huge guarantees.

There were essentially 2 key factors in the licensees’ decision to take a Jellabies license in the first place. Firstly, there had been a commitment from Target to stock and promote their merchandise alongside the Jusco toy lines. Then there was an apparent commitment from Fox Family Channel to air the show for 10 or 12-minutes each day, and these two ‘carrots’ were overtly used by Just Licensing to secure the licensing agreements.

Subsequently, FFC never showed any more than 5-minutes of the Jellabies, then in February of 2000 they pulled the show off air altogether. This effectively preceded the fallout with Target.

Before too long, the licensees -who were contracted to vast guarantees- were getting together and formulating a plan to not only have their contracts dissolved, but also to seek the return of their advance payments.

Once again, the ‘year-end’ results were looming, and the removal of these large guarantees would have had a devastating impact on the group accounts.

The first action taken was to extend all of the licensees agreements by 1-year, and to freeze any stage payments due on the guarantees. This however, was clearly never going to be enough to quell the anger growing within the licensees’ group. So, upon Wilf’s instruction I was asked to meet with Fox Family Channel to see if there was any way that we could encourage them to put Jellabies back on air, thereby placating the licensees.

Fox Family Channel:
When I met with Joel Andryc in the Fox offices in Los Angeles in April 2000 I was informed that Jellabies had been removed from the FFC schedule along with all of their pre-school programming. This was with the exception of ‘itsy bitsy time’ which was a ‘paid for’ block funded by Hasbro.

In answer to the question of what could be done, I was informed that it might be possible for Just to acquire a 30-minute block of early morning (pre-7am) airtime, but that this was a question for Joel’s New York colleague Rick Sirvaitis.

On hearing of this opportunity Wilf jumped at the chance to have a block of airtime, and I was instructed to get things moving quickly.

Several weeks later I met with Sirvatis in the Fox New York offices and a proposal of $3million was made by him for Just to acquire a 6.30am 30-min block. I asked for ratings and quantification of the value of the block, but was told that it was currently occupied by a religious programme so their were no comparisons that could be made, and that the real key was the availability of FFC in over 55 million US households.

Despite the lack of information Wilf seemed eager to proceed. So, Wilf and I met with Sirvaitis and Andryc at the New York Licensing Show in June, by which time the price had been negotiated down to $2.75million, and Wilf shook hands on that price at the conclusion of our meeting.

Like many others I remained extremely sceptical about the value and general reach of this block, but my voice and others (Graham Calderbank, Loren Taylor) were falling on deaf ears. Wilf signed the agreement and the show went on air on FFC in October of 2000.

In addition to the obvious costs of the airtime were the production and delivery costs, bearing in mind that the show had to be transformed from 78 x 5-minutes to 30-minutes shows. I would estimate that the project would have cost in the region of $2.9million, had Just upheld it’s end of the contract.

The immediate result of this agreement was of course the silencing of all of the US Jellabies licensees, who had their main weapon removed instantly. However, the property itself remained and remains dead, as those licensees have no intention whatsoever of investing in the production of merchandise, particularly now the 30-minute block has also gone away.

FFC upheld their end of the agreement, but Just never paid a single cent to their account. I continually received statements and invoices, which I forwarded to the Just accounts department. Then, after about 5-months I began to receive demands and eventually legal notices. It seems that Wilf had specifically instructed the accounts department not to pay for this airtime.

It is true that we never received accurate ratings information from Fox, and it’s also true that they originally indicated that they would provide an amount of promotion in addition to that which was contracted. This ‘extra’ promotion did not transpire, despite my continual asking, but they did meet all of their written contractual commitments to the tee.

It seemed that once the licensees were ‘out of the way’ the block had served its purpose to Wilf. Thereafter, it was and is a case of worrying about the consequences of reneging on a firm contract later. Unfortunately those consequences could be dire.

The contract with FFC is written in Californian law and provides for arbitration rather than litigation. This is a process that is designed to be far swifter and far less expensive than traditional court proceedings.

Whilst Wilf has appointed a firm of top Los Angeles litigators to act on our behalf, the whole case hangs on a counter attack strategy that proposes that I was ‘led into’ this agreement fraudulently. It supposes that FFC ‘pulled’ Jellabies in order to lead Just into a position whereby we would have no choice other than to ‘purchase’ a block of airtime.

I have listened to this argument and told my story of how I remember events, but I honestly feel that I couldn’t swear that I was misled in the way that is being suggested. Wilf meanwhile is extremely happy with the current status it seems, as it further delays what would seem to be an inevitable payment of monies due ($2.75million).

It also has to be said that I find it extremely disconcerting that money was raised to fund this and other activities, but that those funds have been used for completely different purposes. What happens if tomorrow the arbitrator decides that the money owed to FFC is immediately and unarguably due in full?

Sachs Family Entertainment:
It is fair to say that the response of the US Network broadcasters to Butt-Ugly Martians -prior to completion of the first episode- was lukewarm to cold, and they had all declined the show at that stage. Meanwhile, Wilf had convinced Hasbro to get involved and had introduced the topic of programme syndication as an alternative to Network TV.

Sachs Family Entertainment had a track record in the syndication arena in the early/mid nineties, but as the syndication business had faded away they had moved into other areas of activity.

Wilf and Paula met with Sachs and they agreed to investigate the possibility of syndicating Butt-Ugly Martians. However, Hasbro were not at all convinced and stipulated the precise times that would be acceptable to them as part of the main contract terms for the master toy license.

For months and months Wilf and Paula kept the discussions with Sachs to themselves -making several trips together to Los Angeles-, until one day I was asked into their office to ‘get involved’ in the syndication process. “We need someone who knows about this who can look after it, because we’re involved in so many things,” I was told by Wilf.

As we sat there and I asked a number of questions about the advertising spots, the barter time, the time slots that were available and -most importantly- the cost to Just Group, it became clear that they didn’t understand the deal that they had made! At one point Wilf actually raised his voice and said, “Paula, just face it, none of us in this room understands how this deal works”. “Nick, just get onto it and sort it out”.

I immediately got into conversation with Barbara Schwecke and Bill Vertin at Sachs, who seemed delighted that they actually had someone with whom they could discuss matters and who was able to talk their language.

Unfortunately, what became immediately clear was the mismatch between the available timeslots from the station affiliates and the timeslot criteria laid down by Hasbro in their contract. The problem being, that all of the stations are affiliated to either the Warner Bros, Fox or UPN networks, and the networks control the airtime from 07.30am onwards. Hasbro had stipulated in their contract that 07.30am was the earliest time that the show could be aired.

Both Barbara and Bill swore on their families’ lives to me that they had clearly told Wilf and Paula that this was the case from the outset of their discussions.

Realising that there was a criteria problem with Hasbro, Wilf had handed the whole thing to me and then placed me under pressure to get Sachs to meet criteria that was essentially unavailable.

Throughout all of Wilf and Paula’s discussions/negotiations it appears that very little paperwork was generated, with no notes or ‘layman’s’ breakdown of the process seemingly in existence, and a only a very basic letter of agreement.

On the back of this it seemed unclear to me as to whether we were syndicating 13 or 26 episodes. Wilf assured me it was 13, and Barbara Schwecke told me it was for 26 episodes in 2 blocks of thirteen. When eventually I was given sight of the letter of agreement it was in fact 26 episodes in 2 blocks of thirteen.

Just prior to the New York Licensing Show this year (June 01) we received an approach from Nickelodeon in the US, expressing their strong interest in acquiring the show.

I was asked by Wilf to lead the negotiations from the Just perspective, with Mike Young and Bill Schultz involved from Mike Young Productions.

Mike Young and I had several meetings with Nickelodeon in New York during Licensing Show, and we agreed an ‘in principal’ deal that would give Nickelodeon the 2nd block of 13 episodes exclusively from January 02, followed by the 1st block of 13 episodes at the end of their syndication period.

Sachs had already indicated that they would be reasonably OK with this kind of arrangement, as they hadn’t started the negotiations with the stations for the 2nd 13 at that point.

Nickelodeon had said very clearly that they respected our syndication arrangement and didn’t want to interfere, but were the 1st 13 episodes to be made available to them earlier, they would take them immediately. With that knowledge, it was my suggestion that we make an offer to the syndication affiliates -via Sachs- to essentially remove ourselves from the syndication process altogether. So, with Wilf’s blessing I asked the question of Sachs as to what the financial and other implications would be.

Of course, what had not been made clear to me by Wilf and Paula was that they had originally agreed to various commission scenarios with Sachs, whereby they (Sachs) were earning money from the stations in addition to the substantial fee from Just. So, the impact to Sachs’ balance sheet was far beyond what I’d envisaged, as was their reaction.

Subsequent to my informing Sachs that we would like to pursue an extraction from syndication, Wilf and Paula met with them in Los Angeles to confirm that that was the case. Sachs made it clear to Wilf and Paula that it would be a very costly process, as they would be seeking compensation for the loss to their business and would need to fully compensate the stations. It was also made clear to Wilf and Paula that the stations had a contract, which they could use to block any proposed deal with Nickelodeon.

Mike Young, Bill Schultz and I then met with Sachs at their offices approximately 3-weeks prior to the date of this do*****ent, when they made it known that they would definitely be seeking damages and compensation for the loss of reputation and revenue to their business. The value that they placed on all of these elements was stated in the meeting as being $3.5million. They also expressed their disgust in the strongest terms that Wilf and Paula had not had the courtesy -despite being in LA the previous day- to stay on for this meeting, particularly given that he was the only person with the authority to agree a financial solution.

Over the next few days I had several conversations with Sachs, as did Mike & Bill, and we managed to get the compensation figure down to $1.5million. I then persuaded Wilf to speak to Barbara by telephone, and at the end of the discussion the figure had risen again to $2million!

Eventually the process was helped considerably by the intervention of Mike Young, who was able to convince Sony that they should take-on the syndication block, previously due to be occupied by Butt-Ugly Martians. It’s extremely fortuitous that Mike’s daughter is Head of Animation Production at Sony and has a completed CGI show that has no network placement.

Despite the Sony scenario (which is not yet contracted) there was still a need to satisfy Sachs and their losses, and to indemnify us against any possible comeback from the stations. A figure of $1million was agreed to compensate Sachs, together with the creation of an Escrow account to hold funds to cover any station comeback.

What was clear was that Just should not and could not bear this cost alone, and I entered into discussions with Hasbro on the basis that; if they wanted a full-blown Nickelodeon scenario as opposed to syndication, they had to help financially.

Hasbro’s Help:
Following a series of lengthy discussions with Hasbro –whilst I remained in Los Angeles-, I was able to get Hasbro to agree to advancing a total sum of $1.75million - for the sole purpose of extracting Butt-Ugly Martians from the syndication. Eight hundred and fifty thousand of which would have been due had we been able to have met their stated syndication timeslot criteria, the remainder ($900K) was an additional advance. All of these monies are to be recoupable against future earned royalties from Hasbro’s Butt-Ugly product range.

Throughout my discussions with Hasbro it was made absolutely clear that this arrangement was being made solely for the purpose of syndication extraction. On several occasions they strongly suggested that they should transfer the funds directly to Sachs on our behalf, but Wilf was adamant that we should receive the funds into our account.

I have to admit to being extremely surprised when I heard that Hasbro had transferred the entire $1.75million into the Just Group’s bank account this week, but I have little doubt that they have been misled as to the use of these funds.

Other Examples

I have no great wish to produce a do*****ent of huge proportions at this time, but am aware that if I go into the same level of detail across the many other example I have to hand, this will run out of control. I’ve kept detailed notes and do*****entation on all of the various examples, and will gladly provide you with as much detail as you might require in the future.

The following are brief synopsis of other areas of concern, and should not in any way be construed as less important than those previously highlighted.

Star Hill Ponies:
Just Group apparently bought this property from the BBC for a sum of money and has subsequently invested a further £750,000 in the production of a 2nd series. However, nobody seems able to give me a clear definition as to what rights we have on this property.

The reality it seems is fairly straightforward, Wilf has again invested in a property with no obvious means of recoupment. The rationale no doubt being that; the generic pony moulds in the Jusco warehouse could be re-used to produce a cheap SHP range. Unfortunately, without the control of television distribution the property and it’s prospects will flounder, as has become the case now with Jellabies.

PMS/Gosh:
PMS/Gosh were originally a major Jellabies licensee in the UK and US, who became extremely disillusioned with the property and Just’s management of the brand. Chief Executive, Paul Beverly began to implement his threat of legal action to remove himself from his Jellabies license, but was eventually persuaded by Graham Calderbank, David Barker and myself to transfer his guarantee to world-wide Butt-Ugly Martians license.

Beverly is now becoming increasingly concerned at the apparent willingness of Paula Shorrocks to approve new licenses in categories contracted to PMS/Gosh in territories such as Australia. Paula has stated that his license allows for Just to assess each territory on a ‘case by case’ basis, in order to decide whether we license locally. That is not Paul Beverly’s understanding and it isn’t what seems to be contracted.

It’s probably worth knowing that Paul Beverly is a self-made and extremely aggressive operator, he’s also a substantial Just Group shareholder.

Bevelaqua:
This company provides yet another fine example of Just’s strategy of pursuing the largest guarantee rather than the right partner as a licensee/distributor.

David Barker and I met with all of the major toy companies in Germany when Super RTL acquired Jellabies. We received offers from Shmidtspiele and others, but the guarantees were not acceptable to Wilf. Meanwhile, an unheard-of toy company called Bevelacqua based in Switzerland, who were prepared to sign a large guarantee, contacted Alan Shorrocks.

Despite the show achieving quite remarkable audience figures on the leading children’s broadcaster, Bevelacqua refused to commit to ordering product from Jusco – with the exception of a single small shipment made directly to one retailer. The lack of toy product killed the licensing programme dead in a very short time, effectively ending a great opportunity in this very difficult market.

Bevelacqua are now pursuing legal action to remove themselves from their contract, which will once again impact the Just Group balance sheet, as their guarantee was undoubtedly ‘booked’ into the accounts.

David Miguel:
This gentleman was an employee of Bevelacqua and was responsible for persuading Mr Bevelacqua to embark on a relationship with Just in respect to the Jellabies. Shortly after he made the deal on Jellabies, he parted company from Bevelacqua to run his own business in France where, he immediately entered into discussions with Alan Shorrocks to sign another ‘big guarantee’ license with Just Licensing.

Whilst I believe that this deal was completed, I have no details of either the business name or the deal terms. I believe it involved Pocketoons and other Just properties.

Feva:
Almost an identical scenario to that which played out with Rennoc in Australia has been repeated with Feva in the UK. They were appointed as Just’s exclusive distributor of toy product, only to find themselves excluded by the Butt-Ugly Martian/Hasbro deal.

A settlement was reached just prior to legal action that sees Just paying them a substantial share of revenues derived from the Hasbro agreement, once again diluting the viability of this property.

Universal:
Responsibility for the ‘unsigned turnaround agreement’ scenario -that empowered Universal with the extraordinary leverage that has seemingly resulted in them becoming a major stakeholder in this property- almost certainly lies with Mike Young Productions. However, this incident must surely raise some questions in respect to ‘due diligence’ practice on the Just Group’s part. To have entered into an arrangement wherein Just are putting-up the majority of the multi-million pound funding for a show without clarifying -beyond all doubt- ownership, is at best a monumental mistake.

The irony in this matter is; that were Wilf not pursing a very poor home video deal with this company, simply to have the opportunity to ‘announce’ the name Universal to the city, the issue of ownership would have remained unchallenged.

As of today’s date no agreement has been signed with Universal, and the draft agreement looks to have diluted Just’s position quite severely. This mistake has had and still has the potential to destroy Just overnight, and as such, someone must take responsibility. The question must also be asked as to how this matter will be presented to the shareholders?

Nickelodeon:
I believe that everyone is entitled to one mistake, perhaps two if these mistakes are then used as lessons. In regards to Wilf, this does not seem to be the case.

During my negotiations with Nickelodeon, Jasbir Uppal and I proposed a payment schedule to them, which they accepted. The schedule was as follows: 40% on signature of deal memo, 20% on delivery of Eps 1-13, 20% on transmission of Eps 1-13 and 20% on delivery of Eps 14-26.

When the current ‘signed’ deal memo was re-drafted to change the date of the period of exclusivity, Nickelodeon also changed the payment schedule to ‘hold back’ payment until January 02. This do*****ent was sent directly to Wilf without either myself or Jasbir having sight, and returned immediately to Nickelodeon signed by Wilf.

It’s my belief that -once again- he didn’t read the do*****ent fully or thoroughly, but was so absolutely desperate to present a signed Nickelodeon deal to Hasbro and the like, that he just signed whatever was placed before him.

It’s not that I can’t change the payment schedule through discussion with Nickelodeon, I’m sure I can, it’s a question of all of the other things that are handled in this way.

Just Group USA:
The appointment of Loren Taylor in the US was something that confused me immensely at the time. I believe that Loren was an very capable and talented individual, with considerable experience in his field, but why did Just need yet another ‘toy’ specialist in it’s ranks? The answer to that question is simple. Loren was recommended to Wilf Shorrocks by -the ‘King of Toys’- Alan Hassenfeld, and from that point onwards Loren was destined for Just, at any cost.

Thereafter, Loren was empowered by Wilf to build a team -consisting entirely of toy industry people- with a collective salary overhead in excess of $900K per annum. Barry Harris, Toy Sales Coordinator ($165,000 p/a plus 20% bonus) – with no toys to sell.
Gary Felsenthal, Toy Sales ($145,000 p/a)
Ken Weiland, Toy Development ($135,000 pa/a)
Laura Elzenbeck, Toy Product Manager ($70,000 p/a)
Loren Taylor, CEO ($250,000 p/a plus bonus)

Adding to this there is the cost of leasing and fitting a new office building in New Jersey (conveniently located 5-minutes from Loren’s home), when the company has an existing 10-year lease on a perfectly suitable office facility in New York City.

No sooner had Loren joined the business and realised that the company was being run autocratically and completely at odds with his own understanding of how a business should be operated, he is removed. No doubt at great expense, and certainly at great embarrassment to the group.

Loren’s departure is then of course quickly followed by that of Barry Harris and -most recently- Ken Weiland, as a result of the sudden realisation that there is little or no purpose in their existence.

Optical Image:
Quite simply, I believe that Wilf initiated this acquisition out of spite towards Winchester Entertainment. This deal instantly increased the Just Group’s share and control of Jellabies, knowing that it would infuriate Mike Prince and Gary Smith. It also allowed Wilf to tell a story of new projects in the city, thereby enabling funds to be raised for these projects. Funds that have since been frittered away on whimsical activities, such as the ‘Bakewell showroom’ and over-elaborate and ill-conceived marketing activities like the UK Phenomenon and the New York Licensing Show booth.

In conclusion

Ian, there is so much more that I could say, but I’m sure you will by now have a strong sense of my feeling on this matter as a whole. Be assured, I have no personal agenda here, either against Wilf or Paula Shorrocks as individuals, or in respect to any personal gain from these disclosures. I simply cannot stand by when I see a business with such great potential being grossly mismanaged, especially when that business has in excess of 200 dependant personnel and almost 30,000 shareholders.

Sincerely

N J Underwood