Exhibit 10.1
AMENDED AND RESTATED LICENSE AGREEMENT
This Amended and Restated License Agreement is made and entered into
effective as of the 27th day of October, 2000, by and between Videolocity
Direct, Inc., a Nevada corporation ("Video Direct"), and Merit Studios, Inc., a
Delaware corporation ("Merit"), upon the following:
Premises
WHEREAS, Merit and Videolocity, Inc., then named Xxxxxxxxxxxx, Inc.
("Videolocity"), entered into that certain License Agreement (the "Original
Agreement") dated as of October 27, 2000, pertaining to the WormHole Video
System; and
WHEREAS, Videolocity assigned all its right, title and interest in and
to the Original Agreement to Video Direct with the prior written consent of
Merit; and
WHEREAS, Merit and Video Direct desire to amend and restate the
Original Agreement in the manner provided herein;
NOW, THEREFORE, in consideration of the mutual covenants to be
performed and benefits to be received hereunder, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties, Merit and Video Direct agree that the Original Agreement is hereby
amended and restated as follows and that this Amended and Restated License
Agreement shall supercede and replace the Original Agreement.
Agreement
1. Grant of License. Merit hereby grants Video Direct an exclusive
license for the period commencing as of October 27, 2000 and expiring on March
5, 2011 to use, sell sublicenses to others, the WormHole Video System (as
defined herein) in any and all countries in the world. Such license shall
continue on a non-exclusive basis from March 6, 2011 until the expiration or
termination of this Agreement. Notwithstanding the foregoing, if Video Direct
has not obtained the rights required to deliver content to end users through the
WormHole Video System, and commenced marketing of the WormHole Video System,
within one (1) year from the date the WormHole Video System is delivered to
Video Direct in a fully operational condition, then Merit may convert the
exclusive rights granted to Video Direct hereunder to non-exclusive rights by
providing thirty (30) days prior written notice of such conversion to Video
Direct. The term "WormHole Video System" shall mean the proprietary system being
developed by Merit which uses Merit's proprietary WormHole data compression
technology to compress and deliver video content, on demand and in a secure
format, by downloading the content from a central server or other source through
regular telephone lines, broad-band lines, the Internet, wireless communication,
or other communication channels to the end user's set-top box or computer, where
the content is uncompressed by the Wormhole decompression software which is
installed in the set-top-box or computer, and displayed on a standard
television/monitor, which WormHole Video System is more particularly described
in Exhibit "A" attached hereto and incorporated herein by reference. The term
WormHole Video System shall refer to the WormHole Video System as the same
exists on the date of this Agreement and as the same may be modified, improved
or enhanced during the term of this Agreement and shall include the system as a
whole thereof as it applies to the decompression (unpeg) and/or delivery of
video content to end-users.
2. Term. The term of this Agreement shall commence effective as of
October 27, 2000 and expire at midnight on March 5, 2021.
3. License Fees. Video Direct shall make the following payments to
Merit in the amounts and at the times indicated as payment for the license
granted to Video Direct hereunder:
(a) Two Hundred Fifty Thousand Dollars ($250,000) in cash on or
before January 1, 2001, the receipt of which is hereby
acknowledged by Merit.
(b) Ten percent (10%) of the Net Revenue Per Transaction (as
defined herein) received by Video Direct from each item of
content (video or otherwise) delivered by it through the
WormHole Video System to end users (the "Per Transaction
Royalty"). The Per Transaction Royalty shall be paid by Video
Direct to Merit on a monthly basis within 15 days following
the end of the month in which the Per Transaction Royalty was
earned. Each payment of the Per Transaction Royalty shall be
accompanied by a statement setting forth the data and
information used to calculate the Per Transaction Royalty and
showing the manner of calculation. For purposes of this
Agreement, "Net Revenue Per Transaction" shall mean the amount
received by Video Direct from an end user for a content
delivery transaction less the cost of the content delivered in
such transaction.
(c) 50% of all amounts received by Video Direct from the sale of
sublicenses of the WormHole Video System to sublicensees. Such
license fees shall be paid by Video Direct to Merit on a
monthly basis within 15 days following the end of the month in
which such license fees are received by Video Direct.
4. Obligations of Merit. Merit shall provide the following:
(a) Merit shall design, build, install and load, as appropriate,
the initial server and the other components and items of
equipment (other than the set-top boxes) necessary for Video
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Direct to operate the Wormhole Video System. This equipment is
described as a server with one gigabyte of RAM, dual 800
megahertz processor, Intel Pentium Processor, 480 gigabytes of
hard drive space, and 16 built-in dial-up modems. Video Direct
acknowledges that the initial server has been installed at the
location designated by it. The remaining actions shall be
completed by Merit and the Wormhole Video System shall be
fully operational on or before April 30, 2001. Such items
shall be provided at no additional charge to Video Direct.
Merit shall devote all its resources to completion of the
WormHole Video System and shall not undertake any other
activities or projects (specifically including further
development of the WormHole data compression program) until
the WormHole Video System has become fully operational.
(b) Merit shall utilize its WormHole Technology to compress the
video content to be provided by Video Direct through the
WormHole Video System. Merit shall compress the first one
hundred (100) feature length films provided to it by Video
Direct in DVD format for a charge of $100,000, $49,000 of
which has been paid by Video Direct to date and the balance of
which is due on the date the films have been compressed and
the WormHole Video System has become operational. Thereafter
Merit shall compress the feature-length videos provided to it
by Video Direct, in MPEG format on HD, CD, or Tape only, for a
charge of $250 per video, with one-half of this per film
charge to be paid when the film products are delivered to
Merit for compression and the balance to be paid upon
completion. Compression services shall be performed by Merit
as requested by Video Direct with new releases being completed
within the time periods dictated by the competitive window
prevailing in the video industry. The compression charges for
video content other than full length video shall be mutually
agreed to by Merit and Video Direct based on the size of the
content file (relative to a full length video) and the time it
takes Merit to compress the file (relative to the time it
takes Merit to compress a full length video).
Notwithstanding the foregoing, in the event any person other
than Videolocity International, Inc. or Merit should acquire
fifty percent (50%) or more of the outstanding capital stock
of Video Direct, the compression charges referred to in this
subparagraph shall be increased to $1,500 per film, effective
immediately upon the acquisition of such interest. In
addition, as long as Videolocity International, Inc. owns over
50% of Video Direct, if any person acquires fifty (50%) or
more of the outstanding capital stock of Videolocity
International, Inc., the compression charges referred to in
this subparagraph shall be increased to $1,500 per film,
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effective immediately upon the acquisition of such interest.
However, a distribution of the shares of Video Direct held by
Videolocity International, Inc. and/or Merit to their
respective shareholders shall not be deemed to result in the
acquisition of 50% of the outstanding capital stock of Video
Direct by any person under this subparagraph of this
Agreement.
(c) Merit has designed an Internet web page for use by Video
Direct in connection with the WormHole Video System and shall
assign to Video Direct all its right, title and interest in
the domain name "TVWEBB." Any further development shall be at
the expense and direction of Video Direct.
(d) Merit shall, upon request, assist Video Direct in developing
and interfacing a billing system and content catalog system
for use in connection with the WormHole Video System.
(e) Merit shall cause to be delivered to Video Direct 1,000,000
restricted shares of Merit common stock at no additional
charge to Video Direct, the receipt of which is acknowledged
by Video Direct.
5. Obligations of Video Direct. Video Direct shall provide the
following:
(a) Video Direct shall provide the personnel to operate and market
the WormHole Video System and shall obtain all clearances or
licenses required for the lawful use of the content provided
by Video Direct for use with the WormHole Video System.
(b) Video Direct currently has authorized 10,000,000 shares of
common stock, par value $0.001 per share, of which 5,000,000
shares are issued and outstanding and owned by Videolocity
International, Inc. Video Direct also has authorized 1,000,000
shares of preferred stock, par value $0.001, none of which has
been issued. Video Direct shall issue Merit 2,500,000
restricted shares of its common stock as additional
consideration for the license rights granted hereunder.
(c) Video Direct shall use its best efforts in good faith to
conduct an initial public offering of the authorized and
unissued shares of its common stock (remaining after the
issuance of shares to Merit as provided above) as quickly as
practicable following the date the WormHole Video System
becomes operational. The proceeds from such offering shall be
used by Video Direct to continue with the implementation of
its business plan and the WormHole Video System.
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6. System Functions. Attached hereto as Exhibit "A" and incorporated
herein by reference is a description of the WormHole Video System, including its
design and functions. Merit represents and warrants that the WormHole Video
System will perform in the manner described in Exhibit "A" and that the WormHole
Video System will allow an end user to download a compressed, full length
feature movie file in less than one minute and to decompress such file for
viewing in less than 30 minutes. Merit further represents that the video files
will be viewable on the end-users television set or monitor in the same
resolution and quality as the original video file provided to Merit by Video
Direct, Further, whatever video is supplied to Merit for compression it will be
completely unaltered after unpegging by the Wormhole decompression software. If
at any time during the term of this Agreement, the WormHole Video System should
fail to function in the manner described in Exhibit "A", Merit agrees to
immediately take all steps as may be necessary to remedy the problem and cause
the system to perform in accordance with such description. Video Direct
acknowledges that the WormHole Video System can process video files under any
MPEG format but that Merit has built its Favos using the MPEG2 format and that
delivery to Merit of video files in a format other than MPEG2 (e.g. MPEG4) would
require Merit to build new Favos, which would take approximately thirty (30)
days to accomplish.
7. Preserving Rights to Content. Merit shall not have any right
whatsoever in or to the content provided by Video Direct to end users through
the WormHole Video System, including but not limited to, the right to use, copy,
or demonstrate such content. Merit acknowledges and agrees that any and all such
content shall be and remain the sole and exclusive property of Video Direct or
other persons holding the rights to such content and Merit shall take all
necessary precautions to protect the confidentiality of such content. To the
extent reasonably required by the studios, distributors, and other owners of
content as a condition precedent to permitting such content to be compressed by
Merit, Merit agrees to enter into agreements with such content owners containing
reasonable provisions to the foregoing effect.
8. Audit Rights. Video Direct agrees to allow an independent certified
public accountant selected by Merit and reasonably acceptable to Video Direct,
which accountants shall not be compensated on a contingency basis and shall be
bound to keep all information confidential except as necessary to disclose
discrepancies to Merit, to audit and analyze relevant accounting records of
Video Direct to ensure compliance with all terms of this Agreement. Any such
audit shall be permitted within thirty (30) days of Video Direct's receipt from
Merit of a written request to audit, during normal business hours, at a time
mutually agreed upon. The cost of such an audit shall be borne by Merit unless a
material discrepancy is found, in which case the cost of the audit shall be
borne by Video Direct. A discrepancy shall be deemed material if it involves a
payment or adjustment of more than five percent (5%) of the amount actually due
from Video Direct in any given quarter. Audits shall occur no more frequently
than once per calendar year and shall not interfere unreasonably with Video
Direct's business activities and shall be conducted in Video Direct's facilities
during normal business hours on reasonable notice. An audit may cover any
period; provided that: (i) the period has not been previously audited; and (ii)
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the period under audit is within a two-year period immediately preceding the
commencement of the audit. Video Direct shall promptly reimburse Merit for the
amount of any discrepancy arising out of such audit, which indicates that Merit
is owed amounts hereunder as well as the costs of the audit, if applicable, as
provided above.
9. Scope of License. The exclusive license granted in this Agreement
shall be exclusive both as to Video Direct acting in its own name or for its own
account, and as to any third parties that may be licensed or otherwise acting
under authority of Video Direct. Specifically, but not by way of limitation of
the foregoing, Merit agrees that as long as the license granted to Video Direct
under this Agreement is exclusive, Merit will not in its own name or for its own
account, nor will it authorize any third party, to sell, lease, license or
otherwise market or sell the WormHole Video System anywhere in the world, nor
will Merit use its WormHole Technology to provide compression services for
content that would be competitive with the WormHole Video System.
10. Indemnification. Each party (the "Indemnifying Party") shall
defend, indemnify and hold harmless the other party (the "Indemnified Party")
and its agents, officers, board members and employees from and against any and
all claims, damages, losses and expenses (including reasonable attorney's fees)
for claims caused by (i) violation by the Indemnifying Party of any state,
federal or other governmental license or regulations, and (ii) violation by the
Indemnifying Party of any third party proprietary rights (including without
limitation, patent, copyright, trade secret and trademark rights); and (iii)
damages to property, injury or death to persons or for any other damage arising
due to the active or passive negligence of the indemnifying party.
11. Infringement. Merit represents and warrants that it is not aware of
any patent, copyright, trade secret or other property right of any third party
that would be infringed or violated by the development, manufacture, use or sale
of the WormHole Video System. In the event that any such infringement or
violation is alleged by any third party against Video Direct, Merit agrees to
indemnify and hold Video Direct harmless from and against all damages, claims
and liabilities arising in connection therewith and Video Direct agrees to
cooperate with Merit in the defense of such alleged infringement or violation.
Video Direct shall promptly notify Merit of any such claim of infringement or
violation. Video Direct shall refrain from making any admission of liability or
from settling such claim without the prior written consent of Merit.
Merit shall promptly and decisively assert its patent or other
intellectual property rights against any third party infringer who is making,
using or selling a device that infringes on any of the intellectual property
rights pertaining to the WormHole Video System. Video Direct shall promptly
notify Merit of any such infringing activity of which it becomes aware.
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12. Termination. This Agreement may be terminated only:
(a) By one party if the other party should be in default in the
material terms or provisions this Agreement, and such
defaulting party has failed to cure such default within thirty
(30) days following written notice of such default from the
non-defaulting party;
(b) By one party, if the other party: makes a general assignment
for the benefit of creditors; suffers or permits the
appointment of a receiver for its business or assets; files,
or has filed against it, an action under any state insolvency
or similar law for the purpose of seeking its bankruptcy,
reorganization, or liquidation, which action is not discharged
within sixty (60) days of such filing; enters an order for
relief under the Bankruptcy Code; or has its business affairs
wound up or liquidated, voluntarily or involuntarily.
13. Confidentiality. Confidential Information means all proprietary
data, concepts, projections, strategies, client lists, marketing plans, designs,
processes, methods of operation, innovations, and other information pertaining
to the business operations and other activities of Merit, on the one hand, and
Video Direct and its affiliated companies on the other hand. Each party shall,
during the term of this Agreement use the Confidential Information disclosed or
provided by the other party, whether orally, written, by demonstration, in
models or otherwise, only as permitted under this Agreement and shall maintain
all such Confidential Information in confidence and shall not disclose or
divulge such Confidential Information to any third party or to any of its own
personnel not having a need to know such information, provided that the parties
have informed their respective personnel of the parties' obligations under this
Section 13, and provided further that each third party to whom such disclosure
is made shall have entered into a non-disclosure agreement the terms of which
require such third party to maintain the confidentiality of the Confidential
Information. Notwithstanding the foregoing, a party shall not be liable for
disclosure of any such Confidential Information which:
(a) can be demonstrated by reasonable documentary evidence to have been
in the possession of such party prior to receipt from the other party, provided
that the source of such information was not known to the receiving party to be
bound by a confidentiality agreement with or other contractual or fiduciary
obligation of confidentiality to the delivering party or any other person with
respect to such information;
(b) is or becomes part of the public domain other than through an act
or omission attributable to employees or agents of the receiving party; or
(c) is or is made available to the receiving party by a third party
unaffiliated with the delivering party and which has no obligation to the
delivering party in respect thereof.
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Upon the termination of this Agreement, each party agrees to promptly return to
the other all Confidential Information provided by the other party hereunder,
and all copies thereof, in its possession.
14. Notices. Any notice, consent, approval, request, authorization,
direction or other communication under this Agreement ("Notice") that is
required to be given in writing will be deemed to have been delivered and given
for all purposes (i) on the delivery date if delivered by confirmed facsimile;
(ii) on the delivery date if delivered personally to the party to whom the same
is directed; (iii) one business day after deposit with a commercial overnight
carrier, with written verification of receipt; or (iv) five business days after
the mailing date, whether or not actually received, if sent by U.S. mail, return
receipt requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. Such notices shall be addressed as
follows:
If to Merit: Xxxxxxx Xxxx
President
Merit Studios, Inc.
0000 Xxxxxxx Xxxxxx Xxxxxx
XXX #000, Xxxxx 0
Xxx Xxxxx, Xxxxxx 00000
If to Video Direct: Xxxxxx Xxxxxx
Chairman
Videolocity Direct, Inc.
000 Xxxxx 000 Xxxx, #X000
Xxxx Xxxx Xxxx, Xxxx 00000
or at such other address as any of the parties hereto may specify by notice to
the other parties hereto in accordance with this Section 14.
15. Publicity. The parties shall issue a joint press release in
mutually acceptable form announcing their execution of this Agreement.
Thereafter, neither party shall issue any press release, file any report or make
any other public communication that includes the name or describes the
activities of the other party without first providing the other party with a
copy of any such proposed release, filing or communication and providing such
party with an adequate opportunity to comment thereon.
16. Assignment. None of the rights or obligations under this Agreement
shall be assignable by either party without the prior written consent of the
other party, which consent shall not be unreasonably withheld.
17. No Partnership. No agency, partnership, joint venture, or
employment is created as a result of this Agreement and neither party nor its
agents shall have any authority of any kind to bind the other party in any
respect whatsoever.
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18. Governing Law. This Agreement shall be deemed to have been entered
into, and shall be construed and enforced in accordance with the laws of the
State of Utah.
19. Expenses of Legal Proceedings. If any action, suit or proceeding is
brought by a party with respect to a matter or matters governed by this
Agreement, all costs and expenses of the prevailing party incurred in connection
with such proceeding, including reasonable attorneys' fees, shall be paid by the
nonprevailing party.
20. Severability. If any provision of this Agreement is or is deemed
invalid, illegal or unenforceable in any jurisdiction, such provision shall be
deemed amended to conform to applicable laws so as to be valid and enforceable
or, if it cannot be so amended without materially altering the intention of the
parties, it shall be stricken and the remainder of this Agreement shall remain
in full force and effect.
21. Waiver. No waiver of any right under this Agreement shall be
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future breach or failure or of any other
right arising under this Agreement.
22. Section Headings. The headings of the sections contained herein are
for convenience only and are not deemed to limit or construe the contents
thereof.
23. Authorization. Each person signing this Agreement on behalf of the
corporate party represents and warrants that he or she is a duly authorized and
acting officer of the corporation on whose behalf he or she is signing, that the
corporation has full power and authority to execute and enter into this
Agreement, and that this Agreement has been duly and validly authorized and
approved by the board of directors of the corporation in accordance with its
charter, governing instruments and the provisions of applicable law.
24. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes any and all prior agreements, understandings, promises and
representations made by either party to the other concerning the subject matter
hereof. This Agreement may not be released, discharged, amended or modified in
any manner except by an instrument in writing signed by duly authorized
representatives of both parties hereto.
25. Binding Effect. The rights and obligations of the parties under
this Agreement shall inure to the benefit of and shall bind the respective legal
representatives, successors and assigns of the parties.
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IN WITNESS HEREOF, Merit and Video Direct have caused this Amended and
Restated License Agreement to be duly executed as of the date first written
above.
Merit: Merit Studios, Inc.
A Delaware Corporation
By /s/ Xxxxxxx Xxxx
--------------------------
Xxxxxxx Xxxx
Chairman
Video Direct: Videolocity Direct, Inc.
A Nevada Corporation
By /s/ Xxxxxx Xxxxxx
--------------------------
Xxxxxx Xxxxxx
Chairman
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