EXHIBIT 5
OPTION AGREEMENT
BY AND BETWEEN
ADEN ENTERPRISES, INC. AND
MERCEXCHANGE, LLC
THIS OPTION AGREEMENT, (hereinafter the "Agreement") is entered into
this 7th day of January, 2000 by and between Aden Enterprises, Inc., a
California corporation ("Aden" or the "Company"), having a principal place of
business at 00000 X Xxxxxx, Xxxxx, Xxxxxxxx 00000 and MercExchange, LLC,
("MercExchange") a limited liability company under Delaware law, with a
principal place of business at 000 X. Xxxxxx Xxxxxx, Xxxxxxxxxx, XX 00000.
RECITALS
WHEREAS, Aden is embarking on a major development and industry
initiative to build and deploy Internet Markets and Auctions that employ the
pending and issued Subject Patents; and
WHEREAS, Aden agrees that patent protection provides an important
commercial advantage and agrees to consult and confer with MercExchange to
assure a tight nexus between the commercial embodiments of the aforesaid
Internet Markets and Auctions and the claims of the pending and issued Subject
Patents;
WHEREAS, MercExchange desires to license the pending and issued Subject
Patents subject to the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants contained herein, the parties hereby agree as follows:
ARTICLE I
VERTICAL SECTOR LICENSE OPTION
1.1 In partial consideration of the license option granted herein, Aden agrees
to pay MercExchange the sum of $35,000 within five (5) days of the execution of
this agreement, receipt of which is hereby acknowledged.
1.2 The parties anticipate application of the aforesaid Internet Markets and
Auctions for a variety of Vertical Sectors. The parties hereby mutually agree to
the following terms and conditions regarding these Vertical Sectors.
1.3 MercExchange hereby grants an option to the Company to a non-exclusive
license for the pending and issued Subject Patents to Vertical Sectors. For each
Vertical Sector, the Company shall pay MercExchange an annual payment of the
greater of (1) the first $50,000 of any of the Gross Transactions collected or
earned by the Company from any third party or (2) a 1.5% (one point five
percent) continuing royalty of Gross Transactions generated by each Vertical
Sector.
1.4 In the event of a joint venture, marketing agreement, acquisition or any
other business combination between the Company and a third party, the Company
and MercExchange shall negotiate an equity position for MercExchange in said
venture or business combination, and in no event shall this equity position be
less that 15% (fifteen percent) on a fully diluted basis of said venture for
MercExchange.
1.5 Aden shall use best efforts to develop Internet Markets and Auctions that
employ the pending and issued Subject Patents for use in each Vertical Sector.
Aden shall confer with MercExchange to assure a tight nexus between the
commercial embodiment of the aforesaid Internet Markets and Auctions with the
claims of the pending and issued Subject Patents.
ARTICLE II
PAYMENT AND ROYALTY REPORTS
2.1 Within forty-five days (45) following the end of each Fiscal Quarter,
beginning with the first Fiscal Quarter in which Company commences activity in
any Vertical Sector, the Company shall send to MercExchange reports of the Gross
Transactions conducted by Aden, in the preceding Fiscal Quarter, showing their
respective descriptions or other descriptive characteristics, including total
quantities for transaction, and the sale price of any products or goods sold
hereunder.
2.2 Each report shall be accompanied by the required payment in U.S. Dollars.
For the Purpose of calculating the royalties payable hereunder, respective
currencies for the Gross Transactions shall be converted to U.S. Dollars at the
rate of exchange quoted in The Wall Street Journal in force on the last working
day of the period for which payment of royalty is being made.
2.3 The Company shall maintain complete and accurate records of the Gross
Transactions conducted under this Agreement, showing their respective
descriptions or other descriptive characteristics, including model numbers, if
any, quantities, and calculations of unit royalties dues and payable thereon.
These records shall be maintained for a period of at least three (3) years
subsequent to Company's latest quarterly royalty report. Periodically during the
term of this Agreement and subsequent to the expiration or termination of this
Agreement for any reason, upon 30 days prior written notice to Company and upon
execution of a Confidentiality Agreement in Company's favor, MercExchange's
independent duly appointed Certified Public Accountant may inspect Company's
records which pertain to Gross Transactions during regular business hours for
the purpose of verifying the completeness and accuracy of all reports to
MercExchange. Such inspection shall occur no more frequently than once any
Contract Year. If said audit determines that there has been a shortfall in
royalties paid to MercExchange in excess of three percent (3%) of the amount
actually due for the period under audit, then Company shall reimburse
MercExchange for the reasonable expenses actually incurred by it for the audit.
ARTICLE III
NON-MONETARY REMUNERATION
If the Subject Patents are Licensed to third parties and MercExchange
receives non-monetary remuneration for said License, including but not limited
to, web easements, discounted or free advertisement and any linking agreements,
then Aden shall purchase in cash or equity said non-monetary remunerative
benefit from MercExchange at one-third the fair market value for said
non-monetary remunerate benefit within 60 days of the written offer of said
non-monetary remuneration from MercExchange to Aden.
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ARTICLE IV
ENFORCEMENT
4.1 Right to Enforce Subject Patents. MercExchange retains the sole right to
enforce and control the enforcement of the Subject Patents against third
parties. The Company agrees to cooperate and join in said enforcement action if
deemed a necessary party.
4.2 Non-Monetary Recovery. In any enforcement proceeding to which MercExchange
enjoins a third party, Aden and MercExchange shall mutually determine the value
of said injunction to Aden or the aforesaid business combination. Aden shall pay
MercExchange 25% of the value of said injunction, in cash or equity to
MercExchange.
ARTICLE V
DEFINITIONS
5.1 Definitions. For the purpose of this Agreement only, the following terms
shall have the meanings indicated:
5.1.1 The term "Subject Patents" means the following patents, patent
applications and all continuing patent applications that seek priority
therefrom:
A. U.S. Patent Application No. 08/427,820, Entitled:
"Consignment Nodes"
B. U.S. Patent Application No. 08/554,704, Now U.S. Patent No.
5,845,265, Entitled: "Consignment Nodes"
C. U.S. Patent Application No. 09/203,286 (Petition for
Interference with U.S. Patent No. 5,794,207) Entitled:
"Consignment Nodes"
D. U.S. Patent Application No. 09/166,779, Entitled: "Method
and Apparatus for Facilitate Internet Commerce with Binding
Offers to Sell and Binding Counter-Offers to Buy in an
Electronic Market"
E. U.S. Patent Application No. 09/253,014, Entitled: "Method
and Apparatus for Facilitating Electronic Commerce Through
Internet Auctions"
F. U.S. Patent Application No. 09/253,021, Entitled: "Method
and Apparatus for Facilitating Internet Commerce Through
Inter-networked Markets and Auctions"
X. X.X. Patent Application No. 09/253,015, Entitled: "Methods
and Apparatus for Automatically Distributing Internet
Advertising"
H. U.S. Patent Application No. 09/253,057, Entitled: "Method
and Apparatus for Facilitating Electronic Commerce Through
Two-Tiered Electronic Markets and Auctions"
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I. U.S. Patent Application No. 09/264,573, Entitled: "Method
and Apparatus for Using Search Agents to Search Plurality of
Markets for Items"
5.1.2 The term "Vertical Sector" means industry and service
classifications of customary usage and categories of commerce as defined by the
United States Department of Commerce eight digit SIC codes.
5.1.3 The term "Gross Transactions" means the gross transactional
revenues collected or earned by the Company for the operation of said Internet
Markets and Auctions in any and all Vertical Sectors. The transactional revenues
for transactions under this Agreement, for the purpose of calculating this
amount, shall be based on the actual amount charged, exclusive of any freight,
handling, duties, commissions, clearance network costs and taxes.
5.1.4 The term "Fiscal Quarter" means any period of three consecutive
months beginning on January 1, April 1, July 1, or October 1 in any year.
5.1.5 The term "Contract Year" shall means the first full twelve-month
period of four consecutive fiscal quarters, beginning May 1 and ending April 30
and each like period thereafter during the term of this Agreement.
5.1.6 The "Term" of this Agreement, unless earlier terminated as
provided under this Agreement, shall remain in full force and effect until the
last claim of any patent included in the Subject Patents expires.
ARTICLE VI
OTHER PROVISIONS
6.1 Termination for Cause. If Aden shall materially breach any of its
obligations pursuant to this Agreement and shall fail to adequately correct such
breach within two (2) months from the effective date of the first written notice
to Aden, MercExchange may terminate this Agreement pursuant to this Article by
written notice.
6.2 No Joint Venture. The relationship between the parties shall be limited to
performance of their respective obligations as set forth in this Agreement.
Nothing in this Agreement shall be construed to create a partnership or joint
venture between the parties or to authorize either party to act as general agent
for the other party, or to permit either party to bind or otherwise bind the
other party. No party shall be liable for any of the actions, omissions, or
indebtedness of the other party.
6.3 Assignability. Except as otherwise provided herein, the rights and licenses
granted by each party to the other in this Agreement are personal to each party
and may not be assigned, sub-licensed or otherwise transferred by one party
without the prior written consent of the other party.
6.4 No Implied License. Nothing contained in this Agreement shall be construed
as granting by implication, estoppel or otherwise, any licenses, warranties
(implied in fact or law) or rights other than those expressly granted herein, or
creating any obligation other than those expressly granted herein.
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6.5 No Warranty. Nothing in this Agreement shall be construed as a warranty or
representation by MercExchange as to the validity or scope of the Subject
Patents or that the exercise of the license rights under the Subject Patents
will not infringe upon the rights of any Third Party.
6.6 No Indemnification. MercExchange does not indemnify, warrant or otherwise
guarantee or hold harmless Aden from enforcement and/or legal action brought by
any Third Party. MercExchange make no warranties that any products made under
this Agreement are materially fit for their purpose or comport with any other
provision of the Uniform Commercial Code.
6.7 Notification. The parties shall notify each other in writing at the
following address which may be amended from time to time upon written
notification:
MercExchange:
Xxxxxx X. Xxxxxxxx
Managing Member
MercExchange, LLC
000 X. Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Aden:
Xxxxxxx X. Xxxxxx
Xxxx Enterprises, Inc.
00000 X Xxxxxx
Xxxxx, XX 00000
6.8 Controlling Law. This Agreement shall be construed and enforced in
accordance with, and shall be governed by the laws of the Commonwealth of
Virginia without giving effect to the provision, policies, or principles thereof
relating to choice or conflict of laws.
6.9 Severability. Any provision of this Agreement that is illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such illegality, invalidity or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
6.10 Waiver. The failure of any party to enforce any of the provision of this
Agreement, or of any rights with respect thereto, shall not be considered a
waiver thereof or in any way affect the validity of this Agreement. The failure
by any party hereto to enforce any of said provisions, rights or elections shall
not prejudice said party from later enforcing or exercising the same or any
other provisions, rights, of elections which it may have under this Agreement.
6.11 Integration. This Agreement contains the entire and only understanding
between the parties with respect to the subject matter hereof, and supersedes
all prior agreement and understandings, whether oral or written, with respect
thereto. No modification or wavier of this Agreement or any of its provisions
shall be binding unless in writing and signed by a duly authorized
representative of each of the parties hereto.
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6.12 Bankruptcy or liquidation. The license options granted hereunder shall
immediately revert to MercExchange if the Company seeks protection under the
Bankruptcy laws or is subject to liquidation under the laws of the United
States.
6.13 Non-refundable. All funds, payments and distributions made to MercExchange
hereunder are non-refundable.
6.14 Headings. Headings and section titles are for organizational purposes only
and shall have no effect on the interpretation of this Agreement.
6.15 Remedy for Breach. If the Company materially breaches any condition of this
Agreement and does not cure said breach within two (2) months notice of material
breach, then all licenses granted hereunder shall immediately become null and
void and these licenses, shall immediately revert to MercExchange, or its lawful
successor in interest.
6.16 This Agreement shall be binding to all parties and may be executed in part
by facsimile.
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This Agreement is entered into the date and year first above written.
ADEN ENTERPRISES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx
President & Chief Executive Officer
MERCEXCHANGE, L.L.C.
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------------
Xxxxxx X. Xxxxxxxx
Managing Member
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