LICENSE AGREEMENT
-----------------
THIS AGREEMENT, dated the 1st day of October, 2003, is made by and between
United Internet Technologies, Inc., a subsidiary of United Leisure Corp., a
Delaware corporation, having offices at 0000 Xxxxxxxx Xxxxxxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx 00000 ("Licensor"), and Xxxx Toys and Entertainment Corp., a Nevada
corporation, with offices located at 00 Xxxxx Xxxxxx, Xxxxxxxx Xxxxxxxxx, XX
00000 ("Licensee").
W I T N E S S E T H:
--------------------
WHEREAS, on April 1, 2003, Licensee and Licensor entered into a certain
License Agreement; and,
WHEREAS, Licensor and Licensee agree to nullify and void the April 1, 2003
License Agreement and replace it with the following agreement; and
WHEREAS, having nullified the April 1, 2003 License Agreement, the parties
wish to memorialize their new agreement respecting the license described herein;
and,
WHEREAS, Licensee would like to obtain a license from Licensor with respect
to certain property of Licensor and Licensor is willing to grant such license,
all on the terms hereinafter set forth; and
WHEREAS, the Board of Directors for Licensor and Licensee have approved
this License Agreement by formal Resolution and have authorized the presidents
of each party to execute this License Agreement on behalf of Licensor and
Licensee;
NOW, THEREFORE, Licensor and Licensee hereby agree as follows.
1. Definitions.
(a) The word "Property" shall mean all intellectual property owned by
Licensor, including but not limited to the copyrights, trademarks,
patents, service marks, names, logos and graphics identified and
displayed on EXHIBIT A hereto, only as the "Property" relates to toy
products.
(b) The word "Territory" shall be inclusive rather than exclusive, and
shall be interpreted to mean any geographical territory in which
Licensee chooses to conduct business, in its sole and absolute
discretion, with the exception of any geographical territories, if
any, specifically set forth herein as being excluded from the
Territory. The Territory covered by this License Agreement is
Worldwide and is only subject to any limitations set forth in licenses
for third party licenses such as "Looney Tunes", "Terminator", "The
Little Rascals", etc.
(c) The word "Business" shall mean the manufacture, marketing and sale of
certain animatronic devices using the intellectual property described
on EXHIBIT A.
2. Grant of License; Terms of Use; Period of License.
(a) Licensor hereby grants to Licensee, from the date of this Agreement
until termination of the license as hereinafter provided, a
non-transferable, non-assignable and non-sub-licensable license,
except as otherwise stated herein, to use any of the Property.
(b) Licensee is hereby granted the exclusive right to operate the Business
and to use the Property.
(c) While the license under this Agreement remains in effect, (i) Licensor
will not license or permit anyone else to use any Property or any part
of any Property or any imitation, likeness or variation of any
Property or of any part of any Property within the Territory in
connection with any business similar to or competitive with the
Business, and (ii) Licensor will not itself, directly or indirectly,
operate a business within the Territory similar to or competitive with
the Business or use any Property or any part of any Property or any
imitation, likeness or variation of any Property or of any part of any
Property within the Territory in connection with any business similar
to or competitive with the Business subject to the provisions of
paragraph 5A.
(d) All Property is registered in the name of the Licensor, and the
Licensee will execute such documents and take such other action as may
2
be necessary to keep all such registrations valid and effective in the
name of Licensor and in association with the Business. When using the
Property for advertising, marketing or any other purpose associated
with the Business, the Licensee will always affix the appropriate xxxx
(i.e. "TM," "R" "C").
(e) Licensee acknowledges the substantial value of the publicity,
reputation and goodwill associated with the Property. Licensee also
acknowledges that the goodwill associated with the Property belongs to
Licensor. Any additional goodwill that may develop because of the use
of the Property, or any of the Property, by Licensee will inure solely
to the benefit of and belong solely to Licensor.
(f) The license granted to Licensee under this Agreement will remain in
effect for five (5) years from the date hereof. So long as Licensee is
not in default under the terms of this license, the Licensee may
extend the license for an additional five (5) year term. Licensee must
provide Licensor with written notice, at least six (6) months prior to
the termination of the license term, that Licensee wishes to exercise
the option. Together with Licensee's written request to exercise the
option, Licensee shall provide its affidavit attesting to the fact
that Licensee is not in default under any term or condition of the
license agreement, including but not limited to any and all terms
respecting the payment of royalties or other fees to Licensor.
Notwithstanding the foregoing, Licensor may terminate the license and
this Agreement, on ten (10) days written notice, for any act or
omission, which Licensor deems inconsistent with or in violation of
any term or condition set forth in this Agreement.
3. Royalties and Payment of Royalties.
A. Minimum Royalty Payments. Minimum royalty payments must be made each
year in order to continue the license agreement into the following
year. If sales of the products have not generated the minimum
royalties, Licensee at its sole option may pay additional royalties to
reach the minimums in order to continue the license agreement into the
following year. It is understood that the minimums are only for the
purpose of continuing the license agreement and upon termination for
any reason, any unpaid minimum royalties will not be due.
(i) The minimum royalty payment for year 1 of the license shall be
$125,000.00. Upon the signing of this license agreement,
Licensee shall pay a non-refundable $50,000.00 to Licensor
towards the minimum royalty payment for year 1. The balance of
$75,000.00 shall be due and payable no later than September 30,
2004.
3
(ii) The minimum royalty payment for year 2 of the license shall be
$300,000.00 and shall be due and payable no later than
September 30, 2005.
(iii) The minimum royalty payment for year 3 of the license shall be
$1,000,000.00 and shall be due and payable no later than
September 30, 2006.
(iv) The minimum royalty payment for year 4 of the license shall be
$1,000,000.00 and shall be due and payable no later than
September 30, 2007.
(v) The minimum royalty payment for year 5 of the license shall be
$1,000,000.00 and shall be due and payable no later than
September 30, 2008. In order for Licensee to exercise the
option to extend, set forth in section 2(f) above, one-half
(1/2) of the minimum royalty payment for year 5 must be
received at least sixty (60) days prior to the beginning of the
option period. In the event that Licensee properly exercises
its option, the minimum royalty payment for years 6-10 shall be
$1,000,000.00 per year and shall be due and payable on
September 30, 2009, September 30, 2010, September 30, 2011,
September 30, 2012 and September 30, 2013.
(vi) Licensee's failure to tender any minimum royalty payment in the
amount and no later than the date due, shall constitute a
default under this license agreement.
B. Licensing Fees. Licensee shall be responsible for paying to Licensor
the following licensing fees in the amounts and on the dates set forth
below.
(i) Upon the signing of this license agreement, Licensee shall pay
to Licensor $50,000.00 (in addition to the $50,000.00 payable
under section 3(A)(i) above.
(ii) Within thirty (30) days from the date of this license
agreement, Licensee shall make a payment to Licensor in the
amount of $50,000.00.
(iii) Within sixty (60) days from the date of this license agreement,
Licensee shall make a payment to Licensor in the amount of
$25,000.00.
4
(iv) Within ninety (90) days from the date of this license
agreement, Licensee shall make a payment to Licensor in the
amount of $25,000.00.
(v) Within one-hundred twenty (120) days from the date of this
license agreement, Licensee shall make a payment to Licensor in
the amount of $25,000.00.
(vi) Within one-hundred fifty (150) days from the date of this
license agreement, Licensee shall make a payment to Licensor in
the amount of $25,000.00.
(vii) No later than six (6) months from the date of this license
agreement, Licensee shall pay to Licensor an additional
$200,000.00 which Licensee derives from sales revenues.
(viii) Of the above amounts paid to Licensor (which total
$400,000.00), one-half (1/2), or $200,000.00, shall be
considered non-refundable advances against royalties for years
2-5 at $50,000.00 per year. In other words, provided that
Licensee makes the required payments set forth in this section
3(B)(i)-(vii), the minimum royalties set forth in section
3(A)(ii)-(v) shall be reduced by $50,000.00 per year.
(ix) Licensee's failure to tender any licensing fee in the amount
and on the date due, shall constitute a default under this
license agreement.
(x) Licensor, in its sole and absolute discretion shall be entitled
to receive any payments set forth in this section 3(B) in the
form of stock options from Licensee at a cost of fifteen cents
($0.15) per share.
C. Royalty Payments. Licensee shall pay to Licensor the following royalty
payments based upon a percentage of "net sales" (as hereinafter
defined) generated from the operation of the Business during the term
of this license agreement, and any extension thereof.
(i) Licensee will pay Licensor a royalty in accordance with the
following schedule based on a percentage of Licensee's net
sales generated from the operation of the Business during the
term and any extension of the term:
5
Royalty as a Percentage
Net Sales of those Net Sales
--------- ------------------
$1.00 to $10,000,000.00 10% *
$10,000,000.00 to $21,111,111.00 9% *
all sales over $21,111,111.01 for
remainder of term and any extended
term 8% *
* In no case will royalties be lower than one dollar ($1.00) per unit.
(ii) For purposes of this Agreement, the term "net sales" means the
total revenue actually collected from customers for the
licensed products.
(iii) Licensee will pay royalties to Licensor with respect to net
sales during each three-month period ending March 31, June 30,
September 30 and December 31 of any year. Such payments will be
made within sixty (60) days after the end of each such
three-month period and will be accompanied by a statement of
the net sales for the applicable period.
(iv) Licensee will maintain accurate records of all elements
comprising net sales with respect to which royalties are
payable under this Section 3. Licensee will make such records
available to Licensor for examination and copying, on
reasonable notice, during Licensee's normal business hours.
Licensee will also furnish copies of such records to Licensor
upon request.
4. Interest. Licensee will pay Licensor interest at the rate of eighteen
percent (18%) per annum on any amount owing to Licensor which is not paid
by the due date thereof. Interest will be payable on demand and will accrue
from the due date until the amount is paid. The provision for interest
under this Section 4, though, will not excuse or mitigate any default by
Licensee or affect Licensor's rights by reason of such default.
5. Sub-Licensing.
(a) Any and all sub-licensing opportunities shall be reviewed by both
Licensor and Licensee. All sub-licensing opportunities shall be
subject to the approval from both Licensor and Licensee (which
approval shall not be unreasonably withheld). However, Licensee's
right to disapprove of any sub-licensing opportunity shall not ripen
until all payments set forth under section 3(B)(i)-(iv) have been
made.
6
(b) The company that is the procuring cause of the sub-licensing
opportunity shall be entitled to seventy percent (70%) of all revenues
generated therefrom, with the other company receiving the remaining
thirty percent (30%).
(c) Any company who does not bring a sub-licensing opportunity to the
attention of the other company, and attempts to circumvent the
requirements of this subsection 5, shall be in default of this
agreement.
6. Special Sales Opportunities
(a) Any and all special sales opportunities procured by Licensor shall be
subject to Licensee's approval (which shall not be unreasonably
withheld). Licensor's right to disapprove of any special sales
opportunity shall not ripen until all payments set forth under section
3(B)(i)-(iv) have been made. Any and all sales related to a special
sales opportunity shall be run through Licensee's Business.
(b) Any and all profits realized as the result of a special sales
opportunity initiated by Licensor, shall be shared on a 50/50 basis
between Licensor and Licensee according to the following terms:
(i) Licensor shall first receive its normal royalties from profits,
in accordance with section 3(C) up to the total profit amount.
If additional profits remain after normal royalty amounts,
Licensee shall then receive up to an equal amount of the
royalty payment. Any remaining profits after the above payments
shall be divided equally between the Licensor and Licensee. For
example, if the total net sales equal $100,000 and the profits
are calculated at $24,000, Licensor will receive 10% of the net
sales first ($10,000), then Licensor will receive an equal
amount ($10,000), then they will each receive 50% of the
balance of the profit ($2,000 each). If the profit was $15,000,
Licensor would receive $10,000 and Licensee would receive
$5,000 (balance of profit after the first $10,000 is paid to
Licensor).
(ii) For purposes of this section 6, net profits shall be calculated
based upon net collections from customers, less cost of goods,
transportation, freight and handling, sales commissions,
advertising allocation, tooling allocation, outside product
development allocation and any other costs directly related to
the manufacturing, sale, marketing and distribution of the
products sold.
7
(iii) All payments received by Licensor in accordance with this
section 6, up to the normal royalty rates described in
paragraph 3, C, (i) shall be applied against Licensee's minimum
royalty payment for the year in which the payment is made to
Licensor by Licensee.
7. Press Releases
(a) Licensor shall have the right to approve all press releases, such
approval shall not be unreasonably withheld, which include any mention
of Licensor's company, management or properties, prior to the release
of same. Violation of this provision will be a material breach of this
license Agreement.
8. Warranties and Indemnity by Licensor.
(a) Licensor warrants to Licensee (i) that Licensor owns all of the rights
in and to the Property, (ii) that the Property is validly registered
in the name of the Licensor, (iii) that Licensor may grant to the
Licensee the rights which it grants under this Agreement and it may do
so without the approval or consent of anyone and the grant of such
rights to Licensee does not violate any agreement binding upon or any
obligation of Licensor, (iv) that neither the Property nor the use of
the Property in accordance with this Agreement, violates or infringes
any patent, copyright, trademark, service xxxx or other right, (v)
that none of the Property contains any libelous or defamatory material
or any material which Licensor is not duly authorized to use, and (vi)
that none of the Property misuses or misappropriates any trade secret
or confidential information.
(b) Licensor will indemnify Licensee against any liability and hold
Licensee harmless from and pay any loss, damage, cost and expense
(including, without limitation, reasonable legal fees) which Licensee
incurs in connection with any breach of any of the warranties under
Section 7(a) or any claim by a third party alleging facts that would
constitute a breach of any of the warranties under Section 7(a);
provided, however, that Licensor may, at its expense, defend any claim
against Licensee covered by the foregoing indemnity of Licensor. If
Licensor elects to defend any such claim, Licensor will not be liable
to Licensee for any cost or expense incurred by Licensee after
Licensor notifies Licensee of its election. In any event, Licensor
will never be liable for loss of profits or incidental or
consequential damages.
(c) Licensee will promptly notify Licensor of any claim against Licensee
covered by Licensor's warranty under Section 7(a) with full details of
the claim. Licensee will cooperate in the defense of any such claim
and will not settle the same without Licensor's written consent unless
8
Licensee releases Licensor from all of Licensor's obligations under
this Section 7 with respect to the claim. If Licensee fails to notify
Licensor of any such claim within thirty (30) days of the date on
which Licensee first becomes aware of any such claim, Licensee will
have forever waived its right to seek indemnity or contribution in
accordance with Section 7(b) hereof.
(d) The provisions of this Section 7 will survive termination of the
license under this Agreement.
9. Compliance with Law; Quality Control; Approvals by Licensor.
(a) Licensee covenants and warrants that its use of the Property and its
operation of the Business will comply with all applicable laws, rules
and regulations.
(b) Licensee will maintain high standards of quality, service and
competence with respect to the operation of the Business.
10. Promotion. During the term of the license under this Agreement, Licensee
will diligently and continuously produce, market, sell, promote and
advertise the Business. Licensee will maintain accurate records of all of
its expenditures for promoting and advertising the Business. Licensor may
inspect and copy these records on reasonable notice at any time during
Licensee's normal business hours, and Licensee will furnish copies of such
records to Licensor upon request.
11. Protection of Licensee's Rights. Licensee may, at its expense, take such
action (including, without limitation, commencing and maintaining any
action at law or in equity) to protect, defend and enforce its rights to
the use of the Property against unfair competition, infringement and other
violations. Licensor will, at Licensee's expense, cooperate and participate
in any such action and will execute such documents and take such other
action as Licensee reasonably requests.
12. Default by Licensee.
(a) If Licensee fails to pay when due any amount owing under this
Agreement and such failure continues for a period of fifteen (15) days
after Licensee receives notice of the default from Licensor, or if
Licensee fails to perform any of its other obligations under this
Agreement which is capable of being cured and such failure continues
for a period of thirty (30) days after Licensee receives notice of the
default from Licensor, then Licensor may terminate the license under
this Agreement by giving the Licensee notice of termination.
Licensor's rights under this Section are in addition to, and
9
are not a limitation on or in substitution for, any other rights which
Licensor has by reason of any default, including, without limitation,
any claim for damages.
(b) In the event of a shareholder lawsuit, in which Licensee, or any of
its current officers or directors are named defendants, Licensor shall
have the right, in its sole and absolute discretion, to terminate this
license agreement if such lawsuit is not settled, dismissed or
otherwise resolved within thirty (30) days of Licensor's written
notice to Licensee.
13. Termination.
(a) Except as provided in subdivision (b) below, on termination of the
license under this Agreement, regardless of the reason or cause of
termination, (i) Licensee will immediately cease using the Property
and cease operating the Business; (ii) Licensee will not use any
imitation, likeness or variation of the Property or any part of any
Property; (iii) Licensee will deliver and convey to Licensor, without
charge and free from any claims, encumbrances or rights in favor of
others, all plates, engravings, silkscreens, computer and video tapes,
molds, and other items, used in connection with the operation of the
Business; and, (iv) Licensee transfers and assigns to Licensor any
rights which licensee may have acquired in any Property. After
termination of the license under this Agreement, Licensee will execute
such documents and take such action as Licensor requests to confirm or
effect such transfer and assignment to Licensor of any rights which
Licensee may have acquired in any Xxxx.
(b) Notwithstanding the provisions of subdivision (a), if the license
under this Agreement is terminated for any reason, Licensee may, for a
period of 60 days following termination but subject to the other
provisions of the Agreement including, without limitation, Royalties
and Quality, sell any inventory of finished goods or goods in the
process of being manufactured prior to the date of termination.
14. Warranties and Indemnities by Licensee.
(a) Licensee warrants that it will operate the Business only in accordance
with the terms and conditions set forth in this Agreement and
understands that any deviation therefrom shall be deemed a breach of
this Agreement.
(b) Licensee will indemnify Licensor against any liability and hold
Licensor harmless from and pay any loss, damage, cost and expense
(including, without limitation, reasonable legal fees and costs) which
the Licensor incurs (i) arising out of any failure by Licensee to
perform any of its obligations under this Agreement, or (ii) arising
10
out of any act, omission or obligation with respect to the Property or
the operation of the Business by either Licensee or anyone acting
under authority of Licensee, or (iii) arising out of the advertising,
promotion or use of the Business and the Property. This indemnity does
not extend to claims that Licensee's use of any Property, as
authorized under this Agreement, violates the rights of another.
(c) Licensee may, at its expense, defend any claim against Licensor
covered by its indemnity under subdivision (a) above; and if Licensee
elects to do so, it will not be liable to Licensor for any cost or
expense incurred by Licensor after Licensee notifies Licensor of its
election.
(d) Licensor will promptly notify Licensee of any claim against Licensor
covered by Licensee's indemnity under Section 13(a) with full details
of the claim. Licensor will cooperate in the defense of any such claim
and will not settle the same without Licensee's written consent unless
Licensor releases Licensee from all of Licensee's obligations under
this Section 13 with respect to the claim.
(e) The provisions of this Section 13 will survive termination of the
license under this Agreement.
15. Liability Insurance. While the license under this Agreement remains in
effect and for a period of eighteen (18) months thereafter, Licensee will
obtain and maintain, at its expense, liability insurance covering the
Business and all services rendered at the Business. The insurance will be
in an amount not less than $1,000,000.00 per occurrence and not less than
$5,000,000.00 million in the aggregate, will have deductibles not exceeding
$5,000.00 per occurrence, and will contain such exclusions and be issued by
such insurers as Licensor shall approve in writing, such approval not to be
unreasonably withheld. The insurance will be occurrence-based (as opposed
to claims made), will include Licensor as a named insured without liability
for premiums, and will provide for at least thirty (30) days' prior written
notice to Licensor of cancellation or non-renewal and of any material
change in the coverage. On execution of this Agreement and on each
anniversary of the date of this Agreement (including the 18-month period
following termination of the license), and at any time on request by
Licensor, Licensee will furnish Licensor with certificates issued by the
insurer or by a licensed insurance broker confirming that insurance
coverage required by this Agreement is maintained and in full force and
effect.
16. Nature of Relationship. This Agreement creates no relationship between
Licensor and Licensee other than that of a licensor to a licensee. Licensee
has no authority to commit Licensor in any manner or to incur any
obligation on behalf of or in the name of Licensor. Licensee has no
11
authority to act on Licensor's behalf with respect to anything or anyone.
Licensor has no authority to act in any way that affects the nature,
appearance or validity of the Property.
17. Sale of the Licensee's Business.
(a) Licensee may not sell the Business, or change management in control of
the Business, without the Licensor's prior written approval.
(b) If, during the term of the Agreement, the Licensee receives an offer
to purchase the Business, the Licensee will first offer the Licensor
the right to purchase the Business and exercise its right of first
refusal upon the same terms and conditions offered to the Licensee.
The Licensee will convey the offer to the Licensor in writing, which
shall contain a full description of the terms on which the Business is
to be sold. Within thirty (30) days of receiving the proposed offer
from the Licensee, the Licensor will advise the Licensee, in writing,
whether or not Licensor wishes to exercise its right of first refusal
upon the terms and conditions stated in the written offer. If the
Licensor indicates that it does not wish to exercise its right of
first refusal, or if the Licensor does not respond in any manner
within said thirty (30) day period, the Licensor shall be deemed to
have waived its right to exercise said right of first refusal, and the
Licensee may proceed with the contemplated sale, upon the terms and
conditions set forth in this Section 16 The Licensee may not sell the
Business on terms and conditions different from those last offered to
the Licensor, in writing, without first offering to Licensor, in
accordance with and subject to terms and provisions of this Section 16
the right to purchase the Business on the new terms.
(c) If Licensor does not wish to purchase the Business, or fails to
respond in accordance with Section 16(b), the prospective purchaser
must, nevertheless, be approved, in writing, by the Licensor.
Additionally, the prospective purchaser of the Business, must agree,
in writing, to comply with and be bound by the terms of this
Agreement. Only if: (i) the Licensor does not wish to exercise its
right of first refusal; (ii) the Licensor approves of the prospective
purchaser; and, (iii) the prospective purchaser agrees, in writing, to
comply with and be bound by the terms of this Agreement, will Licensor
agree to assign the Property, this Agreement and the license that
accompanies this Agreement to the prospective purchaser.
(d) The Licensee shall not close on the sale of the Business without the
Licensor, or an agent of the Licensor, present at the closing. The
Licensor shall be deemed to have a lien on the purchase proceeds to
the extent that any monies are due and owing from the Licensee to the
Licensor in accordance with this Agreement. Licensor's lien, if any,
shall be satisfied in full, prior to any disbursement to the Licensee.
12
18. Remedy for Breach.
(a) The Licensee acknowledges that the terms of this Agreement are fair,
reasonable, necessary and reasonably required to protect the
Licensor's interests.
(b) The Licensee acknowledges that, in the event it breaches any part of
this Agreement, in addition to any monetary damages that may be
awarded, the Licensor shall have the right to seek injunctive relief
and/or other equitable relief in any court of competent jurisdiction
to enforce any term of this Agreement. The Licensee hereby consents to
the issuance of a temporary restraining order to maintain the status
quo pending the outcome of any proceeding.
19. Notice. Notices and other communications under this Agreement shall be in
writing and sent to each party at its address set forth above or, in the
event of a change in any address, then to such other address as to which
notice of the change is given.
20. Amendment; Waiver. This Agreement may be amended only by an instrument in
writing signed by Licensor and Licensee. No provision of this Agreement and
no obligation of either party under this Agreement may be waived except by
an instrument in writing signed by the party waiving the provision or
obligation.
21. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California.
22. Section Headings. Section headings are for convenient reference only and
shall not affect the meaning or have any bearing on the interpretation of
any provision of this Agreement.
THE BALANCE OF THIS PAGE HAS
BEEN INTENTIONALLY LEFT BLANK
13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
UNITED INTERNET TECHNOLOGIES, INC., a division
of UNITED LEISURE CORP.
Licensor
BY: /s/ Xxxxx Xxxxxxx
---------------------------------
Xxxxx Xxxxxxx,
President and CEO
XXXX TOYS AND ENTERTAINMENT CORP.
BY: /s/ Xxxxxx XxXxxxxx,
---------------------------------
Xxxxxx XxXxxxxx,
President and CEO
14
EXHIBIT A
(The Property)
Technology
----------
Patent for the Control of Animatronics Devices through the Internet. Patent
covers invention of system for controlling animatronic toys over the Internet
through Chat Rooms
United States Patent #6,370,597.
The invention described within the patent application makes it possible to
control of animatronic devices over the Internet, PDA's wireless cell networks
and other types of digital networks.
All toy applications of the patented technology shall be subject to the license
granted herein.
15
