EXHIBIT 10.5
Letter agreement dated August 9, 2002, among
U.S. Philips Corporation, Koninklijke Philips Electronics N.V.
and Metatec International, Inc.
August 9, 2002
Xx. Xxxx Xxxxxxxx, CFO
Metatec International, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxxx, XX 00000
Re: Comprehensive CD Disc License Agreement;
DVD Video Disc and DVD ROM Disc Patent License Agreement
License Agreement For The Use Of AC-3 Technology In The
Manufacture of DVD Video Discs
Dear Xx. Xxxxxxxx:
U.S. Philips Corporation ("USPC") and Metatec International, Inc.
("METATEC") hereby confirm the following agreement ("Workout Agreement")
regarding the Comprehensive CD Disc License Agreement ("CD Disc Agreement"), the
DVD Video Disc and DVD ROM Disc Patent License Agreement ("DVD Disc Agreement"),
and the License Agreement For The Use Of AC-3 Technology In The Manufacture of
DVD Video Discs ("AC-3 Agreement").
1. Under Art. 5.04 of the CD Disc Agreement, Art. 4.03 of the DVD Disc
Agreement, and Art. 3.02 of the AC-3 Agreement, METATEC is required to provide
USPC with royalty reports thirty days after the end of each calendar quarter and
to make royalty payments thirty days after the end of each calendar quarter on
all Licensed Product sold during the preceding calendar quarter. Under the CD
Disc Agreement, METATEC made only a partial payment of $300,000 toward the
royalty payment of $672,290.82 for the third quarter of 2000, and failed to make
royalty payments for the fourth calendar quarter of 2000, all four calendar
quarters of the year 2001, and the first two calendar quarters of 2002.
Similarly, under the DVD Disc Agreement and the AC-3 Agreement, METATEC failed
to make royalty payments for the fourth calendar quarter of 2000, all four
calendar quarters of the year 2001, and the first two calendar quarters of 2002.
METATEC has asked USPC (i) to forbear on the remedies available to USPC under
such CD Disc Agreement, DVD Disc Agreement, and AC-3 Agreement (including
termination of each of these Agreements and commencement of legal action for
immediate payment) and (ii) to re-structure payment for the unpaid royalties due
and owing ("Arrears").
2. METATEC has provided USPC with an accounting of Arrears under the CD
Disc Agreement, the DVD Disc Agreement and the AC-3 Agreement and represents and
warrants that these amounts as of July 31, 2002 equals Three Million, Four
Hundred and Sixty Nine Thousand, Seven Hundred and Two U.S. Dollars
($3,469,702)("Arrears Amount"). METATEC shall pay USPC the Arrears Amount with
interest at 6%/annum calculated from July 31, 2002 in installments as set forth
in the attached payment schedule labelled "ARREARS PAYMENT SCHEDULE - METATEC -
AUGUST 9, 2002".
3. Upon execution of this Workout Agreement, METATEC shall execute and
deliver a Promissory Note according to the Payment Schedule listed under Article
2, as attached hereto.
4. Metatec shall, concurrently with execution of this Workout
Agreement, execute the current version of Philips' CD Disc License Agreement,
DVD Video Disc and DVD ROM Disc Patent License Agreement, the License Agreement
For The Use Of AC-3 Tecnology In The Manufacture of DVD Video Discs, and the
MPEG Audio Patent License Agreement (collectively the "New Agreements").
Execution of the New Agreements is required under the CD and DVD Disc
Compliance Programs announced by Philips. METATEC shall be entitled to the
Compliance Rates Under the New Agreements, provided that METATEC is in full
compliance with all terms of such New Agreements, and this Workout Agreement.
5. Upon execution of this Agreement, Metatec shall deliver an escrow
agreement in which an estimated royalty payment for the New Agreements, in an
amount no less than $150,000, is held in escrow for the benefit of Koninklijke
Philips Electronics NV of The Netherlands ("Philips"). Such funds shall be
immediately payable to Philips if any of the amounts under such New Agreements
or this Workout Agreement is not made when due.
6. In view of USPC's forbearance in not immediately enforcing its
rights under the CD Disc Agreement and in agreeing to the payment schedule set
forth in paragraph 2, METATEC further agrees that:
(a) METATEC shall not contest the Arrears Amount and interest
thereon;
(b) METATEC stipulates that with respect to the payments due
under this Workout Agreement, the Licensed Patents under the CD Disc
Agreement, the DVD Disc Agreement, and the AC-3 agreement are valid and
infringed by the Licensed Products manufactured by METATEC during the
Arrears period, and METATEC shall not contest the validity or
infringement of the Licensed Patents with respect to the Arrears Amount
(provided, however, that nothing herein shall prevent METATEC from
contesting the Licensed Patents with respect to sales of Licensed
Products after the full and timely payment of all monies payable under
paragraph 2;
(c) If METATEC (i) fails to make any of the payments for
Arrears as of the due date specified or (ii) if METATEC fails to timely
provide any of the quarterly royalty reports or timely make any of the
quarterly royalty payments due thereon as specified in the New
Agreements to be executed by METATEC, and METATEC fails to cure such
error within ten (10) business days of written notice by USPC or
Koninklijke Philips Electronics NV, then:
(i) the entire remaining unpaid balance of the
Arrears Amount shall immediately become due and payable;
(ii) USPC shall be entitled to injunctive relief as
well as or confession of judgement for the entire unpaid
portion of the Arrears Amount; and
(iii) USPC shall be entitled to an award of
reasonable counsel fees and costs for enforcement of this
Workout Agreement.
7. METATEC and USPC shall treat the contents of this Workout Agreement
as confidential information and shall not disclose it to third parties, except
as may be necessary by either USPC or METATEC to enforce its rights hereunder in
a governmental body or court of law. METATEC may
also disclose the contents of this Workout Agreement to a financial institution
(and its advisors, accountants and bankers) as necessary to secure financing or
to a prospective buyer (and its advisors, accountants and bankers) of METATEC as
part of a due diligence investigation, provided that (i) USPC is informed in
advance of such disclosure, and (ii) a suitable confidentiality agreement is
executed between METATEC and the intended recipient of the confidential
information sufficient to protect the information hereunder from disclosure to
other parties and USPC is provided with a copy of the confidentiality agreement
before the disclosure of any contents of this Workout Agreement.
8. In addition to the other remedies set forth in this Workout
Agreement, USPC shall have the option to terminate this Workout Agreement in the
event METATEC breaches any term hereof by providing written notice to METATEC
and METATEC fails to cure such breach within ten (10) days of written notice by
USPC. In the event this termination option is exercised by USPC, METATEC shall
be entitled to credit for payments made hereunder, but all other rights,
remedies and defenses of USPC shall be preserved. USPC shall have the right to
immediately assert claims (and take whatever legal action it deems appropriate)
against METATEC for the full amounts due (as opposed to the compromised amounts
set forth herein), less credits to METATEC for payments made hereunder.
9. METATEC forever releases and discharges USPC, its agents, servants,
employees, directors, officers, lawyers, branches, parent, affiliates,
subsidiaries, successors and assigns and all person, firms, corporations and
organizations acting on USPC's behalf (collectively, the "USPC Released
Entities") of and from any and all losses, damages, claims, demands,
liabilities, obligations, actions and causes of action, of any nature whatsoever
in law or in equity, contribution or indemnity, which the METATEC may have or
claim to have against USPC or any one or more of the USPC Released Entities, as
of March 1, 2000, of every nature and kind whatsoever, on account of or in any
way touching, concerning, arising out of, founded upon or relating to i) the
License Agreement, ii) the obligations of USPC under the License Agreement or
otherwise, iii) this Workout Agreement, iv) enforcement or negotiations of this
Workout Agreement or the License Agreement, v) the dealings of the parties to
this Workout Agreement, and vi) anything else whatsoever.
10. USPC shall maintain its right of audit under the license agreements
and should any such audit reveal facts which are materially different than those
represented by METATEC to USPC in negotiating this Workout Agreement, USPC shall
have the right to enforce the license agreement and seek any additional monies
which may be due and owing under such agreements and discovered as a result of
such audit.
Please acknowledge METATEC's approval and acceptance to the foregoing
by completing the signature block below.
Very truly yours,
Xxxxx X. Xxxxxxxx
Regional Manager,
Optical Licensing - North America
Metatec International, Inc. Koninklijke Philips Electronics NV
By: /s/ Xxxx X. Xxxxxxxx By: /s/ B. Mache
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Xxxx X. Xxxxxxxx Bernd Mache
Title: Chief Financial Officer Title: Chief Financial Officer
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Date: August 9, 2002 Date: August 13, 2002
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U.S. Philips Corporation
By: /s/ Xxxxxxx Xxxxxx
----------------------------
Title: Authorized Signatory
Date: August 13, 2002
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